Old Dominion Freight Line, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The interim financial statements are unaudited. Old Dominion is a union-free less-than-truckload (LTL) carrier, with more than 95% of revenue historically generated by LTL services.
Financial performance
| Metric | Q2 2014 | Q2 2013 | First half 2014 | First half 2013 |
|---|---|---|---|---|
| Revenue | $703.0 million | $590.3 million | $1,323.3 million | $1,128.7 million |
| Operating income | $122.7 million | $97.6 million | $202.7 million | $163.5 million |
| Net income | $73.8 million | $58.3 million | $119.7 million | $98.8 million |
| Diluted EPS | $0.86 | $0.68 | $1.39 | $1.15 |
| Operating ratio | 82.5% | 83.5% | 84.7% | 85.5% |
Q2 revenue grew 19.1%, net income 26.8%, and diluted EPS 26.5% year over year. First-half revenue increased 17.2% and net income 21.2%. Operating margin, the complement of operating ratio, was 17.5% in Q2 and 15.3% for the first half.
Q2 LTL tons rose 14.9%, shipments 12.0%, weight per shipment 2.6%, and revenue per hundredweight 3.7%. For the first half, these measures increased 14.4%, 11.9%, 2.2%, and 2.7%, respectively. Management attributed growth mainly to market-share gains among existing and new customers, alongside yield improvements. Average length of haul declined in both comparable periods.
Cash flow, liquidity and debt
- First-half cash from operations was $181.7 million, versus $153.9 million a year earlier. Net cash used in investing was $200.3 million, including $218.6 million of property and equipment purchases and $18.2 million of sale proceeds. Cash declined $10.4 million to $19.8 million.
- At June 30, total debt was $199.7 million, including $35.7 million of current maturities; cash was $19.8 million. The $200 million revolving facility had $44.0 million drawn, $64.6 million in letters of credit, and $91.4 million of available capacity.
- Current assets were $382.4 million and current liabilities $297.6 million. The company reported compliance with debt covenants.
Changes, outlook and notable items
- Q2 and first-half operating ratios improved by 1.0 and 0.8 percentage points, respectively. Management cited revenue growth, density, yield management and improved fuel efficiency. Employee growth and training contributed to productivity pressure in pickup-and-delivery and platform operations.
- Management estimated 2014 capital expenditures at approximately $375 million: $132 million for service centers, $196 million for tractors, trailers and other equipment, and $47 million for technology and other assets. It expected to fund spending primarily with operating cash, existing cash and, if needed, the revolving facility. The filing provides no specific earnings or revenue guidance.
- Net gains on sales of property and equipment, primarily real estate, were $3.2 million in Q2 and $2.4 million in the first half. The effective tax rate rose to 39.0% for Q2 and 39.6% for the first half, partly because favorable alternative-fuel tax credits expired.
- No dividend was declared in the first half; management said it had no current plans to declare one during the remainder of 2014. Management noted normal seasonal patterns, with freight volumes typically building toward a third- or early fourth-quarter peak, and cautioned that interim results may not predict full-year results.
- Risks highlighted include economic and freight-demand weakness, competitive pricing, fuel costs and surcharge effectiveness, driver availability and compensation, claims and insurance costs, regulation, weather, and capital needs. Ordinary-course legal claims include some class-action allegations; management did not expect their resolution to materially harm financial position, results or cash flows.
Important facts for investors to verify
- Whether shipment growth and pricing gains continue, and whether they translate into sustained operating-ratio improvement.
- Progress against the $375 million capital-spending estimate and the resulting cash generation, borrowing needs and service capacity.
- Developments in labor, driver availability, fuel, claims and insurance costs, and the expiration of alternative-fuel tax credits.
- Revolving-facility availability, debt-covenant compliance and the timing of $35.7 million in debt maturities due within twelve months.