OLD DOMINION FREIGHT LINE, INC. Overview
We are a leading, less-than-truckload ("LTL"), union-free motor carrier
providing regional, inter-regional and national LTL services through a single
integrated 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 97% 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 the
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.
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 the U.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 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.
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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.
The following table sets forth, for the periods indicated, expenses and other items as a percentage of revenue from operations:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenue from operations 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Salaries, wages and benefits 51.4 50.2 52.3 51.4Operating supplies and expenses 8.4 11.5 9.7
11.9
General supplies and expenses 2.9 3.1 3.2
3.1
Operating taxes and licenses 3.0 2.8 3.0
2.9
Insurance and claims 1.2 1.1 1.1
1.1
Communications and utilities 0.8 0.6 0.8
0.7
Depreciation and amortization 7.4 5.9 7.0 6.1 Purchased transportation 2.1 2.3 2.1 2.2 Miscellaneous expenses, net 0.6 0.4 0.5 0.5 Total operating expenses 77.8 77.9 79.7 79.9 Operating income 22.2 22.1 20.3 20.1
Interest expense (income), net 0.1 (0.2 ) (0.1 )
(0.2 ) Other (income) expense, net (0.1 ) 0.1 0.2 (0.0 ) Income before income taxes 22.2 22.2 20.2 20.3 Provision for income taxes 5.7 5.8 5.3 5.3 Net income 16.5 % 16.4 % 14.9 % 15.0 % Results of Operations
Key financial and operating metrics for the three- and six-month periods
ended
Three Months Ended Six Months Ended
June 30, June 30,
% %
2020 2019 Change 2020 2019 Change
Work days 64 64 - 128 127 0.8 %
Revenue (in
thousands) $ 896,210 $ 1,060,666 (15.5 )% $ 1,883,574 $ 2,051,448 (8.2 )%
Operating ratio 77.8 % 77.9 % 79.7 % 79.9 %
Net income (in
thousands) $ 147,805 $ 174,072 (15.1 )% $ 280,982 $ 307,395 (8.6 )%
Diluted earnings per
share $ 1.25 $ 1.44 (13.2 )% $ 2.36 $ 2.53 (6.7 )%
LTL tons (in
thousands) 2,028 2,306 (12.1 )% 4,181 4,512 (7.3 )%
LTL tonnage per day 31,688 36,031 (12.1 )% 32,664 35,528 (8.1 )%
LTL shipments (in
thousands) 2,478 2,970 (16.6 )% 5,194 5,789 (10.3 )%
LTL shipments per day 38,719 46,406 (16.6 )% 40,578 45,583 (11.0 )%
LTL weight per
shipment (lbs.) 1,636 1,553 5.3 % 1,610 1,559 3.3 %
LTL revenue per
hundredweight $ 21.85 $ 22.72 (3.8 )% $ 22.28 $ 22.42 (0.6 )%
LTL revenue per
shipment $ 357.65 $ 352.88 1.4 % $ 358.69 $ 349.54 2.6 %
Average length of
haul (miles) 919 917 0.2 % 919 918 0.1 %
All references in this report to shares outstanding, weighted average shares
outstanding, earnings per share, and dividends per share amounts have been
restated retroactively to reflect the three-for-two stock split effected in
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Our revenue decreased $164.5 million , or 15.5%, in the second quarter of 2020 as
compared to the same period of 2019 due to the decline of the domestic economy
associated with the COVID-19 pandemic. Our revenue declined significantly at the
beginning of April 2020 as a result of the stay-at-home and similar orders that
were issued throughout the country. Following that initial decline, our revenue
per day stabilized and then remained relatively consistent throughout the
remainder of April. Revenue per day subsequently improved on a sequential basis
throughout the remaining months of the second quarter as well as July. While our
revenue and volumes are still negative on a year-over-year basis, the sequential
increases over the past few months have been an encouraging trend.
We initially responded to the pandemic in March 2020 by implementing measures to
help ensure the health and safety of our OD Family of employees, following
guidelines set forth by the U.S. Centers for Disease Control and Prevention and
the World Health Organization . This included providing employees with the
support needed to continue to deliver our best-in-class service to customers. We
also adjusted our internal forecast for revenue and shipments for the second
quarter and created a plan to manage our costs accordingly. This plan focused
primarily on matching our variable and semi-variable expenses - mainly salaries,
wages and benefits and operating supplies and expenses - with the change in our
revenue while also evaluating discretionary spending to determine costs that
could be reduced or eliminated for the short term. The loss of density created
operational headwinds for our team, but we made the necessary adjustments to
improve our efficiency without sacrificing our service standards that support
our yield initiatives. The execution of this plan helped mitigate the
deleveraging effect on our fixed costs associated with the reduction in revenue,
which allowed us to improve our operating ratio to 77.8%. Due to the decline in
revenue, however, our net income and earnings per share decreased 15.1% and
13.2%, respectively, as compared to the same periods of 2019.
Revenue
Revenue decreased$164.5 million , or 15.5%, and$167.9 million , or 8.2%, in the second quarter and first six months of 2020, respectively, as compared to the same periods of 2019. These revenue declines reflect a decrease in our LTL tonnage and reductions in fuel surcharges. The reductions in our LTL tons for the second quarter and first six months of 2020 as compared to the same periods of 2019 were due to lower shipment volumes resulting from the slowdown in the domestic economy associated with the COVID-19 pandemic. The declines in shipments were partially offset by increases in our LTL weight per shipment. Our LTL revenue per hundredweight decreased 3.8% and 0.6% in the second quarter and first six months of 2020, respectively, as compared to the same periods of 2019, and reflects lower fuel surcharges resulting from significant declines in the average price of diesel fuel for the comparable periods. The decreases in LTL revenue per hundredweight also include the adverse impact of increases in our LTL weight per shipment on this metric for the periods compared. Excluding fuel surcharges, our LTL revenue per hundredweight decreased 0.5% in the second quarter of 2020, and increased 1.4% in the first six months of 2020, as compared to the same periods of 2019. Despite the economic environment and declines in our volumes, we have maintained our long-term commitment to maintaining our pricing discipline.
Revenue per day decreased 2.9% inJuly 2020 compared to the same month last year. LTL tons per day decreased 2.1%, due primarily to a 5.6% decrease in LTL shipments per day that was partially offset by a 3.6% increase in LTL weight per shipment. LTL revenue per hundredweight decreased 0.7% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased 2.5% as compared to the same month last year.
Operating Costs and Other Expenses
Salaries, wages and benefits for the second quarter of 2020 decreased$71.7 million , or 13.5%, as compared to the same period of 2019 due to a$52.1 million decrease in the costs attributable to salaries and wages and a$19.6 million decrease in benefit costs. Salaries, wages and benefits for the first six months of 2020 decreased$69.5 million , or 6.6%, as compared to the same period of 2019 due to a$42.4 million decrease in the costs attributable to salaries and wages and a$27.1 million decrease in benefit costs. The decreases in salaries and wages for both the second quarter and first six months of 2020 were due to decreases in the average number of active full-time employees as we managed our labor costs to align with the decline in shipment volume trends, as well as improvements in productivity. Our average number of active full-time employees decreased 2,824, or 13.6%, and 1,960, or 9.4%, in the second quarter and first six months of 2020, respectively, as compared to the same periods of 2019. Our productive labor costs, which include wages for drivers, dock workers, and technicians, increased as a percentage of revenue to 27.5% for the second quarter of 2020 from 27.0% for the same period of 2019. For the first six months of 2020, our productive labor costs increased to 28.3% from 27.6% for the same period of 2019. For the first six months of 2020, our other salaries and wages increased to 11.0% from 10.6% for the same period of 2019. While our productive labor as a percentage of revenue was negatively impacted by lower fuel surcharges, we improved productivity in our P&D and platform operations during the second quarter and first six months of 2020 as compared to the same periods of 2019. Our other salaries and wages increased as a percentage of revenue to 10.9% for the second quarter of 2020 from 10.4% for the second quarter of 2019. 12
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Employee benefit costs decreased$19.6 million , or 14.4%, in the second quarter of 2020, and$27.1 million , or 10.0% for the first six months of 2020, as compared to the same periods of 2019. These decreases were driven by lower health care costs resulting from a decline in claims per employee, in addition to a decrease in payroll taxes related to the reduction in salaries and wages. For the first six months of 2020, the decrease in our employee benefit costs also includes a reduction in expense related to our phantom stock plans, which were amended in the fourth quarter of 2019 to allow the awards to be settled in stock and limit our ongoing benefits expense in future periods. Operating supplies and expenses decreased$47.0 million and$60.7 million in the second quarter and first six months of 2020, respectively, as compared to the same periods of 2019, due primarily to a decrease in our costs for diesel fuel used in our vehicles. Our diesel fuel costs, excluding fuel taxes, represents the largest component of operating supplies and expenses, and can vary based on both average price per gallon and consumption. Our average cost per gallon of diesel fuel decreased 48.4% and 30.8% in the second quarter and first six months of 2020, respectively, as compared to the same periods last year. In addition, our gallons consumed decreased 13.8% and 8.8% in the second quarter and first six months of 2020, respectively, as compared to the same periods last year due to a decrease in miles driven. We do not use diesel fuel hedging instruments; therefore, our costs are subject to market price fluctuations. Other operating supplies and expenses improved slightly as a percent of revenue between the periods compared as we managed our fleet utilization and variable costs. Depreciation and amortization increased slightly by$3.2 million and$5.5 million in the second quarter and first six months of 2020, respectively, as compared to the same periods of 2019. While our 2020 capital expenditure plan is lower than 2019, particularly with respect to revenue equipment and real estate, we believe depreciation expense will continue to increase as we expand capacity to support our continued long-term growth and strategic initiatives. Our effective tax rate for the second quarter and first six months of 2020 was 25.7% and 26.0%, as compared to 26.1% in both the second quarter and first six months of 2019. Our effective tax rate generally exceeds the federal statutory rate due to the impact of state taxes and, to a lesser extent, certain other non-deductible items.
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