Earnings Call Transcript
ARCBEST CORP /DE/ (ARCB)
Earnings Call Transcript - ARCB Q4 2020
Operator, Operator
Greetings. And welcome to the ArcBest Fourth Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. As a reminder, this conference is being recorded Tuesday, February 2, 2021. I would now like to turn the conference over to David Humphrey, Vice President of Investor Relations. Please go ahead.
David Humphrey, Vice President of Investor Relations
Welcome to the ArcBest fourth quarter 2020 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President and Chief Executive Officer of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. We thank you for joining us today. In order to help you better understand ArcBest and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risks. For a 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. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Judy.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you, David, and good morning, everyone. 2020 was the year we won’t forget, the pandemic caused uncertainty and disruption in our customers, businesses and in all of our lives. At ArcBest we were challenged in new ways. But because of the character and heart shown by our employees, we turned many of those challenges into opportunities. Our people creatively and purposely served customers and executed well on initiatives to improve efficiencies in our business. I am proud to say the hard work of the ArcBest team produced a second best non-GAAP operating income in the last 14 years. We have positioned ArcBest to be more responsive to customers and to meet their changing needs. We look to customers to inform our strategy and the deeper 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 in 2020, as we recognize the unique nature of the pandemic effects on our customers. As a logistics solutions provider, we worked alongside our customers and capacity providers to move essential goods to their destinations and to normalize disrupted supply chains. The opportunities we have at ArcBest are tremendous and we are committed to growing the company in any economic environment. We have a multiyear strategy and last year despite the pandemic we made progress in three important areas, expanding revenue opportunities, balancing our mix of revenue and profit, and optimizing our cost structure. 14% year-over-year total revenue growth for fourth quarter is representative of our progress. Our total revenue growth was made up of solid Asset-Based growth of 8% and significant Asset-Light growth of 27%. ArcBest quarterly revenue growth resulted from expanding customer relationships and onboarding new ones. Our assert capacity options and the seamless integration we provide created value in the marketplace. As a result, we gained momentum on our goal toward 50% of our revenue coming from our Asset-Light segment, with Asset-Light revenues representing 35% in the fourth quarter. Returning ABF Freight to historical operating margins has also been a long-stated goal for us and I am excited to say for the second consecutive year, we will pay a profit-sharing bonus to all eligible union representative employees at ABF. This bonus reflects the 2020 95.3% operating ratio produced by ABF Freight. This is a significant accomplishment and I am proud of our team. And now, I will discuss some additional detail on the fourth quarter performance of our service offerings. The fourth quarter results in 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 in each month of the quarter combined with larger average shipments and the resulting increase in shipment revenue were factors in the fourth quarter revenue increase. In addition to the effects of an improved economic environment, the larger size LTL shipments in our Asset-Based network were the result of continuing initiatives designed to improve capacity utilization on our equipment and in specific distribution lanes throughout our systems. Similar to the previous quarter, we didn't experience a meaningful impact from traditional truckload shipments spilling over into our LTL network. The impact of the pandemic on consumer moving activities caused the timing of the traditional busy period in our U-Pack household goods moving business to shift from the second and third quarters into the fourth quarter. Combined with continued growth in 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 increased as a percent of total revenue. However, key operating metrics that we watch closely relative to freight handling on our docks, local delivery and pickup of shipments to and from our customers’ locations, and efficiency measures in our over-the-road network improved during the quarter and contributed positively to greater profitability. Cargo care was another highlight in our Asset-Based business. In this past year, we improved our cargo claim ratio for the 23rd time in the last 25 years. ABF was awarded the American Trucking Associations Excellence in Cargo Claims and Loss Prevention Award for an unprecedented eight times. These important achievements are a testament to our customer obsession and to our focus on improving customer experience through safe and efficient handling of their shipments. In addition to serving our customers in 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 hundredweight was slightly positive in the recent quarter, related to changes in account mix and freight profile. The shipment size increase, I mentioned earlier, impacted comparisons of 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 improve to levels last seen in late 2019 and early 2020, before the effects of the pandemic had begun. Improvement in pricing trends on these accounts, which are generally the most price-sensitive, is encouraging. In our Asset-Light business during the fourth quarter, further improvement in customer demand, limited availability of marketplace equipment capacity and an improving rate environment resulted in better profitability versus last year’s fourth quarter and the recent third quarter. Additionally, year-over-year shipments along with a market-driven increase in average shipment revenue contributed to the significant top-line growth that we experienced in this portion of our business. As a percent of revenue, costs for equipment capacity from our Asset-Light transportation partners were higher versus the previous year, consistent with the trends we experienced throughout 2020. Despite the resulting impact on margins, improved operating profit resulted from effective cost management and improved operational efficiencies, enhanced by beneficial technologies and increasing digital connectivity with our customers. At FleetNet, a decrease in total events during the fourth quarter reflected fewer daily events in both roadside repair and preventative maintenance service. Despite having fewer events, solid improvements in 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 workforce despite lower events. Last year, FleetNet implemented various initiatives to digitally connect with its customers and service providers, and that should contribute to operating efficiencies in the future. To illustrate the progress made in this area, in November, FleetNet received their 500,000 electronic status updates from a service provider partner. During 2020, we continued to take actions to enhance shareholder value. Throughout the year we paid our quarterly dividends and we bought back shares of our stock. Later, David will provide more specific details and he will also discuss the recent action we took to improve shareholder returns by extending them out 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 will turn it over to David Cobb for a discussion of the earnings results and operating statistics.
David Cobb, Chief Financial Officer
Thank you, Judy, and good morning, everyone. I will begin with some consolidated information. Fourth quarter 2020 consolidated revenues were $816 million, compared to $770 million in last year’s fourth quarter, a per day increase of 14%. On a GAAP basis, we had fourth quarter 2020 net income of $0.89 per diluted share. This compared to a net loss of $0.22 per share last year, that was impacted by a non-cash impairment charge related to the 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 $0.97 per diluted share, compared to net income of $0.56 per share in the same period last year. ArcBest fourth quarter of 2020 effective GAAP tax rate was 20.8%, favorably impacted by a number of items identified as unusual to normal operations in our non-GAAP reconciliation table. On a non-GAAP basis, the effective tax rate was 26.7%. Under the current tax law, we expect our full year 2021 non-GAAP tax rate to be in a range of 25% to 26%, while the effective rate in any quarter may be impacted by items discrete to that period. For the full year of 2020, consolidated revenues, which were impacted by the pandemic, totaled $2.9 billion, compared to $3 billion in 2019, a per day decrease of 2.2%. Full year earnings per share were $2.69 per share, compared to $1.51 in 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 in 2019. In 2020, total net capital expenditures, including equipment financed equaled $92 million, which is approximately 35% below what we have spent in recent years, due to reductions we announced in early second quarter 2020 associated with the effects of the global pandemic and shifts in the timing of some expenditures into 2021. 2020 expenditures for revenue equipment totaled $63 million, the majority of which was for replacement of units in ArcBest Asset-Based operation. In 2020, because of the impact of the pandemic, we purchased fewer road tractors than we did in 2019 and fewer than we are planning on getting in 2021. However, the average age of our road tractor fleet at the end of 2020 compares favorably to our internal targets. Depreciation and amortization costs on property, plant and equipment were $114 million. In addition, amortization of intangible assets was $4 million in 2020. For 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 in our Asset-Based operation. The remaining amount includes items related to real estate, technology, dock equipment upgrades and enhancements. ArcBest depreciation and amortization cost of property, plant and equipment in 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 in 2021. We ended the year with unrestricted cash and short-term investments of $369 million. Combined with the available resources under our credit revolver and our receivables 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, the number of credit revolver and $214 million of notes payable, primarily on our equipment for Asset-Based operations. Deposit interest rate on all of our debt was 2.9%. During this very challenging year, I am very pleased that compared to the previous year we ended 2020 with an increase in net cash of $90 million and we lowered the composite interest rate on all of our debt by 24 basis points. The solid operating results during this challenging year further fortified our strong balance sheet and our solid financial position. As Judy discussed earlier, during 2020, ArcBest increased shareholder returns through payment of an $0.08 per share quarterly dividend and purchase of $6.6 million of ArcBest shares. Also last week we announced that the ArcBest Board extended the share repurchase program, making a total of $50 million available for purchase of our stock. Our financial 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. All details of our GAAP cash flow were included in our earnings press release. The Asset-Based fourth quarter revenue was $554 million, an increase of 8% compared to last year. The Asset-Based quarterly total tonnage per day increased 7.8% versus last year’s fourth quarter. For the fourth quarter 2020 by month, Asset-Based daily total tonnage versus the same period last year increased by 10.5% in October, increased by 8% in November and increased by 4.7% in December. Fourth quarter total shipments per day increased by 2.8% compared to last year’s fourth quarter. Fourth quarter total billed revenue per hundredweight on Asset-Based shipments increased 40 basis points and was negatively impacted by lower fuel surcharges in freight mix changes versus prior year. Revenue per hundredweight on traditional published LTL-rated business, excluding fuel surcharges and transactional LTL-rated shipments improved by 1% in the low-single digits. We secured an average 4% increase on Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter. With a full year of 2020, ArcBest Asset-Based total revenue was $2.1 billion, 2.5% below 2019’s total revenue due to the pandemic's impact on business levels primarily during the second quarter. Asset-based 2020 total tonnage per day decreased 40 basis points compared to the previous year, reflecting a 4.1% decrease in daily shipments, partially offset by a 3.9% increase in total pounds per shipment. On an adjusted basis, our Asset-Based full year operating income was $121.3 million, compared to $118.8 million in 2019. In total, the revenue in ArcBest Asset-Light businesses increased 27% versus last year’s fourth quarter, reflecting strong demand in our ArcBest segment and improved revenue per van in the FleetNet segment. 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 in the fourth quarter of 2019. Full year 2020 revenue for the Asset-Light businesses was $984 million, compared to $950 million in 2019, an increase of 4%. Full year 2020 adjusted operating income for these businesses was $13 million, compared to $11.2 million in 2019. Adjusted full year 2020 Asset-Light EBITDA was $24.4 million, compared to adjusted EBITDA of $23.8 million in 2019. I also want to mention that in January 2021 we sold a property that was not being used, resulting in a first quarter 2021 Asset-Based operating gain of approximately $8.5 million versus a $2.2 million gain in first quarter of 2020. This morning we filed an 8-K that included our fourth quarter 2020 earnings release, 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, I will turn it over to Judy for some closing comments.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you, David. I want to note an important announcement we made in January. Tim Thorn, President of ABF Freight has decided to retire at the end of June. Seth Runser became Chief Operating Officer for ABF on February 1st and he will become ABF President on July 1st. 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 Tim and his family the very best as he looks to retirement. Seth has a deep knowledge of our freight operations and he is well-versed in our strategy. He will work to facilitate growth and ensure that our ABF team continues its strong commitment to quality. Tim and Seth are working closely together to ensure a smooth transition this year. Looking back on 2020, I also want to mention the importance of our whole industry. As the pandemic caused shutdowns and disruption, the public clearly saw how the logistics and trucking industry touches our everyday lives. Even at the height of the pandemic, freight kept moving and products were delivered. That wasn’t easy. But the value of the supply chain and our role in the economy was very clear, and the public response was heartwarming. 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 in our country and to carry out our mission, which is to positively impact the world through 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 a new year, we are pleased with early trends in our business that offer even more opportunities to serve our customers well, which leads to profitably growing our company. And now, I will turn it over to David Humphrey for our question-and-answer session.
David Humphrey, Vice President of Investor Relations
Okay. Thank you, Judy. And Jennifer, I think we are ready for some questions.
Operator, Operator
Thank you. Our first question comes from the line of Jason Seidl with Cowen. Please proceed with your question.
Jason Seidl, Analyst
Thank you, Operator, and good morning, everybody. I hope everyone is well.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Good morning, Jason.
David Cobb, Chief Financial Officer
Hi, Jason.
Jason Seidl, Analyst
We are working to recover from the significant impact of the blizzard. I want to discuss your comparisons as we go through the first quarter, especially since the first quarter of 2020 was quite strong in terms of tonnage growth and January started positively with a 6% increase. Will the comparisons become more challenging as we progress through the first quarter?
Judy McReynolds, Chairman, President, and Chief Executive Officer
If you look at tonnage per day for January, February, and March 2020 compared to 2019, the increases were 5.7%, 7.5%, and 1%. So yes, as you move into February, there was a smaller increase in March 2020 compared to March 2019.
Jason Seidl, Analyst
Right. That makes sense. And my last one is a follow-up. Sale of UPS Freight obviously was a pretty big deal in the LTL industry. They were known for bundling thus, being sort of a loss leader for UPS in some cases. How is this going to impact the pricing market for you guys going forward, as you said?
Judy McReynolds, Chairman, President, and Chief Executive Officer
Well, when we look at that transaction, we don’t have a lot of experience competing with TFI and we certainly appreciate the commentary that’s out there regarding their approach to some of this business. And so I think, overall, we would say, we are encouraged by that. We think that’s probably going to be a favorable thing.
David Cobb, Chief Financial Officer
Thank you.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Yeah.
David Humphrey, Vice President of Investor Relations
Okay. Thanks a lot, Jason. Appreciate it.
Operator, Operator
My apologies, Mr. Humphrey. Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
David Cobb, Chief Financial Officer
Hey. Hi, Chris.
Chris Wetherbee, Analyst
Thanks. Good morning, everybody. Hey.
David Cobb, Chief Financial Officer
Good morning.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Good morning.
Chris Wetherbee, Analyst
I guess my question is about sort of the demand environment. So moving from December to January, it 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. Maybe you are beginning to lap that. Can you just talk about some of the demand dynamics as we are transitioning from the end of 4Q and into 1Q?
David Cobb, Chief Financial Officer
Yeah. I will start with that. I guess, we had a, I think, as you see, we had a solid fourth quarter. We had continued to see segments of our business return really well. In fact, our sequential trends were some of the best I think in our history or at least in the last 10 years.
Chris Wetherbee, Analyst
Yes.
David Cobb, Chief Financial Officer
Yeah. Just the top, when you think about sequential from third or fourth in terms of revenue per day and weight per day, shipments per day, in total those were all top of that last 10 years. And so that was good to see. The other aspect of this is, we pointed this out as just kind of the stronger demand for our household goods moving business, our U-Pack offering and how that the housing market has been solid, strong and that’s kind of continuing into January. It’s unusual because typically that’s seasonally stronger in the summer months of the year. But with a pandemic, there was very little of that in the second quarter of 2020. But anyway, we are seeing some of that and that’s influencing some of our business trends that we are seeing now. But as I mentioned, I think I started off saying is that, we were seeing continued improvement from our just our core business customers. And you think about manufacturing and industrial and retailers just kind of some of that returning and so that’s encouraging. I think that’s influencing our LTL weight per shipment as well.
Chris Wetherbee, Analyst
Okay. Okay. That’s helpful. And then maybe just sort of a bigger picture question about 2021. So with the labor agreement on the Asset-Based side, you do have some visibility into the sort of inflationary aspects of your expense items for 2021 and your tonnage is obviously positive. The 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 2021. It would seem that with pricing and tonnage moving in the same direction and costs under some control that there is a bigger opportunity for margin expansion in ‘21 versus ‘20. But any help you can give us would be helpful in terms of how you guys are thinking about that opportunity?
David Cobb, Chief Financial Officer
I agree it's a challenging situation, especially when comparing to 2020. However, we do have some clarity regarding our inflation due to the union contract, which helps. Our main challenge is ensuring the right resources are in the right locations. As noted earlier, our transportation costs have risen, which may pose a short-term headwind as we address this resource issue. Last quarter, we highlighted that over 50% of our locations experienced significant changes in business levels, creating challenges in providing the appropriate resources. This imbalance could be a headwind in the near term, likely through the first half of the year, but as we manage that, we could position ourselves favorably later on. Our team has done a commendable job managing costs related to mode selection and cost per mile. However, it's still a challenge. Additionally, we significantly reduced costs in 2020, and some of these will return, such as travel, marketing, and event costs, as well as healthcare expenses. We also suspended our 401(k) contributions during part of 2020. We're expecting these costs to return to pre-COVID levels, but the timing depends on when travel opportunities resume. I hope this is helpful.
Judy McReynolds, Chairman, President, and Chief Executive Officer
I think …
Chris Wetherbee, Analyst
Yeah. It does.
Judy McReynolds, Chairman, President, and Chief Executive Officer
I would say, we are looking forward to a year where we are not managing such steep changes in business level.
David Cobb, Chief Financial Officer
Yeah.
Judy McReynolds, Chairman, President, and Chief Executive Officer
We have noted that in 2021, it should be easier from that standpoint, and hopefully, it’s just more of an improvement from our customers' businesses as well.
Chris Wetherbee, Analyst
Hi, Chris.
David Humphrey, Vice President of Investor Relations
Okay.
Chris Wetherbee, Analyst
Thanks a lot, man.
David Humphrey, Vice President of Investor Relations
I appreciate it. Thank you.
Operator, Operator
Our next question comes from the line of David Ross with Stifel. Please proceed with your question.
David Ross, Analyst
Yeah.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Hi, David.
David Cobb, Chief Financial Officer
Hi, Dave.
David Ross, Analyst
I wanted to just start off with New Year, new administration and any preliminary talks you guys might have had on Pension Reform. What your thoughts are there? What you might be seeing in D.C.?
Judy McReynolds, Chairman, President, and Chief Executive Officer
Well, we always are involved with that. We always follow it. And it’s a great question especially with the change in administration. We participated in conversations with legislators and worked in Washington as a part of numerous coalitions over a long period of years. And I think on January 21st, the Emergency Pension Plan Relief Act was introduced to the House. And it’s an updated version of the 2019 Butch Lewis Act. And we are hopeful that, that will move through, it passed and enacted into law, it would address the funding issues faced by central states pension plan and more than 120 other multiemployer funds projected to become insolvent in the coming year. So it’s a hopeful sign of progress toward a solution in this area. So there’s that and again hope for that, because it is a problem that we have faced and it’s certainly needing to be addressed in the near-term.
David Ross, Analyst
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 that?
Judy McReynolds, Chairman, President, and Chief Executive Officer
We currently have no orphan liabilities on our books, and I want to emphasize that point. I believe that some of the discussions occurring are helping to tackle the insolvency issue, although there’s nothing concrete to report at this time. We are optimistic about the conversations and believe there’s a good chance for relief under the Biden administration, given that the Democrats control both houses of Congress. Regarding lowering our costs, there is a contractually set hourly rate for pensions, and while future negotiations could address this, our contract expires in June 2023, so I don’t anticipate any changes in that area. Our best opportunity lies in continuing to improve efficiencies within the business, which we have made progress on and will keep exploring. I hope this clarifies things.
David Ross, Analyst
Okay. Yes. Thank you.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you, David.
David Humphrey, Vice President of Investor Relations
Thanks a lot Dave.
Operator, Operator
Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets. Please proceed with your question.
Todd Fowler, Analyst
Hi. Great. Thanks and good morning.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Good morning, Todd.
David Cobb, Chief Financial Officer
Hi, Todd.
Todd Fowler, Analyst
Good morning, everybody. I wanted to ask about the mix in the network right now. It seems like other truckload spot shipments continue to decline. Does it feel like the core customers are back to where you would like them to be, or is there still room for improvement in that mix? Also, Judy, with the 9.5% increase in the LTL weighted shipments per shipment during the quarter, that's a significant increase. You mentioned in your prepared remarks that you're taking steps to improve capacity in that area. Is that a targeted effort as well? If you could address those two points, that would be helpful.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you, Todd, for your questions. Yes, we still have room for improvement with our core customers. David noted that we are seeing a recovery in that business. In the fourth quarter, we observed a significant rebound in the retail segment, and manufacturing improved notably in the third quarter compared to the second quarter, although the degree of improvement was less pronounced in the fourth quarter. We anticipate even stronger activity there, especially with the manufacturing PMI coming in at a solid 58.7%. These figures are very encouraging. Historically, there is about a four-month lag between changes in that metric and our business performance, and the PMI has shown consistent strength for several months. We remain optimistic about this trend. On the Asset-Light side, we are also experiencing similar strengths in retail, indicating improvement but also potential for further growth. Your point on truckload-rated shipments is valid. We are focusing on our LTL customers and have continued our LTL transactional shipments to address the imbalances that David mentioned. This strategy has effectively filled empty capacity and has contributed to our overall profitability. Additionally, the U-Pack business has shown relative strength in the fourth quarter and into January, which is unusual since it typically peaks in the second and third quarters. We're pleased to see this as it enhances our transactional business and aids in optimizing our network's utilization, ultimately improving the company’s overall results.
Todd Fowler, Analyst
Okay. That makes sense and so it sounds like a lot of mixed things in the fourth quarter, but some of the trends in the underlying business are positive and it should help as we move into 2021.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Absolutely.
David Cobb, Chief Financial Officer
Okay. David, I am going to turn it over. I will jump back in the queue. Thanks.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you.
David Humphrey, Vice President of Investor Relations
Thanks, Todd.
Operator, Operator
Our next question comes from the line of Jack Atkins with Stephens. Please proceed with your question.
Jack Atkins, Analyst
Good morning, everybody. Thank you for taking my question.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Good morning, Jack.
David Cobb, Chief Financial Officer
Hi, Jack.
David Humphrey, Vice President of Investor Relations
Hi, Jack.
Jack Atkins, Analyst
Well, so let me if I could go back to the OR 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 a $93.5 million OR in the Asset-Based business. We are kind of at 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 to cycle. So is it right to really think about. I understand there is 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 in the Asset-Based business, if that’s possible?
Judy McReynolds, Chairman, President, and Chief Executive Officer
I believe your observation about long-term improvements is important to address. If we reflect on the last few years, for instance, comparing 2020 to 2016, there are notable differences, but a comparison can still be made. The improvement in the operating ratio for the Asset-Based Freight business has been nearly 400 basis points since then. When discussing structural improvements, I recall the cubic minimum charge we implemented, which proved to be effective for us at the end of 2017 and throughout 2018. It became an integral part of our business strategy, ensuring that the freight we handle is accurately priced and enhancing our overall approach to customer accounts. We have embarked on several optimization initiatives within the business, particularly in line haul, focusing on improving productivity and rowboat averages. Additionally, we have made strides in enhancing visibility in our city operations to better manage routes, labor, and appointment scheduling. These initiatives have significantly increased our efficiency, and there are more enhancements expected in the future. Moreover, our LTL transactional shipments have contributed to making 2020 manageable, despite the existing challenges, as they are lane-based and have demonstrated individual profitability, boosting our efficiency. All these efforts have come together, leading to a time in our company’s history when our data-driven and insights-based approach in sales and customer management, paired with our yield strategies, aligns well with the operational needs, yielding excellent results for our shareholders and customers. This is an exciting position as we look toward not only 2021 but also the future of our company.
Jack Atkins, Analyst
Okay. That makes sense. Maybe I could ask one more question. Judy, when I consider capital allocation, your balance sheet is very strong, cash flow is robust, and you're trading at a notable discount compared to your non-union competitors. Considering the hypothetical valuation of the UPS freight business that TFI just acquired and the positive stock reaction, why not be more aggressive with the buyback? I know you've recently authorized a new buyback program, but why not indicate a more assertive buyback given the value you are truly creating in this business? It ties back to your previous comment about the improved operating performance of the business cycle-to-cycle.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Yeah. That is a great question. And certainly we look for those opportunities and are very focused on improving shareholder value. And to your point we do feel like that there’s a greater valuation out there that we can achieve. Our focus with the share buyback in the past has been to offset the dilutive effect of a restricted share unit program that we have on the compensation side and that’s worked to effectively do that. And I will tell you, my preference for improving shareholder value over the long-term is to continue find those projects, those opportunities to really enhance the results of the company with above-average returns and we see a lot of those. We refer to those as some of our Tier 1 technology projects and we have got a long list and we have got our team very focused on doing that. And so our resources that we are using, that David highlighted in his opening comments, about the capital are all evaluated through a return on capital employed wins as well. So 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 in the business. And the other thing I will say is that, although, there’s not anything I want to point to that’s on the near-term horizon, we stayed very active in looking at opportunities particularly on the Asset-Light side for acquisition. We are evaluating our options there. Some of the valuations I think are richer. We also are involved in different channels where we can see startups and other opportunities, I think, to enhance our technology and our connections that we have with customers and capacity providers.
Jack Atkins, Analyst
Okay.
Judy McReynolds, Chairman, President, and Chief Executive Officer
So there’s a lot that goes into the mix on our shareholder value strategy. But we do see great opportunities.
Jack Atkins, Analyst
Great. Thank you.
David Humphrey, Vice President of Investor Relations
Thanks a lot Jack. Appreciate it man.
Operator, Operator
Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Scott Group, Analyst
Hey. Thanks. Good morning, guys.
David Cobb, Chief Financial Officer
Hi, Scott.
Scott Group, Analyst
So I want to ask about the margins in the first quarter. So you talk about typically they fall from fourth to first 350 basis points to 400 basis points. If tonnage is going to be a lot better than typical seasonality, should we apply the same logic to margins? And I guess the crux of the question is, if they fall in that range, that implies they are down year-over-year, which I guess would just be surprising given the revenue environment. So any thoughts are out there.
David Cobb, Chief Financial Officer
We are definitely aiming to outperform that historical sequential change. However, it's important to note that the fourth quarter of 2020 was one of our strongest in the company’s history, which creates a challenging comparison. Additionally, we have highlighted an $8.5 million property gain, and it might be wise to set that aside when considering the usual operating results, which included a $2.2 million gain last year. Despite some uncertainties we typically face, there is positive momentum. That's all I can share at this time regarding the historical trends we've observed.
Scott Group, Analyst
Okay. Regarding the fourth quarter and first quarter, can you clarify if the profit-sharing was accrued for all of last year or if there was any catch-up accrual in the fourth quarter? Also, since there is one less operating day in the first quarter, is there a general estimate of what that typically costs? Lastly, with the strength of U-Pack, is that a higher or lower margin business compared to Asset-Based? Thank you.
David Cobb, Chief Financial Officer
I would just mention that regarding daily revenue, if you consider it with some additional profit, that would represent the potential miss in profit compared to last year that we would not have. As for U-Pack profitability, I would say that it complements our system well. It's a good business, which is why we engage in it, so let's focus on that.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Union profit sharing.
David Cobb, Chief Financial Officer
Union profit sharing. So, well, that’s…
Judy McReynolds, Chairman, President, and Chief Executive Officer
And timing.
David Cobb, Chief Financial Officer
In considering the first quarter of last year compared to this year, we faced the effects of the pandemic in March. By the time we were finalizing the first quarter's books, the situation was quite uncertain, influencing our outlook for the rest of the year. At that time, we had numerous incentive accruals and similar items that were at lower levels. This year, we hope to avoid those issues and see improved performance, with a more typical accrual arrangement in the first quarter.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Yeah. And what I would say, David…
Scott Group, Analyst
Will that be…
Judy McReynolds, Chairman, President, and Chief Executive Officer
…to add to that. I mean that cost would have fallen in the second half. Because if you think about where we ended the first quarter and then the second quarter the impact of the pandemic, we just would not have known or had the visibility on that. So it…
David Cobb, Chief Financial Officer
Right.
Scott Group, Analyst
So significant…
David Cobb, Chief Financial Officer
Scott…
Scott Group, Analyst
Okay. Thank you, guys.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you.
Operator, Operator
Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question.
Ken Hoexter, Analyst
Hey, Judy, Dave and Dave.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Hi.
David Cobb, Chief Financial Officer
Hi, Ken.
Ken Hoexter, Analyst
Following up on Todd’s question about the market mix earlier, what are your thoughts on the current market dynamics with TFI acquiring UPS Freight and YRC shifting more regionally? Given that you have been involved in this market for some time, do you believe the addressable market is permanently changing with the rise of e-commerce? Judy, you mentioned some aspects of IP coming back, and I’d like to hear your thoughts on that in the context of the evolving competitive landscape.
Judy McReynolds, Chairman, President, and Chief Executive Officer
I believe the market has expanded, although I don't have the exact market size at hand. The addressable LTL market has indeed grown, driven by e-commerce. Looking back at 2020, the impact of e-commerce on our business demonstrated our ability to adapt, and I feel positive about that. Our business has effectively handled residential deliveries, and there were significant challenges earlier in the year, including a 48% increase in residential delivery services. Our operations team managed this well, showcasing the network's flexibility. We appreciate this business and have found efficiencies, especially since many customers prefer curbside or threshold deliveries over inside-home deliveries. Our involvement in the U-Pack household goods moving sector complements this, as we have expertise in that area, which has enhanced the LTL opportunities.
Ken Hoexter, Analyst
So, David, you mentioned slowing capital expenditures earlier, but you also said that the age of the fleet is still acceptable, despite pausing on repurchasing. Could you elaborate on that and discuss the need to catch up?
Judy McReynolds, Chairman, President, and Chief Executive Officer
Yeah.
Ken Hoexter, Analyst
No. No.
Judy McReynolds, Chairman, President, and Chief Executive Officer
It really wasn’t a dramatic slowdown…
Ken Hoexter, Analyst
No. No.
Judy McReynolds, Chairman, President, and Chief Executive Officer
It was very, very minor in the grand scheme. So, but we do have some dollars that have poured over into 2020.
David Cobb, Chief Financial Officer
We slowed some elements of CapEx down and I think on the equipment, I think we bought like 5% less than what we were planning on buying anyway in 2020.
Ken Hoexter, Analyst
Okay.
David Humphrey, Vice President of Investor Relations
Hey. Thanks a lot man…
Ken Hoexter, Analyst
Thanks. Thanks.
David Humphrey, Vice President of Investor Relations
I appreciate you…
Judy McReynolds, Chairman, President, and Chief Executive Officer
Thank you.
Operator, Operator
Our next question comes from the line of Stephanie Benjamin with Truist. Please proceed with your question.
Stephanie Benjamin, Analyst
Hi. Good morning, everybody.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Good morning, Stephanie.
David Cobb, Chief Financial Officer
Good morning, Steph.
Stephanie Benjamin, Analyst
I would like to discuss the Asset-Light business, as it has been well reported that we are experiencing strong demand in the truckload sector. Have you observed any impact from the vaccine rollout in the fourth quarter or in January so far, particularly in relation to your Asset-Light operations?
Judy McReynolds, Chairman, President, and Chief Executive Officer
Well, we have experienced some increase that relates to, let’s just call it, vaccine-related type shipments or loads. But we are not actually involved in the distribution of the vaccine itself in either fourth quarter or in the first quarter so far. And so it’s not a major influence, I’d say, in the expedite trends that we have experienced. That’s been more related to, I think, just to the coming back online manufacturing plants and that would include auto. And then just a kind of the impact of overall tight capacity in the market just really is helpful whenever you have got that sought after capacity through the owner operators that the expedite network has, so.
Stephanie Benjamin, Analyst
Got it. Thank you. And continuing on the Asset-Light side, you have mentioned in the past your desire to really expand the segment of your business and even cross-sell with some existing LTL customers. I can imagine 2020 being a pretty challenging year for your customers and yourself. So maybe if you look to this year in 2021, do you think that the opportunity to accelerate those cross-selling opportunities or really double down on that strategy might be even larger, any color there would be helpful? Thanks.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Yes, I see that we had strong momentum in the fourth quarter. I mentioned in my opening comments the growth of our Asset-Light business, which now represents 35 percent of our total. We saw significant growth in this segment in the fourth quarter, and our recent report for January reinforces this trend. Our customer management leadership team is focused on gathering data-driven insights to better understand our existing customers while also reaching out to new ones. This helps us identify opportunities and determine how we can effectively engage with them. Under Danny Loe’s leadership in our Asset-Light operations, we are ensuring that our carriers are treated similarly to our customers, aligning our efforts with their preferences to capitalize on potential opportunities. With some planned investments at the beginning of the year, we expect to see accelerated growth later this year as a result of this strategy. We are also pleased with the increase in our managed customers, which grew nearly 50% last year. More customers are approaching us for end-to-end management, whether for special projects or product launches. We are moving beyond our Asset-Based assets and creating integrated solutions that have proven successful, especially in 2020. Thank you for your question.
David Humphrey, Vice President of Investor Relations
Thanks, Stephanie. Appreciate that. I think we have got time for one more call or one more question.
Operator, Operator
Thank you. Our last question comes from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question.
Jordan Alliger, Analyst
Yeah. Hi, everyone.
David Cobb, Chief Financial Officer
Hi, Jordan.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Hi, Jordan.
Jordan Alliger, Analyst
Given the current firm pricing in the LTL space and the expectation that some fuel-related challenges will ease over time, could we consider that the approximately 4% total revenue per hundredweight observed in January might indicate a shift from being a headwind to a tailwind? Thank you.
Judy McReynolds, Chairman, President, and Chief Executive Officer
Well, Jordan, we really don’t give guidance in that area. I mean, I just feel like that, you know us and you know us for a long time, we are going to do the best job to bring about all those elements of yield management and the deployment of yield strategies in order to 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 the opportunity to do that particularly when business volumes are maybe strengthening or the economy is strengthening and we are seeing some of our core customers come back online. I mean the opportunity is going to be better for that in 2021 than it was trying to navigate through some of those, yeah, I guess, those deferred and contract price increase discussions in this last year. So we are encouraged by the backdrop that we have. But I’d rather not comment on what we think the exact percentages, because honestly we don’t know, but I do know this, we are going to work to make sure that we have the best result there and also grow the company.
Jordan Alliger, Analyst
Great. No. That makes sense. Thank you so much.
David Humphrey, Vice President of Investor Relations
Okay. Well, listen, thanks a lot, Jordan, and Jennifer, I believe that concludes our call. We appreciate your interest in ArcBest and our call has ended. Thank you very much.
Operator, Operator
We thank you for your participation and ask that you kindly disconnect your lines. Have a great day everyone.