ArcBest - Q4 2015
February 3, 2016
Transcript
Operator (participant)
Welcome to the ArcBest Corporation fourth quarter 2015 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press the star followed by the zero. As a reminder, this conference is being recorded Wednesday, February 3, 2016. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead, sir.
David Humphrey (VP of Investor Relations)
Welcome to the ArcBest Corporation fourth quarter 2015 earnings conference call. We'll have a short discussion of the fourth quarter and full year results, and then we'll open up for a question-and-answer period. Our presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of ArcBest Corporation, and Mr. David R. Cobb, Vice President, Chief Financial Officer of ArcBest Corporation. We thank you for joining us today. In order to help you better understand ArcBest Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect the company's future results, please refer to the Forward-Looking Statements section of the company's earnings press release in the company's most recent public filings.
In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures, as outlined in the tables in our earnings press release. As part of the 8-K filed this morning with our fourth quarter earnings release, we included four slides summarizing historical annual results for ArcBest and our subsidiary companies. These slides illustrate the long-term progress ArcBest has made since 2012. A link to these slides can also be found on the front page of our website at arcb.com. We will be referencing these slides during this morning's call. We will begin with Ms. McReynolds.
Judy R. McReynolds (President and CEO)
Thank you, David, and good morning, everyone. 2015 marked another period of transformation for ArcBest Corporation. The progress we have made to be fully recognized as a logistics company with the skill and the will to solve complex problems on behalf of customers has been substantial. I'd like to thank our employees for their efforts to improve our company. As we presented in November at our Investor Day conference in New York, we've gained traction with our ongoing strategy to better serve customers with the supply chain, residential moving, and vehicle maintenance and repair solutions they need. We outlined our growth strategy and provided many examples of collaboration across our companies. We also discussed our initiatives to significantly grow the asset-light logistics portion of our business while ensuring that our flagship carrier, ABF Freight, continues to perform well and optimize its operations and profitability.
In the fourth quarter, we were challenged by the weaker environment and did not accomplish our objectives in the freight business. However, we made progress in growing the asset-light portion of our business. As seen on slide 1, provided in our 8-K this morning, this business equaled 30% of total revenues in the fourth quarter. That slide also illustrates the steady growth of our asset-light logistics business since 2009, when it only represented 7% of total revenue. If we had owned Bear, an acquisition we closed on December first, for all of 2015, this percentage would have increased to 32%. In all of our businesses, we continue working hard to gain efficiencies and better position our services with customers. That work includes investing in enabling technologies.
As seen on slide 2, adjusted operating income at ArcBest rose 7% for the full year to $81 million on revenue of $2.7 billion as a result of our efforts. slide 2 also illustrates the steady progress ArcBest has made over the last four years in increasing revenue and operating profit. As I already mentioned, this year's progress would have been more if not for the soft environment that resulted from high customer inventory levels and weakness in the industrial and manufacturing sectors of the economy. This weakness accelerated toward the end of the year and has yet to abate. Now I'd like to discuss more details about our operating companies. As I mentioned, ABF Freight experienced a challenging fourth quarter and produced weaker-than-expected operating results.
ABF Freight's performance was impacted by the economic factors I just discussed and by continuing to provide a high level of customer service despite lower-than-anticipated tonnage levels. Reduced purchased transportation and city cartage costs were beneficial, but not enough to fully offset the excess labor expense we incurred. ABF Freight's revenue decline versus last year was primarily related to reduced fuel surcharge revenues associated with the ongoing decline in diesel fuel prices and lower tonnage levels. Given the current slow economic environment, we have taken actions to further reduce our labor force and better align it with the number of shipments moving through our network. We currently have over 200 dock, street, and yard employees in layoff status, and many other personnel reductions have resulted from attrition. In January 2016, we've reduced our dock and city labor force by 4% compared to fourth quarter 2015.
Compared to January of last year, that reduction is 3.3%. Moving forward, we will continue to monitor our labor levels very closely. Later this year, we expect improvements in our results from items in this year's capital plan that include replacement equipment and the IT hardware utilized by our dock and city personnel during freight handling. These updated tools will provide improved data visibility for labor and equipment planning purposes and enhance our ability to react even quicker to changing business levels. During the fourth quarter, ABF Freight maintained price discipline and secured rate increases from its customers. Our reported decrease in fourth quarter revenue per hundredweight reflected the impact of year-over-year changes in fuel surcharges. Excluding fuel surcharge impacts, the percent increase in our total and LTL revenue per hundredweight was in the mid-single digits.
The average 4% increase we secured on contract and deferred pricing accounts negotiated during the fourth quarter was a good level on these price-sensitive accounts and somewhat below the level we secured in the previous quarters of the year. I'm encouraged by the fact that our sales team reports a healthy number of deals and potential new accounts in the pipeline. We will continue to emphasize price and profitability in our upcoming freight negotiations with customers. On slide 2, you can see that though ABF Freight's steady progression of annual revenue growth was affected by significant declines in fuel surcharges and lower business levels in 2015, the trend of annual operating profit is positive and has increased since 2012.
Throughout 2015, we made progress in expanding the scope of our logistics capabilities in the areas of truckload brokerage, premium, and expedited transportation, rail, warehousing, and ocean and air shipping. As a logistics company, our ability to meet the needs of our customers has helped us effectively complement the core less-than-truckload services offered by ABF Freight with those provided by ABF Logistics, Panther, and FleetNet. Every day, we find new ways to solve our customers' supply chain challenges with the array of services we offer. Our Enterprise Solutions Group works to combine service offerings across ArcBest in a way that simplifies the experience for our customers. This group has been successful in gaining business that we would not have otherwise had, while providing better transportation solutions and significant cost savings to our customers.
ABF Logistics concluded a successful year of organic and strategic growth that included the benefits of two acquisitions during the year, the recent purchase of Bear Transportation Services in December, and the addition of Smart Lines Transportation Group in January 2015. Both of these companies were perfect matches for meeting our goal of broadening the scale of logistics services we offer through the addition of new business opportunities and growth with seasoned employees who have had past success in the brokerage business. The addition of Bear expanded ABF Logistics' geographic footprint into the Dallas and Northwest Arkansas areas. And just like Oklahoma City's location of Smart Lines, these geographic areas offer opportunities for adding new employees and enhancing the organic growth that ABF Logistics has been experiencing over the last few years.
slide three illustrates how our strategy of organic investments and key acquisitions since 2012 at ABF Logistics has resulted in 46% compounded annual growth of revenue and a 25% compounded annual growth rate in operating profit. Despite continued weak demand in the truckload marketplace and reduced fuel-related revenue that contributed to lower revenue per load, ABF Logistics experienced double-digit revenue and shipment growth in the fourth quarter. Account participation for ABF Logistics or Panther with the ABF Freight customers was over 23% at the end of 2015, up from just under 19% at the end of the previous year. As we integrate our locations, we anticipate improving the operating margins of this business. During the fourth quarter, Panther's revenue and operating income declined, despite an 11% increase in total load count compared to the same period last year.
As seen throughout 2015, the availability of excess truckload capacity within the market impacted Panther's business opportunities by reducing the demand for its expedited services. As a result, Panther had lower average shipment revenue and profit margins. Revenue totals and statistics versus fourth quarter of 2014 were impacted by the effects of lower fuel surcharges and changes in the mix of accounts that contributed to a reduced length of haul during the quarter. As seen in recent quarters, Panther's customer needs are being met through the use of smaller Panther equipment types, which also contributed to the reductions in revenue and margins. I am pleased that Panther has made a lot of progress since we bought them in June of 2012.
slide 4 illustrates how the 2015 truckload capacity environment caused Panther's annual figures to be below those of a record-setting year in 2014. However, Panther's annual 2015 revenue and operating profit reflects significant improvements over 2013 and 2012. FleetNet's 18% fourth quarter revenue increase was driven by strong growth in roadside events, resulting from additional business with current customers and events gained from new accounts. In addition, the fleet maintenance portion of FleetNet's business experienced moderate event growth. The fourth quarter operating loss at FleetNet was directly related to an $850,000 charge resulting from an unfavorable third-party casualty claim associated with a customer who later went bankrupt. This was an unusual situation whose related costs wiped out a very good operating quarter for FleetNet.
Excluding the charges related to this uncommon claim, FleetNet would have more than doubled their operating profit compared to last year's fourth quarter. As seen on slide 4, over the last four years, FleetNet has experienced consistent revenue and operating profit growth. ABF Moving's fourth quarter revenue increased 17% over last year as a result of additional business with its consumer moving customers and continued success in growing its corporate relocation services with new and existing accounts. As seen throughout the year, significant revenue growth associated with favorable government service scores resulted in handling a greater portion of government shipments. Operating income improved versus the previous year, despite reductions in gross margins related to changes in shipment mix. slide 3 illustrates that since 2012, ABF Moving has consistently grown its annual revenue and operating profit, producing record results in 2015.
As seen in our 2015 capital expenditures, and as David will discuss regarding our CapEx plans for 2016, we continue to make investments in ABF Freight's tractor and trailer equipment fleet. This new equipment we have added in the last couple of years reduces maintenance costs and improves fuel economy. Our equipment replacement plan will help further reduce the average age of our tractor fleet and optimize our total cost of ownership. At the end of 2015, approximately 75% of our road tractors were covered under manufacturer's warranty. With the new tractor purchases we're planning for 2016, we expect that all road tractors will be under warranty by the end of this year. We have nearly completed the installation of electronic logging devices in all of our road and city tractors.
We chose to adopt this technology two years ahead of the industry mandate. In addition to the necessary industry compliance, there are other advantages and cost savings we hope to gain from them, and those include capturing real-time data for improved labor and resource management and GPS capabilities. The rapid pace of technological changes in the logistics industry and our efforts to equip our employees with the tools they need to most effectively serve customers, drive our information technology initiatives. We're investing in many new initiatives to improve efficiencies and lower costs. Our IT subsidiary, ArcBest Technologies, includes our business insight and analytics group and our research and development team. They are actively involved in numerous projects whose positive impacts will reach throughout our company over the next several years.
Also, ArcBest Corporate Wellness Value is driving proactive healthcare initiatives to promote a healthy lifestyle for our employees and are expected to provide us meaningful medical cost savings due to prevention and early detection. Many of these investments are ahead of the cost savings and process improvements they're designed to create. However, their implementation is critical for the future success of our company by creating an environment that best serves our customer needs and challenges. During 2015, we took actions to enhance shareholder value. In October, we announced a 33% increase of our quarterly cash dividend to $0.08 per share from the previous level of $0.06 per share. During the year, we bought back 402,255 shares of our stock for a total price of $12.8 million.
Our strong balance sheet allows us to enrich our shareholders in these ways while further utilizing our resources for investments to grow our company, improve our profits, and benefit our customers. Yesterday, we announced my election as Chairman of the ArcBest Board of Directors, replacing Robert Young. This change will be effective at the end of our annual meeting, scheduled for April 26th, 2016. I am humbled to follow in Robert's footsteps by being asked to take on these new responsibilities in addition to my current role as President and CEO. Robert is a living legend at our company, and much of our successful history is because of his leadership and influence. In addition, we have named ArcBest board member Steve Spinner as our lead independent director.
Having Steve in this role creates an appropriate governance balance between our management team and independent board oversight of our company. Now I'll turn it over to David to provide the financial highlights of the quarter.
David R. Cobb (VP and CFO)
Thank you, Judy, and good morning, everyone. ArcBest's fourth quarter of 2015 revenues declined 2.5% to $648 million due to reduced business levels and the impact of lower fuel surcharges at many of our businesses. Earnings per share equaled $0.19 for the fourth quarter, compared to $0.53 in fourth quarter of 2014. As detailed in the non-GAAP reconciliation table in this morning's earnings press release, adjusted fourth quarter of 2015 earnings per share equaled $0.21 compared to $0.44 in the same period of 2014. Our reported fourth quarter results were impacted by adjustments for pension settlement charges related to our non-union defined benefit pension plan that equaled $0.02 per share, compared to $0.03 per share in the fourth quarter of 2014. Our effective tax rate for the quarter was 27%.
This is below the full year rate of 38%, which is in the expected range we provided throughout 2015. Tax legislation signed in late December 2015 extended the tax credits related to alternative fuels that previously expired at the end of 2014. As the new tax legislation that was enacted in December included a retroactive tax credit for all of 2015, this year's fourth quarter includes the full year tax benefit of $1.1 million. The tax credit actually earned in the fourth quarter, which is comparable to what was actually earned in the prior year quarter, approximates $290,000. The remaining $850,000 is associated with the first nine months of 2015.
You'll recall that the same thing occurred at the end of 2014, and it similarly affected our fourth quarter of 2014 results. During the fourth quarter of 2015, we experienced cash surrender value market gains of $0.02 per share associated with our life insurance program. During the fourth quarter of 2014, gains from insurance proceeds and market value increases benefited our results by $0.09 per share. A portion of the investments in these insurance policies are in equity and fixed income securities, and therefore, are subject to market volatility. These non-taxable changes in value appear in the other net income line of our income statement, which is below the operating income line. Though this increased 2015's fourth quarter earnings, the increase was approximately $2.1 million less than the increase that occurred in the fourth quarter of 2014.
Fourth quarter 2015 results include transaction costs of $0.03 per share associated with ABF Logistics' December acquisition of Bear Transportation Services. Finally, as Judy previously referenced, during the recent fourth quarter, FleetNet's results were impacted by a third-party casualty claim related to non-performance of a bankrupt customer. This approximate $850,000 pre-tax charge equaled $0.02 per share. Judy previously mentioned our stock repurchase program, and in the fourth quarter, we bought 110,000 shares for a total amount of $2.8 million. For the full year of 2015, consolidated revenues totaled $2.7 billion, compared to $2.6 billion in 2014, an increase of 2%. Full year earnings per share were $1.67, or $1.67, compared to $1.69 in 2014.
But adjusted for the non-operational items I described earlier, 2015 earnings were $1.78 per share compared to $1.67 per share in 2014. Our effective tax rate for 2015 was 38%. We expect our 2016 tax rate to be at a similar level in a range of 37%-40%. We closed 2015 with unrestricted cash and short-term investments of $227 million. Combined with the available resources under our credit revolver and our receivable securitization agreement, our total liquidity equaled $352 million at the end of the year. The accordion features of those two agreements allow for an additional total amount of $100 million.
Our total debt at year-end of $213 million includes a $70 million balance on our credit revolver, the $35 million borrowed on our receivable securitization, and $108 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 are included in our earnings press release. ABF Freight reported fourth quarter revenue of $462 million, a 5% decrease compared to last year. The change from last year's fourth quarter was impacted by reduced business levels and the effect of lower fuel surcharges associated with the decline in fuel prices. ABF Freight's quarterly tonnage per day decreased by 4.9% compared to last year's fourth quarter.
Monthly tonnage trends in the previous year's fourth quarter were the strongest of any quarter in 2014, so we're up against some pretty challenging comps. For fourth quarter 2015 by month, ABF Freight's daily tonnage declined versus the same period last year by 5.8% in October, 5.2% in November, and 3.6% in December. Fourth quarter total shipments per day decreased by 1.5% compared to fourth quarter 2014. ABF Freight's tonnage per day declined 4% sequentially from third quarter 2015 to the fourth quarter. Compared to the most recent ten-year period, this is a relatively normal level of sequential tonnage change between these quarters. Since the freight recession that occurred beginning in fourth quarter of 2006, we have not experienced a fall peak business surge from third quarter to fourth quarter.
Over that period, ABF's total third quarter to fourth quarter tonnage has declined on average, about 4%. For the 15-year period prior to 2006, when the fall peak business surge traditionally occurred, total third quarter to fourth quarter tonnage on a per day basis increased 1%-2% on average. ABF Freight's total weight per shipment was 1,267 lbs, a 3.5% decrease from last year's fourth quarter and slightly below the third quarter of 2015. The reduction in average shipment size in ABF Freight's core LTL business was comparable to that for all shipments ABF Freight handled during the fourth quarter. ABF Freight's average length of haul decreased approximately 1% to 1,014 mi, compared to 1,026 mi in the fourth quarter of last year.
Length of haul was also about 1% below the third quarter of 2015. ABF Freight's fourth quarter total billed revenue per hundredweight was 29.02, a decrease of 1.1% versus the fourth quarter of last year. Year-over-year comparisons of this yield figure continue to be impacted by lower fuel surcharge revenue versus last year. As we mentioned in our early fourth quarter business update, compared to 2014, October benefited from the positive impact of 2 prior general rate increases. Beginning in November, the year-over-year effect of one of those GRIs, or general rate increase, went away. Excluding fuel surcharge, fourth quarter billed revenue per hundredweight on ABF Freight's traditional LTL freight had a percentage increase in the mid-single digits.
On a sequential basis, compared to third quarter, ABF Freight's total billed revenue per hundredweight decreased 2.2% related to normal seasonal changes in freight profile and mix, and further reductions in fuel surcharge levels. The change in sequential revenue per hundredweight was also affected by truckload-rated shipments handled at lower rates due to market capacity constraint conditions. Depreciation and amortization costs increased over the 2014 fourth quarter, related to the greater pace of new tractor, trailer, and equipment purchases we made during 2015. These cost increases are being somewhat offset by the reductions in equipment maintenance and fuel efficiency resulting from replacement of older equipment. As we move forward with further new equipment additions, we expect additional cost reductions in fuel and maintenance costs. In addition, ABF Freight has continued to reduce its use of equipment rentals, thus lowering those costs.
One factor to keep in mind when performing prior year comparisons of ABF Freight's cost items as a percent of revenue, is the effect of the reduction in fuel surcharge revenue compared to last year. This was a significant factor in lowering ABF Freight's total fourth quarter revenue and impacts percentage comparisons of all cost items, even those unrelated to fuel expense. For the full year of 2015, ABF Freight reported revenue of $1.9 billion, slightly below 2014. However, adjusted operating profit improved 17% over 2014. ABF Freight's 2015 total tonnage per day decreased 1.5% versus the previous year. On an adjusted basis, ABF Freight's full operating ratio was 96.6%, compared to 97.1% in 2014.
In total, our asset light logistics businesses had revenue of $198 million, reflecting an increase of 6% versus last year's fourth quarter. Fourth quarter revenue totals were positively affected by increases versus the same period last year at ABF Logistics, FleetNet, and ABF Moving. Fourth quarter operating income for these businesses totaled $3.5 million, compared to $5.6 million in the prior year quarter. The ongoing 2015 pattern of a significant availability of truckload equipment capacity and the associated impact on demand for expediting large shipments, contributed to lower fourth quarter revenues and margins at Panther. Full year 2015 revenue for the asset light logistics businesses was $798 million, compared to $723 million in 2014, an increase of 10%.
Full year 2015 operating income for these businesses was $24 million, compared to $26 million in 2014. ABF Freight results for the month of January 2016 versus January 2015 are as follows: preliminary daily revenues decreased by approximately 2%, and preliminary daily tonnage per day increased by approximately 0.5%. Preliminary January 2016 total revenue per hundredweight is down approximately 2.5% versus January 2015 due to lower fuel surcharges. The change in revenue per hundredweight was also affected by spot truckload rated shipments handled at lower rates due to market capacity conditions. On a preliminary basis, we have obtained an approximate 3.7% increase on deferred and contract renewals in January.
We still believe the market is fairly rational in terms of price, as we achieve sequential price increases in January versus the fourth quarter on our base LTL business. Since the year-over-year difference in fuel prices narrowed in January 2016, the negative impact of fuel surcharge on the total revenue per hundredweight measure also narrowed for the month of January 2016 compared to the effect experienced in previous quarters. Recall that in early February 2015, we modified our fuel surcharge scale in order to be more appropriately compensated at lower fuel cost levels. The preliminary January 2016 revenue per hundredweight figures we are reporting this morning compare back to a period before we changed our fuel surcharge scale.
A recent historical sequential change in ABF Freight's operating ratio has been an average increase in the first quarter operating ratio over the fourth quarter operating ratio of approximately 4 percentage points. On a combined basis, revenue from our asset light logistics businesses increased approximately 14% in January 2016 versus the prior year, January. Panther's January 2016 revenue versus last year is approximately 4% lower. Loads handled by Panther, though, in January are projected to increase by approximately 13%. As seen in 2015, Panther's lower revenue per load reflects a business mix shift and increased available truckload capacity in the spot market for large shipments. January revenue growth at our other asset light logistics companies reflects solid improvement at FleetNet and ABF Moving, and additional business at ABF Logistics related to our acquisition of Bear Transportation Services.
January 2016 revenue for ABF Logistics is expected to increase by over 40% due to the Bear acquisition. Bear generated approximately $110 million of revenue in 2015, but recent months have been 20%-25% below 2015 levels, reflecting a decline in revenue per shipment, primarily associated with the effect of lower fuel prices. Beginning in 2015, and prior to our acquisition on December 1, Bear's business began to be impacted by customers associated with the oil and gas industry. While we continue to serve those customers, the industry impact has resulted in a lower number of shipments than historically handled by Bear. Judy mentioned the work that our Enterprise Solutions Group is performing toward combining service offerings across ArcBest in a way that simplifies the experience for our customers.
Because of the successes achieved, we are continuing to invest to provide an improved platform for future revenue growth. As a result, quarterly other corporate costs in 2016, on average, are expected to be approximately $1 million above 2015 quarterly levels. I'll conclude with some details about our CapEx. In 2015, ArcBest net capital expenditures totaled $152 million, including approximately $106 million of revenue equipment for ABF Freight and Panther. Depreciation and amortization costs on fixed assets equaled $89 million. For 2016, net capital expenditures are estimated to range between $170 million and $200 million. This includes revenue equipment purchases of $95 million, primarily for road tractors and road and city trailers at ABF Freight, to replace both existing equipment and local rentals.
In 2015, we purchased 600 new road tractors, a higher annual number than in the past. This year, we plan to purchase 610 road tractors. As we previously discussed, this accelerated level of purchases helps improve the age and reduce the maintenance cost of our equipment. As an example, the new tractors we purchased in 2015 are currently trending with increased miles per gallon of 5%. Expected real estate expenditures totaling approximately $45 million include construction costs for an office building and call center facilities that were previously disclosed in last year's expected CapEx plans, but due to timing, have shifted into 2016. The remainder of capital expenditures planned for 2016 is for a variety of investments, including handling equipment upgrades and replacements, dock security systems, U-Pack equipment, and a number of information technology investments throughout the company.
ArcBest depreciation amortization costs on fixed assets in 2016 are expected to be in a range of $100 million-$110 million. Now I'll turn it back to Judy for some additional comments.
Judy R. McReynolds (President and CEO)
Thank you, David. I wanted to highlight a couple of honors that ArcBest received in the last few months. In mid-November, the Women's Forum of New York recognized our company for achieving at least 20% female representation on our board of directors. In addition to my service on the ArcBest board during the last few years, we have been fortunate to welcome Janice E. Stipp and Kathy D. McElligott as ArcBest board members. Janice is the Chief Financial Officer of Rogers Corporation, and Kathy is Executive Vice President, Chief Information Officer, and Chief Technology Officer of McKesson Corporation. Our company greatly benefits from their business experience and the insights they offer. Also last month, ArcBest was named to Chief Executive Magazine's 2016 Best Companies for Leaders. We were number 35 on the list of 40 global public companies recognized for excellence in leadership development.
One of the keys to our success over many years has been our people. They have a special attitude that keeps each ArcBest customer and their unique needs at the forefront of everything they do. The various elements of our leadership initiatives are designed early in their careers to identify, train, and develop future generations of leaders throughout our company. I'd like to take this opportunity to reiterate the main themes from our Investor Day event held during the fourth quarter. First, to recap, we hear every day from our customers that they face increased supply chain complexity, including global product sourcing, demand for real-time information, even faster delivery times, and the need for consultative analytical professionals with deep knowledge and expertise.
This reality necessitates that we constantly evolve our own business to meet their needs through expanded logistics offerings in areas like truckload brokerage, warehousing, ocean shipping, forwarding, expedited, and outsourcing of transportation management. In fact, we have offered these services for years, but we now tie them together for customers more easily through our enterprise solutions group, often through a single point of contact. We also constantly strive to understand their needs as the marketplace continues to change rapidly. We have optimal conditions for growth. Nearly 75% of ABF Freight and Panther customers have two or more logistics needs for solutions that we offer across the enterprise, both in normal and capacity-constrained operating environments. They like being able to go to one place for asset and asset-light solutions.
The choice is important to them, and based on their long experience with us, they trust that we can do the job. We recognize the need to produce improvements in revenue and profit growth, and that starts with improved results at ABF Freight. This company is the foundation of our business, and we must improve the efficiency of our operation while maintaining a high level of customer service. We are actively working to do so. Thanks for your time, and Dave, now I think we're ready for some questions.
David Humphrey (VP of Investor Relations)
Okay. Savannah, I think we're ready for some questions.
Operator (participant)
Thank you. Ladies and gentlemen, if you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. One moment, please, for the first question. Our first question comes from the line of Alex Vecchio with Morgan Stanley. Please proceed with your question.
Alex Vecchio (Analyst)
Good morning. Thanks for taking my questions. David, I just wanted to clarify a comment you had made on the ABF Freight OR sequentially. I just want to confirm, did you say January was trending in line with seasonality, and that was up 400 basis points sequentially, or that you expect the full quarter to follow that normal seasonal trend, and then that would kind of suggest a, you know, a 102% OR? I just wanted to clarify that.
David R. Cobb (VP and CFO)
Thanks for the clarifying question. What I've stated was just our historical average OR deterioration from fourth quarter to first quarter is historically in the 400 basis points range. That's all I'm saying. We don't, as you know, we don't provide guidance, but that's just the historical average that we've had.
Alex Vecchio (Analyst)
Okay, that's helpful. Then I wanted to touch on the CapEx a little bit more. It's increasing versus last year, and I realize that you've got a bunch of replacement going on, but it also looks like you have what $45 million of what's labeled as expansion opportunities. And I guess I want to just think a little bit more about why you're investing in growth right now, especially in the LTL segment, when your returns are below your cost to capital, and maybe we can talk a little bit more about what those expansion opportunities are there.
David R. Cobb (VP and CFO)
I believe the expansion you're talking about is the real estate. Is that right?
Alex Vecchio (Analyst)
I think that's right.
David R. Cobb (VP and CFO)
Yes. Most of that is a replacement of currently leased facilities. So, you know, we should have a benefit there from just the total cost of ownership, I guess. And a lot of that is for, you know, previously announced projects that we had in 2015 announced and carried over due to timing into 2016. A lot of that supporting the logistics businesses as well, where we're having tremendous growth and opportunities for growth. In terms of the ABF Freight investments, you know, we've talked about this in the past, where we view this as a long-term view of the company.
We mentioned that in 2013, we bought basically no road revenue equipment, and during the recession, we were behind on some of that. But this is, you know, through some studies of long-term ownership, we realized that we need to be in a better place there. So we've, as we pointed out, we're seeing improvements in miles per gallon. And these are, you know, to back up, this is replacement equipment, not additions. So just to make that clear. So what we're replacing is old equipment that and as it ages, as you're familiar with, will, you know, result in higher maintenance costs.
As we look at this over the life of these units, we've studied and note that we need to have a newer or get back to a sort of our historical to life on that equipment. So, you know, this is, again, we anticipate. anticipated some higher costs initially due to some higher depreciation, but we're seeing the benefit of that as we reduce rentals, and we have better maintenance and better miles per gallon.
David Humphrey (VP of Investor Relations)
Alex, thanks a lot.
Alex Vecchio (Analyst)
Thanks.
Operator (participant)
Our next question comes from the line of Brad Delco with Stephens Inc. Please proceed with your question.
David Humphrey (VP of Investor Relations)
Brad, you there?
Operator (participant)
Mr. Delco, please go ahead. Your line is open.
Brad Delco (Managing Director)
Hey, can you hear me now?
David Humphrey (VP of Investor Relations)
Yeah, go ahead, Brad.
Judy R. McReynolds (President and CEO)
Yeah. Hi, Brad.
Brad Delco (Managing Director)
Hey, good morning, Judy. Good morning, gentlemen. Judy, I wanted to see if you guys have made a lot of investments in the logistics portion of your asset-light business. And I think David or Judy, you made a comment about there being a focus on improving the operating income there. You know, looking at the margins there today, can you at least quantify kind of how much investment you think is there that you have the potential to leverage? Or if you just, you know, decided just to sort of pull back the investment in growth, where you think those logistics margins could settle out? Because obviously they're sort of underperforming relative to peers and just trying to get a sense of what those could look like.
Judy R. McReynolds (President and CEO)
Sure, Brad, that's a great question, because, you know, we are in a mode with ABF Logistics in particular of heavy investment, and that investment tends to come through adding people, you know, ahead of business. Also, you know, you have a technology spin to try to gain, you know, better efficiency in the business. And so when we look at, in particular, and this is kind of, I'm gonna make some comments here that are excluding the Bear acquisition and integration. But, you know, if we look at our sales employees, you know, we have about 22% or so of those folks that have been in their job less than a year.
And if a person has been in that role for more than a year, they tend to be twice as productive as someone who hasn't. And then on the operations side, we've got roughly 20% of our truck finders that have less than six months of experience. And once they have that experience behind them, that six months of experience, they tend to improve their productivity by about 40%. And so, but, you know, when you shake all that, all that out, what you're looking for is an answer, you know, that, you know, gets us to a place that you see on average, the best-in-class, you know, logistics companies performing at. And we certainly see that.
I mean, we see clearly that if we had, you know, a kind of a steady state workforce there, that we could have 5%-6% margins in this business. But it's our view, because of the massive opportunity that we have to grow this business and the early stage that we're at in doing that, that we should pursue this growth. And really, that's something that is not affected, you know, by what's going on with the economy. It's something that really is a great opportunity, one that's with customers that we know and that we know need these services, and, you know, that's what we're trying to pursue there.
Now, with the Bear acquisition put in the mix of this, you know, we're not gonna see that be accretive in the first quarter, and we knew that because we've got some integration to do to get everyone on the same platform. But as we've gotten in there, we're really excited about some of the best practices from their system and their approach to things, the best practices that ABF Logistics brings, kind of combining those into a great system or platform for our employees to work from. And we really like the Plano and Fayetteville locations also from both a business standpoint and employee standpoint. I hope that answers your question, Brad.
David Humphrey (VP of Investor Relations)
Hey, Brad, I think we're gonna move along. We got several folks in the queue.
Brad Delco (Managing Director)
Thank you. Thank you, David. Thank you, Judy.
David Humphrey (VP of Investor Relations)
Yeah.
Operator (participant)
Our next question comes from the line of David Ross with Stifel Nicolaus. Please proceed with your question.
David Ross (Research Managing Director)
Hey, good morning, everyone.
David Humphrey (VP of Investor Relations)
Hey, Dave.
David Ross (Research Managing Director)
Maybe a question for David, just on the operating income. You know, as I, as I look down with, you know, ABF generating around $8 million in the quarter and the logistics generating a little over $4 million, and when you back out the insurance, there's that other and eliminations line, and you ran through a lot of numbers in the prepared remarks. Maybe I didn't catch them all, but can you talk a little bit as to what that kind of $3.9 million takeaway, you know, from operating income is?
David R. Cobb (VP and CFO)
Right. Hey, David. Yes, that's a big piece of that is the transaction cost related to the acquisition of Bear. So that's about $1.4 million of transaction cost in there.
David Ross (Research Managing Director)
Okay, and then what would the other, you know, $2.5 million be?
David R. Cobb (VP and CFO)
That's, you know, as we talked about the investments that we're making in enterprise services, Judy mentioned, I mentioned it also in my prepared remarks, that that's investments that we're making there.
Judy R. McReynolds (President and CEO)
Yeah, it's-
David Ross (Research Managing Director)
And then just to-
Judy R. McReynolds (President and CEO)
Basically, Dave, it's a platform for us to bring people to work with customers as a single point of contact across the enterprise. And we're seeing some good success there, and it's bringing business, you know, into the operating companies. And it's still at an early stage, but it's something that customers have specifically asked for us to do.
David Ross (Research Managing Director)
Are those more IT investments or sales investments, kind of at the corporate level?
Judy R. McReynolds (President and CEO)
They're anything from sales investments to analytical people to people that handle, you know, managed transportation for customers, that sort of thing. And again, it's working across the enterprise.
David Ross (Research Managing Director)
Okay, so as you grow that enterprise solutions segment, we should see more in that other, in eliminations line, just because there's gonna be more expense that's not necessarily attributable to ABF or the logistics?
Judy R. McReynolds (President and CEO)
Well, you know, we do, we do anticipate that that will become. As it, as it matures, it will become more clear how those people are allocating and spending their time. And so we go through a process of charging that back, if you will, to the operating companies. But it's just at an early stage, and we're, you know, we're trying to work through exactly how that's gonna perform and work, before we do, the full extent of that. Does that make sense?
David Ross (Research Managing Director)
It does. Thank you.
Judy R. McReynolds (President and CEO)
Yeah, sure thing.
David R. Cobb (VP and CFO)
Okay. Thanks a lot, Dave. Thank you.
Operator (participant)
Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Chris Wetherbee (Senior Research Analyst)
Hey, thanks. Good morning, guys.
Judy R. McReynolds (President and CEO)
Good morning.
Chris Wetherbee (Senior Research Analyst)
Just wanted to ask a question on pricing. You know, you gave some detail about the contract and deferred pricing in January. But just generally speaking, as you're talking to customers, kind of how you were thinking about it, it seems like we're seeing a little bit of a deterioration, which I think would be expected, given where tonnage levels are. But with tonnage kind of stabilizing to some extent in January, how is that playing out for the first quarter? And maybe what's your outlook for 2016?
Judy R. McReynolds (President and CEO)
Well, well, you know, I think for the first quarter, there's a number of things, you know, as David mentioned, that you have to consider. You know, and I guess more specifically, let's just talk about January, since that's the month that we have that's recently behind us. You know, this time of year, we will recognize that more of our costs are fixed and in the spot market or that part of our business. You know, we take advantage of that, of that market, and at times we'll reduce our pricing in spot the spot market to attract some business that helps us cover those fixed costs. But when we look at the overall result for the company, the operating profit is improved as a result of that action.
So, you know, that's something that we, we typically will do in the first quarter relative to other quarters of the year. I mean, obviously, it tapers off and is not something that you have much of any effect from, say, in the month of March. But because of the kind of the weakness in the environment, we actually did some of, of that same type of thing back in the latter parts of the fourth quarter. And again, when you step back from it and you look at the, at the implications on the business, the idea is that you have an improved profit performance, even though it appears that there is some pressure in the pure revenue per hundredweight metric.
The other thing that you have going on is you know, just the dramatic effect that fuel surcharges have had, you know, on that, on that measure. And we're trying to give you some information about kind of the LTL base pricing, which, you know, I felt like in the fourth quarter was fine. You know, mid-single digits in this kind of an environment is fine. You know, what we're getting on deferreds and contracts, which is our most price-sensitive business, you know, in that 3.5%-4% range, you know, that's a good outcome in this kind of an environment. And so, you know, we're continuing to pursue price discipline and profit improvements in our business.
I mean, it's obvious we have to make a lot of investments in our business, to keep pace with customer demands, and so, that's our posture. I hope that helps.
Chris Wetherbee (Senior Research Analyst)
It does. And just one point of clarity, just quickly to understand, in the contract and deferred rate increases in the mid-single digit that you've talked about, does that include some of the actions you've taken in the spot market, or does that exclude what-
Judy R. McReynolds (President and CEO)
Oh, no, no.
Chris Wetherbee (Senior Research Analyst)
... Some of the actions you've taken?
Judy R. McReynolds (President and CEO)
No. No, let me back up for a minute just to explain to be clear about that. We have about 35% of our business that is you know under general tariffs, kind of normal you know regular customers under general tariffs. We have another say 50% or so of our customers that have contracts. Most of those are year-long contracts, so that's the piece that we're talking about when we give that 3.5%-4%, and then the rest of our business is more transactional and quoted on the spot market.
Chris Wetherbee (Senior Research Analyst)
Okay, that's very helpful.
Judy R. McReynolds (President and CEO)
Yeah, that includes our moving business as well.
Chris Wetherbee (Senior Research Analyst)
Okay, great. Thank you for the time. Appreciate it.
David Humphrey (VP of Investor Relations)
Thanks, Chris.
Judy R. McReynolds (President and CEO)
Yeah, no problem.
Operator (participant)
Our next question comes from the line of Ken Hoexter with Bank of America Merrill Lynch. Please proceed with your question.
Ken Hoexter (Managing Director)
Craig, good morning. Judy, David and David.
Judy R. McReynolds (President and CEO)
Hi, Ken.
Ken Hoexter (Managing Director)
Can you talk about, I think David was talking a little bit about the employees and some of the labor on either furlough or layoff. What can you do to lessen some of the fixed costs at ABF Freight in a downturn market like this?
Judy R. McReynolds (President and CEO)
Well, you know, we did mention that we have 200 people that are currently on layoff status. We also mentioned that we've taken advantage of retirements in certain positions, and that's actually been quite a number of people that we're not, you know, replacing those positions in this kind of an environment. Something else that's been, you know, a good effort, I think, this year, is to really reduce our use of purchased transportation, rented equipment, cartage agents, and, you know, to really invest in technologies that allow us greater visibility in all of our operations, including line haul operations, so that we have an improved ability to do things like fill the empty capacity.
And, you know, something else that, that we have, you know, we talked about, I think we talked about more at our Investor Day, but, but the ability to use, you know, for instance, ABF Freight as a capacity source for the business that we gain, in the brokerage arena, that's been.
Ken Hoexter (Managing Director)
Judy, I know David's gonna cut me off, so I just wanted to, 'cause I know I got two questions, I just want to understand how-
Judy R. McReynolds (President and CEO)
You're gonna cut me off.
Ken Hoexter (Managing Director)
Well, but 'cause I know David's hook is coming. But how flexible-
David Humphrey (VP of Investor Relations)
Try to keep them all happy, Ken.
Ken Hoexter (Managing Director)
Sorry, Judy. I don't mean to do that.
Judy R. McReynolds (President and CEO)
That's okay.
Ken Hoexter (Managing Director)
How flexible is the labor cost, like, the labor side? I want to focus on the labor side. If you're seeing the volume go down a little bit more accelerated, can you do anything more on the labor side, or is it more just waiting for that retirement portion?
Judy R. McReynolds (President and CEO)
Well, no, we have the flexibility to reduce headcount as we did with these 200. I mean, I think sometimes people believe that we have some limitation there, but that's actually inaccurate. We have the flexibility to do what we need to do to match up. What our issue is is giving service to customers. You know, when you have a January and February that have lower average tonnage and shipment levels relative to other times of the year, you don't just go back to a customer and say, "Well, we don't give good service in January, February." You continue to give the good service. And so that's what limits you, you know, if you have the idea, and we certainly do, that we're gonna give good customer service.
Ken Hoexter (Managing Director)
All right, but-
Judy R. McReynolds (President and CEO)
Just wanted to be sure and explain that.
David Humphrey (VP of Investor Relations)
Yeah. Judy, I'm gonna have to cut you off now. We'll move on to the next one.
Ken Hoexter (Managing Director)
Thanks, David.
Judy R. McReynolds (President and CEO)
It works, it works on all sides, Ken. Thanks.
Ken Hoexter (Managing Director)
Thanks, Judy.
Operator (participant)
Our next question comes from the line of Todd Fowler with KeyBank Capital Markets. Please proceed with your question.
Todd Fowler (Analyst)
Great, thanks. Good morning, everyone. And Judy, congratulations on the board position.
Judy R. McReynolds (President and CEO)
Thank you so much.
Todd Fowler (Analyst)
I wanted to ask a little bit about the labor expense in the fourth quarter, and from David's comments, it feels like that the sequential change in tonnage was consistent with what you've seen over the past several years. But I think in your comments, you talked a little bit about some excess labor expense and then adjusting to the slower environment. So I'm just trying to get a sense, I mean, did the quarter shape up differently than what you were expecting? And I know to Ken's question, you're just talking a little bit about the staffing levels. I'm just trying to get a sense of why it feels like maybe that the costs were a little bit different than the volumes, but the volumes were in line with what you were, with what you've seen historically.
Judy R. McReynolds (President and CEO)
Yes, Todd, that's a very good question. We, you know, I think the short answer there is that in December, in particular, we had some difficulty, you know, reading where the business levels were going. You know, the first part of December was stronger. The last part was very weak. You know, it's always tricky around the holidays, you know, to determine kind of where things are. But we would have liked to have had a more efficient answer, you know, as we moved through those last two weeks of the year. So, you know, that's a part of our results. That's something, you know, that we've reflected on, and you know, we could have done a better job, and we will do a better job on that.
But, you know, the, in terms of just the overall result, you know, for the fourth quarter relative to the third, kind of the normal relationship, really, it wasn't out of line with what we've seen, as David mentioned, kind of in the recent 10 years of history. But, you know, we certainly have expectations to improve beyond, you know, what we've recently been doing. And that's the other thing that, was a bit of a disappointment for us, and, again, we have opportunities to correct. We, you know, took the action to add to the people that are on layoff status. And, you know, we're looking to make sure that we've got our labor matched up with our business levels as we go through the first quarter.
David Humphrey (VP of Investor Relations)
Todd, I'm gonna move along, try to get some others in here.
Judy R. McReynolds (President and CEO)
Thanks, Todd.
David Humphrey (VP of Investor Relations)
Thanks. Okay.
Todd Fowler (Analyst)
Okay, guys. Thank you.
Operator (participant)
Our next question comes from the line of Jason Seidl with Cowen. Please proceed with your question.
Jason Seidl (Managing Director)
Thank you very much. And, Judy, don't feel bad about getting cut off by David. I'm sure you can get in the back of the queue again. So just a couple quick questions. Could you guys remind us your monthly comps and tonnage for 1Q?
David R. Cobb (VP and CFO)
For 1Q?
Judy R. McReynolds (President and CEO)
I've got something here. You're talking about, you're talking about last year.
David R. Cobb (VP and CFO)
You're talking about. Yeah, you're talking about last year.
Jason Seidl (Managing Director)
Last year, the comps. Exactly, yes.
Judy R. McReynolds (President and CEO)
Yeah.
David R. Cobb (VP and CFO)
Yes. Okay. The quarter was down 0.5%, and the months, January was up 4%, February was down 4.4%, and March was down 1.6%, and the total of that was down 0.5% for the quarter.
Jason Seidl (Managing Director)
Okay, that's very helpful. Next question is regarding.
Judy R. McReynolds (President and CEO)
Well, let me just interrupt here for a second. I think February was affected by weather-
David R. Cobb (VP and CFO)
Yes.
Judy R. McReynolds (President and CEO)
- pretty extremely.
David R. Cobb (VP and CFO)
It was, it was.
Judy R. McReynolds (President and CEO)
If you just-
David R. Cobb (VP and CFO)
Yes.
Judy R. McReynolds (President and CEO)
- Kind of think about what David just said there.
David R. Cobb (VP and CFO)
Looked at that yesterday, yeah.
Judy R. McReynolds (President and CEO)
You might wonder.
David R. Cobb (VP and CFO)
That's right.
Judy R. McReynolds (President and CEO)
Okay.
Jason Seidl (Managing Director)
Right. No, understood. When I'm looking at the headcount reductions and the furloughs that you guys have taken, coupled with the commentary that your average OR sequentially usually gets about 400 basis points worth worse, how much, approximately, do you think those headcount reductions are worth for your OR?
Judy R. McReynolds (President and CEO)
Well, I mean, I think it. That's difficult to say because we can't predict exactly the business levels. That's the unfortunate thing, but it was a good, you know, when you look at, you know, what's happening with headcount, kind of relative back, I mentioned back to the fourth quarter, and you look at sequential business levels, you know, it's not an entire, you know, amount that would address the, you know, the issue. But again, we're trying to balance that with giving the, you know, the service that customers have as an expectation of us. And so, you know, we're- we think we're at a place where we're balancing that okay. Still probably have some more things to think about as we go into February, and we see where things are. But, you know.
There's a lot of moving parts to this, and not the least of which is, you know, our ability to attract some business on the spot market to help us, you know, with fill in capacity as well. So we've got all those things that we're balancing. We think we're in an okay place, and we're going to continue to evaluate it each week.
David R. Cobb (VP and CFO)
Hey, Jason, we're gonna move along.
Jason Seidl (Managing Director)
I understand.
David R. Cobb (VP and CFO)
Thanks a lot. We got a few more in the queue.
Jason Seidl (Managing Director)
All right, guys. Bye-bye.
Operator (participant)
Our next question comes from the line of Art Hatfield with Raymond James. Please proceed with your question.
Art Hatfield (Senior Equity Analyst)
Yeah, thanks. I'm gonna try and get this out real quick, but-
Judy R. McReynolds (President and CEO)
Hi, Art.
Art Hatfield (Senior Equity Analyst)
Hey, Judy, congrats on your appointment, Judy.
Judy R. McReynolds (President and CEO)
Thank you.
Art Hatfield (Senior Equity Analyst)
Hey, as we think about things, you made the comment earlier that January was up 0.5% on tonnage per day in 2016. Can you talk a little bit about how the month trended? The other thing, as I think about that, the comments about how volumes trended last year, you know, you're comping up against your toughest month comp in Q1.
Judy R. McReynolds (President and CEO)
Mm-hmm.
Art Hatfield (Senior Equity Analyst)
Are you in a position that if things don't deteriorate further, that you're gonna be able to ramp costs back up in an appropriate fashion so you don't kinda, you know, add too much too soon? I guess is what I'm trying to ask?
Judy R. McReynolds (President and CEO)
Yeah, I think we have. We're in a really good spot on that. I mean, you know, we don't want to do this, but we can always look to, you know, purchasedd transportation sources for things. Those tend to be more expensive for us. But, you know, it's very very doable to bring the people back that we have on layoff status, for instance. And, you know, we have, you know, good numbers on the road driver side of things, and we have our TMAP, you know, graduates that are coming out of that Teamsters Military Assistance Program, you know, that we're really valuing. So we're in a good spot there.
But, you know, I would enjoy that, to have that problem and, you know, if the environment improves, you know, we'll be in a really good position, I think.
Art Hatfield (Senior Equity Analyst)
Can you comment about how the weeks in January trended?
Judy R. McReynolds (President and CEO)
I want to say that we didn't, you know, we didn't see a lot of. We kind of hovered at the same place. You know, we're all kind of looking at each other. We don't. I don't know.
Art Hatfield (Senior Equity Analyst)
Yeah.
Judy R. McReynolds (President and CEO)
We have that in front of us, but I don't recall anything that varied from that much.
Art Hatfield (Senior Equity Analyst)
Unusual.
Judy R. McReynolds (President and CEO)
There was weather, you know, that was over the, I guess, the weekend of January 22nd or so, maybe a Friday and a weekend and Monday that were affected by that. But, you know, kind of after that was over, we went right back to where we were. You know, even that 0.5% increase includes some impact of the weather. But we look back to last year, we had some weather in January of 2015 as well, so we're not making any issue of that. It's just kind of what happens in January.
Art Hatfield (Senior Equity Analyst)
Just. Okay. That, that's very helpful.
Judy R. McReynolds (President and CEO)
Thanks.
Art Hatfield (Senior Equity Analyst)
I'll let y'all move on.
Judy R. McReynolds (President and CEO)
Okay.
David R. Cobb (VP and CFO)
Appreciate it. Thanks.
Operator (participant)
Our next question comes from the line of Rob Salmon with Deutsche Bank. Please proceed with your question.
Rob Salmon (VP)
Hey, good morning, guys.
Judy R. McReynolds (President and CEO)
How are you?
Rob Salmon (VP)
Well, thanks. With regard to the update in January, can you give us a bit of color? I think in your prepared remarks, you had mentioned you guys were using some of the transactional business as a way to increase to offset fixed costs within the network. Is that what was driving the growth, or is the 0.5% tonnage per day growth that we've seen kind of across your contractual as well as the GRI business that we typically see through the ABF network?
Judy R. McReynolds (President and CEO)
Well, you know, I think that our trends really both in the LTL business and our other, which we call truckload rated business, are similar. I don't think that there's, you know, much there, you know, to take note of. So it's similar.
Rob Salmon (VP)
Okay. And then I guess my quick follow-up is, I guess in light of where the equity value is today in the marketplace, does your thought in terms of using some of your cash in the balance sheet change between M&A or buybacks here?
Judy R. McReynolds (President and CEO)
Well, what our view is, is that we need a balance of all those things. I mean, you know, we mentioned the increase that we made in the dividend. The authorization that we have remaining on the share repurchase is $47 million, and we'll certainly be making use of that, you know, as we go through the year, our intention is to use that. You know, the M&A side of things, you know, you have to fully appreciate what you go through there to get to a point of actually making a transaction. You know, not only do you have to have, you know, a willing seller, but, you know, it has to be the right business. It has to fit into, you know, one of our areas that we need scale and so many other things.
So, you know, we have to be ready to deploy capital, you know, in all those ways, and, you know, we're very focused on that. We do have a good cash level and availability from our banking partners that really gives us some flexibility there. But, you know, certainly taking note of the you know, the share price and, you know, when the trading window's open, you know, we can take advantage of that.
Rob Salmon (VP)
Thanks so much.
David Humphrey (VP of Investor Relations)
Thanks, Rob.
Operator (participant)
Our next question comes from the line of Matt Brooklier with Longbow Research. Please proceed with your question.
Matt Brooklier (Senior Equity Research Analyst)
Hey, thanks. Good morning.
Judy R. McReynolds (President and CEO)
Good morning.
Matt Brooklier (Senior Equity Research Analyst)
So I'm gonna try another one more time on the labor question. What do you think the annual savings are from the headcount reductions and the early retirements?
Judy R. McReynolds (President and CEO)
Well, you know, we don't give guidance, and, you know, we're not going to. I mean, that's, you know, labor is you know, 65% of our costs, and so, you know, if we were to give you some kind of a forecast on that, that would be. But it and, you know, it's gonna change throughout the quarter based on business levels. And, you know, I think you all, I know, have models that determine hours worked and that sort of thing. And so, you know, it's just gonna have to be a part of, you know, how you approach that.
Matt Brooklier (Senior Equity Research Analyst)
Okay. And just to clarify, the headcount reduction, it was a 3% reduction in total headcount?
Judy R. McReynolds (President and CEO)
Uh, y-
David R. Cobb (VP and CFO)
It was-
Judy R. McReynolds (President and CEO)
It was 3% in-
David R. Cobb (VP and CFO)
It was the dock and city.
Judy R. McReynolds (President and CEO)
Yeah.
David R. Cobb (VP and CFO)
That's dock and city employees. The 3% was January this year versus January last year. Judy also mentioned that January this year versus fourth quarter was down 4% for dock and city employees only.
Matt Brooklier (Senior Equity Research Analyst)
Okay.
David R. Cobb (VP and CFO)
There are some other things as well, Matt, that we didn't talk about.
Matt Brooklier (Senior Equity Research Analyst)
Right.
David R. Cobb (VP and CFO)
But those are the primary ones.
Matt Brooklier (Senior Equity Research Analyst)
Do you have a rough sense as to how that 4% relates to, I guess, total headcount in, in the freight network?
Judy R. McReynolds (President and CEO)
Well, I mean, we have 7,500 or so employees. You know, 4,000 or so of those are road and city drivers, and the rest are dock workers.
Matt Brooklier (Senior Equity Research Analyst)
Mm-hmm. Gotcha. That's helpful. Thank you.
Judy R. McReynolds (President and CEO)
Yep.
Operator (participant)
Our next question comes from the line of John Barnes with RBC Capital Markets. Please proceed with your question.
John Barnes (Managing Director)
Hey, guys. Judy, I think piggybacking on a question that was asked earlier about if and when, you know, you start to see some stability or maybe even a little bit of an uptick in freight volumes as the year progresses, maybe to the point where you have to start bringing back on some of these furloughed employees. You've had an issue from time to time with productivity, you know, as you've added those employees back into the system. You know, are you fearful, you know, that you get clipped with that again? Is that something we should be, you know, concerned about as those employees come back online? Or, you know, is this a group of people that are trained up enough that they can kind of, you know, take back on the positions without the slip in productivity?
Judy R. McReynolds (President and CEO)
Well, it should be. You know, when we were adding those employees before, you know, we didn't have the ability to go back with experienced employees that are on layoff. And so, you know, so certainly, you know, that would be your first place to go, and they would have more experience than what we had, you know, when we were dealing with this back in 2014. The other thing that was an issue back then that's much better now is that we have operations supervisors back. You know, we had some really new people in those positions that, you know, we have gained some experience, and so the management of, you know, the workforce is in a more experienced place and should help us there.
You know, the other thing that we're really looking forward to is just the use of better tools, you know, to give us visibility to manage, you know, the hours and you know, just kind of the location of things. You know, we're gonna have ELDs, you know, in all of the tractors. So that helps us, you know, with you know, kind of real-time visibility. We're also working on replacing the equipment that's used by our dock employees, and, you know, we're really looking forward to having, you know, that in place, and we think that, again, that gives us greater management tools and greater visibility. So we'll be able to spot whatever issues that we have in that regard earlier and address them quicker.
And so I, I think all of that puts us in a better position than we were back in 2014.
Matt Young (Senior Equity Analyst)
Okay, and could you elaborate on maybe what you've done from a non-dock and city worker employee? I mean, I'm talking, I guess, more like back office and things like that. Have you reduced headcount there? And if so, by how much magnitude? Thanks for the time.
Judy R. McReynolds (President and CEO)
Well, you know, again, we've taken advantage of retirements in the business. We haven't done a reduction in force there. We're watching the business to see how things are gonna go here. Certainly the case that, you know, it's not just the field operation, you know, that has to work through this, but the rest of the company. So if we see that this is gonna be, you know, a continued lower level of business, a sustained lower level, you know, we're gonna have to evaluate those things and make the necessary adjustments.
David R. Cobb (VP and CFO)
Hey, John, thanks a lot. We've got two more folks in the queue we're gonna try to get to real quick.
Operator (participant)
Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Scott Group (Managing Director)
Hey, thanks. Morning. So just wanted to follow up on the January tonnage just one last time. So it's better than what we were expecti ng. Are you seeing, is that a better than normal sequential trend that you're seeing, or did we just kind of miss something in terms of the comps? Or are you actually seeing some real underlying improvement?
Judy R. McReynolds (President and CEO)
Well, we actually talked about that yesterday, and it, you know, it's not at the kind of top of the heap in terms of the past several years and looking at sequential tonnage. You know, I believe that it was, you know, seventh out of 20+ years maybe. So it's pretty good, but it's not, you know, at the best level. So, you know, I think that, you know, that's the best information we have.
Scott Group (Managing Director)
Right. And if I heard you earlier, you don't think it's being caused by the pricing actions on the spot market because you're seeing it more broad-based?
Judy R. McReynolds (President and CEO)
Well, you know, that certainly. I mean, that contributes, but I wouldn't say that the result would be much different, you know, if it were not for that. So, you know, I think that it does contribute. That's why we do it. But, you know, it's certainly helpful, but I don't know that it's the story.
Scott Group (Managing Director)
Okay. And then just last thing, real quick. So if I think back a year ago when fuel was first coming down and everyone was concerned about the earnings impact on LTL, kind of you and pretty much all the companies said it's not gonna have that much of an earnings impact, and that was right. But now that it's been here lower for longer, it looks like maybe it's starting to have an earnings impact, at least in the first fourth quarter. Is this something that we should be thinking about as having kind of an ongoing earnings impact into 2016 from a year-over-year basis, the just lower fuel?
Judy R. McReynolds (President and CEO)
Well, Scott, I mean, I think the way we manage, you know, that, that issue is as a part of an overall account management process that considers base rates and fuel surcharges, and then it looks at the operating ratio of that given account. And so if for some reason, you know, the fuel component, you know, were to take you to a place that, of profitability that, that wasn't desired, it would be worked, as an account, you know, that, that needed to improve profit, just like any other account that we would have. So we, so we really manage that, you know, as a, as an entire process, you know, on an account by account basis, if that helps. You know, we also, you know, we have a lot of moving parts on the cost side.
You know, we have the fuel effect directly from the bulk diesel prices that we pay, and then the amounts that we buy, you know, in kind of on the retail side. We also have what we're paying, you know, to the railroads and to others that we use for purchase transportation. So there's a number of factors there. But, you know, we like to look at it, as I said, in total, as a total part of the account evaluations that we do. And it's really managed very closely that way.
Scott Group (Managing Director)
Okay, that makes sense. Thanks a lot for the time.
David Humphrey (VP of Investor Relations)
Thanks a lot. Hey, we've got time for our last question.
Operator (participant)
Our final question comes from the line of Matt Young with Morningstar. Please proceed with your question.
Matt Young (Senior Equity Analyst)
Good morning, guys. Thanks. Just a quick question on Panther. I think you hinted that you're still seeing an unfavorable mix shift there, and I'm guessing that's to the cargo van or straight truck side versus the tractor trailer business.
Judy R. McReynolds (President and CEO)
Yes.
Matt Young (Senior Equity Analyst)
Just wondering what the mix of the straight truck versus tractor trailer business is at this point. And along those lines, would you say that this is a permanent shift, where perhaps the margin profile would change?
Judy R. McReynolds (President and CEO)
No, I wouldn't say it's permanent at all. I mean, it's just really a reflection of the capacity that's available in the spot market. And what you see, you know, when there's more capacity is, you know, Panther will handle, you know, fewer shipments on 53-foot vans. But the good story there is the cargo van and straight truck business is in the auto arena, and so we've had good trends there. That's good business for us. It's more steady business, you know, than other business that we can have. And so, you know, although it operates at a little worse margin, probably in total, it's still good business to have, and we're glad to see the load growth from it.
It is indicative that the economy is, you know, kind of, mixed, so to speak. I mean, the auto side's a little stronger, housing's a little stronger, but you certainly see the dramatic weakness, you know, on the manufacturing industrial side.
Matt Young (Senior Equity Analyst)
That's fair. So then the mix shift is a good portion cyclical?
Judy R. McReynolds (President and CEO)
I believe so.
Matt Young (Senior Equity Analyst)
Okay. That's all I had. Thank you.
Judy R. McReynolds (President and CEO)
Yes, thanks.
David Humphrey (VP of Investor Relations)
Thanks, Matt. Okay, well, I think this concludes our call. We appreciate you joining us this morning, and we appreciate your interest in ArcBest Corporation. This now concludes our call. Thank you very much.
Operator (participant)
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.