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Old Dominion Freight Line cited slowing economic growth for third-quarter financial results that declined on a year-over-year basis and missed Wall Street expectations.
The Thomasville, N.C.-based less-than-truckload carrier reported Oct. 24 that its Q3 net income fell 5.4% to $164.1 million, or $2.05 a share, compared with $173.4 million, or $2.12 a share, in 2018. The Q3 2019 per-share result fell short of the $2.11 consensus estimate of analysts surveyed by Zacks Investment Research.
Old Dominion’s Q3 net revenue dipped 0.9% to $1.04 billion, compared with $1.05 billion in 2018, missing the Zacks estimate of $1.06 billion.
On a conference call with reporters and financial analysts, company officials pointed to a slowing economy and softening demand for the weaker numbers,
“A decrease in our volumes reflects the continued softness in demand, as some customers simply have fewer shipments than normal while others may be placing more emphasis on price versus service, and choosing other carriers with lower rates,” CEO Greg Gantt said. “As a result, our LTL tons per day declined for the third straight quarter when compared to the prior year, and quarterly revenue declined for the first time since the second quarter of 2016.”
Gantt noted that the company saw some positive outcomes during the quarter despite the financial downturn.
“The decline in revenue had a deleveraging effect on many of our operating expenses while certain employee benefit costs were higher due to the increase in the price of our common stock during the quarter,” Gantt explained. “In addition, our miscellaneous expenses included a net loss of $4.9 million on the disposal of property and equipment.”
Plus, the company’s operating ratio ticked up 90 basis points to 79.3 from 78.4. Operating ratio, or operating expenses as a percentage of revenue, is a key industry metric used to measure efficiency. The lower the ratio, the greater the company’s ability to generate profit.
Despite the softer environment, Old Dominion is continuing with an expansion of its terminal network. The company said Q3 capital spending totaled $140.4 million. For the year, the company said it will spend $220 million for real estate and service center expansion projects, $165 million for tractors and trailers, and $95 million for information technology and other projects.
“Fortunately, the consumers continue to be strong, and the consumer drives 70% of the economy,” Gantt said. “If business owners can maybe have a little confidence in terms of what the landscape might be from a tax and regulatory standpoint, then maybe they’ll take the lid off of spending a little bit more and we can get the economy growing at a healthier rate, like we had seen.”
Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, expects the U.S. Gross Domestic Product to dip to 2% growth this year compared with 2.9% in 2018. On a quarterly basis, GDP expansion slowed from 3.1% in the first quarter to 2% in the second quarter of 2019.
“The economy is slowing and I would be very happy with 2% growth for the year,” Dhawan said.
The latest GDPNow forecast from the Federal Reserve Bank of Atlanta places third-quarter GDP at 1.8%.
“We continue to look at those economic reports and have conversations with our customers to try to figure out what demand trends might be,” Gantt said. Old Dominion Freight Line ranks No. 11 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
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