Old Dominion Freight Line, Inc.

Good morning and welcome to the fourth 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 February 14th, 2020 by dialing 719-457-0820. The replay passcode is 821-0669. 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 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 we do ask, in fairness to all, that you limit yourselves to just a couple of questions at a time before returning to the queue. 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 Dance. Please go ahead, sir.

Good morning and welcome to our fourth quarter 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. For the fourth quarter, our results reflect another period with a slight reduction in revenue that was due in large part to the sluggish domestic economy. Despite these economic conditions, we maintained our relentless focus on revenue quality and cost controls and are pleased with our consistent financial performance. While our diluted earnings per share decreased as compared to the fourth quarter of 2018, the decrease in our pre-tax income was primarily due to a $30.7 million increase in friends' benefit costs that was partially driven by changes to our phantom stock plans. Adam will address the Phantom stock plan expense in more detail, but the amendments to these plans in December 19 should prevent fluctuations in our share price from materially impacting our earnings in future periods. The overall operating environment in the fourth quarter felt similar to what we experienced for most of 2019. Again, continue with the decrease in LTL tons, although we were pleased to see our volumes perform in line with normal seasonality when compared to the third quarter of 2019. This was the first time this year that we were in line with our normal seasonal trends. We are encouraged by this volume trend, as well as economic forecasts, for the industrial economy to improve in 2020, although we are cognizant of increased political risk associated with an election year. Regardless of the economic or political environment, we will continue to focus on managing the things that we can control. This starts with our steadfast commitment to delivering superior service at a fair price while also diligently controlling our costs. Our on-time performance was 99%, and our cargo claims ratio was 0.2% for the fourth quarter. Providing this level of superior service in periods with reduced operating density generally results in the loss of productivity and increased operating costs. We operated with great efficiency in the fourth quarter, however, and improved both our P&D shipments per hour and platform shipments per hour by 1.1% and 4.2% respectively. We have said many times before that long-term improvement in our operating ratio is dependent upon consistent improvements in density and yield, both of which require the support of a positive macroeconomic environment. While we didn't get a lot of help from the economy and our volumes were lower than expected for 2019, We improved our yields by maintaining a consistent cost-based approach to pricing supported by our superior service. Long-term improvement in our yields has allowed us to make significant investments over the years to support our market share goals. Despite the softer volumes in 2019, our capital expenditures totaled $479 million, and we maintained our commitment to the ongoing expansion of our service center network. Although we only increased our operating service center count by one in 2019, we finished the construction of several other facilities but did not officially open them to avoid the increased operating cost. We intend to open six to eight service centers in 2020, including the ones that have already been completed, and believe that adding door capacity to our network should ensure that it will not be a limiting factor to our growth. While 2019 was not the year that we expected it to be, our team is proud of our financial results. We finished the year with company records for annual revenue and diluted earnings per share. If it were not for the phantom stock plan expense associated with the 53.7% increase in our share price, we would have also improved our operating ratio. So I would like to thank our Old Dominion family of employees for their solid execution that produced these results in a challenging environment. As we look forward to 2020, we will continue to focus on managing the fundamental aspects of our business and adhere to the same business model that has served us well through many economic cycles. We firmly believe that if we can continue to execute on this plan, we can deliver even greater value for our customers and shareholders. Thank you for joining us this morning, and now Adam will discuss our fourth quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue for the fourth quarter of 2019 was $1.0 billion, which was a 1.7% decrease from the prior year. Revenue for the year increased 1.6% to a new company record of 4.1 billion. For the fourth quarter, our earnings per diluted share decreased 7.7% to $1.80 due to the combination of the decrease in revenue and 260 basis point increase in our operating ratio. Earnings per diluted share for the year increased 3.8%, $7.66, which was also a company record. Our revenue results for the quarter reflect the 4.5% reduction in LTL tons that was partially offset by the 2.7% increase in LTL revenue per hundredweight. Excluding fuel surcharges, LTL revenue per hundredweight increased 4%, which was in line with our expectations. On a sequential basis, LTL tons per day decreased 1.6% as compared to the third quarter, which is in line with normal seasonality. LTL shipments per day were down 3.8% on a sequential basis, which was just slightly below the 10-year average decrease of 3.3%. For January, our revenue per day increased 0.2% as compared to January of 2019. Revenue per hundredweight, excluding fuel surcharges, increased 4.1% to offset the 3.6% decrease in LTL tons per day. The increases in our fourth quarter and annual operating ratio are both attributable to increases in our fringe benefit costs for the periods compared. For the fourth quarter, our fringe benefit costs increased to 39.7% of salaries and from 30.7% in the fourth quarter of 2018 due primarily to changes in Phantom stock expense. The fourth quarter of 2018 included an $8.4 million reduction in expense that was due to the decrease in our share price for that period. This compares to $17.1 million of expense in the fourth quarter of 2019 that resulted from the previously disclosed amendments to these plans as well as the increase in our share price during this quarter. All of our other combined costs improved as a percent of revenue for the quarter. We were able to offset the increases in insurance and depreciation with improvements in operating supplies and expenses and salaries and wages. Our team did a nice job of matching labor to current revenue trends while also improving productivity. Our average headcount was down 5.6%, as compared to the 4.1% decrease in LTL shipments. We currently believe that our workforce is appropriately sized for current shipment trends, and our fleet is in good shape as well. If shipment levels begin to improve, however, we will likely need to add to our workforce this year. Old Dominion's cash flow from operations totaled $236.4 million for the fourth quarter and $983.9 million for the year. while capital expenditures were $109 million and $479.3 million for the same respective periods. We returned $49.2 million of capital to our shareholders during the fourth quarter and $295.5 million for the year. For 2019, this total consisted of $241 million in share repurchases and $54.6 million in cash dividends. We were pleased that our board of directors approved a 35.3% increase in the quarterly dividend to 23 cents per share commencing in the first quarter of 2020. This action reflects the board's confidence in our prospects for continued growth and affirms our commitment of returning capital to our shareholders. Our effective tax rate for the fourth quarter of 2019 was 24%, as compared to 26.6% in the fourth quarter of 2018. For the year, our effective tax rate was 25.3%. We currently expect an effective tax rate of 25.5% for 2020. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.