Seeking Alpha: Old Dominion Continues To Take Share

As I expected back in February, Old Dominion's (ODFL) fourth quarter was just a bump on the road and business has gotten back to normal. Normal is a very good thing for Old Dominion, as the company's superior service quality continues to fuel share gains and good cost control allows the company to thrive with relatively lower price increases than its competition. Old Dominion shares aren't cheap by standard valuation metrics, but I believe standard metrics may be a little too confining for a significantly above-average operator.

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Old Dominion Continues To Take Share

Seeking Alpha: A Small Skid At Old Dominion Isn't A Big Deal

Less than truckload (aka LTL) transportation company Old Dominion (ODFL) did something last week that it doesn't do often - it disappointed the Street and saw some margin erosion. Weather seems to have been a major contributing factor, though, and the company continues to show significantly better tonnage growth than its peers, while hauling that freight much more profitably. Old Dominion isn't exceedingly cheap, having risen another 15% since my last write-up, but it is still slightly undervalued and still an excellent stock for the long term.

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A Small Skid At Old Dominion Isn't A Big Deal

Seeking Alpha: YRC Worldwide Will Probably Survive, But Can It Thrive?

I've made no secret in the past that I think less-than-truckload trucking company Old Dominion (ODFL) is one of the best-run companies out there. In contrast, the largest less-than-truckload carrier, YRC Worldwide (YRCW), is very definitely *not* one of the best-run companies out there. With the shares trading at only a shadow of their former value and real concerns about whether the company can manage an upcoming liquidity squeeze, a lot of investors have written off YRC Worldwide.

I'm pretty much on board with that thinking. I am not all that certain that bankruptcy is inevitable. A pre-packaged bankruptcy filing could certainly become an option as the company struggles under the weight of over $1 billion in net debt, but I suspect that the Teamsters union is going to make a deal with YRC Worldwide similar to the one it granted Arkansas Best (ABFS) - a deal that gives the company meaningful wage and cost flexibility up front in exchange for profit-sharing down the line and the labor stability the company needs to renegotiate its debt.

I'm not saying that investors should pile into YRC Worldwide with the expectation of the better than 4x returns that Arkansas Best has delivered (and I'm definitely not investing my own money here!), but I'm very curious to see how the Street will weigh out the risks of YRCW failing to renegotiate its debt (and/or failing to secure concessions from the Teamsters) and its overall lack of impressive operating fundamentals.

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YRC Worldwide Will Probably Survive, But Can It Thrive?

Seeking Alpha: Expectations For Arkansas Best May Be Higher Than They Seem

National less-than-truckload (LTL) trucking company Arkansas Best (ABFS) has been one of the best turnaround stories of 2013, as a new Teamsters agreement with meaningful cost concessions gives the company a real chance to repair one of the worst cost structures in the industry. With that, the shares have rocketed up more than 200% this year, and 300% from the 52-week low.

Even with that major leap, it would seem that the company is not getting all its due. The shares trade at about 4.6x the current average EBITDA estimate for 2014, against a long-term average of about 4.5x and industry averages that often run in the 6x to 8x range. On the other hand, Arkansas Best could still be facing significant pension liabilities, and the company may find it difficult to meet some aggressive growth goals. All told, I'm intrigued by what Arkansas Best could become again, but it's for me to not still prefer the more richly-valued (but better-run) Old Dominion (ODFL).

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Expectations For Arkansas Best May Be Higher Than They Seem

Seeking Alpha: Old Dominion Isn't Done Yet

Earlier this year, I thought the Street's reaction Old Dominion's (ODFL) fourth quarter results offered investors a good opportunity to buy shares in this high-quality, growing trucking company. Since then, the shares are up about 30% - more than doubling the return of the S&P 500. Although that performance is more mixed relative to other trucking companies- better than Con-Way (CNW), but inferior to Arkansas Best (ABFS), YRC Worldwide (YRCW), and Saia (SAIA) - Arkansas Best and YRC have benefited from a major catch-up trade and still notably lag Old Dominion on a two-year comparison.

While valuation on the shares has moved up, I don't think the opportunity is over for Old Dominion or its shareholders. The company continues to gain share in the less-than-truckload industry, and I believe the company's combination of service quality, organic growth potential, and strong margin leverage can continue to deliver good returns.

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Old Dominion Isn't Done Yet

Seeking Alpha: XPO Logistics Has Huge Ambitions, But Wall Street Has Real Doubts

It doesn't feel like a stretch to say that Wall Street loves logistics. From FedEx (FDX) to Hub Group (HUBG), from Landstar (LSTR) to JB Hunt (JBHT), most of this sector is trading very close to 52-week highs, even though economic activity in the U.S. has been pretty "meh" recently. While CH Robinson (CHRW) and XPO Logistics (XPO) are a bit further removed from their highs, I think the latter could be a very interesting opportunity even at these levels.

The ambitions of the XPO management team are nothing short of extraordinary - they aim to take a company that sits around the #20 spot in the U.S. truck brokerage with $280 million in revenue and grow it into the #2 player by 2016, with revenue in the range of $4 billion to $6 billion. That's an incredible goal and frankly Wall Street isn't buying it - or at least not showing a willingness to assume that XPO can grow at that rate and generate any sort of real free cash flow. If the Street is wrong and management is right, shareholders could be looking at a future multi-bagger here.

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XPO Logistics Has Huge Ambitions, But Wall Street Has Real Doubts

Seeking Alpha: A Stumble In Tonnage May Be An Opportunity At Old Dominion

Even the best-run companies occasionally trip, and that's likely the most important take-away from Old Dominion's (ODFL) fourth quarter results. While it was disappointing to see the company's operating ratio reverse for the first time in three years, nothing about what has made Old Dominion one of the best in the less-than-truckload (LTL) business has changed. Although trucking companies don't have the best reputations when it comes to free cash flow generation or returns on capital, I believe that Old Dominion is, and will be, the notable exception, and that this uncommon earnings miss could offer a narrow window of opportunity.

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A Stumble In Tonnage May Be An Opportunity At Old Dominion

Investopedia: Is Slowing Demand Just A Speed Bump For Old Dominion?

There are plenty of articles out there declaring the doom of trucking, as railroads and intermodal shipping take away the industry's lunch money (I should know, as I've written some of them). However it's important to remember at least two points. First, not all trucking is the same. Second, not all trucking companies are the same. Old Dominion (Nasdaq:ODFL) continues to demonstrate its credentials for "best trucking company in the biz," but investors could get another chance with this stock if economic uncertainties undermine demand in the fourth quarter.

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http://www.investopedia.com/stock-analysis/2012/Is-Slowing-Freight-Demand-Just-A-Speed-Bump-For-Old-Dominion-ODFL-FDX-UPS-CNW1026.aspx

Investopedia: Waiting To Back Up The Truck For Old Dominion

It's not usually a good idea to hang around and hope that a stock you sold too soon once before gives you a second chance. Nevertheless, I do find myself hoping that Old Dominion (Nasdaq:ODFL) gives me that second chance to buy shares in one of the best-run companies and best growth stories in the U.S. trucking industry (and perhaps the U.S. transport sector as a whole). Although this stock has done quite well already this year and valuation looks a little stretched, a pullback could change all of that overnight.

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http://www.investopedia.com/stock-analysis/2012/Waiting-To-Back-Up-The-Truck-For-Old-Dominion-ODFL-FDX-CNW-ABFS0920.aspx

Investopedia: Arkansas Best Isn't The Best, But Is It This Bad?

Although the trucking market may not be quite as attractive as rail, it's not terrible. Tonnage is increasing at a slower rate, but is still positive and likely to continue growing so long as the economy grows. Unfortunately, Arkansas Best (Nasdaq:ABFS) seems to be making a tough decision on price versus volume, and needs to show better margins to validate the choice.

A Disappointing Close to the Year
Of the three metrics that most transport investors place great importance on, Arkansas disappointed meaningfully on two. Revenue was up 5% in the quarter, but strong pricing (up almost 13% per hundredweight) was offset by very weak volume. Tonnage was down about 8% in the fourth quarter, and weakened as the quarter went on. Given the overall tonnage trends, it looks as though Arkansas Best may have priced itself out of some business.


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http://stocks.investopedia.com/stock-analysis/2012/Arkansas-Best-Isnt-The-Best-But-Is-It-This-Bad-ABFS-ODFL-FDX-SWFT0203.aspx

Investopedia: The Challenge Of Figuring Out FedEx Is Worth

Some investors believe that it's best not to overthink things or rely too much on cold numbers. Instead, they believe in buying into brands, business models and growth stories, with the idea being that the numbers eventually work themselves out. Much as it goes against my strong stock fundamentalist instincts, I can see a point here with a stock like FedEx (NYSE:FDX). Clearly, this company's brand and enormous global logistics infrastructure is worth quite a lot. Yet, the company's past returns on capital and free cash flow margin would suggest that today's apparently low valuation metrics deserve to be even lower still. (For related reading on free cash flow, see Free Cash Flow: Free, But Not Always Easy.)

An Encouraging Second Quarter 

FedEx showed meaningful progress on numerous fronts in its fiscal second quarter. Overall, revenue rose about 10% and this growth was well-balanced across the units. The very large Express business, which accounts for more than 60% of total revenue, saw growth of 10%, while the smaller Ground and Freight businesses grew 13 and 9%, respectively.

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http://stocks.investopedia.com/stock-analysis/2011/The-Challenge-Of-Figuring-Out-What-FedEx-Is-Worth-FDX-UPS-ODFL-ABFS1221.aspx

Investopedia: The Investment Case For Old Dominion

Investors may not be feeling all that confident about the health of the U.S. economy, but that's not really showing up in the transport stocks. Rails and truckers have been doing relatively well, and given that their demand is derived from economic activity, that's an encouraging sign. Old Dominion (Nasdaq:ODFL) is a challenging case for investors. On one hand, this is one of the most interesting and dynamic carriers out there, but the valuation takes a little getting used to for prospective investors.

Zigging While Others Zag  
Trucking is to some extent a commodity business - at least insofar as everyone offers the same basic service (moving your goods from point A to point B), and there is not a lot of room for unique pricing. But, that should not be taken to mean that trucking companies cannot stand out and make different strategic decisions.

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http://stocks.investopedia.com/stock-analysis/2011/The-Investment-Case-For-Old-Dominion-ODFL-ABFS-FDX-UPS1207.aspx

Investopedia: YRC Worldwide Jackknifes Investors

It is a never-ending curiosity to see how often investors will buy up the stock of bankrupt companies; it is virtually always an invitation to total wipeout and the scant successes don't pay for the multitude of failures. While YRC Worldwide (Nasdaq:YRCW) has in fact managed to avoid bankruptcy, common shareholders have been all but wiped out and there is little reason to think that the company can make the sort of recovery that will redeem the massive dilution the company undertook to stay in business.

Doing What Must Be Done
Trapped between a rock of unimpressive freight rates and rising fuel costs and a hard place of high labor costs and a debt-soaked balance sheet, trucking analysts and investors have been speculating about the bankruptcy of YRC Worldwide for some time. While the company has avoided bankruptcy through an adroit combination of recapitalization and cost renegotiation, it may all be effectively for naught for shareholders. (Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders. For more, see The Dangers Of Share Dilution.)

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http://stocks.investopedia.com/stock-analysis/2011/YRC-Worldwide-Jackknifes-Investors-YRCW-FDX-ODFL-ABFS-CNW-CSX-UNP0922.aspx

Investopedia: J.B. Hunt - A La Intermodal

Despite concerns about economic activity, railroad volume, shipping container volume and the health of the trucking industry, goods are still getting shipped around the country and more and more of that shipping is being handled by intermodal carriers. That puts J.B. Hunt (Nasdaq:JBHT) in the driver's seat, and the company is certainly delivering strong results. 

Good Second Quarter Results, With a Catch  
In many respects J.B. Hunt had a great quarter. Operating revenue was up nearly 22% and, even excluding fuel surcharges, leaves 14% revenue growth. The company's intermodal business was the leader; growing 29% this quarter and making up nearly 60% of operating revenue. The company's dedicated contract services business also did well, with growth of 15%. Trucking was the laggard, coming in with just 4% revenue growth this period. 


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http://stocks.investopedia.com/stock-analysis/2011/J.B.-Hunt-A-La-Intermodal-JBHT-BRK.A-NSC-UPS-FDX-AAWW-ODFL0720.aspx

Investopedia: Old Dominion's Great Growth Story

Old Dominion (Nasdaq:ODFL) seems to be one of the exceptions. Old Dominion has long been a great growth story within a cyclical industry, and this quarter is another example of how not all trucking companies are alike. Although this is not an easy company to value, Old Dominion is gaining share and building a business that is getting increasingly attractive. 

There are some pretty sharp divisions among the transport stocks these days. Railroads have enjoyed a great run and air transport companies have seen a solid pickup in business, while ocean-going carriers have been struggling. With trucking it's a more complicated picture - the volume has been there, but pricing has been soft and many major haulers are struggling.

Solid Start to the Year 

Old Dominion has opened the year with 33% top line growth. Tonnage climbed over 20%, while a modest give-and-take between haul length (up 0.7%) and weight per shipment (down 0.6%). Pricing was rather strong as well; up over 11% as reported, and up more than 6% when stripping out the company's fuel surcharges.

Old Dominion has stood out in the past for its operating efficiency and that was true again this quarter. The company showed operating income growth of 132% and the company's operating ratio improved by nearly four full points from the year-ago level to 91. That stands in significant contrast to major carriers like Arkansas Best (Nasdaq:ABFS) and YRC Worldwide (Nasdaq:YRCW). One of the advantages to the Old Dominion model is its lower labor costs, and that held true this quarter - though these costs climbed nearly 23%, they were about 52% of revenue or more than 10% less than the share of revenue paid out by Arkansas Best. (For related reading, see Bad Times For Arkansas Best.)

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http://stocks.investopedia.com/stock-analysis/2011/Old-Dominions-Great-Growth-Story-ODFL-ABFS-CNW-FDX-YRCW-NAV-CMI0429.aspx

Investopedia: Bad Times For Arkansas Best

While it is true that the industrial sector relies upon the transports to get their products to market, and that a recovery in the economy should be good for transports, that story has not played out so well in the trucking space. Although railroads like Union Pacific (NYSE:UNP) and Canadian National (NYSE:CNI) have shot up, many of the truckers are still down on a multi-year basis.

With very disappointing first quarter earnings, leading less-than-truckload (LTL) carrier Arkansas Best (Nasdaq:ABFS) is offering some evidence as to why that is. While demand for transport is definitely getting better, there is not much pricing power in the market and rising costs are becoming a larger problem. Of course, those investors with a contrarian streak might see this as an opportunity to pick up shares of a company that has generally been one of the better operators within its group. (For more, see Transport Stocks Ready To Roll.)

Q1 Was Supposed to Be Bad, but Not This Bad 

It says something about the operating environment in the trucking space that Arkansas Best missed what were already pretty uninspiring estimates. Oddly enough, the company did fine on the revenue line - revenue jumped almost 21% from last year and surpassed the average estimate. Even here, though, are signs of some of the challenges in the business - tonnage per day was up over 17% and there was a nearly 16% jump in shipments, but weight per shipment increased just 3% and revenue per hundredweight was up just a bit over 2%.

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http://stocks.investopedia.com/stock-analysis/2011/Bad-Times-For-Arkansas-Best-ABFS-CNW-YRCW-ODFL-FFEX-KNX-JBHT0426.aspx

Investopedia: FedEx Looks Like It's Coming And Going

Some stocks just seem to be loaded with "yeah, buts." Yeah, FedEx (NYSE:FDX) has emerged as one of the major global shippers, but the company struggles to earn an attractive rate of free cash flow. Yeah, FedEx is great at logistics and constantly looking for ways to improve yields, but the return on capital just is not there. Yeah, FedEx has incredible global growth opportunities, but the company is still vulnerable to weather, fuel and the same issues as any other transportation company. 

A Mixed Quarter But with a Positive Tone
Although FedEx guided this quarter down a few weeks, the news was not all bad. Revenue was up 11% for the fiscal third quarter, with Ground doing well (up 14%), Express doing well (up 11%), and Freight not doing so bad at all (up 8%). Volumes were alright, with Express and Ground up in the mid-single digits and shipment volume in Freight down 6%.

Profitability was more problematic. Overall, operating income dropped by 6% and the operating margin dropped by about 70 basis points to 4.1%. Operating performance was actually decent in Ground (the highest-margin business of the group by far), while Express weakened by two full points to 2.9% and Freight got less bad at negative 9.8%. (For more, see Zooming In On Net Operating Income.)

To read the full piece, please go here:
http://stocks.investopedia.com/stock-analysis/2011/FedEx-Looks-Like-Its-Coming-And-Going-FDX-UPS-YRCW-ODFL-NSC-AAWW0321.aspx

Old Dominion - Sometimes The Best Is Not Good Enough

I am a little late getting this analysis of Old Dominion (Nasdaq: ODFL) up, but I hope it is better late than never. ODFL is a stock I owned (profitably) years ago and still like to follow - I think it is hands down the best less-than-truckload (LTL) carrier out there. Nevertheless, being the best in your business does not necessarily mean the stock is worth buying.

It was a solid second quarter for ODFL. Revenue rose 16.5% to 368M, and handily beat the estimate of $359 million. This revenue was produced by a nice increase in tonnage (up over 13%), offset by a decline in fuel-adjusted pricing (down about 1%). That weak pricing environment is one of the big worries in this space - although ODFL has not matched smaller rivals in taking bad pricing just to keep the trucks running, they have not been able to escape it all together.

Where ODFL really shined this quarter was in its cost control. The company's operating ratio (basically the opposite of operating margin) improved more than 400 bp to 89.1%. Lower non-cash charges (mainly depreciation) helped a lot, but the company also saw quite a bit of improvement by holding down wage growth and compensation costs.

Management was a bit cautious about the second half of this year, and given the economic news that has come out this week that seems reasonable. I am not sure that LTL carriers like Old Dominion are any better "tells" on the economy than truckload carriers like Knight (NYSE: KNX) or Heartland Express (Nasdaq: HTLD), but it stands to reason that LTL would be tied more closely to the tenor of small business (since they cannot afford to send out whole truckloads at a time). Either way, I would not be surprised to see continued pricing weakness this year, though weakness in tonnage would definitely be a bad sign for the economy.

Trying to value Old Dominion and assess its future is pretty tricky. The company has spent most of the last decade building up its business. It takes somewhere around 250 - 300 service centers to operate a national LTL business, and Old Dominion started the year with about 210. So even though ODFL will always have to spend on new equipment (trucks, trailers, etc.), the big build-out is close to an end. That means cash flow leverage.

Also, even though ODFL is a rather efficient operator in the LTL space, they are not the top in all metrics. Rival Con-Way (NYSE: CNW) seems to produce considerably more revenue per service center than ODFL (about 2.5 to 1). Now, ODFL is ahead of the likes of Arkansas Best (Nasdaq: ABFS) and there may be idiosyncrasies with Con-Way that make a straight-up comparison misleading, but it still seems to me that ODFL can (and should) get more leverage out of their infrastructure. If they do that ... more cash flow.

So, all of that being said, I still run into a wall when it comes to evaluating ODFL on a cash flow basis. Even allowing for significant free cash flow leverage (free cash flow margin moving from a historical level of -3% to 6% over five years, with above-trend growth in the five years after that as well), I get a DCF-derived price that is about 10% below today's level. Turning to an alternative methodology, forward EV/EBITDA valuation, I get a target of $45.50 (using a 7x forward multiple). That is certainly better, but still not enough to excite me.

All in all then, Old Dominion is a good company that is priced like one. I might be interested if it pulled back 10-20%, but there is just not enough potential here to get me to buy.

FedEx Is Delivering The Recovery

There must be money in gloom and doom. That is the best explanation I can come up with for why there is not more optimism and satisfaction with the global recovery. Despite numerous positive signals on economic growth in the U.S., Latin America and Asia, investors remain fixated on what could happen in Europe and the S&P 500 is basically flat for the year.  


The fiscal fourth-quarter earnings reported by FedEx (NYSE:FDX) on Wednesday reflect a lot of the reasons that I am optimistic about global growth. Volumes were strong and the company is ramping up more assets to deal with even more anticipated growth. That is basically what any investor should want to hear - if companies in the transportation sector are seeing business improve, that should presage better growth.

For the full piece, please go to:
http://stocks.investopedia.com/stock-analysis/2010/FedEx-Is-Delivering-The-Recovery-FDX-IYT-ODFL-GWR-UPS-DRYS-FRO0618.aspx