Q2 2023 Old Dominion Freight Line Inc Earnings Call
Hello, and welcome to the old Dominion freight line second quarter 'twenty to 'twenty three earnings conference call.
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Good morning, and welcome to the second quarter 2023 conference call for old Dominion freight line.
This call is being recorded and will be available for replay beginning today and through August 2023 by dialing 1877344 75 to nine access code 760931 for the replay of the webcast may also be accessed for 30 days at the company.
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 may be deemed to be forward looking statements without limiting the foregoing. The words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
You are hereby cautioned that these statements may be affected by the important factors among others 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 company.
<unk> 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 one question at a time before returning to the queue.
For your cooperation.
At this time for opening remarks, I would like to turn the conference over to the Companys, President and Chief Executive Officer, Mr. Marty Friedman. Please go ahead Sir.
Good morning, and welcome to our second quarter Conference call with me on the call today is Adam Satterfield, our CFO .
And after some brief remarks, we will be glad to take your questions.
The Ot team delivered solid financial results and the results for the second quarter, considering the operating challenges associated with the continued softness in the domestic economy.
And a decrease in our volumes.
With a 15.2% decrease in revenue during the quarter. Our team was focused on improving our yield managing our variable cost and controlling our discretionary spending.
As a result, we were pleased to produce a 72, 3% operating ratio and earnings per diluted share of $2.65.
We achieved these results by continuing to execute our long term strategic plan, which was guided us for many years through many economic cycles. The plan is centered on our ability to deliver superior service excuse me at a fair price, which included on time service performance at 99%.
Cargo claims ratio of zero to 1%.
During that second quarter, providing.
This level of superior service strengthens, both our value proposition and our relationships with our customers.
Delivering superior service also supports our ongoing yield management initiatives, we have improved.
Quality of our revenue over long term.
The offering a consistent approach to pricing, which is designed to offset our cost inflation and support our ongoing investments in service center capacity and technology.
We believe that our ability to consistently offer network capacity differentiates us from the others in our industry, which is an additional element of our value proposition that we believe will support our long term market.
Sure it initiatives our market share remain relatively consistent during the second quarter, Despite an environment, where overall freight demand was subdued.
The year over year decrease in our volumes. However resulted in a loss of operating density we believe that our long term improvement in our operating ratio requires consistent increases in both density and yield both of which generally require a favorable macroeconomic environment.
Our commitment to providing superior service.
As our first priority for our customers it becomes a challenge to maintain much less improve our productivity during the periods with reduced density as evidence of this fact, our line haul laden load factor decreased three 1% during the second quarter.
We were pleased however that our platform shipments per hour increased six 6% and <unk> shipments per hour increased 0.5%. These.
These improvements as well as other efforts by our team to manage costs helped us maintain our direct operating cost as a percent of revenue.
Our overhead cost on the other hand increased as a percent of revenue during the quarter as most of these calls categories are fixed. We also believe an increase in aggregate depreciation expense due to the ongoing execution of our capital expenditure plan.
We believe it is critically important to continue to execute on this plan regardless of the short term economic outlook. We currently have approximately 30% excess capacity within our service Center network, which is a little higher than our target range of 25% we are comfortable with the amount of excess capacity.
As we remain confident in our ability to win market share over the long term.
Finding land and building service centers in the right locations can take considerable time. Therefore, we make every effort to stay ahead of our growth curve with these investments.
We could not have doubled our market share over the past 10 years without our consistent investment in service center capacity as well as our regular investments in our fleet.
Technology, and training education, and benefits, where I led the family of employees.
Proactive approach to managing all elements of capacity has created a strategic advantage for us in the marketplace.
<unk> typically becomes most apparent to shippers and tight capacity environment we.
We do not always know when an inflection point in the demand environment is going to occur, but we believe we are well positioned to respond to any acceleration in volumes when it happens.
Through the disciplined execution of our long term strategic plan.
Our team has created one of the strongest records for long term growth and profitability in the <unk> industry, we remain committed to providing superior service at a fair price and maintaining the necessary capacity capacity to support growth and we believe we are better positioned than any other carrier to produce long term profits.
<unk> growth, while increasing shareholder value.
Thank you for joining us this morning, and now Adam will discuss our second quarter financial results in greater detail.
Thank you Marty and good morning all.
<unk> revenue results for the second quarter reflects a 14, 1% decrease in <unk> tons per day.
And one 1% decrease in <unk> revenue per hundredweight.
Our yield metrics were affected by the significant decrease in the price of diesel fuel during the quarter.
<unk> revenue per hundredweight, excluding fuel surcharges increased seven 6%, reflecting our consistent approach to managing yield.
On a sequential basis revenue per day for the second quarter decreased 2.0% when compared to the first quarter 2023.
With LPL tons per day, decreasing one, 8% and <unk> shipments per day decreasing zero to 3%.
For comparison, the 10 year average sequential change for these metrics includes an increase of nine 8% and revenue per day.
An increase of six 8% and tons per day, and an increase of seven 2% and shipments per day.
Our shipments per day on average have been relatively consistent since December of last year.
We have previously communicated our expectation for volumes to remain consistent through the second quarter.
The sequential growth that we have historically achieved in this period.
Our baseline thinking was for volumes to remain consistent through the third quarter as well, although we have noticed an incremental increase in revenue over the past few workdays.
The change in our revenue on a week by week basis. So far in July has been relatively consistent with historical averages.
As a result, it appears that sequential change in both revenue and shipments per day for July will be the first time. This year were more closely aligned with our 10 year average sequential change.
While there are still a few work days remaining in July our revenue per day has decreased by approximately 15% to 16% when compared to July of 2022, although the timing of the July 4th holiday has skewed those numbers slightly.
If the trend that we've seen over the past few work. These hold steady through the end of the month, we expect revenue per day to finished down approximately 14% to 14, 5%.
<unk> tons per day to finished down approximately 11.5% to 12%.
Our <unk> revenue per hundred weight is currently down approximately three to three 5% as this metric continues to be affected by the significant decrease in the price of diesel fuel.
<unk> revenue per hundred weight, excluding fuel surcharges has increased approximately six 5% to 7%.
As usual, we will provide actual revenue related details for July in our second quarter Form 10-Q.
Our second quarter operating ratio increased to 72, 3% as our overhead cost increased as a percent of revenue due primarily to the deleveraging effect associated with the decrease in revenue.
We were able to effectively manage our direct operating costs during the quarter.
Cost remained consistent as a percent of revenue with the second quarter of 2022.
Within our direct operating costs, our operating supplies and expenses improved 250 basis points due primarily to the significant decrease in the price of diesel fuel.
Our purchase transportation costs improved 60 basis points.
These changes more than offset the increase in salaries wages and benefits as a percent of revenue for our drivers platform employees and fleet technicians that are included in our direct costs.
<unk> cash flow from operations totaled $287 $8 million and $703 2 million for the second quarter and first half of 2023, respectively.
Capital expenditures were $244 $7 million and $479 $4 million for those same periods.
We utilized the $165 million and $302 2 million of cash for our share repurchase program during the second quarter and first half of 2023, respectively.
Cash dividends totaled $43 8 million and $87 8 million for the same periods.
We announced this morning that our board has approved a new share repurchase program that provides us with the authorization to repurchase up to $3 billion of our outstanding stock.
This program will begin after the completion of our existing $2 billion repurchase program that was announced in July of 2021.
While we intend to continue our focus of returning excess capital to our shareholders. Our first priority for capital spending we will continue to be the strategic investments and capital expenditures to support the long term profitable growth of our business.
Our effective tax rate was 25, 4% and 26.0% for the second quarter of 2023 and 2022, respectively.
We currently expect our annual effective tax rate to be 25, 6% for the third quarter of 2023.
This concludes our prepared remarks. This morning, operator, we're happy to open the floor for questions at this time.
Thank you at this time, we will begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up the handset before pressing the keys to try your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question constant Jordan <unk> with Goldman Sachs.
Hi, good morning, sorry for that.
Obviously, theres a lot of noise in the background now with and one of the major competitors out there can you maybe touch a little bit on what if anything youre seeing or expecting either from a diversion I guess from a diversion perspective now thanks.
Sure.
We don't want to make any comments, specifically on one carrier or another but.
Like I mentioned, we have seen an uptick in business over the past few days in particular.
But really I think that over the past few weeks, we have started to to.
We start seeing a little bit better trend if you will.
And it goes back to maybe beyond that.
I think we're at the end of a long slow cycle and we've stayed in front of our customers over the last year year and a half as things that have been slower.
Really going back to April of last year, and typically when we get to the end of this kind of cycle, we start hearing.
Comments about.
Service issues with other carriers.
The need for shippers to start reusing old dominion within their supply chain and so.
We've started increasingly having those types of conversations and certainly.
Some of that has intensified here over the last.
A few weeks, but when we look at things we look at our success measured over the period of years over the long term is the way that we continue to try to manage our business and we've doubled our market share over the last 10 years and I think when we think about the next 10 years of opportunity.
We've got a long runway for growth of pad and.
We want to keep winning market share in the right way for us.
So we will continue to stay in front of customers for sure.
And talk about the old dominion's value proposition and how we can deliver value to their supply chain. So it has driven a little incremental.
Kris.
We had been running at about 47000 shipments a day, we talked a lot about that on less.
Earning call last quarter.
We typically see a little bit of an increasingly from beginning of the month to the end of the month.
But we've been the last few days.
Running closer to 50000 shipments a day it is.
Hard to say.
<unk>.
Factor versus another or what's driving that higher.
But it has been a little bit higher than what I had initially forecast probably a month ago.
Maybe it's picked up at this point.
<unk> thousand 502000 ships.
Shipments per day more so than what we had.
Initially been forecasting for but but I would expect that.
We feel like we're getting towards the end of the slow cycle.
And would expect to start seeing.
Business levels start to return to us at the end of the year and certainly.
As we get into the early part of 2024.
It feels like underlying demand take supply in the industry out of the equation, but it feels like.
Demand is starting to improve a little bit and we're having good conversations with customers just like we've been having all year long.
But it certainly feels like things are starting to turn a little bit.
If I could just ask a follow up I think you had mentioned you have about 30% excess capacity in your network now.
Whether it be demand or competitive problems.
I think you also said normally you like about 25%, but would you push that.
That excess capacity lower I mean.
Would you be would you run with just 20% or 15% excess capacity or is it a relatively firm line. Thanks.
Yes, certainly.
That 25% is just a target and we go through periods, where we.
When you look at the system on average it's been below that 2021 is a good example, where.
Where we had significant.
Sequential growth.
That year due to the strength of the economy.
And we look and you look back at our trend we were one or two carriers that had a double digit sequential increase at least public carriers.
From the first to the second quarter of 2021, and then we were the only carrier that followed that up with another increase sequential increase from the second to the third quarter. So we've proven in the past that if you've got the right strategies.
We can take on business.
Pretty significant increases in business because of the way that we try to plan for the long term.
And build capacity into the system and certainly you've always got to be thinking in our case, we try to think several years ahead.
Stay ahead of our growth curve, but the.
The service center capacity is one element of the overall capacity equation theres still the people component of it and the equipment piece as well, but we try to stay further ahead of the curve with service centers.
Certain markets, we try to stay even further ahead.
If you will but but that's always a number that flexes up and down and each service center is different we got some service centers that.
Got more capacity than others, but that's generally about where we try to stay just from an overall system average.
Thank you.
Thank you.
Comes from Allison <unk> with Wells Fargo.
Hey, guys James Monaghan on for Allison just wanted to ask about sort of how we should think about or in the third quarter hurting.
Hitting some volume better pricing trends, presumably as well how should we think about sort of the potential improvement and should we use typically see sort of something maybe even above seasonality given the operating leverage.
Well I think the top line is going to be.
The determining factor here.
And when it comes to the top line, obviously, we've shared a little bit about where we are with July .
And we will continue to give our mid.
Mid quarter updates so August will be out there as well but.
From a baseline standpoint, what nishu.
Initially we're thinking in may try to address this in a slightly different manner.
What we have in the past typically we see about a 50 basis point.
Increase in the operating ratio.
The second to the third quarter.
And I would expect this third quarter.
We're going to have some increase in some of our older. It from an aggregate dollar standpoint, and some of the overhead categories I.
I feel like our total overhead.
<unk> are going to.
Dollars wise are going to be higher than where we were some of that will be depreciation we expect our miscellaneous expenses to be a bit higher.
Our general supplies and expenses as well.
So it will depend on.
Where that top line comes in.
<unk> that we can manage continue to manage our direct operating costs, which are more variable in nature.
Consistent as a percent of revenue and so we would look to try to keep those cost.
Consistent with where we were last year and that would be a slight improvement, but fairly constant with where we were in the second quarter.
And then it just becomes the leverage that we get on the overheads. So if we've got some dollars.
Higher.
If the top line if the volume environment were to stay flatter like what our base.
Case scenario previously was then obviously, we would lose a little bit more leverage there.
But if we get some incremental.
Prudent and further growth from where we are now I think that's going to be really the slide if you will in terms of where the <unk> might end up.
And that baseline thinking, though because the increase in overhead.
Expenses I was thinking that we'd be slightly worse.
The normal seasonality somewhere between 50% to 100 basis points of an increase over what we just did in the second quarter. So a lot is just going to depend on how those overhead cost as a percent of revenue move around really dependent on what the top line is doing.
Thank you.
Thank you and the next question comes from Jack Atkins with Stephens.
Okay, great. Thanks, and good morning, I guess I would like to ask a question on the pricing environment and I guess more specifically if you go back three months ago. There was it seemed like there was incremental competition around some of the transactional freight in the marketplace.
Have you seen anything change there whether it's over the course of the last few months or in recent weeks that would give you some more confidence about the trajectory of pricing in the marketplace. So is there any sort of commentary on that I think would be helpful.
Yes, there has been no major changes in the pricing environment I mean, we're still getting.
Increases from our from our contract carriers then.
There's no there's not anything really crazy going on out there, so which is which is a.
Surprise in a slower environment.
Again, we're not seeing we're not seeing any changes from the first quarter and we're still getting increases when we need them.
Just a quick follow up on that Marty if I could I mean are you seeing maybe just given all the shifting dynamics in the marketplace.
Maybe a little bit less of a competitive situation going on with trends with the transactional part of the market are you seeing some firming in pricing there I guess.
What I was trying to get at yes, I Havent really seen any changes at all whatsoever.
From a transactional basis.
But.
It is.
If we need it as you know as I've said before on the last call.
We're a cost plus costing model, that's what we base our pricing on it.
<unk>.
When we when we go in to discuss pricing, we basically show our customer what our cost is.
<unk>.
They understand why we need to increase we're not having any issues getting it but no I'm not saying any crazy pricing adjustments out there since the first quarter. Okay. Alright. Thank you very much.
You're welcome.
Thank you.
It comes from Jonathan <unk> of Evercore ISI.
Thank you and good morning.
Sticking with that transactional theme, Adam last quarter, you kind of flagged the three PL business losses as being a bit more outsized is that basically run its course, where theres not much more to retail business to lose and as you talked about this kind of a recent uptick in the last few workdays has that been more kind of transactional volume as well and maybe getting some of that is retail back are you.
I actually seeing core LDL freight <unk>.
Pick up substantially over the last week or so.
It's more of the core.
I would say looking through our top 50 customers.
The <unk> piece of the business really just performed.
In line with the company average really.
In the second quarter, we still had better performance with our.
Core contract business, those that have direct contracts with us.
But with revenue down 15%, everyone was pretty much down.
That obviously theres a big decrease in fuel surcharge revenue that had an impact on the second quarter.
The average price of fuel being down close to 30%. So that was certainly a headwind that we had to contend with but.
We'll go back to we had consistent conversation with customers really over the last year and I think we've been pleased with the trends that we've seen certainly we'd rather be.
Talking about growth and see pure growth.
Going on so it's been tough to kind of go through the last year or so.
But I think that we've had.
Good good customer relationships, we've got long term customer relationships people that are going through supply chain challenges realize the value of old Dominion.
And they're continuing to increase their business with us.
The demand environment overall.
The state of the domestic economy has certainly had an impact on our customers' businesses as well and so many accounts.
We've kept the contracts have been awarded the same types of lines customer.
Customers may just not have the same amount of business that they've had before and that's kind of what I was alluding to earlier, where I feel like we're getting to the end of that kind of process, where it feels like we're seeing stabilization and I go back to just underlying demand for <unk> transportation I felt like things were kind of getting to the point.
Where we would see in stabilization, we've had stable trends all year.
Like we were getting back to the point, where we might start to see more market share that it's been relatively consistent this year.
Been down.
Slightly but I felt like we were kind of getting to that and where things are going to start turning back in our favor and some of that does goes to some of the conversations we've had about others in the industry.
We're hearing more service failures and Thats generally when the business starts coming back to us.
And I feel good about kind of those underlying trends and getting through the back half of this year and the.
Being ready for 2024.
Great. Thank you Adam.
Thank you and the next question comes from Chris Wetherbee of Citigroup.
Hey, Thanks, good morning, guys.
Maybe wanted to come back to pricing for a minute maybe kind of big picture. If we think about the potential for capacity event in the industry, where rishi capacity materially tightened I think we can.
We looked at these in the past, we've seen meaningful pricing opportunities for the carriers in the space I guess.
Actually how do you think about that if we were to see some degree of capacity event.
Given the strength in pricing over this last cycle is there still material upside as you think about that I know volume ultimately will come back but wanted to get a sense of what you think about the potential future pricing opportunities are as capacity potentially gets tighter in the industry.
Well I think.
For us, it's all about having a consistent process and we talk about that a lot.
Trying to have as Marty mentioned earlier.
A cost based process and we talked about our cost inflation with customers.
The need to have a price increase that.
It's the 100 to 150 basis points above our cost inflation every year.
To support the significant investments that we're making in service center capacity and technologies and so I think thats generally understood and kind of makes sense. If you sit across the table and have that conversation obviously, a lot goes into that for us managing our cost and trying to keep.
Cost inflation in check and I was pleased that we're starting to see some of the cost per shipment.
Number they're moderating if you take the fuel out of the equation just our core price inflation is starting to trend back to.
Closer to what our expectations were.
For this year, so I feel like our team has done a phenomenal job.
Managing our costs.
Keeping that inflation.
Check as best we can.
Low volume environment.
I mean to produce a 72 three.
In the second quarter with a 14% decrease in tonnage is pretty remarkable in my opinion, but.
I think that we just got to stay consistent with our approach.
I think other carriers.
They start making similar to what was going on in 2021.
If other carriers are closed and the pricing gap.
Or trying to use the environment to take even bigger increases.
And I think that bodes well for our market share opportunities.
We're typically a little bit more expensive than the other carriers on average and so we.
We'd be pleased to see that gap close and that would certainly help support our own pricing initiatives as well, but the key for us is to focus on us and what we're doing.
Having those conversations with customers demonstrating the value that we can add relative to the industry.
Looking at what our needs would be to keep driving.
The cash from operations and the strength of our balance sheet, even stronger to support further investments to keep growing the company.
Okay. That's helpful. I appreciate it thank you.
Thank you.
Question comes from Amit Malhotra with Deutsche Bank.
Yeah.
Hey, Thanks, Hi, everyone.
Adam on the on the 47 to 50000 uplifted shipments or are there any mix changes there.
If it is coming from some diversion, obviously yellow have significantly lower weight per shipment and I don't know if theres any mix observations that made bifurcate shipments from tonnage and then if we take this kind of new elevated tonnage number for the last couple of days here and we assume kind of it holds.
What does the August look like from a year over year perspective, and then.
Question, three parter, but one question.
Yellow is very different than O D and obviously yellow I know you don't want to address yellow, specifically, but theres a third large yourself the all company and they seem to be on the break up going out of business and so the question is if yellow customers are looking to divert.
Oh D is the natural.
Relief out there because you are kind of the most expensive best service company out there.
I'm just trying to understand are you the right barometer for that or maybe you see some of it but a lot of it goes elsewhere.
Yes.
See if I can try to.
The address those and some sense of order but.
But to.
The answer to your first question from a mixed standpoint.
Not a lot has changed with mix our weight per shipments dropped a little bit.
We've gotten down to about.
We dropped about 10 pounds, we've gotten down to about 525.
Pound average or so and it's dropped about 10 pounds or so.
Here recently.
But not a lot has changed and I think some of that is we are seemingly seems to be picking up some more of the smaller.
<unk> based customers.
Generally it got a little bit lower weight per shipment. So that's been <unk>.
Good to see if you will overall and.
Whether or not that continues remains to be seen.
But obviously this is all just kind of developing but.
Don't don't want to get into if we hold this tree and steady hold that transferred I mean generally August .
Sequentially is up about half a percent.
For our shipments per day are up about half a percent.
July .
We would expect that.
This recent trend.
It's possible that if things continue to hold steady like they have talked about the impact of July for that but obviously that could carry forward a little bit stronger, but we'll just take it one step at a time and keep giving you updates.
Out there.
They are but we were <unk>.
Last year.
August we were at about an average of 51000 shipments per day. So it is.
Starts closing the gap if you will if we can hold 50000 steady but keep in mind.
What I was alluding to earlier that there is a natural progression that happens from the beginning of the month to the end of the month.
And we were already starting to see some trends. So yeah I don't know that you can't just take that that gap from where we've been averaging 47000 shipments a day.
Since December of last year, and just say okay. There is.
Immediate incremental change there has been change that's been developing and you can't point to one specific player or to say.
This is the reason why it's been a developing training and its the way history has played out for us when we get to the end of the cycle.
We start winning business from different carriers and so.
With that said.
I think that there may be direct freight opportunities, but indirect freight opportunities as well.
That may come out of if there is an industry event.
That's still.
And we don't know any more than anybody else, but we just.
We're staying engaged with our customers.
Making sure that they understand the capacity that we have in.
Thank everyone knows the service that we can offer and no different than I think 2021 as.
As an example, where freight was obviously coming to us very quickly that year and we stepped up in a very big way through the SEC.
Second and third quarters, and a lot of the conversations that we had with shippers band will be similar conversations that we have now we protect our existing customers.
<unk> four deal and.
And that's how we would manage through if we get into another period.
The freight opportunity is accelerating significantly.
Thank you very much appreciate it.
Thank you and the next question comes from Tom out of what's with UBS.
Hi, yes, good morning.
Wanted to go back to your comment on the capacity in the network you referred to the 30% being above your what your target is.
I guess, if you kind of juxtapose that with there there may be opportunity for terminals.
Related to the disc.
A discussion we've been having a bad.
Industry participants it's under pressure. So I'm wondering would you would you consider being opportunistic and say hey, we've got maybe more capacity than we need in the network, but there is an opportunity to kind of.
Bringing a bunch of additional terminals that maybe fit well.
Just how do you think about that in the kind of pace of terminal additions if you look at.
No.
Next the next two years something like that.
Yes, Tom we're always looking.
For opportunities.
That's why we tried to stay so far ahead of the growth curve. We generally are looking at each service center in each region.
And projecting out five years of potential growth to nowhere.
We're going to have facilities.
Art hitting capacity and those are the ones that go on our target list for.
Kind of a rollout internally a two year.
Capital expenditure plan to expand our service center capacity and where we need it.
So sometimes an opportunity presents itself that maybe we don't need.
This particular location, but in year four for example.
But if it's a good facility then we would go ahead and take advantage of it and again it gets back to you.
We've got our long term market share initiatives.
What we think we can achieve over a longer period of time and so we know we're going to keep growing.
Network we've been.
One of few carriers that are that have been expanding meaning talk about it but when you look over the last 10 years. When you look at the capacity additions that we've made public.
Public carriers in total were actually down in terms of the number of service centers in the industry.
So we're going to continue to say, that's a big part of our value proposition as well.
We're consistently investing dollars to be able to support our customers' growth.
Make sure that we can be there when our customers need them need us the most and when they've got.
Growth potential, but they need a <unk> carrier to be able to respond and not just be able to respond in the middle of the month when things aren't as busy but.
At the end of the month, when they're trying to get freight moved off the dock and deliver to their customers, that's where they know they can rely on us to do so so we will certainly continue to look for opportunities and we would be.
Opportunistic in adding facilities, if it makes sense within the long term vision for our network.
Okay, great. Thank you.
Thank you and then last question.
Comes from Ken I'll start with Bank of America.
Hey, great Good morning, Marty Adam.
I guess, if we look back on the scale of an industry shift like this right, where I guess consolidate freight ways back to or doing the motor freight right, where <unk> had begun quick historical rapid change.
Maybe talk a little bit about.
You talked about customer discussions accelerating or are these kind of existing customers. Adam I think you threw out there the top 50 customers. Their business was down also but are you seeing that mainly from internal are you, having new discussions I presume not that many just given I guess you are sort of yellow was maybe looking for lower cost versus <unk>.
Higher quality.
And then maybe secondary is your thought on head count as you make this shift I know you've got the 30% excess capacity on the facilities what about what's your thoughts on head count and capacity there as well thanks.
Yeah, we currently.
Two.
New customers every week, we have over 500 salespeople in part of their job is to bring on new business.
Out there having discussions.
About onboarding, new customers every week, but.
And as well as existing customers and the customers have questions about capacity.
Of course, we answer that as we show them.
Where we have capacity our terminal network and so forth. So that those are just ongoing discussions but.
As far as.
Labor.
We had the labor covered.
The driver training school, where we have we call them combo drivers if we're not utilizing them during slow periods. They go on the dock.
And then we can bring them back back onto.
A truck is our.
Tonnage and shipments increase so we feel like we're pretty covered on labor.
And for any increases that might come our way. So I feel confident we can we can take on.
Whatever comes that way.
And then just I guess to clarify Marty.
Just a follow up here I know you said, Adam Adam said it was a slow kind of grind here, but I just want to understand in the last 48 hours, there's not been a <unk>.
<unk> shift I guess I understand they stopped picking up freight last night I, just want to understand the speed and scale with which we're talking about here.
Yes.
We're reading the same things you are so.
We really don't know what's going on but.
We're talking about it within our senior management team every day and.
And now we're going to.
Fourth our plan.
To handle additional business, but.
Yeah.
We're not really seeing any any.
Major business coming out of that and.
Just like we don't we don't know how that's going to end up so we don't want to speculate at this time.
Wonderful I appreciate the thoughts Marty thank you.
Thank you and the next question comes from Bruce Chan with Stifel.
Hey, Thanks, and good morning, everyone.
Adam and Marty I am not sure. If this got captured in some of the previous answers, but I wanted to ask it maybe a little bit more directly if you think about the potential share wins from this.
I guess impending competitor exit would you expect to see outsized share gains given your capacity expansion or maybe slower share gains given.
I had a more disciplined yield approach and what you mentioned with a higher average price than the market.
As you know, we're very disciplined on price and we're not going to do anything to trash are serviced by taking on too much freight.
So.
We expect if something were to happen that we would remain disciplined.
In that manner and.
Uh huh.
Like Adam said, we'd look after our existing customers and.
And we.
We call stay out every day.
Piece of business that comes through this truck line and if it doesn't have the yield that we expect we just won't take it home but.
And we also expect if there is a.
If there is a major event.
Happens that.
We will gain business probably from other carriers that.
It werent participating in that event because they may take on too much revenue in trash their service and will benefit from that as well so.
We've experienced that with forward ready for it again.
Okay, Great that's helpful I'll hop back into queue.
Thank you and last question comes from Eric Morgan with Barclays.
Hey, Thanks for taking my question.
I just had a follow up on the head count comment Marty you mentioned, you're confident from a labor perspective that you can handle some of this incremental freight are you saying that.
Do you think you can handle the surge with limited head count increases from here or are you just more confident that youll be able to ramp up.
Your Labor force Accordingly, if you do see.
Volume pick up and then also just curious on.
Cost per employee any.
Any thoughts there I know, it's been kind of trending roughly flattish up a little down a little over the last few quarters, just curious how this could affect that.
Rick.
Yeah.
This is Adam but.
We've had a.
A decrease in head count or we do sequentially through the second quarter, and we've seen attrition really going back into last year.
Through our business, but I think that like I mentioned theres three elements of capacity and we certainly we've got plenty, we talked mostly about our service centerpiece, but.
We've got equipment capacity to respond to.
Uh huh.
The acceleration in business levels in <unk>.
From a people standpoint, we can do the same we've shown that type of flex and our workforce in the past.
We've got people that I think we can can call back as well Marty.
Marty mentioned, our internal truck driving school, that's created about a third of our drivers.
Sometimes drivers.
Come out of that school, but continue to work on the platform until demand is such that we put them into.
Full time driving job. So there is multiple opportunities the other lever that we could pull.
We did this going back to looking at those 2021 sequential trends, but.
As business accelerated really through the second half of 2020.
Continuing through 2021.
As needed we don't like to do this.
But we can use purchase transportation to supplement the capacity of our workforce or our fleet.
And instead of just kind of depends on the pace at which.
Volume comes on but we had those big quarter after quarter sequential increases during those periods.
Back in the and that was kind of the final lever the pool.
So we certainly can have that we would rather move.
Line haul, 100% of our fleet and with our people.
But as necessary, we sometimes have to supplement it and that's kind of the source that we could go to them on a very short term basis. It would always be with the idea that we get it back of 100% in source.
Soon as possible if we had to go that route.
Yes.
Thank you.
Thank you.
And that comes from Scott Group with Wolfe Research.
Hey, Thanks, Good morning, Adam You mentioned, a couple of times just like the interim months seasonality of shipments that obviously, we just don't know I wouldn't normally ask which like a short term question, but it's obviously an unusual time, maybe if it's possible can you just like just share like year over year tonnage to last couple of days like what.
It's trending I, just we just want to get a sense of like run rate very recently and then the.
I think yields down 3% or so in July any sense, what yield ex fuel is doing in July . Thank you.
Yes, and that we had.
Had already talked about.
In the prepared comments, but it's it's somewhere six 5% to 7% of the revenue per hundred weight excluding.
The fuel surcharge and obviously right now we're getting.
<unk>.
C fueled down.
I think July should be the worst.
At this point.
We continue to average where we are if you will be down about 30% of unit.
But.
The third quarter of last year was when fuel prices started declining and then that continued on so that will be less of a headwind as.
As we go through the second half of this year, but we're continuing to get core increases.
As Marty mentioned earlier and the key will be to continue to look at.
It's us or others is there a sequential increase there.
That's what we strive everyday we've got contracts that are turning over.
We're going through those contracts and able to negotiate increases been if mix is relatively constant you should see sequential increases.
And those those yield metrics, but like I mentioned the last few days.
We've been right at around 50000 shipments per day. Some of that is just the natural growth that happens towards the end of the month.
Whether it accelerates from there.
Remains to be seen and I hope that 50000, the numbers that I gave this morning.
I assume that we kind of held at 50000 constant for the remaining work days today through Friday, and a Monday of next week. So if theres numbers that when we put them in our queue that are different from what we talked about today.
Then you can sort of judge from there where things came in July of last year.
<unk> was a little over between 50, and 1000 52000 shipments per day and I mentioned in August .
It was $50 to 51000.
So we're back to where our shipments per day. If this kind of 50 were to hold constant and I'm not saying that it does.
So where we're closer from a volume standpoint to where we were last year.
And then just sort of getting back to keep trying to bring us back to the big picture I think that.
Its success is going to be defined by what we can do next week and next month or next quarter.
Whats the market share potential over the long term and we still feel confident about what our long term market share potential can be because we still win business by the quality of our service.
Our value proposition is delivering superior service at a fair price and always maintaining network capacity to support our customers' growth and I think we continue to win share because of the service and capacity advantages.
That we have in the marketplace and that will extend beyond.
What may be happening over the next few weeks.
So Adam to your point there is that others may get maybe a little bit more of the volume day, one but.
To the extent that they struggle with this big surge in volume.
You'll then get it on a derivative basis, maybe it's not day, one but its weeks or months from now.
That kind of what you're trying to say is that.
<unk> slow and steady generally wins the race.
We want to be patient with things and certainly we're looking and having conversations with customers and want to help where we can but.
Just like in 2021, you got to be careful about opportunity.
Don't want to take on so much so fast that Ian.
Not being able to deliver on our service value that we offer with 99% on time and claims ratio of <unk>, 1%. So.
We want to be.
Methodical about the way we go through this and make sure that we're protecting servicing capacity for our existing shippers.
Without taking on too much of what opportunities may be out there.
And so I think when you go back and you look in prior year trends.
Like I said, we stepped up in the second quarter more so than anyone else. When you look at 2021, when you look at that sequential acceleration.
We continued to follow on from there.
Where others didn't so it's always making sure that you don't overextend yourself in the short term and just keep that eye on the ball for the long term vision.
Thank you guys.
Thank you next question comes from Ravi Shanker with Morgan Stanley .
That's the one everyone.
Sorry to stay on this topic, but just wanted to kind of music clean up the commentary on this call which is.
The uptake in volume that you'll see in the last few days.
How much of that is because of a cyclical improvement versus flow through from what's going on in your competitor.
Is it one of the two of them as it both and kind of again can you tell the two of those apart.
It's really hard to try to bifurcate and put your finger on.
What's driving.
Any type of acceleration there.
I've mentioned.
We would expect to see an increase we're going into the final full week of the month.
We would expect to see.
Normal type of increase.
It's a little bit above where I'd originally forecast this week.
At least when I go back to Friday was a bit heavier.
And then Monday, and Tuesday had been a little bit heavier than what.
I had originally looked at.
And so.
That just because we've got more business from an existing customer that is having their own into month surge.
Yes, that's part of it is it freight that's coming in.
Theres been some freight diversion, yes, that's a part of it so.
You just can't put your finger on everything when were doing 50000 shipments a day why did we get this one particular shipment, but that's why I wanted to point out that really I think this goes back to for several weeks and I feel like we've seen some some pretty nice trends.
Closed out the month of June strong I feel like when we go back even though our number of shipments per day have been around 47000.
Had some good end of performance and the.
The trends that intra month trends have been pretty good the last couple of months as well and we dropped off some early in the month, which that's typical to that may be dropping off a little bit.
More so than what a week by week average would be.
But then we've made up for it as we progress through the months.
I've been pleased with our performance so far in July .
It looks like at least.
Right now when we project out and carry that trend forward.
<unk> shipments per day that.
We're still.
Down in comparison to June some of.
That is July of 'twenty workday month, and the way the July 4th holiday sale.
That Monday that we were open was probably half of our normal work day. So if you kind of adjust for that we had seen better trends, we had been more in the 48000 or so shipments per day range.
Kind of through the months before this recent pickup happens so.
It's just not you can't put your finger on what completely is driving the change.
Other then you go back and this is this is somewhat typical to what we would see.
The end of a slow periods like we've been in since April of last year and then it's just been accelerated over the last few workdays from there.
Very helpful. A super quick follow up did you take any short term cost savings actions in this quarter that may potentially unwind if tonnage whether it comes back.
We we keep our belts tight everyday so.
We're always looking at managing our variable cost and controlling discretionary spending.
We can and where it makes sense, but.
That's a philosophy that you can't do sort of take it or leave it. It's a mindset that you have to stay in good times and in bad if you don't have that mindset in the good times, you're not going to be able to switch gears when you really need to so.
I think that we certainly been able to trim out some cost in.
I was pleased we ended up with a better operating ratio.
The second quarter than what we had.
Initially talked about so that was good to see.
I think that I mentioned earlier, we're going to have some some of those overhead cost categories.
Overhead costs are about 19, 5% to 20% of our revenue in total when you split those out and our direct cost.
2.5% to 53% of revenue.
We're going to have some cost increases we're continuing to have depreciation dollars.
It will increase from the second to the third quarter, our general supplies and expenses should be up in the third quarter over the second.
And then I would expect that our miscellaneous expenses would be up as well so.
Those those dollar cost will be there.
Or not we've got some some revenue growth to offset them kind of remains to be seen similar to what we were talking about before so.
But some of those dollars will be increasing from the second to the third.
Wonderful thank you.
Thank you and the next question comes from Jason Seidl with TD Cowen.
Thanks, Operator, Hey, Marty Hey, good morning, gentlemen.
Wanted to focus again on what's going on with yellow.
And look out at pricing I don't think I heard this but.
Generally I wouldnt have expected anybody to try to push the cri through excluding what's been happening, but do you think there is a likelihood that this occurs now there is a bankruptcy in the near future.
As I said before I don't want to speculate what's going to happen with lower say, but I will say that we took our <unk>.
In January and we don't foresee having to take another one this year.
As it relates to transactional business.
I mean, we're going to manage the same way, we would with with them with or without them. So I can't speak for the other carriers, but.
I would say.
Maybe some of them didn't need to firm up their prices, maybe they will use that as an opportunity not us, but we've got a good handle on our cost and.
We had that before we allow our stadium will have it after side I don't see us considering around transactional bids.
Okay that makes sense, so you're not expecting but you wouldn't be surprised if maybe others tried because they're not exactly at the level.
Wanted to Adam jump on something you mentioned with.
Sort of slow and steady wins, the race and freight coming back with people not being able to handle it but even if people handle it.
Won't there be cases of freight not being what people think and it just needing to find proper homes within a given network.
Typically that plays out exactly as you described where that may find a temporary home.
But then ultimately in some cases people have just got to get their freight moved in and they may go to the next closest carrier from a price standpoint.
Just to keep their supply chain moving but ultimately if.
They want value in their supply chain that freight will find its own them at old Dominion.
Fair enough gentlemen, appreciate the time as always.
Thank you.
Thank you and the next question comes from Stephanie more with Jefferies.
Hi, good morning, Thank you.
Good morning, I was wondering hey, good morning, I think you said maybe touch on the performance.
And if there's been any differentiating trends between maybe hear more retail consumer customers and then those that are more industrial focused and then same thing if youre hearing from your customers kind of their expectation is that they go into the back half of this year thoughts on inventory levels, where they stand today any kind of bigger picture color would be helpful.
Thank you.
Yes, we saw generally consistent performance in the second quarter with the industrial and our retail related customers and industrials is 55% to 60% of our business overall.
Historically.
We look at I assume in industrial production, which I assume has been below 50 or at or below 50, I think for nine months now.
And that generally.
Reconciling with what the industry volumes.
Certainly aligns with the second quarter, when we were down 14%.
But overall, we think that some of the conversations that we've had that we get the sense that inventory levels are normalizing a bit.
Thats kind of supported my baseline thinking of.
Getting back to some.
Some consistency with volumes.
Going into the second half of this year and that would be back in alignment.
With what our normal sequential trends are.
With volumes anyways typically in the third quarter.
Our shipments are up about 1% in the half to 2% over the second quarter and then we generally have about a three 5% decrease in the fourth quarter. So we've been there's been a pretty wide gap between our sequential actual sequential trends relative to the 10 year average for the past few quarters. So I felt.
Like we were in a normalized environment, we're going to get back to closer.
To those 10 year average trends and then.
Hopefully they can get back to seeing real growth.
Once we got into 2020 forward, but so it seems like some of the tea leaves and some of the conversations.
That we've had with customers would suggest this normalization in freight.
Really picking up and moving.
Again, which was the positive that we were looking at and thinking about and planning for.
In terms of the second half of this year in 2024.
And then obviously we've had some recent developments.
Accelerated things a little further here.
Here over the last week or so.
Great really appreciate the color color and I'll leave it at that thank you.
Thank you.
Comes from <unk> majors Susquehanna.
Yeah as you look back over the last couple of months, but inclusive of over the last few days can you talk a little bit about the drivers of getting back to that normal sequential trend.
By that I mean, specifically.
The like for like shipments from existing customers versus new customer acquisition versus anything else that you'd like to kind of size up directionally magnitude as you think about filling that excess capacity over the next several quarters. Thank you.
Yeah, like I said earlier and we've talked about this.
On recent calls.
From a core contract customer standpoint.
Actually had good trends.
When you look at having a double digit decrease in volumes.
It may seem counterintuitive, but.
Certainly the economy has weighed on many customers has impacted their trends, but when we look at our our national account business and the wins that we've had versus losses.
We continue to.
The half.
The good wins and have not really lost.
Any share.
To speak of with those larger national accounts, but they've just had reduced volumes.
We have lost and they've talked about.
Our business levels with third party logistics companies has been down.
In recent quarters and that was still negative in the second quarter as well.
But that's something where I think that you know certainly shippers had been looking to save cost in.
They've been using three pls define carriers that had a little cheaper price than the us Navy and divert.
Some freight away for that reason, but I think now just like we've seen in prior cycles.
Servicing capacity are coming squarely back into focus.
For many shippers and so I think that lends itself to how we've won market share over the long term so.
There's not necessarily any one piece of business that change in any more than others.
We've got a lot of consistency within our largest accounts.
These are long term strong relationships that we have between us and our customers and so.
Our sales team our pricing team they are staying in front of our customers and staying engaged in making sure that they know we're here when they need us.
And we're increasingly getting those inbound phone calls and and being able to take on some incremental business. So.
It's good to see but we still would like to see the overall macro environment improving.
Love to see the ICL.
Going back above 50 and really.
Talking about more of a true improvement in the underlying <unk>.
A manned environment versus what the supply situation in the industry might be.
Thanks for that.
Yes.
Thank you and the next question comes from Christopher Combe with benchmark.
Yes, Hi, good morning, I was just wondering does the west coast ports had a bit of a pick up in June just wondering I know some of it has been directed at that benefited.
Some of the volumes.
That you saw and then maybe if it picks up as the year progresses, but got that help the volumes. Thanks.
Yeah.
As Marty I read the other day that engine.
Imports from China to the U S failed 'twenty 'twenty, 4%, Taiwan, It fell 23% Vietnam 11 in South Korea six.
So we haven't seen.
A lot of.
Energy coming from those cohorts as you know we have a drayage division on the East coast ports and nice business levels are down there. So.
I think they held global economy still rather rather eo, but.
We're prepared to handle that to if it picks up.
Not seeing any of that movement, so far this year and an upward manner.
Okay, great. Thanks.
Thank you and this concludes our question and answer session I would like to return the Florida Martin Friedman for any closing comments.
Yes, I want to thank you all today for your participation and we appreciate all the questions.
And if you have any further questions. Please feel free to call us.
After the call and I Hope you guys have a great day and a good rest of your summer.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.
Yeah.