Old Dominion's Q4 Margins Drive Higher Despite Freight Downturn; Raising Fair Value Estimate

Top-tier less-than-truckload specialist Old Dominion Freight Line's year-over-year top-line growth moderated to 6% in the fourth quarter from 15% in the third quarter but was ahead of our forecast as impressive yield (revenue per hundredweight) strength more than offset lower-than-expected tonnage. The general theme is that retail sector inventory restocking has retrenched and U.S. industrial production is slowing; these factors are now pressuring volume across the LTL industry following an incredibly robust growth phase. Generally speaking, this is not a surprise; we've been baking in a pullback that lasts through the first half of 2023. On the positive side, Old Dominion's yield gains—up 17% including higher core pricing and fuel surcharges—remained strong enough to drive up revenue year over year. Yields grew 9% excluding fuel.