Old Dominion’s August: Some good, some OK

“Old Dominion produced solid revenue growth for July and August, with underlying demand trends remaining relatively consistent as the quarter has progressed,” said Marty Freeman, president and CEO, in a news release. “In addition, the strength and consistency of our industry-leading service continue to support the ongoing improvement in our LTL revenue per hundredweight.”

Tonnage declined 0.9% y/y in August, in line with July’s 1% y/y decline. The carrier had a slightly easier prior-year comp in the recent month. (On a two-year-stacked comparison, tonnage was off 10.1% in August, slightly worse than the 9.3% decline in July.)

August’s tonnage was formed by a 2.4% decline in daily shipments, which was partially offset by a 1.7% increase in weight per shipment. Shipment weights are moving higher as the industrial economy improves.

The Institute for Supply Management’s Manufacturing PMI logged an eighth straight month in positive territory in August. A 54.6 reading was 60 basis points light of expectations and 1 percentage point below the four-year high recorded in July. (A reading above 50 signals expansion, while one below 50 indicates contraction.) However, the new orders subindex—an indicator of future activity—fell 3 points to 53.7. Carrier tonnage trends typically lag the index by three months.

The overall reading was a little worse than expected, with the new orders number drawing some attention. Shares of publicly traded LTLs gapped lower following the Tuesday update, closing the day down between 4% and 7% (the S&P 500 was off just 0.7%).

August numbers support Q3 guidance

Old Dominion’s quarter-to-date results support the higher end of management’s third-quarter guidance. Revenue is trending to a 10% y/y increase, or $1.55 billion, in line with the current consensus estimate. Yield growth was expected to moderate to a range of plus-4% to plus-4.5% y/y, but August appears to have exceeded that.

Old Dominion’s third-quarter operating ratio guidance calls for 150 to 200 bps of sequential deterioration from the 70.1% second-quarter unadjusted OR (included a real estate gain). The implied 71.9% guide would be 240 bps better y/y.

“We remain confident that through the continued execution of our long-term strategic plan, we are well positioned to win profitable market share and increase shareholder value over the long term,” Freeman said.

The company normally outgrows the market by 9 to 10 percentage points in an upcycle.

Why it matters? Old Dominion Freight Line’s August report serves as a key industry bellwether, signaling that LTL carriers are successfully prioritizing pricing discipline and profitability over volume despite only modest demand trends.

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