Executive Summary / Key Takeaways

• Integrated Model Driving Resilience: ArcBest's century-long transformation into an integrated logistics powerhouse, combining asset-based LTL with diverse asset-light solutions, provides a unique, resilient value proposition for customers seeking comprehensive supply chain solutions, particularly in volatile markets.
• AI and Technology as a Core Moat: Significant investments in proprietary AI-powered technologies like Voxx Vision, city route optimization, and advanced dock management are yielding tangible efficiency gains, improving service quality, and enhancing profitability, positioning ArcBest for sustained operational excellence.
• Asset-Light's Profitability Turnaround: The Asset-Light segment achieved non-GAAP operating income in Q2 2025 for the first time since Q2 2023, driven by strategic reductions in less profitable truckload volumes, disciplined cost control, and double-digit growth in its high-margin Managed Solutions business.
• Disciplined Pricing and Volume Growth: Despite a soft freight environment, ArcBest is successfully securing rational price increases on contracts (averaging 4% in Q2 2025) and driving LTL shipment growth (up 6% in Q2 2025), demonstrating strong customer relationships and effective commercial strategies.
• Undervalued Growth Potential: ArcBest's current valuation metrics appear significantly lower than those of its LTL peers, suggesting the market may not yet fully appreciate the company's strategic initiatives, technological advancements, and the potential for margin expansion as the freight cycle normalizes.

The Integrated Logistics Imperative

ArcBest Corporation, a company with roots stretching back to 1923 as a local freight hauler, has evolved into a multibillion-dollar integrated logistics enterprise with global reach. This transformation reflects a deliberate strategy to leverage technology and a comprehensive suite of shipping and logistics solutions, enabling ArcBest to meet the complex and dynamic supply chain needs of its customers. The company's overarching philosophy, encapsulated in its motto "We'll find a way," underscores a proactive and agile approach to market disruptions, a critical attribute in the current freight landscape.

ArcBest operates through two primary segments: Asset-Based, primarily ABF Freight System, Inc., and Asset-Light, which includes MoLo Solutions, LLC, Panther Premium Logistics, and other specialized services. This dual-segment structure allows ArcBest to offer a seamless, single-source solution, differentiating it from more specialized competitors. The company's strategic evolution has included key acquisitions, such as MoLo Solutions, and opportunistic real estate investments, including facilities from the Yellow auction, to expand its network and capacity. This integrated model is foundational to its ability to serve customers across various modes and complexities, from less-than-truckload (LTL) and full truckload (FTL) to managed transportation and specialized logistics.

Technological Edge: The AI-Powered Moat

Innovation and efficiency are central to ArcBest's competitive strategy, underpinned by significant investments in proprietary technology. The company pioneered space-based pricing in the LTL industry, a forward-thinking approach that led to the development of Voxx Vision. Publicly launched in February 2025, Voxx Vision is an innovative 3D perception technology that transforms forklifts into intelligent mobile dimensioners. This system provides precise, real-time freight measurements, images, and detailed shipping insights on the go, enhancing transparency and compliance in freight handling workflows. This technology is expected to be a cost-effective solution, easily adopted and integrated, offering a tangible advantage in accurate freight classification and pricing.

Beyond dimensioning, ArcBest is leveraging AI and predictive analytics across its operations. The city route optimization platform, for instance, is now in Phase 2, active in over half of its service centers, using AI and historical data to dynamically optimize delivery routes. Phase 3, currently underway in a dozen locations, introduces real-time pickup optimization, utilizing AI to predict demand and strategically position drivers. Early results from the Baltimore service center demonstrate the power of this technology, reducing a manager's planning hours from four hours to just forty-five minutes, freeing up valuable time for direct team engagement.

Further enhancing operational efficiency is the new dock management system, built on Box Technology. This platform provides real-time dashboards and prioritization tools, streamlining workflows and improving both speed and accuracy in dock operations. These technological advancements, combined with ongoing training and development, have driven substantial productivity improvements. The second quarter of 2025 marked ArcBest's most productive quarter since 2021, reflecting the compounding benefits of these digital initiatives. The company's digital quote pool has expanded to over 200,000 quotes per day, enabling more selective freight matching and sharpening pricing intelligence for incremental profit.

Strategic Execution in a Challenging Market

ArcBest has demonstrated remarkable resilience in a freight environment characterized by a three-year soft rate cycle. The second quarter of 2025 continued to reflect these challenges, with softness in manufacturing, a sluggish housing market, and persistent uncertainty surrounding interest rates and tariffs. The Purchasing Managers Index (PMI) for manufacturing contracted for the fourth consecutive month in June 2025, contributing to decreased freight volumes. Despite these headwinds, ArcBest has maintained a proactive stance, focusing on what it can control.

The company's strategic response includes realigning resources and investing in its sales teams, particularly across LTL, Truckload, and Managed Solutions. These efforts are yielding results, with a stronger sales pipeline, half of which is tied to LTL opportunities. ArcBest is also expanding its presence in the small and medium-sized business (SMB) segment, which is viewed as less price-sensitive and offers stickier customer relationships. Proactive engagement with customers regarding the NMFTA classification update, leveraging its 98% freight dimensioning capability, exemplifies its customer-centric approach to market disruptions.

Segment Performance: Resilience and Rebound

ArcBest's financial performance in Q2 2025 reflects a mixed but strategically positive picture. Consolidated revenue totaled $1.02 billion, a 5.2% decrease year-over-year, primarily driven by lower market rates and shipment levels in the Asset-Light segment. Consolidated non-GAAP operating income was $45 million, down from $64 million in the prior year, reflecting the revenue decline partially offset by operational efficiencies.

The Asset-Based segment (ABF Freight) demonstrated notable resilience. Revenues increased slightly by 0.1% year-over-year to $713.3 million in Q2 2025. This was driven by a 6% increase in daily shipments, averaging 21,000 shipments per day, and a 4% increase in tons per day. This growth occurred despite a softer market, supported by the onboarding of over 100 new core LTL accounts. While billed revenue per hundredweight declined 3% year-over-year (low single digits excluding fuel surcharges), influenced by a shift to easier-to-handle freight and lower fuel prices, ArcBest maintained pricing discipline. The company secured an average increase of 4% on contract renewals in Q2 2025 and implemented a 5.9% general rate increase effective August 4, 2025. The Asset-Based operating ratio (OR) was 92.8% in Q2 2025, a 300 basis point increase year-over-year, but importantly, it improved 310 basis points sequentially, consistent with historical trends. This OR includes approximately 600 basis points in union pension costs, a factor that often makes direct OR comparisons with non-unionized peers challenging. Productivity gains, including improved shipments per DSY hour, helped mitigate rising labor costs (due to a 2.7% blended increase in union contract rates in 2024) and increased workers' compensation expenses.

The Asset-Light segment showed a significant turnaround in profitability. Despite a 13.6% year-over-year revenue decrease to $341.9 million in Q2 2025, the segment achieved a non-GAAP operating income of $0.6 million. This marks the first time the Asset-Light segment has been profitable on a non-GAAP basis since Q2 2023. This improvement was driven by a strategic reduction in less profitable truckload volumes, coupled with disciplined cost management. Purchased transportation costs as a percentage of revenue decreased by 1.3 percentage points, reflecting a $50.7 million reduction in costs. Furthermore, the contingent earnout consideration for the MoLo acquisition was reduced to zero, reflecting a remote probability of payment, which positively impacted operating results by $2.7 million pre-tax in Q2 2025. Productivity in Asset-Light operations improved significantly, with shipments per employee per day increasing by 14.8% in Q2 2025, a result of aligning staffing levels with business volumes and technology advancements. The Managed Solutions business within Asset-Light continues to be a standout, achieving double-digit growth in both shipments and revenue, with Q2 2025 Managed revenue reaching an all-time high.

Financial Health and Capital Deployment

ArcBest maintains a robust financial position, with approximately $139.7 million in cash and short-term investments as of June 30, 2025.

While cash and equivalents decreased by $17.5 million from December 31, 2024, this was attributed to planned capital expenditures, share repurchases, dividends, and year-end expense payments. Cash provided by operating activities for the first half of 2025 was $86.1 million. The company's Accounts Receivable Securitization Program was extended to July 1, 2026, providing $50.0 million in available cash proceeds, with $26.3 million remaining after accounting for standby letters of credit.

Capital expenditures for 2025 are estimated to be at the lower end of the $225 million to $275 million range, net of asset sales, reflecting a disciplined approach to investment. These expenditures include $130 million to $140 million for revenue equipment and $60 million to $80 million for real estate and facility upgrades. Depreciation and amortization expense (excluding intangibles) is projected at approximately $164 million for 2025, with an additional $13 million for intangible asset amortization. The recently passed "One Big Beautiful Bill Act" (OBBB) is not expected to materially impact ArcBest's effective tax rate for 2025 but is anticipated to positively influence future cash flows and capital investment decisions.

ArcBest is committed to returning capital to shareholders. In the first half of 2025, the company repurchased 565,562 shares for $41.7 million, with $14.8 million remaining under its share repurchase program. Quarterly dividends of $0.12 per share are expected to continue, demonstrating confidence in future earnings and cash flow generation.

Competitive Arena: Differentiating in a Crowded Field

The freight transportation and logistics industry is highly competitive, with players ranging from asset-heavy LTL carriers to asset-light brokerages. ArcBest's integrated model positions it uniquely against its primary public competitors: Old Dominion Freight Line (ODFL), Saia Inc. (SAIA), XPO Logistics (XPO), and J.B. Hunt Transport Services (JBHT).

ArcBest's core competitive advantage lies in its ability to offer a comprehensive suite of integrated solutions, allowing it to "say yes" to diverse customer needs. While Old Dominion Freight Line and Saia Inc. are formidable LTL players known for their operational efficiency and network density, ArcBest differentiates through its broader service offerings, including specialized commodities, managed transportation, and final-mile solutions. This diversification provides a unique value proposition for customers seeking end-to-end supply chain management, potentially attracting business that pure-play LTL carriers might miss.

Financially, ArcBest's profitability metrics, such as its Gross Profit Margin (5.52% TTM), Operating Profit Margin (5.35% TTM), and Net Profit Margin (3.90% TTM), are notably lower than those of Old Dominion Freight Line (Gross: 35%, Operating: 27%, Net: 20%) and Saia Inc. (Gross: 20%, Operating: 15%, Net: 11%). This disparity is partly attributable to ArcBest's higher union pension costs (approximately 600 basis points on its OR) and the historical unprofitability of its Asset-Light segment. However, the recent return to non-GAAP profitability in the Asset-Light segment is a critical step towards narrowing this margin gap. ArcBest also boasts the "strongest asset-based LTL pricing metrics among public competitors," indicating its ability to command premium rates for its service quality.

In terms of technology, ArcBest's pioneering efforts in space-based pricing and its development of Voxx Vision provide a distinct edge in freight dimensioning and accurate pricing, a capability that few competitors match. Its AI-powered route optimization and dock management systems are designed to enhance efficiency and service, directly addressing operational costs. While XPO Logistics and J.B. Hunt Transport Services also leverage technology, ArcBest's focus on integrating these tools across its diverse service lines aims to create a more cohesive and efficient network.

Valuation multiples for ArcBest, such as its P/E ratio (10.22 TTM), P/S ratio (0.40 TTM), and P/B ratio (1.24 TTM), are significantly lower than those of its LTL peers (e.g., Old Dominion Freight Line's P/E of 32.02, Saia Inc.'s P/E of 33.60). This suggests that the market may be discounting ArcBest due to its lower historical margins and the current macro environment. However, the company's proactive measures to improve Asset-Light profitability, coupled with its disciplined pricing and efficiency gains in Asset-Based operations, could lead to a re-rating as these improvements materialize.

Outlook and Risks: Charting the Path Forward

ArcBest's outlook for Q3 2025 reflects a cautious but confident stance. For the Asset-Based segment, management expects the non-GAAP operating ratio to improve by approximately 70 basis points sequentially from Q2 to Q3, generally in line with historical trends. The Asset-Light segment is projected to achieve non-GAAP operating income ranging from breakeven to $1 million in profit for Q3 2025, building on its recent return to profitability. July 2025 trends showed Asset-Based daily shipments growing by 2% year-over-year, with flat daily tonnage, while Asset-Light daily revenue was down 7% year-over-year, though shipment counts stabilized.

Despite these positive internal trends, the company acknowledges ongoing risks. The broader economic environment, particularly the continued contraction in manufacturing and a sluggish housing market, could impact freight volumes. Inflation remains above the Federal Reserve's target, potentially leading to elevated operating costs, especially for fuel and insurance. While ArcBest has historically managed to offset these through price increases and fuel surcharges, competitive pressures could limit this ability in a prolonged downturn. The risk of impairment to goodwill and intangible assets in the Asset-Light segment remains if business levels decline significantly. Furthermore, external events such as severe weather (as seen in January 2025) or port strikes (as in Q3 2024) can disrupt operations and impact financial results.

Conclusion

ArcBest Corporation stands as a compelling investment case, distinguished by its integrated logistics model and a proactive, tech-driven strategy. Despite operating in a challenging freight environment for the past three years, the company has demonstrated remarkable resilience and a clear path toward enhanced profitability. Its strategic investments in AI-powered technologies, such as Voxx Vision and advanced optimization tools, are not merely incremental improvements but foundational elements that are driving tangible efficiency gains and strengthening its competitive moat.

The recent return to non-GAAP operating income in the Asset-Light segment is a pivotal moment, signaling the effectiveness of management's disciplined approach to cost control and strategic business mix adjustments. Coupled with the Asset-Based segment's consistent LTL pricing discipline and volume growth, ArcBest is well-positioned to capitalize on any market upturn. While current valuation multiples may reflect past margin pressures, the company's ongoing operational improvements, technological leadership, and commitment to shareholder returns suggest a significant opportunity for value creation. ArcBest's ability to "find a way" through disruption, combined with its clear strategic roadmap and robust financial health, positions it as a resilient and potentially rewarding long-term holding in the logistics sector.