Old Dominion Freight Line - Q3 2024

Transcript

Operator (participant)

Please note, this event is being recorded. I would now like to turn the conference over to Jack Atkins, Director of Finance, Investor Relations. Please go ahead.

Jack Atkins (Director of Investor Relations)

Thank you, operator, and good morning, everyone. Welcome to the third quarter twenty twenty-four conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through October thirtieth, twenty twenty-four, by dialing one-eight seven seven, three four four, seven five two nine, access code four zero one six nine nine one. The replay of the webcast may also be accessed for thirty days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission, and in this morning's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statement. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. As a final note, before we begin, we welcome your questions today, but ask that you limit yourself to just one question at a time before returning to the queue. At this time, for opening remarks, I would like to turn the conference over to Marty Freeman, the company's President and Chief Executive Officer.

Marty, please go ahead, sir.

Marty Freeman (CEO)

Good morning, and welcome to our third quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. I am joining the call today from a separate location. Therefore, please bear with us when we are taking questions if there are any connectivity issues. Old Dominion's financial results in the third quarter reflect continued softness in the domestic economy. Our revenue and earnings per diluted share both declined on a year-over-year basis during the quarter. Although our market share and volume trends remained relatively consistent with the first half of the year. While the operating environment continued to be challenging, our team did a good job of managing our variable costs, and we also continued to control our discretionary spending.

The deleveraging effect from the decrease in revenue, however, caused many of our cost categories to increase as a percent of revenue. This was the primary driver for the increase in our operating ratio to 72.7% in the third quarter. We have been pleased with the consistency in our market share this year, which is consistent with our historical experience during slower parts of the economic cycle. We continue to have strong customer retention trends, and we are also winning new business. Our customers simply have had fewer shipments that they tender to us, and our average weight per shipment has also remained at historical lows. The stability of our market share continues to be supported by the quality of our service and overall value that we offer to our customers. These are a few of the foundational and elements of our long-term strategic plan.

The OD family of employees continued to execute on these core principles during the third quarter, as our on-time service was 99% and our cargo claims ratio was a 0.1%. While we are incredibly proud of these service statistics, we would also like to remind you that superior service means much more than simply picking up and delivering our customers' freight on time and claims-free. There are plenty of other attributes that shippers consider when selecting a carrier, such as carrier's trustworthiness, ease of doing business, and the quality and responsiveness of customer service representatives. In fact, Mastio & Company measured 28 different service and value-related attributes as part of its recent annual survey of shipper and logistic professionals.

Mastio published the results of its 2024 study last week, and we were honored to be named the number one national LTL provider for the fifteenth consecutive year. OD finished number one in 23 of the 28 evaluated categories measured by Mastio and maintained a sizable lead against our competition when it comes to the overall quality of service. I would like to congratulate the entire OD family of employees on this remarkable achievement, and I would also like to thank this outstanding team for their commitment to our company and our customers. We continue to believe that consistency and quality of our service over the long term has differentiated Old Dominion in the marketplace and driven our long-term profitable growth.

While becoming the best carrier in the business was hard, remaining the best carrier for 15 straight years is an incredible accomplishment, and that is hard to put in perspective. Every member of the OD team has played a part in our success, and I can assure you that each of us is incredibly motivated to keep delivering our promises to provide our customers with the highest standard of service. By continuing to provide best-in-class service to our customers day after day and year after year, we are also able to maintain our long-term and disciplined approach to pricing. We continue to focus on consistently improving our yields to sufficiently offset our cost inflation and support additional investments in capacity and technology. These ongoing investments have created incremental value for our customers in many ways, which has further enhanced our industry-leading value proposition.

Our customers have recognized our value proposition over time, which has allowed us to be able to earn more and more of their business. As a result, we have won more market share over the past 10 years than any carrier in our industry. While the economic environment has remained sluggish for much longer than we ever anticipated, we believe we are better positioned than ever to respond to the eventual inflection in demand that will occur as the economy improves. We have the capacity, the fleet, and most importantly, the committed team of people to take advantage of an improving economic environment. Our unique company culture and each employee's commitment to excellence gives me tremendous confidence that we can also be the biggest market share winner over the next 10 years.

This confidence is bolstered by the results of the most recent Mastio study, as well as the ongoing conversations we have with our customers. By staying focused on long-term opportunities for additional profitable growth, we remain confident in our ability to create additional value for our shareholders. Thank you for joining us on the call this morning, and now Adam will discuss our third quarter in greater detail.

Adam Satterfield (CFO)

Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.47 billion for the third quarter of 2024, which was a 3.0% decrease from the prior year. We had one extra workday in the third quarter of this year, so the decrease on a per-day basis was 4.5%. These revenue results reflect the 4.8% decrease in LTL tons per day that was partially offset by the 1.5% increase in LTL revenue per hundredweight. On a sequential basis, our revenue per day for the third quarter decreased 1.9% when compared to the second quarter of 2024, with LTL tons per day decreasing 3.2% and LTL shipments per day decreasing 1.0%.

For comparison, the 10-year average sequential change for these metrics includes an increase of 3.6% in revenue per day, an increase of 0.9% in LTL tons per day, and an increase of 2.3% in LTL shipments per day. The monthly sequential changes in LTL tons per day during the third quarter were as follows: July decreased 4.4% as compared to June. August decreased 0.8% as compared to July, and September increased 1.7% as compared to August. The 10-year average change for these respective months is a decrease of 2.9% in July, an increase of 0.6% in August, and an increase of 3.5% in September.

For October, we expect our revenue per day will decrease by approximately 11.2%-11.8% when compared to October 2023, with a decrease of approximately 9.2%-9.8% in our LTL tons per day. As usual, we will provide the actual revenue-related details for October in our third quarter Form 10-Q. Our operating ratio increased 210 basis points to 72.7% for the third quarter of 2024. As Marty mentioned, the decrease in our revenue had a deleveraging effect on many of our operating expenses during the quarter. This contributed to the 110 basis points increase in our overhead cost as a percent of revenue.

In addition, and for the first time this year, our direct operating cost also increased as a percent of revenue when compared to the same quarter of the prior year. The increase in our direct operating cost as a percent of revenue was primarily due to an increase in cost associated with our group health and dental plans. As a result, our employee benefit costs increased to 38.6% of salaries and wages during the third quarter of 2024, from 37.3% in the same period of the prior year.

Old Dominion's cash flow from operations totaled $446.5 million for the third quarter and $1.3 billion for the first nine months of 2024, respectively, while capital expenditures were $242.8 million and $600.4 million for the same periods. We utilized $187.7 million and $824.8 million of cash for our share repurchase program during the third quarter and first nine months of 2024, respectively, while our cash dividends totaled $55.6 million and $168.2 million for the same periods.

Our effective tax rate for the third quarter of two thousand and twenty-four was 23.4%, as compared to 24.0% in the third quarter of two thousand and twenty-three. We currently expect our effective tax rate to be 24.5% for the fourth quarter. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star, then two.

... At this time, we will pause momentarily to assemble our roster, and our first question today comes from Eric Morgan of Barclays. Please go ahead.

Eric Morgan (Analyst)

Hey, good morning. Thanks for the question. I guess I just wanted to start on the near term. You know, sounds like October tonnage declines getting a little bit worse relative to September. Is that being driven by, you know, shipment weights coming lower, as kind of been the trend here recently? And then, you know, how are you thinking about operating ratio into your end year? [That] would be helpful. Thank you.

Adam Satterfield (CFO)

Yeah, from a volume standpoint, the year-over-year, our tonnage is, in October, you know, take the midpoint of that range that we gave, would be down about 9.5%. And, obviously, we've got many days left to finish out this month, and so we'll see how the rest of the month finishes. That's why we gave a little bit more of a range than we normally do. But if you take the midpoint of that in October, that's got our sequential change down, just call it about 3.5%. The ten-year average sequential is a decrease of 3.1%, and that's October versus September. So, it's actually encouraging to see what our volume trends so far this month have been.

This is the first time that we've been, you know, I would say, relatively close to what our normal sequential changes have been in the first month of a quarter. So, you know, we feel pretty good about how volumes are trending and continued strength in our yield performance that we've seen as well. So we'll continue to watch that, but, you know, the year-over-year, I think, is just skewed a bit by... If you recall, last year, we had a competitor that had some a cybersecurity issue, and we had some temporary freight coming into the system, if you will.

So we picked up some incremental freight there that was a bit unusual and caused outperformance from a seasonality standpoint that, you know, obviously is not there right now, but feeling good thus far about the October trend.

Eric Morgan (Analyst)

Thanks. And, just the operating ratio side of that, if you wouldn't mind. Appreciate it.

Adam Satterfield (CFO)

Yeah, I was going to try to leave that maybe for someone else. Those are two big questions packed into one. So just try to keep questions to one.

Eric Morgan (Analyst)

Okay.

Adam Satterfield (CFO)

But just to go ahead and address that, because we know it's going to be a question anyways. You know, the normal 3Q to 4Q regression is about a 200-250 basis point deterioration, and that's excluding any insurance adjustments. We do an actuarial assessment in the fourth quarter every year. Sometimes those are good guys. Sometimes, like last year, I think we had about a 70 basis point headwind when it came to the actuarial adjustment. It was an unfavorable adjustment last year. So, you know, I think when thinking about this fourth quarter, conservatively, I think we probably ought to slide that scale up about 100 basis points.

The reason for that would just be the continued risk from a revenue standpoint and the impact that would have on overhead expenses. You know, we just saw that headwind play out in the third quarter, kind of going back to the guidance that we gave at the end of the second quarter call, going into Q2, revenue came in softer, and as a result, our overhead expenses were about 40 basis points higher than kind of what we had anticipated at the end of the second quarter call. And then I think we also have a continued risk with respect to our fringe benefit costs.

Those were higher than what the trend has been this year and higher than what they had been for the same period last year in the third quarter, and so I think there's a continued risk those may stay a little bit higher in the fourth quarter. But you know, both of those things are something that could trend better. You know, I think if we have, like I mentioned earlier, the October trend is starting out pretty good from a volume standpoint. So you know, if we can get our revenues back closer to seasonality, if you will, and obviously we'll give our mid-quarter updates, then you know, there can be some favorability there.

just some pluses and minuses, and you know I think from a conservative standpoint probably better to just slide that scale up in terms of where things stand right now.

Eric Morgan (Analyst)

Thanks a lot.

Operator (participant)

Our next question today comes from Jason Seidl with TD Cowen. Please go ahead.

Jason Seidl (Analyst)

Yeah. Thank you, operator. Hey, gentlemen. Good morning. Appreciate the time. You brought up OD's issues that they had last year that sort of grew sort of beyond normal tonnage numbers for you in October of 2023. Should we expect then that by November and December, the tonnage comps get easier, so we're not probably really looking at sort of down as much as we're seeing in October?

Adam Satterfield (CFO)

Yeah, I think that's fair. I think the October, you know, is definitely the toughest comp. When I go back and look at last year's sequential performance in November versus October, our tonnage was down 0.6%, and our ten-year average there is a 3.1% increase, and then December outperformed. We were down 4.8% in December of 2023 versus November of 2023. The ten-year average there is 7%. So, you know, I think that this is probably the toughest comp, if you will, of the quarter in October. But, depending on how November trends, if we get some acceleration back in the business, and then, you know, obviously, December is always a tough month for everyone, given the holidays and whatnot.

But if we can kind of hang on, you know, we had a little bit of outperformance there. So, that'll. December will be a little bit tougher versus the November. But I think on the whole, you know, as we go through this fourth quarter, I mean, this feels like we're finally getting to what we hope is a floor. You know, we're encouraged about how things are trending. It's good to see, you know, the sequential performance thus far in October, and obviously, we've got, you know, many days to get through this quarter, and Q1 is also tough.

To think about, you know, from a big picture standpoint, we've been underperforming normal sequential trends for about two and a half years now, so it certainly feels like we're finally coming to the end of a cycle. We've got to go through these tough quarters, but we finally have seen, you know, I think, traction with respect to interest rates are declining. We'll have the uncertainty of the election behind us pretty soon, and so, you know, hopefully, we get back to seeing some growth to our industry, for which, you know, typically when the industry starts to inflect to the positive, that's when our model shines the brightest, and we win the most shares.

So, you know, we're looking forward to getting through this final quarter here of the year and starting out next year with, hopefully, some good strength.

Jason Seidl (Analyst)

No, I hope so, too, Adam. With the year-over-year comp in October for STs, did that impact the weight per shipment at all? Could you remind us?

Adam Satterfield (CFO)

The weight per shipment last year, it was pretty much right in line with what our normal ten-year average would be. So we were... In October last year, we were down 0.3%, and then pretty much performed about in alignment with what you know, normal weight per shipment would trend. You know, typically, you'll get a little bit of an increase in weight per shipment from the third quarter to the fourth quarter. And that's something that actually, you know, it was a little bit of a surprise for us in the third quarter. Our weight per shipment ticked down a bit, and July was somewhat consistent. I'm speaking of this year now.

Jason Seidl (Analyst)

Right.

Adam Satterfield (CFO)

July was pretty consistent with our ten-year average, but then it dropped further in August. It came back a little bit in September, but overall, it kind of underperformed what the weight would be. But at this point, we've actually in October seen a bit of an increase. So you know, typically the ten-year average in October, like I just said, is down three tenths. So if we're seeing a little bit of an increase, you know, that's obviously a good thing for business as well. If we're getting more weight per shipment, we're going to have a little bit higher revenue per shipment as well, and that generally drives improved productivity also.

You know, hopefully, that's that generally has been a sign of hope with respect to the economy, as well. You know, that, that'll be another metric to continue to watch to see if we see things start to pick up for us.

Jason Seidl (Analyst)

Right. Well, listen, I really appreciate the time and color, guys.

Operator (participant)

Our next question today comes from Daniel Imbro with Stephens Inc. Please go ahead.

Daniel Imbro (Analyst)

Yeah. Hey, good morning, guys. Thanks for taking our questions. I want to follow up maybe on the near-term trends. So it seems like LTL yield growth has moderated a bit across the industry. I appreciate the tonnage update for October. I guess, Adam, could you share some color on how you see yields shaping up here into the fourth quarter? And then more broadly, if the macro remains this weak, I guess, do you expect to see any irrationality in the market that would make it harder for you guys to keep realizing price increases above inflation, or how is your price realization going as you talk to customers? Thanks.

Adam Satterfield (CFO)

Yeah, I was pleased with our yield performance through the third quarter. And you know, it takes having superior service to support what we're able to achieve consistently year in and year out from a yield performance. And so you know, we're really proud of the service metrics we've been able to deliver. And just to repeat, winning that Mastio award for the fifteenth straight year you know, hopefully has put to bed some of the thoughts that that gap between us and our competitors has closed. And so we're really pleased to see that performance with this year's results.

But, you know, I think at the end of the last call, we talked about normal seasonality with respect to our revenue per hundredweight, excluding fuel surcharges, and that would have put us in the 4%-4.5% range for the third quarter. And we came in at the top end of that range. And granted, we had a little bit lower weight per shipment, as I just was referencing with Jason. But, you know, so that certainly helped the revenue per hundredweight. But to me, it just seemed like consistent performance through the quarter, and that's what we would continue to expect.

You know, our yield management process is, you know, we take a long-term and consistent approach that tries to offset our cost inflation and support continued investments in our network and in our technologies and so forth, so if normal seasonality plays out for the fourth quarter, that would put the revenue per hundredweight, excluding fuel, up in the 3.8%-4.2% type of range, and you know, we'll continue to watch that as we go through, but we expect to continue to get increases. We're seeing it. We've seen it throughout this year and really throughout the last two and a half years that we've been in this weak economic period.

And so just, you know, continue to execute on that consistent philosophy and we're getting increases as we go through bid renewals, and that would be the same expectation as we go through this year and would be the same as we go through next year as well.

Daniel Imbro (Analyst)

Appreciate all the color. Best of luck, guys.

Adam Satterfield (CFO)

Thanks.

Operator (participant)

Our next question today comes from Scott Group with Wolfe Research. Please go ahead.

Scott Group (Analyst)

Hey, thanks. Just want to follow up on that last question. So I think, Adam, your October update is that total yields were negative, and I guess you're talking about yield ex fuel up, call it 4%. So is it, this drop off in yield is entirely fuel? I know fuel's down, is it, but I just want to make sure that that's right. And then just to, like, ask it sort of directly, like, are you seeing more pricing competition or rational pricing? There's certainly more concern about that in the market right now. Are you guys seeing it or not?

Adam Satterfield (CFO)

Yeah, just to address, you know, October, and we didn't give the exact number, but you can kind of back into it. You know, the revenue per hundredweight with fuel, you know, right now is trending down, but a lot of that is fuel related. Fuel, at this point, is down about 20% compared to October of last year. So you know, a bigger drop, if you will, compared to what we just saw in the third quarter. And that should moderate as we progress through the fourth quarter. It was about $4.50 a gallon last year in October, but ended up averaging about $4.25 for the full fourth quarter of last year. So that, that's something that'll moderate a bit.

And, you know, anytime looking at one-month trends, as well, you know, given some of that disruption that we had last year, you had some mixed issues going on and so forth. So, you know, we would still expect to see, you know, that sequential trend play out, like I just mentioned, and overall, yields ex fuel being up in that 3.8%-4.2%, assuming mix stays constant. You know, if we see a continued increase in weight for shipment, that could put some pressure on the reported yields, that revenue per hundredweight, but that would be a good thing. So, you know, that's what we'll continue to watch.

But, you know, I think that, you know, with respect to the overall environment, you know, we'll have to wait and see what the other carriers report and what their commentary is like. I can only speak for us, but, you know, the environment has been pretty stable, all things considered, this whole year. And, we've been able to continue to get our increases, and I think, you know, that proves the value proposition that we have and what we can offer shippers and being consistent with our approach. So, you know, it hasn't impacted us, hasn't impacted, you know, our market share. Our market share has been flattish, which, as Marty mentioned earlier, it's typically what we see through a slower economic period.

And so, you know, I feel like we're well positioned with what we've done, how we've executed, managed our costs, managed our operating ratio through this last couple of years. And you know, feel good about our positioning whenever we can turn the page back to having a little bit of economic tailwinds for a change. It feels like we've been running against the wind for a long time now, and we're ready to see things start to turn around and give us a little bit of help from an economic standpoint.

Scott Group (Analyst)

Makes sense. Thank you, guys.

Operator (participant)

Our next question today comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Jordan Alliger (Analyst)

Yeah. Hi, morning. Yeah, I know from a high-level standpoint, hopefully, we are, you know, bottoming from a trend perspective. I'm just curious, are there any pockets of your customer base, whether it be retail, manufacturing, wholesale or distributor, where maybe you could, you know, point to even being some favorable volume? Or is it pretty much not the case? And then, secondly, you know, if we have normal seasonality from October, I think we're kind of running normal September to October. If we run normal seasonality through the balance of this quarter, is there a way to think about where tonnage could shake out in aggregate year over year for the quarter? Thanks.

Adam Satterfield (CFO)

Yeah, you know, from a breakdown of the revenue base, I mean, as you can imagine, we're seeing better performance with our retail-related customers and continued weakness with our industrial-related customers, which, you know, industrial for us is 55-60% of our revenue. So that's certainly showing in our numbers and the decrease that we've seen. But you know, I think ISM has been down for 22 or 23 months now, and that's been the challenge that we've faced over this last couple year period. But you know, the retail and has performed a little bit better. You know, really the one thing that if you look for a bright spot would be our third-party logistics customers.

3PL represents probably a third of our revenue, and we actually saw some revenue growth with our 3PL customers in the third quarter. So, to me, that's a good trend because, you know, we've talked in recent quarters that we feel like there's been some modal shift that has been happening over the, you know, I would say especially last year when that large competitor closed their doors. And I think people were just trying to find a home for freight, and in many cases, many LTL shipments might have ended up in the truckload world. And, you know, a lot of times we'll see that movement back and forth between modes, you know, especially with the 3PLs.

And so now that we're seeing an influx of business coming back in, I think whatever outflow was going, the tide is finally coming back in. And so, you know, if we can see a continuation there, that should mean a good thing as we project out and start thinking about two thousand and twenty-five. So, you know, that's probably the brightest spot to pick through the different, you know, customer base.

Jordan Alliger (Analyst)

... Thanks. And then, I don't know, again, just if you have any thoughts on normal volume seasonality from here for the balance of the quarter, where that could kind of maybe shake out for the whole quarter?

Adam Satterfield (CFO)

Yeah, I mean, it's we're a long ways from there, so... But if we were to hit normal seasonality, you know, that would put tonnage per day down, like, 6.5%-7% for the full quarter. You know, if you just look at kind of bigger picture revenue, you know, revenue per day at seasonality would be at about $1.4 billion. And, you know, we've been underperforming seasonality, like I mentioned, for the last couple of years. So if you kind of take that normal rate of underperformance, at least where we were in the third quarter, it'd be down, like, $1.35 billion.

So, you know, that's something to just keep in mind as we progress through the quarter and give our full updates. You know, obviously, the revenue per day in October is; it should look the worst. And then hopefully things from a comp standpoint just start looking better overall as we get into November. And you know, we'll give our mid-quarter update that will help you all clean up your models from there.

Jordan Alliger (Analyst)

Thank you.

Operator (participant)

Again, we ask that you please limit yourself to one question and our next question today comes from Jon Chappell with Evercore ISI. Please go ahead.

Jonathan Chappell (Analyst)

Thank you. Good morning. Adam, you kind of mentioned at the end of one of your answers, the uncertainty around the election, and this is a narrative that we've heard just a little bit recently about shippers maybe kind of pausing until there's a little bit more certainty. I know you have a very diverse end market of customers, but is there any way to kind of frame out what may be a temporary pause versus just the ongoing kind of industrial macro headwinds that you've been facing for the last several quarters?

Adam Satterfield (CFO)

Yeah, I think that, you know, obviously, the economy have uncertainty, and typically, when you look in election years, they haven't been the best freight years, at least in recent history. And so, you know, I think that there have been plenty of headlines, and we've had customer conversations as well, where, you know, people are being a bit conservative right now, and until they know what, you know, things may look like and what impact to their business new policy directions, you know, may take.

So, you know, I think that's something that is temporary, especially right now, but at some point, people have got to get back to looking at their business and how ultimately they want to figure out how to grow and expand and do the things that creates freight, that you know that will create opportunities for us. So, you know, I think that's something that, you know, once we can get just this level of uncertainty, that's one more thing that has kind of been potentially holding the economy back, at least for the last quarter or so.

So, you know, we get past that and start taking interest rate cuts taking effect. You know, I think people will get back as long as we have a healthy consumer and, you know, we're a consumer-driven economy and if people are buying things, inventory balances get drawn down, and there's got to be replenishment at some point. And so we feel like, you know, that inventory scale has been drawn down. And once we sort of re-normalize, if you will, we'd expect that we'll be able to pick up quite a bit of freight.

Jonathan Chappell (Analyst)

Thanks, Adam.

Operator (participant)

Our next question today comes from Ken Hoexter with Bank of America. Please go ahead.

Ken Hoexter (Analyst)

Hey, good morning, so Adam and Marty, it sounds like a consistent top line, but fixed costs are starting to run. Is there anything you can or want to do at this point to cut those costs, maybe shed some excess capacity? Seems like that's bearing down on the industry, and just to clarify your OR comment, was that 300-350 basis points sequential deterioration, so you're talking about a 75.5 to 70-low 76 type of number for the fourth quarter?

Adam Satterfield (CFO)

Yeah, that's correct, Ken. That was the sequential guidance from the quarter that range. But, you know, look, we're taking action every day, and, you know, we keep our belts tight, year in and year out, in good times and bad. And, you know, I think that, if you don't know how to manage cost, if you don't manage cost in good times, you probably don't know where to start when times are tough. And, you know, I think that's a lesson I learned years ago. So that's an ongoing focus for us and our team. And, you know, we stay on top and have metrics from a productivity standpoint that we're always staying on top of.

Our team's been very effective this year in that regard, especially when you've got a lack of density in the system, and we've expanded the system a little bit, you know, opening five or six terminals this year. So, you know, in the third quarter, especially, we had an improvement in our platform shipments per hour. We had an improvement in our pickup delivery shipments per hour. So, you know, some improvements there in the third quarter, despite the volume weakness. You know, our load factor from a linehaul standpoint is continuing to face some pressure, but again, that's volume weakness, and it's pretty much was down in alignment with the decrease in weight per shipment, was. So it's not atypical to see that type of performance.

But, you know, to us, the most important thing is to keep giving service and running our schedules, and that's why in slower periods, it can create a little bit of a cost headwind for us. But, you know, we think it's more important to keep giving service now than ever. And so that certainly has supported the value proposition over time. You know, with respect to our overhead cost, yeah, those have been about $300 million-$305 million each quarter this year. And, you know, we look at ways and control discretionary spending.

You know, I think that in regards to cutting back on capacity, you know, we want to keep our eye out for the long term, and we still believe in the fact that we've got a long runway for growth ahead, and that was why we expanded and executed on a CapEx plan like we did this year. Probably, you know, we'll cut back, would expect, cut back our capital expenditures into next year and grow into some of this capacity that we have. But, you know, we will look to continue to add to the network over time, just due to the confidence that we have and what our market share potential can be.

But probably tighten up our fleet and do some other things like that that will help with cost as we go forward. But you know, the biggest thing will just be getting back to revenue growth. And when we think about and you look at historical performance, whenever we do get into an upswing, you know, we've had some significant revenue growth years, and it's usually two years coming out of a down cycle. And whether you look at 2010, 2011, 2017, 2018, 2021, 2022, you know, that's gonna be where this investment through the cycle pays the biggest dividends for us.

If we get back to having a stronger economy and get back to the market share outperformance like we've seen in the past, I feel really good about where our operating ratio is today and where it can get to with respect to those overhead charges scaling back down to where they've been as a % of revenue. We're about five operating points overhead cost as a % of revenue higher than where we were, say, back in 2022. So there's a lot of opportunity to get us right back on path to achieve that sub-70 annual operating ratio goal that we still have.

Ken Hoexter (Analyst)

Great. Thanks, Adam. Appreciate the thought.

Operator (participant)

Our next question today comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker (Analyst)

Thanks. Morning, everyone. Can you share a few more details on your thoughts on this Mastio survey? I mean, you've long said that you're not hearing from your customers that the others are closing the gap as much to you guys, as much as maybe that the narrative is out there, and can we see some of that in the results as well? But is there a risk that, you know, if they're not closing up on service, they can maybe get more competitive on price and kind of or does it just take time for that service gap to close? So what do you think happens from here?

Adam Satterfield (CFO)

You know, I think that's a question for the other carriers, and I don't know what their strategies are. I know what we've heard they were, and that's why we were pleased with the results this year, and that sizable gap between our performance and the others was maintained. So, you know, we're not gonna sit around and rest on our laurels, though. We're gonna continue to look for ways that we can get better. Like Marty said earlier, there's more to service than just picking up and delivering freight on time. So, you know, there's 28 different attributes that Mastio measures, and we want to be the best in each of those.

And so we'll keep working hard to deliver solutions for our customers. And so, you know, we've had a proven strategy that has worked for many years, and you know, we want to keep that model going and keep producing the same type of profitable growth and shareholder value that executing on this same long-term strategic plan has produced for us over time. I think it continues to work in the future and, you know, whatever temporary decisions other carriers make, we've dealt with it for years, and I think it's something that we'll continue to be able to work against as we go forward.

Operator (participant)

Our next question comes from Chris Wetherbee with Wells Fargo. Please go ahead.

Chris Wetherbee (Analyst)

Hey, thanks. Good morning. Adam, I wanted to ask about the relationship between truckload and LTL, that your comments about three PLs was pretty interesting. We've historically seen your share move back and forth, but I guess through this cycle, it seems like maybe more share than normal has moved back to truckload. And obviously the pricing dynamic between LTL and TL is maybe as wide as it's been in terms of the relative price. I guess, does that change anything through the next up cycle, or do you think it doesn't really take a significant upturn in truckload to be able to push volume back into LTL? Obviously, you mentioned that you saw a little bit of that happening in the third quarter. Just kind of curious how you think about that relationship these days.

Adam Satterfield (CFO)

Yeah, I think that, you know, obviously, last year was very unusual with what happened and helped support, you know, the truckload world with respect to, you know, the volumes and the pricing and so forth. And I think it's because of how fragmented that industry is. And so that created some freight opportunity. And, you know, and on the one hand, customers just had to get their freight moved as well. And Yellow was hauling 50,000 shipments per day, picking up, delivering 50,000 shipments per day, and that freight had to go somewhere. It went to a lot of the remaining LTL carriers, but much of that I felt like went into that truckload world as well.

We've heard people talking about consolidating shipments if they could, and using truckload for zone skipping and doing some different things to try to take advantage of that lower rate environment there. But at the end of the day, if a shipment is less than ten thousand pounds, it makes more sense to be in the LTL world, and you know, I think that freight will come back to us in due time. Those truckload carriers don't love doing multi stops. You know, they can charge a stop-off fee for it, but that really makes sense when they're designed to really go from A to B with a full trailer.

So, you know, I think that freight does probably swing back into the LTL world, you know, maybe a little more aggressively than what we've seen through, you know, prior economic cycles. When I look at overall the data that we get on the universe, LTL shipments are down, tonnage is down about 15% from the peak in the second quarter, two thousand and twenty-one. So, you know, some of that was economic loss, but, you know, I think some of it is this modal shift that we've seen and heard about as well. So, you know, I think that, whenever that, you know, kind of wave starts coming back in, I think that'll be something that will be a good opportunity for us.

But, you know, directly, but then indirectly as well, it usually is going to other competitors, and those competitors end up having service issues with existing customers, and many of those customers come to us as well. So, you know, I think that whenever we see this cycle inflection, I think we've got multiple fronts that should help us from a volume standpoint.

Chris Wetherbee (Analyst)

Got it. Thank you.

Operator (participant)

And our next question today comes from Brian Ossenbeck with J.P. Morgan. Please go ahead.

Brian Ossenbeck (Analyst)

Hey, good morning. Thanks for taking the question. Just a quick clarification. Did you see any impact from the hurricanes on the network, either yours or some of your customers? And should that start to pick back up here, perhaps in the fourth quarter? And then looking into next year, another way to look at pricing, I guess, the NMFTA is looking at making some changes to the class system. I think it's going more dimensional based. It's slated to take effect in the middle of next year. I don't know if you've got any early comments on that in terms of implications for yourselves, for the industry, and perhaps the shippers as well. Thank you.

Adam Satterfield (CFO)

Yeah, we definitely had some revenue loss related to the hurricane, and operationally, it presents some challenges as well. We were initially pleased that all of our employees got through everything okay from everything we understand from a health standpoint as well as property standpoint. Our network was fine as well. I think we were lucky in the sense of none of our properties really suffered any significant damage. We were down for a bit, and you know, which is typical when you have big major storms like that move through, but have recovered since nicely.

You know, there will be some ongoing disruption operationally, though, some of the interstate systems in Western North Carolina that you know will continue to be impacted, perhaps up to a year before some of those roadways are repaired. So, you know, that's something that our operating team does a phenomenal job. Our line haul management team of looking and figuring out how we need to rework the system to make sure that we've got freight that if something's picked up in Eastern North Carolina going to California and any point in between we get that freight moved seamlessly and within our service standards.

So, pleased with respect to how the team responded to the challenges from those storms that came through. And remind me again, what was the second part of the question?

Brian Ossenbeck (Analyst)

Yes, it's looking at the NMFTA-

Adam Satterfield (CFO)

Oh, yeah.

Brian Ossenbeck (Analyst)

They were looking at some changes for the class system, mid-2025. Just thoughts on that.

Adam Satterfield (CFO)

That's, I think, a good opportunity for us. We already dimension. We've got dimensioners in most of our major service centers, and we're already dimensioning probably 75% of our freight today. And so that's something that we're already set up to be able to, you know, effectively accommodate. So we'll continue to work with customers through those changes. That got delayed a little bit into the next year, but that's something that we'll be able to handle and may provide another strategic advantage for us against some of our competitors.

Brian Ossenbeck (Analyst)

Thank you.

Operator (participant)

Our next question today comes from Ari Rosa with Citigroup. Please go ahead.

Ari Rosa (Analyst)

Hi, Adam. Marty. Just curious to hear your thoughts on the buyback. It's up quite a bit from last year. You still have a fairly modest dividend at under 1% yield. And it looks like you're obviously directing most of your capital towards the buyback as opposed to the dividend. I'm just curious what the logic is for favoring the buyback over the dividend. And is there any indication that management essentially is saying that they think the share price is undervalued?

Adam Satterfield (CFO)

Yeah, well, the buyback was the first type of capital return program that we started back in 2014. And, you know, that was when our cash flow model was changing and we were generating excess cash. And we still look today for the first use of cash would be for reinvesting in the company with the strong returns on invested capital that we have at 30%. But, you know, secondly, would be the buybacks, and that was, as I just said, what we started with. And then we implemented the dividend program in 2017 to kind of round out, you know, all the respective requests, if you will, and preferences of different shareholders.

But the buyback is obviously a tax-efficient means and provides a lot of flexibility with respect to returning capital. When we still feel like we've got quite a bit of investment ahead of us, and you know, we're generally still spending 10%-15% of our revenues on capital expenditures every year. But having that flexibility on the buyback would allow us to step that CapEx number up meaningfully if we needed to, based on what volume demands were and market share trends continue to be. But yeah, in the second quarter was really when we spent the most on the buyback this year. And some of that was just due to the stock weakness.

We generally are pretty consistent quarter in and quarter out, but you know, sort of take a grid-based approach with the consistent investment that we make, and buy more when the stock's lower and less when it's higher, but consistently returning capital, but then we'll step in, you know, as need be when we see some big weakness, like we did in the second quarter, and we ended up spending over $500 million in that period, and that was consistent with what we did back in 2022 as well, where the stock was under pressure, and we spent $1.3 billion that year on the buyback program, so you know, that would be-...

What our strategy going forward, we'll always be looking at, you know, we forecast out what our cash flow from operations and what we think the capital needs for CapEx would look like, and look at what the fixed dividend is, and then that balance becomes somewhat of a target to spend on the buyback program each year. But some years may be less, and some years more, like what we're seeing this year.

Operator (participant)

Our next question comes from Stephanie Moore with Jefferies. Please go ahead.

Stephanie Moore (Analyst)

Hi, good morning. Thank you.

Adam Satterfield (CFO)

Good morning.

Stephanie Moore (Analyst)

I was hoping you could maybe shed some light on a potential cyclical freight upside. So just kind of thinking through the dynamics. Obviously, with truckload, you know, we've talked about and we've seen pricing is really soft, but I think that's largely capacity-driven, not so much demand. On the LTL front, obviously, where you guys are playing, it's down, but it also seems to be down from pretty high COVID comps. Then you throw in, obviously, the bankruptcy of Yellow. So as we kind of think about this eventual upcycle, what evidence or kind of are you seeing or you think you could see that would suggest that we actually see kind of a inflection or above average volume growth? Or are we simply just kind of returning to kind of a normal trend line in demand? Thanks.

Adam Satterfield (CFO)

Yeah, I think that weight per shipment is generally one of the first things that we would start seeing. And you know that's something that we've been down at historical lows with our weight per shipment down below 1,500 pounds now. You know we've been as high as 1,600 pounds in our past. And so you know we start seeing an increase in weight per shipment. Generally that's orders for our customer's product are picking up. And so there's more widgets on every shipment if you will. And then eventually there will be sufficient quantities to where that turns into multiple shipments and so you start seeing it go from there. But that's usually the first indicator is on the weight side.

Stephanie Moore (Analyst)

Got it. So I guess what you're saying is, you know, you do believe that you should see some reacceleration here, and this isn't just a multiyear normalization pattern.

Adam Satterfield (CFO)

I think that, you know, for sure, we've been in a longer slow cycle than any of us ever anticipated. You know, typically, when we go through a down period, it's three to four quarters. And to be into this now for so long is probably somewhat skewed, as you mentioned, by COVID creating a lot of acceleration. I mean, we grew $1 billion of revenue in 2021 and another $1 billion of revenue in 2022. You know, maybe now things. We've gone through a longer, slow cycle after seeing a big upcycle there. But, like I mentioned, I think that, you know, we're down, the industry is down about 15% from second quarter of 2021.

You know, the industry, if you go back to 2009, was on a pretty consistent growth path, you know, from 2009 to 2021. And ATA continues to suggest that there's growth opportunities for LTL, and we believe that as well. And we've seen the trends developing over time with e-commerce, that effect on supply chains. If we continue to see nearshoring and reshoring activities, that creates a lot of freight demand and opportunity for LTL. And so we've benefited from that over time and would expect that both the industry and ourselves will benefit from those trends. So, you know, I think we've got to come out of the ditch, and we will.

Based on, you know, all the feedback that we have from customers and, you know, continuing those conversations, I think we get right back to some normalization, and then we'll see the industry continue to grow from there. We'd expect that our market share will continue to grow as well. You know, we've increased our market share. We were at about 6% share back in 2012, and, you know, we're at 12-13% today. So we've been able to significantly increase share and been the biggest market share winner, really over the last 10 years. Service is what wins share.

You got to have capacity, and there's been a lot of talk about the shift in capacity of from the Yellow service centers that have been reallocated, but only about half of those facilities have been reallocated thus far. But once demand recovers, you know, I think that you're gonna see a more capacity-constrained industry and our service winning share again for us into the future. So that's why we're committed to executing on our CapEx programs and trying to invest ahead of that curve. And we're there right now. We've got about 30% excess capacity.

That's more than we typically would have in our service center network, but that's what gives us confidence that once we start growing again, we can see those really strong incremental margins that we've been able to produce in the past and produce a lot of profitable growth. But it's gonna take that inflection in the economy before we can get back to seeing, you know, those strong revenue growth trends and operating ratio improvement.

Stephanie Moore (Analyst)

I'm sorry, just Adam, real quick, operating days in 4Q, if you don't mind?

Adam Satterfield (CFO)

Yeah, we have 62 days this year versus 61 in 4Q of 2023.

Operator (participant)

Our next question today comes from Bascom Majors with Susquehanna. Please go ahead.

Bascom Majors (Analyst)

... Adam, as we think about the profitability of the business as we get into next year in a world that's been, you know, at best seasonal, and a lot of times sub-seasonal from a demand standpoint for quite some time now, as you noted earlier, can you level set what your view of a seasonal margin performance would be in the first quarter and even the second quarter, just so we can gut check our models? Thank you.

Adam Satterfield (CFO)

Yeah, the first quarter is typically 100 basis points increase, but again, that's, you know, if there's no real major adjustment from an insurance standpoint, the actuarial adjustments that we go through in 4Q, so kind of normalizing for that. Then the second quarter is where we get the improvement, and that's where revenue is accelerating generally, and our operating ratio typically improves 400-450 basis points in the second quarter versus the first. You know, obviously, when we get into a period where you have...

Not that I'm calling this now, but if we get into an environment, if you go back into the years like, you know, like, 2017, for example, where if you can get above sequential revenue growth, then, you know, it gives more opportunity to put it to the bottom line. Just the way our cost structure is split out now, you know, in the most recent quarter, in the third quarter, our direct cost as a percent of revenue, we're about 52%, and our overhead costs were, you know, between 20% and 21%.

So it's all that leverage that we have on those fixed costs when you get into that revenue growth environment, that allows that operating ratio to swing generally in outperforming, you know, normal seasonality, if you will, when you're in those first year or two of the upcycle.

Bascom Majors (Analyst)

Thank you.

Operator (participant)

Our next question today comes from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz (Analyst)

Yeah, great, thank you. So, wanted to see if you could offer some thoughts on kind of where you think pricing bottoms, and then, if inflation's maybe acting differently this cycle. You know, it seems like that's been a you know, source of some pressure on margins. So, you know, if you see shipments stabilize and you go into next year, do you think about, you know, we need 4%?