Started as a family business in 1934, Old Dominion Freight Line, Inc. (ODFL 7.76%) is still run like one -- to the benefit of stakeholders including employees, customers, and shareholders. President and CEO Greg Gantt stresses the "OD Family Spirit" that works to build relationships with customers.
This approach has been successful, as indicated by a 99%-plus on-time delivery rate and leading claims rate for the industry. The culture is unique, with members of the founding Congdon family still in executive positions and employee benefits still a priority. As management puts it, "doing the right thing is simply how we do business."
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Standing out in a commodity business
Freight hauling can be much like a commodity business, where any supplier with the right equipment, logistics, and price can get the business. Old Dominion differentiates itself through service. Providing a superior level of customer service at a fair price has led the company to increase both revenue and its customer base over the last five years, mainly though increased organic market share. It's the third largest LTL motor carrier as measured by 2018 revenue.
Old Dominion focuses on less-than-truckload (LTL), where carriers pick up multiple shipments from multiple customers to fill a single truck. More than 97% of revenue has historically come from its LTL shipments, though it also offers other services such as supply chain consulting and truckload brokerage.
Doing the right things right
The strategy of focusing on maximizing on-time performance and minimizing freight claims is what has separated it from the competition. It believes its efficient service center network, use of non-union team drivers, and proprietary technology sets it apart from other haulers.
At the end of 2019, it operated 236 service center locations strategically located throughout the United States that allowed it to handle next-day service and minimize handling costs. Its workforce allows for flexible scheduling, and the company's team-oriented approach provides training and assists with continued education to help develop and motivate its team.
It's still about the economy
In the current sluggish industrial economy, Old Dominion saw revenue decrease year over year for both of the past two quarters. Its LTL tons also decreased in the fourth quarter, and operating ratio -- a revenue and cost metric that is used to measure efficiency -- increased, which signals either higher costs or lower revenue.
A slowing or sluggish economy can be a difficult operating environment for a freight hauler, or any shipping business. But even with the fourth-quarter results, operating cash flow allowed the company to announce a dividend increase of 35.3% for the first quarter. And the strength of the company's strategy supports a 4.9% general rate price increase that will be effective March 2, 2020.
The differentiation within the industry can be seen in a five-year look at cash from operations.
ODFL Cash from Operations (TTM) data by YCharts.
The right one to own
The strong business metrics have also manifested in five-year share price returns. The company stands out among its competitors, as well as versus the S&P 500.
Investors in Old Dominion freight have several reasons to feel good. The industrial business, run with a family mentality, has produced both good operating results as well as returns for shareholders.
Management has built a culture that focuses on taking care of its employees, knowing that leads to a successful business and strong customer relationships. Specific employee programs include workplace injury prevention, competitive benefits, a wellness program, and flexible schedules.
While this is an economically sensitive industry that might have short-term blips, long-term investors should be confident that their investment is in good hands, proven by good results.
