Old Dominion's Q1 Earnings Meet Estimate, but LTL Stocks Fall Anyway

Old Dominion reported earnings per share of $1.34 for the 2024 first quarter, which was in line with the consensus estimate and 5 cents ahead of the year-ago result when accounting for the company's March two-for-one stock split.

The in-line result wasn't enough for investors.

Shares of ODFL were down 10.9% at 12:46 p.m. EDT Wednesday compared to the S&P 500, which was down 0.5%. Other LTL competitors saw shares sag as well. ArcBest ARCB was down 8.4%, XPO XPO was down 7.3% and Saia SAIA was off 5.9%.

Old Dominion's revenue increased 1.2% year over year (y/y) to $1.46 billion as tonnage fell 3.2% (shipments and weight per shipment were down 0.5% and 2.7%, respectively), which was offset by a 4.1% increase in revenue per hundredweight, or yield. (Yield was up 6.7% excluding fuel surcharges.) Lower shipment weights helped boost the yield calculations.

Revenue per shipment (excluding fuel surcharges) was up 3.8% y/y even though weight per shipment and length of haul were detractors.

The company said revenue per day is up 5.5% to 6% so far in April as tonnage per day is 2% to 2.5% higher and yield is 4% higher (up 4.5% excluding fuel surcharges). At 48,000 shipments per day, April isn't seeing the historical sequential uptick from March when accounting for the timing of Good Friday. Over the past 10 years, Old Dominion has recorded an average sequential increase of 8.7% in revenue per day from the first to the second quarter. It's seeing about half that growth rate currently.

Management said the smaller increase in yield during April is tied to freight mix changes and that it hasn't altered its approach to pricing. It said the increase it has seen in revenue per shipment excluding fuel so far in April (not disclosed) is close to the increase it logged in the first quarter.

"It feels similar to 2017 where things are kind of on the edge of getting ready to start showing improvement again, and hopefully we'll continue to see some growth as we go through the middle part of the year. Some year-over-year growth and further sequential improvement, and then things really start taking off" said CFO Adam Satterfield on a Wednesday call with analysts.

Table: Old Dominion's key performance indicators

The company reported a 73.5% operating ratio, which was 10 basis points worse y/y and 170 bps worse than the fourth-quarter result (150 bps worse than the fourth quarter on an adjusted basis). The unadjusted result was in line with management's guidance of 170 to 220 bps of sequential deterioration.

Salaries, wages and benefits expenses (up 60 bps as a percentage of revenue) and higher depreciation and amortization expenses (up 50 bps) were the primary headwinds in the period.

The company's first-quarter OR was its worst since the fourth quarter of 2021. However, it is carrying some growth-related costs currently. Its head count is up 3% since the third quarter even though shipments are off roughly 6%. It is also carrying 30% excess capacity throughout the network as it plans for an eventual turnaround.

Old Dominion expects 150 bps in OR improvement from the first to the second quarter this year compared to the historical average of 350 to 400 bps of improvement. Softer sequential revenue trends so far in the quarter are the reason for the weaker guidance.

The company reiterated a long-term goal of a sub-70% annual OR as it plans to continue to price freight 100 to 150 bps above costs. However, the spread between the increases in revenue per shipment and cost per shipment was 50 bps negative during the first quarter.

Total capital expenditures guidance of $750 million for the year was reiterated. The allocation also remained unchanged with $350 million slated for real estate projects, $325 million for tractors and trailers, and $75 million for IT and other assets.

"Once we have that tailwind coming at us from an overall industry demand standpoint, we'll be able to capitalize and be able to significantly grow our volumes like we've been able to do in the past, and then leverage that growth through the operating ratio" Satterfield said.