Old Dominion Freight Line, Inc. (ODFL) shares plummeted in pre-market trading on Wednesday after the company released its third-quarter earnings report, revealing a revenue decline and missing earnings expectations. The stock dropped by 5.79% to $187.99, signaling investor concern about the company’s performance in a challenging economic environment.
The company reported a 3.0% year-over-year decrease in revenue, falling short of the consensus estimate of $1.492 billion. Revenue came in at $1.470 billion. Earnings per share (EPS) also missed expectations, landing at $1.43 compared to the anticipated $1.47.
The primary culprit behind the revenue decline was a 4.8% decrease in less-than-truckload (LTL) tons per day, partially offset by a 1.5% increase in LTL revenue per hundredweight. This decline in LTL tons per day can be attributed to a 3.4% drop in LTL shipments per day and a 1.4% reduction in LTL weight per shipment.
Despite the overall revenue dip, LTL revenue per hundredweight, excluding fuel surcharges, rose by 4.6% in the quarter. This indicates that while the company shipped fewer goods, the pricing for those shipments remained strong. However, this positive development was not enough to offset the overall decline in volume.
The company’s operating income also took a hit, falling 9.7% to $401.9 million. This resulted in an operating ratio of 72.7%, a deterioration from 70.6% a year ago. This signifies a decline in operational efficiency, as the company is now spending more to generate each dollar of revenue.
While the earnings report highlighted challenges, Old Dominion still generated robust operating cash flow of $446.5 million for the third quarter and $1.3 billion for the first nine months. The company also maintained a strong cash position, holding $74.2 million in cash and equivalents as of September 30th. Capital expenditures in the third quarter reached $242.8 million.
In a bid to return value to shareholders, Old Dominion spent $824.8 million on share repurchases during the first nine months of the year, including a $200 million accelerated program. The company also paid $168.2 million in dividends.
Marty Freeman, President and Chief Executive Officer of Old Dominion, acknowledged the challenging economic conditions contributing to the company’s performance. “Old Dominion’s third-quarter financial results reflect ongoing softness in the domestic economy,” he said. “The challenging operating environment, and strong comparable results for the third quarter of 2023, resulted in the first year-over-year decrease in our quarterly revenue and earnings per diluted share this year.”
Freeman further elaborated on the reasons behind the operational challenges: “The decrease in revenue had a deleveraging effect on many of our operating expenses, which contributed to the 110 basis point increase in our overhead costs as a percent of revenue. Direct operating costs also increased as a percent of revenue despite our team operating very efficiently during the third quarter.”
Investors seeking exposure to the stock can consider ETFs such as the First Trust S&P 500 Diversified Dividend Aristocrats ETF (IYT) and ProShares Trust ProShares Supply Chain Logistics ETF (SUPL).
The performance of Old Dominion Freight Line in the coming quarters will depend on the trajectory of the domestic economy and the company’s ability to manage its expenses effectively. The company will need to navigate the current challenging environment to regain momentum and restore investor confidence.