Old Dominion Freight Line Inc. Reports Operating Results (10-Q)
Old Dominion Freight Line has a market cap of $2.54 billion; its shares were traded at around $44.35 with a P/E ratio of 16.2 and P/S ratio of 1.4. Old Dominion Freight Line had an annual average earning growth of 14.7% over the past 10 years. GuruFocus rated Old Dominion Freight Line the business predictability rank of 2.5-star.
Highlight of Business Operations:The second quarter of 2012 reflects the highest quarterly revenue and earnings as well as the best quarterly operating ratio in our 78-year history. Our results have been consistently driven by strong revenue growth from increased tonnage and improvement in the overall pricing for our services. While our overall pricing improved, we believe we continued to maintain our value proposition in the marketplace by providing outstanding on-time and claims-free service at a fair and equitable price. In providing this value, we continue to be successful in winning market share that also contributes to the increased efficiency of our operating structure. As a result of these factors, our operating ratio improved 180 basis points to 84.7% for the second quarter of 2012 and our net income increased 21.5% to $47.8 million from $39.4 million in the second quarter of 2011. When compared to the same quarter of the prior year, these quarterly results represent the tenth consecutive quarter of improvement in our operating ratio and double-digit growth in net income. The second quarter of 2012 extended our first quarter operating momentum and for the six-month period we produced a 15.0% increase in revenue to $1.0 billion and a 29.5% increase in net income to $78.9 million.
Operating supplies and expenses improved to 17.3% and 18.1% of revenue for the second quarter and first half of 2012, respectively, from 18.9% and 19.2% for the comparable periods of the prior year. These changes are primarily the result of improvements as a percent of revenue in our diesel fuel costs, excluding fuel taxes, which is the largest component of operating supplies and expenses. Our usage during the second quarter and first half of 2012 increased 5.3% and 6.4%, respectively, which compares favorably to the increase in our intercity miles of 8.1% and 10.0%, respectively, for those same periods. This improvement was due to the increase in our density, the use of more fuel efficient equipment and other operational initiatives that have contributed to an increase in our overall miles per gallon. The impact of diesel fuel pricing in 2012 on operating supplies and expenses has been mixed when compared to the prior-year periods as our price per gallon decreased 4.0% in the second quarter of 2012 but increased 2.1% for the comparable six-month period. We do not use diesel fuel hedging instruments and are therefore subject to market fluctuations, which we attempt to offset with additional revenue generated by fuel surcharges and operational efficiencies.
Depreciation and amortization expense increased to 4.9% and 5.0% of revenue for the second quarter and first half of 2012, respectively, from 4.6% and 4.8% for the comparable periods of 2011. These costs increased as a percent of revenue despite the increase in revenue and tonnage during the comparable periods due primarily to our capital expenditure program and higher unit costs for new equipment. Due primarily to emission standard requirements, the cost of a new tractor is approximately $40,000 higher than the tractors we purchased 10 years ago, which are currently being replaced in our fleet. We continue to aggressively invest in both our infrastructure and our fleet to provide sufficient capacity to sustain our growth objectives and to also refresh our fleet of tractors and trailers. As a result of our anticipated growth and these investments, we expect our depreciation expense to increase in future periods.
Changes in cash flows provided by operating activities are due primarily to the improvement in our 2012 year-to-date net income, which increased $18.0 million over the first six months of 2011. This increase is primarily the result of the 15.0% increase in revenue and improvement in our operating ratio, which are described in more detail in the "Results of Operations" section above. In addition, non-cash depreciation and amortization expenses increased $8.9 million for the six-month period of 2012 over the comparable period in 2011. This increase reflects the additional depreciation generated from our $327.5 million of capital expenditures since June 30, 2011.
Our tonnage levels and revenue mix are subject to seasonal trends common in the motor carrier industry, although other factors, such as changes in the economy, could cause variation in these trends. Operating margins in the first quarter are normally lower due to reduced shipments during the winter months. Harsh winter weather can also adversely impact our performance by reducing demand and increasing operating expenses. Freight volumes typically build to a peak in the third or early fourth quarter, which generally results in improved operating margins for those periods. We believe seasonal trends will continue to impact our business.
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