What happened
Shares of Old Dominion Freight Line (ODFL -7.24%) were moving higher last month after the company benefited from news that rival Yellow could soon declare bankruptcy, putting market share up for grabs in the less-than-truckload (LTL) transportation industry.
Old Dominion also announced a second-quarter update, which showed that the business was still dealing with industry and macroeconomic headwinds.
According to S&P Global Market Intelligence, the stock finished the month up 19%. The chart below shows how the transportation stock moved over the course of the month.
So what
Early in the month, Old Dominion stock pulled back after it gave an update on May performance metrics. The company said that revenue per day decreased 15.7% compared to figures from a year ago, and tonnage was down 14.4%, reflecting an industrywide slowdown, though peers like Saia and XPO reported better numbers in May.
Old Dominion CEO Greg Gantt blamed "continued softness in the domestic economy as well as a decrease in fuel surcharge revenue," though he did note that ODFL's pricing, or yield, continued to improve.
Toward the end of the month, the stock surged as rumors of a bankruptcy at Yellow, which brought in roughly $5 billion in revenue in the last four quarters, picked up as its dispute with the Teamsters union shows no signs of resolving itself.
Bank of America upgraded Old Dominion from neutral to buy on the news as FreightWaves reported that Yellow only has six weeks of liquidity. Unlike Old Dominion and other peers, Yellow's workforce is unionized, putting it at a competitive disadvantage to peers like Old Dominion. Yellow even sued the Teamsters for $137 million in damages as the union has refused to sign off on the company's restructuring plan, and it likely seems headed to bankruptcy, giving its business to competitors like Old Dominion.
Now what
The logistics company is widely considered the best-in-class operator in the less-than-truckload space as the company's operating ratio is regularly in the 70% range, meaning its operating margin is around 30%. Though revenue is likely to be down in the second quarter, the pricing trends indicated in the May update should support a strong profit once again as the company has excelled at managing costs, keeping prices optimized, and avoiding delays and damages.
While the stock isn't cheap, Old Dominion has been a long-term outperformer and would clearly benefit from market share if Yellow folds.
