Weather Upends ArcBest's Quick Start To 2021
Logistics provider ArcBest Corp. (NASDAQ: ARCB) announced in its annual 10-k filing with the Securities and Exchange Commission that severe winter weather has impacted first-quarter results.
The company's asset-based segment, which includes less-than-truckload operations, saw a strong start to 2021, with January revenue per day increasing 10.7% year-over-year as tonnage moved 6.6% higher. However, winter storms during February resulted in a reversal in tonnage trends.
Quarter-to-date through late February, billed revenue for the division was up 7% year-over-year as revenue per hundredweight, inclusive of fuel surcharges, increased by a similar amount. Tonnage for the first two months of the quarter was flat, implying poor weather resulted in a tonnage decline in February that fully offset the increase recorded in January.
Yield growth accelerated in February from the roughly 4% year-over-year implied growth rate during January. The increase in yield was accomplished even though the fuel surcharge rate was 150 basis points lower year-over-year for the period. Pricing gains and improved freight mix are driving the yield increases.
ArcBest implemented a 5.95% general rate increase on base rate LTL freight, roughly 25% of the carrier's asset-based business, at the end of January. Diesel prices have continued to move higher sequentially throughout the quarter, surpassing year-ago levels in each of the last two weeks for the first time in a year. The combination of the GRI and higher fuel, if sustained, should provide tailwinds for yields in 2021.
The filing noted additional costs incurred in association with the weather events. However, some of the cost headwinds will be offset by the sale of an idle property in the quarter. The asset-based segment recorded an $8.5 million gain on the disposal of the property compared to only $2.2 million in gains on sale in the 2020 first quarter.
KeyBanc (NYSE: KEY) equity research analyst Todd Fowler said Monday in a note to clients that he would wait to see how March shapes up before changing his earnings estimates. March accounts for a disproportionately high amount of the quarter's revenue. Fowler noted that some of the lost freight in February will slide into March but that some of the incremental weather-related costs may not be fully recouped.
He believes overall LTL fundamentals remain intact. "Aside from weather, our sense is underlying fundamentals remain generally positive, with yield trends benefiting from contract renewals, recent general rate increases and mix," Fowler added.
To hit Fowler's first-quarter tonnage forecast of +3.7%, March would have to come in roughly 11% to 12% higher year-over-year. It may be a stretch to hit that mark but the March 2020 comp, the early days of the pandemic, was barely positive at +1% before mid-teen declines took hold in April and May.
By comparison, January tonnage was up almost 7% year-over-year on a tough January 2020 comp of +5.7%.
The company's asset-light segment, excluding results from commercial vehicle maintenance and repair unit FleetNet, reported a revenue increase of 50% year-over-year so far in the first quarter. "Stronger demand and higher market prices resulting from tighter truckload capacity" were cited as the catalysts along with demand for managed transportation solutions. Purchased transportation expense as a percentage of revenue was flat year-over-year at 84%.
Chart: LTL contract rates (SONAR: LCWTF.USA)
Click for more FreightWaves articles by Todd Maiden.
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