Old Dominion Freight Line Aktie

Good day, and welcome to the Old Dominion Freight Line First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jack Atkins. Please go ahead.

Thank you, Darwin. Good morning, everyone, and welcome to the First Quarter 2026 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through April 29, 2026, by dialing 1 (855) 669-9658, Access Code 7699494. A 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 facts 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.

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.

Finally, before we begin, we note that we welcome your questions today, but ask that you limit yourselves to just 1 question at a time before returning to the queue. Thank you for your cooperation.

At this time, for opening remarks, I'd like to turn the conference call over to our President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.

Good morning, and welcome to our first quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions.

Our first quarter results reflect a continuation of the encouraging trends that started to develop late last year. While our first quarter revenue declined on a year-over-year basis, demand for our service improved as the quarter progressed. This contributed to the acceleration in our LTL volumes during the quarter, with strong sequential tonnage growth in February and March.

Importantly, during the quarter, our team continued to deliver best-in-class service to our customers and maintained our disciplined approach to yield management. Providing our customers with superior service at a fair price is the cornerstone of our strategic plan. The consistency of our service performance day in and day out create significant value for our customers, and it's something that we take significant pride in. As a result, we were pleased to once again deliver 99% on-time service and a claims ratio below 0.1% in the first quarter.

The strength of our unmatched value proposition has differentiated us from our competition and allowed us to win more market share than any other LTL carrier over the last 10 years. Our value proposition will continue to support our ability to grow our business in the years ahead. And we continue to believe that we will be the biggest market share winner over the next 10 years as a result.

Our best-in-class service also supports our yield management initiatives. Our long-term, disciplined approach to pricing is designed to offset our cost inflation and support our ability to make strategic investments back into our business. These investments will allow us to stay ahead of our anticipated growth curve to help us ensure that we'll always have the capacity we need to grow.

Our ability to say yes when a customer needs us the most is the hallmark of our industry-leading customer service. Business levels in the LTL industry can change very quickly and being able to respond to growth opportunities in an improving demand environment is one of the primary areas that differentiate us from our competition.

We believe it is important to consistently invest throughout the economic cycle despite the short-term cost headwinds associated with this strategy. This is why, despite a challenging operating environment, we invested nearly $2 billion capital expenditures over the past 3 years and why we plan to invest an additional $265 million in 2026.

We've also continued to invest in the most important component of our long-term success, which is our OD family of employees. Our people and our unique culture are truly what sets us apart at Old Dominion. As a result, we have worked to ensure that we are providing a competitive wage and benefit package as well as various internal developmental programs like our in-house cyber training schools and our management training program. These programs not only provide important opportunities for career advancements for our team, but they help ensure that our company is ready to respond when our customers need us the most.

While we were always focused on long term, it is critical that we remain diligent in controlling our cost and continue to operate as efficiently as possible without compromising our superior service standards. That remained the case in the first quarter as we continued to find ways to maximize our operating efficiencies and control our discretionary spending. We continue to believe that our business model contains significant operating leverage which has been enhanced by our ongoing investments in our technologies and continued focus on business process improvements.

We produced solid results in the first quarter by continuing to execute our strategic plan, and I want to thank the entire OD family of employees for their unwavering dedication to our customers and to our company. Due to our consistent execution and investment, we are uniquely positioned to effectively handle incremental volume opportunities as the demand environment improves.

As a result, we remain confident in our ability to win market share, generate profitable revenue growth and increase shareholder value over the long term.

Thank you very much for joining us this morning, and now Adam will discuss our first quarter in greater detail.

Thank you, Marty, and good morning. I'm a little under the weather today, so I'd like to ask you all to bear with me as we get through this call.

Old Dominion's revenue totaled $1.33 billion for the first quarter of 2026, which represents a 2.9% decrease from the prior year. Our revenue results include a 7.7% decrease in LTL tons per day, that was partially offset by a 5.7% increase in our LTL revenue per hundredweight. Excluding fuel surcharges, our LTL revenue per hundredweight increased 4.4% compared to the first quarter of 2025, which reflects our long-term disciplined approach to yield management.

On a sequential basis, our revenue per day for the first quarter increased 0.5% when compared to the fourth quarter of 2025, with LTL tons per day decreasing 0.4% and LTL shipments per day decreasing 0.7%. For comparison, the 10-year average sequential change for these metrics includes a decrease of 2.8% in revenue per day, a decrease of 2.5% in LTL tons per day and a decrease of 1.6% in LTL shipments per day.

The monthly sequential changes in the LTL tons per day during the first quarter were as follows: January decreased 3.4% as compared to December, February increased 4.9% as compared to January, and March increased 4.6% as compared to February. The comparative 10-year average change for these respective months is a decrease of 3.1% in January, an increase of 1.0% in February and an increase of 4.5% in March.

While there are still a couple of workdays remaining in April, our month-to-date revenue per day has increased by approximately 7.0% when compared to April 2025. This includes a decrease in our LTL tons per day of approximately 6.5% and an increase in our revenue per hundredweight, excluding fuel surcharges, of 4% to 4.5%. As usual, we will provide the actual revenue-related details for April in our first quarter Form 10-Q.

Our operating ratio increased 80 basis points to 76.2% for the first quarter 2026 as the increase in overhead cost as a percent of revenue more than offset the improvement in our direct cost. Our overhead cost increased as a percent of revenue, primarily due to the deleveraging effect associated with the decrease in our revenue as well as an increase in our general supplies and expenses. This resulted in a 60 basis point increase in our general supplies and expenses and a 40 basis point increase in our depreciation cost as a percent of revenue. All of our other combined costs improved as a percent of revenue for the quarter on a net basis.

The improvement in our direct operating cost as a percent of revenue was primarily due to our continued focus on revenue quality and operating efficiencies. Despite the lack of density in our network associated with the decrease in our volumes, our team did a nice job of matching our labor cost with current revenue trends, and this will be a key focus for us over the balance of the year. That said, we currently believe we have an appropriately-sized workforce to handle a sequential increase in volumes during the second quarter.

Old Dominion's cash flows from operations totaled $373.6 million for the first quarter, and capital expenditures were $62.6 million. We utilized $88.1 million for our share repurchase program during the first quarter, and our cash dividends totaled $60.5 million.

Our effective tax rate for the first quarter of 2026 was 25.0%, as compared to 24.8% in the first quarter of 2025. We currently expect our effective tax rate to be 25.0% for the second quarter of 2026.

This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

[Operator Instructions] The first question comes from Jordan Alliger with Goldman Sachs.

I guess sort of in the context of some of those trends you've been seeing maybe continue on the trend thought and share some color or thoughts on direction of OR as we move from the Q1 to Q2.

Yes. The 10-year average change for the operating ratio was a 300 to 350 basis point improvement from the first to the second quarter. And we're comfortable with that range in the second quarter this year, assuming that we do see some sequential improvement in our volumes from here. And that's what we'd anticipate. But obviously, there's a lot going on in the world right now. But based on what we're currently seeing, we're expecting that increase in volumes. And I think we're comfortable with hitting that normal sequential range as a result. If we do so, it would be the fourth straight quarter that we've been able to be in or at least beat what our normal sequential change would be.

And I don't know if I could ask a follow-up, but just sort of related to that, have you seen then a shift in sort of that excess terminal capacity? Has it come in a little bit as we've seen volumes look a little better?

In terms of our capacity?

Yes. I think you've been at like 30%, 35% terminal capacity excess. I'm just sort of curious if that's changed at all.

Yes. We're still a little north of 35% because our volumes are still down on a year-over-year basis, and obviously, this is the slower time of the year in the first quarter. But that's something that we continue to see as an opportunity and will drive part of that operating ratio improvement, is we can continue to see sequential volume improvement and then leveraging those fixed costs, those investments that we've made and the depreciation headwind that we've been facing. So leveraging those and some of our other fixed overhead costs. But that benefited density driving improvement in both our direct operating cost as well as some of those overhead costs.

The next question is from Jason Seidl with TD Cowen.

Adam, I hope you feel better. I want to stick on the OR topic a little bit here. As we think about your commentary for the normalized sequential moves from 1Q to 2Q, can you help us frame up the impact in 1Q for both fuel as well as weather, so we could figure out sort of where in the range we might want to be?

Yes. I'm glad you asked that. I figured fuel would be a topic of conversation. But I don't...

It's come up a few times.

Yes, exactly. Fuel -- as part of our yield management strategy, we've always talked about we want fuel, which is just a variable component of pricing, to really be indifferent. If fuel goes up or if it goes down, essentially, we want the bottom line to be the same. And that's how we look at things on individual account profitability type basis.

And I think when you look at what happened from the fourth quarter to the first quarter of this year, we outgrew our normal sequential trend with tonnage by about 200 basis points. And that's really the story of the quarter in the sense of the strong operating ratio performance that we had there.

But when you just look at our shipments per day from the fourth quarter to the first quarter, were essentially the same. And when you look at fuel was up 10%, bill count is consistent -- profitability is relatively consistent, a little bit better overall. But obviously, there's other things going on. When I compare that back to the first quarter of 2023, compared to the second quarter 2023, a lot of similar circumstances. Bill count was the same between those 2 periods. Fuel was down 10% between those 2 periods. So you had revenue impact on the downside of fuel, but profitability was consistent between those 2 periods.

So obviously, there's always a lot of fluctuations. But I think those 2 sequential periods, when you've got similar bill count, similar mix of freight, kind of shows that fuel can go up or down 10% and overall profitability stay the same. Now obviously, we're looking at a much larger increase in fuel.

And I would probably just point everybody back to the second quarter of 2022. I think this first quarter to second quarter of '26 is probably going to have a lot of similarities to that first quarter to second quarter '22 period when we saw the fuel shock and all the other inflationary impact that that drives.

The next question is from Chris Wetherbee with Wells Fargo.

I wanted to get your sense on how you feel about, I guess, demand and then, ultimately, how you're faring from a market share perspective as you think about coming out of the really strong performance in February and then what you've seen so far in March and April. Just kind of curious if some improvement has continued, or you feel like there has been more steady demand? Just kind of get a sense of how you're thinking about things.

Yes. It definitely feels like it's continued to improve. And I go back to last year, we've had, essentially through March, is 5 months of normal sequential trends for us. And obviously, like I mentioned earlier, it's through slower part of the year. But we felt like we started seeing a lot of -- hearing optimism from customers and from our sales team late last year, and we started seeing that return to seasonality. We've seen a pickup in our weight per shipment. And in fact, in April, our weight per shipment is up on a year-over-year basis, a little over 1%. So that's usually a leading indicator of an improving demand environment.

So all those things, the positive ISM trends that we've seen, and we'd expect another positive ISM for April, I think those have all been consistent. The retail side of the sector has probably been driving more of the volume performance at this point, and we're looking for the industrial to start contributing as well. But that usually starts performing on a wide basis after you see that positive ISM performance.

And I think that what we seem to hear right now with -- obviously, there's some geopolitical risk to everything right now, but it seems like most people are kind of looking through what's going on. And I think that supported a positive consumer and these positive trends and thoughts that we're still hearing from customers, that whatever can be settled within the next 3, 4 months or whatnot, hopefully, we can get back to business, restocking inventories, doing all the things that was starting to contribute freight to us, and still is, we'd like to see that momentum continue through the balance of this year.

And is there anything that informs about your sort of revenue assumptions for the second quarter?

I'm sorry. Say that again, Chris?

And what you're seeing in the market, does that sort of give you a view on what you think revenue might look like for the second quarter?

I think so. I mean we're a little bit below normal seasonality right now in April, but I feel good at just looking at the trend of seeing how the revenue is performing and our volumes as well. And we've had good acceleration through the month as well. So that's been good to see. But it's not a surprise to see things pull back a little bit and some customers showing a little bit of caution. But it still feels like there's a lot of cautious optimism there from the feedback we're hearing. And we're starting to win more in bids that we're participating in. So there's a lot of positive trends that are developing.

But I think that kind of going back to looking at that 2022 comparison, that was still a growing environment. Who knows what's going to happen with May and June? But if we can continue to see some sequential improvement in our volumes, which I believe we will, then I think that we can continue to show good, strong top line improvement and then carry that through from an operating ratio that will produce some pretty good-looking numbers from a bottom line standpoint.

Our next question comes from Scott Group with Wolfe Research.

Feel better, Adam. The last couple of quarters, you've given us sort of a range of sort of revenue that you've embedded within the OR sort of guidance. I don't know if you can share something similar. And then bigger picture, the truckload market clearly has gotten a lot tighter. We keep hearing it's more sort of supply driven. Are you seeing that typical -- any of that typical spill from truckload back into LTL? And do you think a supply tightening in truckload means it's any different of a cycle this time and for -- as it relates to the LTL business as maybe we've seen in the past?

Yes, that definitely has been happening. And I think that's something that you obviously see what's going on in the truckload market with their rates and capacity changes, I think, is driving a lot of that. But we started hearing late last year, I think a lot of shippers were anticipating that this environment would finally turn this year. And I can think to a couple of large accounts that had mentioned part of their supply chain strategies the last year or so have been taking advantage of that market, consolidating some loads and whatnot and that they were going to revert back to moving more freight by LTL. And so I can look at a couple of specific customer accounts and see that that trend has reversed.

But just bigger picture, we know that's something that's been a headwind for us for probably the last couple of years. And then it's something that we felt like was going to need to sort of fix itself, that being the truckload world, to take some of the pressure off some of those load consolidation opportunities that shippers have been taking advantage of. So I do think that's something that will unwind and will be a big benefit to the industry and something that I think that we'll be able to benefit from as we start getting back to market share opportunities and taking advantage of those.

Okay. And then the first part was just like if there is like a revenue range or assumption for the quarter.

Yes, I didn't really give -- I didn't go through that this time. I think that, obviously, there's some volatility based on what fuel is going to do. And hopefully, we'll see that continue to decline. But just thinking about the volumes, as I mentioned, we're trending a little bit below from a tonnage standpoint what our normal sequential change would be at this point. And so that's something that will probably be [ unexpected ]. Unless we have strong performance like we did in February and March, that may be something where the volumes come in a little bit lighter than what our normal sequential change would be. But just too many factors to try to figure out to give a top line range.

But I think that based on right now, like we mentioned, April is down 7%. So if you just kind of hold that bogey -- or up 7%, sorry. If you hold that bogey across and then just sort of move here and there as we give our mid-quarter updates and see what fuel is doing and that volatility there, will allow you to kind of flesh that through your model, hopefully.

Our next question comes from Eric Morgan with Barclays.

I wanted to ask on pricing and yields. I think the 4.4% in the quarter was a bit ahead of your guidance. So just curious if you could speak to the drivers there. I think weight per shipment was pretty consistent throughout the quarter. And then I think you said 4% to 4.5% in April maybe weight per shipment a little bit more of a mix impact at this point. So just wondering what kind of the right run rate is here for 2Q, just how we should calibrate that.

Yes. I think that 4% to 4.5% for the full quarter is still appropriate, and we will be looking at weight per shipment. If trends can hold, it should be up around 1% or so for the full quarter. Like I mentioned, we're up a little over 1% at this point in April. So hopefully, that will continue to hold. And we'd love to see that number continue to move higher and be even more of a headwind, if you will, relative to our revenue per hundredweight performance. Because it would indicate that the economy is continuing to get stronger and we would continue to be winning business.

But yes, the first quarter yield came in a little bit stronger overall, I mean, just a little bit. I think we had said up 4%. But that was probably anticipating a little bit more weight per shipment headwind than what we got. It was still nice to see it's the first quarter in some time where we've had a year-over-year increase in weight per shipment.

But overall, I think our results just reflect what our consistent long-term strategy is. And we always want to be consistent and fair with our customers and get cost base increases, and I think that that's what we've done over time. We've been able to do it over the last couple of years when the environment has been slower. And we can continue to maintain that measured approach as we go forward. That gives us really strong revenue per shipment, especially as the weight per shipment starts improving. And that's really what we've ultimately got to get back to, is a positive revenue per shipment over cost per shipment spread. And we're not there yet, but we're certainly starting to close the gap, if you will, and can get those numbers moving back in the right direction.

Typically, we want to see 100 to 150 basis points of positive revenue per shipment over cost per shipment spread.

Our next question comes from Ravi Shanker with Morgan Stanley.

So Adam, again, sorry to keep straining your voice here, but just on the 2Q OR walk, I'm a little bit surprised that kind of you're not pointing to maybe doing better than the normal seasonality just given some of the positive trends kind of in April up 7% and such. Is that just you guys being conservative? Is that just a higher starting point with 1Q? Or can you just talk about some of the moving parts that can maybe help you kind of top that normal seasonality?

Yes. I think that it's probably a couple of things. One is a known, I feel like we're going to see some headwinds as it relates to our fringe benefit cost. They came in a little bit better than what I'm forecasting for the entire year in the first quarter, and are looking at the April trend, that's something that we expect we're going to see higher cost there for the full quarter.

And just as fuel changes, it creates a lot of headwinds from a variable cost standpoint that may get overlooked. That's why pointing people back to 2022 might be a good sort of measure to look at. But obviously, anything petroleum-based products, any of those we're going to see inflation. But other overhead-type costs, things you wouldn't think of, like credit card fees and the percent of bad debt write-offs that we have, things like that, is just going to create other ancillary costs.

So it's not to say that if we get business levels that continue to pick up, that we can't beat the guidance like we just did in the first quarter. And as you mentioned, we do have a pretty good starting point, if you will, with our 1Q performance. But I feel like that's a good starting point. And that's based on us talking about probably being a little bit lower than what our normal sequential trend would be from a tonnage standpoint as well.

So I feel we can kind of execute on some of those broad numbers that we just talked about. We're starting to kind of map that out and we're looking at double-digit type of earnings growth. So all those numbers flowing through the model, it certainly can get better, but I think this is a good starting point to start finally seeing things back in the green for us.

Our next question comes from Jonathan Chappell with Evercore ISI.

Maybe Marty can answer this one, give you a break, Adam. February obviously did a lot better than typical seasonality or your long-term averages. March was a smidge better, maybe in line, and now it sounds like April is maybe dipping a bit lower. Do you get a sense that there was any pull forward into the first quarter? And does that help framing kind of the way you're thinking about the second quarter as well as maybe borrowing a little bit from 2Q to get into 1Q?

And then also, I just want to raise this too. I mean it feels like June is a really easy comp. It was difficult last year in that tariff environment. So could it be a thing where you end the quarter on a higher note just based on a comp perspective?

Jonathan, I'll answer your pull forward. We're not hearing any major pull forward comments from our large customers as they visit our corporate office. As Adam said earlier, we see some of this truckload volume that LTL went to last year and the year before, we see some of that coming back because of the tightness of the drivers and so forth. So we're not hearing the pull-forward comment at all.

Yes. And I think obviously, just as we go through the balance of the quarter, there's just still a lot of uncertainty out there with everything that's going on in the world. And I'd love to have a clear crystal ball to say that we'll have May and June performance similar to what we had in February and March, but it's hard to kind of pinpoint that at this point.

We certainly feel like there's a lot of opportunities out there. And I think that's a good thing about us given our mid-quarter update, when we see the actual results for May, we'll be able to talk about those trends as they're developing. Do we see a continuation of the positive trends?

But I think we've heard more optimism from customers really through the balance of the year. And like Marty said, I don't think that there was any pull forward per se that helped boost the numbers. I think it was just we got through that first quarter. We expected continued strength and it's not totally unexpected given everything going on that people pulled back just a little bit.

Still overall, good performance in April. We're pleased with what we've been able to do and what our numbers are looking like. But certainly hope that we'll see a continuation of the buildup, not only through June, but this is what we'd expect really from now through September.

Our next question comes from Ken Hoexter with Bank of America.

Marty, Jack and Adam, it's spring, so hopefully you get well soon. Those truckload volumes you're talking about, are they good-quality freight or a -- I'm always confused if that's stuff you want. And then if volumes are trending below seasonality, I just want to clarify, is this a share loss indication? Or are market volumes not as good as we're all expecting?

And then my other one is just the average employee is down 7%. You were talking, I think, in an answer before about the kind of the add-on and employees, or thoughts on employees and your ability to scale if you do get that inflection? Is that something you're focused on?

Yes. I'll answer that one first. I think that we've talked about this for the last few quarters that I think where we're positioned now, we're in a really good spot in terms of having people to be able to respond to sequential growth from here on out through the balance of this quarter. Not to say there might not be some hiring here and there, but overall I would expect a pretty similar headcount level, if you will, as we go through the balance of this quarter.

And we certainly have got the capacity from a people standpoint. We've got plenty of service center capacity and we've got the fleet to be able to accommodate sequential growth as well.

And now I don't think that the April trend is any type of market share loss at all. I think it's just the numbers are a little bit softer from a volume standpoint than what we had been seeing. Typically, you see a little drop-off anyways in April. And so it is what it is. But I think that we're probably going to exit the month at a pretty good run rate and would expect these trends that I've seen this past week and all last week, if those continue to work our way through the balance of the quarter, I feel pretty good about saying that we're anticipating sequential improvement, if you will, from where we are now until getting to the end of June.

So how strong will that be, that still remains to be seen. But I think there's a lot of opportunities out there. And that's what I referenced earlier. We're seeing a lot of wins as we're participating in bids right now and a lot of behavior that's pretty consistent with the environment turning overall.

So a lot of good things. Hopefully, this is the early stage of recovery that we typically outperform our competitors the most. And when you look back over time, it's the early stages of recovery, those high-growth years where, from a volume standpoint, we've been able to outperform our competitors somewhere around 900 to 1,000 basis points. So hopefully, this is what's kicking off now, but just keeping everything in check, if you will, with the risk that we see in the economy right now and that uncertainty that's out there, just to be able to truly draw a line in the sand and say, yes, the race has started. But definitely not any indication of any loss of share.

And the final comment about truckload, it's not that it's a full truckload of freight that's now coming in and we're moving a 40,000-pound load. It's just with load optimization software that's out there, a lot of customers in a weak truckload environment, many 3PLs have got mode optimization tools and things like that. And so they can consolidate some different loads and do some things to move freight at a lower cost.

But I think that haven't started necessarily seeing that completely unwind yet, but I think that we're in some early stages of that as well just from looking through the underlying data of our 3PL business right now. So that's something that should continue or start providing rather a little bit more of a tailwind, probably getting a little bit some pieces of it here and there from customer-specific activities, but I think that's something that will probably provide more opportunities as the demand environment continues to improve.

And also, it is good freight because many of these customers that transitioned some of their business over to full truckload, we have -- we're still handling the LTL shipments for them and that pricing is still in effect. So when it moves back over to us, it moves at that profitable LTL pricing that we have in effect for them. So it is good freight.

Our next question comes from Tom Wadewitz with UBS.

Yes. I wanted to see if you could just tell us what the -- I know you said it's a little worse some seasonality in April, I guess, down 6.5% year-over-year. What would the 10-year average and normal seasonality be? Just so we can make the clear assessment, I don't think you said that.

And then I guess the broader question, I think Ken asked a little bit about this, but we have seen some improvement from other players in the market, like I mean, TFI is talking a lot about service improvement, favorable trend in their volumes. But they're a low price point in the market, I just don't know if you see them. ArcBest is active with their dynamic pricing. And FedEx Freight eventually makes investments, probably can be a better competitor looking out a ways. So I just wonder, looking historically, do you tend to see it when others improve service? Or is it a big enough market that you say really it's just a cycle in our own performance as opposed to what this LTL or that LTL are doing?

Yes, I would say that based on all the data that we have and feedback that we get, the service gap between us and our competition is as wide as it's ever been, if not getting wider. So I don't want to comment necessarily on any one specific. But I think other carriers obviously have got their own initiatives and things that they're working on. And all we can speak to is what we see with our business and our customers.

And like I said, I still feel like we've got a lot of optimism. We're starting to win more business and bids that we're participating in. And that's what gives us optimism to get through the balance of the year and start working our numbers. We're still down on a year-over-year basis from a volume standpoint, but 5 straight months of sequential performance and may take a break on that this month for April. But we'll see where we go through the balance of the year.

But we need to get back to getting our numbers back to neutral, if you will, from a tonnage and the shipments per day standpoint relative to last year and start getting back to what we do best, which is growth. And we're looking like we're going to have revenue growth in the second quarter, and that should lend itself to good earnings growth as well. And we'll look and see where we get through the balance of the year. But I don't think that any specific carrier initiative right now is having any material impact on us. We -- I feel like we're seeing more wins than anything when I look at our individual bid performance.

What about just the numbers for what April was? I don't know if you want to say sequential versus what's your assessment of normal seasonality or the 10-year. I think -- I don't know if you gave us specific numbers.

Yes, I didn't give the specific number. And I hate to give it because the month-to-date, it depends on the last couple of days. It's kind of comparing apples and oranges. But it's -- the normal would be down 1%, and we'll see what these next couple of days. Tomorrow should be a really big day for us and it will skew the month-to-date number up or bring that number up today and tomorrow will. But it's still, based on what the trend is, we'll be below that 1% number.

But I'm comfortable where we are. And again, the run rate that we have today, and just knowing what I know for how these really develop, I feel pretty good about saying that we should have sequential growth as we get into May, into June to close out the quarter.

Okay. But you don't want to say what that month-to-date is versus a down 1% normal?

Nothing other than what we already said with, right now, it's running down on a year-over-year basis, about -- yes.

Our next question comes from Brian Ossenbeck with JPMorgan.

Maybe just a couple of follow-ups, Adam. You gave some helpful comments about some of the cost pressures that you're seeing. Maybe excluding the fuel, is there anything else that you can call out we should be aware of from a cost per shipment perspective you already have line of sight to? It sounds like maybe some health care and benefits are moving up here throughout the rest of the year?

And then just following up on the last question about competition, maybe you can give us some perspective because we see a lot of new entrants or new conversations about things like grocery and expedited freight, like how long do those bid cycles last? How long does it really take to get into those markets? Because I'm sure it takes a while, it's easier said than done, but I would like to hear your perspective on how that really works in practice with some of these higher premium services.

Yes. On the, yes, I mentioned the fringe headwind that we're looking at, and obviously, anything that's fuel related, we're going to see increased costs. But on the flip side, we had an increase in the general supplies and expenses in the first quarter. I'd expect to see a little bit of improvement there, especially as we get leverage on those costs. Some of those G&A expenses are variable in nature. So as revenue continues to go up, you'll get a little pressure there. But some of those were more quarter-specific, if you will. And so we should see a little bit of benefit there relative to what our normal trends.

Depreciation is the other item relative to what the 10-year average change in depreciation costs from 1Q to 2Q. With our CapEx plan being lower this year, then we shouldn't see that same type of inflation, if you will, in those costs. So we should be able to get a little bit of leverage there to offset some of the other headwinds that we're anticipating.

And with respect to other carriers' focus on different segments, it's -- we compete with every carrier as it stands today, and with those same -- whatever line of business that you want to talk about. There's no secret part of the market that we've got access to. There are some things that I think we do really well, where we add a tremendous amount of value to our customers, that we don't see the same value-add from some of our competitors. And that's direct feedback from our customers.

So we take none of that for granted though, and we're always looking at ways that we can continue to enhance our services, be it through technology and other measures, to make sure that we keep that service gap there. But I've heard over my career different competitors that are targeting one segment business that they think OD has got to lock on, versus another. And it hasn't slowed down our growth over time, and I don't think it changes the trajectory of what our growth opportunities look like over the long term either. As we've said plenty times before, service is ultimately what wins share in this industry, and I think we've got a better service product than anyone else. And for that reason, I think we'll be the biggest market share winner over the next 10 years, just like we've been over the last 10.

The next question comes from Richa Harnain with Deutsche Bank.

Okay. So Adam, I know you said you want to refrain from commenting on competitors. But with FedEx Freight has been right around the corner, I wanted to give a stab at and try to get your impression. So earlier this month, we heard that team talk extensively about their differentiated dual-service offering, priority and nonpriority, as being again a key differentiator in the market, along with their scale and speed. Just curious if you think these attributes give them an edge especially as they emerge as an independent entity with a dedicated sales force? And just broadly, I would love to get your impression on the strategy they've laid out earlier in the month and what maybe surprised you with respect to their plan. How do you feel about them? And potential for change as a competitor.

Also just a quick clarification one. Does Easter factor into how April going to progress, you think? The timing of Easter this year versus last year, does that come into play?

Yes. The Easter was the beginning of the month, and so that certainly has an impact, like it always does. We don't count half days. But usually, Good Friday is about a little more than half of the normal workday. So that certainly had an impact on the April trends.

And with respect to FedEx, we've been competing against them for years. And the priority and the economy is not a new service offering. So we'd look to see them. They've been a good competitor over time, and we'd expect they continue to be a good competitor. But it doesn't really change the competitive landscape. If anything, it may be they've got to go through a lot of change as they go through that separation. And we'll see how they handle through all of that.

But wouldn't expect that really from a customer standpoint, that there would be a lot of change with respect to those service offerings as a shipper would compare them to our service offering. And again, be it through the Mastio measurements that we've won for multiple years in a row now versus being the biggest market share winner over the past 10 years, all those measurements tell me we've got the best service in the industry. But we don't sit around and rest on our laurels. We want to continue to get better every day. And we want to continue to win that Mastio award year after year.

And that's why we focus so intently on making sure that we're listening to customers and the things that they need and what they want, while we continue to refine our network, make changes. We've made plenty of lane changes where we've had to speed up transit times in the past year. And so we'll continue to move as the market is moving and try to make sure that we are giving the very best value proposition to our customers ultimately. And I think that's what we've proven over time, and again, it's why we're the biggest market share winner. And that's what gives me the confidence to keep investing in our business, to keep growing and preparing for our future market share opportunities.

The next question comes from Ari Rosa with Bank of America.

So I wanted to ask about the nature of this downturn and potential up cycle relative past cycles. I hear your point, you've said it a couple of times, on winning the most market share over the past decade. Very encouraging to hear the confidence on winning the most market share for the next decade. But if I look at the last 3 years, it's been somewhat anomalous in terms of having negative year-on-year growth -- or volume growth for each of the last 3 years. So just how are you thinking about ability and time line to recover that lost volume? Is that something we should be expecting in the next up cycle? How much of that depends on kind of the competitive environment versus kind of macro versus idiosyncratic things that you can do to be a little more aggressive to take back share?

Yes. I think obviously, we're not immune to the economy. And the last 3 years have been difficult. But every year, we've reaffirmed our strategy. And typically, what you see with our business is we maintain market share through the downturn and then we win a significant amount of market share as the demand environment improves.

And there's a couple of things that drive that. We've been the only carrier that consistently invested in new capacity over time. And even over these past 3 years, we spent $2 billion on CapEx to keep growing our business and to prepare our network to be ready for future growth. And we don't just build this network out with -- hoping that we'll be able to achieve market share. We do it through conversation with customers and engagement with our sales team and so forth and having the confidence of knowing where we believe we're going to see growth over time. And so that's been a key part of our strategy, is to always stay ahead of the growth curve.

But I think that we've seen before how quickly things can change. And I think the first quarter is a pretty good indicator of that. Look how quickly the volume changed in February and March and then what we were able to do from an operating ratio standpoint. And so we may not be able to carry that forward, I was hoping this would be more like a 2017 kind of year, and who knows, it still could be. I mean we're not writing off what's going to happen in May or June yet. We're just saying that we're still optimistic, but there's a hint of caution there given the geopolitical risk.

But I would say that if we can continue to carry forward some sequential improvement, with our volumes, we get back to being positive on a year-over-year basis later in the year, or we should. And then we can continue to grow from there. But when I mentioned some of these high-growth years in the outperformance, I mean, all you got to do is go back, and I know maybe some of the carriers are different, but if you look and in kind of the really strong years that we've had in 2014, 2015, the 2017, 2018, '21 and '22, and the double-digit type of volume growth that we've been able to produce when the competition is in single digits, it's because we run all of this excess capacity, and our industry historically has been capacity constrained. And I know many carriers are talking about having excess capacity today, but the numbers simply don't bear that out and we still see the industry as being capacity constrained.

So that's why we're so confident that once we see the demand environment starting to improve, then we'll get back to outgrowing our competition, like we've been able to do in prior cycles.

Our next question comes from Jeff Kauffman with Vertical Research.

I was just wondering if you could give us a little bit more color on weight per shipment. I don't know what level of detail you break it down to. But just under the idea, it is improving. But do you have any idea whether that is region of the country that may be coming back to life, whether it's certain industries that may not have been participating that are giving heavier weights per shipment coming in? Or is it just we're throwing another hairdryer on a pallet going from 49 to 50, and that's kind of how we think about it?

Yes. Generally, it's more widgets per pallet. And it typically follows -- when you start seeing the industrial performance as well, typically, that industrial freight is going to be heavier in nature than retail-related freight. And so that's some of the good things that we're seeing right now. Most of our positive performance over the past 5 months has been in that retail side of our business.

And so we're looking to -- starting to see some early indications in March of the industrial starting to turn the corner as well. But as we get that industrial coming to us in kind of coordination with the positive ISM trends that we've seen, then we had expected to see the weight per shipment continuing to tack higher. And right now, we're just around 1,500 pounds per shipment. That's about where we were in March and a little bit lighter than that. Normally, the weight per shipment falls back a little bit in April versus March as well. So we're trending around 1,490 right now. But when I think back to really strong markets, we've been more like 1,600 pounds per shipment.

So that's a number that I'd love to see us continue to move up because, again, what that means is it's going to be more revenue per shipment. But generally, the cost per shipment is not going to move in tandem with that. So that's what will help get us back in balance, start moving our cost per shipment back closer to our longer-term average of 3.5% to 4%, and then our -- have that positive spread of revenue per shipment over cost per shipment.

The next question is from Stephanie Benjamin with Truist.

Wow, actually blast from the past. It's Stephanie Moore with Jefferies. But still the same person here. I wanted to just touch a bit on the capacity. I know this has come up quite a bit over on this call today, but maybe if you could touch specifically on private capacity. I think that's an area that maybe doesn't get as much airtime just obviously given the nature of those businesses. But any color you can touch on? Because I think as we know, many of the public names talk a lot about having excess capacity, but it would be helpful if we could hear maybe any color you can provide on what you're seeing on broad industry, specifically the privates.

Yes, sure. And that's a good perspective as well. I think that once Yellow closed, it seems like a lot of those service centers went into the private world. And I think that a lot of that market share that Yellow had ended up with the private carriers as well. And obviously, many people took some elements of share there.

But the factor that we look at is shipments per day per service center. And we've been able to -- the public carriers, they disclose a number of service centers. So when we look at that type of data, that's what tells us that some of the carriers don't have as much capacity as maybe what they talk about, because the shipments per day per service center are pretty similar at the end of 2025 as where they were in 2022 when everybody was capacity constrained and they couldn't grow.

And then when you look at the total number of service centers throughout the industry, both the public and the private carriers, you can see from that '22 to '25 period that shipments per day per service center is down about 3%. So pretty close. I think that there's probably 5% to 10% excess capacity across the industry as a whole, but much less than what some people think about, maybe talk about. But if you think about it from the 100,000-foot level, you had a carrier that did over 50,000 shipments per day and had over 300 service centers. Not all of those service centers have remained in our industry. In what was a capacity-constrained industry in 2022 will be an even more capacity-constrained industry as we move forward.

The next question comes from Bruce Chan with Stifel.

This is Matt Milask on for Bruce this morning. I just want to circle back to pricing. For yields, and I'm assuming contract renewals seem to remain pretty strong. Curious if that strength and stability is sort of universal across the entire book as we've heard about some increased competitiveness around 3PL business? And perhaps if you can share what percent of the total book is tied to the 3PL, that would be great.

Yes, about 1/3 of our business overall is related to 3PLs. And as mentioned earlier, we're pretty consistent with our -- what we target for increases every year, be it with our general rate increase that applies to our tariff-based business, that's about 25% of our revenue overall, as well as what we try to achieve as we get through contract renewals.

And obviously, every account is different, and we look at each account on its own merits and what their profitability measurements are. But we've been pretty consistent with getting increases. And it's a different approach that I think that we take versus some of our competitors. And we're trying to be consistent. I think that helps customers know what to plan for, what to budget for. And I think it forms what's truly a partnership and a relationship versus just looking at things that maybe are more so market driven.

And so it's worked out well for us over time. And that will continue to be the focus for us, is to try to achieve those reasonable increases that are fair, but equitable. And then we'll drive our long-term performance, offsetting our cost inflation and supporting our ability to keep investing in our service center network, investing in new technologies that our customers, in many cases, are demanding, but to keep investing in our people to drive our business forward as well.

The next question comes from Joe Enderlin with Stephens.

Looking at the industry and public peers, everyone's focused on service as a means to drive yields higher. So with your position as a service leader, what's your focus on when you think about continuing to improve your mix of business? And are there any end markets or services you're leaning into currently given you might have a better value-add relative to competitors?

Joe, service is not just delivering on-time claims-free. It's also how you handle issues, which relates to superior customer service, being able to talk to a human on the phone. We're in a world of bots now, but customers still put a lot of stock in being able to pick up the phone and call one of our service centers, our corporate office, trace a shipment, talk to a human.

Also billing accuracy plays a big part in service, sending a correct invoice the first time is very important to our customers. It creates less work for them allows us to get paid faster. So there's a lot of components when we talk about service or customer service. And we feel like we lead the industry in all of those factors.

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

Thank you all for your participation today. We really appreciate your questions. And please feel free to give us a call if you have anything further. Thanks, and have a great day.

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

Good morning, and welcome to the Old Dominion Freight Line Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jack Atkins, Director, Investor Relations. Please go ahead.

Thank you, Gary. Good morning, everyone, and welcome to the Fourth Quarter 2025 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 11, 2026, by dialing 1 (855) 669-9658, access code 9011045. 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 and 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.

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. [Operator Instructions]

At this time for opening remarks, I'd like to turn the conference over to the company's President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.

Good morning, and welcome to our fourth quarter conference call. 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 produced solid financial results during the fourth quarter that reflect our ongoing commitment to revenue, quality and cost discipline. We once again delivered best-in-class service to our customers, and our yields continue to improve. Although our operating ratio increased to a 76.7% for the quarter, we believe our profitability metrics will continue to lead our industry, and they reflect our team's ability to operate efficiently despite the challenging environment.

I want to thank our OD Family of employees for their dedication to our customers and their unwavering commitment to executing our long-term strategic plan. Our team remains focused on controlling what we can control to ensure that we continue to deliver an unmatched value proposition for our customers. The foundation of this value proposition is our ability to deliver superior service at a fair price. Our customers know that they can expect the highest standard of service from Old Dominion every day, which positions them to drive value for their own customers.

We are pleased to once again provide 99% on-time service in the fourth quarter and a cargo claims ratio of 0.1%. Our track record of consistently delivering superior service has helped us to win market share over the long term while also supporting our ongoing commitment to revenue quality. We maintain a disciplined approach to yield management that is designed to offset our cost inflation over the long term.

While also allowing us to continue to make strategic investments in our capacity, our technology and most importantly, our people. While these investments have increased our overhead cost in the short term, we believe they will support our ability to grow with customers in the years ahead. Our consistent investment in capital expenditures throughout this economic cycle has differentiated us from our competitors over time. This is also a fundamental component of our value proposition, which has been critical to our ability to win more market share over the last decade than any other LTL carrier.

During the fourth quarter, our team continued to operate efficiently while also managing our discretionary spending. These efforts are reflected by how well we have controlled our variable operating costs over the last few years despite the decline in our overall network density and other inflationary headwinds. To put this in context, in 2022, when we generated a company record operating ratio of 70.6%, our direct operating expenses were approximately 53% of revenue. In 2025, our direct operating cost as a percent of revenue were also 53% despite the loss of network density associated with the decrease in volumes.

Our efforts to enhance productivity have been made possible by key technology investments as well as business process improvements, which we believe will allow us to improve our operating ratio when business levels ultimately improve again.

As we begin 2026, we are cautiously optimistic that we will see some recovery in demand within the industry. With the combination of our industry-leading service standards and more network capacity than we've ever had, we are better positioned than any other carrier to capitalize on improving economy. As a result, we are confident in our ability to win market share, generate profitable revenue growth and increase shareholder value over the long term.

Thank you very much for joining us this morning, and now Adam will discuss our fourth quarter in greater detail.

Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.31 billion for the fourth quarter of 2025, which was a 5.7% decrease from the prior year. Our revenue results reflect a 10.7% decrease in LTL tons per day that was partially offset by a 5.6% increase in our LTL revenue per hundredweight. Excluding fuel surcharges, our LTL revenue per hundredweight increased 4.9% compared to the fourth quarter of 2024. On a sequential basis, our revenue per day for the fourth quarter decreased 4.1% when compared to the third quarter of 2025 with LTL tons per day decreasing 4.8% and LTL shipments per day decreasing 6.5%.

For comparison, the 10-year average sequential change for these metrics includes a decrease of 0.3% in revenue per day, a decrease of 1.3% in LTL tons per day and a decrease of 3.1% in LTL shipments per day.

The monthly sequential changes in LTL tons per day during the fourth quarter were as follows: October decreased 5.3% as compared to September; November increased 2.6% as compared to October; and December decreased 4.0% as compared to November. The 10-year average change for these respective months is a decrease of 3.0% in October, an increase of 2.7% in November, and a decrease of 6.8% in December.

For January, our revenue per day decreased 6.8% when compared to January 2025 due to a 9.6% decrease in our LTL tons per day that was partially offset by an increase in our LTL revenue per hundredweight. LTL revenue per hundredweight, excluding fuel surcharges, increased 3.9% in January.

Our operating ratio increased 80 basis points to 76.7% for the fourth quarter of 2025. While we continue to operate efficiently and diligently managed our discretionary spending during the quarter, the decrease in our revenue had a deleveraging effect on many of our operating expenses. Our overhead costs, which tend to be more fixed in nature, increased 140 basis points as a percent of revenue due to this effect. The increase in our overhead cost also includes a 70 basis point increase in depreciation as a percent of revenue, which reflects the continued execution of our long-term capital investment plan that Marty just discussed.

Our direct operating cost as a percent of revenue improved by 60 basis points as compared to the fourth quarter of 2024. This was primarily due to the net impact of adjustments we recorded in the fourth quarter each year that are related to third-party actuarial reviews of our injury and accident claims. The results of our annual -- of this annual review impact both the salary, wages and benefits and the insurance and claims line items on our income statement. We were otherwise able to effectively manage our direct variable costs to be consistent with the prior year.

Old Dominion's cash flow from operations totaled $310.2 million for the fourth quarter and $1.4 billion for the year, respectively. While capital expenditures were $45.7 million and $415 million for the same periods. We utilized $124.9 million and $730.3 million of cash for our share repurchase program during the fourth quarter and the year, respectively, while our cash dividends totaled $58.4 million and $235.6 million for the same period. We were pleased that our Board of Directors approved a quarterly cash dividend of $0.29 per share for the first quarter of 2026, which represents a 3.6% increase compared to the quarterly cash dividend paid in the first quarter of 2025.

Our effective tax rate for the fourth quarter 2025 was 24.8% as compared to 21.5% in the fourth quarter 2024. We currently expect our effective tax rate to be 25.0% for the first quarter of 2026.

This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

[Operator Instructions] Our first question today is from Jordan Alliger with Goldman Sachs.

I was wondering, I might as well ask that. Can you provide some sort of thoughts and perspectives on both -- any indication on demand and what you're seeing and hearing from customers and thoughts around possible better tone to volume as we move through the year? And then maybe it's all in conjunction with that, your thoughts on seasonality as we go from Q4 to Q1 from margins.

Yes. I'll just start with the demand unless someone I'm sure, will probably get at that OR question. But I think we've seen some positive signs that we've been really pleased with really over the last couple of months that have been developing. And then the release this week of the ISM was certainly very positive to see. And maybe as an indication of hopefully, what things will be for the remainder of the year. Obviously, over time, we've seen that ISM, that's a leading indicator and typically a couple of months after that inflect positive, we see volumes somewhat do the same.

But just getting back to recent trends for what we've seen, the thing I've been most pleased with is the increase in weight per shipment. And I think we've talked for multiple quarters now when we've been trying to make the call on when is the demand environment going to finally turn, we've talked about looking at that weight per shipment for example, as really the indicator within our business. So that really increased. We were down about 1,450 pounds in kind of September-October time frame. We saw that increase to 1,489 pounds in November, which is above what our long-term seasonal increase would be for that month. And then we saw it increase further to 1,520 pounds in December, again, that was about a 2% increase. The 10-year average is about a 1% increase from November to December in weight.

So it pretty much performed in January. We're right at 1,492 pounds. So a little bit of a decrease, but that was right in line with seasonality. And I think somewhat impacted by a little disruption we had to our operations the last week of the month. We'd actually been trending higher than that as we progress through the month. So really good to see when looking at just tonnage per day, the weight per shipment, all those factors leading into the start of this new year and hopefully, finally seeing the turn that we've been predicting for the last couple of years take shape.

The next question is from Chris Wetherbee with Wells Fargo.

Maybe I'll just pick up on that and ask about the first quarter kind of sequential from an operating ratio perspective and maybe any thoughts you have on revenue per day for the first quarter as well.

Yes. Obviously, the revenue per day is going to lead right into it. And given the data that we just discussed for January, we're starting out a little bit behind seasonality, again, on a revenue per day standpoint. I feel like we'll close that gap. We've seen good performance it's early, but probably a little catch-up in business this week where we had the weather disruptions last week. So I think that will normalize. But hopefully, we can close the gap with seasonality as we progress through the remaining months of the quarter.

Just from a big picture top line standpoint, I feel like our revenue for the full quarter will probably come in somewhere between $1.25 billion and $1.3 billion. The low end of that range would be if we underperform seasonality at a rate similar to what we just did in the fourth quarter and then the top end would be normal seasonality. And if you take normal seasonality from January through February to March, that would put us kind of right there in the middle. So we'll see how that continues to take shape. And obviously, we give our mid-quarter updates that will allow for tracking.

So with that said, the 10-year average change in the operating ratio was an increase of 100 to 150 basis points from the fourth quarter to the first. And I think we can get to the top end of that range. So I would say an increase of 150 basis points is probably the target and then maybe a plus/minus 20 basis points to continue to allow for some of that revenue uncertainty.

The next question is from Scott Group with Wolfe Research.

So Adam, I wanted to just -- you talked about the weight per shipment improving. Can you have -- do you have a sense of what's driving that? Is it -- are we starting to see some of the truckload stuff spilled back? Is it just underlying industrial getting better? And then maybe just help us -- I know that the yield trends decelerate a little bit into Q4 and maybe starting in Q1, but is that just the weight getting better? Or is any thoughts on just how to think about yield trends as we're going from here?

Yes. I think the weight is probably coming from all of the above. Looking at our contract customers, weight is up a little bit, our smaller mom-and-pop customers, which actually we saw a little bit more growth out of or better performance, I shouldn't say growth, in the fourth quarter, weight per shipment was up as well. And so I think that exactly what you said, as the truckload market is changing, we've talked a lot about the spillover effect and how that's impacted volumes over the last couple of years. I think we're probably in the early innings of some of that starting to normalize. I don't know that we're completely there yet, but just given how there's some supply rationalization there, it certainly feels like that is beginning to happen. And the weight certainly will put a little bit of pressure on our yield metrics, but our guidance for revenue per hundredweight for the fourth quarter was to be up 5%, and that would have been normal seasonality. So we came in right at 4.9%.

Normal seasonality for the first quarter would be about 4.5% increase on a year-over-year basis. I feel like we've probably got at least a 50 basis point headwind. It looks like right now with the change in weight per shipment. So that's actually a good thing. In January, kind of came in right at about that 4% threshold. So that's about what I would expect unless we see further increases in the weight that may put pressure on that revenue per hundredweight metric, but the reality is that's what we're hoping to see. We want to continue to see that weight per shipment going up because the thing that's being missed when we talk about revenue per hundredweight is what's the revenue per shipment. And that will continue to go up as the weight increases, and that's going to be ultimately what we're looking at for success, how are we managing our revenue per shipment and our cost per shipment.

And we've -- obviously, the last couple of years, the operating ratio has gone the other way because we've had more cost than revenue there on a per shipment basis. So as that weight continues to go up that's going to help us continue to build density in our network. It's going to allow for us to have more true yield on a per shipment basis and hopefully allow us to turn the corner and get right back to produce an improvement in our operating ratio and long-term profitable growth.

The next question is from Ravi Shanker with Morgan Stanley.

So maybe just a bit of a color question here. I think you and your peers have spoken of some level of share shift away from LTL to TL in the down cycle, and you've expected that to come back when the market tightens up. I mean now that TL rates have been pretty tight for a couple of months. Are you starting to see that come back? And what do you think is the cadence of that coming back through the cycle?

Yes. I think that it's a natural sort of change that happens. I think that when you look at that truckload environment and a lot of those carriers are barely breaking even or worse. We've seen some capacity rationalization, if you will, in that environment. And I think that's changed the pricing environment there. And so hopefully, we'll continue to see those trends change. At a time where it feels like overall industrial demand is ready to start showing some signs of improvement again. And again, we say we're cautiously optimistic about all this because we had improvement in the ISM last year at about the same time, and then we had the event in April that threw cold water on everything.

So we're in a great spot to continue to handle any business that comes our way. We've got more capacity than we've ever had in our network. We've got capacity with our equipment and capacity with our people. So we can respond to the inflection as it happens. And I think that's what has differentiated us from our competitors in the past. The ability to be able to take on significant volume growth in the early innings of the cycle is when we've gained the most market share in the past, and that's certainly what we're going to look to as this cycle and eventually inflect back to the positive.

The next question is from Ken Hoexter with Bank of America.

Adam, maybe just to follow on that or Marty, your thoughts on headcount down 6%, shipments down almost 10%. So we're seeing a bit of a decoupling. Is there more opportunity as you think about the cost cycle? Or is that more being prepared, as you just mentioned, to capture that? And similar to CapEx, it seems like you're aging the fleet a little bit as you reduced it from what down to $415 million this year, down another to $265 million next year. So now is there a cost impact on maintenance and the like. So maybe just it's a cost issue, but maybe you're talking about being more prepared for the upside.

Yes, we're definitely prepared for the up cycle. The average age of our fleet actually improved this past year. It's now down to an average of 3.9 years for our tractor fleet. And that's about where we like it, somewhere around 4 years. We've been below that before, and we've let it age up a little bit. But really pleased with our operations team as they've continued to try to rightsize the fleet to make sure we've got all the equipment in the places we need but also managing through our cost inflation from a repairs and maintenance standpoint. When we went through -- go back to 2022, 2023, we had cost per mile inflation that was more in the 10% to 20% type of range for each of those years. And we've been sort of flattish, just some mild increases, if you will, over the last couple of years. And I think that's a reflection of the management team's efforts in that area and continuing to rightsize.

But from an employee count standpoint, I think we continue to manage through. And at the local level, our service center managers are making sure they've got the right amount of people and have got the ability to flex hours up to meet the increased demand from our customers. So we're in great shape there. We'd anticipated that we would see a little attrition through the fourth quarter. That's about what we saw happen. And so the overall head count drifted down a little bit throughout the fourth quarter as we somewhat expected. So I think that will likely be stabilized here.

And when you look over the long term, the change in head count and the change in shipments really kind of match with one another. But what we'd expect to see is when we get into the early phase of this recovery, the number of hours worked by employee will increase on a per employee basis, we'll be able to step those hours up to meet the increased volume needs as they come. And so you should eventually see the volume growth that's leading any growth in head count before those two numbers kind of converge again.

The next question is from Reed Seay with Stephens.

In the release, you pointed to a pretty low CapEx number relative to what you expected last year coming into 2025, and I don't know what you've done historically. Can you talk about maybe what's driving that lower CapEx expense this year and those expectations behind that guidance?

Yes. It's just a function really of how -- what the volume environment has been for the last couple, 3 years. And we've continued to run our CapEx plan. And that, too, is something that I think has differentiated us over time from our industry. In fact, we've spent about $2 billion in capital expenditures over the last 3 years and the volume environment, obviously, has not been robust. But I think we're in a really good spot when we sort of go down the elements of spend from a service center standpoint. We've got some projects that are in flight, and that's a lot of the spend that we've got this year. But we've got a little over 35% capacity in our service center network. We're handling a little over 40,000 shipments per day right now. And our network is built, they handle more like 55,000 or even more. We've done more in certain months back in '21 and '22.

So we've got a lot of flex there to be able to grow. And the same thing with the fleet, just like I mentioned earlier, we've continued to rightsize the fleet, if you will, and take some of the older units out, but we've got some that continue to need to be replaced, and that's the majority of what's in the spend there in that category for this year. So it is lower than as a percent of revenue than our typical range being 10% to 15%, but that's really just a function of the consistent investment that we've made over the past 3 years and kind of where we stand now and just wanting the business to grow into the network that we've got built.

And when that starts happening, you think about our fixed cost, and Marty alluded to this in his comments, our overhead cost. If you go back to that 2022 period, they're up 450, 500 basis points, and that's really the difference in that record operating ratios in versus what we just completed in 2025. But once we start getting leverage on all these assets that we put in place, that overhead cost as a percent of revenue can swing back very, very quickly, and the density will allow us to further improve our direct cost as a percent of revenue as well. So that's what gives us the confidence that when we start seeing growth coming back in our business that we can get our operating ratio going back to that 70% type of threshold and beyond.

Your next question is from Jason Seidl with TD Cowen.

Marty, Adam and Jack, I wanted to go back on sort of your employee headcount numbers as well as how should we think about driver pay and dockworker pay as we move throughout the year if some of your cautious optimism comes true when we start seeing a rebound? Do we expect that number to go up a little bit as we move throughout the year?

Well, Jason, we always give an increase to our employees. And when we operate at a 75%, we're in the fortunate position to continue to reward our employees first. And from a stakeholder standpoint, we prioritize our employees and we want to make sure they're rewarded and continue to be motivated to take care of our customers. And when you give 99% on-time service and a cargo claims ratio that's below 0.1%, I think our employees have certainly delivered.

So we continue to give healthy raises. We did so in -- the 1st of September this year. We also made improvements to our benefit plan cost and -- or the benefits to employees, which have increased those costs, and we'd expect to continue to see our fringe benefit cost as a percent of salaries and wages increase. And those finished the year at about 42% of salaries and wages in '25 and -- or at least in the fourth quarter. And -- but we expect that we'll have a little bit of headwind there on those benefit costs probably be somewhere in the 41% of salaries and wages in 2026.

So -- and then the final piece is the 401(k) match that we make, and I think that's what ties everything in together. And we give a discretionary match every year that's up to 10% of our company's net income. So we continue to put a lot of dollars into our employees' 401(k) plans to help them and their families prepare for retirement.

That's great color. Should we expect the next sort of raise to be next or this September? Or do you think it will be sooner than that?

No, it's -- September is usually the timing of our...

The next question is from Jonathan Chappell with Evercore ISI.

Adam, after 2 years of speaking to sub seasonality, it seems like a little bit more cautiously optimistic, as you said, and you laid out a first quarter where the middle of the range is February and March are in line with seasonality. A lot of your peers, even though they haven't reported yet, are talking to a peg of like if we do X in volume this year or tonnage, that leads to Y in OR. If you took that February, March midpoint of 1Q and rolled seasonality going forward, where would that put your tonnage on a year-over-year basis? And by association, where would that put your OR improvement for this year?

Yes. I think we normally just take it one quarter at a time. And obviously, there's a lot of ifs and buts that have got to play out and could play out in that scenario. But what they say, ifs and buts and beer and nuts, you have a hell of a party. And so I'll let all you guys sort of go through all those gymnastics. But just looking at more in the short run because I don't want to undersell what the long term could be. We've produced some serious improvement in our operating ratio once we get into those stronger demand environments.

When we actually see the script flipped, still remains to be seen. But the second quarter, we've kind of laid the framework out for the first quarter and the second quarter. Typically, you see revenue grow sequentially about 7% and the average operating ratio improvement is sequentially 300 to 350 basis points. So that would -- if we see all of that, if we see the spring surge that typically would happen and lead to that 7% type of sequential increase, then that would put the operating ratio pretty close to being flat on a year-over-year basis in the second quarter. And then we would just have to sort of take it from there.

But I still think we don't want anyone to really get out over their skis necessarily at this point from an expectation standpoint. It remains to be seen if this really is going to lead into that spring surge that we would typically see. We certainly feel like the stars are coming into alignment, but we felt that way before, and in particular, about February and March of last year. So that's why we continue to say we're cautiously optimistic about how things might develop for this year.

But I think that's why you're seeing some of the pullback in capital expenditures and doing other things that we feel like we needed to do to continue to manage our costs. And we've controlled our variable cost, and I couldn't be more pleased than I am with our operations team. And if you think about the loss of network density, if you go back over the past couple of years, we've added about 6 service centers and there's a lot of cost that comes with that, just overhead cost and network line-haul costs, pickup delivery with the loss of density.

So to be able to manage those costs says a lot to our team, says a lot to the continued investment in technology, the tools that we give the team to help kind of manage those costs and also to the yield discipline. If you weren't disciplined with yields throughout, we wouldn't have been able to keep those costs consistent as well. So a lot goes into it. And it's a total team effort from sales operations, pricing cost and you name it. It all kind of feeds into how we've been able to continue to produce strong profitable growth over the long term. But the last 10 years, despite this 3-year freight recession, we've still got a 10-year average growth rate of about 15% in our net income. So it just says a lot to what we've done, but we think about the future, we've got a lot of room for growth ahead and operating ratio improvement. So I'm happy with what we've done, but more excited about what can come.

The next question is from Eric Morgan with Barclays.

I wanted to just follow up on the pricing discussion. It sounds like weight per shipment is having a mix effect in the first quarter. Just curious how we should think about what the cadence might look like looking a little bit further out, especially if that -- if you do kind of hold that 1,500 pound level, I think that would be a larger increase in 2Q and 3Q from last year. So just curious how we should think about that impact as well as maybe length of haul a little bit lower here. Should we just kind of naturally see that yield number trend a little bit lower from mix?

Yes, I think so. I mean, just looking at what normal seasonality would be, we'd be in kind of that 4% to 4.5% type of range. And again, if we have even more of an increase in weight, it could be lower. When you look back at some of our stronger years, from an overall revenue standpoint, volume environment, those types of things, we've had revenue per hundredweight growth that's been more in the 3% range. And that was my point earlier with the comment that sometimes, I think we get so down in the weeds and thinking about revenue per hundredweight kind of miss the big picture of what's really the revenue trends doing and what's our revenue per shipment versus cost per shipment.

So I'd love to see our weight per shipment go back up to 1,600 pounds, which is where we've been in stronger demand environments. And yes, that might put pressure on that revenue per hundredweight. That's going to do wonderful things for the overall top line revenue as well as what we would be able to do from an operating ratio standpoint.

So we'll continue to kind of manage through that. But certainly, would hope we see that weight per shipment. And if we're talking about some revenue per hundredweight that might be a little bit lower than what was reported the last couple of years, that's probably a good thing in the sense of what's really going on with the demand environment. There's certainly no change with what our yield management philosophy is or how disciplined we continue to be as we manage cost and manage yields.

The next question is from Richa Harnain with Deutsche Bank.

So Adam, you mentioned that last week, you saw some disruption income. Maybe just clarify what went into that? Was it just weather? And did that weigh on your cost? Should we expect higher costs this quarter, too, in light of that weather? Is that embedded in your 150 basis points change in OR target?

Also another clarification, curious if the government shutdown had any impact on 4Q or potential impact this quarter from that on you or the industry this quarter? And then -- so those are -- that's a clarification.

And then I guess just my real question beyond those clarifications is incremental margins. You said you have more excess capacity than you've ever had in your network. I know you said you're quite excited about what's to come. Should we think that your incremental returns on growth can be higher than we've ever seen? And I believe you clipped 40% post-COVID, but that was accompanied by really strong revenue growth. So I'm not sure if that's a unique situation.

Yes. I'll probably spend more time addressing the last real question. But yes, the snowstorm last week, obviously, was disruptive, and that was baked into our revenue and margin guidance and really nothing material to speak from a government shutdown standpoint. But I think -- just thinking about incremental margins, to me, one, we got to get back to revenue growth to produce them. But I like to think about that breakdown in our income statement structure. And we talk a lot about our direct variable costs. Those were 53% of revenue in 2025. So if you bring on $1 of business, you should be able to generate a 47% incremental margin if it just takes variable costs from that standpoint and just get complete leverage on all your overhead.

And typically, that is what's happened in the early innings of our recovery. We just see more of that variable cost and getting that leverage there before you've got to get back into investing in new service center expansion and new equipment and those other assets. But as you add new service centers, that creates incremental costs. You've got a new service center manager and a team of employees at the facility and the office and salespeople and things like that. So it all kind of ties in together.

But when I think about just where we stand now, 75% operating ratio, we've been at 70.6%. We've talked before about getting to a sub-70% operating ratio. I think that sort of mid-40s makes sense, from an incremental margin standpoint, makes sense in the early innings. But then let's just stay focused on getting back to achieving that sub-70% operating ratio. And we certainly can get there.

I referenced this earlier, but when you look back at some of our really strong years with revenue growth, we've had operating ratio improvement in the 300 or more basis point range in any given year. So that's what we'll be focused on. That will help drive that 75% back to the 70%. And when we get to 70%, when we beat that goal, that's when we'll establish the next one and probably give new incremental margin longer-term type of goals that we're looking at as well.

The next question is from Tom Wadewitz with UBS.

So Adam, I think there's -- this ISM print was so large that such a big step-up that -- and some of the commentary wasn't as bullish as the number and the orders going up a lot too. What do you hear from customers? Do you hear that much kind of good news and enthusiasm about improvement in activity? Or how do you kind of look at what your customer feedback is? And just kind of thinking maybe relative to such a big ISM number, which I know historically is a really good read for LTL?

Yes. I think that obviously, we solicit feedback constantly from our customer base and our sales team in the fourth quarter. We build a bottoms-up forecast, and we marry that with a top-down forecast where we're looking at other macroeconomic indicators. And things are starting to feel a little bit better. Even in the fourth quarter last year, I feel like we've had some really good customer conversations in the sense of what they were anticipating their volumes might look like, the amount of business that they would tender to us and so forth that gave us a little sense of optimism. And I just continue to say that that's one month of a print with the ISM and that's why we want everyone to be cautious with it. We're still looking at volumes that have been down on a year-over-year basis. And -- but we feel like things are getting better. And we're still talking about revenue that would be down on a year-over-year basis in the first quarter.

But one of the things about our business model is I feel like when you think about our long-term strategy of giving superior service, allowing that service to support a fair price, pricing targeting 100 to 150 basis points of yield above price or cost rather, that's allowed us to improve our cash from operations. There's a flywheel effect to our business model. And we've got to get that flywheel effect going again. So as we can get into the early innings, it's -- those first rotations are a little bit slower. We're just making sure everybody is thinking through all of those factors, and it's not just going to turn around on a dime starting tomorrow because that one economic data point came out.

But if we are in the early stages of this, I think history repeats itself in this industry. And you certainly can see how we've outperformed the other carriers when we get into those early stages of recovery. And we're certainly in a position. Our team is in position and ready to roll. So we're ready to put it on the trucks and see revenue growth coming again and the operating ratio improvement will follow.

So you are hearing positive input from customers, but maybe not to the degree of the move up in the ISM number. Is that a fair understanding of what you said?

Yes, that's fair.

The next question is from Bruce Chan with Stifel.

Adam, you talked about 35% spare capacity in the network. And I know these past couple of years, we've been a little bit more focused on door and facility infrastructure. Just wondering if that number is similar for the fleet and line-haul network, especially with some of the better planning tools that you have and maybe how we should think about additional fleet CapEx versus maybe flexing PT higher if volumes do indeed accelerate?

Yes. We don't have that much excess capacity in the fleet, if you will, that would -- we have been heavy with our fleet, but probably not at that same type of level. We try to keep that a little bit tighter. You always want to have spare capacity, if you will, especially in the trailing equipment. If you've got that much excess power, it just hurts you. It's very punitive from a depreciation per unit standpoint.

So -- but part of our CapEx this year, we've got about $105 million that's slated, I think, for equipment. And so that's something that we'll continue to look at replacing where we need to replace. We use a tractor for about 10 years. So we've got some that are at that point of being replaced. And -- but continuing to rightsize the equipment pool as well. And making sure that we've got equipment in all the right places where we're seeing growth to keep the line-haul network in balance. And we've continue to make adjustments to the line-haul throughout the year. The team has done a phenomenal job of making sure that we're meeting service standards. We've continued to tighten some of our transit times in certain lanes as well despite the limited density that's been in the network.

So looking forward to get more freight back in the system that will make some of that a lot easier, reduce our empty miles, allow us to start running more directs and bypassing some brakes and so forth. And that's what gives me comfort in knowing that those direct costs that we've talked about that are 53% of revenue in 2025 that we can really show some strong improvement in that number once we get density flowing again.

The next question is from Ari Rosa with Citigroup.

So I was hoping you could address competitive dynamics in the industry. Just maybe speak to what your level of confidence is that this cycle will play out like past cycles. And specifically, I'm curious about just the role of Amazon, we've been hearing a lot about their growth ambitions or them looking to expand in the LTL space and then obviously, FedEx is planning the separation of its freight business. Just talk about how you feel you're positioned. I know obviously, the service continues to be exceptional in OD, but just talk about how you think the cycle could play out this time around.

Yes. Well, all the carriers that are there, top 10 carriers are 80% or so of the industry, they're all the same other than Yellow, that was there before. So we've been competing against these companies for years, and I feel like capacity within the industry continues to be tight and maybe more so than what the perception out there is when you look at the total number of service centers back in 2022 versus what was reported at the end of 2024. We've seen about a 6% decrease in the number of service centers in the industry. And when you look at shipments per day per service center, those two metrics at the end of '22 versus the end of '24 are about the same.

So you take an environment that was tight back then and when you look at the growth numbers for other carriers, despite how strong the volume environment was in '21 and '22, at least for the public carriers, I think the growth in tonnage in '21 was about 4% when we grew 16%. So most of the carriers run their networks a little closer to the full utilization. And I think that's a structural difference that we have. We own the majority of our service centers, about 95% of our doors overall. And so we're comfortable with continuing to invest through the cycle and having more of that latent capacity out there to grow into. And that asset ownership gives us that ability to do so.

So that's why we're confident that when we see the demand environment growing again, that I think we'll be able to significantly outgrow the industry. And when we do so, we'll see stronger returns coming in. Despite the challenging environment that we've had for the last few years, we're still producing returns on invested capital of 25% to 30%. And when you look at GAAP numbers, true GAAP earnings, we've got some competitors that have got net income margins in the low single digits.

And so I think that will be the opportunity, what we've seen in past cycles is that's when other carriers will increase rates more and take advantage of the supply and demand imbalance. But for us, we want to continue on with just more of a consistent strategy. And that's when we see that big density opportunity, if you will, and that's what we're expecting when we finally see the turn in the cycle.

The next question is from Jeff Kauffman with Vertical Research.

Congratulations. A lot of my questions have been answered at this point. So I want to go back to the equipment discussion you were having. Some of the truckers I've been talking to have said, listen, we're having trouble quoting our Freightliners or our Internationals because of the Section 232 tariffs and people aren't certain what the rebates are going to be, but we've got more fundamental pricing on our domestically produced trucks like our Petes and Kenworth. I was just kind of curious what you're seeing on the equipment side in terms of quoting activity from the OEs in the wake of some of the tariff changes?

Yes. I think that there are always challenges that we go through when we look at the cost of equipment and how we plan for equipment and so forth. It seems like every engine change and new regulation, it's done nothing but increase the cost of equipment. And for us, as I just mentioned, we typically will use a tractor for 10 years. So when you think about the per unit price 10 years ago versus today, it's significantly different. That's a big driver of some of our cost inflation when you think about those on a per unit basis.

So that's part of why we -- when we look at the number of units we were going to buy this year, you take that all into consideration. But at the end of the day, you need the fleet that you need, and you've got to build the pricing of those units and every other element of cost that we deal with into our cost model and let that drive the output of what we need.

But I would say, again, that's just one element of cost. If you go up and down in our income statement and you look and think about per unit inflation, we've been able to average cost per shipment inflation of about 3.5% to 4% over the last 10 years. Each line item has had significant inflation and more so than that number. That's the importance of why we stay so focused on our cost and managing cost and managing efficiencies and discretionary spending, we're doing all these other things. We're driving operating efficiencies that really minimize the true inflationary impact that we're seeing from things like insurance costs, group health and dental medical costs, the cost of equipment and so forth and so on.

So our team has done a great job leveraging technologies, business process improvements to be able to keep our cost inflation low. And then that, in turn, allows us to when we think about trying to target 4.5% to 5% type of increases that we've generated over the long term in our revenue per shipment, that's that positive 100 to 150 basis points delta that we want to be able to generate those too. But we can't take our eye off the ball when it comes to managing costs. You've got to think about costs day in and day out in good times and bad. And I think that's what our team has done over the -- really over the course of our history, but over the past few years, in particular.

The next question is from Brian Ossenbeck with JPMorgan.

Adam, just to quickly follow up on the cost per shipment inflation you're expecting this year. Is it still a 3.5% to 4%? And you outlined some of the equipment and health care costs. Is that something you still think is reasonable to expect this year?

And then maybe just to follow up on the competition side. Private companies are obviously getting a bit bigger here as well in the wake of going out of business. I wanted to see if you thought that had any impact on how the next cycle -- up cycle might play out for the industry.

Yes. So the cost inflation, we're -- I think it's going to probably be a little bit heavier again this year. I'm thinking it's probably going to be more in the 5% to 5.5% range. And that's core inflation, not really thinking about what fuel might do. And right now, we're looking at fuel prices that have been lower on a year-over-year basis. So we'll see how that continues to play out. But I feel like we've -- as I mentioned earlier, we're looking at a little more inflation from an employee benefit standpoint. I think we're going to continue to see some pressures there within our group health and dental cost in particular.

And then we've made some continued improvements to our paid time off policies and so forth that I referenced. So anticipating some inflation there, continued inflationary increases. As just mentioned on the equipment on our insurance programs and other things. So if we can get some density coming back in the system, I think that is something that could turn that number into maybe seeing some improvement and working it back down. But if you just sort of stay in more of a neutral volume environment, if you will. I'm thinking that we're going to be more in that 5% to 5.5% range.

And remind me again, the second part was just about the impact of Yellow being out.

Yes, just how private companies seem to have taken up some of that extra capacity that has a meaningful impact on how the industry might play out or the cycle might play out?

Yes. I think many of those service centers ended up with the private carriers, as it's been reported. But again, looking at overall capacity for the industry, number of service centers is the best thing we have that books to be down versus about 6%. And there may be some service centers that were swapped adding a few more doors, but I think that's a good proxy for capacity that's been removed from the market. So again, if you had a capacity-constrained industry back in '21 and '22, the number of shipments per day per service center are the same in 2024 with where we were back in that capacity-constrained environment. I think we're going to see capacity constraints when we start coming back into a stronger demand environment. And that's what gives us the confidence that we'll be able to win market share and outperform the other carriers from a volume standpoint in the early stages of that recovery.

The next question is from Stephanie Moore with Jefferies.

I wanted to maybe circle back to a prior question that was asked where you kind of talked through a bottoms-up analysis of talking with customers and maybe some of the slightly more optimistic conversations you're hearing from them. Is there any way you can parse out the end markets or if there's any concentration of end markets where you're hearing some of that optimism from customers, whether it's within industrial, is it large infrastructure kind of data center plays? Is it within consumer? Any additional insight would be really appreciated.

Well, 55% to 60% of our revenue is industrial related, and I think that's similar for the industry. It's why I assume it's so highly correlated with the industry volumes. So kind of hearing it across the board. I think that seeing some improvement there. We've had feedback that inventories have generally been lower. So we're thinking that we're going to see some inventory replenishment. But I think it's sort of different factors for different customers. And our business is so diversified. We move everything, including the kitchen sink. So you've got -- if housing starts improving, you'll see things like faucets and so forth that will have increased demand there. And obviously, all of the products that go into someone moving into a new home.

But I think that will be important to see some continued improvement there. If we continue to see on the industrial side, at the end of the day, what drives it all as a healthy consumer. And so consumer confidence and consumer strength and buying patterns will drive whether or not we see sustained improvement in the demand and volume environment. And so hopefully, when people start seeing if tax returns look better and they've got more discretionary income to go spend, and then inventory does need to be replenished. Those will all be good things that will create freight that will find its way on our trucks, and we're looking forward to it.

The next question is from Christopher Kuhn with Benchmark.

It's -- you guys don't talk about it as much, but are there any AI initiatives that you are kind of undertaking in the next 2026 and beyond that we should be focused on?

Yes. I would put it in the broader context of technology investments. And obviously, AI is kind of the buzzword at the moment, and we've got some investment there that's going into some of the tools. But I think from a bigger picture standpoint, when you think about Old Dominion, I think the investment that we've made in technology, it goes back decades. And we've got OD technology as one of our branded products. And so we've been at the forefront of tech investment, I think, for years and years, and that will be no different going forward.

But there's got to be investment that's going to end up with a return. We don't want to just say we're investing in machine learning and AI, just to be able to say it, where is the proof in the pudding. And I think when you look at our cost performance, in 2025, that's kind of the proof. And we wouldn't have been able to manage our line-haul costs like we have. If we've not continued to invest in and refine the tools that our teams are using. And it's the same thing on the dock. It's the same thing within our pickup delivery operations. We've got to continue to make investments in products that are going to have a return associated with them. You don't want to invest in something that's going to cost you more on a technology that you would other -- what you're going to save potentially and sometimes that could be the case.

But I think that our focus will continue to be what I just said, investing where it's going to drive operating efficiencies. The other key part, though, will be continue to invest and something that drives a strategic advantage from a customer service standpoint. So if we can continue to try to stay ahead of the game, have systems that drive stickier customer relationships, those are kind of the two big key factors that we think about when we think about the dollars that are invested in tech initiatives year in and year out.

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

Thank you all for your participation today. We appreciate your questions. And please feel free to give us a call later if you have anything further. Thanks, and have a great day.

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

Good morning, and welcome to the Old Dominion Freight Line Third Quarter 2025 Earnings Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Jack Atkins. Please go ahead.

Thank you, Jason, and good morning, everyone. Welcome to the Third Quarter 2025 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through November 5, 2025, by dialing 1 (877) 344-7529, access code 1478106. 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 they've been asked and in fairness to all that you limit yourself to just 1 question at a time before returning to the queue.

At this time, for opening remarks, I'd like to turn the call over to Marty Freeman, our President and Chief Executive Officer. Marty, please go ahead, sir.

Good morning, and welcome to our third quarter conference call. 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 third quarter financial results reflect continued softness in the domestic economy. Our revenue declined 4.3% compared to the third quarter of 2024 due primarily to a 9% decrease in our LTL tons per day, which was partially offset by ongoing improvement in our yields. We continue to operate efficiently during the quarter, and we're able to manage our direct variable cost as a result. The deleveraging effect from the decrease in revenue, however, drove an increase in our overhead expenses that resulted in the increase in our operating ratio to a 74.3.

As we navigate through the continues to be a challenging micro environment, we remain focused on what we can control. I'm proud of how our team continues to execute the core elements of our long-term strategic plan as we work to ensure that Old Dominion is the best positioned carrier in our industry to respond to an inflection in the operating environment when it does materialize. As we have said many times before, our long-term strategic plan includes an ongoing focus on delivering superior service at a fair price. The other key elements of our strategy include investing in new service centers, equipment, technologies and most importantly, our people.

Our past financial results have proved that investing in our sales through the economic cycle can pay dividends over the long term. An example of how this is happening as we've been able to control our direct variable cost this year despite the lack of network density associated with the decrease in our volumes. In fact, our direct variable costs are relatively consistent as a percent of revenue to when we produce company record operating results back in 2022.

While we are -- while there are many factors influencing these costs, we have implemented new workforce planning and dock yard management tools as well as P&D and linehaul route optimization software, which have helped drive improvements in our productivity. Even as we have faced headwinds from lower density. Importantly, we have done this while maintaining the highest standard of service for our customers, and I'm pleased to report that once again provided our customers with 99% on-time service and a cargo claims ratio of 0.1% during the third quarter.

That said, we also know that providing our customers with superior service more than simply picking up and delivering the freight on time and without damages. Mastio & Company measures 28 different service and value-related attributes during its annual survey of shipper and logistic professionals. We were honored earlier this month to be named the #1 national LTL provider for the 16th consecutive year.

In addition, Old Dominion maintained a sizable advantage against our competition. And we finished first in 23 of the 28 categories evaluated by Mastio. I would like to congratulate the OD family of employees on this accomplishment. Every member of the OD family is incredibly proud of this recognition, and we also remain highly motivated to continue providing our customers with best-in-class service every single day. We know that consistency of our service creates value for our customers. It also differentiates us from the competition. Our customers know that they can count on us to help keep promises through the ups and downs of the economic cycle, which means they can keep their commitments to their own customers. Importantly, our consistent service also supports our disciplined approach to yield management. Over the years, we have built a unique culture centered on core elements of our strategic plan, the cornerstone of which is providing our customers superior service at a fair price. This has created an unmatched value proposition for our customers and allowed us to win more market share over the past decade than any other LTL carrier.

We will continue to focus on delivering best-in-class service to our customers while also operating efficiently and maintaining our disciplined approach to managing our yields. As a result, we are confident in the ability to win profitable market share and increase shareholder value over the long term. Again, thank you for joining us this morning, and now Adam will discuss our third quarter in greater detail.

Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.41 billion for the third quarter of 2025, which was a 4.3% decrease from the prior year. Our revenue results reflect a 9.0% decrease in LTL tons per day that was partially offset by a 4.7% increase in LTL revenue per hundredweight. On a sequential basis, our revenue per day for the third quarter decreased 0.1% when compared to the second quarter of 2025 with LTL tons per day decreasing 2.9% and LTL shipments per day decreasing 1.6%. For comparison, the 10-year average sequential change for these metrics includes an increase of 2.9% in revenue per day, an increase of 0.5% in the LTL tons per day and an increase of 1.9% in LTL shipments per day. The monthly sequential changes in LTL tons per day during the third quarter were as follows: July decreased 1.9% as compared to June; August decreased 1.8% as compared to July; and September increased 1.3% as compared to August. The 10-year average change for these respective months is a decrease of 2.9% in July, an increase of 0.4% in August and an increase of 3.3% in September.

For October, our current month-to-date revenue per day is down approximately 6.5% to 7% when compared to October 2024 with a decrease of 11.6% in our LTL tons per day. As usual, we will provide actual revenue related details for October in our third quarter Form 10-Q. Our operating ratio increased 160 basis points to 74.3% for the third quarter of 2025 as the decrease in revenue had a deleveraging effect on many of our operating expenses. Our overhead costs, which are primarily fixed in nature, increased 160 basis points as a percent of revenue due to this effect and the ongoing execution of our capital expenditure plan. These factors contributed to the 70 basis point increase on our depreciation cost as a percent of revenue. Miscellaneous expenses as a percent of revenue also increased 40 basis points due primarily to changes in gains and losses on the disposal of property and equipment between the periods compared.

While our remaining overhead cost increased as a percent of revenue, these expenses in aggregate were lower than the third quarter of 2024 as we continued to exercise excellent control over our discretionary spending. Our direct cost as a percent of revenue were flat compared to the third quarter of 2024 due to the improvement in yield and continued focus on operating efficiencies. We were pleased that our team was able to effectively match our variable cost with current revenue trends during the quarter. I also believe that we will be able to improve these direct costs even further when we return to a growth environment and benefit from the improvement in network density. Old Dominion's cash flow from operations totaled $437.5 million for the third quarter and $1.1 billion for the first 9 months of 2025, respectively, while capital expenditures were $94 million and $369.3 million for those same periods. We utilized $180.8 million and $605.4 million of cash for our share repurchase program during the third quarter and first 9 months of 2025, respectively. While our cash dividends totaled $58.7 million and $177.2 million for those same periods. Our effective tax rate for the third quarter of 2025 was 24.8% as compared to 23.4% in the third quarter of 2024. We currently expect our effective tax rate to be 24.8% for the fourth quarter of 2025.

This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

[Operator Instructions]

And the first question comes from Chris Wetherbee from Wells Fargo.

Maybe Adam, we could start on sort of the October environment. You mentioned tonnage down, I think, 11.6% is what you said. Just kind of curious what you're seeing from a demand perspective. Obviously, it seems like there's some softness in the first part of October. And then I think you typically give us some help in terms of both top line as well as operating ratio for the forward quarter. So any kind of comments you have just given the context of what we're seeing so far in October around the fourth quarter would be very helpful.

Yes. Maybe I'll just start with that because obviously, the operating ratio is going to be impacted by what's going on with revenue. But the average change in our operating ratio from the third to the fourth quarter is a sequential increase of 200 to 250 basis points. As a reminder, that excludes any change in the insurance and claims line item. And as you know, that gets impacted by the annual aquarial study that we conducted in the fourth quarter of each year. But Basically, the current trend with revenue, we're starting out. Our tonnage is underperforming, seasonality a little bit. But it looks like with our revenue per day performance, we're really just -- I'd say it's a similar -- we continue to trend at this down 6.5% to 7%. That's similar underperformance or would be for the full quarter as what we've seen in the first 3 quarters of the year. So if we continue with that same revenue per day being down 6.5% to 7% for the full quarter, I'd say that we probably expect a sequential increase of about 300 basis points. I would say that we probably ought to put a range on that given the revenue uncertainty and probably go an increase of 250 to 350 basis points.

I think if we see some revenue recovery that could help us get to the low end of the range, which would be right there, 250 bps, right, at the top end of normal, if you will. But I think just given the continued uncertainty on revenue if things were to get any worse, which we're not seeing at this point, that would give a little flexibility on the top side. But importantly, after the performance that we just had in the third quarter, we're at a great starting point as we start off with the fourth quarter performance.

Our next question comes from Jonathan Chappell from Evercore ISI.

Adam, as it relates to salaries, wages and benefits down sequentially as a percentage of revenue. I'm pretty sure you still put in your annual wage increase on September 1. So was this a function of head count numbers coming down in any type of material manner? And also, as we think about the 3Q to the 4Q transition there, if the wage increase did go into effect on September 1. And would we expect the usual kind of uplift on that line item as it relates to the OR?

Yes. The -- we definitely put a wage increase in effect at the beginning of September as we always do as we continue to perform and we operate in the mid-70s, we think that's very appropriate to continue to reward our employees for the outstanding performance not just from an operating ratio standpoint. But as Marty mentioned, I continue to be extremely proud of the service metrics that we're offering to our customers the value and that came through in the 16th straight wind of Mastio, but -- so that definitely was in there. We did continue to see our head count drift down a little bit through the third quarter. As you know, the decrease overall from a total number of full-time employees was down about 6% compared to the third quarter of last year with shipments being down almost 8, but we expect that we'll continue to see normal attrition as we go through the fourth quarter and probably that head count continued to drift down a little bit. But that always is something that's a big driver of that change. When I look at the average increase in the operating ratio from the third to the fourth quarter. If you really combine -- I like to combine the salaries, wages and benefits and our total operating supplies and expenses, on average, those 2 main components, they generally increase about 170 basis points.

So we continue to have that pressure there. And with revenue pressure, especially continues to get harder and harder, if you want to give service at the levels that we do to manage those costs. But that's one reason why we think that the operating ratio will be a little bit higher than our normal sequential change.

The other thing is just looking at our overhead costs, we've been averaging somewhere around $310 million of overhead a quarter. And I think it may be a little bit lower than that, probably in the $305 million to $310 million range in 4Q. But that creates 150, 170 or so basis points of pressure as well. So really, I think that, that 300, just to be clear, I mean, that's when we gave a range of 250 to 350 for the operating ratio. It's probably 300 to 350, but I think we can continue to perform.

And if we get any type of acceleration on the revenue side, obviously, we just outperformed the normal sequential change from 2Q to 3Q, even with revenue pressure. And obviously, we're going to continue to manage costs as tightly as we can in this lower revenue environment, as long as it doesn't jeopardize our ability to be able to respond to a growth environment when that doesn't materialize.

Our next question comes from Tom Wadewitz from UBS.

I wanted to ask you a bit about, I guess, capacity position. So if you could just let it kind of tell us where you think you're at on terminal capacity. I think you're kind of normalized, you like to have 20 to 25. I don't know if your last comments, maybe are more 25 to 30 o even beyond that. But if you think about how much excess and then it seems to me like with some projects, you kind of hold them off. And so I don't know if you count those in the capacity number where you've kind of made the investment, but you haven't kind of bought up the terminal because you really don't need it. So I guess a kind of broader question is really like, well, where do you stand? But do you go for a period where you maybe spend less CapEx and do less on terminals because even though you're long-term focused, you're just kind of so far beyond what would be normal for you in the terminal position for excess Class B?

Yes. We're definitely north of -- our target is generally to have 20% to 25% excess capacity. I'd say we're well north of the 30% at this point and probably even above 35% type of range. So I think it is fair to assume that we'll have lower CapEx for our real estate next year. We haven't flushed all of that out completely at this point. And some of the capital expenditures that we have -- it's, in some cases, repair projects. We've got some projects that are already in the works right now that will continue into next year. So that's some that will -- or some spend rather that will always kind of be out there. But I think we're in really good shape with the network where it is. We haven't opened any service centers this year.

If you go back over the past couple of years of this freight recession that we've been in, I think we've opened 6 service centers going back to the end of 2022. So we definitely have built up some capacity. We do have several service centers that we've completed construction on to your point. When we do that, they're ready to be turned into the operation. And so for that reason, we do start depreciating those facilities. So that depreciation -- incremental depreciation expense is already in our numbers, and that's part of the carrying cost of having that capacity availability for our customers. And that's a key part of the value proposition is to always be able to say yes to a customer.

And while capacity isn't maybe on everybody's mind right now, hasn't been that long ago when we've seen periods where the environment does turn. It generally turns very quickly in our industry, and I think we'll see customers focused go right back to who has the capacity not just on the service center side, but with labor and with equipment and who can really respond to those growth needs. And I think that is a big part of our value proposition.

And while we feel like we're better positioned than anyone to respond when the market does eventually inflate back to the positive. But yes, so we have already several service centers in ready reserve, so to speak. We just think it's more appropriate to hold them out versus increasing the number of service centers in operation, which increases line-haul expense, weakens your density even further and puts more pressure on the cost. So it's similar to what we've done in prior cycles before and think we'll see those turn on whenever we see the growth come back.

The next question comes from Jordan Alliger from Goldman Sachs.

I wanted to come back to demand a little bit. Obviously, things continue to be fairly weak. But can you maybe give some -- your perspective thinking ahead over the next year or so on inflection timing, what could drive it? Are we getting closer? And what's it going to take to get back to tonnage seasonality on track?

Yes, that's a hard one to answer, obviously. We've been ready and waiting for it to turn over the last couple of years, this freight recession, if you look at ISM being below 50 for and -- 32 of the last 35 months, I believe, that's obviously put pressure on everyone and we haven't been immune to the macroeconomic environment. But I'm really pleased with how we've been able to deal with this decrease in network density in terms of controlling what we can control. And that's the message that we give to the team is is control those items, those expenses control our service first and foremost. And we've obviously been able to do that and be able to keep our variable cost as a percent of revenue, the direct variable cost that is consistent with where we were back in 2022 when we were benefiting significantly from the improvement in the network density. So I think that whenever that inflection happens, and we're confident that it will, we stand ready to be able to put on strong profitable growth.

I think that's when our model shines the brightest. I think when you look back at an environment like a 2018 or 2021 when that market turns, I feel confident that we're better positioned than anyone else. And I think going back to the last question about capacity, and again, that's on the service center side, but I think there's a misconception in the market just looking at how the allocation of Yellow's service centers have gone since they filed bankruptcy. We just don't see that there's been a material change in many of the public carriers, total number of service centers when we look at the change from 2022 to the change in where they finished in 2024. So I think there's less capacity out there. And obviously, all of the Yellow service centers didn't get sold to market and -- meaning we're sold outside of the market or remain unsold.

So I think what we know was a capacity-constrained environment in 2022 will be even more capacity constrained when we do eventually get into the up cycle. So I think those are the reasons why we feel like we're better positioned than ever to be able to start showing strong profitable growth.

The next question comes from Eric Morgan from Barclays.

I wanted to, I guess, follow up on the last one on volumes. Obviously, you haven't gotten any help from the macro, and I appreciate all the comments on how you responded and are positioned. But can you just speak to the market share dynamics here just because it does feel like the industry is probably not down quite as much, at least from what we can tell and I don't know, is this something that can stabilize into next year? Or are we just kind of run rating into another year of down volumes?

Yes, Eric, I think that the challenge that we see is that our numbers are just compared to the remaining public carriers. And many of the comparisons leave out the fact that the bird largest carrier went bankrupt, and there was a reallocation of that volume. So if you include that carry in the mix, going back to the end of 2022, then the industry numbers look a little bit different than our relative comparison to them as well. So we -- I think we talked about this on the last quarter. The best way that I feel like we're looking at market share as I look each year when all the carriers revenues are published in transport topics, and that would include the private carriers as well. And we've been right at 11.8% revenue market share for each of the last 3 years. And that's our strategy is generally in a weak macro environment.

We continue to try to maintain market share, maintain our discipline over yields and discipline over our cost and usually, we come out much stronger on the other side. So I feel confident about that. When will the market change? I mean that's obviously the big question. I've asked ChatGPT that, and it suggests next year. So who knows? We'll see if AI is right or looking at other economic forecast will prove to be right. But I think that it seems like as we've gone through every quarter this year, the next quarter has been pushed out to show that we would have a full return to normal seasonality. And obviously, we've underperformed seasonality at this throughout each quarter and based on the starting point in October, I think we'll have a similar underperformance from a revenue per day standpoint at least sequentially.

Typically, the way this would work out was then you start seeing a little increase in demand, you start closing that gap to seasonality, you get back there for a couple of quarters, and then we have significant outperformance. So I'd like to think that when we get into the spring season, next year, by the end, I think this week, we probably are going to have a good indication of where the macro might go. I mean, we get a lot of feedback from customers that continue to have concerns over trade and the impact of the tariff environment. And so if some deal was formed, if you can close that uncertainty loop that many of our customers continue to struggle with perhaps that's when we'll finally start seeing a little bit of recovery.

It was obviously there in the first quarter of this year, there was optimism and those were the couple of months that ISM did go back above 50. So I think that there's that pent-up sort of demand that's hanging out there. But I think we got up to close that trade loop question before we see our customers really excited about trying to grow their businesses again. But there's puts and takes on all sides with it. I think the tax bill was important, the accelerated depreciation component of that.

Hopefully, we'll start seeing some drive to demand. It seems like there's been a few things recently, helping on the supply side within the truckload industry. All of those things should help to bring the supply and demand equation back into balance and support our ability to start growing again. But if you just roll normal seasonality out from kind of the current trend where we are, it certainly would lend itself that if we don't have a major inflection that we could be looking at continued declines on a year-over-year basis, at least for the first quarter. And then hopefully, we'll start seeing some compression for there and a true spring recovery, which is what we normally see in our business.

The next question comes from Ravi Shanker from Morgan Stanley.

Adam, maybe a couple of follow-ups to what you just said. A, just on October itself, obviously, a lot of questions there, but do you have a sense that the kind of big step down from September to October is something transitory maybe related to the government shutdown? And from what you see right now, do you think that this continues for the entirety of the fourth quarter? And also, you have mentioned the things happening in the TL market. Obviously, we did see a bunch of volume move out of the LTL market to TL. You guys have always been optimistic that will come back to LTL? Are you starting to see any of that happen at this point, the TL market tightening up a little bit.

Yes. Let me see if I can unpack all that, remember every point. But the October, just the focus on tonnage right now, where the trend would be that would have sequentially down 5% versus September. The 10-year average is a 3% decrease. So again, it's consistent, the September performance, which to point out was an increase, which was nice to see after several months of sequential declines, but that was up 1.3%, so 2 points, if you will, 200 basis points below the 3.3% average increase.

So it's, I think, a similar underperformance relative to seasonality at the start. And like I mentioned before, if we continue at the same kind of pace of being down, if you carry the 6.5% to 7% decrease throughout the period, that'd really be similar underperformance, if you will, for the full quarter from a revenue perspective as what we've been seeing through the year. So I don't think anything has gotten worse per se, it just sort of seems like things have continued on. And frankly, that's what we were expecting with our third quarter revenue. We weren't anticipating an increase -- normally see an increase there.

We thought we would see revenue at $22 million per day and that continued through the full quarter. So I think the demand is -- it feels consistent to me. But obviously, we haven't seen the inflection that we've all been sort of waiting for. And you don't typically see that in the fourth quarter. I mean, obviously, at this point, October is 23 workdays out of a 62-workday quarter. So a lot of the trend that we have in October will carry the quarter. And December is always a weak month. So I think a lot of it will be -- can we kind of hold pace to a degree with seasonality from a tonnage standpoint, to sort of keep that current trend consistent through the quarter and then be in a position to hopefully start seeing some type of movement upwards when we get into the first quarter of '26, which is when you would -- for the full quarter, our revenue historically is down another 2% in the first quarter. But by the end of that quarter, that's what will be important that we start seeing some improvement there in demand where you see that spring deal starting. And so that's just something that unfortunately, we continue to kind of wait on.

The next question comes from Scott Group from Wolfe Research.

Just a thought, so you're not seeing -- with October like a big drop off in government-related activity. That was just sort of just a quick follow-up. And then just like bigger picture, like how are you balancing like long-term pricing discipline versus what's going on with network density. Are we -- are you seeing any change in the competitive dynamic, the pricing environment, just big picture, I'd love to get your thoughts on that.

Yes. That was one of the pieces of Ravi's questions that I kind of missed. But yes, we don't have any direct government business. I think that, again, it seems like demand is consistent, but it's obviously -- October was a little weaker, especially at the start of the month. The past week has been good. But I think there's probably an indirect effect on the overall economy that could be pressuring things there as well. From a pricing standpoint, continue to see general discipline out there. And obviously, we continue to move forward with our increases. We're seeing an increase in yield of about 5% in October, and that's ex fuel. And that's what the change would be if you kind of think about the fourth quarter.

If we hit normal seasonality, it would be an increase of right at 5%. So that's kind of our baseline thinking as we go through the period. And I think that having those conversations, obviously, we're in a very competitive environment right now with demand being weak overall for the industry. But we've got a very, I think, the best sales team in the industry that's out there that's having conversations every day with our customers about the value that we provide. And we have a lot of conversations about service failures that customers may be dealing with that are using other carriers.

And so -- it's up to us and to our sales team to make sure that we can demonstrate value. And I think we've proven that time and time again to give the service that we do. Our costs are going up every day. We're having more cost inflation this year than what we were originally anticipating. But we've been consistent with the increases that we've asked for across the board. And I think we've been successful there without seeing any major customer loss or anything like that. But I think when you look at an actual performance, our operating ratio, our earnings per share and the relative change, I think a lot gets missed when you see, at least for the public carriers just a comparison to consensus and things of that nature. But while we don't like seeing our earnings per share being negative like they've been, when I look back at the second quarter and the relative comparison, at least for the, I'd say, 3 public carriers that they are stand-alone entities, their earnings per share was down at least double what ours was.

And so I think that kind of proves a couple of things, the importance of being disciplined with yields. But also the cost control that we've been able to display throughout the business and really through the past couple of years that protected our operating ratio protected our earnings and put us in a great spot to be able to grow when the environment is more conducive to growing.

The next question comes from Bascome Majors from Susquehanna.

Really to follow up on that theme. Adam, if we kind of run seasonality through, it looks like next year could be potentially the fourth consecutive year of tonnage decline. And certainly, you've gotten no help from the market, but that's abnormal in the history of the company. And as you take a step back and I don't know if you have a direct answer to this, but what is the point in this sort of new weaker or more competitive paradigm where you really think about the balance of service, price and volume growth? And if you need to twist some of those knobs to really drive the long-term outcome that benefits your shareholders?

Yes. I think that, obviously, we've had -- I mean, it's been a very disruptive and challenging period over the last 3 years. And we've heavily invested for future growth opportunities. And we still feel very confident in what our long-term market share opportunities are and believe we've got a long runway for growth. And we wish that the market would have already turned, but we'll have spent $2 billion came over the last 3 years with volumes being down to expand our network to continue to keep a fleet replacement cycle and be prepared for future opportunities, but that comes at a cost as well. We had a lower CapEx spend this year and very likely that it will be lower overall next year as well. So I think that will continue in to pair the capital expenditure plan back to grow into what we have will take some of the pressure off the overhead cost, and we can continue to manage our variable cost as much of a fixed cost business that we run with a network of 261 service centers, probably 2/3 or more of our costs are variable in nature.

And I think we've shown good control there. But this down cycle has obviously lasted a lot longer than I think anyone would have expected. And when we go through down cycles, we've been through this multiple times before. And I think a lot of people are ready to write us off and several analysts have through this cycle as well. And I think the growth story is over. But we keep a lot of those old headlines around for both and board material, if you will, and look forward to when the market does eventually inflect back to the positive.

I think the key thing is, like I mentioned earlier, the value offer to your customers. We are a little bit of a price premium. But with the control that we have over cost, our go-to-market price is not much higher than our competitors. I would say, typically, when we get in an up cycle as well, the competitors that don't have as much capacity, that's when you see their prices go higher than ours. And so that price gap will continue to close especially for those carriers that, frankly, from a GAAP operating standpoint, there's 6 other publicly traded LTLs, 4 of those from a GAAP operating ratio have been operating in the '90s. And so I think that to deliver value to their shareholders, they're going to have to increase prices would be my guess.

And so when that happens, that price gap closes, that, too, gives us additional volume opportunity. So I think we'll benefit from the improvement in demand, the improvement or volume opportunities coming from that churn at competitors. And that's historically what we've done, and that's fully what we're expecting at this point as well. Once we can get back into a demand environment that's more conducive to growth and not trying to go out and we want to win market share. We don't want to go out and try to take it, right?

The next question comes from Brian Ossenbeck from JPMorgan.

Maybe two quick follow-ups for you, Adam. Just the length of haul was coming down a good amount here. I don't know if you can put some context around that as a sign of just the demand environment that you're in? Is there some sort of shifting mix in there? And does it have any sort of implications for how you operate the network or how the industry responds. And then just on the pricing side, I want to get your quick thoughts on dynamic pricing, and we've heard a little bit more about it. I don't know if it's really widespread in use. But I just wanted to get your perspective on how you utilize that, if at all, and then what the rest of the industry is doing as well.

Yes. On the dynamic pricing side, that's -- we hear some commentary of that, and I think that's something that's probably used in a small way by some carriers and I don't think that we've ever seen a whole lot of positive impact from that. That's not really something that we subscribe to for us. I just feel like it's more important to be consistent customers know what to expect from us. We look at how our costs are changing each year, and that drives what we try to ask for from a cost plus standpoint to continue to support investments that we make, be it in service centers and equipment investments in technologies and those investments in technologies, we've shown that they help us continue to improve our costs.

So in some cases, you invest to drive an improvement in your service product and customer engagement, customer stickiness, but then we also have plenty of investments that allow us to operate much more efficiently. And we've kind of proven that by our ability to be able to to manage our variable costs. But I don't think that when you look at some of the carriers historically that have done some of these things that can think back to the first half of 2023. I don't think that it's proven it's weighed out in terms of when you look at earnings per share performance. It just seems like it never really pays to try to be willing to take less of a rate when costs are going up. And I think the earnings per share trends for us and other carriers kind of prove that out. I forget, what was the first part of your question, again?

Just the implications of shifting length of haul. It seems like it's been coming down for a while [indiscernible] the market or a mix thing and how it impacts the business.

Yes. I think that's something that has been developing over time, and we expect that it will likely continue to decrease. I think that shows kind of the regionalism as we continue to expect that we'll see growth, especially e-commerce trends that will probably move more and more freight into kind of next day second day [ lines ]. That's about 70% of our revenue today. And in the most recent quarter, we actually -- our retail business outperformed industrial again. And so that's something that's probably contributing. But yes, I think the other thing is when there's time and supply chain, and obviously, there is right now, there's other forms of transportation that can be used for some of the longer length of haul at a cheaper price point.

And those are some of the things that if you go back to 2021, for example, if freight was hitting the shore, we were picking it up. It was converted to truck as soon as possible in the supply chain. And so we were probably getting some longer lead to haul at that point. But I think shippers are able to take advantage of time in the supply chain right now and getting to us later in the process, if you will. So that's partly some of that change that we're seeing.

Next question comes from Jason Seidl from TD Cowen.

I wanted to stick on pricing a little bit. You guys obviously announced a GRI recently, it was 4.9%, I believe, at the prior year. But the market feels like it's weaker this time around. How are you guys gauging sort of compliance to the GRI as we move through quarter right now. Would you think it might be a little bit weaker than last year?

You mean the increase or the request from the customers about the increase?

The increase that you announced. I think yours takes place November, early November, I believe.

Yes. We were 11 months this year. We've done that in the past. Some years, it's 12 months, but we base our general rate increase off of our cost each year. And we're not getting any kickback so to speak, we explained to our customers what our costs are for equipment real estate, just to generally operate our business. And keep in mind, too, this only affects 25% of our our customer base. This is a general tariff for noncontract. Our contracts are about 75% of our business, and those increases are based on months of the year when they expire. So this only affects 25% of our business.

The next question comes from Reed Seay from Stephens.

You've had a lot of competitors invest in service and in their network and you have a peer about the spin-off from their parent, maybe getting a little more financial attention. Are you seeing any changes in the market from these investments from either your public or private peers or any impacts from your peers they prepare to spend from the parent company?

Yes. The best information that we can use to compare us versus the others from a service standpoint is all the detailed information that we get from the Mastio study. And we really didn't see a whole lot of movement, if you will, when you look at us or any of the other carriers. The gap between us and the competition stayed as wide as it's ever been. As Marty mentioned, we were -- there's 28 different attributes related to service and value, and we were #1 in 23 of those attributes. But I think when I look at the other logos, there really hadn't been a lot of change in the past or at least on the value map in the past 2 to 3 years despite there's -- we hear more about the service improvements from investors, and I think we see it in Mastio or hear from customers. So we continue to focus very intently those on that data.

Services is more than just being able to pick up and deliver freight on time and without damage. And so those are the things that we work very closely, and we talk about these attributes and how we're performing with every employee throughout the company. And every person lends a hand to give in service, whether it's an external customer or an internal customer. And so -- that's what we focus and what we spend a lot of time and money. We're training our employee base to make sure that every experience at Old Dominion is a positive one, and we stay best in the game every day. it's not just best in the game on Saturdays for ESP and Game Day, we want to be the best in the game every day.

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

Great. So Adam and Marty, maybe I'm still a bit confused by the comments of demand is consistent and similar underperformance as you've seen recently, that commentary, [indiscernible], who reported already said things got worse in the LTL world rapidly to start the quarter. Volumes down 11.5% against last October is down 9% comp, which was I think the easiest comp you had as the worst month of the year. So I just want to understand, is it consistent? Is it -- it did something fall off rapidly, I guess, the weight per shipment, I don't know if you want to throw some thoughts there. Is that decrease? Is that in line with normal shifts? Or is the economy making that a little bit lighter.

And then the flow there of the volumes I guess there's some shipper commentary that you're being more aggressive on pricing. I would presume your answer is going to be -- you know us, we never changed that. I'd just like to hear that from you directly. Is there any change on your pricing moves in the market.

Yes, there's no change there. It's -- you can see our numbers, and we continue to be consistent with our approach, and I think our year-over-year change in our yield trends kind of bear that out. So no change there. I would just say with respect to the volumes, I mean, look, obviously, they're down and with volumes being down double digits, at least at the start with October, that's tough, and that's coming on the heels of -- we've been down the last couple of years, and it's something we continue to manage through. But I think that my commentary about similar underperformance was, again, just looking at the sequential change in our tonnage relative to kind of what the 10-year average is. And we last year, we were basically the sequential change in October versus September was down 3%. So right now, we're trending down 5%. So that's making that year-over-year change look a little bit worse.

And we'll see as things progress through the quarter, whether that changes or not, but just looking at the overall revenue per day and looking at kind of how we've -- whether it's revenue per day or tonnage, if you kind of have a similar underperformance relative to our 10-year average sequential change. That's kind of how I come up with the numbers that we have, be it the tonnage would be down, I don't know, about 11.5%, could be a little bit better. and then the revenue sort of being in that same type of basically, it would be around $1.29 billion. If we continue on with this down 6.5%, 7% or if we underperform at a similar rate to what the underperformance has been this year sequentially that is, but no major -- for us, it just feels about like the same from a macro standpoint and from a customer demand standpoint, the conversations that we continue to have. And like I said earlier, I think that we kind of came into this year or at least, I'd say, in the second quarter, thinking that we needed clarity from a tax deal clarity from an interest rate environment.

And then once everything got stirred up with the tariff conversation. We felt like, okay, we got to get this settled. And really, it's settled for our customer's sake. And so we've got a couple of those components checked off the list, if you will, at least the interest rate cut cycle has begun. And we'll continue to watch and see if we get further cuts there that should help customers. But like I mentioned earlier, I think the biggest thing is just the overall uncertainty in the environment with respect to if you're trying to make a business decision, not knowing what all the cost inputs might be it's hard to make that decision. And I think that's just got some business owners and managers just kind of paralyzed at this point. And so if we can start getting some clarity there, then I think we can start seeing some change in activity.

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

Congratulations on another terrific Mastio finish. I wanted to see if I could unpack a little bit more visibility into what's your different customer buckets are doing? Because when I think about it, industrial production hasn't really gotten incrementally worse in the last couple of months. The ISM hasn't gotten incrementally worse in the last couple of months. You gave us a little insight that your retail customers were outperforming your industrial customers, but I was wondering if -- however you think of bucketing it, whether it's an industry or kind of a customer group, I don't think e-commerce is down that much. Kind of where is it a little weaker to drive the tonnage down the way it is and kind of which buckets are performing a little bit better or a little bit stronger in this environment. Just help us give us a little context.

Yes. It's -- we generally put the group or SIC codes into a couple of major buckets. Our industrial revenue is 55% to 60% of revenue and then the retail is about 25% to 30%. And in the most recent quarter, the revenue per day, we were down 4.3% overall for the quarter. The retail, it wasn't wildly different, but was down about 4% compared to the third quarter last year. And the industrial was obviously a little worse, but not a major difference. And part of that goes back to the consistency that we've had in our customer base. And we've talked a lot over the fact that we haven't lost any major customer accounts. We haven't really lost major lines or whatnot and awards from existing customers. And so we've had a lot of continuity there. But obviously, demand for our customers' product has been weaker. Orders have been weaker. I think that's coming through with our weight per shipment trends and that's something that generally is indicative of the macroeconomic environment.

And we're seeing weight per shipment that's down in October right now, about 2.3%. So that's continued to go lower than is driving that overall change in our tonnage. And obviously, with business levels being down like they are, and you have to say, well, what gives, if you think you're maintaining market share and not losing customers. It is those weaker orders. I think we continue to hear some customers tell us that they're consolidating shipments within the truckload industry. And with that oversupply that has been there, I think that you've had capacity that's been readily available and that opportunity has existed. We've had some pressure in our 3PL business. That's about 1/3 of our overall revenue.

Some of that could be the dynamic pricing that if carriers are out there using that to a small degree and some variability. That could be causing some incremental pressure there within the 3PL world, but not seeing it in a major way. It's just some 3PLs are down a little bit more. And I think historically, what we've noticed is 3PL managed business, they're able to leverage their technologies, the carrier connections that they have and help customers consolidate loads into the truckloads. So we feel like more of the pressure is kind of that truckload consolidation on the 3PL world. So it just seems like it's coming from multiple areas, if you will, what's causing the overall weakness in demand.

But I think that historically speaking, ISM has been the highest correlated metric with the industry volumes. And with ISM being weak for 32 out of 35 months, that lends itself to our industry volumes being challenged overall, not just us. And again, you got to put Yellow back on the mix from when all of this started. I'd say the other kind of piece is housing and the struggles that have been there. I think that we've noted some correlations between housing, economic factors and volumes as well. And while we don't have a lot of direct exposure there, there's a lot of indirect exposure that we get related to people buying new homes, building new homes, some of the components that go in and things along those lines. So I think it's just been sort of weakness across the board, some mode shift, et cetera, that's contributed to these unfortunate declines that we've had in our business levels.

Our next question comes from Richa Harnain from Deutsche Bank.

It seems like the theme of the call is sort of this consistency that you talked about, Adam, you mentioned demand feels fairly consistent, not great, but consistent? And really what stood out this quarter was your control and what you can control again, that variable cost item and optimizing your workforce that helped you deliver a nice cost out for the quarter and a better OR than what we see as your normal sequential deterioration. So maybe you can talk to us about like where there's room for further optimization there? I know you're guiding to something that's worse than normal seasonality. But like what can you do? I think you touched on a few things like the tech-enabled features and things like to drive better cost performance. And I think from like salaries, wages and benefits as a percentage of revenue, you're operating at something like 44% in the 2022, 2023 time frame. Could we see a level like that come back?

And then just also, what prompted these cost savings now? I know you employee count came down a bit, but we've been in a freight recession for some time. Why cut costs 3 years into the impending down cycle. That's it.

Yes. Let's say, what prompted is we focus every day on saving costs. And whether you're in a good environment or bad, that's something that you've got to be focused on. I had a mentor early in my career that said, if you don't focus on saving costs in the good times, you probably don't even know where to start when times get difficult. So that's a focus that we have every day, and it's just part of who we are and it's part of our continuous improvement cycle as well, that's a key column in our foundation for success is we always want to look at ways that we can get better, ways that we can invest in technologies, in particular, that will drive a return for the business.

And I think some of what we've seen in those areas, being able to manage our direct variable cost consistent with levels that we had back in 2022, I think, speaks to the importance of that. We obviously -- we run a tight ship, but you got to give your people the tools to be able to give service while also operating very efficiently. So that will be a continued focus for us. But as I mentioned in my prepared remarks, the good thing in all of this, what's going to drive the long-term improvement, there's 2 key ingredients to long-term operating ratio improvement, and that's density and yield. And our yield trends have been consistent throughout this freight downturn.

But density is obviously what we're missing out on. We need density back in the system and it will come again. but that's what's really going to create tremendous leverage for us. And I think the immediate opportunity and typically when you see our operating ratio performance when we get into these recovery years, we've got periods where the operating ratio improves 300 or more basis points. And a lot of that comes on the overhead side, when you start getting revenue back in the system and you get leverage on all these costs that we've built up when times have been slower, depreciation, in particular, I think that's where you see the immediate movement in the operating ratio.

And I think we've probably got a couple of years of improvement given the level of excess capacity that we have in the service center network right now. But the long-term improvement in operating ratio that we've seen has really been on the direct variable cost side, and that will be the opportunity that we have going forward. If we're already at record levels and those costs as a percent of revenue, imagine what happens if we can get double-digit volume growth back in the system, which is type of performance that we've seen in prior up cycles. That's where those costs can continue to go much lower as a percent of revenue. But you got to be disciplined. All of these things work together. We couldn't be disciplined with our yields if we didn't have best-in-class service. And so all feeds on one another, but understanding our cost and making sure that we charge appropriately based on the cost to handle freight is what gives us the confidence that we can continue to drive the operating ratio back to where it was and beyond.

The next question comes from Ari Rosa from Citigroup.

I just wanted to ask you for a bit of color on the nature of the conversations you're having with your shippers, with your customers. how are they kind of contextualizing some of this volume weakness? You mentioned some of the uncertainties that they're grappling with. Does it feel like they've gotten more confident, less confident? I guess I'm trying to -- again, as a lot of others have done contextualize this decline that we're seeing in October? And then is there any dimension in which they've perhaps gotten a little bit more bold in pushing back on pricing given whether it's competitive pressures pressures that they're feeling themselves on their own margins?

I think the sentiment is pretty much the same as it's been all year from a customer confidence standpoint overall, they're all -- most of them are waiting for something positive to happen. And I think if you look at the backdrop of what can be set up for 2026 with lower interest rates, tariffs being consistent -- at least consistent corporate taxes being decided. I think the backdrop is very positive, and they talk positively about those things. And as it relates to price, of course, we have customers that want to talk about price. But our salespeople are trying to go out and basically seek business where customers absolutely have to have on-time service with no claims, which allows us to charge a premium. So -- and as Adam said earlier, our customers do have lower weight per shipments. We don't churn a whole lot of customers, but the shipments that we are getting are about 20 pounds less per shipment than they were this time last year. So there's some cautious optimism out there, and we continue to stay in front of these customers and tap what we can do for them, and we're just waiting on the increase in business.

The next question comes from Stephanie Moore from Jefferies.

Great. This is Joe Hafling on for Stephanie Moore. I wanted to go back to Marty, something you had mentioned at the top of the call, you mentioned a little bit about how you're using technology around workforce planning, dock management and route planning. We don't often talk about technology in OD. So if we could just unpack what you guys are doing across those main cost buckets? What are the benefits you're already seeing, what inning you think you're in, what's still to come? Just trying to get a better understanding of everything on the tech and productivity side.

Yes. We normally don't go in detail about our AI activities, but I can tell you some of the things that we already have in use today some of it being in cybersecurity with e-mail protection platforms as we get into more bot communications with our customers, we have to learn to manage that better to keep cyber out from an operation safety aspect.

We have implemented a line haul plan creation that allows us to study our loads quicker, obtain more pounds per truck as we move along we analyze from a safety standpoint, we analyze our lytics cameras with videos so that we can coach our drivers more efficiently and increase our safety dealing automation. We have AI in our billing automation, which lowers our cost, content creation for our sales, our people for deeper customer engagement, and we also use AI for capabilities related to basic application development. But -- and things that we're looking at in the future for that, that we're currently researching is equipment utilization, predictive equipment maintenance, training for mechanics, just to name a few weather conditions, so we can take better routes during the winter months.

And that's just to name a few of some of the things that we're looking at. But all of these things we look at, we expect a return on investment. So we'll talk about them more as we see that happen.

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

Thank you all today for your participation. We appreciate all your questions. And please feel free to give us a call if you have anything further. Thank you, and I hope you have a great day.

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

Good morning, and welcome to the Old Dominion Freight Line Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jack Atkins, Director of Investor Relations. Please go ahead.

Thank you, Wyatt. Good morning, everyone, and welcome to the Second Quarter 2025 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through August 6, 2025, by dialing 1 (877) 344-7529 access code 8056479. 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 may -- 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 cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominium'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 yourself to just one question at a time before returning to the queue.

At this time, for opening remarks, I would like to turn the conference over to Old Dominion's President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.

Good morning, and welcome to our second quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions.

Old Dominion second quarter financial results reflect continued softness in the domestic economy. Although our revenue decreased in the quarter due to a decline in our volumes, our yields improved as our best-in-class service continues to support our disciplined approach to pricing. I want to thank our outstanding team for their unwavering dedication to our customers and continued commitment to executing the core elements of our long-term strategic plan.

Although the challenging economic environment has persisted for longer than we anticipated, we have remained focused on what we can control as we work to ensure Old Dominion continues to deliver superior service to our customers while also operating efficiently. In addition, our ongoing investments in our network, technology and our OD Family of employees puts us in an unparalleled position to respond to an inflection in demand when it materializes.

Delivering superior service at a fair price to our customers is the cornerstone of our strategic plan and has been central to our success for many, many years. Doing so consistently through the ups and downs of the economic cycle has strengthened our customer relationships over time and allowed us to keep our market share relatively consistent over the extended period of slower economic activity. As a result, we were pleased to once again provide our customers with 99% on-time performance and a cargo claims ratio of 0.1% in the second quarter.

This consistency of our execution and our commitment to creating value for our customers doesn't happen by accident. It is a product of our unique culture and the result of hard work of the OD Family of employees. Across our company, our team is focused every day on adding value for our customers. By keeping our promises to our customers, we help them create value for their own customers. Our commitment to service excellence continues to support our long-term yield management initiatives with a focus on individual account level profitability, our approach to pricing is designed to offtick -- offset cost inflation and support our ongoing investments in our network, our fleet and our people.

Although these investments have created headwinds to our profitability in the short term, we are confident that our consistent reinvestment back into our business for growth is the right long-term approach. We know that having available capacity to grow with our customers and support them during periods of stronger demand is an important component of our value proposition. We also believe that these investments are critical to stay ahead of what we expect to be favorable long-term demand trends for our industry.

I'm very proud of our team and how they continue to find ways to reduce cost and operate as efficiently as possible during the period of uncertain demand. Given that our first priority is to uphold our commitment to delivering superior service to our customers, it can lead to increased operating costs due to the loss of operating density when volumes do decrease.

While that was the case in the second quarter, we continue to believe that our business model contains meaningful operating leverage, and we remain confident in our ability to improve our operating ratio over the long term. We expect this to become more apparent as the demand environment improves, and we are able to leverage our investments in our fleet, our service network and our technology. Over time, our customers have recognized the value of our service by giving us more of their business, which has allowed us to win more market share over the last decade than any other LTL carrier. Looking forward, we believe that the consistency of our execution, unique culture and our team's daily commitment to excellence will allow us to be the biggest market share winner over the next decade as well.

Our position is as strong as ever to respond to an improvement in the demand environment. As a result, we are confident in our ability to produce profitable revenue growth and drive increased shareholder value over the long term.

Thank you very much for joining us this morning, and now Adam will discuss our second quarter in greater detail.

Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.41 billion for the second quarter of 2025, which was a 6.1% decrease from the prior year. Our revenue results reflect a 9.3% decrease in LTL tons per day, that was partially offset by a 3.4% increase in the LTL revenue per hundredweight.

On a sequential basis, our revenue per day for the second quarter increased 0.8% when compared to the first quarter of 2025 with LTL tons per day increasing 0.1% and LTL shipments per day increasing 0.8%. For comparison, the 10-year average sequential change for these metrics includes an increase of 8.2% in revenue per day, an increase of 5.3% in LTL tons per day and an increase of 6.0% in LTL shipments per day.

The monthly sequential changes in LTL tons per day during the second quarter were as follows: April decreased 3.7% as compared to March, May increased 0.5% as compared to April and June decreased 0.6% as compared to May. The 10-year average change for these respective months is a decrease of 0.7% in April, an increase of 2.5% in May and an increase of 2.1% in June.

For July, our current month-to-date revenue per day is down 5.1% when compared to July 2024, with a decrease of 8.5% in our LTL tons per day. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q.

Our operating ratio increased 270 basis points to 74.6% for the second quarter of 2025, as the decrease in our revenue had a deleveraging effect on many of our operating expenses. This contributed to the 160 basis point increase in our overhead cost as a percent of revenue. Within our overhead costs, depreciation as a percent of revenue increased 80 basis points while our miscellaneous expenses increased 40 basis points. The increase in our depreciation cost as a percent of revenue reflects the ongoing execution of our long-term capital expenditure program which we believe will support our ability to grow with customers in the years ahead.

Our direct operating cost also increased as a percent of revenue despite our team's best efforts to manage these variable costs. The 110 basis point increase in these costs was primarily due to higher expenses associated with our group health and dental plans. As a result, our employee benefit cost increased to 39.5% of salaries and wages during the second quarter of 2025 from 37.2% in the same period of the prior year.

Overall, we continue to be pleased with how our team has remained focused on controlling what we can until the demand environment improves. The OD team has continued to deliver best-in-class service while operating very efficiently and we've also managed our discretionary spending. We will, however, continue to make the investments that we believe are necessary to ensure that our business remains well positioned for the long term.

Old Dominion's cash flow from operations totaled $285.9 million for the second quarter and $622.4 million for the first 6 months of 2025, respectively, while capital expenditures were $187.2 million and $275.3 million for those same periods. We utilized $223.5 million and $424.6 million of cash for our share repurchase program during the second quarter and first 6 months of 2025, respectively, while our cash dividends totaled $59.0 million and $118.5 million for those same periods.

Our effective tax rate for the second quarter of 2025 was 24.8% as compared to 24.5% in the second quarter of 2024. We currently expect our effective tax rate will be 24.8% for the third quarter.

This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

[Operator Instructions] Our first question will come from Chris Wetherbee with Wells Fargo.

Appreciate the comments. Maybe we could just start with your thoughts around the operating ratio. Obviously, it's a challenging environment from a tonnage perspective, at least year-over-year. Kind of how do you think about sort of the normal progression from 2Q to 3Q on the OR, and maybe kind of how you feel like you can fare given the circumstances we're in from a macro backdrop?

Sure. Yes. The 10-year average is for us is typically flat to up 50 basis points from the second quarter to the third. But that's typically based on sequential revenue growth of about 3%, which is what we typically see. So obviously, given the demand environment, what you just said, we've not really seen that positive inflection yet, unfortunately, with our revenue this year. But -- so I'm kind of thinking that revenue per day, if it continues to stay flattish on a per day basis, pretty much what we saw in the second quarter, if that continues into the third that we'll probably see an increase in the operating ratio, somewhere in the 80 to 120 basis point type range. So a little worse than what our normal sequential change would be.

But just a couple of things to point out for that. I'm expecting that we'll see an increase in our salary wages and benefits line. And some of that, as you know, we give a wage increase that's the 1st of September every year. So that's always in there, but we typically have that revenue that offsets a little bit. But I'm also expecting that we'll see continued pressure with our fringe benefit costs. So I'm thinking that, that will be part of the driver. I also think that we'll see our operating supplies and expenses will probably tick up a little bit. And our overhead cost, that was something they were higher in the second quarter than what I initially expected. And we talk about that a lot, but I'm expecting that our overhead cost in aggregate will be up a little bit further in the third quarter. They were about $310 million in the second quarter. We've been running about $305 million.

So I'm expecting that we'll see those tick up even further in the third quarter, probably some pressure in the miscellaneous expenses line will continue. But obviously, the overhead cost is revenue dependent. So I'm anticipating if it's flattish revenue, then those costs will tick up a little bit further. But if we can see some revenue start to come in a little bit better. And obviously, we'll continue to give a mid-quarter update then that's something that eventually over time will get leverage on.

Our next question will come from Eric Morgan with Barclays.

I wanted to ask about the market share commentary. Just if we look at the ATA's shipment index, actually turned positive the past couple of months, at least for April and May. So I don't know if that's kind of the best data to use, but it's what we have and obviously, it's a bit different from what we're seeing from you as well as your publicly traded peers. So I guess just curious if you have any thoughts on what's happening among the private carriers, where we have kind of less real-time insight, how they've been responding to this downturn, if that's changed at all in recent months and just how you get your competitive positioning here?

Yes. The best data that we probably get from an industry standpoint that includes the private carriers is really from transport topics. And so that's the data you'll see most typically quote in the 10-K about the size of the industry and so forth. And so you really only give an annual read on some of those carriers without the month-to-month trend. And the ATA is good, but I think it typically has always had a much higher report of revenue for the entire industry, and it includes I believe, some ground business from some of the other parcel carriers. So that's why we typically have used transfer topics.

But I think when we look at that information, Transport Topics just published recently, and we saw a pretty consistent trend for market share for us. And we've got granular level detail that we get through a proprietary database that's out there as well. And overall, I'd like to think that our market share, when you look through this downturn, our strategy is that we want to maintain market share in periods of economic weakness, while also getting increases in our yields. And I think when we go back and look at kind of where things were in '21, '22, that's effectively what's happened. And it always moves up or down a little bit here and there. But the key will be continuing to execute our strategy like we've done in the past and then make hay while the sun is shining, I mean that's what our model is based on.

I still feel like we're in a better position than anyone else when the demand environment does eventually inflect back to the positive. And I think we're probably better positioned than we've ever been. But if you think back to the cycle increases that we saw in 2014, 2015, same thing with '17 and '18. We've been able to outperform the market from a tonnage growth standpoint anywhere from 1,000 to 1,200 basis points. So we just need a little help from the economy to get back to where we really see that demand environment inflecting back to the positive. And obviously, some macro factors are starting to settle a little bit with respect to the tax bill, trade. Hopefully, at some point soon, we'll get an interest rate decrease. I think once -- some of those measures of certainty come back into the market, it will create opportunities for our customers that will create opportunities for us to start growing our volumes again.

Our next question will come from Jonathan Chappell with Evercore ISI.

Adam, one of the things you mentioned in response to Chris' question was you expect pressure on operating supplies and expenses. You said the same thing in April and operating supplies and expenses have actually improved by 80 basis points as a percentage of revenue in 2Q. So did something happen in 2Q that really helped you on that cost line item that you expect to reverse in 3Q? Or how do we kind of match up the pretty big sequential improvement in 2Q to ongoing pressure expected in 3Q?

Yes. I would say that we continue to see really good performance from our repairs and maintenance. Our team has done a great job, I think, with managing those costs. And I had the expectation that we would see some pressures there from 1Q to 2Q anticipating that some of our park costs might be increasing due to the impact of tariffs and so forth. But I think what we've seen is just some continued changes with our fleet. We've continued to take some of our older equipment out that would have had really high repair cost, if you will. And so we've continued to pare back some of our fleet in that example. And then just in general, our cost per mile, we've seen improvement this year in.

And if you go back the last few years, we were up double digits from a cost per mile standpoint, in '22 and '23. So I think that was some of the better sequential performance that we had if you will, from 1Q to 2Q. But I'd say part of that driver is -- that I'm thinking from 2Q to 3Q, right now or at least in the second quarter, our average price per gallon for fuel was like $3.56, and we're seeing that elevated right now. So I think that's something where those costs as a percent of revenue. If fuel kind of continues to hold at about the range where we are now, fuel is obviously a big driver in that operating supplies and expense line.

Historically, what you see and probably the comment on why I wanted to give both of those together. We always talk about as fuel changes usually, you'll see corresponding increase. I'd like to look at our direct cost in total and how we manage through those. So in the short term, if you see -- if the fuel surcharge goes up, our fuel expenses as a percent of revenue might also go up, but you would see the direct labor cost, in particular, kind of an offsetting decrease there. And typically, the second quarter to third quarter, too, that's where you kind of see those costs all in or kind of flattish, if you will. But I'm expecting to see some continued pressure there in the salary, wages and benefits line. Somewhat like I mentioned, we've got the wage increase. We'll get one month of that for the full quarter. Typically, we have a little bit of sequential revenue growth that will help offset that. And we may still have that for this coming quarter. But if we've got flattish revenue growth and that puts a little pressure on that line item. But we've also seen higher fringe benefit costs for the past few quarters, and I'm expecting that trend to continue and to probably be even a little bit higher in the third quarter than what we just saw in the second. So those couple of factors and as well as the miscellaneous expenses, some of the miscellaneous expenses back to kind of making changes on the fleet. As we've been selling off some of this older equipment, we've had some losses, and that goes into that line item. So I think we may see some more losses, if you will, coming through on that line even in the third quarter to put a little bit more pressure overall, I would just say, in that big bucket of overhead cost.

Our next question will come from Jordan Alliger with Goldman Sachs.

So just sort of curious sort of you gave some color and commentary around the OR revenue per day sort of flattish. I mean given the easy comps, I think, that are coming up, both in terms of tonnage per day and revenue per day. I'm assuming as we look forward from July, those trends on a year-over-year basis, I would think have the opportunity to get quite a bit better, but just curious your thoughts on the latter half of this quarter against those comps.

Yes, they would, Jordan. In the second quarter, for the full quarter, we were down, just call it, 6%, 6.1%. Right now, I would say, July, just call it, were down 5%. So it's already getting a little bit better. If we stay -- the second quarter per day average was about $22 million revenue per day. So if we stay in that same ballpark, then we'd be down a little over 4%. If you just sort of held revenue at that $1.4 billion that we just did in the second quarter, if you say that was exactly the same, that's kind of what the trend would be.

Now I'll say that the July performance so far when I look at kind of where our tons are and just the revenue per day level, July is normally a weak month from a tons per day standpoint, we're usually down about 3% versus June. We're trending down about a little over 2% right now. So we're a little bit better than what our normal sequential trend is.

Now I'm not ready to make a call to say that things will turn around and we'll get the acceleration that we typically would see in August and September. But I think that gives us a little bit sense of cautious optimism to say it's outperformance kind of on the downside while we see some of that acceleration come through. I think that remains the question. And I think it will get answered as we go through the quarter and we give our mid-quarter updates and so forth. So if we were to perform at normal seasonality, and I think that's a big if right now, I'm not saying that, that would be a case then that number would come back more in comparison to revenue with the third quarter last year. I think that full seasonality, we'd be down about 1.5%. So we'll just continue to monitor it, and maybe we'll be somewhere in that 1.5% to 4%, just depending on how things continue to materialize as we make our way through the quarter.

Our next question will come from Tom Wadewitz with UBS.

So I wanted to see if you could offer a little more perspective just on pricing and kind of how you think about revenue per hundredweight ex fuel in 3Q. And just whether the pricing, I mean your commentary is pretty consistent over time that you see stability and discipline in the market, but is anything changing on that front? Is there any kind of areas where you see increased competition as the downturn extends?

Yes, I would say, overall, just really we've got to go by whatever one reported in the first quarter. But I think most carriers, the reported yields have continued to be positive overall. And I mean, obviously, we continue to execute on our plan. And I think our plan is different. We look at things from a cost base standpoint, and we want to be consistent through the cycle. And feel like getting those consistent cost-based increases are obviously important to the long-term operating ratio improvement that we've had. So right now for the third quarter, I'm kind of looking at -- I think that number will probably be that the yield ex fuel will probably be up in the 4% to 4.5% range, and that's about where we are in July.

So I think we'd expect to see consistent sequential increase in that reported number, but it will probably come in a little bit, and that's not a reflection on any kind of change or anything like that. It's just a function of kind of where we were last year and -- but we continue to expect to see increases, and we're getting increases when we go through renewals. And that's one of the things that's been tough about this environment back to thinking about that market share question from earlier. But as we're going through our renewals, we're continuing to win business. We get reporting for our national accounts, the business that we've won or business that we've lost. And -- we're continuing to keep customers and get increases on those accounts that we're keeping. But we're also winning some new business.

Overall, obviously, the volumes are down. But I think that, that wins itself to maybe a quick turnaround, if you will, when we do see that volume environment reflect back to the positive. And I think a lot of people believe that that's coming sooner than later. And obviously, we felt like it was coming before we've had a few head takes from an economic standpoint. But now that some of the bigger picture things are being resolved from a macro standpoint. I feel like some of the optimism that we saw late last year and kind of saw it in the improvement in ISM in the early part of this year. We hope to see kind of that turn back around on that optimism come back to the market and lend itself to increase freight opportunities. But I think that's part of our value proposition is having capacity. And while capacity is not at a premium right now, just given how weak demand has been for so long, we have heard commentary from customers about some competitors that aren't able to make pickups consistently in some markets. And they're increasingly calling us.

And so I feel like when you have a true demand recovery, those inbound calls will likely accelerate, and that's what we've seen in the past. And I referenced some of those periods earlier, but you go back to 2014 when we grew tons at 17%. The market is up 5%. In '18, we're up 10%, the market is up 1.5%. And what we did through the '21 and '22 cycle, where we put $2 billion of cumulative revenue growth on the books in. So we feel like we're sitting in a great position to capitalize. We just need a little bit of help from the economy right now.

And our next question will come from Daniel Imbro with Stephens Inc.

Adam, maybe following up on that last discussion just on competition out there. I mean, you guys specifically have been a leader in a lot of the high service parts of the industry, whether it's SMB or grocery, kind of anything with the most arrived by date. But a lot of your peers are talking about trying to grow here. So I guess, are you seeing the better offerings from some of your peers making any encouragement on your business as you go to market? And I guess, if not, what do you think the public markets underappreciate about why that will be harder for others to take from you guys being the leader there?

No, I think that any customer that we have, obviously, we've got a target on our back, if you will. And -- but we're competing with every account, we're competing with the other carriers, and we have been for years. So I don't think anything has changed with that. I think there's this perception that we've got some secret segment of the market that the other carriers haven't figured out until now. And that's just not the case. I mean we're competing with all the other national carriers in some markets with the regional carriers as well.

So our service product, when you think about the 15 years of Mastio wins. There's more to service than just being able to pick up and deliver on time and without damages. And we do those core things better than anyone else, but it's continuing to figure out ways that we can add value to our customers. And ultimately, that's the business that we're in. It's how do we work with our customers, create win-win scenarios where we can help each other and add value. And so I think those are the things that we'll continue to look at and leverage. We've got about 12% market share, and there's a tremendous amount of share opportunity out there within an industry that we think continues to have tailwinds for it.

So we continue to believe that e-commerce effect on supply chains will continue to shrink shipment sizes and have truckload to LTL conversion. I think if near shoring and reshoring opportunities continue to play out that creates inbound and outbound opportunities for us as well. And just supply chain sophistication with the interest rates higher today, there's a cost of carrying inventory. And so that's the value add that we can have where our customers know they can rely on our own time and claims free service. So it's figuring out how to go into each and every customer account, figuring out the problems that they're having and delivering a solution for that customer. That's what we -- I think we do better than anyone else. And -- that's why we're so confident in what our long-term market share opportunities are.

Daniel, as you referenced in the retail industry, including grocery, there's a penalty if the spread is not on the shelf on time and in full, they're called fines. And many of our competitors, they can go out and talk about meeting those expectations with fancy marketing material and so forth. But until they can stop those fines in our customers' pocket books, nothing is going to change, and we figured out how to do that many, many years ago, especially in the grocery industry. So we don't see anybody getting close to what we can offer from a service standpoint in the retail industry.

Our next question will come from Ken Hoexter with Bank of America.

I just want to understand maybe a little bit more on the backdrop here, the stock's down about 8%. Easier comps are coming up, right? Revs are down 5% in July. Do you expect to get that to maybe flat for the quarter? Others reported a deceleration in tons and pricing despite easier comps. Peer mentioned this morning they're implementing an early GRI. So I think you mentioned a deceleration in yields at 4% to 4.5%. So that's also a deceleration versus history.

Are we getting a more competitive environment that just consistently is beating this market while we're in a decelerated market? I just want to understand your view of the backdrop. And then the holding share, I'm still confused by that one because every public carrier reported stronger percentage gains. Does that mean we're looking at just the private guys? I want to revisit that question earlier. Is it just the private guys that are losing relative share? Maybe if you can just expand a little more on that.

No, I think that, one, with the respect to the yields, I think what we're looking at will be a continued increase sequentially. And so if we are kind of in the middle of that 4% to 4.5% range, that would be up 1.5% to 2% sequentially. In the last few years, when you look at the 10-year average, the sequential increase there from 2Q to 3Q is a little bit stronger. But when you look at kind of the last 5 years, that really skews that average, so to speak. So if you kind of look at a 10-year average sort of pre-COVID, it was more in that kind of 1.5% range about where we are thinking about being.

So we're not seeing any change with respect to what our thinking is from an overall yield management standpoint. And I think that when you think about the industry as well, I think most carriers have kind of figured out that yields are important, those that you go back over the last 10, 15 years that they've taken a focus off yield, that's had pretty negative impacts on their overall profitability. And so I think that's why we've seen such consistency in the industry over the last 3 years where demand has been soft overall.

From a market share standpoint, I think that since really Yellow closed their doors, I think there's been a lot of choppiness in terms of figuring out where our share is. And we obviously report that and report it by region, overall, in our deck that's out on our Investor Relations website. And so you can kind of see how share may be changing in one region versus the next. But it's something that when we look at the overall market, again, kind of factoring in what I just said about using the data out of transport topics, it looks like our share is relatively consistent with where we've been really over the last couple of years. And it's not to say that when we've gone through periods in the past of slow markets, that we're flat or could be down slightly whatever. It's about the same. We've continued to execute a plan. We've continued to manage our cost. Our service has gotten better. And I think we're in a really strong position. It's just overall change that we sort of look at. And so we feel good about where we are, but we feel better about what the opportunities looking forward will be.

And our next question will come from Scott Group with Wolfe Research.

This is a big picture question, maybe it's similar with what you just sort of answered, but if you look at the numbers, you're one of the leaders on yields right now. You're the biggest laggard on tonnage, at least among the public guys. And I guess you might say, hey, that's very normal in a more -- in a softer market that gets a little bit more competitive. We stay more disciplined on price than anybody. But I guess what feels different is just like the duration of this environment. Like we're 3 years into this, we're now -- we still have tonnage down high single digits. Does that -- does the duration of this change your thoughts at all in any way? Or is it, hey, we're just going to do it, we keep doing, and we'll wait this out and eventually, the cycle will come? Or because the cycle is lasting so much longer, do you think about it any differently?

Yes. I mean obviously, it's been -- we talked about these numbers from a quarterly perspective, annual perspective. There's a lot of day-to-day that's going on behind the scenes that doesn't get discussed. I mean, every day, we're working with customers and figuring out ways to identify new opportunities. And -- it's been a tough few years going through the soft demand initially and then you had the big industry event that happened, and so the flux of being down, being up short-lived and then being down again. There's been a lot to try to manage through. I'd love for revenue to be higher. And I'd love for this cycle to turn. There have been a couple of times that we felt like it was turning and I think back to late 2023. We had started reinvesting, running our truck driving schools and hiring folks to be prepared for what we thought was going to be sustained improvement there. And then kind of hit another roadblock from a demand standpoint.

But overall, when I think about our model and how important revenue is, I mean, when you just look at the sequential performance through the second quarter, we don't normally talk about sequential incremental margins. But the reality is, is that a little bit of revenue that we put on the books between the first and second quarter, we had about 60% incremental margins on that business. So it shows, I think, the power of the model once we start getting revenue on the books, but we don't feel like we need to go out and try to chase bad revenue that doesn't fit in our thinking for the long term. And so I think that's what we've done.

We've also continued to manage our costs very well. When I talk about splitting our operating ratio apart, the 74.6% that we just did in the second quarter, about -- between 52% and 53% of revenue were our direct variable cost. That's pretty much the same where we were in the second quarter of 2022 when we did a sub-70% operating ratio. And so we've been able to control what we can control. Our team has done a phenomenal job, I think, of protecting service, managing our cost in a very weak environment. And that's hard to do when you don't have density in the network. So I'm really pleased with that.

Our overhead costs really are what's accelerated, and we just need a bigger revenue base to get leverage on those costs again. But that's part of our model and our strategy, too. We like to invest through the cycle, and we've got more capacity than we probably have ever had right now from a service center network standpoint. And so yes, we're carrying a lot of excess costs. Our overhead cost as a percent of revenue were about 22% here in the second quarter. Back in 2022, they're about 17%. So therein lies analyze the leverage for the model once we get back to a strong demand environment.

So I'm pleased with everything we've done. Obviously, we'd love to be able to flip the switch and see the demand environment improve. But I think from where we sit, when we look at what the other carriers are doing and kind of how revenue has trended for some of the others, we're hanging in there. We've not seen any true variance in our volumes relative to what the entire industry has done. If I look and see the industry is down about 15% from where we were in 2022, our performance is pretty much right in alignment with what the industry has done overall on a net-net basis.

Our next question will come from Jason Seidl with TD Cowen.

One clarification. I think you guys mentioned you expect losses on asset sales. Did I catch that correct?

Yes, Jason. We've been trying to reduce the size of our fleet a little bit, just in coordination with where freight volumes are trending. And so -- we had some losses in the second quarter. That was part of the reason why you may have seen our miscellaneous expenses ticked up a little bit higher. Normally, those costs are about 50 basis points or so. And so we saw those costs trend a little bit higher in the second quarter. They were up to 90. And I'm thinking that we'll see some continued pressure in the third quarter on those.

I was just a little confused because I know other carriers are actually reporting gains on sale. And so maybe you can walk us through the difference between you and them?

Well, while in many cases, we're selling a tractor on average. We use a tractor for 10 years. So there's probably not as much demand for -- that may be more of a truckload thing. But -- there's not as much demand for a 10-year-old million-mile single-axle day cab tractor.

And I guess, you mentioned the sequential move between June and July being slightly better than the historical average. Is any of this due to maybe some pull forward when people were worried about the tariffs potentially resetting again in August? Clearly, we're getting through some of the some deals. But did you get that feedback from any of your shippers that, that was occurring?

Yes, there may be some of that. We've not heard material feedback on that. But like when I look at it by region, it's not like we saw a big change in like outbound business out of California, for example. Most of our regions are trending in about the same kind of range from a revenue performance standpoint. So there's -- I don't know that there's a big outlier that may be driving that.

Our next question will come from Bruce Chan with Stifel.

Maybe a bigger picture question here. We've been hearing pretty regularly in the past couple of quarters from some of the other carriers about AI and dynamic routing. I know that the OD style has always been to kind of quietly implement those things as part of the overall playbook, in many cases, much earlier than peers. But maybe just helpful to get an update on any optimization projects that you've got going on right now. And generally, how you're feeling about the various systems and your tech stack, anything incremental that we should be thinking about as an opportunity?

Yes. I think, like you said, I mean we're always looking at technology. It's a key part of our business, and I think has been to help us with our operating ratio. And just to kind of keep reminding our operating ratio is about 1,500 basis points better than the company average or industry average, I should say. So regardless of what the other carriers have got as opportunities, we're still materially outperforming there. And I think that technology has been a key part of that. And you're right. I mean we don't normally try to announce everything and give totally our playbook away, but we're looking at ways to keep getting better.

Continuous improvement is a key component for our foundation of success. And we've always got to look at ways that we can make investments that are really going to drive change from a service standpoint, ultimately or add value through the lens of driving operational efficiencies. And you mentioned line-haul optimization. That's kind of been the holy grail and the buzzword for the 21 years I've been in this industry, and -- but that's something that we continue to look and we've got some tools that we've continued to implement and try to refine to drive some optimization there. Same thing within our pickup delivery operations and on the dock. And I think our increased use of some of those technologies is part of the reason why we've been able to keep those direct costs. And those direct costs are primarily variable costs, but the direct costs associated with moving freight to think that we've been able to manage those costs basically consistent with where we were.

And when our business was running extremely at optimal state at the time back in 2022 with a sub-70 operating ratio, I think is pretty astounding when you think about the loss of density in our network now versus what we had in the network being. And so there's not just one thing to point to, but I think we've got a great team in the field. And I think we've got a great group and our technology team that's always looking for ways to get better to work with their business, to work with our customers. Another key part of the technology investment is how can we do things differently and add value and add stickiness with our customer base as well that differentiate us from our competition. So all of those things, I think, will continue to be strategic advantages for us and will be part of the story of how we -- we get our operating ratio back towards that 70% threshold, but continue marching forward and drive long-term improvement there in the operating ratio, while we continue to improve density and yield.

Our next question will come from Bascome Majors with Susquehanna.

Just as a housekeeping item, can you remind us of typical revenue and margin seasonality for the fourth quarter? And Adam, if you look out longer term, not necessarily calling when the cycle will turn, but just thinking about what you think the business will respond like when it does? Can you update us on sort of the incremental margin or really other sort of profile you think you can deliver when we actually get some tonnage to flow through all the cost adjustment work that you've done over the last couple of years?

Yes. So typically, our revenue per day, the 10-year average is a decrease of 0.3%, so 0.3% decrease in revenue per day. And then our operating ratio is typically up 200 to 250 basis points. And obviously, that we always have -- we do an annual actuarial study. So there could be changes plus and minus on that insurance and claims line in the fourth quarter. And last year, we had a pretty big unfavorable adjustment that we had to take there.

But nevertheless, we kind of exclude that from the averages, if you will. So that's what the normal performance is. And I think from just kind of looking forward in terms of what we can do from an incremental margin I just mentioned that sequential incremental margin. I don't expect 60% to be the norm. But just thinking about our cost structure and what I just laid out from a direct cost versus overhead cost and overhead is mainly fixed, but there are some variable costs in there. Overall, about 70% of our cost or so right now are variable. And that's how we've been able to protect our margins through this downturn is continuing to manage those. But anyways, the 53% of revenue being our direct variable cost, you kind of do the math, that's how we've been able to do sort of 35% to 40% incrementals when we're coming out of kind of on the early side of that demand inflection.

And then eventually, you kind of get back to the point where you've got to add more equipment, you've got to add more people and so forth, and it starts compressing back. Our longer-term average incremental has been 35%. And so I think that still seems reasonable and that would continue to imply that if you run that out for several years of a recovery in revenue growth that we would get back to that sub-70 type of threshold.

Our next question will come from Ravi Shanker with Morgan Stanley.

I have this topic has been discussed a fair bit, but if I can just hit it again in a slightly different way. You guys have been masters of calling the cycle over the years and have shown your operating prowess as well. But to kind of Scott's point, it's been 3 years of a downturn. And even now, I think some of the TLs and rails are actually sounding a little bit better on volumes in the cycle, even though nobody is going to high fighting here. How can you guys tell if there is something bigger and more structural going on with the LTL space here rather than just a cycle? Maybe some more permanent share shift to TL, maybe in-sourcing by shippers, changing supply chains? Or your customers telling you that they will definitively be back with the same level of volumes are higher in upcycle?

Yes. What you just said there at the end is the confidence that we have in our long-term market share really is just driven by those customer conversations and how we think supply chains will continue to trend over time. We've seen some market share shift, I think, from LTL to truckload through this cycle. And when you look at some of the statistics in the truckload industry in terms of what they're charging revenue per mile versus cost per mile, it's -- they're willing to operate at breakeven or worse. And I think that's what you're seeing with some of the operating ratios that have been published as well. So -- but I think that's some of the trend that we've got to continue to watch is as that business starts picking back up, they get busier, the rates start going back up, I think that's when you'll start seeing some of this unwinding effect in some of those truckload carriers that they don't really want to move multiple shipments on the back of their truck and make multiple stops. That's not their preference.

And they don't have the network that's set up to really handle it. They only do it when times are tough and they need some payload to make a truck payment. And so I think you'll see that business move back into LTL. And then we'll continue to see kind of our customers that are continuing to -- if we go through a customer, we're seeing a lot of wins, like I mentioned, from just a customer-specific standpoint and customers are continuing to award us the same lanes of business that they've had before, but their overall business levels might be down. And whether that's just the demand for their product, some we know are taking advantage of this truckload opportunity. It's kind of going to be multiple items that I think are driving the increase in demand. And I think we'll see more of that share shift back than probably what we've seen in prior cycles.

So we feel like we're ahead of it, though, from a capacity standpoint. I mentioned network capacity from a service center standpoint. But I feel like we're in really good shape in regards to our fleet. We're probably heavy there in all honesty. But I feel like from a people capacity standpoint as well, we've got a team that's in position and ready. And that's the best incremental margin you can get is when we've got a driver that's already making a stop at our customer. And now instead of picking up 1 shipment, they're picking up 3. And that's typically what we've seen in cycles past and how our volumes can accelerate so quickly on the front end of the inflecting economy, and that's what we'd expect to see whenever this economy does eventually inflect back to the positive.

Our next question will come from Richa Harnain with Deutsche Bank.

I appreciated all the color around your positioning being as strong as it's ever been to respond to an improving environment. And the OD model really make hay when the sun is shining. So maybe you can talk to us -- I guess that we're a little reticent to speak to some of the green shoots given all the headaches you've had. But just customer conversations. You talked about maybe fatigue on the tariff side, reactions to the recent bill that passed in Washington to spur growth, interest rate cuts, like what are shippers telling you about their appetite to give you more business in the future. And then if you can maybe parse out kind of what industries you're maybe more optimistic about versus industries where you're really seeing normally set in or more negative trends?

Yes. I think that it's been the uncertainty that's been hanging out there over the economy that I think has resulted in just the lack of freight volumes overall. Again, I mentioned industry volumes are down about 15% from where we were back in '21, '22. So it's something that everyone had to contend with. But I think we saw kind of going back to the fall of last year, we saw some initial optimism with respect to the industrial economy. And 55% to 60% of our revenue is industrial related, so that's important to us. And we saw that acceleration in the ISM in December and then it was positive for a couple of months.

But then all the tariff conversation started, and then that just created more uncertainty that seem to kind of throw cold water on what we're developing at the time. And it's hard from a -- if you're a manufacturer, for example, to figure out what the cost structure is going to be when you don't really know what the final tariff cost might be. And so I think that's something that we've had a lot of customers trying to figure out and solve for. And in some cases, you just try to wait things out. And so that's why we've got a little cautious optimism now that we've seen the tax deal be finalized and the bonus depreciation is something that I think can spur some further investment here. If we start seeing some trade deals come to fruition. And that will be something that provides a little bit more confidence for our customers. And I think the final piece will be do we get some relief on interest rates.

And so customers that are going through all of their financials and figuring out do they invest or not and what kind of return can we expect on their investment. All those -- once you get clarity on those big picture items, I think that's what it's going to take to really kind of spur the economy forward. So we feel like we're closer to that. Now that we're getting clarity on some of these items and -- but we want to turn that feeling into true freight and see it coming on board. And I mentioned that we're seeing a little bit better performance right now in July. And we'll just continue to watch and see, because that really manifest in to seeing some sequential improvement versus just what our business has been like for the last 3 years of kind of flattish to down month over month.

Our next question will come from Stephanie Moore with Jefferies.

Just one real quick here. Look, any thoughts on where the LTL industry fits in, in general, with this potential transcontinental railroad or potentially too? Obviously, most are talking about these deals -- deal impacting line-haul truckload, but where does LTL sit here at all, I would love your perspective?

Yes. I don't know that I would expect to see any material impact on LTL overall. I mean -- something that it could be ultimately downstream, something we'll continue to watch and engage with customers on. But I think that's kind of on the other end of the supply chain, not necessarily seeing changes with respect to the rail industry kind of filter down to where we can find a correlation to any changes in our business levels.

Our next question will come from Ariel Rosa with Citigroup.

So I know in reference to Bascome's question, you mentioned the normal seasonal trends from third quarter to fourth quarter. I was just wondering, it's been such a weird year, we've obviously seen some abnormal seasonal trends so far year-to-date. I'm wondering how you think about your ability to outperform normal sequential trends, I guess, as we move into the back half of the year, especially in the fourth quarter. And then also how the wage increases play into that? And kind of how much discretion you have around that? And what's kind of plan, how much how much pressure that puts on the OR?

Yes. I mean, obviously, our costs will be going up with respect to the wage increase. And that's part of what we normally see that 200 to 250 basis point deterioration from the third to the fourth quarters. You get one month of it in third quarter, and then you've got the full quarter effect in 4Q, but that's usually 1 point, 1.5 points type of increase. If you look at that 250 change, that's going to be a big driver there. And -- but keep sounding like a broken record, I think it's just going to be revenue dependent.

The fourth quarter, if we can kind of continue to maintain our revenue per shipment -- net revenue per shipment, but just revenue per day rather in the same realm of where we are. We'll continue to manage our cost like we have. And I think by the fourth quarter, I would hope to see some of this increase that we've had in overall cost -- overhead costs, rather, start to come in a little bit. And so those are some other things that can help. But it's just continuing to manage our cost, manage our operating efficiencies, which our team is doing a great job of kind of mentioned before we're controlling our variable cost. We've got to continue to do that. And typically, you see volumes a little bit softer in 4Q.

So it just presents even more of a challenge to our ops team. But we just got to continue to stay disciplined, really throughout all areas of the operation. And everybody's got to participate and we've got to continue to manage our discretionary spending. And think through if we're spending $1, what is the purpose behind it? And is it going to improve customer service? Is it going to help us over the long term? And those types of investments we're willing to make even though we're trying to protect the short term, we've really got to think and we do think bigger picture and longer term for what's going to be to the best benefit of Old Dominion over the long run. And that's why you've continued to see us make investments and continue to execute on our CapEx program.

And I've mentioned this 3-year down cycle, by the end of this year, we'll spend probably close to $2 billion on capital expenditures and to do so in a soft environment that's created its fair share of cost headwinds, but it's something that we've managed through. And I think we'll be happy that we've done these when we get on the other side of this economy. And you'll see that the leverage that can come through just like what we saw in the second quarter for that short-term benefit.

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

All right. Well, thank you all for participating today. We appreciate your questions, and feel free to call us if you have anything further. Thanks, and have a great day.

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