Declines in Old Dominion Freight Line’s key metrics moderated in February. A 3.3% year-over-year decline in revenue per day during the month was better than the 6.8% drop the less-than-truckload carrier recorded in January.
“We are encouraged by trends that we have seen develop in our business … we remain cautiously optimistic about the direction of the domestic economy,” said Marty Freeman, Old Dominion president and CEO, in a news release.
Old Dominion’s (NASDAQ: ODFL) tonnage declined 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. Revenue per hundredweight (yield) was up 3.5% y/y through the first two months of the year. The carrier previously reported a 3.1% yield increase for January, which implies yield was approximately 4% higher in February.
(Yield, excluding fuel surcharges, was 4.1% higher y/y in the first two months of the period.)
On a two-year-stacked tonnage comparison, Old Dominion’s volume declines have continued to improve from a nadir of negative-20.8% in October to negative-13.9% in February. Winter storms have been a headwind to volumes over the past three months.
Manufacturing activity remained in expansion territory for a second straight month in February, according to data released on Monday.
The Purchasing Managers’ Index registered a 52.4 reading during the recent month, which was 20 basis points lower than January. (A reading above 50 signals expansion while one below 50 indicates contraction.) The dataset has mostly been in negative territory for more than three years.
The new orders subindex—an indicator of future activity—came in at 55.8. (Inflections in PMI data usually lead LTL volumes by a few months.)
Old Dominion previously guided first-quarter revenue in a range of $1.25 billion to $1.3 billion. The quarter appears to be trending near the top end of 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 forecast 150 bps of sequential margin erosion in the first quarter, implying a 78.2% operating ratio, which would be 280 bps worse y/y. It normally sees 100 to 150 bps of margin deterioration from the fourth quarter to the first quarter.
Old Dominion has been carrying the costs associated with holding over 35% excess terminal capacity in anticipation of a turn in the market. Its network is capable of handling 55,000 shipments per day versus the 41,000 it was processing in the fourth quarter.
“Due to our consistent execution of our strategic plan, we have the available capacity necessary to effectively manage incremental volume opportunities as the demand environment improves,” Freeman said. “As a result, we remain confident that we are in a unique position to generate profitable revenue growth and increase shareholder value over the long term.”
