Old Dominion leaning on cost controls, yield management amid tonnage declines
As demand continues to underperform normal seasonal trends, Old Dominion Freight Line said it remains focused on controlling costs and maintaining service levels. Industry-leading service metrics have enabled the company to achieve higher yields, which, combined with cost reductions, have helped mitigate margin degradation.
The Thomasville, North Carolina-based less-than-truckload carrier reported earnings per share of $1.28 for the third quarter, 6 cents above analysts’ expectations but 15 cents lower year over year. (The third-quarter consensus estimate came down 10 cents heading into the print as analysts lowered forecasts on peak season concerns.)
(A Higher tax rate was a 3-cent drag on EPS in the quarter.)
Revenue of $1.41 billion was slightly ahead of the consensus estimate but 4% lower y/y.
Tonnage fell 9% y/y, which was partially offset by a 5% increase in yield (revenue per hundredweight). The tonnage decline was the combination of an 8% decline in shipments and a 1% dip in weight per shipment. The yield metric benefitted from the lower shipment weights, but a 1.5% decline in length of haul offset the benefit.
Tonnage remains subseasonal, management says demand drop not accelerating
Old Dominion’s (NASDAQ: ODFL) third-quarter y/y tonnage decline was on top of an easier comp from a year-ago (down 5% y/y). Tonnage was down 2.9% from the second quarter, which was 340 basis points worse than normal seasonality.
The tonnage declines accelerated in October to down 11.6% y/y, even with an easier year-ago comp (down 9.1% y/y in October 2024). The 20.7% two-year-stacked decline is the worst of the downturn. (Weight per shipment is down 2.3% so far in the month.)
Management noted continued softness in the industrial (55-60% of revenue) and housing markets on a Wednesday call with analysts. It also said volumes from 3PLs have been weak and that some shippers are consolidating LTL shipments into full truck loads.
But it doesn’t believe demand has weakened further as September tonnage was 200 bps below normal seasonality (sequentially), with October holding the same subseasonal trend (down 5% from September versus a 3% decline historically).
Yield improvement (up 9.3% excluding fuel surcharges on a two-year-stacked comp) has helped limit the revenue declines. Revenue per day in October is down approximately 6.5% to 7% y/y. Management said if the current subseasonal demand trend holds, fourth-quarter revenue would be $1.29 billion, which is 4% light of the current consensus estimate.
OR could touch 77%, a post-pandemic nadir
Old Dominion reported a 74.3% operating ratio (inverse of operating margin), 160 bps worse y/y but 30 bps better than the second quarter. The company normally sees no change to 50 bps of deterioration from the second to the third quarter, and management previously flagged the potential for 80 to 120 bps of sequential deterioration this year (implying a 75.6% OR at the midpoint).
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