Old Dominion Freight Line, Inc. (ODFL) Earnings Call Transcript & Summary

Good morning, and welcome to the Old Dominion Freight Line Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jack Atkins, Director, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the second quarter 2026 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through August 5, 2026, by dialing 1 (855) 669-9658, access code 8521187. The replay of the webcast may also be accessed for 30 days on our 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. 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. Finally, before we begin, we welcome your questions today, but ask that you limit yourselves to just one question 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 our President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.

Good morning, and welcome to our second quarter conference call. With me today on the call is Adam Satterfield, our CFO. And after some brief remarks, we would be glad to take your questions. Old Dominion produced strong results in the second quarter, which include a 10.4% increase in revenue and a 450 basis point improvement in our operating ratio. In addition, our second quarter earnings per diluted share increased 32.3% to $1.68, which matched our previous company record that we set in the third quarter of 2022. These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution. While the difficult operating environment over the past few years presented us with a number of challenges, including lower network density and inflationary cost pressures, we continue to diligently execute on our fundamental aspects of our long-term strategic plan and invest for the future. The strength of our second quarter results demonstrates the benefits of this strategy. While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price. That was the case again in the second quarter when we provided our customers with 99% on-time service and a claims ratio of 0.1%. In addition, we have made approximately 1,000 lane adjustments this year that improved our service standard transit times. Our team continues to leverage their experience and new technologies to further improve our service standards and overall value proposition for our customers. Our customers rely on us to keep their promises to them by picking up and delivering their freight on time and without damages so that they can keep their commitments to their own customers. Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry. That is why it is critical, despite a prolonged period of softness in the domestic economy, to continue to make the key long-term investments in our network, our technology and our people, so that we can now continue to deliver best-in-class service as the operating environment changes. Consistently providing our customers with superior customer service is the cornerstone of our strategic plan. And doing so, supports our yield management initiatives. Our disciplined approach to pricing, which focuses on individual account level profitability, is designed to offset our cost inflation over the long term and support reinvestment back into our business. Our ability to take a long-term approach to our investments in our network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities. Our strategic plan has worked through many economic cycles. But that said, our greatest opportunities to win market share often come when industry capacity is generally limited and the domestic economy is strong. The domestic economic environment remains relatively stable, and we are encouraged by the continued improvement in demand that began late last year. In addition, based on feedback we have received from our customers, we believe that our superior service is increasingly differentiating Old Dominion within our [ industry ] and providing opportunities for incremental growth. We reported strong second quarter results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan. We returned to revenue growth in the quarter and produced strong operating leverage on our incremental revenue. In addition, because of our consistent investments in our network and our people, we have all the necessary elements of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes. As a result, we are confident in our ability to win market share and produce profitable revenue growth, which we believe will generate increased value for our shareholders over the long term. Again, thank you for joining us this morning, and now Adam will discuss our second quarter in greater detail. Adam?

Thank you, Marty, and good morning. Old Dominion's revenue increased 10.4% to $1.55 billion for the second quarter of 2026, while our operating ratio improved 450 basis points to 70.1%. The combination of these factors resulted in a 32.3% increase in our earnings per diluted share to $1.68. We were pleased to return to revenue growth in the second quarter, which included an increase in our yield and an improving trend with our volumes. Our revenue results include a 15.2% increase in LTL revenue per hundredweight, which was partially offset by a 4.1% decrease in our LTL tons per day. Excluding fuel surcharges, our LTL revenue per hundredweight increased 5.5% due to our continued focus on revenue quality during the quarter. On a sequential basis, our revenue per day for the second quarter increased 14.6% when compared to the first quarter of 2026, with LTL tons per day increasing 4.0% and LTL shipments per day increasing 3.2%. For comparison, the 10-year average sequential change for these metrics includes an increase of 7.1% in revenue per day, an increase of 4.4% in LTL tons per day and an increase of 5.2% in LTL shipments per day. The monthly sequential change in LTL tons per day during the second quarter were as follows. April decreased 2.8% as compared to March. May increased 3.0% as compared to April. And June increased 0.9% as compared to May. The comparative 10-year average change for these respective months is a decrease of 0.9% in April, an increase of 2.2% in May and an increase of 1.7% in June. While there are still a few work days remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July of 2025. This includes an increase in our LTL revenue per hundredweight that is partially offset by a decrease in our LTL tons per day of approximately 1.0%. Although our tons per day are slightly lower than July of last year, the sequential change from June of 2026 is significantly better than our normal seasonality. The increase in July's LTL revenue per hundredweight, excluding fuel surcharges, is currently tracking below the second quarter growth rate of 5.5%, due primarily to changes in the mix of our freight. As a result, I'm currently anticipating improvement in this metric for the third quarter of 4% to 4.5%. To be clear, this is a positive trend for our company as it reflects the continued increase in our weight per shipment. We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q. Our operating ratio improved 450 basis points to 70.1% for the second quarter of 2026, with improvements in both our direct operating costs and our overhead expenses as a percent of revenue. Within our direct operating costs, improvements in our salaries, wages and benefits as a percentage of revenue more than offset an increase in our operating supplies and expenses. This increase in operating supplies and expenses was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. The improvement in our overhead cost as a percent of revenue was partially due to the change in our net miscellaneous income and expense. This line item included $17.2 million of net gains on the disposal of property and equipment during the current quarter. In addition, we also saw improvements in a number of other overhead expenses due to the leverage gained from the increase in revenue as well as a continued focus on controlling our discretionary spending. Old Dominion's cash flow from operations totaled $272.7 million for the second quarter and $646.3 million for the first 6 months of 2026, respectively, while capital expenditures were $77.0 million and $139.6 million for those same periods. As announced in our release this morning, we increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year. The $115 million increase from our original plan includes an additional $60 million for tractors and trailers and an additional $55 million for real estate and [ sourcing center ] expansion projects. While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan. We utilized $151.6 million and $239.7 million of cash for our share repurchase program during the second quarter and first 6 months of 2026, respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods. Our effective tax rate for the second quarter of 2026 was 25.0%, as compared to 24.8% in the second quarter of 2025. We currently expect our effective tax rate to be 25.0% for the third quarter of 2026. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for any questions at this time.

[Operator Instructions] Our first question today is from Jonathan Chappell with Evercore ISI.

Adam, a lot of volatility from month to month as we look at seasonality in your 10-year averages, obviously, a lot better in May, maybe a little slower in June. Can you just speak to the overall demand environment as we think about July trending from here? And also to the extent that you can kind of put a pin on it, we've been hearing a lot about freight shifting from a tight TL market to an LTL market. Are you seeing that? And kind of where do you think you stand as far as like the "innings" of that transition?

Yes. I think to start with that first, I still think we're in the early innings. We're hearing some of that from customers, but I haven't really seen the big weight per shipment change within certain categories, particularly with 3PL managed business that you would see when there's a major inflection going on with the truckload spillover one way or the other. So I still think that there's probably a lot left to go with that renormalization there, if you will. But I expect that will continue as the truckload rate environment continues to be really strong. Overall for us, demand continues to improve. Happy with a lot of the trends that we're seeing. And you're right, I think that it's choppy month-to-month when you look at our sequential growth versus our 10-year average trends, but that's not uncommon, when you get in periods like this, there have been certain months where we've just significantly outperformed the 10-year average and then the next month might be a little bit softer and so forth. And that's kind of the way the second quarter shaped up. We had a really strong February and March. And then the April was softer than the 10-year average, but then we kind of climbed out of that and essentially brought the full quarter sequential trend back to right they're at what the normal quarter would be. But I've looked at -- if you went back to the beginning of this year and normal seasonality, if you just played it out month by month, in July, we're handling probably about 3 million pounds more per day than we would if normal seasonality had played out. So to me, I think we're obviously outperforming at this rate for full seasonality. And I think we're just in the early stages of the economy getting going again. With where ISM has just been in the low 50s, has not really had a big breakout yet, and I still think there's a lot of room to run when you look at things like some of the inventory to sales ratios, as low that is. And that somewhat reconciles with feedback we've heard from customers about the need for restocking and so forth. So really excited about where we are, but more excited about the opportunities that lay ahead to carry some momentum through the balance of this year into '27 as well.

The next question is from Chris Wetherbee with Wells Fargo.

Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics for the forward quarter in the past. I was wondering if you could help us a little bit with that. Obviously, the second quarter from an OR perspective does have the gain in it. So just some thoughts on how you think about revenue opportunity in the third quarter and also the operating ratio.

Yes. I'll just maybe answer one of those and leave the other for someone else to follow-up. But maybe just to start with the top line, because haven't always given revenue guidance, but I think it's probably appropriate, especially with some of the volatility that we've had with fuel. And I guess, to start the July revenue growth rate of 7.5% to 8%, that includes sequential change in tonnage that's significantly better than the 10-year average, as I mentioned. And just to put some context around that, the tons per day right now is sequentially down about 0.5%. The 10-year average is down 3%. So seeing really strong performance there. I think that if we can carry momentum through the rest of the quarter, and may see some of this choppiness that I just spoke about in either August or September, but I think if we can just carry some of this momentum forward, maybe -- we think that we can get to a 10% increase in revenue for the full quarter, so bring that growth rate up. And that would put the absolute number at about $1.54 billion, $1.55 billion for the full quarter. And obviously, we give our mid-quarter update, so we'll be able to track along with that the entire time. But conservatively, if we carry that same 7.5% to 8% growth rate, that would be about $1.52 billion for the full quarter. And kind of as a baseline, what I'm anticipating for fuel is, assuming that we're going to see stability, it has stabilized for a bit during the second quarter, reinflected back positive, but I would like to think that we see some resolution there and have fuel that maybe trends back down, and we'll see that more in the -- or my baseline is $4.95 as an average per gallon for the full quarter. But we'd like to see that come under control, which I think will be a net positive for the overall economy.

The next question is from Jordan Alliger with Goldman Sachs.

I guess I'll follow up on the -- going from revenue to the sequential OR thoughts. And I guess if you could just let us know if that would be off of the reported OR, or any adjustments related to that net property gain?

Yes. I figured that would be close on the heels, Jordan. But obviously, the 10-year average change for us, at least, is for the third quarter operating ratio to be flat or up 50 basis points from the second quarter. And I think we can essentially hit our normal seasonality, but you do have to sort of add back some of the items to normalize what that third quarter operating ratio would be. And the biggest of which is obviously the big gain that we had on property sales during the quarter. So kind of with some of those things in mind, I would say, a normalized overall increase off the 70.1% would be an increase of about 150 to 200 basis points from the second to the third quarter.

The next question is from Tom Wadewitz with UBS.

Yes. So Adam or Marty, I wanted to get your thoughts on maybe what's happening with service and capacity in the market. I think there have been some data points or feedback that there are maybe a couple of pretty good-sized carriers that have hit some embargoes in the Midwest and capacity constraints. Have also heard feedback about LTL driver market getting a bit tighter or a little harder to hire drivers. So maybe more of a connection with truckload than I would have expected. But what are you seeing in terms of -- are you also observing that? And is that starting to have an effect on your business in terms of maybe some shipments coming over to you, that might even affect July? But just kind of like if you think that's happening, and then how quickly that -- or how much that might affect you and what you see in your shipments and your pricing?

Good question. First of all, we're not having any capacity issues whether it be with equipment or drivers or real estate. But you are correct, we are hearing some talk about some of our competitors having problems picking up at the end of the month. And we have seen some of that freight move over temporarily. And if we get a major inflection in the economy, I think we'll see it daily. But yes, we are hearing that. And I think some of that, as Adam alluded to earlier, could be coming from the full truckload industry. Some of that freight starting to spill back over in a small way to the LTL environment. So I think that's a double-whammy for us.

So do you think that's maybe boosting July? Or was that happening earlier in the quarter?

Yes. I mean, I think it's been happening. We've heard it earlier in the year and, look, this is a big part of our value proposition, is always having capacity. And it's not just the service center capacity. It's having trailing equipment where you can spot trailers at our customers' doors, particularly in the month, in the quarter, but having driver capacity as well. And as Marty said, we've got plenty of capacity across all of those 3 major elements. And I think when other carriers are operating in the first quarter, the public company average excluding us was 94. You got to start managing cost in different ways and maybe aren't able to keep the amount of excess capacity to respond to growth opportunities as they're coming on a sequential basis. So I definitely think that's been a little part of the story. But again, like I said earlier, I think we're just kind of in the early stages of recovery. It's been nice to see us be tracking at seasonality really going back to November of last year, but it just feels like we're in the early stages of this and we got a big runway of growth ahead for us and we're eager to get back to it. We've built up a tremendous amount of capacity over the last few years with the continued investments that we've made. And so we're eager to get freight back into the system. And you look at what we can produce in the second quarter, the control that we've shown over cost and improvement that we've had in our direct cost, in particular, we're still down a long ways from where we were back in 2022. So if we can continue to see that inflection, like we just saw from the second to third quarter, just a 4% sequential increase in our tonnage, but doing that with the same headcount, look at all the leverage that exists in our business. So a lot of opportunity to grow the top line, but more importantly, to keep improving our operating ratio and produce strong, profitable growth.

The next question is from Eric Morgan with Barclays.

I wanted to ask on pricing. Just curious if you could discuss what drove your yields ahead of your initial guidance in the quarter, especially with weight per shipment improving through the quarter. And relatedly, just wondering if you could elaborate a bit on what those mix effects were you referenced that's driving the 3Q yield growth a little bit below 2Q.

Yes. It's -- the second quarter, I think, has benefited some. There's always mix that's going on. It could be a balance of national account versus your small mom-and-pop, some of our higher-priority services and so forth. And we were pleased to see the overall revenue per hundredweight in the second quarter tracking. Our guidance going into the 2Q was thinking that it'd be at about 4% to 4.5%. And so obviously, we're well ahead of that. But sometimes just looking at the month and so forth, the revenue per hundredweight can move up or down. And I don't think that there's anything to call out. But to me, what we're seeing with it coming back down, the rate of growth that is, it's still sequentially increasing, the revenue per hundredweight that is. It's very similar to what we saw sequentially back in 2017 where we had weight per shipment that was outperforming normal seasonality through that year, and that was in the early stage. If you recall, that's when the real inflection was beginning. So I'd like to think that some of the similarities that we're seeing in our numbers, particularly with yield, particularly with tonnage and weight per shipment, maybe this is the start of the real inflection like what we saw back then. So that's why we're -- I wanted to make clear that this is a positive when you see the revenue growth coming in the form of tons and weight per shipment and our yields continuing to improve, that's what puts profits to the bottom line, and that's a key driver of what allowed us to operate at a 70.1%. I realized we had the real estate gain in there, but even if you backed that out, that's one of the strongest operating quarters that we've ever had. And if I go back and compare it to the second quarter 2022, I often talk about that breakdown of costs, direct operating costs and overhead. Our direct operating cost in the second quarter this year or about 200, 250 basis points better than where we were in the second quarter of 2022 when we produced a 69.5% operating ratio. So when you think about that increase in our overhead cost there, there's a tremendous amount of leverage that can not only take it down into the 60s or just hitting right there at getting to a 69% operating ratio, but it's going to be able to allow us to drive it even much lower.

The next question is from Ravi Shanker with Morgan Stanley.

Adam, there's been a lot of focus on TL versus LTL conversion on this call. But I think in the down cycle, we've also seen brokers take a bunch of share from asset-based LTLs in the marketplace. And obviously, the broker relationship right now is under scrutiny post Montgomery. I'm wondering if you're seeing any shift away from brokers back to asset-heavy as well as we go deeper into the cycle.

Probably a little bit early for that. We saw revenue growth with our 3PL-related customers in the most recent quarter that was similar to the overall growth rate for the company. So that's kind of hanging in there. But that's something that we obviously like to have customers direct with us, and if that's a change that develops, we'll work with them. But if a customer is using a 3PL, we treat them the same. We look at the cost. The important thing with business, and about 1/3 of our revenue right now is, with 3PLs, is to understand the cost on any customer account, whether it's direct or with a 3PL and to price it appropriately, so that we've got similar account-level profitability across our book of business. And that's the way we look at it. We look at customer specific costs and then we provide customer-specific pricing to those 3PLs. But we'll take it if it comes at us and be happy to do so.

The next question is from Ken Hoexter with Bank of America.

Thanks for the insight before on some of the struggles at the carriers popping up. That's definitely an issue we've been hearing about also. But if I could just take Ravi's question in maybe a different way. Another upheaval or started in the brokerage side. Just given the heavy use of brokers that you have, we're seeing a lot of lawsuits go on now that are maybe -- whether it was from Montgomery and risk that moves up the food chain, or last week, just the exposure, is that impacting discussions with the brokers? Is it -- are you seeing any flows that might be changing? Maybe just talk about what you're seeing from that brokerage follow-through.

Yes. Nothing at this point, Ken, that I've heard. And we, obviously, especially with some of our largest ones, several of our top 10 customers are 3PLs, and have not really seen any type of material change there. And obviously, with the revenue growth being pretty consistent with the company average at this point. But I haven't really heard a lot of feedback that there's been a lot of discussion, but obviously, as many of you have written about, it's a potential big change that's coming for the industry. And I'm reading you all report about the increase in insurance costs, and that's something that we've talked about in recent years. It's to be a large sophisticated LTL well-capitalized carrier, we have dealt with double-digit premium inflation for many years now. And that's something that goes into our cost model that we've got to continue to account for with our pricing. So it sounds like that's something that they will have to further account for. And if a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage. And if we give the same price, then that's a cost, and I think that will be something where they have to prove their value proposition, the 3PL that is, to the shipper. And if more and more shippers choose to use Old Dominion direct, then we'll be there -- be here for them, I should say, and be happy to handle it. But yes, definitely cost inflation that's coming that may drive some of that cost through 3PL business versus non, and maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.

The next question is from Jason Seidl with TD Cowen.

A lot has been covered and I appreciate it. I wanted to go a little bit of a different direction. One of your competitors on their call talked about looking at the use of autonomous trucks for some of the line-haul operations in that they might have gotten to the point where it's a viable option for an LTL carrier. Just wondering what your thoughts on that were and if you've looked into it.