Did Old Dominion Widen Its 4Q17 Operating Margins?
Operating margin in 4Q17
In this part, we’ll discuss Old Dominion Freight Line’s (ODFL) operating margins. In 4Q17, the company’s reported operating margins improved by 90 basis points or 0.9% to 16.1% from 15.2% in 4Q16. Old Dominion was able to exceed analysts’ operating margin estimates by 2.4%.
While Old Dominion’s revenue jumped 19.4% in 4Q17, its operating expenses soared 18.2%. The increases explain the slight gain in Old Dominion’s 4Q17 operating margin. The operating income in 4Q17 rose 26.5% to $143.45 million from $113.44 million in 4Q16.
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In 4Q17, the salaries, wages, and benefits expenses rose 15.6% to $482.2 million from $417.6 million in 4Q16. As a percentage of the total operating cost, operating expenses declined to 54.1% from 56.0% in 4Q16. Operating supplies and expenses were $106.6 million in 4Q17, which represented a 26.9% rise from $84.1 million in 4Q16.
Depreciation and amortization accounted for 6% of the operating expenses in 4Q17, which were 6.6% in 4Q16. The expenses rose 7.1% to $53.1 million in 2017—compared to $49.5 million in 4Q16.
Old Dominion expects to match its labor capacity with the increase in LTL (less-than-truckload) volumes in 2018. The company anticipates a favorable pricing environment in the current year. The favorable pricing environment could lead to an expanded operating margin. In the second week of February 2018, Old Dominion increased its shipping rate 3.5%, which was lower than rate levied in 2016. The steady rise in LTL spot rates should benefit the carriers in 2018 as e-commerce sales keep hitting new highs.
Peers’ 4Q17 operating margin
SAIA (SAIA) reported an 80 basis point rise in its 4Q17 operating margin to 6.5% from 5.7% in 4Q16. YRC Worldwide’s (YRCW) operating margin expanded slightly to 1.6% from 1.3% in 4Q16. XPO Logistics (XPO) saw a 50 basis point rise in its 4Q17 operating margin of 3.8%. ArcBest’s (ARCB) operating margin grew 0.9% to 2.7% in 4Q17 from 1.8%.
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Next, we’ll discuss analysts’ recommendations for Old Dominion and its peers.