Old Dominion earnings likely to be transported higher
Given the surge in fuel prices, it may be surprising to realize that this doesn’t seem to have put a dent in investor interest in transportation companies, whose bottom line will presumably take a hit. In fact, a transportation ETF from SPDR (represented by the orange line in the chart below) has performed on a par with the S&P500 itself (represented by the white line) so far in 2012, while Old Dominion Freight Lines (ODFL.O) has handily outperformed both the index and the transportation industry.
Old Dominion’s stock market performance shouldn’t surprise anyone who has been monitoring the company’s StarMine SmartEstimate, which remained above the I/B/E/S consensus estimate for earnings consistently during the first quarter. That’s why Old Dominion Freight Line as the next in a series of ten North American companies that it expects will either beat or fall short of analysts’ earnings estimates when they report their results for the just-ended first quarter. With a positive Predicted Surprise of 2.2%, we expect Old Dominion to emerge among the winners when it reports its earnings on April 26, 2012.
Since being founded in 1934, Old Dominion has grown to the point where its fleet includes more than 400 trailer-cabs as well as some 12,500 trailers full of merchandise of all kinds, providing service to clients in 40 states. The company transports goods ranging from textiles to machinery for clients, and charges those clients a fuel surcharge that climbs along with the price of gasoline and diesel fuel. That levy ensures that any increase in fuel costs is passed onto the customers rather than being allowed to damage the company’s profit margins, and gives Old Dominion an advantage over its competitors: the company’s 99% on-time delivery rate and reasonable base prices help offset any negative impact of the surcharge, even for clients who haven’t themselves been made aware of the ugly new price realities of the gasoline market.
The American Trucking Association (ATA) releases its Truck Tonnage Index monthly; in February, that index grew 5.5% over year-earlier levels. That healthy growth rate was due in part to the strong consumer and the resilient economy. Given the latest dip in the national unemployment rate to 8.2%, and the fact that Consumer Confidence Index posted a strong reading of 70.2 in March, it shouldn’t be surprising to learn that the trucking business had a busy first quarter. Old Dominion was one of the busiest firms of all, posting a year-over-year increase in tonnage of 10.4% in February. Of the 18 analysts who have published quarterly earnings estimates for Old Dominion, only one has lowered his estimates for the company since February 1st, while 11 have raised their estimates.
Analyst David Campbell of Thompson Davis and Co. ranks among the 10% of all analysts who have earned a five-star StarMine rating for the timeliness and accuracy of his earnings forecasts. He currently expects Old Dominion to report earnings of 68 cents a share for the first quarter, far above the I/B/E/S consensus of 53 cents a share. Given that the SmartEstimate of 55 cents a share also is well above the consensus, the odds that Old Dominion will beat estimates are even higher.
The fact that the US economy now is humming along at a steady pace is benefitting Old Dominion’s bottom line, says Earl Congdon, the company’s chairman. During the company’s earnings call in February, he described 2011 as the “strongest year in our 20 year history as a public company, as well as in the 77 years the company has been in operation”, with record revenues, margins and earnings per share. The other statements in the conference call were equally optimistic. (You can view the complete transcript for the conference call on Thomson Reuters StreetEvents.)
FedEx reported earnings of $1.55 per share on March 22, handily beating the consensus, and making a profit with help from its own fuel surcharge. Given that Old Dominion levies its own fuel surcharge, it may see similar benefits. With continued strong demand for transportation services, Old Dominion seems likely to continue its strong performance during the rest of 2012. If we use the SmartEstimate and Predicted Surprise as a gauge, it looks like the company will beat estimates when it reports quarterly earnings later this month.
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