Q2 2021 Old Dominion Freight Line Inc Earnings Call
[music].
Good morning, and welcome to the old Dominion second quarter 2021 earnings conference call all participants will be in listen only mode should you need assistance.
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Please note. This event is being recorded I would now like to turn the conference over to drew Anderson. Please go ahead.
Thank you good morning, and welcome to the second 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 August 4.2021 by dialing 8.7 and 73447 and 5 to 9 access code 10158075.
The replay of the webcast may also be accessed for 30 days at the company's website.
Replay of 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 dominions expected financial and operating performance for this purpose any statements made during this call that are not statements of historical.
Maybe 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.
Other that are set forth and 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.
Fact, new information future events or otherwise.
As a final note before we begin and we welcome your questions today, but we do ask in fairness to all 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.
Thank you and good morning, and welcome to our second quarter Conference call with me on the call today is Adam Satterfield, our CFO after some.
And from March will be glad to take your questions.
The Ot team produced another record breaking quarter and established New Company Records.
Quarterly revenue and operating ratio and earnings per diluted share.
While the comparison of our numbers with the second quarter of 2020 is somewhat.
And Brady and the E&ps.
And of the pandemic related shutdowns last year.
Our second quarter business momentum this year helped drive the improvement and our revenue and profitability.
Revenue grew 47, 2% to $1.3 billion and our operating ratio improved.
And what some other than 50 basis points to 72.3 per se as a result, our earnings per diluted share grew 84, 8% to $2.31.
We achieved these results by continuing to execute on our long term strategic plan.
This plan has gone.
And as far as through many economic cycles and it is currently driving impressive growth and the strong market too.
2 key elements of this plan and are delivering superior service at a fair price and consistently investing and capacity to help ensure that our network is never a limiting factor to our growth.
And we often discuss our unwavering commitment to providing our customers with superior service.
This quarter I would like to offer a deeper dive into how we think about capacity given its relevance relevance to the current environment.
There are 3 major elements of capacity with an L. P.
And the doors and our service center.
And our people doors can be the most limiting form of capacity and the short term, which is why we try to stay several years ahead of our anticipated growth curve.
We have invested 1.7 billion and our service Center network.
Over the past 10 years, which has allowed us to expand our door count by over 50%.
Our current capital expenditure plan and includes $275 million and further expand the capacity of our service Center network, but we are willing to spend even more if we identify properties.
<unk> that are included and our long term plan.
Our commitment to the ongoing expansion of our service Center network is important regardless of the macroeconomic environment due to the strong returns on capital for our business.
We have consistently invested and old dominion's expansion.
Over the years from a market share trends have been flattish due to the confidence we have and our long term market share potential.
Although expanding the capacity of service centers.
Nick and amount of time demand trends can change very quickly and our industry, which is why we have historically been proactive.
With respect to our expansion efforts.
This unique strategy has created a large capacity advantage for us and the marketplace, which becomes most apparent to shippers and Todd environments like this year.
We estimate that we currently have 15% to 20% excess capacity within our service center.
And we expect to open several new facilities during the second half of this year.
As a result, the capacity burden overall service Center network is in good shape, although we continue to focus on the needs of certain locations to help ensure we are keeping up with increased opportunities for growth.
We are prepared to address these needs as well as any other elements of capacity that needs to be expanded and.
And as it appears that the current demand trends will continue into 2022.
We believe the domestic economy is strengthening for both our industrial and retail related customers and we.
Additional growth and volumes based on current economic forecasts as well as customer feedback.
We also continue to see accelerating trends with our revenue.
We have exceeded our normal sequential trends for each quarter since the cliff event that affected the second quarter of 2020.
This outperformance has continued with our month to date revenue for July 2021 as well.
While we feel good about our service Center network, we have faced challenges with the other other elements of capacity this year.
There have been some delays with equipment deliveries that have caused us to continue to operate older.
Units that were intended to be replaced.
And we're fortunate to have this as an option due to the fact that we have 1 of the youngest fleets and our industry.
While our suppliers are somewhat behind schedule and we do believe that we will receive each unit we have all of this year.
And these new units will supplement our current.
Equipment and are expected to satisfy our equipment through the second half of this year.
The capacity of our people continues to be our biggest need to support ongoing growth.
We were successful during the second quarter with our hiring efforts and actually exceeded our goal for the period.
Pool, and we added over 1100 fulltime employees between March and June and we expect to add another 1000 and full time employees during the third quarter of this year.
We will continue to use third party purchase transportation to supplement the capacity of our people and our fleet.
Fuel those 2 elements of capacity catch up with the growth and our volume.
Regardless of revenue and as our employees and equipment or a third party and the freight we remain focused on providing best in class service to our customers.
As I previously said, providing superior service at a fair price.
<unk> and having capacity to stay ahead of our growth curve, our 2 key pillars to our long term strategic plan.
The centerpiece of our plan remains our people.
And <unk> family of employees is committed to servicing our customers. While also growing our business as a result, we.
We believe we are better positioned and any other carrier to take advantage of the opportunity for further profitable growth and increase shareholder value over the long term. Thank.
Thank you for joining us this morning, and now Adam will discuss our second quarter financial results in greater detail.
Thank you, Greg and good morning.
Old Dominion's revenue growth of 47, 2% and the second quarter included a 28, 1% increase and LCL turns and a 14, 9% increase and <unk> revenue per hundredweight <unk>.
Excluding fuel surcharges <unk> revenue per hundredweight increased 10, 3% free.
And the success of our yield improvement initiatives as well as changes and the mix of our freight.
While the growth and our revenue and volumes reflects an easier comparison with the second quarter of 2020, the sequential acceleration and our revenue during the second quarter was once again, well above normal sequential trends.
On a sequential basis.
Quarter <unk> shipments per day increased 12, 1% over the first quarter of 2021 as compared to a 10 year average sequential increase of 7.6%.
<unk> tons per day increased 9.7% as compared to a 10 year.
Year average sequential increase of 7.9% these.
And these 10 year average trends exclude our 2020 metrics for more normalized comparison.
While both our shipments and tons outperformed our long term averages the discrepancy between our shipment and tonnage trends as a result of the decrease and our <unk>.
Per shipment.
We have made operational changes over the past few quarters, mainly through pricing actions to limit the number of heavy weighted and larger harder to handle types of shipments and our network that are typically more transactional in nature.
We increased these efforts during the second quarter given the ongoing.
And tightness and our industry to preserve capacity for our customers traditional <unk> shipments.
At this point in July with only a few days remaining in the months our revenue per day is trending higher by approximately 35% when compared to July 2020.
The year over year revenue comparison getting.
And for Us and the third quarter as our revenue per day turned positive in August 2020, and increased overall for the third quarter of 2020.
We will provide actual revenue related details for July and our second quarter form 10-Q.
The operating ratio for the second quarter improved 5.
Top 50 basis points to a company record 72, 3% with improvement in both our direct operating costs and overhead expenses as a percentage of revenue.
This improvement was essentially in line with the target we discussed on our first quarter earnings call.
Overhead related cost as a percentage of revenue improved.
<unk> 490 basis points due primarily to the operating leverage created by the quality of our revenue growth.
Of the overall improvement and overhead as a percentage of revenue related to our depreciation and wage and benefit cost for our sales and administrative employees.
Within our direct operating cost the wage and benefit cost for our drive.
<unk> hundred platform employees and fleet technicians improve due primarily to an improvement and the overall efficiency of our operations. This improvement more than offset the increases and operating supplies and expenses, which reflects the rising cost of diesel fuel and other petroleum based products as well as the increase utilization and purchase.
Transportation to supplement our workforce.
While we will continue to add employees during the second half of this year to support our anticipated growth. We believe we can effectively balance our direct operating cost with revenue as we continue to focus on productivity and ultimately reduce our reliance on purchase transportation.
Oh.
Dominion's cash flow from operations totaled $198 million and $508.3 million for the second quarter and first half of 2021 respectively. While capital expenditures were $155.1 million and $206.1 million for the same periods.
We returned $63.2 million and capital.
Capital to shareholders during the second quarter and utilized $395.4 million of cash through the first half of this year for both our dividend and share repurchase programs. This year to date total per share repurchases include $68.8 million that is deferred until the third quarter. When the final settlement occurs.
And our current accelerated share repurchase agreement.
We announced this morning that our board has approved a new share repurchase program that provides us with the authorization to repurchase up to $2 billion of our outstanding stock.
We intend to fund this program with cash flows from operations and existing cash to continue our folk.
Returning excess capital to our shareholders. Our first priority for capital spending. However, we will continue to be strategic investments and capital expenditures to support the long term profitable growth of our business.
Our annual effective tax rate for the second quarter of 2021 was 26% as compared to 25.
<unk> as a percent and the second quarter of 2020, and we currently anticipate our effective tax rate to be 26 zero percent for the third quarter.
This concludes our prepared remarks. This morning, operator, we'll be happy to open the floor for questions at this time.
We will now begin the question and answer session to ask a question.
7 you May Press Star then 1 on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been and dress and you would like to withdraw your question. Please press Star then 2.
Please limit yourself to 1 question.
And 1 follow up.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Jack Atkins with Stephens. Please go ahead.
Hey, great good morning, and Greg Adam Congrats on a great quarter. Thanks.
Thanks, Jack Thanks, Jack.
I guess first.
And then Adam could you talk about you referenced the July revenue per day being up 35%, how does that compare relative to normal seasonality.
From what Greg was saying it sounds like Thats, what youre trying to go above normal seasonality and then when we think about the operating ratio given we're seeing inflationary cost pressures.
Question. The supply chain, you guys were talking about hiring and additional thousand folks and the third quarter.
Should we think about operating ratio trends and the third quarter versus the <unk> relative to normal seasonality, which I think calls for some very modest degradation, if I'm, if I'm thinking about that right.
Sure.
And the revenue per day basis.
And obviously, we still got a few important days to close out the month, but.
And we are trending very favorably at this point for the month of July.
Revenue per day at this point is a little bit stronger than what our normal sequential trends would indicate.
And it really just follows the pattern that we've seen over the last.
4 quarters that we referenced we've exceeded normal sequential trends on a quarterly basis and and really see no reason at this point why why that would change as we go into the <unk>.
Third quarter is.
The market continues to be really tight the feedback that we're getting from customers.
We.
And as Jamie to see the service advantage and capacity advantage that we have and the marketplaces is winning share force and so we're trying to do all the things as we referenced in our prepared remarks to continue to prepare for further growth and.
To provide best in class service to our customers. So we will continue to do all.
Just to get prepared and as we get through the balance of this year and really continue to try to position the company for 2022.
With respect to the margin question.
<unk> typically see about a 50 basis point.
Increase and the operating ratio from the second to the third quarter.
And.
I think that we'll see somewhere in that same ballpark 50 to 70 basis points may be so kind of flattish as we go from the second quarter I consider that flattish, but just a slight increase we typically see and.
And have our wage increase.
And as effective the first of September were a little behind schedule and some of our equipment deliveries as Greg mentioned as well so that that means that we will have a little bit more depreciation hitting us and the third quarter, then and typically where it would've been loaded into the first half of the year. So a few factors like that that may come onboard.
But.
Certainly continuing to see strength as we work our way into the third quarter.
Okay. That's all very helpful. Adam Thank you and I guess, maybe from my second question more of a bigger picture longer term question, but there are a lot of just concerns among investors.
Sustainability.
The freight market and trends and and you know obviously you guys are expecting.
The current strength and the market to continue well into well into 2022, if I'm quoting you correctly.
But the investments Youre, making your business should should position you to take market share and I think when you look at the market more broadly.
How are you thinking about secular growth within LCL, given its leverage increasing leverage e-commerce and and the importance of E Commerce.
Middle mile and e-commerce demand to the overall <unk> growth over the next several years could you maybe talk about that for a moment, Greg because it seems like that that sounds like that could really lift.
<unk> tonnage and a broader LTE all industry and you guys are and a great position to capitalize on that.
Sure Jack No question about it.
E Commerce has continued to grow as everybody knows and.
And we've benefited from that as well as some of our competitors but.
It's strong.
I'm not sure I see any change and that.
If anything and continued growth.
Especially with the changes that we've had with the Covid and Hal.
People continue to stay at home and work from home and those kind of things I think that will continue to drive some of the.
E Commerce and the middle.
Mile business that we've enjoyed and the last.
Year to total over the last period of time so.
<unk> definitely strong getting stronger and.
I think like I mentioned before with all the investments that we continue to make and.
<unk> our sales too.
And have capacity and to be able to do the things.
Some of our competitors can't because of it.
I think we're in a good position.
Okay. That's helpful. Thanks, guys.
The next question comes from Jon Chappell with Evercore. Please go ahead.
Thank you good morning, everybody.
Greg kind of continuing on that theme. If my notes are correct last quarter. You said, you had about 25% to 30% excess capacity and your network for growth and today. You said 15 to 20 are you pushing up against the limits of where you're.
More actively going out to try to take share.
To keep it around that 15%.
Things are just in case.
Excess capacity or do you still feel that you could be more aggressive.
As it goes out with pricing and and trying to take share and the back half of the year.
And while I can tell you we wont be aggressive.
Aggressive and take share with price, we've never we've never use that strategy and certainly Don.
And I believe that and this market that we're in today.
As you may were extremely busy.
The 47% growth.
Type growth it does take capacity out of your network pretty darn quick, but I will say this we've got some.
And <unk>.
And <unk>.
<unk> looked at it correctly, we've got 9 facilities that we're trying to open and the back half of this year.
Sure well get all 9 of them open, but we will get several of them between now and the end of the year and and the other should come early in 'twenty 2.
And we have some.
<unk>.
1000, or 12 service centers, where we're adding doors, we're adding door capacity. So we're working on.
Yes.
Continuing to grow our capacity.
Just as quickly as we can and besides that Bowser and.
Just the projects that are underway.
It's not counting all of the things that we're trying to accomplish with land purchases and those kind of things. So so we're working to grow and as we speak it's an ongoing effort.
Again this.
Business that we're facing today.
And it out pretty darn quick sometimes.
And so that quicker and put it back but.
We are working on it like I said as we speak.
Okay and.
And to be clear I wasn't insinuating you'd be taking share with price.
Hoping that you'd be taking share with capacity and then pricing and as efficiently as you have been.
And just the follow up for Adam once again.
And going back to April you insinuated that PT, hopefully would be done and <unk>, but most likely wouldnt be and it really wasn't but really expecting it to come down and second half I know you look at it holistically.
Wage and benefits as well and you're adding 1000 people and the third quarter.
Is it still likely the TT can come down on.
A meaningful basis, and second half or given that capacity shrink and maybe some issues with hiring and we should think about P. T being maybe a bit more inflated unusual and the second half of the year.
I think.
And for the third quarter, especially that it's gonna stay at an elevated amount we actually used.
And quite a bit more.
And the month of June as we work through the end of the quarter.
And the strength that we typically see there we actually had to step up our utilization of it somewhat and and what.
And expect it to be.
Probably a little bit higher and the third quarter than the 3.3.
3%.
And that we used and <unk>, but I think that as we continue to be successful with bringing people onboard.
That will be and the position to hopefully through the fourth quarter and as we transition and the <unk> of next year.
To be able to increasingly use our people and our equipment and.
Is that reliance but.
And because of the strength of the top line. We've just had to continue to pull that lever of using.
The purchase transportation to continue to serve our customers and so from.
And that's certainly something that we can continue to do through the third quarter and.
But ultimately as.
You know our strategy is to try to have everything in source from a domestic line haul standpoint and.
And that's where we ultimately want to get back to set.
Just because of the strength of the top line, we've had to use it a little bit longer through the year than we had originally intended.
Alright, and what's a good problem to have thanks, Adam Thanks, Greg.
Sure.
The next question comes from Jason Seidl with Cowen. Please go ahead.
Thank you, operator, hey, Great, Hey, Ann and good morning, gentlemen.
Wanted to touch a little bit on freight and selectivity and any accessorial charges because 1 of your competitors who have reported.
Really noted that that helped them out and the quarter.
I got a sense that maybe there accessorial charges were sort of not up to market, but just curious how much do you think that gave you a boost in the quarter and on freight selectivity and how much of that is permanent versus just depending upon the market itself.
And Jason I don't.
No.
We necessarily any competitors' actions in terms of new S soils and changes and S soils and <unk>.
This early impacts us obviously, when the and pricing environment is strong.
Like it is right now that provides a lift.
To everyone and supports our own pricing initiatives.
Lives, but I think we have a differentiated approach to pricing and we've seen that and it's really been the foundation for why we produce such long term.
Profitability growth, we have a strategy of looking at our cost inflation.
And then we try to target increases and our revenue per shipment to give us.
Cost plus pricing and that formulates.
And the approach every year it goes into our generate increase and we pushed that out it goes into.
What we tried to achieve from a contract renewal standpoint, as well with that said each.
Count must stand on its own and from an individual profitability.
Standpoint, and so we look at each.
Count on an individual basis and what the cost inputs are for that particular account and what our pricing needs to look like to provided appropriate return for us and.
And I think we've got really good consistency across our book of business.
We saw that last year and this is the.
Ability options and in particular in the second quarter win.
A large percentage of our business shifted to larger national accounts and.
There was a concern by some on the street about what that would do to margins and we went through the second quarter last year with a 15% decrease and revenue a change and mix of.
Disrupt but we were able to still improve our operating ratio.
The pricing actions and the cost control measures that we had in place as well so.
We're going to stick to our long term consistent approach and continue to push for.
Cost plus pricing because it's important for us to.
Our business to expand our capacity, we're 1 of the few carriers that really has invested over the long term.
Greg mentioned this morning.
Invested and expanded our door count over the last 10 years by over 50%.
And that supported about a 50% improvement and shipments per day over that same.
Continue frame so we're uniquely positioned to continue to gain share.
And a market that continues to.
Somewhat at least from the reports we get on the public carriers. The number of service centers over that 10 year period has stayed about the same or reduced slightly so it's a good spot for us to be and to continue to take advantage of opportunities certainly.
Certainly we're going to do it with price, but we should see the volumes come through and improve density as well and as you know that density and yield formula produces long term improvement and our operating ratio and so we've got further and to improve from where we are today.
And that's clearly been the best at that density and yield formula over my career I wanted to get.
And time to the excess capacity and you said, obviously, 15% to 20% is and the network right now that obviously doesn't include and even 9.
Total deals that youre targeting to add and the back half of the year. If we look on a historic basis sort of what's the lowest that's number has ever been in terms of excess capacity.
Oh.
Get back Jason and that you'd have to go way back I think there was maybe a point and time and I'm going way back some.
20, plus years, when we've probably had very little capacity.
I don't know how long, we followed us exactly but.
Turning to average.
'twenty 2.
And Thats, probably about when we really.
We really ramped it up.
Really it was and the early 2 thousands and we really ramped up our efforts too.
Start expanding our capacity and it's kind of been ongoing since and really.
And I don't know that we really measure David talked about it if we did I.
I don't recall it back then but I can Ryan.
This from me and here it was extremely minimal how about that okay and what again.
I guess, what the question I'm trying to get at is there is a certain amount of excess capacity that you're probably wondering and network otherwise.
And you sort of get diseconomies of scale and and things become tightened your operations.
And if you're operating at all.
5% or something like that and Jim and freight to the network. So whats that number what's a comfortable number to get down to obviously, 20% is probably too much capacity and all and allows you to grow but what's a comfortable level on an operational basis to keep up sort of your service metrics for your clients Jason.
Let me say that we.
We've talked about the 15% to 20% or 20 to 25, we talk about those numbers really for your benefit to date and true that's not necessarily how we look at it we look at it on and I don't know.
Need basis, we look we look at where we.
No that we're outgrowing our.
Capacity and those are the places that we try to address first now obviously, when we expand and location or build a new location and whatever we're building capacity and we know okay.
50%, 70%, 80% of capacity and that place and we'll roll it out to come up with a number for you guys but.
Honestly, we look at it on a case by case basis, we look at it on a market by market basis, where we are.
Busting at the seams and where we're growing and and maybe where we've we just haven't done quite the job from a marketing standpoint or from a sales standpoint, we know we're on the low side.
And then we can improve and those markets and those are the ones that we target for growth or for expansion. If you will.
So I hope that makes sense and I hope that answers. Your question no. It does it makes a lot of sense and I appreciate the time as always gentlemen.
Sure.
The next question comes from Allison Landry.
And with credit Suisse. Please go ahead.
Thanks, Good morning.
Just going back to that question and I'm purchase transportation.
Could you maybe tell us what percent of your line haul that you are currently outsourcing and.
That's changed over the.
The last couple of quarters, and maybe remind us.
And what it's been historically and when you think you'll be able to temporary and work with that back in house.
Yes.
Alison we don't necessarily track and firms and number of dispatches.
We see how many we're utilizing and and what thoughts and and our select.
<unk>, where we're doing it but.
The baseline purchased transportation that we have that as our Canadian operations and truckload brokerage from yearly.
And usually runs about 2.2%.
They are about of revenue so.
We're up about a full operating point on that about 110 basis points.
So and like I said I think that that May go up slightly maybe 3.
And 3.5% 3.7% or so.
And the third quarter.
As we continue to utilize it but but we're making our efforts every day every driver that we can find we're bringing in and Onboarding and.
And continuing to put in place but.
It's overall, a very small percentage of dispatches that we have that are being outsourced.
Okay. That's helpful. And then I mean, obviously, there's been some notable transaction and the LT outpaced by from from TL carriers.
Just curious to get your thoughts on any potential.
Implications, whether that's from a pricing standpoint, or perhaps it up with apps coming from terminal availability for you.
And maybe if you think there's the potential for further industry consolidation or M&A. Thank you.
It's something that.
Got.
And at least from the early indications of what's been pointed out on the street the few transactions.
Each 1 has talked about.
Increasing pricing to improve margins. So again, that's something that will certainly help with our pricing initiatives.
<unk> got every other carrier.
And that's going out and trying to raise rates. So we'll see if.
Or any other transaction certainly the market is very consolidated as you know and we don't expect any new entrants in terms of just the new.
Carrier.
Any changes had been.
New player.
By way of acquisition. So we'll continue to watch and see how some of the new owners manage those other businesses and and.
In the meantime, if that creates great opportunity for us.
That's typically what we see as there becomes a little freight churn and we either get freight directly or in some cases.
Just indirectly as the churn within the industry.
And but we will continue to work with our customers and if were.
<unk> and carrier.
And with the customer that has got 1 of these other entities are sales teams always and they're trying to identify freight opportunities force.
And so in some cases, that's what creates and market share opportunity for us.
Got multiple sources of how we win share and we certainly believe that we have.
Got a long runway for growth ahead of us and we will continue to execute on that front and in regards to service center availability and we.
And necessarily seen anything at this point in terms of reducing the number of service centers.
For many of the other big public carriers and certainly we've got.
Our eyes out and would be willing to look at any opportunities because obviously and our long term plan.
We continue to have a pretty long list of areas that we want to expand to so.
We're at 248 service centers today, and think that we've got a list of sort of 35 or 40.
<unk> on our long term plan that we want to continue to add to the network and support.
Additional market share opportunities force and if we have to build them. We will that's what's been a bigger part of our plan in recent years, but certainly if existing terminals become available we would take advantage of those opportunities as well.
Okay perfect. Thanks, Adam.
Thanks Allison.
Your next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Thank you good morning gents.
And you guys continue to execute incredibly well and it and a good market, but I'm a little surprised that you're stepping up the pace of the buyback here I mean clearly that's.
That's good return to shareholders and that's awesome, but historically, you've been and entity, that's going to really reinvest it back into the business.
Your stock kind of just on consensus numbers right now is not particularly cheap so what's the messaging there and I mean do you think that you know if you guys can become the first trucking company to break into the Sixty's a war and so normalized.
EPS is just significantly higher than current levels of the stock is much cheaper than we think it is or what's the messaging there and nobody likes it.
Well, there's a lot to unpack there but I'll.
And I'll say this since I started with old Dominion and 2004 I've heard the story that our stock was expenses and a.
And I look at where we are today from a stock price standpoint versus where we were back in 2000 and force, but that's dependent on our continued ability to execute on our plan and.
From a buyback standpoint.
We continue to look at the buyback program and our dividend program.
Graham in terms of returning excess capital to our shareholders and I think that we've been clear that our first priority for capital spending is going to be capital expenditures and strategic investments that provide very solid returns on invested capital for us and and we want to continue to grow the business and some years.
And that will be heavier capex and plant and we've got the flexibility of the buyback program to look at what our capital needs for the business are.
And to use it more or less and returning.
Excess capital to our shareholders. So we think it's been a good program force.
And the patch.
But but again our first priority is to continue to invest for growth and that's what we've seen over the long term and.
And that's what we continue to expect and Greg mentioned that that 50.
And 50% growth and keep coming back to this and we start <unk>.
And about short term trends and things.
But over the next 10 years, we've talked about the past 10, but over the next 10 and we continue to expect that.
The industry with growth above GDP.
We continue to have plans to expand our service centers and take advantage of market share opportunities.
These and grow our shipment counts significantly over the next 10 years. So it just takes continued execution of our business model has been successful in the past and we think that it will continue to be successful force into the future producing very strong returns.
No it would be no debate that you have.
And like that get it so far thanks very much Jeff.
Thank you.
The next question comes from Tom <unk> with UBS. Please go ahead.
Hi, Yes, good morning, I wanted to ask.
I ask you a bit about that.
I guess, the 2020, 2 view and kind of thinking about cycle impacts from truckload spillover.
It seems like you're pretty proactive about the pricing and trying to keep the right quality of freight.
And your system.
And how do you think about the potential.
<unk> 22, a tonnage Ah if either freight growth slows down or truckload capacity and they finally get some.
Tracking on drivers, which which I know is tough do you think of that as it is a meaningful potential headwind or how do you think about just.
How much truckload spillover effect there may have.
In <unk> 2021 it just seems like that and that could be meaningful factor.
Okay.
Yes, Tom.
That's a good observation and and the exact reason why.
And we've taken the actions that we have to protect our capacity now to support our cash.
Customers traditional L T L shipments.
Truckload spillover.
And type shipments that can weigh 8 to 10000 pounds.
Typically we manage those within our spot quote systems spot quotes for us historically have been somewhere 3% to 5% of our revenue right now its less than 1%.
And we've got a truckload brokerage operation that some of our existing customers moving and LCL shipments that have these larger opportunities for us we can put through our truckload brokerage and provide a solution for them, but we want to make sure that.
And that we're paying more attention to our traditional.
<unk> shippers that we're protecting our service and capacity for them as we continue to get feedback that they need capacity industry capacity is tight we are hearing that more and more.
And it started probably a little bit sooner this year than I expected.
And we thought that we would hear.
Feedback given what the sequential trends it looked like for us, but it certainly.
Come to us, maybe a little bit sooner or at least the panic, if you will and.
And so we want to make sure that we're protecting our customers and giving them what they need but there is.
Is that a reason for us to tie up capacity with these transactional type loads that are here today and gone tomorrow, we want to make sure that we're doing the right thing and protecting.
The market share that we have that will be with us for the long term.
Right Okay.
No.
You think you are pretty well protected in terms of risk on truckload spillover going away and in 'twenty..2 just because of some of the actions you've taken recently is that is that the right way to read it correct. We've already moved it out.
And let's Sensually of our system as evidenced by that that reduction and the.
Okay from a spot quote type of business that we have so.
And we feel good about where we are and transitioning into next year and obviously, we have customer conversations every day, but continue to believe that there will be ongoing.
Freight opportunity for us with traditional good pain <unk> shipped.
Uh huh.
Oh, Okay, and and thank you for that and then just a follow up question.
You know inflation and labor availability is such a big topic.
These days and certainly seems to be affecting transports, where it normally we don't and and you know and a different way and yet you seem like.
Your and I don't Wanna say immune, but it's not having much impact on your business is there you know is there a bigger wage increase and normal coming potentially related to that is there kind of.
You know.
Maybe risk of higher dark pay or have you seen some of that come in or.
How do you think about that.
Inflation impact on your business or perhaps just the jobs and quality of culture, you have or are a real differentiator that help you, but maybe if you could offer some thoughts on tight labor market and you know it is there and impact or or coming impact.
Yeah, Tom No question, it's a pattern.
Labor market and certainly we are used to of course.
And I've been I've been here for a long time and I.
And I don't ever remember the growth percentages in the past that we've got today. So it's definitely a bigger challenge than it's ever been but there is a labor market out there as I mentioned.
And in my prepared remarks, we've hired some think is 1100 and the second quarter and.
We plan to continue to hire and the third quarter there are folks out there.
And is more difficult and expand and I think I've mentioned that on our last call or 2 it's a little harder to acquire people.
And it used to be but we're having success, we're working extremely hard at it.
And I think I've mentioned that before they are there you just have to work harder to get them and Thats what were doing and Thats why we have had some success, but as far as the dollars go Shirley.
We have to respond based on.
Okay.
We give a wage increase every year, it's Adam mentioned.
We've given in September and we certainly plan to do that this year and it and it may possibly be better than it's been in the past so.
Yes, you have to respond, but you have to work and where their needs are.
And the more work.
To fix and so that's what we've been trying to accomplish.
It's an ongoing effort for sure.
Okay, great. Congratulations on the strong results I appreciate that.
Thanks.
The next question comes from Chris Wetherbee with Citigroup.
Please go ahead.
Hello, and thanks, and good morning.
Maybe just picking up on the labor issue Youre, adding I think another 1000 and in the third quarter. What do you think your sort of quarterly needs might look like beyond that I guess is fourth quarter. Maybe another 1000 people. When you think about sort of where the volume days, where your resources are.
What's the right numbers and catch up that's going on right now.
Well.
You probably know our peak season is the third quarter.
And particularly in September so hopefully if we get the folks onboard.
And the third quarter I would expect those needs to really to level.
And start with the fourth quarter.
The other thing that we have to deal with and the summer months, obviously, we have to cover vacations and those kind of things so that pushes your needs from.
And we're quicker to and sometimes you realize.
And hopefully well, let's see who knows.
And where the growth goes if the growth continues.
<unk> and needs to expand and how quick it expands all of those things and make a difference and our needs but.
Certainly we will try to respond however, we need to.
Okay. That's very helpful. I appreciate that.
And then just picking up on that growth dynamic.
Maybe.
If we take a step back and talk a lot about sort of growth.
And the longer term opportunity.
And for growth and the business and sort of where you see your share opportunities.
Look out 3.5 years, how much more tonnage you think you sort of.
Should be able to take on over that period of time, obviously there is some.
Secular dynamics that have benefited the LPL industry and you guys are certainly taking share and maybe some of these recent transactions instead of potentially making your own people a little bit more challenging from a share perspective and that intervention may be up and we open up some opportunities for you. So I don't know if you could just maybe take a step back and give us some bigger picture perspective on where you think this might go.
And Chris we haven't necessarily put out any specific targets necessarily for revenue growth and market share but.
Certainly.
Believe that given the tightness in the industry and generally the lack of investment and.
Service.
Expansion by the other carriers and we look at the public group, which is about 65% of the overall industry.
But we're just not seeing necessarily any significant investment.
Out of that group as a whole and so that creates more and more market share.
<unk> for us.
Yes.
And at 10%, 11% market share today and.
And certainly believe that we were the biggest winner of market share over the last 10 years and believe we will be the biggest winner and regards to market share over the next 10 and so.
However, it takes us to get.
Servicing to where we're going and we'll see we haven't.
And like I said publish that number, but we certainly believe that the opportunities there.
And the capacity now and.
Tend to continue to invest and capacity.
Ahead of our growth and try to stay a couple of years ahead of the growth.
And so.
We were just don't don't necessarily want to publishing anything specific I guess at this point.
Okay. That's helpful about a relative should call. It. Thank you.
The next question comes from.
Free.
Uh huh.
Curt with Bank of America. Please go ahead.
Hey, good morning, guys, congratulations on a nice quarter.
So I wanted to stay on the subject of wage inflation a bit I think.
And if I look at <unk>.
Compensation per employee was up about 10% year over year and kind of recognizing there were some anomalous things.
With last quarter, but it was also seems to have taken a pretty big step up sequentially. So I wanted to think about third quarter and as you think about kind of the wage increase that's planned for September.
Maybe any kind of indication in terms of how that looks either on a sequential or year over year over year basis, and if there's some kind of targeted measures that youre.
In terms of targeted bonuses or certain geographies, where youre really focusing on.
And maybe taking wages up just some thoughts around that would be helpful.
Yes.
Just looking at the average salary wages and benefits number that we publish and.
And dividing that by the average number of employees.
Youre doing and somewhat being skewed.
And I think that that's driving some of that quarter over quarter increase thinking about the actions that we had to take last year and then.
And the actions that we're taking now but.
And I tried to give you a little bit more color and I can say that when we started this.
This year, we talked about our core inflation being somewhere around 4%.
On a per shipment basis, excluding fuel and that included the normal 3 to 3.5% increase that we give that's what we did last September and.
And certainly we will be given and increase we.
Haven't announced that 2 employees, yet and and so we want to hold back on share and any color before it goes out but as Greg mentioned.
And we connect.
The success of the company with our employees personal financial success and certainly.
Feel that they will be rewarded.
And for their efforts.
And for how well the company is performing looking into the second quarter, and particular, though and we kind of expected this and.
And we did have an increase and some of our fringe benefit cost over the period that rate that fringe rate was quite a bit higher than where it was and.
And the second quarter of last year and.
And quite a bit higher frankly, and where we were and the first quarter and and that some of the anomaly that comes along with the growth and employees our employees have been working very hard.
Working more hours and as you are.
Add to your employee count if you got 4 employees that were working 50 hours.
There's a week and now you've got 5.
And that are working 40.
That changes the dynamics the same amount of hours are there to be worked and the wage looks the same but you have got the benefit cost for that fifth employee that increases there. So that's something that we've seen historically when we're growing head count.
And you get a little bit of a lag effect with those benefits and.
And some of that will continue into the third quarter as well I would expect that we might have a little bit higher fringe percentage rate than cash.
Coming into the year, I targeted and believe we'd be somewhere around 34%.
And that is our fringe benefit as a percentage.
Salaries and wages.
We're a little north of that.
During the second quarter and I expect this to be a little bit north of that as well.
We transitioned into the third but we're offsetting those were obviously cost that we overcame and <unk> given the strong top line revenue performance.
And its leverage that creates on other costs.
And then we've got the base a larger.
Base of employees to thereby growth from so.
It's all good and.
It's all included our expectations will be included as we transition and <unk> and some of the comments that.
And earlier about.
And where we think that operating ratio, Mike train too, but we will start to see as we get into the back half of this year that core inflation.
Start looking more on a per shipment basis.
Like what we'd expect it through the first half of the year it looked a little different we've actually and the second quarter.
And I made a loss per shipment excluding fuel was down slightly.
Certainly seeing and a big increase and fuel cost right now but.
And that will normalize a little bit more as we get into the back half of the year.
Got it that's really helpful color. Thanks for that Adam and then just.
My second question.
And what are kind of hit on and maybe I missed this but.
And just in terms of I know you usually disclose cargo claims ratios and on time performance.
And I don't think I heard that earlier on the call and kind of interrelated vein I wanted to hear if.
Having this kind of elevated purchase transportation expense or kind of onboarding new employees maybe.
And I want impacting service I know theres, usually kind of a little bit of a transition period there.
And your thoughts around is having kind of less direct oversight over freight.
As a result of kind of outsourcing more and more line haul if that's kind of.
In some way impacting your your service metrics.
<unk> or how you guys think about kind of managing service to the <unk>.
Level that you expected.
Given that you're outsourcing more of that freight to third parties.
And certainly when you lose a little bit of control.
There is that risk that it can have a negative impact on service and.
And as we talk.
Talked about and prepared remarks that our expectation whether it's our employees.
Or that have a third party.
Gartner that we're utilizing to move the freight the expectation is the same that we want to give.
A superior service to our customers and and that's what we're always striving for.
Certainly believe that we continue to show the best in class service metrics, our cargo claims ratio.
<unk> <unk> 1.
And 1%.
During the quarter and that's really the.
What we strive to do it's the value proposition that we offer our customers and and it's something that we've got a payback.
Pay very close attention to but.
When you have the control if.
If you will over.
Managing the employees and the freight and having the equipment. It is certainly a lot easier.
To continue to have each of our employees bought into the overall success of the company.
Understand and over the years as we've improved our service metrics.
What that's done in terms of the profitable growth that we produced and are totally bought in and to delivering the very best service to our customers. So we want to continue to keep on that promise if you will and.
And I think every employees is continuing to be motivated by delivering the very best service to our customers.
Great sounds good thanks for the time.
Yes.
The next question comes from Todd Fowler with.
Keybanc capital markets. Please go ahead.
Hey, great Thanks, and good morning.
Pretty long into and LCL call and I don't think that Theres been a question on kind of core price in your core yield so Greg I'll see if you'll entertain this 1.
Yields during the quarter ex fuel were up 10% and and obviously, there's some impact.
They're from mix and the lower weight per shipment, but do you have any comments just directionally on what youre seeing and kind of the contract renewal environment I know youre not giving a specific number there but is this an environment where contract renewals are still accelerating and as you think about kind of the potential for some tightness in the back half of the year is this a market.
That can sustain and other Gi here. This year is that something that's more of a 2022 type of phenomenon at this point.
Yeah, Todd if you're talking about <unk>, we have no intentions of anything.
And anything in the second half of the year all day.
That'll be a 2022 of them for sure but the environment.
<unk> has been favorable probably more favorable than I can ever recall.
It's a good thing but.
And we've always done and the past.
I'll say this top line renewals are probably a little better than we've experienced before okay. We're having some more success.
As we've always done we've addressed accounts of all and as needed basis, if we have needs to improve those accounts we have.
The address those needs and tried to make improvements accordingly.
I don't think our strategy or our.
And our approach will change at all and.
And that's what we'll continue.
And try to be consistent and try to be fair with our customers.
Yeah got it that makes sense and I would think sooner and some of the earlier comments that theres. Some some tailwind from what others are doing and the industry. So.
Just as a follow up on the weight per shipment here and the quarter and it was down about 4% year over year It was down.
And sequentially and it sounds like that maybe that reflects some actions taken with some spot TL shipments, but is that roughly where the weight per shipment should settle out at this point or do you see that that moving more either based on economic factors are specific mix issues within the network. Thanks.
Yeah.
I would.
So it seems to have somewhat stabilized from the last couple of months. So I would expect those that trend to continue unless something changes with with what we're doing with spot quotes and I don't anticipate that not anytime soon.
And Adam May have something to add to that but.
And where we are today.
I think we will continue to see.
And that 550 to 600 pound range.
We have somewhat settled now, but it could move up and down a little bit from here, but I think at this point, we're kind of <unk>.
Settled in for likely the balance of the year.
Great understood. Thanks, so much.
The next question comes from Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks, I'll try and be quick Adam can you just talk directionally about some of the components of that 35%.
Growth in July.
Well, you know I don't want to give too much just because.
Certainly can move around but I would just say that that.
Certainly the yield performance.
Performance is remaining consistent.
Some of the.
The year over year.
Revenue if you will.
And weight per shipment were trending down about that same 4%.
So you've seen and similar type of change and the yield and obviously that implies.
And that was around <unk>.
14% as you know so.
That kind of implies.
And what's the.
And the tonnage number would be.
And we'll see where it falls in but plus or minus it's just going to be.
Somewhere around the 19% threshold.
Okay, Great and then.
In terms of the uses of cash.
Would you guys ever think about buying and another L. T L and then or maybe with the buyback. If you wanted to do it and and a full year like you've typically done in the past would you think about using any.
Debt on the balance sheet for the buyback. Thank you.
Yes.
Let Adam answer that.
When the actual question left but.
At this point, we certainly aren't looking to acquire and other LPL.
I'm not sure that makes sense and at the same time.
If you go back through the history of acquisitions, certainly major ones.
We haven't seen a whole lot of success.
So I don't think we want to wade into that at this point.
But.
We certainly get our share back and the day, but most of those are smaller tuck ins and geographies, where we had needs and those kind of things. So just our nature different today than what they used to be and at this.
Point, we have no real strong appetite for that.
And on the buyback.
We have no intention at this point.
Using debt to finance additional buybacks, we want to continue to use the cash that we have on hand, and we continue to expect.
Our significant cash flow from operations as we continued to see improvement there and despite the increases that we've had and capex and certainly could have.
A big Capex number next year as well we haven't.
Fine tune that that will come later in the year, but.
Based.
And demand trends that we see I would expect that we'll have another pretty healthy year of Capex. We just have a tremendous amount of free cash flow and and we're trying to.
Return that to our shareholders and.
We've got a pretty nominal dividend in and and just will continue to use the flexibility of the buyer.
Based on all of them as we have and the path to return that excess capital back and maybe work down some of the cash balance that's on the balance sheet as well.
All makes sense. Thank you guys appreciate it.
Thanks Scott.
The next question comes from Bruce Chan with Stifel. Please go ahead.
Back price Gregg Hey, Adam Thanks for the time here.
Wondering if you could remind me what's your cross border presence look like I know, we talk a lot about e-commerce, when we think about some of these secular growth opportunities but.
Just wondering if theres anything on the.
Nearshoring side that it's meaningful and whether you've seen any more demand for that cross border capability, either north or.
Yes.
We've got.
And the services, certainly and Canada, primarily we've got services.
And to Mexico and really.
Consider Puerto Rico, Alaska, Hawaii, and so forth and our Odie global.
Division as well, but.
Canada.
South the biggest opportunity we continue to see.
Growth there, but we don't have assets there we've got a good partner and.
And that partnership and regards to the business that we may have going north and then they handle it or are there customers that may have freight come and south heska.
And has created.
And opportunities for us and.
And certainly would expect some growth.
To continue there in that regard, but it's a smaller element of business overall for us.
Okay I appreciate that and just 1 last 1 here can you remind us of what your mix of 3 PL business looks like right now.
Now and do you have any meaningful plans to change that and the near future.
It's about 20% to 25% of our overall revenue.
Out of our <unk>.
50 customers, we've got a pretty healthy mix of big <unk> accounts that are in there and.
And.
We're seeing growth.
Last year, especially during the pandemic.
And they were helping their customers out we were continuing to get a.
Good amount of freight.
Coming out of those <unk> customers. So we've got very good relationships most are strategic in nature.
We have as many relationships with and <unk> that are more transactional and minded and.
And now trying to sell cheap rates, because that's just not us and doesn't necessarily fit with our profile, but I think when they're out.
Selling value to their customers.
I think they can help and regards.
And we don't do independently proven our value equation and looking at our on time performance and our claims ratio.
And regards to inventory management, and so forth and how may be paying for a little bit more upfront for old Dominion service can deliver cost savings.
If you think.
About things on a total cost of transportation standpoint from.
And their customers. So it's been a good independent source coming in to support revenue growth and we would expect that we would continue.
And to see some growth with them as well into the future.
Okay, great. Thanks, Adam appreciate the color.
Hey, Bruce.
The next question comes from Tyler Brown with Raymond James. Please go ahead and.
Hey, good morning, guys.
Hey, good morning.
Hey, just 1 quick question I know call has been long here and I want to come back to the equipment.
And.
Talk that you you did upfront and its role in the capacity equation.
So I'm just curious, but does this shift and e-commerce and serving these big distribution centers I would imagine that that's driving more drop and hook requests, but does that change your trailing equipment means fundamentally could that be and area of investment or is that really not a needle mover.
Tyler at this point it hasn't.
Significantly changed.
And so requirements.
Without a doubt we have experienced some delays with some accounts and getting our equipment unloaded.
We certainly try to manage those.
And when they happen.
So we can get our equipment back but.
It's definitely been a challenge, but at this point we haven't.
We've changed the ratio of trailing equipment to tractors that we typically look at to determine that.
Needs of trailing equipment.
We will continue to look at that but I think that's a very fair question and.
And.
And if those needs change and we'll certainly address it but at this point nothing significant.
Okay perfect. Thanks, guys.
This concludes our question and answer session I would like to turn the conference back over to Greg Gantt for any closing remarks.
Thanks to all of you for your participation today and we appreciate your questions and please feel free to call us if you have anything further.
And have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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