ArcBest Corp (ARCB) 2014 Q2 法說會逐字稿

Welcome to the ArcBest Corporation second-quarter 2014 earnings conference call. We will have a short discussion of the second-quarter results, and then we'll open up for a Q&A period.

Our presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of ArcBest Corporation, and Mr. 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 risks. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release and the Company's most recent SEC public filings.

We will now begin with Mr. Newcity.

Thank you for joining us this morning. As you know, at ArcBest we have been working for some time on our goals of returning ABF Freight to sustained historic profitability and enabling our emerging businesses to grow so that we can better serve customers across the supply chain. This quarter reflects another period of improvement and we are gratified to see these results.

ArcBest's second-quarter 2014 revenue was $658.6 million compared to $576.9 million last year, an increase of 14%. Second-quarter 2014 net income was $0.63 per share compared to net income of $0.18 per share last year. Including an adjustment for a pension settlement charge of $0.02 per share related to our nonunion defined benefit pension plan, second-quarter net income was of $17.8 million or $0.65 per share.

As we have stated previously, we expect to incur non-union pension settlement accounting charges throughout 2014. As a result of the July 1, 2013 freeze of benefit accruals under the plan, settlement accounting charges occur when the lump-sum distributions of the plan exceed the plan's annual interest cost. We anticipate quarterly amounts for the reminder of the year to be in the range of $1 million to $2 million on a pre-tax basis.

The amount and the timing of these charges will depend primarily on future lump-sum distributions. These charges are noncash and are the result of accounting rules requiring the write-off of actuarial losses.

In the earnings press release, we highlighted a couple of items that are included in our second-quarter financial results. First, the effect of the two-class method used for calculating earnings per share requires the allocation of a portion of dividends and net income to unvested restricted shares in determining per common share amounts. For the second quarter, this equaled $0.03 per share. Secondly, the costs of long-term incentive plans that are driven by ArcBest's total shareholder return relative to its peer group. During the quarter, this equaled $0.07 per share.

On a combined basis, these two items were approximately $0.10 per share in second quarter 2014, compared to a $0.02 per share effect in second quarter 2013. These items could occur in future periods depending on financial results and changes in the ArcBest share price.

We ended the second quarter with unrestricted cash and short-term investments of $165 million. Combined with the available resources under our AR securitization agreement, our total liquidity equals $223 million. Our total debt of $119 million includes the remaining $77 million balance on our $100 million -year term loan associated with the Panther acquisition and $42 million of capital leases and notes payable, primarily on ABF Freight revenue equipment. [Deposit] interest rate on all of our debt is 1.8%, below the 2.1% interest rate we had at the end of the first quarter. Full details of our GAAP cash flow are included in our earnings press release.

ABF Freight reported second-quarter revenue of $493 million, a per-day increase of 11.2% compared to last year. ABF Freight's quarterly tonnage per day increased 6% compared to last year's second quarter. By month, ABF Freight's 2014 daily tonnage increase versus the same period last year was 5.8% in April, 5.1% in May and 6.8% in June.

ABF Freight reported a second-quarter operating ratio of 95.4%, an improvement of 3.4 operating points compared to the second quarter of 2013. ABF Freight second-quarter 2014 totaled billed revenue per hundredweight, $28.91, an increase of 4.2% versus the second quarter of last year. On a sequential basis compared to this year's first quarter, revenue per hundredweight increased by 6.9%. ABF's Freight total weight per shipment was 1,360 pounds, a reduction of less than 1% versus last year's second quarter. On a sequential basis weight per shipment decreased 3.6%.

ABF Freight's average length of haul equaled 1,019 miles, almost identical to what it was last year second quarter of 1,017 miles and in this year's first quarter of 1,018 miles. Preliminary results for the month of July 2014 indicate that ABF Freight's total tonnage per day is expected to increase by approximately 5%. July 2014 daily revenues for ABF Freight should be between 9% and 10% above July 2013 levels. The approximate 4% to 5% year-over-year increase in the revenue per hundredweight reflects rate mix changes and improved rates on customer accounts. The freight mix change is related to increases in the amount of LTL shipments moving to the ABF Freight network and a reduction [of] truckload-related weighted tonnage associated with price increases implemented on spot business.

Second-quarter revenues at all of our emerging businesses totaled $178 million, which represents a 28% increase over last year. On a combined basis, in the second quarter these businesses produced EBITDA of $10.2 million, an approximate increase of 47% compared to $6.9 million in last year's second quarter.

Panther had an outstanding second quarter with revenue of $81 million, an increase of 35% over last year. Panther's second-quarter operating profit was $4.4 million compared to $1.5 million during the same period last year. Panther's second-quarter 2014 EBITDA was $7.2 million, an increase of 76% compared to EBITDA of $4.1 million during the second quarter of 2013.

FleetNet, our emergency and preventative maintenance company, increased its second-quarter revenue by 16% versus last year. Its operating income declined from last year's second quarter due to a receivables write-off associated with the bankruptcy of a large customer.

ABF Logistics reported second-quarter revenue of $35 million compared to $24 million last year, an increase of 46%. Second-quarter operating income for this unit increased by 69%. ABF Moving, our household goods moving services division, increased second quarter revenue by 8%. Second-quarter operating income was below that of last year due to changes in shipment mix and investments in personnel and other resources we continue to make.

The steady growth of our emerging businesses is an important part of our strategy for offering a broad assortment of logistics services to all of our customers. During this year's second quarter, these businesses represented 27% of ArcBest total revenue, an increase over the same period last year. Moving forward, we are excited about how they will contribute to ArcBest's success.

And now, I will turn it over to Judy.

Thank you, Michael, and good morning everyone. During the recent period, we had some of our strongest results in quite some time, including solid profitability at ABF Freight and an outstanding quarter at Panther. This is encouraging as we continue to focus on our goals of providing more transportation and logistics solutions to our customers. While we always have more work to do, we know that solid execution and outstanding service across the board keep our customers coming back and asking for even more solutions from our companies.

In fact, I would like to mention that our company's new brand identity logos, advertising campaign, and tagline, The Skill & the Will, have been well received by customers and by our employees. I have had many positive conversations about how people are better understanding the full breadth of services we offer across the supply chain and what sets us apart in the marketplace.

As we continue with our efforts to promote these holistic services, we are excited about the public launch of our new website TheSkillandTheWill.com, in early August, which will complement our new corporate website ARCB.com. TheSkillandTheWill site contains many real-life stories from our customers who have benefited in concrete ways from our employees' willingness to go above and beyond to solve their complex logistics challenges. I encourage you to visit and sign up for email alerts that will let you know when new stories appear.

And now, on to the results. ABF Freight benefited from an improving economy and tighter industry capacity that contributed to the additional freight moving throughout its network. ABF Fright's lower cost structure from its new labor contract and the benefits of ongoing analysis and operational adjustments to its freight network contributed to improved profit margin. ABF Freight's pricing was solid during the quarter, consistent with the positive pricing environment throughout our industry. Contributing factors included a stronger economic environment, a more optimistic outlook by shippers and increased utilization of labor and equipment resources across all transportation modes.

The 5.4% general rate increase ABF Freight implemented in late March positively affected approximately 35% of our freight business throughout the second quarter. On contract and deferred pricing agreements that were negotiated during the quarter, ABF Freight obtained increases averaging 3.2%.

We're very pleased that compared to last year, ABF Freight increased second-quarter operating income by more than three times. However, the incremental margins associated with ABF Freight's business growth have been below our expectations due a couple of factors, which we're actively addressing. First, the increased freight levels have resulted in the need of additional dock employees throughout the ABF Freight network.

Because of reduced availability of employees in layoff status, we have added a considerably higher percentage of new dock employees with little or no previous freight handling experience. Despite receiving the standard training and instruction provided to all new ABF Freight employees, the freight handling productivity of these new employees has been approximately 20% below that of our more experienced dockworkers. Because we are currently utilizing a high number of these employees with less than one year of experience, the reduction of ABF Freight second-quarter 2014 dock productivity has unfavorably impacted our operational metrics and the incremental margins on the new business we have added.

Our reputation for efficient freight handling and superior cargo care is a result of trained and experienced workforce. ABF Freight has doubled the normal amount of training and mentoring offered to these new employees. We believe that the freight productivity in the second half of the year will improve as we help these new freight employees gain valuable experience, training and knowledge in the efficient handling and loading of shipments.

Second, equipment maintenance and repair costs have been running above historical levels. This is due to increased mileages and longer lives on ABF Freight tractors resulting from more lengthy in-service lifecycles. In addition, 2013 revenue equipment purchases were significantly below normal due to uncertainties surrounding ABF Freight's new union labor contract that was ultimately implemented in November of last year.

As previously announced, ABF Freight's 2014 capital expenditure plan includes approximately $60 million of revenue equipment that provide for 444 new replacement road tractors. The new equipment we are replacing this year should move us toward a more normal replacement cycle, decreasing average equipment age and contributing to reduce maintenance and repair expense. We are also evaluating our equipment fleet to identify and correct patterns of high cost usage and to seek opportunities for anticipating expensive breakdowns before they occur.

Earlier this month, ABF Freight announced the addition of Mike Moss as Senior Vice President of Operations. Mike has 30 years of leadership experience throughout the LTL industry and in the development of new nonasset and international transportation services. We are already benefiting from his knowledge and the fresh perspective that he brings to our company.

Our emerging businesses are an important part of our financial growth and success as they enhance the service offerings we provide to the transportation marketplace. Panther experienced one of the most successful quarters in its history. During the second quarter, Panther set all-time records for revenue, gross profit and EBITDA. They came within $50,000 of having their best quarterly operating income in Company history.

Market demand for premium logistics services continues to be very strong and Panther is well positioned to meet the precise demands of these shippers. As we saw in the first quarter, all of the markets that Panther services had strong revenue growth and gross profit increases compared to the same period last year.

Customer business in automotive high value products and manufacturing had especially strong revenue growth, and revenue growth in government-related shipments was another second-quarter strength. This success at Panther reflects more business from existing customers and the addition of new customers. Limited capacity in the specialized areas in which Panthers excels is contributing to improved pricing and better margins as well.

Despite the milder than expected second-quarter temperatures throughout the country, FleetNet experienced revenue growth due to increased service events for new and existing customers and the addition of new accounts for which FleetNet is providing preventative maintenance services. Improved pricing for FleetNet services has contributed to their second-quarter success. In the midst of the continued challenges faced by transportation fleets regarding equipment maintenance and safety, FleetNet offers expertise and actionable data that solve costly problems for fleet managers and assure the improved dependability of their equipment.

During the second quarter, ABF Logistics continued its pattern of top-line revenue growth. It resulted from increased shipment counts and some higher revenue per shipment. Second quarter operating profit increased over the last year at a healthy rate even as ABF Logistics added new employees to service business growth and continued its investments in new and enhanced systems designed to respond to the fast-paced demand for its services. Improved profit margins compared to the first quarter reflect the expected benefits of additional experienced gained by personnel who joined the Company in previous periods.

ABF Moving continues to grow its business. Though shipment changes and investments we are making in personnel and systems impacted the second-quarter profitability, we believe the prospects for this business are good.

And now for some news at our companies during the recent quarter. In the most recent listing of the companies included in the Fortune 1000 list of largest companies, ArcBest moved up 38 spots to number 889. We think this is a strong indication of the growth that we have seen, particularly in our emerging businesses, which we continue to focus on during the last half of 2014 and beyond.

In May, we announced the annual winners of ABF Freight's President Quality Awards. The four ABF Freight service centers recognized St. Joe, Missouri, Vancouver, British Columbia, Akron, Ohio, and Albuquerque, New Mexico, epitomize their dedication in fulfilling the requirements of ABF Freight's quality process in their service to our customers. For over 30 years, the principles of the quality process have been the foundation of training and the basis for how every ABF Freight employee does his or her job. Receiving the ABF President's Quality Award is one of the most prestigious honors in our company and it identifies these facilities as leaders in customer service excellence.

Panther excels in understanding challenging customer needs and responding to innovative logistics solutions. As an example, Panther was recently named as a 2014 preferred transportation supplier of Bosch Group. For many of its customers Panther is an indispensable part of their supply chain and this recognition by Bosch illustrates that fact.

As an example of the ways in which we are helping our people better understand customers' changing needs, ABF Freight recently sponsored a supply chain forum at the University of Arkansas's Walton College of Business. Sales leaders from all of our companies got together and learned more about each other's businesses, experienced outstanding supply chain coursework by the Walton faculty, and gained some real insights into how the market changes rapidly. This was a great event and we are confident that the new connections our people made will be helpful in their daily responsibilities and their ability to cross sell.

Although we have much more to do to achieve our goals, our Company's efforts to serve customers as a holistic provider of transportation logistics solutions are paying off. We are energized by the opportunities before us. And now, David, I think we are ready for some questions.

I think we are ready to start the Q&A session.

(Operator Instructions) Our first question comes from the line of Bill Greene. Please proceed with your question, sir.

Hi, there. Good morning. Judy, can we ask for a little bit more clarity on these costs and the trends going forward? Because I think you probably recognize it sort of caught everyone by surprise at how little leverage there was to the very good top line. So how long does it take for these guys to get the productivity in? Could we see a normal OR sequential change as you have seen historically? Or should it be much better because the trends still remain pretty good from a top-line standpoint? How do you think about these factors?

Well, I will give you a couple of data points. First one is in July, we are not yet seeing the improvement that we are all looking for. And so it is a process. It's going to take us some time to get this training implemented and these people with more experience. But the second data point I will give you is really after one year of experience there is a significant productivity jump and we get nearly all of the productivity difference back as we have these new workers become more experienced.

And another point to keep in mind is just the impact this has had on our company. Our employees with less than one-year experience represent about 13.5% of ABF's total workforce and that compares to about nearly 4% in the previous year. So it is a big impact item.

And really, the last thing that I'll add is we have really seen an unprecedented sequential growth in the Company. Really, if you look back to the beginning of the fourth quarter last year and you look forward, we've seen the strongest sequential growth in over 15 years. And so we're adding people to try to address that, but we do have to have the training and experience in those people to expect the normal productivity that we have from our more experienced dock workers.

Okay. Is it safe to say though, that as things get tighter in the marketplace and assuming these top-line trends continue, you wouldn't have this kind of challenge on the driver side right? Because given the contract nature of your workforce I wouldn't think driver shortages and wage pressures would exists in the same way for you. Is that fair?

Well, wage pressure certainly because we have a contractual rate that we're paying for those drivers. But in terms of the experience of the people that we add, we typically have experienced people that we're adding to the Company and we haven't seen these same issues in our drivers. And so that is fair to say.

I would just add, as far as our turnover with drivers it runs about -- if you [pull] out just normal retirements, it runs in the 3% to 4% range. So we've usually been pretty successful with that.

Yes, I wouldn't think there would be as much of an issue for you guys. All right. Thank you.

Thanks a lot Bill.

Thank you.

Our next question comes from the line of Chris Wetherbee, please go ahead.

Thanks. Good morning, guys.

Good morning, Chris.

When you think about -- I guess when you think about the mix of tonnage versus yield and you are talking about some of the productivity and having to bring some of these folks on who have less than one year experience. And I guess in the past you have talked when you were going through the Teamster negotiation about potentially having a shrink in profitability. And we've gotten past the labor contract and you have a lot more flexibility and ultimately more profitability potential it seems. I guess I just want to maybe understand how you think now about that mix of volume versus yield? I know this group of folks will get better productivity as we go out into 2015. But do you feel like you need to pull back a little bit on the volume growth or is that maybe too much of a stretch and you kind of want to continue to push the volume growth now that you have the labor piece in place?

Well, I think the approach that we take is to look at each pricing deal and based on the impact that that it has on our company, we'll move forward with the business or we won't. And so that's true all the time, really in most any environment.

But we have I think in July seen something that I think is noteworthy to your point. And that is we are experiencing stronger LTL growth, but we have through our spot rates really adjusted the business that we are taking on the full truckload side. And so that is one way that you can address this, although that business can be good for us in certain situations where we need backhaul filled and that sort of thing. So we are making the adjustments so that we can have the best business in our network for the Company's profitability.

Okay. That's makes sense. That's very helpful. And then just my follow-up would be, when you think about the non-asset-based businesses, you're clearly getting some good top-line growth on the revenue. As we think out into the back half of the year and 2015, do we start to see some of the profitability of those businesses begin to ramp up? I know Panther is doing a good job but I just want to think about maybe some of the other pieces of that business.

Certainly that's what I would expect. We have a continual opportunity it seems here to grow. And so we are looking at those opportunities, investing in people, investing in systems. But when you get further into your process of acquiring market share and gaining that business, I have an expectation that we'll see the profitability of those businesses improve.

Okay. Thanks for the time. I appreciate it.

Thanks Chris.

Our next question comes from the line of Scott Group. Please go ahead sir.

So, Mike, help us think about the $0.10 of EPS drag from some of the incentive comp and things like that that you talked about. I know it's tough to predict but given the way you guys are thinking about the earnings in the back half of the year, the stock now at 35, do these -- should we expect similar kinds of year-over-year drags from that in the back half?

Scott, I will start with the smaller amount first and then go to the larger amount. But on the two-class method, that's about -- when you think about it, that's a result of a change in an accounting requirement that was put in effect in 2009. It applies and we've got two classes of share, common and restricted, and you have got to -- and since our unvested restricted stock units pay dividends, they are considered participating securities. And so we have to -- we're required to use the two-class method for determining EPS.

And that method requires that we -- that dividends paid and undistributed earnings be allocated between the common and restricted shares but it also requires that the disclosure of the EPS is only based on the common shares. And so when you think about the adjustment on the allocation of the RSUs, it's about 5% during profitable quarters. It doesn't apply to losses. And so that per-share impact is going to increase as earnings increase.

So the second quarter of 2014 was the most profitable quarter we've had in six years and that's why that impact is the largest we've seen since the accounting rule was implemented. It was $0.03 in the second quarter of 2014; it was $0.01 a year ago. So we expect [to have a] 5% impact during profitable quarters.

On the incentives, we have got a long-term incentive plan in place. It's proportionally weighted on return on capital employed and then also shareholder return that is relative to an industry peer group. These are earned over a three-year period. And so for the second quarter, the expenses related to these plans was about $2.9 million pre-tax, $1.8 million after-tax or about $0.07 per share.

And it just reflects -- the expense reflects the improvement in operating results, primarily the drive in the total shareholder return relative to peer group. ArcBest total shareholder return on an annualized basis was 197% measured from the average of the last 60 days. And we believe the component directly aligns the incentive with shareholder value creation relative to our peers. And the ROCE component aligns Management's interest with profitability goals and the appropriate use of capital. So we feel that's an appropriate alignment.

That makes sense but just not clear is that like a mark-to-market adjustment or is there a similar kind of drag in the third and fourth quarter from that?

Scott, it depends on what the stock price performance is and what our returns are. It's a relative TSR plan. So it's performance against that metric, if you will. But we have -- if you look at our proxy, you can see our competitive group that we have there and so it's stock price performance against that relative TSR.

Okay. And then just other question, can you just remind us what the -- when and how much the Teamster wages go up and then any health and welfare increase as we need to start thinking about as well?

Scott, on July 1, we had a 2% wage increase. And for the health, welfare, and pension, on August 1, there is $0.62 an hour increase. It's about 3.6%. So all in, when you consider the July increase for wages and for health, welfare, and pension, it's about a 2.7% increase.

Scott, we need to move it along I think.

Perfect. Thanks, guys.

Perfect. Thanks Scott.

Thanks a lot.

Thank you.

The next question comes from the line of David Ross. Please proceed.

Yes, good morning everyone.

Good morning.

Good morning, Dave.

Sorry if I missed it in your comments but (inaudible) talking about rail service having a negative impact on the quarters and the competitors are talking about the congested rail networks causing them to shift freight back to trucks and leading to higher PT costs. Were you seeing the same things, because I know you guys use a decent amount of rail.

We did see some impact. It was primarily in the line that services from Chicago to the Pacific Northwest and we have reduced our reliance on that lane and moved to using more purchase transportation there. And so we have seen some impact and ratcheted down our use of rail. If you compare to last year, we had about 14.1% of our miles were rail and last year it was about 15.8%. So it's not a dramatic impact but it's had some impact. But we have been able to make some adjustments.

A little bit of that too is the fact that we're using some purchased transportation in some lanes especially I think on the eastern part of the country that we would have maybe done rail before. So that's another factor as well.

Excellent. And then, did you give average length of haul for second quarter?

1,019. It's almost identical to what it was in first quarter and in second quarter. 1,019.

Okay and then the last question is just on the new labor deal that you have got in place and some of the productivity improvements you are expecting. When do you expect those to feather in and should we expect much by the end of this year or is it more of 2015 event?

Judy McReynolds Well, we are going to see gradual improvements I think on the productivity issues and we are continuing to evaluate our network and the appropriateness of it relative to the business that we have. And we do expect to see some changes. More of that would be in 2015 in terms of kind of a material effect. And so those are some of the factors that we are looking at.

Thank you.

Appreciate it, Dave.

Our next question comes from the line of Todd Fowler, please proceed.

Great. Thanks. Good morning everyone.

Good morning Todd.

So I want to make sure I understand the comments on the yields in the press release and in Michael's prepared comments. Is the commentary there that you've started to restrict the amount of heavier-weighted truckload freight in the network? And if that's the case, when did you make that decision in the quarter? I mean was that something that was done early in the quarter or later in the quarter? I am trying to get a sense of maybe what the impact would have been in the quarter, what we can expect going forward on yields?

Well you know I think we made some adjustments to that in April and it continued throughout the second quarter and it continues in July.

Okay. So it wasn't kind of a drop-dead line, we're going to stop doing this. It's been tweaking overtime and --

No. Yes, it's never -- nothing is ever drop dead, really. I mean these are all things that get adjusted based on what we are seeing. And we have the ability to ratchet that up and we have the ability to take it back down as appropriate. And again, with some of the issues that we are facing on the productivity side and the network pressure side, we are making sure that the business that we are doing is the best business we could do from a profitability standpoint. And so that is a factor. But that business is always there for us to adjust and [take] more of.

That makes sense. And then can you give a sense of what you think the cost benefit was in the quarter from the new labor contract and kind of what percent that would be overall? And same sort of thing for the change of operations this year and the terminal reduction, how much benefit you think you might have been able to get here and kind of still what you could realize going forward. Thank you.

Based on the previous ranges that we have given on the labor contract we are right in line with what we previously thought we would have as savings. And then on the network side we're -- same thing. When we look purely at the change and what that did for us, it's right in line with our expectations and these offsets are really largely because of the growth that we have experienced., the significant growth from the sequential same point that we have experienced really since the beginning of the fourth quarter last year.

But on the labor contract and the network, you're not at 100% of the benefit in the quarter?

No, no. But we are where that we said that we would be in our -- when we announced the changes. And so we can get back into the details of that offline if you'd like.

Yes, that's fine.

We could do that. But we are seeing what we expected to see based on the timing that we outlined.

Okay. Thanks a lot for the time.

Thanks, Dave.

Our next question comes from John Barnes. Please proceed.

Good morning. Just one question. If I recall under the labor agreement, it's kind of got a little bit of circular logic in that as you see some improvement in the OR, at certain thresholds you start to have to give back some of the negotiated wage reduction. Can you talk a little bit about -- I know you have got some costs that have kind of cropped up here, but do you have some idea of when you might begin to experience having to give some of that back? I'm wondering. You talk about a year where you start to see that productivity benefit. Are you thinking that it's a year from now where you start to have to return some of that to the union? Or do you anticipate maybe hitting some those thresholds a little sooner than that?

Well, certainly, let me say up front, we would love to hit those and we would love to pay that incentive. We think that that would be the ideal situation for us. John, in order for me to really answer that question I'd have to forecast our earnings and you know we're not in the business of doing that. And so we're not going to really do that. But the threshold or the level of OR that we need to get to that place is a 96. And so-- and that's for ABF Freight, it's a 96 OR. And so based on your modeling, you can look at where you think that that comes about. And we think that it would be a positive if we had that occur.

Yes, that makes sense but I guess where I'm coming from is, you could see a nice improvement in some of these costs that you are talking about, you hit that threshold, but then you turn around and have to give some of that back. So it would negate some of the benefit, right? I mean, am I thinking about that right, I mean --?

Well, it absolutely would be an increase. But think about this -- if we were able to engage our people in terms of that incentive and what the future would hold from that point, I think that would be a great day.

Okay, all right. That makes sense. All right, thanks for your time. I appreciate it.

Thanks John. I appreciate it.

Our next question comes from the line of Ken Hoexter, please proceed.

Great. Good morning. Can you run through the volume through the quarter in terms of trends? And then secondly, you did a great review, Michael, on the common and restricted [and incentive] comp, Maybe you can just touch on the pension settlement expense? Does this -- you mentioned $1 million. Does this fade away over the next few quarters or is this in perpetuity kind of expense?

Well, it's not in perpetuity. It's going to fade away over time. When you think about what we've got remaining on actuarial losses, that's going to come down as we make lump-sum distributions on the existing participants in the DB pension plan. And there's lots of variables in that, how that moves in and out. But it's something that we'll report each quarter and talk about, but the $1 million to $2 million is a good near-term view on that range. And as that steps down we'll give more color on that.

And on your monthly tonnages, April -- these are year-over-year versus the same period last year -- April 5.8%, May 5.1%, June 6.8% and then the total quarter was 6%.

Okay. And then lastly I guess just a follow-up on a couple of prior questions, But did I hear you right, Judy? On the facility closing benefits, are there any potential further benefits from facility closings or have we seen the benefit already rolled in?

Well, the benefit of the network change that occurred in February is in place and so we are continuing to see that. Just to give you some idea of what we're doing on an ongoing basis, we -- in July, we have a Western change of operations that we did that really establishes or reconfigures the [HVAC] locations in Phoenix, Seattle, Denver, and Dallas.

And what we're doing there is we're improving consistency of service and velocity in many of our Western lanes. This change that I'm talking about is really not impactful from a cost savings standpoint, but it's impactful from a service standpoint. And so in addition to the network change that we did earlier this year, we have this one in July. I talked about that we're going to be continually evaluating the network and that there will be further changes. Some of them will be more impactful, some of them will involve cost savings, but the emphasis from this point forward is really on service.

Wonderful, I appreciate the time. Thank you.

Yes, no problem.

Thank you.

The next question comes from Art Hatfield. Pease go ahead.

Yes, good morning. This is Derek Rabe on for Art.

Good morning Derek.

Hi Derek.

I just wanted to piggyback on Scott's earlier question about your incentive-based compensation. Is there a rule of thumb for us to think about going forward, just exclusive of any benefit from your incentives related to return on capital, just with the stock movement, is there a rule of thumb in terms of operating income impact from a $1 move in your stock price?

Well, I'll tell you what you can do is look -- I mean the plan and the way that it is structured is disclosed with our proxy and so you can get the details of the plan there and we can talk more about that offline. But it really is a relative -- 50% is based on a relative measure and that's, again, that's over a three year period of time, the total shareholder return relative to our peer group. And then the other half of that is return on capital employee based. And so there really -- I mean rule of thumb is probably not a term that you can use with this, but there is work, if you want to go in and look at how the plan is structured, that you could do to better understand it.

For instance, we had some expense associated with this plan in the fourth quarter when we saw our stock price really move up relative to our peer group. And in the first quarter there wasn't much expense because there wasn't much of an increase. It was more flat. And then in second quarter, we saw some movement again in our stock price and we have the expense. So I don't want it to sound over simple but I do want to tell you kind of what the past history has been on this.

And part of the issue that we are dealing with is the acceleration of that. It's a great thing from a shareholder value standpoint. And it's very well aligned, management incentives are very well aligned with the result that the shareholders get. But the details of it you can find in our proxy.

And had you given the 4Q expense?

It was included in the press release as a footnote. It was there.

All right. I appreciate the color there. I wanted to turn also to contract pricing. It looks like I think from the commentary it was about 3% in the second quarter. That's down a little bit off the first quarter. I think most of your competitors are saying right now it's order of magnitude around 4%. Is there anything going on that you are seeing in your particular pricing of book of business that maybe your competitors -- I know you can't speak your competitors but maybe something in your book of business that's causing that to be a little bit lower?

No. I mean I think that this is a good pricing environment. We expect to have good results there. And really, what you would have to do is look at the underlying stories and the account-by-account impacts and decisions that were made for the quarter. Ideally, that would be higher and so I am glad to see that the marketplace is leaning that direction. But there is nothing that I would, if I were you, be concerned about as far as that goes. I mean that's a decent number and certainly, we are in a market where we can get that number and better.

All right. Thanks a lot.

Our next question comes from the line of Matt Brooklier. Please go ahead sir.

I wanted to circle back to the dockworker headwinds that you experienced in second quarter. Is there any way to quantify -- and you talked about productivity but to quantify how much of an impact it had on overall profitability or margins during 2Q?

Well, I mean I think from -- if you look at the measures of productivity that we had for the quarter, if you look at bills or shipments per dock [street] and yard hours it was down about 4.4%. [Pounds] per DS&Y hour] was down about 5%. Those are both metrics that can be used to develop the numbers based on how you model that. We typically don't give all the pieces. We don't -- we allow you guys to model hours that are associated with different business levels and that sort of thing. But those are two of the metrics. If you look at those, probably about 80% of the impact in those relates to this issue about new hires.

Okay. Helpful. And then you mentioned that in your previous comments that after 12 months the dockworker productivity, there is a pretty significant increase. I guess does it take a full year before the full training kicks in and they are comfortable and they are back up to kind of average productivity levels? Or can you kind of accelerate that process to get them up to speed?

Oh, believe we are trying our best to accelerate that process. But it does take time when you're somebody -- if it's in fact a worker who has never driven a forklift, if you can imagine how that would be. But we do expect that there would be gradual improvement over that period of time. Certainly not that you have to be in place for that entire period before you see some improvement. We are going to see some improvement ahead of that full year. I just gave that because that's really kind of length of the time that it takes to fully recover and -- from that difference as a new person relative to an experienced person.

Okay. Helpful. Thanks for the color.

Thanks.

Our next question comes from the line of Jeff Kaufmann, please proceed.

Hi, everybody.

Hi, Jeff.

Hey, love the logo.

Good.

I just have two questions and really kind of following up on questions that been asked. I will go ahead and read the proxy so I better understand the three-year program. But let's say the stock doesn't outperform the peer group over a period. Is the claw-back against what was accrued only to the current fiscal year? You don't actually claw back any previous years, right, it is only within the fiscal year?

Well, no. It's -- these are three-year plans and so --

Okay.

-- it would be recorded. It's based on again the relative TSR for that period to-date you would adjust to that in the period that that change occurs. And so it's really -- I want to say marked to market, but it's not exactly that because it's relative performance measure. But it is like that in that as the price changes you evaluate where you are against the benchmark or the peer group and you make the adjustment in that period.

All right. So if the stock underperforms, it would actually aid earnings as opposed to this quarter where it --

Right.

Okay. I understand.

That's right.

And then the second question, thank you for providing the dates for the wage increase and the health and welfare increase. When did the P&L start to see the benefits of the new wage agreement last year?

November. November 3rd, when it went in place, so, November.

Okay, November 3. All right, well thank you and congratulations.

Yes, thanks Jeff.

Thanks Jeff.

Our next question comes from the line of Brad Delco. Please proceed.

Good morning Judy. Good morning gentlemen.

Morning, Brad.

Maybe Michael for you, thinking about the balance sheet now and given that you have more visibility I guess into sort of the earnings of the contract, any thoughts on deployment of capital? I know you guys are very focused on the nonasset portion of the business, but anything you could provide us in terms of what your thoughts are around the balance sheet and what you could do with your cash?

As you mentioned, Brad, we are active on organic investment. We have got an active process in looking at acquisitions, and so we are still very active in growing those nonasset based businesses. So that will take cash to do that, liquidity. In terms of what we do with other things like dividend, that's something that we are evaluating. But right now, the primary focus is on growing the nonasset business.

Well, and the other thing I would add, Brad, there may be some opportunities on the ABF equipment side, ABF Freight equipment side, that we need to take advantage of that would address the maintenance issues that we are seeing a little bit quicker. So that's a part of our evaluation as well. And I agree with what Michael said, the growth of those emerging businesses is a high priority for us. But we do recognize that we have a dividend level out there and so we will be evaluating that as we go through the next few quarters. And we can -- we will speak proactively about that when we have gone through that process.

Got you and then maybe another quick one. I think Judy you said 20% below current dockworker productivity. You wouldn't quantify the dollar amount, is that correct? But could you maybe give us (multiple speakers) --

Well, I think what's hard about that is in your modeling you have hours and rates per hour and efficiencies that are modeled in there and we're giving you the effective of this one group of employees and we are telling you what percentage that is of the total. And I think the best answer is for you to understand the productivity impact and understand how that affects the total workforce. And that -- because I think if we give number effects, that has a lot of assumptions with it and that's hard to deal with relative to what you're modeling and your expectations.

Okay, but that the timing of when these dock workers really came on was first and second quarter, so a year from that is when we really kind of --

Many of them yes.

Okay.

Many of them, yes. We really started to see the -- I mentioned earlier the strongest sequential growth that we saw in probably 15 years. The better part of that occurred in mid-February forward. And so that's when a lot of this effect has come on and so --

Well, thanks for the time.

No problem Brad.

Sam, I think we've got time for one more question.

Perfect. Our last question comes from the line of Rob Salmon, please proceed.

Good morning Rob.

Good morning. With regards to I guess Judy when we were thinking about the kind of network balance between tonnage and yield, obviously you called out that there is some incremental expense associated with the dockworkers that you have been hiring. Have you guys thought about any kind of tapering a back little bit the tonnage growth just to drive improved overall network profitability? Or do you see that the pricing environment is such where you'd rather get the tonnage in and then incur the near-term earnings headwind given the longer-term opportunit?.

Rob, I think I spoke to this earlier. We talked about that as we bring on business we are looking at that deal by deal. And as we make that evaluation, we are going to see if that business creates a better scenario for us or a worse scenario for us. And you have to make a little bit longer-term decisions than just the quick decision on some good LTL business. You want to make sure that you are making the right decision. Where we have some flexibility and we are addressing that is in the spot truckload market and we have some declining levels when you compare year over year in that category. And this is one way that you can address the issue that you are talking about. But all that being said, you can do too much of that too because that business can be good for us in certain situations and we want to be sure that we have it there when we need it.

All right. Clearly it's a network and you've got to balance those two dynamics.

Right.

When I'm thinking about the Panther business, frankly the growth on both the top line and bottom line surprised kind of our expectations. How should be we thinking about the near-term growth opportunity there? I realize you guys made a lot of sales adjustments. Any sort of commentary in terms of potential driver or purchase transportation cost increase that we should be thinking about in the back half?

Well, if you're talking about purchase transportation with respect to Panther, you are seeing great management of the balance between the revenue side and the cost side in that company. And we feel really good about what's happening there. Near term, I think if you look at July for Panther, it looks really good as well. And so we are excited about what the management team at that business has done. And when we talk with them about business opportunities there is lot there. And the growth that we have seen and the improvement in profitability has really been across [the verticals.] It hasn't been in one particular place.

And I think as you look out -- I was looking at a something that the ATA, the American Trucking Association, has put out about just the some of the capacity issues and that sort of thing. And in a capacity constrained environment, Panther does well because they oftentimes are the answer whenever other answers don't work. And so we like that business, we like the positioning of that business and we would like for it to be a lot bigger.

Thanks so much for the time.

No problem.

Okay, thanks a lot. Well, I think that concludes our call. We thank you for joining us this morning and we appreciate your interest to ArcBest Corporation. Our call now ends. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect the line.