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 the National Motor Freight Trafficis 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 inaccordance 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 canindicate 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 perhundredweight, 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 of1,000 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 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
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-------------------------------------------------------------------------------- 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 Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenue from operations 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Salaries, wages and benefits 46.4 51.4 47.3 52.3Operating supplies and expenses 10.4 8.4 10.7
9.7
General supplies and expenses 2.6 2.9 2.7
3.2
Operating taxes and licenses 2.5 3.0 2.6
3.0
Insurance and claims 1.2 1.2 1.2
1.1
Communications and utilities 0.6 0.8 0.7
0.8
Depreciation and amortization 4.9 7.4 5.2 7.0 Purchased transportation 3.3 2.1 3.2 2.1 Miscellaneous expenses, net 0.4 0.6 0.4 0.5 Total operating expenses 72.3 77.8 74.0 79.7 Operating income 27.7 22.2 26.0 20.3 Interest expense (income), net 0.0 0.1 0.0 (0.1 ) Other expense (income), net 0.1 (0.1 ) 0.1 0.2 Income before income taxes 27.6 22.2 25.9 20.2 Provision for income taxes 7.2 5.7 6.7 5.3 Net income 20.4 % 16.5 % 19.2 % 14.9 %
Key financial and operating metrics for the three- and six-month periods
ended
Three Months Ended Six Months Ended
June 30, June 30,
% %
2021 2020 Change 2021 2020 Change
Work days 64 64 - 127 128 (0.8 )%
Revenue (in thousands) $ 1,319,409 $ 896,210 47.2 % $ 2,445,924 $ 1,883,574 29.9 %
Operating ratio 72.3 % 77.8 % 74.0 % 79.7 %
Net income (in thousands) $ 269,576 $ 147,805 82.4 % $ 468,935 $ 280,982 66.9 %
Diluted earnings per share $ 2.31 $ 1.25 84.8 % $ 4.01 $ 2.36 69.9 %
LTL tons (in thousands) 2,598 2,028 28.1 % 4,930 4,181 17.9 %
LTL tonnage per day 40,600 31,688 28.1 % $ 38,819 $ 32,664 18.8 %
LTL shipments (in thousands) 3,307 2,478 33.5 % 6,211 5,194 19.6 %
LTL shipments per day 51,672 38,719 33.5 % 48,903 40,578 20.5 %
LTL weight per shipment (lbs.) 1,571 1,636 (4.0 )% $ 1,588 $ 1,610 (1.4 )%
LTL revenue per hundredweight $ 25.10 $ 21.85 14.9 % $ 24.56 $ 22.28 10.2 %
LTL revenue per shipment $ 394.49 $ 357.65 10.3 % 389.94 358.69 8.7 %
Average length of haul (miles) 930 919 1.2 % 929 919 1.1 %
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-------------------------------------------------------------------------------- Our financial results for the second quarter and first six months of 2021 include Company records in revenue, net income and earnings per diluted share. We believe our consistent investments in our service center network have provided us with capacity to support additional revenue growth and the ability to provide superior service at a fair price to our customers. Our results also benefited from the strengthening domestic economy and an upward trend in the pricing environment during a period of tightening industry capacity. The increases in our density and yield contributed to a 550 and 570 basis-point improvement in our operating ratio to 72.3% and 74.0%, respectively, for the second quarter and first six months of 2021 as compared to the same periods last year. Our net income and earnings per diluted share increased by 82.4% and 84.8%, respectively, for the second quarter of 2021 and 66.9% and 69.9%, respectively, for the first six months of 2021 as compared to the same periods last year. Revenue Revenue increased$423.2 million , or 47.2%, and$562.4 million , or 29.9%, in the second quarter and first six months of 2021, respectively, as compared to the same periods of 2020, due to increases in both our LTL tonnage and LTL revenue per hundredweight. The increased tonnage resulted from higher LTL shipments, which was partially offset by a decrease in LTL weight per shipment. We believe the increase in LTL tonnage was driven by a strong economic environment and increased demand for the superior service that our outstanding team of employees continues to provide our customers. Our LTL revenue per hundredweight increased 14.9% and 10.2% in the second quarter and first six months of 2021, respectively, as compared to the same periods in 2020. We believe these increases in LTL revenue per hundredweight were driven by our ongoing commitment to our long-term yield management strategy, which is focused on obtaining price increases necessary to offset our cost inflation and support our regular investments in capacity and technology. Our LTL revenue per hundredweight was also impacted by the positive effect on this metric of the decline in our LTL weight per shipment and increases in fuel surcharges. Excluding fuel surcharges, LTL revenue per hundredweight increased 10.3% and 8.0% in the second quarter and first half of 2021, respectively, as compared to the same periods in 2020.
Revenue per day increased 36.7% inJuly 2021 compared to the same month last year. LTL tons per day increased 18.6%, due primarily to a 23.8% increase in LTL shipments per day that was partially offset by a 4.2% decrease in LTL weight per shipment. LTL revenue per hundredweight increased approximately 14.8% as compared to the same month last year. LTL revenue per hundredweight, excluding fuel surcharges, increased approximately 9.5% as compared to the same month last year.
Operating Costs and Other Expenses
Salaries, wages and benefits increased$150.6 million , or 32.7%, in the second quarter of 2021 as compared to the second quarter of 2020, due primarily to a$106.3 million increase in salaries and wages and a$44.3 million increase in employee benefit costs. Salaries, wages and benefits increased$171.8 million , or 17.4%, for the first six months of 2021 as compared to the same period of 2020, due primarily to a$119.9 million increase in salaries and wages and a$51.9 million increase in employee benefit costs. The increases in salaries and wages for both the second quarter and first six months of 2021 was due primarily to increases in the average number of active full-time employees as compared to the same periods of 2020. Our average number of active full-time employees increased 3,710, or 20.7%, and 2,120, or 11.2%, for the second quarter and first six months of 2021, respectively. We believe our full-time employee headcount will continue to increase as we hire employees to balance our workforce with growing demand and shipment trends. Salaries and wages also increased as a result of an annual wage increase provided to our employees inSeptember 2020 , as well as higher performance-based compensation. Our productive labor costs, which include wages for drivers, platform employees, and fleet technicians, improved as a percent of revenue to 24.8% and 25.5% in the second quarter and first half of 2021, respectively, from 27.5% and 28.3% for the same periods of 2020. We increased the efficiency of our operations with improvements in our linehaul laden load average and P&D shipments per hour while our platform shipments per hour declined as we trained our new employees. Our other salaries and wages as a percent of revenue also decreased to 9.4% and 9.7% of revenue in the second quarter and first half of 2021, respectively, from 10.9% and 11.0% of revenue for the same periods of 2020, respectively. The increase in the costs attributable to employee benefits for both the second quarter and first half of 2021 was primarily due to increases in certain retirement benefit plan costs directly linked to our net income, as well as higher group health costs resulting from an increase in the number of claims per employee. Our employee benefit costs were also higher due to our increased headcount. As a result of these increases, our employee benefit costs, as a percent of salaries and wages, increased to 35.5% and 34.4% for the second quarter and first six months of 2021, respectively, from 33.6% and 33.0% for the comparable periods of 2020. Operating supplies and expenses increased$62.2 million and$78.6 million in the second quarter and first six months of 2021, respectively, as compared to the same periods of 2020, due primarily to an increase in 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 11
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both the average price per gallon and consumption. Our average cost per gallon of diesel fuel increased 97.5% and 42.3% in the second quarter and first six months of 2021, respectively, as compared to the same periods last year. In addition, our gallons consumed increased 25.7% and 14.1% in the second quarter and first six months of 2021, 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 remained relatively consistent as a percent of revenue between the periods compared. Depreciation and amortization costs decreased slightly in the second quarter and first six months of 2021 as compared to the same periods in 2020. These decreases reflect our planned reduction in capital expenditures for revenue equipment in 2020 as we balanced our fleet with volumes, as well as delays in receipt of certain revenue equipment included in our 2021 capital expenditure plan. We believe depreciation costs will increase in future periods as we continue to execute our 2021 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 increased$24.9 million and$38.9 million in the second quarter and first six months of 2021, respectively, as compared to the same periods of 2020. The increase in purchased transportation expense was due to an increase in our use of third-party transportation providers to supplement our workforce as demand for our services increased. We expect to continue to purchase supplemental transportation until the capacity of our team can fully support our anticipated growth. Our effective tax rate for both the second quarter and first six months of 2021 was 26.0%, as compared to 25.7% and 26.0%, respectively, for the same periods in 2020. 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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