Q3 2024 Old Dominion Freight Line Inc Earnings Call
Good day and welcome to the old Dominion freight line third quarter 2024 earnings Conference call.
Speaker Change: All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing that Starkey followed by zero.
Speaker Change: After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to Jack Atkins Director of Finance Investor Relations. Please go ahead.
Jack Atkins: You operator, and good morning, everyone welcome to the third quarter 2024 conference call for old Dominion freight line today's calls ago oriented and will be available for replay beginning today and through October 30th 2024 by dialing one 870 734 475 to nine access code four zero.
One 699 one.
Jack Atkins: A replay of the webcast may also be accessed for 30 days at the company's website.
Jack Atkins: This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Jack Atkins: 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.
Jack Atkins: Without limiting the foregoing the words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
Jack Atkins: You are hereby cautioned that these statements may be affected by the important factors among others set.
Jack Atkins: Fourth 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.
Jack Atkins: The company undertakes no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise.
Jack Atkins: As a final note before we begin.
Jack Atkins: We welcome your questions today, but ask that you limit yourself to just one question at a time before returning to the queue.
Speaker Change: At this time for opening remarks, I would like to turn the conference over to Marty Friedman, the company's President and Chief Executive Officer Marty. Please go ahead Sir.
Marty Friedman: Good morning, and welcome to our third quarter Conference call with me on the call today is Adam Satterfield, our CFO.
Marty Friedman: After some brief remarks, we will be glad to take your questions I am joining the call today from a separate location. Therefore, please bear with us when we are taking questions. If there any connectivity issues.
Marty Friedman: Old Dominion's financial results in the third quarter reflect continued softness in the domestic economy.
Marty Friedman: Revenue and earnings per diluted share both declined on a year over year basis during the quarter, although our market share and volume trends remained relatively consistent with the first half of the year.
Marty Friedman: While the operating environment continued to be challenging our team did a good job of managing our variable cost and we also continue to control our discretionary spending.
Marty Friedman: The deleveraging effect from the decrease in revenue. However calls many of our cost categories to increase as a percent of revenue.
Marty Friedman: This was the primary driver for the increase in our operating ratio to a 72.7 in the third quarter.
Marty Friedman: We have been pleased with the consistency in our market share this year, which is consistent with our historical experience doing slower parts of the economic cycle.
Marty Friedman: We continue to have strong customer retention trends and we are also winning new business.
Marty Friedman: A customer simply have had fewer shipments that they contender to us.
Marty Friedman: And our average weight per shipment has also remained at historical lows.
Marty Friedman: The stability of our market share continues to be supported by the quality of our service and overall value that we offer to our customers.
Marty Friedman: These are a few of the foundational elements of our long term strategic plan. The O D family of employees continue to execute on these core principles during the third quarter as our on time service was 99% and our cargo claims ratio was a 0.1%.
While we are incredibly proud of the service statistics, we would also like to remind you that superior service means much more than simply picking up and delivering our customers freight on time and claims free there are plenty of other attributes that shippers consider when selecting a carrier.
Marty Friedman: Such as carriers trustworthiness ease of doing business and the quality and responsiveness of customer service Representatives in fact, Matt deal in company measured 28 different service and value related attributes as part of its recent annual survey of shipper and logistic professionals mascio publish the results.
Marty Friedman: <unk> of its 2024 study last week and we were honored to be named the number one national LTE provider for the 15th consecutive year.
Marty Friedman: <unk> finished number one in 23 of the 28 evaluated CAG categories measured by Masstige and maintained a sizable lead against our competition when it comes to the overall quality of service.
Marty Friedman: I would like to congratulate the entire <unk> family of employees on this remarkable achievement and I would also like to thank this outstanding team for their commitment to our company and our customers.
Marty Friedman: We continue to believe that consistency and quality of our service over the long term has differentiated old dominion in the marketplace and driven our long term profitable growth.
Marty Friedman: While becoming the best carrier and the business was hard remaining the best carrier for 15 straight years is an incredible accounts accomplishment and that is hard to put in perspective every member of the Audi team has played a part in our success and I can assure you that each of US is incredibly motivated to keep delivering our promises to provide.
Marty Friedman: Our customers with the highest standard of service.
Marty Friedman: By continuing to provide best in class service to our customers day after day and year. After year. We are also able to maintain our long term and disciplined approach to pricing. We continue to focus on consistently improving our yields to sufficiently offset our cost inflation and support additional investments in capacity in <unk>.
Marty Friedman: <unk>. These ongoing investments have created incremental value for our customers in many ways, which is further enhanced our industry leading value proposition our customers have recognized our value proposition over time, which has allowed us.
Marty Friedman: To be able to earn more and more of their business. As a result, we have one more market share over the past 10 years than any carrier in our industry.
Marty Friedman: The economic environment has remained sluggish for much longer than we ever anticipated. We believe we are better positioned than ever to respond to the eventual inflection in demand that will occur as the economy improves.
Marty Friedman: We have the capacity and the fleet and most importantly, the committed team of people to take advantage of an improving economic environment, our unique company culture and each employee's commitment to excellent gives me tremendous confidence that we can also it would be the biggest market share winner over the next 10 years.
Marty Friedman: This confidence is bolstered by the results of the most recent Mascio study as well as the ongoing conversations we have with our customers by staying focused on long term opportunities for additional profitable growth, we remain confident in our ability to create additional value for our shareholders. Thank.
Speaker Change: Thank you for joining us on the call. This morning, and now Adam will discuss our third quarter in greater detail.
Adam Satterfield: Thank you Marty.
Speaker Change: And good morning.
Adam Satterfield: Old Dominion's revenue totaled $1 $7 billion for the third quarter, 2024, which was a 3.0% decrease from the prior year.
Adam Satterfield: We had one extra workday in the third quarter of this year. So the decrease on a per day basis was four 5%.
Adam Satterfield: These revenue results reflect a four 8% decrease in <unk> tons per day that was partially offset by the one 5% increase in <unk> revenue per hundredweight.
Adam Satterfield: On a sequential basis, our revenue per day for the third quarter decreased one 9% when compared to the second quarter of 2024.
Adam Satterfield: With LPL tons per day, decreasing three 2% and LCL shipments per day decreased 1.0%.
Adam Satterfield: For comparison with 10 year average sequential change for these metrics includes an increase of three 6% and revenue per day in.
Adam Satterfield: An increase of 0.9% and LPL tons per day, and an increase of two 3% and <unk> shipments per day.
Adam Satterfield: The monthly sequential changes in <unk> tons per day during the third quarter were as follows.
July decreased four 4% as compared to June.
Adam Satterfield: August decreased 0.8% as compared to July and September increased one 7% as compared to August.
Adam Satterfield: Tenure average change for these respective months is a decrease of two 9% in July an increase of 0.6% in August and an increase of three 5% in September.
Adam Satterfield: For October we expect our revenue per day will decrease by approximately 11, 2% to 11, 8% when compared to October 2023, with a decrease of approximately nine 2% to nine 8% and our <unk> tons per day.
Adam Satterfield: As usual, we will provide the actual revenue related details for October and our third quarter Form 10-Q.
Adam Satterfield: Our operating ratio increased 210 basis points to 72, 7% for the third quarter of 2024.
Speaker Change: As Marty mentioned the decrease in our revenue had a deleveraging effect on many of our operating expenses during the quarter.
Speaker Change: This contributed to the 110 basis point increase in our overhead costs as a percent of revenue.
Speaker Change: In addition, and for the first time this year, our direct operating cost also increased as a percent of revenue when compared to the same quarter of the prior year.
Speaker Change: The increase in our direct operating cost as a percent of revenue was primarily due to an increase in costs associated with our group health and dental plans.
Speaker Change: As a result, our employee benefit cost increased to 38, 6% with salaries and wages during the third quarter of 2024 from 37, 3% in the same periods of the prior year.
Speaker Change: <unk> cash flow from operations totaled $446 $5 million for the third quarter and $1 3 billion for the first nine months of 2024, respectively.
Speaker Change: Capital expenditures were $242 $8 million and $604 million for the same periods.
Speaker Change: We utilized $187 $7 million and $824 $8 million of cash for our share repurchase program during the third quarter and first nine months of 2024, respectively.
Speaker Change: While our cash dividends totaled $55 $6 million and $168 2 million for the same periods.
Speaker Change: Our effective tax rate for the third quarter of 2024 was 23, 4% as compared to 24.0% in the third quarter of 2023.
Speaker Change: We currently expect our effective tax rate to be 24, 5% for the fourth quarter.
Speaker Change: This concludes our prepared remarks. This morning, operator, we'll be happy to open the floor for questions at this time.
Speaker Change: Yeah.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And our first question today comes from Eric Morgan of Barclays. Please go ahead.
Eric Morgan: Hey, good morning. Thanks for thanks for the question I guess I just wanted to start on the near term.
Eric Morgan: Sounds like October tonnage declines getting a little bit worse relative to September so that being driven by shipment in waves coming lower.
Speaker Change: That's been the trend here recently.
Speaker Change: And then how youre thinking about operating ratio into into your end here that'd be helpful. Thank you.
Speaker Change: Yes.
Speaker Change: From a volume standpoint, the year over year, our tonnages.
Speaker Change: In October.
Speaker Change: The midpoint of that range that we gave would be down about nine 5%.
Speaker Change: And obviously, we've got many days left to finish out this month and so we'll see how the rest of the month finishes is why we gave a little bit more of a range than we normally do but if you take the midpoint of that in October.
Speaker Change: That's that's got our sequential change down.
Call. It about three 5% the 10 year average sequential there was a decrease of three 1% that's October versus September so.
Speaker Change: It's actually encouraging to see what our volume trends. So far this month have been this is the first time that we've been I would say relatively close.
Speaker Change: So what our normal sequential changes have been in the first month of a quarter. So we feel pretty good about how volumes are trending and continued strength in our yield performance that we've seen as well.
Speaker Change: So we'll continue to watch that but the year over year I think is just skewed a bit by if you recall last year, we had a <unk>.
Speaker Change: <unk> that had some cyber security issue and we had some temporary.
Speaker Change: Coming into the system.
Speaker Change: If you will so we picked up some incremental freight there that was a bit on <unk>.
Speaker Change: Usual on calls outperformance from a seasonality standpoint.
Speaker Change: Obviously is not there right now, but generally good thus far about the October trend.
Speaker Change: <unk>.
Speaker Change: Thanks, and just the operating ratio side of that if you wouldn't mind I appreciate it.
Speaker Change: Yes, I was going to try to leave that maybe for someone else.
Speaker Change: Our two big questions packed into one.
Speaker Change: So just try to keep questions to one bucket.
Speaker Change: But just to go ahead and address that because we know it's going to be a question anyways.
Speaker Change: The normal <unk> to <unk> progression is about a 200 to 250 basis point.
Speaker Change: Deterioration and that's excluding any insurance adjustments, we do an actuarial assessment in the fourth quarter every year. Sometimes those are are good guys. Sometimes like last year I think we had about a 70 basis point headwind.
Speaker Change: When it came to the.
Speaker Change: Real adjustments and unfavorable adjustment last year, so I think thinking about this fourth quarter.
Speaker Change: Conservatively I think we'd probably at a slide that scale up about 100 basis points.
Speaker Change: And the reason for that.
Speaker Change: Would just be the continued risk from a revenue standpoint, and the impact that would have on overhead expenses.
Speaker Change: We just saw that headwind play out in the third quarter kind of going back to the guidance that we gave.
Speaker Change: At the end of the second quarter call going into <unk>.
Speaker Change: Revenue came in softer.
Speaker Change: And as a result, our overhead expenses were about 40 basis points.
Speaker Change: Higher than kind of what we had anticipated.
Speaker Change: At the end of the second quarter call and then I think we also have a continued risk with respect to our fringe benefit cost.
Speaker Change: Those were higher than what the trend has been this year and higher than what they had been for the same period last year in the third quarter.
So I think Theres, a continued risk that those may stay a little bit higher.
Speaker Change: In the fourth quarter, but both of those things are something that could trend better.
Speaker Change: Thank you.
Speaker Change: If we have like I mentioned earlier the October trend is starting out pretty good from a volume standpoint. So.
Speaker Change: If we can get our revenues back closer to seasonality. If you will and obviously, we will give a mid quarter updates then there can be some favorability there but.
Speaker Change: Some pluses and minuses I think from a conservative standpoint, probably better to just slide that scale up.
Speaker Change: In terms of where things stand right now.
Speaker Change: Thanks, a lot.
Speaker Change: And our next question today comes from Jason Seidl with TD Cowen. Please go ahead.
Jason Seidl: Thank you Robert or I, Hey, gentlemen, good morning appreciate the time.
Jason Seidl: You brought up Estes issues that they had last year that sort of grow sort of beyond normal tonnage numbers for you in the October 23 should we expect then that by November and December the tonnage comps get easier. So we're not probably really looking at sort of down as much as <unk>.
Jason Seidl: We're seeing in October.
Speaker Change: Yeah, I think that's fair I think the October.
Speaker Change: Yeah, It was definitely the toughest comp.
When I go back and look at last year's sequential performance in November.
Speaker Change: Versus October tonnage was down six tenths of a percent and our 10 year average there is a three 1% increase.
Speaker Change: And then December outperformed we were down four 8% in December 'twenty three versus November 'twenty three.
Speaker Change: The 10 year average there is 7% so.
Speaker Change: I think that this is probably the toughest comp if you will of the quarter in October but.
Speaker Change: Depending on how November trends, if we get some acceleration back in the business.
Speaker Change: And then obviously December is always a tough month for everyone given the holidays and whatnot, but if we can kind of hang on you had a little bit about performance. There. So that'll December would be a little bit tougher.
Speaker Change: Versus the November, but I think on the whole.
Speaker Change: We go through the fourth quarter I mean this this feels like we're finally getting to what we hope is a floor.
Speaker Change: We're encouraged about how things are trending it's good to see.
Speaker Change: The sequential performance, thus far in October and obviously you have got.
Speaker Change: Many day used to get through this quarter and one two is also tough but to think about from a big picture standpoint.
Speaker Change: We've we've been underperforming normal sequential trends.
Speaker Change: For about two and a half years now so it certainly feels like we're finally coming to the end of the cycle. We've got to go through these tough quarters, but we finally have seen.
Speaker Change: I think traction with respect to interest rates are declining.
Speaker Change: We'll have the uncertainty of the election behind us pretty soon.
Speaker Change: So hopefully we get back to seeing some some growth for our industry for which.
Speaker Change: Typically when the industry starts to inflect to the positive.
Speaker Change: Our model shines the brightest and we win the most share. So we're looking forward to getting through this final quarter here of the year and starting out next year with hopefully some good strength.
Speaker Change: I hope so too out of it and with with the with.
Speaker Change: The year over year comp in October for Sce's did that impact the weight per shipment at all could you remind us.
Speaker Change: The weight per shipment.
Speaker Change: Last year it was.
Speaker Change: Pretty much right in line with what our normal tenure.
Average would be so we were.
In October last year, we were down three tenths of a percent.
Speaker Change: And then pretty much performed about in alignment with what.
Normal weight per shipment with trend and typically youll get a little bit of an increase in.
Speaker Change: Wafer shipment from the third quarter to the fourth quarter.
Speaker Change: And that's something that actually was a little bit of a surprise for us and.
Speaker Change: In the third quarter, our weight per shipment ticked down a bit in July was somewhat consistent and I'm speaking of this year now July was pretty consistent with our 10 year average, but then it dropped further.
Speaker Change: In August came back a little bit in September, but overall kind of underperformed.
Speaker Change: What the weight would be but at this point we've actually.
Speaker Change: In October we're seeing a bit of an increase.
Typically the 10 year average in October if I could just said is down three tenths. So if we're seeing a little bit of an increase you know that's obviously a good thing for business as well, we're getting more weight per shipment, we're going to have a little bit higher revenue per shipment as well and that generally drives improved productivity.
Speaker Change: Also so in hone.
Speaker Change: Hopefully thats generally has been a.
Speaker Change: A sign of hope with respect to the economy.
Speaker Change: As well so.
Speaker Change: That'll be another metric to continue to watch to see if we see things start to pick up for us.
Speaker Change: Well listen I really appreciate the time and color guys.
Speaker Change: Our next question today comes from Daniel <unk> with Stephens, Inc. Please go ahead.
Speaker Change: Yeah, Hey, good morning, guys. Thanks for taking my questions.
Daniel: I wanted to follow up maybe on the near term trend. So it seems like <unk> yield growth has moderated a bit across the industry. I. Appreciate the tonnage update for October I guess, Adam could you share some color on how you see yields shaping up here to the fourth quarter and then more broadly if the macro remains this week I guess do you expect to see any rationality in the market that would make it harder for you guys to keep.
Speaker Change: Realizing price increases above inflation or how is your price realization going as you talked to customers.
Adam Satterfield: Yes, I was pleased with our yield performance through the third quarter.
Speaker Change: It takes having superior service to support what we're able to achieve consistently year in and year out from a yield performance and so.
Speaker Change: We're really really proud of the service metrics, we've been able to deliver and just to repeat landing that Mascio award for the 15th straight year.
Speaker Change: Hopefully as put to bed some of those thoughts that that that gap between us and our competitors has closed and so really pleased to see that performance with this year's results, but I think at the end of the last call we talked about normal seasonality.
Speaker Change: With respect to our revenue per hundredweight, excluding fuel surcharges and that would have put us in the four to four 5% range for the third quarter and we came in at the top end of that range and and granted we had a little bit lower weight per shipment is just was referencing Jason but.
Speaker Change: So that certainly helped the revenue per hundredweight, but but.
Speaker Change: But to me it does seem like consistent performance.
Speaker Change: Through the quarter and that's what we would continue to expect.
Speaker Change: Our yield management process is we take a long term and consistent approach that.
Speaker Change: To offset our cost inflation and support continued investments in our network.
Speaker Change: Our technologies and so forth so if.
Speaker Change: Normal seasonality plays out.
Speaker Change: For the fourth quarter that would put the revenue per hundred weight excluding fuel.
Speaker Change: Up in the three eight to four 2%.
Type of range.
Speaker Change: We'll continue to watch that as we go through but we expect to continue to get increases we're seeing it.
Speaker Change: We've seen it throughout this year and really throughout the last two and a half years that we've been in this this week.
Speaker Change: Economic period.
Speaker Change: And so just continue to execute on that consistent philosophy in.
Speaker Change: We're getting increases as we go through bid renewals and that would be the same expectation as we go through this year.
Speaker Change: Would be the same as we go through next year as well.
Speaker Change: I appreciate all the color best of luck guys.
Speaker Change: Thanks.
Speaker Change: And our next question today comes from Scott Group with Wolfe Research. Please go ahead.
Scott Group: Hey, Thanks, just wanted to follow up on that last.
Speaker Change: Question so.
Scott Group: I think Adam your your October update is that total yields were negative and I guess you are talking about yield ex fuel up call. It 4%. So this isn't this drop off in yield is entirely fuel I know fuel is down as I just want to make sure that that's right and then just like ask it sort of.
Speaker Change: Directly like are you seeing more.
Speaker Change: Pricing competition of rational pricing and Theres certainly more concerned about that in the market right now.
Speaker Change: Are you guys seeing it or not.
Speaker Change: Yeah, just to address the October and we didn't give the exact number but you can kind of back into it the revenue per hundredweight with fuel.
Speaker Change: Right now is trending down but a lot of that is.
Speaker Change: Fuel related fuel at this point it is down about 20% compared to October of last year. So.
Speaker Change: A bigger drop if you will compared to what we just saw.
Speaker Change: In the third quarter and that should moderate as we.
Speaker Change: Progress through the fourth quarter.
Speaker Change: Was about $4 50, a gallon last year in October, but they ended up averaging about $4 25 for the full fourth quarter of last year. So that's something that will moderate a bit in anytime looking at one month trends as well.
Speaker Change: Given some of that disruption that we had last year, you had some mix issues going on and so forth.
Speaker Change: We would still expect to see.
Speaker Change: That sequential trend play out like I, just mentioned in overall yields ex fuel being up in that three eight to four 2% assuming mix.
Speaker Change: Stays constant if we see a continued increase in weight per shipment that could put some pressure on.
Speaker Change: The reported yields that revenue per hundred weight, but that would be a good thing.
Speaker Change: So.
Speaker Change: That's what we'll continue to watch but yes.
Speaker Change: I think that with respect to the overall environment.
Speaker Change: We will have to wait and see what the other carriers report and what their commentary is like I can only speak for us, but the environment is.
Speaker Change: As has been pretty stable all things considered this whole year and we've been able to continue to get our increases and I think that proves the value proposition that we have and what we can offer shippers and being consistent with our approach.
Speaker Change: It Hasnt impacted us.
Speaker Change: Has been impacted.
Speaker Change: Our market share and market share has been flattish, which as Marty mentioned earlier, it's typically what we see.
Speaker Change: Through a slower economic period.
Speaker Change: So I feel like we're well positioned with what we've done how we've executed managed our cost.
Speaker Change: Managed our operating ratio this last couple of years in.
Speaker Change: Feel good about.
Speaker Change: Our positioning whenever we can turn the page back to having a little bit of economic tailwind for a change and it feels like we've been running against the win for for a long time now and we're ready to see things start to turnaround.
Speaker Change: Give us a little bit of help from an economic standpoint.
Speaker Change: Makes sense. Thank you guys.
Speaker Change: And our next question today comes from Jordan <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Yeah, Hi morning, Yes.
Speaker Change: I know from a from a high level standpoint, hopefully we are.
Speaker Change: Bottoming from a trend perspective, I'm just curious are there any.
Speaker Change: Pockets of your customer base, whether it be retail and manufacturing wholesale distributor, where maybe you could point to even being some favorable volume or is it pretty much not the case and then secondly.
Speaker Change: Yes, if we have normal seasonality from October I think we're kind of running normal September to October if we run normal seasonality through the balance of this quarter.
Way to think about where tonnage could shake out in aggregate year over year for the quarter. Thanks.
Speaker Change: Yes.
Yeah from a.
Speaker Change: Breakdown of the revenue base I mean, as you can imagine we're seeing better performance with our retail related customers and continued weakness with our industrial related customers, which industrial for us is 55% to 60% of our revenue so thats.
Speaker Change: Certainly showing.
Speaker Change: Our numbers and the decrease that we've seen but.
Speaker Change: I think I assume that's been down for 'twenty two 'twenty three months now.
Speaker Change: That's been the challenge that we faced over this last couple of year period, but.
The retail and.
Speaker Change: <unk> has performed a little bit better really.
Speaker Change: Really the one thing that if you look for a bright spot would be our third party logistics customers three pls represents probably a third of our revenue and.
Speaker Change: We actually saw some revenue growth with our <unk> customers in the third quarter. So to me that's a good trend because we've talked in recent quarters that we feel like theres been some modal shift that has been happening.
Speaker Change: Over the I would say, especially last year when when that large competitor closed their doors.
Speaker Change: People were just trying to find a home for freight and in many cases.
Speaker Change: <unk> shipments might have ended up in the truckload world.
Speaker Change: A lot of times, we will see that movement back and forth between modes.
Speaker Change: Especially with the <unk> and so now that we're seeing an influx of business coming back in I think whatever outflow was going the tide is finally coming back in and so if we can see a continuation there.
Speaker Change: That should mean, a good thing as we project out and start thinking about 2025, so that's probably the brightest spot to pick through the different.
Speaker Change: Our customer base.
Speaker Change: Thanks, and then again just any thoughts on normal volume seasonality from here for the balance of the quarter, where that could kind of maybe shake out for the whole quarter.
Speaker Change: Yes.
Speaker Change: And we're a long ways from there so.
Speaker Change: But if we were to hit normal seasonality.
Speaker Change: That would put tonnage per day down like six 5% to 7%.
Speaker Change: For the full quarter.
If you just look at kind of bigger picture revenue.
Speaker Change:
Speaker Change: Revenue per day seasonality would be at about one $4 billion and we've been underperforming seasonality like I mentioned for the last couple of years. So if you kind of take that normal rate of under performance.
Speaker Change: But at least what where we were in the third quarter. It would be down like 135 billion. So that's something to keep in mind as we progress through the quarter give.
Speaker Change: Give our full updates obviously the revenue per day in October.
Speaker Change: Should look the worst.
Speaker Change: And then hopefully things from a comp standpoint to start looking better.
Speaker Change: Overall as we get into November.
Speaker Change: We'll give our mid quarter update that will help you all cleaned up your models from there.
Speaker Change: Thank you.
Speaker Change: Again, we ask that you please limit yourself to one question.
Speaker Change: And our next question today comes from Jon Chapell with Evercore ISI. Please go ahead.
Speaker Change: Yeah.
Jon Chapell: Thank you and good morning, Adam you kind of mentioned at the end of one of your answers.
Jon Chapell: Uncertainty around the election and this is a narrative that we've heard a little bit recently about shippers, maybe kind of pausing until there's a little bit more certainty.
Jon Chapell: No you have a very diverse end market of customers, but is there any way to kind of frame out what may be a temporary pause versus just the ongoing kind of industrial macro headwinds that you've been facing for the last several quarters.
Speaker Change: Yes, I think that.
Speaker Change: Obviously anytime you have uncertainty and typically when you look in election years. They haven't been the best freight years at least in recent history.
Speaker Change: And so I think that there have been plenty of headlines and we've had customer conversations as well.
Speaker Change: We are being a bit conservative right now.
Speaker Change: Until they know what.
Speaker Change: Things may look like and what impact to their business.
Speaker Change: New policy directions.
Speaker Change: They take so I think that's something that is temporary, especially right now but at some point.
Speaker Change: We've got to get back to looking at their business and how ultimately they want to figure out how to grow and expand and.
Speaker Change: Due to the things that creates freight that.
Speaker Change: That will create opportunities for us.
Speaker Change: I think that's something that.
Speaker Change: Once we can get just this level of uncertainty that's one more thing.
Ben Patel: Ben Patel.
Potentially holding the economy back.
Ben Patel: <unk> for the last quarter or so so.
Ben Patel: You get past that.
Ben Patel: <unk> taken interest rate cuts taken effect I think people will get back as long as we have a healthy consumer and we're a consumer driven economy and if people are buying things inventory balances get drawn down and theres got to be replenishment at some point and so we feel like that.
Ben Patel: That inventory scale has been drawn down.
Ben Patel: Once we sort of re normalize if you will we would expect it will be able to pick up quite a bit of freight.
Ben Patel: Sure.
Speaker Change: Thanks, Adam.
Ben Patel: Yeah.
Speaker Change: And our next question today comes from Ken <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, good morning.
So Adam and Marty it sounds like a consistent topline, but but fixed costs are starting to Ron is there anything you can or want to do at this point to cut those costs, maybe shed some excess capacity. It seems like that's bearing down on the industry and just to clarify your comment was that 300 to 350 basis points sequential deterioration so youre talking about.
Speaker Change: 75, 5% to 70, low 76 type of number for the fourth quarter.
Speaker Change: Yes, that's correct Ian.
That was the sequential guidance.
Speaker Change: The quarter that range, but yes.
Speaker Change: We're taking action every day.
Speaker Change: We keep our belts tight year in and year out in good times and bad.
Speaker Change: I think that if you don't know how to manage cost if you don't manage cost and good times, you probably don't know where to start when times are tough.
Speaker Change: I think that's a lesson I learned years ago. So that's an ongoing focus for us and our team.
Speaker Change: We stay on top and have metrics from a productivity standpoint that we're always staying on top of it and our team has been very effective this year in that regard.
Speaker Change: Especially when you've got a lack of density in the system and we've expanded the system a little bit.
Speaker Change: Opening.
Speaker Change: Five or six terminals this year so.
Speaker Change: In the third quarter, especially we had an improvement in our platform shipments per hour and we had an improvement in our pickup delivery ships.
Speaker Change: Shipments per hour or so.
Speaker Change: Some improvements there.
Speaker Change: In the third quarter, despite the volume weakness.
Speaker Change: Load factor from line haul standpoint has continued to face some pressure, but again thats.
Speaker Change: Volume weakness.
Speaker Change: And it's pretty much was down in alignment with the decrease in weight per shipment.
Speaker Change: So it is not atypical to see that type of performance, but.
Speaker Change: To us the most important thing is to keep giving service running our schedules and thats why in slower periods. It can create a little bit of a cost headwind for us, but we think it's more important to keep given service now.
Speaker Change: Than ever and so that certainly have supported the value proposition over time.
Speaker Change: With respect to our overhead cost.
Speaker Change: Those had been about $300 million to $305 million each quarter.
Speaker Change: This year, we look at ways in controlled discretionary spending.
Speaker Change: I think that in regards to cutting back on capacity, we want to keep our eye out for the long term and we still believe in the fact that we've got a long runway for growth ahead and that was why we expanded and executed on our Capex plan like we did this year.
Speaker Change: Probably we will cut back would expect cutback.
Speaker Change: Cut back our capital expenditures into next year and grow into some of this capacity that we have but we will look to continue to add to the network over time, just due to the confidence that we have and what our market share potential can be.
Speaker Change: But probably tightened up our fleet and do some other things like that that that will help with cost as we go forward, but the biggest thing will just be getting back to revenue growth.
Speaker Change: When we think about and you look at historical performance whenever we do get into an upswing.
Speaker Change: We've had some significant revenue growth years, and it's usually two years coming out of a down cycle and whether you look at 2010 and 2011.
Speaker Change: 2017, 2018 to $21 22.
Speaker Change: That's going to be where this investment through the cycle.
Speaker Change: Pays the biggest dividends for us so if we get back to having a stronger economy and get back to the market share outperformance like we've seen in the past my.
Speaker Change: And I feel really good about where our operating ratio is today and where it can get to.
With respect to those overhead charges scaling back down to where they have been as a percent of revenue we're about five operating points.
Speaker Change: Overhead cost as a percent of revenue higher than where we were say back in 2022. So there's a lot of opportunity to get us right back on path.
Speaker Change: To achieve that sub 70 annual operating ratio goal that we still have.
Speaker Change: Great. Thanks, I appreciate the thoughts.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: And our next question today comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Thanks morning, everyone can you share a few more details on your thoughts on <unk> survey.
Speaker Change: Do you have long said that.
Ravi Shanker: You're not hearing from your customers that the others are closing the gap as much to you guys as much as maybe the narratives out there and you're going to see some of that in the results as well, but is there a risk that is.
Ravi Shanker: They are not closing up on service they can maybe get more competitive on price and gas or does it just take time for that service.
Why do you think happens from here.
Speaker Change: I think that's a question for the other carriers and.
Speaker Change: I don't know what their strategies are and note what we've heard they were and that's why we were pleased with the results.
Speaker Change: This year in that side.
Speaker Change: Sizeable gap between our performance and the others.
Speaker Change: It was maintained and so.
Speaker Change: We're not going to sit around and restaurant our laurels, though we're going to continue to look for ways that we can get better.
Speaker Change: Marty said earlier, there's more than just.
Speaker Change: Serviced and just picking up and delivering in freight on time and so.
Speaker Change: 28 different attributes that <unk> measures and we want to be the best in each of those and so we'll keep working hard.
Speaker Change: Deliver solutions for our customers.
Speaker Change: So.
Speaker Change: We've had to have had a proven strategy that has worked for many many years and.
Speaker Change: We want to keep that model going and keep producing the same type of profitable growth and shareholder value that executing on the same long term strategic plan.
<unk> for us over time, I think it continues to work in the future.
Speaker Change: Ever temporary decisions other carriers make we've we've dealt with it for years.
Speaker Change: I think it's something we will continue to be able to to work against as we go forward.
Speaker Change: And our next question comes from Chris Wetherbee with Wells Fargo. Please go ahead.
Speaker Change: Hey, Thanks, good morning.
Speaker Change: Adam I wanted to ask you about the relationship between truckload and <unk> that your comments about three pls was pretty interesting, we've historically seen share move back and forth, but I guess through the cycle. It seems like maybe more share than normal has moved back to truckload and obviously the pricing dynamic between LDL and <unk> maybe.
Speaker Change: Why it is it has been in terms of the relative price I guess does that change anything through the next up cycle or do you think it doesn't really take a significant upturn in truckload to be able to push volume back into LTE. Obviously, you mentioned that you saw a little bit of that happening in the third quarter, just kind of curious how you think about that relationship. These days.
Speaker Change: Yes, I think that obviously last year was very unusual with what happened in.
Speaker Change: And to help support the truckload world.
Speaker Change: Gets pretty volatile.
Speaker Change: With respect to the <unk>.
Speaker Change: Volumes and pricing and so forth.
Speaker Change: And I think it's because of how fragmented that industry is in so.
Speaker Change: That created some some great opportunity.
Speaker Change: On the one hand customers just had to get their freight moved as well.
Speaker Change: Yellow was hauling 50000 shipments per day picking up delivering 50000 shipments per day and that freight has to go somewhere.
Speaker Change: Went to a lot of the remaining LPL carriers, but much of that I felt like.
Speaker Change: Went into the truckload world as well and we've heard.
Speaker Change: People talking about consolidated shipments if they could and using truckload for zone skipping and doing some different things to try to take advantage of that lower rate environment, there, but at the end of the day.
Speaker Change: Shipment is less than 10000 pounds. It makes more sense to be in the <unk> world and.
Speaker Change: And I think that that freight will come back to us in due time that those truckload carriers don't love doing multi stops.
Speaker Change: They can charge a stop fee for it but that really makes sense. When they are designed to really go for me to be with a full trailers. So I think that freight does probably swing back into the <unk> world, maybe a little more aggressively than what we've seen through.
Speaker Change: Prior economic cycles, when I look at it overall the data that we get on the universe.
Speaker Change: <unk> shipments are down tonnage is down about 15% from the peak in the second quarter of 2021.
Speaker Change: Some of that was economic loss, but but I think some of it is modal shift that we've seen and heard about as well so I think that.
Speaker Change: Whenever that.
Speaker Change: Kind of wave starts coming back in I think that'll be something that will be a good opportunity for us.
Directly, but then indirectly as well it usually is going to other competitors and those competitors end up.
Speaker Change: Having service issues with existing customers and many of those customers come to.
Speaker Change: US as well so I think that whenever we see this cycle inflection.
We've got multiple fronts that that should help us from a volume standpoint.
Unknown Executive: Yeah, thank you, and our next question today comes from Brian Ossenbeck with JPMorgan. Please go ahead.
Speaker Change: Got it thank you.
Speaker Change: And our next question today comes from Brian <unk> with JP Morgan. Please go ahead.
Brian Patrick Ossenbeck: Take a more, I think I'm taking the question; it's a quick clarification. Did you see any impact from the hurricanes on the network, either yours or some of your customers, and should that start to pick back up here, perhaps in the fourth quarter? And then looking into next year, another way to look at pricing, I guess, the NMFTA is looking at making some changes to the class system. I think it's going more dimensional based. It's plated to the effect in the middle of next year.
Speaker Change: Hey, good morning, Thanks for taking my question, it's a quick.
Speaker Change: Clarification did you see any impact from the hurricanes on the network either.
Speaker Change: Or is there some of your customers and should that start to pick back up here, perhaps in the fourth quarter.
Speaker Change: And then.
Speaker Change: Looking into next year, another way to look at pricing I guess.
Speaker Change: Mmm FTA is looking at making some changes to the class system I think it's going to more dimensional basis.
Speaker Change: Related to the effect in the middle of next year I don't know if you got any early comments on that in terms of implications for for yourselves for the industry and perhaps the shippers as well.
Unknown Executive: I don't feel you got any early comments on that in terms of implications for yourself, for the industry, and perhaps the shippers as well.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Unknown Executive: Yeah, we definitely had some revenue lost related to the hurricane, and in operation it presents some challenges as well. We were initially pleased that all of our employees got through everything okay from everything we understand from the health standpoint as well as properties standpoint. Our network was fine as well. I think we were lucky in the sense of none of our properties really suffered any significant damage. We were down for a bit, which is typical when you have a big major storm like that moving through, but have recovered since nicely.
Speaker Change: Yeah.
Speaker Change: Definitely had some revenue loss related to the.
The hurricane and operationally it presents some challenges as well.
Speaker Change: We were initially pleased that all of our employees got through.
Speaker Change: Everything okay from from everything we understand from a health standpoint, as well as property standpoint.
Speaker Change: Network was fine as well I think we were lucky.
Speaker Change: Sense of none of our properties really suffered any significant damage we were down for a bit.
Which is typical when you have big major storms like that move through.
Speaker Change: We have recovered since nicely in there there will be some ongoing disruption operationally, though some of the Interstate systems in Western North Carolina.
Unknown Executive: Yeah, there will be some ongoing disruption operationally, though, some of the interstate systems in Western North Carolina that we'll continue to be impacted perhaps up to a year before some of those roadways are repaired. So, you know, that's something that our operating team does a phenomenal job. Our line-all management team is looking and figuring out how we need to rework the system to make sure that we've got free that if something's picked up in the Eastern North Carolina going to California and any point in between.
Speaker Change: Yes.
Speaker Change: We will continue to be impacted perhaps up to a year before some of those roadways are repaired. So yes, that's something that our operating team.
Speaker Change: It does a phenomenal job our line haul management team of looking and figuring out.
Speaker Change: How we need to rework the system to make sure that we've got freight.
Speaker Change: Picked up in eastern North Carolina going to California.
Speaker Change: And any point in between we get that freight move seamlessly and within our service standards.
Unknown Executive: We get that freight moves seamlessly and within our service standards, so please, with respect to how the team responded to the challenges from those storms that came through, remind me again what was the second part of the question.
Speaker Change: Pleased with respect to how the team responded to.
Speaker Change: The challenges from from those.
Speaker Change: Storms that came through and remind me again, what was the second part of the question.
Speaker Change: Yes.
Unknown Executive: Yes, it's looking at the NMFDA.
Speaker Change: Looking at the Nm FTA.
Unknown Executive: Oh, we're looking at some changes for the class system mid-20. Yeah, five just stops on that. But I think a good opportunity for us; we already mentioned we've got the mentioners and most of our major service centers, and we're already dimensioning probably 75% of our freight today. And so that's something that we're already set up to be able to effectively accommodate. So we'll continue to work with customers through those changes back at the late a little bit into the next year, but that's something that will be able to handle, and they provide another strategic advantage for us against some of our competitors.
Speaker Change: Looking at some changes for the class system.
Speaker Change: Mid 25, just thoughts on that.
Speaker Change: I think a good opportunity for us we already.
Speaker Change: Dimensions, we've got dimensions.
Speaker Change: And most of our major service centers, and we're already dimensions, probably 75% of our freight today.
Speaker Change: So thats something that were already set up to be able to effectively accommodate so we will continue to work with customers through those changes that got delayed a little bit.
Speaker Change: Into next year, but that's something that we'll be able to handle and may provide another strategic advantage for us against some of our competitors.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Ari Rosa: And our next question today comes from Ari Rosa with Citigroup. Please go ahead.
Speaker Change: And our next question today comes from Ari Rosa with Citigroup. Please go ahead.
Speaker Change: Yeah.
Ari Rosa: Hi, Adam, Marty, Jack. Just curious to hear your thoughts on the buyback. It's up quite a bit from last year. You still have a fairly modest dividend that is under 1% yield, and it looks like you're obviously directing most of your capital towards the buyback as opposed to the dividend.
Speaker Change: Hi, Adam Martin Jack just curious to.
Here your thoughts on the buyback, it's up quite a bit from last year, you still have a fairly modest dividend at under 1% yield.
Ari Rosa: And it looks like Youre, obviously directing most of your capital towards the buyback as opposed to the dividend I am just curious what the logic is for favoring the buyback over the dividend.
Unknown Executive: I'm just curious what the logic is for favoring the buyback over the dividend, and is there any indication that management essentially is saying that they think the share price is undervalued?
Ari Rosa: And is there any indication that management, essentially saying that they think the share price is undervalued.
Unknown Executive: Yeah, the buyback was the first type of capital return program that we started back in 2014, and that was when our cash flow model was changing and we were generating excess cash. We still looked today for the first use of cash would be for reinvesting in the company with the strong returns on the best of capital that we have. At 30%, but you know, secondly, would be the buybacks, and that was another descent what we started with, and then we implemented the dividend program in 2017 to kind of round out, you know, all the respective requests that you will and preferences of different shareholders. But the buyback is obviously a tax-efficient means and provides a lot of flexibility with respect to the returning capital.
Ari Rosa: Yes.
Speaker Change: The buyback was the first.
Speaker Change: Type of capital return program that we started back in 2014.
Speaker Change: That was when our cash flow model was changing and we were generating excess cash and.
Speaker Change: We still look today.
Speaker Change: For the first use of cash would be for reinvesting in the company with the strong returns on invested capital that we have.
Speaker Change: At 30%, but.
Speaker Change: Secondly would be the buybacks and that was as I said, what we started with and then we implemented the dividend program in 2017 to kind of round out.
Speaker Change: All of the respective request, if you will and preferences of different shareholders, but.
Speaker Change: Buyback is obviously a tax efficient means and provides a lot of flexibility with respect to returning capital when we still feel like we've got quite a bit of investment ahead of us.
Unknown Executive: When we still feel like we've got quite a bit of investment ahead of us and we're generally still spending 10 to 15% of our revenues on capital expenditures every year. But having that flexibility on the buyback will allow us to step that cat backs number up meaningfully if we needed to based on what volume demands were in market share. Trans continue to be, but yeah, we in the second quarter was really when we spent the most on the buyback this year. And some of that was just due to the stock weakness. We generally are pretty consistent quarter in and quarter out that.
Speaker Change: We're generally still spending 10% to 15% of our revenues on capital expenditures every year.
Speaker Change: But having that flexibility on the buyback will allow us to step that capex number up meaningfully if we needed to based.
Speaker Change: Based on what volume demands were in market share.
Speaker Change: <unk> continue to be but but yes in the second quarter was really when we spent the most on the buyback this year.
Speaker Change: And some of that was just due to the stock weakness, we generally are pretty consistent quarter in quarter out but.
Unknown Executive: And sort of take a grid-based approach with the consistent investment that we make and buy more stocks lower and unless when it's higher. But consistently returning capital, but then we'll step in. Yeah, as need be when we see some big weakness like we did in the second quarter and we ended up spending over 500 million dollars. And, and that period, and that was consistent with what we did back in 2022 as well. Where the stock was under pressure, and we spent a big three that year on the buyback program so. Yeah, that would would be what our strategy on forward will always be looking at it.
Speaker Change: Sort of take a grid based approach with the consistent investment that we make.
Speaker Change: Bye bye more when the stock's lower and less when it's higher.
Speaker Change: But consistently returning capital, but then we will step in.
Speaker Change: Yeah as need be when we see some big weakness like we did in the second quarter and we ended up spending over $500 million.
Speaker Change: In that period and that was consistent with what we did back in 2022 as well where.
Where the stock was under pressure and we spent 1 billion three that year on the buyback program. So.
Speaker Change: That would be and what our strategy going forward.
Speaker Change: We'd be looking at it we forecast out what our cash flow from operations and what we think the the.
Unknown Executive: I mean we forecast that where cash flow from operations and what we think that the capital needs for for cat backs would look like and look at what the activity is and then that balance becomes somewhat of a target to spend on the buyback program each year. But some years may be less and in some years more like what we're seeing this year.
The capital needs for Capex would look like and look.
Speaker Change: Look at what the fixed dividend is and then that balance becomes somewhat of a target to spend on the buyback program each year, but some years, maybe less than some years more like what we're seeing this year.
Stephanie Moore: Our next question comes from Stephanie Moore with Jeffrey's. Please go ahead. Hi, good morning. Thank you. I work. I was hoping you could maybe shed some light on a potential sickleful freight upside to just kind of thinking through the dynamics. Obviously, with truck load, you know, we've talked about it in the scene. Pricing really soft, but I think that's largely capacity driven, not so much demand. On the LTL front, obviously where you guys are playing, it's down, but it also seems to be down from pretty high COVID comps that you throw in. Obviously, the bankruptcy of Yellow.
Speaker Change: Our next question comes from Stephanie more with Jefferies. Please go ahead.
Stephanie More: Hi, good morning, Thank you.
Speaker Change: Alright.
Stephanie More: I was hoping you could maybe shed some light on the potential cyclical freight upside so just kind of thinking through the dynamics, obviously with truckload we've talked about in the same prices really soft, but I think that's largely capacity driven not so much demand on the <unk> front. Obviously you guys are playing it down but it also seems.
Stephanie More: To be down from pretty high Covid comps that Heathrow and obviously the bankruptcy of yellow.
Stephanie Moore: So, as we kind of think about this eventual up cycle, what evidence or kind of are you seeing, or you think you could see, that would suggest that we actually see kind of an inflection or above average volume growth, or are we simply just kind of returning to kind of a normal trendline and demand. Thanks.
Stephanie More: As we kind of think about this eventual up cycle. What evidence are kind of are you seeing or you think you could see that would suggest that we actually see kind of the inflection or above average volume growth or are we simply just kind of returning to.
Stephanie More: Kind of a normal trend line and demand.
Stephanie More: Yes.
Unknown Executive: Yeah, I think that weight for shipment is generally one of the first things that we would start seeing, and you know that that's something that we've been down at historical lows with our weight for shipment down below 1500 pounds now. You know, we've been as high as 1600 pounds in our past, and so we start seeing an increase in weight for shipment. Generally, that's orders for our customers' product are picking up. And so there's more widgets on every shipment, if you will, and eventually there will be sufficient quantities to where that turns into the multiple shipments. And so you start seeing it go from there, but that that's usually the first indicator is on the weight side.
Yes, I think that weight per shipment is generally one of the first things that we would start seeing and.
Stephanie More: That's something that we've been down at historical lows with our weight per shipment down below 1500 pounds now we've been as high as 1600 pounds in our past and so when we start seeing an increase in weight per shipment generally thats orders for our customers' products.
Up and so theres more widgets on every shipment if you will and then eventually there will be sufficient quantities to where that turns into multiple shipments and so you'll start seeing it go from there, but thats usually the first indicator.
Stephanie More: As on the weight side.
Unknown Executive: Got it. So I guess you're saying, you know, if you do believe that you should see some re-excolors should hear, and this isn't just a multi or normalization pattern. Well, I think that, you know, for sure, we've been in a longer slow cycle than any of us ever anticipated. You know, typically when we go through a down period, it's three to four quarters, and to be into this now for so long. It's probably somewhat skewed, as you mentioned, by Covid creating a lot of acceleration. I mean, we grew a billion dollars of revenue in 2021 and another billion dollars of revenue in 2022.
Speaker Change: Got it so I guess youre, saying.
Speaker Change: Can you do believe that they should see some reacceleration here and this isn't just a multiyear normalization pattern.
Speaker Change: Well I think that.
Speaker Change: Yes for sure.
Speaker Change: <unk> been in a longer slow cycle than any of us ever anticipated typically when we go through a down period, it's three to four quarters.
Speaker Change: To be into this now for so long is probably somewhat skewed as you mentioned by.
Speaker Change: Covid.
Speaker Change: Creating a lot of acceleration I mean, we grew $1 billion of revenue in 2021, and another $1 billion of revenue in 2022. So.
Unknown Executive: So, you know, maybe now things we've gone through a longer slow cycle left or seen a big up cycle there, but like I mentioned, I think that. You know, we're down; the industry is down about 15% from second quarter of 2021. You know, the industry, to get back to '09, was on a pretty consistent growth path. You know, from 09 to 21 and 88 continues to suggest that there's growth opportunities for LTL, and we believe that as well, and we've seen the trends developing over time with e-commerce, that effect on supply chains. We continue to see near-shoring and reshoring activities.
Speaker Change: Maybe now things.
Speaker Change: We've gone through a longer slow cycle after seeing a big up cycle, there, but like I mentioned I think that.
Speaker Change: We're down the industry is down about 15% from second quarter of 2021. The industry. If you go back to nine and was on a pretty consistent growth path.
Speaker Change: From <unk> to 'twenty, one and HCA continues to suggest that there is growth opportunities for <unk> and we believe that as well when we've seen the trends developing over time with e-commerce that.
Speaker Change: That effect on supply chains.
Speaker Change: We continue to see near shoring and re shoring activities that creates a lot of freight demand and opportunity for <unk>.
Unknown Executive: I create a lot of freight demand and opportunity for LTL. And so we've benefited from that over time and would expect that both the industry and ourselves will benefit from those trends. So, you know, I think we've got to come out of the ditch, and we will, and based on, you know, all the feedback that we have from customers and, you know, continuing those conversations. I think we would get right back to some normalization, and then we'll see that the industry continues to grow from there. And we'd expect that our market share will continue to grow as well.
Speaker Change: And so we've benefited from that over time and would expect that both the industry and our sales will benefit from those trends. So I think we've got to come out of.
Speaker Change: The ditch and we will.
Based on all the feedback that we have from customers in.
Speaker Change: Continuing those conversations I think we get right back to some normalization and then we will see that the industry continue to grow from there.
We would expect that our market share will continue to grow as well.
Unknown Executive: And we've increased our market share. We would about 6% share back in 2012, and you know, we're at 12 to 13% today. So we've been able to significantly increase share and have been the biggest market share winner, really, over the last 10 years.
Speaker Change: We've increased our market share we were at about 6% share back in 2012.
Now we're at 12% to 13% today, so we've been able to significantly increase share had been the biggest market share winner really over the last 10 years.
Unknown Executive: And service is what wins share. You've got to have capacity, and there's been a lot of talk about this shift and capacity of from the yellow service centers that have been reallocated, but only about half of those facilities have been reallocated thus far. But once demand recovers, you know, I think that you're going to see a more capacity-constrained industry and our service. Winning share again for us and to the future. So that's why we're committed to executing on our capex programs and trying to invest ahead of that curve. And we're there right now. We've got about 30% excess capacity that's more than we typically would have in our service center network.
Speaker Change: Service is what wins share you've got to have capacity and there's been a lot of talk about the shift in capacity of.
Speaker Change: The yellow service centers that have been reallocated, but only about half of those facilities have been reallocated thus far.
But once demand recovers I think that youre going to see a more capacity constrained industry and our service.
Speaker Change: Winning share again for us into the future. So that's why we're committed to executing on our capex programs and trying to invest ahead of that curve.
Speaker Change: Where they are right now we've got about 30% excess capacity that's more than we typically would have in our service Center network, but that's what gives us confidence that once we start drilling again, we can see those really strong incremental margins that we've been able to produce in the past and produce a lot of profitable growth, but it's going to take that.
Unknown Executive: But that's what gives us confidence that once we start growing again, we can see those really strong incremental margins that we've been able to produce in the past and produce a lot of profitable growth. But it's going to take that reflection in the economy before we can get back to seeing those strong revenue growth trends and operational improvements.
Collection in the economy.
Speaker Change: Before we can get back to seeing.
Speaker Change: The strong revenue growth trends in operating ratio improvement.
Unknown Executive: I'm sorry, this Adam wrote put operating days in 4Qs. You don't mind? Yeah, we have 62 days this year versus 61 and 42 of 23. And our next question today comes from Bascome Majors with Susquehanna. Please go ahead, Adam. As we think about the profitability of the business as we get into next year and in a world that's been at best seasonal and a lot of time some seasonal from a demand standpoint for quite some time now, as you noted earlier, can you level set what your view of a seasonal margin performance would be in the first quarter and even the second quarter just so we can got check our models?
Speaker Change: I'm sorry. This is Adam real quick operating days <unk> you outlined.
Speaker Change: Yes.
Speaker Change: Have 62 days this year versus 61.
<unk> of 23.
Speaker Change: And our next question today comes from <unk> majors with Susquehanna. Please go ahead.
Speaker Change: Adam as we think about the profitability of the business as we get into next year and in a world that's been at best seasonal.
Speaker Change: A lot of time sub seasonal from a demand standpoint for quite some time now as you noted earlier can you level set what your view of seasonal margin performance would be in the first quarter and even the second quarter. Just so we can got check our models. Thank you.
Unknown Executive: Thank you. Yeah, the first quarter is typically a hundred basis points increase and again that's, you know, if there's no real major adjustment from an insurance standpoint, the actual adjustments that we go through in 4Q, so kind of normalizing for that. And then the second quarter is where we get the improvement and the career revenue is accelerating generally, and our operating ratio typically improves 400 to 450 basis points in the second quarter versus the first. And obviously when we get into a period where you have, not that I'm calling this now, but if we get into an environment, if you go back into the years like 2017 for example, where you can get above sequential revenue growth and it gives more opportunity to put it to the bottom line. The way our cost structure is split out now in the most recent quarter and the third quarter are direct cost as a percent of revenue, we're about 52%, and our overhead cost, we're between 20 and 21%. So it's all that leverage that we have on those fixed costs when you get into that revenue growth environment that allows that operating ratio to swing generally and outperforming, you know, normal seasonality if you will when you're in the first year or two of the up cycle.
Speaker Change: Yes, the first quarter is typically.
Speaker Change: 100 basis points increase.
Speaker Change: But again that's.
Speaker Change: There is no real major adjustment from.
Speaker Change: Insurance standpoint, the actuarial adjustments that we go through <unk>.
Speaker Change: <unk>.
Speaker Change: Normalizing for that and then the second quarters, where we get the improvement.
Speaker Change: That's where revenue is accelerating generally in our operating ratio typically improves 400 to 450 basis points.
Speaker Change: <unk> quarter versus that.
Speaker Change: First and obviously when we get into a period, where you have.
Speaker Change: Not that I'm, calling.
Speaker Change: This now, but if we get into an environment. If you go back into three years like two.
Speaker Change: 2017 for example, where you can get above our sequential revenue growth and it gives more opportunity to put it to the bottom line because the way our cost structure is split out now.
And the most recent quarter in the third quarter, our direct cost as a percent of revenue we're about 52%.
Speaker Change: And our overhead costs were between 20 and 21%. So it's all that leverage that we have on those fixed costs when you get into to that revenue growth environment.
Speaker Change: That allows that operating ratio to swing generally outperforming.
Speaker Change: Normal seasonality if you will when you are in the first year or two the up cycle.
Speaker Change: Thank you.
Tom Wade: Thank you. And our next question today comes from Tom Wade with UBS. Please go ahead.
Speaker Change: And our next question today comes from Tom <unk> with UBS. Please go ahead.
Unknown Executive: Yeah, great, thank you. So, wouldn't see if you could offer some thoughts on kind of where you think pricing bottoms and then if inflation's maybe acting differently this cycle. You know, it seems like that's been some pressure on margin. So, you know, if you see shipment stabilized and going to next year, do you think about, you know, we need 4%, we just need to keep getting that 4% in order to stay flat on margin? You know, if again, if backdrop is a stability in shipments, you know, do you get any help on inflation easing or is it like, you know, just how you think about, you know, maybe it's like a price cost bread question or, you know, what you think about price relative to maybe what you got in prior down cycles.
Tom: Yeah, great. Thank you. So what did you see if you could offer some thoughts on kind of where you think pricing bottoms and then if Inflations maybe act acting differently. This cycle.
Tom: It seems like Thats been a source of some pressure on margin. So if you see shipments stabilized and you go into next year do you think about it.
Speaker Change: Need 4%, we just need to keep getting that 4%.
Speaker Change: In order to stay flat on margin.
Speaker Change: Again, if backdrop is stability in shipments.
Do you get any help on inflation easing or is it like.
Speaker Change: Just how you think about you know maybe it's like a price cost spread question or.
What you put you think about.
Speaker Change: Price relative to maybe what you got in prior down the down cycles. Thank you.
Unknown Executive: Thank you. I don't know that, and we get very granular with how we look at our business and slice it down and dice it by SIC code that, you know, generally just try to group them, generally together with, as industrial and retail, but I don't know that we've seen anything that has, you know, varied greatly. From what our expectations would be, I think that, you know, like I mentioned earlier, the industrial performance has been weaker. Last year it was probably holding up a little bit better than some of them then what the ISM trend would have indicated.
Speaker Change: Yes, that's a good observation, Tom that mean that that variance in revenue per shipment and cost per shipment overtime.
Speaker Change: We've targeted trying to achieve a 100 to 150 basis points of spread of price over cost.
Speaker Change: To support the investment in capacity and technology and so forth.
Speaker Change: And that's effectively reconciled with what our long term annual operating ratio improvement has been as well.
Speaker Change: Kind of what I was just saying.
Earlier was.
Speaker Change: That first year of recovery.
Speaker Change: The benefit of the volumes coming in and so it helps you from a cost per shipment standpoint.
Speaker Change: On the overhead side, you start getting all that leverage but.
Speaker Change: This year, we had started out after seeing some inflation on our cost per shipment our target for this year was to.
To see cost per shipment core calls for shipment inflation in the four to four 5% range and I think thats, where we will end up averaging for the year.
Speaker Change: And so we're kind of back to normal if you will our longer term average as being three 5% to 4% and.
Speaker Change: So that the volume weaknesses has kept us.
Speaker Change: Tad north of what that longer term trend has been but well.
Speaker Change: We'll continue to execute.
Speaker Change: On a bid by bid basis I mean, our.
Speaker Change: Our philosophy is to look at each customer as they.
Speaker Change: Their bids come due and.
Speaker Change: Look at what the opportunities are and the profitability of the account.
Speaker Change: And tried to ask for increases that will offset our cost inflation.
Speaker Change: And so those are the conversations that we have and that's what we'd expect to continue to have.
Speaker Change: Whatever year that the up cycle starts to the benefit and how we usually have a really strong performance is all the new customers that are coming onboard.
Speaker Change: Usually that drives that revenue.
Speaker Change: And yield trend, a little bit stronger as well.
Speaker Change: So those will be things that we'll look for whenever we do eventually get into that next.
Speaker Change: Part of the <unk>.
Speaker Change: Cycle, where we're actually seeing some increases.
Speaker Change: But I don't get to your question about the floor.
Speaker Change: We look at.
Speaker Change: Every quarter just like we've done this year.
As we progress through the year mixes constant we're looking for increases and because our costs aren't going down and so we're looking to get increases and that's what we would expect to see sequentially quarter after quarter.
You don't see a reason to think inflation is different you know kind of next year versus what you saw this year.
Speaker Change: No I think that we've got the opportunity again, just looking at it on a per shipment basis, if we can get into.
Speaker Change: Some volume recovery, that's going to be the best thing that that will happen I mean long term operating ratio improvement.
Speaker Change: <unk> is produced by two main ingredients density and yield so.
Speaker Change: We've lacked the density side, we've been consistent with our yield performance. The last couple of years and that is what has supported our margins, but once we can get the contribution from density coming through the network.
Speaker Change: That should keep some of those costs low.
Speaker Change: It comes through so I was referencing earlier, our team has done a phenomenal job of managing through in a lower density environment, keeping our service metrics high and keeping those direct cost.
Speaker Change: The first and second quarter, we had improvement in our direct cost as a percent of revenue. So we've done a great job managing through.
Speaker Change: This down part of the cycle, but that's going to create a lot of opportunity. If you got higher weight per shipment that's going to be more revenue per shipment performance when the cost to pick up is probably the same as the cost to move across the dock.
As consistent as well so.
These are all of those factors that will go in and why we generally see.
The cost per shipment.
Speaker Change: Kind of.
Outperforming the longer term average if you will when we get into those up parts of the.
Speaker Change: The cycling and they offset we've had tremendous inflation over the last couple of years, 65% of our costs are salaries wages and benefits. So that's the biggest driver, but as we run an efficient network and can eliminate miles from our system.
Speaker Change: That's time and Thats fuel, but we've had.
Speaker Change: Tremendous inflation with the cost of new equipment maintenance and repair cost on a per mile basis.
Speaker Change: <unk> been up significantly.
Speaker Change: Is that a little bit better this year, but.
Speaker Change: Insurance cost in our industry premium cost had been double digits. I mean, this is something that all carriers are facing and we're not immune to it but we've been fortunate to have operating efficiencies.
Speaker Change: To offset.
Speaker Change: Many of these higher inflationary items that we've seen when you go line by line on the income statement.
Speaker Change #100: Right. Okay. Thank you.
Speaker Change: Sure.
Speaker Change #101: Our next question today comes from Bruce Chan with Stifel. Please go ahead.
Bruce Chan: Hey, Good morning, guys just wanted to wrap up the weight per shipment discussion here. Marty you mentioned that you were getting fewer skips per customer.
Bruce Chan: Is your sense that that's all related to market softness or are you seeing any pockets of others may be gunning for customer wallet share.
Bruce Chan: Especially as they've been improving service and then maybe this is a little bit in the weeds, but any comments on salesforce incentives that may be aimed at more.
Bruce Chan: More business from existing customers versus new accounts at that you can share with thanks.
Speaker Change #103: Sure Yep.
Speaker Change #104: The reduction in weight per shipment is definitely our customers just shipping less.
Speaker Change #104: Box is almost skiing.
Speaker Change #104: So.
Speaker Change #105: We see that as Adam said, we were positive that that will pick up.
Speaker Change #105: Maybe the fourth and first quarter as Christmas comes around and you get quite a bit of holiday shipping coming up so we're cautiously optimistic for that and as far as sales incentives.
Incent, our reps on a quarterly basis based on revenue growth the operating ratios.
Speaker Change #105: Service.
Speaker Change #105: We paid out in the last quarter, and we look to pay out in this quarter. So.
Speaker Change #105: Their intended.
Speaker Change #105: Pretty well to increase their business and that's their main goal so comp.
Speaker Change #105: Confidence in our sales team to go out there and sell our value proposition and gain additional shipments.
Speaker Change #106: Okay, great. Thank you.
Speaker Change #107: And our next question today comes from Jeff Kauffman with vertical Research partners. Please go ahead.
Jeff Kauffman: Thank you very much and congratulations on the Seo.
Speaker Change #107: Accolades.
Jeff Kauffman: I think all the good questions have been asked at this point, but I would like to drill down a little bit on tonnage.
Speaker Change #109: We do follow railroads in some other industries, where they say okay. Well. This part of the economy was a little weaker this quarter. This part of the economy stronger I'm, assuming that the truckload multi stop as more of a retail versus industrial product, but if you look across your customer base I know your comment was mixes.
Jeff Kauffman: System, but.
Jeff Kauffman: Some customers ship heavier stuff some customers shift lighter stuff.
Speaker Change #110: Where are you seeing pockets of weaker than expected activity in your customer base, where are you seeing pockets of stronger than expected activity.
Speaker Change #111: Yeah, I don't know that.
Speaker Change #111: We get very granular with how we look at our business and slice and dice. It by S. ICD code, but generally just try to.
Speaker Change #111: Group.
Speaker Change #111: Generally to together with <unk>.
Speaker Change #111: Industrial and retail.
Speaker Change #111: I don't know that we've seen anything that is.
Speaker Change #111: It is.
Speaker Change #111: Varied greatly from what our expectations would be I think that like I mentioned earlier.
Speaker Change #111: Industrial performance has been weaker.
Speaker Change #111: Last year, it was probably holding up a little bit better and some of what the RSM trend would have indicated.
Unknown Executive: But I think just, you know, some of that was due to, we were continuing to win new customers and we were getting some of the new customer activity. And, you know, we're continuing to get new customers in every month. We look at our reporting and business that we've learned that we've lost, and you know, we're continuing to win new accounts. And, and so, you know, maybe some of those have been more on the retail side, and that supported why retail is outperform. But, you know, we've got certain commodities that we hauled it. Obviously, you're going to stay a few or hauling food products; those are going to be consistent through the cycle.
Speaker Change #111: But I think just some of that was due to we were continuing to win new customers and we were getting some of the new customer activity.
Speaker Change #111: We're continuing to get new customers in every month, we look at our reporting and business that we've won or that we've lost in.
Speaker Change #111: We're continuing to win new accounts.
Speaker Change #111: And so you know maybe some of those have been more on the retail side and that supported.
Speaker Change #111: Why retail has outperformed but we've got certain commodities that.
Speaker Change #111: That we haul that obviously are going to stay.
Speaker Change #111: If you are hauling food products those are going to be consistent through the cycle.
Unknown Executive: Pharmaceuticals, things of that nature, and so, you know, we've seen pretty consistent performance related to what we'd expect. You know, probably the thing that has been most positive is the consistency of our market share. And I've been really pleased that we've not lost really any customer accounts. We've not lost lanes from customers. So, you know, we've been able to keep those relationships intact. And, you know, we're primed and ready whenever those customers call, and if they've got two shipments per week, you know, once the orders for their products pick up. Those two turn into three, to four, to five, to ten.
Speaker Change #111: Pharmaceuticals things of that nature, and so we've seen pretty consistent performance.
Speaker Change #111: Related to what we would expect probably the.
Speaker Change #111: The thing that has been most positive.
Speaker Change #111: Has been the consistency of our market share and have been really pleased that we've not lost.
Speaker Change #111: Really any any customer accounts, we've not lost lanes from customers. So we've been able to keep those relationships intact, and we're primed and ready whenever those customers call and if they've got a.
Speaker Change #111: <unk> shipments per week once the orders for their products pick up.
Those to turn into three to four to five to 10, and then all of a sudden instead of making a stop we're dropping a trailer and getting a full trailer load of outbound product from a manufacturing account.
Unknown Executive: And, you know, the items that are making a stop were dropping a trailer and getting a full trailer load of that bound product from the manufacturing account. You know, that's kind of how this thing will take back off again when we start seeing increased order activity. But, you know, it's going to take some time. I think to get there. And, but we're, we're primed in position. We've had, you know, continue to stay engaged. Our sales team does with, with our customers and to understand what their needs are. We're in the midst right now of going through this the time of year where we build a very detailed bottoms up forecast to help develop what our, our strategic planning process to prepare for next year.
Speaker Change #111: That's kind of how this thing will take back off again.
Speaker Change #111: When we start seeing increased order activity, but it's going to take some time I think to get there.
Speaker Change #111: But we're we're primed and position we've had.
Speaker Change #111: <unk> continued to stay engaged our sales team does with with our customers to understand what their needs are.
Speaker Change #111: We're in the midst right now of going through this time of year, where we build a very detailed bottoms up.
Speaker Change #111: <unk> to help develop what are our strategic planning process.
Speaker Change #111: Payer for next year, and what that will look like and so on.
Unknown Executive: And what that will look like. And so, you know, so we're very engaged with our customers right now to understand what their needs are must. We'll look like as we go into the 2025, but, you know, I could have said kind of in response to multiple questions. There's. We're not out of the woods yet, so to speak, but there are some reasons to be optimistic based on what our trends have looked like as far into October. Being closer to see the reality, you know, with respect to punish part fiber versus September. That's the first time that, you know, we've been able to say that for some time and to see an increase in, in wake for shipment.
Speaker Change #111: So we're very engaged with our customers right now to understand what their needs from us will look like as we go into 2025.
Speaker Change #111: I've said kind of in response to multiple questions there.
Speaker Change #111: We're not out of the woods, yet so to speak but but there are some reasons to be optimistic based on what our trends have looked like thus far into October being.
Speaker Change #111: Being closer to seasonality.
Speaker Change #111: With respect to tonnage October versus September that's the first time that we've been able to say that for some time and to see an increase in weight per shipment.
Unknown Executive: You know, those are all positive indicators. And, you know, for what may come for the rest of this fourth quarter. And then we'll, we'll see what next year holds.
Speaker Change #111: These are all positive indicators.
Speaker Change #111: For what May come.
Speaker Change #111: <unk> for the rest of this fourth quarter and then we'll see what next year holds.
Unknown Executive: Okay, thank you for that answer, and that's my one.
Speaker Change #112: Okay. Thank you for that answer and that's my one.
Unknown Executive: This concludes our question-and-answer session.
Speaker Change #113: This concludes our question and answer session I would like to turn the conference back over to Adam Satterfield for any closing remarks.
Adam Satterfield: I would like to turn the conference back over to Adam Satterfield for any closing remarks. Well, thank you all for your participation today. We appreciate your questions, and feel free to give us a call if you have anything further.
Adam Satterfield: Well. Thank you all for your participation today, we appreciate your questions and feel free to give us a call. If you have anything further thanks and have a great day.
Unknown Executive: Thanks and have a great day.
Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.
Speaker Change #114: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Unknown Executive: You may now disconnect.
Speaker Change #114: [music].