Old Dominion Freight Line Inc (ODFL) — Q4 2020 Transcript

Thank you. Good morning, and welcome to the Fourth Quarter 2020 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 12, 2021 by dialing 719-457-0820. The replay passcode is 5798600. The replay of the webcast may also be accessed for 30 days at the company's 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. 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 that are set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And 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. As a final note before we begin, we welcome your questions today, but we do ask in fairness to all that you limit yourselves to just a few questions 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 call over to the Company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead sir.

Good morning and welcome to our fourth-quarter conference call. With me on the call today is Adam Satterfield our CFO. After some brief remarks, we will be glad to take your questions. Old Dominion had a strong fourth quarter that included an increase in revenue and improvement in our operating ratio to 76.3%, which was a new fourth-quarter company record. This combination led to the 34.2% increase in our earnings per diluted share. For the year, we also produced a company record operating ratio of 77.4% as well as an 11.4% increase in earnings per diluted share. While I am really proud of these financial results, I am more proud of the OD family of employees who worked through tough conditions in 2020 to generate this success. Despite the operating challenges created by the pandemic and rapid changes in volumes, our team established a new record for our cargo claims ratio at 0.1%, while on-time service continued at 99%. These factors contributed to us winning the Mastio Quality Award for the 11th straight year. Our team is committed to delivering superior service at a fair price regardless of the circumstances, which is why we have often stated that the investment in our OD family is the most important investment we can make. This includes many things such as strong pay and benefits packages as well as training programs and advancement opportunities. In addition to our non-executive employees, their contributions during the pandemic we made special bonus payments in March and December 2020 that together totaled approximately $20 million. These factors as well as a strong family culture have allowed us to consistently attract and retain talented employees to support our growth initiatives. This is important as we intend to add to our OD family in 2021 by hiring additional employees to further increase the capacity of our workforce. With the demand improvement, environment improving we also intend to add capacity to both our service center network and our fleet in 2021. After opening eight new facilities in 2020 and one more in January of this year, we are currently operating 245 service centers and have approximately 30% of excess capacity within the network to support additional growth. We plan to open two to three additional locations in the first quarter with several more during the remainder of the year. We believe these additional service centers as well as the expansion of some existing facilities will increase the overall average capacity within our network to ensure that is not a limiting factor to growth over the next few years. While we acknowledged that certain uncertainties with the domestic economy may continue we believe that Old Dominion is uniquely positioned to win additional market share in 2021. We also believe we can drive our operating ratio even lower than the 77.4% record that we established in 2020. We have long maintained that the key components for long-term improvement in our operating ratio our improvements in both density and yield, both of which generally require a favorable macro environment. Our current trends indicate that we can improve on both of these measures in 2021 by remaining fully committed to the core business strategies that put us in our strong competitive position. Disciplined execution of our long-term strategic plan over the course of many years has differentiated us from our competition, while also creating long-term record of profitable growth. We are encouraged by our recent revenue trend and believe that we can take advantage of the momentum in our business to increase our earnings and shareholder value in 2021. Thanks for joining us this morning and now Adam will discuss our fourth-quarter financial results in greater detail.

Thank you Greg and good morning. Old Dominion's revenue for the fourth quarter of 2020 was $1.1 billion which was a 6% increase from the prior year. Our operating ratio improved 500 basis points to 76.3% and earnings per diluted share increased to $1.61. These results include $9.6 million of expense related to the special bonus paid to non-executive employees in December. We were pleased to see the improvement in our revenue growth which included increases in both volumes and yield. The increase in revenue included a 4.9% increase in LTL tonnage and a 1.1% increase in LTL revenue per hundredweight. Excluding fuel surcharges, our LTL revenue per hundredweight increased by 4.2%. The growth in this metric was slightly more consistent with our longer-term average than recent quarters as our business mix continued to normalize, while underlying pricing trends have remained relatively consistent. On a sequential basis, revenue per day for the fourth quarter increased 4.7% as compared to the third quarter of 2020, while LTL shipments per day increased 1.7%. These are both above our normal sequential trends and reflect the continued recovery from the initial drop in revenue in April that was related to the pandemic. For January, our revenue per day increased 14.6% as compared to January of 2020. This reflects an 11.9% increase in LTL tons per day, and a 2.2% increase in LTL revenue per hundredweight. Our fourth-quarter operating ratio improved to 76.3% and once again included improvements in both our direct operating cost and overhead cost as a percent of revenue. When compared to the fourth quarter of 2019 we generally improved the efficiency of our operations with increases in our laden-load average and P&D shipments per hour. We did however lose a little productivity with our platform shipments per hour that was mainly due to the number of new employees hired in the fourth quarter. As our volume trends continue to improve we intend to add drivers and platform employees during the first quarter. We also expect to continue to use purchased transportation to supplement our workforce until the capacity of our team can fully support our anticipated growth. We improved our overhead cost as a percent of revenue during the fourth quarter by successfully leveraging our revenue growth and maintaining our discipline with discretionary spending. We will continue to control discretionary spending in 2021 as we always do, but we anticipate that certain costs that were reduced in 2020 either directly or indirectly due to the pandemic will eventually be restored. Old Dominion's cash flow from operations totaled $246.6 million and $933 million for the fourth quarter and 2020 respectively, while capital expenditures were $58.6 million and $225.1 million for the same periods. Based on anticipated growth and the execution of our equipment replacement cycle, our capital expenditures are expected to be approximately $605 million in 2020. This total includes $275 million to expand the capacity of our service center network although we would increase this amount further if we identify additional properties that fit into our long-term strategic plan. We returned $74.8 million of capital to shareholders during the fourth quarter and $435.1 million for the year. For 2020 this total included $364.1 million of share repurchases and $71 million in cash dividends. We were pleased that our Board of Directors approved a 33.3% increase in the quarterly dividend to $0.20 per share in the first quarter of 2021. Since we began this program in 2017 and after giving effect to the company's 3:2 stock split in March of 2020 we have increased our dividend in excess of 30% each year. Our effective tax rate for the fourth quarter 2020 was 25.1% as compared to 24% in the fourth quarter of 2019. We currently expect our effective tax rate to be 26% for 2020. This concludes our prepared remarks this morning. Operator we'll be happy to open the floor for questions at this time.

Great. Thanks and good morning. Adam, I wasn't planning to start with this, but you caught me off guard. Could you provide some additional insights on the strong performance in January? The 11.9% increase in tons per day was better than what you observed in your December trends. If you could share any thoughts on what might be driving this strength in January, that would be appreciated.

Yeah. I think it's a couple of things, Todd. I mean, we certainly, really going back to April of 2020. Once we took that initial drop, business has just been accelerating since, generally speaking. And I think it began with customers reopening their businesses in different regions around the country getting healthier, and it just sort of accelerated from that point forward and that acceleration continued through the fourth quarter for us and into January as well. I think there are a lot of macro trends that are favorable for our industry and certainly we're in an enviable position I think to take advantage of these changing trends. This is the type of environment I think, when our model usually shines the brightest. We're in a great spot with respect to the capacity of our service center network. Our fleet is in good shape, and we've talked about the fact that we're going to continue to hire new employees and we've continued to be successful in that endeavor in January as well. And we're also able to use a little purchased transportation to supplement as needed. But, our customers are getting healthier, business trends in general are improving and you're seeing the advantage of our business model just coming through for us, and we're able to take advantage of all of those improving trends and show a little growth which it's been a long time since we've been able to see growth like this. But certainly, when we start growing, we want to make sure it's profitable growth, and I think that we're in a good spot right now, and look forward to seeing this continue to play out in 2021.

Okay. That sounds good. Could you provide a bit more detail? You did a great job of emphasizing that shipment count is increasing at a faster rate than headcount growth in the fourth quarter. In your prepared comments, you mentioned adding headcount. Can you share what you're anticipating regarding sequential headcount growth in the first quarter and the first half, and how long you expect to maintain the trend of increasing shipment count ahead of headcount growth? Thanks.

Over the long term, changes in our headcount typically align with changes in our shipment counts. In the short term, they may not always match, but that's been our long-term observation. Currently, since the middle of last year when we made some resource adjustments, we have been trying to catch up. Our operations team has been working exceptionally hard to maintain and achieve record service metrics. We are proud of their efforts. However, we have been relying on increased purchased transportation, which rose to 3.1% in the fourth quarter, compared to our usual rate of around 2.2%. We prefer to keep 100% of our line-haul network in-house, utilizing our personnel and equipment, but we have had to supplement due to staffing shortages. Typically, headcount in the first quarter remains relatively stable compared to the fourth quarter.

Yeah.

And based on what we've been able to achieve thus far in January, I think that the maximum sequential change we've ever seen was in 1Q of 2018 where we had about a 3% increase over 4Q. I think we can be in that range and probably even higher, but effectively we've just got to catch back up so we can continue to serve our customers and be able to first reduce our reliance on purchased transportation, and then just try to get ahead of the curve, if you will, to face whatever volumes come our way for both 2021 as well as 2022.

Okay, got it. That makes sense. I'll turn it over. Thanks for the time this morning.

Great, thank you. Good morning, guys. Thanks for taking my questions. So, I guess Adam, when we think about the sequential progression here if you kind of back out that special bonus payment there in the fourth quarter about a 75.4 OR. When you think about tonnage in January being better than normal seasonality, again, it's early in the quarter. How are you thinking about the potential, given your headcount comments there to Todd's question, the ability to sort of leverage that tonnage with sequential OR relative to normal seasonal pattern, which I think is typically 100 to 150 basis points degradation from the fourth quarter to the first quarter. So, if you think about that base number of 75.4, given those headcount comments and some of the other items down the P&L, how are you thinking about sequential change, given what's happening on the tonnage front?

The first quarter generally sees a decrease of 100 to 150 basis points compared to the fourth quarter. The special bonus from the fourth quarter is something you'll likely adjust for, but it's not the only factor at play. Other elements, such as our insurance and claims, were slightly lower than usual. We expect those to return to our typical range of around 1% to 1.2% of revenue. Like many other companies, we will also encounter rising inflationary costs this year, particularly related to our insurance premiums, similar to what we've faced in recent years. There will be some adjustments to consider. Additionally, general supply and expense costs will likely increase. We mentioned in our prepared remarks that some costs will be restored this year, including our marketing and advertising programs. We are not yet in a position for our sales team to travel and engage in activities, so we still expect some savings related to travel and customer entertainment, but we do intend to restore some of those expenditures. While those costs may not return to the previous range of 3% to 3.5%, we anticipate them to be higher than in the fourth quarter. So, there will be adjustments along the way. Though we don’t provide guidance on the operating ratio, we use the normal sequential trend as a benchmark for ourselves. Regarding salaries, wages, and benefits, we noted last quarter that we wanted to manage those costs in accordance with our long-term productivity trends, especially with improving revenue. Strong revenue growth sequentially supports fixed expense management, which we capitalized on in the fourth quarter. This approach allowed us to keep changes in salaries, wages, and benefits in line. Therefore, we believe this will also provide us leverage as we move from the fourth quarter into the first quarter, even as we hire new staff. There will be adjustments across various categories, but targeting that 100 basis point range seems to be a reasonable benchmark as we move forward.

Okay, no, that makes sense and thank you for all that color. I guess for my follow-up question, maybe kind of a bigger picture question for you, Greg. When you look back over, just the broader LTL market over the last, call it 10 to 15 years, there really hasn't been a lot of underlying market growth. The Old Dominion has done a great job taking a lot of market share as you guys have been investing in your business and investing in service. As you look out over the next three, five, seven years, Greg, I mean do you see the market growth accelerating for the LTL industry, and I'm thinking specifically about e-commerce and the middle mile impact that e-commerce is having across the transportation sector. I would just be curious to get your thoughts on sort of where you see the broader industry going. Obviously, OD is going to expect to continue to take market share, but would appreciate your thoughts there?

I hope we will see some growth in our LTL segment. The recent e-commerce trends appear to be somewhat favorable for LTL. With companies like Amazon and others opening numerous distribution facilities nationwide, they are getting closer to customers. This should encourage suppliers to ship to different types of facilities, which tends to favor LTL compared to truckload, particularly when dealing with smaller quantities and faster delivery to customers. From an e-commerce perspective, I see this as a positive trend. Of course, the overall macro economy will be the determining factor. We haven't experienced a significant boom recently, especially not in the last couple of years, though there was growth back in 2018. The broader economy will impact our market, along with truckload and small packages. Let’s hope for strength from that angle. While I’m not anticipating a boom compared to the last decade, I do expect steady, continued growth.

Okay. Great. Thanks for the time.

Thanks operator. Gentlemen, good morning, hope everyone is well. Wanted to talk a little bit about contract pricing, could you tell us or give us an idea of, how that went in the quarter? And then, sort of, what do you expect going forward, now that UPS Freight has been purchased by TFI, considering there have been more of a, discounter in the marketplace? And then, I have a follow-up.

Yeah. We don't necessarily detail out, what our contractual business is done versus our tariff-related business. But I think that, generally speaking, we've had a pricing philosophy that's been cost-based. And we expect each customer to give us pricing that's above those costs to support the investments we make in service and capacity and technology. And that's worked out well for us. I think, we had success last year. And it was pretty continuous throughout the year, and all four quarters of being able to get increases as contracts renewed and certainly would expect to continue that as we transition into 2021.

Do you have any comments on the market with UPS Freight and the acquisition of that company, or do you not encounter them very often?

I don't really want to comment on, one specific carrier per se. But I certainly think that, the industry itself showed a lot of discipline working through last year, especially in the second quarter when there was a lot of volume pressure. So it's been good to see the industry overall perform certainly that's been supportive of our own pricing initiatives, which we may have philosophies that are slightly different from the industry generally, but certainly would expect a very favorable pricing environment in 2021. There's a lot of factors that would go into that certainly demand is incredibly strong, capacity is generally limited, that's a lot of feedback that we are getting from customers right now. And that's just across the transportation space. And then, I think that, some of the other LTL carriers that utilize some truckload carriers for their line-haul services, certainly are facing maybe more cost inflation than we are. And typically in that type of environment rates are rising faster as well to offset that cost inflation for those other carriers' businesses. So I think there's a lot of factors that would point to industry pricing being very favorable for this year. And certainly should be supportive of our pricing initiatives.

Yeah. I would agree it seems like the backdrop is pretty good for the LTL business. Wanted to do a quick question, Adam, you mentioned that there is going to be some marketing advertising costs coming back. Could you give us an idea of the magnitude of those costs?

We've never really broken down exactly what we spend and where. Clearly, we have some significant national deals. We paused some programs last year, so I wouldn't expect those costs to be higher than last year's levels. However, we do anticipate those costs may be higher than what we've seen in the last couple of quarters due to some changes we initiated in the second quarter of 2020. Many of the items impacted by the pandemic, some temporarily and some potentially permanent, fall within our general supplies and expenses category. Generally, in the second and third quarters, those costs range from 2.5% to 3%. We expect them to rise again to previous levels, which were typically between 3% and 3.5%, though perhaps not reaching the full extent of 3.5%. We will continue to benefit from savings related to travel and other areas, but we anticipate returning to that range, hopefully at the lower end.

That's very helpful. Listen, gentlemen. I appreciate the time as always. Please be safe out there.

Thanks Jason.

Yes. Good morning, gentlemen.

Dave.

Dave.

So, sometimes less is more or stop doing stupid stuff is good advice. What is the one thing that you were doing maybe five to 10 years ago Greg or Adam that you're not doing now, that has made the biggest impact?

I might need to reference something from a bit further back, David. It's possible we stopped engaging in unwise practices even earlier than that. Your question took me by surprise, but...

Well, if you go back to kind of 2005, 2006 because, I know that's when a lot of the service improvements started. Is there anything that you were doing then that just got in the way that you removed?

So, we were somewhat like some of our competitors back in the day. We used a lot of purchase transportation. We were dependent upon those for our line-haul modes and whatnot we eliminated that over the years, and I think by and large we just gotten better. I don't want to say that we did stupid things, maybe that's not exactly the right terminology but I think we've just gotten smarter and we've gotten better over the years. We've understood better what our customer needs are and we figured out how to meet those needs, what do they really want what do they really need, and I think we're just better at it today than we were some years ago certainly. And I think it's indicative of our share growth continuing to win the MASTIO, which is a pretty good measure in stick of service. So I think it's maybe not what we did stupid but just what we've done smarter and what we've done better than our competitors have done, so maybe that's the best way to state it.

The MASTIO survey is terrific. Something else you've done smarter and better it's been on the pricing side, but that also wasn't always the case. Can you talk a little bit about the process to get to where you had your old pricing system model, accounts, rates and getting it to where you want to go? Is there a few key things you need to focus on or do along the way, because you don't want to just raise rates and have customers leave.

Well, David, I think the pricing really goes hand-in-hand with the service. When your service is poor, sometimes the only way you're going to put a shipment on the truck is just give a cheaper rate. Once we really got the service click and lock it needed to be then we were in a much better position to raise our prices and I think we've been extremely disciplined over the years. And as the years have gone on, we've put in all the systems the dimensioners and all the techniques and all the technology that helps us to better understand exactly what our cost are be it P&D, be it line-haul, be it movement, delivery whatever. I think we certainly better understand our costs now than we did certainly 15 years ago, and we've executed on that understanding. So I think that's certainly been huge for us no doubt and we'll continue to be. We're disciplined, we know what our costs are and I think that's certainly one thing that sets us apart and helps to drive our numbers for sure.

Excellent. Thank you very much.

Sure. Thanks David.

Thank you. Good morning. When considering the outlook for 2021, I realize you prefer not to provide guidance on the operating ratio, but reflecting on 2018 when your growth tonnage was in double digits, your incremental margins were around 35%. I’m not asking for a specific number now, but as you compare 2021 to 2018, especially regarding costs, should we be aware of tighter labor or generally higher inflation? Additionally, will the timing of volume growth versus resource additions be more challenging this time? Is there anything else we should consider if we want to use this as a rough guideline for your performance throughout 2021?

Certainly we're going to face a lot of challenges as we go through this year and while certain top-line comps might be easier if you will. I mean, we were pretty proud to produce a lot of growth and profits in 2020 despite the fact that the revenues were down. At the end of the day we generated almost $90 million of the increase in operating income despite our revenues being down about $95 million. So certainly in some respects we'll have some tough comps, but I think this sort of pulling back and looking at our cost inflation anticipate that we'll probably see cost per shipment inflation around 4% this year. And it's a little bit higher than our longer term average, but I think we've got some factors that that will be coming back to us. I mentioned some of the general supplies and expense type inflation we might see would anticipate a little bit higher healthcare inflation this year. So we're going to see some inflationary pressures in some of the other categories. We always have a 3% to 3.5% inflationary cost in our salaries, wages and benefits as we continue to improve that program for our employees. And so all those factors will go into that metric and that will be our target and then that becomes the target for, which our long-term philosophy of trying to get 75 to a 100 basis points of rate increase above the cost inflation and then we just worked through from there. But I think that we've talked about the key ingredients for long-term, operating ratio improvement, or the improvement in density and yield, and I think certainly the macro set-up would lead you to believe that we should be able to produce nice improvements in both. And we've gone through two years of being flat and each year, I thought that, we would have had some growth and certainly didn't expect the industrial slowdown in 2019. And I don't know that, Nostradamus could predict what we saw last year, but we worked our way through it and I think we're in a good spot as we enter the year, and we're just going to continue to work our plan to try to drive the operating ratio lower. We've talked about kind of having a goal per se not necessarily incremental margins, because the reality is we're managing the business to put as much profit to the bottom line as we can and last year, the success that we saw sort of proves that out, but certainly should be in a position to create some strong incrementals this year, and we'll keep working toward the long-term goal that we've talked about of driving the operating ratio to a 75, so we'll just keep making progress there month-by-month and quarter-by-quarter as we work through 2021.

Got it. Okay. That's very helpful. And then just quick follow-up here thinking about the CapEx budget obviously stepping up and understandably so, can you talk a little bit I know you've given us some breakdown, but can you talk a little bit about sort of the opportunities that you see there in terms of deploying that capital? And then relative to that 30% available capacity coming into 2021, how do you want to sort of maintain that? Is that roughly the right amount of available capacity you'd like to have as you move forward?

We generally talk about sort of 25% kind of plus or minus of excess capacity. And I think that continuing our CapEx programs through 2019 and 2020 continuing to build out the service center network certainly is going to pay dividends for us this year, with the increase in volumes that we're seeing now and would expect and probably for 2022 as well. So, I mean, we maintained our CapEx spending on real estate, and really last year was more just cutting back on the equipment and that was a plan we had in effect when we started the year and before seeing the pandemic effect on our business. But we were fortunate that that was part of the plan and certainly health and we didn't see the type of inflation and depreciation cost that, we normally would see and that was a big benefit there. But I think we're in a good spot. We're going to continue to look for opportunities. We've got a good plan on the real estate side the $275 million is a good starting point. But we maintain our long-term plan and trying to look at multiple years out and still sort of have a target list of 30 to 40 properties and we'll keep our eyes peeled, and if some things become available. Certainly, we've got the strength to be able to pull the trigger on that and we'd look to just continue to make those expansions to really prepare the network for growth that's multiple years down the road.

Okay. Got it. Thanks for the time. I appreciate it.

Hey, thanks. Good morning guys. Just a couple of follow-ups. First, how many service centers are you adding this year? And then within the January update, can you just talk about weight per shipment trends?

Not only additional service centers, we have three that we're very close to opening that may open in the first quarter, if not first certainly second. And then, we have another half dozen or so that we're working on so just depends, if we get them completed or not. It's not always easy to sit here nine months out and say exactly what we're going to finish, but hopefully, another half dozen or so on top of the three that we are really, really close to opening there.

And then on the weight per shipment, it was 1,625 pounds in January, which was a 4.6% increase there so continuing to see strong weight per shipments. Our business is still leaning a little heavier, if you will on our larger national accounts that have a higher weight per shipment on average. But I think that the strength in that number is some of our smaller customers get healthier and are making up coming back to normal, if you will in terms of a percent of our business. It's just a reflection on the strength in the economy right now and probably seeing a little bit of some spillover type freight that it's coming into the network as well.

Okay. And then Adam, how quickly do you expect the PTE spend to normalize with higher than normal headcount in growth in 1Q, do you think you get back to normal PTE by 2Q or is it more back half you think?

It's difficult to determine because it will depend on our top-line performance. We had a very strong sequential performance in the fourth quarter. Last year, we went through significant declines from the first quarter to the second quarter, followed by a strong rebound in the third quarter, and then an excellent performance into the fourth quarter. I believe we are starting January with some strength as well. We plan to utilize this momentum until our team's capacity aligns with the volume growth we are experiencing. Therefore, I wouldn't anticipate a significant increase, as we are effectively onboarding new team members to keep pace. In the first quarter, we expect to maintain the consistency we saw in the fourth quarter, and we hope to see some improvement in the second quarter, but it may be more noticeable in the latter half of the year. Ultimately, I think our performance will be driven primarily by top-line results.

Okay. Thank you guys.

Scott.

Thanks. Good morning everyone. Gentlemen, I want to follow-up to a response about your earlier questions. It was pointed out that you've significantly outgrown the industry and a lot of that has been driven by share gain over the years, and you said that you expected the industry to be good, but not gangbusters growth in the next five years. So I just wanted to get a sense of kind of in your analysis of the industry structure right now, do you feel like you can keep up that outsized share gain kind of trend over the next several years? Do you think kind of that potential exists?

I believe it certainly does. Our entire strategy is focused on growing our capacity and expanding our service center network, which we have worked diligently on over the past 10 to 15 years, and I think we've been very successful in doing so. Therefore, we are well-positioned to capitalize on any growth opportunities that arise. I would also expect that we will outpace our competitors, who for the most part have not demonstrated similar growth. We'll see how things develop, but I’m confident that we are in a good position to continue gaining market share.

And you have said in the past that kind of you tend to gain accelerated share when the markets kind of starting to turn up rather than the market is going down. Are you seeing that already like in the fourth quarter and in January so far?

We are. Yes. We are seeing that. We're seeing the response from our customers. We've had numerous situations where our competitors could or didn't respond for whatever the reason and we were able to take advantage of that. So again, that's why we're doing what we're doing from a capacity standpoint, so we can be there when the need arises.

Got it. And just a follow-up, can you give us more insight into your thoughts on the UPS and TFI deal, as I believe it significantly impacts the industry structure moving forward? Were you surprised by that transaction, and do you think it will trigger a domino effect of mergers and acquisitions or consolidation in the industry, particularly among some of the non-union players?

Like I said earlier, we'd rather just not comment on any specific competitors and transactions or whatnot. But I think regardless of who our competitors are, I think, we've kind of proven. What Greg just said, we keep focused on executing our plan making the investments. We have a service advantage in the marketplace and we have a capacity advantage as well and we're just going to keep doing our thing and staying focused on our employees, staying focused on our customers, and then just let in the financials kind of fall out in the end and that's included a lot of profitable growth over the years and certainly expect that to continue to do that regardless of the landscape.

Yes. Good morning. Wanted to ask, I know, you've had a few on this topic and you're not being granular about it but the TFI, UPS, you could argue that there might be some freights build into the market and they need to price up a lot and I think TFI has certainly shown that there discipline in their approach they're not focused on volume they're focused on making money. So I don't know if you have a thought on whether they have good quality freight or not, but if you don't want to be that granular, perhaps you could offer a thought on is there bad freight that you don't want when there is tight capacity or is it simply a function of all freight is good as long as you price it right?

I believe the latter comment is likely the most fitting. While there may be some bad freight, it is relatively rare, although there is an abundance of poor pricing in the market. When pricing is done correctly, there is very little bad freight; it just requires pricing based on the actual cost of hauling a specific commodity. I think we have managed this better than most companies, and we recognize that if a load is costly to transport or handle, we will adjust our prices accordingly. Regarding the UPS or TransForce acquisition, we will have to wait and see what that means for us. I'm not clear on their strategy in the Canadian market or elsewhere, but if they can successfully implement price increases, it could positively impact our industry. From my perspective, this situation is not negative at all, and I believe it could be beneficial for everyone involved.

Yeah, right, okay. That makes sense. How do you think about mix in terms of industrial versus consumer? I think the kind of surprisingly strong swing back in freight in June, July, August, even in the fall, was that more on the consumer side? And I think you know the story in '21 would seem to be that industrial catches up or at least there is a stronger swing in industrial, is that something which could be meaningful in terms of your mix and helpful in terms of the operating ratio performance or how do you think about that potential impact if there's more industrial freight and not as much of a step-up in consumer?

We are significantly engaged in the industrial markets, mirroring trends within the industry, and our figures remained stable in 2020 compared to 2019, with approximately 55% to 60% of our revenues linked to industrial sectors and about 25% to 30% related to retail. Throughout the year, performance in these areas was consistent with the previous year. Our fourth-quarter revenue consistently reflected this performance across both industrial and retail customers. We anticipate improvements in the industrial economy to create freight opportunities for us. As Greg mentioned earlier, there will continue to be growth potential on the retail side, with an indication of slightly stronger growth in retail than in industrial leading up to 2020. However, regarding margins, we've frequently discussed our operating philosophy, which advocates that each customer should operate independently. We evaluate each customer's profitability and operating ratio, regardless of whether they are large national accounts or smaller ones, across retail or industrial sectors. This approach helps us manage our operations effectively while striving for continuous improvement each year. The balance between industrial and retail categories or larger versus smaller accounts has been validated by our operating performance last year, showing that they operate closely together. We're looking forward to growth in 2021, which we expect will further enhance our operating ratio.

Great, that's very clear and helpful. Thank you.

Thank you, good morning. First one, kind of bigger picture of macro drag on kind of on the last question as well. I think there is a consensus view that the industrial economy is going to catch up to the consumer this year, at least that's the hope. That number that you put up on tons in January is obviously a pretty big number. Is that indicative of the industrial economy starting to show signs of really building momentum in your opinion or is that really kind of just a catch-up from the depths of the pandemic in the middle part of last year?

I think its may be an effect of both, to be honest with you. I know there's catch up and resupply for sure, but no doubt about that. So we'll see where it goes as the year develops but hopefully the industrials do start to catch up. I think that'd be certainly a good thing for us as well as our industry.

Okay. And your customer is generally optimistic this from ton?

For the most part, yes.

Great. And then the follow-up is, you mentioned right at the beginning of your comments about your spare capacity. So it certainly seems like you're lined up, this industrial economy does catch up. Are there any issues that may restrict your ability to take on new business, whether that's labor restrictions, just hiring, whether it's drivers or at terminals or any other issues beyond the obvious kind of equipment capacity?

I don't think so, not beyond the obvious. Labor is a challenge and it's definitely tougher than before, but we are experiencing success. Adam mentioned this earlier, and our service centers are meeting their needs. We are successfully adding employees and drivers wherever necessary. That’s a positive development. I wish the process was a bit faster; we could respond more quickly, but it is what it is, and I believe we are making progress. Sometimes changes in growth numbers bring new challenges. It’s one thing during a period of moderate growth, but if growth really accelerates, the challenges will increase as well. Currently, in a controlled growth environment, we are in excellent shape. If we see a significant acceleration, then the challenges will rise accordingly. We will see how things unfold, but there are no immediate obstacles in our way. We are anticipating a great year.

Okay.

Expecting a great year.

Thanks, good morning. So just in terms of the January revenue per hundredweight, up 2.2 is that inclusive of fuel? And if so, could you give us the ex-fuel number. And then just thinking about the 4.2% yield growth ex-fuel in Q4, maybe if you could give us a sense of what that looks like if you exclude the mix impacts from weight per shipment and length of haul? Just trying to get a sense of the underlying core pricing trends.

Yeah, Allison that January number did include the fuel and excluding the fuel is pretty consistent the growth rate was pretty consistent with the fourth quarter so just over 4% if you will, and we'll continue to see until about April, really I think that that delta and some pressure on the fuel surcharge revenue and showing up in those metrics. I think that fuel was pretty consistently higher until about April of last year and then fuel trends hold current that will start becoming a little bit of a tailwind finally for us on a top-line basis. But I think that certainly, when you look through last year and kind of how that yield number excluding fuel is up 4.2% in the fourth quarter, there is not a perfect analysis if you will. There is not a linear way, purely linear way to evaluate the change in weight per shipment and length of haul but we had more pressure from the increase in weight per shipment in the middle part of the year in the second and third quarters. So certainly that 2.5% increase on the weight per shipment has got a negative effect but then you've got a 1.3% increase in the length of haul, so I mean there is somewhat offsetting. And I think that just the underlying performance and we review the – our growth in renewals and so forth consistent with our long-term average. We've been around whether you look over the past 10 to 15 years, we've been able to average about a 4.5% increase in our revenue per shipment and I think that we are pretty much in that category somewhere around that ballpark for last year. And certainly like I mentioned earlier, the strategy is always to try to target 75 to 100 basis points above our cost and I think that that's been a good consistent approach. We're not trying to necessarily always follow the market with more of a roller coaster type of approach we like it to be consistent. Customers generally appreciate that and it's easier conversation to have when you're just talking about pure cost or customers operating ratio to talk about the need for an increase but we'll continue to sort of target that type of range and certainly expect next year to be supportive of our ability to do so.

Okay, thank you for that. And then just I mean, so it seems like you should be able to generate pretty strong free cash flow this year even with elevated CapEx. I know you raised the dividends but maybe if you can share any thoughts you have on buybacks in 2021 and if that might accelerate from the repellent in 2020. Thank you.

Yeah, certainly, when we've talked about priorities for capital allocation in the past, obviously the $605 million of CapEx, CapEx is the number one position. And I think while we've have been able to create such strong returns on invested capital and I want to keep investing there, but the excess capital that we've been generating in the business, we've been increasingly returning to our shareholders and we stepped up the pace of our buybacks last year and it's been a little over $360 million on the buyback program in 2020. So that was a nice step-up and we'll just continue to look at stepping those dollars up most likely, because it's certainly not something that we want to continue to have significant balance of cash hanging around on the balance sheet. But we also want to be mindful of the fact that there may continue to be some opportunities out there from a real estate standpoint and some of those in areas like on the West Coast and in the Northeast I've got some really expensive price tag. So we'll continue to look for some opportunities there and would rather spend our dollars on something that's more strategic like a long-term investment in the service center but absent those opportunities will continue to return capital to our shareholders.

Okay. Thank you guys.

Bye Allison.

Thanks guys. I'll make it quick I know we're coming up on the hour here. Just one quick ones from me Adam. If you can just help us how shipments trended sequentially from December to January versus maybe how they've done over the last 10 years what the actual number was? I know there were up 7% year-over-year, but just trying to gauge the sequential strength in shipments relative to seasonality from December to January?

Sure. For everyone's benefit, I'll outline the fourth quarter shipment trends per day. In October, shipments were down by 3.3% compared to September. November saw a 3% increase over October, while December experienced a 4.2% decline from November. January, however, was 1.4% higher than December. When looking at the 10-year averages, October showed a 3.3% decrease, November had a 1.8% increase, and December recorded a 9.8% decrease. Typically, January sees a 3% increase, but considering the strong performances in both November and December, the January numbers are slightly lower than the 10-year average due to the outperformance in those preceding months. Overall, we had strong performance throughout the year, with a slight slowdown in October. As we caught up, shipments increased significantly, and once we lifted any restrictions, volumes accelerated through the remainder of the year and into January. There are many favorable volume trends.

I wanted to explore that further. It seems that December performed much better than expected, which may account for some of the slow start in January compared to typical seasonal trends. There are three factors that might influence the increase in volumes: first, growth in the industrial economy; second, spillover effects from the truckload sector; and third, market share gains. I want to clarify that you are indeed gaining market share and are well-positioned to benefit from truckload spillover. I am trying to understand whether the strength we see in January, compared to last year, is primarily due to specific factors related to our company or if it reflects the broader industrial economy, given that U.S. industrial production is still down year-over-year, although there is an expectation of improvement as the year progresses. I'm trying to distinguish between these three contributing factors regarding the notable strength in volume.

You didn't mention the quality of our sales team, which is an important point. However, we've discussed our service advantage, which is unique in the industry, and we are providing better service than anyone else. We also have a capacity advantage that is beginning to show positive results for us, backed by customer feedback. Additionally, the industrial economy is improving. While there has been uncertainty typical of an election year, that is now behind us, giving us a clearer understanding of the regulatory environment. We hope this will continue to support an improving economy as the country reopens. All these factors, including improving demand, low inventories, and the need for restocking, represent favorable trends for us. We are in a strong position to capitalize on this with market share gains from strengthening customer relationships over the past year. Customers who may have been more price-sensitive are recognizing our capability to respond and provide them with capacity during challenging times while ensuring great service. They may realize that while they might pay a bit more upfront, choosing Old Dominion for transportation service can lead to cost savings in the long run. In summary, we have a distinct service advantage and capacity advantage, which have been key to our market share growth over the last decade, more than any other company in our industry.

Can you break down the 76.3% operating ratio for the quarter between direct and indirect costs? I assume that bonus payments would be part of the direct costs, but could you clarify that for us?

It's approximately 56% on the direct side, and our overhead costs have historically ranged from 20% to 25% of revenue. We've managed to reduce that figure to the lower end of that range, and we plan to continue building on this. The bonuses are primarily allocated to the direct side, but for management and non-productive labor, which includes drivers, dock workers, and mechanics, those costs are more attributed to overhead. Therefore, a portion of the bonus will also be counted in overhead, but most of it is allocated to the direct side.

Yes. Okay. Thank you very much.

Yes. Hi. Good morning. I'm just curious, the expansion that you're talking about of the service centers, just sort of wondering, how long does it typically take to, if you will, get the density needed to fully season one of these facilities, so that it gets closer to the margins that you wanted, or is it a situation where the density such in the area that, it can come in pretty quickly close to an OD type of margin level. Thanks.

It typically does not take long in our system. We won't open additional facility till the need is there for the most part. We may certainly have excess capacity in there, but we don't fully utilize it from day one. So we're not absorbing necessarily all those costs from the outset, but typically we will put a lot of business in that service center from the get-go. So there is not usually a long climb to our typical normal type returns in a service center.

Okay, great. That was it from me. Thank you.

Hey. Good morning, guys, and congrats on a nice quarter. So, I had, kind of, two questions. So first I wanted to ask about just the weight per shipment trends and I know Scott touched on this earlier. But seeing more supply, seemingly entering the truckload market and some elevated order numbers on the Class 8 trucks, maybe you could talk about what your expectation is for, kind of, the weight per shipment trend over the course of the year and if we see that maybe return to kind of normal levels, or more normalized levels, as we move toward kind of the second half?

We're currently at 1625 pounds, and historically, in strong demand environments, we've averaged around 1600 pounds. For instance, in 2018, we were in that range. I believe we can maintain a range of 1600 to maybe 1650 as we go through the year, though we might experience some fluctuations. Additionally, we're seeing solid performance with our smaller customers, who typically have a slightly lower weight per shipment, which could affect our overall average. However, the overall demand environment is keeping shipment weights stronger. We're not overwhelmed with excess freight. When I examine our work with third-party logistics companies, they're often able to assist their customers—and ours—in securing capacity, which has contributed to a higher weight per shipment growth for business handled by 3PLs compared to our overall business. Thus, I expect to see shipment weights remain elevated, supported by favorable economic indicators and a generally constrained capacity in the industry.

Got it, got it. That's very helpful. And then just for my second question and I know number of people obviously asked about the TFI deal with UPS Freight. But stepping back and not necessarily addressing them specifically, but thinking about the idea of having a more focused competitive set. You guys have obviously benefited tremendously from delivering exceptional service levels. Does it perhaps risk kind of a part of your competitive advantage if peers start to improve service levels and start to kind of emulate OD more in terms of the structures of their network and the service levels that they are able to provide? Do you see that as a competitive threat at all or do you think kind of margins can kind of remain best in-class and kind of you guys can continue doing what you're doing regardless of what our competitors are doing on the service side?

I think, it's obviously a threat, no doubt. I mean, if you got to a bad team you improve the players and it's a threat to all the other team, so no doubt. But I think they've got to do it, they've got to pull it off and there is an awful lot that goes into service and we worked awfully hard on it over the years, not only a, to be on time, but all the other things that go into a true service product and I think we do it better than others. And hey, it's out there, it's not rocket science, but they've got to do it. So we'll see how they do.

Just add though to that, that the fact that it is a unionized company and the non-union carriers generally have got more flexibility within their workforce in a better service product and you've seen more market share movement to the non-union players as the length of haul shrink in and there is more of a premium within supply chains to look at carriers that can respond the next day and second-day needs. And I think that we've got more flexibility as a group of non-union carriers. I mean, I think we've got an advantage within that group as we've talked about earlier to be able to continue to win share. So I mean that's something that's been playing out over the long run and we'd expect to continue to see share movement from unionized and non-unionized players.

Got it, got it. And that's a terrific answer and thank you for the time and you guys clearly have a strong track record in that regard. So thanks for that.

All right.

Well, thank you all for your participation today. We appreciate the questions and please feel free to call us if you have anything further. Thanks and have a great day.