Even as it touts the opening of nine new service centers in 2020, Old Dominion Freight Lines (NASDAQ: ODFL) is looking at even more openings this year, some of them soon.
That’s the combined message of the company between a prepared statement released Monday and comments that CEO Greg Gantt made on the company’s earnings call last week, according to a transcript of the call provided by SeekingAlpha.
ODFL identified the nine new service centers it opened as being in Brooklyn, New York; Edinburgh, Indiana; Grand Island, Nebraska; Louisville, Kentucky; Mansfield, Ohio; McDonough, Georgia; Mesa, Arizona; Milton, Pennsylvania; and Olympia, Washington.
In many of those cases, the facilities were renovated with extensive expansion, such as in Louisville. In some cases, an existing facility in an area was moved and enlarged, such as in Olympia. But most of the other service centers are new facilities. Both Edinburgh and Mesa have 63 doors to top the list of the expansions when measured by that metric.
On the earnings call with analysts, CEO Greg Gantt said ODFL has three new facilities “that we’re very close to opening that may open in the first quarter.” If they don’t open before the first quarter, they will “certainly” open in the second quarter.
“And then we have another half-dozen or so that we’re working on, so it just depends if we get them completed or not,” Gantt said. “It’s not always easy to sit here nine months out and say exactly what we’re going to finish, but hopefully another half-dozen or so on top of the three that we are really, really close to opening.”
With the service centers opened last year, ODFL now has 245, not counting the facilities that Gantt said are on the verge of opening. That gives the company about 30% excess capacity “within the network to support additional growth,” Gantt said on the conference call.
“We believe these additional service centers as well as the expansion of some existing facilities will increase the overall average capacity within our network to ensure that is not a limiting factor to growth over the next few years,” Gannt said on the call.
The earnings call during which the plans for service centers in 2021 were discussed came after ODFL reported a fourth-quarter operating ratio of 76.3%, which was a new record for that period. Earnings per share were up 34.2% on the back of that performance. The full-year OR of 77.4% also was a record.
Other highlights from the earnings call:
- January revenue per day was up 14.6% compared to 2020. LTL tons per day were up 11.9% and revenue per hundredweight, the key measure of yield, was up 2.2%. CFO Adam Satterfield attributed the January increases to “macro trends,” with “customers … getting healthier, business trends in general improving.” But he also said ODFL has needed to turn to purchased transportation “to supplement as needed.” Purchased transportation in the fourth quarter was 3.1% of revenues, and Satterfield said that number generally is 2.2% “because we like to have 100% of our linehaul network in-sourced and using our people and our equipment, but we … have had to supplement a little bit and until we can really get completely staffed up to where we want to be.”
- A question from analyst Jack Atkins of Stephens Inc. highlighted an uncomfortable fact in the LTL business: It hasn’t been getting bigger and gains at one company inevitably come at the expense of another LTL carrier. Atkins asked if e-commerce and what he called middle mile would change that trend. Gantt said the growth in e-commerce should be “somewhat positive” for LTL. Companies involved in e-commerce need to get their products closer to markets “and that lends itself to LTL versus truckload when you’re talking about smaller quantities getting in customers’ hands quicker,” he said.
- LTL executives often talk about “mix” and how profitability might be affected by the mix of the types of freight it carried in a particular quarter. In response to a question from an analyst about “bad freight,” Satterfield said there was “probably such a thing as bad freight but not a ton of it.” But what there is, he said, is “a lot of bad pricing out there. … You just have to price based on what that particular commodity cost…to move it,” Satterfield said. “I think we’ve done that better than most and we understand if there is something that’s expensive to haul or handle, we’re going to price it accordingly.”