Once again, ODFL leads LTL pack in profitability, growth in 2015

Old Dominion Freight Line, the once-sleepy Southeast regional LTL carrier that has transformed itself into a multi-regional, multi-modal transportation giant, continues to lead its sector in growth while maintaining the best profit margins in the sector.
 
For 2015, ODFL enjoyed a 15.2 percent rise in net income to $304.7 million on a 6.6 percent jump in revenue to $2.97 billion, compared with $267.5 million net income on $2.78 billion revenue in 2014. ODFL’s operating ratio was an eye-popping 83.2 for the year, compared with 84.2 for 2014.
  
For the fourth quarter, ODFL’s results were also impressive, considering the LTL sector was battered by a slowdown in industrial freight demand. ODFL enjoyed a 3.4 percent jump in fourth quarter profits to $72.2 million on a 1.9 percent rise in revenue to $734.6 million, compared with $69.9 million net income on $721 million revenue in the year-ago fourth quarter. ODFL’s OR in the quarter was 85.5, just a tick above the 85.4 in the 2014 fourth quarter when demand was more robust.
 
ODFL said that its revenue and yields were hurt by a “significant decline” in fuel surcharges, but noted the LTL pricing environment remained strong with a 6.1 percent jump in LTL revenue per hundredweight, excluding fuel surcharges.

David Ross, LTL trucking analyst for Stifel Inc., said in note to investors that LTL pricing remains “rational,” with most carriers predicting 3 to 5 percent rate increases in 2016.
 
That should help a couple of major unionized LTL carriers, ABF Freight System and YRC Worldwide, which together control about $7 billion of the $34 billion LTL sector.
 
ABF suffered a 4.9 percent drop in tonnage per day in the fourth quarter and revenue per hundredweight fell 1.1 percent to $29.02 in the fourth quarter. For the full year, ABF reported revenue of $1.9 billion, slightly below 2014’s level, but averaged adjusted operating profit improved 17 percent over 2014.
 
“ABF Freight experienced a challenging fourth quarter and produced weaker-than-expected operating result,” said Judy McReynolds, president and CEO of ABF parent ArcBest Inc.  As a result, ABF reduced its dock and city driver work forced by 4 percent, or about 200 people, in January.
  
YRC, parent of long-haul YRC Freight and regional carriers New Penn, Reddaway and Holland, reported consolidated operating revenue for the fourth quarter 2015 of $1.143 billion with a consolidated operating loss of $15.3 million. That was largely because of a non-union pension settlement charge of $28.7 million and a $400,000 million loss on property disposals.
By comparison, the company reported consolidated operating revenue of $1.218 billion for the fourth quarter 2014 with consolidated operating income of $31.2 million, which included a $5.8 million gain on property disposals.
  
YRC’s earnings before debt and interest payments was $333 million for the full year, and it doubled its operating income to $93 million in 2015 compared with 2014.
 
“That was another important step forward in returning the company to financial health,” YRC CEO James Welch told analysts on a conference call. “I’m pleased with how each of our operating companies executed their individual strategies. That was encouraging to see even though the freight environment softened in the second half of 2015.”
 
Analyst Ross says some potentially good news for YRC is that valuable, seasoned LTL executives are still coming to YRC. That “implies confidence in YRC’s trajectory,” Ross said, noting the company hired two from Con-way Freight (now XPO Freight, which is suing YRC for poaching) and one from FedEx Freight. XPO is suing YRC over those hires, but Ross said the new hires appear more at fault than YRC.
  
Still, some analysts warn of dark clouds on the long-range LTL horizon.

“When I look in mirror of the LTLs it is scary picture,” Satish Jindel, principal of SJ Consulting, which closely tracks the sector, told LM. “They are looking at a losing a lot of business to the 3PLs, which control about 25 percent of all LTL freight.”
 
Third-party logistics companies such as C.H. Robinson often drive hard bargains with LTL service providers, and have proven adept at shifting freight from one carrier to another to secure bargain rates, Jindel said.