Old Dominion Freight Line, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; filed November 8, 2013. Old Dominion is a union-free less-than-truckload carrier, with more than 90% of revenue historically generated from LTL transportation.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $616.5 million | $550.5 million | $1,745.2 million | $1,600.8 million |
| Operating income | $98.1 million | $80.9 million | $261.6 million | $217.7 million |
| Operating ratio | 84.1% | 85.3% | 85.0% | 86.4% |
| Net income | $60.1 million | $51.0 million | $159.0 million | $130.0 million |
| Diluted EPS | $0.70 | $0.59 | $1.84 | $1.51 |
| Operating cash flow | Not separately presented | Not separately presented | $253.4 million | $222.7 million |
- Q3 revenue rose 12.0%, net income 17.8% and diluted EPS 18.6%. Nine-month revenue increased 9.0%, net income 22.3% and diluted EPS 21.9%.
- Q3 tonnage grew 9.6% and shipments 8.7%; revenue per hundredweight increased 3.3% to $16.12. For the nine-month period, tonnage rose 6.3% and revenue per hundredweight increased 2.9% to $15.86.
- Net margin was 9.8% in Q3 versus 9.3% a year earlier, and 9.1% year to date versus 8.1%.
- Nine-month investing cash outflow was $219.8 million, primarily reflecting property and equipment investment; financing cash outflow was $34.3 million. Cash declined $0.8 million to $12.1 million.
Balance sheet and liquidity
- At September 30, 2013, total assets were $1.905 billion and shareholders’ equity was $1.185 billion. Current assets were $333.3 million versus current liabilities of $248.8 million.
- Total debt, including current maturities, was $206.1 million, down from $240.4 million at December 31, 2012. Senior notes totaled $191.4 million, with fixed rates of 4.00%–5.85%; $35.7 million of senior-note principal was due over the next 12 months.
- The $200 million revolving facility had $12.0 million drawn and $57.8 million in letters of credit, leaving $130.2 million available. The company reported compliance with debt covenants.
- Nine-month property and equipment purchases were $229.2 million; net investing outflow was $219.8 million after asset-sale proceeds.
Changes, outlook and risks
- Management attributed growth primarily to market-share gains, higher shipments and disciplined yield management, while describing the U.S. economy as growing slowly. Q3 revenue growth was the company’s highest quarter-over-quarter growth rate of 2013 at the time.
- Management estimated 2013 capital expenditures, net of anticipated asset-sale proceeds, at approximately $305 million: about $130 million for service centers, $150 million for tractors, trailers and other equipment, and $25 million for technology and other assets. The company expected to fund spending mainly from operations and existing liquidity.
- No specific earnings or revenue guidance was provided. Management said current liquidity was expected to cover planned capital spending and foreseeable needs, but noted that a significant demand decline could weaken cash generation and profitability.
- Labor and benefit costs rose, including higher group health and dental expense; management cited potential ongoing effects from health-care legislation. Depreciation increased with fleet and facility investment, including higher-cost tractors affected by stricter emissions standards. Diesel fuel prices were lower year over year, and fuel surcharges are intended to offset fuel-price fluctuations.
- Seasonality affects volumes and margins; winter weather or natural disasters may reduce demand and increase costs. Other disclosed risks include pricing and competition, driver availability and compensation, fuel costs, claims, regulation, environmental obligations, and disruption to information systems or the service-center network.
- Ordinary-course legal proceedings and claims were not expected by management to have a material adverse effect. The filing reported no subsequent events requiring disclosure.
Accounting and reporting items
The company corrected prior-period presentation for certain truckload brokerage and international freight-forwarding costs: 2012 revenue and purchased transportation expense were both increased by $6.0 million for Q3 and $17.6 million for the first nine months. The correction did not affect operating income, net income, EPS or retained earnings. A further $6.5 million gross-up was to be recorded for Q4 2012. Q3 and year-to-date 2013 effective tax rates were 36.9% and 37.3%; favorable discrete tax adjustments were $1.6 million and $3.2 million, respectively.
Important facts for investors to verify
- Whether shipment and tonnage growth, market-share gains and pricing improvements continued after Q3.
- Whether higher labor, health-benefit, equipment and depreciation costs affected subsequent margins.
- Actual 2013 capital spending versus the approximately $305 million estimate and resulting cash flow and borrowing needs.
- Debt maturities, revolving-facility availability, covenant compliance and the impact of any demand or fuel-price changes.
- Effects of seasonality, weather, regulatory changes and environmental or claims-related contingencies.