The Operator introduces the Old Dominion Freight Line First Quarter 2024 Earnings Conference Call and hands it over to Jack Atkins, Director of Investor Relations. The call will be recorded and available for replay. Jack Atkins cautions that the call may contain forward-looking statements and reminds listeners to limit themselves to one question at a time during the Q&A portion.

During the first quarter conference call, Old Dominion's President and CEO, Marty Freeman, discussed the company's financial results, which showed modest improvement despite a soft domestic economy. The company's focus on delivering superior service at a fair price has helped them maintain a strong record of growth and profitability, with a 99% on-time service rate and low cargo claims ratio. Despite the sluggish economy, Old Dominion has been able to retain customers and is well-positioned to respond to increased demand in the future.

The company's focus on long-term market share initiatives has led them to make decisions that may have short-term cost implications, such as their capital expenditure program. However, these decisions have allowed them to improve their fleet and service center network, leading to consistent growth in the industry. The company's culture and investment in their employees are also key factors in their success and they are committed to training and developing their team for the future. These investments may result in short-term costs, but have helped the company maintain their position as the market leader in the past decade.

The company believes that it is well-positioned to benefit from an improving economy due to its strong elements of superior services, financial strength, and consistent returns. They are committed to delivering superior service to customers and adding value to supply chains. The company's revenue increased slightly in the first quarter, with a 4.1% increase in LTL revenue per hundredweight offset by a 3.2% decrease in LTL tons per day. The operating ratio increased 10 basis points, while earnings per share increased 3.9%. On a sequential basis, revenue per day decreased 7.0% compared to the previous quarter, with decreases in LTL tons and shipments per day. However, these decreases were in line with the 10-year average.

In the first quarter of 2024, there was an increase in revenue and tonnage for the months of January, February, and March. However, the increase in March was significantly impacted by the presence of Good Friday. For April, revenue per day has increased by 5.5% to 6%, while LTL tonnage and revenue per hundredweight have also seen increases. The operating ratio for the first quarter increased to 73.5%, primarily due to an increase in fixed overhead costs such as depreciation. This is in line with the company's long-term goal of achieving yield improvements that exceed cost inflation.

The company is pleased with their improved yield and operating efficiencies, which have led to a decrease in direct operating costs. They have managed to balance variable costs while maintaining high service standards. They believe that a favorable economic environment is necessary for further improvement in operating ratio. Cash flow from operations was $423.9 million, with $119.5 million spent on capital expenditures and $85.3 million on share repurchases. The effective tax rate for the first quarter was 25.6% and is expected to be 25.4% for the second quarter. The floor is now open for questions from analysts.

The speaker is discussing the potential impact of the second quarter on the industry in a post-yellow environment. They mention that the second quarter typically sees a big increase in revenue, but this year's growth is not at normal levels. The operating ratio guidance for the second quarter will depend on the top line growth, and the speaker predicts a 150 basis point improvement if revenue continues to grow at 6% year-over-year. The overall outlook for the second quarter is uncertain and will depend on how much acceleration is seen.

The speaker discusses the current state of the company's operations and mentions that they are not yet ready to say that things are definitely accelerating. They are hopeful that they will continue to see improvement, which will help with operating density and margin. The next question asks for more context on a comment in the release about recent developments suggesting an improvement in overall demand for their services. The speaker responds that while the underlying demand has felt consistent, they have seen some sequential acceleration in shipments since January. They believe several factors are starting to turn, such as ISM inflecting above 50% and an increase in weight per shipment. They compare this to Taylor Swift's song "Over Now" and mention that they are waiting to see how things progress.

The company saw a slight drop in performance in January, but it picked back up in March and is currently higher. They are seeing positive developments in customer conversations and national account reporting. They expect to see improvement in industrial activity and are well positioned to take advantage of it. There has been no change in their yield management initiatives and they continue to target yield improvement. The yield deceleration is not tied to competition or industry capacity.

The company was not able to achieve a positive spread in 2023 due to a weak volume environment, but they continued to invest and are now close to achieving a positive spread. They are winning new business and their revenue per shipment is performing consistently with the first quarter. The company is optimistic about the future and expects to see a positive spread once again.

The speaker praises the company for sticking to their strategy during a 2-year downturn and waiting for a better market. They discuss changes in the competitive landscape and the importance of monitoring market trends and share. The company has gained market share compared to other carriers since the closure of a competitor.

The company has seen similar trends in the past, where their models perform well during economic recovery. They anticipate this will happen again once the economy improves. They have been prepared for this by maintaining customer retention and being ready to respond to increased demand. While there have been signs of potential opportunity, the company believes their people and culture are what sets them apart and cannot be easily replicated.

Adam Satterfield discusses OD's commitment to excellence and delivering superior service for customers, which will allow the company's model to continue to shine and achieve long-term market share initiatives. Amit Mehrotra asks about the operating ratio (OR) in the second quarter and potential for improvement in margins. Adam mentions previous ORs of 69.6 and 69.1 and reiterates the goal of achieving a sub-70 annual operating ratio.

The speaker discusses the challenges of managing costs during a period of revenue growth. They mention the need to reach a certain level of revenue in order to cover fixed overhead costs and the increase in variable costs that come with preparing for growth. The company has already added 500 employees in anticipation of growth and is constantly monitoring and managing all costs to match revenue trends. The uncertainty of the second quarter lies in whether revenue will continue to accelerate and improve operating density, leading to further cost improvements. In the first quarter, direct costs were 53% of revenue and overhead costs were around $300 million, which is expected to remain relatively stable in the second quarter.

The company has room for improvement in direct costs and overhead, and they are confident in their ability to get the operating ratio back to sub-70. They have been able to outgrow their competitors in strong growth periods due to their decisions to invest in service center growth, equipment, and employees. Their strategic advantages will be most effective in an accelerating and growth environment. The company's strategy is to wait for a market share opportunity, but the analyst questions if they have a backup plan.

Adam Satterfield explains that the company is constantly working to improve and grow with their customers, rather than chasing volume like some competitors. He notes that their market share has improved despite a lack of freight activity. The next question from Eric Morgan of Barclays asks about the depth of the two-year slump in volumes and whether there could be a catch-up on the upside if there is macro improvement.

Freeman discusses the current state of the transportation industry, which has been weak due to the recession and increased competition from truckload carriers. However, he believes that as the economy improves, the industry will become tight again and create opportunities for growth. He also mentions that not all of the service centers and door capacity that existed with yellow will come back into the market, providing further opportunities for the company.

The speaker, Jack, is congratulated and another person, Adam, is mentioned. The speaker then references a line from a song and asks a question about pricing.

The speaker addresses questions about lower rates and bid activity in the shipping industry. They mention that there has not been a significant change in bid activity and that they are continuing to see the same types of increases as in the past. They also mention that they have added 500 people to their headcount since September and are running truck driving schools.

The company has been able to respond to an increase in demand by hiring more employees and training more drivers. They are cautiously optimistic about the future and have invested in employee growth. They may need to hire more if there is further acceleration in demand, but they feel their current employee count is well balanced. They also maintain excess capacity in their service centers in preparation for future growth.

The speaker explains that having excess capacity does not guarantee business growth, as service and relationships are more important in winning customers. Old Dominion has strong customer relationships and a consistent business and yield management practices, which helps them add value to their customers' supply chains. They also focus on continuous improvement to maintain their success.

The company has won the Mastio Quality Award for 14 years in a row and continues to focus on delivering superior service at a fair price. They are aware of competitors trying to emulate them, but are working hard to maintain their lead. There has been a slight increase in service issues, but nothing out of the ordinary. Before the pandemic, the industry operated on a just-in-time supply chain, but it has shifted to a just-in-case approach.

Marty Freeman, CEO of Old Dominion, agrees that the company is moving back towards a just-in-time (JIT) inventory management approach. This trend is beneficial for the company's operational model and service standards, and could potentially lead to Old Dominion regaining its position as market share leader. Tighter inventory management is a cost-saving measure for shippers, and Old Dominion's ability to deliver on time and without damage supports their ability to win market share. This is especially relevant for the company's retail customers with their on-demand and in full programs. Old Dominion's success in meeting these expectations has led to continued growth in their business.

The company is confident in its ability to keep winning market share and is investing in its network based on customer conversations and projected growth for the next 5 years. The growth rate for April is slightly higher than the historical average of 0.4% increase from March, but this year's March included Good Friday which may have affected the comparison. The company is pre-investing for growth and not just hoping for it to happen.

The speaker discusses the 2% increase from March to April and notes that the current trend is lower than that growth. They also mention consistent growth in tonnage in February and March, with a slight pickup in weight per shipment. This trend was in line with the 10-year average, and there was a decline in the truckload market from April 2022 to December, followed by a shift in August. The speaker also mentions the impact of yellow on the LTL market and the potential for truckload freight to return to LTL. They also mention weight per shipment as a leading indicator for improvement.

Adam and Brian discuss the trend of some yellow freight moving over to full truckload carriers due to the slow truckload market. They expect this to move back to LTL carriers once the truckload market picks back up. They also mention that weight per shipment is expected to increase, which will help offset costs and improve operating ratio.

Tom Wadewitz from UBS asks about the differences in behavior and trends between industrial and retail customers, and why strong container imports have not translated to domestic activity. Adam Satterfield explains that the industrial segment has been weak, with a slight decrease in revenue, while the retail segment has performed better. He also mentions that the recent increase in the ISM index indicates potential improvement in the industrial sector in May. Additionally, there has been an improvement in business managed by third-party logistics companies.

Adam Satterfield explains that while there has been some improvement in the early stages of top-off shipments and growth in capacity, it is still too early to determine if this will lead to increased LTL demand. He also mentions that the company will continue to monitor trends and expects to win its share of the market. In response to a question about pricing, he reiterates that there have been no changes in the company's pricing strategy and they continue to achieve their targeted cost plus increases. However, there has been a slight decrease in length of haul.

Revenue per hundredweight has decreased due to changes in shipment weight and other factors. However, internally, the focus is on revenue per shipment rather than hundredweight. The company expects to have a positive spread of revenue per shipment versus cost per shipment in the future. The pricing environment and competition with other carriers has not changed. So far in April, revenue per shipment is consistent with the first quarter. The company expects mid-single-digit top line growth and a flat operating ratio in the second quarter.

The speaker explains that the timing of seeing the leverage from revenue growth and operating ratio improvement in Q2 depends on the amount of volume growth and revenue. They have invested in factors that create short-term costs, but if there is significant growth in weight and shipments, there will be a lot of leverage. The improvement in operating ratio typically comes from direct costs, such as salaries and benefits, and they will give an update on May's performance in the mid-quarter update.

The speaker discusses the current state of the company and mentions that they are not planning on hiring more employees but may have to work longer hours. They also mention that the future growth of the company will depend on top line growth and they are unsure when the demand for their products will increase.

The company has been experiencing growth opportunities and has been able to increase its revenue in the past two years. Despite a slowdown in the economy, the company has managed to maintain a good operating ratio and produce positive earnings per share. There is still room for growth and improvement in the company's operations, and they are confident in their ability to achieve long-term profitable growth and increase shareholder value. Despite some changes in service centers and customers, the company remains committed to adding value to their customers' supply chains.

The speaker thanks the audience for participating and answering questions. They invite further questions and conclude the conference. The operator thanks the audience and ends the call.

This summary was generated with AI and may contain some inaccuracies.