Old Dominion’s (ODFL, Financial) business is booming. It previously invested in enough shipping capacity to handle the demand surge brought on by the pandemic and exacerbated by the “V-shaped” economic recovery in the U.S. In the Company’s last reported March quarter, revenue grew by +14% and an industry-leading 76% operating ratio, substantially better than last year, which drove a +53% increase in earnings per share. Much of Old Dominion’s competition has significantly under-invested in less-than-truckload (LTL) capacity, choosing to pursue integrated solutions or in some cases completely divesting LTL. In contrast, Old Dominion routinely spends a multiple of its depreciation on capital expenditures, to where it estimates it has close to a constant +25% excess capacity compared to most competitors. Plus, the Company can extend at very favorable pricing. We expect to own Old Dominion for some time, as this aggressive but prudent reinvestment strategy has yielded attractive returns on capital while driving double-digit revenue growth.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners second-quarter 2021 shareholder letter.
