Good morning, and welcome to the Q3 2017 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 5 by dialing 719-457-0820. The replay passcode is 493 3,246. The replay may also be accessed through November 26 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 update publicly 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 in fairness to all that you limit yourself to just a couple of questions 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 over to the company's Executive Chairman, Mr. Earl Congdon. Please go ahead, sir.
Good morning, and welcome to our Q3 conference call. With me today on the conference call is David Congdon, our Vice Chairman and CEO and Adam Satterfield, our CFO. After some brief remarks, we'll be glad to take your questions. Port Dominion produced very strong operating and financial results for the Q3 of 2017. The Q2 in a row, we reported double digit revenue growth, improved our operating ratio by over 100 basis points and grew earnings per share by more than 20%.
We have said many times before that we believe Old Dominion is the best positioned company in the LTL industry. We continue to focus on winning market share by delivering superior on time and claims free service at a fair price, while maintaining network capacity to support our long term growth initiatives. With favorable economic and industry trends continuing to date in the 4th quarter, our revenue growth has continued and we are optimistic that we can complete 2017 on a strong note. Before turning the floor over to David, I want to recognize and thank the Old Dominion team for their performance during the Q3. We faced plenty of challenges in the quarter and yet our team once again exceeded expectations.
Thanks for being with us this morning. And now here is David to discuss the Q3 in greater detail. Thanks, Earl, and good morning.
I second Earl's comments about the performance of our employees throughout our company. While we were very pleased to see the continuation of favorable economic environment, it takes strong and consistent execution to leverage these conditions. And the OD family continues to deliver 99% on time deliveries and achieved yet another record breaking 3rd quarter cargo claim ratio of 0.2 percent. Our 3rd quarter results once again validated the financial profile we've discussed with you for many years.
Our revenue
growth that included increases in both freight density and yield combined with other efficiency improvements generated the operating leverage to improve margins by 120 basis points and produce a company record 3rd quarter operating ratio of 81.2. How about that? I'm pleased to report that the pricing environment has continued to remain rational. As you are all familiar, we have maintained a long term fair and consistent pricing strategy that focuses on increases necessary to offset the company's cost inflation. Our revenue per hundredweight is the metric most often used to talk about industry pricing.
It is a yield metric and not always a true indicator of pricing. This detail is important because we don't manage our business to a certain revenue per hundredweight. Our yield management process instead focuses on individual account profitability that ultimately determines the profitability of the company. Along those lines, our revenue per 100 blade excluding fuel surcharges increased 2.4% for the 3rd quarter, which was a lower rate of growth than prior quarters. This rate however was impacted by a 1.8% increase in LTL weight per shipment for the quarter and a 6 tenths percent decline in length of haul.
Rising weight per shipment and lower length of haul typically have the impact of reducing revenue per 100weight. While we have said this many times and because of its importance, we want to emphasize that we have not changed our pricing philosophy. As we make our way through the Q4 and start thinking about 2018, we intend to continue focusing on the execution of the various elements of our long term strategic plan, which has driven the success of our LTL business. We have consistently demonstrated our ability to win market share by continuing to deliver a value proposition of superior on time claim free service at a fair price. Anticipated growth will require continued investments in our service center network, equipment capacity and most importantly our people.
We are focused on exceeding our customers' expectations every day. We are confident that continued execution combined with our financial strength and available network capacity can produce additional long term growth in market share and shareholder value. Thanks for your time this morning. And now Adam will discuss the quarter in greater detail.
Thank you, David, and good morning. Much like we did in the Q2, Old Dominion set new company records for revenue and earnings in the Q3 of 2017. While we had one less operating day than the Q3 of 2016, our revenues increased 11.5% to $873,000,000 which is a new quarterly record. Our operating ratio also improved 120 basis points to 81.2 percent and earnings per diluted share increased 20.4 percent to 1 point quarter once again included a nice balance of increases in LTL tonnage and yield. LTL revenue per hundredweight increased 3.6% and increased 2.4% when excluding fuel surcharges as David mentioned in his comments.
LTL tons per day increased 8 point 6% as compared to the Q3 of 2016, with LTL shipments per day increasing 6.7% and LTL weight per shipment increasing 1.8%. LTL tons per day increased well above normal seasonality in September with a year over year increase of 11.3% as compared to year over year increases of 7.2% and 7.5% for July August respectively. Our revenue per day also increased at an accelerated pace in September. Our revenue growth had trended between 11% to 11.5% from the beginning of the quarter until mid September, but we experienced a material increase in business for those last few weeks of the month. This accelerated pace of year over year growth has continued thus far into October with month to date revenue increasing between 17.5% 18% with a 13.9% increase in LTL tons per day.
Our 3rd quarter operating ratio improved 120 basis points to 81.2 percent with improvement in both variable operating costs and our overhead cost as a percent of revenue. Salary wages and benefit cost as a percent of revenue improved 140 basis points when compared to the Q3 of 2016, although we were required to increase our utilization of purchased transportation to keep pace with a 6.7% increase in shipments per day. As stated in our release this morning, we intend to hire additional employees in the Q4 in anticipation of continued growth. We can't say this enough, but we have been extremely pleased with the efforts of our team members to manage our volume growth, while also maintaining superior service and high levels of productivity. Old Dominion's cash flow from operations totaled 149 point $5,000,000 for the Q3 and $388,000,000 for the 1st 9 months of 2017.
Capital expenditures were $100,500,000 for the quarter $288,800,000 for the 1st 9 months of 2017. We expect total capital expenditures of approximately $400,000,000 for the year, subject to the timing on certain real estate projects. We returned $9,100,000 of capital to our shareholders during the Q3 and $32,700,000 for the 1st 9 months of the year. We have $192,000,000 still available for stock repurchases under our current $250,000,000 stock repurchase program. Our effective tax rate for the Q3 was 37.8 percent as compared to 37.2% for the Q3 of 2016.
Our annual effective tax rate changed during the quarter as a result of favorable discrete effective tax rate to be 38.3 percent for the Q4 of 2017. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time. Thank
we'll take our first question from Brad Delco with Stephens Inc.
Good morning, Earl, David and Adam.
Good morning, Brad.
I wanted to, I guess, touch on that October number 1st, Adam, and maybe this question is for Dave. 13.9%, seems like a big number. Dave, how do you think about taking that much market share relative to price? I know you get the question a lot of how you manage tonnage and yield. But is that too much tonnage do you think for the network to handle?
Or do you think you should get more aggressive on price? Just big picture, how should we be thinking about that?
Yes. We as we've said in the past, we don't turn the price volume knob one way or the other to try to raise prices to slow down tonnage or to lower prices to raise tonnage. We have to be consistent with being fair and equitable with our customers on price. So we're just honestly winning market share because of our superior service right now. And we have gotten ourselves geared up.
You can see in the release that I think our total full time employee count was up what was it Adam over nearly 1,000 over the last year
of maybe It's up 4.4%.
4.4% that we gear ourselves up enough to handle through the peak of this fall season and have maintained our 99% on time service. It's been a challenge, but we've done it. And we're as we stated in the release and mentioned just earlier, we have still we continue to have some open positions within the company that we are filling in the Q4. It's not a huge number of people, but we're getting geared up to get ready for the Q1 of next year. We want to bring on some folks and put them through our driving schools and make sure we've got ample number of drivers to get us into the Q1 next year.
Great. And then maybe one quick follow-up. When we think about sequential margins, I guess, to some degree, you cautioned folks about needing to ramp the hires in the Q3. In addition, we had a lot of hurricane noise that you guys didn't call out. So how should we read the commentary on ramping employees further in Q4?
Should it change sequential historical sequential trends in margins you think from 3Q to 4Q?
Brad, it's hard to say. Obviously, in the Q3 and I think going back to last call, we talked about, we felt like with the hiring that we might not achieve the normal 50 basis point increase from the 2nd to 3rd quarter. And a lot of what we saw with that acceleration of revenue to finish out the quarter, I think that really helped us leverage some of our fixed costs that were in the system and end up with only a 30 basis point increase. So normally we go from the Q3 to the Q4, it's about a 200 basis point increase in our operating ratio. As David mentioned, normally we're not our headcount is typically set as we're working through the peak and going into the Q4.
But we've still probably got about 500 positions that we think will add to. So it will be a little out of the norm that we're adding headcount in the Q4. And really, it's going to be dependent upon where our volumes do. We're well ahead of what normal seasonality would be from a revenue and weight standpoint. So we'll just see how the market share continues to come into us and just manage to those levels.
Great. Thanks for the time and I'll get back in queue.
And we'll take our next question from Chris Wetherbee with Citi.
Hey, thanks. Good morning guys.
Good morning.
I wanted to come back to the hurricanes. Just weather generally, I don't know if you can put some parameters around what maybe some of those disruptions look like from an expense perspective on the network, but any color you could give on that would be helpful.
Chris, this is Adam. We honestly, we managed to it. We had a plan before the hurricanes. I think we talked about the fact that Harvey hit and our Gulf Coast region and our Gulf Coast area is not as big of a percent of our overall revenue as the Southeast is and that just goes back to where we got our start. The Southeast in general is about 25% of our total revenue.
But certainly, there were costs that we incurred related to repositioning equipment and doing some other things to prepare for the storms and probably some inefficiencies within our line haul network that we incurred as well and get things geared up and being able to get back to service on an expedited basis and making deliveries and pickups when our customers were ready for those. And certainly, we incurred some of those calls that was a little bit of an impact on revenue as well. And certainly, we saw that in the middle part of September. There's about 4 or 5 days of impact when the Southeast was we had some terminals closed and so forth. But that's when we get to that latter part of the month.
I think that our ability to restore our operations, get back on track and the lack of reliance of of transportation within our network and being able to manage our freight with best in class service, we think was a big driver in that acceleration in our revenue growth for those last few weeks of the month. And that's continued to date thus far into October.
That's great. That's really helpful. And just sort of picking up on that, when you think about the pickup into October, I don't know if you can sort of break this out, but do you think that this is sort of pent up demand that's now coming to your network because of some of these disruptions? Do you feel like this is sort of pre peak season type of inventory restocking that's going on? I know there's clearly some market share dynamics underneath all of that, but I'm just trying to get sense of maybe how you guys are reading the demand environment into
the Q4? Chris, this is David. I was studying our regional waybill register this morning. We break our company internally into 10 regions. And in October is solid really solid growth everywhere.
And it is especially interesting that the hurricane hit Southern and Gulf Coast regions have the highest rates of growth among all 10 regions and they are right in the middle of the pack in terms of being the 4th and 5th largest region. So it's not a high growth rate on a low denominator. It's a high growth rate on a high denominator. And I'm talking about outbound revenue in particular. But we're just as story has been every time we have one of these calls, we see good growth across the whole company.
Okay. Okay. That's really helpful. I'll turn it over and let somebody else ask a question.
Thank you.
And we'll take our next question from Amit Mehrotra from Deutsche Bank.
Thanks, operator. Good job with that last name. Hey, guys. Good morning.
So, I just wanted
to follow-up on the last question a little bit, maybe differently. So, obviously, the business is firing on all cylinders in terms of, I guess, the most recent data points at least. Can you just talk about maybe the drivers of the recent surge? You talked about sort of broad based growth, but also wondering if you're actually seeing any spillover volumes from maybe traditional truckload freight this early or is that maybe some potential further growth drivers next year? Any thoughts there and what you're seeing?
Thanks.
Yes. Certainly, we think that there was tightness in the industry in general. And I think that it's been documented that the truckload environment is tightening and perhaps there is a little bit of some spillover freight that's coming back into LTL. Some of that may have been freight that moved from LTL into the truckload last year. We did have a big increase in our weight per shipment in September.
In fact, our shipment count growth pretty much it was slightly ahead of normal seasonality, but the weight per shipment was really what drove that weight growth above normal seasonality. And we actually had from August into September about a 4% increase in weight per shipment. And so some of that, our weight per shipment increased to £16.20 in September. And that's getting back to closer to some of the levels that we saw in 2014. So whether or not we're getting a little bit of spillover, I can tell you it's not in volume quotes.
The spot quotes that we're getting in, we're not seeing an acceleration there. We're actually controlling that freight through rates and we can change the rates on spot quote business every day. And so we're wanting to make sure that we protect our consistent long term LTL business and not taking any transactional type of heavy volume shipments that may be disruptive to service. But as David mentioned, we're seeing good growth across all regions. I think it's balanced and certainly most of our business is tied to industrial end markets.
We're seeing good growth in the Midwestern regions really through the middle of the country I think and that would be supportive of the industrial growth that we're seeing. And when we look and sort of break down the revenue, I think it's coming pretty balanced from industrial and retail related type of accounts, but probably geared a little bit more to industrial than anything. And I think when you look at some of the macroeconomic numbers that would be supportive. But we've long told the story that it takes service, price and capacity to gain market share. And certainly, we continue to deliver best in class service at a fair price.
We've got network capacity and maybe while others are seeing some tightness, we're able to win some market share. So those three elements are working together in perfect harmony right now and singing a beautiful song.
Okay. Can I just ask one follow-up? Sorry, that caught me off guard. Just one follow-up on pricing or actually more, Adam, related to your incremental margin discussions. In the past, you've really talked about sort of straddling 20% to 30% incremental margins and that could be at the high end early on and kind of meltdown.
But given this kind of surge in the mix of the business maybe moving towards more heavier shipments, which obviously accretive to the network. Do you think I know you're adding some people in the Q4. Do you think that you can stay at this higher level of incremental margins for longer given what you're seeing on the demand side? Or do you think we should expect kind of a melting towards that midpoint of that range as we move out into next year?
Yes. I honestly thought that the incrementals at 29%, I thought they were very good for the quarter. I expected it to honestly be a little bit lower, but we had such strong revenue growth particularly there in September. So that came in favorably for us. But when I look at our revenue per shipment, as you mentioned, the weight per shipment, that's driving increased revenue per shipment.
When I look at our cost on a per shipment basis, we probably experienced a little bit more cost inflation than what I was originally anticipating. And some of that is and we talked about it last quarter when you're bringing on new employees and also when you're dealing with these high volumes of growth and above maybe what you're intentionally or initially expecting, it can create a little bit of inefficiencies. And we lost some dock efficiency during the quarter, and that's fairly typical when you're bringing in new employees. So we'll continue to stay focused on looking at driving some productivity improvements in the 4th quarter and if we see the normal seasonal slowdown that will allow us to get our employees in and get them trained and so forth. But the reality is, we're not seeing any slowdown at this point.
So they just keep at it managing the freight and the focus is on continuing to deliver best in class service. So it's obviously, it's been nice to see the incremental margin staying at this sort of 30% range and we'll stay focused on doing the best we can to controlling our cost and handling good quality revenue and putting it to the bottom line.
Okay. Thanks, Adam. Thanks, everyone. Congrats on a good quarter again. Appreciate it.
Our next question comes from Ravi Shanker from Morgan Stanley.
Thanks. Good morning, everyone. Not to belabor the point about the post hurricane strength, but it makes sense that historically you guys would have kind of gained share during force majeure events like this that caused shippers to focus on service more than price. I'm just wondering historically if you kind of go back to similar situations just how long that halo has lasted before it's normalized. And do you think that this is a similar normal environment?
Or do you think with the impact of ELDs, it's going to continue for a while?
That's probably the $1,000,000 question. Certainly, we've been through periods like this in the past. And I think it's beneficial for us and we keep repeating it. But having ultimate control of all aspects of our operations and primarily controlling our own destiny with managing our internal line haul, we're not subject to changes in other environments and whether truckload capacity tightening and increasing of rates is having an impact on our competitors that maybe make use of increased reliance on purchase transportation for their line haul network. Certainly, that's a contributing factor.
We've talked about our long term and historical investments in network capacity. So we feel good there and we're going to continue to invest. So we keep this element of capacity about 25 percent on average in our service center network to make sure that's not a limiting factor to our growth. And when we see periods like what we've been going through and it's somewhat similar to the issues we went through back in 2014, where volume comes to us at an accelerated pace and we continue to be able to handle it. But that's why we've got to keep a focus on the three elements of capacity, the service center network.
We continue to invest and maintain that access there. On the equipment side, we had to make some operational changes. We had equipment that was destined to be sold off this year, and we've kept that in the fleet to be able to accommodate the growth. And then finally, you've got the people capacity. And got on board with trying to hire and bring in good quality got on board with trying to hire and bring in good quality drivers, get drivers through our training program and get them in place.
And we dealt with the accelerated growth through the Q3 and that's what we're going to continue to stay focused on to make sure that our workforce is in position for 2018.
That's helpful. But also kind of expand that to your characterization of the broader competitive environment right now, especially in Northeast, Given the tight environment, kind of is it in pretty good shape?
Our Northeast in good shape?
Just broad competitive environment especially the Northeast, yes.
I think we're one of the best carriers in existence that serves the Northeast. I mean, it's one of our it is in fact our largest region by revenue. And we're certainly not being impacted by any of the new entrants into that market.
Very helpful. And just lastly, we are seeing a number of new electric trucks being launched with something like 100 to 200 miles of range. Daimler just showed us a heavy duty version of electric truck and Tesla is supposed to launch something else soon. Before these heavy duty EV trucks become long distance line haul trucks, Do you see potential to use them for pickup and delivery operations?
I would say, we will wait and see on that whole thing until we see something concrete improvement in the marketplace. We're not going to be an early adopter of electric trucks.
Great. Thank you.
And our next question comes from Matthew Brooklier from Buckingham Research Group.
Hey, thanks and good morning. Adam, I think you did talk to it a little bit, but I'm going to ask the question anyways. Where do you think you are right now from a capacity utilization perspective? Maybe talk to potential areas where you may have to add either on the service center side or the equipment side. I guess my question is how full of the network right now and how much more freight could you handle over the next 12 months?
Matt, this is David. As far as equipment and people capacity, I would say we were pretty daggone strong in the Q3 and we're strong with business levels in October and we're damn near 100% there. And last week of September, we were 110% capacity, I think, on that in that regard. But so we're tied. This is why we have said we're hiring people and we're getting our equipment orders in for next year to be able to build up our equipment capacity.
Our network, as Adam stated earlier, we maintain 20% to 25% excess capacity in the network with our doors and yard space etcetera and that's what we try to do.
We're going through just to add to that, Matt. We're going through and getting ready to go through a process for looking and developing our CapEx plan for next year. And as we always do, we look at the service centers that may have more door pressure than others. And we try to stay a couple of years out ahead of a growth curve, anticipated growth curve. But those service centers will be the ones that we begin addressing early into next year when we develop that plan.
Okay. Good problem to have here. And then maybe I think historically you've pushed through a wage increase to your employees. I'm just curious to hear if that was the case this September and if you're able to talk to the magnitude of the pay increase.
Yes. We gave basically an average increase of 3% the 1st September. But typically, we give our increases at the beginning of September every year.
Got you. Okay. Appreciate the time.
And our next question comes from Todd Fowler from KeyBanc Capital Markets.
Great. Thanks. Good morning. Just on the comments on the headcount, with the anticipated growth in the 4th quarter, is that continuing to kind of chase where shipments are and getting staffed up with where your shipment levels currently are? And then how do we think about what your planning would be as you go into next year?
How you think about what you'd anticipate from growth and what you need on the headcount standpoint? Would you slow down a little bit in the Q1 to get some efficiencies or do you continue to ramp the headcount as we move into the 1st part of 2018?
The positions that we need to add are a little bit of both. We're still trailing a little bit with our increase in headcount. We were up 4.4% versus the 6.7% increase in shipments per day and that was average. You look at where we finished
the quarter
at the end of September, we were probably at about 5.5% over September of last year. So we've added 7 62 positions during the Q3. And as I mentioned, we've probably got about another 500 to add. So we want to get ourselves into a good spot, 1, to manage the freight levels that we have today. We're making a little bit of use of purchase transportation in our line haul network that I mentioned in my prepared comments.
And we'd like to eliminate that if we can and continue to have the freight ourselves with our people and our equipment. And then just we'll take it day by day as we go through next year. We generally put the hiring decisions to the local service center manager level. They know what their freight opportunities in their individual markets will be and how they need to staff. And as we start building out forecast and our sales personnel are outpouring their customers and looking at what their opportunities into 20 18 will be, that's essentially how we'll manage our staffing plan.
And Adam, is it a labor availability standpoint or is it just the fact that the business has been growing so quickly that makes it difficult to be caught up with where the shipment count is?
I think when we came into this year, we had some we were cautiously optimistic about what the trends were going to be. And remember, coming off of last year and even in the Q1, we were seeing pretty modest revenue growth. And so we've been playing a little bit of catch up all year as we've made our way through. And we get it on the driver side, we get a pretty nice balance of bringing in experienced tires and then we're also using our driver training program to get people through and that obviously takes time bringing someone in that can hit the streets immediately. But certainly, we want to make sure that we're bringing the people on board that live and breathe the OD family spirit and buy into our culture and really want to be out and have the head and the heart connected, as David says, to deliver best in class service.
So, we've probably got a few spots around the country where it may be a little bit tighter than others, finding some drivers, but I think we give we've got a great wage and benefits package. I mentioned the 3% wage increase. We've also made some improvements to our benefits package that I think will help us not only retain our existing employees, but attract new employees as well. So we're going to keep pushing and making sure that we're appropriately staffed to deal with the volume growth.
Okay. Just a quick follow-up. For the working days in the 4th quarter, how do you think about the timing of the holidays? And I know you guys are usually pretty good about not saying or not adjusting for holidays. But when you compare it to the Q4 of last year with Christmas on a I think it's a Monday this year, is there should we think about on that OR progression again maybe some impact from when the holidays fall this year?
I don't know. I mean, the last day of the month this year is a Friday and that's Friday 29th. Last year was Friday 30th. So we don't make too much. I mean this year, think when you look at how the days fell, the end of the quarter has probably been a little bit stronger because they've generally been a Friday.
But we don't make too much heads or tails of that for a quarter and for an annual perspective to be honest.
Okay. Yes, understood. Okay, thanks a lot for the time. Nice quarter today.
Our next question comes from Allison Landry of Credit Suisse.
Good morning. Thanks for taking my question. So maybe just if we switch gears a little to the topic of e commerce. Of course, we all know that Amazon continues to build out their fulfillment centers, etcetera. But I think we've seen a rapid shift from the sort of large brick and mortars that at least appear to have successful online strategies, basically building out various ways to compete with Amazon, whether that's shifting stores into distribution centers or new facilities located next to a FedEx, for example.
Are you guys seeing any of that play out sort of in the marketplace? And is that something that you see impacting LTL in whether it's, I don't know, near term seems probably a little too short term to think about, but mid term or long term? And then maybe if you could comment on the news that came out a couple of weeks ago that Amazon is basically taking over the logistics of some of their 3rd party sellers at starting at the warehouse, if that's an opportunity for LTL?
Couple of things, Allison. The first of all, we deliver to homes now and we have liftgate equipment in all of our service centers and it's not a big part of our business home deliveries. But so we do that and we've seen maybe a little uptick in that kind of business. But the serving these multiple fulfillment centers across the country as companies have gone from large distribution centers to multiple fulfillment centers. We think that that shifts business from truckload to LTL and those fulfillment centers want to turn their inventory rapidly because they need an accurate fast claim free LTL service into their fulfillment centers and we believe that that plays into our hands very well.
So to that degree, we should do well and be a good service to the e tailers. As far as what you mentioned about Amazon taking over their logistics, I don't have any providers. I don't really have any comment on that.
Okay. Are you seeing any retailers approach you for any sort of collaborative initiatives or anything like that?
We have. I mean, obviously, we manage retail business and many retailers are struggling with their own kind of e commerce product and delivery, but Nothing in a big way. That's right.
Okay.
I guess, I'm not sure if I missed this, so I apologize, but did you guys provide the monthly tonnage and yield numbers for the quarter?
You want the monthly like sequential or year over year?
Either for tonnage or ton per day and yield?
Yes. The tons per day was up 7.2% in July That's on a year over year basis, up 7.5% for August and up 11.3% for September.
Okay. And sequential?
The sequential July was down 2.7% and that compares to the 10 year average being a negative 2.1%. In August, it was plus 0.2% versus the long term average of being 0.6%. And then September, that was what we talked about. It was up 7.3% and the long term average is a positive 2.8%. We had that material increase in weight per shipment.
And when you look at shipments and I think I mentioned this before shipments were pretty much in line with what normal seasonality was for the most part for the quarter. It was just that big step up in weight per shipment that drove that weight change.
Okay, got it. Excellent. Thank you.
Thank you.
And our next question comes from David Ross from Stifel.
Yes. Good morning, gentlemen.
Good morning, David.
Not too much to ask here because at an 80 1.2, I don't think you're making any bad decisions on pricing or market share gains. But when customers do come to you with extra freight, noncontract business, maybe truckload in a tight environment, and they want it moved, what's the process? Like how do you deal with existing customers that might just have a little bit more freight to give you versus new customers that don't use Old Dominion in terms of managing the potential inflow into what you allow into your network?
David, it's really on a case by case basis is how we manage it. And we always talk about LTL as a relationship business. And so if you look at the accounts that have been good long term accounts and if they're struggling to find capacity provide any
measure
of capacity that we can. But provide any measure of capacity that we can. But certainly, we want to make sure that we're doing it in the right way and not jeopardizing service or any other good accounts. And some of that, it varies. It's accounts that we've got contracts with and we see some fluctuation and we're seeing a little fluctuation with the 3PL managed business as well.
And I think that in the 3PL world, last year, that was some of the business where we saw some decreases in weight per shipment and perhaps where the truckload environment was a little looser, they were able to find some truckload carriers that were willing to take smaller shipments or or do some multi stops and whereas this year some of that freight is coming back to us. But it's all it's like anything. It's a case by case and the relationship that we have with the customer and doing everything in the right way.
Thank you.
Our next question comes from Jason Seidl from Cowen.
I'm going to hate to disappoint, but I'm not playing as cool music as he was in the background. Real quickly, guys, I don't think you covered this, but where is contractual pricing for you in the quarter? And where do you see it going given the tightness in the truckload marketplace?
We still target that too is account by account, but we still target the 3% to 4% increases. And going back to David's commentary, when you go back to 2,000 and our revenue per hundredweight excluding the fuel has averaged a little over a 3% increase. And so our pricing philosophy is we want to be fair and consistent with our customers. And certainly, we've got OR objectives that we look at by account. And that's how we manage and that's what our pricing philosophy is.
So we're not going to out advantage of what the current marketplace is. When we've got certain accounts that are operating, we just continue to focus on getting those consistent increases that we need, but we do the same thing and when markets are on the flip side. And that's where if you've got a good relationship, accounts are willing to give you the increases that you need to invest in the capacity and the information technology tools that they're demanding from us. So we've got to continue to invest along all fronts and we need an appropriate yield to do so.
Well, given quarters like this, I doubt people will argue with
your pricing philosophy. Gentlemen, I appreciate the time as always. Thank you, Jason.
Our next question comes from Scott Group from Wolfe Research.
Hey, thanks. Good morning, guys. So, Adam, did you give the weight per shipment increase for October and did you give revenue per 100weight ex fuel for October?
I didn't give any yield for October. And we've talked about trying not to really focus on monthly yield metrics. I think it's just drilling down too closely. But for October, I said that our revenue was it's trending up month to date between 17.5% 18% and actual LTL weight per day is up 13.9%. So you can kind of back in to what the yield is to get you there.
But I guess, we tried to make clear that when you've got changes in weight per shipment and length of haul and so forth and that's kind of what we saw. I mean, we gave our mid quarter update and what our yield was at that point. And you can see that compressed a bit as we finished the Q3, but we're still putting good incremental margins up, I think. And it's all about managing the operating ratio. We had significant increases in revenue, especially with some customer accounts and it's taken on freight in locations and as mix changes, the revenue per hundredweight is going to change.
Okay. And what's weight per shipment up in October?
Weight per shipment
of 2.5%.
Okay. And did you see that continue to increase sequentially from September to October?
Decreased a little bit. I mentioned that we were at £16.20 basically in September. So it's pulled back a little bit. And typically, it's a little flattish as normally when you look at September October's weight per shipment. But the way it increased so much there, basically to finish out the month, it wasn't surprising to me to see it pull back up a little bit.
We were still averaging in July August. I mean, our weight per shipment was still about £15.60, which we've been in this 15.50, £15.60 kind of weight range for some time. So that increase back above 16 per pound is a nice thing to see and we'll see how long that it stays there.
Okay, helpful. Is there a good rule of thumb for how much one less operating day cost you on margin in the quarter?
I mean, when you think about our revenue per day and kind of what how that's trending And typically, we talk about when you break our operating ratio down, 60% to 65%, closer to 60% these days with the operating ratio at an 81% is variable operating cost. So you can kind of use those metrics to figure out what that contribution margin of the one extra or one less day would be.
Okay. And then just last question. I want to go back to that question about the truckload pricing environment getting better. I understand your philosophy is not changing, but do you think the broader LTL pricing environment should accelerate from here because the truckload pricing environment is getting better? Or do you think maybe that doesn't apply right now because LTL pricing didn't turn negative when truckload pricing turned negative the past couple of years?
We've long said that I think industry pricing needs to increase. And I think that we're starting to see a little bit of that this year, and we'll see. I mean that's some of the feedback that we're getting from customers is that they're experiencing increases with other accounts and so that's opening up a bid process. But when you look at industry margins and where they are, I think one of the easiest ways to improve margins would be for the other carriers to increase their rates. We'd expect the market continue to increase.
Okay. But your thought is if industry pricing accelerates and other carriers raise pricing more, we'll stick with 3% to 4%, but that's when we'll get even more share.
That has been the formula that we've used for many years.
Perfect.
Okay.
Our next question comes from Ari Rosa from Bank of America.
Hey, good morning guys. Nice quarter. I wanted to start first question, just if you could give us an update on what the fleet age looks like and any equipment sales during the quarter and just your views broadly on the status of the used truck market?
The fleet age, we finished last year at 4.5 years and we don't necessarily update it as we go through the year, but I had anticipated that our fleet age would get younger. As I mentioned before though, with the growth that we've had this year, some of the equipment that we were planning to sell, we've had to keep in operation. Now a lot of the equipment, I think we mentioned that while we entered this year, our CapEx was primarily for replacement equipment, but we were going to take out multiple years of the pre-seven engine changes where we are experiencing some increased operating cost per mile. So we've kept those units in the fleet. We're continuing to operate them and we'll evaluate our fleet as we go through and putting in our orders, as David mentioned, for next year, looking at what our replacement needs will be and what our growth, but we would like to get some of those older units out of the fleet.
And in regards to the used truck market, we don't have really a big exposure there. We use our equipment 9, 10 years and so they're really at scrap value when we're trying to dispose of those older units.
Okay. That's helpful. And then just I wanted to ask I guess a little bit more of a philosophical question. Looking at the cyclicality in your business, it seems like so if 2016 ends up being kind of a trough year, it will have been far more benign than other years and certainly a lot more benign than what other carriers experienced. Do you think is that something that you guys can maintain?
Have you found a way to kind of operate where you've kind of mitigated the impact of cyclical downturns? Or is that or was it just kind of 2016 was a one off because of some favorable moves that you guys made or some other factor?
I'm quite sure what you're getting at, but we operate through cycles and we have a real good control, good measurement systems and good control on our cost managing down cycles. We think we did pretty darn well last year considering how flat the year was. But it's all about staying true to your core business principles and processes through strong periods and weak periods and do the best you can when the going gets tough.
Yes. Well, I don't know if it's worth following up on that. I actually was agreeing with you there, David, that I think you guys did manage exceptionally well through the downturn. I'm wondering if maybe what kind of the balances between fixed costs versus variable costs and your ability to the extent that there are future downturns in the cycle, do you think those are going to be more benign or the downturn for you guys might be the effect of that downturn might be more mitigated than what's been in the past?
I think it's mostly mitigated by a low 80s operating ratio. We can withstand a cyclical downturn a whole lot better than anyone else.
Yes. Okay. That's helpful. Thank you.
And it appears there are no further questions. At this time, I'd like to turn the call back over to Mr. Earl Congdon for closing remarks.
We thank you all for your participation today. We appreciate your questions. You had some great ones. And please feel free to give us a call if you have anything further. So thanks again and have a great day.
This concludes today's conference. Thank you for your participation. You may now disconnect.