ArcBest draws down credit facility, warns of further declines

Less-than-truckload (LTL) carrier ArcBest Corp. (NASDAQ: ARCB) announced that it has drawn down its revolving credit facility in response to the uncertainty facing freight markets amid the coronavirus outbreak.

In an 8-k filing with the U.S. Securities and Exchange Commission Monday, the carrier disclosed that it had drawn down the remaining $180 million available on its revolving credit facility and borrowed $45 million under its accounts receivable securitization program.

From the filing: “These borrowings are a proactive measure to increase the Company’s cash position and preserve financial flexibility in light of general economic and financial market uncertainty resulting from the COVID-19 outbreak.”

Along with the company’s current cash and short-term investments balance, ArcBest expects to have approximately $530 million to $540 million in aggregate cash and short-term investments at month’s end.

The company also provided an update on business trends.

For the first quarter of 2020 through Friday, ArcBest reported that daily revenue in its asset-based segment was flat compared to the same period in 2019.

Total tonnage increased 4.5% year-over-year with LTL tonnage increasing in the low single-digit percentage range and the truckload (TL) unit seeing a double-digit percentage increase in spot shipment tonnage. Shipments per day were 2% lower in total with LTL weight per shipment increasing 3.5%.

Yield, or revenue per hundredweight, was 4.5% lower year-over-year for the period. LTL revenue per hundredweight excluding fuel surcharge was flat compared to the 2019 period and “lower” for TL shipments.

This update is modestly worse than the one the carrier provided through late February in its annual 10-k filing, where it reported that asset-based revenue was 1.5% higher year-over-year at the time.

The filing reminded readers that the first quarter of 2020 presented a tough year-over-year comparison, as the first quarter of 2019 experienced an 8% increase in the yield metric. Further, the filing stated that historical sequential change in the company’s asset-based first-quarter operating ratio (OR) was 400 basis points worse on average than in the fourth quarter.

“During first quarter 2020 through March 27th we experienced a decline in Asset-Based business trends from our previously reported business update primarily as a result of the impact of the COVID-19 virus on our customers’ logistics needs.”

The carrier also warned of further declines.

“Going forward through the close of first quarter 2020 and into the second quarter, business levels and our operating results are expected to further decline, the extent of which depends on the ultimate duration of the pandemic and its effects on demand for our logistic services.” 

The company said that in addition to increasing its cash position, it will place greater scrutiny on expenses and previously announced capital expenditures (capex). 

“Working capital is expected to be impacted by lower business levels in future months and by the timing of remittances from customers which may be affected by operational and financial challenges they could face related to the COVID-19 pandemic.”

The company also warned that its asset-light segment saw lower revenue and margin degradation during the first quarter. ArcBest reported a 7% year-over-year decline in total revenue from its asset-light offerings while purchased transportation expenses in the segment were only 4% lower.

“Due to changes in market conditions and freight mix, the prices our ArcBest segment has secured from customers have decreased while the prices paid for purchased transportation have decreased by a smaller percentage, resulting in margin compression.”

The filing blamed excess TL capacity for lower revenue per shipment and a decline in expedited freight services.

“Automotive and manufacturing plant shutdowns, which began in the month of March due to the COVID-19 pandemic, are having a meaningful negative impact on demand for expedite services.”

In 2019, approximately 30% of ArcBest’s revenue derived from its asset-light businesses. The carrier’s long-term goal is to have both its asset-based and asset-light businesses contribute equally to the top line of the income statement.

“We have implemented our business continuity plan and have various operational contingency plans in place to continue providing logistic services, which includes ABF Freight’s network service centers, linehaul and maintenance activities,” stated the filing.