Old Dominion Freight Line Inc (ODFL) — Q1 2024 Transcript

Thank you, Andrea, and good morning, everyone. Welcome to the First Quarter 2024 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 1, 2024, by dialing 1 (877) 344-7529, access code 5260631. 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 believe, anticipate, plan, expect, 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, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. 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 ask that you limit yourselves to one question at a time before returning to the queue. Thank you for your cooperation. At this time, I would like to turn the conference call over to Mr. Marty Freeman, the company's President and Chief Executive Officer, for opening remarks. Marty, please go ahead, sir.

Good morning, everyone, and welcome to our first quarter conference call this morning. 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's financial results improved during the first quarter of 2024 despite the continued softness in the domestic economy. While the improvement in our results was modest, we produced year-over-year increases in both revenue and earnings per diluted share for the second straight quarter. Our earnings per diluted share of $1.34 also represents a new company record for the first quarter. To produce these results, our OD family of employees continued to execute on our long-term strategic plan that helped create one of the strongest records of growth and profitability in the LTL industry. This was evidenced by our team's ability to once again deliver 99% on-time service and a 0.1 cargo claims ratio for the first quarter. Consistently delivering superior service at a fair price is the central element of our strategic plan, and we have created a best-in-class value proposition as a result. This value proposition continues to create opportunities for us to win market share over the long term and has also helped strengthen our customer relationships. Our customer retention trends have remained steady over the past two years despite a domestic economy that has been sluggish for longer than we originally anticipated. Our customers have had fewer shipments to provide us as a result of the slower economic environment, but we are strongly positioned to respond to their needs when demand eventually improves. Demand can very quickly change in the LTL industry, and the OD team has experience in dealing with these challenges that rapid growth can present. This is why we focus so intently on our long-term market share initiatives and make decisions to help us achieve these goals despite the cost implications that may impact us in the short term. Our capital expenditure program is a prime example of this, as we have invested $757.3 million in total capital expenditures in 2023 and expect to spend approximately $750 million this year to stay ahead of our growth curve. The resulting depreciation has created some short-term cost headwinds that slightly impacted our first quarter operating ratio, but we have improved our fleet and have approximately 30% excess capacity in our service center network to support future growth. The LTL industry has seen significant disruption over the past nine months, but we believe the strategic advantages that we have allowed us to outgrow our industry for decades and will continue. Other carriers may be able to add service centers or purchase more equipment, but what has differentiated us from other carriers is not so easy to duplicate, which is our culture and our OD family spirit. Our people are the most important element of our strategic plan and our entire OD family of employees is committed to a culture of excellence. We invest significantly in our employees to help ensure that we are regularly educating and training our team. We have trained most one-third of our current drivers through our internal OD truck driving training program, and we intend to keep using this program to produce safe and qualified drivers. We also continue to invest in our management and sales training programs, which we believe will help produce the next generation of OD leaders. These are additional examples of decisions that create short-term costs, but we are more willing to incur these costs to be prepared for our future. Our consistent investments in our people, our service, and our network are the key reasons why we have gained more market share than any other carrier over the past ten years. Having each of these elements in place is also why we continue to believe that we are the best positioned company in the LTL industry to benefit from an improving economy. Delivering superior service is ultimately what wins market share in our industry, and I can assure you that everyone on OD's team is more committed than ever to delivering superior service to our customers and ultimately adding value to our supply chains. We also have the financial strength and consistent returns to support investments needed to help achieve our long-term vision for profitable growth. As we continue to execute on a proven plan to achieve this vision, we believe we can drive further improvement in shareholder value. Thank you for joining us this morning. And now Adam will discuss our first quarter financial results in greater detail.

Thank you, Marty, and good morning. Old Dominion's revenue for the first quarter of 2024 was $1.5 billion, which was a 1.2% increase from the prior year. This slight increase in revenue was primarily due to a 4.1% increase in LTL revenue per hundredweight, which was partially offset by a 3.2% decrease in LTL tons per day. Our quarterly operating ratio increased 10 basis points to 73.5% as compared to last year, while our earnings per diluted share increased 3.9% to $1.34. On a sequential basis, our revenue per day for the first quarter decreased 7.0% when compared to the fourth quarter of 2023 with LTL tons per day decreasing 5.5% and LTL shipments per day decreasing 5.2%. For comparison, the 10-year average sequential change for these metrics includes a decrease of 1.3% in revenue per day, a decrease of 1.0% in tons per day, and a decrease of 0.3% in shipments per day. The monthly sequential changes in LTL tons per day during the first quarter were as follows: January decreased 3.9% as compared to December. February increased 1.9% from January, and March increased 2.4% as compared to February. The 10-year average change for these respective months is an increase of 0.8% in January, an increase of 1.5% in February, and an increase of 4.8% in March. Please remember, however, that Good Friday was in March this year, and the average sequential change for March when that is the case is an increase of 2.5%. While there are still a few workdays remaining in April, our month-to-date revenue per day has increased by approximately 5.5% to 6% when compared to April of 2023. Our LTL tonnage per day has increased by approximately 2% to 2.5%, while LTL revenue per hundredweight has increased by approximately 4%. Our LTL revenue per hundredweight, excluding fuel surcharges, has increased approximately 4.5%, which is trending lower than our growth rate in the first quarter. We want to be clear that the slowdown in this metric does not represent any change in our pricing philosophy or a change in the overall pricing environment. Certain mix changes are impacting this metric in April as the change in our LTL revenue per shipment is more comparable with the first quarter. Nevertheless, we will continue with our long-term consistent approach of targeting yield improvements that exceed our cost inflation and support our capital expenditure program, and we believe we can achieve those initiatives this year. We will provide the actual revenue-related details for April in our first quarter Form 10-Q as usual. Our operating ratio increased 10 basis points to 73.5% for the first quarter of 2024, as the impact from the increase in our overhead cost more than offset the improvement in our direct costs. Many of our fixed overhead costs increased as a percent of revenue due to the flatness in revenue and the significance of our capital expenditures over the past year. This is most evidenced by the 50 basis point increase in our depreciation cost as a percent of revenue. We are pleased, however, that the improvement in yield and ongoing focus on operating efficiencies helped us improve our direct operating cost as a percent of revenue by approximately 100 basis points. This change included improvements in our operating supplies and expenses that offset a slight increase in salaries, wages, and benefits as a percent of revenue. Our team continued to efficiently manage our variable costs while also delivering best-in-class service standards, which is not easy to do in an environment with lower operating density. We continued to believe that the keys to long-term operating ratio improvement are the combination of density and yield, both of which generally require a favorable macroeconomic environment. Once we have those factors working in our favor again, we are confident in our ability to produce further improvement in our operating ratio and we'll continue to work towards our goal of producing a sub-70% annual operating ratio. Old Dominion's cash flow from operations totaled $423.9 million for the first quarter, while capital expenditures were $119.5 million. We utilized $85.3 million of cash for our share repurchase program during the first quarter, while cash dividends totaled $56.6 million. Our effective tax rate for the first quarter of 2024 was 25.6% as compared to 25.8% for the first quarter of 2023. We currently anticipate our effective tax rate to be 25.4% for the second quarter. This concludes our prepared remarks this morning. Operator, we're happy to open the floor for questions at this time.

So great summary of where we got to this point. Is 2Q the quarter where we see the best of what this industry looks like in a post Yellow environment, and if tonnage picks up and you have 2024 pricing that comes in, how do we expect 2Q to trend versus seasonality?

Yes. I think that's a difficult one to answer. It's obviously dependent on the top line. Typically, the second quarter is when we see the big acceleration in revenue, and historically speaking, the 10-year average increase in revenue from the first to the second quarter is 8.7%. We're not starting out with that type of growth in April. Things still feel good to us, and we're finally seeing some year-over-year revenue growth, but it's not quite at the levels of getting back to seasonality. We have been encouraged that we've seen our volumes increasing really into February, into March and have essentially increased thus far into April, but again, not at those normal seasonal levels. So to kind of frame up the second quarter operating ratio guidance, it's going to be very dependent on what the top line does. If you think about last year at this point in time, we were at a point where we weren't looking at any sequential revenue growth, and we were targeting margins to be flat. If we were able to grow at what the normal seasonal levels would be on the top line, that would be that 8.7% sequential growth to be about 12% year-over-year growth. So obviously, we're a ways away from that. Where we are at this sort of 6%, I would say we probably are somewhere in the middle of that sliding scale. If we were to stay at 6% year-over-year growth, then I would probably put us somewhere at a target of maybe about 150 basis points of improvement from the first quarter. So like always, the second quarter is going to be dependent upon how much acceleration we see. And while we're encouraged by some things, we're not ready to make the call to say that things are definitely accelerating and that we can hit some of those sequential points as we go through May and June. But hopefully, we'll continue to see some acceleration there, and that will create operating density for us and will allow us to improve our margin from the first quarter to the second.

This is Grant on for Daniel. There was a comment in the release around some recent developments that suggest overall demand for your services may be improving. Could you maybe just provide a little more context around what that comment was referring to? Is it more a weight per shipment comment that is maybe impacting some of your yield metrics in April that you discussed earlier? And maybe if you could also just provide a bit of an update on the underlying demand environment.

Yes, I would say right now, underlying demand has felt relatively consistent, but it does feel like things are improving a bit. We've seen some sequential acceleration; obviously, January we saw pretty good with winter weather, and we saw the impact of that. But we increased from there through February and then saw again some of the sequential improvement in shipments through March and thus far into April. I feel like there are several factors that are starting to turn. We've been in a long slow cycle going back to April '22. Maybe to borrow a line from Taylor Swift, is that over now; we’re kind of waiting to see. However, we saw ISM inflect back above 50% for the first time. Like you mentioned, our weight per shipment has increased again. We saw a little bit of a change from January to February. It dropped a little bit, but then it came back in March and at this point through April, we're up a little bit higher. So you sort of balance that with conversations that we've had with customers, and we look at our national account reporting on wins and losses. There's a lot of good things that feel like they're developing. If history repeats itself, usually a couple of months after that ISM inflects to the positive, we start seeing some improvement in our industrial activity as well, and that's something that will steal from our retail, which outperformed our industrial business in the first quarter. If that's something that we can start seeing some recovery there, all of those factors hopefully will be increasing the demand for LTL service, and we're certainly in a position to take advantage of that opportunity as it presents itself.

Just curious if you could talk a little bit more about the yield side of the equation, perhaps a little more color around mix, core pricing you're seeing as your contracts come up? And broadly, is the yield deceleration tied in some way to more intense competition out there given industry spare capacity?

Yes. That's why we wanted to be clear with the comments earlier that we don't see this in any way as being a reflection on the overall environment. Certainly, there is no change with respect to our yield management initiatives. We continue to target trying to achieve yield improvement that ultimately leads to our revenue per shipment outperforming our cost per shipment. That's something we've been able to achieve, and we've targeted 100 to 150 basis points in the past. Obviously, with the weakness in the volume environment over the past year, we weren't able to achieve that positive spread in 2023, but we kept on investing, which created more costs, and we're continuing to invest this year. I do think we're getting close back to this point, and perhaps it will inflect back in the second quarter to where we do see a positive spread, probably not to that full 100 to 150 basis point delta. But I do think that we can see our revenue per shipment now going back above what our cost per shipment change would otherwise be. We're continuing to work through contracts as they're coming due. We're winning some new business. Sometimes that can come on board when you look at things on a hundredweight basis; that number can skew and be skewed by multiple factors, be it the weight per shipment, the length of haul, which has been decreasing, the class of freight as well. There are multiple things that can move that number around, and the year-over-year growth is just a little bit slower in April than where we were in the first quarter. Overall, our revenue per shipment is what matters the most, and that's performing pretty consistent with where we were in the first quarter, at least from a core basis; it's a little bit higher right now, including the fuel. But on a core basis, looking at revenue per shipment ex-fuel, it’s pretty close to where we were in the first quarter. I still feel good about the environment, and certainly seeing the activity that we've had internally and the increases that we continue to achieve; we feel good about things and especially the line of sight to seeing some positive spread once again of rev per shipment outperforming the cost per shipment.

I think your long-term shareholders can be happy with the discipline you've held through this two-year protracted down cycle on sticking to your guidance and strategy and waiting to monetize the capacity in the better part of the cycle in the future here, especially with all the changes in the competitive landscape and capacity moving around at some of your peers. But as you look forward and wait for that inflection, are there things you are looking for in that the market may have changed and the strategy does require a tweak here or there? I'm just curious internally what you're watching for to see that things may have shifted in some way, shape, or form in the way that customers are viewing OD.

Yes. I think certainly, time will tell, and it's something that we continue to watch. The business levels, our market share trends; all of those are pretty much in line with what we would have otherwise expected when we go through a slower economic environment. It's something where our market share is generally flattish and a little hard to track market share right now with the disruption post-Yellow's closure. The way I look at it is slightly different than the way some of you do. However, if I compare at least what we have from fourth quarter reporting where all the other carriers have reported, it looks like we're in really good shape if you compare back to the second quarter before and after that event. We've gained some market share relative to the other public carriers combined. The largest carrier in the space has gained the most shipments again from the second quarter to the fourth quarter, not looking at just a year-over-year percent change but pre-event and post-event. There’s one other carrier that's grown about the same as us, just a little bit higher in terms of shipments per day. All the other public carriers are pretty flat when you look otherwise. A lot of what we have seen historically are similar types of trends. When the economy starts inflecting back to the positive, that's the time when OD's model shines the brightest, and we think that will happen once we get some economic recovery. If you will, some real economic improvement where we've been running against the wind for the past two years, get some tailwind from the economy, I think you will see that volume growth come through our network and we'll be able to leverage that improvement in operating density to drive that with an improved operating ratio. We don’t believe at this point that anything will be any different. Like Marty said earlier, we're really pleased with our customer retention trends. The way that we've seen business levels change over the past one and a half years has been slower. We're in place and ready to respond to our customers' needs when they see their businesses turning positively. All the things are in place. We just need a little more improvement in the underlying freight demand environment to capitalize on it and certainly feel like we're closer to that event changing and that inflection point; there have been some green shoots that, if you're looking at things from a glass-half-full kind of standpoint, that you can read through and see some potential opportunity for perhaps later this year. We're definitely in place; we feel like all the pieces are there. It’s been established, that anyone can go out and you can buy terminals, you can buy equipment. But the thing that differentiates us the most is our people and our culture. Those are things that cannot be duplicated, certainly not in any short period of time. The commitment that we have from each of our employees to excellence and delivering superior service for our customers is what will allow OD's model to continue to shine into the future and allow us to achieve our long-term market share initiatives.

Adam, I just wanted to go back to the OR comment on the second quarter. If I just look at revenue per day, I assume it should accelerate given maybe easier comps rest of the quarter. So you're growing maybe revenue mid- to high single digits in the second quarter. The implied incrementals on that are like 25% to 30% to get to OR in 2Q? I would imagine with all the pricing that's been taken in the industry and the front-end loaded nature of the cost, like we could do better than that. I don't know if that's a fair view or not, but I'd love to get your opinion on that. More generally on the OR, you've got, I think, right now, probably 18% of your revenue is direct cost, if I'm doing my calculations right, and it's been as low as maybe 16%, so you've got a couple of hundred basis points there. Then there's obviously leverage on mix and variable costs. Can you just talk about kind of the levers to improve margins over the next couple of years if we do get a recovery because there is this view that there's not much more to go when you're already doing a 72, 73 OR.

If you remember, we have done a 69.6 and a 69.1 in the second and third quarters of 2022 when we had more revenue growth and felt like we had room to go from there. So nothing's changed with respect to where we feel like we can take the operating ratio long term, which is part of the reason why we repeated the goal of being able to achieve a sub-70 annual operating ratio. I would also highlight a few things. Initially, when we get into the upswing, we get into the environment where we start seeing revenue growth again; that's periods of higher incremental margins for us, but you've got to reach a point where you've got enough revenue to recover some of the fixed overhead costs and the improvement in some of the other variable costs that go along with preparing for growth. We've already instituted some of those costs. For example, we've added about 500 people since September of last year. We were averaging 51,000 shipments per day in September last year, and now we're at about 48,000. We've tried to continue to do all the things to get ahead of anticipated growth, and we're managing all of those costs. I would say the uncertainty for the second quarter is just whether revenue will continue to accelerate or what we end up seeing if we continue to improve from here; that’s going to be an improvement in operating density, and that will drive further improvement in our direct cost performance. If you pull our operating ratio in the first quarter apart, I think you may have said it in the inverse, but our direct costs, which are all the costs associated with moving freight, most of which are variable, were about 53% of revenue. Our overhead costs, which are more fixed in nature, are between 20% to 21% of revenue. Those costs are somewhere around $300 million, a little bit higher than that in the first quarter. That $300 million is going to be there in the second quarter, and it's probably going to be closer to $305 million, plus or minus. So you've kind of got that base cost to balance around. Those being at 20% to 21% to one of your other points, yes, that's been as low as 16% in the past when you're leveraging up, particularly all the investments we've made in capital expenditures and driving improvements. On the direct cost side, however, that 53% just as late as the third quarter of last year, those costs were around 51%. That was still in a tough operating environment. So we have further room for improvement from a direct cost basis. And then obviously, there's a lot of leverage on the overhead side. Those factors give us confidence that we can get the operating ratio back down to sub-70. We're not going to make decisions that might help cut costs in the short run that may jeopardize the opportunity in the long run. The reason we've been able to outgrow our competitors in strong growth periods like 2018 and 2021, where our tonnage growth can be 1,000 basis points or more higher than the industry, is because of the decisions we make in tougher times. We've got the financial strength to invest in service center growth to invest in equipment to invest in employees and do all things to be ready for that growth. During those strongest growth periods, we're growing double-digit volumes while our competitors are flattish in those periods. So all the same strategic advantages, the pre-investment ahead of the growth curve, continue to be in place, and we’ll get the most leverage on them when we enter a real accelerating growth environment again.

But Adam, if I could just quickly follow up on that for a second because the strategy seems to be we're going to sit around and wait for somebody to mess up, and that's when the market share opportunity is going to come. That may have been the case in the last 10 or 15 years, but what's the plan B? If no national player messes up because everybody is focused on service and they actually deliver, what is the plan of action then?

Look, we're not just sitting back doing nothing. We're fighting every day to get better and working with each of our customer accounts to make sure that we're in there. We're having conversations about how we're going to be able to grow with them. We don't have to feel the need to go out and try to chase volume, which many of our competitors have done in the past, and then they get their networks full and they're unable to grow. The point I made earlier about there hasn't been as much growth when you look at what has happened sequentially over the last couple of quarters from the third quarter to the fourth quarter or from the second quarter to the fourth quarter. I see that our share has improved from the second quarter to fourth quarter, from the third quarter to the fourth quarter as well. So we're doing this in an environment that is not generating a lot of freight activity. When we get out of this environment, I think the time to challenge our model would be if we’re in an environment of robust economic growth, and we're unable to achieve anything, but we are a long way from there.

I wanted to follow up on the demand environment and in particular, how you would characterize the depth of your slumping volumes because obviously, the industry has underperformed industrial production quite a bit since early '22. But if we benchmark 2019 and try to look through the pandemic, both are somewhat flat. Just curious if we think we've overcorrected and could see a bit of a catch-up on the upside if there's some macro improvement? Or if you think maybe we are more in equilibrium now and should see more of an industrial production type of growth from here?

Yes. The past two years have felt more like a 2009 recession. When you look back at last year, we saw double-digit tonnage in some periods. Overall for the year, we were down 9%. It was a very tough operating environment. But again, we continue to try to power through it and position ourselves for future market share opportunities. I think that when you get back to an environment where transportation in general, particularly the truckload market, has been incredibly weak, there has been spillover of volumes that have gone into that industry, just given the overall weakness there and players willing to move freight take some large heavy-weighted LTL shipments for cost or less than their cost to operate just to kind of keep the trucks moving. That will change as the economy improves, just like we've seen in prior cycles. We continue to believe our industry will be tight once again. I believe, despite some other carriers adding service centers, we will be a capacity-challenged industry in the future as well. Ultimately, all the service centers and door capacities that existed with Yellow, not 100% of that is going to come back into the market, as we've already seen with the process that has played out over the last nine months. Those are all factors that we think will create opportunities for us again, and I think that once we have that tailwind from an overall industry demand standpoint that we'll be able to capitalize and significantly grow our volumes like we've been in the past and leverage that growth through improved operating ratios.

Jack, congrats, and Adam, I didn't take you for a Swiftie. But could I borrow a line from her for a question about the tortured pricing department here? We've heard from a couple of shippers that there's one last push for lower rates, especially some of those that may be negotiated in the first quarter of '23. Have you seen any of that? Specifically, have you seen any pull forward in bid activity early in the year? Any extra color on the pricing trends for this year would be certainly helpful.

Yes. I've got a teenage daughter, so I can't help but hear certain types of music in the house. On the pricing front, we've not really seen any material change in activity or bid activity, and for us, it's been pretty consistent throughout the year in terms of how bids come in. So it's pretty much just business as usual there. Again, like we said earlier, we continue to get the same types of increases on a core basis that we've seen in the past.

This is Adam Rusckowski on for Ken Hoexter. The team, and Jack, I hope the other side is treating you well. Why don't you get back to the excess capacity comment you noted about 30%. Could you remind us of the current capacity expansion plan maybe in the near term or over the next couple of years? Average headcount was up slightly sequentially. How should we think about the headcount run rate for the balance of the year? Can this serve as a potential cost lever?

Yes. From a headcount standpoint, I mentioned that we've added about 500 people since September of last year. I feel like we're in good shape there. We are running our truck driving schools, and some of the people that we pulled from platform positions and put them into trucks in the fall to respond to the sequential acceleration in business. We've been able to backfill those platform roles with hiring, but also trained more drivers to have those employees and drivers and ready reserve, if you will, to respond to an increase in demand if it continues to accelerate from here. We're in a good spot, maybe kind of flattish from here. But depending on whether we see further acceleration coming through, that might require some further hiring. No immediate need at this point to do anything in a material way; I feel like our employee count is well balanced with the volumes we're seeing. Maybe Marty will address the service center capacity.

Yes. From a capacity standpoint, we always try to maintain at least 25%. With the 30% we have now, some of that comes from enlarging some of our docks, where we experienced some tight door pressure; we keep a door pressure report going on a monthly basis. Those projects are finishing up from expansions in 2022; that's the reason for the 30%. We always try to keep excess capacity because we're confident this economy is going to turn for us. If not this year, beginning next year; nothing is worse than getting an influx and promises from customers for additional business and not having enough capacity to handle it.

This is Joe Hafling on for Stephanie. I hate to ask again on the capacity question, but you've mentioned a couple of times how you think that the strategy of the past would continue to work and the environment itself will become tight. But with the rest of the national players essentially copying the Old Dominion playbook and trying to keep a 20% to 30% excess capacity figure themselves, how are you thinking about keeping incremental capacity or adding incremental capacity? Do you think the industry overall today with everybody trying to be like Old Dominion will lead to excess capacity more than there ever was in the prior decade?

At the end of the day, capacity is not what wins business. It allows you to achieve market share initiatives. So having capacity doesn't mean anyone is going to be able to grow; it just gives the ability to grow. Service is ultimately what wins share and relationships in this business as well. We continue to look at ways to add further value to our customers' supply chains and ways to execute a continuous improvement process, which is a central element of our foundation for success. We have a better service product than anyone else in our industry; we're proud that we've won the Mastio Quality Award for 14 years in a row, and the service gap between us and the others widened in last year's analysis. We remain focused on making sure that service gap and the overall value gap we add continues to get wider.

Great. Have you heard any anecdotes from customers lately on any service issues? Or is the environment still too weak right now, so that's really become an issue?

I haven't heard anything out of the ordinary, things that we wouldn't normally hear. The reporting has improved in our national account reporting with wins and losses. Service issues are starting to increase, I would just say, generally. We're starting to see those pick up, which is a good thing.

A couple of quick questions here. When thinking about either the tonnage or market share, it seems that pre-pandemic, it was more of a just-in-time supply chain, and that shifted to just-in-case now. We are likely moving more towards JIT. Does this favor your operational model and service standards? If so, should we expect you to get back to being the market share leader?

Yes, I think so, Jason. I agree with you. I felt like post-pandemic, we would stay in a just-in-case type of inventory management style. Once things get tight, managing costs requires looking at all elements, and managing tighter inventory is one way for shippers to improve their bottom line. We've seen that trend kind of work its way back to JIT. We’ve had anecdotal feedback from customers that have come in to visit us that may have had elevated inventory levels that they've now worked through. That creates a good opportunity for us. If you're managing tighter inventory, you need to rely on a shipper that can deliver on time and without damage. If you don't have excess inventory sitting around, you can't afford to have a shipment come in damaged; that would lead to a return and reorder situation.

That makes sense. If I can just follow up with a clarification. You talked about your growth rates month-to-date in April, but did I miss how that compares to historical averages?

In terms of sequential standpoint or ... Yes. So far, and obviously, we're not finished, but we're at about 48,000 shipments per day, just up slightly from where we were in March. When we look at what normal seasonality indicates, the 10-year average is a 0.4% increase from March into April for shipments. Recall that Good Friday was in March this year, so in years where that is the case, it's a 2% increase. Right now, trending lower than that 2% growth. However, when you look back at kind of what we were able to achieve in February and March, it’s consistent growth.

Adam, I wanted to ask a little bit more about the truckload market here. You mentioned that other freight moved over. How much went over with the disruption with Yellow? Do you still think that can come back to LTL and tighten it up? Is that above and beyond what you normally see from a cyclical perspective? Also, are you seeing anything interesting in terms of April shipping weight per shipment? Is that a leading indicator that you're watching for early signs of stabilization or improvement?

Yes, this is Marty. I agree with Adam that some of the Yellow freight did move over to full truckload carriers in the form of stop-offs where they take 3 or 4 shipments along with a 75% load and charge a couple of hundred bucks to do stop-offs. Drivers don't really like to do it, but I believe this moved over because of the slowness in the truckload market this year and last year. I agree that this will move back to LTL carriers once the truckload market picks back up. I suspect that will happen at the same time the LTL market starts to flourish again. So that will come back to the LTL market.

Any thoughts on weight per shipment and how that's trending? How should we expect that throughout the rest of the year?

Yes. We hope to see it continue to increase. That's typically an indicator of an improving economy as well. We saw an increase from February to March, and it's increased a little bit from March to April. At this stage, we're likely at low end of the scale in terms of how that metric changes. However, historically, in strong demand environments, we've been closer to 1,600 pounds. We're still down around 1,515 pounds, which means we have room to grow. That creates leverage from an operating ratio standpoint; if weight continues to increase, you’re getting more revenue per shipment.

It seems to me like freight environment improvement is a key catalyst for what you're going to see on the tonnage side and give you a chance to benefit from the capacity and service you can offer. What have you seen in terms of industrial customers versus the retail and consumer customers? Is there any kind of difference in behavior or trend or optimism? Relatedly, it's been surprising that container imports have been pretty strong for a number of months. Yet the domestic freight environment seems still pretty soft. Any color on differences in customer segments or why imports aren't translating to domestic activity so much would be helpful.

Yes. Overall, the retail continues to reflect our industrial customers, who show weakness that we’ve seen in the industrial economy. In the first quarter, we had 1% revenue growth, but it was a slight decrease when looking at our industrial-related accounts grouped together. We had a better performance on retail to offset that in the first quarter. However, we have seen ISM trend back above 50% for the first time; it had been below 50% for 16 months. This long, incredibly slow environment has made it challenging for us. The retail continues to perform; we’ve also seen some improvement in business managed by third-party logistics companies in the early stages. That looks promising for the future, and if we're starting to see growth with that, it could return some of that truck versus LTL swing.

So Adam, I know we’re at the hour; there have been a lot of questions on price already. So some of this may be repetitive. But are you in any way communicating any kind of change in the underlying pricing environment here, the competitive dynamic? I know you don't share pricing renewals every quarter like some of the other LTLs, but maybe this quarter could be helpful. Are they slowing? What's changing in your mind?

Yes, to repeat, nothing is changing with respect to the core contract increases that we're achieving and targeting. We continue to target cost plus increases, and we're getting those. The difference is in the mix of freight that we're seeing; we've seen a decrease in length of haul. There’s been a slight increase in weight per shipment, but, as I mentioned, those factors lead to a lower revenue per hundredweight. Looking purely at a per hundredweight basis, it’s gone from about 6.5% growth in the first quarter to about 4.5% excluding fuel in April. We've said before that hundredweight can move around quickly, which is why we internally focus more on revenue per shipment than anything else. That’s what we pick up daily. Our shipments dictate what we need to determine our costs. We believe that we can get back to having a positive spread of revenue per shipment versus our cost per shipment performance. We're not seeing anything change in the pricing environment during renewal and bids.

But just so I'm clear, are you communicating any changes in revenue per shipment accelerating with this mix shift, or is it, I just didn’t hear that.

No, it's staying consistent with where we were. The revenue per shipment performance in April thus far is pretty consistent with what we just had in the first quarter. We were up 3.8% in revenue per shipment in the first quarter, excluding the fuel surcharge. The improvement we see in the operating ratio is typically 350 to 400 basis points of improvement. A lot of that improvement comes by way of direct costs, mainly the salaries, wages, benefits, operating supplies, and expenses, which come from improvement in operating density and leveraging all that incremental freight moving through the system.

Jack, congratulations. I'm looking forward to working with you in this role. A lot's been asked, so I just want to take a step back. It's been a weird couple of years, right? We had COVID, big up, big down, inflation. We've had inventory destocking, the Yellow closure, and much growth in private fleets. All this makes it difficult to predict what's going to happen with the business. Eventually, we do anniversary all these impacts, and things start resembling a more normal operating environment. When do you think we get back to that? Where is your vision most foggy relative to what would be without these oddities?

I don't have my Carnac the Magnificent hat handy to predict on when things are going to change, but it's the most buzzing question, when will the inflection point happen? It's called a cycle for a reason; we will get back into a robust demand environment at some point, and when we do, we will be able to take advantage of that. We have built the company up, growing our company for years. We believe we've a lot of growth opportunities looking into the future. We were able to grow our revenues by $1 billion in each of 2021 and 2022 and then ran into the slow economy. We've been making our way through that well, very proud of the operating ratio we produced last year in a challenging environment. We're still in an environment that we're not out of the woods yet; we still had a 3% reduction in tons per day in the first quarter but produced positive earnings per share. I feel good about our base level of operations today, being able to build on what we’ve established. There is a long runway for growth for our business, and we've further room to improve our operating ratio as well. That will allow us to achieve our vision of long-term profitable growth, ultimately driving an increase in shareholder value. All those same elements are still in place. There may be different logos or movements among service centers and customers due to disruption over the last 6 to 9 months. However, OD is ready and will continue to add value to our supply chains; we believe we can drive significant growth in our business going forward.

Yes. I'd like to thank all of you today for your participation; we really appreciate your questions. If you have anything further, please feel free to give us a call, and we'll be glad to answer it. I hope you have a good rest of the week. Thank you.