Q1 2021 Old Dominion Freight Line Inc Earnings Call
[music].
Thank you and welcome to the first quarter 2021 conference call for old Dominion freight line today's call is being recorded and will be available for replay beginning today and through April 30th 2021 My day.
<unk> 7194 of 570820.
The replay pass code is seven six to 3805 the replay of the webcast may also be accessed for 30 days of the company's website.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, Inc.
Including statements among others regarding old dominions expected financial and operating performance for the.
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 that are set forth in the old Dominion's filings with the Securities and Exchange Commission and in this morning's news release.
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.
It's the final note before we begin today, we welcome your questions, but we do ask in fairness to all of that you limit yourself to just a couple of questions at a time before returning to the queue. Thank.
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. Greg Gantt. Please go ahead Sir.
Good morning.
Welcome to our first quarter conference call.
With me on the call today is Adam Satterfield, our CFO.
After some brief remarks, we will be glad to take your questions.
We were pleased to report a great start the 2021 for old Dominion.
Our financial results were highlighted by new first quarter records for revenue operating ratio and earnings per diluted share.
The operating momentum that began in the second half of 2020 continued through the quarter and we also benefited from an improving domestic economy.
Our revenue increased 1.1 billion as a result, which is the highest level of quarterly revenue we have ever achieved.
The 14, 1% revenue growth rate was also our highest since the fourth quarter of 2018.
After of essentially going through to flattish years and 19 in 'twenty, while our revenue was relatively flat over the past two years and that wasn't unusually long period for us. The go without growth we maintained our commitment to our long term strategic plan and invest in <unk>.
The most times for our future.
Our first quarter financial results validate the benefits of this long term strategy.
All of our strategic plan has worked throughout many economic cycles.
Generally see our largest increases in market share when the domestic economy is strong and the industry capacity is generally limited.
This is the environment in which we are now operating.
We have also recently received encouraging feedback from many of our customers regarding the ongoing recovery of this business of the east business levels and their increased demand for our services.
As a result, we expect to see of continued acceleration in our market share trends as we progress through this year.
Our focus is never to simply increase market share and revenues. Our objective is to win market share in a way that can produce profitable revenue growth.
We achieved this goal in the first quarter.
Our ability to deliver best in class service at a fair price contributed to the increase on our volumes the.
The resulting improvement in density as well as an increase in the yield that exceeded the cost inflation led to the 76, 1% operating ratio for the quarter and 53% increase in earnings per diluted share.
With the favorable operating environment and improving trends, we intend to invest significantly in all elements of capacity this year to support our revenue growth initiatives.
This starts with our OD family of employees, which already grew by over 1000, new full time employees during the first quarter.
We intend to hire additional employees this year to further increase the capacity of our workforce.
In addition, we will support our team's ability to deliver superior service.
The investing approximately $605 million and capital expenditures during 2021.
Total includes new tractors and trailers as well as an expansion of our service Center network that could include an additional four to six service centers.
We will also continue to invest in new technologies that are designed to improve customer service and increase the efficiency of our operations.
The Ot team will be diligent in managing the productivity cost and capacity this year to maximize our ability to produce profitable growth in 2021.
Diligence, however will not affect our focus on the long term opportunities for our business.
We believe we are the best positioned company in the L. P. L industry the win market share in both of the current environment and over the long term. This provides us with confidence that the continued the execution of our strategic plan combined with our financial strength and available network capacity can produce.
Additional growth in earnings and increased shareholder value.
Thank you for joining us this morning, and now Adam will discuss our first quarter financial results in greater detail.
Yes.
Thank you, Greg and good morning.
The old dominions revenue for the first quarter of 2021 was $1 1 billion, which was the 14, 1% increase from the prior year, despite having one less workday.
Our operating ratio improved 530 basis points to 76, 1% and earnings per diluted share increased to $1 70.
Our per day revenue growth of 15, 9% included a nice mix of the increases in both of our <unk> tons of new.
<unk> tons per day increased 10%, while our <unk> revenue per hundredweight increased five 6%.
We are winning market share as demand for our industry, leading service has increased while the domestic economy is improving.
In addition to our service advantage that includes 99% on time performance in our cargo claims ratio of zero to 1% our proven strategy of investing in service Center capacity ahead of anticipated growth has also provided us with the capacity advantage in the marketplace.
This strategy is different from many of our competitors as we believe the average number of service centers operated by the other large LPL carriers has decreased over the past 10 years.
We currently have approximately 25% excess capacity within our service Center network, which is in line with our long term targets and we plan to further expand our network. This year to stay ahead of our growth of <unk>.
Plan is to ensure that our network is never a limiting factor to growth.
On a sequential basis revenue per day for the first quarter increased three 3% as compared to the fourth quarter of 2020 with the <unk> tons per day, increasing 7% and <unk> shipments per day, increasing one 5%.
These were all above our normal sequential trends, which typically decline from the fourth quarter.
The monthly sequential changes in <unk> tons per day during the first quarter were as follows.
January increased 0.3% as compared with December February decreased four 4% versus January and March increased 10, 7% as compared to February the <unk>.
10 year average change for the respective months or an increase of one 2% of January an increase of two 2% in February and an increase of five 1% in March.
While there are still many workdays that remain in April our revenue performance has remained strong our month to date revenue per day and has increased by approximately 45% to 50% when compared to April of 2020.
As a reminder, our revenue decreased 19, 3% in April 2020, due to the significant impact of the Covid related shutdowns, we will provide the actual revenue related details for April in our first quarter form 10-Q.
Our first quarter operating ratio improved to 76, 1% with improvements in both our direct operating cost and overhead cost as a percentage of revenue. We have said many times before that the long term improvement of our operating ratio.
Requires an improvement in density and yield both of which are generally supported by a favorable macroeconomic environment. The.
The strength of our first quarter results reflect how important these factors are to our success.
Our direct cost benefited from an improvement on our line haul laden load average and pickup delivery shipments per hour during the quarter.
We lost a little productivity on the dock, but that is common with business levels of accelerate and we add a significant number of new employees, while we would like to see our platform productivity improve we believe it is more important for these employees the properly load our trailers to maximize employee safety and line haul efficiency, while also protecting.
<unk> freight from damage.
As Greg mentioned, we will continue to add drivers and platform employees during the second quarter as our volume trends continue to accelerate.
We will also continue to use purchase transportation to supplement our work force until the capacity of our team can support our anticipated growth.
We improved our overhead cost as a percentage of revenue during the first quarter, primarily by successfully leveraging our revenue growth is expected.
<unk> and mentioned on our fourth quarter call certain costs that were reduced in 2020 because of the pandemic have started to increase while many of these costs such as travel on customer entertainment are not completely back to pre pandemic levels. We expect that there will be sequential increases in aggregate overhead costs. This year.
We will maintain our disciplined approach to controlling discretionary spending however, and make every effort to minimize cost inflation in other areas.
Old Dominion's cash flow from operations totaled $310 3 million from the first quarter and capital expenditures were 51 million. We currently anticipate our capital expenditures to be approximately $605 million. This year, which includes $275 million for service center expansion projects.
We utilized $309 million for our share repurchase program and paid $23 2 million of dividends during the first quarter. The total share repurchase amount includes $275 million attributable to an accelerant of accelerated share repurchase agreement that was executed during the first quarter, our first quarter share.
The outstanding reflects the initial delivery of shares under this agreement and the final calculation of total shares repurchased will occur no later than the end of August of this year.
Our effective tax rate from the first quarter 'twenty, one was 26.0% as compared to 26, 3% in the first quarter of 2020, and we currently expect our annual effective tax rate to be 26.0% for the second quarter of 'twenty one.
This concludes our prepared remarks. This morning, operator, we'll be happy to open the floor for questions at this time.
Certainly participants if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure you're on mute function is turned off players not to recur equipment again press star one to ask the question and we'll pause for just a moment to allow everyone an opportunity to signal.
Okay.
We will take the first question at this time it comes from Jack Atkins from Stephens. Please go ahead.
Great. Thank you and good morning, and congrats on a great quarter guys. Thanks.
Thanks Jack.
So.
Maybe if we could just start with what the April and I know the.
The the month isn't isn't done yet.
And I know you want to hold off on the specific comments until the the 10-Q comes out but Adam what would it be possible to maybe kind of talk bigger picture around what you're seeing sequentially.
On April relative to March the comparisons both year over year on sequentially or.
Or just abnormal this year because of what was happening last year and obviously how strong March was could you maybe talk about what youre seeing.
April versus March from a from a.
From a tonnage of Jim my perspective relative to normal seasonality.
And it's hard to get into the details of that on the tonnage and shipments basis, because the the trends have been a little north of our unusual if you will.
Not following the same types of patterns in the sense of.
The way our weight per shipment has been trending intra month and so forth.
We've been seeing some wider shipments earlier in the month and then it just strengthens throughout and then gets heavy at the end.
But nevertheless, our overall revenue obviously.
45% to 50% on.
On a comparison basis with April suggest that we are seeing continued strength and acceleration in our business.
We had incredibly strong performance in March.
Tonnage per day that was up 10, 7% versus the normal five 1% increase that was the 10 year average.
But doesn't that followed the weakness that we saw in February so it probably.
A little bit of recovery, there that help support that number and then just the way the math work, but I think that we're continuing to see.
Revenue performed pretty much in line with.
With what we would expect from a sequential standpoint.
As you mentioned the year over year wait and shipments are going to look a little unusual whereas last year, we had such an increase in late March and through April.
And the weight per shipments of that certainly we'll throw things off a bit but we'd look to see continue.
Continued strong revenue performance and whether that's coming through in tonnage shipments on yield I think it is really all of the above they are all performing well and.
And contributing to excellent revenue quality.
Obviously in the first quarter, that's contributing to really strong profitable growth force.
Absolutely absolutely it is.
It's great to hear on the April trends, and then I guess, maybe a bigger picture question to follow up.
<unk>.
Hearing from a number of of Lpl's.
Both public and private that Theyre highly capacity constrained.
What's happening in the in the broader market and Theyre, taking steps actually limit the volume that they are taking it from there from their customers and I would think that given the latent capacity that you guys have on your network you mentioned, 25%.
In your prepared comments kind of give you a chance to really demonstrate your value proposition potentially the new customers. So I guess, how are you thinking about balancing the approach between.
Making sure you've you're handling the needs of your existing customer base that are seeing surging volumes, but also perhaps using this opportunity on a capacity constrained environment to expand your customer base.
How do you balance those two of those two factors.
Jack as you know, we've always talked about our ability to growth and outgrow our competitors when the market was strong like it is today. So I think we're definitely seeing the evidence of that.
We're not capacity constrained.
We've made tremendous investments.
Particularly in the last 10 or 15 years to increase our capacity in and it's obviously paying off for us. So I think we're in a very unique and a very positive position when the market turns as positive as it is today.
From the standpoint of constricting volumes are limiting volumes whatever you want to call it.
We haven't we have not had to do that we have limited some truckload shipments.
On that were coming our way more so.
More strong much stronger back in March than today, but we have had the limit some of those type of shipments and keep them out of the truck line, but otherwise we are not capacity constraint.
It's full steam ahead, where we're trying to hire and add to our workforce to meet those capacity demands and the <unk>.
So far we're having success I wish it was sometimes it would happen a little bit quicker than it does but the.
But we're in a good position moving forward in the.
All things are good.
Alright, Greg Adam Thanks for the comment I appreciate it guys.
If you find that your question has been answered you may remove yourself from the queue by pressing star two and once again, if you would like to ask a question. Please press star one well take our next question comes from Amit Mehrotra from Deutsche Bank. Please go ahead.
Thanks, Congrats Adam and Greg on the great quarter.
If I think about the sequential acceleration in April.
Just trying to understand if you're seeing that in yields as well or.
Our yields holding kind of at these levels of these high levels and youre seeing tonnage and shipment growth accelerate and the reason I. Just asked the question is I'm trying to understand when opex per shipment has to inflect more meaningfully getting back closer to that 4% to 5% level, because it's actually been declining over the last couple of quarters.
Partly I <expletive>ume because of the attribution to growth from yield and pricing.
Just talk about yields where yields are moving prospectively from here and when do you think opex per shipment needs to get back higher as the shipment growth of moves up.
Yes.
On the yield numbers.
Similar to conversation, we just had about volume they're going to look a little unusual.
As well last year in.
In April our average weight per shipment was 677 pounds and we've been trending now around the <unk> hundred pound range.
So we're going to see.
If things continue of pretty meaningful drop in that similar to what we experienced in March as well.
So you can with a big decrease in the weight per shipment of.
Obviously that has the favorable impact on revenue per hundredweight.
So we've got.
A big inflection there not the mentioned it.
Last year in April was when.
The fuel dropped so significantly so we're going to have.
The bigger contribution from the fuel surcharge as well.
On <unk>.
Might be looking at and certainly we saw double digit type increase in revenue per hundredweight and that doesn't tell the story necessarily from a pure yield and revenue per shipment standpoint, we.
We saw a nice improvement in the first quarter on revenue per shipment and that benefited from both.
The higher weight per shipment and a higher length of haul as well and all of those metrics go into our yield management process. We've got a process thats focused on individual account profitability and one that.
<unk> focus is on continuous improvement as well and I think that our sales team our price and teams they've worked really hard over the last couple of years.
To make sure that we're seeing continuous improvement in each of our customers operating ratios and Thats certainly bearing fruit when you look at our numbers and how that may transition into the second quarter as well.
So, it's probably going to be more of a just looking at the pure number.
Look in comparison on a sequential basis from first quarter revenue per hundredweight that I know drive everyone's models.
That normal sequential transition from <unk> to <unk> and if you look at it excluding the fuel we were right at $21.
On a revenue per hundredweight basis.
<unk> and typically we see.
On average about a one 5% increase from.
From <unk> mix has held constant so that would suggest.
Another 25 to 30.
Sort of sequential increase if you will in that revenue per hundredweight.
100 weight metric, excluding the fuel, but we're going to continue on with our focus and you asked about opex as well.
The long term plan has always been to balance our revenue per shipment versus the cost per shipment performance and having a positive delta there.
The support the ongoing investments in capacity that essentially we're making on behalf of our customers as well as investments in technology tools and so forth that can help us keep our cost structure lower so that we can improve profit per shipment without having to rely completely.
On pricing initiatives, but if we can continue.
To keep cost in check through productivity and certainly right now we're benefiting from the strong top line growth and just the increase in shipment.
Creating operating leverage that's benefiting on our cost structure, there and as you mentioned, we did see a decrease in cost per shipment.
In the first quarter, but we were expecting like we mentioned at the beginning of this year core inflation of kind of four to four 5%. We're just benefiting right now significantly from the leverage in productivity and yield performance in our business yes.
And do you guys expect us of steps you, usually do see a step down on ore from <unk>.
I assume you'll you'll expect that as well, but first quarter was quite strong as well and pricing has been strong so any thoughts around kind of of the sequential progression on or.
From <unk>.
Yes.
It's certainly I mean, thats best of the quarter, where we get the biggest improvement it's the quarter where.
We typically see the largest sequential increase in revenue performance as well.
Typically revenue per day is up.
10% in the second quarter versus the first and so.
Net leverage on existing.
Our cost base and so forth creates that opportunity for us. So we have on any given year, we've increased our improve the operating ratio.
And the range of $360 to 420 basis points.
Certainly we would expect to get some improvement this year.
We've done a good job the last three quarters and have had nice sequential change.
Changes that have been.
Kind of what our normal progression is but now we're starting to.
The look at the cost that I mentioned that we expect to have some increases in our aggregate overhead costs.
We.
Very well in the first quarter.
Some costs and categories. The kind of went well force that we'll see if all of the star stay aligned as we transition in the second quarter, but certainly.
Our focus is always to produce as much profitable growth as we can and we will continue to look at leveraging the improvement in our revenue and trying to continue with our productivity initiatives. Some of that like we saw on the first quarter, where we lost a little productivity on the dock as we continued to hire new.
The employees and put them into the operation.
Certainly you can start seeing a little bit of a.
A headwind on productivity there, but our operation is running extremely smooth right now and we're going to keep focused on making sure that we're focused mainly on keeping our service metrics best in cl<expletive>.
Secondary focus on productivity, but at the end of the day, we're trying to produce as much profitable growth as we can.
Yes, the low 70% of our in the second quarter implied by the seasonality would be a pretty impressive. Thanks. So much guys I appreciate it congrats again.
Thanks.
Our next question comes from Allison Landry from Credit Suisse. Please go ahead.
Good day.
Morning, Greg Adam.
So I just wanted to ask about the length of haul I mean, it's been increasing.
For the last few quarters.
And you are now sort of at the longer call. It I think you've got to go back five years or so so I'm just curious to understand and do you think this is mainly a function of the cyclicality.
Or would you attribute that to some kind of secular shifts maybe e-commerce or something like that just trying to understand your view. If you think there is an underlying shift in the market or the freight that Eric.
I don't think there's necessarily.
A big underlying change the big picture changes that we feel like length of haul will will probably shorten and that will continue to see.
Improvement in our regional business, but we still have a very high quality long call and medium haul business in.
I would say over the <unk>.
Past 12 months really since the.
The COVID-19 impact on the mix of our business that we've probably just seeing a little bit more market share and with our contractual business and <unk>.
Certainly saw more growth.
And for many periods out of the West right now our growth is very balanced across all of our regions but.
A lot of times, the freight coming out of the west will have a longer length of haul <expletive>ociated with it. So we've seen tremendous growth there.
It's probably been causing a little uptick but long term when we think about that continued shift and tailwind that we believe exist with the e-commerce freight we'd expect to see that.
Market share in those regional lanes continued to increase and probably pull the length of haul back down with it.
Okay.
Well come down probably over time, and then right now just the margin.
Is that the weighted characterize that Barrick exam.
Exactly.
Okay, and then just on the labor side of the obviously.
Everyone is having challenges as far as hiring drivers and dock workers warehouse now that I mean is it are.
Are you guys finding it more difficult than you've seen in past cyclical upswings or even tight.
Capacity condition, where.
Sort of falling behind.
The plan in terms of where you want to be for hiring or are you guys able to meet that.
And maybe if you could speak to just the broader wage inflation and your expectations. There. Thank you.
Yes, Allison I would say, it's it's definitely a little more difficult than it has been in years past, but we're having success like I mentioned earlier I wish sometimes it would happen a little bit quicker.
Then it does but we are having success, we're adding where needed.
On the locations, where we're having job fairs and things like that.
On the ads or whatever where we're getting a nice response and again, we're having success meeting our needs.
It was a little quicker.
We've had a pretty significant uptick in business.
As Adam mentioned talking about April of 45% to 50% increase.
We were down last year steel, that's a pretty significant uptick in business in the.
The difficulty is meeting the needs as quickly as the businesses come of that you. So I think thats the challenge, but again I think we're doing well, we just have to stay focused on it.
And get the folks on board, which which I feel confident we'll be able to do so I do not think that will limit us.
Going forward.
And on the labor inflation standpoint, we gave our weighted increase in September of last year.
We would not expect.
We're seeing the effects of of that and that was part of that overall core inflation of four to four 5%. So that was probably all in three to three 5%. So we're seeing that until September of this coming year on.
Just pure inflation standpoint, but.
We are continuing to use the purchase transportation.
And that amount stayed.
Pretty much in the same range is.
Where it was in the fourth quarter and we talked about.
I'm, hoping to see that number decline as we progress through the second quarter and at this point it staying at the same level of so we'll keep using that to supplement the work force until really we are in position to be able to handle anticipated growth with.
Our complete.
<unk> and everything in sourced where we would like it to be but thats, probably we would expect the steel CPT decrease on the second half, but just may be a little bit later in the year, but really the goal will be getting the work force where it needs to be not only for this year, but really just gearing up and preparing for 'twenty two.
Okay. That's great that's very helpful. Thank you.
No.
We'll take the next question comes from Chris Wetherbee from Citi. Please go ahead.
Yeah, Hey, thanks, good morning, guys.
Maybe just wanted to pick up on the on the pricing side can you talk a little bit sort of contractual pricing renewals, where that's coming in I know you guys are making some efforts to keep some of the truckload business out of the network, but obviously a strong overall freight environment right. Now so kind of just curious if you could give us a little bit of color of how those how those numbers of traveling.
Yes.
That was probably long winded in my initial response, but we're coming right in.
Where we would want to be and consistent.
With how we've trended over many years, because we've had a long term consistent process. We've averaged an increase in our revenue per shipment of about four 5%.
That is the target over our cost inflation of 75 to 100 basis points. So certainly the strong demand when you've got a.
Yield management process that focuses on individual account profitability.
The demand environment like this we've got to think about opportunity cost with how we allocate capacity and certainly when you got accounts that.
It may not be the best performing.
From an operating ratio standpoint.
Then we try to work through those as those accounts may be asking for more capacity from us and so.
Certainly.
Try to get a little more on in an environment like this one we may not be able to get as much in environments that are a little bit weaker but.
Core increases are going well we're seeing.
Good increases as the contracts are coming up but that's what we shoot for year end in the year out we think kind of a differentiated approach, where we tried to be consistent year end in the year out with our customers and talk about the cost inflation that we're experiencing on the.
The increases that we need to offset that inflation, but again also supporting the continuous investment in capacity that we're making on behalf of our customers. So that's all going well right now and certainly the environment.
It was very supportive of our pricing initiatives this year.
Yes.
Certainly it seems like the that's the case.
And then just picking up on what you just mentioned in terms of the capacity additions and maybe some of the real estate opportunities that you guys are looking at this year.
Are those becoming more challenging as it is difficult to continue to sort of keep that that sort of.
The physical footprint capacity growth.
In line with what you would want it to be just given it's obviously, a very strong demand environment that we're seeing but obviously sort of tightness kind of across the basin.
Partial industrial real estate, just kind of curious how you guys are seeing that process playing out of D. C. Any maybe potential inflation creep into those numbers of you're okay with where you are.
Chris That's a great question I think if you recall, we've talked a lot of about that over the last several years on it it is definitely more difficult and much more challenging today to increase that.
The brand on the real estate side than it used to be but.
We worked extremely hard at it we've got a very active real estate department that is searching of where we know we have needs in.
We're trying to anticipate our needs as best we can we're doing that and we're having some success and I've mentioned it in the past there is some.
Parts of the country that are much more difficult than others.
You just have to work harder.
And for those places than you do in some of the other middle of the country type the more rural areas. So again I think we're having the success that we need be it more difficult and it's obviously, it's more expensive.
I think you've heard our numbers, we're talking about the $300 million real estate capital expenditure budget. This year and a lot of that is because of the inflation that we've seen related to real estate. So it's not certainly if we were doing this year of what we did maybe 10 15 years ago.
The number wouldn't be anywhere near that so theres definitely some inflation layer.
But again, we're having success of feel good about it it's just a little more costly than it used to be and certainly you have to work harder at it.
Yes, Okay. That's very helpful. I appreciate the time this morning. Thank you.
Okay.
Our next question comes from Jon Chapelle from Evercore. Please go ahead.
Thank you good morning.
Greg You had mentioned I think.
The answer from one of the earlier questions about limiting some of the <unk> business out of your network and we're certainly seeing a lot of headlines on some traditional TL tonnage going into the LTM.
Networks.
Can you is there any way to quantify how much of your tonnage growth has been what you would consider kind of traditional TL and then also what's the stickiness of this freight is that something that comes on for the time being to the extent of Jill enabled it to come on and you can get a better price for that or is that something that you can actually turn.
On a longer duration may be contractual basis to add to your growth.
It's not sticky at all John.
That business is about a slippery as it gets.
It'll move between truckload and the <unk>, depending on the capacity that the truckload market has at the time.
Very slippery it comes and goes and that's why we certainly don't want to load our network down with truckload type shipments when we certainly feel like we've got obligations to service our normal regular <unk> business.
We will try to continue to try to manage that as long as we have a need to manage it.
As far as.
How much of that amounts to I don't know Adam you, probably got a better feel for that than I do.
Yes.
It's something where a lot of those shipments end up coming through our spot quote.
The network and spot quote type business and other volume shipments in the.
The past of been anywhere from from 3% to 5% of our revenue.
Right now the probably only.
1% to 2% of revenue said, we've certainly have seen the decrease now.
With that said some of those some shippers.
Especially the larger accounts on our weight per shipment increased last year. They just move heavier type shipments.
On their contractual rates. So some of that is transparent to us.
A customer may have tried to move.
On a 6000 pound shipment.
Via truckload if they could have found the carrier that may have performed the multi stop for them. So it's not always clear.
But what's clear is just us trying to understand.
All of the freight movement characteristics, the costing for each shipment and the revenue that we need to have on each shipment that we move.
Mhm, Yeah that makes sense and then as a follow up and a follow up the Chris's in early February you mentioned the plans to open two to three terminals in the <unk> hopefully six or so two of the rest of the year and then just given some of those commercial real estate challenges and Greg your comment on having to work harder.
Do you get to the point, where maybe you look outside of organic growth and theres kind of inorganic ways to make up for some of that growth at a time when most of your competitors are standing still if not even contracting.
John No.
Like I said, we are having success on the service centers that we've got planned.
This year.
They are well underway they're not.
They're not.
At the point, where we're trying to find real estate and build as we've talked about opening.
Six or whatever it is you can be sure of those those are well underway or we wouldn't be talking about them. The we do have a lot of places that where steel.
Wiring real estate, and making plans and whatnot, but.
But those are well underway and again.
And as we've talked about before we feel like there is a lot of growth opportunity left in the year on the <unk> side and.
That's what we're trying to do that's what we've talked about now for years.
That's our plan that's our strategy.
We will continue to execute on that going forward.
Great. Thank you Greg Thanks, Adam.
We'll take the next question at this time that comes from Todd Fowler from Keybanc capital markets. Please go ahead.
Great. Thanks, and good morning, I know you touched on this as kind of a couple of different ways throughout the call, but thinking about the weight per shipment right now of around 600 pounds, it's down from where it was in the second quarter of last year, but it's still above where you had been trending in 17, and 18 and even into the 19. So.
How do we think about kind of of your freight basket is the kind of back to pre pandemic levels are there still pockets that.
Of customers that Havent come back or is there any shifts that are happening within the <unk>.
To see the weight per shipment of where it's at right now.
So I think that.
The 1600 pound range, where we are.
I think really reflects the strength of the economy typically an increase in weight per shipment goes hand in hand, with an improving economy and to think about what I just mentioned with the decrease in the number of spot quote shipments oftentimes those spot quote shipments are averaging.
The eight to 10000 pounds.
So when you've got that mix of business that has now shifted into.
The percentage of business, rather that shifted into our $505 nine tier of based customers and our larger contractual customers.
I think it just reflects the underlying strength.
Demand for our customers' businesses, but we've seen really good performance with our smaller accounts in recent months our tariff based business has continued to improve as a result.
And actually is trending slightly ahead as a percent of overall revenue than where we were pre pandemic.
And then our contractual accounts, which performed well for US all of last year of continuing to perform.
Strongly as well and so they actually are are picking up a little bit more as well and we're just seeing the higher balance in both of those categories versus.
That decrease in the mix from from the spot quote so it's good to see across the board.
When we look at our accounts and think through the the increase in weight per shipment kind of goes hand in hand, with the feedback that we're getting from our sales team and our customers' businesses are improving.
There is just the increased demand for widgets out there, that's creating freight opportunities for us and certainly we're taking advantage of that opportunity with our market share improvements.
Yes, Okay that makes sense. So it sounds like what the mix is normalized and change in weight per shipment is more a function of the economy. At this point, then kind of big shifts on the customer base right now.
The.
Okay, and then just a follow up.
Do you care to share kind of any expectations around head count growth either sequentially into the second quarter or kind of what your thought process would be for the full year.
I know you shared some expectations in the first quarter on and obviously it sounds like you're trying to catch up the ramp up on the head count side. So if you have any kind of overall numbers that would be great.
And then also thoughts around productivity I think that historically, maybe it's been six to nine months to get new employees up to a level of efficiency of more experienced hires is that kind of the right way. We should think about this cycle are there any things that would impact that.
Yes on the average head count side.
In the first quarter sequentially, we were up four 3% versus fourth quarter.
Typically our head count is pretty flat. So there was the big increase in shifts there.
Reflecting the success in the programs that Greg mentioned, our HR team has done a really great job of continuing to bring people on board and get them ready for the acceleration in freight that we typically see through the second and third quarters.
On average second quarter head count is normally up a little over 2% for us the biggest year, we ever had was in 14 again another strong period.
Head count was up 5% that year in the second quarter and I think we're going to see probably a number.
More like that we're still trying to catch the curve. If you will with the growth that we're seeing.
Still having to make use of some purchase transportation as mentioned so.
We would expect to see that we're on the high end of of that scale and possibly even exceeding that of that five.
Percent metric in terms of the sequential change from first quarter second quarter and the productivity that you mentioned.
Like we mentioned in our prepared remarks, especially on the dock, it's pretty typical to see a loss of productivity.
It's certainly more important.
To make sure that the team as they come in new they're learning they learn our ways for claims for vision.
The.
Following our safety protocols, and so forth and we're trying to maximize the loads that we're moving our line haul cost or the biggest call settlement that we pay so we've got to make sure that we're properly loading these trailers to maximize the overall efficiency of the operation and so certainly that.
It's something that we'll continue to experiences.
Increasing head count but.
But when we've got the top line revenue growth that gives us a little covered offset maybe some of this higher cost inflation that we're seeing.
Yeah understood. Thanks for the time this morning guys.
We'll take the next question at this time it comes from Ari Rosa from Bank of America. Please go ahead.
Hi, Good morning, Greg and Adam Nice quarter. So.
From my first question I wanted to ask about salaries and benefits line. It was the best quarter as a percent of revenue that it has been in.
In a number of years as far as I can tell.
And I know last year, you had some special bonus payments.
It sounds like probably wont be recurring this year and if I look at average salaries and benefits expense per employee it took a step down sequentially and I <expletive>ume that's related to some new hiring which presumably is coming in at slightly lower wages. So I guess my question is.
When I think about comp per employee can it stay in this range sequentially or does it take a little bit of a step up.
Kevin.
Given some of the wage inflation pressures that we're seeing on some of the challenges that other LPL carriers has spoken about with regard to hiring.
I think going back to just pure comp per employee.
Again, we gave the wage increase last year of the.
Three to three 5%.
I think that when you start looking at things on a year over year basis.
All of the comparisons in the second quarter are going to be pretty unusual, but we're going to have higher costs related to the group health and dental benefits I think that we will see our benefit cost per employee.
Acceleration there.
As we progress we had a pretty good performance of those fringe.
If it cost as a percent of normal salaries and wages in the first quarter.
The 33% 33, 2% and so that was good performance when we were anticipating somewhere more like 34.
For this year of 34% to 34 and a half was kind of my initial forecast and so.
So good performance there I think that.
Possible that we will continue to see some inflation there the.
Other factor is.
We're certainly seeing inflation when it comes to the.
Performance based compensation that we have with our improving financial results.
We're going to see increases there as well.
That's something that really gets back to when we talk about our focus for hiring people and it all starts with our company culture and the family Spirit that we have that certainly has made it easier to both attract and retain employees, but the.
The connection to the financial performance in that direct link of the engagement of employees with connecting the company's financial success of their personal success through.
Through improved wages and benefits and contributions into our 401 K retirement program. Those are all things that that help keep driving the performance of the company. So those will continue to increase as the.
Our financial performance, both revenue and income are increasing as well but.
But I think we're in a great spot and the keep getting some leverage if we see that salary wages and benefits line there should be some natural inflation there too as we in source and reduce our reliance on purchase transportation. So there should be some corresponding decreases once we kind of catch back up to the curve there so multiple <unk>.
<unk>, that's going to be driving that number force.
Got it understood.
That's very helpful.
And then just my second question you had mentioned this.
25% available capacity.
Obviously that implies a lot of room to grow and as I think about the step up in Capex Thats expected.
Kind of maybe if you can help contextualize what that 25% available capacity means in terms of your ability to grow sequentially from these levels I think a lot of transport companies spoke about first quarter being a little bit challenging given weather related obstacles to moving freight.
As we think about forget the year over year comparisons, but just sequentially from here.
How much how much room is there to kind of outgrow what the normal sequential pattern has been.
That 25% reflects the door capacity that we have in our network and an LPL network. It's the doors that is required to process freight and.
It's obviously very critical in our long term investment.
On a long time to expand capacity as we've discussed earlier on the call. So that's something that we always have to stay focused on and we feel like far ahead of our growth curve to make sure. The network is never a limiting factor to us so but thats one of three key elements of.
The capacity within LCL.
Next would be on the fleet side and I feel like we're in really good spot based on where our fleet is in the ability to handle the freight that that we have today as well as the ongoing increases that we would be anticipating this year in coordination with the $290 million Capex spend.
That we have planned for equipment. This year, so I feel like our fleets in a really good spot and obviously you don't want to carry that much excess capacity like we do on the net on the service Center network side in your fleet there is higher depreciation per unit.
Cost there.
Want to have enough to be able to handle the peaks at the end of the months in the end of quarters and to be able to accommodate growth but the.
But you don't maintain that same access of level and then finally and most importantly is the people capacity.
And certainly that's something that we manage more in relation with with revenue and volume trends and it's something that.
We're constantly balancing here in the <unk>.
Lever, we pull like we're pulling right now.
When we were a little short as we make use of the purchase transportation and we will continue to do that until.
We complete the additions to the team that does sort of catch up with what the freight volumes that were currently experiencing so we're in we're in a good spot across the board and I think we've got a good plan.
Very detailed plan and it's different by service center and by region for how we're continuing to add drivers and platform employees to the team the continued to handle the accelerating volumes that we're seeing.
Okay understood. Thanks for the time.
We'll take the next question now it comes from Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks morning, guys. Adam can you just talk about the impact of higher fuel and what it means for top line bottom line incremental margin this year.
Well, obviously from a top line basis.
Finally.
Going to be turning for us.
Sense of for most of last year, we faced.
The headwind with fuel.
The prices being down.
In March.
It turned if you will and at this point, we're looking at fuel prices that are about 25% or so.
Higher than where they were in April of last year. So that'll be a good thing from a top line standpoint force from a bottom line standpoint, much like we talked about last year, we try to have our fuel scales, both for our own internal scale as well as the scales that many of our larger contract.
Accounts have within their contracts.
To be somewhat neutral whether fuel is going up or down and we stress test those but we didn't really talk too much about it last year, we felt when it was decreasing we felt like we would minimize the effect on the bottom line based on the lower end of the fuel scales and certainly now that it's showing a year over year.
The increase we'd hope to minimize the effect on the bottom line as well but.
Just keep managing through that on the customer by customer basis.
Looking at what the revenue inputs are on the cost inputs are to maximize profitability.
Okay, and then just the longer term question.
One of if anything are you guys doing.
As it relates to electric and autonomous trucks do you see any use cases for either over the next five years or so.
Sure Scott.
We're actually in the process of.
Making a couple of purchases the do some testing.
We still from everything we see and hear that technology is not where it needs to be to help us at this point, but we are.
Sure.
Wanted to test some some electric vehicles be it the switchers.
Trucks or <unk> of forklifts. So that's in the process as we speak.
But again I don't see any impact of that in the near future.
And on autonomous.
Any impact I'm, saying from that sort of led.
Eric.
The electric side drive yeah on the autonomous piece.
It's something that we feel like that technology is continuing to develop and we will continue to look at things.
From a regulatory standpoint, I don't know that we ever it's hard to envision seeing the driverless vehicle.
On the road sharing the roadways with p<expletive>enger all of those but we think that as the technology improves the.
That it will continue to drive.
Improvements in safety and certainly could drive some incremental benefit as well, but the technology may get there before it's really allow from a regulatory standpoint, but something that we'll continue to watch and obviously as I think we've got one of the youngest fleets in the industry.
The investing year end of year out we always want to look at whatever safety of our efficiency tools are available to us.
We've got the financial strength and.
<unk> ability to invest as those become available and we feel like are practical to implement within our operation and certainly would be on board with we've taken advantage of whatever opportunities the manufacturers can come up with.
Okay. Thank you guys.
Okay.
The next question comes from Wedbush.
<unk> from UBS. Please go ahead.
Yeah. Good morning, So I have two questions for the one you commented about the.
The very strong I think of that I don't know of $45, 50% revenue per day growth in April are the comps much different in May and June or do you think that commentary on April kind.
Kind of could be representative of the quarter.
April was definitely the worst period that we experienced last year.
That was the biggest drop it was just like freight.
Revenue levels fell off a cliff.
And once things reset we had pretty good recovery on.
And sequential increases for the most part at that point forward, but from a revenue trend standpoint in.
April we were down 19, 3% on a per day basis like I mentioned in May we were down EMEA.
May of 'twenty, we were down 16, 2% in June of 'twenty, We were down 11, 5% so each month.
The change.
I guess the comp gets a little more difficult, but just reflects the sequential improvement that we saw overall revenue for the.
For the quarter was down 15, 5%.
On the second quarter of 'twenty.
Yeah. Okay. That's good that's helpful. Thank you.
Greg if I look back at periods, when you've had kind of peak ish tonnage growth. It seems like you've gotten a couple of times up to maybe 15%.
Year over year tonnage growth is.
Is that possible you achieve that this year, you've got obviously a degree the compare in second quarter I know you talked about the 25% door capacity, but obviously you've got the other two elements that Adam highlighted so is it is it feasible to get the.
Mid teens type of tons of growth this year or is that hard to achieve for.
People are trucks or whatever.
Yes, the 15% tonnage Tom that's the that's pretty steep on.
Not sure I recall those days.
Maybe my memory.
We had we had <unk> 15 in 2018 in 2018, but anyway.
Right.
And we will see it obviously in the second quarter. When we were so far back in 2020, but.
Im not sure of once we get back to normal type comparisons were going to see that kind of growth that that's the.
Probably.
Stretch.
And to be clear too on that 5%.
Capacity, that's another year over year growth I mean thats net.
On the capacity from the freight levels the.
Handily here.
Here in March in the first quarter, Inc.
The incremental growth on top of that while we're also continuing to expand every day.
Well when you say that is hard to achieve I think you did it in 2014, and 2018 and Youre, probably close intending on 11.
Is it just people Greg or what's the reason that you couldnt do or it would be tough to do 15%.
Yes, it's hard to ramp up Tom at that pace.
I mean, obviously, if we knew we were we were anticipating that if that was.
Realistic then it would certainly be more realistic but.
I'm not sure we will see that those type numbers.
I'm not sure of the economies quite that strong while things are certainly good and positive.
That 15% is.
As a bit over where we are today.
You got to remember okay.
Just came off of the I'm sorry go ahead Rick.
Just.
I just wanted to mentioned reiterate we came off the highest revenue quarter, we've ever had in the first quarter. So.
You are talking about big numbers.
Bigger numbers on top of Big numbers, if you will.
And he's obviously ignoring the year over year.
That's much easier.
Again second quarter, yes.
Yes.
We will of we'll have some impressive numbers I would certainly expect but.
We get into the like I say more normal comparisons I don't think we will see that the first and fourth quarters are more normalized versus the middle part of the year.
We've got some some easier comps.
Okay, Great that's helpful and congratulations on the great quarter.
Thanks, Tom.
We'll take the next question comes from Jordan <unk> from Goldman Sachs. Please go ahead.
Alright, yes, that's correct.
Picture question with all of the strength and LPL as you mentioned, obviously pricing freight demand is extremely strong.
Given what you're doing from a capacity standpoint or your cap spending.
On concern or is there some I mean, you see the industry trying to add capacity broadly not just the potential public guys that sort of made of the private LTE on players do is there a broad scramble to increase the industry capacity right now.
I don't know that we've seen that.
Jordan I don't know that we've seen that at all.
I expect some of them are trying to do something but.
We haven't seen a whole lot of movement for the most part.
We see.
Every now and again youll see some carriers, adding.
The terminal here and there, but like I mentioned earlier, when we look over a longer period of time the reality is the.
There has been more of a decrease in the number of service centers in operation.
Around the country.
Versus.
Obviously have been focused on increasing and we're doing that because of the market share opportunities that we continue to believe that are out there and certainly we're positioned better than anyone with the service levels that we offer the total value proposition and we feel like that in this environment.
More shippers are focusing on value that certainly what we sale and there is of value to old Dominion services.
As well as the capacity.
On the our customers right now are certainly benefiting from the fact that we've made all of these capacity investments and they've got contracts in place with us and we certainly can continue to handle increased levels of business with them and we're getting the feedback from customers that that many of our competitors.
We're not able to handle some of the acceleration that they're seeing in their business of that too is we have seen it in the first quarter and Thats continuing.
That capacity advantage is certainly driving freight our way so anecdotally feedback that we're getting from customers as well as.
What we see.
In terms of total service centers in operation on average they are down and we are benefiting from that at the time. When we think the industry continues to have a tailwind and thats, just creating more and more opportunity for old Dominion.
Thank you.
Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead.
Thanks, Good morning again.
Greg.
The initial comments on market share I don't think of you sound as explicit or as aggressive on the share gain opportunity as you did the which is obviously great to hear but can you just kind of unpack that a little bit is that something to do with the kind of structural changes in the industry you're seeing on the last couple of quarters do you feel like some of your competitor.
Theyre more vulnerable is it a function of the cycle. The way. It is it is it some kind of interest of internal change and go to market strategy of our messaging kind of.
What drove that.
Yes, I don't think its the change in strategy at all it's the it's the.
The strategy, we've been talking about for a long time.
Like I've mentioned before and we've talked about over the years, we will grow more when the.
The economy is strong and when our competitors' capacity is.
As limited as it appears to be.
On the customers come to us.
That's what we've seen happening in recent months.
And I expect that we will certainly have a much stronger growth than that in most of all of our competitors. So we'll wait and see but it is not anything that we've done. The change is just to continue the execution of the strategy that we set forth back some years ago and like I said before we're executing.
And having success doing so.
I feel good about where we are on the things that we've done in the.
Now is the time line when it starts to pay off force.
Yeah.
The positive on from that standpoint for sure.
Understood and if I can follow up on the on the Labor question, which you've heard a few times anything even hit the autonomous truck question ones, but if I can just keep on that topic.
Whats the opportunity for automation on some of the other kind of labor parts of the business kind of on the the Doc and the comment on the side rather than be autonomous driving side, which I think.
Could it be here in regulation of order.
Some of you are talking about robots in the.
And that kind of thing.
I'm, saying have you done on your studies.
Is there any opportunity at all to increase of kind of automation on yes.
Things like.
Robotic.
Forklifts.
It's sort of things like that that can help you load the trucks and reduce the need for labor intensity there.
Not that we've seen not at this point in time.
Okay got it thank you.
There are no more questions in the queue and I'd like to turn it back over to you for any closing remarks.
Okay. Thank you. Thank you all for your participation today. We appreciate your questions. Please feel free to give us the call. If you have anything further thank you and have a great day.
This concludes today's call. Thank you for your participation you may now disconnect.
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Yeah.