You're going to have to dig deep to find something wrong with Old Dominion Freight Line's (ODFL -0.11%) second-quarter results. Up and down the income statement and the operating metrics, Old Dominion posted an improvement in every category. Here's a look at the company's most recent results and management's view of how the quarter went.
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Old Dominion Freight Line's results: The raw numbers
| Metric | Q2 2017 | Q1 2017 | Q2 2016 |
|---|---|---|---|
| Revenue | $839.9 million | $754.1 million | $755.4 million |
| Operating income | $160.4 million | $108.1 million | $133.4 million |
| Net income | $98.4 million | $65.8 million | $81.4 million |
| Diluted EPS | $1.19 | $0.80 | $0.98 |
Data source: Old Dominion Freight Line earnings release.
What happened with Old Dominion Freight Line this quarter?
- Old Dominion's quarter provided that double whammy investors love to see: revenue growth and margin expansion. Revenue for the quarter was up 11% compared to this time last year, while operating income margin expanded to 19.1%. These two elements combined to deliver a 21.4% jump in diluted earnings per share.
- On-time deliveries for 2017 remain above 99%, and the cargo claims ratio is at a company record low of 0.2%.
- Back in February, management initiated a $0.40-per-share annual dividend. For the quarter, that was a $16.5 million expense. Management also bought back $7.1 million worth of shares as part of its current $250 million share-repurchase authorization; $193 million remains available under that authorization.
- Cash flows have been a bit lumpy in 2017, but the company has brought in $238 million in cash thus far. If it can maintain this pace, it should have no issue fulfilling its plan of $400 million in capital spending.
What management had to say
CEO David Congdon's comments on the quarter were deservedly upbeat as he gave details on the increase in revenue:
These were the best growth rates in revenue and earnings per share since our first quarter of 2015. The 11.2% increase in revenue for the second quarter was driven by a 6.1% increase in LTL [less than truckload] tonnage per day and a 5.1% increase in LTL revenue per hundredweight. Excluding fuel surcharges, our LTL revenue per hundredweight increased 3.8%. We believe that the growth in LTL tonnage was attributable to the continued improvement in the domestic economy and the consistent execution of our long-term strategic plan of delivering superior service at a fair price.
The Company's operating ratio in the second quarter of 2017 improved 140 basis points to a new Company record of 80.9%. This improvement was generally due to the leverage created by our accelerated revenue growth, which benefited from increases in both freight density and yield. As a result, most of our operating costs improved as a percent of revenue when compared to the second quarter of 2016.
Looking forward
Old Dominion's second quarter was better than analyst expectations, and several catalysts suggest the company can continue to have success. The steadily growing economy; the rise of online retail, which inevitably lifts all boats in transportation to a certain degree; and the electronic logging device requirement, set to take place at the end of the year, should all lead to even better revenue results from here. With only $12 million in net debt on the balance sheet, Old Dominion Freight could easily fund a significant expansion of its business.
Perhaps the one question mark is how much more the company can expand margins from here. A significant portion of margin expansion came from salaries, wages, and benefits growing at a slower pace than revenue. As unemployment remains low, it will likely put pressure on salaries. But if that is the only concern, then Old Dominion looks like it's in great shape.
