Old Dominion Freight Line, Inc. — Q2 2021 Form 10-Q
Business and period: The company is a North American less-than-truckload (LTL) carrier, with related drayage, truck brokerage and supply-chain services. This filing covers the quarter and six months ended June 30, 2021; interim results may not predict full-year performance because of seasonality.
Financial and operating results
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $1,319.4 million | $896.2 million | $2,445.9 million | $1,883.6 million |
| Operating income | $366.0 million | $199.2 million | $635.7 million | $382.3 million |
| Net income | $269.6 million | $147.8 million | $468.9 million | $281.0 million |
| Diluted EPS | $2.31 | $1.25 | $4.01 | $2.36 |
| Operating ratio | 72.3% | 77.8% | 74.0% | 79.7% |
- Q2 revenue rose 47.2%, net income 82.4% and diluted EPS 84.8% year over year. H1 revenue rose 29.9%, net income 66.9% and diluted EPS 69.9%.
- Management attributed growth to increased LTL tonnage and revenue per hundredweight, a stronger domestic economy, tight industry capacity and pricing. Q2 LTL shipments increased 33.5% and tonnage 28.1%; revenue per hundredweight rose 14.9% (10.3% excluding fuel surcharges). Weight per shipment declined 4.0%.
- H1 cash from operations was $508.3 million, versus $516.2 million a year earlier. Investing activities used $25.5 million and financing activities used $400.0 million. Cash increased $82.8 million to $484.2 million.
- At June 30, cash and short-term investments totaled $649.5 million; current assets were $1,311.1 million and current liabilities $482.0 million. Debt was $99.9 million, with no revolver borrowings. The $250 million revolver had $210.8 million available after letters of credit.
- Capital expenditures (property and equipment purchases) were $206.1 million in H1. The filing reports net capital expenditures of $190.6 million after asset-sale proceeds.
Material changes and management commentary
- The operating ratio improved 5.5 percentage points in Q2 and 5.7 points in H1. Higher density and yield supported profitability, while increased employee and operating costs partly offset the benefit.
- Q2 salaries, wages and benefits rose 32.7%, reflecting higher headcount, wage increases, performance compensation and benefit costs. Average active full-time employees increased 20.7% in Q2. Diesel cost per gallon rose 97.5% in Q2; the company does not hedge diesel fuel. Purchased transportation also increased as the company supplemented staffing to meet demand.
- July 2021 revenue per day increased 36.7% year over year; LTL tons per day rose 18.6%, and LTL revenue per hundredweight increased approximately 14.8% (9.5% excluding fuel surcharges).
Outlook, risks and contingencies
- Management estimated 2021 capital expenditures at approximately $605 million: $275 million for service centers, $290 million for tractors and trailers, and $40 million for technology and other assets. It expects to fund these primarily from operating cash flow, cash and investments, with borrowing capacity available if needed.
- The company expects to continue hiring and using supplemental third-party transportation to support demand, and anticipates higher depreciation as its capital spending proceeds. No specific revenue or earnings guidance is provided.
- On July 28, 2021, after quarter-end, the board authorized a new $2.0 billion share-repurchase program, effective after completion of the existing program. At June 30, $275.0 million remained under the current program, including $68.7 million deferred pending ASR settlement. The company declared dividends of $0.20 per share for each of Q1 and Q2 2021.
- Key risks cited include economic and freight-demand changes, competition and pricing, fuel prices and fuel-surcharge recovery, hiring and retaining drivers, equipment availability and cost, weather and seasonality, COVID-19 impacts, safety and environmental regulation, litigation, and technology or cybersecurity disruptions. Management said it was in compliance with debt covenants and did not expect covenant violations.
- Ordinary-course legal claims and investigations, including class-action allegations, were described as not expected to materially affect the company. A California waste-handling investigation remained under discussion; management did not believe any possible loss would be material.
Important facts for investors to verify
- Whether July’s strong shipment and yield trends continued, and how much growth reflected volume, pricing, fuel surcharges and comparison-period effects.
- Whether hiring, labor productivity and supplemental transportation costs keep pace with demand, and whether rising diesel costs are recovered through surcharges.
- Execution and funding of the approximately $605 million 2021 capital plan, including equipment availability and service-center project timing.
- Final settlement of the accelerated share repurchase agreement, completion of the existing buyback program, and the timing and funding of the new $2.0 billion authorization.
- Developments in the California waste-handling matter and other claims, as well as compliance with debt covenants and available liquidity.