Old Dominion Freight Line, Inc.

Good morning and welcome to the second 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 August 2nd by dialing 719-457-0820. The replay passcode is 708-2211. 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, 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 on 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 conference over to the company's President and Chief Executive Officer, Mr. Greg Gant. Please go ahead, sir.

Good morning, and welcome to our second quarter conference call. With me on the call today is David Condon, our executive chairman, and Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. I am pleased to report the OD team delivered solid operating results and financial results for the second quarter of 2019, including several new company records. We recorded our highest quarterly revenue of $1.1 billion and our highest quarterly earnings per diluted share of $2.16. We also improved on our industry-leading operating ratio by 80 basis points to 77.9%. While we have seen general softness with demand and the economy continues to give us mixed signals, we believe we are continuing to win market share and are maintaining our price discipline while doing so. Our ability to win market share, even in slower periods, is based on our superior service offering delivered at a fair price. Our on-time service performance was 99% in the second quarter while our cargo claims ratio remained at 0.2%. In addition to providing these superior service metrics, we also improved the productivity of our operations. Our P&D shipments per hour improved 1.6% in the second quarter, while our dock shipments per hour increased 5.4%. Our line haul laden load average decreased by 1.6%, But this metric was affected by the decrease in weight per shipment. These service and productivity metrics reflect our team's outstanding execution of our long-term strategic plan. I have been particularly pleased with the flexibility of our team and our business plan over the past couple of years. We responded to the material acceleration in volumes that occurred in late 2017 through 2018 and are now responding to lower than originally anticipated volumes this year. Managing through both the ups and downs of the business cycle is not easy, so the consistency in our service and financial results has been remarkable. We have never wavered from our commitment to service, despite the associated cost due to the support it provides for our ability to maintain price discipline. The importance of yield to our financial results couldn't be more apparent than it was in the second quarter. We have said many times before that the keys to producing long-term margin improvement include a combination of density and yield with the support of a positive economy and stable pricing environment. Although macroeconomic conditions were not ideal, the strength of our yield performance and improved productivity more than offset the loss of density and operating leverage during the second quarter, which has allowed us to improve our operating ratio to a new company record. As we look forward to the second half of 2019, we will continue to focus on controlling our cost. We anticipate the softer demand to continue, although it is important to note that we are well positioned to respond to any acceleration in volumes that might occur if the domestic economy regains momentum. Regardless of economic environment, we will continue to execute our long-term strategic plan by providing our customers with superior on-time claims-free service at a fair price. We will also continue to make significant investments in capacity, technology, and training and education of our OD family of employees. While these investments may increase expenses in the short run, we have demonstrated how ongoing investment in our sales is critical to achieving long-term market share with solid returns. Consistent execution on our business fundamentals has helped us create one of the strongest records of growth and profitability in the LTL industry during periods of both economic expansion and contraction. As a result, we are confident in our ability to continue winning market share as well as long-term prospects for further profitable growth and increased shareholder value. Thanks for joining us this morning, and now Adam will discuss our second quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue increased 2.6 percent to $1.1 billion for the second quarter. The combination of the increase in revenue and 80 basis point improvement in our operating ratio allowed us to increase our diluted earnings per share by 8.5% to $2.16. Our revenue growth for the quarter was driven by the 9.5% improvement in LTL revenue per hundredweight. Our LTL tons per day decreased 6.3% as compared to the second quarter of 2018 with LTL shipments per day decreasing 2.6%. These decreases reflect the softer environment for freight, and we also believe that some volume loss was due to our long-term consistent approach to pricing. We expect our LTL weight per shipment in the second half of 2019 to be more consistent with the same period of last year, which will also have an effect on our revenue per hundredweight. On a sequential basis, the trends for both LTL tons per day and LTL shipments per day were both below normal seasonality in the second quarter. As compared to the first quarter of 2019, LTL tons per day increased 2.9 percent as compared to the 10-year average increase of 8.2 percent, and LTL shipments per day increased 3.7 percent as compared to the 10-year average increase of 7.5 percent. For July, our volumes are trending below normal seasonality, although our yield trend is holding steady in terms of the actual reported revenue per hundredweight. We expected our volumes to be a little weaker based on how the first month of each quarter has trended since July of last year, as well as the way the holiday fell this year. The actual growth rate in our revenue per hundredweight is lower than the first half of this year. However, due to tougher comparison with the third quarter of 2018. A decrease in the growth rate was expected, and we want to ensure that this is in no way misinterpreted as a change to our long-term pricing philosophy. We will continue to target increases that offset our cost inflation while also supporting our continued investments in technology and service center capacity. We will provide actual revenue-related details for July in our second quarter of Form 10-Q. Our second quarter operating ratio improved 80 basis points to 77.9% as a 110 basis point improvement in our direct operating cost as a percent of revenue, more than offset the increase in overhead expenses. Greg detailed the improvements in productivity, which resulted in a 70 basis point improvement in our productive labor cost. Operating supplies and expenses also improved 80 basis points, primarily due to lower fuel costs. Our aggregate overhead cost as a percent of revenue increased 30 basis points, primarily due to the 40 basis point increase in our depreciation cost. Given the significant investments we have made in capacity and technology and the deleveraging effect of lower revenues, we expect our overhead costs to be pressured as a percent of revenue for the remainder of the year. Old Dominion's cash flow from operations totaled $255.7 million and $461.9 million for the second quarter and first half of 2019, respectively, while capital expenditures were $159.2 million and $230 million for the same periods. We continue to expect total capital expenditures of approximately $480 million for this year. We returned $147.8 million of capital to our shareholders during the second quarter and $192.2 million for the first half of the year. For the year-to-date period, this total consisted of $164.7 million in share repurchases and $27.4 million in cash dividends. With the increase in repurchases during the second quarter, we completed our prior $250 million repurchase facility approximately one year ahead of schedule and began our new $350 million two-year program. Our effective tax rate for the second quarter of 2019 was 26.1% as compared to 26.2% in the second quarter of 2018. And we currently anticipate our annual effective tax rate to be 26.1% for the third quarter of 2019. This concludes our prepared remarks this morning. Operator, we'd be happy to open the floor for questions at this time.