Old Dominion Freight Line, Inc. — Q2 2013 Form 10-Q
Business and period: Less-than-truckload carrier with related freight and logistics services. This unaudited filing covers the quarter and six months ended June 30, 2013; comparisons are with 2012. More than 90% of revenue historically came from LTL transportation.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $590.3 million | $547.5 million | $1,128.7 million | $1,050.3 million |
| Operating income | $97.6 million | $82.6 million | $163.5 million | $136.8 million |
| Operating ratio | 83.5% | 84.9% | 85.5% | 87.0% |
| Net income | $58.3 million | $47.8 million | $98.8 million | $78.9 million |
| Diluted EPS | $0.68 | $0.56 | $1.15 | $0.92 |
- Q2 revenue rose 7.8%, net income 21.8%, and diluted EPS 21.4% year over year. First-half revenue rose 7.5%, net income 25.2%, and diluted EPS 25.0%.
- Q2 tonnage increased 5.6%; shipments rose 5.6%. Revenue per hundredweight increased 2.3% to $15.76; excluding fuel surcharges, it rose 2.9%. First-half tonnage rose 4.6%, and revenue per hundredweight rose 2.5% to $15.71.
- Operating margin, calculated as operating income divided by revenue, was approximately 16.5% in Q2 and 14.5% for the first half, versus approximately 15.1% and 13.0% in 2012. The lower operating ratios indicate improved operating efficiency.
- Effective tax rate was 38.6% for Q2 and 37.6% year to date, compared with 39.5% in both 2012 periods. The 2013 rate benefited from alternative-fuel tax credits, including a $1.6 million first-quarter discrete adjustment.
Cash, debt, and liquidity
- First-half operating cash flow was $153.9 million, versus $144.4 million in 2012. Net cash used in investing was $147.7 million, compared with $206.9 million; net cash used in financing was $11.6 million, compared with $2.3 million.
- Cash declined to $7.4 million from $12.9 million at year-end 2012. Property and equipment purchases were $156.4 million in the first half; proceeds from asset sales were $8.6 million.
- Total debt was $228.8 million at June 30, down from $240.4 million at year-end 2012. This included $191.4 million of senior notes and $34.7 million drawn on the revolving facility. Senior-note maturities include $35.7 million due within 12 months.
- The $200 million revolving facility had $107.6 million of available borrowing capacity after borrowings and letters of credit. The company reported compliance with debt covenants.
- Total assets were $1.855 billion and shareholders’ equity was $1.125 billion at June 30, 2013. No dividend was declared or paid in the first half; management said it had no current plan to pay one during the remainder of 2013.
Changes, outlook, and risks
- Management attributed growth to higher tonnage, improved pricing, market-share gains, network density, and operating efficiencies. It described Q2 as a record for revenue, net income, and operating ratio, while noting that the U.S. economy remained sluggish.
- Management estimated 2013 capital expenditures, net of anticipated asset-sale proceeds, at approximately $305 million: about $130 million for service centers, $150 million for tractors, trailers and other equipment, and $25 million for technology and other assets. It expected to fund spending primarily with operating cash flow, cash, and, if needed, the revolving facility.
- Depreciation rose as a share of revenue because of recent equipment purchases and higher costs for new tractors under stricter emissions standards. Management expected its capital investment program to support long-term growth.
- Fuel surcharge revenue was 16.0% of Q2 revenue, down from 16.4%; the surcharges are generally indexed weekly to published diesel prices. Risks include freight demand and economic weakness, pricing and fuel costs, labor availability and compensation, claims, regulation and environmental compliance, equipment costs, seasonality, and severe weather. Management noted first-quarter seasonality and typical volume peaks in the third or early fourth quarter.
- Ordinary-course legal claims were described as often partly or fully insured; management did not expect them to materially affect financial position, results, or cash flows. The filing reported no subsequent events requiring recognition or disclosure.
- An immaterial presentation correction moved certain brokerage and freight-forwarding transportation costs from netted revenue to purchased transportation expense. Prior-period revenue and expense were increased, with no effect on operating income, net income, EPS, or retained earnings; further corrections were planned for Q3 and Q4 2012.
Key facts for investors to verify
- Whether shipment growth, yield improvement, and operating-ratio gains continue, and how they respond to changes in the economy and LTL pricing.
- Execution and funding of the approximately $305 million 2013 capital plan, including the effect of equipment costs and depreciation on margins and cash generation.
- Cash availability, revolving-credit usage, upcoming debt maturities, and continued compliance with debt covenants.
- The impact of fuel prices and surcharges, labor and benefit costs, claims, and seasonal or weather disruptions.
- The scope and timing of the stated prior-period revenue and purchased-transportation presentation corrections.