A pair of less-than-truckload carriers reported weaker volumes in August but said they continue to see favorable yield results.
XPO (NYSE: XPO) saw volumes slide during a “soft” August but reiterated its margin guidance, which is predicated on favorable yield trends.
The carrier reported a 4.6% year-over-year decline in tonnage during August, the combination of a 4.5% decline in shipments and a 0.1% dip in weight per shipment. It previously reported no change for the same volume metrics in July. On a two-year-stacked comparison, tonnage was off 1.3% in August, following a 4.2% increase in July.
The update was a little worse than management’s guidance for tonnage to be “flattish” y/y in the third quarter, following a 3.4% increase in the second quarter. The y/y comps have gotten tougher this quarter now that a full year has passed since Yellow Corp.’s (OTC: YELLQ) shutdown, which put roughly 8% market share up for grabs.
Two-thirds of XPO’s freight is tied to the industrial economy. The Purchasing Managers’ Index, a monthly reading on manufacturing in the U.S., remained in contraction territory for a fifth straight month in August, registering a 47.2 reading. (Fifty is a neutral reading for the sentiment index.) The index has signaled weakness in manufacturing for the better part of two years now.
XPO said it was able to protect margins even with the volume weakness in the month.
“In August, we managed our variable costs effectively in a soft demand environment, supporting our outlook for margin expansion,” said XPO CEO Mario Harik in a news release.
XPO will likely be the only carrier to see y/y margin (operating ratio) improvement in the third quarter. It previously guided to 100 to 150 basis points of sequential margin deterioration from the second to the third quarter, which would be an improvement of 150 to 200 bps on a y/y comparison.
The carrier does not provide revenue-based metrics as part of its intraquarter updates but pointed to continued yield improvement in the news release.
“The industry pricing backdrop remains constructive, and we’re executing our company-specific initiatives to deliver strong above-market yield growth,” Harik said. “Our ongoing service improvements and network investments will further accelerate our results when industry demand rebounds.”
XPO previously guided to a mid-to-high-single-digit y/y increase in yield during the third quarter. Contract rate renewals averaged 8% in the second quarter and are expected to increase by a similar amount in the current quarter.
Table: Company reports
Old Dominion Freight Line (NASDAQ: ODFL) reported a 6.1% y/y tonnage decline in August, following a 0.9% decline in July. Compared to two years ago, the carrier’s tonnage was off by 12% in both months. Revenue per hundredweight, or yield, was up just modestly y/y in August, following a 5.7% increase in July. For the first two months of the third quarter, yield was up 3% y/y (4.9% higher excluding fuel surcharges).
“Our revenue results for August reflect continued softness in the domestic economy as well as the impact of lower fuel surcharge revenue on our yields,” said Marty Freeman, president and CEO of Old Dominion. “While our LTL volumes declined on a year-over-year basis, our LTL shipments per day in August were relatively consistent with July and our year-to-date average through the first half of this year.”
Old Dominion’s revenue per day was down 5.2% y/y in August, following a 4.6% increase in July. July had an easier y/y comp (down 13.3%) versus August (down 1.4%). However, the y/y comps got tougher in each week of July, mirroring the increase in shipper defections from Yellow heading into its July 30, 2023, closure.
The company previously guided to 50 bps of OR degradation from the second to the third quarter, which implies about 180 bps of y/y deterioration from its industry-leading 70.6% posted in the third quarter of last year.
ArcBest (NASDAQ: ARCB) said Tuesday that lower shipment weights and tougher comps weighed on its results in August, prompting it to modestly reel in its margin expectation for the quarter.
Saia (NASDAQ: SAIA) was an outlier in August. It reported Wednesday a y/y tonnage increase of 8.2% in August, following a 5% increase in July. On a two-year-stacked comparison, tonnage was 15% higher in August after an 8.4% increase in July. However, the carrier has seen a shift in freight mix to favor lighter, retail freight and national accounts, both of which have weaker margin profiles.
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