Old Dominion Freight Line’s declines in key metrics were washed out in February. The 3.3% year-over-year decline in daily earnings during the month was better than the 6.8% decline in truckload shipments recorded in January.
“We are encouraged by the trends we see developing in our business … We are cautiously optimistic about the direction of the domestic economy,” Marty Freeman, Old Dominion’s president and CEO, said in a news release.
Old Dominion’s (NASDAQ: ODFL ) tonnage fell 6.8% y/y in February as a 7% decline in daily shipments was only partially offset by a 0.2% increase in weight per shipment. Earnings per hundredweight (yield) were up 3.5% y/y in the first two months of the year. The carrier previously reported a 3.1% yield increase for January, which was nearly 4% higher than the yield in February.
(Yields, excluding fuel surcharges, were up 4.1% y/y in the first two months of the period.)
Comparing the two-year stacked tonnage, Old Dominion volume declines increased from negative -20.8% in October to negative -13.9% in February. Winter storm has been on top of the volumes for the last three months.
Manufacturing activity remained in expansion territory for the second straight month in February, according to data released Monday.
The PMI recorded a reading of 52.4 during the latest month, which was 20 basis points lower than in January. (Readings above 50 signal expansion while below 50 indicate a contraction.) The data set is mostly in negative territory for more than three years.
The new orders sub-index – an indicator of future performance – came in at 55.8. (Inflation in PMI data usually leads LTL volume by several months.)
Old Dominion previously guided for first-quarter revenue of $1.25 billion to $1.3 billion. The quarter appears to be trending near the upper end of the range, which would represent a 5% y/y decline. However, March typically accounts for roughly half of first-quarter revenue for most carriers.
It also forecasts a sequential margin erosion of 150 bps in the first quarter, indicating an operating ratio of 78.2%, which would be 280 bps worse y/y. It normally sees a margin deterioration of 100 to 150 bps from the fourth quarter to the first quarter.
Old Dominion is incurring costs related to maintaining 35% of additional terminal capacity in anticipation of changes in the market. Its network is capable of handling 55,000 shipments per day compared to 41,000 that were processed in the fourth quarter.
“Due to the continued execution of our strategic plan, we have the capacity needed to effectively handle increased volume opportunities as the demand environment improves,” Freeman said. “As a result, we are confident that we are uniquely positioned to drive profitable earnings growth and increase shareholder value over the long term.”
