Watch Now


Old Dominion says volume weakness could clear by spring

Carrier’s Q3 handily beats expectations

Old Dominion posts a 69.1% operating ratio in the third quarter. (Photo: Jim Allen/FreightWaves)

Less-than-truckload carrier Old Dominion Freight Line saw earnings climb again in the third quarter even as volumes declined. The company’s management team said it is hopeful that demand trends will turn by the time spring rolls around.

Old Dominion (NASDAQ: ODFL) reported Q3 earnings per share of $3.36 before the market opened Wednesday. The result included a one-time expense reduction of $15.8 million, or 11 cents per share, tied to the employment transition of the executive chairman. Analysts were expecting EPS of $3.07.

Revenue increased 14.5% year over year (y/y) to $1.6 billion as a 2.6% y/y decline in tonnage per day was more than offset by a 17.4% y/y increase in revenue per hundredweight, or yield. Excluding fuel surcharges, yield was 7.2% higher y/y. A 1.5% y/y increase in weight per shipment modestly detracted from the yield metrics.

Compared to Q2, tons per day were down 4.3%. The normal seasonal trend from the second to third quarters each year is a 1.2% increase in tonnage.

The y/y tonnage declines accelerated as the quarter progressed, down 5.4% y/y in September and off 7% y/y so far in October. However, higher yields compared to 2021 has revenue up 8% y/y through the bulk of October.

“Demand we feel like is not out there for our customers’ products. … We’re just not picking up as much freight from those same customers [where] we may be making stops every day at their location,” CFO Adam Satterfield said on a call with analysts.


However, the sky is not falling.

Satterfield said customer feedback remains positive and that there has been no attrition in the company’s account base. During downturns, Old Dominion usually only fails to meet its 10-year average for taking market share in three to five straight quarters. The company has already fallen short of that benchmark in the past three quarters. Also, management said it saw normal seasonal trends return in October for the first time since February.

“We get through this winter, perhaps we start seeing some buildup once we get into the spring (on a sequential basis) … maybe sooner,” Satterfield said. “Obviously, a lot is going on with the economy, but that’s some of the baseline for what we’re thinking right now.”

The reported operating ratio was 69.1% in the third quarter, 350 basis points better y/y. Excluding the one-time expense reduction, OR was 70.1% and ahead of management’s guidance calling for 100 bps to 150 bps of margin deterioration from a second quarter OR of 69.5%.

Table: Old Dominion’s key performance indicators

As a percentage of revenue, salaries, wages and benefits were down 430 bps y/y and purchased transportation fell 160 bps y/y in the quarter. Operating supplies, largely fuel expenses, were up 310 bps y/y.

Revenue per shipment growth outpaced cost per shipment growth by 560 bps. The company aims to maintain a positive spread between 100 bps and 150 bps throughout every cycle.

Old Dominion plans to allow normal attrition to rightsize headcount to softer volumes. The ratio of shipments to full-time employees fell nearly 12% y/y in the quarter. However, the difficulty the company had hiring throughout the pandemic will likely keep it from taking any material actions in the near term.

“I think it definitely does make sense to stay a little long from a labor standpoint. … We had to work an awful lot harder in the recent past to ramp up from a driver standpoint, particularly, than we have over the years,” said Greg Gantt, president and CEO. 

The goal is to hang onto as many drivers as possible without inducing a material negative impact to labor productivity metrics.

The purchased transportation expense line, 2.1% of total revenue in the quarter, is now back to pre-pandemic levels. No outside capacity was used in domestic linehaul operations during the quarter. The expenses incurred reflect costs at its small truckload brokerage and Canadian operations.

Typical sequential trends from the third to fourth quarter register OR degradation of 200 bps to 250 bps on average. However, management sees that number being as high as 400 bps (off a 69.1% unadjusted OR) during the 2022 period. Depreciation and amortization, general supplies and miscellaneous expenses will see headwinds sequentially on lower revenue.

“But you know us, we’re looking at every dollar we can from a discretionary spending standpoint,” Satterfield said. “We’ll be managing productivity and other costs as tightly as we can as we continue to adjust to current top line [revenue and volume] trends.”

Year-to-date net cash flow from operations was $1.3 billion through September, 49% higher than the same period last year.

Old Dominion lowered its full-year capital expenditures budget to $720 million from $835 million. The company still expects to spend $300 million on real estate expansion projects, but the plan for equipment purchases has been reduced by $135 million to $350 million as deliveries from OEMs continue to be pushed into next year. Information technology spend has been increased $20 million to $70 million in total.

More FreightWaves articles by Todd Maiden

Daily Market Update – October 26, 2022

Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.