Q1 2023 Old Dominion Freight Line Inc Earnings Call
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I would now like to turn the conference over to drew Anderson. Please go ahead.
Thank you good morning, and welcome to the first quarter 2023 conference call for old Dominion freight line.
Today's call is being recorded and will be available for replay beginning today and through May 32023 by dialing 1877344 75 to nine access code 6525435.
A 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 are not statements of historical fact.
May be deemed forward looking statements.
Limiting the foregoing the words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
You are hereby cautioned that these statements may be affected by the important factors among others set forth in old Dominion's filings with the Securities and Exchange Commission and in this morning's news release and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements the cause.
Any 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 one question at a time before returning to the queue.
Thank you for your cooperation.
At this time for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead Sir.
Good morning, and welcome to our first quarter conference call.
With me on the call today is Marty Friedman our C O O.
Adam Satterfield, our CFO .
After some brief remarks, we'll be glad to take your questions.
The <unk> started this year with first quarter financial results that included revenue of one 4 billion and operating ratio of 73, 4% and earnings per diluted share of $2 50 exits.
These numbers were slightly below our first quarter results from 'twenty to 'twenty, two and reflect the ongoing softness in the domestic economy and the challenging operating environment.
We are also coming off a record year in 2022, where revenue and profits were at an all time high.
As we started this year, we were cautiously optimistic that our business levels would start to improve late in the first quarter and accelerate further in the second quarter.
While our volumes stabilize during January and February as expected.
We have not seen the acceleration in volumes that was originally anticipated.
Our shipments per day have remained consistent on a daily basis. So far this year, but on a year over year basis shipments in April are.
Trending down double digits.
Fortunately our market share has remained relatively consistent in our yield continues to improve.
We believe the stability with our market share during the first quarter reflects the value of our service offering and the success of our long term strategic plan the.
The guiding principles will display and had been in place for many years and have helped us produce a strong track record for long term profitable growth.
Throughout the economic cycle. This plan is centered on our ability to deliver superior service at a fair price to our customers and we remain committed to providing long term service and claims free service as well.
We will continue to focus on delivering our value proposition to our customers. While also maintaining a disciplined approach to managing the fundamental aspects of our business.
This will include making the best decisions to help us navigate through a challenging environment in the short term while also.
<unk> us future opportunities.
Reduce long term profitable growth.
While we like to measure our success over years, we believe it takes winning on a daily weekly and monthly basis.
To add up to long term success.
Our consistent focus and successful balance of long term opportunities against short term trends has helped us achieve a 10 year compound average growth rate in revenue and earnings per diluted share of 11, 4% and 25% respectively.
I want to close my last earnings call as CEO by saying, how incredibly proud I am of the entire <unk> family of employees, all 23000 of us and the track record of success that we have produced together.
I am encouraged by the prospects that our team paths for future growth.
About any doubt stand firm in my belief that <unk> has the strongest team in the industry. The best service in the industry and is better positioned but Amy L. P. O carrier to continue to win market share while also increasing shareholder value.
Thank you for joining us this morning, and now we'll turn things over to Marty for further discussion of the first quarter.
<unk>, Greg and good morning, I want I wanted first of all start by thanking Greg for his leadership and significant contributions to <unk>.
Over his career, while also recognizing each <unk> employee for their critical role in our success.
Together, we have produced remarkable improvement in our financial and operating results over the long term and.
And I can assure you that the team remains focused on continuing our record of strong profitable growth.
With respect to our first quarter, we delivered solid financial results, especially when considering the ongoing softness in the domestic economy and.
And decrease in volumes.
Although these factors contributed to the first decrease in quarterly revenue and earnings per diluted share since the second quarter of 2020, our market share has remained relatively consistent.
As a result, we believe our decrease in volumes was largely due to some shippers simply having fewer shipments than normal due to the economy.
Although there have been others that are beginning to emphasize price versus service and choosing lower priced carriers.
The operating environment has become more challenging than we anticipated and the expected acceleration in volumes is obviously not occurred.
Despite these factors we have maintained a commitment to our long term strategic plan.
We will continue to focus on providing shippers with superior service to support our ability to maintain our price discipline.
Our consistent cost based approach to manage yield and account profitability has been critical to our ability to improve our financial position over time, which has helped us support and continued investments in technology and service center capacity.
What capacity is not currently an industry issue due to the weakness in industry volumes. We believe this will once again become a critical differentiator for us when the economy improves.
We believe our long term consistent investment in service center capacity has been and remains a strategic advantage that supports our long term market share goals.
During this period of revenue decline and we will also maintain our disciplined approach to managing our variable cost and discretionary spending to protect our profitability.
This starts with our commitment to maximizing the operating efficiency of our fleet and network.
Our productivity measurements in the first quarter were negatively impacted by the general loss of operating density associated with the decrease in our shipments and weight per shipment.
This was evidenced by four 9% decrease in our line haul laden load average and a 1.0 decrease in our <unk> shipments per hour.
We improved our platform productivity however.
And generated a five 8% increase in our platform shipments per hour.
We also reduced our reliance on purchase transportation as compared to the first quarter of 2022, which allowed us to improve the overall efficiency of our operations.
This contributed to the improvement in our variable cost as a percent of revenue during the first quarter.
We will also continue to work on improving the efficiency of our operations as we make our way through the balance of this year, which provides an opportunity to generate additional cost savings while productivity is always a focus we cannot and we will not allow it to impact our best in class service performance.
<unk> continued to deliver superior service during the first quarter with an on time service of 99% and our cargo claims ratio of zero to 1%.
This service performance remains critical to support our yield management strategies.
We have said many times before that to produce long term improvement in our operating ratio. We will continue to require a balance between operating density and yield management, both of which generally require a favorable macroeconomic environment.
As just mentioned we lost operating density in the quarter and the current environment due to the decline.
Volumes in the expansion of our network our yield has continued to consistently improve however.
And revenue per hundredweight, excluding fuel surcharges increased eight 6% during the first quarter.
We will continue to demonstrate value to our customers by balancing our superior service.
Offering with a consistent cost based approach to our pricing.
The resulting value proposition is unmatched in the industry and we will continue to support our ability to increase market share over the long term.
As we look forward to remaining quarters of this year. We currently anticipate the softer demand environment will continue the second quarter is generally the period when volumes begin to accelerate but we have yet to see an inflection.
Towards growth. Nevertheless, I want to emphasize that we are well positioned to respond to any acceleration in volumes that might occur.
And when the economy improves.
Until that time comes we will continue to focus on managing our costs and delivering value to our customers through our value proposition of on time claims free service at a fair price deliver.
Delivering value as a central element of our long term strategic plan and we remain committed to execute.
On this plan regardless of the economic cycle as a critical part of this plan. We will also continue to execute our capital expenditure expenditure program and most importantly invest in the training education and development of our OD family of employees. The economy will eventually recover and we will.
We are confident that when it does our team's execution will allow us to achieve further growth and profitability, while also increasing our shareholder value.
Thanks for joining us today, Adam will now discuss our first quarter financial results in greater detail.
Thank you Marty and good morning.
Ultimately <unk> revenue decreased three 7% in the first quarter of 2023 due to an 11, 9% decrease in the opioid tonnage that was partially offset by nine 2% increase in <unk> revenue per hundredweight.
The combination of this decrease in revenue and slight deterioration in our operating ratio contributed to the zero, 8% decreasing earnings per diluted share to $2 58 for the quarter.
On a sequential basis revenue per day for the first quarter decreased seven 9% when compared to the fourth quarter of 2022 with LPL pumps per day, decreasing four 3% and <unk> shipments per day decreased three 4%.
For comparison, the 10 year average sequential change for these metrics includes a decrease of <unk>, 6% and revenue per day.
0.5% decrease in tons per day, and the zero to 2% increase in shipments per day.
The monthly sequential changes in <unk> tons per day during the first quarter were as follows.
January decreased 1.0% as compared with December February decreased <unk>, 2% versus January and March increased 0.7% as compared to February .
The 10 year average change for the respective months was an increase of one 2% in January an increase of one 7% in February and an increase of five 2% in March.
Our shipments per day over these same periods were relatively consistent on a sequential basis and increased slightly each month as we progressed through the first quarter.
While there are still a few workdays remaining in April our month to date revenue per day has decreased by approximately 15% when compared to April of 2022.
Our <unk> tonnage per day has also decreased by approximately 15% while revenue per hundredweight has increased approximately 1% when including fuel surcharges and increased approximately 7% or 5% excluding fuel surcharges.
Our revenue and shipment counts on a daily basis had been relatively consistent in April when compared to March of this year, except for the good Friday and Easter holidays.
As previously mentioned however, we had expected to see acceleration in business levels by this point in the year based on customer feedback and our historical planning process.
While we would like to see our market share continued to increase again, we believe that it's more important to maintain our price discipline. During this period of economic weakness, while positioning ourselves to emerge from this slow period with capacity and a better opportunity to produce strong profitable growth over the long term.
We have operated in scenarios like this before and we will continue to execute our plan and adjust to this lower than expected volume environment and killing the inflection point happens and we can shift back into growth mode again.
Our first quarter operating ratio increased to 73, 4% for the first quarter as the improvements in our direct operating cost did not sufficiently offset the increase in overhead cost as a percent of revenue.
Many of our fixed cost categories increased as a percent of revenue during the quarter due to the deleveraging effect associated with the decrease in revenue as well as the timing and significance of certain expenditures.
In particular, our depreciation and amortization cost increased 80 basis points and general supplies and expenses increased 30 basis points.
Within our direct operating costs, our purchased transportation costs as a percent of revenue improved 140 basis points.
While our productive labor cost improved 50 basis points.
These changes more than offset the 50 basis point increase in operating supplies and expenses was primarily due to an increase in our maintenance and repair cost.
Old Dominion's cash flow from operations totaled $415 4 million for the first quarter capital expenditures were $234 $7 million.
We currently anticipate our capital expenditures will be approximately $700 million. This year, which is like $100 million decrease from our initial capital expenditure plan.
We plan to continue with real estate expansion projects that are already in process and others that we believe will be critical to our long term operating plan.
We also plan to continue to purchase new equipment, which we believe will help lower the average age of our fleet and help reduce our maintenance cost per mile.
We utilized $141 $7 million of cash for our share repurchase program and paid $44 1 million in dividends during the first quarter.
Our effective tax rate was 25, 8% and 26.0% for the first quarter of 2023 and 2022, respectively.
We currently expect our annual effective tax rate to be 25, 6% for the second quarter of 2023.
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.
Ask any question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two again, please limit yourself to one question before returning to the queue.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Ravi Shanker with Morgan Stanley . Please go ahead.
Great morning, gentlemen, maybe it's a two parter here one is the Dod.
The uptake in April that Didnt materialize in your conversations with your customers do you get a sense that this is just a pause while they figure out what's going on with the banking crisis and other things before they resume and the inventory is in a better situation or do you think the rebound is going to compete the pushed out maybe to 24 and also.
And maybe as a follow up can you help us think about kind of fuel surcharge and how we think about that maps to the rest of the year. Thank you.
Yes.
Certainly it's been difficult to read the tea leaves this year end.
And we felt like we've had a lot of good conversations with customers in and continue to have them, but certainly.
It seem like the whole banking issue was a bit of cold water.
On the economy overall.
I think that it just continues to be a challenging overall and people question.
In some cases, the direction of the economy and continue to be.
Somewhat conservative.
A result, but.
I think our business, we obviously had been talking about probably since the third quarter of last year and the expectation that we would start seeing an uptick in.
It didn't happen things have stabilized we've continued to be consistent.
We continue to have good conversations, though and I would say within our <unk>.
Direct business.
Having conversation with customers, we're seeing an increase in some of these accounts.
Look through our top 50 accounts.
Business, that's not with a three PL.
We're seeing a good increase we actually saw an increase in revenue with those accounts during the first quarter. Some of our business with three deals is suffering a little more like.
Like we said in our prepared comments, we're seeing some shippers that are prioritizing price over service right now.
<unk> got a lot of others.
I think thats why were seeing the increase in our direct business that.
Continued to think strategically about their supply chain understand the value that we're delivering and know that this environment will turn again and we helped many of these customers through challenging times and the pandemic and then the supply chain.
Rice's that follows.
It's a mixed bag across the board, but we continue to stay engaged for continuing to have a favorable conversations and it's just a matter of when.
The economy, eventually recovers and we're certainly prepared.
When that happens is just day in and day out.
Shipments per day.
<unk> been pretty consistent pretty much all through the first quarter and that's continuing into April .
Great.
Charge, if there's any color there would be great.
Yes.
Certainly the fuel surcharge. This is the quarter, we've talked about it actually happened in March.
March.
Average price per gallon was down about 18%.
Right now with fuel being $4 10 somewhere.
That range is fuel prices are down about 25% or so.
Certainly we will.
A bigger decrease on a year over year basis.
Fuel surcharges.
And the.
The April number that we put out.
Already fuel in April was down about 20%.
And so that's driving some of that.
15% decrease that we're seeing in our April revenues on a year.
Year over year basis, but I think the impact is evident in our yield metrics, we're continuing to see.
Good yield increases.
As we're going through.
Bids and whatnot, we're continuing to.
Talk about our cost plus.
The increases that are necessary, but when you look at April and kind of where things are the revenue per hundredweight continues to be solid.
I'd expect to see sequential increase in the second quarter over the first quarter that number should naturally start to <unk>.
To trend back closer to what our longer term averages have been from just a core yield increase standpoint.
But the revenue per hundred weight with the fuel is reflecting that change now.
And fuel prices and the fuel surcharge. So that is starting to flatten out if you will.
Just like the numbers that we've talked about for what we've seen month to date for April .
Very helpful. Thank you.
The next question comes from Jack Atkins with Stephens. Please go ahead.
Okay, great. Thank you for taking my question. This morning, So I guess I'd love to get your thoughts on operating ratio progression sequentially.
Obviously this is not a normal second quarter leases not starting off as a normal second quarter in terms of how April is trending.
Any way to kind of help us think about the puts and takes.
In terms of the or progression first quarter to the second quarter relative to normal seasonality.
Yes. This is certainly.
It's definitely not a usual type of quarter.
You said, I mean with tonnage being down.
About 15%.
Vincenzo nine since we've seen that type of change or maybe back to the second quarter of 'twenty when the pandemic.
Happened in the world shut down, but it's something that we've been consistently adjusting to and frankly, we knew the second quarter comparisons were going to be more challenging this year.
When we look through the balance of how the quarters would fall but.
The buildup in March.
That we anticipated obviously didn't happen, that's where you start really getting a lot of that growth.
Really it happens throughout the first quarter, but March.
Typically are pretty good.
Increase when you look at things on a shipments per day standpoint, there should be up 5% or so so you are right now.
Like I mentioned before we're seeing shipments per day.
Just pretty steady on.
On a day in and day out basis coming in at.
Somewhere around 47.
7000 shipments per day.
Granted the April we'll have the impact we don't do half day conventions, but pretty much have about a half a day.
<unk> with the good Friday, and Easter holidays, but.
If we don't come off of that number.
And I'll tell you it's not like we're picking up the same 47000 shipments day in and day out we're getting increases with some accounts.
While while others were seeing decreases with its.
It is not as easy as maybe as what that sounds as it's consistent day in and day out, but if we don't see any further growth from there we should see it in.
And may just the natural effect of.
Just like the impact of the holidays recovering from that a little bit of growth and if we can move forward from there, but overall for the quarter for if we're still in this environment, where there's no sequential increase than we're looking at revenues that might be.
Flattish in the second quarter with the <unk>.
As compared to where normally up about 10% on a per day basis. So if that's the scenario that we're in and I think that.
We're looking at an operating ratio that may be more consistent with the first quarter.
And could see some slight deterioration from there I think our challenge will continue to be mainly.
<unk>, our direct variable cost, that's a productive labor, our operating supplies and expenses and so forth.
We're in the same type of shipments per day environment.
Managing those cost flat, maybe with some slight improvement.
As a percent of revenue those were about 54% of <unk>.
Revenue in the first quarter and then from an overhead standpoint, those calls for about 19, 5%.
In the first quarter, we will continue to have an increase in the aggregate amount of depreciation expenses.
And some other dollars of overhead.
It might increase of those costs.
It could increase further as a percent of revenue from that 19, 5%, but.
For us it's.
It's.
Certainly challenging but I can tell you our teams.
Looking at costs, we're looking at productivity.
Looking at the size of the fleet and making adjustments on a day by day basis trying to get in and save costs, where we can.
But like we mentioned before we're doing all the right things that.
That position us to come out of this downturn even stronger than.
That's when the inflection when it happens when we really outperformed.
For the longest time, when we get into the slower macro periods. Your market shares generally flatter as we maintain our price discipline.
But then when we come out.
That's where we really see the outperformance and our volumes versus the industry. So we're going to continue to with.
With the same strategic plan, that's got us to where we are today and I think that will emerge from this thing even stronger.
Adam Thanks for the thanks for that color and Greg Congrats again on your retirement thanks Jack.
The next question comes from Scott Group with Wolfe Research. Please go ahead.
Hey, Thanks, Good morning, I, just one thing I just wanted to clarify and then I have got my actual question. So Adam your comment about or maybe flattish <unk> to <unk>.
That's assuming that there is none of the seasonal may and June uptick is that am I understanding that right well, assuming a little bit.
Just the natural uptick that would happen in the sense of the RMA volumes should be somewhere where we are today if they stay at this 47000 range.
It would be a slight uptick over April just because of April being impacted by that half day that I mentioned.
Good Friday, and Easter holidays, but but you are correct just assuming that we stay in this sort of malaise, where we don't see any incremental uptick in frankly no decline.
But just staying in this flattish on a sequential basis, we certainly hope that there will be an uptick in volumes we've seen some good trends.
Good couple of days this week, but.
I think that we certainly need to be mindful of.
Kind of where we are and the fact that we don't see that positive inflection from an economic standpoint happening.
And so I think we didn't need to talk about kind of where we are today, obviously, we give a mid quarter update so if the inflection.
<unk> and we start seeing some some growth.
We're certainly ready and can handle it.
That's when we can start maybe talking about seeing some incremental improvement.
Will relative to the first quarter, but but right now it's just things on a day in day out basis or.
I've just been very steady as she goes.
From a revenue per day, and a shipments per day standpoint.
And then when you talk about volume down the most and so nine I guess I just want to understand like the pricing holding up for you really really well.
Point does that get tougher or are you seeing any.
Signs of competitive pressure, just given the market continuing to get worse right now from a volume standpoint.
Yes, I mean, it's.
Got it.
Certainly.
One I think the comparisons a little bit tougher.
And that should get better as we progressed through this year.
Even if our numbers were to stay flatter the numbers.
Should start to show a little bit of improvement, but it still.
Really soft environment out there.
I think that.
We've demonstrated a lot of value and Thats, what we continue to talk about with with our customers and our costs continue to go up and we need increases we've invested a lot.
And our network over the years over the last 10 years about $4 $5 billion of capital expenditures to grow our service Center network.
To be and have capacity, where our customers need need us and to have the right fleet.
And the right team.
To be able to continue to deliver value to our customers. So we've invested a lot and we intend to continue to invest.
I think that that doesn't change the conversations that we're having with shippers, but in some cases.
Due to the economy and due to internal pressures.
There are some shippers that have got to look for cheaper price carriers.
We are.
Premium.
Carrier premium service and our price is generally a little bit higher than others and so.
Oftentimes we will here.
He'd back though from shippers that are making that short term decision that theyre doing it to meet internal thresholds.
We intend to give the volume back to us like I mentioned, we're seeing a little bit more transactional volume also within our <unk>.
<unk> book of business right now.
That's about a third of our overall revenue in the first quarter.
<unk> deals, where we're down a little worse than the company average revenue change so.
That's something that we continue to be mindful of and that too often flips and kind of ebbs and flows.
With the economy, but I think for US. It's just got to have a plan and we have one and stayed disciplined to it.
Keep our focus on delivering service.
That comes at a cost there.
There becomes a fixed element of running our line haul network and our PND CIS.
Our system to be able to continue to deliver service and usually this is when service breakdown occurs in the industry.
When you become very focused on mitigating cost and I think we're in a much stronger position than every other carrier.
But when you start focusing on trying to mitigate mitigate cost in this type of environment. When the other carriers have seen worse volume loss with us on average.
That's when trailers start getting hailed longer to try to build them up on time service starts declining.
Claims start increasing other bad things happen.
That really I think.
Or at least what we've seen in the past, we see a widening of the gap from a service performance of the us versus the industry.
We expect that to play out again.
When the economy starts recovering, it's obviously tough to manage through it on a day by day basis, but yes.
I think we get right back to our market share gains I don't think anything has changed in the sense of what we think are long term.
Market share potential can be what our long term.
<unk> ratio goals are.
None of that really changes it just kind of news when the start point begins when we get back.
Market share growth mode again.
Yeah.
Thank you for the time I appreciate it.
This is the operator, just a reminder to kindly.
Limit yourself to one question.
Next question comes from Jon Chappell with Evercore ISI. Please go ahead.
Thank you and good morning.
Marty you mentioned in your prepared remarks, anatomies kind of addressed it.
All of your answers as well, but customers choosing price over service have you seen any kind of significant cracks in the pricing dynamic given just the complete weakness in the volume side, how would you compare kind of the pricing environment today versus other periods of recessionary volume backdrop.
Yes.
I've been through this a few times in my 40 years in transportation and.
The worst that they ever seen was 2009, and we're nowhere near that but.
There is some.
In a challenging pricing out there as there always is bearing.
Low freight levels.
Most of that we see is transactional mom and pop type shippers.
Sure.
And bound customers so.
Yeah.
It can be challenging out there, but it's not anything we haven't seen before and it's not anything we can't work through and manage through it.
Thank you Marty.
The next question comes from Tom <unk>.
With UBS. Please go ahead.
Yes, good morning.
And.
I think.
Like I said, Theres, Alaska, maybe but.
If I didn't congratulations Greg on the retirement and the Great run you had.
Actually want to ask.
Along those lines.
I guess, you've seen youre retiring someone on the teams moved to a competitor.
There is some degree of change going on that will take place with with <unk>.
How do you think that.
May affect what you're doing at <unk>.
Might be some of the risks around that are there risks around that are there.
Potential things that you say well. This was my approach obviously tremendously successful, but the next person might tweak things a bit so I know thats kind of anticipatory, but just thoughts on <unk>.
So the management things that have taken place or or will take place as you retire.
Sure Tom why don't you don't mind addressing that at all I appreciate the question but.
Fortunately, Tom we've got tremendously strong team here at ICD.
<unk>.
The folks replacing they have.
Nearly as many years in some cases in the industry as I do.
They're all 20 plus year veterans.
<unk> been through everything since we started executing this plan many years ago.
<unk> been through that taken down in the good times Bad times.
They know who we are they know what's made us successful they understand our plan going forward and I think we're in a great position to continue to execute on that plan. So.
Tom there's always risk.
Anytime we lose good people certainly this risk, but I feel extremely good about where we are.
We'll we'll make the replacement and continue to move forward.
Again, thankfully we had.
Plan.
Sure.
Plan to execute on exit if you will and promoted the folks that.
Certainly are capable of continuing to drive our results forward.
Again, I feel good about it I'm not concerned about that part at all.
These guys know what to do.
I feel extremely good about it we got a great team.
You can see that in the results. It's not it's not me, it's not just the folks here, but I think everybody truly understands.
We're trying to do and how we work.
Post execute and handle customers.
Consolidated basis.
Yes, that's not going to change just because an out the door or any other one person left those fundamental things that we know how to do much better than our competitors.
That's not going to change anytime soon.
I think the basics.
Blocking and tackling those kind of things without any doubt we are far superior to all of our competitors.
Again, that's not going to change so I think we're in a good spot.
I look forward to.
Lot of success down the road.
Brody.
Okay, great. Thank you Greg.
Sure.
The next question comes from Allison <unk> with Wells Fargo.
Go ahead.
Hi, good morning.
Just wanted to go back to the comment on the top of the accounts you did say there were actually some that were improving here I guess any color that we can maybe read through them vertical are such that that's driving some of that improvement and I guess, along with that that stabilization. When you kind of think of those larger customers.
And then we'd obviously announce action, but at least that stabilization may just any color there. Thanks.
Yes.
It was pretty consistent performance between our retail and industrial customer base during the quarter. The revenue levels were generally about the same.
For both but like I mentioned earlier, it's really a lot of the business.
That we're seeing there is probably a little bit worse decline with business Thats managed by three deals and so.
Thats fairly typical.
When a softer environment.
You will.
And so not wholly.
Unexpected completely but.
But yes, we've seen.
Just a consistency day in and day out.
With business levels in terms of the number of shipments per day.
That we've seen it's been trending around.
47000 Bill.
Bill's a day.
We don't necessarily see that but.
Flexion point.
You will happening typically you would start seeing an increase.
You would see an increase in.
May of about two 5% to 3% and then a further increase from May to June .
2%, certainly we'd like to think that that might happen, but.
You go back to when things really started decreasing.
It was last year in April .
March of last year was the last month, where we had a nice sequential increase.
Our business in <unk>.
February of last year was up about 5% that was up another 3% in March.
We started dropping off and basically have been flat to down.
For every month thereafter, our shipments have been pretty consistent.
Increased very very slightly less than 1% each month, so pretty much consistent as we made our way through the <unk>.
Each month of the first quarter.
Much had been the same.
April again other than those two days that we consider full days impacted by the holiday, but that's in our normal number typically April would be up about half a percent.
Over March in right now.
We're down about two 5%.
Shipments per day so.
Some of that where we've just seen that consistent trend day in day out. So do we start seeing some increase like I mentioned before may just naturally should show a little bit of growth. If we stay at this 47000.
Bill level.
Did we start growing from there that we see a percent or two growth in June I would like to think that we would.
Again, we've had a lot of good conversations we've had some good hits here.
Here lately with.
With customers.
But some of those same conversations we were having three months ago, where we were positive as well so I think that right now.
We want to be conservative if you will and not.
We're continuing to try to manage our costs down to this lower level of shipments in.
I think that will continue to happen as we progress through the year as we focus on productivity.
A little heavy with our fleet now as well and we're working through some of those challenges and.
But just trying to get everything balanced.
As best as we can.
While we stay in this.
Sort of stable period, if you will but it's just not really seeing any kind of growth.
But I would say typically.
April volumes from a shipments per day standpoint, typically are fairly consistent with what our year to date average is.
We've seen that over time other than.
In 2020, and so that's something that we just sort of keep in mind from a planning standpoint.
And we always have a plan for it we have a baseline plan we've talked about this before that we enter every year with and then we have a.
<unk> scenario in a bear scenario.
One was more at the Bull case scenario this.
This year is more in the Bayer so.
We start with the plan if things materialize like this and that's about at the level, where we are and we're executing on that plan.
Great. Thank you.
The next question comes from Amit Mehrotra with Deutsche Bank. Please go ahead.
Thanks, Operator, hi, everyone a quick question.
That was the last time shipments into Q were worse than <unk> I don't know I don't think there's ever been a time, but that's the key.
Case, but if you can just help me with that and then.
When does the drawdown on weight.
Base were at $15 50, now are we at the point, where we stabilize at these levels.
So those two points and Adam historically, you've lost liens in past downturns to.
High quality regional players or maybe lower cost.
I think that's happened maybe up until now I don't know if thats happening now that maybe explain some of the weakness in April whether you could talk about kind of what the customers are doing from a trade down effect to some of the regional maybe equally or as high quality players.
Yes.
From a second quarter to first quarter standpoint, other than the second quarter of Tony.
One of the world shut down.
We've not really seen a decrease in shipments.
That to kind of played into our general thinking.
Even years like 2009 2016 2019.
Weaker years, we still had.
Some marginal improvement.
Shipments in the second quarter.
<unk> is the first and so right now.
That's kind of trending flattish, we will see how our things.
Shake out for the remainder of the period and like I said, maybe we'll get some growth and certainly it will be out there as we.
Put our mid quarter update will put the final eight.
April update.
Our 10-Q.
And if we see some continued acceleration.
That will be in the number but we just don't see.
A big inflection point happening like we did in say 2017 that spurred that growth of 17 through 2018, and what we saw in the back part of 2020 that continue.
Continue to accelerate through 'twenty, one like like it happened and so we're still waiting for that point, but we don't see it kind of on the near term.
And so we just manage to kind of where we are but.
Yes, that's kind of the challenge.
What we're seeing is partly why I mentioned earlier that our revenues.
In the second quarter are typically up.
910%.
And that's why we always get so much margin improvement in the second quarter as well.
So that becomes the challenge.
As we manage through.
This particular period, but.
With respect to your other question.
The customer base.
I don't know that were seeing.
A significant loss.
Other than that that's some of what's going on underneath I think with some of the <unk> business.
They can leverage their carrier relationships and moved some freight and some of this is transactional.
As well.
But they can take advantage of relationships and see who has capacity in.
Who's got a cheaper price.
And move some business away.
But that's some of the feedback we've heard.
Customers come to us and saying look I need to do this to meet Mone call Center objectives.
There is an internal mandate to save X dollars that they.
Got to try to meet in some way.
But generally speaking.
Freight comes back to us if we ever lose freight it's on.
Rice, but we generally always gain it back for service quality and.
Capacity down the road, so we're confident that.
But that trend will continue to play out again and that we will see.
This freight loss.
Really come back to us.
Just a matter of it seems like Thats been pushed further down the road.
The inflection point that we thought would happen beginning with this spring.
What about weight.
Wait altogether weight per.
I guess, you've embedded three questions in one but.
Sure.
Yes.
Sure.
Alright, our weight per shipment.
It's down a little bit further I think we're getting to the stabilization point right now in April it's about 525 pounds.
Historically, we would get down and lower periods to about 550 pounds or so, but if you recall.
We made some strategic decisions in 'twenty, one and exited from some of the spot quote heavier type shipments. These 18000 pounds site loads.
And that had an effect of really lowering our overall weight per shipment. So despite the weakness we are not going back and trying to bring in freight that we didn't think fit our network for the long term.
So just going along with the economy, we've seen a little further deceleration in that weight per shipment being down to 525 pounds.
A little bit worst April is always usually down half a percent or a percent off of March some of that is march builds up in the quarter.
We're down a little bit more but I feel like that stabilizing that.
Our low watermark in a softer economy youll be 15 under 25, 50 130 pounds maybe.
But yes, we.
We think thats getting to a stabilization point or so it seems.
Thank you.
Our next question comes from Chris Wetherbee with Citi. Please go ahead.
Hey, Thanks, good morning.
Adam just kind of curious how you think about head count going forward Youre, obviously, a lack of seasonality might influences, but you've been bringing it down sequentially. The last few quarters just wanted to get a sense, maybe how much more room you have in terms of right sizing that labor force and maybe is there a line where you feel like you don't necessarily want to go beyond.
Yes, it's continued to.
To drift lower on a sequential basis, the average was down about three 5%.
In the first quarter versus the fourth quarter, but.
Our.
Peak, if you will for full time head count was in May of last year.
Normal attrition in this.
Some places.
Making other decisions if you will just balancing.
Our number of employees with the freight volumes that exist.
We've had to work through those on a case by case basis throughout our 255 locations, but I expect that that will continue to.
To drift a little bit lowers attrition continues to happen.
From where we are today through the end of June and we're getting to a point I think that.
You kind of compare where we are we continue to drift, maybe 1% to 2% lower as we progress through the.
The second quarter to where the year over year change.
By the end of June may be in that 9% to 10%.
<unk> type of range.
And then that's coming back into balance we've always talked about.
The change in head count typically reconciles with.
The overall change in shipment count as well.
So if we're looking at that I think by the end of June .
Change.
And shipments on a month over month basis.
Those two numbers may start coming back into the payer team with one another that is the change in.
And full time employees and the change in our shipments on a year over year basis.
Okay. That's helpful. Appreciate it thank you.
The next question comes from Boscombe majors with Susquehanna. Please go ahead.
Thanks for taking my question, you've been pretty open about some of the share and pricing challenges with <unk> business can you walk us through a little bit on how.
That emerges are you seeing larger carriers reduce their rates across the board with three pls and losing business that way or is this more targeted dynamic pricing and just.
Cyclical dynamic, which I'm sure it's been around before if that is evolving any differently. This cycle than last cycle, we'd love to hear more about it. Thank you.
Yes, I think thats.
It's hard for us to say, we don't always know the reasons behind.
I mean, the feedback we get is that someone's cheaper we don't know.
Necessarily.
That variance or that reason why.
I think that we are obviously one of the first carriers to report.
Just continue to watch.
What the others are doing what their numbers are looking like in <unk>.
Here with the others.
Have to say I think the.
Others have said they've got price discipline, but we've seen one carriers' yields flat now so I think all we can do is just continue to sort of watch and see what others are doing but that doesn't impact what we do.
We've got a plan we stay committed to it.
We know what value we deliver.
We just got to stay disciplined.
That's what we will do so.
It's.
<unk>.
Never good to kind of live through it in the moment and we've done this time and time again, but like I said, it's not totally unexpected to see some of that business just given the softness in the economic environment.
Cost challenges.
People are facing in general.
To be looking at ways, they might be able to save on price and.
In the current term, but what we always say is price doesn't equal cost, we deliver a value to our customers and when you consider total cost of transportation. When you deliver 99% on time and have a claims ratio of <unk>, 1% you save money by shipping with old Dominion and that's what our position continues to be.
<unk> is just our sales team they've got to stay engaged with our customers and demonstrate.
Demonstrate value we've got to continue to maintain our service metrics and we will.
That is certainly a focus for us and.
We'll manage through this but like we said before.
I think it's played out when you look at our numbers in the long term improvement that we've made with respect to our margins and the cash.
From operations that we generate and are able to reinvest back in our business on behalf of our customers.
We've got to maintain our disciplined approach.
And I think that it's proven itself out in the long run.
A key difference why our numbers look a lot different from some of the others.
But when you look back to 2019 or 2016 does the riser.
Rising competitiveness.
<unk> share of the three PL channel feel different this time just curious if this all rhimes or something feels like it's changed here. Thank you.
No I wouldn't say it's.
Maybe a little bit different basket, but not wholly and completely and just to add a little color to what Adam said generally speaking with our <unk>, we're not losing contractual business. Some less contractual accounts may be down just because of general economy slower.
They may possibly be down, but that's not where we're losing in the transactional stuff as Adam talked about before that's where we're seeing a deterioration in our revenue.
Specific to <unk>.
They all have.
A large piece of business that's transactional.
The customers may ship once twice whatever a week.
All our type accounts, and that's where we're seeing the losses from our standpoint so.
It's just business that they can price on the fly and.
We're never going to be.
Low cost on the fly if you will.
Anyway, that's more of what we've seen.
It's not losing business by any stretch.
Sure.
Thank you.
The next question comes from Ken <unk> with Bank of America. Please go ahead.
Great. Good morning, Greg Good luck in retirement, and maybe west might be giving you a call soon.
Yeah.
Good morning.
With me being on this board and that one.
Yeah.
Yes.
Marty I just want to clarify just want make sure I heard you right did you say this is not abnormal in terms of the part of the cycle on pricing and then Mike My question for Adam or Greg I guess is just the ability to be fluid on cost right. So you've always talked about more so than peers, given the fixed cost structure of the less than truckload market.
And <unk> focus on keeping people how do you shift how do you think about shifting costs or what moves you make now with with volumes down 15% I know you always want to be prepared and have the 25% capacity available, but what do you think about on the cost and impact our thanks.
Yes. This is not abnormal in this type of environment economic environment.
You have you have.
Some of our competitors.
<unk>.
They think.
Offering and more competitive or lower price will keep the customer there. Many times it does not because the customer will always come back to have them. There. They are cognizant delivered on time and claim frame we've learned that over the years.
So it's not abnormal.
We choose to tighten our belt and manage our labor.
And.
When the when the.
The slow times past, we're in a great position to keep auto are going downwards.
But it's not abnormal to see.
Low prices in any environment with any company.
So.
We've seen it before.
<unk>.
It will pass like it outweighs that.
And Adam I'll, let you handle that.
Yes.
Yes, I would only say on the call standpoint, I mean, obviously.
Which to wear.
Our variable costs are.
The majority of our cost base, now probably 70% or more.
Our cost now are variable in nature, and obviously, we've got a big fixed.
Fixed cost base.
We're seeing the loss leverage with the revenue decline there driving some of that but.
Some of the increase in those.
Overhead costs in the first quarter.
Also come from the fact that we're in a little bit of a different schedule with respect to our equipment plan we.
We were taken delivery in the fourth quarter in equipment taken delivery in the first quarter, which is unusual and that was part of why we had anticipated a sequential increase in the depreciation cost as.
As a percent of revenue but.
Given all the challenges from a fleet standpoint, that's driving some of our costs. That's also driving some of the maintenance and repair costs like I mentioned, we're seeing an increase in cost per mile.
Some of that is just due to general inflation.
Related to parts and repairs, but that some of it to just relates to the fact that we're bringing in equipment.
On a different schedule, we've held equipment.
Through 'twenty, one and 'twenty two and our average fleet age has increased as a result, we're probably our average fleet age is about five five years now and we like it to be around four years and so we'll work on balance and that is we take out some of the older equipment from.
From the fleet and adjusting our fleet if you will to these show lower shipment levels.
But that will help from a cost and an efficiency standpoint, but 80% of our costs are salaries wages and benefits and art supplies and expenses line haul is a big element underneath.
That and so that's why we've got to stay disciplined.
Merchant and our prepared comments about our.
Your line haul load factor being down like it is.
I can tell you that's a focus that's a lot of dollars not only from a labor standpoint, but thats what creates.
The miles that we run and so that we can drive some improvement there.
That will help us from both labor and fuel in particular.
We're also making some adjustments on the fleet that will help with both depreciation.
And maintenance costs, but.
I think I said earlier, there is an element that becomes fixed about every variable cost is fixed in the short run.
If we want to continue to deliver service and we are there.
And there becomes a fixed element within that line haul component.
So we've got to be able to do both frankly, we're not going to lose our focus on giving service, but we've got some room for improvement.
And Thats, what our team talks about every week and frankly every day when I'm out in the field is where we can drive some efficiency that's going to be the biggest self help area, but it always has been.
And that's the work that we've got cut out for us as we go through the last three quarters of this year.
I think I've said before that.
Look at our direct.
Operating costs these variable cost productive labor supplies and expenses and so forth.
Even in slower periods in the past.
Even in 2009, we were able to generate some improvement in those cost as a percent of revenue on a year over year basis and so.
The operating loss in Illinois, being with our fixed overhead costs.
So thats the challenge that continues to be in front of us in the second quarter I mentioned, if we can keep those cost at 54%.
They were about 53% in the second quarter of last year. So.
Going to have a little bit of headwind there, but we've got to continue to work those cost down.
As we progress through the year and that will be the operating challenge that we face.
Great Marty Greg Adam. Thank you so at the time I appreciate it.
Sure.
The last question today will come from Bruce Chan with Stifel. Please go ahead.
Hey, Thanks, operator, and good morning, everyone.
Just wanted to come at the volume question from a little bit of a different angle you've had some competitors that were going through some labor negotiations. This year, one is going through a pretty significant change of ops.
Do you see any volume coming into the network because of or maybe in anticipation of those events and then Adam maybe just a quick housekeeping question you gave us some good color on the fleet age how long do you think it's going to be before you're back at that sort of target for years.
Yes.
I would say that we should make a lot of progress this year, we've got a.
A fair amount of equipment.
Right now that.
We've got identified that we want to be able to move out of the system, but that takes a fair amount of time to happen is not an overnight thing where you're settling.
Used car and you posted on your own.
On the website.
So it's going to take us a little bit of time.
To kind of work through that but we've got a plan.
We've met several times recently talking about kind of the needs there.
We will continue to work through it so I think that will make considerable progress. This year as we're still bringing on we've reduced our capex for equipment, but we're still going to be bringing on a fair number of new units.
More of the progress will be hanging or getting rid of some of these.
Older units that we've been hanging on to them.
I'll say, we're not out of the woods, yet when it comes to.
Parts availability and so forth, we're still finding that.
There are continuing to be supply chain issues out there.
We've got equipment that has been down for maintenance.
Yes.
Equipment has stayed down for longer periods of time, so we're continuing to kind of manage through those challenges. While we're also trying to manage costs, but but I think we will end up by the end of this year.
<unk> been pretty steady progress on working that number much lower than where it was at the end of last year kind of work on both ends of the spectrum. If you will.
Great. Thanks, and then just on the volume side any discernible share wins from for many of those union competitors.
It's kind of hard to say Bruce.
We get reports from our national account folks.
<unk> basis.
We have plans.
On business from those folks as well as others. So.
I don't know that you can really point to.
Contract negotiations or whatever the case.
Any reason that we are getting business, we haven't really seen that.
Got it fair enough. Thank you. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Greg <unk> for any closing remarks.
Well thanks, everybody for your participation today, we appreciate your questions feel free to give us a call. If you have anything further 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.
Yeah.
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