Less-than-truckload carrier Old Dominion Freight Line raised its long-term margin target Wednesday. The company now expects its operating ratio to improve to 70% (30% operating margin) over time, potentially dipping into the 60s, versus the prior target of 75% (25% operating margin).
The new margin forecast is well ahead of what Old Dominion’s competitors are achieving. By comparison, LTL carrier Saia (NASDAQ: SAIA), which has been executing initiatives aimed at raising yields and improving costs, posted an 85.4% OR for 2021 on Wednesday. Old Dominion’s full-year OR was 73.5% in 2021, 390 basis points better year-over-year.
Old Dominion (NASDAQ: ODFL) reported fourth-quarter earnings per share of $2.41 Wednesday before the market opened. The result was 50% higher year-over-year and 15 cents ahead of the consensus estimate.
“We do not expect any near-term changes in our customer demand trends and believe our service and capacity advantages will continue to support our ability to win additional market share throughout 2022,” Greg Gantt, president and CEO, stated in a press release.
A 31% year-over-year revenue increase to $1.41 billion was evenly split between higher volumes and pricing. Daily tonnage increased 14% during the fourth quarter with revenue per hundredweight, or yield, up 16% (9% higher excluding fuel surcharges).
The strong growth trends continued through January with revenue increasing 26% year-over-year as tonnage grew 8% and yields were 17% higher.
Cost inflation was again more than offset by higher yields in the fourth quarter, leading to a 73.6% OR, 270 bps better year-over-year. The sequential change from the third to fourth quarter was only a 100-bp margin decline, which was better than the historical degradation of 200 bps to 250 bps.
Average headcount was up 20% year-over-year to 23,610 as the company expands to handle the jump in volumes. However, salaries, wages and benefits as a percentage of revenue declined 380 bps. Operating supplies (largely fuel) were up 200 bps with purchased transportation (mostly third-party linehaul capacity) up 85 bps. Growth in revenue per shipment (14%) outpaced growth in cost per shipment (10%) by 400 bps in the period.
Elevated freight demand with favorable pricing dynamics have carriers increasing longer-term expectations. On Tuesday, competitor ArcBest (NASDAQ: ARCB) raised its outlook, following record fourth-quarter earnings. The company is calling for revenue to potentially double by 2025 with asset-based margins topping out at 15%.
Old Dominion generated net cash flow from operations of $1.2 billion during 2021. The company recorded $550 million in net capital expenditures during the year and expects that number to ramp to $825 million in 2022 to support growth initiatives.
The capex budget includes $300 million for real estate projects, which include the addition or expansion of eight to 10 facilities. The company also plans to spend $485 million on tractors and trailers in the year, a number it said would be higher without production delays at the manufacturers.
Old Dominion’s board raised the quarterly dividend by 50% to 30 cents per share.
Shares of ODFL were up 4.4% at 12:14 p.m. on Wednesday compared to the S&P 500, which was up 0.5%.
The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Old Dominion (No. 9), Saia (No. 16) and ArcBest (No. 26).
Click for more FreightWaves articles by Todd Maiden.
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