Old Dominion Freight Line Stock

Good morning, and welcome to the Old Dominion Freight Line Second 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, Director, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the second quarter 2026 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through August 5, 2026, by dialing 1 (855) 669-9658, access code 8521187. The replay of the webcast may also be accessed for 30 days on our 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. 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 welcome your questions today, but ask that you limit yourselves to just one question at a time before returning to the queue. Thank you for your cooperation.

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

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

Old Dominion produced strong results in the second quarter, which include a 10.4% increase in revenue and a 450 basis point improvement in our operating ratio. In addition, our second quarter earnings per diluted share increased 32.3% to $1.68, which matched our previous company record that we set in the third quarter of 2022. These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution.

While the difficult operating environment over the past few years presented us with a number of challenges, including lower network density and inflationary cost pressures, we continue to diligently execute on our fundamental aspects of our long-term strategic plan and invest for the future. The strength of our second quarter results demonstrates the benefits of this strategy.

While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price. That was the case again in the second quarter when we provided our customers with 99% on-time service and a claims ratio of 0.1%. In addition, we have made approximately 1,000 lane adjustments this year that improved our service standard transit times.

Our team continues to leverage their experience and new technologies to further improve our service standards and overall value proposition for our customers. Our customers rely on us to keep their promises to them by picking up and delivering their freight on time and without damages so that they can keep their commitments to their own customers. Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry. That is why it is critical, despite a prolonged period of softness in the domestic economy, to continue to make the key long-term investments in our network, our technology and our people, so that we can now continue to deliver best-in-class service as the operating environment changes.

Consistently providing our customers with superior customer service is the cornerstone of our strategic plan. And doing so, supports our yield management initiatives. Our disciplined approach to pricing, which focuses on individual account level profitability, is designed to offset our cost inflation over the long term and support reinvestment back into our business. Our ability to take a long-term approach to our investments in our network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities.

Our strategic plan has worked through many economic cycles. But that said, our greatest opportunities to win market share often come when industry capacity is generally limited and the domestic economy is strong. The domestic economic environment remains relatively stable, and we are encouraged by the continued improvement in demand that began late last year. In addition, based on feedback we have received from our customers, we believe that our superior service is increasingly differentiating Old Dominion within our [ industry ] and providing opportunities for incremental growth.

We reported strong second quarter results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan. We returned to revenue growth in the quarter and produced strong operating leverage on our incremental revenue. In addition, because of our consistent investments in our network and our people, we have all the necessary elements of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes. As a result, we are confident in our ability to win market share and produce profitable revenue growth, which we believe will generate increased value for our shareholders over the long term.

Again, thank you for joining us this morning, and now Adam will discuss our second quarter in greater detail. Adam?

Thank you, Marty, and good morning. Old Dominion's revenue increased 10.4% to $1.55 billion for the second quarter of 2026, while our operating ratio improved 450 basis points to 70.1%. The combination of these factors resulted in a 32.3% increase in our earnings per diluted share to $1.68.

We were pleased to return to revenue growth in the second quarter, which included an increase in our yield and an improving trend with our volumes. Our revenue results include a 15.2% increase in LTL revenue per hundredweight, which was partially offset by a 4.1% decrease in our LTL tons per day. Excluding fuel surcharges, our LTL revenue per hundredweight increased 5.5% due to our continued focus on revenue quality during the quarter.

On a sequential basis, our revenue per day for the second quarter increased 14.6% when compared to the first quarter of 2026, with LTL tons per day increasing 4.0% and LTL shipments per day increasing 3.2%. For comparison, the 10-year average sequential change for these metrics includes an increase of 7.1% in revenue per day, an increase of 4.4% in LTL tons per day and an increase of 5.2% in LTL shipments per day.

The monthly sequential change in LTL tons per day during the second quarter were as follows. April decreased 2.8% as compared to March. May increased 3.0% as compared to April. And June increased 0.9% as compared to May. The comparative 10-year average change for these respective months is a decrease of 0.9% in April, an increase of 2.2% in May and an increase of 1.7% in June.

While there are still a few work days remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July of 2025. This includes an increase in our LTL revenue per hundredweight that is partially offset by a decrease in our LTL tons per day of approximately 1.0%. Although our tons per day are slightly lower than July of last year, the sequential change from June of 2026 is significantly better than our normal seasonality.

The increase in July's LTL revenue per hundredweight, excluding fuel surcharges, is currently tracking below the second quarter growth rate of 5.5%, due primarily to changes in the mix of our freight. As a result, I'm currently anticipating improvement in this metric for the third quarter of 4% to 4.5%.

To be clear, this is a positive trend for our company as it reflects the continued increase in our weight per shipment. We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q.

Our operating ratio improved 450 basis points to 70.1% for the second quarter of 2026, with improvements in both our direct operating costs and our overhead expenses as a percent of revenue. Within our direct operating costs, improvements in our salaries, wages and benefits as a percentage of revenue more than offset an increase in our operating supplies and expenses. This increase in operating supplies and expenses was primarily due to the increase in the cost of diesel fuel and other petroleum-based products.

The improvement in our overhead cost as a percent of revenue was partially due to the change in our net miscellaneous income and expense. This line item included $17.2 million of net gains on the disposal of property and equipment during the current quarter. In addition, we also saw improvements in a number of other overhead expenses due to the leverage gained from the increase in revenue as well as a continued focus on controlling our discretionary spending.

Old Dominion's cash flow from operations totaled $272.7 million for the second quarter and $646.3 million for the first 6 months of 2026, respectively, while capital expenditures were $77.0 million and $139.6 million for those same periods. As announced in our release this morning, we increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year. The $115 million increase from our original plan includes an additional $60 million for tractors and trailers and an additional $55 million for real estate and [ sourcing center ] expansion projects. While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan.

We utilized $151.6 million and $239.7 million of cash for our share repurchase program during the second quarter and first 6 months of 2026, respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods.

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

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

[Operator Instructions] Our first question today is from Jonathan Chappell with Evercore ISI.

Adam, a lot of volatility from month to month as we look at seasonality in your 10-year averages, obviously, a lot better in May, maybe a little slower in June. Can you just speak to the overall demand environment as we think about July trending from here? And also to the extent that you can kind of put a pin on it, we've been hearing a lot about freight shifting from a tight TL market to an LTL market. Are you seeing that? And kind of where do you think you stand as far as like the "innings" of that transition?

Yes. I think to start with that first, I still think we're in the early innings. We're hearing some of that from customers, but I haven't really seen the big weight per shipment change within certain categories, particularly with 3PL managed business that you would see when there's a major inflection going on with the truckload spillover one way or the other. So I still think that there's probably a lot left to go with that renormalization there, if you will. But I expect that will continue as the truckload rate environment continues to be really strong.

Overall for us, demand continues to improve. Happy with a lot of the trends that we're seeing. And you're right, I think that it's choppy month-to-month when you look at our sequential growth versus our 10-year average trends, but that's not uncommon, when you get in periods like this, there have been certain months where we've just significantly outperformed the 10-year average and then the next month might be a little bit softer and so forth.

And that's kind of the way the second quarter shaped up. We had a really strong February and March. And then the April was softer than the 10-year average, but then we kind of climbed out of that and essentially brought the full quarter sequential trend back to right they're at what the normal quarter would be.

But I've looked at -- if you went back to the beginning of this year and normal seasonality, if you just played it out month by month, in July, we're handling probably about 3 million pounds more per day than we would if normal seasonality had played out. So to me, I think we're obviously outperforming at this rate for full seasonality. And I think we're just in the early stages of the economy getting going again. With where ISM has just been in the low 50s, has not really had a big breakout yet, and I still think there's a lot of room to run when you look at things like some of the inventory to sales ratios, as low that is. And that somewhat reconciles with feedback we've heard from customers about the need for restocking and so forth.

So really excited about where we are, but more excited about the opportunities that lay ahead to carry some momentum through the balance of this year into '27 as well.

The next question is from Chris Wetherbee with Wells Fargo.

Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics for the forward quarter in the past. I was wondering if you could help us a little bit with that. Obviously, the second quarter from an OR perspective does have the gain in it. So just some thoughts on how you think about revenue opportunity in the third quarter and also the operating ratio.

Yes. I'll just maybe answer one of those and leave the other for someone else to follow-up. But maybe just to start with the top line, because haven't always given revenue guidance, but I think it's probably appropriate, especially with some of the volatility that we've had with fuel. And I guess, to start the July revenue growth rate of 7.5% to 8%, that includes sequential change in tonnage that's significantly better than the 10-year average, as I mentioned.

And just to put some context around that, the tons per day right now is sequentially down about 0.5%. The 10-year average is down 3%. So seeing really strong performance there. I think that if we can carry momentum through the rest of the quarter, and may see some of this choppiness that I just spoke about in either August or September, but I think if we can just carry some of this momentum forward, maybe -- we think that we can get to a 10% increase in revenue for the full quarter, so bring that growth rate up. And that would put the absolute number at about $1.54 billion, $1.55 billion for the full quarter.

And obviously, we give our mid-quarter update, so we'll be able to track along with that the entire time. But conservatively, if we carry that same 7.5% to 8% growth rate, that would be about $1.52 billion for the full quarter. And kind of as a baseline, what I'm anticipating for fuel is, assuming that we're going to see stability, it has stabilized for a bit during the second quarter, reinflected back positive, but I would like to think that we see some resolution there and have fuel that maybe trends back down, and we'll see that more in the -- or my baseline is $4.95 as an average per gallon for the full quarter. But we'd like to see that come under control, which I think will be a net positive for the overall economy.

The next question is from Jordan Alliger with Goldman Sachs.

I guess I'll follow up on the -- going from revenue to the sequential OR thoughts. And I guess if you could just let us know if that would be off of the reported OR, or any adjustments related to that net property gain?

Yes. I figured that would be close on the heels, Jordan. But obviously, the 10-year average change for us, at least, is for the third quarter operating ratio to be flat or up 50 basis points from the second quarter. And I think we can essentially hit our normal seasonality, but you do have to sort of add back some of the items to normalize what that third quarter operating ratio would be. And the biggest of which is obviously the big gain that we had on property sales during the quarter.

So kind of with some of those things in mind, I would say, a normalized overall increase off the 70.1% would be an increase of about 150 to 200 basis points from the second to the third quarter.

The next question is from Tom Wadewitz with UBS.

Yes. So Adam or Marty, I wanted to get your thoughts on maybe what's happening with service and capacity in the market. I think there have been some data points or feedback that there are maybe a couple of pretty good-sized carriers that have hit some embargoes in the Midwest and capacity constraints. Have also heard feedback about LTL driver market getting a bit tighter or a little harder to hire drivers. So maybe more of a connection with truckload than I would have expected.

But what are you seeing in terms of -- are you also observing that? And is that starting to have an effect on your business in terms of maybe some shipments coming over to you, that might even affect July? But just kind of like if you think that's happening, and then how quickly that -- or how much that might affect you and what you see in your shipments and your pricing?

Good question. First of all, we're not having any capacity issues whether it be with equipment or drivers or real estate. But you are correct, we are hearing some talk about some of our competitors having problems picking up at the end of the month. And we have seen some of that freight move over temporarily. And if we get a major inflection in the economy, I think we'll see it daily.

But yes, we are hearing that. And I think some of that, as Adam alluded to earlier, could be coming from the full truckload industry. Some of that freight starting to spill back over in a small way to the LTL environment. So I think that's a double-whammy for us.

So do you think that's maybe boosting July? Or was that happening earlier in the quarter?

Yes. I mean, I think it's been happening. We've heard it earlier in the year and, look, this is a big part of our value proposition, is always having capacity. And it's not just the service center capacity. It's having trailing equipment where you can spot trailers at our customers' doors, particularly in the month, in the quarter, but having driver capacity as well. And as Marty said, we've got plenty of capacity across all of those 3 major elements. And I think when other carriers are operating in the first quarter, the public company average excluding us was 94. You got to start managing cost in different ways and maybe aren't able to keep the amount of excess capacity to respond to growth opportunities as they're coming on a sequential basis.

So I definitely think that's been a little part of the story. But again, like I said earlier, I think we're just kind of in the early stages of recovery. It's been nice to see us be tracking at seasonality really going back to November of last year, but it just feels like we're in the early stages of this and we got a big runway of growth ahead for us and we're eager to get back to it. We've built up a tremendous amount of capacity over the last few years with the continued investments that we've made. And so we're eager to get freight back into the system.

And you look at what we can produce in the second quarter, the control that we've shown over cost and improvement that we've had in our direct cost, in particular, we're still down a long ways from where we were back in 2022. So if we can continue to see that inflection, like we just saw from the second to third quarter, just a 4% sequential increase in our tonnage, but doing that with the same headcount, look at all the leverage that exists in our business. So a lot of opportunity to grow the top line, but more importantly, to keep improving our operating ratio and produce strong, profitable growth.

The next question is from Eric Morgan with Barclays.

I wanted to ask on pricing. Just curious if you could discuss what drove your yields ahead of your initial guidance in the quarter, especially with weight per shipment improving through the quarter. And relatedly, just wondering if you could elaborate a bit on what those mix effects were you referenced that's driving the 3Q yield growth a little bit below 2Q.

Yes. It's -- the second quarter, I think, has benefited some. There's always mix that's going on. It could be a balance of national account versus your small mom-and-pop, some of our higher-priority services and so forth. And we were pleased to see the overall revenue per hundredweight in the second quarter tracking. Our guidance going into the 2Q was thinking that it'd be at about 4% to 4.5%. And so obviously, we're well ahead of that.

But sometimes just looking at the month and so forth, the revenue per hundredweight can move up or down. And I don't think that there's anything to call out. But to me, what we're seeing with it coming back down, the rate of growth that is, it's still sequentially increasing, the revenue per hundredweight that is. It's very similar to what we saw sequentially back in 2017 where we had weight per shipment that was outperforming normal seasonality through that year, and that was in the early stage. If you recall, that's when the real inflection was beginning.

So I'd like to think that some of the similarities that we're seeing in our numbers, particularly with yield, particularly with tonnage and weight per shipment, maybe this is the start of the real inflection like what we saw back then. So that's why we're -- I wanted to make clear that this is a positive when you see the revenue growth coming in the form of tons and weight per shipment and our yields continuing to improve, that's what puts profits to the bottom line, and that's a key driver of what allowed us to operate at a 70.1%.

I realized we had the real estate gain in there, but even if you backed that out, that's one of the strongest operating quarters that we've ever had. And if I go back and compare it to the second quarter 2022, I often talk about that breakdown of costs, direct operating costs and overhead. Our direct operating cost in the second quarter this year or about 200, 250 basis points better than where we were in the second quarter of 2022 when we produced a 69.5% operating ratio. So when you think about that increase in our overhead cost there, there's a tremendous amount of leverage that can not only take it down into the 60s or just hitting right there at getting to a 69% operating ratio, but it's going to be able to allow us to drive it even much lower.

The next question is from Ravi Shanker with Morgan Stanley.

Adam, there's been a lot of focus on TL versus LTL conversion on this call. But I think in the down cycle, we've also seen brokers take a bunch of share from asset-based LTLs in the marketplace. And obviously, the broker relationship right now is under scrutiny post Montgomery. I'm wondering if you're seeing any shift away from brokers back to asset-heavy as well as we go deeper into the cycle.

Probably a little bit early for that. We saw revenue growth with our 3PL-related customers in the most recent quarter that was similar to the overall growth rate for the company. So that's kind of hanging in there. But that's something that we obviously like to have customers direct with us, and if that's a change that develops, we'll work with them. But if a customer is using a 3PL, we treat them the same. We look at the cost.

The important thing with business, and about 1/3 of our revenue right now is, with 3PLs, is to understand the cost on any customer account, whether it's direct or with a 3PL and to price it appropriately, so that we've got similar account-level profitability across our book of business. And that's the way we look at it. We look at customer specific costs and then we provide customer-specific pricing to those 3PLs. But we'll take it if it comes at us and be happy to do so.

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

Thanks for the insight before on some of the struggles at the carriers popping up. That's definitely an issue we've been hearing about also. But if I could just take Ravi's question in maybe a different way. Another upheaval or started in the brokerage side. Just given the heavy use of brokers that you have, we're seeing a lot of lawsuits go on now that are maybe -- whether it was from Montgomery and risk that moves up the food chain, or last week, just the exposure, is that impacting discussions with the brokers? Is it -- are you seeing any flows that might be changing? Maybe just talk about what you're seeing from that brokerage follow-through.

Yes. Nothing at this point, Ken, that I've heard. And we, obviously, especially with some of our largest ones, several of our top 10 customers are 3PLs, and have not really seen any type of material change there. And obviously, with the revenue growth being pretty consistent with the company average at this point. But I haven't really heard a lot of feedback that there's been a lot of discussion, but obviously, as many of you have written about, it's a potential big change that's coming for the industry. And I'm reading you all report about the increase in insurance costs, and that's something that we've talked about in recent years. It's to be a large sophisticated LTL well-capitalized carrier, we have dealt with double-digit premium inflation for many years now. And that's something that goes into our cost model that we've got to continue to account for with our pricing.

So it sounds like that's something that they will have to further account for. And if a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage. And if we give the same price, then that's a cost, and I think that will be something where they have to prove their value proposition, the 3PL that is, to the shipper. And if more and more shippers choose to use Old Dominion direct, then we'll be there -- be here for them, I should say, and be happy to handle it.

But yes, definitely cost inflation that's coming that may drive some of that cost through 3PL business versus non, and maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.

The next question is from Jason Seidl with TD Cowen.

A lot has been covered and I appreciate it. I wanted to go a little bit of a different direction. One of your competitors on their call talked about looking at the use of autonomous trucks for some of the line-haul operations in that they might have gotten to the point where it's a viable option for an LTL carrier. Just wondering what your thoughts on that were and if you've looked into it.

Yes. Jason, I think that's something that, any type of technology, you've got to continue to look at and stay on top of. But I think that one of the things that people have got to consider as well is what's the cost of the technology on a per mile basis. Some of the things that I've seen in red, I don't know that you've got the value add. You think about our fleet of equipment, we dual-use a lot of our tractors. So they're running P&D during the day, line-haul at night. If you've got to pay the technology provider, I don't think that autonomous vehicle would be more for linehaul application. You either are buying specific P&D units that's going to drive your unit cost up or you're paying for a mileage where you're not really using and leveraging the technology.

So I think like many things that are like that, you got to stay on top of we don't want to be on the bleeding edge of that technology and development and so forth. But it's just like any other investment when it comes to technology, there are a lot of opportunities that we take a look at where the cost of the technology doesn't really provide an appropriate return. And investment in autonomous would be a similar type of analysis that we would go through.

But to me, it's something too that, I don't know, it's hard to imagine a world where you've got 80,000-pound trucks driving up and down the highways without someone sitting in the cab to deal with those one-off scenarios, to deal with cargo theft that is already a problem when you've got a driver in the cab. So there's a lot of other incremental challenges that would present and would have to be dealt with from a regulatory standpoint before this goes worldwide. And obviously, it's been dealt with and utilized in certain lanes and so forth, but the scale to be nationwide, still have some reservations about.

So it sounds like it's more than just the total cost of it all. There's other factors in terms of you guys taking advantage of something like this as it becomes available.

I think so, yes. But look, our business is pretty simple. At the end of the day, it's how do we manage the revenue per shipment and the cost per shipment and give the very best service in our industry to be able to support the value and our yields. And so like I said, it's no different. Everything we look at is how can we minimize the inflation in our cost per shipment and continue to get yields to support the value proposition. So we'll continue to look at it. But like I said, I don't think we'll be on the bleeding edge with adoption there.

The next question is from Bascome Majors with Stephens.

If we look back, I think this is the first time the capital envelope has gone up since the beginning of '24. And I'd just be curious, both big picture thinking on where this is going, is it the tightness at capacity at some of your peers that's bringing freight your way? Or is it what you're hearing from customers on sort of macroeconomic expectations that's driving you back into a period of growth investment, albeit gradually?

And if you could just give us a quick update, I mean, you talked about having a lot of capacity now. Any sort of sense of where you stand on people and equipment in the network today?

Yes. The increase that we had, keep in mind, the total $380 million is still well below our normal range, is 10% to 15% of revenue. But like we said, both the increase in the real estate side and the equipment really are strategic purchase opportunities, that from a real estate standpoint, you've also got some timing of projects that we've continued to spend on our network because of the confidence we have in our long-term market share opportunities. But we've got a couple of unique opportunities where it could be something that fit in the long-term plan in a market that's hard to find real estate, to not get into too many specifics. But then you've also got some lease-to-own conversions, timing of projects that we may get started in the balance of this year that may have been in '27 initially.

So we're always fine-tuning that model, and that drove some of that increase there. But there's 1 or 2 kind of strategic purchase opportunities that are in there that just sort of fit when we think about our 5 and 10-year plan.

And then on the equipment side, that's a little different. Some of that spend would have been allocated to 2027. So we're kind of pulling some of those purchases into the fourth quarter of this year. And again, just through conversation and discussions, our op teams felt like it would be better to go ahead and pull some of that equipment into this year.

But overall, kind of to answer your question, it's not necessarily a need to increase the capacity of our service center network. We've still got north of 35% excess capacity there. We've got plenty of power and trailing equipment capacity at this point. Really when we get into the fall of this year is when we'll be forecasting for next year's volumes to think about what our replacement needs would be and then any growth needs. But I think given kind of where our fleet is versus some prior years when we've had similar growth numbers, it still will probably lean more towards replacement just to kind of grow into the fleet that we have, but probably add some trailing equipment to make sure we've got plenty of capacity there.

And on the people side, like we've talked about on the last call, we were able to accommodate this 4% sequential increase in tonnage that we just had with essentially the same workforce. So through the balance of the third and fourth quarter, probably not a lot of material change in our headcount overall there. So if we can take another sequential increase through 3Q, I think that presents some good opportunities there from a cost and margin standpoint. But then we've really, again, kind of getting into forecasting for next year, have got to think about when is the right time to start some of our truck driving schools again and to start getting more drivers in to accommodate what we think our growth expectations for '27 might be.

The next question is from Richa Harnain with Deutsche Bank.

So yes, I guess, first a quick housekeeping one. Adam, that OR sequential change you cited for 3Q flat to up 50 bps, I would suspect that's on GAAP, but wanted to make sure.

And then I guess just bigger picture, tonnage came in line with normal seasonality this past quarter and you meaningfully beat your OR outlook for the quarter even ex that real estate gain. And looking into Q3, you're calling for pretty optimistic scenario both around maybe macro demand picking up and OD specific demand as your peers face some challenges. So I guess what's driving that tempered enthusiasm considering that you're thinking you could just be in line with historical trends in OR?

And then back to complimenting you on the strong performance in 2Q, the incremental margin we calculated in the quarter was really good, 60%. Just curious if that influences your outlook for OR longer term or if you'd caution us from using that optimistic of an outlook given fuel likely created some of that positive operating leverage? So a lot in there, but I'll let you take it how you want to think.

Richa, I don't know if I can track everything that was in there. But I would say a lot of the second quarter outperformance, if you will, the volumes just came in stronger than where we were 3 months ago talking about the call and where April was. We just came back a lot strong with volumes. And obviously, we were able to put a lot of that incremental revenue growth to the bottom line. And a lot of that flowed through with the sequential change in salaries, wages and benefits. And I think I had pointed everyone to the second quarter 2022 as sort of a reference point when you had a similar type of change with fuel prices and so forth. But we probably did a little bit better with our salaries, wages and benefits change. But also there was some benefit in some of our other op supplies and expenses and G&A type costs. And some of those are partly what I mentioned would be in that normalization of trending into the third quarter.

I tell you, if we didn't have the fringe headwind, we'd be talking about the summer of 69 here. We did have a big headwind from the first and second quarter with our fringe benefits, which we've talked about at the end of the call. But sure would have been nice to have had a 69% operating ratio. But we've been there before, and we'll get back there again.

But looking into the third quarter, you've got some of that. The guidelines that I gave is still 45%, 50% incremental margins on that type of revenue growth. And that's stronger than a longer-term trend. And a lot of that will be based on what I mentioned earlier about our direct versus overhead costs. With our direct costs now at 50% to 51% in the second quarter, that's something that, obviously, you keep leveraging tonnage growth at the right price and you can put a lot of that to the bottom line.

But there's a lot of opportunity there when you think from a bigger picture and a longer-term standpoint to further improve that direct operating cost percentage threshold. And then we've got to keep getting leverage on the overhead cost and controlling that discretionary spending. We're not seeing the same type of increase in depreciation this year because the CapEx program is lower than it's been in recent years. So that's helped with some of our cost inflation.

So a lot of those different variables that when you think kind of over a multiyear through-the-cycle type of operating ratio change. Our goal is obviously to get, we've stated multiple times, to get to a sub-70%. But when you think out growth within those expense thresholds that I just laid out, I don't want to say that 45% to 50% is the new way to think about it, but when you think about it in that context, getting to the sub-70% annual operating ratio is pretty easy to map out. And we're going to achieve our goal. That's the immediate goal before we set a new one. But I think it's clear to see why we've changed our operating ratio goal by 500 basis points at a time. And you can kind of map out and [ prove ] pretty easily a pathway that would get us to our next 500 basis point goal.

Thanks, Adam. And then just if you could quickly clarify the sequential change for Q3 from Q2. That's based off GAAP OR, right?

It is, yes. We're -- we like to operate on GAAP and talk about GAAP type numbers, and we'll give you adjustments like the real estate gain, but I don't know that you'll ever hear me talk about non-GAAP numbers and adjusted EBITDA. I think GAAP makes more sense for an easier comparison.

The next question is from Brian Ossenbeck with JPMorgan.

Maybe, Adam, if you can just give a little bit more context on the head count and the labor side. Obviously, the fringe benefit was a pretty big increase, I assume, in the comp per employee. Does that continue to increase a little bit with the annual wage increase? And you said you're going to keep the labor essentially flat. But I just want to hear a little bit more about the cadence that you have visibility to.

And then some commentary on the truck driver schools and bringing those back and sort of view on capacity towards the end of this year and into next year as you start to think through that and what the next cycle could bring or require from a labor perspective.

Sure. That's a good perspective, Brian. We will give a wage increase the 1st of September, and we haven't announced that to our employees yet, but -- so I don't want to announce it here. But obviously, we continue to do well as an organization and we believe in sharing that benefit with our employees. So that's something that we'll be working through and announcing here pretty soon.

But I think that, like I said, we've got the people capacity. People are able to start working more hours on average than they were before. And our drivers and platform employees have been eager to do that and see their take-home pay increasing as a result. So we can continue to step up and meet the needs of our customers through the third and fourth quarters of this year.

The thought in terms of starting our truck driving schools and so forth, we've had our truck driving schools going, and part of what we do in our strategy is to take our employees that are interested in being a driver and train them to get their CDL. So when demand and volumes are there, we're able to put them into a truck pretty quickly. And we've got someone that's been with us that believes in the OD family spirit and our culture. And we know they're going to do right things right for our customers and continue to deliver service that no one else is even close to in our industry.

So I think it's all about making sure we've got people that are prepared that if we start seeing the sequential increase that typically happens in kind of March, of next year, and who knows what volumes will be like through the balance of the third and fourth quarter, but just generally thinking about seasonality, you want to make sure that you've got people that are ready to step in. The worst thing you can do is have volume opportunities coming at you and to not be able to take advantage of those.

And I think when you look at our history, we've proven out time and time again that we're able to rise to that challenge. And that's what gives me the confidence to talk about some of these numbers that we've had or have today. When I look back at these high-growth years where we really separate ourselves from our competition, you think about the 2014, 2015 and '17 and '18, '21, '22, those high-growth years where demand is incredibly strong, we've had tonnage -- the change in our tons per day that's outperformed our competition 800 to 1,000 basis points.

And so I think that that's what we're looking forward to. I think that there continue to be capacity challenges in our industry, to where when the industry really starts growing again, we're going to see the majority of that market share growth coming our way. So we just want to make sure that we're prepared. And we know that we are. But you got to stay ahead of the growth curve in this industry. And I think we've proven time and time again that we can do so.

The next question is from Bruce Chan with Stifel.

This is Matt on for Bruce. A couple of quick ones here. With respect to the stronger volume you highlighted in the super seasonal trends, curious if you're seeing this uptick sort of broad-based across the book? Or is it still concentrated in a handful of end markets?

No. It's pretty consistent across our regions, which is nice. That keeps the network in balance for us. And as you know, we're pretty much 100% in-sourced from a linehaul standpoint. So we're not facing any purchase transportation challenges that maybe some of our competitors are, and certainly not dealing with the cost inflation that go along with that dynamic with the truckload price increases that we're seeing right now. So that's a benefit to us as well.

And so yes, everything is staying balanced and pretty consistent. You've got a little bit of change. And like I mentioned earlier when we were talking about yields with growth with national accounts, larger national accounts, growth in smaller mom-and-pop, pretty consistent performance, I'd say, across those 2 major components of our revenue. And the same thing with the 3PL managed business as well.

Great, super helpful. And lastly, I know you mentioned hearing that some peers are having some trouble making pickups due to the type of labor market conditions. I guess, how would you characterize the financial health of smaller regional providers at this point, and maybe whether you're seeing any changes there in their pricing or competitive behavior as the market sort of improves or maybe what's likely to be increasingly higher inflationary cost environment with issues like insurance?

Yes, we've got a lot of -- our industry has got a lot of very high-quality small regional carriers that -- they're private mainly, so we don't know their operating ratios. More of the feedback that we hear in bids and so forth. As you can imagine, it's the larger accounts with widespread operations and some of the larger national nonunion carriers that we compete more with on a national basis just because they're larger accounts and those are the ones that are -- you hear more feedback on. So don't have anything to offer on what some of the smaller carriers are doing right now and what their [ operating ratios ] look like.

The next question is from Ari Rosa with Citigroup.

So Adam, I wanted to stay on the volume piece of things and just kind of the macro environment. Maybe a little bit more color there on some of the optimism or what's underlying some of the optimism. Because if we look back historically, as you had mentioned, right, it's not uncommon for OD to grow to grow tonnage at that rate of mid-single digits, maybe even high single digits, on a year-over-year basis. Is this macro environment or some of the things you're seeing in the macro, could it support that over the next couple of quarters? Or would we need to see an acceleration in the macro to get there?

And then just a point of clarification. The gain on sale, could you just give us a little bit of color on what that was from and if there's anything more to expect or more to come there?

Yes. The gain on the sales, we've mentioned over the last few years that we've finished construction on some projects and have just kind of kept them in ready reserve. We've been depreciating those projects as we finished them and they were available for operations, but we just didn't turn those points on in the network, and a few of those were service center moves. So our service center count in total stayed the same. And basically, we moved into different facilities, sold the old ones, and I think there were 3 of those in the quarter that resulted in that $17 million net gain.

But there's -- I wouldn't expect any more this year. There's still a few more out there, meaning service centers that are in ready reserve still, and we may have a few more dispositions this year. But that's something that as it happens that's material, we'll talk about it. We don't have anything, I don't think, with the same type of material gain that would be there if it does happen this year. That's just something that our ops team is constantly looking at the network balance and where it makes the most sense from a cost standpoint to turn points on. And hopefully, we'll be turning some of those on because of the volume.

So kind of bridging to your next question, as the volumes come in, similar to what we did through 2019, 2020 and through that '22 period, we'll be turning on some of these new service centers, finishing construction of some others to continue to improve our network overall. And again, that's part of the value proposition.

But hey, look, we're winning market share right now. And as I mentioned, we're already -- if you just sort of go month by month where tons per day is above what normal seasonality would have suggested from the beginning of this year, and I'd say the challenges to the economy is in a good spot, it's obviously ISM has been positive, but it's not like we've had ISM knocking on the door of 60 or being above 55. I still think there's opportunity out there on the retail side. And I believe looking at the inventory to sales ratio, that that's a precursor. When you look back in history, it's as low as it's been, maybe going back to '21. So that should kick off some volume and market share opportunities.

But I think the domestic economy as a whole has just got the inflation concerns and world events that have probably been keeping a little bit of a lid on things. It's positive, but it's not red-hot, so to speak. We're not in the type of environment yet that's, say, a 2018 or a 2021. But I feel like some of the metrics makes it seem like that inflection point is coming. And that's partly why we want to be ready for it.

We're not going to get out over our skis, if you will, in terms of getting too far ahead of the growth curve. But we're far enough ahead to keep going through the balance of this year. We definitely have got plenty of service center and equipment capacity, and continuing to look at the headcount is just something that we'll manage more closely.

The next question is from Scott Group with Wolfe Research.

Adam, just want to clarify one thing. On the 10% revenue growth for Q3, does that assume sort of normal tonnage seasonality in August, September? Anything better or worse? And then just sort of maybe longer term, like you tend to be very sort of measured in your comments, and you talked about pretty easy to map out of sub-70%. I think you said at one point like you can get a good amount better than a sub-69% or something like. So that's, I mean, obviously, like really optimistic around the margin front. What's like the time line or line of sight to how quickly you can get to these sorts of numbers?

Scott, we've never put a time line on any of our goals just for the sake that you don't want to make decisions that are trying to achieve an arbitrary goal. And I think that if we did that, like right now, we've got the sub-70% operating ratio goal and that's been hanging out there. We probably wouldn't have invested $2 billion over the last 3 years in capital expenditures because of all the costs that that created. But I can tell you, we're better positioned than any other carrier because of those investments, and all the things that we've done.

But when I look at our cost structure now, like I mentioned, over the second quarter of this year, for our direct operating cost to be at 50% versus the 52% and some change in both periods going back to that second quarter of '22, a lot of that with a significant decrease in volumes between those 2 periods compared, I think it shows the strength of our team. It shows the commitment that we've had to getting good yield increases throughout this whole freight recession.

But to be 200 basis points -- 250 basis points better now than we were then with maybe 10,000 shipments per day just speaks to the strength of our team. It also speaks to investments that we've made in technologies to help our team be more efficient. So I think that now that we're on the precipice of tonnage turning back positive, and if we keep having this positive tonnage in shipment growth sequentially coming into our system, there's a tremendous amount of leverage there for further improvement in direct operating cost.

And then it's mapping out, just taking the revenue up. Some of our overhead costs are variable in nature, so the overhead cost dollars will likely continue to grow as well. But that's when you can start swinging that pendulum back the other way. If we were at 16% to 17% overhead costs as a percent of revenue in the second quarter of '22 and kind of where we've been trending in the -- just say, in recent periods in kind of 22%, 23%, we were right at 20% in the second quarter. So we already made a little headway, but there's 300, 400 basis points of incremental opportunity there.

So I think we continue to do the right thing in managing our costs, controlling our discretionary spending. But first and foremost is making sure that service is first and foremost in the minds of our people. We've made all those cost changes while we've improved our service. And that's why it was important what Marty said in his prepared remarks, we're continuing to improve transit times. Anything our customers are asking us for, we're delivering. And so we've done all that in a low-volume environment. It's pretty easy to kind of pencil out where things can get to.

And yes, we don't want people to expect that it's coming next quarter or even at the beginning of next year. It's going to be a consistent methodical approach, which is what we've always done. And you look back over history, and it tends to rhyme in our industry. And when you get into that first big year of revenue growth, those are the types of years where we've been able to produce 300, 400 basis points of year-over-year improvement in our operating ratio. And if we can get a big year, there's no reason why we can't produce some similar type of numbers like we've done in the past.

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. Thanks, and I hope you have a good day.

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

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.