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Old Dominion Freight Line Earnings Overcome Waning Demand

Tyler Crowe, The Motley Fool

It's always impressive when a company is able to produce record quarterly results as Old Dominion Freight Line (NASDAQ: ODFL) did in this most recent quarter. That's especially true when it does so as the market for its services is showing signs of strain.

Let's take a look at what happened with Old Dominion Freight Line this past quarter and what investors can expect in the future. 

A trailer truck on the road.

Image source: Old Dominion Freight Line.

Old Dominion Freight Line's results: The raw numbers

Metric Q2 2019 Q1 2019 Q2 2018
Revenue $1.06 billion $991 million $1.03 billion
Operating income $234.5 million $178.4 million $220.4 million
Net income $174.1 million $133.3 million $163.4 million
EPS (diluted) $2.16 $1.64 $1.99

DATA SOURCE: OLD DOMINION FREIGHT LINE. EPS = EARNINGS PER SHARE.

It has been a rather common theme for Old Dominion Freight Line over the past couple of years, but this was yet another quarter where the company posted record revenue and earnings-per-share results 

What happened with Old Dominion Freight Line this quarter?

  • The story of this past quarter's results was management's ability to pass on increased prices to its customers and efficient operations. Even though total tonnage and daily less-than-truckload (LTL) shipments decreased compared to this time last year, its LTL revenue per hundredweight was 9.5% higher.
  • The other remarkable aspect of these results was another quarter of fantastic operating efficiency. Old Dominion Freight's operating ratio for the quarter came in at 77.9%. Operating ratio is the opposite of operating margin so the lower the number, the better. This quarter's operating ratio is a company record. 
  • After last quarter's decision to ease up its capital spending rate, Old Dominion Freight's management was able to put more cash toward share repurchases. In the second quarter, it bought back $134 million worth of shares. This was a result of the board's approval of a $350 million share repurchase authorization back in May. 

What management had to say

In the press release, CEO Greg Gantt acknowledged that demand for shipping overall has started to tail off, but that the company was still able to command higher prices.

We were especially pleased to produce these quarterly financial records during a period with lower LTL shipments and tonnage, which reflects the ongoing softer demand environment. Maintaining our long-term, consistent approach to pricing may have also contributed to the decrease in our volumes. The strength of our yield, however, allowed us to increase our revenue and also contributed to the improvement in our operating ratio. We intend to maintain our disciplined approach to yield management and believe the pricing environment has remained relatively stable.


ODFL Chart

ODFL data by YCharts.

Looking forward

This was the second quarter in a row where Old Dominion Freight was able to produce impressive results despite the overall market for LTL shipments being lower compared to the same time last year. 

Growing revenue and declining shipment volumes cannot happen at the same time forever, though. Old Dominion can only pass along higher rates for so long in a flat-to-declining market. If this trend continues, investors should be aware that revenue growth could start to flatline. 

By no means does it change the investment thesis in this stock. Trucking is, after all, a cyclical industry. That said, investors shouldn't expect the same kind of fantastic growth as we have seen over the past few years. 

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Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Old Dominion Freight Line. The Motley Fool has a disclosure policy.