Old Dominion Sees Revenue Drop in May 2023 Update

May Performance Overview

The less-than-truckload (LTL) carrier, Old Dominion Freight Line, reported a revenue per day decline of 5.8% in May compared to the same month last year. This downturn is indicative of ongoing challenges within the industry, where lower shipment volumes only partially offset gains made in pricing.

Tonnage Trends

In May, Old Dominion recorded an 8.4% year-over-year decrease in tonnage per day, attributed to a 6.8% fall in shipments and a slight 1.9% reduction in the average weight per shipment. This trend continued from April, which saw an 8.8% decline, following a 6.3% dip during the first quarter.

Moderating Declines

Although the decline in monthly tonnage is notable, a two-year stacked comparison shows improvements. Compared to last year, May’s tonnage was down just 6.9%, an improvement over the 6.5% decline recorded in April, reflecting a downturn that has gradually moderated from earlier high double-digit declines.

Market Demands and Economic Conditions

A protracted freight downturn and a struggling industrial sector have significantly impacted LTL demand. The Purchasing Managers’ Index (PMI), a key indicator of manufacturing activity, remained slightly under the critical threshold for growth at 48.5 in May, having been under that threshold in 29 of the last 31 months. It is generally accepted that shifts in the PMI can predict changes in LTL volumes, usually lagging by roughly three months.

Future Projections

The PMI’s new orders subindex slightly improved but continues to reflect a declining trend at 47.6. Adding to this, the new export orders subindex dropped into a zone of “extreme contraction,” settling at 40.1 as the impact of tariffs persists.

Yield and Fuel Costs

Despite diminished demand, the LTL industry is still capturing rate increases. Old Dominion’s reported revenue per hundredweight increased by 3.2% year-over-year in the first two months of the second quarter, with figures rising even higher to 5.6% when fuel surcharges are excluded. The reduction in average shipment weight slightly contributed to this yield performance.

During May, retail diesel fuel prices were reported to have dipped 8.5% year-over-year, reflecting an 11% drop in April. Although a sliding fuel surcharge can benefit LTL margins, falling fuel prices can present challenges.

Management Insights

Marty Freeman, President and CEO of Old Dominion, expressed confidence in the company’s market share remaining stable throughout the evolving economic conditions, despite the drop in LTL volumes. Customers continue to appreciate the carrier’s industry-leading service, which aids in sustaining yield management initiatives.

Operational Forecast

Previously, the company projected second-quarter revenues to reach about $1.4 billion, indicating a 7% year-over-year decline, or 5% decline on a per-day basis, assuming the volume and yield patterns observed in April persist throughout the quarter. This outlook included a yield increase target of between 5% إلى 5.5%.

The predicted operating ratio for the second quarter suggests only 100 basis points of improvement from the first quarter, contrasting with the typical expectation of 300 to 350 bps. This indicates a projected operating ratio of 74.4%, which would represent a deterioration of 250 bps versus the previous year.

Yearly Revenue Trends

Normal trends anticipate an 8% sequential increase in revenue for the second quarter, but Old Dominion is currently tracking a mere 3% improvement this year.

Strategic Focus & Future Direction

In a landscape marked by economic uncertainty, Freeman reaffirmed Old Dominion’s commitment to executing its long-term strategic plan. The company continues to focus on enhancing service quality and delivering value to its customers, which is expected to allow for the acquisition of profitable market share.

Stock Performance

As of the latest trading session, Old Dominion shares saw a 1.1% decrease in early trading, compared to a slight increase of 0.3% for the S&P 500 index.

Summary and Implications for Logistics

Overall, Old Dominion’s performance in May 2023 reflects broader trends impacting the LTL and freight sectors as economic conditions evolve. As a logistics provider, understanding these performance metrics can be crucial for anticipating shifts in demand and optimizing cargo transportation strategies.

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