Q2 2025 Old Dominion Freight Line Inc Earnings Call
Wyatt: Good morning and welcome to the OLD DOMINION FREIGHT LINE second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchstone phone. To withdraw your question, please press star, then two. We kindly ask that you limit yourself to one question only. Please note this event is being recorded. I would now like to turn the conference over to Jack Atkins, Director of Investor Relations. Please go ahead.
Good morning, and welcome to the Old Dominion. Freight Line, second quarter 2025 earnings conference call. All participants will be in listen-only mode.
Should you need assistance, please signal a conference specialist by pressing this dark key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touchtone phone to withdraw your question. Please press star, then 2. We kindly ask that you limit yourself to one question only.
Please note this event is being recorded.
I would now like to turn the conference over to Jack Atkins, director of investor relations. Please go ahead.
Jack Atkins: Thank you, Wyatt. Good morning, everyone, and welcome to the second quarter 2025 conference call for OLD DOMINION FREIGHT LINE. Today's call is being recorded and will be available for replay beginning today and through August 6th, 2025, by dialing 1-877-344-7529, access code 8056479. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements from the meaning of the Private Security Litigation Reform Act of 1995, including statements, among others, regarding OLD DOMINION's expected financial and operating performance. For this purpose, any statements made during this call that may 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.
Thank you Wyatt. Good morning, everyone and welcome to the second quarter 2025 conference call for all Dominion Freight Line.
Today's call is being recorded and will be available for replay beginning today and through August 6, 2025, by dialing 1-877-344-7529, access code 8056479. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance.
for this purpose, any statements made during this call that may that are not statements of historical facts. May be deemed to be forward-looking statements.
Jack Atkins: You are 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 result discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. As a final note before we begin, we welcome your questions today, but ask that you limit yourself to just one question at a time before returning to the queue. At this time, for opening remarks, I'd like to turn the conference over to OLD DOMINION's President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.
but that limiting the foregoing the words believes anticipates plans, expects and similar expressions are intended to identify forward-looking statements
If your caution that these statements may be affected by the important factors, among others, set forth, an old Dominion's filings with the Securities and Exchange Commission and in this morning's news release.
And consequently actual operations, and results May differ, materially from the results discussed in the forward-looking statements, the company undertakes. No, obligation to publicly update, any forward-looking statements whether as a result of new information, future events or otherwise.
As a final note, before we begin, we welcome your questions today. But ask that, you limit yourself to just 1 question at a time before returning to the Queue. At this time for opening remarks, I would like to turn the conference over to Old Dominion's president and chief executive officer, Marty Freeman. Marty, please go ahead.
Marty Freeman: Good morning and welcome to our second quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we would be glad to take your questions. OLD DOMINION's second quarter financial results reflect continued softness in the domestic economy. Although our revenue decreased in the quarter due to a decline in our volumes, our yields improved as our best-in-class service continues to support our disciplined approach to pricing. I want to thank our outstanding team for their unwavering dedication to our customers and continued commitment to executing the core elements of our long-term strategic plan. Although the challenging economic environment has persisted for longer than we anticipated, we have remained focused on what we can control as we work to ensure OLD DOMINION continues to deliver superior service to our customers while also operating efficiently.
Good morning and Welcome to our second quarter conference. Call with me on the call. Today is Adam Saturday, filled our CFO.
After some brief remarks, we would be glad to take your questions.
Old Dominion's second quarter financial results reflect continued softness in the domestic economy. Although our revenue decreased in the quarter due to a decline in our volumes, our yields improved as our best-in-class service continues to support our disciplined approach to pricing. I want to thank our outstanding team for their unwavering dedication to our customers and continued commitment to executing the core elements of our long-term strategic plan. Although the challenging economic environment has persisted for longer than we anticipated, we have remained focused on what we can control.
Marty Freeman: In addition, our ongoing investments in our network, technology, and our OD family of employees put us in an unparalleled position to respond to an inflection in demand when it materializes. Delivering superior service at a fair price to our customers is the cornerstone of our strategic plan and has been central to our success for many, many years. Doing so consistently through the ups and downs of the economic cycle has strengthened our customer relationships over time and allowed us to keep our market share relatively consistent over the extended period of slower economic activity. As a result, we were pleased to once again provide our customers with 99% on-time performance and a cargo claims ratio of 0.1% in the second quarter. This consistency of our execution and our commitment to creating value for our customers doesn't happen by accident.
As we work to ensure Old Dominion continues to deliver superior service to our customers while also operating efficiently, our ongoing investments in our network technology and our OD family of employees put us in an unparalleled position to respond to an inflection in demand when it materializes.
Delivering Superior service at a fair price. To our customers is the Cornerstone of our strategic plan and has been Central to our success for many, many years.
Doing so consistently consistently through the ups and downs of the economic cycle has, strengthened our customer relationships over time and allowed us to keep our market share relatively consistent over the extended period of slower economic activity.
As a result.
We were pleased to once again provide our customers with 99% on-time performance and a cargo claims ratio of 0.1% in the second quarter.
Marty Freeman: It is a product of our unique culture and the result of hard work of the OD family of employees. Across our company, our team is focused every day on adding value for our customers. By keeping our promises to our customers, we help them create value for their own customers. Our commitment to service excellence continues to support our long-term yield management initiatives. With a focus on individual account-level profitability, our approach to pricing is designed to offset cost inflation and support our ongoing investments in our network, our fleet, and our people. Although these investments have created headwinds to our profitability in the short term, we are confident that our consistent reinvestment back into our business for growth is the right long-term approach.
Our execution and our commitment to creating value for our customers. Doesn't happen by accident. It is a product of our unique culture and the result of hard work of the OD, family of employees, across our company. Our team is focused every day. On adding value for our customers, by keeping our promises to our customers, we helped them create value for their own customers. Our commitment to service Excellence continues to support our long-term yield management initiatives with a focus on individual account level profitability. Our approach to pricing is designed to all off offset cost inflation and support our ongoing Investments and our Network, our Fleet and our people
Marty Freeman: We know that having available capacity to grow with our customers and support them during periods of stronger demand is an important component of our value proposition. We also believe that these investments are critical to stay ahead of what we expect to be favorable long-term demand trends for our industry. I'm very proud of our team and how they continue to find ways to reduce cost and operate as efficiently as possible during the period of uncertain demand. Given that our first priority is to uphold our commitment to delivering superior service to our customers, it can lead to increased operating costs due to the loss of operating density when volumes do decrease.
Although these Investments have created headwinds to our profitability. In the short term, we are confident that our consistent reinvestment back into our business. For growth is the right long-term approach.
We know that having available capacity to grow with our customers and support them during periods of stronger, demand is an important component of our value proposition. We also believe that these Investments are critical to stay ahead of what we expect to be favorable long-term demand trends for our industry.
I'm very proud of our team and how they continue to find ways to reduce costs and operate as efficiently as possible during the period of uncertain demand. Given that our first priority is to uphold our commitment to delivering superior service to our customers, it can lead to increased operating costs due to the loss of operating density.
Marty Freeman: While that was the case in the second quarter, we continue to believe that our business model contains meaningful operating leverage, and we remain confident in our ability to improve our operating ratio over the long term. We expect this to become more apparent as the demand environment improves and we are able to leverage our investments in our fleet, our service network, and our technology. Over time, our customers have recognized the value of our service by giving us more of their business, which has allowed us to win more market share over the last decade than any other LTL carrier. Looking forward, we believe that the consistency of our execution, unique culture, and our team's daily commitment to excellence will allow us to be the biggest market share winner over the next decade as well.
when volumes do decrease,
while that was the case. In the second quarter, we continue to believe that our business model contains meaningful operating leverage and we remain confident in our ability to improve our operating ratio over the long term. We expect this to become more apparent as a demand environment improves and we are able to leverage our investments in our Fleet, our service network and our technology over time, our customers have recognized the value of our service. By giving us more of their business, which is allowed us to win more market. Share over the last decade in any other LTL carrier,
Marty Freeman: Our position is as strong as ever to respond to an improvement in the demand environment. As a result, we are confident in our ability to produce profitable revenue growth and drive increased shareholder value over the long term. Thank you very much for joining us this morning. And now, Adam will discuss our second quarter in greater detail.
Looking forward, we believe that the consistency of our execution unique culture and our teams of Daily Commitment to Excellence, will allow us to be the biggest market share winner over the next decade as well.
Our position is as strong as ever to respond to an improvement in the demand environment. As a result, we are confident in our ability to produce profitable Revenue, growth and drive increased shareholder value over the long term.
Adam Satterfield: Thank you, Marty, and good morning. OLD DOMINION's revenue totaled $1.41 billion for the second quarter of 2025, which was a 6.1% decrease from the prior year. Our revenue results reflect a 9.3% decrease in LTL tons per day that was partially offset by a 3.4% increase in the LTL revenue per hundredweight. On a sequential basis, our revenue per day for the second quarter increased 0.8% when compared to the first quarter of 2025, with LTL tons per day increasing 0.1% and LTL shipments per day increasing 0.8%. For comparison, the 10-year average sequential change for these metrics includes an increase of 8.2% in revenue per day, an increase of 5.3% in LTL tons per day, and an increase of 6.0% in LTL shipments per day.
Thank you very much for joining us this morning and now, Adam will discuss our second quarter in Greater detail.
Thank you, Marty and good morning.
Old Dominion's revenues totaled. 1.41 billion for the second quarter of 2025 which was a 6.1% decrease from the prior year.
Our Revenue results, reflect a 9.3% decrease in LTL, tons per day. That was partially offset by a 3.4% increase in LTL Revenue per 100 weight.
On a sequential basis, our revenue per day for the second quarter increased 0.8% when compared to the first quarter of 2025.
With LTL tons per day increasing by 0.1% and LTL shipments per day increasing by 0.8%.
For comparison, the 10 year average sequential change for these metrics includes an increase of 8.2% in Revenue per day.
Adam Satterfield: The monthly sequential changes in LTL tons per day during the second quarter were as follows: April decreased 3.7% as compared to March, May increased 0.5% as compared to April, and June decreased 0.6% as compared to May. The 10-year average change for these respective months is a decrease of 0.7% in April, an increase of 2.5% in May, and an increase of 2.1% in June. For July, our current month-to-date revenue per day is down 5.1% when compared to July of 2024, with a decrease of 8.5% in our LTL tons per day. As usual, we will provide the actual revenue-related details for July in our second quarter form 10-Q. Our operating ratio increased 270 basis points to 74.6% for the second quarter of 2025, as the decrease in our revenue had a deleveraging effect on many of our operating expenses.
An increase of 5.3% in LTL tons per day and an increase of 6.0% in LTL shipments per day.
The monthly sequential changes in the LTL tons per day during the second quarter were as follows.
April decreased 3.7% as compared to March.
May increased 0.5% as compared to April and June decreased 0.6% as compared to May.
The 10-year average change for these respective months is a decrease of 0.7% in April, an increase of 2.5% in May and an increase of 2.1% in June.
For July our current month-to-date Revenue per day is down 5.1%. When compared to July 2024 with a decrease of 8.5% in our LTL tons per day.
As usual, we will provide the actual Revenue related details for July and our second quarter form, 10 Q.
Adam Satterfield: This contributed to the 160 basis point increase in our overhead cost as a percent of revenue. Within our overhead cost, depreciation as a percent of revenue increased 80 basis points, while our miscellaneous expenses increased 40 basis points. The increase in our depreciation cost as a percent of revenue reflects the ongoing execution of our long-term capital expenditure program, which we believe will support our ability to grow with customers in the years ahead. Our direct operating cost also increased as a percent of revenue, despite our team's best efforts to manage these variable costs. The 110 basis point increase in these costs was primarily due to higher expenses associated with our group health and dental plans. As a result, our employee benefit cost increased to 39.5% of salaries and wages during the second quarter of 2025, from 37.2% in the same period of the prior year.
Our operating ratio increased 270 basis points to 74.6% for the second quarter of 2025 as the decrease, in our Revenue, at a deleveraging effect. On many of our operating expenses.
Had cost as a percent of Revenue.
Within our overhead cost depreciation as a percent of Revenue, increased 80 basis points. While our miscellaneous expenses increased 40 basis points,
The increase in an appreciation cost as a percent of Revenue, reflects the ongoing execution of our long-term capital expenditure program, which we believe will support our ability to grow with customers in the years ahead.
Our direct operating costs also increased as a percent of revenue, despite our team's best efforts to manage these variable costs. The 110 basis point increase in these costs was primarily due to higher expenses associated with our group health and dental plans.
As a result, our employee benefit costs increased to 39.5% of salaries and wages. During the second quarter of 2025 from 37.2% in the same period of the prior year.
Adam Satterfield: Overall, we continue to be pleased with how our team has remained focused on controlling what we can until the demand environment improves. The OD team has continued to deliver best-in-class service while operating very efficiently, and we've also managed our discretionary spending. We will, however, continue to make the investments that we believe are necessary to ensure that our business remains well-positioned for the long term. OLD DOMINION's cash flow from operations totaled $285.9 million for the second quarter and $622.4 million for the first six months of 2025, respectively, while capital expenditures were $187.2 million and $275.3 million for those same periods. We utilized $223.5 million and $424.6 million of cash for our share repurchase program during the second quarter and first six months of 2025, respectively, while our cash dividends totaled $59.0 million and $118.5 million for those same periods.
Overall, we continue to be pleased with how our team has remained focused on controlling, what we can until the demand environment improves.
The OD team has continued to deliver best-in-class service while operating very efficiently. And we have also managed our discretionary spending
We will however continue to make the Investments That We Believe are necessary to ensure that our business remains well positioned for the long term.
Old Dominion's cash flow from operations, total 285.9 million for the second quarter, and 622.4 million for the first 6 months, 2025 respectively.
While Capital expenditures were 187.2, million and 275.3 million for those same periods.
we utilize 223.5 million and 424.6 million of cash for our share repurchase program during the second quarter and first 6 months of 2025 respectively,
Adam Satterfield: Our effective tax rate for the second quarter of 2025 was 24.8% as compared to 24.5% in the second quarter of 2024. We currently expect our effective tax rate will be 24.8% for the third quarter. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.
While our cash dividends total, 59.0 million, and 119.5 million for those same periods.
Our effective tax rate for the second quarter of 2025 was 24.8% as compared to 24.5% in the second quarter of 2024.
We currently expect our effective tax rate will be 24.8% for the third quarter.
This concludes our prepared remarks. This morning, operator will be happy to open the floor for questions at this time.
Wyatt: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchstone phone. If you are using a speakerphone, please pick up your headset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then two. At this time, we kindly ask each person to limit themselves to one question only. Our first question will come from Chris Weathervie with Wells Fargo. Please go ahead.
Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone, if you are using a speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you like to withdraw your question please press star then 2
At this time, we kindly ask each person to limit themselves to one question only.
Our first question will come from Chris Weatherbee with Wells, Fargo. Please go ahead.
Chris Wetherbee: Hey, thanks. Good morning, guys. Appreciate the comments. Maybe we could just start with, you know, your thoughts around the operating ratio. Obviously, it's a challenging environment from a tonnage perspective, at least year over year. Kind of how do you think about sort of the normal progression from 2Q to 3Q on the OR, and maybe kind of how you feel like you can fare, you know, given the circumstances we're in from a macro backdrop?
Hey thanks. Good morning, guys. Um, appreciate the comments, maybe we could just start with, you know, your thoughts around operating ratio. Obviously, it's challenging environment from a ton of perspective at least year-over-year, kind of, how do you think about sort of the normal progression from 22 to 32 on the or maybe kind of how you feel? Like you can fair, you know, give them the circumstances We're In from from a macro backdrop.
Adam Satterfield: Sure. Yeah. The 10-year average is, for us, typically flat to up 50 basis points from the second quarter to the third. But that's typically based on sequential revenue growth of about 3%, which is what we typically see. So, you know, obviously, given the demand environment, what you just said, you know, we've not really seen that positive inflection yet, unfortunately, with our revenue this year. But, you know, so I'm kind of thinking that revenue per day, if it continues to stay flattish on a per-day basis, pretty much what we saw in the second quarter, if that continues into the third, that we'll probably see an increase in the operating ratio somewhere in the 80 to 120 basis point type range. So a little worse than what our normal sequential change would be. But just a couple of things to point out for that.
Sure. Yeah, the the tenure average is for us, a typically, uh, flat to up 50 basis points. Uh, from the second quarter to the Third
But uh, that's typically based on sequential Revenue growth of about 3%, which is what we typically see. So you know, obviously given the demand environment, what you just said.
You know, we're not really seeing that positive inflection yet, unfortunately, with, uh, with our Revenue this year. But, you know, so I'm kind of thinking that Revenue per day, if it continues to stay, uh, flattish on a per day basis. Uh, pretty much what we saw on the second quarter of that continues into the Third,
Um, that we'll probably see an increase in the operating ratio somewhere in the 80 to 120 basis point type range. So, a little worse than what our normal sequential change would be.
Adam Satterfield: I'm expecting that we'll see an increase in our salary, wages, and benefits line. And some of that, as you know, we give a wage increase that's the 1st of September every year. So that's always in there, but we typically have that revenue that offsets a little bit. But I'm also expecting that we'll see continued pressure with our fringe benefit cost. So I'm thinking that that will be part of the driver. I also think that we'll see our operating supplies and expenses will probably tick up a little bit. And our overhead costs, that was something they were higher in the second quarter than what I initially expected. And, you know, we talk about that a lot, but I'm expecting that our overhead costs in aggregate will be up a little bit further in the third quarter. They were about $310 million in the second quarter.
Adam Satterfield: We've been running about $305. So I'm expecting that we'll see those tick up even further in the third quarter. Probably some pressure in the miscellaneous expenses line will continue. But, you know, obviously, the overhead cost is revenue-dependent. So, you know, I'm anticipating if it's flattish revenue, then those costs will tick up a little bit further. But, you know, if we can see some revenue start to come in a little bit better, and, you know, obviously, we'll continue to give our mid-quarter update, then that's something that, you know, eventually over time we'll get leverage on.
Attended our overhead cost and aggregate uh, will be up a little bit further in the third quarter. Uh, they were about 310 million in the second quarter. We've been running about 305, um, so I'm expecting that we'll see those tick up even further in the third quarter. Um, probably some pressure and then this Lane is expensive Lane will continue, but you obviously, the overhead cost is, is revenue dependent. So, you know, I'm anticipating if it's flattish Revenue, then, uh, those costs will tick up a little bit further, but, you know, if we can see some, um, some Revenue, uh, start to come in a little bit better. And, you know, obviously we'll continue to give our mid quarter update, uh, then that's something that, you know, eventually over time we'll get leverage on.
Wyatt: Thank you. Our next question will come from Eric Morgan with Barclays. Please go ahead.
Thank you. Our next question will come from Eric Morgan with Barkley's, please. Go ahead.
Eric Morgan: Hey, good morning. Thanks for taking my question. I wanted to ask about the market share commentary. You know, just if we look at the ATA's shipment index, it actually turned positive the past couple of months, at least for April and May. So, I don't know if that's kind of the best data to use, but it's what we have. And, obviously, it's a bit different from what we're seeing from you as well as your publicly traded peers. So, I guess just curious if you have any thoughts on what's happening among the private carriers where we have kind of less real-time insight, how they've been responding to this downturn, if that's changed at all in recent months, and just how you view your competitive positioning here.
Adam Satterfield: Yeah, the best data that we probably get from an industry standpoint that includes the private carriers is really from transport topics. And so that's the data that you'll see us typically quote in the 10K about the size of the industry and so forth. And so, you know, you really only get an annual read on some of those carriers without the month-to-month trend. And, you know, the ATA is good, but I think it typically has always had a much higher report of revenue for the entire industry. And it includes, I believe, some ground business from some of the other parcel carriers. So that's why we typically have used transport topics. But, you know, I think when we look at that information and transport topics just published recently, and we saw, you know, a pretty consistent trend from market share for us.
Hey, good morning. Thanks for taking my question. Um, I wanted to ask about the market share commentary, you know? Just if we look at the, the ata's, um, shipment index, actually turned positive, the past couple of months, um, at least for April and May so, um, I don't know if that's kind of the best day to use, but it's what we have and, um, obviously it's a bit different from what we're seeing from you, as well, as your publicly traded tier. So I guess just curious, if you have any thoughts on what's Happening among the private carriers, where we have kind of, less real time Insight, how they've been responding to this downturn, um, if that's changed at all, in recent months. And, um, just how you view your competitive positioning here.
Adam Satterfield: And, you know, we've got granular level detail that we get through a proprietary database that's out there as well. And, you know, overall, I'd like to think that, you know, our market share, when you look through this downturn, our strategy is that we want to maintain market share in periods of economic weakness while also getting increases in our yields. And, you know, I think when we go back and look at kind of where things were in '21, '22, you know, that's effectively what's happened. And, you know, it always moves up or down a little bit here and there. But, you know, the key will be, you know, continuing to execute our strategy like we've done in the past and then make hay while the sun is shining. I mean, that's what our model is based on.
Yeah, the the best data that we we probably get from an industry standpoint. Uh, that includes the private carriers, um, is really from transport topics and so that's the data. You'll see, uh, most typically quote in the 10 K about the size of the industry and so forth. And so, you know, you really only get an annual, uh, read on on some of those carriers, um, without the, the month-to-month Trend and, you know, the ATA is good, but I think it, it typically is always, uh, had a much higher, uh, report of of revenue for the entire industry and it includes, uh, I believe some ground business from from some of the other parcel carriers. Um, so that's why we typically, if, if you use transfer topics but you know, I think when we look at that information, it transport topics just published recently. And, and we saw, you know, a pretty consistent, uh, trend from from market share for us. And, you know, we, we've got granular level detail that we get through a, a proprietary database that that's out there as well. And, and
The overall like to think that, you know, our market share. When you look through this, this downturn, our strategy is that we want to maintain market, share, and, and periods of economic weakness while also getting increases in our yields. And, you know, I think when we go back and look at kind of where things were and in 2122, you know, that's effectively what's happened and, you know, it always moves up or down a little bit here and there but you know, the the key will be um you know continuing to execute our our straight
Adam Satterfield: And I still feel like we're in a better position than anyone else when the demand environment does eventually inflect back to the positive. And I think we're probably better positioned than we've ever been. But, you know, if you think back to the cycle increases that we saw in 2014, 2015, same thing with '17 and '18, you know, we've been able to outperform the market from a tonnage growth standpoint anywhere from 1,000 to 1,200 basis points. So, you know, we just need a little help from the economy to get back to where we really see that demand environment inflecting back to the positive. And, you know, obviously, some macro factors are starting to settle a little bit with respect to, you know, the tax bill trade. Hopefully, at some point soon, we'll get an interest rate decrease.
Adam Satterfield: I think once some of those measures of certainty come back into the market, it will create opportunities for our customers that will create opportunities for us to start growing our volumes again.
Did you like we've done in the past? Um, and then met while the sun is shining? I mean, that's what our model is, is based on and I still feel like we're in a, a better position than anyone else on the demand environment. Does eventually inflect back to the positive and I think we're, we're probably better positioned than we've ever been. But I mean, if you think back to the the cycle increases that we saw in 2014 2015, uh, same thing with 17 and 18, you know, we've been able to outperform, uh, the market from a tonnage growth standpoint, anywhere from 1,000 to 1200 basis points. So, you know, we just need a little help from the economy to get back to where we really see that that demand environment. It's like, in Back to the positive and you obviously some some macro, uh, factors or or starting to settle a little bit. Um, with respect to, um, you know, the, the tax bill, uh, trade, hopefully, at some point soon, we'll get an interest rate, decrease. I think once, uh, some of that those measures of
Certainty come back into the market. Um, it will create opportunities for our customers that will create opportunities uh for us to start growing our volumes again.
Wyatt: Thank you. Our next question will come from Jonathan Chappelle with Evercore ISI. Please go ahead.
Thank you. Our next question will come from Jonathan choephel with evercore. Isi, please go ahead.
Eric Morgan: Thank you. Good morning. Adam, one of the things you mentioned in response to Chris's question was you expect pressure on operating supplies and expenses. You said the same thing in April, and operating supplies and expenses actually improved by 80 basis points as a percentage of revenue in 2Q. So, did something happen in 2Q that really helped you on that cost line item that you expect to reverse in 3Q? Or, you know, how do we kind of match up the pretty big sequential improvement in 2Q to, you know, ongoing pressure expected in 3Q?
Adam Satterfield: Yeah, you know, I would say that we continue to see really good performance from our repairs and maintenance. Our team has done a great job, I think, with managing those costs. And, you know, I had the expectation that we would see some pressures there from 1Q to 2Q, anticipating that some of our part costs might be increasing due to the impact of tariffs and so forth. But, you know, I think what we've seen is just some continued changes with our fleet. We've continued to take some of our older equipment out that would have had really high, you know, repair costs, if you will. And so we've continued to pare back some of our fleet in that example. And then just in general, our cost per mile, we've seen improvement this year.
Thank you. Good morning. Um, Adam 1 of the things you mentioned, uh, in response to Chris's question, was you expect pressure on operating supplies and expenses? You said the same thing, uh, in April and operating supplies. And expense is actually improved by 80 basis points as a percentage of Revenue in 2 Q. So, um, it's something happened in 2q that really helped you, uh, on that cost line item that you expect to reverse and in 3Q, or, you know, how do we kind of match up? Uh, the the pretty big sequential Improvement in 2q to um, you know, ongoing pressure expected in 3Q?
Adam Satterfield: And, you know, if you go back the last few years, we were up double digits from a cost per mile standpoint in '22 and '23. So, you know, I think that was some of the better sequential performance that we had, if you will, from 1Q to 2Q. But, you know, I'd say part of that driver is that I'm thinking from 2Q to 3Q. You know, right now, or at least in the second quarter, our average price per gallon for fuel was like $3.56. And we're seeing that elevated right now. So, you know, I think that's something where those costs as a percent of revenue, if fuel kind of continues to hold at about the range where we are now, you know, fuel's obviously a big driver in that operating supplies and expense line.
Yeah, I would say that, um, we continue to to see really good performance from, uh, our repairs and maintenance. Our team has done a great job. Uh, I think with with managing those costs and you know, I had the expectation that we would see some pressures there, um, from from 1 to 2 to 2, um, anticipating that, that some of our park cost might be increasing, uh, due to the impact of tariffs and so forth. But, you know, I think what we've seen is just some continued uh changes with our Fleet, we'd continue to take some of our older equipment out that would have had really high um you know, repair cost if you will. And and so we've continued to pair back uh, some of our Fleet and that example, and then just in general our cost per mile, uh, we've seen Improvement this year and and if you go back um the last few years we were were double digits uh from a cost per mile standpoint, 22 and 23. So you know I think that was was
Some of the the better sequential performance that we had, um, if you will from, from 1 key to 2q but you know, I'd say part of that driver is um, that I'm thinking from 22 to 32, you know, right now or at least in the second quarter, our average price per gallon. For fuel was uh, was like 3.56 and uh, and we're seeing that elevated right now. So you know, I think that's something where those costs as percent of Revenue. If if you'll kind of continues to hold at about the range where we are now, you know, if you'll
Adam Satterfield: Historically, what you see, and probably the comment of why I wanted to give both of those together, you know, we always talk about, as fuel changes, usually you'll see corresponding increase. I like to look at our direct cost in total and how we're managed through those. So, in the short term, if you see if the fuel surcharge goes up, our fuel expenses as a percent of revenue might also go up. But you would see the direct labor cost in particular kind of an offsetting decrease there. And typically, the second quarter to third quarter too, that's where you kind of see those costs all in or kind of flattish, if you will. But I'm expecting to see some continued pressure there in the salary, wages, and benefits line. You know, somewhat like I mentioned, we've got the wage increase.
Obviously, a big driver in that operating supplies and expense line, um, historically, what you see, and probably comment on why I wanted to, to give both of those together. You know, we always talk about, um, as fuel changes, usually, you'll see a corresponding increase. I like to look at our direct cost in total and how we manage through those. So, in the short term, if you see, if the fuel surcharge goes up, our fuel expense as a percent of revenue might also go up, but you would see, uh, the direct labor.
Adam Satterfield: We'll get one month of that for the full quarter. You know, typically, we have a little bit of sequential revenue growth that'll help offset that. And we may still have that for this coming quarter. But, you know, if we've got flattish revenue growth, then that puts a little pressure on that line item. But we've also seen higher fringe benefit costs for the past few quarters. And I'm expecting that trend to continue and to probably be even a little bit higher in the third quarter than what we just saw in the second. So, you know, those couple of factors, and as well as the miscellaneous expenses, you know, some of the miscellaneous expenses back to kind of making changes on the fleet, as we've been selling off some of this older equipment, we've had some losses. And that goes into that line item.
Cost in particular kind of an offsetting decrease there. And, um, and typically the second quarter to the third quarter, too, that's where you kind of see those costs all in. Uh, we're trying to flattish if you will, but um, I'm expecting to see some continued pressure there in the, the salary wages and benefits line, you know, some like I mentioned we've got the wage increase, we'll get 1 month of that for the full quarter. Um, you know, typically we have a little bit of sequential Revenue growth, that will help offset that and we may still have that for this coming quarter, but you know, if we've got flat as Revenue growth, and that puts a little pressure on that line item. Uh, but we've also seen higher fringe benefits cost for the past few quarters. And I'm expecting that Trend to continue, uh, and to probably be even a little bit higher, uh, and the third quarter than, uh, than what we just saw in the second. So, you know, those couple of factors, uh, and as well as the miscellaneous expenses, you know, some of the miscellaneous expenses back to kind of making changes on the fleet. Um, as we've been selling off some of this older equipment.
Adam Satterfield: So, I think we may see some more losses, if you will, coming through on that line item in the third quarter to put a little bit more pressure overall, you know, I would just say in that big bucket of overhead costs.
We've had some losses and that goes into that line item. So um I think we may see some more losses if you will uh coming through on that line on him in the third quarter to to put a little bit more pressure overall. You know, I was just saying that that big bucket of overhead cost.
Wyatt: Thank you. Our next question will come from Jordan Alliger with Goldman Sachs. Please go ahead.
Thank you. Our next question will come from Jordan Alleger with Goldman Sachs. Please go ahead.
Eric Morgan: Hello, Mr. Alliger.
Wyatt: Yes.
Eric Morgan: You're allowing me to be muted?
Wyatt: Oh, can you hear me?
Eric Morgan: Go ahead.
Wyatt: Sorry.
Eric Morgan: Yeah. So just sort of curious, sort of you gave some color and commentary around the OR revenue per day sort of flattish. I mean, you know, given the easy comps I think that are coming up both in terms of tonnage per day and revenue per day, I'm assuming as we look forward from July, those trends on a year-over-year basis, I would think, have the opportunity to get quite a bit better. But just curious your thoughts on the latter half of this quarter against those comps.
Hello, Mr. Aller may be muted. Oh, can you hear me? Go ahead, sorry.
Uh, yeah, so just, uh, sort of curious, um, sort of you gave some color and commentary around the Au Revenue per day, sort of flattish. I mean, you know, given the easy comps, I think that are coming up both in terms of tonnage per day and revenue per day,
I'm I'm assuming as we look forward from July, those Trends on year-over-year basis,
Adam Satterfield: Yeah, they would, Jordan. So in the second quarter for the full quarter, we were down, just call it 6%, 6.1%. Right now, I would say, you know, July, just call it we're down 5%. So it's already getting a little bit better. You know, if we stay, the second quarter per day average was about $22 million revenue per day. So if we stay in that same ballpark, then we'd be down a little over 4%. You know, if you just sort of held revenue at that $1.4 billion that we just did in the second quarter, if you say that was exactly the same, that's kind of what the trend would be.
I would think we have the opportunity to get quite a bit better, but I'm just curious about your thoughts on the latter half of this quarter against those comps.
Yeah, they would Jordan. So in the second quarter for the full quarter, we were down, uh, just call at 6% 6.1 percent. Uh, right now I would say, you know, July just call it, we're down 5%, so, it's already getting a little bit better. Um, you know, if we stay the second quarter per day, average was about 22 million dollars, uh, Revenue per day. So if we, we stay in that same ballpark, then we'd be down a little over 4%.
Adam Satterfield: Now, you know, I'll say that the July performance so far, when I look at kind of where our tons are and just the revenue per day level, July is normally a weak month from a tons per day standpoint. We're usually down about 3% versus June. And we're trending down about a little over 2% right now. So we're a little bit better than what our normal sequential trend is. Now, I'm not ready to make a call to say that things will turn around and we'll get the acceleration that we typically would see in August and September. But, you know, I think that gives us a little bit, you know, a sense of cautious optimism to say, you know, if it's outperformance kind of on the downside, will we see some of that acceleration come through? I think that remains the question.
Adam Satterfield: And I think it'll get answered as we go through the quarter and we give our mid-quarter updates and so forth. So, you know, if we were to perform at normal seasonality, and I think that's a big if right now, I'm not saying that that would be the case, then you know that number would come back more in comparison to revenue with the third quarter last year. I think at full seasonality, we'd be down about 1.5%. So, you know, we'll just continue to monitor it. And you know, maybe we'll be somewhere in that 1.5% to 4%, just depending on how things continue to materialize as we make our way through the quarter.
A tons per day standpoint. We're usually down about 3% versus June, uh, we're trending down about a little over 2% right now, so we're a little bit better than what our normal sequential Trend, um, is now I'm not ready to to make a call to say that things will turn around and we'll get the acceleration, uh, that we typically would see, uh, in August and September. But, you know, I think that gives us a little bit, um, you know, sense of of cautious optimism to say, you know, it's, it's outperformance kind of on the downside, what we see some of that acceleration come through. I think that remains the question and I think it'll get answered as we go through the, the quarter, and we give our mid-quarter updates and so forth. So you know if if we were to perform at normal seasonality, and I think that's a big if right now, I'm not saying that that would be the case. Then you know that uh, number would come back more in comparison to revenue, uh, with the third quarter last year, I think at full seasonality, we'd be down about 1 and a half.
And a half percent. So, you know, we'll just continue to, to monitor it and uh, you know, maybe we'll be somewhere in that uh, 1 and a half to 4%, just depending upon how how, uh, things continue to materialize as as we make our way through the quarter.
Wyatt: Thank you. Our next question will come from Tom Wadewitz with UBS. Please go ahead.
Thank you. Our next question will come from Tom Wadewitz with UBS. Please go ahead.
Tom Wadewitz: Yeah. So I wanted to see if you could offer a little more perspective just on pricing and kind of how you think about revenue per hundredweight ex-fuel in 3Q and just whether the pricing, I mean, you know, your commentary is pretty consistent over time that you see stability and discipline in the market. But is anything changing on that front? Is there, you know, any kind of areas where you see increased competition as the downturn extends? Thanks.
uh yeah, I so wanted to see if you could offer a little more perspective just on pricing and kind of how you think about Revenue per 100 weight X fuel um in 3 q and just whether the pricing I mean you know your commentaries
Pretty consistent over time that you see stability and discipline in the market, but uh, is anything changing on that front is there.
You know, when you kind of, uh, see areas where you notice increased competition as the, uh, downturn expands. Thanks.
Adam Satterfield: Yeah, I would say overall, just, you know, really we've got to go by what everyone reported in the first quarter. But, you know, I think most carriers, their reported yields have continued to be positive overall. And, I mean, obviously, we continue to execute on our plan. And I think our plan is different. You know, we look at things from a cost-based standpoint, and we want to be consistent through the cycle. And I feel like, you know, getting those consistent cost-based increases are obviously important to the long-term operating ratio improvement that we've had. So, right now, for the third quarter, I'm kind of looking at, I think that number will probably be that the yield ex-fuel will probably be up in the 4% to 4.5% range. And that's about where we are in July.
Yeah, I would say overall just you know really we've got to go bye. Uh whatever 1 reported and the first quarter. But you know, I think most carriers uh they're reported yields if if continued to be uh, positive overall. And I mean, obviously we continue to to execute on our plan and I think our plan is, is different. You know, we look at at things from a call space standpoint and we want to be consistent, uh, through the cycle. And I feel like, you know, getting those consistent calls based increases are obviously important to, uh, the long term operating ratio Improvement that we've had. So, um, right now for the the third quarter, um, I'm kind of looking at, uh, I think that number will probably be the, the yield X fuel will probably be up in the forward 4 and a half percent. Uh,
Adam Satterfield: So I think we'd expect to see, you know, consistent sequential increase in that reported number. But it'll probably come in a little bit. And that's not a reflection on, you know, any kind of change or anything like that. It's just a function of kind of where we were last year. And, but we continue to expect to see increases. And we're getting increases when we go through renewals. And, you know, that's one of the things that's been tough about this environment when, you know, back to thinking about, you know, that market share question from earlier. But, you know, as we're going through our renewals, we're continuing to win business. We get reporting for our national accounts that business that we've won or business that we've lost. And we're continuing to keep customers and get increases on those accounts that we're keeping.
Range. And that's about where we are in July. So I think we'd expect to see, you know, consistent sequential increase in that reported number, but it'll probably come in a little bit, and that's not a reflection on.
Adam Satterfield: But we're also winning some new business. You know, overall, obviously, the volumes are down. But I think that that lends itself to maybe a quick turnaround, if you will, when we do see that volume environment inflect back to the positive. And, you know, I think a lot of people believe that that's coming sooner than later. And, obviously, you know, we felt like it was coming before. And we've had a few headshakes from an economic standpoint.
You know, any kind of change or anything like that. It's just a function of kind of where we were last year. And, uh, but we continue to expect to see increases and we're getting increases when we go through renewals. And, you know, that's 1 of the things that's been tough about, uh, this environment. When, you know, back to to thinking about, um, you know, that market share question from earlier. But, you know, as we're going through, um, our renewals, we're continuing to win business, we get reporting for our national accounts that, uh, business that we want or business that we've lost and, um, we're continuing to to keep customers and, uh, and get increases on those accounts that we're keeping, but we're also winning some new business, you know, overall obviously, the, the volumes are down. But, um, but I think that, that lends itself to, uh, maybe a quick turnaround if you will, when we do see, uh, that volume environment in Flex back to the positive and, you know, I think a lot of people believe that that's coming, um, sooner than later and obviously, you know,
Adam Satterfield: But now that some of the bigger picture, you know, things are being resolved from a macro standpoint, you know, I feel like some of the optimism that we saw late last year and kind of saw it in the improvement in ISM in the early part of this year, you know, we hope to see kind of that turn back around and that optimism come back to the market and lend itself to increased freight opportunities. But, you know, I think that's part of our value proposition is having capacity. And while capacity is not at a premium right now, just given how weak demand has been for so long, you know, we have heard commentary from customers about some competitors that aren't able to make pickups consistently in some markets, and they're increasingly calling us.
Adam Satterfield: And so I feel like when you have true demand recovery, those inbound calls will likely accelerate. And that's what we've seen in the past. And, you know, I referenced some of those periods earlier. But, you know, you go back to 2014 when we grew tons at 17%, the market's up 5. You know, in '18, we're up 10, the market's up 1.5. And you know what we did through the '21 and '22 cycle where we put $2 billion of cumulative revenue growth on the books then. So we feel like we're sitting in a great position to capitalize. We just need a little bit of help from the economy right now.
An inbound calls will likely accelerate and that's what we've seen in the past. And, you know, I reference some of those periods earlier. But, you know, you go back to a 2014 when we we grew tons at 17% the Market's up 5, you know, in 18.5 and you know what? We did through the the 21 and 22 cycle where we we put 2 billion dollars of cumulative Revenue growth on the, the books then. So we're we feel like we're sitting in a great position to capitalize. We just need a little bit of help from the economy right now.
Wyatt: And our next question will come from Daniel Embro with Stevens Inc. Please go ahead.
And our next question will come from Daniel embro with Stevens Inc. Please go ahead.
Eric Morgan: Yeah. Hey, good morning, Marty, Adam, Jack. Hope you're doing well. Adam, maybe following up on that last discussion just on competition out there. I mean, you guys specifically have been a leader in a lot of the high service parts of the industry, whether it's SMB or grocery, kind of anything with a must-arrive-by date. But a lot of your peers are talking about trying to grow here. So I guess, are you seeing the better offerings from some of your peers making any encroachment on your business as you go to market? And I guess, if not, what do you think the public markets underappreciate about why that will be harder for others to take from you guys being the leader there? Thanks.
Yeah. Hey, good morning, uh, Marty Adam Jack, hope you're doing well. Um, Adam maybe you following up on that last discussion just on competition out there. I mean, you guys, specifically have been a leader in a lot of the high service parts of the industry, whether it's SMB or grocery kind of anything with them, must arrive by date. But a lot of your peers are talking about trying to grow here. So I guess, are you seeing the better offerings from some of your peers, making any encroachment on your business as you go to market and I guess if not,
What do you think the public markets underappreciated about why that will be harder for others to take from you guys being the leader there? Thanks.
Adam Satterfield: You know, I think that any customer that we have, you know, obviously, we've got a target on our backs, if you will. And, but we're competing with every account. We're competing with the other carriers. And we have been for years. So I don't think anything has changed with that. I think there's this perception that we've got some secret segment of the market that the other carriers haven't figured out until now. And that's just not the case. I mean, we're competing with all the other national carriers and, you know, in some markets with the regional carriers as well. So, you know, our service product, when you think about the 15 years of Mastia wins, there's more to service than just being able to pick up and deliver on time and without damages. And we do those core things better than anyone else.
Adam Satterfield: But it's continuing to figure out ways that we can add value to our customers. And ultimately, that's the business that we're in, is how do we work with our customers, create win-win scenarios where we can help each other and add value. And so, you know, I think those are the things that we'll continue to look at and leverage. You know, we've got about 12% market share, and there's a tremendous amount of share opportunity out there within an industry that we think continues to have tailwinds for it. So, you know, we continue to believe that the e-commerce effect on supply chains will continue to shrink shipment sizes and have truckload to LTL conversion. I think if near-shoring and reshoring opportunities continue to play out, that creates inbound and outbound opportunities for us as well.
You know, I think that any customer that we have, um, you know, obviously, we we've got a, um, a Target on our backs, if you will and uh, but we're, we're competing with every account. We're competing with the other carriers, and we have been for years. So I don't think anything has changed, uh, with that. I think there's this perception that we've got some secret segment of the market that the other carriers haven't figured out, um, until now. And, and that's just not the case. I mean, we're, we're competing with all the other National Carriers, um, and and, you know, in some markets with the, the regional carriers, uh, as well. So, you know, our service product. Um when you think about the 15 years of mastio wins, there's more uh 2 service and just being able to to pick up and deliver uh on time and without damages and we do those core things better than anyone else. But it's, it's continuing to figure out ways that that we can add value, uh, to our customers. And, and ultimately, that's that's the business that we're in.
Is how do we work with our customers to create win-win scenarios uh, where we can help each other and and add value. And so, you know, I think those are the things that that we'll continue to look at and leverage. You know, we've, we've got about 12% market, share. And there's a tremendous amount of share, uh, opportunity out there within an industry that we think continues to have uh, Tailwind for it. So you know, we continue to believe that that uh e-commerce effect on Supply chains will continue to uh destroy
Adam Satterfield: And just supply chain sophistication with the interest rates higher today, there's a cost of carrying inventory. And so that's a value add that we can have where our customers know they can rely on our own time and claims-free service. So, you know, it's figuring out how to go into each and every customer account, figuring out, you know, the problems that they're having and delivering a solution for that customer. That's what we I think we do better than anyone else. And that's why we're so confident in what our long-term market share opportunities are.
Spring shipment sizes and have truck load, LTL conversion. Uh, I think if near Shoring and reshoring opportunities continue to play out, uh, that creates inbound and outbound opportunities, uh, for us, as well, and, uh, just supply chain sophistication with the interest rates, uh, higher. Uh, today, there's a cost of carrying inventory and so that's, that's a value. Add that we can have where our customers know, they can rely on our own time and and claims free service. So you know, it's it's figuring out how to go into each and every customer account figuring out um you know, the problems that they're having and and delivering a solution for that customer.
Marty Freeman: Hey, Daniel, as you referenced, in the retail industry, including grocery, there's a penalty if it's freight is not on the shelf on time and in full. They're called fines. And many of our competitors, they can go out and talk about meeting those expectations with, you know, fancy marketing material and so forth. But until they can stop those those fines in our customers' pocketbooks, nothing's going to change. And we figured out how to do that many, many years ago, especially in the grocery industry. So we don't see we don't see anybody getting close to what we can offer from a service standpoint in the retail industry.
That's what we I think we do better than anyone else and that's why we're so confident and what our long-term market share opportunities are, hey, Daniel as as you referenced uh, in the retail industry including grocery. Um, there's a penalty. If if this Freight is not on the Shelf on time and in full they're called fines and many of our competitors, they can go out and talk about meeting those expectations with, uh, you know, fancy marketing material, and so forth.
But until they can stop those uh those fines in our customers pocketbooks, nothing's going to change and we figured out how to do that many, many years ago, especially in the grocery industry. So uh we don't see we don't see anybody getting close to what we can offer from a service standpoint in the the retail industry.
Wyatt: Thank you. Our next question will come from Ken Hoxter with Bank of America. Please go ahead.
Chris Wetherbee: Great. Good morning, Marty, Adam, Jack. Just want to understand maybe a little bit more on the backdrop here. The stock's down about 8%. Easier comps are coming up, right? Revs are down 5% in July. Do you expect to get that to maybe flat for the quarter? Others reported a deceleration in tons and pricing despite easier comps. A peer mentioned this morning they're implementing an early GRI. So I think you mentioned a deceleration in yields at 4% to 4.5%. So that's also a deceleration versus history. Are we getting a more competitive environment, you know, that just consistently is beating this market while we're in a decelerated market? I just want to understand your view of the backdrop. And then the holding share, I'm still confused by that one because every public carrier reported stronger percentage gains. Does that mean we're looking at just the private guys?
Thank you. Our next question will come from Ken hawkster with Bank of America. Please go ahead.
Great, good morning. Uh, Marty, Adam Jack. I just want to understand maybe a little bit more on the backdrop here. The stock's down about 8%. Easier comps are coming up, right? Revenues are down 5% in July.
Do you expect to get that to maybe flat for the quarter others?
Chris Wetherbee: I want to revisit that question earlier. Is it just the private guys that are losing relative share? Maybe if you can just expand a little more on that.
Is beating this Market while we're in a, a decelerated market. I just want to understand your view of of the backdrop and then the holding share. I'm, I'm still confused by that 1 because every public carrier reported stronger percentage, uh, gains, does that mean? We're we're looking at just the private. Guys, I want to revisit that question earlier. Is it just the private guys that are losing relative share, maybe if you can just expand a little more on that.
Adam Satterfield: Yeah, I think that one, with the respect to the yields, you know, I think what we're looking at will be a continued increase sequentially. And so if we are kind of in the middle of that 4% to 4.5% range, you know, that'd be up 1.5% to 2% sequentially. And in the last few years, when you look at the 10-year average, the sequential increase there from 2Q to 3Q is a little bit stronger. But when you look at kind of the last five years, that really skews that average, so to speak. So if you kind of looked at a 10-year average sort of pre-COVID, you know, it was more in that kind of 1.5% range about where we were thinking about being. So, you know, we're not seeing any change with respect to what our, you know, thinking is from an overall yield management standpoint.
Adam Satterfield: And, you know, I think that when you think about the industry as well, I think most carriers have kind of figured out that yields are important. Those that, when you go back over the last 10, 15 years, that when they've taken a focus off yield, it's had pretty negative impacts on their overall profitability. And so I think that's why we've seen such consistency in the industry over the last three years where demand has been soft overall. You know, from a market share standpoint, you know, I think that since really yellow closed their doors, I think there's been a lot of choppiness in terms of figuring out where share is. And, you know, we obviously report that and report it by region overall in our deck that's out on our investor relations website.
Yeah, I think that 1 with the uh respect to the yields, you know, I think what we're looking at um will be a continued increase uh sequentially. And so if we are kind of in the middle of that uh 4 to 4 and a half percent range, you know, that'd be up 1 and a half to to 2% sequentially and and the last few years, when you look at the 10 year average, um the sequential increase there from 22 to 3 Q is is a Little Bit Stronger, but when you look at kind of The Last 5 Years that really skews uh that average uh so to speak. So if you kind of looked at a 10 year average sort of preco, you know, it was more in that kind of 1 and a half percent range about where we uh were thinking about being. So you know we're we're not seeing any uh change with respect to what our uh you know, thinking is uh from an overall yield management standpoint. And you know, I think that uh when you think about the industry as well, I think most carriers have have kind of figured out that um,
That yields are important those that when you go back over the last 10-15 years, that uh, when they've taken the focus off yield, um it's had uh, pretty negative impacts on their overall uh profitability. And so I think that's why we've seen uh such consistency in the industry over this last 3 years where uh, demand has has been soft overall, um, you know, from a, a market share standpoint, you know, I think that since, uh, really yellow, closed their doors, I think there's been a lot of, of, of choppiness in terms of figuring out, uh, where share is. And, you know, we obviously report that and report it by region.
Adam Satterfield: And so you can kind of see how share may be changing in one region versus the next. But, you know, it's something that when we look at the overall market, you know, again, kind of factoring in what I just said about using the data out of transport topics, it looks like our share is relatively consistent with where we've been really over the last couple of years. And it's not to say that, you know, when we've gone through periods in the past of slow markets, you know, that we're flat or could be down slightly, you know, whatever, it's about the same. We've continued to execute a plan. We've continued to manage our costs. Our service has gotten better. And I think we're in a really strong position. You know, it's just overall change that we sort of look at.
Overall, and in our deck, that's out on our investor relations website and so you can kind of see, um, how share maybe be changing in in 1 region versus the next. But you know, it, it's something that that
We look at the overall Market. Um, you know, again kind of factoring in what I just said, uh, about using the, the data out of Transport topics. It looks like our our shares relatively uh, consistent with where we've been really over the the last couple of years. And and it's not to say that, you know, when we've gone through periods in the past of of slow markets, you know that we're uh flat or could be down slightly, you know whatever. It's um it's it's about the same. We continue to execute a plan. We continue to manage our costs or service has gotten better and uh, and I think we're in a, a really strong position, you know.
Adam Satterfield: And so we feel good about where we are, but feel better about what the opportunities looking forward will be.
It's it's um just overall change that that we sort of look at and um and so we feel good about where we are, but feel better about what the opportunities looking forward will be.
Wyatt: And our next question will come from Scott Group with Wolf Research. Please go ahead.
And our next question will come from Scott group with wolf research? Please go ahead.
Tom Wadewitz: Hey, thanks. Morning. This is a big-picture question. Maybe it's similar with what you just sort of answered. But, you know, if you look at the numbers, you're one of the leaders on yields right now. You're the biggest laggard on tonnage, at least among the public guys. And I guess you might say, hey, that's very normal in a more in a softer market that gets a little bit more competitive. We stay more disciplined on price than anybody. But I guess what feels different is just like the duration of this environment. Like we're three years into this and we're now, we still have, you know, tonnage down in high single digits. Does that, does the duration of this change your thoughts at all in any way?
Hey, thanks morning. Um,
Thanks for your question. Maybe it's similar to what you just sort of answered. But, you know, if you look at the numbers, you're...
1 of the leaders on yields right now.
Tom Wadewitz: Or is it, hey, we'll just going to do what we keep doing and we'll wait this out and eventually the cycle will come? Or because the cycle is lasting so much longer, do you think about it any differently?
Adam Satterfield: Yeah, I mean, obviously, it's it's been, we talk about these numbers from, you know, a quarterly perspective, annual perspective. You know, there's a lot of day-to-day that's going on behind the scenes that doesn't get discussed. And I mean, every day we're working with customers and figuring out ways to identify new opportunities. And, you know, it's been a tough few years going through this soft demand, you know, initially. And then you had the big industry event that happened. And so the flux of being down, being up short-lived, and then being down again, you know, there's been a lot to try to manage through. And, you know, I'd love for revenue to be higher and I'd love for this cycle to turn. You know, there have been a couple of times that we felt like it was turning.
You're the biggest lagger on tonnage at least among the public guys. Um, and I guess you might say, hey, that's very normal. In a more in a softer Market, that gets a little bit more competitive. We stay more disciplined on price than anybody but I guess what feels different is just like the duration of this environment uh like we're 3 years into this and we're now we still have, you know, a ton of down and high single digits. Does that does the duration of this change? Your thoughts at all in any way or is it? Hey, we're just going to do it, we keep doing and we'll wait this out and eventually the cycle will come or because the cycle is lasting so much longer. Do you think about it any differently?
Adam Satterfield: And, you know, I think back to late 2023, we had started reinvesting, running our truck driving schools, and hiring folks to be prepared for what we thought was going to be sustained improvement there. And then, you know, we kind of hit another roadblock from a demand standpoint. But, you know, overall, when I think about our model and how important revenue is, I mean, when you just look at the sequential performance through the second quarter, you know, we don't normally talk about sequential incremental margins, but, you know, the reality is that little bit of revenue that we put on the books between the first and second quarter, you know, we had about 60% incremental margins on that business.
Adam Satterfield: So, you know, it shows, I think, the power of the model once we start getting revenue on the books, but we don't feel like we need to go out and try to chase bad revenue that doesn't fit in our thinking for the long term. And so I think that's what we've done. We've also continued to manage our costs very well. You know, when I talk about splitting our operating ratio apart, the 74.6% that we just did in the second quarter, about between 52% and 53% of revenue were our direct variable cost. You know, that's pretty much the same where we were in the second quarter of 2022 when we did a sub-70 operating ratio. And so, you know, we've been able to control what we can control.
There have been a couple of times that, uh, we felt like it was turning. And, you know, I think back to to late 2023, uh, we had started, uh, reinvesting running our truck, driving schools and, and uh, and hiring folks to be prepared for what we thought was going to be sustained Improvement there and and then, you know, kind of hit another roadblock from a demand standpoint but you know, overall when I think about um our model and how important revenue is, I mean when you just look at at the sequential performance, um, through the second quarter, you know, we don't normally talk about uh sequential incremental margins. But you know the reality is is that little bit of Revenue that we put on the books between the the first and and second quarter, you know, we had about 60% incremental margins uh, on that business. So you know, it shows I think the, the power of the model once we start getting revenue on the books. But we don't feel like we need to go out and try to chase, uh, bad Revenue that
Doesn't fit in the the, you know, our thinking for the long term. And so I I think that's what we've done. We've also continued to to manage our costs very well. You know, when I, I talked about splitting or operating ratio apart the 74.6 that we just did and the second quarter uh, about between 52 and 53% of Revenue, where our direct variable cost, you know, that's pretty much the same where we were in the second quarter of of 2022.
Adam Satterfield: Our team's done a phenomenal job, I think, of protecting service, managing our costs in a very weak environment. And that's hard to do when you don't have density in the network. So, you know, I'm really pleased with that. Our overhead costs really are what's accelerated, and we just need a bigger revenue base to get leverage on those costs again. But, you know, that's part of our model and our strategy too. We like to invest through the cycle, and we've got more capacity than we probably have ever had right now from a service center network standpoint. And so, yeah, we're carrying a lot of excess costs. Our overhead costs as a percent of revenue were about 22% here in the second quarter. You know, back in 2022, they were about 17%.
Adam Satterfield: So, you know, therein lies the leverage for the model once we get back to a strong demand environment. So, you know, I'm pleased with everything we've done. Obviously, we'd love to be able to flip a switch and see the demand environment improve. But, you know, I think from where we sit when we look at, you know, what the other carriers are doing and kind of how revenue has trended for some of the others, you know, we're hanging in there. We've not seen, you know, any true variance in our volumes relative to what the entire industry's done. You know, if I look and see the industry is down about 15% from where we were in 2022, you know, our performance is pretty much right in alignment with what the industry has done overall on a net-net basis.
Uh when we did a sub 70 operating ratio. And so, you know, we we've been able to control what we can control. Our team's done a phenomenal job. I think of protecting service managing our cost in a very weak environment and that's hard to do when you don't have density uh, and the network. So you know, really pleased with that. Um, our overhead cost uh really are are what's accelerated? And we just need a bigger Revenue base uh to get leverage on those costs again. But you know, that's part of our our model and our strategy too. We like to invest through the cycle and we've got more capacity than we probably have ever had right now from a service center Network standpoint. And uh, and so, yeah, we're carrying a lot of excess costs, our overhead costs, as a percent of Revenue, we're about 22% uh here in the the second quarter, you know, back in in uh 2022 they were about 17%. So, you know, they're in lies, the The Leverage for the model once we get back to a strong demand environment. So, you know, I'm
Pleased with everything we've done. Obviously we'd love to be able to, to flip a switch and and see the demand environment, uh improved. But, you know, I think from where we sit when we look at at, you know, what the other carriers are doing and and kind of how Revenue uh has trended for some of the others. You know, we're we're hanging in there. We've not seen, you know, any true variants in our volumes relative, to what the entire industry has done. You know, if I look and see, the industry is down about 15% from where we were in in 2022.
Do you know our performance is, is pretty much right in alignment with, uh, with what the industry is done. Overall on the net, net basis.
Wyatt: Our next question will come from Jason Seidel with TD Cohen. Please go ahead.
Our next question will come from Jason Sidle with TD Cohen. Please go ahead.
Chris Wetherbee: Thank you, operator. Marty, Adam, Jack, good morning, gentlemen. One clarification. I think you guys mentioned you expect losses on asset sales. Did I catch that correct?
Uh, thank you, operator. I'm Marty Atom, Jacket Morning, gentlemen. Um, I clarion, um, I think you guys mentioned, uh, you expect losses, uh, on asset sales.
Adam Satterfield: Yeah, Jason, we've been trying to reduce the size of our fleet a little bit just in coordination with where freight volumes are trending. And so we had some losses in the second quarter. That was part of the reason why you may have seen our miscellaneous expenses ticked up a little bit higher. Normally, those costs are about 50 basis points or so. And so we saw those costs trend a little bit higher in the second quarter. They were up to 90. And I'm thinking that we'll see some continued pressure in the third quarter on those.
Did I catch that correct?
Chris Wetherbee: I was just a little confused because I know other carriers are actually reporting gains on sale. And so maybe you could walk us through the difference between you and them.
Yeah, Jason we've been uh, trying to to reduce the size of our Fleet a little bit, just in coordination with, uh, with where Freight volumes or or trending. And so, um, we had some, some losses in the second quarter. That was part of the reason why, um, you may have seen our miscellaneous expenses ticked up a little bit higher. Uh, normally those costs are about 50 basis points or so. Um, and so we, we saw those costs trained a little bit uh, higher in the the second quarter, they were up to 90 and uh and I'm I'm thinking that we'll see some continued pressure in the the third quarter. Um, on those
Adam Satterfield: Well, a lot of, in many cases, we're selling a tractor on average. We use a tractor for 10 years. So, you know, there's probably not as much demand for, that may be more of a truckload thing, but there's not as much demand for a 10-year-old million-mile, you know, single-axle day cab tractor.
I was just a little confused because I know other carriers are actually reporting gains on sale and so maybe you could walk us through uh, the difference between you and them.
Well, a lot of in many cases we're selling a tractor on average, we use a tractor for 10 years. So um, you know, there's there's probably not as much demand for uh that may be more of a truckload thing. But uh there's not as much Dominion for a 10 year, old million mile um you know single axle day cab tractor.
Chris Wetherbee: And I guess when you mentioned the sequential move between June and July being slightly better than the historical average, is any of this due to maybe some pull forward when people were worried about the tariffs potentially resetting again in August? Clearly, we're getting through some of these with some deals. But did you get that feedback from any of your shippers that that was occurring?
August clearly. We're getting through some of these of some deals but did did you get that feedback from any of your shippers? That that was occurring?
Adam Satterfield: Yeah, there may be some of that. We've not heard material feedback on that. But like when I look at it by region, you know, it's not like we saw a big change in like outbound business out of California, for example. You know, most of our regions are trending in about, you know, the same kind of range from a revenue performance standpoint. So there's, I don't know that there's a big outlier that may be driving that.
Yeah. There there may be um some of that we've not heard uh material uh, feedback on that. But like, when I look at it by region, you know, it's not like we saw, um, a big change and and like outbound business out of California, for example. Um, you know, most of our regions are trending in about, um, you know, the same kind of range from a revenue performance standpoint. Um, so there's, I don't know that there's a, a big outlier that that may be driving that.
Wyatt: Thank you, Mr. Seidel. Our next question will come from Bruce Chan with Stifel. Please go ahead.
Thank you, Mr. Cidle our next question. Will come from Bruce Chan with stifel? Please go ahead.
Chris Wetherbee: Yeah, thanks, operator, and good morning, everybody. Maybe another kind of bigger picture question here. You know, we've been hearing pretty regularly in the past couple of quarters from, you know, some of the other carriers about AI and dynamic routing. I know that, you know, the OD style has always been to kind of quietly implement those things as part of the overall, you know, playbook. In many cases, it's much earlier than peers. But maybe just helpful to get an update on any optimization projects that you've got going on right now and, you know, generally how you're feeling about the various systems in your tech stack. Anything incremental that we should be thinking about as an opportunity?
Yeah, thanks operator and uh good morning everybody. Um maybe another in a bigger big picture question here. Um you know we've been hearing pretty regularly in the past couple quarters from you know some of the other carriers about Ai and dynamic routing. I know that you know the OD style has always been to kind of quietly Implement those things as part of the overall, you know, Playbook um in many cases as much earlier than peers but maybe just helpful to get an update on any optimization projects that you've got going on right now. And you know generally how you're feeling about the various systems in your Tech, stack anything incremental that we should be thinking about as an opportunity
Adam Satterfield: Yeah, I think, like you said, I mean, you know, we're always looking at technology. It's a key part of our business and I think has been to help us with our operating ratio. And, you know, just to kind of keep reminding, our operating ratio is about 1,500 basis points better than the company average or industry average, I should say. So, you know, regardless of what the other carriers have got as opportunities, we're still materially outperforming there. And I think that technology has been a key part of that. And you're right. I mean, we don't normally try to announce everything and give totally our playbook away. But we're looking at ways to keep getting better. Continuous improvement is a key component for our foundation of success.
Adam Satterfield: And we've always got to look at ways that we can make investments that are really going to drive change from a service standpoint ultimately or add value through the lens of driving operational efficiencies. And you mentioned line haul optimization. That's kind of been the holy grail and the buzzword for the 21 years I've been in this industry. But that's something that we continue to look at. And we've got some tools that we've continued to implement and try to refine to drive some optimization there. Same thing within our pickup delivery operations and on the dock. And you know, I think our increased use of some of those technologies is part of the reason why we've been able to keep those direct costs. Those direct costs are, you know, the primarily variable costs, but the direct costs associated with moving freight.
Yeah, I think, like you said, I mean, you know, we're always looking at technology. It's a, like, a key part of our business and I think has been, uh, to help us with our operating ratio. And, you know, um, just to kind of keep reminding, um, our operating ratio is about 1500 basis points, better than, than the company average or industry average. I should say, um, so um, you know, regardless of of what the other, uh, carriers have got as opportunities. We're still materially outperforming there and, and I think that's, uh, that technology has been a key part of that. And, and, uh, and you're right, I mean, we don't normally, uh, try to announce, um, and, you know, everything and give totally our Playbook away. Uh, but we're looking at at ways to to keep getting better, continuous improvements of a key component for our foundation of success. And, uh, we've always got to look at ways that that we can make investments that are really going to, uh, Drive change from a service standpoint.
Uh, ultimately, or or add value, uh, through the lens of driving operational efficiencies. And, you know, you mentioned Lane Hall optimization. That's kind of been the, the holy grail and the buzzword for uh, the 21 years. I've been in this industry and um, but that's something that that we continue to to look. And we've got some tools that we've continued to implement and try to refine, um, to to drive some optimization there. Uh, same thing within our
Adam Satterfield: And to think that we've been able to manage those costs basically consistent with where we were, you know, when our business was running extremely, you know, at its optimal state at the time back in 2022 with a sub-70 operating ratio, you know, I think is pretty astounding when you think about the loss of density in our network now versus what we had in the network then. And so, you know, there's not just one thing to point to, but I think we've got a great team in the field. And I think we've got a great group in our technology team that's always looking for ways to get better, to work with their business, to work with our customers.
Our pickup delivery operations. Uh, and on the dock and, you know, I think our increased use of of some of those Technologies. Um, as part of the reason why we've been able to to, to keep those direct costs, and those direct costs are, you know, the primarily variable cost but the direct cost associated with moving Freight, and to think that we've been able to, to manage, uh, those costs basically consistent with where we were. And when our business was was, uh, running extremely, uh, you know, that is an optimal State at the time, back in 2022 with a sub-70, uh, operate ratio. You know, I I think is, uh, is pretty astounding when you think about the loss of density and our Network Now versus what we had, uh, in the network then. And and so, you know, it's not just 1 thing to point to, but I think we've got a, a great team in the field. And I think we've got a great, uh, group in our, our technology team that that's always looking for for ways to get better to work with their business.
Adam Satterfield: You know, another key part of the technology investment is how can we do things differently and add value and add stickiness with our customer base as well that differentiate us from our competition. So, you know, all of those things I think will continue to be strategic advantages for us and will be part of the story of, you know, how we get our operating ratio back towards that 70 threshold, but, you know, continue marching forward and drive long-term improvement there in the operating ratio, you know, while we continue to improve density and yield.
Business, uh, to work with our customers. You know, another key part of the technology investment is, how can we do things differently, um, and add value, and add stickiness with our, our customer base as well. Uh, the differentiate us from our our competition. So, you know, all of those things, I think will continue to be strategic advantages for us. And we'll be part of the story of of, you know, how we we get our operate ratio back towards that. That 70 threshold, but, you know, continue marching forward and, and drive long-term Improvement there and the operating ratio,
uh you know, while we continue to improve density and and uh and yield
Wyatt: Thank you, Mr. Chan. Our next question will come from Bascom Majors with Susquehanna. Please go ahead.
Thank you, Mr. Chan, our next question will come from Bascom. Majors with Cusco Hannah. Please. Go ahead.
Chris Wetherbee: Thanks. Good morning. Just as a housekeeping item, can you remind us of typical revenue and margin seasonality for the fourth quarter? And Adam, if you look at longer term, not necessarily calling when the cycle will turn, but just thinking about what you think the business will respond like when it does, can you update us on, you know, sort of the the incremental margin or really other sort of profile you think you can deliver when we actually get some tonnage to flow through all the cost adjustment work that you've done over the last couple of years? Thank you.
Can you update us on, you know, sort of the the incremental margin or or really other sort of profile? You think you can deliver when we actually get some tarnished to flow through all the cost adjustment work that you've done over the last couple of years? Thank you.
Adam Satterfield: Yeah. So typically, our revenue per day, the 10-year average is a decrease of 0.3%. It's a 3/10 of a percent decrease in revenue per day. And then our operating ratio is typically up 200 to 250 basis points. And, you know, obviously, that we always have, we do an annual actuarial study. So there could be changes plus and minus on that insurance and claims line in the fourth quarter. Last year, we had a pretty big unfavorable adjustment that we had to take there. But nevertheless, we kind of exclude that, you know, from the averages, if you will. So that's what the normal performance is. And, you know, I think from just kind of looking forward in terms of what we can do from an incremental margin, you know, I just mentioned that sequential incremental margin. I don't expect 60% to be the norm.
Yeah, so, uh, typically our revenue per day, um, the ten-year average is a decrease of 0.3%, so a 310% decrease, uh, in revenue per day. Uh, and then our operating ratio is typically up 200 to 250 basis points, and, you know, obviously that, um, we always have, we do an annual actuarial study. Uh, so there could be changes, plus and minus, on that insurance and claims line. In the fourth quarter last year, we had a pretty big unfavorable adjustment that we had to take there. But, um, nevertheless, we kind of exclude that.
Adam Satterfield: But, you know, just thinking about our cost structure and what it is laid out from a direct cost versus overhead cost. And, you know, overhead, it's mainly fixed. But there are some variable costs in there. You know, overall, about 70% of our costs or so right now are variable. And that's how we've been able to protect our margins through this downturn is continuing to manage those. But anyways, the 53% of revenue being our direct variable cost, you know, you kind of do the math. That's how we've been able to do sort of 35% to 40% incrementals when we're coming out of, you know, kind of on the early side of that demand inflection. And then, you know, eventually, you kind of get back to the point where you've got to add more equipment, you've got to add more people, and so forth.
You know, from from the averages, if you will. So uh, so that's what the the normal uh, performance um is and uh, you know, I think from a just kind of looking forward in terms of what we can do from an incremental margin. You know, I just mentioned that sequential incremental margin. I don't expect 60% to be the norm but you know just thinking about our cost structure and and what I just laid out from a direct cost versus overhead cost and you know overheads mainly fixed
Adam Satterfield: And it starts compressing back. Our longer-term average incremental has been 35%. And so, you know, I think that that still seems reasonable. And, you know, that would continue to imply that, you know, if you run that out for several years of a recovery in revenue growth, that we would get back to that sub-70 type of threshold.
But uh, there are some variable costs in there, you know, overall about, um, 70% of our cost or so, right now, our variable. And that's how we've been able to protect our margins through. This downturn is continuing uh, to manage those. But anyways, the the 53% of Revenue being our direct variable cost you you kind of do the math. That's how we've been able to do sort of. 35, that's the 40% uh incremental when we're coming out of uh, you know, kind of on the early side of that demand inflection and um and then you know eventually you kind of get back to the point where you've got to add more uh equipment. You've got to add more people and so forth and and it starts compressing back, our our longer term average incremental has been uh, 35% and um so you know, I think that that still seems reasonable and, you know, that would continue to imply that um, you know, if you run that out for several years of a recovery and revenue growth that uh we would get back to to that sub 700.
Uh, type of threshold.
Wyatt: Thank you. Our next question will come from Ravi Shankar with Morgan Stanley. Please go ahead.
Thank you. Our next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shankar: Hey, guys. Thanks for the time. I know this topic has been discussed a fair bit, but if I can just hit it again in a slightly different way. You guys have been masters of calling the cycle over the years and have shown your operating prowess as well. But to kind of scotchpoint, it's been three years of a downturn. And even now, I think some of the TLs and rails are actually sounding a little bit better on volumes in the cycle, even though nobody's kind of high-fiving here. How can you guys tell if there is something bigger and more structural going on with the LTL space here rather than just a cycle? Maybe some more permanent share shift to TL, maybe insourcing by shippers, changing supply chains.
Ravi Shankar: Are your customers telling you that they will definitively be back with the same level of volumes or higher in an upcycle?
Adam Satterfield: Yeah, what you just said there at the end is, you know, the confidence that we have in our long-term market share really is just driven by those customer conversations and how we think supply chains will continue to trend over time. You know, we've seen some market share shift, I think, from LTL to truckload through this cycle. And, you know, when you look at some statistics in the truckload industry in terms of what they're charging revenue per mile versus cost per mile, you know, they're willing to operate at break even or worse. And I think that's what you're seeing with some of the operating ratios that have been published as well. So, you know, but I think that's some of the trend that we've got to continue to watch is as that business starts picking back up, they get busier, the rates start going back up.
Uh, hey guys, thanks for the time. Uh, I know this topic has been discussed a fair bit but I can just hit it again in a slightly different way. Uh, you guys have been masters of calling the cycle over the years and I've shown your operating prowess as well, uh, but to kind of scotch point it's been 3 years of a downturn. And even now, I think some of the TLs and rails are actually sounding a little bit better on on volumes in the cycle. Uh, even though nobody is going to highlighting here, how can you guys tell if there is something bigger and more structural going on with the LTL space here, rather than just a cycle? Maybe some more permanent share shift or TL Maybe insourcing by shippers changing Supply, chains or your customers telling you that they will definitely be back with the same level of volumes or higher and upcycle.
Yeah. The the what you just said there at the end is, you know, the confidence that we have in our long-term market, share really. This is driven by, uh, those customer conversations and how we think, uh, Supply chains will continue to Trend over time. Uh, you know, we we've seen some market share shift, I think from LTL, to truckload through this cycle. And, you know, when you look at some statistics in the truckload industry in terms of, um, what they're charging Revenue per mile versus cost per mile, um, you know, it it's uh, they're willing to to operate it at break even or worse. And, uh,
Adam Satterfield: I think that's when you'll start seeing some of this unwinding effect in some of those truckload carriers that they don't really want to move multiple shipments on the back of their truck and make multiple stops. That's not their preference. And they don't have the network that's set up to really handle it. They only do it when times are tough and they need some payload to make a truck payment. And so, you know, I think you'll see that that business move back into LTL. And then we'll continue to see kind of our customers that are continuing to, if we go through a customer.Customer,
Wyatt: we're seeing a lot of wins, like I mentioned, from just a customer-specific standpoint. And, you know, customers are continuing to award us the same lanes of business that they've had before, but their overall business levels might be down. And, you know, whether that's just the demand for their product, some we know are taking advantage of this truckload opportunity. You know, it's kind of going to be a, you know, multiple, items that I think are driving the increase in demand. And, and I think we'll see more of that share shift back than probably what we've seen, in prior cycles. So, you know, we feel like we're we're ahead of it, though, from a capacity standpoint. I mentioned the, network capacity from a service center standpoint, but I feel like we're in, you know, really good shape, in regards to our fleet.
Wyatt: we're probably heavy there, in all honesty. But, you know, I feel like from a a people capacity standpoint as well, you know, we've got a team that that's in position and ready. and you know, that's that's the best incremental margin you can get is when, we've got a driver that's already making a stop at our customer. And, and now, instead of picking up one shipment, they're picking up three. And, and that's typically what we've seen in cycles past and how, you know, our volumes can accelerate so quickly on the the front end of, the inflecting economy. And, and that's what we'd expect to see, whenever this economy does eventually inflect back to the positive.
That uh that are continuing to if we go through a customer we're we're seeing a lot of wins like I mentioned on from just a customer specific standpoint and you know, customers are continuing to award us the same Lanes of business that they've had before. But their overall business levels might be down and you know whether that's just the demand for their product. Um some we know are taking advantage of this truckload opportunity. You know, it's kind of going to be a um you know multiple uh items that I think are driving the increase in demand and uh and I think we'll see more of that share shift back and and probably what we've seen, uh, in Prior Cycles. So, you know, we feel like we're, we're ahead of it though. From a capacity standpoint. I mentioned the, uh, network capacity from service center standpoint, uh, but I feel like we're in in really good shape, uh, in regards to our Fleet. Um, we're probably heavy there. Um, in all honesty but you know, I feel like from a people capacity stand,
Standpoint as well, you know, we've got a team that that's in position and ready, uh, and you know, that's, that's the best incremental margin, you can get is when we've got a driver, that's already making a stop at our customer. And, uh, and now instead of picking up 1 shipments passed and how, uh, you know, our volumes can accelerate so quickly on the, the front end of uh, the inflecting economy and and that's what we'd expect to see.
Uh, whenever this economy does eventually turn around, it's like back to the positive.
Jack Atkins: Our next question will come from Reetra Harnain with Deutsche Bank. Please go ahead.
Our next question will come from Recha Harna with Deutsche Bank. Please go ahead.
Marty Freeman: Hey, gentlemen. Thanks for the time. So, you know, I appreciated all the color around your positioning being as strong as it's ever been to respond to an improving environment. And, you know, the OD model really makes hay when the sun is shining. so maybe you can talk to us. I get that, you know, we're a little reticent to speak to some of the green shoots, given all the headaches you've had. But just customer conversations, you talked about maybe fatigue on the tariff side, you know, reactions to the recent bill that passed in Washington to spur growth, interest rate cuts. Like, what are shippers telling you about their appetite to give you more business, in the future?
Marty Freeman: And then if you can maybe parse out kind of what industries you're maybe more optimistic about versus industries where you're really seeing more malaise set in or more negative trends. Thanks.
Wyatt: Yeah, I think that, it's been the uncertainty that's been hanging out there, over the economy that I think has resulted in, just a lack of of freight volumes overall. You know, again, I mentioned, industry volumes are down about 15% from from where we were, back in '21, '22. So, you know, it's something that that everyone's had to to contend with. But, you know, I think we we saw, kind of going back to the fall of last year, we saw, some initial optimism with respect to the industrial economy. And, you know, 55 to 60% of our revenue is industrial-related. So that's important to us. And, you know, we saw that acceleration in the ISM, in December. And then, you know, it was positive for a couple of months. But then, you know, all the the tariff conversation started.
Gentlemen, thanks for the time. So um you know I appreciated all the color around your positioning being as strong as it's ever been to respond to an improving environment and you know, the OD model really makes hay when the sun is shining. Um, so maybe you can talk to us. I get that, you know, we're a little reticent to speak to some of the green shoots given all the headaches you've had, but just customer conversations. Um, you talked about maybe fatigue on the Tariff side, um, you know, reactions to the recent bill that passed in Washington to Spur growth, interest rate Cuts, Like what are shippers telling you about their appetite to give you more business, um, in the future. And then if you can, maybe parse out kind of what industries, you're maybe more optimistic about versus Industries where you're really seeing more Malay set in or more negative Trends. Thanks.
yeah, I think that um, it's
Been the uncertainty that's been hanging out there. Um, over the economy that I think is has resulted in uh just the lack of of freight volumes overall. You know, again I mentioned uh industry volumes are down about 15% from from where we were back in in 2122 so you know it's something that that everyone's had the the contend with but you know, I think we we saw kind of going back to the fall of last year.
Wyatt: And then that just created, more uncertainty, that that seemed to to kind of throw, you know, cold water on on what was developing at the time. And, you know, it's hard from a pure manufacturer, for example, to to figure out, what the cost structure is going to be when you don't really know, what the final tariff, cost might be. And so I think that's something that we've had a lot of of customers trying to figure out and solve for. And in some cases, you know, you just try to to wait things out. And, and so that's why we've we've got a little cautious optimism now that, you know, we've seen the the tax bill, be finalized. And the bonus depreciation is something that I think can spur, some further investment here.
Here we saw uh some initial optimism with respect to the industrial economy and you know, 55 to 60% of our revenue is industrial related so that's important to us and and we saw that acceleration in the ism um in December. And then, you know, it was positive for a couple of months, but then, you know, all the the Tariff conversation started and then that just created, um, more uncertainty, uh, that that seemed to, to kind of throw, um, you know, cold water on on what was developing at the time. And, you know, it's hard from, uh, if you're a manufacturer for example, to to figure out, um, what the cost structure is going to be, when you don't really know what the final tariff, uh, cost might be. And so, I think that's something that we've had a lot of of customers trying to figure out and solve for. And, in some cases, um, you know, you just try to, to wait things out and, and so that's why we we've got a little cautious optimism. Now that, um, you know, we've seen the the tax bill
Wyatt: if we start seeing some trade deals, come to fruition, you know, that'll be something that, you know, provides a little bit more confidence, for customers. And, and I think, you know, the final piece will be, do we get, some relief on on interest rates? And so customers that are going through, you know, all of of of their financials and figuring out, do they invest or not, and what kind of return can they expect, on their investment? You know, all those, once you get clarity on those big-picture items, I think that's what it's going to take to to really kind of spur the the economy forward. So we feel like we're closer to that, now that we're getting clarity on some of these items.
Uh, be finalized and the bonus depreciation is something that I think can spur uh some further investment here. Uh, if we start seeing some trade deals, uh, come to fruition, you know, that'll be something that, uh, you know, provides a little bit more confidence uh for customers. And and I think, you know, the final piece will be, do we get some relief on on the interest rates? And so customers that are going through, uh, you know, all of of, of their financials and figuring out, do they invest
Wyatt: And, and, you know, but we we want to turn that feeling into to true freight and, and see it coming on board. And, you know, I mentioned that we're seeing a little bit better performance right now in in July. and we'll just continue to watch and see. Does that really, you know, manifest into to seeing some sequential improvement, versus just, you know, what our business has been like for the last three years of of kind of flattish to to down month over month?
I mentioned that we're seeing a little bit better performance right now in in July, uh, and we'll just continue to watch and see does that really um, you know, manifest and to seeing some sequential Improvement? Uh, versus just, you know what our business has been like for the last 3 years of of kind of flattish to to down month over month?
Jack Atkins: Thank you. Our next question will come from Stephanie Moore with Jefferies. Please go ahead.
Thank you. Our next question will come from Stephanie Moore with Jeffrey's please. Go ahead.
Marty Freeman: Hi. Good morning. Thanks, guys. just one real quick here. You know, look, you know, any thoughts on where, you know, the LTL industry fits in in general with this potential transcontinental railroad, or potentially two. Obviously, most are talking about, these deals, you know, or deal impacting long-haul truckload. But where does LTL fit here at all? Would love your perspective. Thanks.
Hi, good morning, thanks guys. Um, just 1 real quick here. You know. Look you know any thoughts on where you know the LTL industry fits in in general with this potential Transcontinental Railroad or potentially 2 obviously most are talking about um these deals, you know, or deal impacting, Long Haul truck, truck truck load. But where does LTL fit here at all? I would love your perspective. Thanks.
Wyatt: Yeah, I don't know that that I would expect to see, you know, any material, impact on on LTL, overall. I mean, it's something that it could be ultimately downstream. It's something we'll continue to watch and and engage with customers on. But, you know, I think that's that's kind of on the other end of the supply chain. And, you know, not not necessarily seeing changes with respect to to the rail industry kind of filter down to where we can find a correlation to, to any changes in in our business levels.
Yeah, I don't know that that I would expect to see, uh, you know, any material impact on on the LTL overall, uh, I mean that's something that it could be ultimately Downstream and something we'll continue to watch and, and engage with customers on. But, you know, I think that's, that's kind of on the other end of the supply chain and, um, you know, not not necessarily seeing changes with respect to to the rail industry, kind of filter down to where we can find a correlation to uh, to any changes in in our business levels.
Jack Atkins: Thank you. Our next question will come from Ari Rosa with Citigroup. Please go ahead.
Thank you. Our next question, will come from Ari, Rosa, with Citi group, please go ahead.
Adam Satterfield: Hey, good morning, gentlemen. so I know in reference to Bascom's question, you mentioned the normal seasonal trends from third quarter to fourth quarter. I was just wondering, it's been such a weird year. we've obviously seen some some abnormal seasonal trends so far year to date. I'm wondering how you think about your ability to outperform normal normal sequential trends, I guess, as as we move into the back half of the year, especially in the fourth quarter. And then also how the the wage increases play into that and kind of how much discretion you have around that and what's what's kind of planned, how much how much pressure that puts on the OR. Thanks.
Hey, good morning gentlemen. Uh so I know in reference to baskets question. You mentioned the normal seasonal Trends from third quarter, fourth quarter. I was just wondering, it's been such a weird year. Uh, we've obviously seen some some abnormal seasonal Trends so far year to date. I'm wondering how you think about your ability to outperform normal normal, sequential Trends I guess as as we move into the back, half of the Year, especially in the fourth quarter and then also how the the wage increases play into that and kind of how much discretion you have around that. And what, what's, what's kind of plan? How much, how much pressure that puts on the? Oh, thanks.
Wyatt: Yeah, I mean, obviously, our costs will be going up, with respect to to the wage increase. And, and that's part of, of, you know, what we normally see, that 200 to 250 basis point, deterioration from the the third to the the fourth quarters. you know, you get one month of it in, third quarter, and then you've got the full quarter effect, in fourth quarter. But that's, you know, it's usually a point, a point and a half, type of increase. If you look at that 2, 250 change, you know, that's going to be a a big driver there. And, but, you know, to keep sounding like a broken record, I think it's just going to be revenue-dependent.
Wyatt: you know, the the fourth quarter, if we can kind of continue to to maintain, our revenue, per shipment or, and not revenue per shipment, but just revenue per day, rather, you know, in the the same realm of of where we are, you know, we'll continue to to manage our costs, like we have. And, I think by the fourth quarter, I would, hope to see, some of this, increase that we've had in overall cost, overhead cost, rather, start to to, come in a little bit. And, and so, you know, those are some other things that that can help. But, you know, it's just continuing to to manage our costs, manage our operating efficiencies, which our team is doing a great job of kind of mentioned, before. We're controlling our our variable cost. we got to continue to do that.
Yeah, I mean, obviously, um, our costs will be going up, um, with respect to to the wage increase. And and that's part of of, you know what, we normally see that 200 to 250 basis point, uh, deterioration from the the third to the, the fourth quarters. Um, you know, you get 1 month of it in, um, third quarter and then you got the full quarter effect, uh, in 4 q. But that's, you know, it's usually a point, a point and a half, uh, type of increase. If you look at that 2, 250, uh, change. You know, that's going to be a big driver there. And, uh, but you know, to keep sounding like a broken record, I think it's just going to be Revenue dependent. Uh, you know, the, the, the fourth quarter
Wyatt: And, you know, typically, you see volumes a little bit softer, in fourth quarter. So it just presents even more of a challenge to our ops team. but we just got to continue to stay disciplined, really, throughout all areas of the operation. And, you know, and everybody's got to to participate. And we got to continue to, manage our discretionary spending and, and, and think through if if we're spending a dollar, you know, what is the the purpose behind it? And, you know, is it going to improve customer service? Is it going to help us over the long term?
Um if we can kind of continue to to maintain um our Revenue per shipment or and not Revenue per shipment, but just Revenue per day, rather um you know, in the same realm of of where we are, you know, we'll continue to to manage our costs uh, like we have and uh, I think by the fourth quarter, I would uh, hope to see uh, some of this increase that we've had in overall cost overhead cost rather um, start to to come in a little bit. And uh, and so, you know, those are some other things that that can help but, you know, it's just continuing to to manage our costs manage your operating efficiencies which our team is doing a great job of kind of mentioning uh before we're controlling our our variable cost. Um, we got to continue to do that and you know, typically you see volumes a little bit softer uh in 4 q. So just presents even more of a challenge to your Ops Team, uh, but we just got to continue to stay disciplined, really throughout all areas of the operation. And, uh,
Wyatt: And, and those types of investments we're willing to make, you know, even though we're we're trying to protect the the short term, we've really got to think, and we do think, bigger picture and longer term for what's what's going to be to the the best benefit of of OLD DOMINION, over the long run. And, and that's why you've continued to see us, you know, make investments and continue to execute, on our our CapEx program. And, you know, I've mentioned this three-year down cycle. By by the end of this year, we'll have spent probably close to $2 billion on capital expenditures. And, you know, to do so in a a soft environment, that's created its fair share of of cost headwinds, but it's something that we've managed through.
You know, and everybody's got to to participate and we got to continue to uh manage our discretionary spending and and uh and think through if if we're spending a dollar you know, what is the the purpose behind it and um you know, is it going to improve customer service? Is it going to help us over the long term and and those types of Investments? We're willing to make, you know, even though we're we're trying to protect the the short term. Um we really got to think and we do think bigger, pitcher and longer term for what's, what's going to be to
Wyatt: And I think we'll be happy that we've done these when we get on the other side of this economy. And you'll see the the leverage that can come through, just like what we saw, in the second quarter for, you know, that short-term benefit.
Ted wins. But it's something that we've managed through and I think we'll be happy that we've done these when we get on the other side of this economy and you'll see that the leverage that can come through, uh, just like what we saw in the second quarter for, you know, that short-term benefit
Jack Atkins: Thank you, Mr. Rosa. This will conclude our question and answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks.
Thank you, Mr. Rosa
This will conclude our question-and-answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks.
Wyatt: All right. Well, thank you all for participating today. We appreciate your questions. And feel free to call us if you have anything further. Thanks. And have a great day.
All right. Well thank you all for uh participating today we uh appreciate your questions and uh feel free to to call us if you have anything further. Thanks and and have a great day.
Jack Atkins: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect