Yahoo Finance Old Dominion Freight Line, Inc. (NASDAQ:ODFL) Q4 2023 Earnings Call Transcript
Old Dominion Freight Line, Inc. (NASDAQ:ODFL) Q4 2023 Earnings Call Transcript January 31, 2024
Old Dominion Freight Line, Inc. beats earnings expectations. Reported EPS is $2.94, expectations were $2.86. ODFL isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the Old Dominion Fourth Quarter Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I'd now like to hand the call over to Drew Andersen. Please go ahead.
Drew Andersen: Thank you. Good morning, and welcome to the fourth quarter and full-year 2023 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 7, 2024, by dialing 1-877-344-7529, access code 2607922. The replay of the webcast may also be accessed for 30 days at the Company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note, before we begin, we welcome your questions today, but we ask in fairness to all that you limit yourself to just one question at a time before returning to the queue.
Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the Company's President and Chief Executive Officer, Mr. Marty Freeman. Please go ahead, sir.
Kevin Freeman: Good morning, and welcome to our fourth quarter conference call. With me today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. Old Dominion's fourth quarter financial results reflect continued softness in the domestic economy, which is similar to how the economic environment fell throughout much of 2023. As a result, the rebound in volumes that we had anticipated back in the spring never fully materialized. Despite the softness in the economy and weaker-than-expected volumes, the OD team faithfully executed on the same long-term strategic plan that has guided us through the ups and downs of the economic cycle many times before. During the fourth quarter, our LTL tons per day decreased 2% as compared to the fourth quarter of 2022.
Although our LTL shipments per day and overall market share improved, we also improved the quality of our revenue during the quarter as well, which contributed to an increase in both our quarterly revenue and earnings per diluted share for the first time in 2023. We believe that underlying demand for our LTL service remained consistent in the quarter, which corresponds to the consistency in our volume trends. The stability of our volumes also reflects our ongoing ability to deliver best-in-class value proposition. We were pleased to provide an on-time service performance of 99%, and a cargo claims ratio of 0.1% during the quarter, which also supported the ongoing execution of our yield management initiatives. We have said many times before that long-term improvement in our operating ratio is dependent upon a consistent improvement in density and yield, both of which generally require the support of a positive macro environment.
While our network density was challenged this year, we improved our yield by maintaining our consistent cost-based approach to our pricing. This approach focuses on improving the profitability of each customer through yield increases that are designed to offset our cost inflation and support further investments in capacity and technology. We continue to invest significantly during the 2023, as we remain confident in our ability to win market share over the long-term. Our capital expenditures totaled $757.3 million for the year, of which $291.1 million was spent for the ongoing expansion of our service center network. We opened two new service centers in 2023 and have several others under construction and nearly complete that could be opened quickly once the demand environment improves.
Our team knows firsthand how quickly the demand environment can change in the LTL industry, and we are very experienced at growing our company without sacrificing the quality of our service. To do so, however, requires us to maintain a certain amount of excess capacity in our service center network. We are pleased to currently have approximately 30% excess capacity in our network, and we have the ability to expand it further as needed to help ensure our network is never limiting factor to our growth. While the investments in our service center network, our equipment and our technology further improved the overall quality of our service in 2023, the best investment we made was in the OD Family of employees. We improved the capabilities of our team and strengthened our unique company culture, which has defined OD for many years.
Our long-term strategic plan may sound simple on the surface, but no one in our industry has been able to replicate our success because they do not have our people or our culture. Our team is fully committed to our proven business model. And as a result, we believe we are strongly positioned to respond to a positive inflection in demand once the domestic economy begins to improve. We are confident in the opportunities that lie ahead, and it is our belief, our team's focus on delivering superior service at a fair price will support our ability to produce further profitable growth while increasing shareholder value. I want to thank you today for joining us this morning, and now Adam will discuss our fourth quarter financial results in greater detail.
Adam Satterfield: Thank you, Marty, and good morning. Old Dominion's revenue for the fourth quarter of 2023 was $1.5 billion, which was a 0.3% increase from the prior year. This slight increase in revenue was primarily due to a 3.0% increase in LTL revenue per hundredweight that more than offset the 2.0% decrease in LTL tons per day. Our quarterly operating ratio was 71.8% and earnings per diluted share were $2.94, which was a 0.7% increase from last year. As Marty previously mentioned, this was the first quarter with an increase in both revenue and earnings per diluted share since the fourth quarter of last year. While it certainly has not felt like one of our record years from the past, $2.94 also represents a new company record for fourth quarter earnings per diluted share.
On a sequential basis, our revenue per day for the fourth quarter increased 1.9% when compared to the third quarter of 2023, with LTL tons per day increasing 0.6%, and LTL shipments per day decreasing 0.3%. For comparison, the 10-year average sequential change for these metrics includes a decrease of 0.8% in revenue per day, a decrease of 1.6% in tons per day and a decrease of 3.4% in shipments per day. The monthly sequential changes in LTL tons per day during the fourth quarter were as follows: October decreased 0.7% as compared to September, November decreased 0.6% from October and December decreased 4.8% as compared to November. The 10-year average change for these respective months is a decrease of 3.5% in October, an increase of 3.5% in November and a decrease of 8.0% in December.
For January, we expect our revenue per day will decrease approximately 3.1% as compared to January of 2023, with a decrease of approximately 5.1% in our LTL tons per day. These numbers could be plus or minus 10 basis points or 20 basis points, depending upon today's revenue performance. We expect our revenue per hundredweight, excluding fuel surcharges, will increase approximately 6.4%, which is generally in line with normal seasonality for this metric. We will file the actual revenue-related details for January in our Form 10-K. Our operating ratio increased 60 basis points to 71.8% for the fourth quarter. We continued to operate efficiently during the quarter despite the lack of network density, but our direct operating costs increased as a percent of revenue.
The increase in these costs was primarily due to an increase in our insurance and claims expense as a percent of revenue, which is attributable to changes in the annual adjustment we record in our fourth quarter each year relating to our third-party actuarial reviews. We were otherwise pleased with our control over direct operating costs during the quarter, as our team did a nice job of matching labor to current revenue trends. While our LTL shipments per day increased, our average headcount was down 4.1% when compared to the fourth quarter 2022. We currently believe that our workforce is appropriately sized for our current shipment trends, but we will likely need to add to our workforce this year as volumes begin to improve. Our overhead cost also increased as a percent of revenue despite our best efforts to control discretionary spending.
Depreciation expense as a percent of revenue increased 80 basis points when compared to the fourth quarter 2022, due primarily to the execution of our 2023 capital expenditure plan. The increases in depreciation and other overhead costs were partially offset by a 90 basis point improvement in our miscellaneous expenses as a percent of revenue, which included $15.1 million of gains on the disposal of property and equipment. Old Dominion's cash flow from operations totaled $436.7 million for the fourth quarter and $1.6 billion for the year, while capital expenditures were $105.9 million and $757.3 million for the same respective periods. We utilized $85.5 million and $453.6 million of cash for our share repurchase program during the fourth quarter and 2023, respectively, while cash dividends totaled $43.6 million and $175.1 million for the same periods.
We were pleased that our Board of Directors approved a 30% increase for the quarterly dividend to $0.52 per share for the first quarter of 2024. Our effective tax rate for the fourth quarter of 2023 was 24.1% as compared to 25.0% in the fourth quarter of 2022. We currently anticipate our annual effective tax rate to be 25.6% for 2024. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.
Operator: Thank you. [Operator Instructions] Today's first question comes from Bruce Chan with Stifel. Please go ahead.
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