Old Dominion Freight Line, Inc. — Q1 2019 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are with December 31, 2018. Old Dominion is a union-free less-than-truckload (LTL) carrier, with more than 97% of revenue historically coming from LTL shipments. Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $990.8 million | $925.0 million | +7.1% |
| Operating income | $178.4 million | $149.3 million | +19.5% |
| Operating ratio | 82.0% | 83.9% | Improved 190 basis points |
| Net income | $133.3 million | $109.3 million | +21.9% |
| Diluted EPS | $1.64 | $1.33 | +23.3% |
| Operating cash flow | $206.2 million | $211.2 million | Down $5.1 million |
- Operating margin was 18.0%, versus 16.1%; net margin was 13.5%, versus 11.8%. The effective tax rate was 26.1%, compared with 25.9%.
- LTL revenue was $976.6 million, versus $911.1 million. LTL revenue per hundredweight rose 9.6% to $22.10, including fuel surcharges; the increase excluding fuel surcharges was also 9.6%.
- LTL tons fell 3.0%, while shipments increased 1.1%. Weight per shipment declined 4.0% to 1,566 pounds; average length of haul increased 0.4% to 918 miles. The company attributed the lower weight per shipment partly to network operational changes and freight mix.
- Salaries, wages and benefits rose 4.2%, but declined to 52.7% of revenue from 54.2%. Depreciation and amortization increased 17.9%, reflecting assets acquired through the 2018 capital program.
- Cash from operations less net capital expenditures was approximately $135.7 million. Net capital expenditures were $70.5 million, compared with $100.2 million in Q1 2018. Financing cash outflows were $45.4 million, including $30.6 million of repurchases and $13.8 million of dividends. Cash increased $90.3 million to $280.6 million.
Financial position and liquidity
- At March 31, cash was $280.6 million, total assets were $3.704 billion, and shareholders’ equity was $2.770 billion.
- Debt was $45.0 million, unchanged from year-end, with no revolving-credit borrowings. The senior notes carry a 4.79% rate and are due January 3, 2021. The $300 million revolving facility had $241.1 million of available capacity after $58.9 million of letters of credit.
- The company reported compliance with its debt covenants. It cited cash, operating cash flow and available revolver capacity as its primary liquidity sources.
- Adoption of lease accounting on January 1, 2019 added right-of-use assets of $68.0 million and lease liabilities of $69.1 million. At March 31, lease liabilities were $69.0 million, including $10.4 million current; right-of-use assets were $67.8 million.
Changes, outlook and risks
- Management attributed revenue growth primarily to stronger yield, partly offset by lower LTL tonnage. It said pricing conditions were generally stable and emphasized pricing discipline, network density and operating efficiency.
- April 2019 revenue per day increased 3.4% year over year, while LTL tons per day declined 5.8%; shipments per day fell 2.1% and weight per shipment declined 3.9%. LTL revenue per hundredweight rose approximately 10.1%. This update indicates weaker volume trends despite continued yield growth.
- The company estimated 2019 capital expenditures of approximately $480 million: about $220 million for service-center facilities, $165 million for tractors and trailers, and $95 million for technology and other assets. It expected to fund these primarily with operating cash flow, existing cash and, if needed, revolver borrowings. Management anticipated continued high investment to support long-term growth.
- The board’s two-year, $250 million repurchase authorization had $101.1 million remaining at March 31. The Q1 dividend declared was $0.17 per share, compared with $0.13 in each quarter of 2018; future dividends remain subject to board approval and credit-facility restrictions.
- Management cautioned that first-quarter results are not necessarily indicative of the full year and noted seasonal weakness typically affects the first and fourth quarters. Risks include economic and freight-demand weakness, pricing and fuel-surcharge effectiveness, diesel costs, driver availability and compensation, claims and insurance, regulation, weather, technology and cybersecurity, and legal proceedings. The company reported no material market-risk changes and did not expect ordinary-course legal matters to materially affect results.
- No full-year earnings or revenue guidance was provided in the supplied filing text. The company stated that higher depreciation could continue with its 2019 investment program.
Important facts for investors to verify
- Whether April’s declining LTL tons and shipments per day continued, and whether yield gains persisted without further volume deterioration.
- Progress and funding of the approximately $480 million capital-expenditure plan, including its impact on depreciation, cash generation and liquidity.
- Changes in operating ratio and labor productivity as employee headcount and wages rise.
- Fuel-cost and surcharge trends, freight mix, and the distinction between reported revenue-per-hundredweight gains and underlying base-rate changes.
- Lease obligations, debt-covenant headroom, and remaining repurchase authorization and dividend capacity.
- Developments in legal claims, regulatory matters and the other disclosed operational and technology risks.