ArcBest - Q1 2017
May 5, 2017
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by, and welcome to the ArcBest First Quarter 2017 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded today, Friday, May fifth, 2017. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead, sir.
David Humphrey (VP of Investor Relations)
Welcome to the ArcBest Corporation First Quarter 2017 Earnings Conference Call. We will have a short discussion of the first quarter results, and then we'll open up for a question-and-answer period. Our presentation this morning will be done by Ms. Judy R. McReynolds, Chairman, President, and Chief Executive Officer of ArcBest Corporation, and Mr. David R. Cobb, Vice President, Chief Financial 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 Forward-Looking Statements section of the company's earnings press release and the company's most recent SEC public filings.
In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Ms. McReynolds.
Judy R. McReynolds (CEO)
Thank you, David, and good morning, everyone. As you know, the first quarter is typically our most challenging of the year. While bringing some unique aspects into play, this one was no exception. Although we made progress with our strategy to better serve our customers, our non-GAAP results were essentially flat with last year. It is also worth noting that our comparison to last year includes a $2 million increase in ongoing technology and innovations investments. Those costs are shown in the Other and Eliminations line item. With respect to first quarter, clearly, we have more work to do to achieve the results we expect to see. At a high level, the stock market posted some initial strong results as the new administration took over in Washington, but economic growth was inconsistent throughout the quarter.
We have yet to see a pattern of solid, sustainable activity on that front, as the various economic statistics that we track remain somewhat volatile. However, we are cautiously optimistic when we see signs that the macroeconomy is improving. Consistent with recent quarters, on the asset-based side of our business, we continued to see smaller weight per shipment, but increases in shipment counts. We are a trusted partner for customers that require residential deliveries, and as a result, we've seen tremendous growth in this area. Our goal is to provide value while more effectively managing our costs, and we have a number of initiatives in progress to address that goal. We view these customers and shipments as a great opportunity, but one that requires us to continually adapt our services and shipment charges in order to offer a superior customer experience that results in acceptable profit margins for our company.
On the ArcBest asset-light side, a degree of weaker demand, particularly in the truckload sector, continued to weigh on results. We were pleased with the performance of our expedite offerings, but our dedicated truckload and international service lines produced operating results that were below our expectations. Our asset-light services provide a great opportunity for growth and improved profits, and our sales force is focused on that opportunity. Our enhanced market approach, under which we now offer most of our services as ArcBest, became fully operational in the first quarter. We've received positive customer feedback from this initiative, and our discussions with our customers are on a deeper level than ever before. Importantly, by being able to provide the full scope of supply chain solutions that our customers need, the asset-based business that would have gone elsewhere is now coming back to us as one part of a multilayered solution.
These are all very encouraging developments that lend confidence to our sales, customer experience, and operational efforts across the entire organization. It's also noteworthy that the cost savings associated with this initiative met our expectations in the first quarter. Now I'll discuss more details about our service offerings. First quarter revenue for ArcBest asset-based LTL services improved versus last year because of increases in shipment count and higher average revenue per hundredweight. Stronger pricing metrics were associated with increases in fuel surcharge and shipment profile changes, including reductions in average weight per shipment. While seeking to obtain compensatory prices on the final mile shipments we've added, we are also managing pricing opportunities on spot-rated truckload shipments that positively contribute to revenue growth and operational efficiency. Industry pricing was consistent with recent quarters and continues to be competitive but rational.
ArcBest yield management team is obtaining price increases on existing accounts during normal annual renewal periods and in out-of-cycle periods for accounts not currently meeting acceptable profitability thresholds. Negotiations on contractual customer agreements remain challenging, but the results ArcBest has achieved are good. ArcBest is actively seeking new business, but at pricing levels that offer the opportunity for profitable returns.... Continuing a trend we've experienced for several quarters, LTL shipments grew at a healthy pace that exceeded the rate of tonnage change. The total asset-based productivity showed a slight first quarter improvement. The additional shipments and the associated decrease in average weight per shipment I previously discussed, impacted dock and city handling costs, as well as cartage costs, and therefore, profitability.
Our asset-based line haul operation gained benefit from utilizing a positive combination of various transportation resources, which resulted in a reduction in empty miles in the first quarter compared to the same period last year. We began taking delivery of our new replacement tractors late last month, which should positively contribute to reducing the age of our road and city fleets while offering improved fuel economy and lowering our equipment maintenance costs. We monitor our expenses in these areas and believe there are opportunities to achieve an improved total cost of ownership as we experience the benefit of our investments. Non-union asset-based healthcare costs increased during the first quarter. We believe the investments we've made throughout ArcBest in health screenings, disease prevention, education, and encouraging positive lifestyle changes with many of our employees will ultimately yield future reductions in these costs.
We continue to benefit from personnel added from long-established new employee training programs in our asset-based business. Our driver development program and our Teamsters Military Assistance Program have been good sources of new, engaged employees who are making positive contributions to our asset-based operations. The improvement in ArcBest's first quarter asset-light revenue was the result of incremental business in our dedicated truckload services segment. You will recall that we acquired that business last September. We also benefited from increases in expedited revenue associated with higher revenue per shipment. These revenue increases were offset by lower business levels in truckload and other asset-light segments associated with reduced demand.
In spite of a slight decline in the number of shipments handled during the quarter, the rise in ArcBest's expedited revenue was related to an increase in average revenue per shipment associated with greater length of haul and an increase in average revenue per mile. Net revenue margins were below last year, as the increase in purchased transportation mileage rates exceeded the increase in rates charged to our expedited customers. Due to reduced customer demand, fewer shipments were handled by ArcBest truckload service line, which impacted net revenue totals and profitability. As was seen in our expedite business, net revenue margins were pressured by higher costs for purchased transportation relative to rates charged to customers. The addition of dedicated truckload services contributed positively to this quarter's asset-light revenue growth.
However, the volumes and margins in this business were lower than we expected because of record precipitation in the Northern Nevada region, where much of this business is handled by our company. We are pleased with the positive prospects our dedicated business offers us, and we're capitalizing on opportunities for internal operational collaboration between our asset-light, dedicated, expedited, and truckload services. This collaboration among our service offerings is positive for customers as well. Versus a strong business and margin environment last year, ArcBest international business handled fewer total ocean shipments that moved at lower net revenue margins, thus impacting operating results. The ocean shipping market disruption that occurred through much of last year continued to impact ocean container capacity and lower industry margins. On a combined basis, our dedicated truckload and international business first quarter margin contribution missed our expectations by nearly $1 million.
Versus last year, FleetNet's reduced revenue for the quarter was driven by fewer roadside events. Despite the lower top-line figure, FleetNet's operating income was comparable with last year due to cost controls and the improved productivity of its customer service personnel. And now I'll turn it over to David Cobb for a brief discussion of the earnings results.
David R. Cobb (CFO)
Thank you, Judy, and good morning, everyone. Let me begin with some consolidated statistics on ArcBest. First quarter 2017 consolidated revenues were $651 million, compared to $621 million in last year's first quarter, an increase of 4.8%. On a GAAP basis, we had a first quarter 2017 net loss of $0.29 per share, compared to a net loss of $0.24 per share last year. As detailed in the non-GAAP reconciliation table in this morning's earnings release, the adjusted first quarter 2017 net loss was $0.22 per share, compared to $0.23 in the same period of 2016. The adjustments taken in first quarter 2017 included $1.6 million, or $0.04 per share, related to our enhanced market approach that was implemented beginning in January.
We currently expect to incur approximately $1 million of additional restructuring costs in the remainder of 2016, of 2017, excuse me. ArcBest's first quarter effective tax rate was a benefit rate of 41.4%, essentially in line with our full year expected range of 40%-41% under the current tax law. As we saw throughout 2016, our reported first quarter results were adversely impacted by increased healthcare costs. Versus the same period in 2016, total corporate healthcare costs increased $1.3 million, or approximately $0.03 per share on an after-tax basis. This included an increase on asset-based, non-union employees of approximately $800,000. The increase in these costs were the result of higher claim severity.
We did not purchase any ArcBest stock during the first quarter, but under our existing repurchase program, we have approximately $38 million of purchase availability. We ended the first quarter with unrestricted cash and short-term investments of $139 million, combined with the available resources under our credit revolver and our amended receivable securitization agreement and their associated accordion features. Our total liquidity equaled $366 million at the end of the first quarter. Our total debt at the end of the first quarter of $227 million includes the $70 million balance on our credit revolver, the $35 million borrowed on our receivable securitization, and $122 million of notes payable and capital leases, primarily on equipment for our asset-based operation.
The composite interest rate on all of our debt is 2.4%. Full details of our GAAP cash flow are included in our earnings press release. ArcBest reported asset-based first quarter revenue of $464 million, a per day increase of 4.9% compared to last year. We had 64 working days in first quarter 2017, compared to 63.5 working days in last year's first quarter. Asset-based quarterly tonnage per day decreased by 0.7% compared to last year's first quarter. For first quarter 2017 by month, asset-based daily tonnage versus the same period last year, decreased in January by 1.1%, decreased 0.8% in February, and decreased by 0.3% in March. First quarter total shipments per day increased by 5.7% compared to first quarter 2016.
Total asset-based weight per shipment was 1,008 pounds, a 6% decrease from last year's first quarter and flat with fourth quarter of 2016. Average length of haul on asset-based shipments increased 1.5% to 1,031 miles, compared to 1,016 miles in the first quarter of last year. On a sequential basis versus fourth quarter, length of haul declined a little over 1%. First quarter total billed revenue per hundredweight on asset-based shipments was $29.47, an increase of 6.3% compared to first quarter of last year. Year-over-year comparisons of this yield figure were positively impacted by higher fuel surcharge and changes in shipment profile and business mix.
Excluding fuel surcharge, first quarter billed revenue per hundredweight on asset-based LTL freight had a percentage increase in the low single digits. We secured an average 3.9% increase on asset-based customer contract renewals during the quarter. That average increase was slightly higher than both last year's first quarter and the recent fourth quarter. In total, our asset-light businesses had revenue of $193 million, a 3.9% increase over last year's first quarter. On an adjusted basis, first quarter operating income for these businesses totaled $2.8 million, and adjusted EBITDA totaled $6.3 million, compared to adjusted operating income of $1 million and adjusted EBITDA of $4.7 million in the prior year quarter.
Preliminary asset-based results for the month of April versus April 2016 were as follows: Daily billed revenues increased approximately 7%. Total tonnage per day increased approximately 1%, with LTL tonnage slightly stronger. On a sequential basis versus March, April tonnage trends are above the historical average. Shipment counts increased approximately 6%. Consistent with the trend we've seen for several quarters, we are continuing to see a lower average weight per shipment on a year-over-year basis, which is reflective of our growth in residential deliveries. Total revenue per hundredweight increased approximately 6%, was positively affected by higher fuel surcharges and changes in freight profile and account mix. On a historical basis, the average sequential change in ArcBest asset-based operating ratio in the second quarter versus the first quarter, has been an improvement of approximately 500-600 basis points.
On a combined preliminary basis, April 2017 revenue from our asset-light businesses was flat compared to April of last year. The logistics portion of the asset-light business shows single-digit revenue growth on a year-over-year basis, primarily due to increased demand for expedite services and dedicated revenue in this year due to the LDS acquisition in September of 2016. In April, as we, as we've seen for several months, FleetNet experienced double-digit revenue declines compared to last year due to fewer customer events. Consistent with the recent first quarter, for the remainder of 2017, the quarterly loss reported in the Other and Eliminations line is expected to approximate $4 million per quarter. This includes the technology and innovations investments Judy mentioned in her introduction. Keep in mind the previous information I shared on our expected 2017 interest expense and those costs in this recent quarter.
Net interest expense is expected to total approximately $4.5 million for the year, generally occurring in similar amounts each quarter. This net interest expense estimate does not include changes in cash surrender value, which are reported in the other net line of our income statement, which we had in the recent quarter. We consider changes in cash surrender value to be non-operating items and therefore excluded from our non-GAAP presentation. Now I'll turn it over to Judy for some closing comments.
Judy R. McReynolds (CEO)
Thank you, David. For the eighth consecutive year, the employee training program operated by ABF Freight was included as one of the Training Top 125 for excellence in employer-sponsored training and development programs, as recognized by Training Magazine. We were ranked as the 13th best training program this year. Most every week, here in our Fort Smith corporate headquarters, we host a variety of training classes in the areas of operations, sales, leadership, computer skills, and the quality process. I always enjoy getting to meet our folks while they're here for training and learning about their experiences and customer success stories from around the country. As I indicated to you last quarter, we were cautiously optimistic at the time on our outlook for 2017, and I'd say that we remain so now despite some sluggishness in the first quarter.
Structural economic reforms remain on the agenda, including tax policy, regulatory relief, and increases in infrastructure spending. We believe that progress in these arenas would provide meaningful catalysts for the economy and for our business. As a side note, one of our ABF Freight drivers, Ralph Garcia, had the opportunity to go to Washington in the first quarter as the American Trucking Associations represented the many needs of our industry, including healthcare reform, to the new administration. We were proud to have Ralph represent the incredible standards for safety and professionalism for which ABF Freight is known. Meanwhile, we have many initiatives underway at ArcBest that will benefit our customers and provide them with the best possible experience available.
These include implementation of systems that provide a single view of the customer, marketing efforts to expand lead generation, many IT efforts, including tools to help with the workload visibility and decision-making, as well as line haul and street optimization tools. Finally, I believe some of you may have seen our new advertising campaign in The Wall Street Journal and other financial and trade publications. With Welcome to Simplistics, we are highlighting ArcBest's unique ability to simplify and uncomplicate even the most complex logistics challenges that our customers face every day. We do that with people who have the skill and the will to get the job done. We're ready to take some questions now, I think, David.
David Humphrey (VP of Investor Relations)
Okay, Leila, I think we're ready for some questions.
Operator (participant)
Definitely, sir. Thank you. Ladies and gentlemen, if you'd like to register a question, please press the one followed by the four 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 one followed by the three on your telephone. If you're using a speakerphone, we ask that you please lift your handset before entering your request. One moment, please, for the first question. Our first question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Christian Wetherbee (Analyst)
Hey, thanks. Good morning.
Judy R. McReynolds (CEO)
Good morning, Chris.
David Humphrey (VP of Investor Relations)
Hey, Chris.
Christian Wetherbee (Analyst)
Hey, wanted to touch base on the asset-based side and really sort of get an understanding of, you know, the weight per shipment. I think the residential delivery is picking up a part of that, but sort of get a sense of how you can manage that sort of business mix as it's evolving a little bit more residential relative to the cost associated with it. So it seems like there was maybe a little bit more cost in the quarter than we were expecting. So just wanna get a sense of maybe how we should see that playing out as that business grows over the course of the next year or two.
Judy R. McReynolds (CEO)
That's a great question, Chris, and one we've been very focused on this quarter ourselves. We've seen a tremendous amount of growth in our non-U-Pack residential shipments, really since, say, the November-December timeframe last year. For instance, in the first quarter, we saw those shipments grow 40%. And if you were to look at January, February, and March, it was kind of uneven how those shipments grew. And so one of the challenges that that presents to us is operational tactics that work best for that business. And so that's something that we've been very focused on. We have some locations that have absorbed that and worked very well with it, and we've had others where it's presented more of a challenge.
In some cases, when there's been a challenge, we've had to use more expensive cartage costs to help us deliver the service, you know, that we promised to the customer. And that's not to say that cartage is necessarily a bad answer, but I think whenever you have to work through the options, you wanna be sure and plan ahead with that. And so, you know, again, that's a focus, and the operational tactics that work well for this business and the locations that are affected have really been on our radar screen since we started to see this increase. The other side of it is to ensure that as we're seeing this business, that we're getting the appropriate pricing on it for the effort and the value that we're providing to the customer.
As I mentioned, we see this as a tremendous opportunity, but we do have to be sure that we have really the kind of yield management over the entire situation in mind, and we're, you know, we're working toward that. We've worked with some customers since we started to see these increases, you know, to ensure that that value that we provide is aligned with the prices that they're paying. But I hope that helps. Anyway, I'll stop there.
Christian Wetherbee (Analyst)
Yeah, no, that does help quite a bit. I appreciate that. And then just as a follow-up here, when I think, you know, in relation to what you're talking about there and the growth in that business, when we think about sort of the inflationary pressures on your operating expenses, should we be more focused on sort of the shipment side versus the tonnage? Historically, I've looked a little bit more at tonnage, but based on what we're talking about, maybe, you know, shipment growth might be a better proxy. I just wanna get a sense, maybe, you know, some of the big line items, how we should be thinking about inflationary pressures if they're different from what we've been used to.
Judy R. McReynolds (CEO)
Certainly, the shipments drive our labor, and you know, that's, that's really how that's managed even. You know, if you think about productivity, you know, the, the shipments is the focus. The shipment levels are the focus there. And although we do know, you know, that we need, you know, to ensure that the revenue per shipment is in the right place, you know, for those shipments. But yes, that is something that is in the modeling, you know, you have to do because of how those activities arise.
Christian Wetherbee (Analyst)
Okay. That's helpful. Thanks so much for the time. I appreciate it.
Judy R. McReynolds (CEO)
Thank you.
David Humphrey (VP of Investor Relations)
Thanks, Chris.
Operator (participant)
... Our next question comes from the line of Ken Hoexter with Merrill Lynch. Please proceed with your question.
Ken Hoexter (Analyst)
Great. Good morning.
Judy R. McReynolds (CEO)
Good morning.
Ken Hoexter (Analyst)
Judy, maybe I could just revisit your last commentary there. But you noted in your release you're singularly focused on improving customer service. Just want to understand that a bit, because I want to understand why aren't you singularly focused on maybe in this environment, cutting costs, making money, given if the pricing is not properly aligned or fixing that part to get the profits up?
Judy R. McReynolds (CEO)
Well, I mean, I think that you saw our efforts in that area, when we announced our enhanced market approach back in November, Ken. And, you know, what I'll report to you there, that the costs that went along with creating a better customer experience, you know, really are on par or on pace with what we expected them to be. So, you know, when you, there was a tremendous effort that went into unifying our sales force, our yield management function, our customer solutions function, and putting together, you know, the operations of our asset-light business. Those were all moves, you know, that you make to enhance the customer experience, but they're also cost efficiency moves as well. So we are focused on that. But we think that they're-
Ken Hoexter (Analyst)
No-
Judy R. McReynolds (CEO)
That we see them as one and the same.
Ken Hoexter (Analyst)
Yeah, I don't disagree. I guess what just struck me is the comment that you were singularly focused on improving customer service. Given all that you were talking about on the cost side, it, I don't know, it may be just a singular focus on maybe the advertising you mentioned, the journal, the other things just seem to be a little off. But let me jump to the other stuff. Maybe Dave, a question for you on what has slowed within the non-asset side? Maybe it just because you've combined them, I can't really see the Panther, the brokerage, the moving. Where did you see that slow? Was it the expedited demand down because of the weak market, or is it the brokerage side because of the compressed margins that Judy talked about?
Judy R. McReynolds (CEO)
Well, I think... Yeah, go ahead.
David R. Cobb (CFO)
Well, I'll just say-
Judy R. McReynolds (CEO)
Yeah.
David R. Cobb (CFO)
The expedite side, just to clarify there, you know, and Judy mentioned that expedite, you know, was better. It was actually positive, you know, and even in light of a softer, maybe auto sector. But increased miles on the expedite business. Really, if you look at, you know, our release, you can see that, the stats there, and you can see some of the pieces that are in there. But with shipments down on the expedite side, but really, the revenue in total was positive. The truckload and dedicated business was, you know, obviously, the revenue was impacted by the acquisition in 2016, in September. But on the truckload side, and Judy mentioned this, shipments were lower.
But the other thing, and you mentioned this, was the compression of the margins, which was seen by many of the logistics businesses and companies that have reported. You know, ours was compressed as well, but probably not to the extent as some of the other companies out there.
Ken Hoexter (Analyst)
Just a quick one-
David R. Cobb (CFO)
Yeah, the other couple of things—
Ken Hoexter (Analyst)
Oh, yeah.
David R. Cobb (CFO)
That I think were mentioned by Judy as well was the ocean disruption that and then on the impact of some severe weather events on our dedicated business impacted their margins as well. So, you know, we had some unusual sort of factors impacting our truckload dedicated market.
Ken Hoexter (Analyst)
Just, just two quick ones to wrap up, because I know Dave is going to cut me off. But how do you have more work days when leap year was a year ago? And then the freight flows, can you just give the percentage growth in the quarter? You know, month by month.
David R. Cobb (CFO)
Yeah, what I mentioned in my remarks were that in January tonnage decreased 1.1% and decreased 0.8% in February, and then decreased 0.3% in March. And then we're seeing an increase in April year-over-year. Those are all year-over-year comparisons.
Ken Hoexter (Analyst)
Perfect.
Judy R. McReynolds (CEO)
Ken, on your work day question, I mean, Easter's... You got the Easter impact there, and that's-
Ken Hoexter (Analyst)
Okay
Judy R. McReynolds (CEO)
... affected things.
David R. Cobb (CFO)
Yeah.
Judy R. McReynolds (CEO)
Yeah.
Ken Hoexter (Analyst)
Perfect.
David R. Cobb (CFO)
We adjust our days for—
Judy R. McReynolds (CEO)
Right. And we do make adjustments for that because-
Ken Hoexter (Analyst)
Okay.
Judy R. McReynolds (CEO)
Good Friday's not. There's not as much business that day.
Ken Hoexter (Analyst)
Ken, thank you very much.
Judy R. McReynolds (CEO)
Ken, there's something that I want to add, you know, to the whole asset-light conversation. I really, you know, we really feel good about the opportunity that we continue to have, you know, within our customers and then really, even customers that aren't currently our customers. We, you know, we have a set of service offerings there that are really working well together. When you consider the, you know, the, the truckload brokerage piece, the dedicated piece that we've now bought, and the expedite piece. We have a lot of knowledge there, and we have some unique offerings that we're, we're able to present to customers, when we're combining some of those services. So we're getting the LDS acquisition under our belt.
And, you know, we're addressing some of these macro issues, you know, that we've had as impacts on the business. But we are pleased with the service offerings that we have there. And, you know, our sales force is very focused on that opportunity.
Ken Hoexter (Analyst)
Appreciate the time and insight. Thank you very much.
Judy R. McReynolds (CEO)
Thanks.
David R. Cobb (CFO)
Thank you.
Operator (participant)
Our next question comes from the line of Jason Seidl with Cowen. Please proceed with your question, sir.
Jason Seidl (Analyst)
Thank you, operator. Everyone, good morning.
Judy R. McReynolds (CEO)
Good morning.
Jason Seidl (Analyst)
I want to go back to a little bit of those e-commerce shipments that you guys talked about. Can you give us a sense of what percent of your overall shipment count that these e-commerce are? I think that might help us frame how we model it going forward for maybe potentially increased cost associated with those shipments.
Judy R. McReynolds (CEO)
...Well, you know, my memory on that, David's actually looking for the percentage for me, but it's around, I want to say 15% of our business is residential deliveries, something like that. And so, but as we noted, it's increasing. You know, when you have a 40% increase in those shipments in the quarter, you know, that's a major factor. The other thing to note is that increase came from about 20 customers. So it's not one customer, it's coming from a number of customers. We're known for expertise in this area because of our U-Pack Moving business and the management that we have over those shipments, the visibility that we give our customers, and, you know, the different service level offerings that we can provide.
So, but these are clearly small shipments to us, but they're characterized more as heavier shipments for a consumer. I think it just speaks to the consumer getting more comfortable having those kinds of items delivered to their homes.
David R. Cobb (CFO)
Yeah, and Jason, just to give you an example, some of the commodities we handle, fitness equipment, you know, gun safes, safes for valuables, office equipment, TVs, appliances, those are some of the, some of the commodities that we're handling with those shipments.
Jason Seidl (Analyst)
No, no, no, I, I, I understand, and I, I know you have one of your competitors, I guess, increasing their advertising for one of their own moving businesses as well. When you look at this market in particular, since it is growing so much and I think impacting some of your results, you kind of talked about how you're seeing 2.9% pricing. Is the pricing market in that home moving business more aggressive than the rest of your business? I'm just trying to get a sense of, you know, are you guys able to cover the increased costs associated with your network moving towards more home delivery?
Judy R. McReynolds (CEO)
Well, first of all, I think the percentage that you quoted on our contractual increases is 3.9%, not 2.9%, just to, just to clarify that.
Jason Seidl (Analyst)
Oh, I'm sorry. I misspoke. Yes, 3.9.
Judy R. McReynolds (CEO)
Right. And in certain cases, this business that we're talking about is contractual, but you also have certain spot business associated with this business as well. And, you know, what I would suggest to you is it depends on the customer, whether we're satisfied with where we are from a profitability standpoint. You know, some customers, you know, we've achieved that level of profitability that we desire. Other customers, you know, because of what we're seeing, we have some work to do to try to achieve that level of profitability. And, you know, so-
Jason Seidl (Analyst)
I'll get to the back of the line here before David yells at me.
Judy R. McReynolds (CEO)
Okay, thanks.
David Humphrey (VP of Investor Relations)
No, no problem.
Operator (participant)
Next question comes from the line of Brad Delco with Stephens Incorporated. Please go ahead.
Brad Delco (Analyst)
Good morning, Judy. Good morning, David.
Judy R. McReynolds (CEO)
Good morning, Brad.
David R. Cobb (CFO)
Morning.
Brad Delco (Analyst)
Judy, I know we've talked about asset-light before and, and the margins you guys are generating there. I know it's in growth mode, but, but is there any way we can not necessarily pin you down, but when do you think we'll be seeing, you know, kind of peer average margins in this asset-light business once, you know, all this sort of growth starts to settle?
Judy R. McReynolds (CEO)
Well, you know, we don't know what year that will be because we know that, you know, as long as we see the opportunity, we're going to invest in it. I think, you know, right now, in our truckload brokerage business, we have about 40% of our people, you know, that are handling customers, don't have that second full year of experience yet, which really doubles their productivity and which helps us on the margins. You know, and, you know, we have acquisitions, you know, that we're absorbing.
We're getting to the point where I think the Bear acquisition, which is primarily down in Plano, Texas, is absorbed, and we have people on the same systems and managed with the kind of the same roles that we have always had in our Fort Smith operation. So, you know, we are making progress on that front, but our goal is to achieve those best in class margins that other logistics companies that are in similar business to us have. Now, I do think that you have to keep in mind the mix of things within those margins. You know, if you look at what we're doing, you know, we've got the expedite side of things, which has better margins.
You know, we have truckload brokerage, which, you know, I think we all know what those average margins are, maybe somewhere in the 15% range for most companies. And then we have the truckload dedicated that are, you know, perhaps in that same range or maybe even for some of the competition, slightly lower. But if you look at where we were for the quarter, we had a 20... above a 20% margin on that business. So that's, you know, I think, good news. So what we're talking about is getting those cost items that are below that, which are the people costs, you know, to their most efficient place. And, you know, we have the ability to manage and monitor those activities, see where we have gaps, go back and make changes, you know, in the approach that people are taking.
We're working on technology enhancements that will create efficiencies in that business and have more automation of certain, I guess, actions or transactions. And you know, then we also have some of the roles when we're looking at their productivity; we have certain activities that are, for instance, in the carrier finding side of things, that we have peeled off some of the more routine administrative responsibilities into another group of employees so that those carrier finders can be more efficient. So there's a number of things that we have going on there. And when I look out for that business, I see some encouraging signs that we're better able to handle those costs.
You know, what it starts with is a better net revenue margin, you know, on those dollars of revenue, I think, than average. So that's a good place to start.
Brad Delco (Analyst)
Yeah, and just maybe for my quick follow-up before David cuts me off. I hear you on the net revenue margins, but just to be clear, make sure we're talking about the same thing, getting to sort of a 5% EBIT margin, that's-
That's what you're talking to, and that's the goal.
Judy R. McReynolds (CEO)
Oh, yeah, absolutely.
Scott Group (Analyst)
Okay.
Judy R. McReynolds (CEO)
Yes. Yes.
Scott Group (Analyst)
All right. That's it for me. Thank you.
Judy R. McReynolds (CEO)
Okay. Thank you, Brad.
Operator (participant)
Next question comes from the line of David Ross with Stifel. Please proceed with your question.
David G. Ross (Analyst)
Yes, good morning.
Judy R. McReynolds (CEO)
Morning, Dave.
David Humphrey (VP of Investor Relations)
Hey, Dave.
David G. Ross (Analyst)
It sounds like everybody's fearing the Humphrey Hook today.
Judy R. McReynolds (CEO)
It sounds like it, doesn't it?
David Humphrey (VP of Investor Relations)
It works. You don't even have to say anything.
David G. Ross (Analyst)
I know.
Judy R. McReynolds (CEO)
Yeah, he's a pretty vicious person.
David G. Ross (Analyst)
You have a reputation, sir. Anyway, just to, you know, talk a little bit about, you know, ABF on the purchased transportation side, been an issue the last couple quarters. It was up again 17% on only a 6.5% increase in shipment volume. Was there anything... You know, what, what's going on there? How would you describe the PT environment? Is this a permanently higher level of PT on purpose that we should see? Or, or what, what do you expect the rest of the year?
Judy R. McReynolds (CEO)
Well, a couple things. You know, it's good to look at that line item along with the salaries, wages and benefit line item, which you see down, you know, for the same comparison. The reason I say that is really twofold. One is on the line haul side, you know, we're managing our empty costs well, and what you see is, you know, a utilization of rail, I think that was about 15%, something like that. And, you know, again, the net result on our line haul operation was a positive for the quarter. So that's one element. The other, I talked about a little bit when I was talking about the residential deliveries.
Because we saw this tremendous increase in residential shipments and, you know, in a first quarter, you know, even rolling out of last year, it was somewhat unexpected and somewhat uneven. You know, you in our business, you always have to boil it down to what's going on at the given locations. And if you looked at certain locations that didn't have the manpower to give the customer service that we offer, we had to use, you know, cartage agents to be able to help us deliver that. Now, we've already taken some actions to have better manpower in some of those locations where we had this issue. And, so I'm encouraged that we're going to be seeing reductions in the, what I call the city cartage costs.
Now, but we will continue to effectively use purchased transportation, both with rail and truckload carriers, as allowed under the union contract, as options for optimizing our costs from a line haul standpoint.
David G. Ross (Analyst)
Now, from the P&D standpoint, I would think that cartage agents may be advantageous in some markets.
Judy R. McReynolds (CEO)
Yes.
David G. Ross (Analyst)
Is there anything in the union contract restricting you from increasing the use of cartage agents on a broader scale?
Judy R. McReynolds (CEO)
No, really, we have flexibility there. I think really our issue more in the, in the, the contract... I mean, it's not the contract, it's really more just the planning of these... I wanna, I'm gonna characterize it as surges, but only because it's happening on an uneven basis, you know, on a month-by-month basis. If we could have a better planning scenario with our customers, we would be able to plan the best outcomes in these given markets. And, you know, to the extent that we can use our people to make those deliveries, and it's a good answer from a customer standpoint, it meets the service requirements and that sort of thing, you know, that's what we'll do.
but being able to plan better around that is really where the answer lies, you know, on the operations side. And then, you know, if it's a difficult situation with a particular customer, you know, we have to build in to our overall pricing and arrangements with them to better address it, if we're not able to better plan for it.
David G. Ross (Analyst)
Okay, thanks.
Judy R. McReynolds (CEO)
Thank you.
David Humphrey (VP of Investor Relations)
Thanks, Dave.
Operator (participant)
Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Scott Group (Analyst)
Hey, thanks. Morning, everyone.
Judy R. McReynolds (CEO)
Good morning, Scott.
David Humphrey (VP of Investor Relations)
Scott.
Scott Group (Analyst)
Judy, the 2018 targets you laid out for us, I guess, a little over a year ago, do you feel like you still have line of sight to that, or do you think we need to push out the timing another year or two to get there?
Judy R. McReynolds (CEO)
... Well, we certainly haven't made the progress, you know, that I would like to have made on those. You know, some of it, I think, is macro related, but, you know, there is a portion of that that is execution related within our team, and we're very focused on that. So, you know, when I look at those, relative to where we are now, you know, we've got a lot of work to do to achieve that. So, you know, I don't wanna say that I'm discouraged, you know, by the business because I'm very encouraged by the business, and particularly on the asset-based side, I don't know that we've ever had a longer list of technology enhancements in that business that could produce positive results, you know, than we do now.
And so we have some encouraging things there. But, you know, our progress has been slower, and therefore, perhaps the right thing is to do is to push that out a little bit. We haven't officially done that, but, you know, that would be fair.
Scott Group (Analyst)
Okay. And then I wanna ask about the contract with the Teamsters. I think we're kind of less than a year out now.
Judy R. McReynolds (CEO)
Yes.
Scott Group (Analyst)
To the extent that you wanna, can talk about it a little bit, maybe you could lay out some, if you're comfortable, lay out some goals for it. I know last cycle you got concessions, which was unusual relative to past cycles. Is this the environment where you think there's potential for additional concessions, or was that a unique circumstance last time and not something that we should be counting on again?
Judy R. McReynolds (CEO)
Well, first of all, it's really too early in the process to make any kind of comments or, you know, kind of projections over where things will land because we really don't know. What I will say is that, from a timing standpoint, as we get toward the end of this year, if we're on a typical schedule to what we've been on in past negotiations, you know, you might see us exchange proposals, initial proposals toward the end of the year and then get into the negotiations early in 2018, you know, with a goal of having everything wrapped up by the end of March. But even that, we really can't say for certain because we haven't agreed to the schedule yet, you know, with the Teamster leadership.
So anyway, it's just, just kind of premature, you know, to get into any kind of conversation about that. But I appreciate the question, and I, I understand where it comes from.
Scott Group (Analyst)
Okay. And then just one, just real quick housekeeping thing, just because there's a lot of noise in the number with the big change in weight per shipment. What do you think a true kind of pricing number was this quarter if you adjust for fuel and length of haul and the weight per shipment?
Judy R. McReynolds (CEO)
I think on the LTL side, it's probably, you know, low single digits. So, you know, I hope that helps.
Scott Group (Analyst)
Okay. Thank you, guys.
Judy R. McReynolds (CEO)
Oh.
Todd Fowler (Analyst)
Thank you.
Operator (participant)
The next question comes from the line of Todd Fowler with KeyBanc Capital. Please proceed with your question.
Todd Fowler (Analyst)
Great. Thanks, and good morning.
Judy R. McReynolds (CEO)
Good morning, Todd.
Todd Fowler (Analyst)
Hey, Judy, good morning. Can you talk a little bit at a high level how the residential delivery fits in with the more traditional LTL network? I mean, is that more of a revenue opportunity for ArcBest, or are there also density opportunities to move just more volume through your service center network? How do you think about the real opportunity there? Is it more top-line growth, or is it also kind of a margin and density part of the business?
Judy R. McReynolds (CEO)
Well, I think it's top line for sure. But, you know, from a margin standpoint, the value that is provided to a customer by handling that type of shipment is there. And so, you know, we believe that the profit margin should be there. And that's sort of regardless of what, you know, density you're able to achieve with greater volumes of these shipments. Now, we're starting to see, you know, a good level of these shipments, and it doesn't really work to kind of combine that with what we do on the residential delivery side for our moving business exactly.
Todd Fowler (Analyst)
Okay.
Judy R. McReynolds (CEO)
So you really kind of have to think of it as kind of its own thing, relative to that moving business. Even though I bring that up a lot, but it's because of our expertise that we have in handling, you know, those kinds of situations with consumers. But, you know, as we have grown, you know, with some of these customers in certain markets, you know, we are seeing, you know, some ability to collect these shipments and, with our street optimization project that we're working on, that helps us with appointment setting and route optimization, you know, we should see some better results, you know, out of our P&D costs.
Todd Fowler (Analyst)
The 20 customers that you mentioned that are driving a lot of the residential delivery growth, are you doing traditional LTL shipments with those customers, or are you doing truck brokerage or other services with them as well?
Judy R. McReynolds (CEO)
The answer to that is all of the above, probably. But we are doing LTL, what you would call regular LTL business with them.
Todd Fowler (Analyst)
Okay.
Judy R. McReynolds (CEO)
You know, so, so we have that, too. But we do some interesting combinations of things with our truckload brokerage service offering and our dedicated offering involved.
Todd Fowler (Analyst)
Okay. I, I'm not afraid of Humphrey, so I'm gonna try and sneak one more in here. On the, David Cobb mentioned the 500-600 basis points of margin improvement into the second quarter. There was also some commentary in the release about, you know, benefits on the maintenance side from new equipment coming in. Is this a quarter where we should see a traditional sequential improvement, or are there some things that we need to think about on the positive, negative side for the margin progression, into 2Q? Thanks.
Judy R. McReynolds (CEO)
Well, you know, I think for the most part, you know, as you move into the second quarter, it should be, you know, the kind of normal things are occurring. But, you know, we don't forecast those numbers. We just give them kind of for historical context of what we can typically do. You know, I think we've thoroughly mentioned the technology investments that we're making, and we're going to be continuing to make those. They were there in the first quarter, but some of the projects that we're working on, you know, there may be more cost on those, you know, in the second quarter. We are hoping, as we're taking delivery of the new equipment, that and we get that into, particularly into our city operations.
What happens to us is we take delivery of new equipment. It goes into the road, and then we transfer road to city.
Todd Fowler (Analyst)
Right.
Judy R. McReynolds (CEO)
And when we do that, we're able to take out some of the oldest city units, you know, that we had, and those were a problem in the first quarter. We had an increased cost of about $2 million attached to those, and so we're looking forward to having them out of the system. So that should help. I think we're, you know, right now, we're better managing our cartage costs, but it remains to be seen how that goes in May and June as things get busier. You know, so those are some things that are on my mind as I'm thinking about the sequential comparison.
Todd Fowler (Analyst)
That's really helpful.
David R. Cobb (CFO)
Todd, you are off the Christmas card list.
Todd Fowler (Analyst)
I'll do my best. I've got three more quarters to get back on it. Thanks a lot, guys.
Judy R. McReynolds (CEO)
Thank you.
David Humphrey (VP of Investor Relations)
Thanks.
Operator (participant)
Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.
Amit Mehrotra (Analyst)
Great. Hey, operator, great job pronouncing that last name. I know it's not very easy.
Judy R. McReynolds (CEO)
That was.
Amit Mehrotra (Analyst)
Hi, guys.
Judy R. McReynolds (CEO)
Good morning.
Amit Mehrotra (Analyst)
Thanks for taking my questions. Good morning. So you mentioned that the, the growth, the 40% growth in residential deliveries, this was broad-based in terms of 20 or so customers. Were all those customer volumes up at, at those type of levels, or was the growth maybe just kind of more focused on one or two customers? I'm just trying to decipher the, the breadth of customers against, you know, the breadth of the growth.
Judy R. McReynolds (CEO)
Well, you know, there are probably one or two customers that are driving more of that growth, but it is, you know, broad-based. I mean, it is, you know, certainly the case that we have. Yeah, one reason we're giving that figure is because we really felt like that the focus would be, you know, on one or two customers, and it really is coming to us from a number of places.
Amit Mehrotra (Analyst)
Okay. So just kind of in that context, I mean, I wanted to ask just a little bit more color around what's behind some of the operating stats. I mean, you know, shipments kind of have outperformed the overall industry quite dramatically in the first quarter. Tonnages lagged, revenue for shipment have lagged, and you've kind of addressed, you know, why that's happened. But, you know, given, I guess, the magnitude of the relative performance, I'm wondering if it was just more of a strategic pivot towards more e-commerce or residential type shipments. And if that's the case, I'm not sure if it is, but if it is the case, can you just kind of explain the economics of the business versus more industrial type businesses?
You kind of touched on it previously, but what I'm asking is, is there any structural reason, whether it's a little bit more competitive or the costs are higher, are there any structural issues or reasons that the margins in that business could be a little bit different from, you know, the more typical type of industrial business that you do?
Judy R. McReynolds (CEO)
Well, I mean, I think, we have, you know, 35-40 thousand active customers, and we see at different points, different mixes of things. I can tell you this, we did not go actively seek, this increase, you know, in, residential shipments, you know, as a strategy. But what our strategy is, is to work with customers who value our high level of service and, you know, to, do things with them that, you know, help them grow their business. But then also, we think in that helps us achieve, you know, the profit margins that we expect to achieve.
You know, that could be an industrial customer. It could be a customer that requires, you know, this, this, residential home delivery, or it could be, and maybe has more often been, a customer that commands multi-service supply chain solutions. So we're managing all of those. But, you know, are we averse, you know, to any, any growth with an industrial customer, you know, to the favor of a residential consumer? No, absolutely not. In fact, we like that business really well. But I think one of the things that we dealt with that we haven't yet talked about on the call in the first quarter is, you know, some degree of excess truckload capacity.
You know, our people who quote that business, you know, they are on the market. I mean, it's spot quoted business, and it's business that, you know, we will not reduce our prices to a level that doesn't make sense for us from a profit standpoint. And, you know, in a competitive market, when I think the GDP growth was the worst in three years, and then we have this, you know, capacity that serve in the truckload sector, you know, that is business that's harder for us to do with our cost structure. And so that plays a role in the result that we have as well.
Amit Mehrotra (Analyst)
Right. Okay, that's helpful. Just one quick one. You mentioned weather earlier in the call. I just want to understand. If there's a way you can kind of talk about what cost items or the amount of total costs in the quarter that maybe you would characterize as atypical and not necessarily related to the cost structure relative to the mix of business, but just kind of extra money that you had to spend that you wouldn't normally because of various, you know, one-off items in the quarter, so we can just get a sense of maybe what the underlying profitability is.
Judy R. McReynolds (CEO)
Well, where we mentioned weather was in our truckload dedicated business, it's in the asset-light side, and that is really a company that we acquired. What we were talking about was that the margins, operating margins for that business didn't meet our expectations. But Northern Nevada had the most precipitation ever. And so we're actively watching this company that we acquired that's based in Reno and looking at what we hoped to see and didn't see it, and you know, where we saw the impact was in the net revenue-
—for that, or revenue and net revenue. And then also, you know, there were below the kind of the net revenue line, you would see, you know, detention costs, or not detention, but lack of utilization costs associated with some of the trailers and equipment that we had parked because we couldn't, you know, handle the customer business and, you know, that sort of thing. And so, it really...
We mentioned it because on the asset-light side, if we had not had that issue, and we hadn't had the, basically, the lingering impacts of the Hanjin bankruptcy on our ocean shipping business, we would have had $1 million more in operating income, you know, from that business, which, you know, I think would have allowed us and you to feel better about how we performed in that asset-light category this quarter.
Amit Mehrotra (Analyst)
Got it. Okay, well, that's very helpful. Thanks for answering my questions. Have a good weekend.
Judy R. McReynolds (CEO)
Yeah, you too.
Operator (participant)
Our next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker (Analyst)
Thanks. Morning, Judy, Dave.
Judy R. McReynolds (CEO)
Good morning, Ravi.
David Humphrey (VP of Investor Relations)
Hey, Ravi.
Ravi Shanker (Analyst)
Hey, so just looking at the environment out there, does this want to make you look for more opportunities on the cost side, maybe more streamlining? Can you remind us again where you are with the corporate realignment that you announced a couple of quarters ago?
Judy R. McReynolds (CEO)
Yes. I mentioned this earlier. On the cost side, you know, we are on pace with what we said we would save. You know, I think we talked about a $15 million savings kind of on an annualized basis. And, you know, much of that was in place as we, you know, had different software and things that we were writing off because of the new structure. But, you know, what we're continuing to monitor is the headcount side of that. And, you know, we are right where we want to be with respect to that. I know it's difficult to see because of all the different items that were affecting us this quarter, but, you know, we're very pleased with where we are on that.
Your first comment, I think, is right. Yes, you constantly look for ways to be more efficient, you know, in the operation. There's a number of ways to do that, but we're in constant pursuit of that. You know, one of those is the deployment of technologies that allow people to handle their task more efficiently. We have a number of those ongoing and hope to see the benefit of them later this year.
Ravi Shanker (Analyst)
Got it. And just to follow up to that, a bigger picture question. I mean, are you happy with the portfolio strategy here? I mean, is this an environment where a multi-platform strategy is the right way to go, especially with kind of e-commerce being the double-edged sword of strong volume growth, but maybe tough pricing? And kind of just given the environment on the asset-light side, kind of going to that 50/50 asset-heavy, asset-light, kind of is that still the right strategy?
Judy R. McReynolds (CEO)
I believe it is. I spent a lot of time, you know, with customers during the first quarter, and there is not a single conversation that I had with a customer that was oriented toward one service offering. If, if we're not in a conversation that involves multiple service offerings, we're not in the conversation that's going to help them with their supply chain challenges.
Ravi Shanker (Analyst)
Got it. Understood. Thank you.
Judy R. McReynolds (CEO)
Yep.
David Humphrey (VP of Investor Relations)
Hey, Leela, we've got one time for one more. We've got a follow-up, I think, and that'll be the last one.
Operator (participant)
Very good. Last question is a follow-up question from Brad Delco with Stephens Incorporated. Please go ahead with your question, sir.
Brad Delco (Analyst)
Thank you, David, very much for the opportunity for the follow-up.
David Humphrey (VP of Investor Relations)
You're welcome.
Brad Delco (Analyst)
Judy, this just came to mind as I heard you kind of answering some of the other questions, and I think there's been a lot of attention on maybe a changing mix of business within your LTL network. I know you guys have maybe warmed up to the idea of dimensioners. Do you think any investment in sort of dimensioning technology would help you as your mix of business is changing at a fairly rapid pace? Or can you just give us an update on your thoughts on that?
Judy R. McReynolds (CEO)
...Well, we have been dimensioning nearly all of our freight for many, many, many years, well before this whole conversation, you know, about dimensioning technology really arose within many of our competitors. So you know, what we feel like is the right answer for us is to deploy dimensioning technology that doesn't cause us to be less productive than we are today, just as a result of that. Many of the competitors, as I understand it, are putting in place static dimensioners, which cause, obviously, some productivity inefficiency when you're deploying that. For us, because we were fairly accurately, you know, dimensioning freight prior to that, the idea that you would adopt that same approach really results in a worse answer for us.
We've piloted, you know, a number of things that are available, you know, in the marketplace. So what we're waiting for is a better answer. And, you know, we're starting to see some of that come about. So, you know, one compelling technology that's surfacing at this time is in-motion dimensioning, which, you know, we really feel like that has more merit, you know, than the handheld or the static dimensioners. So, you know, I hope that provides some color for you. But, you know, we know based on our own testing, that what we've been doing is not causing us to be, you know, somehow disadvantaged. I think what you've seen is now a recognition of having that measurement practice in some of the competition.
Brad Delco (Analyst)
If you don't mind, let me maybe ask a different way then. With this sort of changing mix dynamic, have you noticed any, you know, incremental or exponential growth in what sort of revenue you generate out of your Weight and Research department?
Judy R. McReynolds (CEO)
You know, we have always had a good amount of additional revenue that comes from that, but it's pretty steady. You know, it's increased a little bit, maybe, but it's pretty steady.
Brad Delco (Analyst)
Okay. All right. Well, that was it for me.
Judy R. McReynolds (CEO)
We do deploy Weight and Research folks, you know, in all of our major facilities, so.
Brad Delco (Analyst)
Okay. Thanks, Judy.
Judy R. McReynolds (CEO)
Okay.
Brad Delco (Analyst)
Thanks, David.
Judy R. McReynolds (CEO)
Thank you.
David Humphrey (VP of Investor Relations)
Okay. Well, I think that, concludes our call. We thank you for joining us this morning. We appreciate your interest in ArcBest. This ends our call. Thank you very much.
Judy R. McReynolds (CEO)
Thank you.
Operator (participant)
Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.