ArcBest - Q1 2014
May 1, 2014
Transcript
Operator (participant)
Welcome to the ArcBest Corporation Q1 2014 earnings conference call. We'll have a short discussion of the Q1 results, and then we'll open up for a question and answer period. Our presentation this morning this afternoon will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of ArcBest Corporation, and Mr. Michael Newcity, Senior Vice President, Chief Financial Officer, and Chief Information Officer of ArcBest Corporation. We thank you for joining us today. In order to help you better understand ArcBest Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk.
For a more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section of the company's earnings press release and the company's most recent SEC public filings. We will now begin with Mr. Newcity.
Michael Newcity (SVP, CFO, and CIO)
Thank you for joining us this afternoon. As you can see from our press release yesterday afternoon, we have made some significant changes with our new corporate name and brand positioning. Judy will talk more about this exciting news in a bit, but the overall takeaway is that our company has an evolving story, one that demonstrates how we are much better positioned than ever before to serve customers across the supply chain. We have an expanding array of services as well as people with the attitude to go above and beyond every day to get the job done. The changes announced yesterday more clearly define our progress and our people. We have never been so excited about the opportunities within our grasp. When most people think about our company, they think about our asset-based, less-than-truckload carrier, ABF Freight.
We're happy ABF Freight has that recognition, and the ongoing hard work there has helped put that company back on a path to its historic profitability. In fact, without the effects of weather and a portion of the non-union pension settlement charge, ABF Freight would have been profitable in the Q1 for the first time in six years. This represents a substantial improvement compared to last year's Q1 operating loss of over $22 million. And at the same time, our emerging businesses, ABF Logistics, Panther, and FleetNet, generated 27% of total revenue in the Q1, and EBITDA that more than doubled. Now, here are more details of our results for the Q1 of 2014. ArcBest's Q1 2014 revenue was $577.9 million compared to $520.7 million last year.
The Q1 2014 net loss was $0.20 per share compared to a net loss of $0.52 per share last year. Including an adjustment for a pension settlement charge of $0.09 per share related to our non-union defined benefit pension plan, we reported a Q1 net loss of $2.9 million or $0.11 per share. Regarding the non-union pension settlement accounting charge, you will recall that this occurs when the lump sum distributions of the plan exceed the annual interest cost, which occurs because of the July 1, 2013, freeze of benefit accruals under the plan. First quarter pre-tax charge of $3.7 million exceeded our previously expected cost range due to a higher amount of lump sum withdrawals. This was associated with a recent plan amendment that allows for certain in-service withdrawals of vested benefit.
We expect to incur settlement accounting charges throughout 2014 with expected quarterly amounts in the range of $1 million-$2 million on a pre-tax basis. The amount and timing of these charges will depend primarily on the future lump sum distributions. These charges are non-cash and are the result of accounting rules requiring the write-off of actuarial losses. We ended the Q1 with unrestricted cash and short-term investments of $131.7 million. Combined with the available resources under our AR securitization agreement, our total liquidity equals $186 million. Our total debt of $105 million includes the remaining $81 million balance on our $100 million five-year term loan associated with the Panther acquisition and $24 million of capital leases and notes payable primarily on ABF Freight equipment. Composite interest rate on all of this debt is 2.1%.
Full details of our GAAP cash flow are included in our earnings press release. ABF Freight reported Q1 revenue of $429 million, a per-day increase of 4.5% compared to last year. ABF Freight's quarterly tonnage per day increased 4.6% compared to last year's Q1. By month, ABF Freight's January daily tonnage declined by 0.8% versus January 2013 and increased compared to last year by 5.6% in February and by 8.8% in March. ABF Freight reported a Q1 operating ratio of 102.8% compared to a 105.5% in Q1 2013, a 270 basis point improvement. Without weather and the pension settlement accounting charge, an additional 310 basis point improvement would have been realized. Regarding the weather, as we updated throughout the Q1, it had a significant impact on ABF Freight's operating results.
Most of the severe weather occurred in January and February, with a small amount occurring in March. In quantifying the estimated operating income impact of weather during the quarter, we considered the following items: lost revenue opportunities, reduced operational productivity, additional employee costs for driver pay, and lodging costs, increased costs for fuel, fuel additives, and propane, and the impact on equipment including rental costs, towing, and reduced fuel economy. The number of terminal closure days related to this year's Q1 weather was nearly 300, an increase of over 200% versus the same period last year. We estimate that weather reduced ABF Freight's Q1 2014 operating income by $10.5 million. As I mentioned earlier, without weather and pension settlement expense, ABF operating results would have been slightly profitable.
We also estimate that tonnage was reduced by 2% year-over-year because of the lost business associated with severe weather. Thus, without weather, we estimate that ABF Freight's Q1 tonnage would have increased by 6.6%. On a monthly basis, without weather, our tonnage would have increased as follows: 2.7% in January, 7.8% in February, and 9.3% in March. ABF Freight's Q1 2014 total billed revenue per hundredweight was $27.05, a slight increase of 0.7% versus the Q1 of last year. This figure was negatively impacted by profile and mix of business. ABF Freight's total weight per shipment was 1,411 pounds, 1.9% above that of last year's Q1. On a sequential basis, weight per shipment increased 6.3%. ABF Freight's average length of haul equals 1,018 miles, slightly below the 1,019-mile figure in last year's Q1.
Preliminary results for the month of April 2014 indicate that ABF Freight's total tonnage increased by approximately 6%. April 2014 revenue for ABF Freight increased by approximately 11% above April 2013 levels, reflecting an approximate 5% year-over-year increase in account pricing. However, this figure is positively impacted by changes in business mix and differences in the timing of our general rate increase compared to last year. First quarter revenues at all of our emerging businesses totaled $158 million, which represents a 31% increase over last year. On a combined basis in the Q1, these businesses produced EBITDA of $7.9 million and an approximate increase of 150% compared to a $3.2 million in last year's Q1. Panther's Q1 revenue increased 36% to $72 million. Panther reported a Q1 operating profit of $3.4 million compared to an $860,000 operating loss in the Q1 of 2013.
Panther's Q1 2014 EBITDA was $6.1 million, an increase of over 250% compared to EBITDA of $1.7 million during the same time last year. FleetNet, our emergency and preventive maintenance company, nearly doubled its Q1 operating income versus last year while increasing revenue by 28%. ABF Logistics and ABF Moving experienced Q1 revenue increases of 37% and 9%, respectively. Our continued investment in resources that we believe will support future growth and contribute to long-term profitability improvement limited the operating results of both of these businesses. Now, I'll turn it over to Judy.
Judy R. McReynolds (President and CEO)
Thank you, Michael, and good afternoon, everyone. Before turning to more specifics about the quarter, I want to take a moment to discuss some of the highlights from our corporate rebranding press release yesterday afternoon. This is a significant day for our company as we usher in a new era. In case you haven't seen it, here are some of the main points. We've changed the name of our parent company to ArcBest Corporation. We unveiled a new brand identity across the entire organization. That includes new logos, a new ticker symbol, a new ad campaign, and important updates to our positioning as one unified company. ABF Logistics, which we formed last summer to provide easier access to third-party solutions, also now includes our household goods moving business, which has been renamed ABF Moving. It's important to note that we're continuing to publicly report this segment.
Panther Premium Logistics' new name better describes what Panther offers the marketplace. Data-Tronics, our in-house IT solutions group, is now ArcBest Technologies. Why have we done all of this? As the transportation and logistics market changes rapidly, we offer an expanding array of services across the supply chain. But in many cases, people don't know that. We are connecting the dots for them and presenting ourselves to the market as a unified company bound by common DNA. We want to make sure that everyone understands that we're creative problem-solvers who go the extra mile day in and day out. For more information, I encourage you to visit our new website, arcb.com. Now, onto some additional detail about our quarter. First, the emerging business. As Michael said earlier, these companies represent a significant piece of our evolving story.
Panther had a very strong Q1 as improved demand for premium freight services contributed to tightened capacity and increased pricing. In each of the market segments it serves, Panther increased revenue and profit margins at double-digit rates, in some cases by significant amounts. Though all the business segments had encouraging Q1 results, as we saw in the Q4, automotive, high-value products, and manufacturing demonstrated the best results. In addition, Panther is doing a good job of cost management, and their operating results reflect it. Finally, Panther is benefiting from the addition of key sales and operational personnel throughout its company who are beginning to bring on new accounts and make positive contributions to the bottom line.
The breadth of solutions we bring to the marketplace in the time-definite premium logistics arena is exciting and should allow us to continue to grow with existing customers and bring on new ones. At ABF Logistics, Q1 revenue growth was the result of increased shipments for existing accounts and business from new customers who appreciate the problem-solving skills and attitude of customer care ABF Logistics offers every day. Improvements in operating profit at this company lagged the rate of quarterly revenue growth as costs associated with the addition of personnel, the enhancement of information systems, and other network resources remained ahead of the future benefits they're expected to provide. During the Q1, ABF Moving's operating results declined on increased revenue due to some sluggishness in the moving markets they serve and because of increased costs associated with investments for the future.
FleetNet had another good quarter as business in both its roadside and preventative maintenance segments continued to display healthy growth. As typically happens in the Q1, FleetNet benefited from harsh weather that contributed to a higher number of roadside event calls from existing customers. In fact, on several days in the Q1, FleetNet reported record business levels in its roadside segment. This, combined with improved pricing on a portion of its business and new customers on the preventative maintenance side, allowed FleetNet to nearly double its Q1 operating profit. Despite the impact of adverse weather conditions, primarily in the first two months of the quarter, ABF Freight made substantial progress in improving its Q1 operating results compared to the Q1s of 2013 and the last several years. Michael previously described the numerous elements of ABF Freight's network that were affected by the historically harsh weather.
However, moving through the Q1, year-over-year tonnage trends improved. ABF Freight's pricing totals for the quarter reflected marginal improvements in the midst of a positive LTL industry pricing environment. In the last week of March, ABF Freight implemented a general rate increase of 5.4% on its tariff rate, and that impacts approximately 35% of its business. On contract and deferred pricing agreements negotiated during this year's Q1, ABF Freight obtained an average increase of 4.3%. As Michael mentioned earlier, April price increase levels were positively impacted by changes in business mix and differences in the timing of our general rate increase compared to last year. Near the end of the Q1, ABF Freight completed the first phase of its ongoing network redesign that culminated in the consolidation of 30 smaller ABF Freight facilities since the beginning of July 2013.
Our goals in this process were to increase operational efficiencies and lower costs while maintaining our service footprint and improving transit times to and from these geographic areas. Based on evaluations we performed in the few weeks following these network changes, the efficiencies and cost savings to ABF Freight have surpassed our expectations. The $10 million-$12 million of estimated annual cost savings is derived from increased freight density, improved over-the-road trailer loadings, better utilization of trailer capacity, and the resulting reduction in linehaul empty costs. Additional analysis of the ABF Freight network has been ongoing and will continue throughout the remainder of the year and into next year. We are shifting from a posture of periodically reviewing the network structure to an approach that provides us a continuous dynamic review of the network in order to be in a constant state of optimization.
And now, I'd like to highlight some positive news at ABF Freight during the recent quarter. For the fifth consecutive year, ABF Freight's training department was included as one of the Top 125 for excellence in employer-sponsored training and development programs as recognized by Training Magazine. This year, ABF Freight is listed as the 11th best training program. ABF Freight focuses on comprehensive training for all of its employees, beginning with the new hire orientation and continuing throughout the employee's career. We strongly believe that equipping our employees with the right skills, both in operations and sales, helps them better understand our customers' needs and allows them to respond with unique, cost-effective solutions. I always enjoy having the opportunity to meet with many of the folks who come into Fort Smith for training from all over the country.
Their enthusiasm and positive attitudes make me proud that they represent ABF Freight each day. Finally, this week we announced that ABF Freight earned the 2014 National LTL Carrier of the Year Award from the National Shippers Strategic Transportation Council. This is the second year in a row and the fourth time in the last five years that NASSTRAC has recognized ABF Freight as the top LTL carrier. This award is determined by input from shippers. Because of ABF Freight's emphasis on listening to our customers in order to flawlessly deliver their products, a shipper award like this is especially gratifying. We've had a very busy quarter with the weather challenges, ongoing enhancements to the network at ABF Freight, and solid revenue and EBITDA gains at our emerging businesses.
We're also excited about the work we've done to tell our complete story and go to market as a unified organization known for our trusted brands and our people who are recognized as true professionals. As Michael said, the opportunities before us are bright, and we're working hard to execute on all of our revenue growth and profitability goals for the future. As our new advertising tagline clearly states, "Our people have the skill to get the job done, whatever that may be, but importantly, we have the will to go above and beyond on behalf of customers." Now, I think we're ready for some questions.
David Humphrey (VP of Investor Relations)
Michael, I think we're ready for some questions.
Operator (participant)
Well, thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speakerphone, please move your handset before entering your request. One moment, please, for the first question, which comes from the line of Chris Wetherbee. Please go ahead.
Christian Wetherbee (Senior Research Analyst)
Good afternoon. This is Seth Lowery in for Chris. I guess I could start off with if I could start off on pricing. Looks like you guys saw a pretty meaningful acceleration coming out of March into April. I'm just wondering, is there any lingering benefits on the pricing side from tighter weather, or maybe taking a bit of market share? Have you seen that same step-up on the contractual pricing side in April?
Judy R. McReynolds (President and CEO)
Well, this is Judy. I want to be sure that you picked up on something that we said as we were going through our prepared comments. As you look to April in comparison to March on the pricing side, you have to keep in mind a couple of things. One of those is that our business mix is affecting that increase level. Also, we put in the general rate increase really in the last week of March, so it affects the full month of April but not the full month of March. So when you look at that, you have to keep that in mind.
Christian Wetherbee (Senior Research Analyst)
Okay. And then maybe if I can follow up, you guys quantified the weather effects on freight during the quarter, but could you give us a sense for your non-freight businesses, what the net impact was?
Judy R. McReynolds (President and CEO)
Well, I think we had a mixed impact there if you looked at it. We had some of our emerging businesses that were affected positively. Some of them were affected negatively. And so from that standpoint, I think you have a mix of things that's happening there.
Christian Wetherbee (Senior Research Analyst)
Okay. Thank you.
Judy R. McReynolds (President and CEO)
Thanks.
Operator (participant)
I think the next question comes to the line of Todd Fowler. Please go ahead.
Judy R. McReynolds (President and CEO)
Hi, Todd.
Todd Fowler (Managing Director)
Todd, great. Thanks. Hi, Judy. Can you guys hear me okay?
Judy R. McReynolds (President and CEO)
Sure.
David Humphrey (VP of Investor Relations)
Absolutely.
Todd Fowler (Managing Director)
Okay. Great. Thank you. And David, thank you for not putting me on the blacklist. I did want to ask you about the tonnage growth that you saw here in the quarter. This is some of the strongest tonnage that we've seen from you in a couple of quarters, especially if we adjust for the weather. Judy, I'm just kind of curious to get your comments as to what you think really is kind of the driver behind that.
Judy R. McReynolds (President and CEO)
Well, I think there's a few things. One of those being that the economy seems to be a little bit better. I also think that we're positively affected with the tight capacity situation that exists out in the marketplace. Probably as a result of that economy, perhaps maybe some other things are at play there. But then really the last thing, I think, is just as we finalized our contract, the union labor contract in November of last year, I think that as we turn the page into 2014, we really don't have that issue to deal with. And I think that that helps as we have customer conversations going forward. And we're pleased that that's the case. And there's a lot to look forward to along those lines, both with ABF Freight and the other businesses that we have.
Todd Fowler (Managing Director)
Okay. That helps. And then just my second question, on the operating ratio, I mean, if we adjust it for the weather, a shade below 100 here for freight during the quarter, I think typically you've seen almost 500 basis points, probably not quite that high of sequential improvement. You've got the GRI coming in. You've got the savings from the network consolidation. Is there anything that we should think about that you may not be able to realize the normal sequential improvement from the adjusted operating ratio in the Q1 into the second quarter?
Judy R. McReynolds (President and CEO)
I think that you mentioned all of the things that we were thinking of. You're right when you think about kind of the normal sequential as you move from first to second quarter on average with what you said. I mean, that's in the range of what we've experienced in the past. And then also, you have the little bit earlier GRI effect. And we are happy to say that we've got that initial phase of the consolidation of our facilities behind us, and we're looking forward to the benefits of that for the remainder of the year, so. Michael, is there anything that you would have to add? Okay.
Todd Fowler (Managing Director)
Okay. Thank you very much for the time.
Judy R. McReynolds (President and CEO)
Thanks, Todd.
Operator (participant)
The next question comes to the line of Brad Delco. Please go ahead.
Benjamin Runkle (Analyst)
Hey, guys. It's actually Ben on for Brad. Good afternoon to everyone.
Judy R. McReynolds (President and CEO)
Good afternoon.
Benjamin Runkle (Analyst)
Congratulations on the rebranding effort. I noticed in the press release, you said there'd be some new marketing plans in addition to kind of the rebranding. For modeling purposes, is there anything we should be thinking about in terms of cost of the new marketing efforts?
David Humphrey (VP of Investor Relations)
You can all hear that. I'm not sure.
Michael Newcity (SVP, CFO, and CIO)
Hey, David. I think we've had some trouble hearing Michael.
David Humphrey (VP of Investor Relations)
Okay. I think what happened is Michael was not on.
Michael Newcity (SVP, CFO, and CIO)
I thought I was on.
David Humphrey (VP of Investor Relations)
Okay. Sorry about that.
Michael Newcity (SVP, CFO, and CIO)
I'm sorry. We have some new headsets here.
David Humphrey (VP of Investor Relations)
It was an eloquent response, by the way. And so now we'll move on, no, go ahead.
Michael Newcity (SVP, CFO, and CIO)
The numbers are going to be really immaterial. The biggest dollars you see in something like this for companies is going off and rebranding existing equipment on the road. And we're not going to do that. As we replace equipment at ABF and at Panther, we're going to have that equipment with the new branding on that. The other dollars spent on this were already internal resources. Some things we had already had planned before the rebranding, like the relaunch of the corporate website, has been on the agenda for the last couple of years to redo. So those costs are really immaterial.
Benjamin Runkle (Analyst)
Okay. Great. Thank you. And then just one follow-up. If you guys kind of think about longer-term and your focus on the non-asset side of your business, what, if any, do you think you're in in terms of investing in and growing those businesses?
Will that be kind of going forward the priority for capital allocation?
Judy R. McReynolds (President and CEO)
Well, I would say we're in maybe the first or second or just early in the stages of this in terms of our efforts to grow those businesses. We've got a great opportunity, but it is certainly the case that we're in early stages. And when you say capital allocation, that's an interesting thought when you're talking about non-asset businesses, really. I mean, when you invest in those businesses, what you typically see are additional sales efforts, IT costs, at times, operational support costs, that sort of thing. So in many cases, what you see is those are hitting your operating expense line item. And you see that actually this quarter with ABF Logistics and our moving business. So that's where you see the investment. We are focused on the investments that are needed in those businesses.
But I can tell you, coming from kind of our history of really primarily dealing with the asset-based company that we have in ABF Freight, by comparison, the investment dollars that you'll have to have in these emerging businesses is less. But on the ABF Freight side, we do plan to continue to invest in that business because that is our core business. It's the foundation of our company and many of the customer relationships that we will be growing with. And so we have really all those things going on as you look to the future for our company.
Benjamin Runkle (Analyst)
I guess I was just thinking about from an M&A standpoint.
Judy R. McReynolds (President and CEO)
Oh, good point. Yes. I mean, I think whenever we're thinking of from an M&A standpoint, if we were to make an acquisition, it would be to support those emerging businesses.
Benjamin Runkle (Analyst)
Okay. Great. Thank you, guys.
David Humphrey (VP of Investor Relations)
Yeah. I appreciate it.
Operator (participant)
The next question comes to the line of David Ross. Please go ahead.
David Ross (Group Head and Managing Director of Transportation Research)
Hey, Judy, David, Michael.
David Humphrey (VP of Investor Relations)
Hey, guys.
David Ross (Group Head and Managing Director of Transportation Research)
How are you?
David Humphrey (VP of Investor Relations)
What's going on?
David Ross (Group Head and Managing Director of Transportation Research)
Things are good. Things are good. Just trying to take no more than my 2.5 minutes here, Mr. Humphrey.
David Humphrey (VP of Investor Relations)
Hey. You've already wasted 15 seconds.
David Ross (Group Head and Managing Director of Transportation Research)
I know. I know.
David Humphrey (VP of Investor Relations)
I'll just give you a hard time.
David Ross (Group Head and Managing Director of Transportation Research)
I know. CapEx seemed a little light in the quarter versus the $90 million-$100 million expectation for 2014. Is that expected to ramp up in 2Q through 4Q, or is that going to come in a little bit lighter?
Michael Newcity (SVP, CFO, and CIO)
David, it's just timing. There were some purchases that were planned, and we're still sticking to the $90 million-$100 million.
David Ross (Group Head and Managing Director of Transportation Research)
Then after the consolidation of the 30 terminals since last summer, what's the total terminal count at ABF Network today?
Michael Newcity (SVP, CFO, and CIO)
247.
David Ross (Group Head and Managing Director of Transportation Research)
And then last question is just on the D&A line, depreciation at ABF Freight. It was down a little over $3 million year-over-year. What drove that?
Michael Newcity (SVP, CFO, and CIO)
Well, if you think about CapEx, for example, coming into 2013, we had about – we kind of stepped down a little bit somewhat in 2012 that drove that 2013. I'm sorry. Let me back up here. If you remember, in 2013, we actually had CapEx at $24 million, which is only about $3 million of revenue equipment. And it was around just the uncertainty around the labor contract. And we did not make kind of the normal round of purchases that we would have made in that period. And so that's what's causing that comparison difference.
David Ross (Group Head and Managing Director of Transportation Research)
I mean, you have fundamentally the same amount of tractors today that you did a year ago. I just wouldn't understand why.
Michael Newcity (SVP, CFO, and CIO)
They're just slightly older.
Judy R. McReynolds (President and CEO)
Well, but you do, Dave, have some that reach the point of being fully depreciated. And what we're saying is that there's a higher percentage of those than normal in our fleet. And as we move into the latter part, I mean, not the latter part, really, into as we speak, really, we're going to be taking delivery of our 2014 units. And the numbers that we're going to spend in 2014 are much more in line to actually a little bit higher than normal, but that's included in the numbers that we've already given. But I think everybody can understand with the uncertainty that we dealt with in 2013 that we just didn't have a normal CapEx year. And that ends up being a factor in our cost structure as you enter this year.
David Ross (Group Head and Managing Director of Transportation Research)
Excellent. Thanks.
Judy R. McReynolds (President and CEO)
Thanks.
David Humphrey (VP of Investor Relations)
Thanks, Dave.
Operator (participant)
The next question comes to the line of Bill Greene. Please go ahead.
William Greene (Managing Director)
Yeah. Hi there. Good evening.
David Ross (Group Head and Managing Director of Transportation Research)
Hey, Bill.
William Greene (Managing Director)
Judy, hi there, David. Judy, can you go over some details around the network realignment? I know in the press release, you talked about $10-$12 million. Is it as simple as we should think about that having a $4 million benefit in the second quarter? Does it not work that way? What are some of the puts and takes how to think about how that scales up?
Judy R. McReynolds (President and CEO)
Well, I think it is a benefit that we would gain pretty much equally as the months go by in 2014, where we've identified this. I mean, and it's something that we waited to really provide the detail of because we wanted to ensure that we saw the results really before we were out ahead of ourselves saying what they would be. We saw this kind of savings in March. And so as we gothrough the remaining months of this year, we should see an equal portion of that as we go, so.
William Greene (Managing Director)
Okay. No, that makes sense. Thank you. I want to follow up on just some of the CapEx questions there. So you're seeing some really good tonnage growth numbers. Do you feel you have enough capacity in the network at this point? Or I would assume if you keep growing at this rate, it's not too far out where we'd have to step up pretty aggressively. Or maybe you can sort of give a sense for what's latent capacity in the network.
Judy R. McReynolds (President and CEO)
Well, we think we'll be fine based on what we've disclosed already. Our tendency would be to address whatever issues we would have, perhaps in the peak season with higher utilization of rail or purchased transportation or through rented equipment rather than to add fixed costs to the network that we're not sure would be there all year long, for instance. And so with our new labor contract, we actually have more options available to us with the ability to use an increased level of purchased transportation. And we've seen an increasing use of that as we've gone through each month of the Q1. So that's a good option for us.
David Humphrey (VP of Investor Relations)
Yeah. You know Bill, another thing too on that is if we've really gotten to a crunch there, you just don't sell as many. You keep some a little longer too. So you always can have some flexibility there if you really needed to do that.
William Greene (Managing Director)
Yeah. Fair enough. All right. Thank you for the time. I appreciate it.
Judy R. McReynolds (President and CEO)
No problem, Bill.
Operator (participant)
The next question comes to the line of Ken Hoexter. Please go ahead.
Kenneth Hoexter (Managing Director and Senior Equity Analyst)
Great. Good afternoon.
Judy R. McReynolds (President and CEO)
Hey.
Kenneth Hoexter (Managing Director and Senior Equity Analyst)
If you look at the network, is there anything else that seems obvious when you look at these 30 service centers that you've shut? Anything else that any immediate steps that you'd look to add on now that you've seen the success of those?
Judy R. McReynolds (President and CEO)
Well, we are going through an optimization process as we speak. And I think I spoke to that in my prepared comments that it's an ongoing process. We do see things that we're going to be able to do in the network. We're at an early stage with some of those thoughts. And so we're not in a position to really disclose that at this point. But we see quite a number of things that we're going to be able to do to make basically our network run more efficiently and to give better service to customers. And so we're excited about the things that we're seeing. We're just at an early stage and not really ready to fully discuss those or disclose them at this point.
Kenneth Hoexter (Managing Director and Senior Equity Analyst)
Maybe you can just expand on it, then. Are there other freedoms aside from purchased transportation that you gained from the contract that you've been able to take advantage of already in terms of cost savings or maybe even more efficient operations?
Judy R. McReynolds (President and CEO)
Well, there are. It really is involved with work rule flexibility, the utilization of employees and facilities, and that sort of thing. But it's a greater ability to do those things. And we do see some benefits from where we are today relative to where we were before we finalized the contract.
Kenneth Hoexter (Managing Director and Senior Equity Analyst)
All right. Thanks for the time.
Judy R. McReynolds (President and CEO)
Thanks.
Operator (participant)
The next question comes to the line of Matt Brooklier. Please go ahead.
Matthew Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Yeah. Thanks. Good afternoon. David, I was tempted to say good morning as well.
David Humphrey (VP of Investor Relations)
I'd say it. I had it written down in front of me, and I couldn't do it. Sorry about that.
Matthew Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
It's natural. No worries. My question is regarding yield. You indicated you had some mixed changes in the quarter and also in April that had influence. I was just curious to hear or if you could talk to what were some of the mixed change factors that impacted yield and try to get a sense for what's kind of sustainable here?
Judy R. McReynolds (President and CEO)
Well, I'll tell you, as we were moving into the Q1 relative to the Q4, we had a greater influx of spot truckload business in our network. That actually worked to reduce the yield numbers that you saw in the Q1. As we moved into April, by design, by us in our actions, we've actually reduced that business because we want to be sure that we're able to best serve our regular LTL customers as we move into the busier time of the year. So that's something that we typically do. But because of the tightness in the capacity in the rest of the market, we probably saw a greater influx of that business in the Q1 than we normally would.
And therefore, as you move into April, you're seeing a bigger impact of that as we moved basically our spot prices up to address that issue. And so what you see as a negative impact on the yield figures in the Q1, you see a positive impact in the month of April.
Matthew Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Okay. That's helpful. And then just trying to get a sense for how much truckload freight you saw migrate into your network during Q1. And then it sounds like you did some things to lessen that impact during April. But I'm just curious to hear if the pace of truckload freight coming into the LTL, your network, and the industry in general, if that's kind of slowed at this point in April?
Judy R. McReynolds (President and CEO)
Well, basically, we don't separate those out. We just report total figures. And so what I'm giving you is really the color of what happened. But I can tell you we had a greater than normal effect from that in the Q1 than I mean, if you compared back to last year's kind of Q1 to Q4 relationship. And we also had a greater reduction than you would normally see when you're moving from April compared back to March. And so I don't know necessarily that I would characterize that as a market change or a weakening, for instance, of what's happening in the market. That is more proactive actions on our part to make sure that we're giving the best service that we can to our regular LTL customers.
Matthew Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Okay. Helpful. Appreciate the time.
Judy R. McReynolds (President and CEO)
Thanks.
David Humphrey (VP of Investor Relations)
Thanks, Matt.
Operator (participant)
The next question comes to the line of Scott Group. Please go ahead.
Scott Group (Managing Director and Senior Analyst)
Hey. Thanks. Afternoon, everyone.
Judy R. McReynolds (President and CEO)
Scott.
Michael Newcity (SVP, CFO, and CIO)
Hey, Scott.
Scott Group (Managing Director and Senior Analyst)
Just wanted to follow up on the yield question. Can you just remind us what percent of the business gets a GRI? And do you have a view on how well that's ticking?
Judy R. McReynolds (President and CEO)
Yeah. It's 35.
Michael Newcity (SVP, CFO, and CIO)
35.
Judy R. McReynolds (President and CEO)
Percent of our business is affected by the GRI. It's very early, but we don't have anything to report but that it's just business as usual.
Scott Group (Managing Director and Senior Analyst)
Okay. I guess, so do you think that this yield number is sustainable kind of as we make it to the third quarter and we lap last year's GRI? Trying to think about how this should impact the model for the year.
Judy R. McReynolds (President and CEO)
Well, I think that if you're looking purely at April, just consider the factors that I just suggested to you, particularly if you're looking year-over-year because there's two factors. One, that I just fully described to Matt when he asked that question about what's happening with our spot business. And then also, the effect of the GRI in the month of April is there against last year because we didn't do a GRI until May of 2013. So as you move through the year, typically, in a normal fashion, we see that discounted away to some extent. And I would expect that to continue to happen as it normally does. I'm not suggesting there'd be anything unusual about it.
But as you move through the year, it becomes less of an issue than it is purely in the month of April because it's more than a full month early.
Scott Group (Managing Director and Senior Analyst)
Okay. That makes sense. The consensus results look really good, both top line and margin. Wondering how you think whether it helped or didn't help there and maybe any thoughts on how we should think about Panther the next few quarters.
Judy R. McReynolds (President and CEO)
Well, I'm pleased to say that that's the best quarter of results that they have had since we've owned them. So we agree that they look good. And I mean, the management team there is really clicking on all fronts. And we're pleased with what they're doing. The weather does, I think, positively affect their business. There's no doubt about that. But that's not what the entire story is. In their auto vertical and in the high-value products and in the manufacturing vertical, they saw improved results above, if you will, normal. But they saw improvements in every vertical that they have. And so I think they have been affected by what's happening in that part of the business. I think the success of their sales force, their ability to find capacity at times when no one else can. And I think they're just viewed very positively in the marketplace.
This is the kind of environment that they do well in. It should be a good year for them.
Scott Group (Managing Director and Senior Analyst)
Okay. Great. Good to hear. All right. Thanks so much.
David Humphrey (VP of Investor Relations)
Thanks, Scott.
Michael Newcity (SVP, CFO, and CIO)
Thanks, Scott.
Operator (participant)
The next question comes to the line of Rob Salmon. Please go ahead.
Rob Salmon (VP and Associate Analyst)
Hey. Good evening, guys.
Judy R. McReynolds (President and CEO)
Hi, Rob.
Michael Newcity (SVP, CFO, and CIO)
Hey, Rob.
Rob Salmon (VP and Associate Analyst)
As a follow-up to Ken's earlier question about the Teamsters contract adjustments, should we think about you guys getting more of a benefit during a softer freight environment or a tighter freight environment as business volumes increase?
Judy R. McReynolds (President and CEO)
I think that when you look at the Q1, which we would characterize as our softest environment, you're going to see more benefit there than perhaps you would in the other quarters of the year. But I can tell you that based on the figures that we gave when we first announced the contract implementation, we're just really right on target with what we expected within that range. And so we're seeing the results from that be as expected. But again, because of the nature of the cost that we have, you are going to see a good benefit of that in the Q1. And we did, so.
Rob Salmon (VP and Associate Analyst)
Judy, that quote is really helpful. Then as we think about the ABF Freight segment getting back to those historical margins, obviously, you've got now the benefit of the new Teamster contract, the operational changes, and we're going to be seeing the impact of the general rate increase as well as the better contractual pricing environment. Has that changed your thoughts in terms of the timing of how quickly the company can get back there or do additional adjustments need to be made to achieve this?
Judy R. McReynolds (President and CEO)
I still think we have some adjustments to make. I mean, we're on a path, executing on a plan to attempt to get ABF Freight back to its historical profitability. But there's some execution involved in getting that done. And it is going to take some time. And I think it was right when we initially said this to say that the full realization of the contract savings will come really over a 24-month period from the date of implementation, not so much just within a 12-month period. So I think there's still more to come on that front. And then again, just in the opportunities that we see both with costs and with the business we have and our ability to grow, those are all factors that are going to contribute to the restoration of ABF Freight's historic profitability.
But there is work involved, and it will take some time.
Rob Salmon (VP and Associate Analyst)
Thanks so much for the time.
Judy R. McReynolds (President and CEO)
Thanks.
David Humphrey (VP of Investor Relations)
Thanks, Rob.
Operator (participant)
The next question comes to the line of Todd Fowler. Please go ahead.
Todd Fowler (Managing Director)
Great. Thank you for taking the follow-up. I just wanted to thank you. I just wanted to follow up. My question was on the rent and purchased transportation here in the quarter. And it looks like it was about 11% of freight revenue. And Judy, I think you made some earlier comments that you were actually seeing that increase on a monthly basis sequentially during the quarter. I guess I was curious, is the 11%, is that kind of the right number that we should think about? Was that impacted by some of the rail service disruption here in the quarter? And if that does move up, does salaries and wages then kind of trend down a little bit to offset some of that?
Judy R. McReynolds (President and CEO)
I would expect that as we use purchased transportation, that it would offset against the reduction in the salaries and wages line. The rail percentage that we saw for the full quarter was increased just a little bit. So it wasn't off. But as we moved through the Q1, we had a continuous increase in the use of purchased transportation that was included in that line item as well. And so by the end of the Q1 in March, we had about 3% of purchased transportation that we were using. The previous two months, it was 1.8. Then in January, it was just not even a percent. So that's part of what we're talking about as we're phasing in the use of purchased transportation that's allowed under the contract. And we can go up to 6%. So we've begun to use that.
David Humphrey (VP of Investor Relations)
And Todd, that's just an example of what we talked about some of this stuff, we're going to phase it over two years. And that's an example of how we're just kind of phasing in and seeing other additional opportunities to use more of that. But that's an example of the phasing-in example.
Todd Fowler (Managing Director)
Yeah. That makes sense with your last comment. And then the other one I had, Michael, do you have a depreciation and amortization full year number for freight that we should think about?
Michael Newcity (SVP, CFO, and CIO)
Yeah. It's $85 million-$90 million for the company.
Todd Fowler (Managing Director)
Okay. Very good. Okay. Thanks again for the follow-up. Thanks for the time.
Judy R. McReynolds (President and CEO)
Yeah. No problem.
Operator (participant)
We now have another question from Scott Group. Please go ahead.
Scott Group (Managing Director and Senior Analyst)
Hey. Thanks for taking it. I just want to clarify something, Judy. I thought I heard you say at some point during your prepared comments that some of the cost savings were doing better than expected. I just missed that. If you could elaborate on that. And then also, if you can just remind us the pace of labor savings that you expected from the deal and when the first wage increase starts again.
Judy R. McReynolds (President and CEO)
Okay. What I was referring to was the savings associated with the consolidation of facilities was somewhat better than we had originally expected, although we hadn't said a number publicly on that. What we're talking about is our internal projections for that number. And so I hope that clarifies that. And then I'm going to let Michael give you a refresher on the contract savings. And then we can talk about the wage increase that goes into play for the union labor contract.
Michael Newcity (SVP, CFO, and CIO)
Okay. Yeah. What we talked about before is that the net savings from the contracts in the $55 million-$65 million range on an annualized basis. And as Judy mentioned, we're kind of hitting right there in the fairway on that right now that we believe in terms of what we'd expect for those savings to be. 75% of that amount, however, is realized kind of that's around the wage reductions and vacation reductions. And that's kind of day one. The remaining 25% of that is something that we would expect to realize over the next 24 months. And we mentioned, as David mentioned, we started to see some of that in the purchased transportation benefit in the quarter as well. There's a July 1 increase of 2% on wages.
We think about that the way we look at that is we've got actually on an annualized kind of compounded growth rate the current contract we project to be about kind of 2.3%-3% annual increases when you look at wages, health, welfare, and pension. Those levels on health, welfare and pension are determined on an annual basis based on the need for that. And that compares to our prior contract, which was about 3.4%. So it compares favorably to the prior contract amount. So we should see continued benefit of that lower rate increase schedule over the next two years. And so that's another element of the contract that provides a benefit to the company.
Scott Group (Managing Director and Senior Analyst)
But that's great color. Is that what, a 2.5% increase? Is that included in the $55 million-$60 million of savings?
Michael Newcity (SVP, CFO, and CIO)
Yes.
Scott Group (Managing Director and Senior Analyst)
Or does that.
Michael Newcity (SVP, CFO, and CIO)
The way to look at the savings is, that's kind of the 55-65 is basically the cost reset of the company. And so that's the cost reset of ABF Freight and that reduction. And then as you have cost increases after that first year of savings, then our expectation is that we'll offset that with yield improvement.
Scott Group (Managing Director and Senior Analyst)
Great. Thank you, Michael.
Operator (participant)
We don't have any further questions at this time. I'll turn the call back to you. Please continue with the presentation and the closing remarks.
David Humphrey (VP of Investor Relations)
Okay. Well, we appreciate your interest in ArcBest Corporation. This concludes our Q1 earnings conference call. Thanks a lot.