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Old Dominion Freight Line Inc.’s first-quarter profit and revenue held steady as the motor carrier didn’t start to see business erode from the coronavirus pandemic until the start of April.
But then business slid steeply, with daily revenue falling about 20%. The company responded by cutting discretionary expenses and parking the least efficient and highest maintenance vehicles in its fleet. It also has furloughed workers. Old Dominion's headcount is down 15% from April 2019 and about 5% from the end of 2019 to the end of the first quarter. The company didn't provide a specific number for its furloughs. It had 20,105 employees at the end of 2019.
Old Dominion will pay for health insurance expenses for those workers and plans to bring them back as the economy recovers from the pandemic-caused recession, said Greg Gantt, the less-than-truckload carrier’s CEO. The workers also will retain their seniority, he said.
The Thomasville, N.C.-based motor carrier said net income for the first quarter ended March 31 was basically unchanged at $1.3 million. Earnings per diluted share rose to $1.11 from $1.10.
The results include a $10.1 million expense related to special employee bonus payments made in March. Old Dominion used the payments to reward nonexecutive employees for their efforts to serve the carrier’s customers during the COVID-19 pandemic.
“The trucking industry is crucial to help ensure the availability of groceries, medical supplies and other essential products around the country,” Gantt said on an April 23 conference call with investors and industry analysts.
Revenue dipped 0.3% to $987 million from $991 million in the same quarter a year earlier.
Although freight volumes took a dive during the first weeks of April, they are now stabilizing at the lower level, Gantt said.
“We are currently experiencing an environment unlike anything we have ever seen, but we continue to be confident that our business model works up and down the economic cycle,” he said. “The majority of our costs are variable, and we’re doing an excellent job of managing our cost in relation to the drop in revenue.”
About two-thirds of Old Dominion’s cost structure is variable, or semi-variable, Chief Financial Officer Adam Satterfield said. But the company also is cautious about cutting too much because it doesn’t know what type of economic recovery will take place.
A survey of 400 transportation carriers, shippers and brokers by Morgan Stanley Research indicated that signs of a freight recovery are starting to emerge. The respondents said they expect a less intense impact from COVID-19 in three months’ time than they are currently experiencing, according to the report issued by the investment bank April 23.
The respondents are expecting more of a V-shaped recovery characterized by a steep drop, a comparatively short trough and then a strong rebound.
Old Dominion wants to be ready for such a scenario.
“We will not overcut expenses because we believe we are the best-positioned LTL carrier to capitalize on an improving economy,” Satterfield said. “We want to ensure that we have the people, equipment and door capacity in place to support our customers when the economy and business levels return to normal.”
Old Dominion also has not seen any significant pressure to lower rates even though there has been a large drop in freight demand, Satterfield said.
Still, customers are getting a rate break because the price of diesel fuel has plunged 20%, he said, a result of the global crash in oil pricing. That means lower fuel surcharges.
Satterfield said Old Dominion is in a strong position to navigate the recession.
It had $357 million in cash at the end of the first quarter and debt of just $45 million. The carrier also has $200 million of borrowing capacity on its revolving line of credit.
While Old Dominion believes that the economy has hit bottom, there still is much uncertainty as to how the recovery will play out.
“We like to think that the worst is behind us,” Satterfield said. “Our customers are not sure what to expect either as they begin to reopen.”
There will be more clarity as states start to allow businesses to reopen in the coming weeks, he said.
“But then we have to go through the mental process for every American to figure out how they will react once businesses are open,” he said. It will take time to figure out “what the new normal means.”
Old Dominion Freight Line ranks No. 9 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
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