ArcBest Corp (ARCB) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the ArcBest first-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded on Friday, April 29, 2016. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead, Sir.

Welcome to the ArcBest Corporation first-quarter 2016 earnings conference call. We'll have a short discussion of the first-quarter results and we'll open up for a question-and-answer period. Our presentation this morning will be done by Ms. Judy R. McReynolds, Chairman, President, and Chief Executive Officer of ArcBest Corporation, Mr. David R. Cobb, Vice President, Chief Financial Officer of ArcBest Corporation. We thank you for joining us today.

In order to help you better understand ArcBest Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statement section of the Company's earnings press release and the Company's most recent SEC public filings. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined in the tables in our earnings press release.

We will now begin with Ms. McReynolds.

Thank you, David, and good morning, everyone. We were pleased to report higher revenue and positive cash flow from operations at ArcBest for the first quarter, a typically slow period for the industry that this year was also marked by the soft industrial and manufacturing economic environment that emerged in the fall of 2015. As these market conditions persist, we are working to manage our cost while continuing to provide the service levels our customers expect from the ArcBest companies. At the same time, we continue to make investments in sales, customer service, equipment, and information technology. We know that these are necessary to compete in the future and best serve our customers who seek ever faster transit times and reliability and, particularly for us, the can-do attitude that continues to earn us their business.

While ABF Freight saw diminished levels because of the soft freight environment, pricing stability remained intact and revenue growth in the asset-light businesses reflected the positive effects of the recent Bear Transportation acquisition. In addition, continued success in the strategy of collaboration across the ArcBest enterprise contributed to increased load count at both Panther and ABF Logistics, which was also encouraging. Now for some details on each of the businesses.

During the first quarter, ABF Freight was impacted by uncertain economic environment associated with slower trends in industrial production and manufacturing. Total revenue and tonnage were below the prior-year period while the number of shipments handled throughout the ABF Freight network increased. The revenue decline was impacted by reduced fuel surcharge revenues associated with the ongoing decrease in diesel fuel prices along with lower tonnage levels.

In the midst of seasonally slower months of first quarter we continued our emphasis on offering a high level of service to our customers. In some cases, we chose to maintain personnel and resources beyond levels that directly correlate to our current amount of business. Though our operating results were impacted by those choices, we believe maintaining our focus on meeting customer needs at a superior level of service is important for maintaining current relationships and for gaining future customers. The ABF Freight team is working to properly balance its operational resources in order to handle the increased shipment count.

Thought lower than what we saw an early January, we currently have 109 dock street and yard employees in layoff status, and we continue to carefully evaluate the need to replace our folks who retire or leave the Company. We're working to manage our use of both the internal and external resources in order to reduce costs while contributing to improved customer service and increased operational efficiencies. Many of the costs associated with rented city equipment and city-cartage expense are down versus last year's first quarter and when compared to the peak period for those expenses in late 2014.

We are beginning to see the benefits of increased investments we made in purchasing new tractors and trailers in 2015 as well as those purchases that we're making in 2016. The benefits of reducing the average age of our equipment fleet include improved fuel economy, reduced repair and maintenance and towing costs and savings related to fewer equipment rentals.

As result of the new purchases, where planning for the remainder of this year, all of ABF Freight's road tractors will be covered under manufacturer warranties. In spite of the current operating environment, ABF Freight is focused on securing price increases and maintaining price discipline in the marketplace. Overall, we reported a decrease in first-quarter revenue per hundredweight that reflects the continued year-over-year impact of lower fuel surcharges. Excluding fuel surcharge impacts, the percent increase on our LTL revenue per hundredweight was in the low single digits and this yield measure was positively impacted by changes in LTL-freight profile.

We secured a 3.7% average increase of contract and deferred pricing accounts negotiated during the first quarter. In recent quarters, the level of average increase we've secured on the most price-sensitive accounts has decreased somewhat and that is reflective of the current soft freight environment. Though there is a healthy competition among LTL carriers for new business, especially for business under bid, the pricing marketplace remains rational. ABF rates focus remains on securing business at a pricing level that returns an acceptable profit margin.

Year-over-year changes in the first-quarter revenue at ArcBest Asset Light Logistics businesses were mixed. ABF Logistics total revenue increased primarily related to the effects of its December 2015 freight brokerage acquisition of Bear transportation services. The integration of this acquisition is on schedule and progressing well. We are pleased to add scale and new business to ABF Logistics as well as new locations in the Dallas region and in Northwest Arkansas. Though shipment levels in ABF Logistics legacy business increased amidst a market of excess spot truckload capacity, the resulting revenue contribution was below last year because of lower revenue per shipment driven by the effect of declining fuel prices.

Despite moderate winter weather, FleetNet's revenue improved as a result of double-digit percentage increase in emergency roadside events from new customers. FleetNet's first quarter operating income was below last year primarily due to increased winter staffing levels that exceeded actual business handled. ABF Moving's first-quarter revenue declined versus last year primarily due to a reduction in government shipments despite increased business levels and improved pricing with corporate relocation customers.

Panther's first-quarter revenue declined, continuing the trend of year-over-year, double-digit percentage revenue reductions it began experiencing in the second half of 2015. Panther continues to be affected by reduced customer demand for its services resulting from abundant availability of truckload capacity compared to last year. In addition, though quarterly shipment totals have increased, the profile characteristics of those shipments resulted in a lower average revenue per load due to shorter length of haul and an increased need for the smaller cargo vans and straight trucks in Panther's equipment resources instead of the larger tractor trailers.

The resulting impact on Panther's gross margins and total expenses caused Panther's first quarter operating income to be below that of last year. Panther is having success in offering equipment capacity for some of the brokerage shipments secured by ABF Logistics. This is an example of the collaboration between ArcBest companies, and it illustrates the advantages we offer as a complete logistics company with readily available assets.

Although we have experienced a challenging quarter, we are continually making investments in new innovations where even small portions of efficiency improvements have the potential to yield revenue growth, significant cost savings, and better experiences for our customers. The benefits of these new technologies will support our efforts to return our Company to its historical profitability levels. Investments we're making include a holistic upgrade in advancement of the hardware and software utilized on ABF Freight's dock and its city pickup and delivery operation for handling freight. Security and event tracking equipment that enhances safety and visibility on our freight docks. Website and mobile device upgrades across the operating companies to improve customer experience, and the online integration of our logistics offerings. Customer experience systems, quotation archives, and vendor databases that promote collaboration across the ArcBest enterprise. And many other projects whose positive impacts will reach throughout our Company over the next few years.

These technologies require up front investments of personnel and dollars. Many of their ultimate benefits will not be fully realized until later this year or in 2017. However, at ArcBest we believe it is essential for our future success to transform the services we deliver to our customers, that is what drives our corporate commitment to innovation and improving profitability.

Earlier this week at our annual shareholders meeting we said goodbye to our board chairman, Robert Young, who retired after more than 50 years of service to ArcBest. Over those many years, Robert was instrumental in leading our Company to many successes and navigating us through several challenges. He has been a calming force for our Company and a mentor to me and others. It's hard to imagine Robert not being here every day.

As I assume the additional duties of chairman of ArcBest, I know I have some very big shoes to fill in this role, and I am grateful for the service and leadership Robert has provided ArcBest. I, along with every employee of our Company, pledge to work hard to ensure the success and prosperity of the ArcBest legacy that Robert leaves behind.

And now I'll turn it over to David to provide the financial highlights for the quarter.

Thank you, Judy, and good morning, everyone. ArcBest's first-quarter 2016 revenues were $621 million compared to $613 million in last year's first quarter with increases reported by ABF Logistics and FleetNet. ABF Logistics revenue increase was related to its acquisition of Bear Transportation Services that was completed in December of last year. Lower business levels and the impact of lower fuel surcharges affected first-quarter revenue at most of our businesses.

The first-quarter 2016 net loss was $0.24 per share compared to net income of $0.03 per share last year. As detailed in the non-GAAP reconciliation table in this morning's earnings press release, first-quarter 2016 net loss adjusted for the non-union pension settlement charges and an increase in shareholder cash surrender value of life insurance was $5.9 million or $0.23 per share. Our reported first-quarter results were impacted by ABF Freight's $1.6 million increase in workers' compensation and $1.3 million increase in third-party casualty claims cost which together were $2.9 million or $0.07 per share above the prior-year quarter. This was a result of an increase in the number of claims and the severity of claims versus the historical periods.

As a part of our stock repurchase program, in the first quarter we bought 134,000 shares for a total amount of $2.6 million. We ended the first quarter with unrestricted cash and short-term investments of $204 million. Combined with the available resources under our credit revolver and our receivable securitization agreement, our total liquidity equals $330 million. The recording features of those two agreements allow for an additional total amount of $100 million. Our total debt of $203 million includes the $70 million balance on our credit revolver, the $35 million borrowed on our AR securitization, and $98 million of notes payable in capital leases primarily on ABF Freight equipment. The composite interest rate on all of our debt is 2.1%. Full details of our GAAP cash flow are included in our earnings press release.

ABF Freight reported first-quarter revenue of $440 million, a 2% per-day decrease compared to last year. As we've seen for the last several quarters, this was impacted by lower fuel surcharges. ABF Freight's quarterly tonnage per day decreased 0.9% compared to last year's first quarter with monthly year-over-year tonnage changes that included a 0.7% increase in January, an increase of 1.9% in February, and a decrease of 4.7% in March. March tonnage trends were significantly weaker than January and February. The March sequential tonnage change versus February was one of the lowest in the last 10 years.

Despite the decrease in first-quarter tonnage, the number of shipments handled during the quarter increased by 4%, or 2.4% on a per-day basis. ABF Freight's first quarter total build revenue per hundred weight was $27.72, a decrease of 1.2% versus the first quarter of last year. Year-over-year comparisons of this yield figure continue to be impacted by lower fuel surcharge revenue versus last year. Excluding fuel surcharge, first quarter billed revenue per hundredweight on ABF Freight's traditional LTL Freight had a percentage increase in the low single digits. Adjusted for the settlement charges, ABF rates first quarter operating ratio was 101.9 compared to 99.8 in the prior year. As we've seen in recent quarters, the year-over-year comparison of ABF Freight's operating expenses as a percentage of revenues was impacted by the effect of fuel and reduction in fuel surcharge revenue.

ABF Freight's salaries, wages, and benefits expense line increased $18.3 million versus the prior-year quarter, including a $1.6 million increase in workers' compensation, as previously mentioned, and a $1 million increase in non-union pension and healthcare costs. In addition, contractual wage and benefit rates were at higher levels as a contractual wage rate increased 2% effective July 1, 2015 and the average health, welfare, and pension benefit rates increased approximately 3.7% effective primarily on August 1, 2015. The wage and benefit increase also reflects the impact of an increase in shipments managed within the ABF Freight network and one additional work day in the 2016. As a reminder, Good Friday was counted as a half-a-day from a business level consideration but carries certain fixed labor costs. Good Friday was in March of this year versus April in the second quarter last year.

Increasing driver utilization also contributed to higher wages, but we continue to reduce purchase transportation and rents, which was $2.1 million lower. Despite the increase in fringe and unusually higher workers' compensation and third-party casualty claims cost, ABF Freight's change in the first quarter operating ratio relative to fourth quarter was better than the average of recent years. In total, our Asset-Light logistics businesses had revenue of $195 million, an increase of 6% versus last year's first quarter. This was primarily driven by the revenue resulting from the ABF Logistic's December acquisition of Bear Transportation Services. In addition, FleetNet's first-quarter revenue increased by 2.5%.

Despite an increase in loads handled, first-quarter revenue declines at Panther and the organic portion of ABF Logistics reflected the effect of reduced fuel prices and an ample supply of truckload capacity in the marketplace. ABF Moving's first-quarter revenue declined versus last year due to its handling of fewer government shipments. First quarter operating income for these businesses totaled $1.2 million compared to $2.8 million in the prior-year quarter.

Let me provide an April business update for ABF Freight. Preliminary results for the month of April 2016 through Wednesday April 27 versus the same period in April of 2015 were as follows: Preliminary daily revenues decreased between 6% and 7%; preliminary total tonnage per day decreased between 5% and 6% with the LTL tonnage down in the low single digits. April tonnage trends are being affected by significant reductions in our full-load spot business and by comparisons back to April 2015 when ABF Freight's total tonnage per day increased nearly 5%.

Relative to historical trends, both April preliminary total tonnage and LTL tonnage compared to March are running a little above average. Shipment counts decreased between 2% and 3%, which is less than the rate of tonnage decline and resulting in a lower weight per shipment. Preliminary April 2016 total revenue per hundredweight is down approximately 1% versus April of 2015, primarily due to lower fuel surcharges. The first-quarter trend of more customers taking the freight to market in the form of bids continues in the second quarter. This is impacting the level of increases secured on these accounts.

We still believe the market is fairly rational in terms of price. April sequential pricing trends are running above those of recent years, reflecting an increase of less than 1% versus the first quarter on our base LTL business. A recent historical sequential change in ABF Freight's operating margin has been an average improvement in the second quarter versus the first quarter of approximately 6 percentage points, although the range of improvement in past years has been from 250 basis points to 750 basis points.

Now for our Asset-Light businesses, on a combined preliminary basis, so far in April 2016 revenues from our Asset-Light Logistics business is running slightly above April 2015. Panther's preliminary April 2016 revenue versus last year is approximately 15% to 20% lower while loads handled are running higher by approximately 4%. This continues to reflect a business mix shift and increased available truckload capacity in the spot market for larger shipments. So far, April 2016 for revenue for ABF Logistics is trending up by approximately 40% due to the positive effects of the Bear acquisition. As we previously stated, Bear was a slight drag on ABF Logistic's first quarter operating profits, but was a slight increase in EBITDA as expected during the integration. The integration is on track and expected to be substantially complete by the end of June 2016.

Consequently, we expect Bear to have a neutral to slight positive effect on profit in the second quarter, and it should be positioned to contribute positively to earnings in the second half of 2016. FleetNet's revenue and events are tracking higher in the single-digit percentages. ABF Moving's preliminary April 2016 revenue is below last year by a similar percentage to that of Panther. This is related to reduction in the government shipments and associated revenue that will likely continue through the remainder of the year.

As we discussed in the past, our enterprise solution group works toward combining service offerings across ArcBest in a way that simplifies the experience for our customers. Because of our successes, we have gained additional business and generated more revenue; therefore, we continue to invest in providing an improved platform for future revenue growth. As a result along with other personnel and technology investments associated with improving the ArcBest customer experience, other corporate costs in 2016 are expected to be approximately $3 million above 2015 levels with a majority of that increase occurring in the second half of the year.

Now I'll turn it over to Judy for some additional comments.

Thank you, David. I wanted to highlight a recent recognition we received. Last week, ABF Freight and Panther earned 2016 National Carrier of the Year awards from the National Shippers Strategic Transportation Council. ABF Freight was named the best LTL carrier and Panther was honored as the best Expedited carrier. For ABF Freight, this is the fourth year in a row and the sixth time in the last seven years that NASSTRAC has recognized it as the top LTL carrier. This is the second time Panther has received NASSTRAC'S top Expedited carrier award. These awards are based on the input from shippers around the country and validates our efforts to customize solutions in order to meet the goals and objectives of each of our customers.

As you may know, I often travel with our sales leadership to me customers and hear firsthand what they appreciate from the ArcBest companies and what we can improve to keep winning more of their business. I'm always very encouraged by how much they recognize our employees can-do spirit, and that we solve problems for them that other companies often say they can't or do not wish to handle. That is something that characterizes the ABF and Panther brands, but increasingly what I also hear on these visits is how much people are beginning to recognize the scope of what we offer at ArcBest and how that helps them better manage their own businesses much more effectively. By providing needed services across the supply chain spectrum, we are now capturing more of their business than just the traditional LTL spin we used to get from ABF Freight and the expedited shipments at Panther. Without the full array of solutions we now offer, we simply would not be in a position to compete the way we must.

As our investments in cross collaboration and enabling systems evolve, our ability to serve customers through single points of contact they desire are positioning the ArcBest companies better than ever to keep and win more customer's business.

And now, David, I think we are ready for some questions.

Okay, Tara, I think we're ready to do the questions.

(Operator Instructions)

Chris Wetherbee.

Wanted to ask about the sequential OR improvement. When you think about sort of the puts and takes that are going on in this spring's freight market, we have some timing of holiday shifts that you guys I think have highlighted as well.

How do we think about some of the puts and takes that natural sort of 600 basis points or so improvement that we would normally see? I just want to get a sense of maybe what could be changing or off-cycle with that.

Well, Chris, a couple things that we have talked about, one of those being just the uncertainty of the economic environment. I think that kind of overhangs this whole discussion.

With what we are seeing in March and April, we aren't getting much of a read that things are improving yet, although we hope that they will. So that's something that will have an impact. You mentioned Easter. That was in March and is a comparison issue again.

In the information that David gave you, it kind of underlies that. Another thing that I mentioned to you is the issue that we have had with our workers comp third-party casualty claims here in the first quarter. I think I will let David speak to some of the comparisons that we deal with there, but that certainly is a cost area that we're going to see -- we think some inflated costs or some higher costs even in probably the second and third quarters at least.

I want to just add to that, Chris, it's hard to tell exactly, but I think if you compare these areas, workers comp and BIPD to last year -- last year actually benefited in that it was lower than the historical averages by about 40 basis points combined. It wasn't really -- actually that's a couple years of favorable experience in those areas back to back, and I'm talking about second quarter, both second quarter 2014 and second quarter 2015.

But if we could see -- it's hard to tell. Again, if we see these trends continue, then we would be above the historical averages of those areas. So that could be a cost headwind I guess when you think about first quarter to second quarter OR sequential changes.

Okay. That's very helpful. One quick followup here I just want to touch on Central States rescue plan. I just want to get a sense of maybe how that has -- if it has any impact on your contributions going forward, if there's any potential opportunity for reductions going forward for you?

For certain, through the contract period that we have that ends in March of 2018 we'll continue with the same contribution levels that we currently have on a per hour basis. Something to note about that though is that perhaps around 80% of those contributions have been flat for the last few years and that's something we feel is appropriate. It was negotiated and is something again to note.

We feel good about the Central States, the fact that the trustees recognize the issues that they have to deal with. No one likes that they have to work through this in the way that they are having to, but our understanding is that they're going to receive a recommendation from US Treasury on May 9 and that will have an impact on how the fund handles the participant benefit levels, and we're watching to see what happens there as the events in Washington unfold.

Okay, so no changes in the near term under the contract terms as it stands right now?

That's right.

All right. Thanks for the time guys, I appreciate it.

Jason Seidl with Cowen and Company.

Jason, are you there?

Sorry, I was on mute. Morning. I hope you guys got more coffeed up than I have apparently. Just looking at sort of the business trends, you had obviously one of your competitors out there claiming that things got a little more aggressive in April, I guess another competitor said they weren't even looking at the April pricing trends.

Now, Judy, I know you said I guess things are decent in pricing, but have you noticed an increase competition in April at all even though it might still be rational in your opinion?

What I would suggest to you is that this year we've experienced an increase bid level of activity, customers perhaps coming out of cycle with their business for bid. But outside of that we are working through our most price-sensitive accounts as we typically do and we're working on new business as we typically do. I think I mentioned that our sequential pricing from when you look back to March and into April was actually up a little bit less than 1% on our LTL business and so that's a decent sign for us that things are kind of tracking along here.

And so I guess given where we've seen the trends in tonnage, are you pretty comfortable where pricing has hung in?

I would say -- of course we always feel like the value we provide is more than we are able to gain at times. But outside of that, it seems rational, it seems like it's a constructive environment as we are working through things.

There are some comparison issues I think that were noted in David Cobb's discussion of April. When you look back to last year or so, when you're thinking about what's happening with tonnage in particular, you have to take note of those. In other words, we had some strong comparisons last year to deal with perhaps unfortunately those get easier as we go throughout the year.

Okay. Well, I appreciate the color as always, guys.

Ravi Shanker with Morgan Stanley.

A competition question, this time on the Asset Light side. Are you running into any of these new startups that we are hearing about that seem to be trying to make inroads in the space?

Well, we're not seeing much effect from them, but certainly hearing about them and reading about them perhaps more so than seeing them in the business.

Got it. And with those guys, do you think it takes them time to kind ramp up? Do you think it's just a matter of time or do you think at some point you will run into an actual wall that kind of stops them -- or kind of doesn't allow them to become the size and [position] (technical difficulty) for?

Again, this is a speculation or a guess on my part, but they're going to perhaps serve a place in the market, but when you get to larger volumes of freight or customers that perhaps have regular business more certainty that they need attached to their business. Those customers are going to be better served with a Company -- a logistics Company, that has multiple options, has capacity sources that can be counted on, has perhaps a greater level of certainty attached to it in terms of the volume of business that can be handled.

And so I do think that's perhaps a differentiating factor, although when you think about these startups, they are interesting, they have had an impact in certainly other industries in other ways and we don't deny that, that will have a place perhaps in our marketplace. But I do think that at this point it's not an effect that we are seeing in our business and really is one, as I said before, that we're only hearing about and reading about, perhaps.

Got it. And one last one. It's a bigger picture question of the Asset Light business, especially Panther.

What's the solution here? Is it just a case of waiting for macro to come back with some of those expedited businesses or are there more levers you can put on the cost side to kind of improve the OR here?

We are certainly looking for leverage on the cost side. We are having this scenario where we are doing more with our cargo vans and straight trucks and less on the tractor-trailer side, although we are really pleased with our owner operators that we have on the tractor-trailer side in terms of the capacity source there, so we are ready for action if things do turn up.

I do think your point is well taken in that you do have to reflect on what is the business model that works here and what cost do you serve it with, and we're very self-reflective over those things, looking at the right resources to serve that business. Some things that I mentioned in my opening comments about the technologies that we're deploying in all of our businesses are really going to help us with those cost efficiencies because we see some opportunities for technology to help us with a more efficient use of our sales people's times and talents.

Perhaps automating some manual processes and that helps us reduce the transactional costs that we have. But Panther's base business is ground expedite and that ground expedite business in this kind of environment is not going to be easy to grow. But one thing that I really like about Panther's approach to things, they serve a place inherent in some supply chains, particularly in the auto industry, that really helps the customer reduce their total customer cost by utilizing Panther resources in moving their inventory rather than having to house it.

So we're focused on growing that type of business, and it's something that customers desire and customers really gain an advantage from. So it's not just all about the spot market. It is about some of that regular business, we are just need to have greater success with growing that.

Brad Delco with Stephens Inc.

Judy, I know you guys gave a little bit of detail about the impact Bear had on the quarter, but looking at a lot of other brokerage results and you saw a lot of great margins both on operating income and the net revenue. Is there any way you can sort of quantify what sort of drag that had on that profitability. Then maybe give us more what the organic volumes were for ABF Logistics?

Sure. I'm going to let David answer that question.

Bear, Brad, as we said, it was slightly accretive on the EBITDA line. But with purchase accounting -- which some of that is still preliminary, the operating results were impacted probably about less than -- or around $100,000, less than $200,000 on the operating profit line.

And, Brad, that was a loss is what David is talking about. We knew going into this transaction that we were going to be working through an integration that was really putting in a seasoned leader to this campus and aligning the roles under sales, the carriers binders and working through sales and operational processes, their IT systems.

We're working on a platform that actually puts together the ABF Logistics platform with some of the best features of the Bear platform into a system that all our employees in that business will be working from and we're excited about that, but all those things take time. So we know that, that business has been challenged for us here in the first quarter. We expect that to kind of stabilize in the second quarter, and that once we get these integration issues worked through that we'll be able to see the benefits of that in the second half of this year.

But to your point about the margins that others have in this business, a couple of things. One is we want to have more of our relationships in our logistics business be ones that have certain levels of volume that are greater and that are more relationship oriented and less transactional, but we don't have that balance today. So the business that you see there is helped by Bear in these relationships, but is still largely a transactional business and it's affected by the environment perhaps more than some of those companies that you are comparing to.

Now, the gross margins our business are still good and we are pleased with that. The other thing is as we see some of our sales and ops people gain more experience, there's a big productivity list. So we can see our way to the margins that both you and I want to have in this business, but it's going to take us some time to work through things that I mentioned to get there.

And, Brad, I'd just add. I think you were asking about the organic business and shipment levels certainly increased. They were up probably around 13% on just the ABF Logistics, excluding the Bear acquisition.

And if you think about that relative to like the market demand index for instance, which was down 22% in the first quarter. So obviously what we're doing there in our strategy is paying off in that we are providing customer solutions across our enterprise. So you see it there but you just don't see it on the top line because of the impacts in the marketplace with fuel and capacity impact on the revenue side.

That's great color and that's kind of why I wanted to know the volumes because I knew the fuel was messing with the numbers. (multiple speakers)

That definitely has a factor.

Before David cuts me off, I'll say thank you very much.

David Ross with Stifel.

Judy, you talked about the 2% increase in average daily volume like it was an issue in the quarter with having more resources on hand to handle the business and maintain service. It was still a 4% sequential decline from the average freight run through the system in the fourth quarter and it's not -- at least I didn't think it was if you guys were running at capacity. So I guess I don't know why it was a headwind and you couldn't handle kind of a little bit more volume with fewer resources?

Well, I think we certainly have to balance given that customer service with the efficiencies that we can gain in the business -- and we're still seeing some issues with our street productivity, but I will offer this just to I think more directly address your question. If we look at our city dock and linehaul employees on a sequential basis, you know the city employees were off nearly 3% in terms of headcount, dock was off almost 7%, linehaul was off close to 3%, and our shipments declined less than 1%.

So, sequential sometimes helps you whenever you are thinking through these things. Obviously what we were talking about is looking quarter -- year over year. But I think the point of that, and I think you've heard this from some of the companies that we compete with, is when you have this wait-for-shipment issue, and your shipments are either up when you're tonnage is down or they're down less than you're tonnage.

There's a top-line effect yet you do have to have some of the people toward that business. So I think that was the point that we were trying to make.

That makes sense, and you alluded in your other comment that you go out and meet with customers and they are happy with the service and that ABF does things that others don't want or can't do, but you're unhappy with the price they are willing to pay for it. I didn't know how much there still is to go on telling people, listen, if you actually want us to provide this service, we can't lose money. It's an expensive operation.

Agreed. And we always have the opportunity for better results on those pricing discussions and we actively pursue those. And I think if you look at our Company over a longer period of years, we've done a good job in that area.

I feel like when you look at our most price-sensitive accounts, we are doing a decent job, but you do have to consider the level of work that goes into some of the more difficult freight. We're looking at that and making sure that we are addressing that properly with customers.

Thanks.

Todd Fowler with KeyBanc Capital Markets.

Can you help us think about -- as we move into the second quarter and it feels like April is off to a little bit of a slower start? How do you think about making adjustments to the network -- and I understand your comments about new employees on layoff and probably seeing a little bit of attrition and maybe not replacing some of that work or some of those workers. But it feels like moving into the second quarter becomes that tricky balance of expecting a seasonal improvement and if that doesn't materialize I guess how do you adjust the network to respond to that?

We have to flexibility to address headcount as appropriate. I think the more difficult issue is the service issue that we've been highlighting. Obviously, we need a certain level of service to provide the reliability to our customers that we should provide. So it's really more of the balance of that than an inability on our part to really adjust our headcount.

So as we see things progress, we are very, very focused on making sure that we have the efficient workforce that we need to reduce costs and over time, Todd, we highlighted some of the technology that will help us with that as well. And so we're planning to have greater visibility of the activities that are involved in delivering freight to customers, so that we can provide that visibility to customers, but it also allows us a more efficient cost structure. So some of those investments are interesting and create some opportunities in this business that we haven't seen for a long time in terms of allowing us an opportunity to better manage cost.

Yes and that make sense, Judy, and I appreciate that. I guess I'm just trying to think about at what point you make the decision. If you're expecting a big ramp into June, how quickly can you adjust to those things if they don't start to materialize? What are some of the things that you're watching to make sure that you have got the staffing at the right levels?

We are constantly watching our dock bills per hour. The bills per street hour is another area that we watch.

We are looking at our equipment to make sure that when we send equipment out that those are efficient runs. So we have got some 53-foot trailers that we're utilizing more so than the lesser length trailers that we've used in the past. We're studying and reassessing our inbound route planning tool to improve its effectiveness and looking at optimizations of our delivery routes.

We're also doing some audit work on compliance with our inbound planners and our city planners to make sure that the staffing decisions that are being made are the right ones. So there's a great deal of focus in these areas.

We're not happy with the results. We know we can do much better, but at the same time we're trying to balance that with a reliable answer for the customers, which is a more difficult thing to do in this kind of an environment.

No. All of that makes sense. It definitely sounds like you're on top of all those things. Just trying to get a sense of how you can respond and react to what seems like kind of an inconsistent environment right now. Thanks a lot for the time this morning.

Matt Brooklier with Longbow Research.

A question for you on tonnage that the step-down that you saw in March, which it looks like it has continued into April. Can you talk to how much of that you think is just due to a softer overall freight macro and how much of that was potentially due to lost business just given the fact that the markets maybe have gotten a little bit more price competitive here?

The best thing to do when you've got some of the questions you have is to look sequentially, I think. So when we look at April relative to March, the sequential comparison there is fairly normal. It's actually pretty average.

Now, David mentioned in his comments that March was weaker than normal. Perhaps 9 out of the last 10 years is where March was and so on the one hand you'd hope that there was a rebound in April, but what we're saying is that it's kind of a normal relationship, April back to March.

So I don't think it's really getting worse. We're not hearing that we are losing accounts. It's really just more some of the weakness in the industrial and manufacturing side, it's the inventory levels that are still high and haven't been worked through on the retail side.

And over time those things will change and get better, but we're -- in terms of new business opportunities, we're seeing pricing proposals be at a higher level. Some of the opportunities that we're getting a look at, are good. Some of the customers that we're doing business with that really work across our organization and really take advantage of LTL, truckload, perhaps ocean shipping and some of the service offerings that Panther has, those conversations are good.

They are growing business and we're seeing some good relationship business opportunities in the logistics business as well. So we are not discouraged by what we're seeing in terms of those opportunities, but just the macro overhang continues to be there and obviously we have to address that whenever we are trying to manage our cost to an efficient level.

Okay. That is helpful. And then my followup you mentioned it's been kind of an earlier bid season start this year just given current market conditions. Can you talk to how much of your freight book of business at this point in time has re-priced and what needs to re-price this year, how much is left?

We really look at it like that. It's pretty -- when we look at our contract and deferred pricing, which is the accounts that we typically renew on a pattern annually, we're not seeing really any spikes in that. And the ones that we're talking about coming out of cycle, it's a corporate account here or there. It's not an answer that is happening kind of across-the-board.

So I think our comment there is just to give you some additional information about what we're experiencing, what where seeing kind of in the overall pricing environment. It's really not speaking to something that's broad-based or pervasive in terms of an area of concern.

Okay. Appreciate the time.

Ken Hoexter with Bank of America Merrill Lynch.

Can you talk about -- I just want to understand following on that last question the market a bit more. How much is from brokers now and how has that trended over time?

I don't know if I understand your question, Ken? (multiple speakers)

How much of your freight is tended from brokers versus

It's a very small percentage. It's like 5% or less. We're I think unique among the LTL competitors in that regard. Yes.

When you're talking about that last question the insight into the market and if we step back, I just want to understand the trends that we're seeing now on a more macro basis. If you go back to kind of 2008 or 2009, this worsened historical average March and what you're seeing in April to start, does it feel like we're kind of just chewing up excess inventory?

Does it seem like demand is really falling apart? Maybe just a little more insight on that last question on the demand side.

I think we're in a different place than when you look back to 2008, 2009. I don't think we're approaching anything like that. And I do think probably the bigger issue -- well, I'd say two.

One is chewing up these inventories. I think that's a good way to characterize that, and the other is just the impact I think that the oil and gas business, the energy business has had. Both first-order effects and second-order effects on capacity.

I think it's those two things stand out to me. That oil and gas issue I think has created some industrial and manufacturing weakness that in the short term has been hard to overcome. But I really think it's those two things.

I don't think that it's comparable though to 2008 or 2009.

And just a quick one to wrap up. The higher casualty costs, unless I missed it I don't think Dave mentioned on that. Is there some trend building or was that a specific event?

That's more of a trend. It's more of a frequency and severity of claims. No specific items in the quarter.

Okay. That's a big number. Is that something you have to launch new programs or new training? How do you counter that $7 million increase?

You're right. We are focused on these areas and technologies will help in this area as well but, yes, we're not passive about that.

We're certainly trying to do what we can to impact that. But again some of those our event driven, so when you see trends like that you want to get the accounting right, but we're taking steps to be proactive about it.

We're focused on training and making sure that people understand what it means to do their job safely and that's on the workers comp side. And then on a third-party casually side I think it was not just one incident here, it was a few. And so you really just have to make sure that everybody understands kind of the safety elements whenever you're driving and on the road as well.

It's really a focus there. Our Company has typically been good in terms of quality of the results in these areas, but you do have times where there's an uptick in claims activities and this is one of those quarters for us. And we don't want to suggest to you that it immediately goes away because we do think as we go through particularly second and third quarter we are going to carry a little bit of extra costs just because of the experience that we've had here.

Wonderful. I appreciate the time and insight.

Scott Group with Wolfe Research.

Just wanted to follow up on some of the April commentary for a quick second. April is similar to normal versus May. Are you making any adjustments for Easter?

Just curious about that. And the breakout that you're giving us now of kind of pure LTL over spot but you have not given us so much before. How should we think about margin differentials on those two businesses?

Certainly LTL margins are going to be better than truckload spot margins. We don't give the specifics of those markets and what they do, particularly because the truckload changes depending on the market dynamic.

But generally speaking, the LTL margins, that's our preferred business. We use spot truckload business whenever we need to fill capacity.

And just on the sequential tonnage side, it's a per day basis so that reflecting the holiday effects.

We consider the holiday in the days worked that we're using to calculate the tonnage.

Including Good Friday?

Right.

Yes.

There's a half a day adjustment there for Good Friday, Scott. It's not perfect, but there's adjustment in the workdays on things like that.

Okay. Perfect.

And then just maybe bigger picture. Judy, when do you think we can start to see margin improvement in LTL again or what do you think it's going to take to see margin improvement in LTL again?

I think that were working toward that. We have a number of ways that we could improve that. One of those we are seeing work already which is on our equipment.

We really haven't talked about that on this call, but the investment that we have made in our equipment is we are starting to see the good results of that. We have had -- if you look at kind of the sum total of total cost of ownership which includes fuel and rented equipment, repairs and maintenance, and depreciation, those costs were down in the first quarter relative to last year, so that's encouraging.

And we're just on the front end of our 2016 purchases. So as we go through this year we expect for the results to improve there. Our focus on some of these productivity areas I believe will yield results later in the year.

I outlined several technology areas that we are going to be spending resources in that we feel like will give us ability to better give customers visibility which will help us grow revenue. But it will also give us more visibility in our cost management, and we are encouraged by that. We have several opportunities, I think, but it certainly helps you when the environment is a little bit better because that helps you in so many areas.

One, it's certainly much more helpful to grow tonnage than have tonnage declines. And so we're looking forward to looking for some improved results there was some of the customer negotiations and relationships we have. But also making sure that we've got a focus on the head count, the right on equipment, right facilities and the right locations.

All of those kind of typical blocking and tackling items, we are very focused on those. All of that will result in improvement in the LTL business, but we are as impatient with it and perhaps more impatient with it than you are.

Scott, we are going to move along. I have got a couple more in queue and I want to let everybody get a shot.

Rob Salmon with Deutsche Bank.

This is [Sheldon Clark] on for Rob. I apologize if I missed it, but did you give shipment trends on a monthly basis in quarter to date?

No, we did not.

On quarter to date just for April we said they were down between 2% and 3%, but we didn't break it out for the first quarter.

Okay that's fine. So maybe the headwinds might ease a little bit I guess just from the fixed cost perspective if shipments are down a little bit. Does that make sense?

Well, there down less than the tonnage is, so we still have the same weight per shipment issue. We still have that -- in April we still have that same issue.

All right. Is there anything you can do that quickly to address that?

That's just a reflection what's going on in the market.

From a fixed cost perspective.

Well, I think that all the things that we've been talking about in terms of better labor management, looking at our routings, making sure we're complying with the planned approach to those routings and that sort of thing. As well as just a continued focus on dock productivity, those are all initiatives that are pointed at directly improving labor costs. The same is true in April and as we go through this quarter and the rest of this year.

Okay. And then I think earlier this month there was a surcharge implemented for just freight going in and out of California. Are there any puts and takes there or has there been any pushback or anything like that?

Really, it's a fee that was set at $592 per shipment and nothing I think unusual about it other than it's in the state of California. But we are implementing it and working through it with customers and I'm not going to say much about the details because I really don't know them. It's just a specific action that was taken in that market.

All right.

Willard Milby with BB&T Capital Markets.

I wanted to touch on ABF Moving, I believe it was. Did you say the revenues were down similar to Panther in the 15% to 20% range here in April?

That's right.

Okay. Do we think there's a trend brewing here where that -- levels could possibly continue throughout the year or is it maybe some near-term government work that's just not coming through?

I appreciate your clarifying question. That's right.

We're expecting that trend to continue for the balance of this year, at least. It is related to government shipments.

Okay. Great. Have you all disclosed the D&A target for the full year for -- I guess all the operating companies?

We did. On a consolidated basis we talked about just total depreciation and amortization between $100 million and $110 million for the year. That includes our fixed assets and software, and then on top of that there's probably another $4 million or $5 million of intangible amortizations.

All right. Great. Thanks for the time.

We have got a couple more folks in the queue, so we're going to try to get to them.

Jeff Kauffman with Buckingham Research.

Just two quick ones here. We were just talking about household goods. Is there an election year impact on that business that we should be thinking about?

If there is -- it certainly is possible, but we're not specifically focused on that, but it is the Department of Defense that is kind of the initiator of that business. So there are a couple of reasons for the weakness there, but I guess a presidential election could be one of those. I'm just not specifically aware of that.

Okay. I didn't know if that was having an influence.

Lastly, you did talk a little bit about the Central States proposal in front of Department of Treasury right now. We're going to get that answer in early May. If the proposal as it requested is approved, do you have any rough idea of how that will or will not impact your business?

It really won't have a direct impact on our business except it will have a direct impact on our people because they have been notified of reductions that they should anticipate as a result of this plan going through. And it's my understanding that those would be implemented upon the completion of the process.

But the process is Treasury has to address this and I think make a recommendation, and then it goes back to the participants for a vote, and then there's a process after that if it doesn't go through. And so there are a few steps there, but I think the main objective that Central States has is trying to address their under funding, and they submitted a plan to do that and we will just be watching as you are on the events in Washington as they unfold.

That's all my questions. The rest have been answered. Thanks so much.

John Barnes with RBC Capital Markets.

As a follow-up to what Jeff just asked, my question would be if there is a reduction in benefits as proposed, UPS made some announcement yesterday about the cash outflow to cover the shortfall on their end, what is the cash outflow for ABF?

It's none on that. It's a different thing that they are impacted by -- and I don't want to pretend that I know all of the details.

But I think you probably remember when they exited the Central States plan they had an arrangement when they did that in the event that the benefits ended up being reduced with their employees. We are still in the fund. So there is no impact on us as a result of that at all.

Okay. All right. It's a matter of whether you exited or if you're still involved?

Yes. And a deal that you made with those Central States and your employees.

That makes sense. My last question. Can you remind us when your current contract with the teamsters comes up for renewal, and is there any concern that depending upon how this plays out that, that becomes a bigger source of contention in the next negotiations making up this funding shortfall?

I really feel like this is the plan to do that to address the funding shortfall. So there are lots of different ways I suppose that this could be done, but Central States has worked through this in a very purposeful manner over more than 10 years, I think. Trying to develop a solution, and the one that they have proposed addresses the under funded nature of the fund.

So as we carry forward, we don't see that there is an impact on us that changes in terms of the current contract that we are in. It remains to be seen what will happen next, but if they are able to address the funding issues, to me that's a net better for us as a Company. It certainly is very hurtful to our employees and the haircuts that they have to take in their benefits.

But that's really more -- (multiple speakers)

When does the contract expire?

Ours is March 31, 2018.

Thanks. I really appreciate it.

I think this concludes our call. We appreciate everyone joining us today. We will see you next time. Thank you.

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 your lines.