Earnings Call Transcript - ARCB Q3 2025

Operator, Operator

Good morning, and thank you for standing by. Welcome to the ArcBest Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. I will now turn it over to Ms. Amy Mendenhall, Vice President, Treasury and Investor Relations. Please go ahead.

Amy Mendenhall, Vice President, Treasury and Investor Relations

Good morning. I'm pleased to be here today with Judy McReynolds, our Chairman and CEO; Seth Runser, our CEO-elect and President; and Matt Beasley, our Chief Financial Officer. Other members of our executive leadership team will also be available during the Q&A session. Before we begin, please note that some of the comments we make today will be forward-looking statements. These statements are subject to risks and uncertainties, which are detailed in the forward-looking statements section of our earnings release and SEC filings. To provide meaningful comparisons, we'll also discuss certain non-GAAP financial measures that are outlined and described in the tables of our earnings release. Reconciliations of GAAP to non-GAAP measures are provided in the additional information section of the presentation slides. You can access the conference call slide deck on our website at arcb.com in our 8-K filed earlier this morning or follow along on the webcast. And now I'll turn the call over to Judy.

Judy McReynolds, Chairman and CEO

Thank you, Amy, and good morning, everyone. ArcBest is well positioned to navigate any environment guided by a long-term strategy built on three pillars: growth, efficiency, and innovation. At the heart of our approach is a deep understanding of our customers. Delivering for them drives our success and enables us to achieve our financial objectives. Years ago, we recognized that supply chains were becoming more complex, and we took proactive steps to prepare ArcBest for that future. Today, we deliver flexible, efficient, and fully integrated solutions designed to meet our customers' evolving needs. By listening closely and solving real-world challenges, our teams position ArcBest as a trusted strategic partner, helping customers succeed not just today, but for the long term. In late September, we hosted our Investor Day in New York City, and we appreciate everyone who joined us, both in-person and virtually. During the event, we shared ArcBest's strategic vision, showcased key initiatives, and introduced long-term financial targets that underscore our disciplined growth-focused approach. As we execute on our strategy, we are supported by a strong and experienced Board of Directors whose expertise spans transportation and logistics, finance and capital markets, and digital transformation. In that spirit, we are pleased to welcome Chris Sultemeier to the ArcBest Board. Chris brings more than 30 years of leadership in logistics, transportation and supply chain operations. His deep industry knowledge will be a tremendous asset as we advance our long-term goals. I also want to take a moment to recognize Dr. Craig Philip, who will retire from the Board in January after many years of dedicated service. Craig's insights and guidance have been instrumental to ArcBest's success, and we are deeply grateful for his significant contributions. Today's call is especially meaningful for me because it is my final earnings call as CEO. It has been an incredible honor to lead this organization. Over the last 15 years, I've had the privilege of working alongside some of the most talented and dedicated professionals in the industry. Together, we've embraced change, driven innovation, and built a company that is truly unique and differentiated. I am deeply proud of what we've accomplished and equally excited about what lies ahead. Seth Runser's transition to CEO has been carefully planned, and the Board and I have complete confidence in Seth's ability to lead ArcBest into its next chapter. I've worked closely with Seth for many years. He knows ArcBest inside and out, has a clear strategic vision, and demonstrates a genuine commitment to our people and customers. I know he will lead ArcBest with integrity, purpose, and passion. I will always cherish my time as CEO, and I have no doubt that the best is yet to come. ArcBest is built to deliver, and I look forward to watching this company continue to grow and thrive, both as Chairman of the Board and as a committed long-term shareholder. With that, I'll turn the call over to ArcBest's CEO-elect and President, Seth Runser.

Seth Runser, CEO-elect and President

Thank you, Judy, and good morning, everyone. Before we dive into the details of our third-quarter performance, I want to take a moment to focus on the bigger picture. At ArcBest, our strategy is built around creating meaningful value for our customers. Every day we help them navigate complexity, overcome disruption, and achieve stronger supply chain outcomes. That's what sets ArcBest apart. Looking ahead, this commitment will continue to guide us, helping us to anticipate challenges, seize opportunities, and lead the industry with innovative, customer-driven solutions. By delivering for our customers, we position ourselves to achieve profitable growth, generate strong free cash flow, and create long-term sustainable value for our shareholders. Now let's review the progress we've made on our profitable growth initiatives. In the third quarter, we averaged 21,000 Asset-Based LTL shipments per day, a 4% increase year-over-year. This growth and market share gain reflect the strength of our refined go-to-market strategy and our intentional focus on expanding our core LTL business. As we onboarded new business, we faced some service challenges that caused us to fall short of our expectations; higher-than-expected volumes in certain markets, greater intra-month volume changes, conservative hiring earlier in the year due to macro uncertainty, and peak summer vacation seasons all contributed. In some locations, increased reliance on Cartage also impacted cost and service. These factors affected on-time pickups and deliveries, which was reflected in our latest Mastio survey results. However, we acted quickly. Hiring efforts have advanced in key markets, Cartage usage has significantly declined, and service levels have returned to normal. Customer feedback is already reflecting these service improvements. As we grow, we remain committed to delivering the premium service our customers expect. Pricing discipline remains a cornerstone of our profitable growth strategy. In our Asset-Based business, we continuously evaluate account and lane-level performance to ensure we're appropriately compensated for the value we deliver. Our decisions are informed by shipment profile data, lane pairings, shipment density, and pickup and delivery requirements. When freight moves through our network, we monitor performance closely. If margins don't meet expectations, we partner with customers to identify solutions that balance service quality with sustainable returns. This is an ongoing process, and we are pleased to have achieved a 4.5% average increase on deferred contract pricing renewals during the third quarter. Turning to Managed Solutions. Shipments per day grew by double digits year-over-year in the third quarter, setting another quarterly record for both revenue and volumes. This performance underscores our ability to help customers adapt to a dynamic freight environment and find cost efficiencies in their supply chains. Even amid the ongoing freight recession, growth in Managed helped us achieve an all-time high for asset-light shipments per day. Truckload also showed meaningful progress without relying on macro tailwinds. Our pricing discipline during bid season drove a nearly 9% increase in revenue per shipment with corresponding improvements in gross margins. We're advancing on our strategic initiative to optimize the truckload business mix, focusing on higher-margin SMB customers. We've reorganized sales teams, streamlined processes, and leveraged technology to enhance efficiency. As a result, employee productivity in truckload is at its highest level ever. We've also made meaningful progress on efficiency and innovation, key pillars of our long-term strategy. Our continuous improvement team continues to conduct service center visits, coach employees on process and safety compliance, deploy new technologies, and ensure confident adoption of new tools. These efforts have delivered $20 million in year-to-date savings. Our strategy and optimization team, led by Christopher Adkins, is focused on delivering measurable value by combining targeted process improvements with advanced technology. These efforts ensure that AI is applied in ways that enhance productivity, streamline operations, and reduce cost to serve across the enterprise. One example is our truckload carrier portal, which includes lane matching and auto offer negotiation. This tool frees up bandwidth for our teams, improves margin, and helps reduce fraud. Adoption has grown to 28%, and 52% of truckload shipments are now digitally augmented. These initiatives are improving productivity and helping us mitigate inflationary cost pressures. Looking ahead, we remain focused on disciplined execution and continuing ArcBest's legacy of innovation and service. We are confident that our approach will drive growth and profitability despite near-term headwinds. As many of you know, we set ambitious but achievable targets for 2028 at our Investor Day. These include improving the non-GAAP operating ratio in our Asset-Based business to 87% to 90%, delivering asset-light non-GAAP operating income of $40 million to $70 million, generating total operating cash flow of $400 million to $500 million, and achieving non-GAAP EPS in the range of $12 to $15. We remain well positioned to deliver on these targets. Before I turn the call over to Matt, I want to thank Judy for her vision, her leadership, and the way she has transformed ArcBest. She is an incredible leader, and I am so grateful for her trust and support. I'm glad she's staying on as Chairman and look forward to what the future holds. On behalf of the entire team at ArcBest, we wish Judy and her husband Lance the best in this next chapter. With that, I'll turn it over to Matt to walk through the financials.

Matt Beasley, Chief Financial Officer

Thank you, Seth, and good morning, everyone. Despite continued softness in the freight environment, ArcBest delivered solid third-quarter results that reflect disciplined execution and a continued focus on creating long-term value for our shareholders. Taking a closer look at our third-quarter performance, consolidated revenue was $1 billion, down slightly year-over-year. Non-GAAP operating income from continuing operations came in at $50 million compared to $55 million last year. Our Asset-Based segment saw a $10 million decrease in non-GAAP operating income, while the Asset-Light segment delivered $1.6 million of non-GAAP operating income, an improvement of nearly $6 million over last year. Adjusted earnings per share were $1.46, down from $1.64 in the third quarter of 2024. Turning to our Asset-Based business, third-quarter revenue was $726 million, representing a 2% increase on a per-day basis. ABS non-GAAP operating ratio was 92.5%, an increase of 150 basis points over the third quarter of 2024 and an improvement of 30 basis points sequentially. In the third quarter, daily shipments grew by 4%, while weight per shipment decreased by 2%, resulting in a 2% increase in tons per day compared to last year. This growth was driven in part by onboarding new core LTL business through the commercial initiatives Seth mentioned. However, softness in industrial production and housing continues to pressure weight per shipment, reducing revenue per shipment without corresponding cost decreases. To support shipment growth, we added labor conservatively and supplemented network capacity with purchased transportation and local Cartage during peak vacation season. Annual increases in contracted union labor rates, combined with higher purchase transportation spending and equipment depreciation drove operating expenses higher. Despite these headwinds, cost per shipment improved by 1% year-over-year, reflecting ongoing productivity gains. Additionally, Cartage and purchased transportation costs returned to normal levels in September after elevated activity in July and August. We remain disciplined in our pricing strategy, securing deferred increases averaging 4.5%, a strong outcome in a market where many shippers are focused on cost savings. This underscores the strength of our customer relationships and the differentiated value we provide. Revenue per hundredweight declined 1% year-over-year, both including and excluding fuel surcharges, impacted in part by fewer shipments in the manufacturing vertical. Looking at October trends, daily shipments grew 1% year-over-year, while weight per shipment decreased 2% and daily tonnage levels declined 1%. For the fourth quarter, we expect our operating ratio to increase by approximately 400 basis points sequentially, reflecting the softness in the broader freight market that we're seeing across the industry. Moving on to the Asset-Light segment, third-quarter revenue was $356 million, a daily decrease of 8% year-over-year. Shipments per day reached a record high, up 2.5% from the prior year, driven by double-digit growth in our Managed Solution. Revenue per shipment decreased nearly 11%, reflecting the soft freight market and growth in our Managed business, which has smaller shipment sizes and lower revenue per shipment levels. SG&A cost per shipment decreased over 13%, reaching the best level in Asset-Light history, driven by productivity initiatives and a higher mix of Managed business with a lower cost to serve. Shipments per person per day also hit an all-time high. Non-GAAP operating income of $1.6 million was a significant improvement compared to last year's non-GAAP operating loss of $4 million, driven by volume growth, margin improvement, and cost reductions. In October, Asset-Light daily revenue was down 9% year-over-year, primarily due to lower revenue per shipment from the soft freight market. Managed continued to show strength, though its smaller shipment sizes contributed to lower revenue per shipment. Shipment growth, which was strong through the third quarter, has moderated as we entered the fourth quarter. This slowdown is typical for this time of year as the second and third quarters generally represent peak shipping periods for our customers. For the fourth quarter, we anticipate an operating loss in the range of $1 million to $3 million, reflecting seasonality and current market dynamics. We remain focused on managing costs and positioning the segment for long-term profitability. We continue to take a balanced long-term approach to capital allocation. For 2025, we've updated our net capital expenditure guidance to approximately $200 million, a decrease from the previous range of $225 million to $275 million. This reduction reflects $25 million in net proceeds from real estate sales completed in the third quarter, which generated a pretax gain of approximately $16 million. These properties were replaced by new locations gained through the Yellow auction sites that strengthen our network and enhance our operational footprint. In the first nine months of 2025, we returned over $66 million to shareholders through share repurchases and dividends. In September, our Board increased the company's share repurchase authorization to $125 million, a clear sign of confidence in our strategy and long-term outlook. We'll remain opportunistic with repurchases based on share price while prioritizing high-return organic investments and maintaining prudent leverage. Our balance sheet remains strong with approximately $400 million in available liquidity and a net debt-to-EBITDA ratio well below the S&P 500 average. While external conditions remain dynamic, ArcBest is well positioned for the future. We're focused on what we can control, operating with discipline and making smart strategic decisions that strengthen our business and create long-term value. Before I turn the call back to Judy, I want to recognize her leadership. Judy has played a pivotal role in shaping ArcBest into the company it is today, and her vision and commitment have set a strong foundation for our future. On behalf of the entire team, thank you, Judy. It's been an honor to work alongside you. Looking ahead, I'm excited to partner with Seth as we build on that foundation and continue driving our strategy forward. Judy, thank you again. I'll now turn the call back to you.

Judy McReynolds, Chairman and CEO

Thank you, Matt. Before we move to Q&A, I want to leave you with this. ArcBest's greatest strength has always been its ability to adapt and lead through change. That resilience transformed us from a small local freight hauler into the global logistics company we are today, and it will continue to drive our success for years to come. As I step away from my role as CEO, I do so with complete confidence in our team and in the strategic path we've set. This company is in great hands, and I look forward to watching its next chapter unfold. To our analysts and shareholders, thank you for your trust and partnership. To our employees, thank you for your dedication and resilience. And to our customers, thank you for choosing ArcBest. It has truly been an honor to serve as CEO. With that, let's open the call for your questions.

Operator, Operator

Your first question comes from the line of Jason Seidl with TD Cowen.

Jason Seidl, Analyst

Judy, I just wanted to say congratulations on a great career at ArcBest and I wanted to tell you what a pleasure it was working with you and wish you all the best going forward. I want to jump a little bit, guys, to sort of the guide in 4Q and then maybe what that means to rolling into '26, because it's obviously a lot weaker than I think I would have expected. Is there anything going on seasonally that you think would be sort of abnormal? Like are you more impacted by the government shutdown than maybe one would think? Or is this something where normal seasonality starts you out a little bit on the year-over-year decline side into '26?

Seth Runser, CEO-elect and President

Jason, this is Seth. Thanks for the question. So we did see some softness in October, and that's similar to what our peers have been reporting. We always see that step down sequentially from third quarter to fourth quarter, but it's been below our normal expectations as we move through the month. So normally, we step down about 3% on shipments. We're seeing closer to about a 5% reduction. When you think about the way the calendar falls in November with only 18 business days and the holidays, that just creates some challenges from a top-line perspective. The weakness in October we really attribute to multiple factors. You saw PMI was released on Monday, and that continued to be below 50. We heard the stories about inventory pull ahead in July, and that might be a factor. The continued weakness in the market just impacting weight per shipment, which we've been discussing throughout this freight recession. Then there are secondary impacts of the government shutdown. The only area where we really do a good amount of government business is on the Asset-Light, on the expedite side with Panther. So we're seeing that impact on Asset-Light results and the guide we gave there. But we can't point directly to Asset-Based impact, but the government is the largest employer in the United States. So I'd imagine there's some secondary impacts there. So we're taking action to reduce our costs and align resources with the level of revenue that's given, and we expect that to continue throughout the fourth quarter. That's something we've done through our entire history as we've navigated these cycles. In Cartage and PT, what we did in September to reduce that cost is a great example. So we're focused on pulling all those levers, but we're also focused on the long term and believe in our strategy and initiatives that we outlined at our Investor Day last month. We see on the growth side, our core business continues to grow. The pipeline continues to be very strong. We've done a lot on the efficiency front. We're taking more cost actions as we move through the fourth quarter. Really proud of the Asset-Light team improving productivity, 33%. We saw improvements in Asset-Based as well. We have a robust roadmap of future projects that we're working on, which we think is going to provide some efficiency gains in the future. The way we've built this company is to say yes to our customers, and we think we're built for any environment. So, whether it's a little bit weaker or busier, we want to say yes to customers, and that's the way we're built. So we've been doing this a long time, over 100 years. We have navigated this cycle very well, and we'll continue to make adjustments as we move through the rest of the year and as we move into 2026.

Operator, Operator

Your next question comes from the line of Brady Lierz with Stephens, Inc.

Brady Lierz, Analyst

Congratulations to Judy on her impressive career, and it's unfortunate to see her leave. Following up on Jason's question, you mentioned before that a typical increase from the fourth quarter to the first quarter is between 350 and 400 basis points. Adding 400 basis points from the third quarter to the fourth quarter suggests a transition from an unprofitable situation to breakeven for less-than-truckload services. Can you share your expectations for how this will develop? Additionally, regarding the pricing challenges in October, it's clear some of these issues are related to the product mix and the decreasing weight per shipment. Could you elaborate on those dynamics?

Matt Beasley, Chief Financial Officer

Yeah, Brady, it's Matt. So you're right. We have talked about the 350 to 400. If you were to look at just a straight 10-year history, it's more like 250 basis points, but there were some strong 4Q to 1Q moves during COVID. Over the last few years, as we've given the history, we've excluded those. I think to Seth's point, we certainly are taking a look at costs at a very detailed level in addition to just all of the ongoing efficiency and productivity projects that we've had and have been working on. Certainly, we're pleased with the results that we've seen, as we talked about with the record levels of productivity on the Asset-Light side and just continued improvement on the Asset-Based side as well. We're continuing to make progress and continuing to identify costs and to pull those out. I think it's a little bit too early to say just given some of the softness that we've seen over the last few weeks. I wouldn't say that we're necessarily expecting that to persist into the first quarter. We're hopeful as we get some resolution on the government shutdown. As we move into the new year and we see the impact of the recent interest rate moves, we'll get some improvement on the macro. But I would say we're focused on controlling everything that's within our control on the cost side and again, expect continued progress there and more to come on what the sequential guide will look like as we move from the fourth quarter into the first quarter. On your question on yield, Eddie, I don't know if there's anything that you might want to add from a pricing standpoint in terms of what we're seeing?

Eddie Sorg, Analyst

Yes. I mean I actually think it's improving from where we were earlier in the year. There is a lot of noise with our price metrics with account mix changes, profile changes. But we were able to post a 4.5% renewal increase, which was an improvement from second quarter. That increase by month actually improved throughout the quarter. So we're very optimistic we're going to continue that momentum into the fourth quarter and into 2026. So I feel better about where yield is standing right now.

Operator, Operator

Your next question comes from the line of Jordan Alliger with Goldman Sachs.

Jordan Alliger, Analyst

Judy, it's been great interacting with you all these years and best of luck going forward. I really appreciate all your time.

Judy McReynolds, Chairman and CEO

Thank you.

Jordan Alliger, Analyst

So I guess maybe a big picture question then. Obviously, it's still pretty tough out there in the freight world, as denoted by the volumes from you and your peers in October. But pricing seems to be resilient. So I guess my question is, can you perhaps share some thoughts on the capacity setup when we do get to the volume inflection from an industry perspective overall, taking into account the Yellow bankruptcy? Like what are you seeing in terms of terminals sort of going into the next cycle and how it stacks up? When we do inflect, could the situation lead to what sort of price recovery, if you will?

Seth Runser, CEO-elect and President

Jordan, this is Seth. When we think about just excess capacity, there's obviously a lot of that right now in the LTL space and then truckload, obviously, with the way the market has been. From an LTL perspective, I think is where your question was coming from. Long term, we just have less capacity than we had 5 and even 10 years ago. When you look at how the Yellow auction kind of played out, there's a good chunk of those facilities that left the industry. So we've been strategic with where we've invested, where we see growth, service, or efficiency opportunities, and it hasn't added a lot of cost to our actual base. We've seen the productivity improvements as we've opened new facilities or expanded current facilities. We've talked over the long term; we have a long-term network plan, and we've expanded by about 800 doors. Most of that work is done and past us. When the market actually inflects and we see things start to get busier, that's going to be positive for pricing because there's just less capacity out there. What I love about our company is we invest throughout cycles. Whether it's a down cycle or up cycle, we're making strategic investments to position ourselves to say yes to customers, whether it's a bad market or a good market, which I already mentioned. I feel like we've been really strategic that we'll be able to take advantage when the market gets better. The relationships we have with our customers, 80% of our revenue comes from customers we've had for over 10 years. That allows us to improve our price as we deliver on the value that our customers see.

Matthew Godfrey, Analyst

Yes. And Jordan, this is Matt Godfrey. I would just add to build on what Seth said. We've been very strategic throughout our real estate journey with the capacity that we've added over the last few years. The Yellow opportunity through their bankruptcy gave us the opportunity to speed up some of the targets that we had. But we take a continuous evaluation approach to our network. We'll continue that process into the future, but we feel very good about where our capacity is when the market turns and the ability to say yes to our customer base.

Operator, Operator

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Ravi Shanker, Analyst

And Judy, I will also echo congratulations on your retirement here and you'll be missed. Seth, maybe if we get a sense of the volume decline that you've seen in the last couple of years. And obviously, you pointed out to the ISM being weak, et cetera. But do you guys have a sense of how much of the volume decline may potentially be cyclical versus structural in terms of LTL shift or maybe some of the private guys ramping up and gaining share? And how much of it is structural versus cyclical? On that same note, in your opening remarks, you kind of spoke about some of the factors that may have hurt you in Mastio this year. Do you feel like that also is more of a cyclical or a transitory drop, and you guys will rebound next year?

Seth Runser, CEO-elect and President

Thanks, Ravi. So when I think about what I've done throughout this year, I spend a lot of time with customers, and customers are facing just general uncertainty around tariffs and what happens with interest rates and demand and everything that's going on out there. We've tried to partner with customers if they need to increase inventory or shift where they're sourcing from, and that aligns well with our integrated approach. This is more cyclical from our standpoint because our retention stats are really in a good spot. We haven't lost customers; they're simply just shipping less, and that's what we've been talking about for the past few years. But when we think about the opportunity that we have, we operate in markets with $400 billion worth of opportunity. That's just a tremendous way to expand with our loyal customer base that we already have. With the change in strategy and market approach from a sales perspective, we continue to see our core LTL business grow, managed at all-time highs, and we continue to make progress on our SMB strategy within truckload. I believe that it's more cyclically related than just the demand softness throughout. I believe strongly in what we're doing to execute to see profitable growth into the future. Regarding Mastio, we anticipated that might happen. That's why we disclosed that in our 8-K in August about service challenges. We were really successful with onboarding new business, and we were conservative in our hiring targets earlier in the year. We just didn't have the staff to service that business the way we expect it to. I'm really proud of the way the team reacted quickly and solved those service challenges. When we look at our internal metrics, we've improved substantially since the summer peak vacation. We expect that to continue because we think the better you service customers, the stronger your pricing power and retention is going to be, and that's the type of company we are delivering a premium service for our customers.

Operator, Operator

Your next question comes from the line of Ken Hoexter with Bank of America.

Ken Hoexter, Analyst

Judy, congratulations on your upcoming retirement. This is the worst outlook for the fourth quarter since the first quarter of the COVID lows, and it seems to be the worst since 2017. Matt, you mentioned that you are making progress, but I'm confused about what that progress looks like. You’re starting off weak on the volumes, and there’s a corresponding issue with decreasing costs. What steps are you taking to align those costs? Is it related to the performance targets that are misaligned? Is it due to the additional hiring you’ve done? If you recognize that the costs are not in line, what actions can you take to bring those costs back down?

Matt Beasley, Chief Financial Officer

Yes, Ken. So we have a number of different initiatives that have been ongoing across the Asset-Based organization, including our continuous improvement initiatives and teams that have been going out across the footprint. Starting with our largest facilities, we continue to see a lot of runway with that. We're also continuing to advance our technology initiatives in many different ways, including around labor planning and line haul, our city route optimization project, which we talked about the benefits that we're seeing. You can see that in the numbers. We have normal, typical inflation in the business. Certainly, we've seen on the depreciation front as we've replaced our fleet using our total cost of ownership model, just the increased cost that we're seeing on the equipment side has shown up in our depreciation. We know that we've just got normal increases on the ABS side under our union contract. In the third quarter, we also used a little bit more Cartage and purchased transportation than normal just as we saw that volume surge. If you look on a cost per shipment basis, we were down 1% year-over-year on cost per shipment. We're focused on what we can control, and we expect to make continued progress on that. As we move through 2026, we certainly are seeing the same macroeconomic environment that everyone in our industry is seeing. We're seeing that in industry surveys. That is affecting the guide that we're seeing for the fourth quarter. But we're still seeing the impacts of our commercial initiatives in our results. You still saw volume growth in October. We're still expecting to see overall volume growth on a shipment per day basis for the fourth quarter. We're taking a lot of action on the yield side that I would say has not yet fully accrued to results, but we're going to expect to see the results as we move into the first quarter of next year. A little bit softer macro backdrop than we were expecting or maybe had seen historically, but we still feel good about the targets we gave at Investor Day, and we're continuing to make progress on those, and we expect that we'll continue to see results.

Operator, Operator

Your next question comes from the line of Bruce Chan with Stifel.

J. Bruce Chan, Analyst

Judy, certainly been a pleasure working with you over the years, and we're going to miss you, but I wish you all the best here. There's a glancing reference to the supply dynamics and truckload earlier in the call, so maybe I'll take that one. I know that we've talked about overflow truckload freight in your model in the past. Maybe you can just remind us of what percentage of your business overlaps with that market? More broadly, what are your views on that returning? Are you seeing any signs, even if early or having any conversations about that coming back?

Matt Beasley, Chief Financial Officer

Bruce, this is Matt. You're right. We talked about this a little bit at Investor Day just in terms of the potential that we see for back to some of the discussion about cyclicality as we think about where we've been in manufacturing housing and truckload rates. If we see those return to more normal historical levels, that's where we could see the upside of up to 280 basis points from macro improvement as we move from 2024 through 2028. As we think about the truckload overlap into our LTL business, we've seen a correlation between higher length of haul, so think about maybe 1,000-plus miles and heavier shipments, which are about 5,000-plus pounds. It's not a significant piece of our overall Asset-Based LTL book of business; it's probably low single digits. We've seen some of those volumes move away. There has been some movement to the truckload market, just where those truckload prices are. As we think about where truckload pricing will be going here over the next year or two, as we think about capacity dynamics and just an improving macro, we expect those shipments to make their way back into the LTL network.

Operator, Operator

Your next question comes from the line of Tom Wadewitz with UBS.

Michael Triano, Analyst

This is Mike Triano on for Tom. And Judy, the team at UBS here wishes you all the best in retirement. At Investor Day, you mentioned an assumption in the long-term target of revenue per shipment outpacing cost per shipment by 80 basis points a year on average. As we look into '26, do you think you need help from the macro to drive better freight mix and revenue per shipment? Or is there enough that you can do from a cost perspective and just stabilizing the mix that can help you achieve a positive spread in that revenue minus cost per shipment metric?

Seth Runser, CEO-elect and President

Mike, this is Seth. When I think about 2026, no one has a crystal ball about what's going to happen right now. There's been a lot of changes in these last few years, but we do have confidence in our longer-term view and the targets that we outlined at Investor Day. From a demand standpoint, we don't see a lot improving right now, but lower interest rates could spur increased homebuilding, manufacturing, and auto, all those different things. We saw the tax bill get passed that could drive renewed freight demand. Clarity over tariffs and the government shutdown are issues that, as those get resolved, we think could have a positive impact for us. The supply side is something we're looking at, but we haven't seen the impacts of the ELP mandate or the non-CDL enforcement yet, but we're hearing anecdotal stories that could be positive. If you just look at the cost to operate a truck and where the truckload market pricing is right now, we could continue to see exits on that regard. What I will say is despite all the environment and macro noise, like Matt mentioned earlier, we're focused on things in our control, and that's being customer-led, and we're going to focus on managing our costs in the short term while positioning for the long term. We're taking those actions now, and Cartage and PT is a great example of that. We have other areas of opportunity that we're looking at. We continue to invest in service improvements across the board. I look forward to launching ArcBest View next year and having better service for our customers. We have a robust pipeline that I already mentioned before. We feel confident that we can achieve that revenue per shipment outpacing cost per shipment by the 80 basis points as we move through next year and throughout our entire target window through 2028. Although we continue to navigate just the challenging macroenvironment, I'm very confident in our team's ability to generate shareholder value over the long term.

Operator, Operator

Your next question comes from the line of Brian Ossenbeck with JPMorgan.

Brian Ossenbeck, Analyst

Judy, congrats again on your upcoming retirement. Just two follow-ups here. First one, just on the September to October trend. It looks like weight per shipment is stabilizing, but pricing per hundredweights not actually increasing. So I'm just trying to understand if you can clarify that a little bit in terms of the comments, I think, Matt made about maybe being able to catch up for some of the costs you incurred ramping up this new volume with price or maybe it's on different shipments. A little bit more color there would be helpful. Then also, if you can give us a little more clarity in terms of the productivity per shipment or per person per day rather in Asset-Light setting a new record. Is that driven by some of the mix shift? Or how should we think about how you guys are reaching that?

Eddie Sorg, Analyst

Brian, this is Eddie. In terms of like the price change from September to October, we do still see a lot of volatility when it comes to our account mix. The macroeconomic environment is still pretty big headwind for us. We're not getting a lot of help there on weight per shipment. We did see some business come into our network that had a different profile, and it's typically been operationally efficient for us, which helps, but it does put some pressure on our typical revenue per hundredweight yield metrics. We are encouraged with the progress we're making with our renewal increases. I mentioned that earlier on the call. That's momentum going from the second quarter to third quarter, and we're seeing really good signs going into the fourth quarter as well with those renewal increases. There's a lot of noise in those typical yield metrics, but I feel like we're making progress. Matt mentioned some yield initiatives that we've been taking, and that's having an impact on some of our account mix as well. There’s progress, and there’s more to do, and I think you're going to see that in the fourth quarter and into 2026.

Seth Runser, CEO-elect and President

Yes, Brian, I'll take the Asset-Light productivity question. We have a lot of initiatives that we're working on at Asset-Light. You saw that 33% productivity improvement that we mentioned. I still feel like we have a lot of runway to help our people focus on our customers versus doing manual tasks. We measure service from an internal standpoint on the Asset-Light side, and we continue to see best-in-class results on the service side. What gives me a lot of confidence in the future is some of the projects that we've been working on with Christopher's team and the truckload team and managed around inbound call automation. We’re automating scheduling and booking loads, which allows the team to focus on more complex work. We started to implement Truckload quote augmentation, which uses AI to load, build, quote, and e-mail responses to customers much quicker than a human can do, enabling us to focus on those more challenging tasks. The shipper initiatives on the carrier side include a lot of automation which enhances productivity. We're going to continue to invest in this area. Managed saw another record quarter from a growth productivity standpoint, and we have a great pipeline for future projects. All of this work ultimately allows us to position ourselves for growth without having to add costs when the market does inflect.

Matt Beasley, Chief Financial Officer

Yes, Brian, it's Matt. Just maybe add on one more comment. Like Seth said, we're very proud of where we've come on the productivity side in the Asset-Light business and the 33% improvement that we saw on a year-over-year basis and where we see that going. That has been a key driver of the performance. It's been across our solutions; truckload on its own reached its highest level of productivity when we look at shipments per employee per day in the third quarter. There are other impacts just because in our managed solution, we do have higher productivity levels just on a shipment per employee per day basis. As we continue to grow managed, we see some impacts as well from there. A lot of it is all the initiatives that Seth has talked about that we've been working on, and we're going to continue to focus on.

Operator, Operator

Your next question comes from the line of Stephanie Moore with Jefferies.

Stephanie Benjamin Moore, Analyst

I wanted to ask maybe a higher-level question. I know that you have pretty good insight into the housing market with your U-Pack business. I wanted to hear if you had any insight from what your customers are saying as it relates to this overall housing demand and the expectation this could turn the corner in 2026?

Seth Runser, CEO-elect and President

Stephanie, yes, we're seeing continued weakness in the housing front like it's been reported publicly. We hope with interest rate reductions that we're seeing with the Fed right now that this will spur some demand. We do think there's pent-up demand in the housing market. It's just been too expensive from an affordability standpoint. As those interest rates lower, that's really going to help improve our U-Pack profit obviously. When we look at U-Pack in general, we're at a very low point because of just the housing market where it's been over the last 3 or 4 years. That really drags on the weight per shipment metrics and some of those profitability metrics. We think when the market flips, it's going to have kind of an outsized impact for us when the housing market flips. Housing drives so much of truckload capacity, which then spills into LTL obviously. When the housing market strengthens, that's going to be impactful to us, but we don't see it in the near term. We think as the Fed continues to take actions, hopefully into 2026, we see that demand continue to improve.

Operator, Operator

Your next question comes from the line of Ari Rosa with Citigroup.

Ariel Rosa, Analyst

Judy, let me echo others in congratulating you on your retirement. Definitely a nice career, and it's always been a pleasure working with you. You mentioned in your opening comments market share gains in the LTL space. I'm just curious what you think is driving those market share gains. Given the commentary around some of the service challenges, how is the process of gaining market share working for you? Are you taking on some lower-yielding business? Could you elaborate on that strategy?

Eddie Sorg, Analyst

Yes, Ari, this is Eddie. We've been very proud of our commercial team and what they've achieved this year. We consolidated our customer-facing groups and our business acquisition teams together under this commercial team. That alignment has really led to a lot of great results in terms of customer engagement and new business opportunities. One of the best things about ArcBest is we're differentiated in the marketplace; we offer a suite of solutions that are different than most competitors. We're an integrated logistics company with assets, which has resonated throughout the year with our customers, and our sellers are taking advantage of that. The type of business that's coming in has been good for us and profitable. The profile of that business has been different than our existing business, but that's due to acquiring that business at a premium to the market price. If you look at our peers in that space, they have a lower revenue per hundredweight than what our average is. We are the market leader when it comes to revenue per hundredweight and yield. It's not bad business for us, and it has led to some efficiency gains in our network from an asset-based standpoint. There's always an opportunity to utilize this growth to improve our mix and yield in our company. That's what we've been focused on the second half of the year.

Operator, Operator

Your final question comes from the line of Chris Wetherbee with Wells Fargo.

Robert Salmon, Analyst

It's Rob on for Chris. Judy, we'd like to echo our best wishes as you move on to the next chapter. With regard to pricing, we saw a slight acceleration in the contract renewals in 3Q and a bigger tailwind from fuel, but revenue per bill declined sequentially in the quarter. Can you talk about the biggest drivers of the underperformance versus your contract renewals? When do you expect revenue per bill to better approximate renewals or GRIs as we're looking out?

Eddie Sorg, Analyst

Yes, Rob, this is Eddie again. The biggest driver of that revenue per shipment is the drop in weight per shipment. That's been a headwind for us all year. A lot of the new core business, LTL core business we brought on has been heavier weight, but that softness in the manufacturing sector and industrial production has put pressure on our weight per shipment metrics and ultimately our revenue per shipment standpoint. That profile has been operationally efficient for us, leading to some efficiency gains, but we're focused on adjusting the mix to achieve better yield results.

Operator, Operator

That is all the questions we have. I would like to turn it back over to Amy Mendenhall for closing remarks.

Amy Mendenhall, Vice President, Treasury and Investor Relations

Thank you to everyone for joining us today. We certainly appreciate your interest in ArcBest. This concludes today's conference. You may disconnect.