Companies like Old Dominion Freight Line (ODFL) need to make substantial investments in handling facilities, technology, and specialized vehicles to support their business and logistics networks. For 2016, Old Dominion expects an investment of $440 million to acquire capital assets.
ODFL’s capital expenditure
In the past nine years, Old Dominion has spent an average of 13.3% of its revenue on acquiring capital assets. The company primarily funds its capital investments through cash flows from operations, cash on hand, and its senior unsecured revolving credit facility.
ODFL has set aside ~$180 million for the purchase of service center facilities, the construction of new service center facilities, and the expansion of existing service center facilities. It has also allocated $220 million for the purchase of tractors and trailers and $40 million toward technology and other investments. Notably, the $440 million in proposed capital spending in 2016 reflects a fall of 4.8% from that of 2015.
In the past five years, the company has steadily increased its spending on the procurement of tractors and trailers. This was primarily due to the volume of equipment scheduled for replacement during those years and equipment needs for anticipated growth.
In May 2016, Old Dominion opened a service center in Kings Mountain, North Carolina, due to the rapid growth in the Charlotte market. This is an expansion of the Charlotte service center. In the same month, the company added another service center at Brownsburg, Indiana. This location allows ODFL to add 50 more doors in the future. In April 2016, the company started a new service center at Lufkin, Texas.
In the same month, the company added another service center at Brownsburg, Indiana. This location allows ODFL to add 50 more doors in the future. In April 2016, the company started a new service center at Lufkin, Texas.
Peer group capital expenditure levels
All the LTL (less-than-truckload) carriers need to invest heavily to keep abreast in a fiercely competitive market in the US. Old Dominion spent a whopping 14.8% on the acquisition of capital assets in 2015. A closer look at the peer group’s capital spending based on the percentage of revenue for the same year reveals the following levels:
- United Parcel Service (UPS)—4.3%
- FedEx (FDX)—8%
- XPO Logistics (XPO)—3.2%
- YRC Worldwide (YRCW)—2.2%
- J.B. Hunt Transport (JBHT)—11.7%
- Saia (SAIA)—7.1%
- ArcBest (ARCB)—2.9%
Transportation and logistics companies make up part of the industrial sector. Railroads and airlines make up ~5.2% and ~4.8%, respectively, of the portfolio holdings of the iShares US Industrials ETF (IYJ).
Now let’s explore the debt levels of Old Dominion and its peers.