Earnings

Old Dominion Says Rivals Are Missing Pickups For Lack Of Labor, As Big Customers Lock In Two-Year Rates

The trucker's CFO put its spare service-center capacity above 35% and said public peers ran at about a 90 operating ratio.

Old Dominion Freight Line, a less-than-truckload carrier that moves shipments sharing a truck with other customers' freight, said on its third-quarter earnings call that rivals are missing pickups because they lack labor. CFO Adam Satterfield said the company's own spare service-center real estate remains "north of 35%," and CEO Marty Freeman said large customers are negotiating rates up front for about two years.

Labor, not buildings, limits rivals

Asked by a Bernstein analyst where the industry's constraints lie, Satterfield said service-center space is tight across the industry, but the short-run limit is labor. He said the publicly traded competitor group operated at about a 90 operating ratio in the second quarter, a level at which carriers tend to trim salaries, wages and benefits, which he said make up 65% of Old Dominion's total costs.

That, he said, is why missed pickups and service disruptions arise: "a lack of labor capacity in the short run." He added that a few carriers went backwards in the latest Mastio survey, in which Freeman said Old Dominion ranked as the top national LTL provider for the 17th straight year.

Old Dominion, by contrast, keeps its headcount steady at a little over 20,000 full-time employees, Satterfield said, and trains most of its own drivers. He put returns on invested capital for its added service-center capacity at 25% to 30%. Freeman said driver turnover in LTL is under 8%.

Two-year contracts, no volume promises

Freeman told a Stephens analyst that some larger customers, who "are seeing the future bright," want rates settled now so they avoid taking "a 4% rate increase this year and a 10 next year" if the economy turns. Such deals are prevalent at two years, he said, and rest on base rate increases rather than volume. Multi-year contracts, he added, are "nothing new."

Satterfield said the contracts carry no volume commitments. Freeman also said weight per shipment is rising, which he partly tied to capacity constraints in full truckload.

Numbers behind the quarter

Revenue rose 13.1% to $1.59 billion in the third quarter, and earnings per diluted share rose 28.9% to $1.65. The operating ratio improved 280 basis points to 71.5%. Old Dominion's market value was $38.8 billion in Wednesday trading.

For the fourth quarter, Satterfield expects revenue of $1.54 billion to $1.58 billion, above normal seasonality, and an operating ratio around 73.5, give or take 20 basis points. October tonnage trailed seasonality, he said, but he expects November and December to run above it.

Satterfield's own read of the industry is that it remains capacity constrained, with Old Dominion positioned as the carrier with better service and room to grow.