The operator introduces the conference call for Old Dominion Freight Line's second quarter 2024 earnings. The call will be recorded and available for replay. The call may contain forward-looking statements and the company cautions that actual results may differ from these statements. The company will not publicly update any forward-looking statements.

The speaker welcomes listeners to the conference call and asks them to limit their questions to one at a time. The company's President and CEO, Marty Freeman, gives a brief overview of the company's second quarter results and credits the hard work and dedication of their employees for their success. He also highlights their commitment to providing superior customer service and their disciplined approach to managing costs. The company's strong service record has helped them maintain a trusted partnership with their customers and support their pricing and investment strategies.

Old Dominion Freight Line has consistently invested in new capacity over the past 10 years, allowing them to almost double their market share. They plan to continue investing ahead of their anticipated growth curve and have invested over $2 billion in their service center network. This has positioned them to grow with their customers through economic cycles. Despite short-term cost headwinds, they believe their excess capacity will be critical to support their customers in the future. They also believe that the demand for their services will continue to grow and their investments will position them to capture more of the market in the years ahead. Their strategic plan and focus on long-term opportunities have allowed them to win more market share than any other LTL carrier in the last decade.

The company believes that their investments in network, technology, and people will drive value to customers and position them as the best carrier in the industry in the long-term. They have a strong track record of service and a cost-based pricing approach. They have consistently invested in new capacity over the past 10 years and plan to continue investing. This has allowed them to almost double their market share and be prepared for future growth. Maintaining excess capacity may create short-term cost challenges, but they are confident it will benefit their customers when the economy improves.

Old Dominion Freight Line's network investments are not only for handling overflow during economic growth, but also to meet the growing demand for service-sensitive LTL capacity. This has allowed them to consistently win market share over the past decade and be well-positioned for future growth. In the second quarter of 2024, the company saw a 6.1% increase in revenue, with improvements in LTL revenue per hundredweight and tons per day. Their operating ratio also improved, leading to an 11.3% increase in earnings per diluted share. On a sequential basis, revenue per day and LTL tons per day increased, outperforming the 10-year average.

The second quarter saw monthly sequential increases in LTL tons per day, with April increasing 0.4%, May increasing 0.1%, and June increasing 1.9%. July is expected to see a 4% to 4.5% increase in revenue per day compared to July 2023. The operating ratio improved by 40 basis points to 71.9% due to revenue growth and cost management, but overhead costs increased. Long-term operating ratio improvement relies on a favorable macroeconomic environment and a combination of density and yield.

The company is focused on improving their yield management and believes that an improvement in the domestic economy will lead to increased shipping demand and market share opportunities. They are confident that this will lead to a lower operating ratio and are aiming for a sub-70 annual OR. Cash flow from operations and capital expenditures are reported for the second quarter and first half of 2024, as well as share repurchases and cash dividends. The effective tax rate for the second quarter of 2024 was lower than expected due to certain tax items. The company expects their effective tax rate to be 25% for the third quarter. Questions from analysts are then opened for discussion.

Adam Satterfield discusses the current state of the economy, which is not contributing much to their company's revenue due to a high percentage of industrial-related revenue. The ISM has been below 50 for 19 out of the past 20 months, making it difficult to predict top line performance. However, there have been some positive trends in revenue and volume in June and July. Satterfield believes that a 50 basis point sequential increase in the third quarter is achievable, regardless of the direction of revenue. He also mentions the possibility of change in demand as the year progresses, but it is difficult to tell at this point.

Adam Satterfield discusses the current state of the market and notes that there has been some improvement in performance and volume in June. He believes that the interest rate environment may be improving, which could benefit the business. However, he also acknowledges that the industry is still going through a slow cycle and will have to continue monitoring the situation. The next question asks about pricing, and Adam mentions that it has remained stable and even improved in June, but they are still waiting to see how it will be in July. The question also raises concerns about the industry's ability to support further rate increases in the second half of the year, given the current tepid demand and difficult comparisons.

Adam Satterfield discusses the company's long-term yield management philosophy and targeting increases to offset cost inflation and invest in capacity and technology. He mentions that the yield trend in June and July is similar to last year, and expects it to increase by 4% to 4.5% for the full quarter. He also talks about the decrease in weight per shipment last year due to industry disruption, but notes that it has been stable so far. He acknowledges that further increases in weight per shipment may be challenging due to economic conditions. Chris Wetherbee asks about weight per shipment trends, which have been flat in the last couple of quarters, and Adam shares his thoughts on how it may continue in a sluggish economy.

Adam Satterfield discusses the lack of change in July's weight average, which has been hovering around 1500 pounds. He believes this reflects the current state of the industrial economy. He also mentions that an increase in weight per shipment could be a sign of improving economic conditions. The company is prepared to respond to any positive changes in the market. In response to a question about revenue, Adam states that the 4% to 4.5% increase is a combination of tonnage and yield, and that the 50 basis points decline is expected and not worse than usual.

Adam Satterfield discusses the company's target of 50 basis points and the team's efforts to manage costs in a lower volume environment. He mentions potential cost increases in the third quarter, such as incremental depreciation and a wage increase, but also notes improvements in operating efficiencies and discretionary spending. He hopes for some incremental revenue improvement but stresses the goal of achieving the 50 basis points target. Scott Group asks about the record buyback in the quarter and Satterfield clarifies that it is not a change in capital returns, but rather similar to previous years when the stock performed poorly. In 2022, the company spent $1.3 billion on buybacks.

The company's stock was down 20-25% from 52-week highs, so they were more aggressive with their share repurchases during the second quarter. They also have an accelerated share repurchase agreement that should settle in the late third or early fourth quarter. Other carriers in the industry may also have excess capacity, but it is uncertain what they will do with it. Overall, the industry is expected to be more capacity constrained compared to previous years.

The speaker discusses the current state of the market and the impact of LTL shipments on it. They believe that the market will recover and continue to grow, and they are investing ahead of this anticipated growth. They also mention the importance of high quality carriers in a higher interest rate environment and believe they are well positioned to capitalize on market opportunities. The next speaker asks for more information on July tonnage and shipments, but the speaker only provides information on revenue, which is currently in flux due to changing circumstances.

The speaker discusses how the drastic change in business levels and mix in the last part of July may affect the final volume and yield numbers for the month. They anticipate volumes to be flat and yields to be consistent with the second quarter, but note that there may be some fluctuations. They also mention that July and October typically see decreases in revenue per day, but this is consistent with normal seasonality. They hope to see a recovery in August and strong performance in September. The speaker plans to update with final July numbers and a mid-quarter update on August trends.

The speaker is discussing the company's headcount and how it has increased over the past year. They mention that they are always monitoring and adjusting headcount based on shipment counts. They also mention that they are investing in their employees and truck driving schools to be prepared for future demand. The speaker emphasizes the importance of staying ahead of the curve and being proactive in responding to customer needs.

Adam Satterfield, speaking about the current state of the market, says that the company is seeing good yield performance and expects this to continue. Their yield management philosophy is to attain increases based on their own cost inflation and business needs, rather than market conditions. They are negotiating and working every day to obtain increases on contracts and expect a disciplined environment in the industry. They will continue to focus on adding value to customer supply chains.

Eric Morgan asks about cost inflation and the impact on the company's cost per shipment and overall operating ratio. Adam Satterfield explains that over the long term, the company's cost per shipment has been increasing by about 3% to 3.5%, in line with their annual wage increase. He also mentions that there have been increases in fringe benefits, such as paid time off and healthcare, which contribute to the overall cost per shipment. However, he expects this trend to continue and reflects the company's commitment to offering competitive compensation and benefits to their employees.

The speaker discusses the various factors that contribute to inflation in the industry, such as equipment and maintenance costs, insurance costs, and the need for ongoing focus on operating efficiency and discretionary spending. They also mention the yield management philosophy of achieving positive spread over cost inflation and the day-to-day fight to keep costs in check. The upcoming fourth quarter is expected to have a slight drop in revenue per day, as it is a seasonally slower period.

The paragraph discusses the expected changes in revenue and operating ratio for the company in the first quarter. It mentions a decrease in revenue and an increase in operating ratio, which is attributed to a wage increase and actuarial assessment of insurance reserves. The speaker also mentions that the previous year had an unfavorable adjustment to insurance and claims, but this should not be factored into the current analysis. The next question from an analyst asks about the projected market tonnage growth in the third and fourth quarter, to which the speaker responds that they have previously discussed revenue per day and now they will address tonnage per day.

The speaker agrees that the pure math suggests a 10 basis point change, but there have been some unusual factors in the past few years that have skewed this. They expect a more normalized progression going forward, unless there are any other unusual factors. The tonnage and shipment numbers have also been affected by these factors, with a significant acceleration last year. However, if they see a normal acceleration, it would still result in a negative change. The speaker emphasizes the importance of looking at things sequentially rather than just year-over-year, and mentions that they need to make up ground in terms of tons per day.

The speaker discusses the typical seasonal fluctuations in business during the months of July and March, and expresses hope for an acceleration in August and September to offset any losses. They also mention the company's strong operating ratio and cost management, and anticipate a return to higher operating density in the future.

Adam and Marty discuss the company's strong position in the market and their ability to capitalize on economic wins in the future. They also mention positive feedback from their top customers and a potential for an interest rate drop to further accelerate their growth. They are optimistic about the company's future despite competition and new capacity coming online.

The speaker discusses the lack of significant impact from competitors opening service centers in various markets, as evidenced by consistent yield trends. They believe that the market will recover and create opportunities for filling up service centers once they come online. They also mention that there are still over 130 facilities that have not been sold, creating less capacity than when YRC was still in business. The speaker also mentions Old Dominion's specific opportunities in this market. The questioner asks for an update on new terminal openings and door additions so far this year.

The company has opened three new service centers this year and plans to spend $350 million on real estate. They are currently ahead of their capacity goals, but are comfortable with that. They will finish constructing facilities, but may wait to open them until demand increases. This may impact overhead costs and load factors.

The speaker discusses the impact of seasonality and macro factors on the company's business, including geopolitical situations and the upcoming election. They mention that a third of their business is related to 3PLs and that they have received positive feedback from these customers about growth opportunities.

The speaker is confident that there will be positive results from their customers and hopes for a change in the geopolitical environment next year. The upcoming election may bring uncertainty, but clarity on macro factors and a healthy consumer could create opportunities for the company. They have seen improved performance with their 3PL customers and are prepared to capitalize on a turnaround in the cycle.

The next question is from Jason Seidl with TD Cowen, who asks Marty Freeman and Adam Satterfield about the impact of the current economic climate on their customers. Freeman mentions that while the hospitality and travel markets are struggling, other industries are seeing varying levels of success. He also remains optimistic that things have bottomed out and expects improvement in the future. Seidl asks about any potential pull forward of business, but Freeman and Satterfield have not seen any significant impact from this.

Jeff Kauffman from Vertical Research Partners asks Marty Freeman about the divergence between the ATA/LTL tonnage index and the publicly traded LTL carriers' volumes. Marty explains that after YRC went out of business, some of the freight was picked up by smaller freight forwarders and full truckload carriers, resulting in lower rates. As the economy picks up, the LTL industry is expected to benefit as some of the freight will move back to them from the full truckload carriers. This explains the difference between the two indices.

The speaker discusses the current state of the trucking industry and how it may appear stronger than it actually is due to the limited information available on private carriers. He also notes that the industry has faced challenges due to the slower economy, but believes that there will be long-term opportunities for growth in the LTL sector.

The speaker believes that the company will continue to grow and surpass their 2021 levels. They also anticipate a decrease in industry capacity, which will allow them to gain more market share. The speaker is confident that their company offers the best value and will continue to create shareholder value. The call has ended and the audience is encouraged to contact the company for further questions.

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