Old Dominion Freight Line said that even as the overall freight market remains depressed, it is seeing demand trends more in line with historical seasonal patterns. The Thomasville, North Carolina-based less-than-truckload carrier continues to invest in its network in preparation for a recovery in freight volumes.
“It seems like we’re coming close to the end of a long, slow cycle,” CFO Adam Satterfield told analysts on a Wednesday call. “It certainly feels like we’re seeing a little bit more opportunity out there than what we have been seeing.”
President and CEO Marty Freeman said revenue across its top 50 customers, many of which are 3PLs, is up by a mid-single-digit percentage on average so far this year. He said many in the group are “super-positive” on volume opportunities when looking at the back half of the year.
Old Dominion (NASDAQ: ODFL) reported second-quarter earnings per share of $1.48 Wednesday before the market opened. The result was 3 cents better than the consensus estimate and 15 cents higher year over year. Higher revenue and modest margin improvement drove the y/y improvement. Also, a lower tax rate and an increase in interest income provided a 3-cent bump.
Revenue grew by 6% y/y to $1.5 billion as tonnage increased 2% and revenue per hundredweight, or yield, climbed 4% (5% higher excluding fuel surcharges). The tonnage increase was the combination of a 3% increase in shipments per day, which was partially offset by a 1% decline in weight per shipment.
Revenue per day increased just 2.6% from the first quarter. The carrier normally sees an 8.7% sequential increase over that period. Shipments and tonnage increases were roughly half the normal sequential growth rates.
The company said it is seeing normal seasonality in July and that revenue per day for the month should increase 4% to 4.5% y/y due to a combination of higher yields and flat volumes. It noted the comparisons to last July get tougher in the back half of the month as the industry received a sharp volume influx last year leading up to the closure of Yellow Corp. (OTC: YELLQ).
Management said it doesn’t see any threat to yield discipline across the industry as Yellow’s terminals come back online. It noted that roughly half of the locations previously operated by Yellow have yet to be sold and that the carriers that have acquired sites are now operating at a higher cost structure and are less likely to make price concessions.
Table: Old Dominion’s key performance indicators
Old Dominion posted a 71.9% operating ratio (operating expenses expressed as a percentage of revenue) in the quarter, which was 40 basis points better y/y and 160 bps better than the first quarter. The result was in line with management’s guidance (150 bps of sequential improvement) provided on the first-quarter call but lagged the historical first-quarter-to-second-quarter trend of 350 to 400 bps of improvement. Management’s prior guide was curtailed as the sequential increase in revenue from March to April was just half the normal change rate.
The company’s current cost structure includes some growth-related expenses. Its proactive approach to grow the network ahead of demand has it operating with 30% excess capacity currently. It noted the ideal range is to carry 20% to 25% latent capacity but said it is comfortable with the current level as the market appears to have “bottomed out.”
Also, Old Dominion’s head count is still up slightly from September when it was handling 51,000 shipments per day. It handled 48,444 shipments per day during the second quarter.
“You don’t wait until it’s coming at you. You got to get ahead of the curve, if you will,” Satterfield said.
The per-employee metrics did improve slightly. Head count was up 1% y/y (down 1% from the first quarter) while shipments per day increased 3%. Daily shipments per employee increased 2% y/y in the period.
“We look at the market, generally, and believe we’ve got as strong an opportunity [as] we’ve ever had, and we think we’re better positioned than any other carrier to capitalize on an improving industry,” Satterfield said.
He guided to roughly 50 bps of OR degradation from the second to the third quarter this year, which is in line with longer-term averages when excluding abnormal periods of change like the pandemic.
The company reiterated a long-term goal of a sub-70% annual OR as it will continue to price freight 100 to 150 bps above costs. The spread between increases in revenue per shipment and cost per shipment was 90 bps positive during the quarter.
The company generated $388 million in cash flows from operations in the quarter ($812 million for the first half of 2024).
Full-year capital expenditures guidance of $750 million was reiterated. The allocation remained unchanged with $350 million designated for real estate projects, $325 million for tractors and trailers, and $75 million for IT and other assets.
Shares of ODFL were up 2.3% at 12:43 p.m. EDT on Wednesday compared to the S&P 500, which was down 1.8%.
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