Old Dominion Freight Line, Inc.

Good morning and welcome to the first quarter 2019 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 3rd, 2019 by dialing 719-457-0820. The replay passcode is 9602170. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, that are set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise. As a final note, before we begin, we welcome your questions today, but ask, in fairness to all, that you limit yourselves to just a couple of questions at a time before returning to the queue. We thank you for your cooperation. At this time, for opening remarks, I would like to turn the call over to the company's President, Chief Executive Officer, Mr. Greg Gant. Please go ahead, sir.

Good morning and welcome to our first quarter 2019 conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. OD Team delivered another quarter of strong operating and financial performance, producing a 7.1% increase in revenue and a 21.9% increase in net income. Following seven straight quarters of double-digit increases in revenue, our rate of growth for the first quarter was slightly lower than our expectation at the beginning of the year. Our team responded by improving our yields and managing our cost. And as a result, our operating ratio improved 190 basis points to 82.0. First quarter financial results demonstrate our team's successful execution of our strategic plan that, as you all know, has been in place for many years. This plan is centered on our OD family and the relationships we have built with our customers. These relationships are built on trust and our proven ability to provide superior service as evidenced by our 99% on-time service performance and 0.2% cargo claims ratio in the first quarter. We will continue to focus on providing superior service, which provides the foundation for our ability to continue to win market share and improve yields. We have often discussed the fact that the ongoing improvement in our operating ratio requires improvements in both our density and yield. with a positive macroeconomic and pricing environment supporting these initiatives. While our volumes have been slightly lower than anticipated so far this year, we remain cautiously optimistic on the domestic economy based on favorable economic indicators as well as general feedback from many of our customers. We are also encouraged by the general stability of the overall pricing environment although we have recently seen some evidence of competitors losing their discipline. Our LTL revenue per hundred increased 9.6% as compared to the first quarter of 2018, although a portion of this increase was due to changes in the mix of our freight. LTL revenue per shipment increased 5.2% to offset the increase in our cost per shipment during the first quarter. Our yield management philosophy is designed to offset inflationary cost increases while also supporting our ongoing investments in our employees, capacity, and technology. These investments help us improve our operating efficiency while also providing the capacity and technology to support our customers' needs. Our ongoing investment in service center capacity is also critical to achieving our long-term growth initiatives. We continue to invest in service center assets regardless of the economic environment, as doing so provides us with the network capacity to immediately respond to favorable changes in demand similar to what we experienced in 2017 and 2018. We recently reduced our planned expenditures for tractors by 10 million. however, to better match our fleet with current shipment trends. We have also continued our regular process of matching labor costs with current volume trends. We stated on our earnings call for the third quarter of 2018 that the size of our workforce was appropriate for anticipated business levels, and we continue to believe that is the case. While the average number of full-time employees increased as compared to the first quarter of 2018, the number of full-time employees at March 31, 2019 was 2.2% lower than our headcount at September 30, 2018. We do not anticipate any major changes in our headcount during the second quarter and expect to see a convergence of the year-over-year change in headcount and shipments per day as we progress through the year. I commend the entire OD team for their performance during the first quarter of 2019 that drove our overall results. Our level of superior service continued and productivity improved in spite of the operational challenges that are typical for the first quarter. We are off to a solid start of the year and continue to have opportunities for continued growth in revenue and profitability. With an unmatched value proposition of providing superior customer service at a fair price, we remain confident in our ability to win market share over the long term and increase shareholder value. Thanks for joining us this morning, and now Adam will discuss our first quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue increased 7.1% to $990.8 million for the first quarter. The revenue growth on a per day basis was 8.8% as the first quarter of 2019 had one less work day than the first quarter of last year. Combination of the increase in revenue and 190 basis point improvement in our operating ratio allowed us to increase our earnings per diluted share by 23.3% to $1.64. Revenue growth for the quarter was driven by the 9.6% increase in LTL revenue per hundredweight as our LTL tons per day decreased 1.4% as compared to the first quarter of 2018. While shipments per day increased 2.7% during the quarter, our LTL weight per shipment decreased 4%. As we have discussed over the past couple of quarters, we expected a decrease in weight per shipment for the first half of this year. On a sequential basis, the trend for both LTL tons per day and LTL shipments per day were both below normal seasonality. As compared to the fourth quarter of 2018, LTL tons per day decreased 4.6% as compared to the 10-year average decrease of 0.7%, and our LTL shipments per day decreased 3.4% as compared to the 10-year average increase of 0.3%. April, our volumes are also trending below normal seasonality, although our yield trend is holding steady. As a result, our growth in revenue per day is trending lower than our first quarter growth rate. April 2019 does include the impact of the Easter holiday, which was included in March of 2018. Similar to the process that we described on our previous earnings call, we will provide the actual revenue-related details for April when we file our Form 10-Q. Our first quarter operating ratio improved 190 basis points to 82.0% and included improvement in both our direct operating costs and overhead expenses as a percent of revenue. Salaries, wages, and benefits as a percent of revenue improved 150 basis points and included a 60 basis point improvement related to our productive labor. We were pleased to see improvements in the productivity of our dock and our pickup delivery operations during the quarter. Our line haul laden load factor average unfortunately declined, but that is fairly typical in an environment where weight per shipment is declining. Our aggregate overhead cost improved as a percent of revenue as well, despite the 60 basis point increase in our depreciation cost due to the significant investments in capacity and technology. We expect depreciation cost as a percent of revenue to continue to be higher on a year-over-year basis for the remainder of this year. Old Dominion's cash flow from operations totaled $206.2 million for the first quarter of 2019, and capital expenditures were $70.7 million. Based on our plan to continue to increase service center capacity as well as our regular equipment replacement cycle, capital expenditures are expected to be approximately $480 million for 2019. We returned $44.4 million of capital to our shareholders during the first quarter, including $30.6 million of share repurchases and $13.8 million in cash dividends. Our effective tax rate for the first quarter was 26.1% as compared to 25.9% in the first quarter of last year. We currently anticipate our annual effective tax rate to be 26.1% for the second quarter of 2019. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.