ArcBest Corporation (ARCB) Earnings Call Transcript & Summary

Good morning, and thank you for standing by. Welcome to the ArcBest Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn it over to Amy Mendenhall, Vice President, Treasury and Investor Relations. Please go ahead.

Good morning. I'm here today with Seth Runser, our President and CEO; and Matt Beasley, our Chief Financial Officer. Other members of our executive leadership team will also be available during the Q&A session. Before we begin, please note that some of the comments we make today will include forward-looking statements. These statements are subject to risks and uncertainties, which are detailed in the forward-looking statements section of our earnings release and SEC filing. To provide meaningful comparisons, we will also discuss certain non-GAAP financial measures that are outlined and described in the tables of our earnings release. Reconciliations of GAAP to non-GAAP measures are provided in the additional information section of the presentation slides. You can access the conference call slide deck on our website at arcb.com in our 8-K filed earlier this morning or follow along on the webcast. And now I will turn the call over to Seth.

Thank you, Amy, and good morning, everyone. I'm pleased to report a strong second quarter with meaningful improvement in both earnings and operating margin. These results demonstrate the progress we are making across ArcBest as we execute our strategy, improve the customer experience and operate with greater efficiency and discipline. Our performance reflects disciplined pricing, growth in tonnage from a heavier freight profile and efficiency gains. Just as important, we continue to advance the strategic priorities that will strengthen ArcBest for the long term from simplifying how we go to market and operate to expanding our digital capabilities and investing in the service and expertise our customers value. Matt will walk you through the financial results in a moment. But before he does, I want to provide you some perspective on the market environment and highlight the actions we are taking to build on this momentum. Industry capacity has continued to tighten as truckload supply exits the market. Truckload spillover into LTL contributed to modest volume gains and higher fuel prices increased revenue across the industry. We have not yet seen a broad-based inflection in industrial demand. However, recent manufacturing indicators have been encouraging with PMI readings remaining in expansion territory. Taken together these dynamics point to an environment that is gradually improving. And while conditions can shift quickly, we are optimistic about the direction of the market, while remaining disciplined in how we manage our business and allocate capital. Against this backdrop, we continue to prioritize growing profitably, maintaining yield discipline, improving productivity, enhancing the customer experience and advancing our technology road map. These efforts are contributing to our results today and reinforcing our confidence in the long-term targets we outlined at Investor Day. None of this progress would be possible without the dedication of our employees. Throughout the quarter, our teams delivered the reliable service, responsiveness and expertise our customers depend on. Their focus and consistent execution helped customers navigate an evolving environment and reinforce the trust ArcBest has earned over more than a century. I want to thank each of them for their continued commitment to our customers and to one another. That commitment to customer experience and execution is central to our strategy, and it shaped how we designed and built ArcBest View. Launched during the quarter, ArcBest View is our new digital logistics platform, bringing quoting, booking, shipment visibility and reporting together in one intuitive experience. The platform gives customers a streamlined, modern way to manage their logistics needs with access to our supply chain experts when those needs become more complex. Customer engagement continues to grow, reinforcing our belief that ArcBest View can improve the customer experience, increase digital adoption and enhance productivity for both customers and our teams. The same focus on customer experience and execution is also shaping how we operate internally. Earlier this month, we announced organizational changes designed to simplify how we go to market, strengthen coordination across the company and align our teams more closely around customer needs and operational effectiveness. As part of these changes, we are consolidating our brand structure, streamlining our organizational structure and closing select service centers in smaller markets. The affected facilities represent approximately 1% of total doors in the ABF Freight network and their operations will be consolidated into nearby locations. Collectively, the organizational changes are expected to generate approximately $40 million in annualized cost savings, while improving our ability to serve customers and scale for future growth. These were difficult decisions, particularly where employees and communities are affected, but they are necessary to create a simpler, more efficient and more competitive ArcBest for the long term. Taken together, these changes strengthen how we go to market, how we operate and how we serve our customers. Along with the launch of ArcBest View and the continued execution of our strategy, they position ArcBest to grow profitably, deliver premium experiences and build on more than a century of trusted service. I want to emphasize that these actions do not represent a change in our strategy or our long-term financial targets. Rather, they reflect the next step in delivering on them. Now let me highlight the progress we made during the quarter against our key strategic priorities. In our Asset-Based business, we continue to execute with discipline, balancing service, freight selection, pricing and network efficiency to support profitable growth. Improving market conditions contributed to tonnage growth, while our teams remain focused on moving freight through the network more efficiently and delivering the reliable service our customers expect. Technology and data are strengthening that execution. The continued expansion of our dynamic quote pool gives us greater visibility into demand and enables faster, more informed pricing and shipment decisions. This capability helps us be more selective about the freight entering our network, improve freight mix and align available capacity with the opportunities that create the most value. We also maintained strong pricing discipline during the quarter. Our general rate increase and negotiated customer renewals reflect the value of our service and our continued focus on revenue quality. Importantly, pricing remained resilient despite higher weight per shipment, which typically places pressure on revenue per hundred weight. Managed Solutions delivered another exceptional quarter with daily shipments reaching a record high. Its performance reflects a strong pipeline, expanding customer relationships and growing demand for tailored integrated logistics support. Managed Solutions continues to differentiate ArcBest in the marketplace and represents an important source of growth across our portfolio. We are also making meaningful progress against our technology road map with AI playing an increasingly important role in how we operate and serve customers. Our approach is deliberate and closely aligned with our strategic priorities. We are focused on practical applications that create differentiation, improve the customer experience and enable our people to accomplish more. Initiatives such as city route optimization and AI-enabled capacity sourcing are already delivering productivity benefit. As we expand these capabilities, we will continue to apply AI where it can strengthen our people and processes, improve decision-making and support profitable growth. As we move forward, we remain committed to making ArcBest simpler, faster and easier to do business with. That means continuously reducing complexity, improving how our teams work together and aligning resources around the priorities that will matter most to our customers. These actions are sharpening our execution today and enabling us to build a more agile, more scalable organization, one that is well positioned to deliver long-term shareholder value. With that, I'll turn the call over to Matt to walk through the financial results.

Thanks, Seth, and good morning, everyone. Our second quarter results reflect an improving operating environment and disciplined execution of our strategy. Stronger pricing, higher weight per shipment, continued growth in managed solutions and efficiency gains drove meaningful sequential improvement in operating performance and reinforced our confidence in the long-term financial targets outlined at Investor Day. Higher fuel prices also benefited the quarter, although we view that as a near-term factor rather than a contributor to our long-term targets. Before reviewing our operating results, I want to provide additional financial context on the actions Seth outlined to simplify our organization, improve our cost structure and strengthen our operating model. These actions include organizational and facility changes, consolidation of our brands and the discontinuation of the Vaux freight movement system. Collectively, we expect the action to generate approximately $40 million in annualized run rate cost savings. In connection with these actions, our second quarter GAAP results include $76.5 million of noncash impairment charges related to the Panther trade name and Vaux equipment and other assets. Separately, GAAP results included an $8.8 million noncash impairment related to office space in our Asset-Light segment. We also expect to incur approximately $6 million to $7 million of cash costs primarily for severance and employee benefits and the disposal of Vaux equipment, with most of that expected to be recognized in the third quarter. These impairment charges and other related costs are excluded from the non-GAAP results I will discuss today. Turning to our consolidated results. Second quarter revenue was $1.2 billion, up 16% year-over-year. Non-GAAP operating income was $74 million compared to $45 million in the prior year period, and adjusted earnings per share were $2.38 compared to $1.36 in the second quarter of 2025. At the segment level, Asset-Based non-GAAP operating income improved by $21 million year-over-year, while Asset-Light generated non-GAAP operating income of $6 million, a $5 million improvement from last year. In the Asset-Based segment, second quarter revenue was $784 million, up 10% on a per day basis. ABF's adjusted operating ratio improved to 90.8%, 200 basis points better than the prior year period and 650 basis points better sequentially. Daily tonnage increased 5% year-over-year, reflecting an 8% increase in weight per shipment, offset in part by a 3% decrease in shipments per day. As Seth mentioned, the continued expansion of our digital quote pool is enabling greater selectivity in the freight we bring into our network, supporting higher weight, operationally efficient shipments that contribute meaningfully to profitability. We are also seeing a modest increase in truckload-rated shipments, which is further contributing to the higher weight per shipment during the quarter. Billed revenue per shipment increased 13% year-over-year, supported by the heavier freight profile and a 4% increase in revenue per hundredweight, which primarily reflects higher fuel surcharge revenue. On the cost side, operating expenses increased for several reasons, including annual contract increases in union wage rates, higher fuel prices and purchase transportation expense and increased depreciation expense associated with our equipment investments. In July, Asset-Based daily tonnage increased 8% year-over-year, driven by an 11% increase in weight per shipment and partially offset by a 3% decrease in shipments per day. The higher weight per shipment continues to reflect changes in freight profile. Billed revenue per shipment increased 10% year-over-year, primarily reflecting the heavier freight profile, partially offset by a 1% decrease in billed revenue per hundredweight. Excluding fuel surcharge, revenue per hundredweight declined in the low single digits, primarily due to changes in freight profile. Historically, ABF's adjusted operating ratio has, on average, remained relatively consistent from the second quarter to the third quarter, excluding periods affected by the COVID-19 pandemic and the bankruptcy of a large LTL competitor. Based on current trends, we expect ABF's third quarter 2026 adjusted operating ratio to be generally in line with the second quarter. Our outlook assumes lower fuel surcharge revenue, partially offset by expected savings from the restructuring actions. Turning to Asset-Light. Second quarter revenue was $439 million, up 28% on a daily basis year-over-year. Shipments per day increased 15% as strong growth in Managed Solutions continued. Revenue per shipment improved 12%, reflecting higher rates associated with tightening capacity and increased fuel costs. We also made meaningful progress on productivity and costs. Selling, general and administrative expense per shipment declined 12%, driven by productivity initiatives and the higher mix of managed business, which carries a lower cost to serve. Employee productivity reached another record with shipments per person per day increasing 35%. Together, the improvements in revenue, yield and productivity resulted in Asset-Light non-GAAP operating income of $6 million for the quarter, a $5 million improvement from the prior year period. In July, Asset-light daily revenue increased approximately 28% year-over-year, driven by a 19% increase in revenue per shipment and a 7% increase in shipments per day. Higher revenue per shipment reflects a stronger pricing environment, including the effects of higher fuel surcharge revenue and tightening truckload market capacity. Shipment growth was led by the Managed Solutions business. Looking ahead, we expect third quarter non-GAAP operating income of approximately $6 million to $8 million. This outlook reflects continued pricing discipline, productivity improvements and anticipated cost savings from our restructuring actions. Turning to capital allocation. Our priorities remain unchanged. We will continue to invest selectively in opportunities that support profitable growth and attractive long-term returns, while maintaining a strong balance sheet and financial flexibility. Returning capital to the shareholders also remains an important part of our balanced approach. Overall, our second quarter performance demonstrates the progress we can make as market conditions improve and we execute with greater efficiency and discipline. We are encouraged by the improvement in industry fundamentals, the progress across both operating segments and the actions underway to improve our cost structure. Combined with our strong balance sheet, these factors reinforce our confidence in our ability to drive profitable growth and make continued progress towards the financial targets outlined at Investor Day. With that, operator, we are ready to open the call for questions.

So your first question comes from the line of Brian Ossenbeck of JPMorgan.

Just a quick clarification first for Matt. I know the fuel impact is transitory, but what was the impact in the quarter for ABS OR? And sort of where do you expect that to be in 3Q? Has that sort of wash itself out? And then just stepping back, looking at the trends into July, it seems like they're accelerating across the board for ABS. So it doesn't sound like you're seeing or expecting a big inflection or getting a lot of truckload spillover just yet. So what do you think is causing that? And how do you feel about your ability, capacity to continue to grow here while maintaining service or even improving it?

Yes. Thanks, Brian. I'll get started on your second question and then turn it over to Matt on fuel to answer some of that. So the way I think about July and just our third quarter outlook is really we look at our historical trends and tonnage generally sequentially from June to July decreases about 4.6%. We're down only about 1%. Shipments generally decreased less than 0.5%, right around 0.5%. We're in line with that. Weight per shipment generally goes down about 4.1% in our history, and we're down about 1%. So that's all good signs that we're seeing improvement in the sequential trends versus history. When we look at our dynamic shipments, they are trending a little heavier, which is contributing to that stronger tonnage. A lot of that has to do with the mix that we've seen as we've expanded that quote pool like we talked about at Investor Day. So, we really expect ABF's third quarter adjusted OR to be generally in line with the second quarter, which aligns with history. And like we said in our prepared remarks, that outlook really reflects lower fuel surcharge revenue. We have unionized wage increases in HWP in July. We have some nonunion increases going in as well. So -- but it also reflects the savings from those restructuring changes that we talked about. Really, the reason that we did the restructuring changes is to simplify how we operate, make it easier for customers to do business with and ultimately accelerate that profitable growth and the cross-sell opportunities that we have. When I look at our pipeline, it continues to be strong. When we see PMI and the different indexes, it's showing some underlying positive things, but we just haven't seen that demand show up yet. But really, the way I look at it is we focus on things in our control, and we're positioned to take advantage in any environment. So I'll turn it over to Matt to talk about fuel.

Yes. Hey, Brian, so just thinking about the first quarter to the second quarter sequential change, just looking back at continued history, we always see meaningful improvement from the first quarter to the second quarter, about a 350 basis point improvement on average. Certainly, with the dramatic rise in diesel prices during the second quarter, that did have an impact on our revenue, but certainly also had an impact on our cost structure as well. And it does impact items even above and beyond the -- just the cost of fuel certainly carries over to purchase transportation, other maintenance costs that we're seeing. There were also other nice drivers for the quarter, including the improvement in weight per shipment that we talked about on the call, certainly pleased to see that trend. The nice pricing performance that we saw for the quarter was also an impact. And then just saw continued improvements on the productivity side, if you look on a sequential basis from the first quarter to the second quarter, which is generally what you see just as we move out of weather impacts in the first quarter and see just more shipment density in the second quarter. So a number of different contributions for the quarter that I would highlight, but fuel was definitely one of them.

And sorry, how should we think about that in 3Q? Just kind of a similar factor just going the opposite direction where fuel maybe becomes a bit of a headwind, but you still have all these other tailwinds. So, just thinking it more holistically.

Yes. So we're always looking at the outlook for fuel prices. So we look at the short-term energy outlook from the Department of Energy. We also look at futures prices just to get an idea of where the market is headed. Certainly, that has moved back and forth here over the last couple of months. Just based on our latest read as we were setting guidance, it looked like we're going to be down a little bit in the third quarter on prices versus what we realized in the second quarter. We did bake that into our outlook. But even when you take that into account, we still feel comfortable with the flat guide that we gave for flat sequential performance for the Asset-Based business.

Your next question comes from the line of Ravi Shanker.

This maybe a 2-parter as well. Seth, first for you, can you just unpack the trigger for the action -- the restructuring actions right now on the cusp of the cycle and especially focus on the Vaux retirement because I know that was a big initiative for you guys. And kind of Matt, as a follow-up, just with the PL talking about the potential for getting the biggest rate increases ever, what do you think is the opportunity for you guys to kind of push on yield? Do you think you can get maybe pushing double-digit rate increases kind of going in the next bid cycle?

Hey, Ravi, thanks for the question. This is Seth. So the organizational changes that we announced a few weeks ago, really, they were designed to simplify ArcBest improve efficiency, enhance the customer experience and really allow us to deliver on long-term profitable growth. So, I said it in my prepared remarks, it's not a change in strategy. It's really an acceleration of what we outlined at Investor Day and really reflects that next phase in building a more integrated, scalable and efficient company. So, over our history and throughout this entire freight recession, we've continued to invest in technology, process improvement, commercial transformation and our people alike. So these recent actions really allow us to capture the full value of those investments by simplifying how we go to market, and we believe it's also going to improve the customer experience. We're bringing the brands together like we talked about. We're also streamlining portions of our organizational structure really to reduce duplication, improve decision-making, standardize some of those best practices and really better align our resources around the highest value opportunities. So, when you look at the actions that we took, we think it's going to improve customer experience and efficiency, like I said. And then the action on the ABF side, where we reduced about 1% of total doors, we still have 8% more doors than we had in 2021. So we believe we're still positioned for growth as the market starts to inflect positively. So we really believe these actions are about just creating a simpler ArcBest, improving customer experience, increasing efficiency and really positioning the company to deliver long-term sustainable growth and long-term shareholder value creation and it really enhances what we outlined at our 2028 Investor Day target. So then Matt, I'll turn it over to you.

Yes. So Ravi, looking on the truckload rate side, I would say your comment about double-digit increases. I'd say that's generally in line with our near-term expectations, low double-digit increases. Certainly, we're very pleased with the Asset-Light performance that we saw for the quarter with over $6 million of operating income, a $5 million year-over-year improvement. We are seeing some of those benefits from higher truckload rates, accruing to the benefit of expedite. Certainly, that tightening capacity is really helping demand for expedite services, the margins that we're seeing in that business. We are seeing those prices coming up in our truckload business and seeing some of the impacts there, particularly as it relates to our contractual business. And then just the continued growth in Managed Solutions has been a big help in that business as well.

Your next question comes from the line of Chris Wetherbee of Wells Fargo.

Maybe if you could touch on the pricing environment a little bit. I know, I guess, yields ex fuel are down a bit, but clearly, different freight profile, weight per shipment up significantly, and we're seeing some of the volume dynamics maybe come in a bit better than seasonality as you noted for the month of July. So can you talk about sort of pricing and how you think about the direction here? Are we seeing a degree of improvement? I know contractual rate increases is one measure to look at. So how do you think about broadly pricing?

Yes. Hey, Chris, this is Eddie. Yes, I mean, we're really happy with where we are from a pricing standpoint. If you think about where we were last year and how we really started to focus on improving our LTL margins, we started seeing that show up in the first quarter. And as we went into the second quarter, really excited to see that 5.8% annual negotiation increase number. We also implemented a general rate increase on June 22nd of 5.9%, and that's holding very well. You did point out that when you look at revenue per hundredweight, it shows slightly down, and that's really just a story of business mix and a heavier profile that's showing up in our system. Obviously, we do feel like we can continue the momentum that we have right now, and that's really our expectation as we go into the third quarter.

And your next question comes from the line of Jason Seidl of TD Cowen.

I want to go back to the spillover business from the truckload side. If we look back, how much in terms of tonnage growth do you think you lost over the last couple of years, just so we can sort of try to conceptualize what there is the gain going forward? And then the other question I have is related to sort of the historical MoLo business. What changes have you guys made sort of post the Scottish Montgomery decision? And how should we think about insurance costs going forward?

Hey, Jason, this is Seth. I'll take both of those questions. When we think about the truckload migration to LTL, we're seeing modest improvements there where that freight is coming over. It's hard to give you an exact gauge of what the total or historically what that's going to be. Generally, we look in the shipments that weigh heavier than 10,000 pounds, and that's where we're seeing some improvement in that space. But as truckload capacity continues to exit the market as carriers continue to be pressured by margins, the Montgomery case, elevated fuel prices, all the things that you just mentioned, we believe a lot of those certain heavier, more complex shipments that historically have moved in an LTL network will start to shift back, and we're seeing the early signs of that. When you think about truckload multi-stops, that's just not in their wheelhouse, especially when freight rates improve. So I'm really pleased that we've continued to invest in our network, our fleet, our service capabilities throughout this entire cycle, which I think really positions us great for when the freight patterns start to normalize and those opportunities really do start to shift back to us. So while it's still early, we believe the combination of that tightening truckload capacity and just improving freight fundamentals overall is going to make it so it's going to shift that freight back over to us. In terms of Montgomery and everything that's going on there, it's obviously an evolving situation. Really, to me, the Supreme Court decision provides just that additional clarity around the legal framework for broker carrier selection and claims and reinforces the importance of strong safety, freight compliance, carrier oversight practices across the industry. We think that's going to take some time to develop as insurance providers and shippers and carriers and brokers, everybody just evaluates the ruling and determines whether any changes to requirements, contracts, things like that are necessary. But safety and disciplined carrier selection has always been a part of ArcBest and how we operate. We maintain really a structured risk-based approach to third-party carrier onboarding and qualifications. We have ongoing monitoring to make sure that everything is on the up and up. And we believe those are important capabilities when we partner with our customers in managing our risk and their risk. So, when you think about over time, it's really going to favor organizations that have well-established processes like ArcBest, have scale, have technology and dedicated risk management teams, which we have all of those things. So there's going to be continuing discussions around insurance costs and litigation trends, and I think we're still a little early there. But we've been doing it the right way for a long time with strict processes around carrier vetting. So at this time, we don't expect any change in our outlook and what we're doing. We're going to continue to monitor as the landscape evolves.

Your next question comes from the line of Jordan Alliger of Goldman Sachs.

I'm not sure if you discussed this fully. But on the restructuring plan, can you talk about the expected pacing of the realization timing? Is there a spread of that $40 million between Asset-Light and the less than truckload that you could talk about? And then is this augmentative to your longer-term targets from the Investor Day?

Hey, Jordan. It's Matt. So yes, I'll walk you through that at a high level. So in terms of the realization, we realized about $2 million of that cost savings in the second quarter. We expect to recognize about $6 million of that in the third quarter. And then we expect to be at that full run rate of $10 million a quarter or $40 million a year by the first quarter of 2027. And then just thinking about how that breaks down across the business of the $40 million, about 75% of that is associated with our asset-based business. Then on that remaining 25%, about 80% of that is associated with the Asset-Light business and then a small amount around $2 million is associated with our Vaux operation. And as you probably recall, those are expenses that we have historically removed from earnings on a non-GAAP basis. And so just thinking about non-GAAP impact, the non-GAAP impacts -- full impact is going to be around $38 million with the majority of that again concentrated in the Asset-Based business. And then when you think about our long-term targets, I would say these actions that we're taking really just further our view on the achievability of those targets and they're really more in support of them than something that we're viewing as incremental to them.

Your next question comes from the line of Scott Group of Wolfe Research.