01—Abstract
Summary
Summary of the 10-K filed March 20, 2000. Cited figures are marked; the original filing is the authoritative source.
Old Dominion Freight Line (ODFL), a Virginia-incorporated, Nasdaq-listed (ODFL) inter-regional and multi-regional less-than-truckload (LTL) carrier, reported solid results for fiscal 1999.
Revenue from operations rose 11.3% to $426.4 milliona from $383.1 million, driven by both volume and pricing gains, the opening of seven new service centers, a full year of the August 1998 Goggin Truck Line acquisition, and the January 1999 Skyline Transportation asset purchase. LTL revenue per hundredweight increased 4.8% to $11.82, and LTL tonnage grew 7.7%. Net income climbed 29.5% to $14.4 million, or $1.73 per share, and the operating ratio improved to 93.4% from 94.1%, aided by sharp declines in insurance and claims expense (down to 2.4% of revenue from 3.2%) and purchased transportation (down to 3.4% from 4.1%).
Management is shifting work to direct, company-operated service rather than outside carriers, which supports margins over time. The balance sheet strengthened on the equity side while leverage remained moderate. Stockholders' equity grew to $111.0 millionb from $96.6 million, and long-term debt including current maturities fell to $64.9 million from $70.6 million.
Current liabilities rose sharply to $71.6 millionc, largely because $21.8 million of debt came due within a year, which warrants monitoring of near-term liquidity. Operating cash flow was $40.0 million, which covered net capital expenditures of $34.1 million. For 2000, management plans net capital spending of $64 million to $68 million, to be funded by operating cash flow and additional borrowings, and the company has amended its credit facility to a $22 million line of credit and a $12.5 million letter of credit commitment.
For investors, the key considerations are continued margin improvement, the company's growing density in its core Southeast and inter-regional lanes, and the risks inherent in a capital-intensive, labor-driven business. Important risk factors include fuel price volatility (which the company partially offsets through fuel surcharges and does not hedge), driver shortages, the potential for unionization (the company describes its workforce as nonunion), and exposure to economic cycles.
The company resolved its Year 2000 issues at a total cost of roughly $630,000d without measurable disruption. The company paid no dividends and does not plan to pay any in 2000, and its stock traded in a range of $8.13 to $15.00 during 1999, with a small public float.
02—Key points
Key Highlights
- Revenue from operations increased 11.3% to $426.4 million in 1999, from $383.1 million in 1998, driven by higher volume and pricing.
- Net income rose to $14.4 million ($1.73 per diluted share) from $11.1 million ($1.34 per share), a 29.5% increase.
- Operating ratio improved to 93.4% from 94.1%, supported by lower insurance and claims expense (2.4% of revenue vs. 3.2%) and purchased transportation (3.4% vs. 4.1%).
- LTL revenue per hundredweight rose 4.8% to $11.82, and LTL tonnage increased 7.7% to 1.64 million tons.
- Stockholders' equity grew to $111.0 million, and long-term debt including current maturities declined to $64.9 million from $70.6 million.
- Current maturities of long-term debt rose to $21.8 million, and total current liabilities increased to $71.6 million, which raises near-term liquidity considerations.
- 2000 capital expenditure guidance is $64 million to $68 million, to be funded by operating cash flow and additional borrowings; the company pays no dividends and does not plan to in 2000.
03—Questions
Frequently Asked Questions
What drove Old Dominion's revenue growth in 1999?
Revenue grew 11.3% to $426.4 million, reflecting both higher shipment volume and pricing. Growth came from market-share gains in existing areas, seven new service centers opened in 1999, a full year of the Goggin Truck Line acquisition (completed August 1998), and the January 1999 purchase of Skyline Transportation's LTL assets. LTL shipments rose 5.5% and revenue per hundredweight rose 4.8%.
Is Old Dominion's profitability improving?
Yes. The operating ratio improved to 93.4% from 94.1%, and net income increased 29.5% to $14.4 million. The main contributors were a sharp drop in insurance and claims expense and lower reliance on purchased transportation, partly offset by higher salaries, wages and benefits (60.7% of revenue vs. 59.8%) and fuel costs, which rose to 3.7% of revenue.
How healthy is the company's balance sheet and liquidity?
Equity increased to $111.0 million and long-term debt decreased to $64.9 million, which is a constructive trend. However, $21.8 million of debt is due within one year, pushing current liabilities to $71.6 million, against current assets of $76.3 million. Management states that its credit lines and cash flow are sufficient for seasonal and long-term needs, and it amended its credit facility in January 2000 to a $22 million line of credit and a $12.5 million letter of credit commitment. Cash balances are minimal, at $0.8 million.
What are the main risks investors should consider?
Key risks include fuel price volatility (the company does not use fuel hedges and relies on fuel surcharges), driver shortages and competition for drivers, the potential for unionization of its currently nonunion workforce, sensitivity to economic downturns and industry pricing and capacity, and capital intensity, since capital spending is planned at $64 million to $68 million for 2000. The company also has limited ownership of its real estate, with 68 of 102 service centers leased.
Does Old Dominion pay dividends, and how has the stock performed?
No. The company has not paid dividends on its common stock and has no plans to pay them in 2000; its debt agreements also limit the amount of dividends it could pay, to $16.8 million at year-end 1999. The stock traded on Nasdaq under ODFL, with a 1999 high of $15.00 and a low of $8.13. Stock prices were lower than in 1998, when the high reached $20.25.
04—Continue