Mix of business changes as economy is impacted by COVID-19 pandemic
Old Dominion Freight Line, Inc. announced financial results for the three-month period ended March 31, 2020. The financial results for Q1, 2020 include US$10.1 million of expense related to special employee bonus payments made in March. These bonus payments were provided to non-executive employees in appreciation for their extraordinary effort in responding to the COVID-19 pandemic.
Total revenue declined 0.3% to US$987.4 million, as operating income increased 2.7% to US$183.2 million. Net income fell 0.1% to US$133.2 million. Old Dominion produced solid financial results in Q1, 2020, which included a new first-quarter Company record for its operating ratio. While revenue was lower, results for most of the first quarter were in line with the expectations from the beginning of 2020. Demand for services declined in the last half of March, however, due to the widespread effects of the COVID‑19 pandemic on the domestic economy.
The decrease in revenue in the first quarter was due to a 3.9% decrease in LTL tons per day that was partially offset by a 2.6% increase in LTL revenue per hundredweight. Excluding fuel surcharges, LTL revenue per hundredweight increased 3.3% over the same period of the prior year. The decrease in LTL tons per day reflects a 5.1% decrease in LTL shipments per day that was partially offset by a 1.3% increase in LTL weight per shipment.
As the domestic economy changed in the last half of March, so did the mix of business. The Company experienced a significant increase in average weight per shipment and this trend has also continued into April. While this helped offset the decline in shipments per day, an increase in average weight per shipment generally has the effect of reducing revenue per hundredweight. Revenue per hundredweight trends may continue to be affected by changes in business mix, but they do not indicate a change in pricing philosophy. The Company intend to maintain its long-term and consistent approach to pricing, as it believes a disciplined approach has been one of the key elements in improving profitability and continues to support long-term growth initiatives.
The operating ratio improved 60 basis points to 81.4% from 82.0% for Q1, 2019 despite the decrease in revenue and extra expense related to the special employee bonus payments made in March 2020. While a decrease in revenue generally has a deleveraging effect on operating costs, the quality of revenue and increased operating efficiencies allowed the Company to improve its direct operating costs as a percent of revenue. This improvement more than offset the slight deterioration in overhead costs as a percent of revenue.
Old Dominion’s net cash provided by operating activities was US$204.0 million for Q1, 2020. The Company had US$357.0 million in cash and cash equivalents and a ratio of debt-to-total capitalisation of 1.5% at March 31, 2020.
Capital expenditures were US$52.2 million for Q1, 2020. The Company reduced its planned expenditures for real estate during Q1 by approximately US$50.0 million, as certain projects will be deferred to a future period due to the current trend for shipments. The Company now expects its aggregate capital expenditures for 2020 to total approximately US$265.0 million, including planned expenditures of US$195.0 million for real estate and service centre expansion projects; U$S20.0 million for tractors and trailers; and US$50.0 million for information technology and other assets.