Old Dominion Freight Line Inc. Reports Operating Results (10-Q)
Old Dominion Freight Lines has a market cap of $2.77 billion; its shares were traded at around $34.98 with a P/E ratio of 16.4 and P/S ratio of 1.5. Old Dominion Freight Lines had an annual average earning growth of 14.7% over the past 10 years. GuruFocus rated Old Dominion Freight Lines the business predictability rank of 2.5-star.
Highlight of Business Operations:We achieved third-quarter and nine-month Company records for our revenue, operating ratio and earnings per diluted share, despite a relatively weak economic environment. We believe this success was driven by our ability to gain tonnage through increased market share while also improving the pricing for our services. We continue to win market share by providing shippers with a value proposition that provides outstanding on-time and claims-free service at a fair price. As a result, the third quarter of 2012 included a 10.1% increase in revenue to $544.5 million and a 32.1% increase in net income to $51.0 million. When compared to the same quarter of the prior year, our quarterly results represent the eleventh consecutive quarter of improvement in our operating ratio and double-digit growth in net income. Combined with the positive operating momentum we carried into the third quarter, our results for the nine-month period reflect a 13.3% increase in revenue to $1.58 billion and a 30.5% increase in net income to $130.0 million.
Revenue per hundredweight for the third quarter of 2012 was $15.44, a 4.2% increase over the prior-year quarter. For the first nine months of 2012, revenue per hundredweight increased 4.3% to $15.25. These increases reflect our commitment to a disciplined yield management process. As part of this process, we implemented a 4.9% general rate increase to our base rates for non-contractual business on August 6, 2012 and we regularly review our contractual rates on a customer-by-customer basis. A focus on obtaining an appropriate yield for our services is necessary to offset rising operating costs and to also allow us to invest in opportunities that can improve our service and fuel our growth. We believe our prices are competitive and, when combined with the quality of our service, provide an unmatched value proposition in our industry.
Operating supplies and expenses increased $3.3 million and $17.9 million from the third quarter and first nine months of 2011, respectively. These increases were primarily the result of increases in our diesel fuel costs, excluding fuel taxes, which are the largest component of operating supplies and expenses. Diesel fuel costs increased due to increases in our consumption and our average price per gallon. Gallons consumed during the third quarter and first nine months of 2012 increased 5.4% and 6.0%, respectively, from the prior-year periods, which compares favorably to the increase in our intercity miles of 7.3% and 9.0% for the respective periods. This resulted in an increase in our overall miles per gallon, which we attribute to operational initiatives and the increased use of newer, more fuel-efficient equipment. Our price per gallon also increased 1.4% and 1.8% in the third quarter and year-to-date periods of 2012, respectively, over prior-year comparable periods. 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 5.3% and 5.1% of revenue for the third quarter and first nine months of 2012, respectively, from 4.7% and 4.8% for the comparable periods of 2011. These costs increased as a percent of revenue due primarily to an increase in our capital expenditure program for 2012, which included a significant increase in the number of tractors and trailers purchased. In addition, our unit costs for tractors have increased significantly, due primarily to the impact of increasingly stringent emission standard requirements. As a result, the cost of a new tractor has increased by approximately $40,000 over the past 10 years. 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.
Our other operating costs, all combined, improved as a percent of revenue to 12.6% and 12.8% of revenue for the quarter and year-to-date periods of 2012, respectively, as compared to 13.1% and 13.4% for the comparable periods of the prior year. We were able to effectively leverage our revenue growth and density improvement against these costs over the periods compared.
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