ArcBest Corporation beats earnings expectations. Reported EPS is $4.3, expectations were $2.05.
Operator: Greetings, and welcome to the ArcBest Second Quarter ‘23 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. [Operator Instructions]. As a reminder, this conference is being recorded Friday, July 28, 2023. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead.
David Humphrey: Thank you for joining us. On today's call, we’ll provide an update on our business, walk you through the details of our recent second quarter 2023 results, and then answer some questions. Joining me today for the prepared remarks are Judy McReynolds, Chairman, President and CEO, ArcBest and Matt Beasley, Chief Financial Officer and Treasurer. In addition, Dennis Anderson, Chief Strategy Officer; Seth Runser, President of ABF, Steven Leonard, Chief Commercial Officer and President of Asset-light Logistics, and Christopher Adkins, Vice President of Yield Strategy & management are available to help answer your questions. To help you better understand our best and our results, some forward-looking statements could be made during this call.
Forward looking statements, by their very nature are subject to uncertainties and risk. For more complete discussion of factors that can affect our best future results. Please refer to the forward-looking statements section of our earnings press release on our most recent SEC public filings. To provide meaningful comparisons certain information discussed in this call includes non-GAAP financial measures is outlined and described in the tables in our earnings press release. Reconciliations of GAAP financial measures to the related non-GAAP measures discussed in this call are also provided in the Additional Information section of the presentation slides. As a reminder, there's a conference called slide deck that can be found on the ArcBest website arcb.com.
In exhibit 99.3, of the 8-K that was filed earlier this morning, or you can follow along on the webcast. We will now begin with Judy.
Judy McReynolds : Good morning. We appreciate you joining us today. Before we begin, I'd like to start with a message to our people. In our 100th year, our business has always come back to you. Thank you for being the heart of our success. No one does it better than our team here at ArcBest we have the best people in the industry. Every day, our team finds innovative ways to deliver for our customers with their skill, hard work, and resilience. These attributes are why we received the top industry awards year after year, such as being the only 10-time winner of the excellence and cargo claims and loss prevention award and why we consistently exceed industry benchmarks. Our strong employee relationships were exemplified as we finalized our five-year agreement with the International Brotherhood of Teamsters earlier this month, with overwhelming approval.
From the beginning, our goal was to secure a contract that keeps providing our employees with competitive wages and industry leading benefits to ensure we're retaining the best employees in the business and recruiting top talent. We're pleased to have reached a contract that achieves these goals and sets the stage for future growth and investment. At our best we are constantly thinking about what's ahead. We're celebrating a century in business this year because we are always innovating, providing exceptional value for our customers and remaining resilient and agile while retaining the ability to look at ourselves critically and strive for continuous improvement. We recognize the importance of operating efficiently and effectively which enables growth and creates value.
Earlier this year, we sent an experienced team to some of our ABF service centers to train managers and employees on operational best practices, which resulted in a significant increase in productivity in those locations. And that productivity improvement has continued long after the team departed. So we're going to do that on a larger scale. We will be pausing the freight handling hardware pilot at our two ABF distribution centers in Kansas City and Salt Lake City and refocusing that implementation team on this best practice work at our largest facilities. Box pilots with customers remain promising and are not affected. Early box pilot results with some major companies are showing significant efficiency gains, and we see high levels of customer interest in the solution.
These pilots will continue and the teams that support external customers are not slowing down. We continue investing back in to the business, into our technology, our solutions and our people. This soft market environment will end and we are making decisions today that benefit us as the market rebounds. We are investing in technology to support our customers. How people do business is changing. This year we enhanced our digital tools to help customers better manage their business. And later this year, we will provide additional self service capabilities that drive efficiency. We are investing in our solutions to deliver exceptional value. Our city route optimization work is responsible for over half a million dollars per month in operating income improvement and makes our employees jobs easier.
We're in the process of expanding that initiative to improve the pickup process. And importantly, we are investing in our people to drive higher engagement. We have created an industry leading employee experience, which continues to be recognized with awards. These key areas of investment will set us up for success in the future. Having reached our 100th year anniversary, I have taken the time to reflect on who we are and where we came from. ArcBest is a company that has evolved tremendously. And I am so proud of who we are today. We listen to our people and our customers and then adapt. We have built a breadth of solutions that have positioned us as a strategic partner to our customers, helping them build better supply chains. In today's rapidly changing market environment we are uniquely positioned to serve our customers as a trusted adviser with a full suite of logistics solutions, rather than simply a capacity provider.
We have seen clear evidence of that this past week as customers have turned to our best to manage their supply chains through a period of market disruption. Finally, we are resilient. We don't back down from a challenge. We're in a strong position and only look to grow from here. And now I'll turn it over to Matt to take you through the quarter in greater detail.
Matt Beasley: Thank you, Judy. And good morning, everyone. Before I cover the quarter’s results, I want to say a quick thanks to our previous CFO, David Cobb, David built a best in class finance team and his support and guidance had been invaluable as I've transitioned into the CFO role. I wish David and his family all the best as he embarks on a well earned retirement later this year. Second quarter 2023 consolidated revenue from continuing operations was $1.1 billion a 17% per day decrease compared to last year. On a non-GAAP basis consolidated operating income from continuing operations was $50 million, a decrease of 66%. Our adjusted second quarter earnings per diluted share from continuing operations was $1.54. Turning to the key metrics and our asset base business, second quarter daily revenue decreased 10% compared to last year, while daily shipments and daily tonnage increased 4% and 1% respectively.
The decrease in revenue per day reflects a decrease in order frequency and shipment quantities from our core customers during the software market environment and a decrease in fuel surcharge revenues. As you will recall, fuel prices were at record levels during the second quarter of 2022. As for shipment and tonnage results ABF targeted more consistent business and labor levels during the quarter by utilizing our tech-enabled dynamic LTL rated pricing tool to secure market based profitable shipments to better utilize available network capacity. The 11% Decrease in second quarter build revenue per hundredweight, versus last year reflects the impact of these additional dynamic shipments and lower diesel prices. Because of the strength of ABF pricing on its core business, the addition of transactional LTL shipments at current market rates naturally reduces the total revenue per hundredweight statistic.
States with the Best Roads in America
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Overall pricing remains rational. And we continue to obtain increases on our core LTL rated business, which increased 7% versus the same period last year. Pricing on that core business also increased sequentially compared to the first quarter, and the second quarter marked the 10th consecutive quarter that pricing excluding fuel surcharges on our core LTL rated business increased on a sequential basis. For asset-based customer contract renewals and deferred pricing agreements negotiated during the second quarter, we secure to 3.1% average increase. The second quarter non-GAAP asset base operating was 92.8% was a year-over-year increase of 830 basis points. And on a sequential basis, versus first quarter, an increase of 50 basis points. It was also a higher OR, than we anticipated when we previewed Q2 last quarter, which was due in part to adding and maintaining resources to serve an expected seasonal uptick in core customer business that didn't materialize as expected.
Delays in the receipt of new equipment also negatively impacted repairs and maintenance expenses. And we also had some other costs that were higher than expected, including workers comp and non-union health care costs that affected comparisons to first quarter. In July ABF, implemented cost savings actions to improve segment profitability. This includes an intense focus on efficiency and productivity, and a reduction in overtime and carnage in purchase transportation spending, as well as a reduction in dynamic shipment levels to target total shipping volumes of approximately 19,500 shipments per day. In addition, over the past week, the asset base segment has experienced more than a 10% increase in core LTL rated shipments per day when compared to June, 2023, which is handled through reduction in less profitable dynamic shipments.
As Judy mentioned, we were pleased to recently reach a new five-year labor agreement, which recognizes the contributions of our employees with pay increases and quality of life enhancements, while supporting growth and investment. The initial first year wage increase that was effective on July 1st, was approximately 13%. And after the August increase in the hourly health, welfare and pension rates, the combined first year wage and health welfare and pension rate increase will be approximately 9%. Over the life of the contract, the combined contractual wage and benefit rate increases are approximately 4% on a compound annual basis. Prior to the pandemic, ArcBest asset base operating ratio for the third quarter was typically relatively flat to the second quarter.
Although ABF will have additional costs in the third quarter related to his new union contract, we believe that our cost control actions and previously anticipated increases in core business levels should allow us to continue on this historical trend with the possibility for upside. If the increased business levels we've seen over the past week continue throughout the quarter. In our Asset-Light business total second quarter revenue decreased 25% on a per day basis versus the prior year period. This was primarily due to a lower average revenue per shipment and a soft rate environment. As we mentioned this time last year, higher market rates on committed business combined with solid customer demand resulted in strong asset like revenue growth and record profitability in that business in second quarter 2022 which makes a strong comparison for the current period 2023 second quarter Asset-Light daily shipments increased both year-over-year versus 2022 and sequentially compared to this year's first quarter, primarily because of shipment growth in our truckload business.
The current margin pressure resulting from a lower spread between customer rates and capacity rates, compared to historic profit margins last year, was the biggest contributor to the reduced Asset-Light profitability in the most recent quarter. We provided preliminary Asset-Light business trends for July. 2023 in the Form 8-K exhibit to the press release file this morning, and total revenue for July reflects a year-over-year decrease slightly better than in the second quarter. Double digit Asset-Light shipment growth this month is directly related to continued success and adding truckload shipments. But truckload rates still remained significantly lower than last year. Net capital expenditures totaled $84 million for the first six months of the year.
And we currently expect net capital expenditures in the range of $270 million to $295 million for the full year, which is lower than our previous estimates are class aid tractor orders remain in place, and we currently expect to receive all ordered tractors by the end of the year. Progress continues on the real estate projects we plan at the beginning of 2023. And we currently expect those expenses to be incurred by the end of the year. The reduction in our full year CapEx range is related to a slight reduction in trailer and other warehouse equipment orders, a slight decrease in some per unit costs and a deferral of some capital to 2024. ArcBest cash balance and total liquidity improved during the quarter and remain at strong levels. As of the end of the second quarter, we had net cash of $108 million, an improvement of $46 million since the end of last year.
Total liquidity of approximately $580 million remains at a healthy level and despite rising rates, the composite interest rate and ArcBest outstanding debt at the end of the recent quarter was 3%. Our solid financial position is strong balance sheet position as well to navigate the current market environment while investing for growth, new equipment purchases, real estate additions and upgrades end to end technology investments, all of which will improve our ability to effectively serve customers while positioning company for the future. We also continue to review external growth opportunities and the return of capital to shareholders while targeting investment grade credit metrics. Year-to-date through the end of the second quarter, we have returned approximately $41 million of capital to shareholders through share repurchases, based on those share repurchases.
$84 million remains available under the current repurchase authorization for future common stock repurchases. As I step into my new role, I'm excited about our futures. I'm proud of our values driven culture, and confident we have the right strategy to deliver on our mission of connecting and positively impacting the world through solving logistics challenges. Now I'll turn the call back to Jude.
Judy McReynolds : Thank you, Matt. As we close, I want to reflect again on our strategy and position. We hear from customers that our solutions are relevant, and our partnership is valuable. This is why we continue to see customer growth despite some of the demand decline our industry is experiencing. In a rapidly changing marketplace ArcBest is uniquely positioned to serve our customers. We have 100 years of experience and a team that challenges the statues-quo. We can meet our customer’s needs across a breadth of transportation modes, move goods on our own assets, and customers are increasingly asking us to help manage key components of their supply chains. We're committed to keeping the global supply chain moving enhancing our position as a leading logistics company and accelerating growth. That concludes our prepared remarks. David Humphrey, we can now open the call up to questions.
David Humphrey: Okay, Dana, I think we're ready for some questions.
