Old Dominion Freight Line (ODFL -0.68%) is feeling the pinch from global trade uncertainty, but the impact isn't as bad as investors had feared. Shares of Old Dominion were trading up 9% as of 10 a.m. ET after the company reported better-than-expected results Wednesday morning. But the stock had given all that back in the next 30 minutes.
Driving into headwinds
Trucking company Old Dominion earned $1.19 per share in the first quarter on revenue of $1.37 billion, beating Wall Street's $1.14 per-share consensus profit estimate and matching the top-line estimate. Revenue was down 6% year over year and net income fell by 13%, but investors had been bracing for far worse results.
Old Dominion specializes in domestic less-than-truckload shipping, meaning it transports freight for multiple customers from distribution centers. CEO Marty Freeman said that the results "reflect the ongoing softness in the domestic economy."
This is a business that benefits from scale. Old Dominion's operating ratio-- a measure of expenses compared to revenue -- rose 190 basis points to 75.4%. Freeman said the decreased volumes had a "deleveraging effect on many of our operating expenses."
Is Old Dominion stock a buy?
Investors should not expect a quick turnaround for this business. Freeman said "there continues to be uncertainty" in the economy, and with the full impact of tariffs only now beginning to hit U.S. ports, there will likely be a further slowdown in domestic trucking up ahead.
The good news is Old Dominion has the wherewithal to survive a downturn, and its best-of-class operations should help it to recover along with the economy. But trading at 30 times forward earnings in the face of a near-term slowdown, the stock can hardly be called inexpensive.
Old Dominion is a solid hold right now, but there is no reason to jump in and buy in this environment.
