Q1 2024 Carrier Earnings: Old Dominion

Last week was a busy week full of Earnings announcements for LTL carriers - of the 8 publicly traded players, 4 of them announced their reports in just 3 days.?

First from that group for us to review? Old Dominion.

We started our 1Q24 Carrier Earnings series a few weeks back with an article on FedEx Freight’s results, which normally precede the other carriers’ reporting by a few weeks. Access that article here!

After seeing how they started off in 2024…it’ll be even more interesting to see how the year is going for the rest of the big players in the space.

Those subscribed to this newsletter will know (and if you haven’t yet, you should ??), we feature a Carrier Earnings series in our weekly releases at a few points throughout the year.

In them, we evaluate the financial performance of leading carriers in the industry by analyzing the results they release after each quarter, and we offer our two cents on what their metrics mean in the grander scheme of the industry.

Moving forward, we are going to ‘cherry pick’ just a few of the carriers instead of detailing each carrier each quarter.

For a recap on ODFL’s performance over the last few quarters, take a look at their Q3 and Q4 Earnings analyzes here before you get started:

• ODFL 2023 Q3 Earnings
• ODFL 2023 Q4 Earnings?

All right, it’s time to dive into their Q1 reports for 2024.?

Old Dominion noted that ‘soft LTL market conditions’ continued through Q1 this year...so let’s see what that meant for their performance, having been fairly impressive with their results from the rest of 2023.

?? Carrier #2: Old Dominion Freight Line (ODFL)

• ODFL continues their reign as the OR King.?

Their 73.5 OR for Q1 was just slightly raised from where it was at 73.4 last year…on a quarterly basis it was up more notably, from 71.8 during Q4.

With the soft market conditions, these margins still represent fairly solid cost control by ODFL as they maintain strong service.

They also continue to provide 99% on-time service with a 0.1% claims ratio. (Disclaimer: These are self reported metrics and are NOT accurate… Carriers inflate on time percentage significantly and deflate claims ratio significantly)

• Shipments were slightly down -0.5% over last year, and tonnage was down further at -3.2%.??

But, revenue was still up 1.6%, driven by a healthy Rev/cwt growth of 6.7% excluding fuel surcharge.

• Sequentially, shipments were down -0.6% and tonnage was down -0.8%, with a 1.1% gain in Rev/cwt excluding fuel surcharge.?

• Shipment size continues to drop, falling -2.7% from 1,550 to 1,508 pounds.?

This continues to be both a concern and a drag on margins.?

It’s remarkable that with ODFL obviously gaining some of the Yellow Corp business, their tonnage and shipment counts are still down compared to the prior year..

• For April, ODFL is seeing revenue up about 6% and tonnage up about 2.5%.

Both metrics show improvement over Q4, and the sequential changes through Q1 seem to suggest some positive growth signs; however, Q2 typically realizes a ~9% revenue increase over Q1, and that is not shaping up just yet through April.??

Year over year revenue growth is finally in place, but ODFL isn’t seeing their typical seasonal revenue shifts.

?? Making Money Moves: CAPEX Edition

• ODFL is not slowing down with their CAPEX investment this year.??

They spent $757M in 2023 on CAPEX and expect to invest around the same with $750M in 2024 ー that includes another $350M for real estate and $75M for technology like saw in 2023.

They fully expect to continue improving yield above cost increases to improve margins and support their CAPEX initiatives. As they reiterated, the goal is for a consistent sub-70 OR.

In other words, they want to keep targeting a larger increase in revenue per shipment than in cost per shipment.?

“Challenges from the domestic economy have persisted for longer than we originally expected.”??

ODFL noted this and stated that they are seeing signs of demand improvement and are well-positioned to take advantage of any positive change in demand.

• One of those ‘signs’ is how the ISM Manufacturing PMI figure for March 2024 was at 50.3, which is its first time being above 50 since late 2020.

• They’re seeing an increase in weight/shipment over the last several month, which is another encouraging sign.?

• ODFL is sitting on 30% excess capacity right now, well positioned for positive demand change.

They believe that the industry will be capacity-constrained in the future - carriers are adding Yellow terminals, but not all Yellow terminals will re-open.?

So there will be fewer doors and terminals than there was when Yellow was still operating. Which is where ODFL believes that this capacity-constrained future is a big tailwind for them…. when it hits of course.

And ODFL does grow their market share best in strong economies; they have the capacity, and they have the high service.

The JIT model vs the JIC model

• OODFL also believes that the Just-in-Time (JIT) model, which fell out of favor post-COVID as companies adopted more of a Just-in-Case (JIC) model to minimize supply chain disruptions, is now shifting back.

This trend favors ODFL, particularly in minimizing retail chargebacks. Some Yellow freight shifted to TL carriers, and ODFL expects that business to come back to them when the TL market settles.

• ODFL typically sees 350 to 400 basis point improvement from 1Q to 2Q on their OR, but they are only forecasting 150 basis point improvement? for 2024 due to market softness.

The Long and Short of it all…

It’s hard to find much fault with Old Dominion and their performance in 2024.??

However, even the veneer of Old Dominion is showing a few cracks right now with their WORST Q1 OR in quite some time.

Other LTL carriers have invested heavily on real estate over the last 6 months, and it’s doubtful they will let this real estate sit idle for long…

So, it’ll be interesting to see how the rest of the reporting for Q1 goes and if the LTL industry improves in 2024 - if it fails to improve materially, we could see some carriers changing their stripes a bit as they begin pushing to put freight into their expanded networks.?

Up next for review is Knight-Swift to keep this series going! We’ll take a closer look at reports from KNX and gauge their performance that started the year.

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This article was collaboratively written by “LTL Observers” - a collective of industry veterans spanning the carrier, shipper, 3PL, and tech provider spaces who are willing to share their opinions.

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