ArcBest Corp (ARCB) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the ArcBest First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded today, Friday, May 5, 2017.

I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations.

Please go ahead, Sir.

Welcome to the ArcBest Corporation's First Quarter 2017 Earnings Conference Call. We will have a short discussion of the first quarter results, and then we'll open up for a question-and-answer period.

Our presentation this morning will be done by Ms. Judy R. McReynolds, Chairman, President and Chief Executive Officer of ArcBest Corporation; and Mr. David R. Cobb, Vice President, Chief Financial Officer of ArcBest Corporation. We thank you for joining us today.

In order to help you better understand ArcBest Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. For a more complete discussion of factors that could affect the company's future results, please refer to Forward-Looking Statements 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 and described in the tables in our earnings press release.

We will now begin with Ms. McReynolds.

Thank you, David, and good morning, everyone. As you know, the first quarter is typically our most challenging of the year. While bringing some unique assets into play, this one was no exception. Although we made progress with our strategy to better serve our customers, our non-GAAP results were essentially flat with last year. It is also worth noting that our comparison to last year includes a $2 million increase in ongoing technology and innovations investments. Those costs are shown in the other and eliminations line item. With respect to first quarter, clearly we have more work to do to achieve the results we expect to see.

At a high level, the stock market posted some initial strong results as the new administration took over in Washington, but economic growth was inconsistent throughout the quarter. We have yet to see a pattern of solid, sustainable activity on that front as the various economic statistics that we track remain somewhat volatile. However, we are cautiously optimistic when we see signs that the macro economy is improving.

Consistent with recent quarters, on the Asset-Based side of our business, we continue to see smaller weight per shipment but increases in shipment counts. We are a trusted partner for customers that require residential deliveries and as a result, we've seen tremendous growth in this area. Our goal is to provide value while more effectively managing our costs, and we have a number of initiatives in progress to address that goal. We view these customers and shipments as a great opportunity, but one that requires us to continually adapt our services and shipment charges in order to offer a superior customer experience that results in acceptable profit margins for our company.

On the ArcBest Asset-Light side, a degree of weaker demand, particularly in the truckload sector, continued to weigh on results. We were pleased with the performance of our expedite offerings, but our dedicated truckload and international service lines produced operating results that were below our expectations. Our Asset-Light services provide a great opportunity for growth and improved profits, and our sales force is focused on that opportunity.

Our enhanced market approach, under which we now offer most of our services as ArcBest, became fully operational in the first quarter. We've received positive customer feedback from this initiative, and our discussions with our customers are on a deeper level than ever before. Importantly, by being able to provide the full scope of supply-chain solutions that are our customers need, the Asset-Based business that would have gone elsewhere is now coming back to us as one part of a multilayered solution. These are all very encouraging developments that lend confidence to our sales, customer experience and operational efforts across the entire organization. It's also noteworthy that the cost savings associated with this initiative met our expectations in the first quarter. And now I'll discuss more details about our service offerings.

First quarter revenue for ArcBest Asset-Based LTL services improved versus last year because of increases in shipment count and higher average revenue per hundredweight. Stronger pricing metrics were associated with increases in fuel surcharge and shipment profile changes, including reductions in average weight per shipment. While seeking to obtain compensatory prices on the final-mile shipments we've added, we are also managing pricing opportunities on spot-rated truckload shipments that positively contribute to revenue growth and operational efficiency.

Industry pricing was consistent with recent quarters and continues to be competitive but rational. ArcBest yield management team is obtaining price increases on existing accounts during normal annual renewal periods and in out-of-cycle periods for accounts not currently meeting acceptable profitability thresholds. Negotiations on contractual customer agreements remain challenging, but the results ArcBest has achieved are good. ArcBest is actively seeking new business but at pricing levels that offer the opportunity for profitable returns.

Continuing a trend we've experienced for several quarters, LTL shipments grew at a healthy pace that exceeded the rate of tonnage change. Though total Asset-Based productivity showed a slight first quarter improvement, the additional shipments and the associated degree -- decrease in average weight per shipment I previously discussed impacted dock and city handling costs as well as cartage costs and, therefore, profitability. Our Asset-Based linehaul operation gained benefit from utilizing a positive combination of various transportation resources, which resulted in a reduction in empty miles in the first quarter compared to the same period last year.

We began taking delivery of our new replacement tractors late last month, which should positively contribute to reducing the age of our road and city fleets, while offering improved fuel economy and lowering our equipment maintenance costs. We monitor our expenses in these areas and believe there are opportunities to achieve an improved total cost of ownership as we experience the benefit of our investments.

Nonunion, Asset-Based health care costs increased during the first quarter. We believe the investments we've made throughout ArcBest in health screenings, disease prevention, education and encouraging positive lifestyle changes with many of our employees will ultimately yield future reductions in these costs. And we continue to benefit from personnel added from long-established new employee training programs in our Asset-Based business. Our driver development program and our Teamster Military Assistance Program have been good sources of new, engaged employees who are making positive contributions to our Asset-Based operations.

The improvement in ArcBest's first quarter Asset-Light revenue was a result of incremental business in our dedicated truckload services segment. You will recall that we acquired that business last September. We also benefited from increases in expedited revenue associated with higher revenue per shipment. These revenue increases were offset by lower business levels in truckload and other Asset-Light segments associated with reduced demand. In spite of a slight decline in the number of shipments handled during the quarter, the rise in ArcBest's expedited revenue was related to an increase in average revenue per shipment associated with greater length of haul and an increase in average revenue per mile. Net revenue margins were below last year as the increase in purchased transportation mileage rate exceeded the increase in rates charged to our expedited customers. Due to reduced customer demand, fewer shipments were handled by ArcBest truckload service line, which impacted net revenue totals and profitability. As was seen in our expedite business, net revenue margins were pressured by higher cost per purchased transportation relative to rates charged to customers.

The addition of dedicated truckload services contributed positively to this quarter's Asset-Light revenue growth. However, the volumes and margins in this business were lower than we expected because of record precipitation in the northern Nevada region, where much of this business is handled by our company.

We are pleased with the positive prospects our dedicated business offers us, and we're capitalizing on opportunities for internal operational collaboration between our Asset-Light dedicated, expedited and truckload services. This collaboration among our service offerings is positive for customers as well.

Versus a strong business and margin environment last year, ArcBest international business handled fewer total ocean shipments that moved at lower net revenue margins, thus impacting operating results. The ocean shipping market disruption that occurred through much of last year continued to impact ocean container capacity and lower industry margins. On a combined basis, our dedicated truckload and international business first quarter margin contribution missed our expectations by nearly $1 million.

Versus last year, FleetNet's reduced revenue for the quarter was driven by fewer roadside events. Despite the lower top line figure, FleetNet's operating income was comparable with last year due to cost controls and the improved productivity of its customer service personnel.

And now, I'll turn it over to David Cobb for a brief discussion of the earnings results.

Thank you, Judy, and good morning, everyone. Let me begin with some consolidated statistics on ArcBest. First quarter 2017 consolidated revenues were $651 million compared to $621 million in last year's first quarter, an increase of 4.8%. On a GAAP basis, we had a first quarter 2017 net loss of $0.29 per share compared to a net loss of $0.24 per share last year.

As detailed in the non-GAAP reconciliation table in this morning's earnings release, the adjusted first quarter 2017 net loss was $0.22 per share compared to $0.23 in the same period of 2016. The adjustments taken in first quarter 2017 included $1.6 million or $0.04 per share related to our enhanced market approach that was implemented beginning in January. We currently expect to incur approximately $1 million of additional restructuring costs in the remainder of 2016 -- of 2017, excuse me. ArcBest first quarter effective tax rate was a benefit rate of 41.4%, essentially in line with our full year expected range of 40% to 41% under the current tax law.

As we saw throughout 2016, our reported first quarter results were adversely impacted by increased health care cost. Versus the same period in 2016, total corporate health care costs increased $1.3 million or approximately $0.03 per share on an after-tax basis. This included an increase on Asset-Based nonunion employees of approximately $800,000. The increase in these costs were the result of higher claim severity. We did not purchase any ArcBest stock in the first quarter, but under our existing repurchase program, we have approximately $38 million of purchase availability.

We ended the first quarter with unrestricted cash and short-term investments of $139 million. Combined with the available resources under our credit revolver and our amended receivable securitization agreement and their associated accordion features, our total liquidity equaled $366 million at the end of the first quarter. Our total debt at the end of the first quarter of $227 million includes the $70 million balance on our credit revolver, the $35 million borrowed on our receivables securitization and the $122 million of notes payable with capital leases, primarily on equipment for our Asset-Based operation. The composite interest rate on all of our debt is 2.4%. Full details of our GAAP cash flow are included in our earnings press release.

ArcBest reported Asset-Based first quarter revenue of $464 million, a per day increase of 4.9% compared to last year. We had 64 working days in first quarter of 2017 compared to 63.5 working days in last year's first quarter. Asset-Based quarterly tonnage per day decreased by 0.7% compared to last year's first quarter. For first quarter 2017 by month, Asset-Based daily tonnage versus the same period last year decreased in January by 1.1%, decreased 0.8% in February and decreased by 0.3% in March. First quarter total shipments per day increased by 5.7% compared to first quarter 2016. Total Asset-Based weight per shipment was 1,208 pounds, a 6% decrease from last year's first quarter and flat with fourth quarter of 2016. Average length of haul on Asset-Based shipments increased 1.5% to 1,031 miles compared to 1,016 miles in the first quarter of last year.

On a sequential basis versus fourth quarter, length of haul declined a little over 1%. First quarter total billed revenue per hundredweight on Asset-Based shipments was $29.47, an increase of 6.3% compared to first quarter of last year. Year-over-year comparisons of this yield figure were positively impacted by higher fuel surcharge and changes in shipment profile and business mix. Excluding fuel surcharge, first quarter billed revenue per hundredweight on Asset-Based LTL freight had a percentage increase in the low single digits. We secured an average 3.9% increase on Asset-Based customer contract renewals during the quarter. That average increase was slightly higher than both last year's first quarter and the recent fourth quarter.

In total, our Asset-Light businesses had revenue of $193 million, a 3.9% increase over last year's first quarter. On an adjusted basis, first quarter operating income for these businesses totaled $2.8 million and adjusted EBITDA totaled $6.3 million compared to adjusted operating income of $1 million and adjusted EBITDA of $4.7 million in the prior year quarter.

Preliminary Asset-Based results for the month of April versus April 2016 were as follows: Daily billed revenues increased approximately 7%. Total tonnage per day increased approximately 1%, with LTL tonnage slightly stronger. On a sequential basis versus March, April tonnage trends are above the historical average. Shipment counts increased approximately 6%. Consistent with the trend we've seen for several quarters, we're continuing to see a lower average weight per shipment on a year-over-year basis, which is reflective of our growth in residential deliveries. Total revenue per hundredweight increased approximately 6% and was positively affected by higher fuel surcharges and changes in freight profile and account mix. On a historical basis, the average sequential change in ArcBest Asset-Based operating ratio in the second quarter versus the first quarter has been an improvement of approximately 500 to 600 basis points.

On a combined preliminary basis, April 2017 revenue from our Asset-Light businesses was flat compared to April of last year. The logistics portion of the Asset-Light business shows single digit revenue growth on a year-over-year basis primarily due to increased demand for expedited services and dedicated revenue in this year due to the LDS acquisition in September of 2016. In April, as we've seen for several months, FleetNet experienced double-digit revenue declines compared to last year due to fewer customer events.

Consistent with the recent first quarter, for the remainder of 2017, the quarterly loss reported in the other and eliminations line is expected to hit approximately $4 million per quarter. This includes the technology and innovations investments Judy mentioned in her introduction. Keep in mind the previous information I've shared on our expected 2017 interest expense and those costs in this recent quarter. Net of interest income is our -- it is expected to total approximately $4.5 million for the year, generally occurring in similar amounts each quarter. This net interest expense estimate does not include changes in cash surrender value, which are reported in the other net line of our income statement, which we had in the recent quarter. We consider changes in cash surrender value to be nonoperating items and, therefore, excluded from our non-GAAP presentation.

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

Thank you, David. For the eighth consecutive year, the employee training program operated by ABF Freight was included as one of the training top 125 for excellence in employer-sponsored training and development programs as recognized by Training magazine. We were ranked as the 13th best training program this year. Most every week, here in our Fort Smith corporate headquarters, we host a variety of training classes in the areas of operations, sales, leadership, computer skills and the quality process. I always enjoy getting to meet our folks while they're here for training and learning about their experiences and customer success stories from around the country.

As I indicated to you last quarter, we were cautiously optimistic at the time on our outlook for 2017, and I'd say that we remain so now despite some sluggishness in the first quarter. Structural economic reforms remain on the agenda, including tax policy, regulatory relief and increases in infrastructure spending. We believe that progress in these arenas would provide meaningful catalysts for the economy and for our business.

As a side note, one of our ABF Freight drivers, Ralph Garcia, had the opportunity to go to Washington in the first quarter as the American Trucking Associations represented the many needs of our industry, including health care reform to the new administration. We were proud to have Ralph represent the incredible standards for safety and professionalism for which ABF Freight is known.

Meanwhile, we have many initiatives underway at ArcBest that will benefit our customers and provide them with the best possible experience available. These include the implementation of systems that provide a single view of the customer; marketing efforts to expand lead generation; many IT efforts, including tools to help with the workload visibility and decision-making; as well as line haul and street optimization tools.

And finally, I believe some of you may have seen our new advertising campaign in The Wall Street Journal and other financial and trade publications. With Welcome to Simplistics, we are highlighting ArcBest's unique ability to simplify and uncomplicate even the most complex logistics challenges that our customers face every day. We do that with people who have The Skill and the Will to get the job done.

We're ready to take some questions now, I think, David.

Okay. Leila, I think we're ready for some questions.

(Operator Instructions) Our first question comes from the line of Chris Wetherbee with Citi.

I wanted to touch base on the Asset-Based side and really sort of get an understanding of the weight per shipment. I think the residential delivery is picking up a part of that, but sort of get a sense of how you can manage that sort of business mix. Is it evolving a little bit more residential relative to the cost associated with it? So it seemed like there was maybe a little bit more cost in the quarter that we were expecting. So I just want to get a sense of maybe how you see that playing out as that business grows over the course of the next year or 2.

That's a great question, Chris, and one we've been very focused on this quarter ourselves. We've seen a tremendous amount of growth in our non-U-Pack residential shipments really since, say, in the November, December time frame last year. For instance, in the first quarter, we saw those shipments grow 40%. And if you were to look at January, February and March, it was kind of uneven how they -- how those shipments grew. And so one of the challenges that, that presents to us is operational tactics that work best for that business. And so that's something that we've been very focused on. We have some locations that have absorbed that and worked very well with it. And we've had others where it's presented more of a challenge. In some cases, when there's been a challenge, we've had to use more expensive cartage costs to help us deliver the service that we promised to the customer. And that's not to say that cartage is necessarily a bad answer, but I think whenever you have to work through the options, you want to be sure and plan ahead with that. And so again, that's a focus and the operational tactics that work well for this business and the locations that are affected have really been on our radar screen since we started to see this increase. The other side of it is to ensure that as we're seeing this business, that we're getting the appropriate pricing on it for the effort and the value that we're providing to the customer. As I mentioned, we see this as a tremendous opportunity, but we do have to be sure that we have really the -- kind of the yield management over the entire situation in mind, and we're working toward that. We've worked with some customers since we started to see these increases to ensure that, that value that we provide is aligned with the prices that they're paying. But I hope that helps. Anyway, I'll stop there.

Yes, that does help quite a bit. I appreciate that. And just as a follow-up here, when I think -- in relation to what you're talking about there and the growth of that business, when we think about sort of the inflationary pressures on your operating expenses, should we be more focused on sort of the shipment side versus the tonnage? Historically, I'd look a little bit more at tonnage but based on what we're talking about, maybe shipment growth might be a better proxy. I just want to get a sense, maybe, some of the big line items, how we should be thinking about inflationary pressures if they're different from what we've been used to.

Certainly, the shipments drive our labor, and that's really how that's managed even. If you think about productivity, the shipments is the focus, the shipment levels are the focus there. And although we do know that we need to ensure that the revenue per shipment is in the right place for those shipments. But yes, that is something that in the modeling, you have to do because of how those activities arrive.

Our next question comes from the line of Ken Hoexter with Merrill Lynch.

Judy, maybe I could just revisit your last commentary there. But you noted in your release, you're singularly focused on improving customer service. I just want to understand that a bit. Because I want to understand, why aren't you singularly focused on, maybe in this environment, cutting costs, making money, given if the pricing is not properly aligned or fixing that part to get the profits up?

Well, I mean, I think that you saw our efforts in that area when we announced our enhanced market approach back in November, Ken. And I'll report to you there that the costs that went along with creating a better customer experience really are on par or on pace with what we expected them to be. So when you -- there was a tremendous effort that went into unifying our sales force, our yield management function, our customer solutions function and putting together the operations of our Asset-Light business. Those were all moves that you make to enhance the customer experience, but they're also cost efficiency moves as well. So we are focused on that. But we think that there -- we see them as one and the same.

I don't disagree. I guess what just struck me is the comment that you were singularly focused on improving customer service. Given all that you were talking about on the cost side, I don't know, maybe just the singular focus on maybe the advertising you mentioned in the journal and the other things just seem to be a little off. But let me jump to the other stuff. Maybe, Dave, a question for you on, what has slowed within the non-asset side? Maybe just because you've combined them, I can't really see the Panther, the brokerage, the moving. Where did you see that slow? Was it the expedited demand down because of a weak market? Or is it the brokerage side because of the compressed margins that Judy talked about?

So I think -- yes, go ahead.

I want to say, the expedited side, just to clarify there. And Judy mentioned that expedite was better. It was actually positive and even in light of a softer maybe auto sector. But increased miles in the expedite business, really, if you look at our release, you can see that the stats there, and you can see some of the pieces that are in there. But with shipments down on the expedite side, but really the revenue in total was positive. The truckload in dedicated business was -- obviously, the revenue was impacted by the acquisition in 2016 in September. But on the truckload side, and Judy mentioned this, shipments were lower. But the other thing -- and you mentioned this was the compression of the margins, which was seen by many of the logistics businesses and companies that have reported. Ours was compressed as well, but probably not to the extent as some of the other companies out there. There are other couple of things that, I think, were mentioned by Judy as well was the ocean disruption that -- there and then on the impact of some severe weather events on our dedicated business impacted their margins as well. So we've had some unusual sort of factors impacting our truckload dedicated margin.

Just 2 quick ones to wrap up, because I know David's going to cut me off. But how do you have more workdays when leap year was a year ago? And then the freight flows, can you just give the percentage growth in the quarter, month by month?

What I mentioned in my remarks were that in January, tonnage decreased 1.1% and decreased 0.8% in February and then decreased 0.3% in March. And then we're seeing an increase in April year-over-year. Those are all year-over-year comparisons.

And Ken, on your workday question, you've got the Easter impact there and that effect, I think.

Not just our base for...

Right, and we do make adjustments for that because of -- Good Friday's not -- there's not as much business that day.

Ken, there's something that I want to add to the whole Asset-Light conversation. I really -- we really feel good about the opportunity that we continue to have within our customers, and then really even customers that aren't currently our customers. We have a set of service offerings there that are really working well together, when you consider the truckload brokerage piece, the dedicated piece that we've now bought and the expedite piece. We have a lot of knowledge there, and we have some unique offerings that we're able to present to customers when we're combining some of those services. So we're getting the L&DS acquisition under our belt, and we're addressing some of these macro issues that we've had as impacts on the business. But we are pleased with the service offerings that we have there, and our sales force is very focused on that opportunity.

Our next question comes from the line of Jason Seidl with Cowen.

I want to go back to a little bit of those e-commerce shipments that you guys talked about. Can you give us a sense of what percent of your overall shipment count that these e-commerce are? I think that might help us frame how we model it going forward for maybe potentially increased cost associated with those shipments.

Well, my memory on that -- David's actually looking for the percentage for me. But it's around -- I want to say 15% of our business is residential deliveries, something like that. And so -- but as we noted, it's increasing. When you have a 40% increase in those shipments in the quarter, that's a major factor. The other thing to note is that, that increase came from about 20 customers, so it's not one customer. It's coming from a number of customers. We're known for expertise in this area because of our U-Pack moving business and the management that we have over those shipments, the visibility that we give our customers and the different service-level offerings that we can provide. So -- but these are clearly small shipments to us but they're characterized more as heavier shipments for a consumer. And I think it just speaks to the consumer getting more comfortable having those kinds of items delivered to their homes.

Yes, and Jason, just to give you an example, some of the commodities we handle: fitness, equipment, gun safes, safes for valuables, office equipment, TVs, appliances, those are some of the commodities that we're handling with those shipments.

No, no, no, I understand that. I know you had one of your competitors increase their advertising of their own moving businesses as well. When you look at this market in particular, since it is growing so much and I think impacting some of your results, you kind of talked about how you're seeing 2.9% pricing. Is the pricing market in that home moving business, is that more aggressive than the rest of your business? I'm just trying to get a sense of, are you guys able to cover the increased costs associated with your network moving towards more on delivery?

Well, first of all, I think the percentage that you quoted on our contractual increases is 3.9%, not 2.9%, just to clarify that.

I'm sorry, I misspoke, it's 3.9%.

And in certain cases, this business that we're talking about is contractual, but you also have certain spot business associated with this business as well. And what I would suggest to you is it depends on the customer, whether we're satisfied with where we are from a profitability standpoint. Some customers, we've achieved that level of profitability that we desire. Other customers, because of what we're seeing, we have some work to do to try to achieve that level of profitability.

Next question comes from the line of Brad Delco with Stephens Inc.

I know we talked about Asset-Light before and the margins you guys are generating there. I know it's in growth mode. But is there any way we can -- not necessarily pin you down, but when do you think we'll be seeing kind of peer average margins in this Asset-Light business once all this sort of growth starts to settle?

Well, we don't know what year that will be because we know that as long as we see the opportunity, we're going to invest in it. I think right now, in our truckload brokerage business, we have about 40% of our people that are handling customers don't have that second full year of experience yet, which really doubles their productivity and which helps us on the margins. And we have acquisitions that we're absorbing. We're getting to a point where I think the Bear acquisition, which is primarily down in Plano, Texas, is absorbed. And we have people on the same systems and managed with the kind of the same roles that we have, always had in our Fort Smith operation. And so we are making progress on that front, but our goal is to achieve those best-in-class margins that other logistics companies that are in similar business to us have. Now I do think that you have to keep in mind the mix of things within those margins. We -- if you look at what we're doing, we've got the expedite side of things, which has better margins. We have truckload brokerage, which I think we all know what those average margins are, maybe somewhere in the 15% range for most companies. And then we have the truckload dedicated that are perhaps in that same range, or maybe even for some of the competition, slightly lower. But if you look at where we were for the quarter, we had a 20% -- above a 20% margin on that business. So that's, I think, good news. So what we're talking about is getting those cost items that are below that, which are the people costs to their most efficient place. And we have the ability to manage and monitor those activities, see where we have gaps, go back and make changes in the approach that people are taking. We're working on technology enhancements that will create efficiencies in that business and have more automation of certain, I guess, actions or transactions. And then we also have some of the roles -- when we're looking at their productivity, we have certain activities that are, for instance, in the carrier finding side of things that we have peeled off some of the more routine administrative responsibilities into another group of employees so that those carrier finders can be more efficient. So there's a number of things that we have going on there. And when I look out for that business, I see some encouraging signs that we're better able to handle those costs. But what it starts with is a better net revenue margin on those dollars of revenue I think than average. So that's a good place to start.

And just maybe for my quick follow-up before David cuts me off. I hear you on the net revenue margins. But just to be clear, make sure we're talking about the same thing, getting to sort of 5% EBIT margin, that's what you're talking to and that's the goal.

Yes, absolutely, yes, yes.

Next question comes from the line of David Ross with Stifel.

Anyway, just to talk a little bit about ABF. On the purchased transportation side, been an issue the last couple of quarters, is up again 17% on only a 6.5% increase in shipment volume. Was there anything? What's going on there? How would you describe the PT environment? Is this a permanently higher level of PT on purpose that we should see? Or what do you expect the rest of the year?

Well, a couple of things. It's good to look at that line item along with the salaries, wages and benefit line items, which you see down for the same comparison. The reason I say that is really twofold: One is on the line-haul side, we're managing our MP costs well. And what you see is a utilization of rail. I think that was about 15%, something like that. And again, the net results on our linehaul operation was a positive for the quarter. So that's one element. The other I talked about a little bit, when I was talking about the residential deliveries. Because we saw this tremendous increase in residential shipments, and in a first quarter, even rolling out of last year, is somewhat unexpected and somewhat uneven. In our business, you always have to boil it down to what's going on at the given locations. And if you looked at certain locations that didn't have the manpower to give the customer service that we offer, we had to use cartage agents to be able to help us deliver that. Now we've already taken some actions to have better manpower in some of those locations where we had this issue, and so I'm encouraged that we're going to be seeing reductions in the, what I call the city cartage costs. Now but we will continue to effectively use purchased transportation, both with rail and truckload carriers as allowed under the union contract, as options for optimizing our cost from a linehaul standpoint.

Yes, from the P&D standpoint, I would think that cartages may be advantageous in some markets, but is there anything...

Yes.

In the union contract restricting you from increasing the use of cartage agents on a broader scale?

No. Really, we have flexibility there. I think really, our issue more in the contract. I mean, it's not the contract. It's really more just the planning of these -- I want to characterize it as surges, but only because it's happening on an uneven basis, on a month-by-month basis. If we could have a better planning scenario with our customers, we would be able to plan the best outcomes in these given markets. And to the extent that we can use our people to make those deliveries, and it's a good answer from a customer standpoint, it meets the service requirements and that sort of thing, that's what we'll do. But being able to plan better around that is really where the answer lies on the operations side. And then, if it's a difficult situation with a particular customer, we have to build in to our overall pricing and arrangements with them to better address it if we're not able to better plan for it.

Our next question comes from the line of Scott Group with Wolfe Research.

So Judy, the 2018 targets you laid out for us, I guess, a little over a year ago, do you feel like you still have line of sight to that? Or do you think we need to push out the timing another year or 2 to get there?

Well, we certainly haven't made the progress that I would like to have made on those. Some of it, I think, is macro related. But there is a portion of that, that is execution related within our team, and we're very focused on that. So when I look at those relative to where we are now, we've got a lot of work to do to achieve that. So I don't want to say that I'm discouraged by the business because I'm very encouraged by the business. And particularly on the asset base side, I don't know that we've ever had a longer list of technology enhancements in that business that could produce positive results than we do now. And so we have some encouraging things there, but our progress has been slower and, therefore, perhaps the right thing is to do is to push that out a little bit. We haven't officially done that, but that would be fair.

Okay. And then I want to ask about the contract with the Teamsters. I think we're kind of less than a year out now, and to the extent that you can talk about it a little bit. Maybe you could lay out some -- if you're comfortable, lay out some goals for it. I know last cycle, you got concessions, which was unusual relative to past cycles. Is this the environment where you think where there's potential for additional concessions? Or was that a unique circumstance last time and not something that we should be counting on again?

Well, first of all, it's really too early in the process to make any kind of comments or kind of projections over where things will land, because we really don't know. What I will say is that from a timing standpoint, as we get toward the end of this year, if we're on a typical schedule to what we've been on in past negotiations, you might see us exchange proposals -- initial proposals toward the end of the year and then get into the negotiations early in 2018 with the goal of having everything wrapped up by the end of March. But even that, we really can't say for certain because we haven't agreed to the schedule yet with the Teamster leadership. So anyway, it's just kind of premature to get into any kind of conversation about that. But I appreciate the question, and I understand where it comes from.

Okay. And then, just one real quick housekeeping thing, just because there's a lot of noise in the number with the big change in weight per shipment. What do you think a true kind of pricing number was this quarter if you adjust for fuel and length of haul and the weight per shipment?

I think on the LTL side, it's probably low single digits. So I hope that helps.

The next question comes from the line of Todd Fowler with KeyBanc.

Judy, can you talk a little bit at a high level how the residential delivery fits in with the more traditional LTL network? I mean, is that more of a revenue opportunity for ArcBest? Or are there also density opportunities to move some more volume through your service center network? How do you think about the real opportunity there? So is it more top line growth? Or is it also kind of a margin and density part of the business?

Well, I think it's top line for sure. But from a margin standpoint, the value that is provided to a customer by handling that type of shipment is there. And so we believe that the profit margin should be there. And that's sort of regardless of what density you're able to achieve with greater volumes of these shipments. Now we're starting to see a good level of these shipments, and it doesn't really work to kind of combine that with what we do on the residential delivery side for our moving business exactly. So you really kind of have to think of it as on its -- kind of its own thing relative to that moving business even though I bring that up a lot, but it's because of our expertise that we have in handling those kinds of situations with consumers. So -- but as we have grown with some of these customers in certain markets, we are seeing some ability to collect these shipments. And with our street optimization project that we're working on that helps us with appointment setting and route optimization, we should see some better results out of our P&D costs.

The 20 customers that you mentioned that are driving a lot of the residential delivery growth, are you doing traditional LTL shipments with those customers? Are you doing truck brokerage or other services with them as well?

The answer to that is all of the above probably, but we are doing LTL, what you would call regular LTL business with them. And so we have that, too. But we do some interesting combinations of things with our truckload brokerage service offering and our dedicated offering involved.

Okay. I'm not afraid of Humphrey, so I'm trying to sneak one more in here. On the -- David Cobb mentioned the 500 to 600 basis points of margin improvement into the second quarter. There was also some commentary in the release about benefits on the maintenance side from new equipment coming in. Is this a quarter where we should see a traditional sequential improvement charge? Are there some things that we need to think about on the positive or negative side for the margin progression into Q2?

Well, I think for the most part, as you move into the second quarter, it should be the -- kind of the normal things are occurring. But we don't forecast those numbers. We just give them kind of for historical context of what we can typically do. The -- I think we've thoroughly mentioned the technology investments that we're making, and we're going to be continuing to make those. They were there in the first quarter. But some of the projects that we're working on, there may be more costs on those in the second quarter. We are hoping, as we're taking delivery of the new equipment, that -- and we get that into particularly into our city operations -- what happens to us is we take delivery of new equipment, it goes into the road and then we transfer road to city. And when we do that, we're able to take out some of the oldest city units that we had. And those were a problem in the first quarter. We had an increased cost of about $2 million attached to those, and so we're looking forward to having them out of the system. So that should help. I think we're, right now, we're better managing our cartage costs, but it remains to be seen how that goes in May and June as things get busier. And so those are some things that are on my mind as I'm thinking about the sequential comparison.

Our next question comes from the line of Amit Mehrotra with Deutsche Bank.

So you mentioned that the growth, the 40% growth in residential deliveries, this was broad based in terms of 20-or-so customers. Were all those customer volumes up at those type of levels? Or was the growth maybe just kind of more focused on 1 or 2 customers? I'm just trying to decipher the breadth of customers against the breadth of the growth.

Well, there are probably 1 or 2 customers that are driving more of that growth, but it is broad based. I mean, it is certainly the case that we have. One reason we're giving that figure is because we really felt like that the focus would be on 1 or 2 customers, and it really is coming to us from a number of places.

Okay. So just kind of in that context, I mean, I wanted to ask just a little bit more color around what's behind some of the operating stats. I mean, shipments have outperformed the overall industry quite dramatically in the first quarter. Tonnage has lagged. Revenue per shipments have lagged. And you've kind of addressed why that's happened. But given, I guess, the magnitude of the relative performance, I'm wondering if it was just more of a strategic pivot towards more e-commerce or residential-type shipments. And if that's the case, I'm not sure if it is, but if it is the case, can you just kind of explain the economics of the business versus more industrial-type businesses? You've kind of touched on it previously. But what I'm asking is, is that is there any structural reason, whether it's a little bit more competitive or the costs were higher, are there any structural issues or reasons that the margins in that business could be a little bit different from the more typical type of industrial business that you do?

Well, I mean, I think we have 35,000 to 40,000 active customers, and we see at different points, different mixes of things. I can tell you this, we did not go actively seek this increase in residential shipments as a strategy. But what our strategy is, is to work with customers who value our high level of service and to do things with them that help them grow their business but then also, we think in that, helps us achieve the profit margins that we expect to achieve. And that could be an industrial customer. It could be a customer that requires this residential home delivery, or it could be and maybe is more often being, a customer that commands multiservice supply chain solutions. And so we're managing all of those. But are we averse to any growth within industrial customer, to the kind of the favor of a residential consumer? No, absolutely not. In fact, we like that business really well. But I think one of the things that we dealt with that we haven't yet talked about on the call in the first quarter is some degree of excess truckload capacity. And our people who quote that business, they are on the market. I mean, it's spot-quoted business, and it's a business that we will not reduce our prices to a level that doesn't make sense for us from a profit standpoint. And in a competitive market, when I think the GDP growth was the worst in 3 years and then we have this capacity that's serving the truckload sector, that is business that's harder for us to do with our cost structure. And so that plays a role in the result that we have as well.

Right. Okay, that's helpful. Just one quick one. You mentioned weather earlier in the call. And I just want to understand as we move from -- if there's a way you can kind of talk about what cost items or the amount of total costs in the quarter that maybe you would characterize as atypical and not necessarily related to the cost structure relative to the mix of business, but just kind of extra money that you had to spend that you wouldn't normally because of various one-off items in the quarter? So we can just get a sense of maybe what the underlying profitability is?

Well, where we mentioned weather was in our truckload-dedicated business that's in the Asset-Light side. And that is really a company that we acquired. What we were talking about was that the margins, the operating margins for that business didn't meet our expectations. But northern Nevada had the most precipitation ever. And so we're actively watching this company that we acquired that's based in Reno and looking at what we hope to see and didn't see it. And where we saw the impact was in the net revenue for that -- or revenue and net revenue. And then also, there were below the kind of the net revenue line, you would see detention costs -- or not detention, but the lack of utilization costs associated with some of the trailers and equipment that we had, that we had parked because we couldn't handle the customer business and that sort of thing. And so it really -- we mentioned it because on the Asset-Light aside, if we have not had that issue and we hadn't had the basically the lingering impacts of the Hanjin bankruptcy on our ocean shipping business, we would have had $1 million more in operating income from that business, which I think would have allowed us and you to feel better about how we performed in that Asset-Light category this quarter.

Our next question comes from Ravi Shanker with Morgan Stanley.

So just looking at the environment out there, does this want to make you look for more opportunities in the cost side, maybe more streamlining? And can you remind us again where you are with the corporate realignment that you announced a couple of quarters ago?

Yes. I mentioned this earlier. On the cost side, we are on pace with what we said we would save. I think we talked about a $15 million savings kind of on an annualized basis. And much of that was in place as we had different software and things that we were writing off because of the new structure. But what we're continuing to monitor is the headcount side of that, and we are right where we want to be with respect to that. I know it's difficult to see because of all the different items that were affecting us this quarter. But we're very pleased with where we are on that. And your first comment, I think is right, is yes, you constantly look for ways to be more efficient in the operation. And there's a number of ways to do that, but we're in constant pursuit of that. One of those is the deployment of technologies that allow people to handle their task more efficiently, and we have a number of those ongoing and hope to see the benefit of them later this year.

Got it. And as a follow-up to that, a bigger-picture question. I mean, are you happy with the portfolio strategy here? I mean, is this an environment where a multiplatform strategy is the right way to go, especially with kind of e-commerce being the double-edged sword of strong volume growth, but maybe tough pricing. I kind of just -- given the environment on the Asset-Light side kind of going to that 50-50, asset heavy, asset light, is that still the right strategy?

I believe it is. I spent a lot of time with customers during the first quarter, and there is not a single conversation that I had with a customer that was oriented toward one service offering. If we're not in a conversation that involves multiple service offerings, we're not in the conversation that's going to help them with their supply chain challenges.

Last question is a follow-up question from Brad Delco with Stephens Inc.

Judy, this just came to mind as I heard you kind of answering some of the other questions. And I think there's been a lot of attention on maybe a changing mix of business within your LTL network. And I know you guys have maybe warmed up to the idea of dimensioners. Do you think any investments in sort of dimensioning technology would help you as your mix of business is changing at a fairly rapid pace? Or can you just give us an update on your thoughts on that?

Well, we have been dimensioning nearly all of our freight for many, many, many years, well before the whole conversation about dimensioning technology really arose within many of our competitors. So what we feel like is the right answer for us, is to deploy dimensioning technology that doesn't cause us to be less productive than we are today just as a result of that. Many of the competitors, as I understand it, are putting in place static dimensioners, which cause obviously some productivity inefficiency when you're deploying that. For us, because we were fairly accurately dimensioning freight prior to that, the idea that you would adopt that same approach really results in a worse answer for us, and we've piloted a number of things that are available in the marketplace. So what we're waiting for is a better answer. And we're starting to see some of that come about. So one compelling technology that's surfacing at this time is in-motion dimensioning, which are we really feel like that has more merit than the handheld or the static dimensioners. So I hope that provides some color for you. But we know, based on our own testing, that what we've been doing is not causing us to be somehow disadvantaged. I think what you've seen is now a recognition of having that measurement practice in some of the competition.

If you don't mind, let me maybe ask a different way then. With this is sort of changing mix dynamic, have you noticed any incremental or exponential growth in what sort of revenue you generate out of your weight research department?

We have always had a good amount of additional revenue that comes from that, but it's pretty steady. It's increased a little bit maybe, but it's pretty steady. But yes, we do deploy weigh and research folks, in all of our major facilities. So...

Okay. Well, I think that concludes our call. We thank you for joining us this morning. We appreciate your interest in ArcBest. This ends our call. Thank you very much.

Thank you.

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