Old Dominion Freight Line, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Old Dominion is a union-free less-than-truckload carrier, with more than 95% of historical revenue from LTL freight transportation.
Financial and operating results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $762.2 million | $703.0 million | $1,458.4 million | $1,323.3 million |
| Operating income | $140.9 million | $122.7 million | $244.5 million | $202.7 million |
| Operating ratio | 81.5% | 82.5% | 83.2% | 84.7% |
| Net income | $85.6 million | $73.8 million | $148.1 million | $119.7 million |
| Diluted EPS | $1.00 | $0.86 | $1.73 | $1.39 |
Quarterly revenue rose 8.4%, net income 15.9% and diluted EPS 16.3%; first-half revenue rose 10.2%, net income 23.7% and diluted EPS 24.5%. LTL tonnage increased 9.1% in Q2 and 10.2% for the half, while LTL shipments increased 13.4% and 13.5%. Lower weight per shipment partly offset tonnage growth. LTL revenue per hundredweight declined 0.8% in Q2 and 0.2% for the half, largely as fuel surcharge revenue fell; excluding fuel surcharges, it increased 5.3% and 5.8%, respectively.
Net cash from operating activities was $254.2 million for the first half, versus $181.7 million a year earlier. Investing activities used $220.9 million; financing activities used $55.3 million. Cash declined $22.0 million to $12.8 million. Cash capital spending on property and equipment was $231.3 million, with $10.4 million of sale proceeds. Management estimated full-year 2015 capital expenditures of approximately $469.3 million.
At June 30, 2015, total assets were $2.38 billion and shareholders’ equity was $1.60 billion. Debt and capital lease obligations totaled $146.3 million, including $23.0 million drawn on the revolving facility; available borrowing capacity was $108.9 million after borrowings and letters of credit. The $200 million credit facility matures August 10, 2016. Senior notes had fixed rates of 4.00%–5.85%; $25.0 million was due within 12 months. The company was in compliance with debt covenants.
Drivers, outlook and risks
- Management attributed growth to higher LTL tonnage, market-share gains, network density, yield management and productivity improvements. Q2 and first-half operating ratios improved by 100 and 150 basis points, respectively.
- Fuel surcharge revenue fell to 11.0% of Q2 revenue and 11.2% of first-half revenue, from 16.0% and 16.1%; average diesel cost per gallon declined 31.1% and 32.8%, respectively. The company does not hedge diesel prices.
- Salary, wage and benefit costs rose 13.8% in Q2 and 16.0% for the half, reflecting increased staffing and wage costs, partly offset by productivity gains. Average full-time employment increased 14.6% and 15.7%, respectively.
- Management expects depreciation costs to rise as recent capital investment enters service. It expects to fund planned capital spending mainly from operating cash flows, existing cash and, if needed, revolving-credit borrowings. No earnings or revenue forecast was provided.
- Risks include economic and freight-demand changes, competitive pricing and fuel-surcharge effectiveness, driver hiring and compensation, fuel-price volatility, claims and insurance costs, regulation, seasonality and weather, capital availability, and legal proceedings. Management said ordinary-course legal claims, including some class-action allegations, are not expected to materially affect results or financial position. Environmental compliance costs were not expected to be material for the remainder of 2015 or 2016, though future regulatory changes could add costs.
Important facts for investors to verify
- Whether shipment and tonnage growth continues to offset lower weight per shipment and weaker fuel surcharge revenue.
- Whether productivity and pricing can keep pace with rising labor costs and planned capacity investment.
- Execution and funding of the approximately $469.3 million 2015 capital expenditure plan, and the timing of borrowing needs relative to the August 2016 credit-facility maturity.
- Remaining repurchase authorization was $152.1 million at June 30, 2015; first-half repurchases totaled $42.4 million. Verify the effect of continued repurchases on liquidity and share count.
- Ordinary-course claims, seasonal operating variability, and adoption of the new revenue-recognition standard, for which the company was still assessing the impact.