OLD DOMINION FREIGHT LINE, INC. Q3 FY2024 earnings call

• The domestic economy remained soft, leading to a year-over-year decline in revenue and earnings per diluted share, but market share and volume trends were consistent with the first half of the year. - The team managed variable costs and controlled discretionary spending, though the deleveraging effect from revenue decrease caused operating expenses to increase as a percent of revenue, driving the operating ratio to 72.7%. - Strong market share consistency, supported by service quality and value, with 99% on-time service and 0.1% cargo claims ratio. - Named number one national LTL provider for 15 consecutive years by Mastio & Company, finishing first in 23 of 28 evaluated categories. - Focus on maintaining service quality, disciplined pricing, and investing in capacity and technology to enhance value proposition and win market share.

Old Dominion's revenue for the third quarter of 2024 totaled $1.47 billion, a 3.0% decrease from the prior year. On a per day basis, the decrease was 4.5% due to a 4.8% decrease in LTL tons per day, partially offset by a 1.5% increase in LTL revenue per hundred weight. The LTL segment is the primary contributor to revenue.

Third quarter operating ratio was 72.7%, with the decrease in revenue causing deleveraging of operating expenses. Expected effective tax rate for the fourth quarter is 24.5%. For October, revenue per day is expected to decrease by approximately 11.2% to 11.8% compared to October 2023, with LTL tons per day down by approximately 9.2% to 9.8%. Normal 3Q to 4Q regression in operating ratio is about 200 to 250 basis points, plus potential insurance adjustments, leading to a conservative expectation of further deterioration.

Uncertainty in the domestic economy and potential impact on freight demand. Possible pricing competition from competitors. Impact of natural disasters like hurricanes on network operations and revenue. Uncertainty around the election affecting customer decision-making. Fluctuations in fuel prices and their impact on yields.

Q: Eric Morgan asked about October tonnage decline and operating ratio into year-end.

A: Adam Satterfield said October tonnage year-over-year midpoint is down about 9.5%, with sequential change down about 3.5%, and operating ratio expected to deteriorate due to revenue risk and fringe benefit costs.

Q: Jason Seidl asked about tonnage comps in November and December.

A: Adam Satterfield said October is the toughest comp, with November and December expected to be better but still challenging.

Q: Daniel Imbro asked about yield performance and pricing competition.

A: Adam Satterfield said yield ex-fuel up in 3.8%-4.2% range, and no significant pricing competition seen yet.

Q: Scott Group asked about yield drop and pricing competition.

A: Adam Satterfield said yield drop is fuel-related, and no irrational pricing seen.

Q: Jordan Alliger asked about customer base and volume seasonality.

A: Adam Satterfield said retail-related customers performed better, industrial weaker, and normal seasonality expected to put tonnage per day down 6.5%-7%.

Q: Jonathan Chappell asked about election uncertainty.

A: Adam Satterfield said election uncertainty is temporary, and once resolved, economy should pick up.

Q: Ken Hoexter asked about cost cutting and operating ratio.

A: Adam Satterfield said team manages costs daily, with productivity improvements in third quarter despite volume weakness.

Q: Ravi Shanker asked about Mastio survey and service gap.

A: Adam Satterfield said Mastio results show sizable service gap maintained, and focus on continuous improvement.

Q: Chris Wetherbee asked about truckload and LTL relationship.

A: Adam Satterfield said freight may swing back to LTL, and service issues with other carriers may lead customers to Old Dominion.

Q: Brian Ossenbeck asked about hurricane impact and NMFDA class system changes.

A: Adam Satterfield said hurricane caused revenue loss, and NMFDA changes on dimensional class are manageable.

Q: Ariel Rosa asked about buyback vs dividend.

A: Adam Satterfield said buyback is tax-efficient and flexible, with capital return strategy based on investment needs.

Q: Stephanie Moore asked about cyclical freight upside and operating days.

A: Adam Satterfield said weight per shipment is key indicator, and 4Q has 62 operating days.

Q: Thomas Wadewitz asked about inflation and pricing.

A: Adam Satterfield said cost inflation targeted at 4%-4.5%, and bid-by-bid pricing to offset inflation.

Q: Bruce Chan asked about weight per shipment and sales incentives.

A: Kevin Freeman said weight per shipment will pick up, and sales reps incented on revenue, operating ratio, and service.

Q: Jeffrey Kauffman asked about customer base pockets.

A: Adam Satterfield said industrial weaker, retail better, and consistent market share retention.