Marty Freeman

Good morning and welcome to our third-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. I am joining the call today from a separate location. Therefore, please bear with us when we are taking questions if there are any connectivity issues.
Old Dominion's financial results in the third quarter reflect continued softness in the domestic economy. Our revenue and earnings per diluted share both declined on a year-over-year basis during the quarter, although our market share and volume trends remained relatively consistent with the first half of the year. While the operating environment continued to be challenging, our team did a good job of managing our variable cost, and we also continued to control our discretionary spending.
The deleveraging effect from the decrease in revenue, however, caused many of our cost categories to increase as a percent of revenue. This was the primary driver for the increase in our operating ratio to a 72.7% in the third quarter. We have been pleased with the consistency in our market share this year, which is consistent with our historical experience during slower parts of the economic cycle.
We continue to have strong customer retention trends, and we are also winning new business. Our customers simply have had fewer shipments that they can tender to us. And our average wait per shipment has also remained at historical lows. The stability of our market share continues to be supported by the quality of our service and overall value that we offer to our customers.
These are a few of the foundational elements of our long-term strategic plan. The OD family of employees continue to execute on these core principles during the third quarter as our on-time service was 99% and our cargo claims ratio was a 0.1%. While we are incredibly proud of these service statistics, we would also like to remind you that superior service means much more than simply picking up and delivering our customers' freight on time and claims free.
There are plenty of other attributes that shippers consider when selecting a carrier, such as carrier's trustworthiness, ease of doing business, and the quality and responsiveness of customer service representatives. In fact, Mastio & Company measured 28 different service and value-related attributes as part of its recent annual survey of shipper and logistic professionals.
Mastio published the results of its 2024 study last week, and we were honored to be named the number one national LTL provider for the 15th consecutive year. OD finished number one in 23 of the 28 evaluated categories measured by Mastio and maintained a sizable lead against our competition when it comes to the overall quality of service. I would like to congratulate the entire OD family of employees on this remarkable achievement. And I would also like to thank this outstanding team for their commitment to our company and our customers.
We continue to believe that consistency and quality of our service over the long term has differentiated Old Dominion in the marketplace and driven our long-term profitable growth. While becoming the best carrier in the business was hard, remaining the best carrier for 15 straight years is an incredible accomplishment, and that is hard to put in perspective. Every member of the OD team has played a part in our success, and I can assure you that each of us is incredibly motivated to keep delivering our promises to provide our customers with the highest standard of service.
By continuing to provide best-in-class service to our customers day after day and year after year, we are also able to maintain our long-term and disciplined approach to pricing. We continue to focus on consistently improving our yields to sufficiently offset our cost inflation and support additional investments in capacity and technology.
These ongoing investments have created incremental value for our customers in many ways, which has further enhanced our industry-leading value proposition. Our customers have recognized our value proposition over time, which has allowed us to be able to earn more and more of their business. As a result, we have won more market share over the past 10 years than any carrier in our industry.
While the economic environment has remained sluggish for much longer than we ever anticipated, we believe we are better positioned than ever to respond to the eventual inflection and demand that will occur as the economy improves. We have the capacity, the fleet, and most importantly, the committed team of people to take advantage of an improving economic environment.
Our unique company culture and each employee's commitment to excellence gives me tremendous confidence that we can also be the biggest market share winner over the next 10 years. This confidence is bolstered by the results of the most recent Mastio study, as well as the ongoing conversations we have with our customers. By staying focused on long-term opportunities for additional profitable growth, we remain confident in our ability to create additional value for our shareholders.
Thank you for joining us on the call this morning, and now Adam will discuss our third quarter in greater detail.

Adam Satterfield

Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.47 billion for the third quarter of 2024, which was a 3.0% decrease from the prior year. We had one extra workday in the third quarter of this year, so the decrease on a per-day basis was 4.5%. These revenue results reflect the 4.8% decrease in LTL tonnes per day that was partially offset by the 1.5% increase in LTL revenue per hundredweight.
On a sequential basis, our revenue per day for the third quarter decreased 1.9% when compared to the second quarter of 2024, with LTL tonnes per day decreasing 3.2% and LTL shipments per day decreasing 1.0%. For comparison, the 10-year average sequential change for these metrics includes an increase of 3.6% in revenue per day, an increase of 0.9% in LTL tonnes per day, and an increase of 2.3% in LTL shipments per day.
The monthly sequential changes in LTL tonnes per day during the third quarter were as follows. July decreased 4.4% as compared to June, August decreased 0.8% as compared to July, and September increased 1.7% as compared to August. The 10-year average change for these respective months is a decrease of 2.9% in July, an increase of 0.6% in August, and an increase of 3.5% in September.
For October, we expect our revenue per day will decrease by approximately 11.2% to 11.8% when compared to October 2023, with a decrease of approximately 9.2% to 9.8% in our LTL tonnes per day. As usual, we will provide the actual revenue-related details for October in our third-quarter Form 10-Q.
Our operating ratio increased 210 basis points to 72.7% for the third quarter of 2024. As Marty mentioned, the decrease in our revenue had a de-leveraging effect on many of our operating expenses during the quarter. This contributed to the 110-basis-point increase in our overhead cost as a percent of revenue. In addition, and for the first time this year, our direct operating cost also increased as a percent of revenue when compared to the same quarter of the prior year.
The increase in our direct operating costs as a percent of revenue was primarily due to an increase in costs associated with our group health and dental plans. As a result, our employee benefit costs increased to 38.6% of salaries and wages during the third quarter of 2024 from 37.3% in the same period of the prior year.
Old Dominion's cash flow from operations totaled $446.5 million for the third quarter and $1.3 billion for the first nine months of 2024, respectively, while capital expenditures were $242.8 million and $600.4 million for the same periods.
We utilized $187.7 million and $824.8 million of cash for our share repurchase program during the third quarter and first nine months of 2024, respectively, while our cash dividends totaled $55.6 million and $168.2 million for the same periods. Our effective tax rate for the third quarter of 2024 was 23.4% as compared to 24.0% in the third quarter of 2023. We currently expect our effective tax rate to be 24.5% for the fourth quarter.
This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

Question and Answer Session

Operator

(Operator Instructions) Eric Morgan, Barclays.

Eric Morgan

Hey, good morning. Thanks for the question. I guess I just wanted to start on the near term. It sounds like October tonnage decline is getting a little bit worse relative to September, something driven by shipment of weights coming lower. It's kind of been the trend here recently. And then how you're thinking about operating ratio into your end here would be helpful. Thank you.

Adam Satterfield

Yes, from a volume standpoint, the year over year, our tonnage is in October. Take the midpoint of that range that we gave. It would be down about 9.5%. And obviously, we've got many days left to finish out this month, and so we'll see how the rest of the month finishes. It's why we gave a little bit more of a range than we normally do.
But if you take the midpoint of that, in October, that's got our sequential change down, just call it about 3.5%. The 10-year average sequential is a decrease of 3.1%, and that's October versus September. So it's actually encouraging to see what our volume trends so far this month have been. This is the first time that we've been, I would say, relatively close to what our normal sequential changes have been in the first month of a quarter.
So we feel pretty good about how volumes are trending and continued strength in our yield performance that we've seen as well. So we'll continue to watch that. But the year over year, I think, is just skewed a bit by -- if you recall last year, we had a competitor that had some cybersecurity issue, and we had some temporary freight coming into the system, if you will.
So we picked up some incremental freight there that was a bit unusual and caused outperformance from a seasonality standpoint that obviously is not there right now, but feeling good thus far about the October trend.

Eric Morgan

Thanks, and just the operating ratio side of that, if you wouldn't mind? Appreciate it.

Adam Satterfield

Yes, I was going to try to leave that maybe for someone else. Those are two big questions packed into one. So just try to keep questions to one. But just to go ahead and address that, because we know it's going to be a question anyways, the normal 3Q to 4Q progression is about a 200- to 250-basis-point deterioration, and that's excluding any insurance adjustments.
We do an actuarial assessment in the fourth quarter every year. Sometimes those are good guides. Sometimes like last year, I think we had about a 70-basis-point headwind when it came to the actuarial adjustment, it was an unfavorable adjustment last year. So I think when thinking about this fourth quarter, conservatively, I think we probably ought to slide that scale up about 100 basis points.
And the reason for that would just be the continued risk from a revenue standpoint and the impact that would have on overhead expenses. We just saw that headwind play out in the third quarter, kind of going back to the guidance that we gave at the end of the second-quarter call going into 2Q. Revenue came in softer, and as a result, our overhead expenses were about 40 basis points higher than kind of what we had anticipated at the end of the second-quarter call.
And then I think we also have a continued risk with respect to our fringe benefit cost. Those were higher than what the trend has been this year and higher than what they had been for the same period last year in the third quarter. And so I think there's a continued risk. Those may stay a little bit higher in the fourth quarter, but both of those things are something that could trend better.
I think if we have -- like I mentioned earlier, the October trend is starting out pretty good from a volume standpoint. So if we can get our revenues back closer to seasonality, if you will -- and obviously, we'll give our mid-quarter updates, then there can be some favorability there. Just some pluses and minuses, and I think from a conservative standpoint, probably better to just slide that scale up in terms of where things stand right now.

Eric Morgan

Thanks a lot.

Operator

Jason Seidel, TD Cowen.

Jason Seidl

Yes, thank you. Hey, gentlemen, good morning. Appreciate the time. You brought up SD's issues that they had last year that sort of grow beyond normal tonnage numbers for you in October of 2023. Should we expect then that by November and December, the tonnage comps get easier, so we're not probably looking down as much as we're seeing in October?

Adam Satterfield

Yes, I think that's fair. I think the October is definitely the toughest comp. When I go back and look at last year's sequential performance in November versus October, our tonnage was down six-tenths of a percent, and our 10-year average there is a 3.1% increase. And then December outperformed. We were down 4.8% in December of '23 versus November of '23. The tenure average there is 7%.
So I think that this is probably the toughest comp, if you will, of the quarter in October. But depending on how November trends, if we get some acceleration back in the business -- and then obviously December is always a tough month for everyone given the holidays and whatnot, but if we can kind of hang on, had a little bit about performance there, so that will -- December would be a little bit tougher versus the November.
But I think on the whole -- as we go through this fourth quarter, I mean, this feels like we're finally getting to what we hope is a floor. We're encouraged about how things are trending. It's good to see the sequential performance thus far in October. And obviously, it got many days to get through this quarter.
And 1Q is also tough, but to think about from a big picture standpoint, we've been underperforming normal sequential trends for about 2.5 years now, so it certainly feels like we're finally coming to the end of a cycle. We've got to go through these tough quarters, but we finally have seen, I think, traction with respect to interest rates are declining.
We'll have the uncertainty of the election behind us pretty soon. And so hopefully, we can get back to seeing some growth for our industry, for which typically when the industry starts to inflect the deposit, that's when our model shines the brightest and we win the most shares. So we're looking forward to getting through this final quarter here of the year and starting out next year with, hopefully, some good strength.

Jason Seidl

I hope so too. And with the with the year-over-year comp in October for [STs] did that impact the weight per shipment at all, could you remind us?

Adam Satterfield

The weight per shipment, last year, it was pretty much right in line with what our normal tenure average would be. So we were -- in October last year, we were down three-tenths of a percent and then pretty much performed about in alignment with what normal weight per shipment or trend. Typically, you'll get a little bit of an increase in weight-per-shipment from the third quarter to the fourth quarter.
And that's something that actually was a little bit of a surprise for us. In the third quarter, our weight per shipment ticked down a bit, and July was somewhat consistent -- and I'm speaking of this year now. July was pretty consistent with our tenure average, but then it dropped further in August, came back a little bit in September, but overall kind of underperformed what the weight would be.
But at this point, we've actually in October are seeing a bit of an increase. So typically, the 10-year average in October, like I just said, is down three-tenths. So if we're seeing a little bit of an increase, that's obviously a good thing for business as well. We're getting more weight for shipment.
We're going to have a little bit higher revenue for shipment as well, and that generally drives improved productivity also. So and hopefully -- that's generally has been a sign of hope with respect to the economy as well. So that will be another metric to continue to watch to see if we see things start to pick up for us.

Jason Seidl

Right. Well, listen, I really appreciate the time and color, guys.

Operator

Daniel Imbro, Stephens Inc.

Daniel Imbro

Yes. Hey, good morning, guys. Thanks for taking our questions. I want to follow up maybe on the near-term trend. So it seems like LTL yield growth has moderated a bit across the industry. I appreciate the tonnage update for October. I guess, Adam, could you share some color on how you see yields shaping up here into the fourth quarter?
And then more broadly, if the macro remains this weak, I guess, do you expect to see any irrationality in the market that would make it harder for you guys to keep realizing price increases above inflation? Or how is your price realization going as you talk to customers? Thanks.

Adam Satterfield

Yes, I was pleased with our yield performance through the third quarter. And it takes having superior service to support what we're able to achieve consistently year in and year out from a yield performance. And so we're really, really proud of the service metrics we've been able to deliver. And just to repeat, winning that Mastio Award for the 15th straight year hopefully has put to bed some of the faults; that gap between us and our competitors has closed.
And so really pleased to see that performance with this year's results. But I think at the end of the last call, we talked about normal seasonality with respect to our revenue for hundredweight, excluding fuel surcharges. And that would have put us in the 4% to 4.5% range for the third quarter. And we came in at the top end of that range.
And granted, we had a little bit lower weight for shipment as I just was referencing with Jason. So that certainly helped the revenue per hundredweight. But to me, it just seemed like consistent performance through the quarter. And that's what we would continue to expect.
Our yield management process is we take a long-term and consistent approach that tries to offset our cost inflation and support continued investments in our network and in our technologies and so forth. So if normal seasonality plays out for the fourth quarter, that would put the revenue for hundredweight, excluding fuel, up in the 3.8% to 4.2% type of range.
And yes, we'll continue to watch that as we go through, but we expect to continue to get increases. We're seeing it. We've seen it throughout this year and really throughout the last 2.5 years that we've been in this weak economic period. And so just continue to execute on that consistent philosophy, and we're getting increases as we go through bid renewals. And that would be the same expectation as we go through this year and would be the same as we go through next year as well.

Daniel Imbro

Appreciate the color. Best of luck guys.

Adam Satterfield

Thanks.

Operator

Scott Group, Wolfe Research.

Scott Group

Hey, thanks. I just want to follow up on that last question. So I think, Adam, your October update is that total yields were negative. I guess you're talking about yield ex-fuel up, call it 4%. So this drop off in yield is entirely fuel? I know fuel is down, but I just want to make sure that that's right. And then just to ask it sort of directly, are you seeing more pricing competition or rational pricing? There's certainly more concern about that in the market right now. Are you guys seeing it or not?

Adam Satterfield

Yes, just to address October -- and we didn't give the exact number, but you can kind of back into it. Yes, the revenue per hundredweight with fuel right now is trending down. A lot of that is fuel related. Fuel at this point is down about 20% compared to October of last year. So a bigger drop, if you will, compared to what we just saw in the third quarter.
And that should moderate as we progress through the fourth quarter. It was about [$450] a gallon last year in October but ended up averaging about [$425] for the full fourth quarter of last year. So that's something that will moderate a bit. And anytime looking at one-month trends as well, given some of that disruption that we had last year, you had some mixed issues going on and so forth.
So we would still expect to see that sequential trend play out like I just mentioned and overall yields ex-fuel being up in that 3.8%, that 4.2%, assuming mixed stays constant. If we see a continued increase in weight for shipment, that could put some pressure on the reported yields, that revenue per hundredweight, but that would be a good thing. So that's what we'll continue to watch.
But I think that with respect to the overall environment, we'll have to wait and see what the other carriers report and what their commentary is like. I can only speak for us, but the environment is has been pretty stable, all things considered, this whole year. And we've been able to continue to get our increases, and I think that proves the value proposition that we have and what we can offer shippers in being consistent with our approach.
So it hasn't impacted us, hasn't impacted our market share. Our market share has been flattish, which, as Marty mentioned earlier, it's typically what we see through a slower economic period.
And so I feel like we're well positioned with what we've done, how we've executed, managed our costs, managed our operating ratio through this last couple of years, and feel good about our positioning whenever we can, turn the page back to having a little bit of economic tailwinds for a change. It feels like we've been running against the wind for a long time now, and we're ready to see things start to turn around. and give us a little bit of help from an economic standpoint.

Scott Group

Makes sense. Thank you, guys.

Operator

Jordan Alliger, Goldman Sachs.

Jordan Alliger

Yes, hi, morning. Yes, I know from a high-level standpoint, hopefully, we are bottoming from a trend perspective. I'm just curious, are there any pockets of your customer base, whether it be retail, manufacturing, wholesale, or distributor, where maybe you could point to even being some favorable volume? Or is it pretty much not the case?
And then secondly if we have normal seasonality from October -- I think we're kind of running normal September to October. If we run normal seasonality through the balance of this quarter, is there a way to think about where tonnage could shake out in aggregate year over year for the quarter? Thanks.

Adam Satterfield

Yes, from a breakdown of the revenue base, I mean, as you can imagine, we're seeing better performance with our retail-related customers and continued weakness with our industry-related customers, which, industrial for us, is 55% to 60% of our revenue. So that's certainly showing in our numbers and the decrease that we've seen.
But I think [ISM] has been down for 22, 23 months now, and that's been the challenge that we faced over this last couple of year period. But the retail has performed a little bit better. Really, the one thing that if you look for a bright spot would be our third-party logistics customers. 3PL represents probably a third of our revenue, and we actually saw some revenue growth with our 3PL customers in the third quarter.
So to me, that's a good trend because we've talked in recent quarters that we feel like there's been some modal shift that has been happening over the, I would say, especially last year when that large competitor closed their doors. I think people were just trying to find a home for freight. And in many cases, many LTL shipments might have ended up in the truckload world.
And a lot of times we'll see that movement back and forth between modes, especially with the 3PLs. Now that we're seeing an influx of business coming back in, I think whatever outflow was going, the tide is finally coming back in. And so if we can see a continuation there, that should mean a good thing as we project out and start thinking about 2025. So that's probably the brightest spot to pick through the different customer base.

Jordan Alliger

Thanks. And then, again, just if you have any thoughts on normal volume seasonality from here for the balance of the quarter, where that could kind of maybe shake out for the whole quarter?

Adam Satterfield

Yes. I mean, it's -- we're a long ways from there. But if we were to hit normal seasonality, that would put tonnage per day down like 6.5% to 7% for the full quarter. If you just look at kind of bigger-picture revenue, revenue per day at seasonality would be at about $1.4 billion. And we've been underperforming seasonality, like I mentioned, for the last couple of years.
So if you kind of take that normal rate of underperformance, at least where we were in the third quarter, it would be down like $1.35 billion. So it's something to just keep in mind as we progress through the quarter and give our full update.
Obviously, the revenue per day in October should look the worst. And then hopefully, things from a comp standpoint just start looking better. Overall, as we get into November, we'll give our mid-quarter update that will help you all clean up your models from there.

Jordan Alliger

Thank you.

Operator

(Operator Instructions) Jon Chappell, Evercore ISI.

Jon Chappell

Thank you, good morning. Adam, you kind of mentioned at the end of one of your answers the uncertainty around the election and the narrative that we've heard just a little bit recently about shippers maybe kind of pausing until there's a little bit more certainty. I know you have a very diverse end market of customers, but is there any way to kind of frame out what may be a temporary pause versus just the ongoing kind of industrial macro headwinds that you've been facing for the last several quarters?

Adam Satterfield

Yes, I think that obviously that anytime you have uncertainty and typically when you look in election years, they haven't been the best break years, at least in recent history. And so I think that there have been plenty of headlines and we've had customer conversations as well where people are being a bit conservative right now and until they know what things may look like and what impact to their business, new policy directions, may take.
So I think that's something that is temporary, especially right now. But at some point, people have got to get back to looking at their business and how ultimately they want to figure out how to grow and expand and do the things that creates freight that that will create opportunities for us. So I think that's something that once we can get just this level of uncertainty, that's one more thing that has kind of been potentially holding the economy back, at least for the last quarter or so.
So we get past that and start taking interest rate cuts, take an effect, I think people will get back as long as we have a healthy consumer. We're a consumer-driven economy. And if people are buying things, inventory balances get drawn down. And there's got to be replenishment at some point. And so we feel like that inventory scale has been drawn down. And once we sort of renormalize, if you will, we'd expect that we'll be able to pick up quite a bit of freight.

Jon Chappell

Thanks, Adam.

Operator

Ken Hoexter, Bank of America.

Ken Hoexter

Hey, good morning. So Adam and Marty, it sounds like a consistent top line, but fixed costs are starting to run. Is there anything you can or want to do at this point to cut those costs, maybe shed some excess capacity? It seems like that's bearing down on the industry. And just to clarify your OR comment, was that 300 to 350 basis points sequential deterioration? So you're talking about a 75.5 to 76 type of number for the fourth quarter?

Adam Satterfield

Yes, that's correct, Ken. That was the sequential guidance from the report of that range. But look, we're taking action every day. And we keep our belts tight year in and year out, in good times and bad. I think that if you don't know how to manage cost, if you don't manage cost in good times, you probably don't know where to start when times are tough. And I think that's a lesson I learned years ago. So that's an ongoing focus for us and our team.
We stay on top and have metrics from a productivity standpoint that we're always staying on top of. And our team's been very effective this year in that regard, especially when you've got a lack of density in the system and we've expanded the system a little bit, opening five or six terminals this year. So in the third quarter especially, we had an improvement in our platform shipments per hour. We had an improvement in our pickup delivery shipments per hour, so some improvements there in the third quarter despite the volume weakness.
Our load factor from a line haul standpoint is -- continue to face some pressure, but again, that's volume weakness and it's pretty much -- was down in alignment with the decrease in weight for shipment was. So it's not atypical to see that type of performance. But to us, the most important thing is to keep giving service and running our schedules.
And that's why in slower periods, it can create a little bit of a cost headwind for us. But we think it's more important to keep giving service now than ever. And so that certainly has supported the value proposition over time. With respect to our overhead cost, yes, those have been about $300 million to $305 million each quarter this year. And we look at ways and control discretionary spending. I think that in regards to cutting back on capacity, we want to keep our eye out for the long term.
And we still believe in the fact that we've got a long runway for growth ahead, and that was why we expanded and executed on a CapEx plan like we did this year. Probably, we'll cut back, would expect, cut back our capital expenditures into next year and grow into some of this capacity that we have. But we will look to continue to add to the network over time just due to the confidence that we have and what our market share potential can be but probably tighten up our fleet and do some other things like that will help with cost as we go forward.
But the biggest thing will just be getting back to revenue growth. And when we think about and you look at historical performance, whenever we do get into an upswing, we've had some significant revenue growth years. And it's usually two years coming out of a down cycle. And whether you look at 2010, 2011, 2017, 2018, 2021, 2022, that's going to be where this investment through the cycle pays the biggest dividends for us.
So if we get back to having a stronger economy and get back to the market share out performance like we've seen in the past, I feel really good about where our operating ratio is today and where it can get to with respect to those overhead charges scaling back down to where they've been as a percent of revenue. We're about five operating points. Overhead cost is a percent of revenue higher than where we were say back in 2022. So there's a lot of opportunity to get us right back on path to achieve that sub 70 annual operating ratio goal that we still have.

Ken Hoexter

Great. Thanks. I appreciate the fact.

Operator

Ravi Shanker, Morgan Stanley.

Ravi Shanker

This morning. They want I can share a few more details on your thoughts on this last year survey. Our I mean, you have long said that you're not yours that the others are closing the gap as much to utilize as much as maybe the narrative is out there. I'm going to see some of that and the results as well. But is there a risk that if they're not building up on service, they can maybe get more competitive on price for our business. Just take time for that service, the appetite was that was what do you think happens from here?

Adam Satterfield

You know, I think that's a question for the other carriers. And now I don't know what their strategies are, note what and that's why we are pleased with the results this year and that that that sizable gap between our performance and the others was maintained. And now we're not going to sit around and rest on our laurels, though, we're going to continue to look for ways that we can get better. And like Mark said earlier, there's more than just to service them just picking up and delivering freight on time. And so 28 different attributes that mass-tier measures. And we I want to be the best in each of those. And so we'll keep working hard to deliver solutions for for our customers. And so now we've had us have had a proven strategy that has worked for many, many years. And we want to keep that model going and keep producing the same type of profitable growth and shareholder value that executing on this, the same long-term strategic plan produce for us over think it continues to work in the future and whatever temporary decisions with other case make. We've dealt with it for years, and I think it's something we'll continue to be able to work against as we go forward. Third.

Operator

Chris Wetherbee, Wells Fargo. Please go ahead.

Chris Wetherbee

Hey, thanks. Good morning, Cobham. Adam asked about the relationship between showed an LTL that your comments about 3PLs is pretty interesting. We've historically seen your share move back and forth. But I guess through this cycle, it seems like maybe more share than normal has moved back to truckload. And obviously, the pricing gains, I think, between LTL and TL as maybe as wide as it's been in terms of the relative price. I guess, does that change anything through the next up cycle? Or do you think it doesn't really take a significant upturn in truckload to be able to push volume back into LTR Audigy? You mentioned that you saw a little bit about what's happening in the third quarter. Just kind of curious how you think about that relationship these days?

Adam Satterfield

Yes. I think that obviously last year was very unusual with Washington and help support the truckload world gets pretty volatile with respect to the volumes and pricing and so forth. And I mean, I think it's because of how fragmented that is industry is. And so back to some freight opportunity and you have been on the one hand, customers has had to get their freight moved as well. And you follow this hall and 50,000 shipments per day picking up delayed shipments per day and that freight had to go somewhere it putting it went to a lot of the and in LTL carriers. But much of that I felt like went into the truckload world as well. And we've heard people talking about consolidating shipments that they could use and truckload for zone skipping and doing some different things to try to take advantage of that lower rate environment at the end of the day. Shipment is less than £10,000. It makes more sense to be in the LTL world. And I think that that freight will come back to us in due time that those truckload carriers don't like multi stops or they can charge a stockpile fee for it. But that really makes sense from the line to really go for me to be with a full trailer. So I think that freight does probably swing back into the the LTO world a little more aggressively than than what we've seen through prior cycles. When I looked at it overall, though, the data that we get on the universe LTL shipments are down, tonnage is down about 15, the peak in the second quarter 2021. So some of that was economic loss. But they I think some of it is not that we've seen and heard about as well. So I think that whenever that kind of wave starts coming back in, I think that will be something that will be the good opportunity for us. But simply but then indirectly as well, it usually is going to other competitors and those competitors end up having service issues with existing customers and many of those customers come to us as well. So I think that whenever we see this cycle and flow section, I think we've got multiple fronts that that should help us from a volume standpoint.

Chris Wetherbee

Got it. Thank you.

Operator

Brian Ossenbeck, JPMorgan. Please go ahead.

Brian Ossenbeck

Think of mining is taking the question clarification, did you see any impact from the hurricanes on the network if there are some of your customers and should that start to pick back up here? In the fourth quarter and then looking into next year, the way to look at pricing, I guess the interim FDA is looking at making some changes to the class system has come or dimensional based. It's to the effect of middle of next year. And have you gotten any early comments on that in terms of implications for yourselves for the industry and perhaps the shippers? Thank you.

Adam Satterfield

Yes, we definitely had some revenue loss related to the hurricane. And operationally, it presents some challenges as well. We were initially pleased that all of our employees got through day from everything we understand from a health standpoint as well as property standpoint, our network was fine as well. I think we were lucky in the sense of none of our properties really suffered any significant damage. We were down for a bit, which is typical when you have big major storms like that moves through, but have recovered since nicely there. There will be some ongoing disruption operationally, though, with some of the interstate systems in western North Carolina, now we'll continue to perhaps up to a year where some of those roadways or repaired. So that's something that our operating team. It does a phenomenal job, right whole management team of looking and figuring out how we need to rework the system to make sure that we've got freight that sometimes picked up in eastern North Carolina go into California. And any point in between we get that freight move seamlessly and within our service standards. So pleased with respect to how the team responded to the challenges from from those storms that came through. And remind me again, what was the second part of the question? Yes, at some looking at the NMA, how they were looking at some changes for the class system from mid 2025. Just thoughts on that, but I think a good opportunity for us. We are ready dimension. We've got dimensioners most of our major service centers, and we're already dimensioning probably 75% of our freight today. So that already set up to be able to effectively accommodate. So we'll continue to work with customers through those changes that got delayed a little bit into Connect. That's something that we'll be able to handle and may provide another strategic advantage for us. Some of our competitors.

Operator

Ari Rosa, Citigroup.

Ari Rosa

Hi, Adam Martin. Jack, I'm just curious your thoughts on the buyback. I it's up quite a bit from last year. You still have a fairly modest dividend that understand yield, and it looks like you're obviously directing most of your capital towards share buyback as opposed to the dividend. I'm just curious what the logic is for favoring the buyback or dividend? And is there any indication that management for essentially you're saying that paper prices under about it?

Adam Satterfield

Yes, with the buyback was the first type of capital turn program that we started back in 2014. And that was when our cash flow model was changing. And we were generation. And and we still look today for the first use of cash would be for reinvestment in the Company with uninvested capital that we have at 30%. But secondly, would be the buybacks. And that was, as I said, what we started with . And then we implemented the dividend program in 2017, nailed down now all their respective request, if you will, and preferences of different shareholders. But the buyback is obviously a tax efficient means and provides a lot of flexibility with respect to returning Capital one. We still feel like we've got quite a bit of investment ahead of us, and they have origin still spending 10% to 15% of our revenues on capital expenditures every year. But having that flexibility, that allows us to step that CapEx number up meaningfully if we needed to based on what volume demands were and market share trends continued to be. But Tom But yes, we in the second quarter was really when we speak the most on the buyback this year and in some of that was just due to the stock weakness. We generally are pretty consistent quarter-in and quarter-out, but sort of take a grid based approach with the consistent. And but we make and buy by more than the stocks lower and less when it's high higher, but consistently returning capital. But then we'll step as need be when we see some some big weakness like we did in the second quarter. And we ended up spending over $500 million in that period. And that was consistent with what we did back in 2022 as well. I was under pressure, and we spent 1.3 that year on the buyback program. So that would be what our strategy going forward. We'll always be looking at it. We forecast out what our cash flow from operations and what we think the capital needs for CapEx would look like and looked at what the fixed dividend is. And then that balance becomes somewhat of a target to spend on each year. But some years may be less and some years more like what percent this year.

Ari Rosa

Thanks.

Operator

Stephanie Moore, Jefferies.

Stephanie Moore

Hi, good morning. Thank you. All right. I was hoping you could maybe shed some light on a potential second haul freight upside. So just kind of thinking through the dynamics, obviously, with truckload, we talked about in the same pricing as a soft, but I think that's largely capacity driven not so much demand on the LTL front, I think when we bring it down, but it also seems to be down from pretty high COVID comps, the deferral and obviously, bankruptcy at the yellow. So as we kind of think about this eventual upcycle, what evidence are kind of are you seeing? Are you thinking suggests that we actually see kind of inflection or above average volume growth? Or are we simply just kind of returning to I'm kind of normal trend line in demand?

Adam Satterfield

Yes. I think weight per shipment is generally one of the first things that we would start seeing. That's something that we've been down at historical lows with our weight per shipment down below 1,500 lbs. Now we've been as high as 1,600 lbs. in our past. And so we start seeing increase in weight per shipment. Generally that's over our customers' product are picking up. And so there's more widgets on every shale and that eventually there will be sufficient quantities to where that turns into multiple shipments. And so you start seeing it here, but that's usually the first indicator is on the weight side.

Stephanie Moore

Got it. So I guess you're saying is, yes, you do believe that they should see some reacceleration here.

Adam Satterfield

And this isn't just about multiyear, not my patient patent. But I think that you have for sure, we've been in a a longer selling any of us ever anticipated only when we go through a down period is three to four quarters into now for so long is probably somewhat skewed, as you mentioned, by COVID, creating a lot of acceleration of and we grew $1 billion for 2021 and another $1 billion of revenue in 2022. So maybe now things we've gone through a longer slower cycle after seeing a bit later. But like I mentioned, I think that's it. We're down. The industry is down about 15% from second quarter two on the industry. If you go back to oh nine was on a pretty consistent growth path from oh nine to 21. And ATA continues to suggest that there's growth opportunities for LTL and fully that as well. And we've seen the trends developing over time with e-commerce, balanced supply chains. We continue to see nearshoring and reshoring activities that creates a lot of freight that opportunity for LTL. And so we've benefited from that over time. We would expect that both the industry and ourselves will benefit from those trends. So I think we've got to come out of the ditch and we will, based on all the feedback that we have from costs and we are continuing those comps. And so I think we get right back to some normalization, and then we'll see that the industry continues to grow from there, and we'd expect that our market share will continue to grow as well. And we've increased our market share. We were at about 6% share back in 2012, and we're at 12% to 13% today. So we've been able to significantly increase share and been the biggest market share winner really over the last 10 years years. And services, what wins here you've got to have capacity and there's been a lot of talk about the shift in capacity of from the yellow service centers that have been reallocated, but those facilities have been reallocated thus far. But once demand recovers, I think that you're going to see a more capacity constrained and our service winning share gain for us into the future. So that's why we're committed to executing on our CapEx programs and trying to invest ahead of that curve. And and where were they are right now, we've got about 30% excess capacity. That's more than we typically would have in our service center network. But the for that, what you confidence that once we start drilling again, really strong incremental margins that we've been over produce in the past and and produce a lot of profitable growth. But it's going to take that inflection in the US before we can get back to seeing those strong revenue growth trends and an operating ratio improvement.

Stephanie Moore

And sorry, just animals with operating days in 4Q, you outlined?

Adam Satterfield

Yes, we have 62 days this year versus 61 in the fourth quarter of 23.

Operator

Bascome Majors, Susquehanna.

Bascome Majors

As we think about the profitability of the business as we get into next year in a world that's been a better seasonal and a lot of time sub-seasonal from a demand standpoint for quite some earlier. Can you level set what your view of a seasonal margin and performance would be in the first quarter and even the second quarter? Just so we can go check our models. Thank you.

Adam Satterfield

Yes, the first quarter is typically 100 basis points increase can. But again, that's if there's no real major adjustment from an insurance standpoint, the actuarial adjustments that we go through in 4Q. So kind of normalizing for that. And then the second quarter where we get the improvement occur, recalibrating generally in our operating ratio typically improves 400 to 450 basis points on the second quarter versus the first. And obviously, when we get into a period where you have, I'm not that I'm calling this now. But if we get into an environment to if you go back into three years like a 2017, for example, where you get above sequential revenue growth has been gives more opportunity to put it to. The bottom line is the way our cost structure is put out now of new in the most recent quarter. In the third quarter, our direct costs as a percent of revenue were about 52% and our overhead calls for between 20% and 21%. So it's all that leverage that we have on those fixed costs. When you get into that revenue growth environment that allows that operating ratio Sling generally and outperforming a normal seasonality through will when you're in the 1st year or two the upcycle.

Operator

Tom Wadewitz, UBS.

Tom Wadewitz

Great. Thank you. So I wanted to see if you could offer some thoughts on kind of where you think pricing bottoms and then if fleet inflations maybe act acting differently this cycle, unlike that's been been a source of some pressure on margin. So you see shipments stabilized we go into next year. Do you see about we need 4%. We just need to keep getting at 4% in order to stay flat on margin. If again, if backdrop is a stability, do you get any help on inflation easing or is it like I know I didn't just how you think about, you know, maybe it's like a broad question or, you know what you put you think about price relative to maybe what you got in prior down cycles? Thank you.

Adam Satterfield

Feel that that's a good observation, Tom. I mean that that variance in revenue per shipment and cost per shipment over time, we've targeted 100 to 150 basis points of spread of price over cost support the investment in capacity and technology and so forth. And that's effectively reconciled with what our long-term annual improvement has been as well. And I kind of what I was just saying earlier was that that 1st year of recovery, you get the benefit of the volumes coming in. And so it helps you from a cost per shipment standpoint on the from a overhead side, you start getting all that leverage. But this year we had started out after seeing some inflation on cost per shipment. Our target for this year was to have to see cost per shipment core calls for shipping inflation in the 4% to 4.5% range. And then I think that's where we'll end that year. And so we're kind of back to normal, if you will. Our longer-term average has been 3.5% to 4%. So the volume weakness has kept us of a tad north of what that longer term trend has been, but we'll continue to execute on a bid by bid basis. I mean, our philosophy is to look at each customer's is a their bids come due and look at what the opportunities are and the profitability of the account in and trying to ascertain increases that will offset our cost inflation. And so that those conversations that we have and that's what we'd expect to continue to have whatever years of the up cycle starts to the benefit. And then how we usually have really strong performance in all new customers that are coming aboard, San Angelo, drive that revenue yield trend a little bit stronger as well. And so those will be things that will work for whenever we do eventually get into that next part of the close of the cycle where we're actually seeing some increases. But I don't get to your question about the floor. We we look at every quarter, just like we've done this year as we put your mix is constant, we're looking for increase and because our call start going down. And so we're looking to get increases in. I mean that's what we'd expect to see sequentially quarter after quarter.

Tom Wadewitz

Do you see a reason to think inflations different kind of next year versus what you saw this year?

Adam Satterfield

So I think that we've got the opportunity. I mean, again, just looking at on a per-share basis, if we can get into some volume recovery, that's going to be the best thing that that will happen. I mean, long term operating ratio improvement is produced by two main ingredients didn't yield. So we've lacked on the density side. We've been consistent with our yield performance the last couple of years, and that has what has supported our margins. But once we can get the contribution from density coming through the network, that should keep some of those costs low. And it comes through, as I was referencing earlier, our teams done a phenomenal job of managing through in a lower density environment, keeping our Saphion and keeping those direct cost. I mean, in the first and second quarter, we had improvement in our direct cost as a percent of revenue. So we've done a great job managing through this down part of the cycle, but that's going to create a lot of opportunity. If you've got higher weight per shipment, that's going to be more revenue per shipment performance when the cost the pickup is probably the same. The cost to move across the dock is consistent as well. So those are all those factors that will go in and what we generally see the cost per shipment, can you kind of outperforming the longer-term average, if you will, when we get into those other parts of the of the cycle and they offset we've had tremendous inflation over the last couple of years, 65% of our costs are salaries, wages and benefits. So that's the biggest driver. But as we run an efficient network and can eliminate miles from our system now that's time and that's fuel. But we've had tremendous inflation with the cost of new equipment, maintenance and repair costs on a per-mile basis. I know you've been a significantly we've managed that a little better this year that insurance cost in our industry and costs have been double digits. I mean, this is something that all here figures are facing and we're not immune to it. But we've been fortunate to have operating efficiencies to offset many of these higher inflationary items that we've seen when you go line by line on the income statement.

Tom Wadewitz

Right. Okay. Thank you.

Operator

Bruce Chan, Stifel.

Bruce Chan

Guys. I just want to wrap up the weight per shipment discussion here. Marty, you mentioned that you were getting fewer seats per customer. Is your sense that that's all related to market softness? You're seeing any pockets of others, maybe gunning for customer wallet share, especially as they've been improving service? And then maybe this is a little bit in the weeds, but any comments on sales force incentives that may be aimed at dumb business from existing customers versus new accounts that you can share with? Thanks.

Marty Freeman

Here you have the of the reduction in weight per shipment is definitely I'd characterize this ship, unless, you know, boxes on whiskey. And so we see that, as Adam said, we were positive data, but let me ask maybe the fourth and first quarter as Christmas comes around. And Scott, I get quite a bit a holiday shipping coming up. So we are cautiously optimistic for that. And as far as sales incentives, weekly, yes, it's on a quarterly basis based on revenue growth, operating ratios and then service. So we paid out in the last may look to pay out in this quarter. So they're they're incented desk in a pretty well to increase their business, and that's their main goal. So that confidence in our sales team to go out and sell our brand and gain additional shipments.

Bruce Chan

Great. Thank you.

Operator

Jeff Kauffman, Vertical Research.

Jeff Kauffman

Thank you very much and congratulations on the mass VO. accolades. I think all the good questions have been asked at this point, but I'd like to drill down a little bit on tonnage. We do follow railroads industries where they say, Okay. Well, this part of the economy was a little weaker this quarter. This part of the economy. I'm a little stronger. I'm assuming that the truckload multi-stop is more of our retail serial products. But if you look across your customer base, I know your comment was mixes consistent, but some customers ship heavier study, customers ship lighter, stuff like that. Where are you seeing pockets of weaker than expected activity and your customer base, where are you seeing pockets of stronger than expected activity?

Adam Satterfield

Yes. No, I don't know that when we get very granular with how we look at our business and slice it, dice it by SIC codes that generally just tried to group them generally to together with industrial and retail. But I don't know that we've seen anything that has now has varied greatly from what our expectations would be. I think that like I mentioned earlier, the industrial performance has been weaker last year. It was probably holding up a little bit better and some of them than what I assume trend would have indicated. But I think just some of that we were continuing to win new customers and we were getting some of the new customer activity and we're continuing to get new customers each and every month, we look at our reporting and business that we've won or that we've lost and we're continuing to win new accounts. And so maybe some of those have been more on the retail side. And that's supported why retail is outperform. But we've got certain commodities that we haul, but that obviously are going to stay a few are hauling food products . Those are going to be consistent through the cycle pharmaceuticals, things of that nature. And so yes, we've seen pretty consistent performance related to what we'd expect. Probably the thing that has been most positive has been the consistency of our market share and have been really pleased that we've not lost really any customer our accounts. We've not lost lanes from customers. So we've been able to keep those relationships intact and we're primed and ready whenever those customers call in a Phase two shipments per week once the orders for their products pick up those to turn into three to four to [$5 million to $10 million] and now of a sudden instead of making the stock or drop in the trailer and getting the full trial vote of outbound product from a manufacturing account, that's kind of how this thing will take back off again when we start seeing an increase just order activity, but it's going to take some time. But I think to get there. But we're we're primed and position. We've had continued to stay engaged. C-store sales team does with with our customers and with their needs, are we're in the midst right now going through We this time a year where we build a very detailed bottoms up forecast to help develop what are our strategic planning process to prepare for next year and what that will look like in those newer. So we're very engaged with our customers right now is to understand what their needs from us will look like as we go into 2025. But of a business like COVID kind of in response to multiple questions, there's we're not out of the woods yet, so to speak, but but there are some reasons to be optimistic based on what our trends have looked like thus far into October being closer to the seasonality. With respect to the tonnage, October versus September. That's the first time that we've been able to say that for some time and to see an increase in witness, those are all positive indicators. And now now for what may come for the rest of this fourth quarter and then we'll see what next year holds.

Jeff Kauffman

Okay. Thank you for that answer, and that's my one.

Operator

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

Adam Satterfield

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

Operator

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