OLD DOMINION FREIGHT LINE, INC. Overview
We are one of the largest North American less-than-truckload ("LTL") motor
carriers. We provide regional, inter-regional and national LTL services through
a single integrated, union-free organization. Our service offerings, which
include expedited transportation, are provided through an expansive network of
service centers located throughout the continental United States . Through
strategic alliances, we also provide LTL services throughout North America . In
addition to our core LTL services, we offer a range of value-added services
including container drayage, truckload brokerage and supply chain consulting.
More than 98% of our revenue has historically been derived from transporting LTL
shipments for our customers, whose demand for our services is generally tied to
industrial production and the overall health of the U.S. domestic economy.
In analyzing the components of our revenue, we monitor changes and trends in our
LTL volumes and LTL revenue per hundredweight. While LTL revenue per
hundredweight is a yield measurement, it is also a commonly-used indicator for
general pricing trends in the LTL industry. This yield metric is not a true
measure of price, however, as it can be influenced by many other factors, such
as changes in fuel surcharges, weight per shipment and length of haul. As a
result, changes in revenue per hundredweight do not necessarily indicate actual
changes in underlying base rates. LTL revenue per hundredweight and the key
factors that can impact this metric are described in more detail below:
•
LTL Revenue Per Hundredweight - Our LTL transportation services are generally priced based on weight, commodity, and distance. This measurement reflects the application of our pricing policies to the services we provide, which are influenced by competitive market conditions and our growth objectives. Generally, freight is rated by a class system, which is established by theNational Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at higher revenue per hundredweight than dense, heavy freight. Fuel surcharges, accessorial charges, revenue adjustments and revenue for undelivered freight are included in this measurement. Revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy; however, we believe including it in our revenue per hundredweight metrics results in a more accurate representation of the underlying changes in our yields by matching total billed revenue with the corresponding weight of those shipments. • LTL Weight Per Shipment - Fluctuations in weight per shipment can indicate changes in the mix of freight we receive from our customers, as well as changes in the number of units included in a shipment. Generally, increases in weight per shipment indicate higher demand for our customers' products and overall increased economic activity. Changes in weight per shipment can also be influenced by shifts between LTL and other modes of transportation, such as truckload and intermodal, in response to capacity, service and pricing issues. Fluctuations in weight per shipment generally have an inverse effect on our revenue per hundredweight, as a decrease in weight per shipment will typically cause an increase in revenue per hundredweight. • Average Length of Haul - We consider lengths of haul less than 500 miles to be regional traffic, lengths of haul between 500 miles and 1,000 miles to be inter-regional traffic, and lengths of haul in excess of 1,000 miles to be national traffic. This metric is used to analyze our tonnage and pricing trends for shipments with similar characteristics, and also allows for comparison with other transportation providers serving specific markets. By analyzing this metric, we can determine the success and growth potential of our service products in these markets. Changes in length of haul generally have a direct effect on our revenue per hundredweight, as an increase in length of haul will typically cause an increase in revenue per hundredweight. • LTL Revenue Per Shipment - This measurement is primarily determined by the three metrics listed above and is used in conjunction with the number of LTL shipments we receive to evaluate LTL revenue. Our primary revenue focus is to increase density, which is shipment and tonnage growth within our existing infrastructure. Increases in density allow us to maximize our asset utilization and labor productivity, which we measure over many different functional areas of our operations including linehaul load factor, pickup and delivery ("P&D") stops per hour, P&D shipments per hour, platform pounds handled per hour and platform shipments per hour. In addition to our focus on density and operating efficiencies, it is critical for us to obtain an appropriate yield, which is measured as revenue per hundredweight, on the shipments we handle to offset our cost inflation and support our ongoing investments in capacity and technology. We regularly monitor the components of our pricing, including base freight rates, accessorial charges and fuel surcharges. The fuel surcharge is generally designed to offset fluctuations in the cost of our petroleum-based products and is indexed to diesel fuel prices published by theU.S. Department of Energy , which reset each week. We believe our yield management process focused on individual account profitability, and ongoing improvements in operating efficiencies, are both key components of our ability to produce profitable growth. Our primary cost elements are direct wages and benefits associated with the movement of freight, operating supplies and expenses, which include diesel fuel, and depreciation of our equipment fleet and service center facilities. We gauge our overall success 10 -------------------------------------------------------------------------------- in managing costs by monitoring our operating ratio, a measure of profitability calculated by dividing total operating expenses by revenue, which also allows for industry-wide comparisons with our competition. We regularly upgrade our technological capabilities to improve our customer service and lower our operating costs. Our technology provides our customers with visibility of their shipments throughout our network, increases the productivity of our workforce, and provides key metrics that we use to monitor and enhance our processes. Results of Operations
The following table sets forth, for the periods indicated, expenses and other items as a percentage of revenue from operations:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenue from operations 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Salaries, wages and benefits 42.1 46.4 43.2 47.0
Operating supplies and expenses 13.5 10.5 13.5 10.6
General supplies and expenses 2.9 2.7 2.5
2.7
Operating taxes and licenses 2.2 2.4 2.2
2.6
Insurance and claims 1.1 1.1 1.1
1.1
Communications and utilities 0.6 0.6 0.6
0.7
Depreciation and amortization 4.4 4.7 4.4 5.0
Purchased transportation 2.1 3.7 2.7 3.4
Miscellaneous expenses, net 0.2 0.5 0.2 0.4
Total operating expenses 69.1 72.6 70.4 73.5
Operating income 30.9 27.4 29.6 26.5
Interest (income) expense, net (0.0 ) 0.0 (0.0 ) 0.0
Other expense, net 0.0 0.0 0.0 0.1
Income before income taxes 30.9 27.4 29.6 26.4
Provision for income taxes 7.4 6.9 7.5 6.8
Net income 23.5 % 20.5 % 22.1 % 19.6 %
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Key financial and operating metrics for the three- and nine-month periods ended
Three Months Ended Nine Months Ended
September 30, September 30,
% %
2022 2021 Change 2022 2021 Change
Work days 64 64 - 192 191 0.5 %
Revenue (in thousands) $ 1,603,690 $ 1,400,046 14.5 % $ 4,768,418 $ 3,845,970 24.0 %
Operating ratio 69.1 % 72.6 % 70.4 % 73.5 %
Net income (in
thousands) $ 377,401 $ 286,634 31.7 % $ 1,053,230 $ 755,569 39.4 %
Diluted earnings per
share $ 3.36 $ 2.47 36.0 % $ 9.26 $ 6.48 42.9 %
LTL tons (in
thousands) 2,556 2,625 (2.6 )% 7,881 7,555 4.3 %
LTL tonnage per day 39,941 41,020 (2.6 )% 41,047 39,556 3.8 %
LTL shipments (in
thousands) 3,274 3,413 (4.1 )% 10,013 9,624 4.0 %
LTL shipments per day 51,162 53,335 (4.1 )% 52,149 50,388 3.5 %
LTL weight per
shipment (lbs.) 1,561 1,538 1.5 % 1,574 1,570 0.3 %
LTL revenue per
hundredweight $ 30.90 $ 26.31 17.4 % $ 29.93 $ 25.17 18.9 %
LTL revenue per
shipment $ 482.46 $ 404.65 19.2 % $ 471.13 $ 395.16 19.2 %
Average length of haul
(miles) 932 940 (0.9 )% 935 933 0.2 %
Our financial results for the third quarter and first nine months of 2022
included double-digit growth in our revenue, net income and earnings per diluted
share. We continued to maintain our disciplined approach to managing yields and
controlling our costs. As a result, we achieved a 350 and 310 basis-point
improvement in our operating ratio to 69.1% and 70.4%, respectively, for the
third quarter and first nine months of 2022 as compared to the same periods last
year. Our net income and diluted earnings per share increased 31.7% and 36.0%,
respectively, for the third quarter of 2022 as compared to the same periods last
year and 39.4% and 42.9%, respectively, for the first nine months of 2022 as
compared to last year.
Revenue
Revenue increased $203.6 million , or 14.5%, in the third quarter of 2022 as
compared to the same period of 2021, due to an increase in LTL revenue per
hundredweight that was slightly offset by a decrease in LTL tons. Revenue
increased $922.4 million , or 24.0%, in the first nine months of 2022 as compared
to the same period of 2021, due primarily to increases in both LTL revenue per
hundredweight and LTL tons.
The decrease in our LTL tons during the third quarter of 2022 resulted from a
decrease in LTL shipments that was partially offset by an increase in LTL weight
per shipment. We believe the decline in our shipments for the third quarter of
2022 was primarily attributable to a more challenging macroeconomic environment.
Our LTL tons were higher during the first nine months of 2022 than the prior
year period due primarily to increases in LTL shipments per day and LTL weight
per shipment. We believe this tonnage growth was driven by the demand for our
superior service and our available network capacity, resulting in continued
market share increases.
Our LTL revenue per hundredweight increased 17.4% and 18.9% in the third quarter
and first nine months of 2022, respectively, as compared to the same periods in
2021, despite the downward pressure on this metric created by the increase in
our LTL weight per shipment. These increases reflect the impact of higher fuel
surcharges associated with the significant increase in diesel fuel prices as
well as our ongoing commitment to our long-term yield management strategy.
Excluding fuel surcharges, LTL revenue per hundredweight increased 7.2% and 8.7%
in the third quarter and first nine months of 2022, respectively, as compared to
the same periods in 2021. We believe our focus on obtaining an appropriate yield
is necessary to offset rising operating costs and also allows us to invest in
opportunities that can improve the quality of our service and provide capacity
for future growth.
October 2022 Update
Revenue per day increased 9.1% in October 2022 compared to the same month last
year. LTL tons per day decreased 6.5%, due primarily to a 7.5% decrease in LTL
shipments per day that was partially offset by a 1.1% increase in LTL weight per
shipment. LTL revenue per hundredweight increased 16.9% as compared to the same
month last year. LTL revenue per hundredweight, excluding fuel surcharges,
increased 8.4% as compared to the same month last year.
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--------------------------------------------------------------------------------Operating Costs and Other Expenses
Salaries, wages, and benefits increased$25.4 million , or 3.9%, in the third quarter of 2022 as compared to the third quarter of 2021, due to a$30.6 million increase in salaries and wages partially offset by a$5.2 million decrease in employee benefit costs. Salaries, wages, and benefits increased$254.1 million , or 14.1%, for the first nine months of 2022 as compared to the same period of 2021, due to a$188.5 million increase in salaries and wages and a$65.6 million increase in employee benefit costs. Our salaries and wages expenses were higher for both the third quarter and first nine months of 2022 as compared to the same periods of 2021 due primarily to increases in the average number of active full-time employees. Our average number of active full-time employees increased 8.4% and 13.9% for the third quarter and first nine months of 2022, respectively, as we hired additional employees to balance our workforce with our customers' shipment trends and reduce our reliance on third-party purchased transportation. We believe our current staffing levels are sufficient to support our anticipated shipment trends and, as a result, we expect our headcount to remain generally stable. Salaries and wages also increased as a result of annual wage increases provided to our employees at the beginning of bothSeptember 2021 and 2022, as well as higher performance-based bonus compensation. Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 22.5% and 22.9% in the third quarter and first nine months of 2022, respectively, from 24.8% and 25.3% from the same periods of 2021. The improvements in our productive labor costs, as a percentage of revenue, reflect the leveraging effect of increases in our yield as well as our ongoing commitment to operating efficiently. Our productive labor costs as a percentage of revenue were also impacted by declines in our P&D shipments per hour and linehaul laden load average as we trained our new employees. Our other salaries and wages as a percent of revenue also decreased to 8.9% and 9.0% of revenue in the third quarter and first nine months of 2022, respectively, from 9.0% and 9.4% of revenue for the same periods of 2021, respectively. The costs attributable to employee benefits decreased$5.2 million , or 2.9%, and increased$65.6 million , or 13.9%, respectively, for the third quarter and first nine months of 2022 as compared to the same periods of 2021. For both the third quarter and first nine months of 2022, employee benefits costs were impacted by the increase in the number of full-time employees eligible for our benefits and increases in certain higher retirement benefits costs directly linked to our net income. Our group health benefits costs also increased for the year-to-date period due to higher medical costs per claim. In addition, our benefit costs were positively impacted by a reduction in accrued benefits expense attributable to the termination of an employment agreement during the third quarter of 2022. Our employee benefits costs, as a percent of salaries and wages, decreased to 33.9% and 35.3% for the third quarter and first nine months of 2022, respectively, from 37.2% and 35.4% for the comparable periods of 2021. Operating supplies and expenses increased$70.8 million and$237.1 million in the third quarter and first nine months of 2022, respectively, as compared to the same periods of 2021, due primarily to an increase in our costs for diesel fuel used in our vehicles, as well as other petroleum-based products. Our diesel fuel costs, excluding fuel taxes, represent the largest component of operating supplies and expenses, and can vary based on both the average price per gallon and consumption. Our average cost per gallon of diesel fuel increased 64.6% and 76.5% in the third quarter and first nine months of 2022, respectively, as compared to the same periods last year. In addition, our gallons consumed increased 1.0% and 6.9% in the third quarter and first nine months of 2022, respectively, as compared to the same periods last year due to increases in miles driven. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Our other operating supplies and expenses as a percent of revenue increased in the third quarter and first nine months of 2022 as compared to the same periods of 2021, due to increases in equipment repair and maintenance costs as well as the cost to install new technology on our equipment. Depreciation and amortization costs increased$3.2 million and$10.9 million in the third quarter and first nine months of 2022, respectively, as compared to the same periods of 2021. The increases in depreciation and amortization costs were due primarily to the assets acquired as part of our 2021 and 2022 capital expenditure programs. We believe depreciation costs will increase in future periods based on our 2022 capital expenditure plan. While our investments in real estate, equipment, and technology can increase our costs in the short-term, we believe these investments are necessary to support our continued long-term growth and strategic initiatives. Purchased transportation expense decreased$17.6 million and$1.0 million in the third quarter and first nine months of 2022, respectively, as compared to the same periods in 2021. We utilize purchased transportation services from third-party transportation providers in our domestic linehaul network to supplement our equipment and our workforce when needed to support our growth initiatives and to maximize the efficient movement of LTL freight within our service center network. Our significant investments in workforce and equipment enabled us to reduce our use of purchased transportation beginning in the second quarter of 2022. Our effective tax rate for the third quarter and first nine months of 2022 was 23.9% and 25.3%, respectively, as compared to 25.2% and 25.7% for the third quarter and first nine months of 2021. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other discrete or non-deductible items. 13
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