Old Dominion Freight Line expects Q4 tonnage and revenue “above seasonality,” but the risk of higher operating costs and rising inflation could fuel headwinds in the quarter, according to a call with analysts Oct. 28.
While executives expressed optimism for Q4, they also cautioned that rising employee wages and health benefits, diesel price volatility, and inflation’s impact on consumers, could influence the final months of the year.
The company’s EVP and CFO Adam Satterfield said that feedback from customers suggest broad concerns surrounding inflation and how it may stifle consumer spending.
“That’s probably holding some things back from just completely taking off,” he said.
What may offset inflationary pressure on consumers would be relief in fuel price volatility, Satterfield said.
“There’s got to be some overall improvement in the fuel environment to take some of that concern that shippers have about the consumer away,” he said.
Despite this headwind, the company still expects a typical operating ratio improvement from Q3 to Q4 within its 10-year historical range of 2 to 2.5 percentage points, Satterfield said on the call.
Meanwhile, Old Dominion reported tons per day fell slightly by 0.1% in Q3 compared to a year ago. However, overall for the year, the carrier experienced some months where tonnage performance was above seasonality and others were below, Satterfield said.
He noted the carrier’s October tonnage was below normal seasonality but expects, based on broader trends, that the company will continue experiencing the up and down trend it has seen throughout the year.
However, November and December offer a better outlook, according to Satterfield. He said conversations with customers suggest that the company will continue to see stable demand trends.
“We can see that trend being above seasonality,” Satterfield said.
TD Cowen said in an analyst note it expects the carrier “to see margin trends leaning towards the better side of seasonality.”
Old Dominion’s network has around 35% excess capacity on a terminal basis, which should aid its pursuit of new business, the banking firm said.
“[Management] also struck an optimistic tone on driver capacity highlighting their driver school pool and ability to deploy dockworkers with CDLs towards linehaul,” TD Cowen said.
Satterfield said the company recognizes there are many factors influencing the economy overall, which shippers must manage through when they think about inventory trends.
“That’s just something that we just continue to stay in front of,” he said. “We feel like we’re seeing some good market share opportunities.”
