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Operator
Good day and welcome to the Old Dominion Freight Line Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.
Drew Anderson
Thank you. Good morning, and welcome to the second quarter 2022 conference call for Old Dominion Freight Lines. Today's call is being recorded and will be available for replay beginning today and through August 3rd, 2022 by dialing 1-877-344-7529, access code 716-3281. 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 yourself to just a few 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 Gant. Please go ahead, sir.
Greg Gant
Good morning, and welcome to our second 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. I am pleased to report that the OD team delivered strong, profitable growth during the second quarter, which resulted in new company records for revenue and profitability. Our revenue increased 26.4% to $1.7 billion, while earnings per diluted share increased 42.9% to $3.30. We also improved our operating ratio by 280 basis points to 69.5%. This is the first time in our company's history that we have produced a sub-70% quarterly operating ratio. We achieved these results by continuing to execute on our long-term strategic plan, which has guided us for many years and throughout many economic cycles. The disciplined execution of the business fundamentals that form this plan have supported our ability to double our market share over the past 10 years. We are confident That continued execution on this plan positions us to win additional market share over the next 10 years. The foundation for our ability to win market share is our relentless focus on providing superior service at a fair price. Our on-time service performance was 99% in the second quarter, while our cargo claims ratio improved to 0.1%. These service metrics reflect the efforts of our OD family of employees who maintain a steadfast commitment to delivering value to our customers each and every day. It appears that service quality is becoming even more important to customers when selecting a carrier, which is why demand for our service has remained strong. This is a trend that began to develop with the economic recovery during the second half of 2020. and it continues today as many shippers are still struggling with supply chain issues. As a result, we believe our customer relationships have strengthened as we do our part to help our manufacturing customers keep their facilities running smoothly while helping our retail customers keep products on the shelf and available for sale. Our value proposition also includes having sufficient capacity to support our customers when they need it the most. We currently have approximately 15% to 20% excess capacity within our service center network, and we expect to open multiple new facilities during the second half of this year. These new facilities, as well as various other expansion projects that we expect to complete, should increase the amount of our excess capacity towards our longer-term target of 25%. We remain committed to the ongoing expansion of our service center network, which we believe is important regardless of the short-term macroeconomic outlook. Expanding service center capacity can take a significant amount of time, which is why we have historically been proactive with respect to our expansion efforts. This unique strategy has created the capacity advantage for us in the marketplace, which becomes more apparent to shippers in tight environments like we have seen the past couple of years. With over $700 million of year-to-date revenue growth through June, we are on pace to exceed $1 billion of revenue growth for the second year in a row. We simply could not have achieved these types of numbers without the consistent investment in our service center capacity, as well as the continued investment in our fleet, technology, and the training and education of our OD family of employees. Our team has shown tremendous flexibility over the past couple of years in response to significant changes in our business level. And I am confident that this team will continue to build on its success. We have created one of the strongest records for long-term growth and profitability in the LTL industry by executing on our long-term strategic plan. By providing superior service at a fair price and having the capacity to stay ahead of our growth curve, we believe we are better positioned than any other carrier to produce long-term profitable growth while increasing shareholder value. Thank you for joining us this morning, and now Adam will discuss our second quarter financial results in greater detail.
Adam Satterfield
Thank you, Greg, and good morning. Old Dominion's revenue growth of 26.4% in the second quarter was driven by the 22.6% increase in LTL revenue per hundredweight and 2.8% increase in LTL tons per day. Demand for our superior service remained strong during the quarter, which helped support the steady trend with our volumes and consistent yield improvements. On a sequential basis, revenue per day for the second quarter increased 11.4% when compared to the first quarter of 2022, with LTL tons per day increasing 0.7% and LTL shipments per day increasing 1.7%. For comparison, The 10-year average sequential change for these metrics includes an increase of 9.6% in revenue per day, an increase of 7.4% in tons per day, and an increase of 7.8% in shipments per day. At this point in July, our revenue per day has increased by approximately 18% when compared to July 2021, which continues to exceed our long-term average growth rate. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q. Our second quarter operating ratio improved to 69.5%, with improvements in both our direct operating costs and overhead costs as a percent of revenue. Within our direct operating costs, improvement in salaries, wages, and benefits, as well as purchase transportation costs as a percent of revenue, effectively offset the increase in our operating supplies and expenses. The increase in operating supplies and expenses as a percent of revenue was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. We improved our overhead cost as a percent of revenue during the second quarter, primarily by leveraging our quality revenue growth and controlling discretionary spending. As we move into the second half of 2022, we have areas of opportunity to drive further improvement in our financial results. We will continue to focus on obtaining the yield increases necessary to improve the profitability of each customer account. We will also maintain disciplined control over costs to keep our cost inflation on a per-shipment basis to a minimum. Our team is now appropriately sized in most of our service centers to support our anticipated shipment trends, and as a result, we believe we should start seeing improved productivity throughout our operations. The stability of our workforce has also allowed us to reduce our utilization of third-party purchase transportation and move closer to the fully in-source line haul operation that we prefer. We believe this is one of many key factors creating the service advantage we have in our industry, all of which comes back to helping us win long-term market share. Old Dominion's cash flow from operations totaled $427.3 million and $816.1 million for the second quarter and first half of 2022, respectively, while capital expenditures were $229.4 million and $323.1 million for those same periods. We utilized $293.5 million and $731.9 million of cash for our share repurchase program during the second quarter and first half of 2022, respectively, while cash dividends totaled $33.8 million and $68 million for the same periods. Our effective tax rate was 26.0% for the second quarter of 2022 and 2021. We currently expect our annual effective tax rate to be 26.0% for the third quarter of 2022. This concludes our prepared remarks this morning. The operator will be happy to open the floor for questions at this time.
Operator
We will now begin the question and answer session. To ask a question, you may press star and 1 on a touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jordan Alliger with Goldman Sachs. Please go ahead.
Jordan Alliger
Yeah, hi, good morning. I was wondering if you could talk a little bit about The price environment, you know, obviously there's some concerns out there about, more than some concerns about moderation in demand and volumes and you've, some of your rates of growth have probably slowed as well on that front. Can you maybe talk about ex-fuel, sort of the core price thoughts as you move through the balance of this year and, you know, have you had discussions with shippers or have they come to you and, you know, started to talk about things as they approach their next contracts? Thanks.
Greg Gant
Yeah, Jordan, so far we haven't seen much of any at all of any customers asking for cheaper rates or any kind of exception pricing or anything such as that. I think from what we can tell, the industry is extremely disciplined. I think you know over our history we've been more than extremely disciplined, and I think that will continue to be our focus. Right now, that's what we're seeing throughout the industry. So I think that's good for all of us. So, you know, we'll see. But so far, very, very positive from that standpoint.
Jordan Alliger
And just a follow-up on fuel and fuel surcharges. I know the mechanisms are supposed to work as a pass-through. Obviously, you know, fuel surcharges have generally ramped up for the industry pretty quickly, maybe even faster than the cost of diesel. Can you talk about the impact on on P&L from the rising fuel environment? Thanks.
Adam Satterfield
Jordan, the way our program is designed, we really want it to be neutral to the bottom line as fuel goes up and down. Certainly, as contracts come up in each period, and they come up in every quarter for us, but as they come up, we look at what the current fuel price environment looks like, and then we try to stress test both up and down to see what that individual customer's overall revenue contributions might look like and then the same for what their costing looks like. We try to do the best we can to make sure that that customer's individual account profitability, understanding all the costs that go into the model for each individual customer account will come out positive whichever way the fuel might trend. So I think that our surcharge has certainly been effective with offsetting the increased cost of diesel fuel, and certainly that's having a direct effect on other petroleum-based products, but there's also a lot of indirect effect as well. That's why we continue to see our costs going up, and it's why we've got to continue to be disciplined with our yield management program.
Todd
Thank you.
Operator
The next question comes from John Chappell with Evercore ISI. Please go ahead.
John Chappell
Thank you. Good morning. Greg, there's been this thought that as trucking capacity, truck load capacity starts to loosen, and especially as we've seen some major retail pre-announcements that LTL has been this massive beneficiary with the only capacity in town. Can you kind of detail your book of business a little bit and how much you would consider that's on your network today being non-traditional LTL freight, and have you seen any shift in your market share, either up or down, let's call it since mid-May when this whole retail fear started to really emerge?
Greg Gant
Yeah, John, I'm going to let Adam address that, but obviously there's business that moves back and forth. It's extremely hard to measure, but I think Adam's got a better handle on those specifics details than I do.
Adam Satterfield
Yeah, John, just to give a little bit of detail. Certainly, as those announcements came out last quarter from certain retailers, we've been addressing that question. But we've got many customers that ship and receive that are beyond those two big box retailers. But nevertheless, our book of business is still 55% to 60% industrial. And I think the industrial-related customers, and when you look at certain businesses, macroeconomic factors in that industrial economy. They're continuing to expand, and we've probably got a little bit more growth out of our industrial-related customers in this most recent quarter than on the retail side. But our retail, which is 25% to 30%, continues to perform strongly as well. It's just a little bit below the company average, but we're still seeing nice growth there. So it's something that we'll continue to work through, though, and We believe we've got opportunities with each of those pieces of our business overall. We don't have a lot of truckload spillover type business in our network. We worked incredibly hard last year to make sure when capacity was at a premium that we were allocating capacity more so to traditional LTL shipments and customers that were tendering those to us for the sense that whenever the truckload environment freed up a little bit, that we wouldn't have this swing of freight going back into that market. And traditionally, you see more of those shipments would be in our spot quote network. That used to be about 5% of our overall revenue. It's probably about 1.5% at this point. And those are shipments generally that existing customers have and that they're asking for something different from us, so to speak. But And we feel good about demand. We've talked about that. We've had a lot of customer engagement in recent months, and we're hearing good things from our customers. They continue to demand service quality. We've worked really hard for multiple years on improving and strengthening our value proposition, and I think we're seeing that come through with the strength in customer relationships that we have right now and so forth. As a result, we're not losing business. The volumes are a little bit flatter, but I think you can just look and some of that may be demand for existing customers' products. So we feel good about everything our customers are telling us and just continuing to work and manage through to where the volumes are currently trending as we try to manage all elements of capacity within our business.
John Chappell
That's helpful, Adam. Just for my follow-up to Greg, Uh, obviously the economy has changed a little bit since, um, since the start of the year, you mentioned you already have, or still have 15 to 20% spare capacity today, uh, and still have the ambitions to grow the network. Uh, as you set out back in January, have you thought at all about tempering some of that door growth in the back half of this year as the economy becomes a bit more murky, or is this really your time to shine and invest when others have to scale back? And that kind of just helps with the longer term, longer term market share.
Adam
Yeah.
Greg Gant
Yeah, absolutely. It's the latter, John, for sure. Sometimes our opportunities are a little better when it slows down. And, you know, sometimes you just have better opportunities when it's like it is today. So, you know, we can't stop. You know, I've talked about it before, how difficult it is to expand your network, how long it takes, how lengthy the process is in certain locations, some certainly way worse than others. So we can't quit. We want to continue to grow that share, and we know we've got to continue our efforts on a consistent basis to have that tight capacity when things get tight like they have been the last year and a half, two years.
John Chappell
Great. Thanks, Greg. Thanks, Adam.
Operator
The next question comes from Jack Atkins with Stevens. Please go ahead.
Jack Atkins
Okay, great. Good morning, and thank you for taking my questions. So I guess maybe to kind of go back to the June and July commentary, could you talk about what June tons per day were on a year-over-year basis? Could you maybe give us that number? And then, you know, Adam, I know we're going to wait until the queue comes out to get full details on July, but any sort of sense for or any sort of commentary you can share about how July tonnage is maybe trending versus normal seasonal patterns? I think that would be helpful for folks.
Adam Satterfield
On June, our tons per day were flat, basically, with where we were last year. And so on a sequential basis, it was pretty flat as well. And with respect to shipments, actually, the shipments per day for June were, on a year-over-year basis, were down 0.7%. On a sequential basis, we were up 0.6% versus May. And as it relates to July, we are trending up. Our revenue overall is up about 18%. Looking at the yield component of that, we don't like to give the full details. We used to, and if things move 10 basis points off what we had said, the story could take a different turn one way or the other. Our yield trends right now, if you look at revenue per 100 weight in July, it's up about 7.5%, so you can get into what the volume trends will look like. To point out, Before anything is written about yield, that's a little bit below where we were for the second quarter. But we're going to see some changes in the mix of our freight as we compare to the third quarter of last year. That was the lowest point for our weight per shipment. We were seeing sequential decreases there. And in the third quarter, the overall average was 1,538 pounds there. So we're still trending at about 1,560 or so pounds in July. It was right at 1,570 in the second quarter. So as we start to see more of an increase in that weight per shipment, certainly that's usually a lower revenue per hundredweight. So they'll have a little bit of an effect there.
Jack Atkins
Okay, and that 7.5 is ex-fuel, correct? Correct.
Adam Satterfield
Correct, yes.
Jack Atkins
Okay. I just wanted to clarify that. And then I guess for my follow-up, I guess this one's for you as well, Adam. But, you know, is there a way to maybe think about operating ratio trends sequentially into the third quarter? I think, you know, typically there's a little bit of degradation, just seasonally 2Q to 3Q. You know, as we've been talking about for the last two years, it doesn't feel like anything's following normal seasonal patterns anymore, though. But I would just be curious to kind of get your sense for, how we should be thinking about operating ratio trends sequentially, you know, if there's sort of any puts and takes to maybe think about there.
Adam Satterfield
Sure. Yeah, so it's normally about a 50 basis point increase from the second to the third quarter. We've got some different things going on this year, and one thing in particular is in our general supplies and expenses statement. We've got some, we don't want to necessarily say what they are at this point, but we've got some exciting new things that we're doing from a marketing standpoint where we'll see more cost in the third quarter, the third and the fourth quarters than what we saw in the second quarter. So there's expecting about a 40 to 50 basis point increase in those costs as a percent of revenue from the second to the third quarter, just mainly due to the timing of some of these programs. So that would kind of take normalized up to about 100 basis points. Much like we talked about at the end of the first quarter call, our miscellaneous expenses have been trending below what that normal average rate, that's usually about half a point. So I might see that revert back to average. That's kind of what I've been anticipating. So somewhere in that probably 100 to 150 basis point range, I feel like it's kind of just a normalized target for us to and that is off a base of a 69 and a half percent just to make sure everyone saw that absolutely we definitely saw it uh well thanks very much for the color adam really appreciate it i'll hand it over the next question comes from ravi shanker with morgan stanley please go ahead
spk01
I'll just kick off with that comment. Congratulations on the margins, guys. That was a pretty incredible achievement. Maybe to just start off with a big-picture question related to that, how do you run the business? Do you run it for top-line growth, EBIT growth? Do you have a margin target? Do you have an incremental margin target? What's your North Star, if you will, in how you run the business?
Adam Satterfield
All of the above.
spk00
That's easy.
Adam Satterfield
No, I mean, certainly, you know, we've got just some broad measures that we look at. For one, any dollar that we invest needs to have an appropriate return with it. But as we talk with our customers, you know, we look and we think about what our long-term market share opportunities are, and then that dictates the investments that we need to make. Certainly, when you look at our strategic plan, it starts with giving good service. To give good service, that supports our yield management, which then produces the cash flow that we can reinvest in capacity and to reinvest back in our employee base. That's really what drives the service product. We don't want to just grow for growth's sake. We feel like we want to produce profitable growth. That's the reason why we talk about the long-term margin improvement that we feel like we can continue to generate. We laid out an annual operating ratio goal of below a 70 when we finished the fourth quarter last year. Certainly, doing it for one quarter shows that it can be done, but we've just got to continue to work at it. There's nothing magic that will make that happen. It'll just be continued improvement. discipline execution of our plan and a focus on a continuous improvement cycle that we have. And it takes every employee coming in every day thinking about what they can do to make this company better, whether it's improving our service and revenue opportunities or trying to take cost out of the equation as well. So we want to continue to produce profitable growth. We've got a good track record of doing it. We think when we look out over the next 10 years, we've got tremendous opportunity there. and that, too, should create increased shareholder value for us.
spk01
Understood. And if it were easy, everyone would be doing it. Maybe a second question on the macro. Obviously, there's a lot of red flags out there on inventory levels. What are your customers telling you about what their inventory levels look like, and what do you think is a potential risk for the cycle in the back half? And maybe if you can distinguish that between industrial and consumer end markets, that would be helpful.
Adam Satterfield
Like what I was saying before, we feel good about what we're hearing from our customers, if you will. And it's really things are playing out exactly like we thought they would. For the last couple of quarters, we've talked about the fact that customers were telling us good things that supported the demand trends that we were seeing and what we were hearing from customers and that we felt like if consumption did slow and it had the effect for slowing overall GDP, that freight demand could remain strong. Certainly, we feel like that's what we're seeing and what we continue to hear from our customers. We've had a lot of engagement, like I mentioned, with them over the last few months. We're still hearing overall that generally inventories are lower than what they need to be. Many of our customers are still dealing with record numbers of back orders that they've got to figure out how to get labor and fixing other supply chain issues to make sure they've got all the parts and pieces to produce finished product to fulfill those orders. For that reason, it's something that we think freight demand can continue to remain steady and support a steadiness with volumes as we continue to move through this year. A lot of people have just got issues they've got to continue to work through, and we want to be there to continue to help them and make sure that if it is one of our manufacturing customers, we're continuing to help them and taking supply chain issues off their plate for them. And if it's a product that needs to be available for sale, certainly if you're selecting a carrier with 99% on time and claims ratio of 0.1%, we certainly are going to provide the service that our customers are demanding.
spk01
Got it. Adam, just one very last follow-up on fuel. I know you said earlier that you're looking for fuel to be net neutral to EBIT, but I think you're doing a nearly 50% incremental margin on fuel surcharge revenues. I'm just trying to better understand this. Is it just a timing thing? Is it something that's going to – just from a modeling perspective, how do we think about fuel with the volatility here and kind of maybe moderating the back half and what that does to your overall incremental margins?
Adam Satterfield
Well, I think that, you know, it's who knows what's going to happen with the price of fuel, but we're certainly in the camp that we hope it tracks down for the overall health of the economy. And, you know, I think you've got to look back if we get into a declining fuel rate environment, the impact that that might have. And you look back in 2015, 2016 was kind of the last period where we saw some pretty big decreases there in the fuel rates. And just like I mentioned before, if we get in that declining rate environment, we'll be looking at contracts as they come due and looking at lower fuel surcharge contributions, but lower fuel costs as well. And I know everyone likes to try to take the fuel out of both the revenue and the on the cost side, but the reality is it's in the revenue that we're trying to collect and it's in our expenses as we pay our payables. And so it's something that we've got to account for. And it's why when we talk about our long-term yield management philosophy, we include fuel in both the revenue per shipment and the cost per shipment. And if you look over the last 10 or 15 years with fuel being, you know, moderately higher or moderately lower when you look on an average basis over that period. We've been able to exceed our cost per shipment inflation between 100 and 150 basis points. So in some individual quarters, that may look a little different than others, but we've got a lot of long-term customers, and that's how you've got to look at things from a customer relationship standpoint is is overall what are those inputs on the revenue and cost side and how can we continue to create some positive delta there to help us continue to reinvest in the capacity back in our business because no one else is investing in service center capacity like we are. And that's part of the value proposition so we can help our customers grow.
spk01
Great. Thank you so much.
Operator
The next question comes from Todd Wade with UBS. Please go ahead.
Todd
Yeah. Good morning. It's Tom Wadowitz. I think, Adam, you talked about headcount, and you said you kind of have the resource you need and can probably be steady for a while. I think, you know, when you've added a lot of people in a short period of time, there's opportunity for them to kind of learn the system more and get better at what they do. So how should we think about the potential impact to your margin or to different cost buckets if we have kind of a, you know, stable tonnage backdrop and a stable headcount framework for you the next couple quarters? How might that productivity affect margin, you know, and which cost lines might improve?
Greg Gant
Yeah, Todd, I'm going to try to answer that for you. But I'll say this. We've been through a tough time, not just OD, but the entire LTL industry with the growth that we've experienced in the last year and a half, two years, since the fall of 2020. It's been a handful for all of us to respond to our customer needs and people requirements, equipment, and all those kind of things. We've hired an awful lot of people, somewhere in the 6,000-plus range When you look across all employees, dock, drivers, and everything else, but it's an awful lot of additional headcount. In that comes an awful lot of inexperienced folks that we've had to deal with over the last couple years. I don't think anybody would say they really want things to slow down. Certainly, I don't. It's fun when you're busy and you've got challenges trying to accomplish all the things you want to accomplish. But at the same time, when we get into these leaner times and we start to flatten out like we are now, it's not all bad. You can step back and start to refine some of your processes. You end up with certainly better trained employees and whatnot. They understand what to do, how to do it. You're not adding to the list of folks like you were back in the last couple of years. So it's not bad by any stretch. And certainly, our platform productivity, our P&D productivity, maybe some of the aspects of line haul load factor and whatnot, those are included as well. But we can improve in all of those areas. And it also gives you some time to look at your clerical processes and whatnot. What's good? What's bad? Is there some technology out there that can help you with those kind of things? There's just an awful lot of advantages to not being so crazy busy like we've been. Definitely positive from that standpoint. Again, nobody wants to see it slow down, but certainly we look at the positive aspect of it and what we can accomplish while it's this way and be better when we come out of it on the other side, certainly.
Todd
Okay. I guess the second question is really just kind of a clarification. I know you talked a bit about July. You had a couple questions on that. Is the tonnage implied in that something around flat, or does it imply down a little bit? I know you don't want to give us the precise numbers because it can change a bit as you have the full month, but Is the backing into kind of a flattish tonnage number about right, which you've seen so far in July?
Adam Satterfield
It is down slightly, Tom. And when we look at – so it's down slightly on a year-over-year basis. And, you know, similar to what we've seen in the prior couple of quarters, the first month of the quarter and the first quarter this year, the second quarter as well, was well below normal seasonal trends. I would say that we're a little bit below our normal seasonality. Typically, July is always a month that decreases. It typically decreases about 3% as compared to June. We are a little bit below that, but I know some of you are looking to, from a year-over-year standpoint, comparing this year back to 2019, at least what we're seeing is somewhat similar trend in July versus June, looking at it from that perspective as well. We'll see how the rest of the third quarter continues to play out. Typically, September is our busiest month of the year. We'll look to see if volumes, if we get some sequential acceleration to get through the remainder of this quarter. But, you know, it's just something we'll continue to stay engaged with our customers on and try to continue to manage from a cost standpoint and make sure we've got, you know, everyone and everything in place to deal with the volumes that we're seeing.
Todd
Right. Okay. Great. Thanks, Adam. Thanks, Greg.
Operator
The next question comes from Chris Weatherby with Citigroup. Please go ahead.
Chris Weatherby
Hey, thanks. Good morning. You know, I guess I just wanted to touch on sort of the commentary around the pace of demand and not to be too nitpicky, but I guess I just want to sort of maybe understand. It seems like tonnage is maybe performing a little bit less than typical seasonality So I guess I'm curious, do you think there is, you know, a sort of demand deceleration that's kind of becoming more clear within the numbers? It sounds like customers are still relatively optimistic about what the pace of volume might look like as the year progresses. But is there a bit of a disconnect between what you're hearing from them and what's actually coming through from a ton of perspectives?
Adam Satterfield
I don't know that it's, I mean, this is really something we've had to address all year and really trying to bifurcate the demand that we're seeing and hearing from our customers versus the actual tonnage trends. And we have, like I just mentioned, we have underperformed normal seasonality. But we have to somewhat keep in mind, too, that our 10-year average trends, that includes our market share doubling over that time period. So, you know, we have continued to win market share. I think when you look at our numbers versus the industry, the last two or three quarters, I think, if you take the public carriers, the tons have been negative overall for that group, while you've seen, obviously, tremendous growth from us and And I still think that based on the feedback and conversations with customers that you'll continue to see our volume numbers outperforming at least that public group that we compare against. And so the conversation around demand is the demand for our service. And certainly our customers, they may not have the same type of volumes. So we're still picking up. We haven't lost any customer accounts. We're still making pickups every day, but it may just be they don't have the same number of shipments to give us because some of the demand for their product has decreased. But I think the positive takeaway from this is how strong we continue to see, one, the strength of our pricing programs, but just those customer conversations and no customer defections and the conversation about the need for service and how important that is becoming to our customers. We've certainly proven our value proposition over years and how we may be a little bit more expensive up front, but when you look at the total cost of transportation, whether it's delivering and meeting the on-time and full requirements that some of the retailers have in place, we can ultimately help our customers save money. And so those are the things that continue to drive these positive customer conversations that we're having.
Chris Weatherby
Okay. That's very helpful. I appreciate that color. That makes sense. And you guys have been through obviously many cycles and have been pretty successful navigating through those cycles. You just mentioned the sort of resiliency and the pricing you're able to get in this market even as maybe demand at your customers is beginning to fall a little bit. So if we think about It's sort of a normal recession, whatever that may be in your definition. You know, how do you think sort of operating ratio and maybe earnings power progresses, assuming that maybe the back half or some point in 2023, we're seeing more sustained negative volumes for the industry? You know, is positive profit something that we can kind of continue to look for from the model? Just kind of curious how you think about that resiliency and downturn.
Greg Gant
Chris, I think all of us are going to have to see where this thing goes. I mean, I don't think we're in a recession yet. At least I haven't heard that. We'll have to see where it goes. But at the same time, you've got to remember, we're up against some tremendous numbers from last year, and we're still at a very, very decent level of business where we can turn a pretty good profit, I think. I mean, I think we've proven that, right? Certainly the second quarter bears that out, but I think we're still in a pretty good spot. Again, we can't control the economy and some of the things that the government does that drive some of it and whatnot, but I think we're still in a good spot today. Let's hope we don't see further deterioration in the things going on from an economic standpoint.
Chris Weatherby
No, that's very helpful. Certainly, we can see the strength in the numbers. There's no doubt about that. Thanks for the time. I appreciate it. Sure.
Operator
The next question comes from Scott Group with Wolf Research. Please go ahead.
Scott
Hey, thanks. Morning. I just wanted to follow up on the headcount question. So, if I look back at some of the past periods where tonnage has gone negative, headcount usually follows and comes down, too. If I just take flat headcount from here in Q3, it's still up about 10%. Do you see opportunities if tonnage stays negative to reduce headcount, or are you going to be potentially more reluctant to do that this time around, just given the problems that everybody had hiring people?
Greg Gant
I think maybe you're pretty perceptive of how our industry works. has been the last couple years with that question, Scott. But no question, I mean, we certainly don't want to get in a situation where we have to start making cuts and that kind of thing. That's extremely hard to do. We always hate to do that. I mean, obviously, we've got to try to match revenue and shipment levels to labor. I mean, that's what we've done for many, many years, and we'll have to continue to do that. In some cases, attrition helps to take care of our situation. We always have a little bit of that, probably much less here than most places, but we obviously sit on hiring. We're not actively hiring hardly anywhere now, maybe specific needs and replacements and that kind of thing, but we're certainly not adding anybody on top of what we've got. yes, I can promise you any reductions we would make, we would look at those very, very carefully before we execute it, if that makes sense.
Scott
Okay. But it does sound like if we're not sort of hiring more, there will be some sort of natural attrition that could take the headcount down a little bit from here.
Greg Gant
Certainly. Absolutely. Okay.
Scott
And so maybe just to tie that with that last question, so in an environment where tonnage stays negative for a little bit, do you think you could still improve the operating ratio or maintain the operating ratio as you've done in, you know, like 15 out of 16 years or something like that?
Greg Gant
Well, that would obviously would be our objective to continue to maintain and certainly improve. I think we've proven it over the course of time and, you know, I We'll just have to wait and see. I don't want to get into all of that at this point in time. You know, my crystal ball is not completely crystal clear. So, you know, we'll just have to see where it goes. But, you know, we'll certainly continue to do the right things day to day. We'll continue to execute from a service standpoint and whatnot, keep our people focused on doing the right things. And, you know, those are the things that drive the bottom line. Sometimes the top and the bottom line, but we'll continue to do those things well, and we'll see where it goes.
Scott
Thank you for the time, guys. Appreciate it.
Operator
The next question comes from Todd Fowler with KeyBank Capital Markets. Please go ahead.
Todd Fowler
Hey, great. Thanks, and good morning. So, Adam, in your prepared comments, you had some commentary about cost inflation into the back half of the year, and I'm guessing, or I think that traditionally you put through an employee wage increase at some point in the third quarter. And it sounds like you're also getting some benefit from, you know, improving productivity from the workforce standpoint. So I guess my question is, are your comments that wage or that cost inflation on a per shipment basis, is that going to increase or accelerate in the back half of the year? Or does that start to level off? I guess I'm just kind of curious what your expectations are on the cost inflation side moving forward.
Adam Satterfield
Yeah, we do always give a wage increase at the beginning of September each year. And so that's pretty standard in terms of it's in our numbers. And it's part of the reason why the third quarter operating ratio is generally higher than the second. But from an overall inflation standpoint, when we started the year, we expected higher inflation in the first half. And really, we started seeing costs increasing about this point in time last year. And so our costs were going up, and that's when you can really start seeing, when we looked at contracts that were turning over in those periods, we had to get larger increases then. So we felt like we were gonna see some moderation with our costs in the back half of this year, but certainly didn't perceive the sustained increase in fuel prices and then continue to accelerate like they have this year, and that's having a follow-on effect both directly and indirectly with other pieces of our cost structure. At this point, I don't expect to see that moderation like we had initially talked about, but don't necessarily see it accelerating either from this point. I just think that we're gonna continue to see maybe that core inflation number kind of in that 7% to 9% range like we have. If you take a look at our costs and back the operating supplies and expenses out, which includes fuel, they were up about 10% in the second quarter on a first shipment basis. Certainly, that's higher than where we thought it would be. But we do have some opportunities, like Greg mentioned. We certainly want to continue to focus on improving the productivity of all areas of our operation. I think that can help some of that cost per shipment inflation. We were able to reduce our purchase transportation in the second quarter. There's still a little bit of miles that we were outsourcing in the second quarter. So we're back in that 2% to 2.5% range. number with that line item, but there may be a little bit more out of that number where we can see some decreases. But otherwise, it's just trying to manage each and every line item on the income statement that we can and look for areas with discretionary spending that we may can pull back on and just look for any area that we can ultimately save some dollars.
Todd Fowler
Perfect. Okay, good. That's helpful and that makes a lot of sense. I guess just to follow up, and it's a little bit of a tricky question to ask, but from a bigger picture standpoint, it sounds like a lot of your competitors, their approach to the LTL market now is a lot more like your approach, adding some more terminals, focusing more on service. I guess as you think about the competitive landscape, does that change your ability to wind share in the marketplace going forward? Or have you seen any differences in customer responses due to some of the things that your competitors have been doing over the last, let's call it four to six quarters?
Greg Gant
I don't think so, Todd. I mean, we'll continue to execute and do the things that we know best how to do. And I think we've had a pretty steady run up on our share.
Todd Fowler
and and i would expect that to continue yeah it makes sense i i know it's a tricky question to ask which is was curious your thoughts on it so um thanks for the time this morning i'll turn it over the next question comes from ken hulkster with bank of america please go ahead great uh good morning uh greg and adam congrats on on breaking 70 a tremendous uh group leadership there just a a few
spk00
I guess you had a few questions on the downturn or potential impacts on the operating ratio, but maybe just if July is starting to see larger negative tonnage trends versus June and maybe a little bit more than seasonality, can you talk about a normal cycle? How does that bleed into pricing pressure? I know you don't typically change your pricing given the quality of service, but for the group, how long does it take to see those negative trends kick in and start showing up on the pricing side? especially in what's happened with the truckload side?
Adam Satterfield
Yeah, again, I think that when you look at the rest of the group excluding us, I think overall there's been at least the past three quarters or so where volumes have been negative or at least flat going back to last year. So the pricing environment has continued to remain positive, and we haven't heard anything any different really in that regard. So I think that we know what our strategies are and what we're going to continue to do. A big piece of our yield management strategy is making sure that we're trying to cover the cost inflation we see in our business, but an even bigger element is making sure that we're generating the returns that will help us continue to invest dollars in the real estate network. I think when you look over the last 10 years, we've invested about $2 billion in expanding the capacity of our network. When you look at the expansion of our door capacity, about a little over 50% over that 10-year timeframe, and at least the number of service centers in the industry is actually down a few percent. regardless if you see some additions here and there, we have been adding really at our customers' request, and our customers are leveraging our network, especially in the retail side. Some of this e-commerce freight comes and transitions from the truckload world into LTL. That's the power of our network. It helps our customers with managing their supply chains, and ultimately we think helping them save money overall. That's why we've got to continue to work at it, but it's still an environment where we've got positive revenue growth. Our revenue growth of 18% includes that slight decrease in July for tons that we're seeing, but we're still producing revenue growth that's above our long-term average revenue growth rate when you look over the last 10 years. We're just going to continue to look at leveraging that to the bottom line. Certainly, what we talked about with the operating ratio moving into the third quarter, that would still produce some pretty good improvement there on the next quarter's OR.
spk00
Adam, just to clarify that, you talked about the last couple quarters seeing the industry. In the past, have you seen a more immediate impact to industry pricing or even your pricing in a down tonnage environment, or does it take about three quarters or whatever to start seeing some pressure? I'm just trying to see if this time really is different because of the industry moves or if this is more historically normal on a delayed pricing impact.
Adam Satterfield
If you look back, 2019 is a good example where the environment was softer. I think the industry was pretty disciplined with pricing during that period. We certainly expect that our own pricing will continue to be positive. Again, we haven't really heard anything from any other carriers. We'll continue to see maybe what they're saying publicly as well, but I think it takes a lot to run an LTL company. Certainly, there's a network effect that has to be managed there, and that's the big difference between us and the truckload environment. I think that it seems to us, from what we've heard, that there's not many LTL carriers, at least the public ones, that have taken on a lot of truckload spillover freight, so I don't think you're going to see this vacuum effect as truckload has loosened a little bit of freight spilling back into that mode like we may have seen in prior cycles as well either. To me, that would lend itself to seeing a little bit more stability maybe with volumes, even though, like I mentioned, they're down for the other carriers or have been for the last few quarters. We'll continue to watch that, but I think we would expect to see the continuation of a disciplined approach much like we did in 2019.
spk00
And can I just get a clarification on one of the prior questions? You talked about stalling hiring now. If we see, I guess, those volumes staying at these levels, is that something you then expect the attrition to overtake your hiring, and so you expect that to come in? I just wanted to clarify kind of your comments on the employee levels.
Adam Satterfield
Well, you know, the hiring practices, that's something that each one of our 255 service center managers does. are responsible for. They have to stay engaged with their customers at the local level to know what freight demand within their facility is going to look like to then make sure that they've got the right people capacity in place to be able to respond and give the service that our customers demand from us. That's something that we let them manage. It's not just the number of people they have in place. There's always managing the hours worked. up and down based on changes with the volumes as well. So, you know, we just got to continue to watch overall how the volumes trend, and, you know, we feel good about our numbers right now, and we feel good about our overall level of headcount as well. But ultimately, you know, we'll continue to let our service centers manage that, and individually you may be seeing seeing some that are making additions because they're growing. And we're seeing in some facilities really strong double-digit outbound type of revenue and volume growth. And then the others, if they've got some weakness in their facility for whatever reason, specific customer type of issue, then they've got to manage on the other side. But it's a coordinated effort that's really, we give that responsibility with oversight, obviously. but our service center managers are handling that on a day-to-day basis.
spk00
Wonderful. Thank you very much, Adam. Greg, appreciate the time.
Operator
The next question comes from Amit Marotra with Deutsche Bank. Please go ahead.
Adam
Hey, thanks. I'll try to just ask one question to balance out the three questions that some other people asked. I think three or four years ago, Greg and Adam, You kind of started the call mentioning some deteriorating pricing power in the industry. And on follow-up, you kind of talked about just bringing attention to some indiscipline that you're seeing in certain lanes. I think part of the motivation was to kind of nip it in the bud early. It seems like we're kind of at that part in the cycle where we could start to see that a little bit. I'd love... for you guys to comment on that. Are you seeing any players, any large national players, because of weaker service levels or whatever, that may be seeing a little bit more deterioration in demand start to be a little bit more indisciplined on pricing, if you can comment on that?
Greg Gant
No, we have not seen that at all. Certainly not to my knowledge. I haven't heard that. Like Adam had mentioned earlier, we've had an awful lot of customer interaction so far this year with customers coming here, some of the things we're doing out in the field from a customer standpoint, we have not seen that, have not gotten that type of feedback from our sales department. I think that's all positive. I think if you look at our LTL industry, we're all healthier than we've been for the most part. I think the bottom lines have improved across the board. I think I can say that without putting a whole lot of thought into it, but You know, I think everybody has to see the benefit of being price disciplined, surely. So I think it's benefited the industry in general. So, yeah, let's hope that that continues.
Adam
Okay. That's my one. Thank you very much. Appreciate it.
Operator
The next question comes from Bruce Chan with Steeple. Please go ahead.
Bruce Chan
Great. Thanks for the time here. Greg, just want to follow up on those pricing comments really quick. We've heard from a few others out there that there's been a little bit of a pickup in inbound RFPs and RFQs, maybe especially from the larger national account side. Are you all seeing any signs of that?
Greg Gant
I don't think so. I haven't heard that. I mean, most of our bigger national accounts, we have annual renewals and whatnot. Some may be on two- or three-year type renewals, but most everybody's on an annual renewal. I haven't heard that there's any huge pickup with that at all. So, no, at this point, not. But, you know, we'll see. We'll certainly have to wait and see, but so far, so good from our standpoint.
Bruce Chan
Okay, great. Appreciate the time.
Operator
The next question comes from Ari Rosa with Credit Suisse. Please go ahead.
Ari Rosa
Hey, good morning, Greg, Adam. Thanks for squeezing me in here. So you guys talked about investing in the network to take share through the cycle or preparing for the next cycle. And it's certainly a formula that's worked very well for OD in the past. I wanted to get your sense for kind of how you're thinking about that in terms of the longevity of what a down cycle might look like and kind of the risk that you might be sitting on idle capacity for an extended period of time. if demand deteriorates. And it seems like there's kind of two different schools of thought. On one level, it seems like the LTL industry has been pretty tight on capacity and pretty disciplined about the way it's invested. And maybe that means there hasn't been as much froth that's developed on the supply side. At the same time, obviously what we've seen in terms of consumer spending and durable goods orders has been pretty anomalous over the last kind of 18 to 24 months given COVID. And maybe there's some concern that those conditions that have existed over the past 18 months or so aren't really sustainable from a demand perspective. So I just wanted to kind of hear your thoughts on as you invest to expand the service center footprint, how do you perceive the risk that you might be sitting on idle capacity for maybe a longer period of time than you might hope for?
Adam Satterfield
I think we're always sitting on idle capacity, and that's really what we want to have in place. We generally target having 20% to 25% excess capacity at all times. The reason for that is as quickly as demand can change, you can't put service center capacity in place quick enough. It takes doors in an LTL network to really process freight and be able to grow. Certainly, you've got to have equipment and people as well, but the doors are really what takes the most time to get in place. It's why when we see these positive inflections in the domestic economy that you see the rate of market share growth for us increase significantly where we're outperforming the rest of the group by double digits, if you will. You've got to put it in place. You've got to have a consistent investment process and just continuing to work at it, knowing where things are tighter and where you might be tight in a couple of years' time if volume comes back to you in a big way. We're used to carrying that extra cost, but that's part of our strategy, and it is different. We like to keep that excess capacity in place. Most of the industry, it seems, operates closer to full utilization. within the network, but that creates a lot of volume opportunities like we saw in 2020 in the back half as the recovery began and certainly through 21 with the rate of growth that we had then and so far through the first half of this year. And again, as we said earlier, we've produced over $700 million of revenue growth. Last year was a record at $1.2 billion for us, and we're on a good pace to have another Another billion plus type of revenue growth year, but it certainly takes making those investments. When you look and trying to go back into some of these prior years when there has been a down cycle, you can look at our operating ratio in 2016 and 2019. We're able to manage all of our variable costs well and try to take advantage of productivity opportunities, but generally the only change in the operating ratio you might see is with respect to that depreciation line item. And that's where we are making those investments. Those depreciation costs will increase as a percent of revenue. But we try to manage all of the other costs flat or with some improvement, if we can, to minimize any type of negative impact on the operating ratio until we get that volume flow coming through again. And we've said it takes density and yield to produce long-term margin improvement And that will continue into the future as well. But you certainly, to get that density factor, it takes a continuous investment in capacity.
Ari Rosa
Got it. Understood. Okay, thank you for the time.
Operator
The next question comes from BASCOM Majors with Susquehanna. Please go ahead.
Susquehanna
Adam, in the last six months, you guys have bought considerably more stock than you bought in any prior full year. Can you talk a little bit about the pace you feel comfortable with in the second half? And will you consider adding a little leverage to take advantage of this share price? Or historically, you've been within your free cash flow as far as total shareholder returns. Is that a good kind of bookend to think about as we think about where share repurchase could go? Thanks.
Adam Satterfield
Well, certainly the repurchase program, we typically look at our cash from operations and at the beginning of every year, we know what our capex is going to be and then we've got the fixed return element through the dividend program. And then we typically take the balance and try to put that into the share repurchase program. But we have said in prior periods when we think The opportunity is right. We'll put more dollars into that program, and certainly that's how we have felt this year. In the first quarter, we did have a $400 million accelerated share repurchase program. In the second quarter, it was more strategic and just day-to-day buying on more of a 10B5 type of basis, and we'll continue to look at all options as we move forward, but certainly when the share price is at the level where it's been. It's certainly down from where we finished last year, and we're going to continue to buy more shares and use the cash that's on the balance sheet for starters. You've just got to continue to look at it on a day-to-day basis. In the past, we've said we don't necessarily want to directly borrow to go out to buy stock. But we've always just got to look at kind of where the price is trending and what we think the best use of cash is, and then just trying to take a longer-term view of it as well.
Susquehanna
So it sounds like leverage to buy stock is not plan A, but opportunism can make that possible depending on your view of the market versus your stock price.
Adam Satterfield
Correct.
Operator
The next question comes from James Monaghan with Wells Fargo. Please go ahead.
James Monaghan
Hey, guys. Thank you. Just wanted to actually touch on or follow up on something you mentioned around the spread between pricing cost and just the pricing environment overall. Just wanted to sort of get your sense on sort of the amount of sort of cost pressure maybe some of your competitors are under and if you think that might keep discipline fairly high around pricing and also just maybe sort of thinking about like the outlook for that spread moving forward, just given the fact that you guys own more of your assets and therefore might have a cost advantage.
Adam Satterfield
Yeah, I don't know that we can comment on our competitors' cost structures, but, you know, certainly for us, you know, we obviously feel like we've got opportunity to continue to, one, to try to reduce some of our costs through productivity. But that's, again, kind of going back to our continuous improvement cycle and then trying to price above cost. It's not always on a quarter-by-quarter basis. Again, it's not always going to be that we've got that 100 to 150 basis points delta in our revenue per shipment. and cost per shipment performance, and you've got to look at that on more of a core basis, but we just look at it over a longer-term time horizon, but that's the yield improvements, one big element for the long-term margin improvement opportunities that we think we have, and obviously a lot goes into that. It's easy to sit here and say that we need yield above cost, but a lot go into both of those metrics, and Certainly you've got to have the service to support the yield. And then we've got to continue to look at ways that we can save on the cost side as well to make sure that our pricing is still in alignment with the market. And we do believe we can get a price premium in the market based on the quality of our service. And we study our Mastio quality results closely each year to look at how we compare against ourselves and and how we compare against the rest of the industry to make sure that we're staying on top of changes, we're staying ahead of the market, and we're continuing to give our customers what they're asking for as well, be it through capacity in markets, be it capacity of our trailer pool, technologies, pricing programs, and new changes there. You name it, we're always trying to stay ahead of the curve, and we feel confident that we've got a lot of market share opportunities in front of us, and we just want to keep our focus on execution and make sure we take advantage of those opportunities and, again, make sure that it's not just growth, it's good, profitable growth.
James Monaghan
Got it. Just given how much costs have run up, do you think that there's a repricing opportunity or a need to reprice moving forward on a larger portion of your business than normal?
Adam Satterfield
No. And again, that's part of our continuous improvement cycle. Our contracts and our business come up every day. It's why you generally see on a sequential basis. improvements in our yield metrics as we go from quarter to quarter. As a contract comes up for renewal, we're going to ask for an increase. To improve the yield on an account, it's not always through a price increase either. It's looking at other areas of opportunity and ways that we can help a customer save money. And that may be an operational change. It could be a number of things. And that's why it's so important for our sales team to stay engaged with our customers to understand what their needs are, our pricing team as well, so that we can work together and create win-win situations. Because we're not here to just have a customer for this quarter and the next quarter. We've got customers that have been in place for many, many years. Any new customer that's coming on board, we want them to be in place for the long term as well. It's all about creating those win-win situations. Whether it's, again, through an operational change. We've recently announced a new pricing program as well that we've got some engagement on and some excitement. that can eliminate the need to have payment audit services for customers. And so, you know, those are the ways that we're going to continue to stay engaged with our customer base and try to do right things right by them and keep improving our sales, both the top and the bottom lines. Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Greg Gant for any closing remarks.
Greg Gant
Well, thank you all for your participation today. We appreciate your questions, and please feel free to give us a call if you have anything further. Thanks, and I hope you have a great day.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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