Transportation and logistics provider ArcBest (NASDAQ: ARCB) reported better-than-expected third-quarter results but warned of significant margin declines across its two business segments in the fourth quarter.
Before market open on Wednesday, ArcBest posted adjusted earnings per share of $1.46, topping consensus estimates by 9 cents but down 18 cents year-over-year. Consolidated revenue reached $1.05 billion, slightly above expectations.
The company's asset-based segment, which includes less-than-truckload (LTL) subsidiary ABF Freight, reported 2% year-over-year growth in revenue per day. This came as shipment volume rose 2%, partially offset by a 1% decline in yield (revenue per hundredweight).
The yield comparison faced a tough year-ago base (+7.4% YoY in Q3 2024). Excluding fuel surcharges, yield grew only in the low single-digit percentage range this quarter.
Shipment growth was driven by two factors: daily shipments increased 4%, while weight per shipment declined 2%. Although core LTL customer volumes improved, broader manufacturing weakness contributed to lighter shipments.
The segment's shipment volumes compared against a soft base (Q3 2024 saw an 11.3% YoY decline). Monthly trends showed July up 1.3%, August up 2.4%, and September up 3.3%, but October shipments fell 1% YoY with flat yields.
October's underperformance was somewhat surprising given the easy comparison (October 2024 volumes dropped 8.7% YoY). Other LTL operators have also reported demand softening in early October.
The adjusted operating ratio (inverse of operating margin) came in at 92.5%, worsening 150 basis points YoY but improving 30 basis points sequentially. This outperformed management's updated mid-quarter guidance of flat to 50 bps worse.
Initial guidance had projected a 70 bps sequential improvement (targeting 92.1%), which would have aligned with historical seasonal patterns.
Key cost pressures driving the YoY margin deterioration included: - Labor and benefits: +50 bps as % of revenue - Purchased transportation: +80 bps - Depreciation and amortization: +100 bps
While the asset-based segment typically sees 100-200 bps margin compression from Q3 to Q4, ArcBest now expects a 400 bps decline this year due to "ongoing softness in the overall freight market." This implies the adjusted operating ratio would rise to 96.5%, worsening 450 bps YoY.
The asset-light segment (including truck brokerage) reported $1.6 million in adjusted operating income, marking its second consecutive profitable quarter after seven straight losses. However, ArcBest anticipates Q4 adjusted operating losses between $1-3 million for this segment.
ArcBest will hold an earnings call at 9:30 AM ET on Wednesday to discuss the results.