Market shook, LTL carrier Old Dominion isn’t

Less-than-truckload carrier Old Dominion Freight Line said it will continue making growth-oriented investments in its network ahead of demand. However, as uncertainty around trade policy is weighing on volumes and prolonging an already protracted freight downturn, the company decided to reel in its capex budget for 2025.

Its outlook for a favorable pricing backdrop remains intact, management told analysts on a quarterly earnings call Wednesday.

The company noted a reacceleration in its business during February and March as volumes were in line with typical seasonality – a win for this market – and as some competitors struggled to fill equipment requests from shippers. But April has been notably softer as tariff implementations have curbed demand.

Old Dominion (NASDAQ: ODFL) beat first-quarter expectations Wednesday before the market opened. Earnings per share of $1.19 was 5 cents higher than the consensus estimate but 15 cents lower year over year. A lower tax rate was a 1-cent tailwind to EPS.

Capex tamped down, long-term strategy intact

The company lowered full-year 2025 capex guidance by $125 million to approximately $450 million. It now plans to spend $210 million on real estate projects (a $90 million reduction) and $190 million on tractors and trailers (a $35 million cut). The guide for IT spend held at $50 million.

Old Dominion’s 2024 capex totaled $771 million, pushing its two-year investment into the network to $1.5 billion. It is currently operating with more than 30% latent capacity. Management classified the reduced budget for this year as a deferral in spend, with projects only being delayed not canceled.

Normal seasonality in February and March gave way to subseasonal weakness in April, with a pronounced decline in volumes during the first week of the month when Liberation Day tariffs were announced.

Consolidated revenue of $1.37 billion in the quarter was down 5.8% y/y but in line with management’s guidance of $1.34 billion to $1.38 billion.

Revenue per day declined 4.3% y/y and is off 7% y/y so far in April. The timing of Good Friday, which came in March last year, has been a headwind. Management expects revenue per day for the full month to come in 6% lower y/y, give or take 50 basis points either way.  

Tonnage per day was down 6.3% y/y in the first quarter as shipments declined 5% and weight per shipment dipped 1.4% to 1,487 pounds. February tonnage benefited somewhat from a catch-up after worse-than-normal winter storms in January. March possibly included some freight pull-forward ahead of the tariffs. April shipment weights are averaging 1,470 pounds, reflecting a change about 100 bps worse than the normal seasonal trend.

Retail exposure a long-term tailwind, Amazon not a real threat

Roughly 25% to 30% of Old Dominion’s revenue comes from retail-centric customers, which are most likely to be impacted by tariff-related declines in ocean container imports. This segment could also be impacted if Amazon (NASDAQ: AMZN), which recently announced an inbound-only LTL service to its facilities, were to become more active in the market.

However, Old Dominion views Amazon’s entrance as more of an opportunity than a threat.

“We really don’t see Amazon’s LTL offering as a threat to the LTL industry, especially Old Dominion,” said Marty Freeman, Old Dominion president and CEO, on the call. “As I understand it, it’s mainly geared toward their own suppliers.”

Freeman pointed to Old Dominion’s same-day pickup capabilities in all 48 contiguous states as potentially supportive of Amazon’s network. Also, as e-commerce penetration grows, forward deployment of inventories closer to consumers in efforts to meet tight delivery windows plays into Old Dominion’s network.

Old Dominion ‘fully committed’ to raising yields

Revenue per hundredweight, or yield, increased 2.2% y/y in the first quarter (4.1% higher excluding fuel surcharges). The decline in weight per shipment provided a modest tailwind to the metric. Diesel prices were down 9% y/y in the quarter (up 3% sequentially).

The company expects favorable pricing trends to continue. It forecast second-quarter yields to increase by 5% to 5.5% y/y excluding fuel. Lighter shipment weights so far in the month are helping to boost yields.

“We’re fully committed to our long-term yield management strategy [because] our costs aren’t decreasing,” said CFO Adam Satterfield on the call. “Our costs continue to go up, and so that’s why we’ve got to continue to ask for increases.”

If revenue-per-day trends remain flat from April through the rest of the second quarter, consolidated revenue will likely be $1.4 billion, a 7% y/y decline (5% lower on a per-day basis) and $60 million light of the current consensus estimate. If normal seasonal trends resumed, however, revenue could come in at $1.5 billion for the period, management said.

Margin deteriorates as revenue sags, costs increase

The company reported a 75.4% operating ratio (inverse of operating margin), 190 bps worse y/y but 50 bps better than the fourth quarter. The result was ahead of management’s guidance calling for no sequential change to 50 bps of deterioration. (The company normally sees 100 to 150 bps of OR deterioration from the fourth to the first quarter.)

Cost per shipment was up 3.3% with revenue per shipment up just 0.7%, resulting in a 260-bp negative spread.

Salaries, wages and benefits expenses (as a percentage of revenue) increased 210 bps y/y. Head count was down 4.7%, but shipments declined by a higher amount, pushing shipments per employee lower. An increase in total employee benefit costs was also a headwind.

Depreciation and amortization expenses were up 70 bps y/y given prior growth-oriented investments.

Old Dominion is forecasting OR improvement of just 100 bps from the first to the second quarter this year, implying a 74.4% OR, 250 bps worse y/y. The normal change rate is usually 300 to 350 bps of improvement, but that typically includes an 8% sequential increase in revenue versus the less than 2% increase expected to occur this year.

Market shook, Old Dominion isn’t

Satterfield said prior investments have the service center network, the fleet and employee head count in position to take share when the market turns.

“Our team is in a great position [not only] to handle the business that we have, but to handle additional growth that we hope we’ll start seeing this year.”

Shares of ODFL were up 2.2% at 2:22 p.m. EDT on Wednesday as was the S&P 500. The stock is off 12% year to date, about half the decline that competitors’ shares have experienced.

The LTLs have been one of the worst-performing segments of transportation this year.

The sector fared well during and after the pandemic, providing transportation services to the manufacturing and retail sectors, which rushed to restock depleted inventories. The space managed to hang on to the elevated valuation multiples garnered, but an extended industrial downturn, capacity additions by some carriers and the threat of a protracted trade war have earnings estimates and valuation multiples on the retreat.

More FreightWaves articles by Todd Maiden:

• Forward Air ups Q1 EBITDA forecast
• Prologis sticks with 2025 outlook, but customers grow more cautious
• J.B. Hunt’s intermodal bid season delivers mixed results

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