What happened

Shares in less-than-truckload freight company Old Dominion Freight Line (ODFL -1.42%) rose 10.6% in August, according to data provided by S&P Global Market Intelligence. The move comes as a consequence of some outstanding operational performance by the company. In addition, management sees an improving end-market outlook, as trucking markets recover from stay-at-home measures imposed on the economy due to the COVID-19 pandemic.

A freight truck on the road.

Image source: Getty Images.

Old Dominion reported its second-quarter results at the end of July, and the market was left impressed by how the company dealt with the crisis. Although total revenue declined by 15.5% in Q2, and operating income fell 15.1%, management was able to actually improve some key metrics.

Probably the most important number for transportation companies, like railroads and trucking, is the operating ratio (OR). It's defined as operating expenses divided by revenue, so a lower number is better. As you can see, a slight improvement in the OR helped offset significant declines in revenue -- no mean feat considering the disruption caused to the economy.

Old Dominion Freight Line

Second Quarter 2020

Second Quarter 2019

First Half 2020

First Half 2019


$896 million

$1,061 million

$1,884 million

$2,051 million

Operating Ratio





Operating Income

$199 million

$234 million

$382 million

$413 million

Data source: Old Dominion Freight Line.

Digging into the details of the second quarter, it's clear that management offset 16.6% year-over-year decline in shipments-per-day by increasing its weight-per-shipment by 5.3% to 1,636 pounds, and revenue-per-shipment increased 1.4% to $357.7.

Turning to the end-markets outlook, during the earnings call at the end of July, CFO Adam Satterfield said revenue-per-day was down 19.3% in April on a year-over-year basis, then down 11.4% in June (year-over-year basis), and then down around 3% in July. Clearly, the trend is improving.

Fast forward to the recent trading update, and August revenue-per-day actually increased by 1.3% compared to August 2019.

So what

In a nutshell, management has demonstrated it can improve underlying profitability in a downturn. That's something that should stand the company in good stead as truck tonnage improves. Indeed, the American Trucking Association Chief Economist Bob Costello recently noted that for-hire contract tonnage fell 5.1% in July compared to June: "It is likely that tonnage was down because many fleets didn't have the capacity to take advantage of stronger retail freight volumes. Therefore, much of that overflow freight moved to the spot market, which did increase in July."

Now what

Investors will be hoping that Old Dominion can continue to take advantage of a recovering market and continue to improve its OR, so it can leverage revenue growth into earnings growth. However, much will depend on the shape of the recovery.