ArcBest Corp (ARCB) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the ArcBest Corporation's earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, May 1, 2014. I would now like to turn the conference to David Humphrey, Vice President of Investor Relations. Please go ahead.

Welcome to the ArcBest Corporation First Quarter 2014 earnings conference call. We will have a short discussion of first quarter results, and then we will open up for a question-and-answer period. Our presentation this morning -- this afternoon will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of ArcBest Corporation, and Mr. Michael E. Newcity, Senior Vice President, Chief Financial Officer and Chief Information Officer of ArcBest Corporation.

We thank you for joining us today. In order to help you better understand ArcBest Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements by their very nature are subject to uncertainties and risk. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section in the Company's earnings press release, and the Company's most recent SEC public filing.

We will now begin with Mr. Newcity.

Thank you for joining us this afternoon. As you can see from our press release yesterday afternoon, we have made some significant changes with our new corporate name and brand positioning. Judy will talk more about this exciting news in a bit, but the overall take-away is that our Company has an evolving story, one, that demonstrates how we are much better positioned than ever before to serve customers across the supply chain. We have an expanding array of services, as well as people with the attitude to go above and beyond every day to get the job done. The changes announced yesterday more clearly define our progress and our people. We have never been so excited about the opportunities within our grasp.

When most people think about our Company, they think about our asset based best in truckload carrier, ABF Freight. We're happy ABF Freight has that recognition, and the ongoing hard work there has helped put that Company back on a path towards historic profitability. In fact, without the effects of weather and a portion of the non-union pension settlement charge, ABF Freight would have been profitable in the first quarter for the first time in 6 years. This represents a substantial improvement compared to last year's first quarter operating loss of over $22 million. And at the same time our emerging businesses, ABF Logistics, Panther and FleetNet, generated 27% of total revenue in the first quarter. In EBITDA, that more than doubled. Now here are more details of our results for the first quarter of 2014.

ArcBest first quarter 2014 revenue was $577.9 million, compared to $520.7 million last year. The first quarter 2014 net loss was $0.20 per share, compared to a net loss of $0.52 per share last year, including an adjustment for a pension settlement charge of $0.09 per share related to our non-union defined benefit pension plan, we reported a first quarter net loss of $2.9 million, or $0.11 per share.

Regarding the non-union pension settlement accounting charge, you will recall that this occurs when the lump sum distributions of the plan exceed the annual interest costs which occurs because of the July 1, 2013 freeze of benefit accruals under the plan. A first quarter pre-tax charge of $3.7 million exceeded our previously expected cost range due to a higher amount of lump sum withdrawals. This was associated with a recent plan amendment that allows for certain in-service withdrawals of vested benefit. We expect to incur settlement accounting charges throughout 2014, with expected quarterly amounts in the range of $1 million to $2 million on a pre-tax basis. The amount and timing of these charges will depend primarily on the future lump sum distributions. These charges are noncash, and are the result of accounting rules acquiring the write-off of actuarial (inaudible).

We ended the first quarter with unrestricted cash and short term investments of $131.7 million. Combined with the available resources under our AR securitization agreement, our total liquidity equals $186 million. Our total debt of $105 million includes a remaining $81 million balance on $100 million five-year term loan associated with the Panther acquisition, and $24 million of capital leases and notes payable, primarily on ABF Freight equipment. Composite interest rate on all this debt is 2.1%. Full details of our GAAP cash flow are included in our earnings press release.

ABF Freight reported first quarter revenue of $429 million, a [per date] increase of 4.5% compared to last year. ABF Freight's quarterly tonnage per day increased 4.6% compared to last year's first quarter. By month, ABF Freight's January daily tonnage declined by 0.8% versus January 2013, and increased compared to last year by 5.6% in February, and by 8.8% in March. ABF Freight reported a first quarter operating ratio of 102.8%, compared to a 105.5% in first quarter 2013, a 270 basis point improvement. Without weather and the pension settlement accounting charge, an additional 310 basis point improvement would have been realized.

Regarding the weather, as we updated throughout the first quarter, it had a significant impact on ABF Freight's operating results. Most of the severe weather occurred in January and February, with a small amount occurring in March. In quantifying the estimated operating income impact of weather during the quarter, we considered the following items -- lost revenue opportunities, reduced operational productivity, additional employee costs for driver pay and lodging cost, increased cost for fuel, fuel additive and propane, and the impact on equipment including rental costs, towing, and reduced fuel economy. The number of terminal closure days related to this year's first quarter weather was nearly 300, an increase of over 200% versus the same period last year. We estimate that weather reduced ABF Freight's first quarter 2014 operating income by $10.5 million.

As I mentioned earlier, without weather and pension settlement expense, ABF operating results would have been slightly profitable. We also estimate that tonnage was reduced by 2% year-over-year because of the lost business associated with severe weather, but without weather, we estimate that ABF Freight's first quarter tonnage would have increased by 6.6% on a monthly basis. Without weather, our tonnage would have increased as follows -- 2.7% in January, 7.8% in February, and 9.3% in March.

ABF Freight's first quarter 2014 total build revenue per hundredweight was $27.05, a slight increase of 0.7% versus the first quarter of last year. This figure was negatively impacted by profile and mix of business. ABF Freight's total weight-per-shipment was 1,411 pounds, 1.9% above that of last year's first quarter.

On a sequential basis, (inaudible) per shipment increased 6.3%. ABF Freight's average length of haul equals 1,018 miles, slightly below the 1,019 mile figure in last year's first quarter.

Preliminary results for the month of April 2014 indicate that ABF Freight's total tonnage increased by approximately 6%. April 2014 revenue for ABF Freight increased by approximately 11% above April 2013 levels, reflecting an approximate 5% year-over-year increase in account pricing. However, this figure is positively impacted by changes in business mix, and differences in the timing of our general rate increase compared to last year.

First quarter revenues at all of our emerging businesses totaled $158 million which represents a 31% increase over last year. On a combined basis in the first quarter, these businesses produced EBITDA of $7.9 million, an approximate increase of 150% compared to a $3.2 million in last year's first quarter.

Panther's first quarter revenue increased 36% to $72 million. Panther reported a first quarter operating profit of $3.4 million compared to an $860,000 operating loss in the first quarter of 2013. Panther's first quarter 2014 EBITDA was $6.1 million, an increase of over 250% compared to EBITDA of $1.7 million during the same time last year.

FleetNet, our emergency and preventative maintenance company, nearly doubled its first quarter operating income versus last year on increasing revenue by 28%. ABF Logistics and ABF Moving experienced first quarter revenue increases of 37% and 9% respectively. A continued investment in resources that we believe will support future growth and contribute to long-term profitability improvement limited the operating result of both of these businesses.

And now, I'll turn it over to Judy.

Thank you, Michael, and good afternoon, everyone. Before turning to more specifics about the quarter, I want to take a moment to discuss some of the highlights from our corporate rebranding press release yesterday afternoon. This is a significant day for our Company as we usher in a new era. In case you haven't seen it, here are some of the main points.

We changed the name of our parent company to ArcBest Corporation. We unveiled a new brand identity across the entire organization. That includes new logos, a new ticker symbol, a new ad campaign, and important updates to our positioning as one unified company. ABF Logistics, which we formed last summer to provide easier access to third party solutions, also now includes our household goods moving business which has been renamed ABF Moving. It's important to note that we're continuing to publicly report this segment. Panther Premium Logistics' new name better describes what Panther offers the marketplace. Data-Tronics, our in-house IT solutions group, is now ArcBest Technology.

Why have we done all of this? As the transportation and logistics market changes rapidly, we offer an expanding array of services across the supply chain. But in many cases people don't know that. We are connecting the dots for them and presenting ourselves to the market as a unified company bound by common DNA. We want to make sure that everyone understands that we're creative problem solvers who go the extra mile day-in and day-out. For more information, I encourage you to visit our new website arcb.com.

Now on to some additional detail about our quarter. First, the emerging business. As Michael said earlier, these companies represent a significant piece of our evolving story. Panther had a very strong first quarter as improved demand for premium freight services contributed to tighten capacity and increase pricing. In each of the market segments it serves, Panther increased revenue and profit margins at double-digit rates, in some cases by significant amounts. Though all the business segments had encouraging first quarter results, as we saw in the fourth quarter automotive, high value products and manufacturing demonstrated the best results. In addition, Panther is doing a good job of cost management and their operating results reflect this. Finally, Panther is benefiting from the addition of key sales and operational personnel throughout its company who are beginning to bring on new accounts, and make positive contributions to the bottom line. The breadth of solutions we bring to the marketplace in the time-definite premium logistics arena is exciting and should allow us to continue to grow with existing customers and bring on new ones.

At ABF Logistics, first quarter revenue growth was the result of increased shipments for existing accounts, and business from new customers who appreciate the problem-solving skills and attitude of customer care ABF Logistics offers every day. Improvements in operating profit at this company lagged the rate of quarterly revenue growth as costs associated with the addition of personnel, the enhancement of information systems, and other network resources remained ahead of the future benefit they're expected to provide.

During the first quarter, ABF Moving's operating results declined on increased revenue due to some sluggishness in the moving markets they serve, and because of increased costs associated with investments for the future.

FleetNet had another good quarter as business in both its Roadside and Preventative Maintenance segments continued to display healthy growth. As typically happens in the first quarter, FleetNet benefitted from harsh weather that contributed to a higher number of roadside event calls from existing customers. In fact, on several days in the first quarter, FleetNet reported record business levels in its Roadside segment. This, combined with improved pricing on a portion of its business, and new customers on the preventative maintenance side allowed FleetNet to nearly double its first quarter operating profit.

Despite the impact of adverse weather conditions, primarily in the first two months of the quarter, ABF Freight made substantial progress in improving its first quarter operating results compared to the first quarters of 2013 and the last several years. Michael previously described the numerous elements of ABF Freight's networks that were affected by the historically harsh weather. However, moving through the first quarter, year-over-year tonnage trends improved. ABF Freight's pricing totals for the quarter reflected marginal improvements in the midst of a positive LTL industry pricing environment. In the last week of March ABF Freight implemented a general rate increase of 5.4% on its tariff rates, and that impacts approximately 35% of its business. On contract and deferred pricing agreements negotiated during this year's first quarter, ABF Freight attained an average increase of 4.3%. And as Michael mentioned earlier, April price increase levels were positively impacted by changes in business mix and differences in the timing of our general rate increase compared to last year.

Near the end of the first quarter, ABF Freight completed the first phase of its ongoing network redesign that culminated in the consolidation of 30 smaller ABF Freight facilities since the beginning of July 2013. Our goals in this process were to increase operational efficiencies, and lower costs while maintaining our service footprint in improving transit times to and from these geographic areas. Based on evaluations we performed in the few weeks following these network changes, the efficiencies and cost savings at ABF Freight have surpassed our expectation. A $10 million to $12 million of estimated annual costs savings is derived from increased freight density, improved over-the-road-trailer loadings, better utilization of trailer capacity, and the resulting reduction in line haul empty costs.

Additional analysis of the ABF Freight network has been ongoing and will continue throughout the remainder of the year and into next year. We are shifting from a posture of periodically reviewing the network structure, through an approach that provides us a continuous dynamic review of the network in order to be in a constant state of optimization.

And now I'd like to highlight some positive news at ABF Freight during the recent quarter. For the fifth consecutive year, ABF Freight's training department was included as one of the trainings top 125 for excellence in employer-sponsored training and development programs, as recognized by Training Magazine. This year, ABF Freight is listed as the eleventh best training program. ABF Freight focuses on comprehensive training for all of its employees beginning with the new hire orientation, and continuing throughout the employee's career. We strongly believe that equipping our employees with the right skills, both in operations and sales, helps them better understand our customers' needs, and allows them to respond with unique cost-effective solutions. I always enjoy having the opportunity to meet with many of the folks who come into Fort Smith for training from all over the country. Their enthusiasm and positive attitudes make me proud that they represent ABF Freight each day.

Finally, this week we announced that ABF Freight earned the 2014 National LTL Carrier of the Year Award from the National Shipper's Strategic Transportation Council. This is the second year in a row, and the fourth time in the last five years that NASSTRAC has recognized ABF Freight as the top LTL carrier. This award is determined by input from shippers. Because of ABF Freight's emphasis on listening to our customers in order to flawlessly deliver their product, a shipper award like this is especially gratifying.

We've had a very busy quarter with the weather challenges, ongoing enhancements for the network at ABF Freight, and solid revenue and EBITDA gains at our emerging businesses. We're also excited about the work we've done to tell our complete story and go to market as a unified organization known for our trusted brands and our people who are recognized as true professionals. As Michael said, the opportunities before us are bright, and we're working hard to execute on all of our revenue growth and profitability goals for the future. As our new advertising tagline clearly states, our people have the skill to get the job done, whatever that may be. But importantly, we have the will to go above and beyond on behalf of customers. Now I think we're ready for some questions.

Michael, I think we're ready for some questions.

(Operator Instructions).

Chris Wetherbee, please go ahead.

Good afternoon. This is Seth Lowry in for Chris. I guess, actually, I thought I'd start off on pricing. Looks like you guys saw a pretty meaningful acceleration coming out of March into April. I'm just wondering, is there any (inaudible) benefits on the pricing side from (inaudible) weather or maybe (inaudible) better market share. And have you seen (inaudible) step up on the contractual pricing side in April?

Well, this is Judy. I want to be sure that you picked on something that we said as we were going through our prepared comments. As you look to April in comparison to March on the pricing side, you have to keep in mind a couple of things. One of those is that our business mix is affecting that increase level. And also, we put in the general rate increase, really, in the last week of March, so it affects the full month of April but not the full month of March. And so when you look at that, you have to keep that in mind.

Okay. And then maybe I can follow up, you guys quantified the weather effects on freight during the quarter but could you give us a sense where your non-freight business is, what the net impact was?

Well, I think we had a mixed impact there, if you looked at it. We had some of our emerging businesses that were affected positively. Some of them were affected negatively. And so from that standpoint, I think you have a mix of things that's happening there.

Okay. Thank you.

Thanks.

Todd Fowler.

Great, thanks. Hi Judy. Can you guys hear me okay?

Absolutely.

Great. Thank you. And David, thank you for not putting me on the black list. I did want to ask about the tonnage (inaudible) that you saw here in the quarter. We've seen some of the strongest tonnage that we've seen from you in a couple of quarters here, especially as we just for the weather. Again, I'm just kind of curious to get your comments as to what you think really is kind of the driver behind that.

Well, I think there's a few things, one of those being that the economy seems to be a little bit better. I also think that we're positively affected with the tight capacity situation that exists out in the marketplace, probably as a result of that economy. Perhaps maybe some other things were at play there. But then really the last thing, I think, is just as we finalized our contract, the union labor contract in November of last year, I think that as we turned the page into 2014, we really don't have that issue to deal with, and I think that helps as we have customer conversations going forward. And we're pleased that that's the case and there's a lot to look forward to along those lines, both with ABF Freight and the other businesses that we have.

Okay. That helps. And then just my second question. On the operating ratio, I mean, you adjusted for the weather, a shade below 100 here for freight during the quarter. I think typically you've seen almost 500 basis points, probably not quite that high, of sequential improvement. You've got the GRI coming in, you've got the savings from the network consolidation. Is there anything that we should think about that you may not be able to realize the normal sequential improvement from the adjusted operating ratio in the first quarter into the second quarter?

I think that you mentioned all of the things that we were thinking of. You're right when you think about kind of the normal sequential as you move from first to second quarter on average with what you said. I mean that's in the range of what we've experienced in the past. And then also you have the little bit earlier GRI affect and we are happy to say that we've got that initial phase of the consolidation of our facilities behind us and we're looking forward to the benefits of that for the remainder of the year. So Michael, is there anything that you would have to add?

Okay. Thank you very much for your time.

Thanks, Todd.

Brad Delco.

Hey guys. It's actually Ben on for Brad. Good afternoon to everyone.

Good afternoon.

Congratulations on the rebranding effort. I noticed in the press release, you said there would be some new marketing plans in addition to kind of the rebranding. For modeling purposes, is there anything we should be thinking about in terms of cost of the new marketing efforts?

(Technical Difficulty)

I'm not sure --

Hey David, I think we had trouble hearing Michael.

Okay. I think what happened is Michael was not on.

I thought I was on.

Okay. Sorry about that.

I'm sorry. We have some new headsets here.

It was an eloquent response by the way. So now we'll be -- no, go ahead.

The numbers are going to be really immaterial. The biggest dollars you see in something like this for companies is going off and rebranding existing equipment on the road, and we're not going to do that. As we replace equipment at ABF and at Panther, we're going to have that equipment with the new branding on that. The other dollar spin on this, we're already [internal] resources. Some things we already had planned before the rebranding like the relaunch of the corporate website had been on the agenda for the last couple of years to redo. So those costs are really immaterial.

Okay, great. Thank you. And then just one follow-up. You've got to kind of think about longer term and your focus on the non-asset side of your business. What inning do you think you're in in terms of investing in and growing those businesses? And will that be, going forward, a priority for capital allocation?

Well, I would say we're in maybe the first or second or just early in the stages of this in terms of our efforts to grow those businesses. We've got a great opportunity but it is certainly the case that we're in early stages. And when you say capital allocation, that's an interesting thought when you're talking about non-asset businesses, really. I mean, when you invest in those businesses, what you typically see are additional sales efforts, IT costs, you know, at times, operational support costs, that sort of thing. So in many cases, what you see is those are hitting your operating expense line items, and you see that actually this quarter with ABF Logistics and our moving business. So that's where you see the investment. We are focused on the investments that are needed in those businesses. But I can tell you coming from kind of our history of really primarily dealing with the asset-based company that we have in ABF Freight, by comparison, the investment dollars that you'll have to have in these emerging businesses, it's less. But on the ABF Freight side, we do plan to continue to invest in that business because that is our core business. It's the foundation of our Company and many of the customer relationships that we will be growing with. So we have really all those things going on as you look to the future of our Company.

I guess I was just thinking about it from an M&A standpoint.

Good point. Yes. I mean, I think whenever we were thinking of from an M&A standpoint, if we were to make an acquisition, it would be to support those emerging businesses.

Okay, great. Thank you, guys.

Appreciate it.

David Ross.

Yes, hey Judy, David, Michael.

Hi Dave. What's going on?

It's good. It's good. Trying to take no more than my two and a half allotted minutes here, Mr. Humphrey.

You've already wasted 15 seconds.

I know. I know.

I'm just giving you a hard time.

I know. Capex seemed a little light in the quarter versus the $90 million to $100 million expectation for 2014. Is that expected to ramp up in 2Q through 4Q or is that going to come in a little bit lighter?

Again, this is timing. There were some purchases that were planned and we're still sticking to the $90 million to $100 million.

And then after the consolidation of the 30 terminals since last summer, what's the total terminal count at ABF Network today?

247.

And then the last question is just on the D&A line -- the depreciation at ABF Freight. It was down a little over $3 million year-over-year. What drove that?

Well, we had, if you think about capex, for example, coming into 2013 we had about -- we kind of stepped down a little bit -- stepped down somewhat in 2012 that drove that 2013 -- I'm sorry, let me back up here. If you remember, in 2013, we actually had capex at $24 million which is only about $3 million of revenue equipment. And it was around the -- just the uncertainty around the labor contract, and we did not make kind of the normal round of purchases that we would have made in that period. And so that's what's causing that comparison difference.

I mean, you have fundamentally the same amount of tractors today as you did a year ago. I just wouldn't understand why --

They're just slightly older.

But you do, Dave, have some that reached the point of being fully depreciated.

Got it.

What we're saying is that there's more -- there's a higher percentage of those than normal in our fleet, and as we move into the latter part -- I mean, not the latter part, really -- into, as we speak, really, we're going to be taking delivery of our 2014 units, and the numbers that we're going to spend in 2014 are much more in line to actually a little bit higher than normal, but that's included in the numbers that we've actually given. But I think everybody can understand, with the uncertainty that we dealt with in 2013, that we just didn't have a normal capex year, and that ends up being a factor in our cost structure as you enter this year.

Excellent. Thanks.

Thanks.

Thanks, Dave.

Bill Greene.

Yes, hi there. Good evening. Judy, can you go over some details around the network realignment? I know in the press release you talked about $10 million to $12 million. Is it as simple as we should think about that having a $4 million benefit in the second quarter? Does it not work that way? What are some of the puts and takes how to think about that scales up?

Well, I think it is a benefit that we would gain pretty much equally as the months go by in 2014. Where we identified this, I mean, and it's something that we waited to really provide the detail of because we wanted to ensure that we saw the results really before we were out ahead of ourselves saying what they would be. We saw this kind of savings in March, and so as we go through the remaining months of this year, we should see an equal portion of that as we go.

Okay. That makes sense. Thank you. I want to follow up on just some of the capex questions there. So you're seeing some really good tonnage growth numbers. Do you feel you have enough capacity in the network at this point? Or I would assume if you keep growing at this rate, it's not too far out where we'd have to step up pretty aggressively. Or maybe you can sort of give a sense for what's late in capacity in the network.

So we think we'll be fine based on what we disclosed already. Our tendency would be to address whatever issues we would have, perhaps, in the peak season with higher utilization of rail or purchase transportation, or through rented equipment rather than to add fixed costs to the network that we're not sure would be there all year long, for instance. And so with our new labor contract, we actually have more options available to us with the ability to use an increased level of purchased transportation. And we've seen an increasing use of that as we've gone through each month of the first quarter or so. That's a good option for us.

Bill, another thing too on that is if you -- if we really got into a crunch there, you just don't sell as many. You keep some a little longer too. So you're always going to have some flexibility there, if you really need to do that.

Yes. Fair enough. Thank you for the time. Appreciate it.

No problem.

Ken Hoexter.

Great. Good afternoon. If you look at the network, is there anything else that seems obvious when you look at these 30 service centers that you've shut? Anything else that -- any immediate steps that you'd look to add on now that you've seen the success of those?

So we are going through an optimization process as we speak, and I think I spoke to that in my prepared comments that it's an ongoing process. We do see things that we're going to be able to do in the network. We're at an early stage with some of those thoughts and so we're not in a position to really disclose that at this point. But we see quite a number of things that we're going to be able to do to make, basically, our network run more efficiently and to give better service to customers. And so we're excited about the things that we're seeing. We're just at an early stage and not really ready to fully discuss those or disclose them at this point.

Maybe you can just expand on it then. Are there other freedoms other than purchased transportation that you gain from the contract that you've been able to take advantage of already in terms of cost savings or maybe even more efficient operations?

Well, there are. It really is involved with work rule flexibilities, the utilization of employees and facilities and that sort of thing. But it's a greater ability to do those things and we do see some benefits from where we are today relative to where we were before we finalized the contract.

Thanks for the time.

Matt Brooklier.

Yes, thanks. Good afternoon, David. I was tempted to say good morning as well.

Doggone it. I had it written down in front of me and I just couldn't do it.

It's natural. No worries. So my question is regarding yield. And you indicated you had some mix changes in the quarter, and also in April that had influence. So I was just curious to hear, or if you could talk to what were some of the mix change factors that impacted yield, and try to get a sense for what's kind of sustainable here.

Well, I tell you, as we were moving into the first quarter relative to the fourth quarter, we had a greater influx of the spot truckload business in our network, and that actually worked to reduce the yield numbers that you saw in the first quarter. As we moved into April, by design, by us and our actions, we've actually reduced that business because we want to be sure that we're able to best serve our regular LTL customers as we move into the busier time of the year. And so that's something that we typically do, but because of the tightness in the capacity in the rest of the market, we probably saw a greater influx of that business in the first quarter than we normally would. And therefore, as you move into April, you're seeing a bigger impact of that as we moved basically our spot prices up to address that issue. And so what you see is a negative impact on the yield figures in the first quarter. You see a positive impact of in the month of April.

Okay, that's helpful. And then I'm just trying to get a sense for how much truckload freight you saw migrate into your network during first quarter, and then it sounds like you did some things to lessen that impact during April, but I'm just curious to hear the pace of truckload freight coming into the LTL, your network and the industry in general, if that's kind of slowed at this point in April.

Well, basically we don't separate those out. We just report total figures. And so what I'm giving you is really the color of what happens. But I can tell you, we had a greater than normal affect from that in the first quarter, I mean, if you compared back to last year's kind of first quarter to fourth quarter relationship. And we also had a greater reduction than you would normally see when you're moving from April compared back to March. And so I don't know necessarily that I would characterize that as a market change or a weakening, for instance, of what's happening in the market. That is more proactive actions on our part to make sure that we're giving the best service that we can to our regular LTL customers.

Okay. Helpful. Appreciate the time.

Thanks.

Thanks, Matt.

Scott Group.

Good afternoon, everyone.

Hey Scott.

Just wanted to follow up on the yield question. Can you just remind us what percent of the business gets a GRI and give a view on how well that's (inaudible) and, you know.

It's 35% of our business is affected by the GRI. And it's very early but we don't have anything to report but that says it's just business as usual.

Yes. So do you think this yield number is sustainable kind of as you make it to the third quarter and we (inaudible) last year's GRI. Trying to think about how that should impact the model for the year.

Well, I think that if you're looking purely at April, just consider the factors that I just suggested to you, particularly if you're looking year-over-year because there's two factors. One, that I just fully described to Matt when he asked that question about what's happening with our spot business. And then also the effect of the GRI in the month of April is there against last year because we didn't do a GRI until May of 2013. So as you move through the year, typically, in a normal fashion, we see that discounted away to some extent, and I would expect that to continue to happen as it normally does. I'm not suggesting there be anything unusual about it. But as you move through the year, it becomes less of an issue than it is purely in the month of April because it is a -- it's more than a full month early.

Okay. That makes sense. Panther results look really good, both topline and margin. Wondering how you think weather helped or didn't help there, and maybe any thoughts on how we should think about Panther in the next few quarters.

I'm pleased to say that that's the best quarter of results that they have had since we've owned them. So we agree that they looked good. And the management team there is really clicking on all fronts and we're pleased with what they're doing. The weather does, I think, positively affect their business. There's no doubt about that. But that's not what the entire story is. In their auto vertical and in the high value products, and in the manufacturing vertical, they saw improved results above, if you will, normal. But they saw improvements in every vertical that they have. And so I think they have been affected by what's happening in that part of the business. I think the success of their sales force, their ability to find capacity at times when no one else can, and I think they're just viewed very positively in the marketplace. And so this is the kind of environment that they do well in. And so it should be a good year for them.

Okay. Great. Good to hear. Alright. Thanks so much.

Thanks, Scott.

Thanks, Scott.

Rob (inaudible).

Good evening, guys.

Hi Rob.

Hi Rob.

As a follow up to Ken's earlier question about the Teamster contract adjustments, should we think about you guys getting more of a benefit during a softer freight environment or a tighter freight environment as business volumes increase?

I think that when you look at the first quarter which we would characterize as our softest environment, you're going to see more benefits there than perhaps you would in the other quarters of the year. But I can tell you that based on the figures that we gave when we first announced the contract implementation, we're just really right on target with what we expected within that range. And so we're seeing the results from that be as expected, but again, because of the nature of the costs that we have, you are going to see a good benefit of that in the first quarter and we did.

Judy, that color's really helpful. And then as we think about the ABF Freight segment getting back to those historical margins, obviously you've got now the benefit of the new Teamster contract, the operational changes, and we're going to be seeing the impact of the general rate increase as well as the better contractual pricing environment. Has that changed your thoughts in terms of the timing of how quickly the Company can get back there or do additional adjustments need to be made to achieve those?

I still think we have some adjustments to make. I mean, we're on a path, executing on a plan to attempt to get ABF Freight back to its historical profitability. But there's some execution involved in getting that done, and it is going to take some time and I think it was right when we initially said this to say that the full realization of the contract savings will come really over a 24-month period from the date of implementation. Not so much within a 12-month period. So think there's still more to come on that front, and then again, just in the opportunities that we see both with cost and with the business we have, and our ability to grow, those are all factors that are going to contribute to the restoration of ABF Freight's historic profitability. But there is work involved and it will take some time.

Thanks so much for the time.

Thanks.

Thanks, Rob.

Todd Fowler.

Thank you for taking the follow-up. I just wanted -- the follow-up I had was on the rents and purchase transportation here in the quarter. It looks like there was about 11% of freight revenue. And Judy, I think you made some earlier comments that you are actually seeing that increase on a monthly basis sequentially during the quarter. I guess I was curious -- 11% is that kind of the right number that we should think about. Was that impacted by some of the rail service disruptions here in the quarter? And if that does move up, does salaries and wages then trend down a little bit to offset some of that?

I would expect that as we use purchased transportation that it would offset against the reduction in the salaries in wages lines. The rail percentage that we saw for the full quarter was increased just a little bit. So it wasn't off. But as we move through the first quarter, we had a continuous increase in the use of purchased transportation that was included in that line item as well. And so by the end of the first quarter in March, we had about 3% of purchased transportation that we were using. And the previous two months, it was 1.8%. And then in January, it was just not even a percent. So that's part of what we're talking about is we're phasing in the use of purchased transportation that's allowed under the contract. And we can go up to 6%, and so we've begun to use that.

And Todd, that's just an example that we talked about, you know, some of the stuff. We're going to phase in over two years and that's an example of we're just kind of phasing in and doing additional opportunities to use more of that. But that's an example of the phasing in example.

Yes, that makes sense with your last comment. And then the other one I had, Michael do you have an idea -- a depreciation, amortization full-year number for freight that we should think about?

Yes, it's $85 million to $90 million for the Company.

Very good. Thanks again for the follow-up. Thanks for the time.

No problem.

Scott Group.

Thanks for taking it. I just want to apologize for something, Judy. I thought I heard you say at some point during the prepared comments that some of the cost savings were doing better than expected. I just missed that. If you could elaborate on that. And then also if you could just remind us the case of labor savings that you have expected from the deal, and when the first wage increase starts again.

Okay. What I was referring to was the savings associated with the consolidation of facilities was somewhat better than we had originally expected although we hadn't said a number publicly on that. What we're talking about is our internal projections for that number. And so I hope that clarifies that. And I'm going to let Michael give you a refresher on the contract savings, and then we can talk about the wage increase that goes into play for the union labor contract.

Yes, what we talked about before is the net savings from contracts in the $55 million to $65 million range on an annualized basis. And as Judy mentioned, we're hitting right there in the fairway on that right now that we believe in terms of what we'd expect for those savings to be. 75% of that amount, however, is realized. That's around the wage reductions and vacation reductions, and that's kind of day one. The remaining 25% of that is something that we would expect to realize over the next 24 months. And as David mentioned, we started to see some of that in the (inaudible) transportation benefit in the quarter as well.

There's a July 1 increase of 2% on wages. And we think about that -- and the way we look at that is we've got actually on an annualized kind of compounded growth rate, the current contract we project to be about 2.3% to 3% annual increases when you look at wages, health welfare and pensions. Those levels on health, welfare and pension are determined on an annual basis based on the need for that. And that compares to our prior contract which is about 3.4%. So it compares favorably to the prior contract amount. So we should see continued benefit of that lower rate increase schedule over the next two years. So that's another element of the contract that will provide benefit to the Company.

That's great color. Is that 2.5% increase, is that included in the $55 million to $60 million of savings?

Yes. The way to look at the savings is that's kind of the -- the $55 million to $65 million is basically the cost reset of the Company. And so that's the cost reset of ABF Freight in that reduction. And then as you have cost increases after that first year of savings, then our expectation is that we'll offset that with yield improvement.

Okay. Thank you, Michael.

We have no other questions at this time. I'll turn the call back to you. Please continue the presentation and closing remarks.

Okay. Well, we appreciate your interest in ArcBest Corporation and this concludes our first quarter earnings conference call. Thanks a lot.