ArcBest - Q2 2014
July 31, 2014
Transcript
Operator (participant)
Welcome to the ArcBest Corporation second quarter 2014 earnings conference call. We will have a short discussion of the second quarter results, then we'll open up for a Q&A period. Our presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of ArcBest Corporation, and Mr.. 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 E. Newcity (CFO and CIO)
Thank you for joining us this morning. As you know, at ArcBest, we have been working for some time on our goals of returning ABF Freight to sustained historic profitability and enabling our emerging businesses to grow so that we can better serve customers across the supply chain. This quarter reflects another period of improvement, and we are gratified to see these results. ArcBest's second quarter 2014 revenue was $658.6 million, compared to $576.9 million last year, an increase of 14%. Second quarter 2014 net income was $0.63 per share, compared to net income of $0.18 per share last year.
Including an adjustment for a pension settlement charge of $0.02 per share related to our non-union defined benefit pension plan, second quarter net income was $17.8 million, or $0.65 per share. As we have stated previously, we expect to incur non-union pension settlement accounting charges throughout 2014. As a result of the July 1, 2013 freeze of benefit accruals under the plan, settlement accounting charges occur when the lump sum distributions of the plan exceed the plan's annual interest cost. We anticipate quarterly amounts for the remainder of the year to be in the range of $1 million-$2 million on a pre-tax basis. The amount and timing of these charges will depend primarily on future lump sum distributions. These charges are non-cash and are the result of accounting rules requiring the write-off of actuarial losses.
In the earnings press release, we highlighted a couple of items that are included in our second quarter financial results. First, the effect of the Two-Class Method used for calculating earnings per share, which requires the allocation of a portion of dividends and net income to unvested restricted shares in determining per common share amounts. For the second quarter, this equaled $0.03 per share. Secondly, cost of long-term incentive plans that are driven by ArcBest Total Shareholder Return relative to its peer group. During the quarter, this equaled $0.07 per share. On a combined basis, these two items were approximately $0.10 per share in second quarter 2014, compared to a two cent per share effect in second quarter 2013. These items could occur in future periods, depending on financial results and changes in the ArcBest share price.
We ended the second quarter with unrestricted cash and short-term investments of $165 million. Combined with the available resources under our AR securitization agreement, our total liquidity equals $223 million. Our total debt of $119 million includes the remaining $77 million balance on our $100 million five-year term loan associated with the Panther acquisition, and $42 million of capital leases and notes payable, primarily on ABF Freight revenue equipment. Deposit interest rate on all of our debt is 1.8%, below the 2.1% interest rate we had at the end of the first quarter. Full details of our GAAP cash flow are included in our earnings press release. ABF Freight reported second quarter revenue of $493 million, a per-day increase of 11.2% compared to last year.
ABF Freight's quarterly tonnage per day increased 6% compared to last year's second quarter. By month, ABF Freight's 2014 daily tonnage increase versus the same period last year was 5.8% in April, 5.1% in May, and 6.8% in June. ABF Freight reported a second quarter operating ratio of 95.4%, an improvement of 3.4 operating points compared to the second quarter of 2013. ABF Freight's second quarter 2014 total billed revenue per hundredweight $28.91, an increase of 4.2% versus the second quarter of last year. On a sequential basis, compared to this year's first quarter, revenue per hundredweight increased by 6.9%.
ABF Freight's total weight per shipment was 1,360 pounds, reduction of less than 1% versus last year's second quarter. On a sequential basis, weight per shipment decreased 3.6%. ABF Freight's average length of haul equaled 1,019 miles, almost identical to what it was last year's second quarter of 107-- or 1,017 miles, and in this year's first quarter of 1,018 miles. Preliminary results for the month of July 2014 indicate that ABF Freight's total tonnage per day is expected to increase by approximately 5%.... July 2014 daily revenues for ABF Freight should be between 9%-10% above, above July 2013 levels.
The approximate 4%-5% year-over-year increase in revenue per hundredweight reflects freight mix changes and improved rates on customer accounts. The freight mix changes are related to increases in the amount of LTL shipments moving through the ABF Freight network, and a reduction truckload related rated tonnage associated with price increases implemented on spot business. Second quarter revenues at all of our emerging businesses totaled $178 million, represents a 28% increase over last year. On a combined basis, in the second quarter, these businesses produced EBITDA of $10.2 million, an approximate increase of 47% compared to $6.9 million in last year's second quarter. Panther had an outstanding second quarter, with revenue of $81 million, an increase of 35% over last year.
Panther's second quarter operating profit was $4.4 million, compared to $1.5 million during the same period last year. Panther's second quarter 2014 EBITDA was $7.2 million, an increase of 76% compared to EBITDA of $4.1 million during the second quarter of 2013. FleetNet, our emergency and preventive maintenance company, increased its second quarter revenue by 16% versus last year. Its operating income declined from last year's second quarter due to a receivables write-off associated with the bankruptcy of a large customer. ABF Logistics reported second quarter revenue of $35 million, compared to $24 million last year, an increase of 46%. Second quarter operating income for this unit increased by 69%. ABF Moving, our household goods moving services division, increased second quarter revenue by 8%.
Second quarter operating income was below that of last year, due to changes in shipment mix and investments in personnel and other resources we continue to make. The steady growth of our emerging businesses is an important part of our strategy for offering a broad assortment of logistics services to all of our customers. During this year's second quarter, these businesses represented 27% of ArcBest's total revenue, an increase over the same period last year. Moving forward, we are excited about how they will contribute to ArcBest's success. Now I'll turn it over to Judy.
Judy R. McReynolds (President and CEO)
Thank you, Michael, and good morning, everyone. During the recent period, we had some of our strongest results in quite some time, including solid profitability at ABF Freight and an outstanding quarter at Panther. This is encouraging as we continue to focus on our goals of providing more transportation and logistics solutions to our customers. While we always have more work to do, we know that solid execution and outstanding service across the board keep our customers coming back and asking for even more solutions from our companies. In fact, I'd like to mention that our company's new brand identity, logos, advertising campaign, and tagline, "The Skill and the Will," have been well received by customers and by our employees.
I've had many positive conversations about how people are better understanding the full breadth of the services we offer across the supply chain and what sets us apart in the marketplace. As we continue with our efforts to promote these holistic services, we're excited about the public launch of our new website, theskillandthewill.com, in early August, which will complement our new corporate website, arcb.com. The Skill and the Will site contains many real-life stories from our customers who've benefited in concrete ways from our employees' willingness to go above and beyond to solve their complex logistics challenges. I encourage you to visit and sign up for email alerts that will let you know when new stories appear. Now, on to the results. ABF Freight benefited from an improving economy and tighter industry capacity that contributed to additional freight moving throughout its network.
ABF Freight's lower cost structure from its new labor contract and the benefits of ongoing analysis and operational adjustments to its freight network contributed to improved profit margins. ABF Freight's pricing was solid during the quarter, consistent with the positive pricing environment throughout our industry. Contributing factors included a stronger economic environment, a more optimistic outlook by shippers, and increased utilization of labor and equipment resources across all transportation modes. The 5.4% general rate increase ABF Freight implemented in late March positively affected approximately 35% of our freight business throughout the second quarter. On contract and deferred pricing agreements that were negotiated during the quarter, ABF Freight obtained increases averaging 3.2%. We're very pleased that, compared to last year, ABF Freight increased second quarter operating income by more than three times.
However, our incremental margins associated with ABF Freight's business growth have been below our expectations due to a couple of factors, which we're actively addressing. First, the increased freight levels have resulted in the need of additional dock employees throughout the ABF Freight network. Because of reduced availability of employees in layoff status, we have added a considerably higher percentage of new dock employees with little or no previous freight handling experience. Despite receiving the standard training and instruction provided to all new ABF Freight employees, the freight handling productivity of these new employees has been approximately 20% below that of our more experienced dock workers. Because we're currently utilizing a high number of these employees with less than one year of experience, the reduction of ABF Freight's second quarter 2014 dock productivity has unfavorably impacted our operational metrics and the incremental margins on the new business we've added.
Our reputation for efficient freight handling and superior cargo care is a result of trained and experienced workforce. ABF Freight has doubled the normal amount of training and mentoring offered to these new employees. We believe that the freight productivity in the second half of the year will improve as we help these new freight employees gain valuable experience, training, and knowledge in the efficient handling and loading of shipments. Second, equipment maintenance and repair costs have been running above historical levels. This is due to increased mileages and longer lives on ABF Freight tractors, resulting from more lengthy in-service life cycles. In addition, 2013 revenue equipment purchases were significantly below normal due to uncertainty surrounding ABF Freight's new union labor contract that was ultimately implemented in November of last year.
As previously announced, ABF Freight's 2014 capital expenditure plan includes approximately $60 million of revenue equipment that provides for 444 new replacement road tractors. The new equipment we are replacing this year should move us toward a more normal replacement cycle, decreasing average equipment age and contributing to reduced maintenance and repair expense. We're also evaluating our equipment fleet to identify and correct patterns of high cost usage and to seek opportunities for anticipating expensive breakdowns before they occur. Earlier this month, ABF Freight announced the addition of Mike Moss as Senior Vice President of Operations. Mike has 30 years of leadership experience throughout the LTL industry and in the development of new non-asset and international transportation services. We are already benefiting from his knowledge and the fresh perspective that he brings to our company.
Our emerging businesses are an important part of our financial growth and success as they enhance the service offerings we provide to the transportation marketplace. Panther experienced one of the most successful quarters in its history. During the second quarter, Panther set all-time records for revenue, gross profit, and EBITDA. They came within $50,000 of having their best quarterly operating income in company history. Market demand for premium logistics services continues to be very strong, and Panther is well positioned to meet the precise demands of these shippers. As we saw in the first quarter, all of the markets that Panther services had strong revenue growth and gross profit increases compared to the same period last year. Customer business in automotive, high-value products, and manufacturing had especially strong revenue growth, and revenue growth in government-related shipments was another second quarter strength.
This success at Panther reflects more business from existing customers and the addition of new customers. Limited capacity in the specialized areas in which Panther excels is contributing to improved pricing and better margins as well. Despite the milder than expected second quarter temperatures throughout the country, FleetNet experienced revenue growth to increase due to increased service events for new and existing customers and the addition of new accounts for which FleetNet is providing preventive maintenance services. Improved pricing for FleetNet services has contributed to their second quarter success. In the midst of the continued challenges faced by transportation fleets regarding equipment maintenance and safety, FleetNet offers expertise and actionable data that solve costly problems for fleet managers and ensure the improved dependability of their equipment. During the second quarter, ABF Logistics continued its pattern of top-line revenue growth that resulted from increased shipment counts and higher revenue per shipment.
Second quarter operating profit increased over last year at a healthy rate, even as ABF Logistics added new employees to service business growth and continued its investments in new and enhanced systems designed to respond to the fast-paced demand for its services. Improved profit margins compared to the first quarter reflect the expected benefits of additional experience gained by personnel who joined the company in previous periods. ABF Moving continues to grow its business. Though shipment changes and investments we are making in personnel and systems impacted second quarter profitability, we believe the prospects for this business are good. And now for some news at our companies during the recent quarter. In the most recent listing of the companies included in the Fortune 1000 list of largest companies, ArcBest moved up 38 spots to number 889.
We think this is a strong indication of the growth that we've seen, particularly in our emerging businesses, which we continue to focus on during the last half of 2014 and beyond. In May, we announced the annual winners of ABF Freight's President's Quality Awards. The four ABF Freight service centers recognized: St. Joseph, Missouri, Vancouver, British Columbia, Akron, Ohio, and Albuquerque, New Mexico, epitomized their dedication in fulfilling the requirements of ABF Freight's quality process in their service to our customers. For over 30 years, the principles of the quality process have been the foundation of training and the basis for how every ABF Freight employee does his or her job. Receiving the ABF President's Quality Award is one of the most prestigious honors in our company, and it identifies these facilities as leaders in customer service excellence.
Panther excels in understanding challenging customer needs and responding to innovative logistics solutions. As an example, Panther was recently named as a 2014 preferred transportation supplier of Bosch Group. For many of its customers, Panther is an indispensable part of their supply chain, and this recognition by Bosch illustrates that fact. As an example of the ways in which we're helping our people better understand customers' changing needs, ABF Freight recently sponsored a supply chain forum at the University of Arkansas's Walton College of Business.... Sales leaders from all of our companies got together and learned more about each other's businesses, experienced outstanding supply chain coursework by the Walton faculty, and gained some real insights into how the market changes rapidly. This was a great event, and we're confident that the new connections our people made will be helpful in their daily responsibilities and their ability to cross-sell.
Although we have much more to do to achieve our goals, our company's efforts to serve customers as a holistic provider of transportation and logistics solutions are paying off. We're energized by the opportunities before us. Now, David, I think we're ready for some questions.
Operator (participant)
Pam, I think we're ready to start the Q&A session.
Thank you. Ladies and gentlemen, if you would 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. If you are using a speakerphone, please lift your handset before entering your request. Once again, for a question, it is the one, four on your telephone. One moment, please, for the first question. Our first question comes from the line of Bill Greene. Please proceed with your question, sir.
Hi there. Good morning.
Judy R. McReynolds (President and CEO)
Good morning, Bill.
Speaker 14
Judy, Judy, can we, can we ask for a little bit more clarity on these costs and, and the trends going forward? Because I, I think it's, I, I think you probably recognize it sort of caught everyone by surprise at how little leverage there was to the very good top line. So, how long does it take for these guys to get the productivity in? Can we see a normal OR sequential change as you've seen historically, or should it be much better because the trends still remain pretty good from a top-line standpoint? How do you think about these factors?
Judy R. McReynolds (President and CEO)
Well, I'll give you a couple of data points. First one is, in July, we're, we're not yet seeing the improvement that that we're all looking for, and so it is a process. It's gonna take us some time to get this training implemented and these people with more experience. But the second data point I'll give you is, really, after one year of experience, there's a significant productivity jump. And we get nearly all of the productivity difference back, as we have these new workers become more experienced. And another point to keep in mind is just the impact that this has had on our company.
Our employees with less than one year experience represent about 13.5% of ABF's total workforce, and that compares to about nearly 4% in the previous year. So it is a big impact item. Really, the last thing that I'll add is we have really seen an unprecedented sequential growth in the company. Really, if you look back to the beginning of the fourth quarter last year, and you look forward, we've seen the strongest sequential growth in over 15 years. And so we're adding people to try to address that. But we do have to have you know the training and experience in those people to expect the normal productivity that we have from our more experienced dock workers.
Speaker 14
Okay. Is it safe to say, though, that as things get tighter in the marketplace, and if, assuming these top-line trends continue, you wouldn't have this kind of challenge on the driver side, right? Because given the contract nature of your workforce, I wouldn't think driver shortages and wage pressures would exist in the same way for you. Is that fair?
Judy R. McReynolds (President and CEO)
Well, wage pressures, certainly, because we have a contractual rate that we're paying, you know, for those drivers. But, you know, in terms of the experience of the people that we add, I mean, we typically have experienced people that we're adding to the company, and we haven't seen these same issues in our drivers. So, that is fair to say.
Speaker 14
Okay. Thanks for the time.
Operator (participant)
Just to add, as far as our turnover with drivers, it runs about... If you throw out just normal retirements, it runs in the 3%-4% range, so we've usually been pretty successful with that.
Speaker 14
Yeah, I wouldn't think it'd be as much of an issue for you guys. All right. Thank you.
Judy R. McReynolds (President and CEO)
Thank you.
Operator (participant)
Hey, thanks a lot, Bill.
Our next question comes from the line of Chris Wetherbee. Please go ahead.
Chris Wetherbee (Managing Director and Research Analyst)
Yeah, thanks. Good morning, guys.
Judy R. McReynolds (President and CEO)
Good morning, Chris.
Chris Wetherbee (Managing Director and Research Analyst)
Morning. When you think about, you know, I guess when you think about the mix of tonnage versus yield, and you're talking about some of the productivity and having to bring some of these folks on who have less than one year experience, and I guess in the past, you've talked when you're going through the Teamster negotiation about potentially having to shrink in for profitability. We've gotten past the labor contract, and you have a lot more flexibility and ultimately more profitability potential, it seems. I guess I just want to maybe understand how you think now about that mix of volume versus yield.
I know this group of folks will get, you know, better productivity as we go out into 2015, but do you feel like you need to pull back a little bit on the volume growth, or, or is that maybe too much of a stretch, and you kind of want to continue to push the volume growth now that you have the labor piece in place?
Judy R. McReynolds (President and CEO)
Well, you know, I think the approach that we take is to, you know, look at each pricing deal, and based on the impact that that has on our company, you know, we'll move forward with the business or we won't. And so that's true, you know, all the time, really, in most any environment. But we have, I think, in July seen something that I think is noteworthy to your point, and that is we're experiencing stronger LTL growth, but we have through our spot rates, really adjusted well, the business that we're taking on the full truckload side. And so that is one way that you can address this, although that business can be good for us in certain situations where we need backhaul filled and that sort of thing.
We are making the adjustments so that we can have the best business in our network for the company's profitability.
Chris Wetherbee (Managing Director and Research Analyst)
... Okay, that makes sense. That's very helpful. And then just my follow-up would be, when you think about the non-asset-based businesses, you're clearly getting some good top line growth on the revenue. As we think out into the back half of the year in 2015, do we start to see some of the profitability of those businesses begin to ramp up? I know Panther is doing a good job. I just wanna think about maybe some of the other pieces of that business.
Judy R. McReynolds (President and CEO)
Certainly, that's what I would expect. I mean, we have a continual opportunity, it seems here, to grow, and so we're looking at those opportunities, investing in people, investing in systems. But when you get further into, you know, your process of acquiring market share and gaining that business, I have an expectation that we'll see the profitability of those businesses improve.
Chris Wetherbee (Managing Director and Research Analyst)
Okay. Thanks for the time. I appreciate it.
Judy R. McReynolds (President and CEO)
Thanks, Chris.
Operator (participant)
Our next question comes from the line of Scott Group. Please go ahead, sir.
Scott Group (Managing Director and Senior Analyst)
Hey, thanks. Morning.
Judy R. McReynolds (President and CEO)
Morning, Scott.
Scott Group (Managing Director and Senior Analyst)
So, hey, Michael, help us think about the ten cents of EPS drag from some of the incentive comp and things like that, that you talked about. I know it's tough to predict, but given the way you guys are thinking about the earnings in the back half of the year, the stock now at $35, do these—should we expect similar kinds of year-over-year drags from that in the back half?
Michael E. Newcity (CFO and CIO)
Yeah, Scott, I just I'll start with the smaller amount first and then go to the larger amount. But on the two-class method, you know, that's about... When you think about that, that's a result of a change in an accounting requirement that was put in effect in 2009. It applies-- We've got two classes of share, common and restricted, and you've got to... And since our unvested restricted stock units pay dividends, they're considered participating securities, and so we have to-- we're required to use the two-class method for determining EPS. And that method requires that we that dividends paid and undistributed earnings be allocated between the common and restricted shares, but it also requires that the disclosure of EPS is only based on the common shares.
You know, when you think about the adjustment on the allocation of the RSUs, it's about 5% during profitable quarters. It doesn't apply to losses. That per share impact is gonna increase as earnings increase. So the second quarter of 2014 was the most profitable quarter we've had in six years, and that's why that impact is the largest we've seen since the accounting rule was implemented. It was $0.03 in the second quarter of 2014. It was $0.01 a year ago. So we expect that about 5% impact during profitable quarters. On the incentive, you know, we've got a long-term incentive plan in place.
It's proportionately weighted on return on capital employed and, and, and then also shareholder return that's relative to an industry peer group. These are earned over a three-year period. And so for the second quarter, the expenses related to these plans was about $2.9 million pre-tax, $1.8 million after-tax, or about $0.07 per share. It just reflects the expense, reflects the improvement operating results, primarily the drive and the total shareholder return relative to the peer group. You know, our best total shareholder return on an annualized basis was 197%, you know, measured from the average of the last 60 days.
We believe the component directly aligns the incentive with shareholder value creation relative to our peers, and the ROCE component aligns management's interest with profitability goals and the appropriate use of capital. So we, you know, we feel that's an appropriate alignment.
Scott Group (Managing Director and Senior Analyst)
No, that, that makes sense, but just not clear. Is that like a mark-to-market adjustment, or is there a similar kind of drag in the, in the third and fourth quarter from that?
Judy R. McReynolds (President and CEO)
But it, Scott, it depends on what the stock price performance is and what our returns are. It's a, it's a relative TSR plan, so it's performance against the, the, you know, that metric, if you will. You know, we, we have our, if you look at our proxy, you can see our, our competitive group that we have there, and so it's stock price performance against that relative TSR.
Scott Group (Managing Director and Senior Analyst)
Okay. And then just other question, can you just remind us when and how much the Teamster wages go up, and then any health and welfare increases we need to start thinking about as well?
Michael E. Newcity (CFO and CIO)
Yeah.
Judy R. McReynolds (President and CEO)
Well, what, Scott, on July first, we had a 2% wage increase. And, for the health, welfare, and pension on August first, there is a $0.62 an hour increase. It's, it's about 3.6%. So all in, when you consider the July increase for wages and for health, welfare, and pension, it's about a 2.7% increase.
Scott Group (Managing Director and Senior Analyst)
Okay.
Michael E. Newcity (CFO and CIO)
Okay.
Scott Group (Managing Director and Senior Analyst)
Hey, we're gonna move along, I think. Perfect. Thanks, guys.
Michael E. Newcity (CFO and CIO)
Thanks a lot.
Judy R. McReynolds (President and CEO)
Thank you.
Michael E. Newcity (CFO and CIO)
Thank you.
Operator (participant)
The next question comes from the line of David Ross. Please proceed.
David Ross (Stock Analyst)
Yes, good morning, everyone.
Michael E. Newcity (CFO and CIO)
Morning.
Judy R. McReynolds (President and CEO)
Morning, Dave.
David Ross (Stock Analyst)
Sorry if I missed it in your comments, but, you talking about rail service having a negative impact on the quarter? Some of your competitors have, you know, talked about the congested, rail networks causing them to shift freight back to trucks and leading to higher PT costs.... Were you seeing the same thing? Because I know you guys use a decent amount of rail.
Judy R. McReynolds (President and CEO)
Yeah, we did see some impact. It was primarily in the lane that services from Chicago to the Pacific Northwest. We've reduced our reliance on that lane and moved to using more purchased transportation there. So we have seen some impact and ratcheted down our use of rail. If you compare to last year, you know, we had about 14.1% of our miles were rail, and last year was about 15.8. So it's not a dramatic impact, but it's had some impact. But we've been able to make some adjustments.
Operator (participant)
A little bit of that, too, is the fact that we're using some purchased transportation in some lanes, especially, I think, on the eastern part of the country, that we would have maybe done rail before. So that, that's another factor as well.
David Ross (Stock Analyst)
Excellent. Can you give average length of haul for second quarter LTL?
Operator (participant)
2019. It's almost, it's almost identical to what it was in first quarter and in second quarter. 2019.
David Ross (Stock Analyst)
Okay. And then, last question, just on the, the new labor deal, that you've got in place and some of the productivity improvements you're expecting. When do you expect those to feather in, and should we expect much by the end of this year, or is it more of a 2015 event?
Judy R. McReynolds (President and CEO)
Well, you know, we're gonna see gradual improvements, I think, from on the, on the productivity issues, and we're continuing to evaluate our network and the appropriateness of it relative to the business that we have. And we do expect to see some changes. More of that would be in 2015 in terms of kind of a material effect. And so, you know, those, those are some of the factors that we're looking at.
David Ross (Stock Analyst)
Thank you.
Judy R. McReynolds (President and CEO)
Thanks.
Operator (participant)
Appreciate it, Dave.
Our next question comes from the line of Todd Fowler. Please proceed.
Todd Fowler (Director)
Great. Thanks. Good morning, everyone.
Judy R. McReynolds (President and CEO)
Good morning, Todd.
Todd Fowler (Director)
Hey, Judy. So I wanna make sure I understand the comments on the yields in the press release and in Michael's prepared comments. Is the commentary there that you've started to restrict the amount of heavier weighted truckload freight in the network? And if that's the case, you know, when did you make that decision in the quarter? I mean, was that something that was done early in the quarter or later in the quarter? I'm trying to get a sense of maybe what the impact would have been in the quarter and what we can expect going forward on yields.
Judy R. McReynolds (President and CEO)
Well, you know, I think we made some adjustments to that in April. It continued throughout, you know, the second quarter, and it continues in July.
Todd Fowler (Director)
Okay, so it wasn't kind of a deadline, we're gonna stop doing this. It's been tweaking over time and-
Judy R. McReynolds (President and CEO)
No, no. Yeah, it's never—nothing is ever drop dead, really. I mean, I think these are all things that, you know, get adjusted, you know, based on what we're seeing. And you know, we have the ability to ratchet that up, and we have the ability to take it back down as appropriate. And again, with some of the issues that we're facing on the productivity side and the network pressure side, you know, we're making sure that the business that we're doing is the best business we could do from a profitability standpoint. And so that is a factor. But you know, that business is always there for us to adjust and take more of.
Todd Fowler (Director)
Okay.
Judy R. McReynolds (President and CEO)
Yeah.
Todd Fowler (Director)
That makes sense. And then can you give a sense of what you think the cost benefit was in the quarter from the new labor contract and kind of what percent that would be overall? And same sort of thing for the change of operations this year and the terminal reduction, how much benefit you think you might have been able to get here, and kind of still what you could realize going forward? Thank you.
Judy R. McReynolds (President and CEO)
Well, you know, based on the previous ranges that we've given, on the labor contract, we're right in line with what we previously thought we would have as savings. And then on the network side, we're same thing. We're, when we look purely at the change and what that did for us, it's right in line with our expectations. And, you know, these offsets are really largely because of the growth that we've experienced, this significant growth from a sequential standpoint that we've experienced really since the beginning of the fourth quarter last year.
Todd Fowler (Director)
But on the labor contract and the network, you're not at 100% of the benefit in the quarter?
Judy R. McReynolds (President and CEO)
No, no. But we are where we said that we would be in our when we announced the changes. So, you know, we can get back into the details of that offline if you'd like for us to.
Todd Fowler (Director)
Yeah, that's fine.
Judy R. McReynolds (President and CEO)
We could do that, but we're seeing what we expected to see based on the timing that we outlined.
Todd Fowler (Director)
Okay, thanks a lot for the time.
Judy R. McReynolds (President and CEO)
Uh-huh.
Operator (participant)
Thanks, Todd.
Our next question comes from John Barnes. Please proceed.
John Barnes (SVP)
Hey, good morning.
Judy R. McReynolds (President and CEO)
Hi, John.
John Barnes (SVP)
Hey, just one question. You know, if I recall, under the labor agreement, it's kind of got a little bit of circular logic in that, you know, as you see some improvement in the OR, you know, at certain thresholds, you start to have to give back some of the negotiated wage reduction. You know, can you talk a little bit about, you know, I know you've got some costs that have kind of cropped up here, but do you have some idea of when you might, you know, begin to experience having to give some of that back? I'm just, I'm wondering, you talked about a year where you start to see that productivity benefit.
You know, are you thinking that it's a year from now, where you start to have to return some of that to the, you know, to the union, or, you know, do you anticipate, you know, maybe hitting some of those thresholds a little sooner than that?
Judy R. McReynolds (President and CEO)
...Well, certainly, let me say up front, we would love to hit those, and we would love to pay that incentive. We think that that would be, that would be the ideal situation, you know, for us. You know, John, in order for me to really answer that question, I'd have to forecast our earnings and, you know, we're not in the business of doing that, and so we're not, we're not gonna really do that. But the threshold or the level of OR that we need to get to that place is a 96. And so, and that's for ABF rate, it's a 96 OR.
Jeff Kauffman (Managing Director and Senior Analyst)
Yeah.
Judy R. McReynolds (President and CEO)
So, you know, based on your modeling, you know, you can look at where you think that comes about. But,
Jeff Kauffman (Managing Director and Senior Analyst)
Right.
Judy R. McReynolds (President and CEO)
We think that it would be a positive if we had that occur.
Jeff Kauffman (Managing Director and Senior Analyst)
Okay. All right. Yeah, yeah, that makes sense. But I, I guess where I'm coming from is you, you could see, you know, a nice improvement in, in some of these costs that you're talking about. You hit that threshold, but then you turn around and have to give some of that back, you know, so it, it would negate some of the, the benefit, right? I mean, am I thinking about that right? I mean-
Judy R. McReynolds (President and CEO)
Well, it absolutely would be an increase. But, think about this, you know, if we were able to engage, you know, our people in terms of that incentive and what the future would hold from that point, I think that would be a great day.
Jeff Kauffman (Managing Director and Senior Analyst)
Okay. All right. That makes sense. All right, thanks for your time. Appreciate it.
Operator (participant)
Thanks, John. Appreciate it.
Judy R. McReynolds (President and CEO)
Thanks.
Operator (participant)
Our next question comes from the line of Ken Hoexter. Please proceed.
Ken Hoexter (Managing Director)
Great. Good morning.
Judy R. McReynolds (President and CEO)
Hi, Ken.
Ken Hoexter (Managing Director)
Hi, Ken. David, can you run through the volume through the quarter in terms of trends? And then secondly, you did a great review, Michael, on the common and restricted and incentive comp. Maybe you can just touch on the pension settlement expense. Does this fade... You mentioned $1 million. Does this fade away over the next few quarters, or is this an in perpetuity kind of expense?
Michael E. Newcity (CFO and CIO)
Well, it's not in perpetuity. It's gonna fade away over time. When you think about what we've got remaining on, you know, actuarial losses, that's gonna come down as we make lump sum distributions on the existing participants in the DB pension plan. And there's lots of variables in that, how that moves in and out, but it's something that we'll report each quarter and talk about, but the one to two million is a good near-term view on that range. And as that steps down, we'll give more color on that.
Ken Hoexter (Managing Director)
Okay, and then but-
Operator (participant)
On your monthly tonnages: April, these are year-over-year versus the same period last year, April 5.8%, May 5.1%, June 6.8%, and then the total quarter was 6%.
Ken Hoexter (Managing Director)
Okay. And then lastly, I guess just a follow-up on the couple of prior questions, but did I hear you right, Judy, on the facility closing benefits? Are there any potential further benefits from facility closings, or have we seen the benefit already rolled in?
Judy R. McReynolds (President and CEO)
Well, the benefit of the network change that occurred in February is in place, and so we're continuing to see that. You know, just to give you some idea of what we're doing on an ongoing basis, in July, we have a Western change of operations that we did that really establishes or reconfigures the HBX locations in Phoenix, Seattle, Denver, and Dallas. And what we're doing there is, you know, we're improving consistency of service and velocity in many of our western lanes. This change that I'm talking about is really not impactful from a cost-saving standpoint, but it's impactful from a service standpoint. And so, you know, but in addition to the network change that we did earlier this year, you know, we have this one in July.
I talk about that we're gonna be continually evaluating the network and that there will be further changes. Some of them will be more impactful, some of them will involve cost savings. But the emphasis, from this point forward is really on service.
Ken Hoexter (Managing Director)
Wonderful. Appreciate the time. Thank you.
Judy R. McReynolds (President and CEO)
Yeah, no problem.
Ken Hoexter (Managing Director)
Thanks, Ken.
Operator (participant)
The next question comes from Art Hatfield. Please go ahead.
Derek Raby (Intellectual Property Manager)
Yeah, good morning. This is Derek Raby on for Art.
Judy R. McReynolds (President and CEO)
Oh, good morning. Morning, Derek.
Operator (participant)
Hey, Derek.
Derek Raby (Intellectual Property Manager)
Hey, I just wanted to piggyback on Scott's earlier question about your incentive-based compensation. Is there a rule of thumb for us to think about going forward? You know, just exclusive of any benefit from your your incentives related to return on capital. Just with the stock movement, is there a rule of thumb in terms of operating income impact from a dollar move in your stock price?
Judy R. McReynolds (President and CEO)
Well, I tell you, what you can do is look... I mean, the plan and the way that it's structured is disclosed with our proxy, and so you can get the details of the plan there, and we can talk more about that offline. But it really is a relative, 50% is based on a relative measure, and it's again, it's over a three-year period of time, the total shareholder return relative to our peer group. And then the other half of that is return on capital employed base. And so, you know, there really, I mean, rule of thumb is probably not a term that you can use with this, but there is work if, you know, if you wanna go in and look at how the plan is structured, that you could do to better understand it.
For instance, we had some expense associated with this plan in the fourth quarter when we saw our stock price really move up relative to our peer group. And you know, in the first quarter, there wasn't much expense because there wasn't much of an increase. It was more flat. And then in second quarter, we saw some move again in our stock price, and we had the expense. And so, you know, I don't want it to sound oversimple, but I do wanna tell you kind of what the past history has been on this. And part of the issue that we're dealing with is the acceleration of that. It's a great thing, you know, from a shareholder value standpoint, and it's very well aligned.
The management's incentives are very well aligned with the result that the shareholders get. But the details of it you can find in our proxy.
Derek Raby (Intellectual Property Manager)
Had you given the 4Q expense?
Judy R. McReynolds (President and CEO)
It was included in the press release as a footnote. It was there.
Derek Raby (Intellectual Property Manager)
Okay.
Judy R. McReynolds (President and CEO)
Yeah.
Derek Raby (Intellectual Property Manager)
All right. Appreciate the color there. I wanted to turn also to contract pricing. It looks like, I think from the commentary, it was about 3% in the second quarter. That's down a little bit off the first quarter. I think most of your competitors are saying right now it's order of magnitude around 4%. Is there anything going on that you're seeing in your particular pricing of your book of business that maybe your competitors, I know you can't speak to your competitors, but maybe something in your book of business that's causing that to be a little bit lower?
Judy R. McReynolds (President and CEO)
No, I mean, I think that this is a good pricing environment. We expect to have good results there. And, really, what you'd have to do is look at the underlying stories and the account by account, you know, impacts and decisions that were made, you know, for the quarter. I'd, you know, ideally, that would be higher. And so I'm glad to see, you know, that the marketplace is leaning that direction. And so, but there's nothing that I would, if I were you, be concerned about as far as that goes. I mean, that's a decent number, you know, and certainly we are in a market where, you know, we can get that number and better.
Operator (participant)
Derek, thanks a lot, ma'am.
Derek Raby (Intellectual Property Manager)
All right. Thank you.
Operator (participant)
Our next question comes from the line of Matt Brooklier. Please go ahead, sir.
Matthew Brooklier (Senior Equity Research Analyst)
Hey, thanks. Good morning.
Judy R. McReynolds (President and CEO)
Hey, Matt.
Matthew Brooklier (Senior Equity Research Analyst)
I wanted to circle back to the dock worker headwinds that you experienced in second quarter. Is there any way to quantify, and you talked about productivity, but to quantify how much of an impact it had on overall profitability or margins during 2Q?
Judy R. McReynolds (President and CEO)
Well, I mean, I think, you know, from if you, if you look at, you know, the, the measures of productivity that we had, for the quarter, if you look at, bills, or shipments per dock street and yard hour, it was down about 4.4%. Pounds per DS&Y hour was down about 5%. You know, those are both, metrics that can be used to develop the numbers, you know, based on how you model that. We typically don't give all the pieces. We don't, you know, we, we allow you guys to model hours and that are associated with different business levels and that sort of thing.
Those are two of the metrics that if you look at those, probably about 80% of the impact in those relates to this issue about new hires.
Matthew Brooklier (Senior Equity Research Analyst)
Okay. Helpful. And then you had mentioned it in your previous comments that, after 12 months, the dock worker productivity, you know, there's a pretty significant increase. I guess it -- is it, does it take a full year before, you know, the full training kicks in, and they're comfortable, and they're back up to kind of average productivity levels? Or, you know, can you kind of accelerate that process to get them up to speed?
Judy R. McReynolds (President and CEO)
Well, believe me, we are-- we're trying our best to accelerate that process, but, you know, it does take time when you're somebody, if it's, in fact, a worker who's never driven a forklift, if you can imagine how that would be. But, we do expect that there would be gradual improvement over that period of time. Certainly not that you have to be in place, you know, for that, for that entire period before you see some improvement. We're gonna see some improvement ahead of that full year. I just gave that because that's really kind of the length of time that it takes to fully recover and from that difference as a new person relative to an experienced person.
Matthew Brooklier (Senior Equity Research Analyst)
Okay. Helpful.
Operator (participant)
Thanks a lot.
Matthew Brooklier (Senior Equity Research Analyst)
Thanks for the color.
Operator (participant)
Okay.
Judy R. McReynolds (President and CEO)
Thanks.
Operator (participant)
Our next question comes from the line of Jeff Kauffman. Please proceed.
Jeff Kauffman (Managing Director and Senior Analyst)
Hey, everybody.
Judy R. McReynolds (President and CEO)
Hi, Jeff.
Operator (participant)
Hey, Jeff.
Jeff Kauffman (Managing Director and Senior Analyst)
Hey, love the logo.
Judy R. McReynolds (President and CEO)
Well, good.
Jeff Kauffman (Managing Director and Senior Analyst)
I just have two questions and really kind of following up on questions that have been asked. I'll go ahead and read the proxy, so I better understand the three-year program. Let's say the stock doesn't outperform the peer group over a period. Is the clawback against what was accrued only to the current fiscal year? You don't actually claw back any previous years, right? It's only within the fiscal year.
Judy R. McReynolds (President and CEO)
Well, no, it's these are three-year plans, and so-
Jeff Kauffman (Managing Director and Senior Analyst)
Okay.
Judy R. McReynolds (President and CEO)
Yeah, it would, it would, it would be recorded. You know, it's based on, again, the relative TSR for that period to date. You would adjust to that in the period that that change occurs. And so it's, it's really, I wanna say mark to market, but it's not exactly that because it's a relative, it's a relative performance measure. But it is like that, in that as the price changes, you evaluate where you are against the benchmark or the peer group, and you make the adjustment in that period.
Scott Group (Managing Director and Senior Analyst)
... All right, so if the stock underperformed, it would actually aid earnings as opposed to this quarter-
Judy R. McReynolds (President and CEO)
Right.
Jeff Kauffman (Managing Director and Senior Analyst)
Okay, I understand.
Judy R. McReynolds (President and CEO)
That's right. That's right.
Jeff Kauffman (Managing Director and Senior Analyst)
And then the second question, thank you for providing the dates for the wage increase and the health and welfare increase. When did the P&L start to see the benefits of the new wage agreement last year?
Judy R. McReynolds (President and CEO)
November.
Jeff Kauffman (Managing Director and Senior Analyst)
November.
Judy R. McReynolds (President and CEO)
November third.
Jeff Kauffman (Managing Director and Senior Analyst)
Okay.
Judy R. McReynolds (President and CEO)
That's when it went in place, so November.
Jeff Kauffman (Managing Director and Senior Analyst)
Okay, November third. All right, well, thank you and congratulations.
Judy R. McReynolds (President and CEO)
Yeah, thanks, Jeff.
Michael E. Newcity (CFO and CIO)
Thanks, Jeff.
Operator (participant)
Our next question comes from the line of Brad Delco. Please proceed.
Brad Delco (Managing Director and Research Analyst)
Hi, Brad.
Judy R. McReynolds (President and CEO)
Good morning.
Brad Delco (Managing Director and Research Analyst)
Good morning, gentlemen.
Judy R. McReynolds (President and CEO)
Good morning, Brad.
Brad Delco (Managing Director and Research Analyst)
Maybe, Michael, for you, thinking about the balance sheet now and, given that you have more visibility, I guess, into sort of the earnings with the contract, any thoughts on deployment of capital? I know you guys are very focused on the non-asset portion of the business, but anything you could provide us in terms of what your thoughts are around, you know, the balance sheet and what you could do with your cash?
Michael E. Newcity (CFO and CIO)
Yeah. You know, as you mentioned, Brad, you know, we are, we're active on organic investment. We've got an active, process in looking at acquisitions, and so we're, we're still very active in growing those non-asset-based businesses, so, that, that will take cash to do that, liquidity. You know, in terms of, what we do with other, things like, like dividends, that's something that we're evaluating. But, but right now, the primary focus is on, on, on growing the non-asset businesses.
Judy R. McReynolds (President and CEO)
Well, and the other thing I'd add, Brad, there may be some opportunities on the ABF equipment side, ABF Freight equipment side, that we need to take advantage of that would address the maintenance issues that we're seeing a little bit quicker. So that's a part of our evaluation as well. And I agree with what Michael said, you know, the growth of those emerging businesses is a high priority for us. But we do recognize that we have a dividend level out there, and so we'll be, we'll be evaluating that as we, as we go through the next few quarters. And we can—we will speak, you know, proactively about that, when we've, when we've gone through that process.
Brad Delco (Managing Director and Research Analyst)
Gotcha. And then maybe another quick one. I think, Judy, you said 20% below current dock worker productivity. You wouldn't quantify the dollar amount; is that correct? But could you maybe give us again, maybe-
Judy R. McReynolds (President and CEO)
Well, I think what's hard about that is, you know, in your modeling, you know, you have hours and rates per hour and efficiencies that are modeled in there, and we're giving you the effect of this one group of employees, and we're telling you, you know, what percentage that is of the total. And I think the best answer is for you to understand the productivity impact and understand how that affects the total workforce. And that, you know, because I think if we give number effects, that has a lot of assumptions with it, and that's hard to deal with relative to what you're modeling and your expectations.
Brad Delco (Managing Director and Research Analyst)
Okay, but the timing of when these dock workers really came on was first and second quarter. So a year from that is when we really kind of get back to-
Judy R. McReynolds (President and CEO)
Many of them, yes.
Brad Delco (Managing Director and Research Analyst)
Okay.
Judy R. McReynolds (President and CEO)
Many of them, yes. We really started to see the... You know, I mentioned earlier this, the strongest sequential growth that we've seen in probably 15 years, that, the better part of that occurred in mid-February forward.
Brad Delco (Managing Director and Research Analyst)
Okay.
Judy R. McReynolds (President and CEO)
And so that's when a lot of this effect has come on. And so-
Speaker 14
Okay. Well, thanks for the time.
Judy R. McReynolds (President and CEO)
Uh-huh, no problem, Brad.
Brad Delco (Managing Director and Research Analyst)
Hey, Sam, I think we've got time for one more question.
Operator (participant)
Perfect. Our last question comes from the line of Rob Salmon. Please proceed.
Judy R. McReynolds (President and CEO)
Good morning, Rob.
Robert Salmon (Analyst)
Hey, thanks. Good morning.
Judy R. McReynolds (President and CEO)
Good morning, Rob.
Robert Salmon (Analyst)
With regard, I guess, Judy, when we're thinking about kind of the network balance between tonnage and yield, you, you obviously, you called out that there's some incremental expense associated with the dock workers that you've been hiring. Have you guys thought about maybe kind of tapering back a little bit, the tonnage growth, just to, to drive improved overall network profitability? Or do you see that the, the pricing environment is such where you'd rather get the, the tonnage in and incur the near-term earnings headwind, given the, the longer-term opportunity?
Judy R. McReynolds (President and CEO)
Well, Rob, I think I spoke to this earlier. You know, we talked about that, you know, as we bring on business, we're looking at that deal by deal. And as you know, we make that evaluation, you know, we're going to see if that business creates a better scenario for us or a worse scenario for us. And you have to make a little bit longer-term decisions than just, you know, the quick decision, you know, on some good LTL business. You want to make sure that you're making the right decision. Where we have some flexibility, and we are addressing that, is in the spot truckload market, and we have some declining levels when you compare year-over-year in that category, and that is one way that you can address the issue that you're talking about.
But that, all that being said, you can do too much of that, too, because you know, that business can be good for us in certain situations, and we want to be sure that we have it there when we need it.
Robert Salmon (Analyst)
All right. Clearly, it's a network, and you've got to balance those two dynamics.
Judy R. McReynolds (President and CEO)
Right.
Robert Salmon (Analyst)
When I'm thinking about the Panther business, frankly, the growth on both the top line and bottom line surprised kind of our expectations. How should we be thinking about the near-term growth opportunity there? I realize you guys made a lot of sales adjustments. And any sort of commentary in terms of potential driver or purchase transportation cost increases that we should be thinking about in the back half?
Judy R. McReynolds (President and CEO)
All right. Well, if you're talking about purchase transportation with respect to Panther, you know, I mean, we're seeing great management of the balance between the revenue side and the cost side in that company. And we feel really good about, you know, what's happening there. Near term, I think if you look at July for Panther, it looks really good as well. And so, we are excited about what the management team at that business has done. And, when we talk with them about business opportunities, you know, there's a lot there. And so, and the growth that we've seen and the improvement in profitability has really been across verticals. It hasn't been in one particular place.
I think as you look out, you know, I was looking at something that the ATA, the American Trucking Association, put out about, you know, just some of the capacity issues and that sort of thing. You know, in a capacity-constrained environment, you know, Panther does well because they oftentimes are the answer whenever other answers don't work. We like that business, we like the positioning of that business, and we'd like for it to be a lot bigger.
Robert Salmon (Analyst)
Thanks so much for the time.
Judy R. McReynolds (President and CEO)
No problem.
Michael E. Newcity (CFO and CIO)
Okay. Thanks a lot. Well, I think that concludes our call. We thank you for joining us this morning, and we appreciate your interest in ArcBest Corporation. Our call now ends. Thank you.
Operator (participant)
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we would ask you please disconnect.