Q2 2026 Old Dominion Freight Line Inc Earnings Call
Speaker #1: Morning, and welcome to the Old Dominion freight line, Q2 2026 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 0.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad.
Speaker #1: To withdraw your question, please press star, then 2. Please note: this event is being recorded. I would now like to turn the conference over to Jack Atkins, Director Investor Relations.
Speaker #1: Please go ahead.
Speaker #2: Thank you, operator, and good morning, everyone. Welcome to the Q2 2026 conference call for Old Dominion freight line. Today's call is being recorded and will be available for replay beginning today through August 5, 2026, by dialing 1-855-669-9658, access code 8521187.
Speaker #2: The replay of the webcast may also be accessed for 30 days on our 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.
Speaker #2: For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", and similar expressions are intended to identify forward-looking statements.
Speaker #2: You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release.
Speaker #2: 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.
Speaker #2: Finally, before we begin, we welcome your questions today, but ask that you limit yourselves to just one question at a time before returning to the queue.
Speaker #1: Good morning, and welcome to the OLD DOMINION FREIGHT LINE, second quarter 2026, 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.
Speaker #2: Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to our president and chief executive officer, Marty Freeman.
Speaker #2: Marty, please go ahead.
Speaker #3: Good morning, and welcome to our Q2 conference call. With me today on the call is Adam Satterfield, our CFO. And after some brief remarks, we would be glad to take your questions.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad.
Speaker #3: Old Dominion produced strong results in the Q2, which include a 10.4% increase in revenue, and a $450 basis point improvement in our operating ratio.
Speaker #1: To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Jack Atkins, Director Investor Relations.
Speaker #3: In addition, our Q2 earnings per diluted share increased 32.3% to $1.68, which matched our previous company record that we set in the Q3 of 2022.
Speaker #1: Please go ahead.
Speaker #3: These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution. While the difficult operating environment over the past few years presented us with a number of challenges, including lower network density and inflationary cost pressures, we continued to diligently execute on our fundamental aspects of our long-term strategic plan and invest for the future.
Thank you, operator, and good morning, everyone. Welcome to the second quarter 2026 conference call for all Dominion Freight Line, today's call is being recorded and will be available for replay. Beginning today, through August 5th, 2026 by dialing 1, 855 6699658 access code 8521187. The replay of the webcast may also be accessed for 30 days on our website.
Speaker #3: The strength of our Q2 results demonstrates the benefits of this strategy. While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price.
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 are not statements of historical fact may be deemed to be forward-looking statements.
Speaker #3: That was the case again in the Q2, when we provided our customers with 99% on-time service and a claims ratio of 0.1%. In addition, we have made approximately 1,000 lane adjustments this year that improved our service standard transit times.
Without limiting the foregoing, the words 'believes,' 'anticipates,' 'plans,' 'expects,' and similar expressions are intended to identify forward-looking statements.
You Were Here by caution that these statements may be affected by the important factors. Among others set forth in all Dominion's filings with the Securities and Exchange Commission. And in this morning's news release.
Speaker #3: Our team continues to leverage their experience and new technologies to further improve our service standards, and overall value proposition for our customers. Our customers rely on us to keep their promises to them by picking up and delivering their freight on time and without damages, so that they can keep their commitments to their own customers.
Consequently actual operations, and results May differ, materially from the results, discussed to the 4 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.
Finally, before we begin, we welcome your questions today, but ask that you limit yourselves to just one question at a time before returning to the queue.
Thank you for your cooperation.
Speaker #3: Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry.
At this time, for opening remarks, I would like to turn the conference over to our President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.
Speaker #3: That is why it is critical, despite a prolonged period of softness in the domestic economy, to continue to make the key long-term investments in our network, our technology, and our people, so that we can now continue to deliver best-in-class service as the operating environment changes.
Good morning, and welcome to our second quarter conference call. With me today on the call is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions.
Old Dominion produced strong results in the second quarter, which include a 10.4% increase in revenue and a 450-basis-point improvement in our operating ratio.
Speaker #3: Consistently providing our customers with superior customer service is the cornerstone of our strategic plan, and doing so supports our yield management initiatives, our discipline approach to pricing, which focuses on individual account-level profitability, is designed to offset our cost inflation over the long term, and support reinvestment back into our business.
In addition, our second quarter earnings per diluted share increased 32.3% to $1.68.
Which M matched our previous company record that we set in the third quarter of 2022.
Speaker #3: Our ability to take a long-term approach to our investments in our network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities.
These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution.
Speaker #3: Our strategic plan has worked through many economic cycles, but that said, our greatest opportunity is to win market share, often come when industry capacity is generally limited and the domestic economy is strong.
While the diff difficult operating environment over the past few years, presented us with a number of challenges, including lower Network density and inflationary cost pressures. We can continue to diligently execute on our fundamental aspects of our long-term, strategic plan and invest for the future.
The strength of our second quarter results demonstrates. The benefits of this strategy.
Speaker #3: The domestic economic environment remains relatively stable and we are encouraged by the continued improvement in demand that began late last year. In addition, based on feedback we have received from our customers, we believe that our superior service is increasingly differentiating Old Dominion within our industry and providing opportunities for incremental growth.
While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price.
Speaker #3: We reported strong Q2 results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan. We return to revenue growth in the quarter and produce strong operating leverage on our incremental revenue.
Our team continues to leverage their experience in new technologies to further. Improve our service standards and overall value proposition for our customers.
Speaker #3: In addition, because of our consistent investments in our network and our people, we of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes.
Our customers rely on us to keep their promises to them by picking up and delivering their Freight on time and without damages so that they can keep their commitments to their own customers.
Speaker #3: As a result, we are confident in our ability to win market share and produce profitable revenue growth, which we believe will generate increased value for our shareholders over the long term.
Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry.
Speaker #3: Again, thank you for joining us this morning, and now Adam will discuss our Q2 in greater detail. Adam?
Speaker #4: Thank you, Marty, and good morning. Old Dominion's revenue increased 10.4% to $1.55 billion for the Q2 2026, while our operating ratio improved 450 basis points to 70.1%.
That is why it is critical despite a prolonged period of softness in the domestic economy to to continue to make the key long-term investments in our Network, our technology and our people, so that we can now continue to deliver best-in-class service as the operating environment changes.
Speaker #4: The combination of these factors resulted in a 32.3% increase in our earnings per diluted share to $1.68. We were pleased to return to revenue growth in the Q2, which included an increase in our yield and an improving trend with our volumes.
Consistently providing our customers with superior customer service is the cornerstone of our strategic plan, and doing so supports our yield management initiatives. Our disciplined approach to pricing, which focuses on individual account-level profitability, is designed to offset our cost inflation over the long term and support reinvestment back into our business.
Speaker #4: Our revenue results include a 15.2% increase in LTL revenue per hundred-weight, which was partially offset by a 4.1% decrease in our LTL tons per day.
Our ability to take a long-term approach to our investments in our Network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities.
Speaker #4: Excluding fuel surcharges, our LTL revenue per hundred-weight increased 5.5% due to our continued focus on revenue quality during the quarter. On a sequential basis, our revenue per day for the Q2 increased 14.6% when compared to the Q1 of 2026, with LTL tons per day increasing 4.0% and LTL shipments per day increasing 3.2%.
Our strategic plan has worked through many economic cycles. That said, our greatest opportunities to win market share often come when industry capacity is generally limited and the domestic economy is strong.
The domestic economic environment remains relatively stable, and we are encouraged by the continued improvement in demand that began late last year. In addition, based on feedback we have received from our customers, we believe that our superior service...
Speaker #4: For comparison, the 10-year average sequential change for these metrics, including an increase of 7.1% in revenue per day, an increase of 4.4% in LTL tons per day, and an increase of 5.2% in LTL shipments per day.
Is increasingly differentiating Old Dominion within our industry and providing opportunities for incremental growth.
Speaker #4: The monthly sequential change in LTL tons per day during the Q2 were as follows: April decreased 2.8% as compared to March, May increased 3.0% as compared to April, and June increased 0.9% as compared to May.
We reported strong second quarter results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan. We returned to revenue growth in the quarter and produced strong operating leverage on our incremental revenue. In addition, because of our consistent investments in our network and our people,
Speaker #4: The comparative 10-year average change for these respective months is a decrease of 0.9% in April, an increase of 2.2% in May, and an increase of 1.7% in June.
We have all the necessary elements of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes. As a result, we are confident in our ability to win market share and produce profitable Revenue growth, which we believe will generate increased value for our shareholders, over the long term.
Speaker #4: While there are still a few workdays remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July of 2025.
Again, thank you for joining us this morning. Now, Adam will discuss our second quarter in greater detail. Adam,
Thank you, Marty, and good morning.
Speaker #4: This includes an increase in our LTL revenue per hundred-weight that is partially offset by a decrease in our LTL tons per day of approximately 1.0%.
All the meanings of Revenue increase 10.4% to 1.55 billion dollars for the second quarter 2026.
While our operating ratio improved 450 basis points to 70.1%.
Speaker #4: Although our tons per day are slightly lower than July of last year, the sequential change from June of 2026 is significantly better than our normal seasonality.
The combination of these factors resulted in a 32.3% increase in our earnings per diluted, share to 1.68 cents.
Speaker #4: The increase in July's LTL revenue per hundred-weight, excluding fuel surcharges, is currently tracking below the Q2 growth rate of 5.5% due primarily to changes in the mix of our freight.
We were pleased to return the revenue growth in the second quarter, which included an increase in our yield and an improving Trend with our volumes.
Our Revenue results include a 15.2% increase in LTL Revenue per 100 weight, which was partially offset by a 4.1% decrease, in our LTL tons per day.
Speaker #4: As a result, I am currently anticipating an improvement in this metric for the Q3, a 4 to 4.5%. To be clear, this is a positive trend for our company, as it reflects the continued increase in our weight per shipment.
Excluding fuel s charges, our LTL Revenue per 100 weight, increased 5.5% due to our continued, focus on Revenue quality during the quarter.
Speaker #4: We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry.
Speaker #4: As usual, we will provide the actual revenue-related details for July in our Q2 Form 10-Q. Our operating ratio improved 450 basis points to 70.1% for the Q2 of 2026, with improvements in both our direct operating cost and our overhead expenses as a percent of revenue.
On a sequential basis, our Revenue per day for the second quarter increased 14.6%. When compared to the first quarter of 2026 with LTL tons per day, increasing 4.0% and LTL shipments per day, increasing 3.2%
For comparison, the 10-year average sequential change for these metrics includes an increase of 7.1% in Revenue per day.
An increase of 4.4% in LTL tons per day.
And an increase of 5.2% in LTL shipments per day.
Speaker #4: Within our direct operating cost, improvements in our salaries, wages, and benefits, as a percentage of revenue, more than offset an increase in our operating supplies and expenses.
The monthly sequential change in LTL, tons per day during the second quarter were as follows.
April decreased 2.8% compared to March.
Speaker #4: This increase in operating supplies and expenses was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. The improvement in our overhead cost as a percent of revenue was partially due to the change in our net miscellaneous income and expense.
May increase 3.0% as compared to April and June increased 0.9% as compared to May.
Speaker #4: This line item included 17.2 million dollars of net gains on the disposal of property and equipment during the current quarter. In addition, we also saw improvements in a number of other overhead expenses due to the leverage gain from the increase in revenue, as well as a continued focus on controlling our discretionary spending.
An increase of 2.2% in May and an increase of 1.7% in June.
While there are still a few workdays remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July of 2025.
Speaker #4: Old Dominion's cash flow from operations totaled $272.7 million for the Q2, and $646.3 million for the first six months of 2026, respectively, while capital expenditures were $77.0 million and $139.6 million for those same periods.
This includes an increase in our LTL revenue per hundredweight. That is partially offset by a decrease in our LTL tons per day of approximately 1.0%.
Although our tons per day are slightly lower than July of last year, the sequential change from June of 2026 is significantly better than our normal seasonality.
Speaker #4: As announced in our release this morning, we increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year.
The increase in July is LTL Revenue per 100 weight, excluding fuel search charges
is currently tracking below the second quarter growth rate of 5 and a half percent due primarily to changes in the mix of our freight.
Speaker #4: The $115 million increase from our original plan includes an additional $60 million for tractors and trailers and an additional $55 million for real estate and service center expansion projects.
As a result, I'm currently anticipating an improvement this metric for the third quarter of 4 to 4 and a half percent.
Speaker #4: While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan.
To be clear, this is a positive trend for our company, as it reflects the continued increase in our weight per shipment.
We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry.
Speaker #4: We utilized $151.6 million and $239.7 million of cash for our share repurchase program during the Q2 and first six months of 2026, respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods.
As usual, we will provide the actual Revenue related details for July and our second quarter form 10q.
Our operating ratio improved 450 basis points to 70.1% for the second quarter of 2026 with improvements in both our direct operating cost and our overhead expenses as percent of Revenue.
Speaker #4: Our effective tax rate for the Q2 of 2026 was 25.0% as compared to 24.8% in the Q2 of 2025, and we currently expect our effective tax rate to be 25.0% for the Q3 of 2026.
Within our direct opportunity cost improvement center, salaries, wages, and benefits as a percentage of revenue more than offset an increase in our operating supplies and expenses.
This increase in operating supplies and expenses was primarily due to the rise in the cost of diesel fuel and other petroleum-based products.
Speaker #4: This concludes our prepared remarks this morning. Operator will be happy to open the floor for any questions at this time.
Speaker #1: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
The improvement in overhead costs as a percent of revenue was partially due to the change in our net miscellaneous income and expense,
This line item included 17.2 million dollars of net gains on the disposal of property and Equipment during the current quarter.
Speaker #1: To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jonathan Chappelle with Evercore ISI.
In addition, we also saw improvements in a number of other overhead expenses due to the leverage gain from the increase in Revenue as well as a continued. Focus on controlling our discretionary spending
Speaker #1: Please go ahead.
Speaker #4: Thank you. Good morning. I had them a lot of volatility from month to month as we look at seasonality in your 10-year averages. Obviously, a lot better in May, maybe a little slower in June.
Our cash flow from operations totaled $272.7 million for the second quarter and $646.3 million for the first six months of 2026, respectively.
While capital expenditures were $77.0 million and $139.6 million for those same periods.
Speaker #4: Can you just speak to the overall demand environment as we think about July trending from here? And also to the extent that you can kind of put a pin on it, we've been hearing a lot about freight shifting from a tight TL market to an LTL market.
As announced in our release this morning, we increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year.
Speaker #4: Are you seeing that and kind of where do you think you stand as far as the "innings" of that transition?
Speaker #2: Yeah. I think to start with that first, I still think we're in the early innings. We're hearing some of that from customers, but I haven't really seen the big weight per shipment change within certain categories.
The 115 million increase from our original plan, includes an additional $60 million to protractors and trailers and an additional 55 million for real estate and Service Center expansion projects.
Speaker #2: Particularly with the repeal managed business that you would see when there's a major inflection going on with the truckload spillover one way or the other.
While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan.
Speaker #2: So I still think that there's probably a lot left to go with that renormalization there, if you will. But I expect that will continue as the truckload rate environment continues to be really strong.
Speaker #2: Overall for us, demand continues to improve. I'm happy with a lot of the trends that we're seeing and you're right. I think that it's choppy month to month when you look at our sequential growth versus our 10-year average trends, but that's not uncommon.
We utilized $151.6 million and $239.7 million of cash for our share repurchase program during the second quarter and first six months of 2026, respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods.
Speaker #2: When you get in periods like this, there have been certain months where we've just significantly outperformed. The 10-year average and then the next month might be a little bit softer.
Our effective tax rate for the second quarter of 2026 was 25.0% as compared to 24.8%. And the second quarter 2025, we currently expect our effective tax rate to be 25.0% for the third quarter of 2026.
This concludes our prepared remarks. At this time, the operator will be happy to open the floor for any questions.
Speaker #2: And so forth. And that's kind of the way the Q2 shaped up. We had a really strong February and March, and then the April was softer than the 10-year average, but then we kind of climbed out of that.
We will now begin the question and answer session.
to ask a question, you may press star then 1 on your telephone keypad,
Speaker #2: And essentially brought the full quarter sequential trend back to right there at what the normal quarter would be. But I've looked at if you went back to the beginning of this year and normal seasonality, if you just played it out month by month, in July, we're handling probably about 3 million pounds more per day than we would if normal seasonality had played out.
If you're using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star, then 2.
At this time, we will pause momentarily to assemble our roster.
Our first question today is from Jonathan Chappelle with Evercore ISI. Please go ahead.
Speaker #2: So to me, I think we're obviously outperforming at this rate. For full seasonality, and I think we're just in the early stages of the economy getting going again.
Speaker #2: With where ISM has just been in the low 50s is not really had a big breakout yet, and I still think there's a lot of room to rum when you look at things like some of the inventory to sales ratios as low as that is.
Speaker #2: And that's somewhat reconciled with feedback we've heard from customers about the need for restocking and so forth. So I'm really excited about where we are, but more excited about the opportunities that lay ahead to carry some momentum through the balance of this year, into '27 as well.
Um, Adam a lot of volatility for month-to-month as we look at, um, you know, seasonality and and your 10 year averages, obviously, a lot better in May, maybe a little silver in June. Um, can you just speak to the overall demand environment? Uh, as we think about July trending from here and also to the extent that you can kind of put a pin on it, um, we, we've been hearing a lot about, you know, Freight shifting from a tight to Market, to an LTL Market. Are you seeing that and, and kind of, where do you think you stand? As far as Like, the quote unquote ending of that, uh, transition
Speaker #4: Thanks, Adam.
Speaker #1: The next question is from Chris Weatherby with Wells Fargo. Please go ahead.
Speaker #5: Yeah. Hey, thanks. Good morning. Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics. For the forward quarter and the past, I was wondering if you could help us a little bit with that.
Speaker #5: Obviously, the Q2 from an OR perspective does have the gain in it. So maybe just some thoughts on how you think about revenue opportunity in the Q3 and also the operating ratio.
Yeah, I think to, to start with that first, uh, I still think we're in the early Innings. We're, we're hearing some of that, uh, from customers, but I haven't really seen the big weight for shipment change, uh, within certain categories, uh, particularly with 3o manage business, that you would see when there's a major inflection, uh, going on with the truckload spillover, 1 way, or the other. Um, so I, I still think that there's probably a lot left to, to go with, with that renormalization there, if you will, uh, but I expect that will continue as the truckload rate environment, uh, continues to, to be really strong.
Speaker #2: Yeah. I'll just maybe answer one of those and leave the other for someone else's follow-up. But maybe just to start with the top line, because having always given revenue guidance, but I think it's probably appropriate, especially with some of the volatility that we've had with fuel and I guess to start, the July revenue growth rate of 7.5 to 8%, that includes sequential change in tonnage that significantly better than the 10-year averages I mentioned.
Uh, overall, for us demand continues to improve, um, happy with a lot of the trends that we're seeing and you're right, you know, I think that, uh, it's choppy month to month when you look at our sequential growth versus our 10 year average, uh, Trends, but that's not uncommon. Uh, when you get in periods, like this, there have been certain months where we've just significantly outperformed
Speaker #2: And just put some context around that, the tons per day. Right now, as sequentially down about half a percent, the 10-year average is down 3%.
Speaker #2: So seeing really strong performance there. I think that if we can carry momentum through the rest of the quarter and may see some of this choppiness that I just spoke about in either August or September, but I think if we can just carry some of this momentum forward, maybe would think that we can get a 10% increase in revenue for the full quarter.
Speaker #2: So bring that growth rate up. And that would put the absolute number at about 1.54, 1.55 billion for the full quarter. And obviously, we give our mid-quarter update, so we'll be able to track along with that the entire time.
Uh, the the tenure average and then the next month might be a little bit softer and so forth. And that's kind of the way the second quarter shaped up. You know, we had a really strong February and March, uh, and then the April was softer than the tenure average, but then we kind of climbed out of that and essentially brought the the full quarter sequential Trend back to right there at what the normal uh quarter would be. But, you know, I've looked at at, uh, if you went back to the beginning of this year and normal seasonality, if you just played it out month by month, uh, in July, we're handling. Probably about 3 million pounds more per day, uh, than we would if normal seasonality had played out. So, you know, to me, I think we're, um, obviously outperforming at this rate, uh, for full seasonality and uh, and I think we're just in the early stages of the economy getting going again. Uh, with where ISM has just been in the low 50s. You know, it's not really had a big breakout yet and I still think there's
Speaker #2: But conservatively, if we carry that same 7.5 to 8% growth rate, that'd be about a billion 52 for the full quarter. But I'm kind of as a baseline, what I'm anticipating for fuel is assuming that we're going to see stability.
Speaker #2: It had stabilized for a bit during the Q2, it's reinflected back positive, but I would like to think that we see some resolution there and have fuel that maybe trims back down and we'll see that more in the or my baseline is 4.95 as an average per gallon for the full quarter.
There's a lot of room to, to run when you look at things, like some of the inventory to sales ratios as low as that is and that that's somewhat reconciles with feedback. We've heard from customers about, uh, the need for restocking and so forth. So you know, really excited about where we are. But but, you know, more excited about the opportunities that lay ahead to uh carry some momentum through the bounce of this year into 27, as well.
Thanks Adam.
The next question is from Chris Weatherbee with Wells Fargo. Please go ahead.
Speaker #2: But we'd like to see that come under control which I think will be a net positive for the overall economy.
Speaker #5: Okay. That's helpful. Appreciate it.
Speaker #1: The next question is from Jordan Aliger with Goldman Sachs. Please go ahead.
Yeah, hey, thanks. Uh, good morning. Um, you know, Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics for the forward quarter in the past. I was wondering if you could help us a little bit with that. Obviously, the second quarter, from an OR perspective, does have the gain in it, so maybe just some thoughts on how you think about, you know, revenue opportunity in the third quarter and also the operating ratio.
Speaker #3: Yeah. Hi, good morning. I guess I'll follow up on the going from revenue to the sequential OR thoughts and I guess if you could just let us know if that would be off of the reported OR or any adjustments related to that net property gain.
Speaker #3: Thank you.
Speaker #2: Yeah. I figured that would be close on the heels Jordan, but obviously the 10-year average change, for us at least, is for the Q3 operating ratio to be flat or up 50 basis points from the Q2.
Speaker #2: And I think we can essentially hit our normal seasonality, but you do have to sort of add back some of the items to normalize what that Q3 operating ratio would be.
Speaker #2: And the biggest of which is obviously the big gain that we had on property sales. During the quarter. So kind of with some of those things in mind, I would say normalized overall increase off the 70.1 would be an increase of about 150 to 200 basis points from the second to the third quarter.
Yeah, I'll just uh maybe Answer 1 of those and and leave the other for someone else to follow up. But, you know, maybe just to start with the Top Line because I haven't always, um, given Revenue guidance. But, you know, I think it it's probably appropriate especially with some of the volatility that we've had with fuel and, you know, I guess to start, uh, you know, the, the July Revenue growth rate of 7 and a half to 8%, uh, you know, that that includes sequential change in tan is the significantly better than the, the tenure averages I mentioned. And just put some context around that, uh, the tons per day, uh, right now is sequentially down about half a percent. The tenure average, uh, is down 3%. So you know, seeing really strong performance there. Uh, I think that you know, if we can carry momentum through the rest of the uh the quarter. And you may see some of this choppiness that I just spoke about um you know, and either August or September. But I think if we can just carry some of this momentum forward you know, maybe a
Speaker #3: Thank you.
Speaker #1: The next question is from Tom Waterless with UBS. Please go ahead.
Speaker #6: Yeah. Good morning. So Adam or Marty, I wanted to get your thoughts on maybe what's happening with service and capacity in the market. I think there have been some data points or feedback that there are maybe a couple pretty good-sized carriers that have hit some embargoes in the Midwest and capacity constraints.
Would think that we can get to a 10% increase in revenue for the full quarter. So bring that growth rate up, and that would put the absolute number at about $1.54 billion. You know, conservatively, if we carry that same 7.5% to 8% growth rate, that'd be about $1.052 billion.
Speaker #6: I've also heard feedback about LTL driver market getting a bit tighter or a little harder to hire drivers. So maybe more of a connection with truckload than I would have expected.
Speaker #6: But what are you seeing in terms of is are you also observing that and is that starting to have an effect on your business in terms of maybe some shipments coming over to you that might even affect July, but just kind of like if you think that's happening and then how quickly that or how much that might affect you and what you see in your shipments and your pricing?
What I'm anticipating for fuel is assuming that we're going to see stability, you know. It has stabilized for a bit during the second quarter. Uh it's reinforced it back positive but I would like to think that we see some resolution there and have fuel that uh, maybe trims back down and and we'll see that more in the or my Baseline is 495 is an average per gallon for the the full quarter. Uh, but we'd like to see uh, that come under control, which I think will be a net positive for the overall economy.
Okay, that's helpful. Appreciate it.
Speaker #6: Thank you.
Speaker #2: Good question. First of all, we're not having any capacity issues whether it be with equipment or drivers or real estate. But you are correct.
The next question is from Jordan Allure. With Goldman Sachs, please go ahead.
Speaker #2: We are hearing some talk about some of our competitors having problems picking up at the end of the month. And we have seen some of that freight move over temporarily.
Yeah, hi. Uh, good morning I guess I'll follow up uh on the going from revenue to the sequential or thoughts. And um I guess if you could just let us know if that would be off of the reported or any adjustments related to that net property again, thank you.
Speaker #2: And if we get a major inflection in the economy, I think we'll see it daily. But yes, we are hearing that. So and I think some of that is Adam alluded to earlier, could be coming from the full truckload industry some of that freight starting to spill back over in a small way to the LTL environment.
Speaker #2: So I think that's a double whammy for us.
Yeah, I figured that would be, uh, close on the heels, uh, Jordan. But, um, you know, obviously the, the 10 year average change, uh, for us, at least is for the third quarter, operating ratio to be flat or up 50 basis points, uh, from the second quarter and, you know, I think we can essentially hit our our normal seasonality, but you do have to um, sort of add back some of the items uh to normalize what that third quarter operate ratio would be, and the biggest of which is obvious
Speaker #6: So you think that's maybe boosting July or was that happening earlier in the quarter?
Speaker #2: Yeah. I mean, I think it's been happening. We've heard it earlier in the year and look, this is a big part of our value proposition is always having capacity and it's not just the service center capacity.
Obviously, the, the big gain that we had on property sales, uh, during the the quarter. So kind of, with some of those things in mind, I would say, uh, normalized overall increase off the 70.1 would be an increase of about 150 to 200 basis points, uh, from the second to the third quarter.
Speaker #2: It's having trailing equipment where you can spot trailers at our customers' doors, particularly end of month, end of quarter. But having driver capacity as well.
Thank you.
The next question is from Tom Waterless with UBS. Please go ahead.
Speaker #2: And as Marty said, we've got plenty of capacity across all of those three major elements. And I think when other carriers are operating in the first quarter, the public company average excluding us was a 94.
Speaker #2: You got to start managing costs in different ways. And maybe aren't able to keep the amount of excess capacity. To respond to growth opportunities as they're coming on a sequential basis.
Speaker #2: So definitely think that's been a little part of the story, but again, like I said earlier, I think we're just kind of in the early stages of recovering.
Speaker #2: It's been nice to see us be tracking at seasonality really going back to November of last year. But it just feels like we're in the early stages of this and we got to big runway of growth ahead for us.
Uh, yeah, good morning. So, um, Adam, I'm already wanted to get your thoughts on, you know, maybe what's happening with service and capacity in the market. I think there have been some, you know, uh, uh, data points or feedback that there are, you know, maybe a couple pretty good sized carriers, that have hit some uh, embargoes in the Midwest and capacity. Constraints have also heard feedback about uh you know, LTL driver Market, getting a bit tired or a little harder to hire driver drivers. Um, so maybe more of a connection with truckload than I would have expected. But what, what are you seeing in terms of is, you know, are you also observing that and is that starting to have an effect on your business? In terms of maybe some shipments coming over to you? Uh, that might even affect July but, you know, just kind of like, if you think that's happening. And then how quickly that, uh, or how much that might affect you and what you see in in your shipments and your pricing. Thank you.
Speaker #2: And we're eager to get back to it. We've built up a tremendous amount of capacity over the last few years with the continued investments that we've made.
Speaker #2: And so we're eager to get freight back into the system and you look at what we can produce in the second quarter, the control that we've shown over cost and improvement that we've had in our direct cost in particular, we're still down a long ways from where we were back in 2022.
Speaker #2: So if we can continue to see that inflection like we just saw from the second to third quarter, just a 4% sequential increase in our tonnage.
Ugh, good question. First of all, we're we're not having any capacity issues, uh, whether it be with equipment or drivers or real estate, but you are correct. We are hearing some, um, some uh, some talk about some of our, our competitors having problems picking up at the end of the month. Um, and uh, we we have seen some of that Freight move over temporarily, uh, and if we get a, a major inflection in the economy, I think we'll see it. Uh, daily. But yes, we are here in that. So, uh, um,
Speaker #2: But doing that with the same headcount, look at all the leverage that exists in our business. So a lot of opportunity to grow the top line, but more importantly, to keep improving our operating ratio and produce strong profitable growth.
Speaker #6: Great. Thank you.
Speaker #1: The next question is from Eric Morgan with Barclays. Please go ahead.
So, do you think that's maybe boosting July, or was that happening earlier in the quarter?
Speaker #5: Hey. Good morning. Thanks for taking the question. I wanted to ask on pricing just curious if you could discuss what drove your yields ahead of your initial guidance in the quarter.
Speaker #5: Especially with wait for shipment improving through the quarter. And relatedly, just wondering if you could elaborate a bit on what those mix effects were you referenced that's driving the 3Q yield growth a little bit below 2Q.
Speaker #5: Thanks.
Speaker #2: Yeah. It's the second quarter, I think, just benefited some. There's always mix that's going on. It could be a balance of national account versus your small mom-and-pop.
Yeah, I mean, I think it's been happening. We we've heard it, uh, earlier in the year. And, you know, look, this is this is a big part of our value proposition is always having capacity and it's not, uh, just the Service Center capacity. It's having trailing equipment where you can spot trailers, at our customers doors, particularly in the month in the quarter. Uh, but having driver, uh, capacity, as well. When, as Marty said, uh, we've got plenty of of capacity across all of those 3 major elements. And, you know, I think when, when other carriers are operating in the
Speaker #2: Some of our higher priority services and so forth. And we were pleased to see the overall revenue per 100 weight in the second quarter.
Speaker #2: Tracking our guidance going into 2Q was thinking that it'd be at about 4 to 4 and a half percent. And so obviously, we were well ahead of that.
Speaker #2: But sometimes just looking month to month and so forth, the revenue per 100 weight can move up or down. And I don't think that there's anything to call out.
Speaker #2: But to me, what we're seeing with it coming back down, the rate of growth that is, it's still sequentially increasing. The revenue per 100 weight that is, it's very similar to what we saw sequentially back in 2017 where we had wait for shipment that was outperforming normal seasonality.
It just feels like we're in the early stages of this. And, and we, we got
Speaker #2: Through that year and that was in the early stage, if you recall, that's when the real inflection was beginning. So I'd like to think that some of the similarities that we're seeing in our numbers particularly with yield, particularly with tonnage and wait for shipment, maybe this is the start of the real inflection like what we saw back then.
Speaker #2: So that's why we're wanted to make clear that this is a positive when you see the revenue growth and it coming in the form of tons and wait for shipment.
Speaker #2: And our yields continuing to improve that's what puts profits to the bottom line and that's a key driver of what allowed us to operate at a 70.1.
A big Runway of growth, uh, ahead for us. And we're eager to get back to it. We built up a tremendous amount of capacity over the last few years with the continued Investments that we've made. And and so we're eager to get Freight back into the system and you look at what we can produce, uh, in the second quarter. Uh, the control that we've shown over cost and Improvement that we've had in our direct cost in particular, you know, we're still, uh, down a long ways from where we were back in 2022. So if we can, uh, continue to see that inflection, uh, like we just saw uh from the second to third quarter, you know, just a a 4% sequential increase in our tonnage but you know doing that with the same headcount. Look at all the leverage that exists in our business. So a lot of opportunity to to grow the top line, but more importantly, uh, to keep improving our operating ratio and, and produce strong profitable growth.
Great. Thank you.
The next question is from Eric Morgan with Barclays. Please go ahead.
Speaker #2: And I realize we had the real estate gain in there, but even you back that out, that's one of the strongest operating quarters that we've ever had.
Speaker #2: And if I go back and compare it to the second quarter of 2022, often talk about that breakdown of cost, direct operating cost and overhead our direct operating cost in the second quarter of this year were about 200, 250 basis points better than where we were in the second quarter of 2022 when we reduced to 69 and a half operating ratio.
Hey, good morning. Thanks for taking the question. I wanted to ask about pricing. I'm just curious if you could discuss what drove your yields ahead of your initial guidance in the quarter, especially with weight per shipment improving through the quarter. And, relatedly, I'm just wondering if you could elaborate a bit on what those mix effects were that you referenced as driving Q3 yield growth a little bit below Q2. Thanks.
Speaker #2: So when you think about that increase in our overhead cost there, there's the tremendous amount of leverage that can not only take us down into the 60s or just hitting right there at getting to a 69 operating ratio, but it's going to be able to allow us to drive it even much lower.
Speaker #5: Thank you.
Speaker #1: The next question is from Ravi Shankar with Morgan Stanley. Please go ahead.
Speaker #4: Great. Thanks, morning everyone. Adam and Marty, there's been a lot of focus on TL versus LTL conversion on this call, but I think in the down cycle, they've also seen brokers take a bunch of share from asset-based LTLs in the marketplace.
Speaker #4: And obviously, the broker relationship right now is under scrutiny post Montgomery I'm wondering if you're seeing any shift away from brokers back to asset-heavy as well as we go deeper into the cycle.
Yeah, it's um, you know, the second quarter, I think just benefited some, there's always, uh, mix that that's going on. It could be a balance of national account versus your small, mom and pop, uh, some of our higher priority services and so forth. And and, uh, we were pleased to see the, the overall Revenue 100 weight. Uh, and the second quarter tracking, you know, we, our guidance going into to 2q was thinking that it'd be at about 4 to 4 and a half percent. Uh, and so obviously, we were were well ahead of that, but, uh, you know, sometimes just looking month to month and so forth, uh, the revenue per 100 weight can move up or down. And, you know, I don't think that there's anything to call out. But, uh, to me what we're seeing, you know, with the coming back down the the rate of growth that is it's still sequentially. Increasing the revenue per 100 way. That is uh it's very similar to what we saw uh sequentially back in 2017, you know, where we had weight for shipment that was out.
Speaker #4: Thank you.
Speaker #2: Probably a little bit early for that. We saw revenue growth with our 3PO related customers in the most recent quarter that was similar to the overall growth rate for the company.
Speaker #2: So that's kind of hanging in there. But that's something that we obviously like to have customers direct with us. And if that's a change that develops, we'll work with them.
Performing normal seasonality, uh, through that year and that was in the early stage, if you recall, that's when the real inflection was beginning. Uh, so I'd like to think that that, you know, some of the similarities, that, that we're seeing, in our numbers, uh, particularly with yields particularly with tonnage and weight for shipment. You know. Maybe this is the start of the real inflection, uh, like what we saw back then. So, you know, that that's why we're I wanted to make clear that that this is a positive when you see the, uh,
Speaker #2: But if customers are using a 3PL, we treat them the same. We look at the cost, the important thing, with business. And about a third of our revenue right now is with 3PLs.
Speaker #2: Is to understand the cost on any customer account, whether it's direct or with a 3PL, and to price it appropriately. So that we've got similar account level profitability across our book of business.
Speaker #2: And that's the way we look at it. We look at customer-specific costs. And then we provide customer-specific pricing to those 3PLs. But we'll take it if it comes that and be happy to do so.
Speaker #4: Sounds good. Thank you.
Speaker #1: The next question is from Ken Hexter with Bank of America. Please go ahead.
Speaker #4: Hey. Great. Good morning. Thanks for the insight. Before on some of the struggles at the carriers popping up that's definitely an issue we've been hearing about also.
Speaker #4: But if I can just take Ravi's question, it may be a different way. Another upheaval or start is in the brokerage side. Just given the heavy use of brokers that you have, we're seeing a lot of lawsuits, go on now that are maybe whether it was from Montgomery and risk that moves up the food chain or last week just the exposure.
Speaker #3: it's going to be able to allow us to drive it even much lower.
You know, the revenue growth and it coming in the form of tons and weight for shipment and, uh, you know, our yields continuing to improve — that's what puts profits to the bottom line, and that's a key driver of what allowed us to operate at a 70.18% that we've ever had. And if I go back and compare it to the second quarter 2022 and, you know, often talk about that breakdown of cost — direct operating costs and overhead — our direct operating cost in the second quarter this year were about 200 to 250 basis points better than where we were in the second quarter of 2022, when we reduced to a 69.5 operating ratio. So when you think about that increase in our overhead cost there, you know, there's a tremendous amount of leverage that can not only take us down into the 60s or just hitting right there at getting to us.
Speaker #8: Thank you.
69 operating ratio, uh, but it's going to be able to allow us to drive it even much lower.
Speaker #1: The next question is from Ravi Shankar with Morgan Stanley. Please go ahead.
Speaker #5: Great. Thanks, morning everyone. Adam and Marty, there's been a lot of focus on TL versus LTL conversion on this call, but I think in the down cycle, they've also seen brokers take a bunch of share from asset-based LTLs in the marketplace.
Speaker #4: Is that impacting discussions with the brokers? Are you seeing any flows that might be changing? Maybe just talk about what you're seeing from that brokerage follow-through.
Speaker #2: Yeah. Nothing at this point, Ken, that I've heard. And we obviously, especially with some of our largest ones, several of our top 10 customers are 3PLs.
Speaker #5: And obviously, the broker relationship right now is under scrutiny post Montgomery. I'm wondering if you're seeing any shift away from brokers back to asset-heavy as well as we go deeper into the cycle.
Speaker #2: And have not really seen any type of material change there. And obviously, with the revenue growth being pretty consistent with the company average at this point, but haven't really heard a lot of feedback that there's been a lot of discussion.
Speaker #5: Thank you.
Speaker #3: Probably a little bit early for that. We saw revenue growth with our 3PO related customers in the most recent quarter that was similar to the overall growth rate for the company.
Speaker #2: But obviously, as many of you have written about, it's a potential big change that's coming for the industry. And I'm reading you all report about the increase in insurance cost.
Speaker #3: So that's kind of hanging in there. But that's something that we obviously like to have customers direct with us. And if that's a change that develops, we'll work with them.
Speaker #3: But if a customer is using a 3PL, we treat them the same. We look at the cost, the important thing, with business. And about a third of our revenue right now is with 3PLs.
Speaker #2: And that's something that we've talked about in recent years. It's to be a large sophisticated LTL, well-capitalized carrier, we have dealt with double-digit premium inflation for many years now.
Speaker #3: Is to understand the cost on any customer account, whether it's direct or with a 3PL, and to price it appropriately so that we've got similar account level profitability across our book of business.
Speaker #2: And that's something that goes into our cost model that we've got to continue to account for with our pricing. So it sounds like that's something that they will have to further account for.
Speaker #3: And that's the way we look at it. We look at customers-specific costs and then we provide customer-specific pricing to those 3PLs. But we'll take it if it comes at us.
Speaker #2: And if a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage. And if we give the same price, then.
Speaker #3: And I'd be happy to do so.
Speaker #2: That's a cost. And I think that'll be something where they have to prove their value proposition. The 3PL that is to the shipper. And if more and more shippers choose to use Old Dominion Direct, then we'll be there be here for them I should say.
Speaker #5: Sounds good. Thank you.
Speaker #1: The next question is from Ken Hexter with Bank of America. Please go ahead.
Speaker #7: Hey, great. Good morning. And thanks for the insight before on some of the struggles at the carriers popping up that's definitely an issue we've been hearing about also.
Speaker #2: And be happy to handle it. But yes, definitely cost inflation that's coming that may drive some of that cost through 3PL business versus none.
Speaker #7: But if I can just take Robbie's question, it may be a different way. And another upheaval or start is in the brokerage side. Just given the heavy use of brokers that you have, we're seeing a lot of lawsuits, go on now that are maybe whether it was from Montgomery and risk that moves up the food chain or last week just the exposure.
Speaker #2: And maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.
Speaker #4: Thanks, Tom.
Speaker #7: Is that impacting discussions with the brokers? Are you seeing any flows that might be changing? Maybe just talk about what you're seeing from that brokerage follow-through.
Speaker #1: The next question is from Jason Seidel with TD Cowan. Please go ahead.
Speaker #4: Thanks, operator. Gentlemen, good morning. A lot's been covered and I appreciate it. Wanted to go a little bit of a different direction. One of your competitors in their call talked about looking at the use of autonomous trucks for some of the linehaul operations and that they might have gotten to the point where it's a viable option for an LTL carrier.
Speaker #3: Yeah. Nothing at this point, Ken, that I've heard. And we obviously, especially with some of our largest ones, several of our top 10 customers are 3PLs.
Speaker #3: And have not really seen any type of material change there. And obviously with the revenue growth being pretty consistent with the company average at this point.
Speaker #4: Just wondering what your thoughts on that were and if you've looked into it.
Speaker #2: Yeah. Jason, I think that's something that any type of technology you've got to continue to look at and stay on top of. But I think that one of the things that people have got to consider as well is what's the cost of the technology on a per-mile basis.
Speaker #3: But haven't really heard a lot of feedback that there's been a lot of discussion. But obviously as many of you have written about, it's a potential big change that's coming for the industry.
Speaker #3: And I'm reading you all report about the increase in insurance cost. And that's something that we've talked about in recent years. It's to be a large sophisticated LTL, well-capitalized carrier, we have dealt with double-digit premium inflation for many years now.
Speaker #2: Some of the things that I've seen in red, I don't know that you've got the value add. And you think about our fleet of equipment, we dual-use a lot of our tractors.
Speaker #2: So they're running P&D during the day. Linehaul at night. If you've got to pay the technology provider, I don't think that autonomous vehicle would be more for linehaul application either or buying specific P&D units that's going to drive your unit cost up or your paying for a mileage where you're not really using and leveraging the technology.
Speaker #3: And that's something that goes into our cost model that we've got to continue to account for with our pricing. So it sounds like that's something that they will have to further account for.
Speaker #3: And if a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage. And if we give the same price, then that's a cost.
Speaker #2: So I think like many things that are like that, you got to stay on top of. We don't want to be on the bleeding edge of that technology and development so forth.
Speaker #3: And I think that'll be something where they have to prove their value proposition. The 3PL And if more and more shippers choose to use Old Dominion Direct, then we'll be there for them, I should say.
Speaker #2: But it's just like any other investment when it comes to technology. There are a lot of opportunities that we take a look at where the cost of the technology doesn't really provide an appropriate return.
Speaker #2: And investment and autonomous would be a similar type of analysis that we would go through. But to me, it's something too that I don't know.
Speaker #3: And be happy to handle it. But yes, definitely cost inflation that's coming that may drive some of that cost through 3PL business versus none.
Speaker #3: And maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.
Speaker #2: It's hard to imagine a world where you've got 80,000-pound trucks driving up and down the highways without someone sitting in the cab to deal with those one-off scenarios to deal with cargo theft that is already a problem when you've got a driver sitting in the cab.
Speaker #1: Excellent. The next question is from Jason Seidel with TD Cowan. Please go ahead.
Speaker #7: Thanks, operator. Gentlemen, good morning. A lot's been covered and I appreciate it. Wanted to go a little bit of a different direction. One of your competitors in their call talked about looking at the use of autonomous trucks for some of the linehaul operations and that they might have gotten to the point where it's a viable option for an LTL carrier.
Speaker #2: So there's a lot of other incremental challenges that would present and would have to be dealt with from a regulatory standpoint before this girl goes worldwide.
Speaker #2: And obviously, it's been dealt with in utilized in certain lanes and so forth. But the scale and be nationwide still has some reservations about.
Speaker #7: Just wondering what your thoughts on that were and if you've looked into it.
Speaker #4: So it sounds like it's more than just the total cost of it all. There's other factors in terms of you guys taking advantage of something like this as it comes available.
Speaker #3: Yeah. Jason, I think that's something that any type of technology you've got to continue to look at and stay on top of. But I think that one of the things that people have got to consider as well is what's the cost of the technology on a per-mile basis?
Speaker #2: I think so. Yeah. But look, our business is pretty simple. At the end of the day, it's how do we manage the revenue per shipment and the cost per shipment and give the very best service in our industry to be able to support the value and our yields.
Speaker #3: Some of the things that I've seen and read I don't know that you've got the value add. And you think about our fleet of equipment, we dual-use a lot of our tractors.
Speaker #2: And so like I said, it's no different. Everything we look at is how can we minimize the inflation and our cost per shipment and continue to get yields to support the value proposition.
Speaker #3: So they're running P&D during the day. Linehaul at night. If you've got to pay the technology provider, I don't think that autonomous vehicle would be more for linehaul application either or buying specific P&D units that's going to drive your unit cost up or your PAN for a mileage where you're not really using and leveraging the technology.
Speaker #2: So we'll continue to look at it. But like I said, I don't think we'll be on the bleeding edge with adoption there.
Speaker #4: Appreciate the time and color as always.
Speaker #3: So I think like many things that are like that, you got to stay on top of. We don't want to be on the bleeding edge of that technology and development and so forth.
Speaker #1: The next question is from Vasco Majors with Stevens. Please go ahead.
Speaker #4: Yeah. Thanks for taking my questions. If we look back, I think this is the first time the capital envelope has gone up since the beginning of '24.
Speaker #3: But it's just like any other investment when it comes to technology. There are a lot of opportunities that we take a look at where the cost of the technology doesn't really provide an appropriate return.
Speaker #4: And I just be curious both big picture thinking on where this is going. Is it the tightness at capacity at some of your peers that's bringing freight your way or is it what you're hearing from customers on sort of macroeconomic expectations that's driving you back into a period of growth investment, albeit gradually?
Speaker #3: And investment in autonomous would be a similar type of analysis that we would go through. But to me, it's something too that I don't know.
Speaker #3: It's hard to imagine a world where you've got 80,000-pound trucks driving up and down the highways without someone sitting in the cab to deal with those one-off scenarios to deal with cargo theft that is already a problem when you've got a driver sitting in the cab.
Speaker #4: And if you could just give us a quick update. I mean, you talked about having a lot of capacity now. Any sort on people and equipment in the network today?
Speaker #4: Thank you.
Speaker #3: So there's a lot of other incremental challenges that would present and would have to be dealt with from a regulatory standpoint before this girl goes worldwide.
Speaker #2: Yeah. The increase that we had, keep in mind the total 380 million dollars is still well below our normal range is 10 to 15 But like we said, both the increase in the real estate side and the equipment really are strategic purchase opportunities.
Speaker #3: Obviously, it's been dealt with in utilized in certain lanes and so forth. But the scale and be nationwide I still have some reservations about.
Speaker #7: So it sounds like it's more than just the total cost of it all. There's other factors in terms of you guys taking advantage of something like this as it comes available.
Speaker #2: From a real estate standpoint, you've also got some timing of projects that we've continued to spend on our network because of the confidence we have in our long-term market share opportunities.
Speaker #3: I think so. Yeah. But look, our business is pretty simple. At the end of the day, it's how do we manage the revenue per shipment and the cost per shipment and give the very best service in our industry to be able to support the value and our yields.
Speaker #2: But we've got a couple of unique opportunities where it could be something that fit in the long-term plan in a market that's hard to find real estate.
Speaker #2: To not get into too many specifics. But then you've also got some lease-to-own conversions, timing of projects that we may get started in the balance of this year that may have been in 27 initially.
Speaker #3: And so like I said, it's no different. Everything we look at is how can we minimize the inflation and our cost per shipment and continue to get yields to support the value proposition.
Speaker #2: So we're always fine-tuning that model and that drove some of that increase there. But there's one or two kind of strategic purchase opportunities that are in there that just sort of fit when we think about our 5 and 10-year plan.
Speaker #3: So we'll continue to look at it. But like I said, I don't think we'll be on the bleeding edge with adoption there.
Speaker #7: Appreciate the time and color as always.
Speaker #2: And then on the equipment side, that's a little different. Some of that spend would have been allocated to 2027. So we're kind of pulling some of those purchases into the fourth quarter of this year.
Speaker #1: The next question is from Vasco Majors with Stevens. Please go ahead.
Speaker #7: Yep. Thanks for taking my questions. If we look back, I think this is the first time the capital envelope has gone up since the beginning of '24.
Speaker #2: And again, just through conversation discussions, our op teams felt like it would be better to go ahead and pull some of that equipment into this year.
Speaker #7: And I just be curious both big picture thinking on where this is going. Is it the tightness at capacity at some of your peers that's bringing freight your way or is it what you're hearing from customers on sort of macroeconomic expectations that's driving you back into a period of growth investment, albeit gradually?
Speaker #2: But overall, kind of the answer to your question, it's not necessarily a need to increase the capacity of our service center network. We've still got north of 35% excess capacity there.
Speaker #2: We've got plenty of power and trailing equipment capacity at this point. Really, when we get into the fall of this year is when we'll be forecasting for next year's volumes to think about what our replacement needs would be and then any growth needs but I think given kind of where our fleet is versus some prior years when we've had similar growth numbers, it still will probably lean more towards replacement just to kind of grow into the fleet that we have.
Speaker #7: And if you could just give us a quick update. I mean, you talked about having a lot of capacity now. Any sort of sense of where you stand on people and equipment in the network today?
Speaker #7: Thank you.
Speaker #3: Yeah. The increase that we had, keep in mind the total 380 million dollars is still well below our normal range is 10 to 15 percent of revenue.
Speaker #3: But like we said, both the increase in the real estate side and the equipment really are strategic purchase opportunities. From a real estate standpoint, you've also got some timing of projects that we've continued to spend on our network because of the confidence we have in our long-term market share opportunities.
Speaker #2: But probably add some trailing equipment to make sure we've got plenty of capacity there. And on the people side, like we've talked about on the last call, we were able to accommodate this 4% sequential increase in tonnage that we just had with the centrally the same workforce.
Speaker #3: But we've got a couple of unique opportunities where it could be something that fit in the long-term plan in the market that's hard to find real estate.
Speaker #2: So through the balance of the third and fourth quarter, probably not a lot of material change in our headcount overall there. So if we can take another sequential increase through 3Q, I think that presents some good opportunities there from a cost and margin standpoint.
Speaker #3: To not get into too many specifics, but then you've also got some lease-to-own conversions, timing of projects that we may get started in the balance of this year, that may have been in 27 initially.
Speaker #2: But then we've really, again, kind of getting into forecasting for next year. I've got to think about when's the right time to start some of our truck driving schools again and to start getting more drivers in to accommodate what we think our growth expectations for '27 might be.
Speaker #3: So we're always fine-tuning that model and that growth, some of that increase there. But there's one or two kind of strategic purchase opportunities that are in there that just sort of fit when we think about our 5 and 10-year plan.
Speaker #4: Thank you for all the detail.
Speaker #3: And then on the equipment side, that's a little different. Some of that spend would have been allocated to 2027. So we're kind of pulling some of those purchases into the fourth quarter of this year.
Speaker #1: The next question is from Risha Harnain with Deutsche Bank. Please go ahead.
Speaker #5: Hey. Thanks for the time also. Yeah. I guess first, a quick housekeeping one. Adam, that OR sequential change you cited for 3Q flat to up 50 bits, I would suspect that's on gap.
Speaker #3: And again, just through conversation discussions, our op teams felt like it would be better to go ahead and pull some of that equipment into this year.
Speaker #5: But wanted to make sure. And then I guess just bigger picture, tonnage came in line with normal seasonality this past quarter and you meaningfully beat your OR outlook for the quarter even X that real estate gain.
Speaker #3: But overall, kind of the answer to your question, it's not necessarily a need to increase the capacity of our service center network. We've still got north of 35% excess capacity there.
Speaker #5: And looking into Q3, you're calling for pretty optimistic scenario both around maybe macro demand picking up and OD-specific demand as your peers face some challenges.
Speaker #3: We've got plenty of power and trailing equipment capacity at this point. Really, when we get into the fall of this year is when we'll be forecasting for next year's volumes to think about what our replacement needs would be and then any growth needs but I think given kind of where our fleet is versus some prior years when we've had similar growth numbers, it still will probably lean more towards replacement just to kind of grow into the fleet that we have.
Speaker #5: So I guess what's driving that tempered enthusiasm considering that you're thinking you could just be in line with historical trends and OR? And then back to complementing you on the strong performance in 2Q, the incremental margin we calculated in the quarter was really good, 60%.
Speaker #5: So curious if that influences your outlook for OR longer term or if you'd caution us from using that optimistic of an outlook given fuel likely created some of that positive operating leverage.
Speaker #3: But probably add some trailing equipment to make sure we've got plenty of capacity there. And on the people side, like we've talked about on the last call, we were able to accommodate this 4% sequential increase in tonnage that we just had with the centrally the same workforce.
Speaker #5: So a lot in there, but I'll let you take it how you want it. Thanks.
Speaker #2: Yeah. I don't know if I can track everything that was in there, but yeah, I would say a lot of the second quarter outperformance, if you will, the volumes just came in stronger than where we were three months ago talking about the call and where April was.
Speaker #3: So through the balance of the third and fourth quarter, probably not a lot of material change in our headcount overall there. So if we can take another sequential increase through 3Q, I think that presents some good opportunities there from a cost and margin standpoint.
Speaker #2: We just came back a lot stronger with volumes. And obviously, we were able to put a lot of that incremental revenue growth to the bottom line.
Speaker #2: And a lot of that flowed through with the sequential change in salaries, wages, and benefits. And I think I had pointed everyone to the second quarter 2022 as sort of a reference point when he had a similar type of change with fuel prices.
Speaker #3: But then we've really, again, kind of getting into forecasting for next year. I've got to think about when's the right time to start some of our truck driving schools again and to start getting more drivers in to accommodate what we think our growth expectations for 27 might be.
Speaker #2: And so forth. But we probably did a little bit better with our salaries, wages, and benefits change. But also, there were some benefit and some of our other op supplies and expenses and G&A type cost.
Speaker #7: Thank you for all the detail.
Speaker #1: The next question is from Risha Harnain with Deutsche Bank. Please go ahead.
Speaker #8: Hey, thanks for the time also. Yeah, I guess first a quick housekeeping one. Adam, that OR sequential change you cited for 3Q flat to up 50 bips, I would suspect that's on gap.
Speaker #2: And some of those are partly what I mentioned would be in that normalization of trending into the third quarter. And I tell you, if we didn't have the fringe headwind, we'd be talking about the summer of '69 here.
Speaker #8: But wanted to make sure. And then I guess just bigger picture, tonnage came in line with normal seasonality this past quarter and you meaningfully beat your OR outlook for the quarter even X that real estate gain.
Speaker #2: We did have a big headwind from the first to second quarter with our fringe benefits, which we had talked about at the end of the call.
Speaker #2: But boy, it sure would have been nice to have had a '69 operating ratio. But we've been there before and we'll get back there again.
Speaker #8: And looking into Q3, you're calling for pretty optimistic scenario both around maybe macro demand picking up and OD-specific demand as your peers face some challenges.
Speaker #2: But looking into the third quarter, you've got some of that. The guidelines that I gave is still 45, 50 percent incremental margins on that type of revenue growth.
Speaker #8: So I guess what's driving that tempered enthusiasm considering that you're thinking you could just be in line with historical trends and OR? And then back to complementing you on the strong performance in 2Q, the incremental margin we calculated in the quarter was really good, 60%.
Speaker #2: And that's stronger than a longer-term trend. And a lot of that will be based on what I mentioned earlier about our direct versus overhead cost.
Speaker #8: So curious if that influences your outlook for OR longer term or if you'd caution us from using that optimistic of an outlook given fuel likely created some of that positive operating leverage.
Speaker #2: If our direct cost now at 50 to 51 percent in the second quarter, that's something that obviously, you keep leveraging tonnage growth at the right price.
Speaker #8: So a lot in there, but I'll let you take it how you want it. Thanks.
Speaker #3: Yeah, I don't know if I can track everything that was in there, but yeah, I would say a lot of the second quarter outperformance, if you will, the volumes just came in stronger than where we were three months ago talking about the call and where April was.
Speaker #2: And you can put a lot of that to the bottom line. But there's a lot of opportunity there when you think from a bigger picture and longer-term standpoint to further improve that direct operating cost percentage threshold and then we've got to keep getting leverage on the overhead cost and controlling that discretionary spending we're not seeing the same type of increase in depreciation this year because the capex program is lower.
Speaker #2: Then it's been in recent years. So that's helped with some of our cost inflation. So a lot of those different variables that when you think kind of over a multi-year through the cycle, type of operating ratio change, our goal is obviously to get we've stated multiple times to get to a sub-70.
Speaker #2: But when you think about growth within those expense thresholds that I just laid out, I don't want to say that 45 to 50 percent is the new way to think about it.
Speaker #2: But when you think about it in that context, getting to the sub-70 annual operating ratio is pretty easy to map out. And we're going to achieve our goal that's the immediate goal before we set a new one.
Speaker #2: But I think it's clear to see why we've changed our operating ratio goal by 500 basis points at a time. And you can kind of map out and prove pretty easily a pathway that would get us to our goal.
Speaker #5: Thanks, Adam. And then if you could quickly clarify the OR sequential change for Q3 from Q2, that's based off gap OR, right?
Speaker #2: It is. Yeah. We're we like to operate on gap and talk about gap-type numbers and we'll give you adjustments like the real estate gain.
Speaker #2: But I don't know that you'll ever hear me talk about non-gap numbers and adjust to these. But I think gap makes more sense for an easier comparison.
Speaker #5: Yep. All right. Thank you so much.
Speaker #1: The next question is from Brian Osenbeck with JP Morgan. Please go ahead.
Speaker #6: Hey. Good morning. Thanks for taking the question. Maybe Adam, if you can just give a little bit more context on the headcount and the labor side.
Speaker #6: Obviously, the fringe benefit was a pretty big increase I would assume in the comp per employee does that continue to increase a little bit with the annual wage increase?
Speaker #6: And you said you're going to keep the labor essentially flat, but just wanted to hear a little bit more about the cadence that you have visibility to.
Speaker #6: And then some commentary on the truck driver schools and bringing those back. And sort of if you've gone capacity towards the end of this year and into next year, as you start to think through that and what the next cycle could bring or acquire from a labor perspective.
Speaker #6: Thanks.
Speaker #2: Sure. Yeah. That's good perspective, Brian. We will give a wage increase the first of September. And we have an announced that to our employees yet.
Speaker #2: But so I don't want to announce it here. But obviously, we continue to do well as an organization. And we believe in sharing that benefit with our employees.
Speaker #2: So that's something that we'll be working through and announcing here pretty soon. But I think that like I had said, we've got the people capacity.
Speaker #2: People are able to start working more hours. On average, than they were before. And our drivers and platform employees have been eager to do that and see their take-home pay increasing as a result.
Speaker #2: So we can continue to step up and meet the needs of our customers through the third and fourth quarters of this year. The thought in terms of starting our truck driving schools and so forth, we've had our truck driving schools going.
Speaker #2: And part of what we do in our strategy is to take our employees that are interested in being a driver and train them to get their CDL.
Speaker #2: So when demand and volumes are there, we're able to put them into a truck pretty quickly. And we've got someone that's been with us that believes in the OD family spirit and our culture.
Speaker #2: And we know they're going to do right things right for our customers. And continue to deliver service that no one else has even close to in our industry.
Speaker #2: So I think it's all about making sure we've got people that are prepared that if we start seeing the sequential increase that typically happens in kind of March of next year, and who knows what volumes will be like through the balance of the third, fourth quarter, but just generally thinking about seasonality, you want to make sure that you got people that are ready to step in.
Speaker #2: The worst thing you can do is have volume opportunities coming at you. And to not be able to take advantage of those. And I think when you look at our history, we've proven out time and time again that we're able to rise that challenge.
Speaker #2: And that's what gives me the confidence to talk about some of these numbers that we've had or have today. When I look back, it's these high-growth years where we really separate ourselves from our competition.
Speaker #2: And you think about the 2014, 2015, and '17 and '18, '21, '22, those high-growth years where demands incredibly strong. We've had tonnage the change in our tons per day that's outperformed our competition.
Speaker #2: 800 to 1,000 basis points. And so I think that that's what we're looking forward to. I think that there continue to be capacity challenges in our industry.
Speaker #2: They're where when the industry really starts growing again, we're going to see the majority of that market share growth come in our way. So we just want to make sure that we're prepared and we know that we are.
Speaker #2: But you got to stay ahead of the growth curve in this industry. And I think we've proven time and time again that we can do so.
Speaker #6: Great. Thanks very much for that, Adam.
Speaker #1: The next question is from Bruce Chan with Stiefel. Please go ahead.
Speaker #7: Hey, team. Good morning. This is Matt on for Bruce. A couple of quick ones here. With respect to this calendar volume that you highlighted and the super seasonal trends, curious if you're seeing this uptick sort of broad-based across the book, or is it still concentrated in a handful of that market?
Speaker #2: No. It's pretty consistent across our regions, which is nice. That keeps the network in balance for us. And as you know, we're pretty much 100% in-sourced from a linehaul standpoint.
Speaker #1: Person, and continued to deliver service that no one else has even close to in our industry. So I think it's all about making sure we've got people that are prepared, that if we start seeing the sequential increase that typically happens in kind of March, of next year, and who knows what volumes will be like through the balance of the third, fourth quarter, but just generally thinking about seasonality, you want to make sure that you've got people that are ready to step in.
Speaker #2: So we're not facing any purchase transportation challenges that maybe some of our competitors are. And certainly not dealing with the cost inflation that go along with that dynamic with the truckload price increases.
Speaker #2: That we're seeing right now. So that's a benefit to us as well. And so yeah, everything's staying in balance and pretty consistent. You've got a little bit of change and like I mentioned earlier, when we were talking about yields, with growth with national accounts, larger national accounts, growth with small and pop, but seeing pretty consistent performance.
Speaker #2: I'd say across those two major components of our revenue and the same thing with the 3PL managed business as well.
Person and continued to deliver service that uh, no. 1 else is even close to in our industry. So, you know, I think it's, it's all about making sure we've got people that are prepared that, you know, if we start seeing the sequential increase, um, that typically happens in kind of March, uh, of next year. And who knows what volumes will be like through the balance of the third fourth quarter. But just, you know, generally thinking about seasonality, you want to make sure that you got people that are ready, uh, to step in. You know, the worst thing you can do is have volume opportunities coming at you. And, uh, to not be able to take advantage of those and, you know, I think, when you look at our history, we've, we've proven out um, you know, time and time again that we're able to to rise that challenge. And and that's what gives me the confidence to talk about some of these numbers that we've had or have today when I look back you know it's these high growth years where we really separate ourselves from our competition and you know you think about the the 2014 2015
Speaker #7: All right. Super helpful. And lastly, I know you mentioned hearing that some peers are having some trouble making pickups due to the tighter labor market conditions.
Speaker #7: I guess how would you characterize the financial health of smaller regional providers at this point? And maybe whether you're seeing any changes there and they're pricing or competitive behavior is the market sort of improves or maybe what's likely to be an increasingly higher inflationary cost environment with issues like insurance.
2015 and '17 and '18, '21, '22—those high growth years—where demand's incredibly strong, we've had, uh, tonnage—the change in our tons per day—that's outperformed our competition, you know, 800 to 1,000 basis points. And so, you know, I think that, uh, that's what we're looking for, too. I think that, uh, there continue to be capacity challenges in our industry, they're aware. When the industry really starts growing again, uh, we're going to see the majority of that market share growth.
Speaker #7: Thanks.
Speaker #2: Yeah. We've got a lot of our industry has got a lot of very high-quality small regional carriers that they're private, mainly. So we don't know their operating ratios.
Uh, come in our way. So, we just want to make sure that we're prepared, and we know that we are. Uh, but, uh, you've got to stay ahead of the growth curve in this industry, and I think we've proven time and time again that we can do so.
Speaker #2: More of the feedback that we hear in bids and so forth, as you can imagine, it's the larger accounts with widespread operations and some of the larger national non-union carriers that would compete more with on a national basis just because they're larger accounts and those are the ones that are you hear more feedback on.
Great. Thanks very much for that atom.
The next question is from Bruce Chan with Stifel. Please go ahead.
Speaker #2: So don't have anything to offer on what some of the smaller carriers are doing right now and what their financials look like.
Hey, Tim. Good morning. This is Matt on for Bruce. Um, a couple quick ones here, with with respect to the stronger volume highlighted uh and the super seasonal Trends. Uh curious if you're seeing this uptick sort of broad based across the book or is it still concentrated, um, in a handful of that markets,
Speaker #7: Fair enough. Thanks.
Speaker #1: The next question is from Ari Rosa with Citigroup. Please go ahead.
Speaker #8: Hey, good morning. So Adam, I wanted to stay on the volume piece of things and just kind of the macro environment. Maybe a little bit more color there on some of the optimism or what's underlying some of the optimism.
Speaker #8: Because if we look back historically, as you had mentioned, right, it's not uncommon for OD to grow tonnage at that rate of mid-single digits, maybe even high single digits on a year-over-year basis.
Speaker #8: Is this macro environment or some of the things you're seeing in the macro could it support that over the next couple of quarters, or would we need to see an acceleration in the macro to get there?
No, it's it's uh, it's pretty consistent across our regions which is nice, that keeps the network and balanced. Uh, for us. And as you know, we're pretty much 100% insourced from a, a line haul, uh, standpoint. So, uh, you know, we're, we're not facing any purchase Transportation challenges that maybe some of our competitors are and certainly not dealing with the, uh, the cost inflation, uh, that go along with that, uh, Dynamic, with the, the truckload price increases, uh, that we're seeing right now. So, you know, that that's a, a benefit to us as well. And, uh, and so yeah, everything's staying in balance and pretty consistent. You know, you've got a little bit of change and, and like I mentioned earlier when we were talking about yields, uh, you know, with
Speaker #8: And then just a point of clarification, if I could, the gain on sale, could you just give us a little bit of color on what that was from and if there's anything more to expect or more to come there?
Speaker #8: Thanks.
Speaker #2: Yeah. The gain on the sales, we've mentioned over the last few years that we've finished construction on some projects and they've just kind of kept them in ready reserve.
Growth with national accounts, larger national accounts, growth of small and pipette seeing pretty consistent performance. You know, I'd say across, uh, those 2, major components of our revenue and, uh, the same thing with the the 3pl managed business as well.
Speaker #2: We've been depreciating those projects as we finished them and they were available for operations, but we just didn't turn those points on in the network.
Speaker #2: And a few of those were service center moves. So our service center account and total stayed the same. And basically, we moved into different facilities, sold the old ones, and I think there were three of those in the quarter.
Speaker #2: That resulted in that $17 million net gain. But I wouldn't expect any more this year. There's still a few more out there. Meaning service centers that are in ready reserve still.
Right, uh, some helpful. And, and lastly, um, I know you mentioned here in that some peers are having some trouble making pickups due to, you know, the type of labor market conditions. I guess, you know, how would you characterize the Financial Health of smaller Regional, you know, providers at this point? And maybe you know, whether you're seeing any, you know, changes there and they're, you know, pricing or competitive behaviors the market sort of improves. Or, you know, maybe what's likely to be a, a increasingly higher, uh, inflationary cost environment, with issues like Insurance. Thanks.
Speaker #2: And we may have a few more dispositions this year, but that's something that as it happens, bits of material we'll talk about it. We don't have anything I don't think with the same type of material gain that would be there if it does happen.
Speaker #2: This year. That's just something that our ops team is constantly looking at the network balance and where it makes most sense from a cost standpoint to turn points on.
Speaker #2: And hopefully, we'll be turning some of those on because of the volume. So kind of bridging into your next question is the volumes come in similar to what we did through 2019, 2020, and through that '22 period.
Yeah, we've got a lot of uh our industry has got a lot of very high quality uh small regional carriers that they're private mainly so we don't know their uh their operating ratios, you know, more of the feedback uh, that we hear and and bids and so forth. As you can imagine, it's the the larger accounts uh, you know with widespread operations and you know some of the larger National non-union carriers. That that would compete more with uh on a national basis just because you know they're larger accounts and those are the ones that uh that are you you hear more feedback on. So um don't have anything to offer on on what some of the smaller uh
Carriers are doing right now and what their financials look like.
Fair enough. Thanks.
The next question is from Ari Rosa with CGroup. Please go ahead.
Speaker #2: We'll be turning on some of these new service centers, finishing construction of some others. To continue to improve our network overall. And again, that's part of the value proposition.
Speaker #2: But hey, look, we're winning market share right now. And as I mentioned, we're already if you just sort of go month by month, we're tons per day is above what normal seasonality would have suggested.
Speaker #2: From the beginning of this year. And I'd say that the challenges to the economy the economy is in a good spot. It's obviously ISM has been positive, but it's not like we've had ISM knocking on the door of 60 or being above 55.
Underlying some of the optimism because, you know, if we look back historically, as you had mentioned right? You know, it's not uncommon for Odie to grow, uh, to grow tonnage at that rate of, you know, mid single digits, maybe even high single digits on a year-over-year basis. Is this macro environment or some of the things you're seeing in the macro. Could it support that?
Speaker #2: And I still think there's opportunity out there on the retail side, but and I believe looking at inventory to sales ratio that that's a precursor when you look back in history.
Over the next couple of quarters or or would we need to see an acceleration in the macro to get there? Um, and then just a point of clarification, if I could the the gain on sale, could you just give us a little bit of color on what, what that was from? And if there's anything more uh, to expect or more to come there, thanks.
Speaker #2: It's as low as it's been maybe going back to '21. So that should kick off some volume and market share opportunities. But I think the domestic economy as a whole is just got the inflation concerns and world events that have probably been keeping a little bit of a lid on things.
Speaker #2: It's positive, but it's not red hot. So to speak, we're not in the type of environment yet that's say a 2018 or a 2021, but I feel like some of the metrics makes it seem like that inflection point is coming.
Speaker #2: And that's partly why we want to be ready for it. We're not going to get out over our skis, if you will, in terms of getting too far ahead of the growth curve.
Speaker #2: But we're far enough ahead to keep going through the balance of this year. We definitely have got plenty of service center and equipment capacity and continuing to look at the headcount is just something that we'll manage more closely.
Yeah, the um, the gain on the sales, you know, we've mentioned over the last few years that we've finished construction on some projects and have just kind of kept them and ready. Reserved, uh, we've been depreciating those projects as as we finish them and they were available for operations, but we just didn't turn those points on uh and the network. And and you know, a few of those uh were service center moves. So our service center account in total stayed the same. Uh and you know basically we moved into uh different facilities. Sold the old ones and uh I think there were 3 of those in the the quarter, uh, that resulted in that, that 17 million dollar net gain. But, um, you know, there's I wouldn't expect any any more this year. There's, there's still a few more out there. Uh, meaning service centers that are in ready, reserved steel. And we may have a few more dispositions this year but you know, that's something.
Speaker #8: That's great. Thanks for the time.
Speaker #1: The next question is from Scott Group with Wolf Research. Please go ahead.
Speaker #7: Hey, thanks. Good morning. Adam, just want to clarify one thing on the 10% revenue growth for Q3. Does that assume sort of normal tonnage seasonality in August, September, or anything better or worse?
Speaker #7: And then just sort of maybe longer term, you tend to be very sort of measured in your comments and you talked about pretty easy to map out a sub-70.
That, as it happens, this material will talk about it. We don't have anything. Uh, I don't think with the the same type of material gain, uh, that would be there if it does happen. Uh, this year, uh, that's just something that, you know, Ops team is, is constantly, looking at the network balance and where it makes most sense, uh, from a call standpoint to, to turn points on and, uh, and hopefully, we'll be turning some of those on because of the, the volume. Uh, so kind of bridging in your. Next question, is the volume's come in, you know, similar, um, to, to what we did through 2019 2020 and you know, through that 22 period, uh, we'll be turning on some of these new service centers finishing construction of some others uh, to continue to uh, to improve our Network overall.
Speaker #7: I think you said at one point you can get a good amount better than a sub-69 or something like so that's obviously really optimistic around the margin front.
Speaker #7: What's the timeline or line of sight to how quickly you can get to these sorts of numbers?
Speaker #2: Scott, we've never put a timeline on any of our goals. Just for the sake that you don't want to make decisions that are trying to achieve an arbitrary goal.
Speaker #2: And I think that if we did that, like right now, we've got the sub-70 operating ratio goal and that's been hanging out there. We probably wouldn't have invested $2 billion over the last three years in capital expenditures because of all the costs that that created.
And again, that's part of the value proposition. But, you know, hey, look, we're we're winning market share right now. And, as I mentioned, we're already, if you just sort of go month by month, we're, um, tons per day is, is above what normal seasonality would have suggested, uh, from the, the beginning of the year. And I'd say that the challenge is to the economy, um, you know, the economy is in a good spot. It's obviously ISM has been positive, but it's not like we've had ISM, you know, knocking on the door of 60 or being above, you know, 55 and, uh, I still think there's there's opportunity out there in the retail side, but, uh, and I I believe looking at inventory to sales ratio that, you know, that's a precursor and you look back in history. It's as low as it's been, maybe going back to 21,
Speaker #2: But I can tell you we're better positioned than any other carrier because of those investments. And all the things that we've done, but when I look at our cost structure now, like I mentioned, for the second quarter of this year, for our direct operating cost, to be at 50% versus the 52% and some change in both periods, going back to that second quarter of '22, a lot of that with a significant decrease in volumes between those two periods compared I think it shows the strength of our team.
Speaker #2: It shows the commitment that we've had to getting good yield increases throughout this whole freight recession. But to be 200 basis points, 250 basis points better now than we were then, with maybe 10,000 less shipments per day, just speaks to the strength of our team.
1. Uh, so that should kick off some, some volume and market share opportunities. But you know, I think the the domestic economy as a whole is just got the inflation concerns and world events, uh, that, you know, have probably been been keeping a little bit of a lid on things. It's positive, but it's not, uh, you know, red hot. So to speak. We're not in the type of environment yet that's, you know, say a 2018 or a 2021 but, you know, I feel like some of the metrics makes it seem like that inflection point is is is uh, coming and um that's partly why we we want to be ready for it. We're not going to uh, get out over our skis if you will, in terms of of, you know, getting too far ahead of the growth curve. Uh but we're far enough ahead uh to to keep going through the the balance of this year. We definitely got plenty of service center and Equipment capacity and and you know, continuing to to look at the headcount is just something that will manage more closely.
Speaker #2: It also speaks to investments that we made in technologies to help our team be more. Efficient. So I think that now that we're on the precipice of tonnage turning back positive and if we keep having this positive tonnage and shipment growth sequentially coming into our system, there's a tremendous amount of leverage there for further improvement in our direct operating cost.
That's great. Thanks for the time.
The next question is from Scott Group with Wolfe Research. Please go ahead.
Speaker #2: And then it's mapping out just taking the revenue up. Some of our overhead costs are variable in nature. So the overhead cost dollars will likely continue to grow as well.
Hey, thanks. Good morning. Adam, I just want to clarify one thing on the 10% revenue growth for Q3. Does that assume sort of normal tonnage seasonality in August and September, or anything better or worse? And then just maybe, longer term, like...
You tend to be very, sort of, measured in your
Speaker #2: But that's when you can start swinging that pendulum back the other way if we were at 16 to 17 percent overhead costs as a percent of revenue in the second quarter of '22 and kind of where we've been trending in the just say in recent periods and kind of the '22, '23 percent, we were right at 20% in the second quarter.
Speaker #2: So we already made a 300, 400 basis points of incremental opportunity there. So I think we continue to do the right thing and managing our costs, controlling our discretionary spending, but first and foremost is making sure that service is first and foremost in the minds of our people.
Speaker #2: We've made all those cost changes while we've improved our service. And that's why it was important what Marty said. And it's prepared remarks. We're continuing to improve transit times.
Speaker #2: Anything our customers are asking us for, we're delivering. And so we've done all that in a low volume environment. It's pretty easy to kind of pencil out where things can get to.
Operator: Good morning, and welcome to the Old Dominion Freight Line Q2 2026 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.
Operator: Good morning, and welcome to the Old Dominion Freight Line Q2 2026 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.
Speaker #2: And yeah, we don't want to. People to expect that it's coming next quarter or even the beginning of next year. It's going to be a consistent methodical approach, which is what we've always done.
You know, Scott, we've never, um, put a timeline on on any of our goals. Uh, just for the sake that you don't want to make decisions that uh, are trying to achieve an, an arbitrary goal. And I think that, you know, if we did that, you know, like right now we've got the sub 700, um, operating ratio goal and that's been hanging out there. You know, we probably wouldn't have invested 2 billion dollars, uh, over the last 3 years and capital expenditures because of all the costs that that created. But I can tell you, we're better positioned than any other carrier because of those Investments and you know, all the things that that we've done. Uh, but you know, when I look at our cost structure now, like I mentioned, you know, for the the second quarter of this year, uh, for our direct operating cost, you know, to be at at 50% versus the 52%, uh, you know, and some change in both periods, going back to that second quarter of 22, you know, a lot of that, you know, with a significant decrease in volume
Speaker #2: But you look back over history and it tends to rhyme in our industry. And when you get into that first big year of revenue growth, those are the types of years where we've been able to produce 300, 400 basis points a year over year improvement in our operating ratio.
Operator: To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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.
Operator: To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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.
Speaker #2: And if we can get a big year, there's no reason why we can't produce some similar type of numbers like we've done in the past.
Volumes between those 2 periods compared. You know, I think it shows the strength of our team. It shows the commitment that we've had to getting good yield increases throughout this whole Freight recession. Uh, but to be 200 basis points, 250 basis points better now than we were then. With maybe, you know, 10,000 less shipments per day, uh, just speaks to the the strength of our team. It also speaks to Investments that we made in in Technologies uh to help our our team be more.
Jack Atkins: Thank you, operator. Good morning, everyone. Welcome to the Q2 2026 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through August 5, 2026, by dialing 1-855-669-9658, access code 8521187. The replay of the webcast may also be accessed for 30 days on our 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 are not statements of historical fact may be deemed to be forward-looking statements.
Jack Atkins: Thank you, operator, good morning, everyone. Welcome to the Q2 2026 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through 05 August 2026, by dialing 1-855-669-9658, access code 8521187. The replay of the webcast may also be accessed for 30 days on our 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 are not statements of historical fact may be deemed to be forward-looking statements.
Speaker #8: Very helpful. Thank you,
Speaker #7: Adam.
Speaker #1: This concludes our question and answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks.
Speaker #7: Thank you all today for your participation. We appreciate all your questions. And please feel free to give us a call if you have anything further.
Speaker #7: Thanks. And I hope you have a great day.
Jack Atkins: Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. 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. Finally, before we begin, we welcome your questions today, ask that you limit yourselves to just one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to our President and Chief Executive Officer, Kevin Freeman. Marty, please go ahead.
Jack Atkins: Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. 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. Finally, before we begin, we welcome your questions today, ask that you limit yourselves to just one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to our President and Chief Executive Officer, Kevin Freeman. Marty, please go ahead.
Uh, efficient. So, you know, I think that now, that we're on the precipice of of tonnage turning back positive and, and if we keep having this, this positive tonnage and shipment, uh, growth sequentially coming into our system. You know, there's a tremendous amount of Leverage there, uh, for further Improvement in a direct operating cost, uh, and then, you know, it's, it's mapping out. Just taking the, the revenue up, you know, some of our overhead costs are very in nature. So, uh, the overhead costs dollars will will likely continue to to grow as well but that's when you can start swinging that that pendulum back the other way. If we were at 16 to 17 percent overhead costs as a percent of Revenue, in the second quarter of 22 and kind of where we've been trending in the um you know, just saying in in recent periods and and kind of the uh 22 23%. We were right at 20% in the second quarter so we already made a little Headway but
You know, there's 3 400 basis points of of incremental opportunity there. So, you know, I think we continue to uh, to do the right thing and managing our costs, uh, controlling under discretionary spending. But first and foremost is making sure that that service is first and, and foremost in the minds of our people. You know, we've made all those calls changes while we've improved our service. And that's why I was important with Marty said and is prepared remarks. We're continuing to improve transit times, uh, you know,
anything our, our customers are asking us for, we're delivering
Kevin Freeman: Good morning, and welcome to our Q2 conference call. With me today on the call is Adam Satterfield, our CFO. After some brief remarks, we would be glad to take your questions. Old Dominion produced strong results in Q2, which include a 10.4% increase in revenue and a 450-basis-point improvement in our operating ratio. In addition, our Q2 earnings per diluted share increased 32.3% to $1.68, which matches our previous company record that we set in Q3 2022. These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution.
Kevin Freeman: Good morning, and welcome to our Q2 conference call. With me today on the call is Adam Satterfield, our CFO. After some brief remarks, we would be glad to take your questions. Old Dominion produced strong results in Q2, which include a 10.4% increase in revenue and a 450-basis-point improvement in our operating ratio. In addition, our Q2 earnings per diluted share increased 32.3% to $1.68, which matched our previous company record that we set in Q3 2022. These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution.
And so, you know, we we've done all that in a low volume environment. Uh, it's pretty easy to to kind of pencil out where things can get to and, you know, and, and yeah, we don't want to people to expect that it's coming next quarter or even, you know, the beginning of next year, it's going to be a consistent methodical approach, which is is what we've always done, but you look back over history and it it tends to uh, to rhyme in our industry. And when you get into that first big year of Revenue growth, you know, those are the types of years where we've been able to produce 3, 400 basis points a year-over-year Improvement and our operating ratio. And, you know, if we can get a big year, uh there's no reason why we can't produce some similar type of numbers like we've done in the past.
Very helpful. Thank you. Adam.
This concludes our question and answer session, I would like to turn to the conference back over to Marty Freeman for any closing remarks.
Kevin Freeman: While the difficult operating environment over the past few years presented us with a number of challenges, including lower network density and inflationary cost pressures, we continued to diligently execute on our fundamental aspects of our long-term strategic plan and invest for the future. The strength of our Q2 results demonstrates the benefits of this strategy. While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price. That was the case again in Q2 when we provided our customers with 99% on-time service and a claims ratio of 0.1%. In addition, we have made approximately 1,000 lane adjustments this year that improved our service standard transit times.
Kevin Freeman: While the difficult operating environment over the past few years presented us with a number of challenges, including lower network density and inflationary cost pressures, we continued to diligently execute on our fundamental aspects of our long-term strategic plan and invest for the future. The strength of our Q2 results demonstrates the benefits of this strategy. While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price. That was the case again in Q2 when we provided our customers with 99% on-time service and a claims ratio of 0.1%. In addition, we have made approximately 1,000 lane adjustments this year that improved our service standard transit times.
Thank you all today for your participation. We appreciate all your questions, and please feel free to give us a call if you have anything further. Thanks, and I hope you have a great day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect
Kevin Freeman: Our team continues to leverage their experience in new technologies to further improve our service standards and overall value proposition for our customers. Our customers rely on us to keep their promises to them by picking up and delivering their freight on time and without damages so that they can keep their commitments to their own customers. Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry. That is why it is critical, despite a prolonged period of softness in the domestic economy, to continue to make the key long-term investments in our network, our technology, and our people so that we can now continue to deliver best-in-class service as the operating environment changes.
Kevin Freeman: Our team continues to leverage their experience in new technologies to further improve our service standards and overall value proposition for our customers. Our customers rely on us to keep their promises to them by picking up and delivering their freight on time and without damages so that they can keep their commitments to their own customers. Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry. That is why it is critical, despite a prolonged period of softness in the domestic economy, to continue to make the key long-term investments in our network, our technology, and our people so that we can now continue to deliver best-in-class service as the operating environment changes.
Kevin Freeman: Consistently providing our customers with superior customer service is the cornerstone of our strategic plan, and doing so supports our yield management initiatives. Our disciplined approach to pricing, which focuses on individual account-level profitability, is designed to offset our cost inflation over the long term and support reinvestment back into our business. Our ability to take a long-term approach to our investments in our network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities. Our strategic plan has worked through many economic cycles. That said, our greatest opportunities to win market share often come when industry capacity is generally limited and the domestic economy is strong. The domestic economic environment remains relatively stable, and we are encouraged by the continued improvement in demand that began late last year.
Kevin Freeman: Consistently providing our customers with superior customer service is the cornerstone of our strategic plan, and doing so supports our yield management initiatives. Our disciplined approach to pricing, which focuses on individual account-level profitability, is designed to offset our cost inflation over the long term and support reinvestment back into our business. Our ability to take a long-term approach to our investments in our network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities. Our strategic plan has worked through many economic cycles. That said, our greatest opportunities to win market share often come when industry capacity is generally limited and the domestic economy is strong. The domestic economic environment remains relatively stable, and we are encouraged by the continued improvement in demand that began late last year.
Kevin Freeman: In addition, based on feedback we have received from our customers, we believe that our superior service is increasingly differentiating Old Dominion within our industry and providing opportunities for incremental growth. We reported strong Q2 results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan. We returned to revenue growth in the quarter and produced strong operating leverage on our incremental revenue. In addition, because of our consistent investments in our network and our people, we have all the necessary elements of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes. As a result, we are confident in our ability to win market share and produce profitable revenue growth, which we believe will generate increased value for our shareholders over the long term. Again, thank you for joining us this morning.
Kevin Freeman: In addition, based on feedback we have received from our customers, we believe that our superior service is increasingly differentiating Old Dominion within our industry and providing opportunities for incremental growth. We reported strong Q2 results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan. We returned to revenue growth in the quarter and produced strong operating leverage on our incremental revenue. In addition, because of our consistent investments in our network and our people, we have all the necessary elements of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes. As a result, we are confident in our ability to win market share and produce profitable revenue growth, which we believe will generate increased value for our shareholders over the long term. Again, thank you for joining us this morning.
Kevin Freeman: Now Adam will discuss our Q2 in greater detail. Adam?
Kevin Freeman: Now Adam will discuss our Q2 in greater detail. Adam?
Adam Satterfield: Thank you, Marty, and good morning. Old Dominion's revenue increased 10.4% to $1.55 billion for Q2 2026, while our operating ratio improved 450 basis points to 70.1%. The combination of these factors resulted in a 32.3% increase in our earnings per diluted share to $1.68. We were pleased to return to revenue growth in Q2, which included an increase in our yield and an improving trend with our volumes.
Adam Satterfield: Thank you, Marty, and good morning. Old Dominion's revenue increased 10.4% to $1.55 billion for Q2 2026, while our operating ratio improved 450 basis points to 70.1%. The combination of these factors resulted in a 32.3% increase in our earnings per diluted share to $1.68. We were pleased to return to revenue growth in Q2, which included an increase in our yield and an improving trend with our volumes.
Adam Satterfield: Our revenue results include a 15.2% increase in LTL revenue per hundredweight, which was partially offset by a 4.1% decrease in our LTL tons per day. Excluding fuel surcharges, our LTL revenue per hundredweight increased 5.5% due to our continued focus on revenue quality during the quarter. On a sequential basis, our revenue per day for Q2 increased 14.6% when compared to Q1 2026, with LTL tons per day increasing 4.0% and LTL shipments per day increasing 3.2%.
Adam Satterfield: Our revenue results include a 15.2% increase in LTL revenue per hundredweight, which was partially offset by a 4.1% decrease in our LTL tons per day. Excluding fuel surcharges, our LTL revenue per hundredweight increased 5.5% due to our continued focus on revenue quality during the quarter. On a sequential basis, our revenue per day for Q2 increased 14.6% when compared to Q1 2026, with LTL tons per day increasing 4.0% and LTL shipments per day increasing 3.2%.
Adam Satterfield: For comparison, the 10-year average sequential change for these metrics includes an increase of 7.1% in revenue per day, an increase of 4.4% in LTL tons per day, and an increase of 5.2% in LTL shipments per day. The monthly sequential change in LTL tons per day during Q2 were as follows. April decreased 2.8% as compared to March.
Adam Satterfield: For comparison, the 10-year average sequential change for these metrics includes an increase of 7.1% in revenue per day, an increase of 4.4% in LTL tons per day, and an increase of 5.2% in LTL shipments per day. The monthly sequential change in LTL tons per day during Q2 were as follows. April decreased 2.8% as compared to March.
Adam Satterfield: May increased 3.0% as compared to April. June increased 0.9% as compared to May. The comparative 10-year average change for these respective months is a decrease of 0.9% in April, an increase of 2.2% in May, and an increase of 1.7% in June. While there are still a few workdays remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July 2025. This includes an increase in our LTL revenue per hundredweight that is partially offset by a decrease in our LTL tons per day of approximately 1.0%. Although our tons per day are slightly lower than July of last year, the sequential change from June 2026 is significantly better than our normal seasonality.
Adam Satterfield: May increased 3.0% as compared to April. June increased 0.9% as compared to May. The comparative 10-year average change for these respective months is a decrease of 0.9% in April, an increase of 2.2% in May, and an increase of 1.7% in June. While there are still a few workdays remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July 2025. This includes an increase in our LTL revenue per hundredweight that is partially offset by a decrease in our LTL tons per day of approximately 1.0%. Although our tons per day are slightly lower than July of last year, the sequential change from June 2026 is significantly better than our normal seasonality.
Adam Satterfield: The increase in July's LTL revenue per hundredweight, excluding fuel surcharges, is currently tracking below the second-quarter growth rate of 5.5%, due primarily to changes in the mix of our freight. I am currently anticipating an improvement in this metric for the third quarter of 4% to 4.5%. To be clear, this is a positive trend for our company, as it reflects the continued increase in our weight per shipment. We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry. As usual, we will provide the actual revenue-related details for July in our second-quarter Form 10-Q. Our operating ratio improved 450 basis points to 70.1% for Q2 2026, with improvements in both our direct operating cost and our overhead expenses as a percent of revenue.
Adam Satterfield: The increase in July's LTL revenue per hundredweight, excluding fuel surcharges, is currently tracking below the second quarter growth rate of 5.5% due primarily to changes in the mix of our freight. I'm currently anticipating an improvement in this metric for the third quarter of 4% to 4.5%. To be clear, this is a positive trend for our company as it reflects the continued increase in our weight per shipment. We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q. Our operating ratio improved 450 basis points to 70.1% for Q2 2026, with improvements in both our direct operating cost and our overhead expenses as a percent of revenue.
Adam Satterfield: Within our direct operating cost, improvements in our salaries, wages, and benefits as a percentage of revenue more than offset an increase in our operating supplies and expenses. This increase in operating supplies and expenses was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. The improvement in our overhead cost as a percent of revenue was partially due to the change in our net miscellaneous income and expense. This line item included $17.2 million of net gains on the disposal of property and equipment during the current quarter. We also saw improvements in a number of other overhead expenses due to the leverage gained from the increase in revenue, as well as a continued focus on controlling our discretionary spending.
Adam Satterfield: Within our direct operating cost, improvements in our salaries, wages, and benefits as a percentage of revenue more than offset an increase in our operating supplies and expenses. This increase in operating supplies and expenses was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. The improvement in our overhead cost as a percent of revenue was partially due to the change in our net miscellaneous income and expense. This line item included $17.2 million of net gains on the disposal of property and equipment during the current quarter. We also saw improvements in a number of other overhead expenses due to the leverage gained from the increase in revenue, as well as a continued focus on controlling our discretionary spending.
Adam Satterfield: Old Dominion's cash flow from operations totaled $272.7 million for Q2 and $646.3 million for H1 2026 respectively, while capital expenditures were $77.0 million and $139.6 million for those same periods. We increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year. The $115 million increase from our original plan includes an additional $60 million for tractors and trailers and an additional $55 million for real estate and service center expansion projects. While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan.
Adam Satterfield: Old Dominion's cash flow from operations totaled $272.7 million for Q2 and $646.3 million for H1 2026 respectively, while capital expenditures were $77.0 million and $139.6 million for those same periods. We increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year. The $115 million increase from our original plan includes an additional $60 million for tractors and trailers and an additional $55 million for real estate and service center expansion projects. While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan.
Adam Satterfield: We utilized $151.6 million and $239.7 million of cash for our share repurchase program during Q2 and H1 2026 respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods. Our effective tax rate for Q2 2026 was 25.0% as compared to 24.8% in Q2 2025. We currently expect our effective tax rate to be 25.0% for Q3 2026. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for any questions at this time.
Adam Satterfield: We utilized $151.6 million and $239.7 million of cash for our share repurchase program during Q2 and H1 2026 respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods. Our effective tax rate for Q2 2026 was 25.0% as compared to 24.8% in Q2 2025. We currently expect our effective tax rate to be 25.0% for Q3 2026. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for any questions at this time.
Operator: We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jonathan Chappell with Evercore ISI. Please go ahead.
Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jonathan Chappell with Evercore ISI. Please go ahead.
Jonathan Chappell: Thank you. Good morning. Adam, a lot of volatility from month to month as we look at seasonality and your 10-year average is obviously a lot better in May, maybe it was slower in June. Can you just speak to the overall demand environment as we think about July trending from here? Also to the extent that you can put a pin on it, we've been hearing a lot about freight shifting from a tight TL market to an LTL market. Are you seeing that, and where do you think you stand as far as the innings of that transition?
Jonathan Chappell: Thank you. Good morning. Adam, a lot of volatility from month to month as we look at seasonality and your 10-year average is obviously a lot better in May, maybe it was slower in June. Can you just speak to the overall demand environment as we think about July trending from here? Also to the extent that you can put a pin on it, we've been hearing a lot about freight shifting from a tight TL market to an LTL market. Are you seeing that, and where do you think you stand as far as the innings of that transition?
Adam Satterfield: Yeah, I think to start with that first, I still think we're in the early innings. We're hearing some of that from customers, but I haven't really seen the big weight per shipment change within certain categories, particularly with the RPO-managed business that you would see when there's a major inflection going on with the truckload spillover one way or the other. I still think that there's probably a lot left to go with that renormalization there, if you will. I expect that will continue as the truckload rate environment continues to be really strong. Overall for us, demand continues to improve. Happy with a lot of the trends that we're seeing. You're right, I think that it's choppy month to month when you look at our sequential growth versus our 10-year average trends. That's not uncommon when you get in periods like this.
Adam Satterfield: Yeah, I think to start with that first, I still think we're in the early innings. We're hearing some of that from customers, but I haven't really seen the big weight-per-shipment change within certain categories, particularly with the RPO-managed business that you would see when there's a major inflection going on with the truckload spillover one way or the other. I still think that there's probably a lot left to go with that renormalization there, if you will. I expect that will continue as the truckload rate environment continues to be really strong. Overall for us, demand continues to improve. I'm happy with a lot of the trends that we're seeing. You're right—I think that it's choppy month to month when you look at our sequential growth versus our 10-year average trends. That's not uncommon when you get in periods like this.
Adam Satterfield: There have been certain months where we've just significantly outperformed the 10-year average, the next month might be a little bit softer and so forth, and that's kind of the way the Q2 shaped up. We had a really strong February and March, April was softer than the 10-year average. We kind of climbed out of that and essentially brought the full quarter sequential trend back to right there at what the normal quarter would be. I've looked at if you went back to the beginning of this year in normal seasonality, if you just played it out month by month, in July, we're handling probably about three million pounds more per day than we would if normal seasonality had played out.
Adam Satterfield: There have been certain months where we've just significantly outperformed the 10-year average, the next month might be a little bit softer and so forth, and that's kind of the way the Q2 shaped up. We had a really strong February and March, April was softer than the 10-year average. We kind of climbed out of that and essentially brought the full quarter sequential trend back to right there at what the normal quarter would be. I've looked at if you went back to the beginning of this year in normal seasonality, if you just played it out month by month, in July, we're handling probably about three million pounds more per day than we would if normal seasonality had played out.
Adam Satterfield: To me, I think we're obviously outperforming at this rate for full seasonality, and I think we're just in the early stages of the economy getting going again with where ISM has just been in the low 50s, has not really had a big breakout yet, and I still think there's a lot of room to roam when you look at things like some of the inventory to sales ratios as low as that is. That somewhat reconciles with feedback we've heard from customers about the need for restocking and so forth. Really excited about where we are, but more excited about the opportunities that lay ahead to carry some momentum through the balance of this year into 2027 as well.
Adam Satterfield: To me, I think we're obviously outperforming at this rate for full seasonality, and I think we're just in the early stages of the economy getting going again with where ISM has just been in the low 50s, has not really had a big breakout yet, and I still think there's a lot of room to roam when you look at things like some of the inventory to sales ratios as low as that is. That somewhat reconciles with feedback we've heard from customers about the need for restocking and so forth. Really excited about where we are, but more excited about the opportunities that lay ahead to carry some momentum through the balance of this year into 2027 as well.
Jonathan Chappell: Thanks, Adam.
Jonathan Chappell: Thanks, Adam.
Operator: The next question is from Chris Wetherbee with Wells Fargo. Please go ahead.
Operator: The next question is from Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Yeah. Hey, thanks. Good morning. Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics for the forward quarter in the past. I was wondering if you could help us a little bit with that. Obviously, Q2 from an OR perspective does have the gain in it. Maybe just some thoughts on how you think about revenue opportunity in Q3 and also the operating ratio.
Chris Wetherbee: Yeah. Hey, thanks. Good morning. Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics for the forward quarter in the past. I was wondering if you could help us a little bit with that. Obviously, the Q2 from an OR perspective does have the gain in it. Maybe just some thoughts on how you think about revenue opportunity in the Q3 and also the operating ratio.
Adam Satterfield: Yeah, I'll just maybe answer one of those and leave the other for someone else's follow-up. Maybe just to start with the top line because I haven't always given revenue guidance, but I think it's probably appropriate, especially with some of the volatility that we've had with fuel. I guess to start, the July revenue growth rate of 7.5% to 8%, that includes sequential change in tonnage that's significantly better than the 10-year average, as I mentioned. Just put some context around that, the tons per day right now is sequentially down about 0.5%. The 10-year average is down 3%. Seeing really strong performance there. I think that if we can carry momentum through the rest of the quarter and may see some of this choppiness that I just spoke about in either August or September.
Adam Satterfield: Yeah, I'll just maybe answer one of those and leave the other for someone else's follow-up. Maybe just to start with the top line because I haven't always given revenue guidance, but I think it's probably appropriate, especially with some of the volatility that we've had with fuel. I guess to start, the July revenue growth rate of 7.5% to 8%, that includes sequential change in tonnage that's significantly better than the 10-year average, as I mentioned. Just put some context around that, the tons per day right now is sequentially down about 0.5%. The 10-year average is down 3%. Seeing really strong performance there. I think that if we can carry momentum through the rest of the quarter and may see some of this choppiness that I just spoke about in either August or September.
Adam Satterfield: I think if we can just carry some of this momentum forward, maybe we'd think that we can get to a 10% increase in revenue for the full quarter—so, bring that growth rate up. And that would put the absolute number at about $1.54 or $1.55 billion for the full quarter. Obviously, we give our mid-quarter update, so we'll be able to track along with that the entire time. Conservatively, if we carry that same 7.5% to 8% growth rate, that'd be about $1.52 billion for the full quarter. Yeah, kind of as a baseline, what I'm anticipating for fuel is assuming that we're going to see stability. It had stabilized for a bit during Q2.
Adam Satterfield: I think if we can just carry some of this momentum forward, maybe would think that we can get to a 10% increase in revenue for the full quarter, so bring that growth rate up, and that would put the absolute number at about $1.54 or $1.55 billion for the full quarter. Obviously, we give our mid-quarter update, so we'll be able to track along with that the entire time. Conservatively, if we carry that same 7.5% to 8% growth rate, that'd be about $1.52 billion for the full quarter. Yeah, kind of as a baseline, what I'm anticipating for fuel is assuming that we're going to see stability. It had stabilized for a bit during the Q2.
Adam Satterfield: It's re-inflected back positive, I would like to think that we see some resolution there and have fuel that maybe trims back down and we'll see that more or my baseline is $4.95 as an average per gallon for the full quarter. We'd like to see that come under control, which I think will be a net positive for the overall economy.
Adam Satterfield: It's re-inflected back positive, I would like to think that we see some resolution there and have fuel that maybe trims back down and we'll see that more or my baseline is $4.95 as an average per gallon for the full quarter. We'd like to see that come under control, which I think will be a net positive for the overall economy.
Chris Wetherbee: Okay. That's helpful. Appreciate it.
Chris Wetherbee: Okay. That's helpful. Appreciate it.
Operator: The next question is from Jordan Alliger with Goldman Sachs. Please go ahead.
Operator: The next question is from Jordan Alliger with Goldman Sachs. Please go ahead.
Jordan Alliger: Yeah. Hi, good morning. I guess I'll follow up on the going from revenue to the sequential OR thoughts, and I guess if you could just let us know if that would be off of the reported OR or any adjustments related to that net property gain. Thank you.
Jordan Alliger: Yeah. Hi, good morning. I guess I'll follow up on the going from revenue to the sequential OR thoughts, and I guess if you could just let us know if that would be off of the reported OR or any adjustments related to that net property gain. Thank you.
Adam Satterfield: Yeah, I figured that would be close on the heels, Jordan. Obviously, the 10-year average change for us, at least, is for the Q3 operating ratio to be flat or up 50 basis points from Q2. I think we can essentially hit our normal seasonality, but you do have to add back some of the items to normalize what that Q3 operating ratio would be—the biggest of which is obviously the big gain that we had on property sales during the quarter. With some of those things in mind, I would say a normalized overall increase off the 70.1 would be an increase of about 150 to 200 basis points from Q2 to Q3.
Adam Satterfield: Yeah, I figured that would be close on the heels, Jordan. Obviously, the 10-year average change for us at least is for the Q3 operating ratio to be flat or up 50 basis points from the Q2. I think we can essentially hit our normal seasonality, but you do have to add back some of the items to normalize what that Q3 operating ratio would be. The biggest of which is obviously the big gain that we had on property sales during the quarter. With some of those things in mind, I would say a normalized overall increase off the 70.1 would be an increase of about 150 to 200 basis points from the Q2 to the Q3.
Jordan Alliger: Thank you.
Jordan Alliger: Thank you.
Operator: The next question is from Thomas Wadewitz with UBS. Please go ahead.
Operator: The next question is from Thomas Wadewitz with UBS. Please go ahead.
Thomas Wadewitz: Yeah, good morning. Adam and Marty, I wanted to get your thoughts on maybe what's happening with service and capacity in the market. I think there have been some data points or feedback that there are maybe a couple of pretty good-sized carriers that have hit some embargoes in the Midwest and capacity constraints. I have also heard feedback about the LTL driver market getting a bit tighter, or a little harder to hire drivers—maybe more of a connection with truckload than I would have expected. What are you seeing in terms of, are you also observing that, and is that starting to have an effect on your business in terms of maybe some shipments coming over to you that might even affect July?
Thomas Wadewitz: Yeah, good morning. Adam and Marty, I wanted to get your thoughts on maybe what's happening with service and capacity in the market. I think there have been some data points or feedback that there are maybe a couple pretty good-sized carriers that have hit some embargoes in the Midwest and capacity constraints.
Thomas Wadewitz: Have also heard feedback about LTL driver market getting a bit tighter or a little harder to hire drivers. Maybe more of a connection with truckload than I would have expected. What are you seeing in terms of are you also observing that, and is that starting to have an effect on your business in terms of maybe some shipments coming over to you that might even affect July? Just if you think that's happening, and then how quickly that or how much that might affect you and what you see in your shipments and your pricing. Thank you.
Thomas Wadewitz: Just if you think that's happening, and then how quickly that or how much that might affect you and what you see in your shipments and your pricing. Thank you.
Kevin Freeman: Good question. First of all, we're not having any capacity issues, whether it be with equipment or drivers or real estate. You are correct. We are hearing some talk about some of our competitors having problems picking up at the end of the month. We have seen some of that freight move over temporarily. If we get a major inflection in the economy, I think we'll see it daily. Yes, we are hearing that. I think some of that, as Adam alluded to earlier, could be coming from the full truckload industry—some of that freight starting to spill back over, in a small way, to the LTL environment. I think that's a double whammy for us.
Kevin Freeman: Good question. First of all, we're not having any capacity issues, whether it be with equipment or drivers or real estate. You are correct. We are hearing some talk about some of our competitors having problems picking up at the end of the month. We have seen some of that freight move over temporarily. If we get a major inflection in the economy, I think we'll see it daily. Yes, we are hearing that. I think some of that, as Adam alluded to earlier, could be coming from the full truckload industry, some of that freight starting to spill back over in a small way to the LTL environment. I think that's a double whammy for us.
Thomas Wadewitz: You think that's maybe boosting July, or was that happening earlier in the quarter?
Thomas Wadewitz: Do you think that's maybe boosting July, or was that happening earlier in the quarter?
Adam Satterfield: Yeah, I think it's been happening. We've heard it earlier in the year. Look, this is a big part of our value proposition is always having capacity, and it's not just the service center capacity. It's having trailing equipment where you can spot trailers at our customers' doors, particularly end of month, end of quarter, but having driver capacity as well. As Marty said, we've got plenty of capacity across all of those three major elements. I think when other carriers are operating in Q1, the public company average, excluding us, was a 94. You got to start managing cost in different ways and maybe aren't able to keep the amount of excess capacity to respond to growth opportunities as they're coming on a sequential basis. I definitely think that's been a little part of the story.
Adam Satterfield: Yeah, I think it's been happening. We've heard it earlier in the year. Look, this is a big part of our value proposition is always having capacity, and it's not just the service center capacity. It's having trailing equipment where you can spot trailers at our customers' doors, particularly end of month, end of quarter, but having driver capacity as well. As Marty said, we've got plenty of capacity across all of those three major elements. I think when other carriers are operating in Q1, the public company average, excluding us, was a 94. You got to start managing cost in different ways and maybe aren't able to keep the amount of excess capacity to respond to growth opportunities as they're coming on a sequential basis. I definitely think that's been a little part of the story.
Adam Satterfield: Again, like I said earlier, I think we're just in the early stages of recovering. It's been nice to see us be tracking it at seasonality really going back to November of last year. It just feels like we're in the early stages of this, and we got a big runway of growth ahead for us, and we're eager to get back to it. We've built up a tremendous amount of capacity over the last few years with the continued investments that we've made, so we're eager to get freight back into the system. You look at what we can produce in Q2, the control that we've shown over cost and improvement that we've had in our direct cost in particular. We're still down a long way from where we were back in 2022.
Adam Satterfield: Again, like I said earlier, I think we're just in the early stages of recovering. It's been nice to see us be tracking it at seasonality really going back to November of last year. It just feels like we're in the early stages of this, and we got a big runway of growth ahead for us, and we're eager to get back to it. We've built up a tremendous amount of capacity over the last few years with the continued investments that we've made, so we're eager to get freight back into the system. You look at what we can produce in Q2, the control that we've shown over cost and improvement that we've had in our direct cost in particular. We're still down a long way from where we were back in 2022.
Adam Satterfield: If we can continue to see that inflection like we just saw from Q2 to Q3, just a 4% sequential increase in our tonnage. Doing that with the same headcount, look at all the leverage that exists in our business. A lot of opportunity to grow the top line, but more importantly, to keep improving our operating ratio and produce strong profitable growth.
Adam Satterfield: If we can continue to see that inflection like we just saw from Q2 to Q3, just a 4% sequential increase in our tonnage. Doing that with the same headcount, look at all the leverage that exists in our business. A lot of opportunity to grow the top line, but more importantly, to keep improving our operating ratio and produce strong profitable growth.
Thomas Wadewitz: Great. Thank you.
Thomas Wadewitz: Great. Thank you.
Operator: The next question is from Eric Morgan with Barclays. Please go ahead.
Operator: The next question is from Eric Morgan with Barclays. Please go ahead.
Eric Morgan: Hey, good morning. Thanks for taking the question. I wanted to ask on pricing. Just curious if you could discuss what drove your yields ahead of your initial guidance in the quarter, especially with LTL shipments improving through the quarter. Relatedly, just wondering if you could elaborate a bit on what those mix effects were you referenced that is driving Q3 yield growth a little bit below Q2. Thanks.
Eric Morgan: Hey, good morning. Thanks for taking the question. I wanted to ask about pricing. Just curious if you could discuss what drove your yields ahead of your initial guidance in the quarter, especially with LTL shipments improving through the quarter. Relatedly, just wondering if you could elaborate a bit on what those mix effects were that you referenced that are driving Q3 yield growth a little bit below Q2. Thanks.
Adam Satterfield: Yeah, the Q2 I think just benefited some. There is always a mix that is going on. It could be a balance of national account versus your small mom and pop, some of our higher priority services and so forth. We were pleased to see the overall revenue per hundredweight in the Q2 tracking. Our guidance going into the Q2 was thinking that it would be at about 4% to 4.5%. So obviously we are well ahead of that. Sometimes just looking month to month and so forth, the revenue per hundredweight can move up or down, and I do not think that there is anything to call out.
Adam Satterfield: Yeah, the Q2, I think, just benefited some. There is always a mix that is going on. It could be a balance of national accounts versus your small mom-and-pop, some of our higher-priority services, and so forth. We were pleased to see the overall revenue per hundredweight in the Q2 tracking. Our guidance going into Q2 was thinking that it would be at about 4% to 4.5%. So, obviously, we are well ahead of that. Sometimes, just looking month to month and so forth, the revenue per hundredweight can move up or down, and I do not think that there is anything to call out.
Adam Satterfield: To me, what we're seeing with it coming back down, the rate of growth that is, it's still sequentially increasing the revenue per hundredweight that is. It's very similar to what we saw sequentially back in 2017, where we had weight per shipment that was outperforming normal seasonality through that year, and that was in the early stage. If you recall, that's when the real inflection was beginning. I'd like to think that some of the similarities that we're seeing in our numbers, particularly with yield, particularly with tonnage and weight per shipment, maybe this is the start of the real inflection like what we saw back then. That's why I wanted to make clear that this is a positive when you see the revenue growth and it coming in the form of tons and weight per shipment and our yields continuing to improve.
Adam Satterfield: To me, what we're seeing with it coming back down, the rate of growth that is, it's still sequentially increasing the revenue per hundredweight that is. It's very similar to what we saw sequentially back in 2017, where we had weight per shipment that was outperforming normal seasonality through that year, and that was in the early stage. If you recall, that's when the real inflection was beginning. I'd like to think that some of the similarities that we're seeing in our numbers, particularly with yield, particularly with tonnage and weight per shipment, maybe this is the start of the real inflection like what we saw back then. That's why I wanted to make clear that this is a positive when you see the revenue growth and it coming in the form of tons and weight per shipment and our yields continuing to improve.
Adam Satterfield: That's what puts profits to the bottom line. That's a key driver of what allowed us to operate at a 70.1. I realize we had the real estate gain in there, but even if you back that out, that's one of the strongest operating quarters that we've ever had. If I go back and compare it to Q2 of 2022, I often talk about that breakdown of cost, direct operating cost and overhead. Our direct operating costs in Q2 of this year were about 200, 250 basis points better than where we were in Q2 of 2022, when we reduced to 69.5 operating ratio.
Adam Satterfield: That's what puts profits to the bottom line. That's a key driver of what allowed us to operate at a 70.1. I realize we had the real estate gain in there, but even if you back that out, that's one of the strongest operating quarters that we've ever had. If I go back and compare it to Q2 of 2022, I often talk about that breakdown of cost, direct operating cost and overhead. Our direct operating costs in Q2 of this year were about 200, 250 basis points better than where we were in Q2 of 2022, when we reduced to 69.5 operating ratio.
Adam Satterfield: When you think about that increase in our overhead cost, there's a tremendous amount of leverage that can not only take us down into the 60s, or just hitting right there at getting to a 69 operating ratio, but it's going to be able to allow us to drive it even much lower.
Adam Satterfield: When you think about that increase in our overhead cost there's the tremendous amount of leverage that can not only take us down into the 60s or just hitting right there at getting to a 69 operating ratio, but it's going to be able to allow us to drive it even much lower.
Eric Morgan: Thank you.
Eric Morgan: Thank you.
Operator: The next question is from Ravi Shanker with Morgan Stanley. Please go ahead.
Operator: The next question is from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Great, thanks. Morning, everyone. Adam and Marty, there's been a lot of focus on TL versus LTL conversion on this call. I think in the down cycle, we've also seen brokers take a bunch of share from asset-based LTLs in the marketplace. Obviously, the broker relationship right now is under scrutiny post-Montgomery. I'm wondering if you're seeing any shift away from brokers back to asset-heavy as well, as we go deeper into the cycle. Thank you.
Ravi Shanker: Great. Thanks. Morning, everyone. Adam and Marty, there's been a lot of focus on TL versus LTL conversion on this call. I think in the down cycle, we've also seen brokers take a bunch of share from asset-based LTLs in the marketplace. Obviously, the broker relationship right now is under scrutiny post Montgomery. I'm wondering if you're seeing any shift away from brokers back to asset heavy as well as we go deeper into the cycle. Thank you.
Adam Satterfield: Probably a little bit early for that. We saw revenue growth with our 3PL related customers in the most recent quarter that was similar to the overall growth rate for the company. That's kind of hanging in there. That's something that we obviously like to have customers direct with us. If that's a change that develops, we'll work with them. If a customer's using a 3PL, we treat them the same. We look at the cost. The important thing with business, and about a third of our revenue right now is with 3PLs, is to understand the cost on any customer account, whether it's direct or with a 3PL, and to price it appropriately so that we've got similar account level profitability across our book of business. That's the way we look at it.
Adam Satterfield: Probably a little bit early for that. We saw revenue growth with our 3PL related customers in the most recent quarter that was similar to the overall growth rate for the company. That's kind of hanging in there. That's something that we obviously like to have customers direct with us. If that's a change that develops, we'll work with them. If a customer's using a 3PL, we treat them the same. We look at the cost. The important thing with business, and about a third of our revenue right now is with 3PLs, is to understand the cost on any customer account, whether it's direct or with a 3PL, and to price it appropriately so that we've got similar account level profitability across our book of business. That's the way we look at it.
Adam Satterfield: We look at customer-specific cost, then we provide customer-specific pricing to those 3PLs. We'll take it if it comes at us, and be happy to do so.
Adam Satterfield: We look at customer-specific cost. Then we provide customer-specific pricing to those 3PLs. We'll take it if it comes at us, and be happy to do so.
Ravi Shanker: Sounds good. Thank you.
Ravi Shanker: Sounds good. Thank you.
Operator: The next question is from Ken Hoexter with Bank of America. Please go ahead.
Operator: The next question is from Ken Hoexter with Bank of America. Please go ahead.
Ken Hoexter: Hey, great. Good morning. Thanks for the insight before on some of the struggles at the carriers popping up. That's definitely an issue we've been hearing about also. If I can just take Ravi's question in maybe a different way, another upheaval or start is in the brokerage side, just given the heavy use of brokers that you have, we're seeing a lot of lawsuits go on now that are maybe whether it was from Montgomery and risk that moves up the food chain or last week, just the exposure. Is that impacting discussions with the brokers? Are you seeing any flows that might be changing? Maybe just talk about what you're seeing from that brokerage follow through.
Ken Hoexter: Hey, great. Good morning. Thanks for the insight before on some of the struggles at the carriers popping up. That's definitely an issue we've been hearing about also. If I can just take Ravi's question in maybe a different way, another upheaval or start is in the brokerage side, just given the heavy use of brokers that you have, we're seeing a lot of lawsuits go on now that are maybe whether it was from Montgomery and risk that moves up the food chain or last week, just the exposure. Is that impacting discussions with the brokers? Are you seeing any flows that might be changing? Maybe just talk about what you're seeing from that brokerage follow through.
Adam Satterfield: Yeah. Nothing at this point, Ken, that I've heard. We obviously, especially with some of our largest ones, several of our top 10 customers are 3PLs and have not really seen any type of material change there. Obviously, with the revenue growth being pretty consistent with the company average at this point. Haven't really heard a lot of feedback that there's been a lot of discussion. Obviously, as many of you have written about, it's a potential big change that's coming for the industry. I'm reading you all report about the increase in insurance costs, that's something that we've talked about in recent years. To be a large, sophisticated LTL, well-capitalized carrier, we have dealt with double-digit premium inflation for many years now. That's something that goes into our cost model that we've got to continue to account for with our pricing.
Adam Satterfield: Yeah, nothing at this point, Ken, that I've heard. We obviously, especially with some of our largest ones—several of our top 10 customers are 3PLs—and have not really seen any type of material change there. Obviously, with the revenue growth being pretty consistent with the company average at this point, haven't really heard a lot of feedback that there's been a lot of discussion. Obviously, as many of you have written about, it's a potential big change that's coming for the industry. I'm reading you all report about the increase in insurance costs. That's something that we've talked about in recent years. To be a large, sophisticated LTL, well-capitalized carrier, we have dealt with double-digit premium inflation for many years now. That's something that goes into our cost model that we've got to continue to account for with our pricing.
Adam Satterfield: It sounds like that's something that they will have to further account for. If a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage. If we give the same price, that's a cost. I think that'll be something to where they have to prove their value proposition, the 3PL that is, to the shipper. If more and more shippers choose to use Old Dominion direct, we'll be here for them, I should say, and be happy to handle it. Yeah, it's definitely cost inflation that's coming that may drive some of that cost through 3PL business versus none. Maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.
Adam Satterfield: It sounds like that's something that they will have to further account for. If a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage. If we give the same price, that's a cost. I think that'll be something to where they have to prove their value proposition, the 3PL that is, to the shipper. If more and more shippers choose to use Old Dominion direct, we'll be here for them, I should say, and be happy to handle it. Yeah, it's definitely cost inflation that's coming that may drive some of that cost through 3PL business versus none. Maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.
Ken Hoexter: Thanks, John.
Ken Hoexter: Thanks, John.
Operator: The next question is from Jason Seidl with TD Cowen. Please go ahead.
Operator: The next question is from Jason Seidl with TD Cowen. Please go ahead.
Jason Seidl: Thanks, operator. Gentlemen, good morning. A lot's been covered and I appreciate it. Wanted to go a little bit of a different direction. One of your competitors on their call talked about looking at the use of autonomous trucks for some of the linehaul operations, and that they might have gotten to the point where it's a viable option for an LTL carrier. Just wondering what your thoughts on that were and if you've looked into it.
Jason Seidl: Thanks, operator. Gentlemen, good morning. A lot's been covered and I appreciate it. I wanted to go in a little bit of a different direction. One of your competitors, on their call, talked about looking at the use of autonomous trucks for some of the linehaul operations, and that they might have gotten to the point where it's a viable option for an LTL carrier. Just wondering what your thoughts on that were and if you've looked into it.
Adam Satterfield: Yeah. Jason, I think that's something that any type of technology you've got to continue to look at and stay on top of. I think that one of the things that people have got to consider as well is what's the cost of the technology on a per mile basis? Some of the things that I've seen and read, I don't know that you've got the value add. You think about our fleet of equipment, we dual use a lot of our tractors. They're running P&D during the day, linehaul at night. If you've got to pay the technology provider, I don't think that autonomous vehicle would be more for linehaul application. You either are buying specific P&D units that's going to drive your unit cost up or you're paying for a mileage where you're not really using and leveraging the technology.
Adam Satterfield: Yeah. Jason, I think that's something that any type of technology you've got to continue to look at and stay on top of. I think that one of the things that people have got to consider as well is what's the cost of the technology on a per mile basis? Some of the things that I've seen and read, I don't know that you've got the value add. You think about our fleet of equipment, we dual use a lot of our tractors. They're running P&D during the day, linehaul at night. If you've got to pay the technology provider, I don't think that autonomous vehicle would be more for linehaul application. You either are buying specific P&D units that's going to drive your unit cost up or you're paying for a mileage where you're not really using and leveraging the technology.
Adam Satterfield: I think, like many things that are like that, you've got to stay on top of it. We don't want to be on the bleeding edge of that technology and development and so forth. It's just like any other investment when it comes to technology. There are a lot of opportunities that we take a look at where the cost of the technology doesn't really provide an appropriate return, and investment in autonomous would be a similar type of analysis that we would go through. To me, it's something, too, that—I don't know—it's hard to imagine a world where you've got 80,000-pound trucks driving up and down the highways without someone sitting in the cab to deal with those one-off scenarios, to deal with cargo theft that is already a problem when you've got a driver sitting in the cab.
Adam Satterfield: I think like many things that are like that, you got to stay on top of. We don't want to be on the bleeding edge of that technology and development so forth. It's just like any other investment when it comes to technology. There are a lot of opportunities that we take a look at where the cost of the technology doesn't really provide an appropriate return, and investment in autonomous would be a similar type of analysis that we would go through. To me, it's something too that, I don't know. It's hard to imagine a world where you've got 80,000 pound trucks driving up and down the highways without someone sitting in the cab to deal with those one-off scenarios, to deal with cargo theft that is already a problem when you've got a driver sitting in the cab.
Adam Satterfield: There's a lot of other incremental challenges that would present and would have to be dealt with from a regulatory standpoint before this goes worldwide. Obviously, it's been dealt with and utilized in certain lanes and so forth, but to scale and be nationwide, I still have some reservations about.
Adam Satterfield: There's a lot of other incremental challenges that would present and would have to be dealt with from a regulatory standpoint before this goes worldwide. Obviously, it's been dealt with and utilized in certain lanes and so forth, but to scale and be nationwide, I still have some reservations about.
Jason Seidl: It sounds like it’s more than just the total cost of it all. There are other factors in terms of you guys taking advantage of something like this as it becomes available.
Jason Seidl: It sounds like it's more than just the total cost of it all. There's other factors in terms of you guys taking advantage of something like this as it comes available.
Adam Satterfield: I think so, yeah. Look, our business is pretty simple. At the end of the day, it's how do we manage the revenue per shipment and the cost per shipment and give the very best service in our industry to be able to support the value and our yields. Like I said, it's no different. Everything we look at is how can we minimize the inflation in our cost per shipment and continue to get yields to support the value proposition. We'll continue to look at it. Like I said, I don't think we'll be on the bleeding edge with adoption there.
Adam Satterfield: I think so, yeah. Look, our business is pretty simple. At the end of the day, it's how do we manage the revenue per shipment and the cost per shipment and give the very best service in our industry to be able to support the value and our yields. Like I said, it's no different. Everything we look at is how can we minimize the inflation in our cost per shipment and continue to get yields to support the value proposition. We'll continue to look at it. Like I said, I don't think we'll be on the bleeding edge with adoption there.
Jason Seidl: Appreciate the time and color as always.
Jason Seidl: Appreciate the time and color as always.
Operator: The next question is from Bascome Majors with Stephens. Please go ahead.
Operator: The next question is from Bascome Majors with Stephens. Please go ahead.
Bascome Majors: Thanks for taking my questions. If we look back, I think this is the first time the capital envelope has gone up since the beginning of 2024. I'd just be curious—both big-picture thinking on where this is going. Is it the tightness at capacity at some of your peers that's bringing freight your way, or is it what you're hearing from customers on sort of macroeconomic expectations that's driving you back into a period of growth investment, albeit gradually? If you could just give us a quick update—you talked about having a lot of capacity now. Any sort of sense of where you stand on people and equipment in the network today? Thank you.
Bascome Majors: Thanks for taking my questions. If we look back, I think this is the first time the capital envelope has gone up since the beginning of 2024. I'd just be curious both big picture thinking on where this is going. Is it the tightness at capacity at some of your peers that's bringing freight your way or is it what you're hearing from customers on sort of macroeconomic expectations that's driving you back into a period of growth investment, albeit gradually? If you could just give us a quick update. You talked about having a lot of capacity now. Any sort of sense of where you stand on people and equipment in the network today? Thank you.
Adam Satterfield: Yeah. The increase that we had, keep in mind the total $380 million is still well below our normal range is 10% to 15% of revenue. Like we said, both the increase in the real estate side and the equipment really are strategic purchase opportunities. From a real estate standpoint, you've also got some timing of projects that we've continued to spend on our network because of the confidence we have in our long-term market share opportunities. We've got a couple unique opportunities where it could be something that fit in the long-term plan in a market that's hard to find real estate, to not get into too many specifics. Then you've also got some lease-to-own conversions, timing of projects that we may get started in the balance of this year that may have been in 2027 initially.
Adam Satterfield: Yeah. The increase that we had, keep in mind the total $380 million is still well below our normal range is 10% to 15% of revenue. Like we said, both the increase in the real estate side and the equipment really are strategic purchase opportunities. From a real estate standpoint, you've also got some timing of projects that we've continued to spend on our network because of the confidence we have in our long-term market share opportunities. We've got a couple unique opportunities where it could be something that fit in the long-term plan in a market that's hard to find real estate, to not get into too many specifics. Then you've also got some lease-to-own conversions, timing of projects that we may get started in the balance of this year that may have been in 2027 initially.
Adam Satterfield: We're always fine-tuning that model and that drove some of that increase there. There's one or two kind of strategic purchase opportunities that are in there that just sort of fit when we think about our five and 10 year plan. Then on the equipment side, that's a little different. Some of that spend would have been allocated to 2027. We're kind of pulling some of those purchases into the Q4 of this year. Again, just through conversation discussions, our op teams felt like it would be better to go ahead and pull some of that equipment into this year. Overall, to answer your question, it's not necessarily a need to increase the capacity of our service center network. We've still got north of 35% excess capacity there. We've got plenty of power and trailing equipment capacity at this point.
Adam Satterfield: We're always fine-tuning that model and that drove some of that increase there. There's one or two kind of strategic purchase opportunities that are in there that just sort of fit when we think about our five and 10 year plan. Then on the equipment side, that's a little different. Some of that spend would have been allocated to 2027. We're kind of pulling some of those purchases into the Q4 of this year. Again, just through conversation discussions, our op teams felt like it would be better to go ahead and pull some of that equipment into this year. Overall, to answer your question, it's not necessarily a need to increase the capacity of our service center network. We've still got north of 35% excess capacity there. We've got plenty of power and trailing equipment capacity at this point.
Adam Satterfield: Really when we get into the fall of this year is when we'll be forecasting for next year's volumes to think about what our replacement needs would be, and then any growth needs. I think given where our fleet is versus some prior years when we've had similar growth numbers, still we'll probably lean more towards replacement just to grow into the fleet that we have. Probably add some trailing equipment to make sure we've got plenty of capacity there. On the people side, like we talked about on the last call, we were able to accommodate this 4% sequential increase in tonnage that we just had with essentially the same workforce. Through the balance of the Q3 and Q4, probably not a lot of material change in our headcount overall there.
Adam Satterfield: Really, when we get into the fall of this year is when we'll be forecasting for next year's volumes to think about what our replacement needs would be, and then any growth needs. I think, given where our fleet is versus some prior years when we've had similar growth numbers, still, we'll probably lean more towards replacement just to grow into the fleet that we have. Probably add some trailing equipment to make sure we've got plenty of capacity there. On the people side, like we talked about on the last call, we were able to accommodate this 4% sequential increase in tonnage that we just had with essentially the same workforce. Through the balance of Q3 and Q4, probably not a lot of material change in our headcount overall there.
Adam Satterfield: If we can take another sequential increase through Q3, I think that presents some good opportunities there from a cost and margin standpoint. Then we've really, again, getting into forecasting for next year, have got to think about when's the right time to start some of our truck driving schools again, and to start getting more drivers in to accommodate what we think our growth expectations for 2027 might be.
Adam Satterfield: If we can take another sequential increase through Q3, I think that presents some good opportunities there from a cost and margin standpoint. Then we've really, again, getting into forecasting for next year, have got to think about when's the right time to start some of our truck driving schools again, and to start getting more drivers in to accommodate what we think our growth expectations for 2027 might be.
Bascome Majors: Thank you for all the detail.
Bascome Majors: Thank you for all the detail.
Operator: The next question is from Richa Harnain with Deutsche Bank. Please go ahead.
Operator: The next question is from Richa Harnain with Deutsche Bank. Please go ahead.
Richa Harnain: Hey, thanks for the time also. I guess, first, a quick housekeeping one. Adam, that OR sequential change you cited for Q3—flat to up 50 basis points—I would suspect that's on GAAP, but wanted to make sure. I guess just bigger picture, tonnage came in line with normal seasonality this past quarter, and you meaningfully beat your OR outlook for the quarter, even excluding that real estate gain. Looking into Q3, you're calling for a pretty optimistic scenario, both around maybe macro demand picking up and OD-specific demand as your peers face some challenges. I guess what's driving that tempered enthusiasm, considering that you're thinking you could just be in line with historical trends in OR? Then, back to complimenting you on the strong performance in Q2—the incremental margin we calculated in the quarter was really good, 60%.
Richa Harnain: Hey, thanks for the time also. I guess first a quick housekeeping one. Adam, that OR sequential change you cited for Q3, flat to up 50 basis points. I would suspect that's on GAAP, but wanted to make sure. I guess just bigger picture. Tonnage came in line with normal seasonality this past quarter, and you meaningfully beat your OR outlook for the quarter, even ex that real estate gain. Looking into Q3, you're calling for pretty optimistic scenario, both around maybe macro demand picking up and OD specific demand as your peers face some challenges. I guess what's driving that tempered enthusiasm considering that you're thinking you could just be in line with historical trends in OR. Then, back to complimenting you on the strong performance in Q2, the incremental margin we calculated in the quarter was really good, 60%.
Richa Harnain: Curious if that influences your outlook for ODFL longer term, or if you'd caution us against using that optimistic of an outlook given fuel likely created some of that positive operating leverage. There's a lot in there, but I'll let you take it how you want it. Thanks.
Richa Harnain: Curious if that influences your outlook for OR longer term or if you'd caution us from using that optimistic of an outlook given fuel likely created some of that positive operating leverage. It's a lot in there, but I'll let you take it how you want it. Thanks.
Adam Satterfield: Yeah, I don't know if I can track everything that was in there, but I would say a lot of the Q2 outperformance, if you will—the volumes just came in stronger than where we were three months ago, talking about the call and where April was. We just came back a lot stronger with volumes, and obviously we were able to pull—
Adam Satterfield: Yeah, I don't know if I can track everything that was in there, but I would say a lot of the Q2 outperformance, if you will, the volumes just came in stronger than where we were three months ago talking about the call and where April was. We just came back a lot stronger with volumes and obviously we were able to pull...
