Q1 2022 Old Dominion Freight Line Inc Earnings Call
Hello, and welcome to the old Dominion Freight line, Inc. First quarter 2022 earnings conference call.
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Thank you.
Good morning, and welcome to the first quarter 2022 conference call for old Dominion freight line today's call is being recorded and will be available for replay beginning today and through May four 2022 by dialing 1877344 75 to nine access.
Code 816, or eight Q3.
The replay of the webcast may also be accessed for 30 days at the company's website.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding old dominions expected financial and operating performance for this purpose any statements made during this call that are not statements of historical fact.
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 set forth in old Dominion's filings with the security and Exchange Commission and in this morning's news release and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements the company.
Undertakes no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise.
As a final note before we begin we welcome your questions today, but we do ask in fairness to all that you limit yourself to just a few questions at a time before returning to the queue. Thank you for your cooperation.
At this time for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead Sir.
Good morning, and welcome to our first quarter conference call with me on the call today is Adam Satterfield, our CFO . After some brief remarks, we'll be glad to take your questions.
The early team successfully launched another year by delivering first quarter results that included New Company Records.
Both revenue and earnings per diluted share.
We began the year with significant momentum in our business and expected that we would continue to win market share in 2022.
This expectation has already become reality as the 32, 9% increase in revenue was.
The fifth straight quarter, where we recorded double digit revenue growth.
We also improved our operating ratio to a first quarter company record of 72.9%, which drove our seventh straight quarter of double digit growth in earnings per diluted share.
Our revenue growth for the quarter included a 17, 4% increase in L. P O revenue per hundred weight, and a 12% increase in <unk> tons per day.
The improvements in both freight density and yield created operating leverage that allowed us to improve our cost categories as a percent of revenue, which also drove the improvement in our operating ratios.
Density and yield are the key ingredients to long term improvement in our operating ratio and both generally require the support of a favorable domestic economy.
We expect to further improve each of these two elements as we work through 2022.
Demand for our superior service has remained consistently strong and we do not see that changing in the foreseeable future based on recent conversations with both our customers and our sales team.
We continue to receive feedback regarding the general lack of capacity within the LPL industry.
This feedback is not unexpected given the D. L. P. OLED industry has seen a net decrease in the number of service centers over the past 10 years.
At least for the public group excluding O D.
Customers also appear to be dealing with lower inventory balances than they would prefer which can result in missed revenue opportunities for them.
We have unfortunately heard similar stories from our suppliers and have seen little improvement with their inventories this year.
We believe these issues are driving many new customers and increased shipments from.
Listing customers too.
All of the general industry and supply chain challenges old Dominion has continued to maintain our service center capacity to support our customers' growth.
This has been and remains an integral piece of our value proposition and we are well positioned to benefit from the continued strength and demand for both our superior service performance and network capacity.
We have opened three new service centers this year and currently have approximately 15% to 20% excess capacity.
These additions were part of our 2022 expansion plan that targets, an additional five to seven new facilities. This year.
While our service Center network is in good shape, we are continuing to work on the other two pieces of the overall capacity equation, we increased our average number of full time employees by 18, 5% during the first quarter and we expect to continue hiring additional employees.
During the second quarter to support our anticipated growth.
As the capacity of the ODP increases, we would like to reduce our reliance on purchase transportation to accomplish. This however, we will need to increase the capacity of our fleet.
While our 2022 capital expenditure plan includes approximately $485 million for equipment, we are experiencing delays with the delivery of new equipment. These delays were anticipated and limit our ability to effectively match the receipt of new equipment with the expected.
Seasonal increase in our volumes as a result, and similar to 2021, we will operate existing equipment that would have otherwise been replace and use purchase transportation as needed to support our growth.
As part of our effort to deliver best in class service for our customers. We remain committed to ensuring that each element of capacity is in place to support our ability to win long term market share.
As we continue to manage through the short term challenges within the current freight market. We will also maintain our focus on long term opportunities for our business by continuing to execute on our long term strategic plan.
This plan has helped us achieve a 10 year compound average growth rate in revenue and earnings per diluted share of approximately 11 and 24% respectively.
As part of this plan, we have consistently invested significant resources to support the doubling of our market share over the past 10 years.
This has included a significant investment in our OD family of employees to help ensure that each employee is motivated and rewarded for providing superior service to our customers. We believe that consistently providing customers with superior service at a fair price and.
<unk> investing in our people equipment and network capacity.
Stay ahead of anticipated volume growth will support our long term growth initiatives.
As a result, we are confident in our ability to continue to produce <unk>.
Further profitable growth and increase shareholder value.
Thanks for joining us this morning, and now Adam will discuss our first quarter financial results in greater detail.
Thank you, Greg and good morning Ole.
Dominion's revenue for the first quarter of 2022 increased 32, 9% to a company record of $1 5 billion.
While our operating ratio improved 320 basis points to 72, 9%.
The combination of these factors resulted in a 52, 9% increase in earnings per diluted share to $2 60 for the quarter.
Our revenue per day increased 38% as the first quarter of this year included one extra workday.
This growth was balanced between increases in our volumes and yield both of which continued to be supported by a favorable domestic economy.
We continued to win a significant amount of market share as demand for superior service and available network capacity remained consistently strong during the quarter.
As a result, the year over year growth in our revenue and volumes continued to trend above our longer term averages.
<unk> tons per day increased 12% and our <unk> revenue per hundredweight increased 17, 4%.
While changes in our freight mix contributed to the increases in this yield metric the 10% increase in our <unk> revenue per hundredweight, excluding fuel surcharges reflects the success of our long term pricing strategy.
Our consistent strategy is designed to offset cost inflation, while also supporting further investments in capacity, but focusing on the individual profitability of each customer account.
On a sequential basis revenue per day for the first quarter increased one 2% as compared to the fourth quarter of 2021 with <unk> tons per day, decreasing one, 4% and <unk> shipments per day decreasing two 2%.
Our revenue per day performance during the first quarter, both with and without fuel surcharges exceeded our 10 year average sequential trends, although our volumes were below our 10 year trend.
It is important to remember however that our 10 year average trends include the doubling of our market share.
As a result, there may be quarterly periods, where sequential performance may be below our 10 year trends despite solid year over year performance.
First quarter is a good example, as we believe we won a significant amount of market share and produce solid profitable growth as a result.
The monthly sequential changes in <unk> tons per day during the first quarter were as follows.
January decreased five 8% as compared with December February increased five 1% versus January and March increased three 6% as compared to February the 10 year average change for the respective months or an increase of one 6% in January an increase of one 7%.
In February and an increase of five 6% in March.
While there are still a few workdays that remain in April our revenue growth continues to be very strong and reflects the favorable demand environment described earlier by Greg.
Our month to date revenue per day has increased by approximately 28% when compared to April of 2021, we will provide the actual revenue related details for April in our first quarter Form 10-Q .
Our first quarter operating ratio improved to 72, 9% with improvements in both our direct operating cost and overhead cost as a percent of revenue.
Within our direct operating cost improvement and our salaries wages and benefit cost as a percent of revenue effectively offset the increase in expenses for both of our operating supplies and purchase transportation.
The increase in operating supplies and expenses as a percent of revenue was primarily due to the increase in the cost of diesel fuel and other petroleum based products.
Proved overhead cost as a percent of revenue during the first quarter, primarily by leveraging our revenue growth and controlling discretionary spending.
As mentioned on our fourth quarter call, we expect our core inflation, excluding fuel to be between four 5% to 5% for the year with higher inflation in the first half of the year is expected to moderate in the back half.
We believe our fuel surcharge program is effectively offsetting the increased cost of our fuel and our yield management strategy is effectively offsetting cost increases in other areas.
As we continue to experience cost increases related to our real estate network as well as with our equipment parts and repairs that will be critical to maintain our focus on productivity, while continuing to control discretionary spending to minimize the overall effect on our cost per shipment.
Old Dominion's cash flow from operations totaled $388 7 million for the first quarter and capital expenditures were $93 7 million.
We currently anticipate our capital expenditures to.
To be approximately $825 million this year, which includes $300 million to expand the capacity of our service Center network.
We utilized $438 4 million of cash for our share repurchase program and paid $34 2 million in dividends during the first quarter.
Total amount for share repurchases includes a $400 million accelerated share repurchase agreement that was executed during the first quarter.
Our effective tax rate was 26.0% for the first quarter of 2022 and 2021.
Currently expect our annual effective tax rate to be 26.0% for the second quarter 2022.
This concludes our prepared remarks. This morning, operator, we'll be happy to open the floor for questions at this time.
Yes, Thank you and as mentioned, we now will begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question today comes from Jon Chapell with Evercore.
Thank you good morning, everyone.
Adam if I could.
If I could start with you I mean, the last few quarters, you can kind of throw all of your historical seasonal or trends out the window, just very robust pricing environment, you're doing much better than 10 year trend as you start to anniversary. Some of these big pricing and tonnage moved in the last several quarters do you envision a return to kind of the law.
Long term trend margin seasonality or some of these lost market share gains that youre, making.
We continue to make those trend into more favorable momentum.
Well I think that certainly.
Some of the quarters those trends are very consistent we've talked before about the first quarter and the fourth quarters can be a little bit more movement versus the average.
Just given the variability at times with revenue trends in those periods.
And certain cost.
That trend.
In various ways in those periods as well but.
I think we've certainly performed very well.
Last couple of years.
Produced a lot of operating ratio improvement.
I think regardless of the seasonal sequential changes from quarter to quarter, we always talk about over the long term.
We generally expect we've seen and would expect to continue to see.
Hundred to 150 basis points of operating ratio improvement and a lot of that gets back to our focus.
With our pricing philosophy, we try to achieve revenue per shipment growth of 100 to 150 basis points above our cost per shipment inflation and when you look over the last 10 15 years.
Including fuel and both of those metrics, that's what we've been able to achieve.
So certainly some years when we've got significant revenue growth like we saw last year and certainly in the environment that we're in right now where we're growing revenue at about 30%.
In the first quarter, a little over that certainly it's a good environment to keep.
Driving improvement in the operating ratio may be above those longer term averages but.
But over time, that's certainly part of the focus is to continue with that same type of mentality.
With our yield management philosophy.
Got it thanks, Adam follow up for Greg last quarter, you specifically called out.
Some of the issues you've had with some of your suppliers being unable to get the equipment that you would have liked to have to grow and maybe some of the elevated maintenance expense associated with that but given how late your capex was in <unk> vis vis your full year number are you expecting some of these supplier constraints to kind of lift do you have a very backend loaded.
Spend and get the equipment that you are looking for by the end of the year.
Yes, I'm not sure it's going to get a whole lot better I mean, the equipment that we had planned to receive this year. It was planned to be delivered later in the year than we would normally take it typically we would start taking trucks, especially late in the first quarter.
And through the early fall and then the delivery with pretty much deliveries would pretty much be over.
We would have what we had purchased for that calendar predictor of Cowen per year and this year is just.
It's a lighter build.
From the get go Thats, what we were told.
That's the difference.
Just coming a little bit lighter, we're getting a little bit less than we had hoped to get and we're getting a little getting it later.
Got it thank you Greg Thanks, Adam.
Thank you and the next question comes from Jack Atkins with Stephens.
Great. Good morning, Greg Good morning, Matt and thanks for taking my questions.
Morning, Jeff.
I guess, maybe to start Adam if we could go back to your April commentary for a moment.
Obviously, there are a lot of changes taking place in the freight markets kind of broadly I would just maybe curious if you could kind of comment on April <unk>.
Relative to March so far and how it's trending versus either your expectations for April because you can't we're kind of going into the month or just relative to normal seasonality just sort of curious if you could maybe kind of give us an update there.
Ended versus plan.
Yes.
A continuation of strong revenue growth.
8% is about where we are.
Continuing to see strong yield performance.
Yeah.
Has certainly continued.
Throughout the first quarter and same types of trends.
Into April for sure so.
It's the reflection of our ability to continue to win market share.
We talked about it earlier.
As we continue to have conversations with our customers.
And with our sales team, we continue to get positive feedback as it relates to demand.
For our service in many of these conversations center on the lack of general capacity within LCL and <unk> different from truckload and I think a lot of shippers have seen the value of <unk>.
<unk> and certainly the e-commerce effect on supply chains.
Ben movement of freight within LCL, but that we believe will stay and we believe we will continue to see tailwind over time for the industry and we think we can be the biggest participant.
And winning share.
That industry continues to grow much like we have been the biggest share winner over the last 10 years. So certainly that's our plan is to keep investing ahead of growth and keep delivering service value that's better than anyone else in our industry.
We've got an unmatched value proposition and our customers continue to respond to that and so.
That'll be our focus is to continue to delivering best in class service and making sure. We've got the capacity to support our customers' growth.
No that makes that makes sense and thats great to hear on on April . So I guess, maybe for my follow up question, just kind of going back to Jon's point on operating ratio and sort of thinking about seasonality into the second quarter.
Typically the last couple of years, you guys have seen between 350 to 400 basis points of sequential improvement <unk>.
Adam is there anything to kind of keep in mind as we sort of think about this year in particular.
Moving from the first quarter to the second quarter.
And do you think that that type of normal seasonality is the right way to kind of think about it but that would imply an operating ratio in the upper 60. So just sort of curious if you could maybe give us some thoughts on that.
Sure certainly.
During the first quarter when you look at some of the sequential changes that we have from <unk>.
We outperformed what the normal seasonality was in what we've talked about our target was going to be coming into the fourth quarter or rather from the fourth.
Some of the benefits that we saw really a variance from from the 10 year trend where in our miscellaneous expenses those cost where we.
Lower those normally are about half a percent.
They were lower and we got some benefit normally see an increase they are general supplies and expenses also were favorable to our longer term trend in some of those reflect.
Troll over discretionary spending like we talked about and then some other things we're just.
There's times, where you get some.
Some favorability and especially in those miscellaneous expenses and other times, where it could go the other way, it's usually half a percent plus or minus so we'd expect some of these items that potentially could increase and I would just say if you kind of go back to the fourth quarter and look at seasonality from for the <unk>.
And then second that would have put our operating ratio just above 70.
But I can tell you we'd be pleased with that but we're really focused on being able to see another large it starts with a six.
Anything that starts with a six is going to be good.
No I think that makes a lot of sense. Okay. Thanks, so much for the time guys really appreciate it.
Thanks.
Thank you and our next question comes from Allison <unk> with Wells Fargo.
Hi, guys James on for Allison just to clarify on that.
The previous question you expense you expect both of those to normalize moving forward and Theyre.
Not necessarily was a reset in this quarter in terms of those expense levels.
Are you talking about the general supplies and expenses in the miscellaneous expenses correct.
Like I said, the miscellaneous generally is around <unk>.
Half a percent and it was at 2% of revenue in the first quarter. So.
We would expect.
That to move back to where it has historically trended.
Now again, it's not to say that.
The favorable trends that we saw in the first quarter couldn't repeat theres a lot of elements that go into that miscellaneous expense.
It's more normalized around that half a percent and then.
Certainly in some of the things in the general supplies and expenses.
We could continue to see some increases there as well.
But no specific guidance, if you will to say, what that's going to be but wouldn't be unexpected to see that.
The increase if you will.
Got it just wanted to clarify.
You'd called out that you had 15% to 20% capacity in terms of service centers and you also had some issues with the equipment deliveries but.
Overall, how much capacity do you think you do have in your network at the moment across sort of the three metrics.
Or would you encourage us to track around employee trust.
Service centers do you actually have capacity to take on incremental volume from here.
Certainly that's our expectation is to continue to produce growth.
The piece of the capacity equation that you always have to look at is on the service center side It takes doors.
Process freight within LCL and so that is the more determinant figure in terms of how much from the levels, where we currently are that we can continue to grow and we generally like to have somewhere 20% to 25% excess capacity. So our capex plan this year in <unk>.
<unk> about $300 million to further expand the capacity of our overall service Center network.
And the three facilities so far this year and we've got more that are slated.
As we proceed through the year to keep expanding the number of service centers and some of those dollars are increasing doors at existing locations as well when it comes to the people side of the equation and the fleet much like you've seen in our numbers over the last couple of years the lever.
That we pull there.
As we have to use purchase transportation, if we need to supplement one or the other.
Those pieces of the capacity equation.
Certainly we've stepped up the increased use of purchase transportation.
We're actually pleased to see that the outsource miles that we had in the first quarter.
Actually trended down versus where we were in just the fourth quarter of last year. So we're continuing to make progress there as we continue to add.
People to our OD family, we had an 18, 5% increase in the number of full time employee. So we are continuing to be successful there and attracting new people to our business and retaining those that we already have and then we're continuing to balance the capacity of our fleet as Greg mentioned.
And in prepared comments.
There's multiple ways to do that we're having to hang on to some of the older equipment.
We will get some relief later in the year.
With deliveries of what's been.
Wondered if you will but again, we can use purchase transportation is needed to supplement there. So.
I think we've got those pieces covered and we're continuing to give 99% on time service performance with the claims ratio between one and 2%. So it's <unk>.
Service, despite the significant volume of growth in processing significant growth on top of the growth that we had last year.
Got it thank you.
Thank you and the next question comes from Chris Wetherbee with Citigroup.
Hey, Thanks, good morning.
So Adam maybe we could talk a little bit about yields and sort of how you maybe see that playing out over the next couple of quarters I think we're starting to hit some of the tougher comps. When you look at revenue per hundredweight X fuel starting in the second quarter I guess, maybe two questions. Here first is the step up of the comps kind of happened immediately in April so is that sort of the trigger as you move from <unk>.
<unk>.
Already beginning to lap those sort of more challenging comps and I guess, the second part bigger picture piece of the question would be just how you think about sort of the pricing environment your ability to sort of.
You get price you talked about inflation being four 5% to five so presumably youre sort of targeting somewhere in that call. It 6% to second half maybe 7% range can you just talk a little bit about how youre thinking about it.
Certainly the increases that we need in the first half of this year.
Are going to be higher just like we talked about the expectations on our inflation, we started seeing really inflation pick up in the middle of last year and so as contracts are maturing and.
We were having to start asking for more.
We look at the current environment as those mature and.
What we're seeing and what we expect and we're always making predictions for multiple things what our volumes are going to be as well as our cost and what our customer needs are but certainly started seeing acceleration.
And some of those renewals in the back half of last year and those need to continue as we move through the first half, but we are starting to get some normalization on some of the weight per shipment trends.
At this point our weight per shipment is flat with where we were last year, we've seen a decreased weight per shipment over the last year or so as well as the increase in the length of haul. So both of those changes in mix had been supporting that overall reported yield number and.
And making it look.
Stronger than just the core increases that we're getting but we continue to target cost plus.
That's been our long term pricing philosophy, it's been consistent and one that our customers know and can understand and we will continue to execute on that same type of philosophy as we progress through the year, but with some of those.
Mix metrics normalizing.
Just look at kind of normalized trends.
It would if you look at kind of normal seasonality. If you will just sequential increases from this point forward.
It starts coming down the year over year starts getting to the higher single digits.
The kind of mid single digits and eventually normalize.
If you will but that's certainly right now we're able to get increases that are covering our cost inflation and I think you can see that in our numbers.
Okay. Okay. That's very helpful. I appreciate that and you mentioned that the weight per shipment has been ticking up sequentially here. After I think bottoming kind of in the third quarter should we likely to be sort of up on a year over year basis as we move forward.
Well right now like I said were flat so as we progress through the second quarter.
We could if things just sort of hold.
Steady if you will from a mixed standpoint.
Certainly we would start seeing some increase in that's kind of the point of you.
Might start seeing the reverse of what we did last year, where the mix change puts a little bit of pressure on that reported revenue per hundredweight certainly in the third quarter that was our low watermark I think were 538 pounds.
On average in the third quarter of last year.
Right now we're trending somewhere in the 575.
So between $15 50, and 600 pounds, but it's been a little bit heavier on that scale over the last few months.
Okay. That's very helpful. Thanks for the time I appreciate it.
Thank you and the next question comes from Scott Group with Wolfe Research.
Yeah.
Hey, Thanks, Good morning, Adam I, just wanted to clarify just a couple of things that the 28% increase in revenue in April is there any way to just directionally to break that down between fuel and tonnage in sort of underlying yields and then I was also just a little confused about your commentary commentary around the second quarter.
Or about normal seasonality as the 70, something but youre, hoping for 60, something I just I wasn't I was little confused.
If you can help there alright.
Alright.
Tried to clarify that first ill talk about our revenue growth.
We don't want to necessarily give the details, we'll wait and let the market settle out.
But like I kind of referenced earlier in March we saw revenue per hundredweight, excluding the fuel that was up about 9% and that's about the same year over year change that we're seeing.
From a fuel.
We never really get into breaking down fuel contribution, but the average price per gallon.
In March it was about the same.
In April and so it's averaging about little over five about $5 of 11 $5 12, So there's about a 62% increase in that price per gallon.
In March and the.
The same type of increase that we're seeing in April .
We will have similar contributions.
If you will there so the overall yield continues to show considerable strength.
The comparisons start looking a little bit different if you will on the volume side.
When you look at last year and what the revenue growth was.
We had total revenue growth of about 16% in the first quarter of last year and it was 47% in the second quarter. So those will certainly change as we progress through the second quarter, the comparisons get a little bit tougher.
Which is why we're extremely pleased to see.
The strong revenue growth at 28% in April but.
And you'll continue to see contributions like that the yield is certainly.
Driving a lot of that revenue growth for us right now, but it seems very solid volume performance as well.
In terms of the operating ratio.
Don't want to give.
Specific guidance per se, but.
<unk> was we certainly had some favorability in the first quarter I mentioned, the general supplies and expenses of the miscellaneous expenses.
<unk> could revert back so.
So there certainly could be some pressure on that normal sequential change that we see from the first and second quarter. One other thing that was beneficial was we had lower fringe costs in the first quarter than what I expected for the year and Thats fringe cost as a percent of our salaries and wages.
I would expect that to kind of normalize back.
So where I thought it would be for the year. So there may be a little bit of pressure on a couple of those items time will tell and we'll see.
But my point was if you just took normal seasonality from the fourth quarter.
Certainly we had big outperformance in <unk>, but if you. If you took normal seasonality from the fourth quarter and ran it through to the second that would've put our operating ratio right.
70.2.
<unk> and.
We will see that would imply less.
Seasonal improvement than what we'd normally expect.
What the point of the matter was if we operate anywhere that starts with a 6% fits of $69 nine we will certainly be.
Very excited to see that kind of number.
We're sitting here like Burt Reynolds and do re trying to do something that they said couldn't be done.
And we think that we can get it done but certainly yes.
It comes out but it does both.
One of our 72.
That's produced some very strong.
<unk> growth as well, but but nevertheless.
<unk> necessarily have a specific target out there, but just saying what could be done with some of the numbers and how they might normally training.
Okay, Yes, most of the others get excited about starting with an eight.
You made a comment about <unk> is different than truckload, so I'm guessing the <unk> very different than spot truckload, but theres a lot of focus on spot rates right now what.
How does slowing.
Following spot rates impact in any way your.
<unk> outlook your pricing outlook.
So from.
From a tonnage standpoint.
That was the <unk>.
We wanted to make.
Whats going on in truckload right now we are ready last year.
Taken a lot of heavier weighted shipments that might be considered spillover freight and prior year periods and had worked those out of our system. So we don't have those same pressures and I don't think many of the other LPL carriers do either just looking at some of the statistics.
Freight demand had been so solid an influx of freight into the <unk> world.
Many carriers and certainly us we can speak to specifically, we're just focused on.
Long term LTE, all freight not something that might be more transactional here today gone tomorrow type of thing if truckload capacity loosened up so we're not seeing the same type of pressures and not really hearing about it from an overall competitive landscape either.
There is some movement of freight going back into the truckload world, but certainly something that we'll continue to pay attention to.
And we're talking very frequently with customers and our sales team, but again thats.
Consistent feedback that we're receiving from all parties as that demand continues to be solid.
And certainly the numbers are what they are and part of the conversation in our prepared remarks talking about 10 year trends and so forth we've doubled our market share over the last 10 years and that doesn't always come in a linear fashion. So we might have a month where.
Volumes underperformed for a monthly period.
Our 10 year average trends and Thats, certainly not something to get overly concerned about.
We saw some of that in the first quarter. We underperformed. If you just look purely from a 10 year average sequential standpoint on the volume side, but we produced a lot of revenue growth and good profit growth as a result, so we continue to be encouraged by the overall environment and the feedback that we're hearing from customers in our <unk>.
Sales team and want to continue to do what it takes.
To take advantage.
Those that may come our way this year.
Okay. Thank you guys appreciate it.
Thank you.
So in general I think Goldman Sachs.
Yes.
Things are very strong today.
Where are the gaps.
Slower economic situations.
This year into next year, maybe negative growth.
Given the head count increases.
Obviously wage increases across the sector.
So what do you think you guys would be sort of in the other direction in terms of like what was back can.
Can you with wage increases and head count.
Okay.
Jordan we've done this in the past I mean.
I don't think anybody likes to manage through.
Downturn or recession, or whatever you want to call it but we've done it in the past.
It's surely not a lot of fun and you have to make hard decisions at times, but we've managed through the <unk>.
Worse recession ever in 2009 at.
At least in my pretty lengthy career, it's probably the worst ever.
Manage through that fairly well.
Then we did it again.
And 16 in and.
Through a flat year in 19 so.
We geared up then we gear down in gear back up.
This business is up and down it always has been but.
If we if we have to manage in a downturn.
Got all the confidence in the world, we can manage through that.
As Adam mentioned.
So far so good this year are our trends are good.
Our feedback from customers are is very strong we've had two of our top 10 accounts in the building in the last couple of weeks.
They are both very positive.
Their business and their customers and these logistics companies by the way.
<unk>.
They are huge and they manage an awful lot of dollars.
And their outlook is very strong at this point in time.
Our standing with these particular accounts and with our accounts in general our standing is better than ever and at this point in time, we're not we're not thinking about a downturn.
If we have to we will but that's not where we are today.
Thank you for your perspective.
Thank you and the next question comes from Todd Fowler with Keybanc capital markets.
Hey, great. Thanks, and good morning, So I wanted to ask on where you think you are at from a head count growth standpoint, I know you've had success in adding head count, but its been about about tonnage and shipment growth now for the past couple of quarters give some comments in the release about continuing to add head count in <unk> do you think youre getting to the point, where head count has caught up with.
Your tonnage levels are how do you think about continued head count growth into the back half of the year.
Yeah, Todd I think we are I think we have pretty much caught up where we still have some needs in some places, but we are much closer than we've been probably in the best shape, we've been in over a year. So happy with that happy with where we are and we'll just have to see.
We have a volume trends continue if we continue on our current.
Growth trajectory and we will have to continue to add some is our seasonality dictates but.
I think those needs will be fewer certainly than they were last year. So.
But.
Yes.
In a better spot and feel pretty good about our <unk>.
Standing today.
And that guidance.
That wouldn't be a bad thing to see that continue to level off a little bit.
Yes, no understood. That's a good comment that's helpful. There.
And then Greg just to follow up.
On your prepared remarks, you had a lot of comments around shippers really realizing the value of the <unk> service proposition.
I'm curious are you seeing any shift in your mix as far as kind of your core customer base and I know it would just be around the edges.
You're not a big wholesale shift, but kind of different different shippers using LTE, all relative to where <unk> been historically and when you think about the tonnage growth that you've been experiencing do you think that most of that is because of your available capacity or is there something else within the industry, that's driving that thanks.
Todd not not that I know not at all.
This continued growth from existing accounts.
Certainly we continue to take on new business, we have a very.
<unk>.
Significant group of sales folks working out there every day. So we do continue to gain some new business.
From the reports that I'm, seeing but but no normal growth from existing customers. I think just the continued confidence that they have in us and the service performance that we've given them in the past.
They like it.
Customers need that.
Their supply chains as Adam mentioned supply chains are challenged and.
Putting that product on the shelf as well.
More important now than probably ever.
Thanks for the time.
Sure.
Thank you and the next question comes from Ravi Shanker with Morgan Stanley .
Thanks, Good morning, everyone. A couple of follow ups wanted to be kind of downturn planning question.
I'm sure you guys are aware of that.
Most of your peers and a lot of investors have been trying to figure out what your secret sauce has been for your then why there isn't one answer I think one of the big elements is your continued kind of.
Almost irrespective of the cycle, but I just wanted to get a sense of.
Benchmarks you guys would look at in terms of joining.
Turning to wake up or down on the incremental growth plans.
If there is a downturn or are you going to put your foot down and actually accelerate investments or.
Again, what are some of the metrics you would look at to start pulling back.
Well I think you've got to look at.
Past performance to a degree to see how we react and as Greg mentioned earlier.
We've taken the opportunity.
In the past and some of those slower periods like you mentioned to in some ways accelerate our investments I mentioned earlier that we are.
We're probably a little bit behind where it 15% to 20% excess capacity, we like being that sort of 20% to 25% on average and we're a little bit behind that target range is given the significant volume growth that we've had so we look through a longer term lens. If you will.
And try to project out where we think our market share in our volumes might be in the next five to 10 years, it's not just always in the here and now.
Certainly you can execute when it comes to real estate investments in a very short period of time.
Often times and we didn't necessarily see this in the last.
Slow COVID-19, like we thought we might have but.
In prior periods and downturns, we've seen some opportunities come our way.
That were attractive investments from <unk>.
Land opportunities existing service center opportunities. So certainly if something becomes available in an area. That's on our long term roadmap for where we want to go then yes, we would take advantage of.
Something like that but.
<unk> always sort of looking at what's in front of you.
If you will from an opportunity standpoint, and then us thinking about the longer term opportunity, where we want to be where we think we need to have capacity to.
To support the continued growth within our network and to be able to keep our service metrics, where they are today.
Got it that's good color and just a follow up on the topic.
Keeping an eye on the long term and growth investments.
There've been a number of important developments and the path to commercialization of autonomous trucks, and obviously the pressure on most companies to kind of.
Strained in the ESG footprint with electrification is growing as well.
Love to get an update from you guys on kind of what Youre seeing out there what your investment plans are in both of these technologies and.
And maybe kind of the what the rollout looks like especially if we're going to invest in it okay.
Well, we've certainly is.
One we've just recently.
Disclose our first ESG sustainability.
Sustainability report so we were proud to get that out and I think that.
Was it means that shows some of the long term improvements that we've made over time with operating efficiencies.
And overall improvements in our miles per gallon and so forth and we will continue.
To track towards some of the goals that we have internally to continue.
Continuing to improve those metrics.
One of the key pillars of our foundation for success is continuous improvement and that means multiple things continuous improvement in multiple areas, but.
As it relates specifically to electric vehicles and autonomous and so forth. We will continue to stay engaged with manufacturers to see whats coming down the line.
We would like to try to test.
Some of the equipment and we actually ordered.
Some equipment, but we're still waiting on the delivery of the truck and so I think that goes to some of the pressures that the Oems have in terms of what actually is.
Is being produced and is planned to be produced in.
In the near term.
Where steel from all the feedback we get from specs and capabilities.
I don't believe that electric trucks as they exist today really fit the operating model of an LPL network at least how we run our business, but we felt like we.
I wanted to have a seat at the table and that was why we put an order in to get something and actually put it in place to operate and to be able to give true feedback in terms of what the limitations may or may not be so.
But we will continue to stay engaged with all of.
And our suppliers in that regard to see as things change and where it may make sense to try to integrate.
Some of that technology into our network as it makes sense or not.
Understood. Thank you for the color.
Thank you and our next question comes from Amit Malhotra with Deutsche Bank.
Oh, great. Thanks appreciate it so I just had a couple of questions. Adam just a clarification did you did the April tonnage sequentially for March versus seasonality and year over year could you give that if you haven't had.
No we haven't.
Provided the detail consistent with what we've done in the past, we will give it with our 10-Q.
<unk> gave where we're trending from an overall revenue standpoint, and then gave a little extra color on kind of what our yield trends are doing.
Okay Fine and then.
I guess bigger picture question you guys are knocking the cover off the ball on many metrics. Your stock is down 25%. This year I don't want to make too big of a deal.
Near term or mid term stock movements, but everybody is debating right now what the peak to trough earnings declined to look like.
Very tough macro scenario and I think part of that reflects the trough to peak.
So robust.
And many other companies as well.
I guess the question is if I look at the industry. The industry has done a tremendous job of.
Understanding its cost structure a little bit.
Pricing rationally relative to that those investments they've made and understanding their cost structure.
Do you think that the industry from a pricing discipline perspective is just better than it's ever been because of some of those specific investments in and do you think the price there is risk.
In a downturn that the industry pricing discipline breakdown just talk about how the pricing discipline for the industry is today versus how its been kind of at any time in the past.
Well I certainly think it's been more disciplined and you can go back to 2019.
Particular, the second quarter of 2020.
As well I mean that was a pretty steep drop for everyone from a revenue standpoint.
No one knew how long the drop we were going to be in but.
I think that there was a lot of discipline that we've shown and I think it gets back to there's certainly a lot of value that <unk> can offer and theres a lot of experience to running into expanding on LPL carriers network and we've certainly have seen that over the years, we talk a lot about the.
The cost of expanding our real estate network the land cost.
<unk> facilities, where we have to lease some of the rent rates.
We have almost become prohibitively expensive.
That way about a couple of years ago May now look like a bargain.
So it's one of those things, where we've got to continue to build that.
Cost escalation into our pricing plan and.
And I think we'll continue to certainly see our numbers and our philosophy.
No change with respect to the cost plus pricing that we've displayed.
Over the years and I think that.
It's likely that we'll continue to we've seen discipline from the other carriers and wouldn't expect.
Any change in that regard.
The industry now.
A lot certainly been written lately about what's going on in truckload, but you've got almost 70% of the LTE.
Revenue that's in.
Publicly traded companies now and so.
It doesn't take long to see what everyone is seeing and doing.
Certainly probably more important to see what actually is going on for management teams versus just reading.
Reports off the Internet.
Sensationalized, maybe a little bit more but.
But I don't think he cannot necessarily extrapolate what youre seeing.
Some of those reports to the <unk> world.
Right, Okay very good thank you very much.
Thank you.
Question comes from Ken <unk> with Bank of America.
Hey, great good morning.
Greg or Adam can you maybe thoughts on the impact of purchase transportation on.
On quality control is expansion and what is now outsourced as you talked about maybe growing at a bit although I think Adam you mentioned it was down in first quarter versus fourth quarter, but it sounded like you were needed to scale that to meet your growth targets going forward.
Yes, certainly.
We were able to use the purchased transportation.
And an increasing manners, we went through.
Mainly 2021 started stepping it up a little bit in response to the acceleration in volumes that we saw in the back half of 2020 and speaking of the sequential acceleration.
Just to be able to keep pace with the growth in expectations from our customers, but we've got good carriers that we've used to supplement mainly within our line haul operation.
Overall still pretty minimal in terms of the outsourced miles.
Certainly we saw the cost incur.
Increasing if you will is.
That rate environment was increasing but we were able to work those third parties into our network and keep our service metrics high.
While responding to a significant volume growth from customers last year.
We saw maybe a slight uptick in our claims ratio.
That was probably more.
Somewhat reflective of using.
Third party truckload carriers versus our 2028 foot pump operation.
And all of the claims for Vincent tools that we have but when I say it uptick.
<unk>.
One something.
One six that just round it to a point too so we're talking very minimal.
Increase there.
And Thats part of the overall value that we provide.
To our customers and Greg mentioned it earlier in his prepared comments that part of our value proposition is having capacity when you look through prior cycles.
Look through 2017, and 2018, we were able to grow with our customers right now and when you look at the other carriers at least public carriers in the back half of last year were pretty flattish from a volume standpoint, so we're able to come in and demonstrate value not only with the service quality that we offer.
But being able to provide capacity when no one else can and so that takes investment it takes.
In real estate in our fleet and our people to make sure we've got that flex capacity.
And certainly we always try to stay ahead of the game as best we can in that regard but.
Certainly pleased that we're able to deliver that for our customers.
Great. Thanks, Thanks for that and I guess for my follow up let me just start off with the premise you talked about doubling your share but.
I guess, one or two of your public peers were kind of clothing service centers and kind of maybe shrinking their business and that's kind of changed right. So most of your peers are now adding service centers in doors, everybody is kind of set new targets out there.
Do you still see the LTE market is structurally growing share within the entire trucking market and then if so I think a lot of demand questions coming to you now is where do you see it first right where do you see when you see a role is it the consumer or do you not see it because E. Commerce growth has changed that within the dynamic that you are still growing and taking share. So you wouldn't see that.
Maybe just set the stage for the dynamic of what goes on in the market. These days relatively within the <unk> market.
Well.
We've talked about this before but.
Our business the way, we try to manage and project out we always have a baseline forecast for the year and then we have.
Scenarios with growth above that baseline and scenarios, where the volumes are below that baseline and we try to have a plan.
For both we have that baseline plan and then.
We're going to execute.
In either side of that scenario.
And all we can do is continuously look at our numbers and have continuous conversations with customers and certainly we've had years where.
We've been above and below our baseline scenarios and you just make operational decisions from that point forward in.
Part of that.
Is the way we structure our network we give.
Each of our service center managers has got control in terms of managing their head count and running their operation as needed in terms of adding to.
Pulling back on some of the additions that we're making depending on what the environment is like and but it just takes constant communication between us and our customer base and.
Oftentimes a lot of that is communication with many of our third party logistics customers six of our top 10 largest customers are <unk> and they are a fair amount of our overall business and they generally have a read on whats going on and if theres mode shifts and other things.
And we still get favorable feedback from them with respect to the expectations for volumes. This year and so that kind of goes into our baseline and maybe why some of our conversation and thinking might seem a little bit different than what others might be talking about with respect to overall transportation this year.
Great and your thought just to wrap it up.
Within the <unk> market do you still see it structurally taking share within the in the trucking side.
We did just to understand like yes, yes, we do feel like it will continue to grow.
Right now we've got when you look at all the industrial numbers those are all favorable for sure and we're seeing good growth our revenue growth in the first quarter was pretty balanced between both our industrial and our retail related business.
We're continuing to see consumer spending but.
Irrespective of that there is great demand for LTE carriers.
Shippers that this e-commerce effect on supply chain that are leveraging the network that we've built out and moving freight if it's a manufacturer that is moving freight.
Yesteryear. It may have been one full truckload of goods to a regional distribution center that may be 10 different fulfillment centers in that same region and we can feel one truckload basically.
<unk> van of goods at that same manufacturer, but they are now leveraging our network as we distribute those goods throughout our system and to that ultimate.
Fulfillment center and so we think that type of change will continue to drive volumes.
Into the <unk> industry.
And I think that given the investments that we've made and the requirements to from the big box retailers for their vendors shipping product in most have on time in full or must arrive by date type.
Type of programs and certainly.
A focus on the on time deliveries and no damages and then you've got the best metrics like we do that.
That's how we can add further value to our customers by making sure that they show well on their vendor scorecards with their customers.
It's been a piece of the market share that we've won over the last 10 years, and we think that that trend will continue going forward.
I appreciate the time and insight thanks a lot.
Thank you and the next question comes from Tim <unk> of UBS.
Please go ahead, Sir one whats your line is live.
Yes, it's Tom sorry, I was on mute there.
I guess, a little bit of a follow up on that last one what kind of consumer goods.
Spending and potential weakness seems like a key point of concern. So what does your mix look like broad brush I know, sometimes it's hard to be overly precise, but if you say well.
The 2016 cycle when we saw weakness, we add kind of X amount consumer and Y amount industrial and then maybe in 2019 and today has it skewed a lot more towards consumer or how do you think about at a high level that that mix of your book.
To put it in the industrial and consumer or if you wanted to include other buckets.
I mean, it's still more weighted to industrial.
Then retail about 55% to 60% of our revenue is industrial related and <unk>.
25% to 30 is retail related but it's that's probably moved up the spectrum closer to that 30% thresholds.
Yes, I mentioned that.
We've seen a lot of good growth.
With our retail customers and we have I mean, thats been a big part of the story.
But we continue to see good good growth in market share with our industrial customers as well.
There have been periods, where that retail was growing a bit faster.
But both are growing for us and we're still seeing good share. There. So it's that retail component has crept up a little bit but are good industrial businesses has grown as well.
Continued to somewhat keep pace.
Are you hearing.
I don't know if this is the type of if you have clear input from customers on this but are you hearing a difference in the outlook between those two customer segments of the consumer.
Related customers more cautious and the industrial side is more aggressive and I guess I think Greg you commented on inventories too that you thought inventories were still light I don't know if theres a difference in kind of urgency for industrial versus consumer.
We look at the inventory to sales ratio and that continues to be low and really reconciles with feedback that we're getting.
From customers.
Be it on the retail or the industrial side that inventory balances are lower than what they prefer them to be we have an awful lot of conversation about the number of back orders that many are dealing with and in some cases missed opportunities where they simply haven't had product on the shelf or.
Ready now if it's a normalized purchase.
If you will and so I think thats something that that Greg mentioned earlier that we're seeing and hearing not only from the customer side, but we're seeing it and feeling it from our supplier side as well so.
Both kind of go hand in hand.
And many of our suppliers are also customers so.
We're seeing that across the board if you will but.
That's why we think that even <unk>.
Right now.
<unk> spending continues to be strong I think.
Household balance sheets are good.
Maybe consumer confidence is not as high as it has been but we still feel like freight demand can continue for Pat.
Past any type of consumption slowdown just given the fact that we feel like inventory balances need to be built back up and.
We continue to believe that long term, we will see a higher inventory to sales ratio than perhaps where we were prepaid debit.
Right. Okay makes a lot of sense. Thanks for the time.
Thank you and the next question comes from Vasco measures with Susquehanna.
Yes, thanks for taking my question.
Not to beat a dead horse with another hypothetical recession scenario, but it's clear that you don't think there is a structural change to the investment you've been able to invest in alright, I'm, sorry to the situations <unk> been able to invest into and making a tremendous amount of return over over the last 10 years, but I'm curious.
What is.
As you think about scenarios not just the kind of scenario analysis, you can talk about in a single year, but but in that five to 10 year plan, we're looking where to invest and where to buy when and where to build more capacity.
What would it take to maybe change that strategy is it seeing less disciplined in pricing at your peers is that a consistent run of sub seasonal tonnage versus the share gains you've gotten historically I'm. Just curious what you would have to see to actually make a change in the way that you approach the market price long term. Thank you.
Basket.
Yes, again, a big year.
I know its a hypothetical but if we saw a major.
Downturn of some cat and all of a sudden we had.
Assess if capacity, maybe we would look to do something different but.
The truth as Adam mentioned earlier.
Sometimes in a downturn.
Provides the best opportunity for you to go out and do some things in certain markets that are extremely difficult to get them done in that.
That may present, an opportunity for us.
<unk>.
Give us that.
Very very difficult.
Place that we desperately need.
I hate to talk too much about hypotheticals, but.
We will certainly take advantage of the market.
It provides some opportunities for us.
We've got to be opportunistic I've talked about it in the past how difficult. It is now to acquire land in certain parts of the country how difficult. It is to get building started and whatnot.
I think we'd be terribly remiss, if we set back in.
The things that really slowed down and we shouldn't do this.
Could flip the switch and build a facility in six months or even a year. That's one thing, but when we know in some of these markets. Its two three and four and five years to get something accomplished.
You've got to be opportunistic when those opportunities are there <unk> got a strike and you've got to take advantage of them. So I'm not sure that anything would drastically change our outlook and our strategy at this point I think we've had.
Fair amount of success I think you would agree with that.
We've done its work and we've continued to put ourselves in a good position to take share in.
Honestly I don't see that changing.
We were at 30% share something crazy, but we're still at a 12% market share. So we think theres still a lot of upside for growth from our standpoint, and again I think it's critical that we take advantage when that opportunity provides.
To add a little bit more color to that to reinforce the point. If we had not made the decision to invest in 2016, we wouldn't have been able to take advantage of the revenue opportunities that we had in 2017 and 18 and the same is true in 2019.
We had listened in.
To everything that we had right at that point and had pulled back and not continue to execute on our Capex plan.
Then we wouldn't have been able to enjoy the growth that we saw last year and what we're seeing today. So.
It takes investment during those slower times to kind of build up that excess capacity to be able to participate.
And these really strong market environment and I think that's why you've seen.
US have a little different performance, it's a different strategy.
But certainly we've been able to participate on the upside.
The market's swinging more so than anyone.
As Greg said, we feel like we've got a really long runway for growth ahead of us and it's just going to continue to take.
That continuous investment cycle.
Whether we're in the middle of the market upturn or if things are slower.
That's just something we've got to maintain our focus on and make sure that we're continuing to expand the network overall.
Greg Adam I really appreciate the thoughtful answer thank you.
Thank you and the next question comes from Tyler Brown with Raymond James.
Hey, good morning, guys.
Good morning, Bob.
Hey.
So we've talked to some developers and it sounds like labor materials, a difficult volume environment is actually capping some square footage growth in the broader industrial real estate market, obviously, you earmarked $300 million in Capex on real estate, but.
Greg you kind of talked about it but how confident are you that you will actually be able to spend that this year.
Well.
I'll be honest with you Tyler I'm, maybe a little more concerned we're going to have opportunities and exceed that.
That number but we'll just have to say we've got an awful lot of projects in play. So we'll just have to see what opportunities present themselves and I can tell you at the price of land nowadays.
We can reach that budget pretty darn quick.
So.
It's a challenge but.
But I think we'll get there honestly I think we'll be all over it.
Okay. So that actually kind of plays into my second question is a difficult question, but I think it's a really important one but how much would you say the cost to build a like for like door today is versus pre COVID-19 I mean, how much does that increase just with all the material cost increases anything directionally would be helpful.
It's it's relatively significant.
I'm not talking about properties now I'm, just talking about materials I did see something from a real estate folks.
Recently in.
It's.
Probably in the 20% range give or take some materials are more than that some less but the cost of everything.
Concrete.
Steel.
Any and all materials has definitely increased relatively significant in the last.
Year to since the pandemic.
Everything is up there.
Okay. That's very helpful. And then Adam quick question just clarification. So does the propane that youre forklifts consume qualify for CMT tax credits and if so didnt those credits go away year over year and was that.
Drag in Q1 or is that not material.
You are very perceptive, asking something like that but.
That credit did go away.
Yes.
Congrats that credit is.
Has sort of come and gone.
Current times.
But at this point I think it's gone well see if.
If it comes back or not.
Okay, Alright, well I appreciate the time guys.
Thank you and our next question comes from Bruce Chan with Stifel.
Good morning, guys. This is Matt on for Bruce. Thank you for squeezing us in here, Greg Congrats on the quarter.
With respect to China's Covid, lockdowns and potential for some increased port congestion.
Later this summer.
Given some CBA negotiations.
Were curious if you guys are seeing any.
Customer change in their ordering or perhaps contract from patterns in order to maybe get in front of this thank you.
Gross I can't.
Can't comment on that I have not heard that.
I expect that that will be an issue.
If it continues but yes, what we're hearing from over there it's not it's not good at let's say lockdown, Beijing and as long as well as the rest of the port cities that they have already.
It's definitely going to be an impact, but I have not heard that not from our sales folks or our customers to this point.
Thanks, a lot.
Thank you.
Does conclude the question and answer session I would like to turn the call, Florida, Gregg <unk> for any closing comments.
Yes.
Well. Thank you all for your participation today, we appreciate your questions and feel free to give us a call. If you have anything further thanks and I hope you have a great day.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.