Freight Delivery Company ArcBest (NASDAQ:ARCB) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 5.8% year on year to $1.06 billion. Its non-GAAP profit of $1.64 per share was 11.4% below analysts’ consensus estimates.

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“Over the past year, we have made substantial strides in controlling costs, improving productivity, and enhancing our service quality. These efforts contributed to ABF once again being recognized by Mastio for exceeding the industry benchmark for service,” said Judy R. McReynolds, ArcBest Chairman and CEO.

Company Overview

Historically owning furniture, banking, and other subsidiaries, ArcBest (NASDAQ:ARCB) offers full-truckload, less-than-truckload, and intermodal deliveries of freight.

Ground Transportation

The 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 Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for 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, 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 8.1% 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 better understand the company’s revenue dynamics by analyzing its sales volumes, which reached 20,221 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 reported a rather uninspiring 5.8% year-on-year revenue decline to $1.06 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, an improvement versus the last two years. While this projection indicates the market thinks its newer products and services will catalyze better performance, it is still below the sector average.

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Operating Margin

ArcBest was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.6% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, ArcBest’s annual operating margin rose by 4.3 percentage points over the last five years.

In Q3, ArcBest generated an operating profit margin of 12.7%, up 8.7 percentage points year on year. The increase was solid, especially since its revenue fell, showing it was recently more efficient because it scaled down its expenses.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

ArcBest’s EPS grew at an astounding 17.5% 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 expanded by 4.3 percentage points over the last five years. On top of that, its share count shrank by 10.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.

In Q3, ArcBest reported EPS at $1.64, down from $2.31 in the same quarter last 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’s full-year EPS of $7.43 to grow by 13.8%.

Key Takeaways from ArcBest’s Q3 Results

We struggled to find many strong positives in these results. Its EPS missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.1% to $102.13 immediately after reporting.

The latest quarter from ArcBest’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.