ArcBest (ARCB)

Freight Delivery Company ArcBest (NASDAQ:ARCB) met Wall Streets revenue expectations in Q3 CY2025, but sales fell by 1.4% year on year to $1.05 billion. Its non-GAAP profit of $1.46 per share was 6.6% above analysts’ consensus estimates.

Company Overview

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

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include C.H. Robinson (NASDAQ:CHRW), FedEx (NYSE:FDX), and J.B. Hunt (NASDAQ:JBHT).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, ArcBest’s sales grew at a mediocre 7.3% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. ArcBest’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.3% annually. ArcBest isn’t alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

We can better understand the company’s revenue dynamics by analyzing its number of units sold, which reached 21,095 in the latest quarter. Over the last two years, ArcBest’s units sold were flat. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, ArcBest reported a rather uninspiring 1.4% year-on-year revenue decline to $1.05 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

ArcBest has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 9.6% gross margin over the last five years. That means ArcBest paid its suppliers a lot of money ($90.38 for every $100 in revenue) to run its business.

ArcBest was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.7% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, ArcBest’s operating margin decreased by 2.8 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. We’ve noticed many Ground Transportation companies also saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction, but ArcBest’s performance was poor no matter how you look at it. It shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, ArcBest generated an operating margin profit margin of 5.2%, down 7.5 percentage points year on year. The contraction shows it was less efficient because its expenses increased relative to its revenue.

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

ArcBest’s EPS grew at a solid 10.6% compounded annual growth rate over the last five years, higher than its 7.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into ArcBest’s earnings to better understand the drivers of its performance. A five-year view shows that ArcBest has repurchased its stock, shrinking its share count by 14.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

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

For ArcBest, its two-year annual EPS declines of 23.1% mark a reversal from its (seemingly) healthy five-year trend. We hope ArcBest can return to earnings growth in the future.

In Q3, ArcBest reported adjusted EPS of $1.46, down from $1.64 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.6%. Over the next 12 months, Wall Street expects ArcBest’s full-year EPS of $4.66 to grow 21.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

ArcBest has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4%, subpar for an industrials business.

Taking a step back, we can see that ArcBest’s margin dropped by 4.3 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

ArcBest’s free cash flow clocked in at $33.18 million in Q3, equivalent to a 3.2% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although ArcBest hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 16.3%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, ArcBest’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

ArcBest reported $132.6 million of cash and $460.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $308.2 million of EBITDA over the last 12 months, we view ArcBest’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $2.02 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly ArcBest blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $71.30 immediately following the results.

Updated: December 4, 2025 at 10:12 PM EST

Before making an investment decision, investors should account for ArcBest’s business fundamentals and valuation in addition to what happened in the latest quarter.

ArcBest doesn’t pass our quality test. First off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its market-beating ROIC suggests it has been a well-managed company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

ArcBest’s P/E ratio based on the next 12 months is 17.8x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $81 on the company (compared to the current share price of $69.68).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.