In its August 7, 2019 post-market close 10-Q filing with the U.S. Securities and Exchange Commission, the Thomasville, North Carolina-based carrier reported a 6 percent decline in tons per day in July when compared to July 2018 tonnage. LTL shipments declined 5.3 percent and weight per shipment was 0.7 percent lower. The July tonnage update is in-line with the volume weakness the carrier saw in the second quarter of 2019.
In that period, ODFL saw a 6.3 percent decline in tonnage compared to the second quarter of 2018 as LTL shipments declined 2.6 percent and weight per shipment declined 3.8 percent. Management even noted the continued weakness in July on its second quarter earnings call, but was hopeful that August results would be a little better than historical trends.
However, near-term volume relief may be hard to come by as domestic and global macroeconomic trends remain tepid. Recent industrial data points that are strongly correlated to LTL freight demand continue to show weakness.
Earlier this week, U.S. manufacturing showed further signs of slowing. The Institute of Supply Management (ISM) announced another decline in the manufacturing Purchasing Manager’s Index (PMI) for the month of July, with half of the manufacturing industries represented in the index reporting declines. The index slid 0.5 points to 51.2 (a sub-50 reading is viewed as economic contraction territory). While manufacturing expansion was seen in July, albeit at a slower pace, this is the lowest reading for the sector since 2016.
The good news for ODFL is that pricing remains positive and the carrier knows how to tamp down cost inflation. The company has a track record of maintaining rate discipline, recording a 10 percent year-over-year increase in revenue per hundredweight excluding fuel surcharge in its second quarter 2019 report. The yield improvement and strong cost control measures allowed the carrier to report a “record” operating ratio (OR) of 77.9 percent. In other words, it cost the company $0.779 to earn each dollar of revenue. ODFL’s industry-leading operating results are very impressive in an industry that demands carriers to operate a high fixed cost network of multiple terminals to move freight quickly.
The July yield update was less impressive, with revenue per hundredweight increasing only 4.6 percent year-over-year. However, it is worth noting that price comparisons from a 2018 record year are difficult. In sum, ODFL reported a 2.1 percent decline in July revenue compared to July 2018. By comparison, the company’s LTL revenue increased 2.8 percent in the second quarter of 2019.
Share of ODFL are 0.5 percent higher today.