Q4 2020 ArcBest Corp Earnings Call
Yeah.
Greetings and welcome to the arc, that's fourth quarter, 'twenty and 'twenty earnings conference call. During the presentation all participant lines will be in a listen only mode. Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach and operator, Please press star zero.
As a reminder, this conference is being recorded Tuesday February 2nd 'twenty 'twenty one.
I would now like to turn the conference over to David Humphrey Vice President of Investor Relations. Please go ahead.
Welcome to the art Best fourth quarter 2020 earnings conference call our.
Our presentation. This morning will be done by Judy Mcreynolds, Chairman, President and Chief Executive Officer of Art mast and David Cobb, Chief Financial Officer of Arc Best we can.
Thank you for joining us today in.
In order to help you better understand art bashed and its results. Some forward looking statements could be made during this call as.
As we all know forward looking statements by their very nature are subject to uncertainties and risk for more complete discussion of factors that could affect the company's future results. Please refer to the forward looking statements section of the company's earnings press release, and the company's most recent SEC public filings and order to.
Provide meaningful comparisons certain information discussed in this conference call includes non-GAAP financial measures and.
Outlined and described in the tables and our earnings press release, we will now begin with Judy.
Thank you David and good morning, everyone.
2020 was a year, we won't forget the pandemic caused uncertainty and disruption and our customers' businesses and then all of our lives and our best we were challenged and new ways, but because of the character and heart shown by our employees, we turned many of those challenges and opportunities.
And our people creatively and purposely served customers and executed well on initiatives to improve efficiencies and our business and I'm proud to say the hard work and the art best team produced the second best non-GAAP operating income in the last 14 years, we positioned.
Art best to be more responsive to customers and to meet their changing needs and we look to customers to inform our strategy and the deep relationships. We build allows us to know their needs and pain points and to use that information to develop options and solutions our approach worked well and 2020.
And as we recognize the unique nature of the pandemic effects on our customers and.
And as a logistics solutions provider, we worked alongside our customers and capacity providers to move and central goods to their destinations and to normalize disrupted supply chains.
The opportunities we have that aren't best are tremendous and we are committed to growing the company in any economic environment, we have a multi year strategy and last year. Despite the pandemic, we made progress and three important areas.
Expanding revenue opportunities balancing our mix of revenue and profit and optimizing our cost structure.
14 per cent year over year total revenue growth for fourth quarter is representative of our progress. Our total revenue growth was made up of solid asset base growth of 8% and significant asset light growth of 27 per cent.
Our best quarterly revenue growth resulted from expanding customer relationships and Onboarding, new ones are assured capacity options and the seamless integration and we provide created value and the marketplace. As a result, we gained momentum on our goal towards 50% of our revenue coming from our <unk>.
Asset light segment with asset light revenues, representing 35% and the fourth quarter.
Returning ABF freight and historical operating margins has also been a long stated Gulf for us and I'm excited to say for the second consecutive year, we will pay a profit sharing bonus to all eligible union represented employees at ABF. This bonus reflects the 2000 2095.
0.3 O are produced by ABF freight.
This is a significant accomplishment and I'm proud of our team.
And now I'll discuss some additional detail on our fourth quarter performance of our service offerings.
The fourth quarter results and our asset based segment reflect the positive impacts of improving customer business levels compared to the prior year.
On a per day basis versus last year tonnage and shipment growth and each month of the quarter combined with larger average shipments and the resulting increase and shipment revenue were factors in the fourth quarter revenue increase and.
In addition to the effects of and improved economic environment, the larger size L. T L shipments and our asset based network were the result of continuing initiatives designed to improve capacity utilization on our equipment and and specific distribution lanes throughout our system.
Similar to the previous quarter, we didn't experience a meaningful impact from traditional truckload shipments spilling over into our L T and network.
And the impact of the pandemic on consumer moving activities caused the timing of the traditional busy period and our U pack household goods moving business day shift from the second and third quarters into the fourth quarter.
Combined with continued growth and residential delivery shipments associated with online consumer shopping activities. This represented a meaningful portion of the fourth quarter revenue increase we saw in the asset based business.
Actions taken by our operations team to manage labor and properly match available personnel to existing freight levels continue to positively impact our financial results. These operational strategies included the use of more local and line haul purchase transportation to supplement our own resources.
And as these costs increase as a percent of total revenue.
However, key operating metrics that we watch closely relative to freight handling on our docks local delivery and pick up of shipments to and from our customers' locations and efficiency measures and our over the road network improved during the quarter and contributed positively to greater profitability.
Cargo care was another highlight and our asset based business and this past year, we improved our cargo claim ratio for the 23rd time and the last 25 years.
B F was awarded the American trucking associations excellence and cargo claims and loss Prevention Award for an unprecedented eighth time. These.
And these important achievements are a testament to our customer obsession and to our focus on improving customer experience through safe and efficient handling other shipments and addition to serving our customers and a superior way these actions reduce our costs and improve our profitability.
Current market conditions and the high demand for available equipment capacity are positively contributing to the rational pricing environment. Our total asset based revenue per hundred weight was slightly positive in the recent quarter related to changes and account mix and freight profile.
And the shipment size increase I mentioned earlier impacted comparisons and overall pricing metrics relative to the prior year period as have lower fuel surcharges, however increases on contract and deferred pricing agreements secured during the fourth quarter improved to levels last seen in late 2019 and.
Early 2020 before the effects of the pandemic had begun.
<unk> and pricing trends on these accounts, which are generally our most price sensitive are encouraging.
And our asset light business during the fourth quarter, and further improvement and customer demand limited availability of market place equipment capacity and and improving rate environment resulted in better profitability versus last year's fourth quarter and the recent third quarter.
Additional year over year shipments along with a market driven increase in average shipment revenue contributed to the significant top line growth that we experienced and this portion of our business as a percentage of revenue.
Cost per equipment capacity from our asset light transportation partners were higher versus the previous year consistent with the trends we experienced throughout 2000 and 'twenty. Despite.
Despite the resulting impact on margin improved operating profit resulted from effective cost management and improved operational efficiencies enhance my beneficial technologies and increasing digital connectivity with our customers.
And at fleet net a decrease in total events during the fourth quarter reflected fewer daily events, and both roadside repair and preventative maintenance service, despite having fewer events solid improvement and average revenue per event contributed to fourth quarter revenue growth over the previous year.
Operating income was lower due to a combination of two primary things the payback of wage reductions from earlier in the year and efforts to maintain a consistent work force despite lower events.
Last year fleet net implemented various initiatives to digitally connect with its customers and service providers and that should contribute to operating efficiencies and the future.
To illustrate the progress made in this area in November waiting at received their 500000 electronic status update from our service provider partner.
During 2020, we continued to take actions to enhance shareholder value throughout the year, we paid our quarterly dividend and we bought back shares of our stock later, David will provide more specific details and he will also discuss the recent actions we took to improve shareholder returns by extending the amount of.
Our share repurchase program, our strong financial position combined with capitalizing on opportunities available to us in the marketplace offers many options for profitably growing our company through investments in our existing businesses and now I'll turn it over to David Cobb for a discussion of the earnings results and opera.
<unk> statistics.
Thank you Judy and good morning, everyone.
And I'll begin with some consolidated information.
Fourth quarter, 'twenty, and 'twenty consolidated revenues were $816 million compared to $717 million and last year's fourth quarter a per day increase of 14%.
On a GAAP basis, we had fourth quarter 'twenty and 'twenty net income of 89 per diluted share as compared to a net loss from 'twenty two cents per share last year and was impacted by noncash impairment charge related to asset light business.
As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release adjusted fourth quarter 2020, net income was 97 cents per diluted share.
Net income of 56 cents per share and the same period last year.
Our best fourth quarter 2020, effective GAAP tax rate was 28% favorably impacted by a number of items identified as unusual to normal operations and our non-GAAP reconciliation table.
So and a non-GAAP basis, the effective tax rate was 26, 7%.
Under the current tax law and tax laws, we expect our full year 2021, non-GAAP tax rate to be and a range of 25 per cent to 26%.
While the effective rate in any quarter may be impacted by items discrete to that period.
For the full year of 2020, and consolidated revenues, which were impacted by the pandemic totaled $2 $9 billion compared to $3 billion and 2019.
Per day decrease of two 2%.
Full year earnings per share were $2 $2 69 per share compared to $1.51 and.
And 2020 on a non-GAAP adjusted basis as outlined in our earnings press release 2020 earnings were $3.23 per share compared to $2 88 per share and 2019.
In 'twenty and 'twenty total net capital expenditures, including equipment financed equaled $92 million, which is approximately 35% below what we've spent in recent years due to reductions we announced in early second quarter 2020 associated with the effects of the global pandemic and shifts and the timing of some expenditures into 2020.
And one.
2020 expenditures for revenue equipment totaled $63 million, the majority of which was from replacement of units and work this asset based operations and two.
2020, because of the impact of the pandemic and purchased fewer road tractors and we did in 2019 and fewer than we were planning on getting in 2021.
However, the average age of our road tractor fleet at the end of 2020 and compares favorably to our internal targets.
Depreciation and amortization costs and property plant and equipment per $114 million. Net addition, amortization of intangible assets was $4 million and 2020.
The 2021 total net capital expenditures are estimated to range from $150 million to $160 million. This includes revenue equipment purchases of approximately $100 million.
Which are primarily replacements and our asset based operations.
Remaining amount includes items related to real estate technology dock equipment upgrades and enhancements.
Our best depreciation and amortization cost and property plant and equipment and 2021 are estimated to range from $115 million to $120 million.
This expense range does not include amortization of intangible assets, which is estimated to be approximately $4 million and 2021.
We ended the year with unrestricted cash and short term investments of $369 million combined.
Combined with the available resources under our credit revolver, and our receivable securitization agreement our total liquidity currently equals $663 million.
Our total debt at the end of 2020 of $284 million includes the $70 million balance and a number of credit revolver and tool.
And $14 million of notes payable primarily on our equipment for asset based operations.
We can pause and interest rate on all of our debt was two 9%.
During this very challenging year, I'm very pleased that compared to the previous year 2020, with an increase and net cash of $90 million and we lowered the composite interest rate on all of our debt by 24 basis points.
Solid operating results during this challenging year further fortified our strong balance sheet and our solid financial position.
And as Judy discussed earlier during 2020 or at best and increase shareholder returns through payment of an <unk> 18 per share quarterly dividend and purchase of $6 $6 million of ordinary shares.
Also last week, we announced that the art Best Board extended the share repurchase program, making a total of $50 million available for purchase of our stock.
And final position allows us to continue investing in technologies and capabilities to efficiently and effectively serve our customers. While also returning capital to shareholders through stock repurchases and dividend payments.
Full details of our GAAP cash flow were included in our earnings press release.
Yes, it based fourth quarter revenue was $554 million and increase of 8% compared to last year.
Yes, it based quarterly total total tonnage per day increased seven 8% versus last year's fourth quarter.
Fourth quarter 2020 by month asset based daily total tonnage versus the same period last year increased by 10, 5% and October <unk>.
<unk> by 8% and November and increased by four 7% in December.
With quarter total shipments per day increased by two 8% compared to last year's fourth quarter.
Fourth quarter total billed revenue per hundredweight and asset based shipments increased 40 basis points and was negatively impacted by lower fuel surcharges and freight mix changes versus prior year.
Revenue per hundred weight on traditional published <unk> rated business, excluding fuel surcharge and transactional LPL rated shipments.
And improve by percentage and the low single digits.
We secured and average 4% increase from asset based customer contract renewals and deferred pricing agreements negotiated during the quarter.
For the full year of 2020 art based asset based total revenue was $2 $1 billion $2, 5% below 2019 total revenue due to the pandemic impact on business levels, primarily during the second quarter.
Is it based 2020 total tonnage per day decreased 40 basis points compared to the previous year, reflecting a $4 one per cent decrease and daily shipments, partially offset by a three 9% increase and total pounds per shipment on.
And on an adjusted basis, our asset based full year operating income was $121 $3 million compared to $118 $8 million and 2019.
And total revenue and art best and asset light businesses increased 27% versus last year's fourth quarter, reflecting strong demand and our art best segment and improved revenue per event and the fleet and excitement.
On an adjusted basis fourth quarter asset light operating income was $5 $5 million compared to $1 $1 million last year.
Adjusted fourth quarter, 2020 asset light EBITDA was $8 $3 million compared to adjusted EBITDA of $4 million and the fourth quarter from 2019.
Full year 2000, and 'twenty revenue for the asset light businesses was $984 million compared to $950 million and 2019 and increase 4% full.
Full year 2020, adjusted operating income for these businesses was $13 million compared to $11 $2 million and 2019.
Adjusted full year 2020 asset light EBITDA was $24 $4 million compared to adjusted EBITDA of $23 8.002 million 19.
Also want to mention that in January 2021, you sold a property that was not being used resulting in a first quarter 2021 and asset based operating gain of approximately $8 $5 million versus the $2 $2 million gain and first quarter of 2020.
This morning, we filed an 8-K that included our fourth quarter 2020 earnings release, and along with an exhibit that provided some additional information about our current quarterly financial results along with our recent business levels and our future expectations on certain financial metrics now.
And then I'll turn it over to Judy for some closing comments.
Thank you David.
I wanted to note and important announcement, we made in January and Tim Thorne President of ABF freight has decided to retire at the end of June.
Seth Rentzer became chief operating officer for ABF on February 1st and he will become ABF President on July 1st Tam.
Tim has made significant contributions to our company over his 31 year career and he has approached each role with integrity and excellence I wish him and his family the very best as he looks to retirement.
Beth has a deep knowledge of our freight operations and is well versed and our strategy. He will work and facilitate growth and ensure that our ABF team continues its strong commitment to quality and.
Tim and Seth are working closely together to ensure a smooth transition this year.
Looking back on 2020, I also wanted to mention the importance of our whole industry as the pandemic caused shut downs and disruption the public clearly saw how the logistics and trucking industry touches our everyday lives even at the height of the pandemic fright kept moving and products were delivered that wasn't easy.
But the value and the supply chain and our ROA and the economy was very clear and the public response was heartwarming and it was a good reminder, that our industry is fundamental all the time.
The essential nature of our company was also on full display.
I know that I speak for our whole team when I say, we are proud to serve our customers and our country and to carry out our mission, which is to positively impact the world do solving logistics challenges.
For almost 100 years, our people and our culture have made the difference we have always emerged stronger from periods of challenge and 2020 was no exception.
I am very proud of the collaboration and the strength of character our employees have demonstrated throughout the pandemic moving forward into the new year. We are pleased with the early trends and our business that offer even more opportunities to serve our customers well, which leads to profitably growing our company and.
And now I'll turn it over to David Humphrey or our question and answer session.
Okay. Thank you Judy and Jennifer I think we're ready for some questions.
Thank you if you'd like to register a question kindly press. The one followed by the four on your telephone keypad and you will hear three tome prompt to acknowledge your request.
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And if you are using a speakerphone kindly lift your handset before entering your request one moment. Please for the first question.
Our first question comes from the line of Jason Seidl with Cowen. Please proceed with your question.
Thank you operator, and good morning, everybody I hope and good morning day.
Jason.
Yeah, we're just trying to dig out here from the big Blizzard.
Awesome, and we got hit hard wood to talk a little bit.
About your comps as you move through <unk> because overall once you 2020 was a pretty good one in terms of your tonnage growth and it seems like January started out pretty strong up 6% due to the comps get harder as we move through the first quarter here.
And well you know and if you look back at tonnage per day, Jason and our 2020 January and February and March.
Compared to 2019, the tonnage increases were five 7% seven and a half per cent and 1%. So the answer is yes, I think and as you go into February but.
And there was a I guess, a lesser increase in 'twenty.
March 'twenty and 'twenty versus March 19.
And if that makes sense and my last one is a follow up.
Selling EPS free and obviously it was a pretty big deal and the LPL industry. They were known for.
For bundling.
And being sort of a loss leader for UBS and some cases.
And how is this going to impact the pricing market for you guys going forward as you said.
Well you know when we look at that transaction, Yeah. We don't have a lot of experience and competing with a T F I and Ah. We certainly appreciate the commentary that's out there regarding their approach to some of this business and so I think.
Over all we would say we're encouraged by that we think that's probably going to be a favorable thing.
And clearly those are my two.
Yeah.
Uh huh.
Okay. Thanks, a lot guys I appreciate it.
My apologies Mr. Humphreys.
Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, good morning, everybody Hey, good morning.
Good morning.
I guess my question is about sort of the demand environment. So moving from December to January seems like tonnage has picked up here a little bit I know, we just talked about sort of the comps as we move through the rest of the first quarter, but how do you think about sort of the mix of the business, whether it's some of that spot truckload business, that's coming out of it and maybe youre beginning to lap back can you just talk about some other demand dynamics as we track.
<unk> from the end of <unk> and into <unk>.
Yeah, I'll start with that I guess.
We had a.
You can see we had a solid fourth quarter, we had continued to see.
Segments of our business return really will in fact, our sequential trends, where some of the best I think and.
And our history or at least and last year and your views.
And when you think about <unk>.
Sequential from third to fourth you know in terms of revenue per day and weight per day shipments per day and total those rural.
On top of that last 10 years and so it was good to see you.
The other.
Aspect of this is and we pointed this out is.
And just kind of a stronger demand for our household goods moving business our U pack.
Offering and help.
You know the housing market has been solid strong and it just kind of continuing into the into January.
And there was unusual because typically that's a.
Seasonally stronger and summer months of the year, but with the pandemic there was very little of that and the second quarter of 2020, but anyway. We are seeing are seeing some of that and thats influencing some of our our business trends that we're seeing now but.
And as I mentioned I think started off saying is that we were seeing a continued improvement from our just our core business.
Customers and and you think about manufacturing and industrial and.
Retailers, just kind of some of that returning and so that's encouraging and I think that's influencing our L T O and weight per shipment as well.
Okay. Okay. That's helpful. And then maybe just a sort of a bigger picture question about 2021 and so.
And with the Labor agreement on the asset based side you do have some visibility into into the sort of inflationary aspects of your of your expense items for 'twenty, one and tonnage is obviously positive comps actually get quite a bit easier as you move into the second quarter and kind of beyond that I guess can you talk just conceptually about sort of the opportunity.
On the operating ratio for 'twenty, one it would seem that with pricing and tonnage moving and the same direction and course under some control that there is a bigger opportunity for margin expansion and 21 versus 'twenty, but.
Any help you can give us would be helpful. In terms of how you guys are thinking about that opportunity.
Yeah, I agree it's a challenging.
And do you thing to look at particularly as you compare back to 2020, but you know as you pointed out we have some visibility into our inflation and our contracts from union contract and so that's.
That's helpful.
I think that the.
The challenge, though our big Challenge is is getting the right resources and the right locations and so.
There are some.
As you probably saw in our and and Judy pointed out and in her remarks earlier that are.
And our purchase transportation costs were higher.
And that.
That and the near term may be a headwind for us as we as we are.
<unk> worked through these this resource challenge.
Reported out last quarter, and we continue to have this and this.
And balance where over 50% of our.
Our locations had had double digit.
Changes in <unk>.
And business levels, and so that obviously creates a lot of a lot of.
Challenges and resource.
Supporting the right resources and the right locations. So so so that piece of it is as a potential headwind and the near term probably through the first half of the year, but as we sort through that and we could get that price and good.
Good place that that could be a tailwind.
Haps later on but.
But I would say our team on that that side of the cost have managed that really well I think the.
In terms of mode selection, and and making good choices, there and getting our cost per mile and a good place. So they've done a great job and managing that it's just it's just a challenge and so that's one area and the other is around cost would be the <unk>.
Substantial reduction of costs that we took in 2020 some of that returns when you think about travel for instance, and other marketing cost and.
And event cost for instance, and even health care and you know we suspended our four one K or for a period of time and 2020.
And so we expect those costs to return to sort of pre COVID-19 levels is just the timing on net.
Some of that's dependent upon when some of the.
And then just opportunities to travel and return so.
Hopefully that helps.
And I think.
And I would say, we're looking forward to a year, where we're not managing such a.
Steve.
And that's what's left.
Yes, and you haven't and.
In 2021 and that it should be easier from that standpoint, and hopefully it's it's just more of.
And I have an improvement from our customers' businesses as well so.
Hey, Chris Thanks, a lot and they have.
Got you. Thank you.
Hi.
Our next question.
Comes from the line of David Ross with Stifel. Please proceed with your question.
Good morning, everyone.
I wanted to start off with the new year, New administration and any preliminary talks you guys might've had on pension reform what your thoughts are there, which you might be seeing and D. C.
Well you know we always are involved with that we always follow it and that's a great question.
Especially with the change and administration.
We participated and conversations with legislators and and worked and Washington is a part of numerous coalitions you know over a long period of years and you know I think on January 21st the.
Emergency pension plan Relief Act was introduced to the house and it is an updated version of the 2019 Butch Lewis Act.
And we are are hopeful that that will move through and if passed and enacted into law. It would address the funding issues space by Central States, pinch and fun and and the more than 120, other multiemployer funds projected to become insolvent and the coming years. So it's a hopeful sign of progress.
S toward a solution and this area.
So there's that and and you know again hope for that because it is a problem that we face and it's certainly needing to be addressed in the near term.
And is there anything in there that would take the orphan liabilities essentially off your books and lower your.
Operating expenses as a result.
If not we don't have any orphan liabilities on our books and I want to make sure. We say that clearly and you know I do think that some of the discussion that's been had helps to address the and solvency issue, but there's nothing specific yet that we can really.
Report on that but you know we're encouraged by the conversations and we know there's a a better than average chance and getting that relief in the bite and administration with that you know the the Democrats and control of both houses of Congress and the.
The other part of what you said was to lower our costs and you know that's a contractually agreed to hourly rate for pension and so although theres always an opportunity and future negotiations to try to address that and.
And the near term and our contract expires in June of 2023, I don't believe there would be any change and that and so you know our best opportunity is to continue to create efficiencies and the business and we've done that to some level and and continue to have opportunities to do that so.
Hope that helps.
Yes. Thank you.
Thank you, Dave and thanks, a lot value.
Our next question comes from the line of Todd Fowler with Keybanc capital markets. Please proceed with your question.
Hey, great Thanks, and good morning.
Hi, Todd.
Hey, good morning, everybody and I wanted to ask about the mix and the network right now it seems like other truckload spot shipments continue to come down you know does it feel like that the core customers back to where you'd like it to be is there still opportunity for that mix to improve and then Judy with the nine and 5% increase and the <unk> weighted shipments our weight per shipment excuse me during the <unk>.
Quarter, and that's a pretty strong increase and you had some comments in your prepared remarks about doing some things to improve capacity around that is that is that a targeted effort there as well. So if you could maybe address those two pieces that would be helpful. Yeah. Thank you Todd the great questions and yes. The answer is yes to that we still have more improvement we can do with.
Our core customers you know David mentioned that we're seeing that business come back.
And and in the fourth quarter, there was a noticeable improvement and the retail part of our business returning and I think you know manufacturing.
And that sector for us at improved really in the third quarter compared to second and kind of.
It was an improvement, but lesser of an improvement and fourth quarter and we're looking forward to even more robust activity there with the manufacturing PMI yesterday coming in at a solid $58 seven and I think and those are just really strong numbers and I think you remember that our business typically correlate.
With that move and move in that metric you know with about a <unk>.
Four months.
Flag and we've seen that number be strong that manufacturing PMI index be strong for several months now and a rev. So we're we're hopeful there and are in the asset light side of the business we're seeing.
The same type thing, perhaps some strength and the retail side. So there there is improvement that certainly opportunity for more improvement and your observation about our truckload rated shipments is right you know, where we're not seeing the spillover and really want to focus on our L. T.
L customers, we've continued to use our L T L transactional shipments and.
But in a way that really helps us with some of this imbalance that David talked about there's there's been opportunities because of this imbalance to really help you know fill empty capacity and that's certainly been an effective strategy and one that is contributed to the overall profitability improvement and our business.
And.
We also talked about the U pack business and.
That's been a.
Relative strength and the fourth quarter and into January versus normal because typically you know that's concentrated in the second and third quarters, but we're glad to see that it's a it's a good part of our business and.
It just gives us another transactional.
A part of the business to really contribute to the overall utilization of the network effectively and to improve the overall results of the company.
Okay that makes sense and so it sounds like a lot of mixed things in the fourth quarter, but some other trends and the underlying business are positive and and should help as we move into 'twenty one absolutely.
Okay, David I'm going to turn it over I'll jump back in the queue. Thanks nice caught on.
Our next question comes from the line of Jack Atkins with Stephens. Please proceed with your question.
Good morning, everybody. Thank you for taking my question and that Hi, Jack.
Well, so let me if I could go back to the Oh, our discussion for 2021 for a moment and I don't know Judy if you want to take this or David if you want to take it but I guess when I look back to 2018, you guys did at 93 and a half or in the asset based business.
And a similar point of the freight cycle. This time, but you guys have made a lot of structural improvements I think to your profitability cycle. The cycle. So is it right to really think about the and I understand there's a lot of puts and takes quarter to quarter as you move through the year, but.
I guess help us think about the type of progress you really expect to be able to make this year from an operating ratio perspective, and the asset based business. If that's if that's possible.
Yeah, I mean, what what I think of Jack and all I'll comment first and if David has something to add.
Him to do that but you know your comment about longer term improvements is really something that I think is worth commenting yeah. If you look back the last few years say.
Say, you and you could compare 2020 for instance to a 2016 or or something like that which it obviously had some different challenges, but you know there is a comparison there.
Thank you.
The improvement and the O or for the ABF business has been a close to 400 basis points since that period and so you know the when you talk about the structural improvements that Lynn you know it just makes me think about the cubic minimum charge you know that we put in.
And was really effective for US late in 2017, all of 2018 and then it just became a part of the way that we do business and we think it's just very effective in terms of making sure that you know some some of the freight that we were handling this price strike, but also just the overall approach that we have with with cut.
<unk> accounts.
And we've had several different and optimization projects that we have worked on and implement in a business and many of those and the line haul either optimization or enable productivity improvements and raw load average and.
And we also have some improvements in the visibility and our city operations to help us better manage route and labor and appointment setting. There are so many things that really helped us to be more efficient there and there's more of those to come.
And then probably the last one we've talked about it already but they are L. T L transactional shipments and what that.
It has helped us with in terms of making 2020 honestly.
A tolerable.
You know environment, I guess, even with this imbalance because we've been able to address that with these transactional shipments that you know their lane based day of the week decisions that individually, we know they are incrementally profitable and help us.
And with the efficiencies. So you know all of that comes together well I think I've never seen a time and our company history, where.
And the data driven approach and the insights based approach that we use and sales and customer management.
Along with our yield strategies is informed and working well with the needs of the operations to really produce a great result for our shareholders, but also for our customers and that's that's pretty exciting backdrop. When you think about not only 2021, but any future year.
For our company.
Okay that makes sense, maybe if I could squeeze one more and Judy when I think about capital allocation you guys have a very strong balance sheet cash flow is very healthy.
And you're trading at such a significant discount to your non union peers and even.
The hypothetical valuation of the UBS freight business that <unk> just bought if you look at the stock reaction there so why not get more aggressive on the buyback I know you just put that new buyback authorization in place, but you know why not signal a pretty aggressive buyback given the value that you guys are are really generating and this business here and it's.
Just to your point with the last comment around the improved operating performance of the business cycled cycle.
Yeah, that's great question, and certainly we look for those opportunities and our.
And we're very focused on improving shareholder value and to your point, we do feel like that you know, there's a greater valuation out there that we can achieve.
Our focus with the share buyback and the past has been to offset the dilutive effect of a restricted share unit program that we have on the compensation side and and that's work to effectively do that and.
And I'll I'll tell you my preference for improving shareholder value over the long term is to continue to find those projects are those opportunities to really.
And enhance the results of the company with above average returns and we see a lot of those we referred to those and some of our tier one.
Technology projects and and we've got a long list and we've got our team very focused on doing that and so are.
Our resources that were using that David highlighted in his and his opening comments about the capital are all evaluated through a return on capital employed lands.
As well so you know we.
And we know we have that authorization, there and we can use it but we weigh that or balance that against other opportunities that we have and the business and you know the other thing I'll say is that although.
And there's there's not anything I want to point to that's on the net the near term horizon, and we stay very active and looking at opportunities, particularly.
Particularly on the asset light side for acquisition.
And we're evaluating.
Our options there some of the valuations I think are richer and we also are involved in and different channels, where we can see.
Startups and other opportunities.
Opportunities I think to them.
Enhance our technology and our connections that we have with customers and capacity providers. So.
There's a lot that goes into the mix on our shareholder value strategy, but we do see great opportunities.
Great. Thank you. Thanks, a lot Jack I appreciate it man.
Yeah.
Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks morning, guys. So I wanted to ask about the the margins and the first quarter. So you talk about typically they fall from fourth to first 350 to 400 basis points. If tonnage is going to be a lot better than typical seasonality should we apply the <unk>.
Same logic to margins and and I guess, the crux of the question is.
If they if they fall in that range right and they're down year over year, which I guess would just be surprising given the.
And the revenue environment, so and any thoughts are out there.
You know what I mean, we're certainly going to strive to beat the historical.
Sequential change.
And just just point to that.
We did a I guess a base if you will from sports and our sequential comparison of the fourth quarter of 2020 was it was really one of our strongest fourth quarters and our company's history. So.
And that gives you a good but a bit of tough.
Tougher comparisons and typical I guess and so.
That's one aspect and.
The.
Yeah.
I think it's we called out this.
$8 $5 million property gain and I think it's fair to baby sit that aside.
What do you think about sort of the normal operating results, but last year had a $2 $2 million gain as well but.
I think there is some good momentum I think that's helpful. I think you know theres a number of uncertainties to deal with as we usually have but.
But that's about all the all the color I could probably provide at this time other than and.
Kind of the historical movement that we see there.
Okay, and then just a few sort of specific things around and fourth quarter first quarter.
Can you say.
With the profit sharing were you accruing for this all last year or was there any sort of catch up accrual and the fourth quarter and then what is it.
Got one less operating day and the first quarter is there a good rule of thumb what that typically.
Got you and then the last sort of thing with the U pack strength is that a better or lower margin business relative to asset based so a few little points. There. Thank you.
Yeah, I would just say on the on the.
And so you had a number of questions and one of those around.
Around the daily revenue I mean, just think about our daily revenue and maybe apply some incremental.
Profit on that and that would be the.
The potential and this mix of profit that the.
Versus last year that we would not have there I guess.
The other around you pegged profitability I would just say you know what.
It's helpful incremental to our through our system, it's a good business.
And so when we do it and so.
And literally the Union profit engineering Union profit sharing so that timing and a bed and and just didn't think about or.
Really the first quarter of last year, if you're thinking about that comparison to this year.
In March we were we had the effect of the pandemic. So by the time, we were closing the books on the first quarter. It was.
And uncertain time and time.
Time to to think about the rest of the year and so there were a number of incentive accruals and things like that that were.
Sure.
And at lower levels, we'll just say given given.
Given the perspective that we had at that time, and so yeah that would be a.
And.
And element of cost.
And this year, we would hope we wouldn't have we would have a better performance and have more of a normal accrual type.
The arrangement I guess and the first quarter.
And that makes a lot of day, David is that that you know to add to that I mean that cost would have fallen and the second half.
Because if you think about where we ended the first quarter and then the second quarter and the impact of the pandemic. We just we just would not of no and there had the visibility on that so it and it would have fallen and the second half so a lot of Scott and.
And the ratio and okay. Thank you guys.
Thanks.
Our next question comes from the line of Ken <unk> with Bank of America. Please proceed with your question.
Hey, Judy David Dave.
On Hey, guys. Following up on Todd's question on mix a little earlier your thoughts on the market, obviously now more rational with T. A high buying your P. S freight and why our C kind of moving a little more regionally announced yesterday.
It's such a good market you've been at this for the for a while is the addressable market shifting permanently kind of with E commerce or Judy you mentioned kind of IP coming back and your thoughts on that maybe.
Maybe just talk about that in light of the competitive environment, that's changing with it.
Well I you know I do think that the market has grown I don't know that I have at the at the my hand, what that the market size is but I do think that the the addressable L. T L market has grown.
And and it is because of E commerce that that's the case and you know we've been I you know when I look back at 2020, and and are the impact of E commerce on our business and our ability to be nimble and handle it.
I'm, just glad for that and I'm glad for the business, but I'm also glad for how well that it that it fit in.
The.
Many customers that.
We've always done.
Those kinds of residential deliveries are not always but in the in modern times you know we've done those residential deliveries, but yeah. We were really challenged with some higher percentage increases earlier in the year I think at one point, we had a 48 per cent increase and that business and I'm talking about residential delivery and.
And we were able to navigate through that period and handle that well so I credit our our operations team for being able to do that well and it just shows the adaptability and flexibility of the network and different circumstances and.
And and so you know and that's business that that were we.
We like where we've had some efficiencies around that business that you know.
May not always be there one one of those day is created by the fact that people don't really want things delivered inside their homes and so there's some efficiencies with been able to do you know threshold or curbside type delivery of those of those items. So you know but.
We enjoy that business, we're glad for it it works well also.
B and the U pack, our household goods moving business all of that's residential and and we've got and expertise in that area and I think it has grown the <unk> opportunity.
Yes.
So David you mentioned, the Capex slowing capex a little earlier, but you mentioned also that the age of the fleet is still okay. Despite pausing on the REIT. The repurchasing can you maybe talk a little bit about that and need to catch up.
Yes.
And our road tractors to be and kind of the 18 to.
24 month average age and I think that's kind of where we landed where we are right now and where.
Actually a little below where it was.
And last quarter, we were about.
18 months, yeah, and so I guess that's about right.
And I'm sorry, what was what was the rest of your question there.
Oh, no sorry, I was going to say just because you mentioned you slowed the capex. So I was gonna and I asked if there was a need to catch up if if you slowed somebody I can't it's it really wasn't that dramatic slow down and it was very very minor and the grand schemes. So you know, but we do have some dollars net of port over into 2021 day.
And we slowed some some elements of Capex down and I think there will be equipment and I think we bought like 5% less and what we were planning on buying anyway and 2020.
Okay. Thanks, a lot and they are pretty straightforward.
Sure. Thank you.
Our next question comes from the line of Stephanie Benjamin with Truth. Please proceed with your question.
Hi, good morning, everybody and my staff.
And I don't want to talk a little bit on the asset light business.
Maybe you could speak a little bit it and.
I think you know pretty well reported just the strength, we're seeing and that the spot environment and demand in the truckload side, but have you seen either in the fourth quarter or January thus far any benefit from any kind of vaccine rollout or any kind of business tied to the vaccine rollout on your asset light side.
Well you know we have experienced some increase that relates to let's just call. It vaccine related type shipments or loads, but we're not actually involved and the distribution of the vaccine itself in either fourth quarter or in the and the first quarter so far.
And so.
And so it's not a major influence I'd say in the and the expedite trends that we've experienced that's been more related to I think just that they are coming back on line manufacturing plants and and.
And that would include auto and then just kind of the impact of overall tight capacity and the market I'm. Just really is helpful. Whenever you've you've got that and.
Sought after capacity through the owner operators that the ex but expedite network you know has so.
Got it thank you and continued and the asset light side, you've mentioned in the past you know your desire to really expand this segment of your business and and even cross sell with some existing LTR customers I can imagine 'twenty and 'twenty being a pretty challenging year for your customers and yourselves, maybe as you look to this year and 2000 and.
'twenty, one do you think that the opportunity to.
Accelerate that those cross selling opportunities are really double down and that strategy might be then and larger any color. There would be helpful. Thanks, Yes, I I I really do see that and I you know the fourth quarter, we had a.
Really good momentum.
And I highlighted that in my opening comments about the movement that we've had in terms of overall to our asset light business as a percentage of the total to 35.
And the robust growth that we saw there and the fourth quarter and then also reported and our 8-K. This morning for for January and we have.
Have a our customer management leadership team is very I think data driven insights gathering and.
And using the information that we have about our existing customers and then also accessing new customers and different ways that allows us to really see the opportunity.
Think about how we can fit well into it and then get into the participation and we've got some some better strategies. There I think that are going to enable us and then also.
Danny loves leadership that we have over our asset light.
And operations has really brought a focus of.
And making sure that our carriers and.
Our treated or handled a lot like our customers and making sure that we're working with their preferences are that.
And that we know what what works well for them that can be matched up with other customer opportunities and I think that later in the year. After some investments will make and and the early part of the year well, we'll see some acceleration and our overall growth results as a result of that strategy as well.
So you know we're encouraged.
You know by also by our managed them.
The number of customers and the and the overall growth that we've had there I think the growth in that area is in the near 50 per cent.
This last year and that is customers coming to us and.
Saying can you manage this end to end or whether it's a special project a product launch or something like that but you know we're managing beyond the asset base and assets that we have and and we're bringing together some integrated solutions that and particular in 2020 has really worked well so.
Thank you for that that question. Thanks, Dan.
Stephanie appreciate that and I think we've got time for one more call or one more question.
Thank you. Our last question comes from the line of Jordan Olinger with Goldman Sachs. Please proceed with your question.
Yeah, Hi, everyone.
Hi, Jordan Jordan, Hi, So just a question with price being what it is fairly you know pretty firm and the LDL space and I assume some of the headwinds around fuel dissipating as we move forward as sort of the thought that that 4% or so of total revenue per hundredweight that youre seeing in January and is that sort of a.
A rough trend line, we could think is it flips from a headwind to a tailwind on that level. Thanks.
Well you know Jordan.
Really don't give guidance and that area I mean, I I just feel like that you know us and you've noticed for a long time, you know we're going to do the best job to to bring about all those elements of yield management and the deployment of yield strategies and.
<unk> two.
Advance our ability to grow with customers, but also at the same time to make sure we get paid for the value that we provide and what I'd say is you know the.
The opportunity to do that particularly when Ah business volumes are or maybe strengthening or the economy is a.
Strengthening and we're seeing some of our core customers come back online I mean, the opportunity is going to be better for that and 2021 than it was trying to navigate through some of those I guess that was deferred and contract price increase discussions and in this last year. So you know where we're encouraged by the back.
Drop that we have but you know I'd rather not comment on what we think the exact percentages because honestly, we don't know, but I do know this we're going to work to make sure that we have.
The best result, there.
And also grow the company.
Great no that makes sense. Thank you so much.
Okay, well listen thanks, a lot Jordan and Jennifer I believe that concludes our call. We appreciate your interest and art best and our call is ended thank you very much.
We thank you for your participation and ask that you kindly disconnect your lines have a great day everyone.
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