Old Dominion Freight Line, a leading less-than-truckload (LTL) carrier, has reported improved operating metrics for the month of May, with revenue per day increasing 12.3% year-over-year. This growth outpaces the previously reported 7.6% revenue increase in April, indicating a strong demand bump from the industrial economy. The company's tonnage was down just 3.8% year-over-year, while yield increased approximately 16% during the month, suggesting a more efficient use of capacity.
The improving LTL market is being positively influenced by a runup in diesel fuel prices, which typically result in margin accretion for carriers with fuel surcharge programs. As diesel prices rise, these programs step functionally increase revenue, benefiting Old Dominion's bottom line.
Old Dominion's yield has increased 15.6% year-over-year inclusive of fuel surcharges, up 5.4% excluding fuel. This growth is a positive indicator for the company's ability to maintain profitability in a market where tonnage and yields are under pressure.
The carrier's per-day tonnage appears to have troughed in the first quarter, with May tonnage down 12% on a two-year-stacked comparison. However, demand has continued to improve as the quarter has progressed, suggesting a recovery in the LTL market.
Manufacturing data released Monday showed industrial activity was positive for a fifth consecutive month in May, with the Purchasing Managers' Index registering a 54 reading. This is the highest reading in four years and indicates expansion in the industry.
The new orders subindex, an indicator of future activity, came in at 56.8, 270 basis points higher sequentially. This inflection point usually leads to LTL volumes by a few months, suggesting a potential uptick in demand.
Old Dominion's shipment weights are up approximately 1.5% year-over-year so far in the quarter, indicating heavier shipments and potentially leading to margin improvement.
The company previously guided to 300 to 350 basis points of sequential operating margin improvement in the second quarter, which is in line with its historical margin progression. This forecast implies a 73% operating ratio at the midpoint of the range, which would be 160 basis points better year-over-year and the first meaningful year-over-year improvement since 2022.
Old Dominion remains confident in its ability to win market share and drive profitable revenue growth over the long-term as it continues to execute on its strategic plan. The company's historical outperformance suggests a strong track record of success in upcycles.
Shares of Old Dominion Freight Line were up 1.6% at 9:54 a.m. EDT on Wednesday, compared to the S&P 500, which was off 0.5%. Shares are up 46% year-to-date, reflecting investor confidence in the company's prospects.
The improving LTL market suggests a shift towards more efficient and profitable operations.
