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Freight Delivery Company ArcBest (NASDAQ:ARCB) reported Q2 CY2024 results topping analysts' expectations, with revenue down 2.3% year on year to $1.08 billion. It made a non-GAAP profit of $1.98 per share, improving from its profit of $1.54 per share in the same quarter last year.
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ArcBest (ARCB) Q2 CY2024 Highlights:
- Revenue: $1.08 billion vs analyst estimates of $1.06 billion (1.9% beat)
- Operating Income: $64.2 million vs analyst estimates of $66.9 million (4.0% miss)
- EPS (non-GAAP): $1.98 vs analyst expectations of $2.06 (3.9% miss)
- Free Cash Flow of $76.1 million is up from -$48.58 million in the previous quarter
- Sales Volumes fell 4.8% year on year (4.2% in the same quarter last year)
- Market Capitalization: $2.85 billion
Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ:ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.
Ground TransportationThe growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, ArcBest's sales grew at a mediocre 7% compounded annual growth rate over the last five years. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. ArcBest's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.9% annually. ArcBest isn't alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
We can dig further into the company's revenue dynamics by analyzing its sales volumes, which reached 19,934 in the latest quarter. Over the last two years, ArcBest's sales volumes were flat. Because this number is better than its revenue growth, we can see the company's average selling price decreased.
This quarter, ArcBest's revenue fell 2.3% year on year to $1.08 billion but beat Wall Street's estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from this quarter.
Operating Margin ArcBest was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5.2%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, ArcBest's annual operating margin rose by 2.5 percentage points over the last five years
This quarter, ArcBest generated an operating profit margin of 4.5%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
ArcBest's EPS grew at a spectacular 16.8% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into ArcBest's earnings to better understand the drivers of its performance. As we mentioned earlier, ArcBest's operating margin was flat this quarter but expanded by 2.5 percentage points over the last five years. On top of that, its share count shrank by 9.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For ArcBest, its two-year annual EPS declines of 20.3% show its recent history was to blame for its underperformance over the last five years. We hope ArcBest can return to earnings growth in the future.
In Q2, ArcBest reported EPS at $1.98, up from $1.54 in the same quarter last year. Despite growing year on year, this print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects ArcBest to grow its earnings. Analysts are projecting its EPS of $8.11 in the last year to climb by 18.5% to $9.61.
Key Takeaways from ArcBest's Q2 Results We enjoyed seeing ArcBest exceed analysts' revenue expectations this quarter. On the other hand, its operating profit and EPS missed. The company called out a tough macro backdrop. Overall, this was a mediocre quarter for ArcBest. The stock remained flat at $121.69 immediately following the results.
