ArcBest - Q2 2016
July 29, 2016
Transcript
Operator (participant)
Welcome to the ArcBest Corporation second quarter 2016 earnings conference call.
Judy McReynolds (CEO)
[audio distortion] During weaker and more challenging than in recent quarters, ABF Freight continues to gain price increases on negotiated business. On our contract and deferred pricing renewals during the quarter, we averaged an increase of 2.9%. This level is below that of recent quarters but still reflects a reasonable level of increase on our most price-sensitive accounts. More customers are currently taking their freight to market, and in those cases the freight carrier participants are very competitive. In those situations, ABF Freight has been successful in retaining existing accounts and gaining new business, both at acceptable pricing levels. We have always realized the necessity of achieving compensatory pricing and timely rate increases from our customers in return for the value we offer as an asset-based supply chain partner. That disciplined pricing emphasis continues during the current period.
The growth in ABF Logistics' total second quarter revenue was primarily the result of additional business from the Bear Transportation acquisition. Revenue at ABF Logistics' legacy business increased slightly despite a significant increase at shipments from new and existing customers that was offset by the impact of reduced revenue per shipment due to lower fuel prices, reduced customer rates, and general market softness in the early part of the quarter. Beginning in June, customer demand improved, thus reducing available truckload capacity and increasing purchased transportation costs.
The slower pace of increased shipment rates secured by ABF Logistics on both its traditional spot market shipments and on the contractual Bear Transportation business compressed gross margins and contributed to a decline in operating income. The Bear integration was the primary reason for ABF Logistics' second quarter operating income decline. The IT and sales integration was substantially completed during the second quarter.
The integration involved structure and role changes within sales and operations, along with a conversion to a new software platform. An aggressive integration timeframe that was followed in an effort to align all of the ABF Logistics campuses for future growth and to further facilitate cross-selling to ArcBest customers. As a result, employee productivity and proficiency suffered, and profitability declined. Due to recent corrective actions taken earlier this month, ABF Logistics has experienced weekly increases in employee efficiency, and we expect continued improvements throughout the remainder of the third quarter. As seen for the last several quarters, soft market demand relative to available truckload capacity impacted customers' needs for Panther Premium Logistics services throughout much of the recent quarter.
Panther Premium Logistics' second quarter revenue declined compared to last year due to these market conditions, along with the impact of flat load growth and an environment where rates charged to our customers have come down more rapidly than the mileage rates Panther Premium Logistics pays to its capacity suppliers. The loads Panther Premium Logistics handled during the quarter traveled shorter distances, and a greater percentage of them moved on straight trucks relative to the percentage decreases moving on cargo vans and larger tractor-trailer equipment. All of these factors, as well as the revenue impact of lower fuel prices, contributed to the revenue decline and reductions in gross margins and operating profitability.
As seen at ABF Logistics, Panther Premium Logistics began experiencing improved business trends in June, and those have continued in July. Though Panther Premium Logistics' July revenue trend is below last year, the need for expedited services seems to be improving.
Recently, Panther Premium Logistics has been able to charge better prices, which are contributing to some margin improvement. It is too early to know if these positive trends will continue, but we are encouraged by seeing them at Panther Premium Logistics and in our brokerage business. Throughout the period of weak market demand relative to the abundance of truckload carriers, Panther Premium Logistics has focused on fleet initiatives to add capacity in all equipment categories. Panther Premium Logistics continues to refine and improve its processes for adding new owner-operators and maintaining current driver relationships. During the second quarter, Panther Premium Logistics increased the percentage of loads moving on its owner-operator fleet compared to those brokered with outside agents.
This not only generates higher margins but further strengthens Panther Premium Logistics' carrier relationships. Even in a weaker market, it is important for Panther Premium Logistics to maintain its capacity resources to respond to upturns in business.
FleetNet's second quarter revenue was flat compared to last year because of a reduction in event activity in both emergency roadside repair and fleet maintenance services related to slower business levels and changes in its customer mix. The reduction in events put pressure on operating margins as employee costs per event increased. ABF Moving's second quarter revenue decline reflects the impact of fewer government shipments, partially offset by an increase in consumer and corporate shipment activity. Reduced government activity contributed to lower gross margins and operating income in that segment. And now I will turn it over to David to provide the financial highlights for the quarter.
David Cobb (CFO)
Thank you, Judy, and good morning, everyone. ArcBest's second quarter 2016 revenues were $677 million compared to $696 million in last year's second quarter, a reduction of 2.8%. The revenue increase at ABF Logistics was associated with its freight brokerage acquisition in December of 2015. Lower business levels and the impact of lower fuel surcharges affected second quarter revenue at most of our businesses. Second quarter 2016 net income was $0.39 per diluted share compared to net income of $0.74 per share last year. Our reported second quarter results include a few items of note. Versus the same period in 2015, total corporate healthcare costs increased $1.7 million or $0.04 per share. These higher costs were across all of the ArcBest companies, with the increase on non-union employees at ABF Freight representing $1 million.
Our healthcare costs have been managed well over longer periods of time, reflective of our wellness value and several corporate-wide initiatives that have been implemented to improve the health of our employees. However, this quarter's unusually higher impact is related to increases in the number of health claims filed, as well as a higher average expense for those claims. ABF Freight's year-over-year quarterly results were positively impacted by a $1.6 million increase in gains on sales of real estate, but that was offset by a $1.8 million increase in third-party casualty claims costs associated with an increase in the number and severity of claims versus historical periods. As part of our stock repurchase program, in the second quarter we bought 149,387 shares for a total amount of $2.5 million. We ended the second quarter with unrestricted cash and short-term investments of $216 million.
Combined with the available resources under our credit revolver and our receivable securitization agreement, our total liquidity equals $342 million. The accordion features of these two agreements allow for an additional total amount of $100 million. Our total debt of $225 million includes a $70 million balance on our credit revolver, the $35 million borrowed on our AR securitization, and $120 million of notes payable and capital leases, primarily on ABF Freight equipment. The composite interest rate on all of our debt is 2.1%. Full details of our GAAP cash flow were included in the earnings press release. Earlier in the year, we provided an estimated range for our 2016 net capital expenditures of $170 million-$200 million. This included revenue equipment purchases of $95 million for ABF Freight, which are being made throughout the year and expected to be completed.
However, based on our current expectations regarding real estate opportunities and other miscellaneous items, we now project our total 2016 net capital expenditures to be between $170 million and $190 million, a $10 million reduction of the upper end of the previous range. So far this year, our net capital expenditures total $56 million, which includes $20 million of net cash expenditures and $36 million of financed equipment. ABF Freight reported second quarter revenue of $487 million, a 4% per day decrease compared to last year. As we have seen for the last several quarters, the year-over-year revenue comparison was impacted by lower fuel surcharges. ABF Freight's quarterly tonnage per day decreased 4% compared to last year's second quarter, with monthly year-over-year tonnage changes that included a 5.3% decrease in April, a decrease of 4.7% in May, and a decrease of 2.1% in June.
The number of shipments handled during the quarter decreased slightly by 0.4% on a per day basis. Total weight per shipment during the second quarter decreased 3.6%. ABF Freight's second quarter total billed revenue per hundredweight was $29.07, essentially flat with that of last year's second quarter. Year-over-year comparisons of this yield figure continue to be impacted by lower fuel surcharge revenue versus last year. Excluding fuel surcharge, second quarter billed revenue per hundredweight on ABF Freight's traditional LTL freight had a percentage increase in the low single-digits. ABF Freight's second quarter operating ratio was 96.4% compared to 94.4% in the prior year. As we have seen in recent quarters, the year-over-year comparison of ABF Freight's operating expenses as a percentage of revenues was impacted by the effect of fuel and the reduction in fuel surcharge revenue.
During periods of changing diesel fuel prices, the fuel surcharge and associated direct diesel fuel costs vary by different degrees. While average fuel costs this quarter were lower than the prior year quarter, diesel prices increased throughout the quarter at a more rapid pace than the fuel surcharge rate, which impacted operating margins. ABF Freight's contractual wage rate increased 2% effective July 1st. Also, next week, on August 1st, ABF Freight's average health, welfare, and pension benefits rate will increase by approximately 3%. The increase on the combined union wage and fringe rates is approximately 2.4%, which is generally a more manageable increase rate than the industry, particularly when considering healthcare costs.
In total, our asset-light logistics businesses had revenue of $205 million, flat compared to last year's second quarter, with higher logistics revenue offset by reductions in the other businesses, as Judy mentioned.
Second quarter combined EBITDA for these businesses equaled $6.8 million compared to $13.5 million in last year's second quarter. ABF Logistics experienced revenue growth during the quarter, primarily related to the December 2015 acquisition of Bear Transportation. The legacy portion of ABF Logistics experienced a 19% increase in loads, which requires resources to manage, but as Judy described earlier, these incremental loads only added revenue growth of 1% due to reduced revenue per load. The Bear Transportation locations contributed approximately $19 million to ABF Logistics' second quarter revenue totals. Judy previously provided details on the operational factors resulting from adding the Bear Transportation business.
The integration of the Bear Transportation locations negatively impacted ABF Logistics' second quarter operating profit by as much as $800,000, but the integration efforts also disrupted productivity in the legacy operations.
Due to corrective actions taken earlier this month that Judy referenced, we should see continued improvements throughout the remainder of the third quarter. So, depending on business levels, we expect the Bear Transportation business to likely contribute unfavorably to operating results in the third quarter, but be positioned to contribute positively to earnings by the end of the year. Preliminary ABF Freight results for the month of July 2016 through Wednesday of this week versus the same period in July of 2015 were as follows. Preliminary daily billed revenues decreased approximately 2%.
Preliminary total tonnage per day decreased approximately 4%, with LTL tonnage down in the low single-digits. July tonnage trends are being affected by significant reductions in our full load spot business. Relative to historical trends, July preliminary total tonnage is running below average. July preliminary LTL tonnage is in line with historical trends.
Shipment counts increased approximately 1% with last July, while tonnage has declined, resulting in the lower weight per shipment. Preliminary July 2016 total revenue per hundredweight is higher by approximately 2% versus July 2015, despite lower fuel surcharges. Both year-over-year and sequential comparisons are being positively impacted by the reductions in full load spot business and by changes in freight profile, including the lower weight per shipment. Since the implementation of the current labor contract, which provides for the union employees' wage rates to increase on July 1 and health, welfare, and pension on August 1, our sequential change in ABF Freight's operating ratio in the third quarter versus the second quarter has been roughly flat, ranging from a 10 basis point decrease in 2014 to an increase of 40 basis points in 2015.
Now, regarding our asset-light segments, on a combined preliminary basis, so far in July 2016, revenue from our asset-light logistics businesses is running below last year by approximately 5%-10%. Panther Premium Logistics' preliminary July 2016 revenue versus last year is trending down in the high single-digit range. July 2016 revenue for ABF Logistics is trending up by approximately 30%, driven by the Bear Transportation acquisition. FleetNet's revenue was tracking approximately 15% lower compared to July 2015. ABF Moving's preliminary July 2016 revenue is below last year by approximately 30%. This is related to reduction in government shipments and associated revenue that will likely continue through the remainder of the year. As we have discussed in the past, our Enterprise Solutions Group works toward combining services offerings across ArcBest in a way that simplifies the experience for our customers.
We continue to invest in providing an improved platform for future revenue growth. As a result, along with other personnel and technology investments associated with improving the ArcBest customer experience, the loss reported in the other eliminations line is expected to be approximately $4 million per quarter for the remainder of 2016. Now I will turn it over to Judy for some additional comments.
Judy McReynolds (CEO)
Thank you, David. I wanted to highlight some honors and recognitions we received during the second quarter. Last month, ABF was recognized for the seventh consecutive year for its excellence in supply chain sustainability. Inbound Logistics magazine cited ABF as one of its Green 75 Supply Chain Partners in honor of our long tradition of promoting environmental stewardship. A few of ABF's best practices that make a positive contribution to our environment include a strictly followed equipment preventative maintenance program, limiting the maximum speed of ABF's road tractors to 63 mph, engine idle shutdown on unattended equipment, and extensive use of retreaded tires to reduce the number of tire casings entering landfills. In May, ArcBest was named to the Forbes list of America's Best Large Employers for 2016.
At the time this award was announced, I said that our employees make us who we are and that their dedication is why customers rely on us for their logistics solutions. One of those dedicated employees is ABF road driver Dave Boyer, who was honored last month with the 2016 Governor's Transportation Safety Award for his lifetime commitment to improving safety on our nation's highways. Dave has been a professional truck driver for more than 39 years and has 1.9 million accident-free driving miles. He serves as an America's Road Team Captain for ATA. I am so proud to have Dave represent ABF Freight around the country as a leader in transportation safety and as a shining example of the many wonderful people who work for us.
During our Investor Day at the end of last year, you heard from our leaders about the various initiatives we have underway at each of the ArcBest companies. As a bit of an update, we are making progress on our cross-selling goals. During the last 12-month period, we saw nearly 24% of our ABF Freight customer base also using either ABF Logistics or Panther Premium Logistics non-LTL services, and that is up from 6% in 2011. This growth reflects all the expanded services that we provide our customers and our customers appreciate because they have asked us to give them greater options based on our long history with them. In addition, we are capturing new business that previously would not have come to us as a direct result of the fuller solutions we now have available.
As we work toward a goal of deriving 50% of our revenue from our asset-light logistics services, I am encouraged by the results we have seen so far in this area. And David, now I think we are ready to take some questions.
David Cobb (CFO)
Okay, Tina, I think we are ready for some questions.
Operator (participant)
Thank you. Ladies and gentlemen, if you would like to register a question or comment, 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. Our first question comes from Jason Seidl of Cowen. Please go ahead.
John Barnes (Managing Director and Senior Research Analyst)
Thank you, operator. Good morning, everybody.
Judy McReynolds (CEO)
Morning.
David Cobb (CFO)
Hi, Jason.
John Barnes (Managing Director and Senior Research Analyst)
Just wanted to focus on pricing a little bit because it sounds like, and I know everyone's network is all different, it sounds like you guys are running a little bit below some of the other people that have reported thus far. Judy, could you talk a little bit about going forward and your ability to price above that sort of cost inflation that you are seeing, which I think is at least on your wage sides at around 2%? It sounds like things are getting better on the expedited side. Do you foresee if transport starts tightening up a bit, ABF having the ability to price above your current levels?
Judy McReynolds (CEO)
Certainly, if things tighten up a little bit, that would be that is something that typically follows. One of the things that I think we have been experiencing, and we talked about it in our opening comments, is just the level of bid activity that has increased. Our participation in that is there. It is certainly competitive when that happens, but we have been pleased with the outcomes where we have retained accounts or been able to have opportunities for new accounts. So all of that certainly would reduce in a tightening market, I think, and we would have a better opportunity. Also, some of the greater value options that we have in our businesses with expedited offerings, both working within the network and then with the exclusive use vehicles that Panther Premium Logistics has, those are typically good margin transactions or moves.
And so that helps you along the way too. But I think we are doing fine. I mean, July is consistent with where we were in June. We did comment that it is a little bit weaker. I think that has been noted. But we are not seeing anything of great concern, just a little bit of a weakening from what we were experiencing perhaps in the past several quarters.
John Barnes (Managing Director and Senior Research Analyst)
Judy, you brought up Panther Premium Logistics a little bit. As Panther Premium Logistics started their discussions for sort of peak season capacity on the expedited side, yet we heard from one of the other peak season providers yesterday on the expedited side that they are already in negotiations for capacity for peak season with a lot of their customers. I was just wondering what Panther Premium Logistics is hearing from their customers?
Judy McReynolds (CEO)
Well, I do not know that I would note anything unusual. I think they are in the typical conversations. But in the month of July, we are seeing some upticks in activity, a little bit better gross margin, and that is an encouraging sign. We would like to have experienced that for more weeks to be able to say that there is something definitely happening there. But we have been through one of the longest kind of lull periods or low periods for that business that really the management team at Panther Premium Logistics can remember. And so it would be very encouraging if that would continue, and I think it would speak to the broader market opportunities for all of our service lines.
John Barnes (Managing Director and Senior Research Analyst)
Perfect. Thank you very much, guys. Appreciate the time.
David Cobb (CFO)
Appreciate you.
Judy McReynolds (CEO)
Thanks.
David Cobb (CFO)
Thanks, Jason.
Operator (participant)
Thank you. Our next question comes from Brad Delco of Stephens. Please go ahead.
Brad Delco (Managing Director and Research Analyst)
Good morning, Judy. Good morning, David.
Judy McReynolds (CEO)
Good morning, Brad.
David Cobb (CFO)
Hey, Brad. Good morning.
Brad Delco (Managing Director and Research Analyst)
Judy or David, in the comment about sort of the normal sequential operating ratio, it seems like there are some puts and takes that are unique to second quarter, one being Good Friday was in first quarter, so that should have helped second quarter maybe a little bit, and then I think it sounded like fuel hurt you a little bit. Is there anything else we need to think about when thinking about that relationship between third and second quarter?
David Cobb (CFO)
Well, I would just point out we did have some unfavorable third-party casualty activity in this second quarter. Last year, just looking back, we were probably below the 10-year historical average somewhat. Depending on how our current trends are, those are sort of activity-driven, and though we are improving in those areas, it could be higher than last year's third quarter, so that might impact that sequential move as well.
Judy McReynolds (CEO)
Brad, I would not when you look back at the impact that Good Friday has over a quarter, it is really not that impactful. So I think what David said about the normal relationship that we have third to second, now that we have our contract wage increases July 1st and then the health, welfare, and pension increases August 1st, that has kind of flattened out what used to be a different relationship whenever you looked at third back to second. But that is just the we have got a couple of years' history on that, not a long history. So you have to take that for what it is worth too.
David Cobb (CFO)
Yeah, and that will obviously depend on the environment, the business environment we are in.
Brad Delco (Managing Director and Research Analyst)
Sure. And then real quick, David Cobb, it sounded like David Humphrey had you on the clock when you were going through your asset-light revenue. Can you just repeat what overall asset-light was and real quickly through each of the segments because I could not write those down fast enough?
David Cobb (CFO)
You are referring to the July update. Is that right?
Brad Delco (Managing Director and Research Analyst)
That is correct.
David Cobb (CFO)
Correct. Okay, yes. What I mentioned was that overall running below last year by approximately 5%-10%. Did you want more?
Brad Delco (Managing Director and Research Analyst)
Yeah. Logistics was up 30%, fleet was down 15%. I could not get all of them.
David Cobb (CFO)
Okay. And Panther Premium Logistics, we mentioned running down in the high single-digit range. And then moving impacted by lower government shipments, which we have seen throughout the year down approximately 30%. Just 2015 for moving was a record year for them, and so that is.
Judy McReynolds (CEO)
This year has been probably perhaps weaker than normal. We have got kind of a difficult comparison there.
Brad Delco (Managing Director and Research Analyst)
Okay. And then FleetNet was down 15% and logistics was up 30%.
David Cobb (CFO)
You got those right.
Brad Delco (Managing Director and Research Analyst)
Okay. I just want to make sure I had them. Thanks, guys, for the time.
David Cobb (CFO)
Hey, I will take this knot out of my back and we will move to the next caller.
Operator (participant)
Thank you. Our next question comes from Christian Wetherbee of Citigroup. Please go ahead.
Christian Wetherbee (Senior Research Analyst)
Hey, great. Thanks. Good morning, guys.
Judy McReynolds (CEO)
Good morning, Chris.
Christian Wetherbee (Senior Research Analyst)
Hey, I wanted to touch a little bit on asset-light profitability. And I know you mentioned Bear Transportation and improvements there coming, I think, in a few quarters. But when you take a step back and think about the opportunity of the business, and Judy, I know we are up to, I think, 30% of revenue. You talked about maybe going to 50%. What type of profitability contribution can you get to? It has been running a little bit sort of lower these last couple of quarters. Just want to get a sense of maybe how you think about it relative to the freight contribution maybe when you get to some of those better penetration numbers.
Judy McReynolds (CEO)
Yeah. Well, I think we are behind what our targets would be there by quite a bit because of the integration impact that we had in the quarter and also some of the a little bit unfavorable market conditions that we referenced. I think you probably heard those mentioned by others that are in this business. We had an uptick in purchased transportation costs, and the rates that customers were paying had not adjusted as much yet. And so that was a challenge for us. But when you step back and you look at this base of revenue that we will have that is growing and will hopefully have even larger, our idea would be that it would be at least a 5% margin and perhaps opportunities for even something better depending on technology and how it performs for us and some of the things that we are doing.
What our gap is, is the things I mentioned for this quarter, but over, if you take a little bit longer-term perspective, you are also seeing an impact of some of our newer employees. We still have a high percentage of those in the business because of the growth of the business, and we see a great uptick in their productivity after they have been with us particularly two years' time. What is great about this business for us is we have a real clear line of sight on how to address that gap in the profitability that we are seeing. Some of it is because of growth, some of it is because of this integration.
At the end of it all, we feel like that we are going to have a platform with these locations that we have in Fort Smith, Oklahoma City, Plano, and Fayetteville now. We are going to have a platform that really is scalable, that works for us, and that involves both transactional business and more relationship-oriented business. That is a very encouraging thing. We had some difficulty, perhaps more than we would have expected in the second quarter, but we were changing a lot of things for the workforce, particularly in Plano and Fayetteville. But we can see some good things happening in July, and we have got really the ability to see that on a daily basis, how it is moving and improving. That is all encouraging to us.
Christian Wetherbee (Senior Research Analyst)
Okay. That is a very helpful color. I appreciate that. And then just one quick follow-up. When you are thinking about the July update on the freight side, is it right that yeah, you're right that weight per shipment maybe is sort of outperforming the tonnage side? I just sort of want to get a sense maybe of dock productivity in July and third quarter if we can see some improvement or that, or we still have some headwinds persisting?
Judy McReynolds (CEO)
We still have the weight per shipment issue that is impacting us even in July. David Humphrey and I were looking at that just this morning, and it is still there. And it is a difficult one to deal with because your activities are more shipment-oriented. And for us, I mean, I guess it is encouraging that the shipment levels are not down like the tonnage is, but at the same time, the cost, dock, street, and even linehaul costs that are associated with handling those shipments, you are not getting paid as well for them on the top-line. And so it impacts your margins. That is still happening.
But I tell you, we are not defeated by that thought because we are working in a number of other areas to try to gain productivity either through the use of technology or greater visibility and really just going at this with the expectation that we are going to improve despite this operating condition that we have been experiencing.
Christian Wetherbee (Senior Research Analyst)
Okay. That is very helpful. I appreciate the time, guys.
David Cobb (CFO)
Thanks, Chris.
Christian Wetherbee (Senior Research Analyst)
Thank you.
Operator (participant)
Thank you. Our next question comes from Ken Hoexter of Bank of America Merrill Lynch. Please go ahead.
Ken Hoexter (Managing Director, Senior Airfreight & Surface Transportation & Shipping (Marine) Analyst, and Co-head of Industrials Research)
Hey. Good morning, guys. Judy, I just have a more maybe general question, which is when you think about e-commerce, I just want to understand how is that impacting your core LTL business? Are you seeing increased demand for faster freight, and does that mean it bleeds off of the network and that is why you are accelerating Panther Premium Logistics and other stuff? Or I just want to understand what it means for your core infrastructure.
Judy McReynolds (CEO)
Well, I think that the LTL network and some of the options that we have actually can serve that business very well. So we have definitely seen an increase in our e-commerce business. Some of this is driven by the recent shift from warehouse fulfillment to drop shipping or vendor fulfillment, in other words, direct to consumer business. The second is really an increase in consumers' interest in this heavy, bulky space, getting comfortable with ordering those kinds of items online. We have worked to really expand our delivery options for our retail customers either by using the asset LTL network for linehaul movement so that we can position those shipments at the appropriate final mile distribution point that provides kind of a full spectrum of delivery options and experiences based on, typically, it is a retailer's choice.
So you could see that final mile experience being two uniform drivers providing a customized delivery and installing the product on one hand. And on the other hand, you could see a consumer picking up the product at a local dock. And between these, we have a variety of options for our customers and for the consumers. And some of those are involving threshold deliveries and that sort of thing. So what is interesting for us is we are comfortable because of our moving business and going into residential neighborhoods and dealing with a consumer as a customer. So we know where we can succeed at that, and we know where maybe the cost or the price point does not particularly match up with the expectation of the retailer or the consumer.
But we do see that growing, and we have served that business, I think, well where I guess the expectations of the retailer or the consumer match up with something that we feel like we can do well. But we know what that is very clearly because of our residential experience.
Ken Hoexter (Managing Director, Senior Airfreight & Surface Transportation & Shipping (Marine) Analyst, and Co-head of Industrials Research)
Great. Thanks for the insight. Just a quick one for David. Just appreciate that. But you cut your CapEx back. Any thoughts on what you are doing with the cash there?
David Cobb (CFO)
Well, I just wanted to give an update of where we were to date on that. We continue to plan to complete our revenue equipment purchases that I outlined. We are seeing great benefits there, so that will continue.
Judy McReynolds (CEO)
Well, and Ken, we have a healthy dividend. We have got our share repurchase program that has been announced and out there. And we continue to look at acquisition targets that can really help us with scale in our businesses. So those are all the different plans, I think, for any excess cash resource that we might have.
Ken Hoexter (Managing Director, Senior Airfreight & Surface Transportation & Shipping (Marine) Analyst, and Co-head of Industrials Research)
Thank you very much. Appreciate the time.
Judy McReynolds (CEO)
Thank you.
David Cobb (CFO)
Thanks, Ken.
Operator (participant)
Thank you. Our next question comes from Todd Fowler, KeyBanc Capital Markets. Please go ahead.
Todd Fowler (Managing Director and Transportation & Logistics Equity Research Analyst)
Great. Thanks. Good morning, everyone.
Judy McReynolds (CEO)
Morning, Todd.
Todd Fowler (Managing Director and Transportation & Logistics Equity Research Analyst)
Hey, Judy. Good morning, David. Going back a couple of years ago, I think in 2014 when you were growing tonnage, some of the issues were around the employee tenure on the productivity side. Have you caught up on the tenure? Is now more of the productivity related to the shipment size, or are you still behind the curve a little bit with the tenure of the employees that you have handling the freight?
Judy McReynolds (CEO)
We are still a little bit behind, but it is less of an issue. I think at the end of June, that might be 14% of our dock employees that have less than a year of service. So by comparison, what I have here, it goes back to March of 2015, and that was about 23%. So we are making progress there. As we talked about, though, this weight per shipment issue continues to provide a challenge really to all of our employees in these different areas. And so it is always true in this business that when you get one thing kind of set and moving in the right direction, something else changes on you. And that is just the nature of the business and why we have to have great people. But we are seeing some productivity improvement on the dock.
We are challenged by street productivity still, and some of that is this weight per shipment issue and really just needing a better macroeconomic environment to add more density to our trailers, so.
David Cobb (CFO)
Yeah. I would just add that we are seriously focused in this area, looking at new technologies. I think we have talked about that before that will enhance this and network, always looking at the network, so.
Todd Fowler (Managing Director and Transportation & Logistics Equity Research Analyst)
Okay. Good. Yeah. I understand.
Judy McReynolds (CEO)
Our visibility on those activities is increasing, which helps us with managing on a detail level.
Todd Fowler (Managing Director and Transportation & Logistics Equity Research Analyst)
Got it. Okay. That helps. And then just for a quick follow-up, Judy, I know that you are always in conversations with the unions. Can you just help us think about the timing of the contract negotiations as we move into 2017 and maybe how we think about some of that communication externally and what we should be thinking about over the next several quarters along that line?
Judy McReynolds (CEO)
Well, you are right to anticipate that. I mean, there is a planning process that goes along with that. It is something that comes up every five years. We have a team that is very experienced in that area. Typically, what you would see is those activities ramping up sometime in the late fall or late in the year of 2017. But we are really not speaking to something being scheduled because nothing is at this point. But that is kind of the norm there. And I don't know if you remember this, but in the last contract, we went through that process very smoothly without really any kind of disruption in our operation or anything that was troubling or concerning. And so that is certainly what we would expect to see this next go-around.
Todd Fowler (Managing Director and Transportation & Logistics Equity Research Analyst)
Okay. Yeah. I was just looking for that. So a year from now really is when we should start maybe thinking about some of the communication. Nothing significant anytime sooner.
Judy McReynolds (CEO)
Right.
Todd Fowler (Managing Director and Transportation & Logistics Equity Research Analyst)
Okay. Good. Thanks a lot for the time this morning.
Judy McReynolds (CEO)
Thank you.
David Cobb (CFO)
Thanks, Todd. We will see you.
Operator (participant)
Thank you. Our next question comes from Matt Brooklier of Longbow Research. Please go ahead.
Matt Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Yeah. Thanks. Good morning.
Judy McReynolds (CEO)
Morning, Matt.
Matt Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Good morning. Wanted to go back to Panther Premium Logistics. You gave us an update. You talked to directional improvement that you are seeing in the business. Trying to get a sense for how much of the improvement is related to, I guess, increased demand, the volume component of it, and how much of it is related to improved price. It could be a little bit of both, but I am just trying to get a sense if it is weighted more towards one or the other.
Judy McReynolds (CEO)
Well, that is hard to say with the short little time frame that we have that we are looking at in July. But we have seen our comments, I think, are related to not as much an uptick in the business activity or the volume activity as it is the pricing side or the margin side. But really, in this business, one drives the other. And so but it is sometimes in certain sectors or industries that Panther Premium Logistics serves. But it is a definite visible uptick that we are seeing in the first few weeks of July. And again, I mentioned earlier, we would like to have seen that longer before we call that a changing trend. But that is the observation that we have so far.
Matt Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Okay. So it sounds like things are happening. We just don't know if they are going to continue moving forward. And then I guess what are the implications if your expedited business is improving? How much of a potential lead is it with respect to freight? Have you gone back historically and looked at Panther Premium Logistics volume versus your freight volume?
Judy McReynolds (CEO)
We haven't done that, but there is a reason for that. David Humphrey and I were also looking at that over the last couple of days. There is not a real consistent pattern that we have experienced with Panther Premium Logistics itself. So this 2014 obviously was a great year. 2015 kind of fell off in the middle of the year. Then so far in 2016, we have had weakness until just recently. So even that being something that would predict Panther Premium Logistics' business as you go forward is difficult. So I doubt we would find something there that would be really useful to us on the ABF Freight side. Although we do have an expedited product that runs in the LTL network, and we are seeing some better things there, I think, in the month of July relative to what we have seen before.
There is something there to note.
Matt Brooklier (Senior Equity Research Analyst of Industrial Transportation and Manufacturing)
Okay. Good to hear. Appreciate the time.
David Cobb (CFO)
All right. Thanks a lot, Matt.
Operator (participant)
Thank you. Our next question comes from John Barnes, RBC Capital Markets. Please go ahead.
John Barnes (Managing Director and Senior Research Analyst)
Hey. Good morning.
Judy McReynolds (CEO)
Hi, John.
David Cobb (CFO)
Hey, John.
John Barnes (Managing Director and Senior Research Analyst)
Hey. Hey. So two things. One, I wanted to follow up on the Teamsters contract negotiations. And I know it is a ways off, but given that both you and YRC kind of went your separate ways in terms of how you negotiated additional agreements with the Teamsters outside of the National Master Freight Agreement, is this a scenario where maybe you finally go your own way in terms of just negotiating separately with the Teamsters, or do you think this will be done on a joint basis industry-wide again? Because it seems to me like there is just different needs for both of you, right?
Judy McReynolds (CEO)
I agree. I mean, I think that is true, but also there is something maybe more fundamental in that we have our own agreement. Our agreement runs through the end of March of 2018. I believe there is after hours. So it is a separate process for us.
John Barnes (Managing Director and Senior Research Analyst)
So, there will not, you are not talking about a National Master Freight Agreement any longer? This will be a separate, okay. So, you will be negotiating with them directly?
Judy McReynolds (CEO)
Yeah. I want to be sure that we say this right, but it is called the National Master Freight Agreement, but there is a separate agreement for ABF and a separate agreement that YRC operates under. And there may be agreements. I am not clear on that. But we are definitely separate from them in the way that the process works and the negotiations would work.
John Barnes (Managing Director and Senior Research Analyst)
Occasionally, you have kind of gotten behind UPS, and that is always kind of maybe dragged out the process of finally getting around to LTL. Any concern on that?
Judy McReynolds (CEO)
None that would have revealed itself at this point.
John Barnes (Managing Director and Senior Research Analyst)
Okay. Got it.
Judy McReynolds (CEO)
Right.
John Barnes (Managing Director and Senior Research Analyst)
Okay. And then one question on Panther Premium Logistics. I am encouraged to hear that you are starting to see some improvement there, some improving trends. I guess when I go back and look at where Panther Premium Logistics was when you bought it in 2012, I think in 2011, they were somewhere in that $23 million-$24 million of EBITDA. If I look at the numbers this year, obviously, even with the improvement, they are going to be somewhere significantly less than that. And so I guess I am just asking the question, is there anything about their business today that precludes you from getting it back to where it was when you bought it, or is this just a matter of expedited shipping?
It is just not as robust in the current kind of environment, and you are just that model is just going to be dependent on whenever the volumes are lower?
Judy McReynolds (CEO)
Yeah. There is nothing. I mean, in fact, I think their potential is greater than it was when we bought it. And it is just some of that is just a connection to the other service offerings that we have, but it is also the team there has done a good job of expanding the customer opportunities and relationships since we bought the company. And then although it is in its infancy stage, Mexico for them is an evolving, it is a market that has similar needs, is served by the expedited product well, and they have had quite a bit of focus on that and really established the way that business will be done. And so it really is just a growth story on the top-line side now for them there. So I mean, what we are seeing is clearly environment-related.
Like I mentioned earlier, this weak or low environment has gone on longer than the Panther Premium Logistics management team can remember experiencing. It is something unusual, and hopefully, that we are seeing the end of that and signs of better things to come.
John Barnes (Managing Director and Senior Research Analyst)
Okay. All right. Thanks for taking my questions as always.
Judy McReynolds (CEO)
Thank you.
David Cobb (CFO)
Thanks.
Operator (participant)
Thank you. Our next question comes from Rob Salmon of Deutsche Bank. Please go ahead.
Rob Salmon (VP and Associate Analyst)
Hey. Good morning, guys.
David Cobb (CFO)
Hey, Rob.
Rob Salmon (VP and Associate Analyst)
Earlier in the call, you had talked a bit about kind of the performance on the street as well as the dock with regard to productivity. Could you give us some color on the linehaul side, how much third-party capacity that ABF is currently using, and opportunities that you see in the second half of the year either to do more internal linehaul or more external linehaul that could potentially help out that side on the cost side?
Judy McReynolds (CEO)
Well, I think in the linehaul area in general, we have seen some slightly better things. I mean, I think we have seen some improvement there, and we are encouraged by that. To answer your question on the purchased transportation, in second quarter, the use of that, and this does not include rail, is nearly 3%. So pretty much in line with on average with the 2015 and 2014 usage, I would say there. And that is actually a really good thing because it helps with balance. And on the rail side, it looks like the percentage is 12.7% in the second quarter, which is actually low for a second quarter. I think in 2014, it was about 14%. 2015 was about 14% if you round the figure. And then 2016 is somewhat lower than that. But again, there is a reason for that.
Part of that is just the business levels that we are dealing with. Rail works really well for us as a relief valve for the peak season. And whenever your business volumes are off a little bit, you are going to use that a little bit less. But all good options, working well, and we are pleased to have those options as a part of the total picture.
David Cobb (CFO)
I would just add that our linehaul velocity is really good too. And so we have seen some of the best metrics there in a while.
Rob Salmon (VP and Associate Analyst)
No. I mean, that is interesting because if I am looking at the salary wages and benefits line, the sequential growth was less than the growth in tonnage or shipment counts sequentially. Was there anything else that was going on in that line? Because based on those numbers, I would have actually expected you guys to have been using more third-party linehaul.
Judy McReynolds (CEO)
No. There is not. I mean, there is not anything going on there that is unusual. No.
David Cobb (CFO)
Just trying to manage those costs as best we can.
Judy McReynolds (CEO)
Yep.
Rob Salmon (VP and Associate Analyst)
Yeah. No. It is showing up. And then I guess my second question is along the lines of Panther Premium Logistics. If we do get demand improvement, how should I think about the outlook for Panther Premium Logistics? Would this just be an acceleration of load growth or an upgrade of business mix? And load growth really does not move that much, but I see a huge tailwind to top-line because you are getting a higher revenue per shipment.
Judy McReynolds (CEO)
I would think that if it really improves, you are going to get both. But the differentiator there you have nailed is the margin improvement. That is really what will help. But the capacity sources, I think I mentioned in my comments at the beginning that they have done a really good job of expanding the owner-operator numbers and continuing to build really good relationships with agents, which both are needed. And so their ability to serve business that comes their way is very healthy right now. And I think they have done a good job of making sure of that.
Rob Salmon (VP and Associate Analyst)
Got it.
David Cobb (CFO)
Thanks, Rob.
Judy McReynolds (CEO)
Thanks.
Operator (participant)
Thank you. Ladies and gentlemen, as a reminder, you can press the one followed by the four on your telephone keypad if you would like to register a question or comment. That is the one four. Our next question comes from Bruce Chan of Stifel. Please go ahead.
Bruce Chan (Director of Transportation)
Yes. Good morning, Judy, David, and David.
David Cobb (CFO)
Hey, Bruce.
Bruce Chan (Director of Transportation)
If I remember correctly, we talked on last quarter's call about some elevated BIPD and workers' comp claims. David, I think you mentioned that we are still running a little high on both the number and size of those claims. Can you talk a little bit about what is going on there? Are those just adverse developments from some of the new folks hired back in 2014 and early 2015, or is there something else at work?
David Cobb (CFO)
Well, as you point out, we were a little higher than our historical average on that in terms of as a percent of revenue. And it does relate to some development that we have seen in historical years. And so I think we do a good job now of watching this. This is a focus area. And so we think we have had a reduction recently in terms of accidents per city mile, for instance. But it is an issue that just development of previous years is really what we are experiencing now.
Bruce Chan (Director of Transportation)
Okay. Great. And then just a quick follow-up on Ken's question earlier about the residential deliveries. I know that you are trimming back a little bit on CapEx, but I am wondering if you are or if you have been increasing your percentage on liftgate equipment. I know it is not always easy to drop off a washer and dryer without a liftgate.
David Cobb (CFO)
Yeah. That is a good observation. You are right. We have.
Judy McReynolds (CEO)
You do need that.
David Cobb (CFO)
Need a little help with some of that. We have invested there, and that is right. That is why we are really pretty good at the residential delivery, so as we have done with the household goods over the years.
Judy McReynolds (CEO)
Well, also because of doing the moving business, the U-Pack business. I mean, we have the ramps and other things that help us with that. We have been in that business since 1997, so.
David Cobb (CFO)
Okay. You are right. So we have invested in some liftgate equipment, trailers.
Yeah. We have invested in those over the many years and spread them out throughout our company. And then we are adding some this year as well.
Bruce Chan (Director of Transportation)
So just for my own edification, is that the situation where if you get a residential delivery, you will route that specifically to a liftgate truck or swap a liftgate vehicle in for that delivery, or how does that usually work?
David Cobb (CFO)
They do that in their planning, in their city planning. Obviously, when they realize they need to do that, they try to steer that to a piece of equipment and put two or three of those on there at one time so you have got that liftgate for two or three deliveries without having to come back to the facility.
Bruce Chan (Director of Transportation)
Okay. Great. Well, that is really helpful. Thanks. And I hope you have a good weekend.
Judy McReynolds (CEO)
Thank you.
David Cobb (CFO)
Thanks, Bruce.
Operator (participant)
Thank you. Our next question comes from Ravi Shanker of Morgan Stanley. Please go ahead.
Ravi Shanker (Managing Director)
Thanks. Morning, everyone.
Judy McReynolds (CEO)
Good morning.
David Cobb (CFO)
Hey, Ravi.
Ravi Shanker (Managing Director)
A broad question. Hey. A broad question on M&A. Obviously, things are pretty difficult out there, and there is not much visibility on macro. I mean, does this environment make you want to accelerate or slow down the transformation to getting to a 50/50 asset-heavy, asset-light business over time?
Judy McReynolds (CEO)
Well, I think we want to accelerate that because it is responsive to our customers. So that is what drives our decision-making there. But we can do that in a variety of ways. I mean, we are not going to push to make an acquisition just to make the acquisition. We are very careful, methodical about going through any target and looking to see what it, in fact, does for our business. And the cultural match means something to us. And sometimes if that means a lot to you, it takes a little bit longer to get these things done. But if we could execute on a plan to get to that 50% with our asset-light businesses as a percentage of the whole revenue, we would do that.
But right now, we are working through our acquisition target list, and we also have a number of organic options and approaches that we are using to ensure that we are taking advantage of the customers that we already know and that we know have these needs.
Ravi Shanker (Managing Director)
Great. And one follow-up on the e-commerce question that was asked earlier. Can you remind me what percentage of your revenues comes from e-commerce today?
Judy McReynolds (CEO)
Well, we do not disclose that, Ravi. We do not give insight into some of the sectors of business within ABF Freight really for competitive reasons. And so we are not being coy about that. We just feel that that is something that we need to protect. But we do a healthy amount of business in this area. We are very active in it. And again, it relates in some ways very closely to the consumer business we do in the moving business on the residential side.
Ravi Shanker (Managing Director)
Got it. Understood. Let us speak in relative terms then. If it is X% of your revenues today, where does that go in three years? I am just trying to get an order of magnitude in terms of how big this is going to be an opportunity for you guys.
Judy McReynolds (CEO)
Well, I mean, I do not know that we can really fully answer that because again, what our approach is is to be responsive to our customers. But if an indication of the direction of this is the number of customer conversations we are having about it, it is a lot because we hear about this a lot from our customers. And that is a good thing. But there is this disconnect, though. I think you probably hear about it on the price point. I mean, there is a number of retailers in particular that have talked to me about wanting more of our services in this area. And but yet, when you get to the point of talking about the details of the pricing, there is still a disconnect.
They are focused on what the consumer will pay them, which in many cases starts out a conversation about something free. When we are involved, it usually is a more complicated thing, and it is definitely not free. But we embrace it, and we have some credibility in this area. We are encouraged by the opportunity, and we think that it will only grow.
Ravi Shanker (Managing Director)
Yeah. I think this is a real challenge facing the retailers and not so much you guys. Interesting times. Thanks so much, guys.
Judy McReynolds (CEO)
Yeah. Thank you.
Ravi Shanker (Managing Director)
Thank you.
David Cobb (CFO)
Thanks, Ravi. Well, I do not think we have anybody else in queue. And so I think we will conclude the call. We thank you very much for joining us this morning, and we appreciate your interest in ArcBest Corporation. And we will see you next quarter. Thanks a lot.
Operator (participant)
Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect all lines. Thank you, and have a good day.