Old Dominion Freight Line, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Old Dominion is a union-free less-than-truckload (LTL) carrier, with more than 97% of revenue historically from LTL transportation.
Financial performance
| Metric | Q3 2018 | Q3 2017 | First 9 months 2018 | First 9 months 2017 |
|---|---|---|---|---|
| Revenue | $1,058.2 million | $873.0 million | $3,016.8 million | $2,467.0 million |
| Operating income | $228.4 million | $163.9 million | $598.2 million | $432.4 million |
| Operating ratio | 78.4% | 81.2% | 80.2% | 82.5% |
| Net income | $173.4 million | $102.3 million | $446.2 million | $266.5 million |
| Diluted EPS | $2.12 | $1.24 | $5.43 | $3.23 |
- Revenue grew 21.2% in Q3 and 22.3% year to date; net income rose 69.5% and 67.4%, respectively. The operating ratio improved by 2.8 percentage points in Q3 and 2.3 points year to date.
- Q3 LTL tons increased 8.1%, shipments 9.7%, and revenue per hundredweight 12.5%; weight per shipment declined 1.4%. Excluding fuel surcharges, revenue per hundredweight rose 9.0% in Q3 and 5.6% year to date.
- Effective tax rates fell to 24.3% in Q3 and 25.4% year to date, from 37.8% and 38.3%, primarily due to the Tax Cuts and Jobs Act. The lower rate contributed to earnings growth.
Cash flow, balance sheet and capital
- For the first nine months, operating cash flow was $675.4 million, capital purchases were $469.9 million, net cash used in investing was $465.7 million, and financing used $159.7 million. Cash increased $50.0 million to $177.5 million.
- At September 30, cash was $177.5 million, total assets $3.49 billion, and total liabilities $872.4 million. Long-term debt was $45.0 million, down from $95.0 million at December 31, 2017, following a scheduled $50.0 million repayment.
- The $300 million revolving facility had no borrowings; $61.5 million of letters of credit left $238.5 million available. The company reported compliance with its debt covenants.
- Share repurchases totaled $76.6 million year to date; $218.4 million remained authorized under the two-year, $250 million program. Quarterly dividends were $0.13 per share, versus $0.10 a year earlier.
Management commentary, outlook and risks
- Management attributed growth to domestic economic strength, increased demand, market-share gains, a favorable pricing environment and continued yield management. Cost control and revenue growth supported record Q3 revenue, operating ratio and net income.
- Diesel fuel costs rose: average cost per gallon increased 29.8% in Q3 and 30.5% year to date, while gallons consumed rose 9.7% and 12.7%. Fuel surcharges increased as a share of revenue, but the company does not hedge diesel fuel.
- Management estimated 2018 capital expenditures of approximately $555 million, including about $200 million for service centers, $300 million for tractors and trailers, and $55 million for technology and other assets; it expected to fund spending primarily from operating cash flow and cash.
- In October 2018, LTL tons per day increased 2.4% year over year, shipments per day increased 6.0%, weight per shipment fell 3.4%, and revenue per hundredweight rose approximately 13.7%.
- The company cautioned that results are seasonal and interim results may not indicate full-year performance. Key risks include economic or freight-demand weakness, competition and pricing, fuel costs and surcharge effectiveness, labor availability and compensation, claims, regulation, weather, technology and cybersecurity. Ordinary-course legal matters include some class-action allegations; management did not expect them to materially affect results.
- The company expected the new lease accounting standard to materially affect the balance sheet through recognition of right-of-use assets and lease liabilities. Revenue-standard adoption had no material impact.
Important facts for investors to verify
- Whether shipment growth and pricing gains persist, and how changes in weight, freight mix and fuel surcharges affect underlying yields.
- Whether labor, benefits, fuel and expansion costs remain controlled as the network and workforce grow.
- Actual 2018 capital expenditures versus the approximately $555 million estimate, and the resulting cash generation.
- Effects of lease-standard adoption, tax-law implementation and any changes in debt capacity or covenant headroom.
- Developments in economic demand, seasonal conditions, legal claims, regulatory requirements and other disclosed risks.