Q1 2024 Old Dominion Freight Line Inc Earnings Call

Participants

Adam N. Satterfield; Executive VP of Finance, CFO & Assistant Secretary; Old Dominion Freight Line, Inc.

Jack Atkins

Kevin M. Freeman; President & CEO; Old Dominion Freight Line, Inc.

Amit Singh Mehrotra; Director and Senior Research Analyst; Deutsche Bank AG, Research Division

Bascome Majors; Research Analyst; Susquehanna Financial Group, LLLP, Research Division

Brian Patrick Ossenbeck; Senior Equity Analyst; JPMorgan Chase & Co, Research Division

Eric Thomas Morgan; Research Analyst; Barclays Bank PLC, Research Division

Jason H. Seidl; MD & Senior Research Analyst; TD Cowen, Research Division

Jeffrey Asher Kauffman; Partner; Vertical Research Partners, LLC

Jizong Chan; Associate VP & Equity Research Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Jordan Robert Alliger; Research Analyst; Goldman Sachs Group, Inc., Research Division

Joseph Lawrence Hafling; Equity Associate; Jefferies LLC, Research Division

Ravi Shanker; Executive Director; Morgan Stanley, Research Division

Scott H. Group; MD & Senior Analyst; Wolfe Research, LLC

Thomas Richard Wadewitz; MD and Senior Analyst; UBS Investment Bank, Research Division

Unidentified Analyst

Presentation

Operator

Good morning, and welcome to the Old Dominion Freight Line First Quarter 2024 Earnings Conference Call. (Operator Instructions). Please note, this event is being recorded. I would now like to hand the call over to Jack Atkins, Director of Investor Relations. Please go ahead.

Jack Atkins

Thank you, Andrea, and good morning, everyone, and welcome to the First Quarter 2024 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 1, 2024, by dialing 1 (877) 344-7529, access code 5260631. The replay of the webcast may also be accessed for 30 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 statements.
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 yourselves to one question at a time before returning to the queue. Thank you for your cooperation.
At this time, I would like to turn the conference call over to Mr. Marty Freeman, the company's President and Chief Executive Officer, for opening remarks. Marty, please go ahead, sir.

Kevin M. Freeman

Good morning, everyone, and welcome to our first quarter conference call this morning. With me on the call today is Adam Satterfield, our CFO. And after some brief remarks, we will be glad to take your questions. Old Dominion's financial results improved during the first quarter of 2024 despite the continued softness in the domestic economy.
While the improvement in our results was modest, we produced year-over-year increases in both revenue and earnings per diluted share for the second straight quarter. Our earnings per diluted share of $1.34 also represents a new company record for the first quarter. To produce these results, our OD family of employees continued to execute on long-term strategic plan that helped create one of the strongest records of growth and profitability in the LTL industry.
This was evidenced by our team's ability to once again deliver 99% on-time service and a 0.1 cargo claims ratio for the first quarter. Consistently delivering superior service at a fair price is the central element of our strategic plan, and we have created a best-in-class value proposition as a result. This value proposition continues to create opportunities for us to win market share over the long term and has also helped strengthen our customer relationships.
Our customer retention trends have remained steady over the past 2 years despite a domestic economy that has been sluggish for longer than we originally anticipated. Our customers have had fewer shipments to give us as a result of the slower economic environment, but we are strongly positioned to respond to their needs when demand eventually improves.
Demand can quickly -- can very quickly change in the LTL industry and the OD team has experience in dealing with these challenges that rapid growth can present. This is why we focus so intently on our long-term market share initiatives and make decisions to help us achieve these goals despite the cost implications that may impact us at the short term.
Our capital expenditure program is a prime example of this, as we have invested $757.3 million in total capital expenditures in 2023 and expect to spend approximately $750 million this year to stay ahead of our growth curve. The resulting depreciation has recreated some short-term cost headwinds that slightly impacted our first quarter operating ratio, but we have improved our fleet and also have approximately 30% excess capacity in our service center network to support future growth.
The LTL industry has seen significant disruption over the past 9 months, but we believe the strategic advantages that we have allowed us to outgrow our industry for decades and will continue. Other carriers may be able to add service centers or purchase more equipment, but what has differentiated us from other carriers is not so easy to duplicate, which is our culture and our OD family spirit.
Our people are the most important element of our strategic plan and our entire OD family of employees is committed to a culture of excellence. We invest significantly in our employees to help ensure that we are regularly educating and training our team. We have trained most 1/3 of our current drivers through our internal OD truck driving training program, and we intend to keep using this program to produce safe and qualified drivers.
We also continue to invest in our management and sales training programs, which we believe will help produce the next generation of OD leaders. These are additional examples of decisions that create short-term costs, but are more willing to incur these costs to be prepared for our future. Our consistent investments in our people, our service and our network are the key reasons why we have one more market share than any other carrier over the past 10 years. Having each of these elements in place is also why we continue to believe that we are the best positioned company in the LTL industry to benefit from an improving economy.
Delivering superior service is ultimately what wins market share in our industry. And I can assure you that everyone on OD's team is more committed than ever to deliver superior service to our customers and ultimately add value to our supply chains.
We also have the financial strength and consistent returns to support investments needed to help achieve our long-term vision for profitable growth. As we continue to execute on a proven plan to achieve this vision, we believe we can drive further improvement in shareholder value.
Thank you for joining us this morning. And now Adam will discuss our first quarter financial results in greater detail.

Adam N. Satterfield

Thank you, Marty, and good morning. Old Dominion's revenue for the first quarter of 2024 was $1.5 billion, which was a 1.2% increase from the prior year. This slight increase in revenue was primarily due to a 4.1% increase in LTL revenue per hundredweight was partially offset by the 3.2% decrease in LTL tons per day.
Our quarterly operating ratio increased 10 basis points to 73.5% as compared to last year, while our earnings per diluted share increased 3.9% to $1.34. On a sequential basis, our revenue per day for the first quarter decreased 7.0% when compared to the fourth quarter of 2023 with LTL tons per day decreasing 5.5% and LTL shipments per day decreasing 5.2%.
For comparison, the 10-year average sequential change for these metrics includes a decrease of 1.3% in revenue per day, a decrease of 1.0% in tons per day and a decrease of 0.3% in shipments per day. The monthly sequential changes in LTL tons per day during the first quarter were as follows: January decreased 3.9% as compared to December. February increased 1.9% from January, and March increased 2.4% as compared to February.
The 10-year average change for these respective months is an increase of 0.8% in January, an increase of 1.5% in February and an increase of 4.8% in March. Please remember, however, that Good Friday was in March this year, and the average sequential change for March when that is the case, is an increase of 2.5%.
While there are still a few work days remaining in April, our month-to-date revenue per day has increased by approximately 5.5% to 6% when compared to April of 2023. Our LTL tonnage per day has increased by approximately 2% to 2.5%, while LTL revenue per hundredweight has increased by approximately 4%. Our LTL revenue per hundredweight, excluding fuel surcharges, has increased approximately 4.5%, which is trending lower than our growth rate in the first quarter.
We want to be clear that the slowdown in this metric does not represent any change in our pricing philosophy or a change in the overall pricing environment. Certain mix changes are impacting this metric in April as the change in our LTL revenue per shipment is more comparable with the first quarter.
Nevertheless, we will continue with our long-term consistent approach of targeting yield improvements that exceed our cost inflation and support our capital expenditure program, and we believe we can achieve those initiatives this year. We will provide the actual revenue-related details for April in our first quarter Form 10-Q as usual.
Our operating ratio increased 10 basis points to 73.5% for the first quarter of 2024, as the impact from the increase in our overhead cost more than offset the improvement rather than our direct costs. Many of our fixed overhead costs increased as a percent of revenue due to the flatness in revenue and the significance of our capital expenditures over the past year. This is most evidenced by the 50 basis point increase in our depreciation cost as a percent of revenue.
We are pleased, however, that the improvement in yield and ongoing focus on operating efficiencies helped us improve our direct operating cost as a percent of revenue by approximately 100 basis points. This change included improvements in our operating supplies and expenses that offset a slight increase in salaries, wages and benefits as a percent of revenue.
Our team continued to efficiently manage our variable costs while also delivering best-in-class service standards, which is not easy to do in an environment with lower operating density. We continued to believe that the keys to long-term operating ratio improvement are the combination of density and yield, both of which generally require a favorable macroeconomic environment.
Once we have those factors working in our favor again, we are confident in our ability to produce further improvement in our operating ratio and we'll continue to work towards our goal of producing a sub-70% annual operating ratio.
Old Dominion's cash flow from operations totaled $423.9 million for the first quarter, while capital expenditures were $119.5 million. We utilized $85.3 million of cash for our share repurchase program during the first quarter, while cash dividends totaled $56.6 million.
Our effective tax rate for the first quarter of 2024 was 25.6% as compared to 25.8% for the first quarter of 2023. We currently anticipate our effective tax rate to be 25.4% for the second quarter. This concludes our prepared remarks this morning.
Operator, we're happy to open the floor for questions at this time.

Question and Answer Session

Operator

(Operator Instructions). And our first question will come from Ravi Shanker of Morgan Stanley.

Ravi Shanker

So great summary of where we got to this point. Is 2Q the quarter where kind of we see the best of what this industry looks like in a post yellow environment, and if tonnage picks up and you have 2024 pricing that comes in, kind of how do we expect 2Q to trend versus seasonality?

Adam N. Satterfield

Yes. I think that's a difficult one to answer. It's obviously dependent on the top line. Typically, the second quarter is when we see the big acceleration in revenue and historically speaking, the 10-year average increase in revenue from the first to the second quarter is 8.7%. And we're not starting out with that type of growth in April. Things still feel good to us, and we're finally seeing some year-over-year revenue growth, but it's not quite at the levels of getting back to seasonality.
We have been encouraged that we've seen our volumes increasing really into February, into March and have essentially increased thus far into April, but again, not at what those normal seasonal levels are.
So to kind of frame up the second quarter operating ratio guidance, it's going to be very dependent on what the top line does. If you think about last year at this point in time, we were at a point where we weren't looking at any sequential revenue growth, and we were targeting margins to be flat. If we were able to grow at what the normal seasonal levels would be on the top line, that would be that 8.7%, sequential growth would be about 12% year-over-year growth.
So obviously, we're ways away from that. Where we are at this sort of 6%, I would say we probably are somewhere in the middle of that sliding scale. If we were to stay at 6% year-over-year growth, then I would probably put us somewhere at a target of maybe about 150 basis points of improvement from the first quarter.
So like always, the second quarter is going to be dependent upon how much acceleration we see. And we're not -- while we're encouraged by some things, we're not ready to make the call to say that things are definitely accelerating and that we can hit some of those sequential points as we go through May and June. But obviously, hopefully, we'll continue to see some acceleration there, and that will create operating density for us and will allow us to improve our margin from the first quarter to the second.

Operator

The next question comes from Daniel Imbro of Stephens.

Unidentified Analyst

This is Grant on for Daniel. There was a comment in the release around some recent developments that suggest overall demand for your services may be improving. Could you maybe just provide a little more context around what that comment was referring to? Is it more a weight per shipment comment that is maybe impacting some of your yield metrics April that you discussed earlier? And maybe if you could also just provide a bit of an update on the underlying demand environment.

Adam N. Satterfield

Yes, I would say right now, underlying domain has felt relatively consistent, but it does feel like things are improving a bit. And obviously, like I just mentioned, we've seen some sequential acceleration obviously, January, we see pretty good with winter weather, and we saw the impact of that. But we increased from there through February and then saw again some of the sequential improvement in shipments through March and thus far into April.
But I feel like there are several factors that are starting to turn. We've been at -- and a long slow cycle for going back to April '22. And maybe to borrow a line from Taylor Swift is that over now, we're kind of waiting to see, but we saw ISM inflect back above 50% for the first time.
Like you mentioned, our weight per shipment has increased again. We saw a little bit of a change from January to February. It dropped a little bit, but then it came back in March and at this point through April, we're up a little bit higher. So you sort of balance that with conversations that we've had from customers and we look at our national account reporting on wins and losses.
There's a lot of good things that feel like they're developing. And if history repeats itself, usually a couple of months after that ISM reflect -- or inflects to the positive, we start seeing some improvement in our industrial activity as well. And that's something that will steal on our retail outperformed our industrial business in the first quarter.
So if that's something that we can start seeing some recovery there, all of those things and factors hopefully will be increasing the demand for LTL service. And we're certainly in a position to take advantage of that opportunity as it presents itself.

Operator

The next question comes from Jordan Alliger of Goldman Sachs.

Jordan Robert Alliger

Just curious if you could talk to a little bit more the yield side of the equation, perhaps a little more color around mix, core pricing you're seeing as your contracts come up? And I guess, broadly, is this any way -- is the yield deceleration -- I don't know, is it tied in some way to more intense competition out there given industry spare capacity?

Adam N. Satterfield

Yes. That's why we wanted to be clear with the comments earlier that we don't see this in any way as being a reflection on the overall environment. And certainly, there is no change with respect to what our yield management initiatives are. We continue to target trying to achieve yield improvement that ultimately leads to our revenue per shipment outperforming our cost per shipment.
That's something we've been able to achieve and we've targeted 100 to 150 basis points in the past. And obviously, with the weakness in the volume environment over the past year, we weren't able to achieve that positive spread in 2023, but we kept on investing and that's created more costs, and we're continuing to invest this year.
I do think we're getting close back to this point and perhaps it will inflect back in the second quarter to where we do see a positive spread, probably not to that full 100 to 150 basis point delta. But I do think that we can see our revenue per shipment now going back above what our cost per shipment change would otherwise be.
But we're continuing to work through contracts as they're coming due. We're winning some new business. Sometimes that can come on board when you look at things on a hundredweight basis, that number can skew and be skewed by multiple factors, be it the weight per shipment, the length of haul, which has been decreasing, the class of freight as well.
There's multiple things that can move that number around and the year-over-year growth is just a little bit slower in April than where we were in the first quarter. But our revenue per shipment overall is what matters the most, and that's performing pretty consistent with where we were in the first quarter, at least from a core basis, it's a little bit higher right now, including the fuel.
But on a core basis, looking at revenue per shipment ex fuel, pretty close to where we were in the first quarter. So -- and I still feel good about the environment and certainly seeing the activity that we've had internally and the increases that we continue to achieve, we feel good about things and especially the line of sight to seeing some positive spread once again of rev per ship outperforming the cost per ship.

Operator

The next question comes from Bascome Majors of Susquehanna.

Bascome Majors

I think your long-term shareholders can be happy with the discipline you've held through this 2-year protracted down cycle on sticking to your guidance and strategy and waiting to really monetize the capacity in the better part of the cycle in the future here, especially with all the changes in the competitive landscape and capacity moving around at some of your peers.
But as you look forward and wait for that inflection, are there things you are looking for in that the market may have changed and the strategy does require a tweak here or there? I'm just curious internally what you're watching for to see that things may have shifted in some way, shape or form in the way that customers are viewing OD.

Adam N. Satterfield

Yes. I think certainly, time will tell and it's something that we continue to watch. And the business levels, our market share trends. All of those are pretty much have been in line with what we would have otherwise expected when we go through a slower economic environment. It's something where our market share is generally flattish and a little hard to track market share right now with the disruption post Yellow's closure.
And maybe the way I look at it is slightly different than the way some of you do. But if I compare at least what we have from a fourth quarter reporting where all the other carriers have reported, it looks like we're in really good shape with -- if you compare back to the second quarter, so kind of before and after that event.
And we've gained some market share relative to the other public carriers combined. And the largest carrier in the space has gained the most shipments again, second quarter to the fourth quarter, not looking at just a year-over-year percent change but pre-event, post event they have, and then there's one other carrier that's grown about the same as us, just a little bit higher shipments per day.
And then all of the other public carriers are pretty flat when you look otherwise. And so a lot of what we have seen historically is similar types of trends. And then when the economy starts inflecting back to the positive, that's the time when OD's model shines the brightest, and we think that will happen once again.
Once we get some economic recovery, if you will, some real economic improvement where we've been running against the wind for the past 2 years, we get some tailwind from the economy, I think you will see that volume growth come through our network and we'll be able to leverage that improvement in operating density to drive that with improved operating ratio.
So we don't believe at this point that anything will be any different. Like Marty said earlier, we're really pleased with our customer retention trends. The way that we've seen business levels change over the past 1.5 years, and it's been slower. We're in place and ready to respond to our customers' needs when they see their businesses [inflecting] back to the positive.
So all the things are in place. We just need a little bit more improvement in the underlying freight demand environment to capitalize on it and certainly feel like we're closer to that event changing and that inflection point, and there have been some green shoots that if you're looking at things from a glass half full kind of standpoint, which I typically do, that you can read through and see some potential opportunity for perhaps later this year.
And so we're definitely in place. We feel like all the pieces are there. And we said it earlier, anyone can go out and you can buy terminals, you can buy equipment. But the thing that differentiates us the most is our people and our culture. And those are things that cannot be duplicated, certainly not in any short period of time. And I think the commitment that we have from each of our employees to excellence and delivering superior service for our customers is what will allow OD's model to continue to shine into the future and allow us to achieve our long-term market share initiatives.

Operator

The next question comes from Amit Mehrotra of Deutsche Bank.

Amit Singh Mehrotra

Adam, I just wanted to go back to the OR comment on the second quarter. I mean, it's -- if I just look at revenue per day, I assume it should accelerate given maybe easier comps rest of the quarter. So you're growing maybe revenue mid- to high single digits in the second quarter. And so the implied incrementals on that are like 25% to 30% to get to OR in 2Q? And I would just imagine with all the pricing that's been taken in the industry and the front-end loaded nature of the cost, like we could do better than that. I don't know if that's a fair view or not, but I'd love to get your opinion on that.
And then maybe more higher level on the OR, you've got, I think, right now, probably 18% of your revenue is direct cost, if I'm doing my calculations right, and it's been as low as maybe 16%, so you got a couple of hundred basis points there. And then there's obviously leverage on mix and variable costs. Can you just talk about kind of the levers to improve margins over the next couple of years if we do get a recovery because there is this view that there's not much more to go when you're already doing a 72, 73 OR.

Adam N. Satterfield

Well, if you remember, we have done a 69.6 and a 69.1 in the second and third quarters of 2022 when we had more revenue growth going on and felt like we had room to go from there. So nothing's changed with respect to where we feel like we can take the operating ratio long term, which is part of the reason why we repeated the goal of being able to achieve a sub-70 annual operating ratio.
But there's a few things to try to unpack from that question. And I would say that when we're initially in the upswing, get into the environment where we start seeing revenue growth again, eventually, when you get into it, that's periods of higher incremental margins for us, but you got to get to the point where you've got enough revenue to kind of recover some of the fixed overhead costs that -- and the growth, improvement or increase rather in some of the other variable costs that go along with preparing for growth.
And we've already instituted some of those costs. For example, we've added about 500 people since September of last year. We were averaging 51,000 shipments per day in September last year, and now we're at about 48,000. So we've tried to continue to do all the things to get ahead of anticipated growth, and we're having to manage all of those costs, and we do.
We manage the efficiency of all elements of our operation and trying to manage and match all of those costs with our revenue trends. But I would say that the uncertainty for the second quarter is just whether or not revenue will continue to accelerate or what we end up seeing if we continue to improve from here, that's going to be an improvement in operating density, and that will drive further improvement in our direct cost performance.
If you pull our operating ratio in the first quarter apart, I think you may have said it in the inverse, but our direct cost, which are all the costs associated with moving freight, most of which are variable, we're about 53% of revenue. Our overhead costs, which are more fixed in nature, is between 20% to 21% of revenue.
So those costs are somewhere around $300 million, a little bit higher than that in the first quarter. That $300 million is going to be there in the second quarter and it's probably going to be closer to $305 million, plus or minus. So you've kind of got that base cost to bounce around. But on -- and those being at 20% to 21% to one of your other points, yes, that's been as low as 16% in the past when you're really leveraging up, in particular, all the investments that we've made in capital expenditures and driving improvement there.
On the direct cost side, though, that 53% just as late as the third quarter of last year, those costs were around 51%. And that was still in a tough operating environment. So we definitely have got further room for improvement from a direct cost basis. And then obviously, there's a lot of leverage there on the overhead side. And those factors are what gives us confidence that we can get the operating ratio back to sub-70.
But we're not going to make decisions that would help cost in the short run that may jeopardize the opportunity in the long run. The reason we've been able to outgrow our competitors in strong growth periods like 2018, 2021, where our tonnage growth can be 1,000 basis points or more higher than the industry is because of the decisions we make in tougher times.
We've got the financial strength to be able to invest in service center growth to be able to invest in our equipment to invest in employees and do all the things to be ready for that growth. And that's why oftentimes in those strongest growth periods, we're growing double-digit volumes and a lot of our competitors are flattish in those periods. So all those same strategic advantages, the pre-investment ahead of the growth curve, all of those continue to be in place, and we'll get the most leverage on them when we get into a real accelerating and growth environment again.

Amit Singh Mehrotra

But Adam, if I could just quickly follow up on that for a second because the strategy seems to be we're going to sit around and wait for somebody to get screw up, and that's when the market share opportunity is going to come. And that maybe have been the case in the last 10 or 15 years, but what's plan B? Like what happens if no national player screws up because everybody is focused on service and they actually deliver, what is the plan of action then?

Adam N. Satterfield

Look, we're not just sitting back doing nothing. We're fighting every day to get better and working with each one of our customer accounts to make sure that we're in there. We're having conversations about how we're going to be able to grow with them. But we also don't have to feel the need to go out and try to chase volume, which many of competitors have done in the past, and then they get their network full and they're unable to grow.
So the point that I was making earlier about there's not been as much growth when you look at what has happened sequentially over the last couple of quarters from the third quarter to the fourth quarter.
I mean, when you look, I see that our share has improved from second quarter to fourth quarter, from third quarter to fourth quarter as well. So we're doing this in an environment that is not creating a lot of freight activity. I think that when we get out of this environment, I think that the time to challenge our model would be if we're in an environment where there is robust economic growth, and we're not able to achieve anything, but we are a long ways from there.

Operator

The next question comes from Eric Morgan of Barclays.

Eric Thomas Morgan

I wanted to follow up on the demand environment and in particular, how you would characterize the depth of this to your slumping volumes because obviously, the industry is underperformed industrial production quite a bit since early '22. But if we benchmark 2019 and try to kind of look through the pandemic, both are kind of somewhat flat.
So just curious if we think we've overcorrected and could see a bit of a catch-up on the upside, if there is some macro improvement? Or if you think maybe we're more an equilibrium now and should see more of kind of industrial production type growth from here?

Adam N. Satterfield

Yes. I mean certainly in the past 2 years have felt more like 2009 recession. When you look back last year and see double-digit tonnage in some periods and overall for the year, we were down 9%. It was a very tough operating environment. But again, we continue to try to power through it and position ourselves for future market share opportunities.
And I think that's what we've done, managing all of our other incremental costs along the way to keep producing what is by far and away the best operating ratio in our industry. And so I think that when you get back to an environment where transportation in general, the truckload market, in particular, has been incredibly weak.
And I think there has been some spillover of volumes that have gone into that industry, just given the overall weakness there and players that are willing to move freight take some maybe large heavy-weighted LTL shipments for cost or less than their cost to operate just to kind of keep the trucks rolling. That's been another challenge, if you will, that we've had to contend with.
But that will all change as the economy improves, just like we've seen in prior cycles. And I think that our industry will be tight once again. I continue to believe that despite some other carriers adding service centers that we will be a capacity challenged industry in the future as well.
And ultimately, all of the service centers and door capacities that existed with Yellow, not 100% of that is going to come back into the market, as we've already seen with the process that it's played out over the last 9 months.
So those are all things that we think will end up creating opportunities for us, again, and I think that once we have that tailwind coming at us from an overall industry demand standpoint that we'll be able to capitalize and be able to significantly grow our volumes like we've been able to do in the past and then leverage that growth through the operating ratio.
And if you look back in any period in past, when we've lost the operating ratio in any given year or period and go back to 2009 and look at that, we lost -- the operating ratio deteriorated 270 basis points that year. Once we get the power of leverage in the model, we more than recover anything that we've lost. In that example, in 2010, when things really were robust again, we were able to improve the OR by 360 basis points.
So I feel like though from getting to the improvement cycle that it feels similar to 2017, where things are kind of on the edge of getting ready to start showing improvement again. And hopefully, we'll continue to see some growth as we go through the middle part of the year, some year-over-year growth and further sequential improvement and then things really start taking off and we'll go from there.
But that's -- the good thing about our mid-quarter updates is we're going to give it to you as we go along. So you'll see the final April results we'll put in our 10-Q, the final May results from a revenue standpoint will publish. And you'll know it is developing versus me having to look through the crystal ball and predict when we're going to see the big inflection in revenue coming.

Operator

The next question comes from Bruce Chan of Stifel.

Jizong Chan

Jack, congrats and Adam, I didn't take you for a Swiftie, but maybe if I can borrow a line from her as well, just a question about the tortured pricing department here. We've heard from a couple of shippers that there's one last push going on for lower rates, especially some of those that may be negotiated in the first quarter of '23. And kind of felt like they missed a little bit of the ride there. Have you seen any of that? And specifically, have you seen any pull forward in bid activity early in the year? Any extra color on the pricing trends for this year, certainly helpful.

Adam N. Satterfield

Yes. I've got a teenage daughter, so I can't help but hear certain types of music in the house. But on the pricing front, we've not really seen any material change in activity or bid activity. And for us, it's pretty consistent through the year in terms of how bids come in. And so pretty much just business as usual there. And again, like we said earlier, continuing to get the same types of increases on a core basis that we've seen in the past.

Operator

The next question comes from Ken Hoexter of Bank of America.

Unidentified Analyst

This is Adam [Rusckowski] on for Ken Hoexter. The team and Jack, I hope the other side is treating you well. So why don't you get back to the excess capacity comment you noted about 30%. Could you remind us of the current capacity expansion plan maybe in the near term or over the next couple of years? And then average headcount was up slightly sequentially. How should we think about the headcount run rate for the balance of the year? And maybe could this serve as a potential cost lever?

Adam N. Satterfield

Yes. From a headcount standpoint, I mentioned that we've added about 500 people since September of last year. So I feel like we're in good shape there. The other thing is that we are running our truck driving schools. And so some of the people that we pulled from a platform position and put them into a truck in the fall to respond to that sequential acceleration in business, we've been able to backfill those platforms roles with the hiring, but also have trained more drivers to have those employees and drivers and ready reserve, if you will, to respond to an increase in demand if it continues to accelerate from here. So it's pretty much in balance right now with the change in full-time employees with shipments.
And that's something that generally is balanced over the long term. But I feel like we try to get a little bit ahead of it, but we're cautiously optimistic about and has been for the last quarter. So that was why we went ahead and tried to invest there in that employee growth, but we'll continue to watch and we're a little bit ahead of it.
We've got different levers that we can pull if volumes are accelerating to where you don't have to hire on a one-for-one basis with growth. But we're in a good spot. May be kind of flattish from here. But depending on we see further acceleration coming through, say, now to anticipate through September, then that might require some further hiring. But no real immediate need at this point to do anything in a material way. I feel like our employee count is pretty well balanced with the volumes that we're seeing. Maybe Marty will address the service center capacity.

Kevin M. Freeman

Yes. From a capacity standpoint, we always try to maintain at least 25%. And with the 30% that we have now, some of that comes from what we started as a -- enlarging some of our docs that we had experienced some tight door pressure in which we keep a door pressure report going on a monthly basis. But some of those things are finishing up from expansions in 2022, that's the reason for the 30%.
But we always try to keep excess capacity because we're confident this economy is going to turn for us and if not this year, beginning in next year. So there's nothing worse than getting an influx and promises from customers for additional business and not having enough capacity to handle it. So that's why we try to keep that 25% to 30% at all times.

Operator

The next question comes from Stephanie Moore of Jefferies.

Joseph Lawrence Hafling

This is Joe Hafling on for Stephanie. I hate to ask again on the capacity question, but you've mentioned a couple of times how you think that the strategy of the past would continue to work and the environment itself will become tight. But with sort of all the rest of the national players essentially copying the Old Dominion playbook and trying to keep a 20% to 30% excess capacity figure themselves, how are you thinking about keeping incremental capacity or adding incremental capacity?
And do you think that the industry overall today with everybody trying to be like Old Dominion, does that lead to the industry just having excess capacity more than there ever was in the prior decade?

Adam N. Satterfield

Yes. I think that at the end of the day, capacity is not what wins business. It allows you to achieve market share initiatives. So having capacity doesn't necessarily mean that anyone is going to be able to grow, it just gives the ability to grow. Service is ultimately what wins share and relationships in this business as well.
And I think that we've been able to strengthen our customer relationships over time, our sales and our pricing teams, the relationships that they formed with our customers, the consistency of our business practices, the consistency of our yield management practices as well. All that goes into forming strong bonds between us and our customers.
And so we continue to look at ways that we can add further value to our customers' supply chains. And we look for ways that we can continue to execute on a continuous improvement process, which is a central element of our foundation for success. So we've got a better service product than anyone else in our industry. We're proud that we've won the Mastio Quality Award for 14 years in a row and the service gap between us and the others actually got wider in last year's analysis.
So that's something that we remain focused on and keep trying to do things that our customers are asking from us and to be able to deliver that superior service at a fair price to our customers as well. So the competition that is trying to emulate us, I guess that's one to say about imitation being the most sincere form of flattery.
We'll continue to watch and see what they're doing, but it's something that people have been trying to emulate for years, and we're not sitting still to let someone try to come up and catch us. We're working hard every day to get better to make sure that, that service gap and the overall value gap that we add continues to get wider.

Joseph Lawrence Hafling

Great. And then maybe just on that point, have you heard any maybe anecdotes from customers lately on any service issues? Or is the environment just still too weak right now, so that's really become an issue?

Adam N. Satterfield

I haven't heard anything out of the ordinary, things that we wouldn't normally hear. But the reporting -- we've had some improvement in our -- the national account reporting that we get with wins and losses. And service issues are starting to increase, I would just say, generally. We're starting to see those start to pick up. So just something that's kind of on the press pace of one other item that's kind of changing in our favor.

Operator

The next question comes from Jason Seidl of TD Cowen.

Jason H. Seidl

A couple of quick questions here. Number one, when we're thinking about sort of either the tonnage or market share, it seems that pre-pandemic, it was more of a just-in-time supply chain, and that shifted a little bit to just in case now. It seems like we're probably moving back a little bit more towards the JIT. Is this something that just sort of favors your operational model and service standards? And if it does, should we expect you to sort of get back to sort of the old ways of Old Dominion of sort of being the market share leader?

Adam N. Satterfield

Yes, I think so, Jason, I agree with you. And I felt like post-pandemic, we were going to stay in more of an adjusting case type of inventory management style. But once things get tight and you start managing cost, you have to look at all elements and managing tighter inventory is one way for shippers to improve their overall bottom line.
And so we've seen that trend kind of work its way back to the JIT. And we've had anecdotal feedback from customers that have come in and visited us as well that may have had elevated inventory levels that they have now worked through. So hopefully, that will be a good thing for us.
And it generally is, obviously, if you're managing tighter inventory, you've got to rely on a shipper that can deliver on time and without damage. If you don't have excess inventory sitting around, you can't afford to have a shipment come in that's completely damaged and you've got to deal with a return and reorder type of situation.
And so that has supported our ability to win market share over time. It's something that we think will continue to allow us to win market share as we go forward and it works both with our industrial and our retail customers. But on the retail side, with the on-demand and in full programs that many retailers have put in place to manage their inventory, that's a tremendous opportunity for continued growth in our business as well.
And we're able to meet the expectations of those retailers and take the vendor-controlled freight and make sure that we hit those delivery windows, and we're doing at 99% of the time and without any type of damage. So we're minimizing in some cases, millions of dollars of chargebacks for retail-related customers that are delivering into those big box retailers with those on-time and full programs in place.
So a lot of good opportunity when we look down the long-term curve, and it's why we're so confident in our ability to keep winning market share into the future. I feel like we continue to have a long runway for growth. And that's what dictates and determines our capital expenditure program. We look at where we see growth coming from, a lot of that is based on customer conversations that we're having for how their business levels are going to be changing into the future as well and that dictates how we continue to expand out our network.
So as long as we have line of sight into the next 5 years of growth, and that's generally what we're kind of pre-investing for, we will continue to invest the money into our real estate program and further expand the service center network. But it's all grounded on a line of sight in the market share opportunities. It's not just a build it and hope they come.

Jason H. Seidl

Right. That makes sense. And if I can just follow up with a clarification something. You talked about your growth rates month-to-date in April. But did I miss -- did you guys give how that compares to historical averages?

Adam N. Satterfield

In terms on a sequential standpoint or...

Jason H. Seidl

Yes, because I think you mentioned the sequential gain in tonnage in April, but I don't know if I missed the historical average comp.

Adam N. Satterfield

Yes. So far, I mean, obviously, we're not completely done, but we're somewhere around 48,000 shipments per day. So just up slightly from where we were in March. And we'll see hopefully, that will increase a little bit that average count, if you will. But when we look at what normal seasonality, the 10-year average is a 0.4% increase from March into April for shipments.
But recall that we had a Good Friday is in there in March this year. So in years where that is the case, it would be a 2% increase from March to April. So right now, trending lower than that 2% growth, but when you look back at kind of what we were able to achieve in February and March, again, consistent growth.
And on the tonnage side, we saw just call it 2% sequential growth from January to February and then about 2.5% from February to March, demonstrating a little bit of pickup in weight per shipment there that kind of help that metric. And that metric was essentially in alignment with the 10-year average or rather the adjusted average that reflects Good Friday being in March.
So it's good to see that we're finally seeing month-over-month improvement there versus I've mentioned before from April of '22 through December, we were kind of in a declining environment and then just flat from December at 47,000 shipments per day, December '22, all the way to August when we had the big industry event and that acceleration that we saw pretty much a step function change that happened on an immediate basis.

Operator

The next question comes from Brian Ossenbeck of JPMorgan.

Brian Patrick Ossenbeck

So Adam, I just wanted to ask a little bit more about how you view the truckload market here. I know in the past, you said you thought some other freight moved over. I think you mentioned it earlier. But how much of that went over I guess, with the disruption with Yellow, do you still think that can come back to LTL and tighten it up?
So is that kind of above and beyond what you normally see from a cyclical perspective? And maybe on a related topic, are you seeing anything interesting in terms of April shipping weight per shipment? Is that sort of a leading indicator that you're watching to see for early signs of stabilization improvement?

Kevin M. Freeman

Yes, this is Marty. I agree with Adam that some of this Yellow freight did move over to full truckload carriers in the form of stop-offs where they take 3 or 4 shipments along with a 75% load and charge a couple of hundred bucks to do stock offs. They don't really like to do that nor do their drivers like to do it, but I do believe this moved over there because of the slowness in the truckload market this year and last year.
And I also agree that this will move back to LTL carriers once the truckload market picks back up. So -- and I suspect that will happen at the same time the LTL market starts to flourish again. So that will come straight back to the LTL market.

Brian Patrick Ossenbeck

Any thoughts on weight per shipment and how that's trending and how we should expect that throughout the rest of the year?

Adam N. Satterfield

Yes. We hope to see it continue to increase. That's typically an indicator of an improving economy as well. Like I mentioned, an increase from February to March, it's increased a little bit from March thus far into April as well. So that's something that we're probably on the low end of the scale in terms of how that metric changes.
It got a little skewed, if you will, with post Yellow and some of the incremental freight that we saw there. But historically speaking, in a strong demand environment, we've been closer to 1,600 pounds as an overall average. We're still down around 1,515 pounds and so we definitely have got some room to grow there.
And that, too, creates and that's part of the leverage that you get from an operating ratio standpoint is weight continues to increase, you're getting more revenue per shipment, and that will help overall offset and kind of close that gap that we've seen with cost per shipment over the past years. The call relatively speaking, is -- should be very similar, but you're just getting more weight and more revenue per load, if you will.

Operator

The next question comes from Tom Wadewitz of UBS.

Thomas Richard Wadewitz

I wanted to -- it seems to me like the -- I guess, the freight environment improvement is a key catalyst for what you're going to see on the tonnage side and give you a chance to benefit from the capacity and service you can offer. What have you seen in terms of industrial customers versus the kind of retail and consumer customers where there's any kind of difference in behavior or trend or optimism.
And I guess related maybe more to the retail side. It's been surprising that container imports have been pretty strong for a number of months. And yet the domestic freight environment seems like it's still pretty soft. So I don't know if you have any thoughts on what might be going on there if there's some inventory. But I guess any color on differences in customer segments or maybe why the imports aren't translating to domestic activity so much.

Adam N. Satterfield

Yes. Overall, the retail continued to reflect -- or the industrial rather reflect the weakness that we've seen in the industrial economy. And in the first quarter, we had 1% revenue growth, but it was actually a slight decrease when you look at just our industrial-related accounts group together. So a little bit better performance on the retail side to offset that in the first quarter.
But again, hopefully, that's something now that we've seen ISM trend back above 50%, it had been below 50% for 16 months. I mean just this long, incredibly slow environment that we've been slugging through. But generally speaking, that indicates that improvement in that industrial environment, if we can stay above 50%, it should be coming, and that could be sort of in that May time frame.
So it's something that we'll continue to watch. But the retail continues to perform. We've also seen an improvement in the business that's managed by third-party logistics companies. And that's kind of in the early stages as well, but seeing some improvement there. I think is a good sign. Oftentimes, the 3PLs that have the systems, they're able to identify some of those top-off shipments that Marty was referencing earlier by being able to look through their entire inventory of capacity versus shipments.
And so if we're starting to see some growth there again with those and maybe some of that type of truck versus LTL swing might start reversing course. But again, I think it's just a lot of things are kind of in the early stages that we got to keep watch on and I don't want to get overly caught up in and -- but keep our fingers on the pulse, if you will, and continue to watch the trends and see if it manifests into increased LTL demand overall for which I think that we will more than be able to win our share.

Operator

The next question comes from Scott Group of Wolfe Research.

Scott H. Group

So Adam, I know we're at the hour, there have been a lot of questions on price already, but -- so some of this may be repetitive. But like obviously, this these LTL stocks are getting hit pretty hard today, but the April yield numbers, they are what they are. But I just want to make sure, are you -- it doesn't feel like it, but are you in any way communicating any kind of change in the underlying pricing environment here, the competitive dynamic? I know you don't share pricing renewals every quarter like some of the other LTLs but maybe this quarter could be helpful. Are they slowing? Is it -- what's changing in your mind?

Adam N. Satterfield

Yes. And again, to repeat, nothing is changing with respect to the core contract increases that we're achieving and that we're targeting. We continue to target cost plus increases, and we're getting those. It's just a little bit different in the mix of freight that we're seeing. We've seen a little bit of a decrease in length of haul.
Some change in increase in weight per shipment, like I mentioned, all those factors kind of lead to a lower revenue per hundredweight. So just looking at things on a pure per hundredweight basis, it's gone from, just call it, 6.5% growth in the first quarter to 4.5% excluding fuel so far in April.
But we've said before, hundredweight can move around quickly, and that's why internally, we focus more on revenue per shipment than anything. That's what we pick up every day, our shipments, and that's what we've got to figure out what's the cost to pick up a shipment. What's the cost of line haul a shipment, cross-docket. Everything that we do is driven on a per shipment basis.
And I mean I think we can get back to having a positive spread of revenue per shipment versus our cost per shipment performance. So that will continue to be the initiative. I don't see anything changing with respect to the pricing environment and nothing changing that we've seen as we've gone through renewals and bids and so forth with respect to the other carriers in the industry.
And obviously, we'll see with their reports when they come out. But we've not seen anything change in that regard. It's just some mix changes that are impacting our revenue per hundredweight metrics thus far into April.

Scott H. Group

But just so I'm clear, I don't think you guys talked about revenue per shipment accelerating with this mix shift or maybe it is, I just didn't hear that.

Adam N. Satterfield

No, but it's staying consistent with where we were. The rev per shipment performance in April thus far is pretty consistent with what we just had in the first quarter. We were up 3.8% revenue per shipment in the first quarter, excluding the fuel surcharge.

Scott H. Group

Okay. And then just one more question. You talked about like just the power of leverage. Now if I take what you're saying about Q2, you're sort of saying mid-single-digit plus sort of top line growth and flattish OR, right? So historically, we get mid-single-digit top line, and we see real OR improvement. How come -- maybe it's just a timing issue, how come you're not suggesting we see that the power of that leverage right away in Q2?

Adam N. Satterfield

Well, I think that's something that obviously depending on how much volume growth we actually see in the quarter or not sequentially. We've invested significantly in many factors that we detailed earlier that create short-term costs. So if we can see some further improvement and if weight and shipments really accelerate kind of from here forward, and obviously, there's a lot of leverage that would therefore come from that.
But that's something that if we're -- if we continue to grow revenue, it's kind of a 6% year-over-year rate like we saw in April, then we tried to give a factor of, okay, maybe we'll only see 150 basis points of sequential improvement, which would still be a year-over-year improvement where we were in the second quarter last year.
But I think it's just going to move on a sliding scale, if you will, based on how much revenue comes in. And typically, like I mentioned, the revenue growth is between 8.5% and 9% to 8.7% from the first quarter to the second quarter. And we're just not there yet. And hopefully, we see further sequential improvement in May and June. And obviously, we give those -- we'll give the update for May, with our mid-quarter update as we go along.
But the improvement that we see in the operating ratio is typically 350 to 400 basis points of improvement. A lot of that improvement comes by way of the direct costs. It's mainly the salaries, wages and benefits and are op supplies and expenses, and that's coming from the improvement in operating density and taking advantage of all that incremental freight that's moving through the system.
So if all those things do develop, then obviously, we can produce further improvement in those direct costs. And like I mentioned earlier, from a headcount standpoint, I feel good about where we are. So it's not like we've got to scale up even more in terms of our hiring practices. But we'll probably be working more hours and doing things like that with the existing workforce. So there's opportunity to scale there. But like any other period, it's just going to be top line dependent for how much growth do we see and how much of that incremental growth will be able to put to the bottom line.

Operator

The next question comes from Jeff Kauffman of Vertical Research Partners.

Jeffrey Asher Kauffman

And Jack, congratulations, really looking forward to working with you in this role. A lot's been asked, so I just want to take a step back. It's been a weird couple of years, right? We had COVID, big up, big down, inflation. We've had inventory destocking. We've had the Yellow closure. We've had a lot of growth in private fleets. All of this, I think, makes it difficult to predict what's going to happen with business.
But eventually, we do anniversary all these impacts and things start to resemble what might be considered a more normal operating environment. When do you think we get back to that? And where is your vision most foggy relative to what it would be without these oddities that have occurred?

Adam N. Satterfield

Yes. I don't have my Carnac the Magnificent happier handy to be able to predict on when things are going to change, but that's probably the most buzziest thing is when will the inflection point happen. We -- obviously, it's called a cycle for a reason, and we will get back into a robust demand environment at some point. And when we do, we will be able to take advantage of that.
And we've built the company up. We've been growing our company for years and continue to believe that we've got a lot of growth opportunity as we look out into the future. So obviously, we put on a lot of growth. We're able to grow our revenues, $1 billion in each of 2021 and 2022 and then ran into the slowdown in the economy.
So we've been making our way through that very well, very proud of the operating ratio that we were able to produce last year in a challenging environment. And we're still in an environment that we're not out of the woods yet, if you will. We still had in the first quarter, a 3% reduction in tons per day and essentially had a flat operating ratio, but we're able to produce positive earnings per share as well.
So I feel good about the base level of operations where we are today and being able to build on what we've established. So there's a long runway for growth out there when it comes to a top line standpoint that we believe for our business. And we've got further room to improve our operating ratio as well. And so that will allow us to achieve our vision of achieving long-term profitable growth that drives an increase in shareholder value.
So all those same elements are in place. There may be some different logos that have been moving around on service centers and different customers, given all the disruption that's taken place over the last 6 to 9 months. But OD stands ready, and we'll continue to add value to our customer supply chains and we feel like we'll be able to drive significant growth in our business as we go forward.

Jeffrey Asher Kauffman

As funny as you were talking about the service centers, I was just thinking you can add all the service centers you want, but that doesn't make your service or your culture equivalent.

Adam N. Satterfield

And that's a great observation.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks.

Kevin M. Freeman

Yes. I'd like to thank all of you today for your participation, and we really appreciate your questions. If you have anything further, please feel free to give us a call, and we'll be glad to answer it. And I hope you have a good rest of the week. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.