ArcBest Corp (ARCB) 2006 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the Arkansas Best Corporation first-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Thank you. Mr. David Humphrey, you may begin your conference.

Welcome to the Arkansas Best Corporation first-quarter 2006 earnings conference call. We will have a short discussion of the first-quarter results, then we will open up for a question-and-answer period. Our presentation this morning will be done by Mr. Robert A. Davidson, President and Chief Executive Officer of Arkansas Best Corporation, and Ms. Judy R. McReynolds, Senior Vice President, Chief Financial Officer and Treasurer of Arkansas Best Corporation. We thank you for joining us today.

In order to help you better understand Arkansas Best Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements by their very nature are subject to uncertainties and risks. For a more complete discussion of factors that could affect the Company's future results, please refer to the forward-looking statements section of the Company's earnings press release and the Company's most recent SEC public filings.

We will now begin with Ms. McReynolds.

Good morning. I would like to begin by covering the total Company's results for the quarter. Our first-quarter revenues were $450.6 million, up 8% per day from last year's first quarter. Our operating income and earnings figures were impacted by a settlement accounting charge that relates to distributions from our supplemental pension plan. The pretax charge was $8.4 million, and the impact on earnings per share was $0.20 a share. Our first-quarter operating income, excluding the settlement accounting charge, was $16.8 million compared to $17.4 million in last year's first quarter. Our first-quarter net income, if you exclude the settlement accounting charge, was $11.2 million compared to $10.5 million in last year's first quarter, or about a $700,000 improvement.

Our first-quarter diluted earnings per share, excluding the settlement accounting charge of $0.20 a share, was $0.44 and this was slightly more than the $0.41 we reported in last year's first quarter. Our after-tax return on capital employed for the 12 months ended March 31st was 19.5%.

I would like to highlight some of the more significant items from our cash-flow statement for you. Our operating cash flows for the first quarter were $22.7 million. We had net purchases of property and equipment of $17.4 million. We purchased treasury stock for $4.3 million, and we paid dividends on our common stock, and that amounted to $3.8 million. We had proceeds from the issuance of common stock that is really the proceeds from our stock option exercises of $3.3 million, and our cash and short-term investments balance at the end of the quarter was $129.2 million, which was an increase of about $2 million during the quarter.

To give you a capital expenditures update, we continue to expect our 2006 net capital expenditures to be in the range of 125 to $145 million. Through the first quarter, we are about $30 million behind on our capital expenditure plans. ABF has experienced some delays in the delivery of its tractors and trailers, but we feel like we are now back on track, and we should catch up on those in the second quarter. There have also been some delays in the real estate area because of permit approvals, but these dollars are minor.

In the first quarter, ABF was adversely impacted by additional expense associated with Workers' Comp claims. Our first-quarter expense was higher by $2.5 million, due to a change in ABF development factors that are used to project expected future costs of our existing claims. Since 1999, ABF has used 10 years of claims history to calculate the claims development factors. However, this year's review indicated that ABF was experiencing some claims development beyond ten years, and that this development should be considered in the factors. The additional expense associated with this change increased ABF's operating ratio by 0.6 operating points and impacted our earnings per share by $0.06 a share.

A couple of items for 2006 that we wanted to provide to you is that, beginning in the first quarter, we are expensing stock options under the new stock-based compensation rules. The Company issued stock options up until 2004, and has granted restricted stock since that time. Our first-quarter expense for stock options and restricted stock grants was $1.1 million or $0.03 a share. We had no expense from stock options or restricted stock in last year's first quarter. For the full year of 2006, we estimate this expense to be $4.3 million or $0.10 a share. In 2005, we had restricted stock expense that was about $840,000.

Arkansas Best's non-union pension expense -- we expect that to be about $11.6 million for the full year, and that compares to about $10 million for 2005. We expect this expense to occur evenly throughout the year. We have outlined the assumptions that we used to develop this expense in the earnings release. At year end, this plan was overfunded on an accumulated benefit obligation basis by about 7 million, so we are in good shape there. This plan was closed to new entrants at the end of the year, and new employees hired at January 1, 2006 and after are covered by a defined contribution plan.

Just as a reminder, we anticipate having an additional settlement accounting charge related to some remaining supplemental pension benefits that will be paid out in the third quarter. The pretax charges we expect to be in the range of 1 to $1.5 million or about between $0.02 and $0.04 a share. In closing on this issue, I would like to mention that, effective December 16th, Arkansas Best's supplemental pension plan was closed to new participants, and new executive officers are participants in the three-year performance-based plan.

And with that, I'll turn it over to Bob to cover ABF and Clipper.

Thank you, Judy. When you look beyond the Workers' Compensation adjustment and the settlement accounting charge, we're pleased but not satisfied with ABF's first quarter. I certainly don't want to say that everything was good except for the things that were bad, but these two items were certainly extraordinary and presumably nonrecurring.

In the first quarter, revenue was $414 million; that's up 7.7% per day. Before the fuel surcharge, revenue was up 4.5%. First-quarter operating income before the settlement accounting charge was $16.8 million, as compared to $17.2 million in the first quarter of '05. First-quarter '06 operating ratio before the settlement accounting charge was a 95.9 compared to a 95.5 in the first quarter of '05.

As Judy mentioned, ABF's first-quarter results were impacted by a change in the Workers' Compensation [loss] development factors. This change in calculation procedure caused ABF's first-quarter Workers' Comp costs to increase by $2.5 million, and it added 0.6% to ABF's operating ratio.

Over the last five years, Workers' Compensation expenses averaged 1.87% of revenue, and during the last ten years the average has been 1.81%. Last year and the full year, the Workers' Compensation costs were 1.51%, which included some one-time reductions. So this level of 1.5% may not be sustainable, but I don't see why we can't consistently reach the average of about 1.85%, which is a full point lower than the first-quarter '06 level of 2.8.

Looking at tonnage, in the first quarter of this year, total pounds per day were up 4.4%. As you know, Easter was in the first quarter last year and in the second quarter this year, so if you adjust for the Easter effect, business effectively increased a little over 3% in the first quarter. Like some other carriers, we saw business stronger in January, a smaller increase in February and then a return to stronger growth in March. In April, ABF's tonnage has increased about 1.5% above last year, but of course you have to adjust the other way for Easter. And when you do that, the April tonnage is up about 4.5% so far this month.

Total billed revenue per hundredweight in the first quarter was up 4.1% with the fuel surcharge and was up 1.1% without the fuel surcharge. On the surface, this number might sound a little low, but during the first quarter of 2006, ABF continued to experience some significant and positive freight profile changes that dampened this nominal revenue per hundredweight. First, ABF's length of haul in the first quarter was 1,171 miles versus 1,193 miles in the first quarter of last year. That's a decrease of 1.8%. ABF continues to grow faster in the shorter lanes. For instance, tonnage moving in lanes 800 miles or less represented 37.8% of total tonnage this quarter, compared to 36% of total tonnage in the first quarter of last year.

Secondly, ABF's total weight per shipment in the first quarter was 1,260 pounds versus 1,218 in the first quarter of last year; that's an increase of 3.4%, which is pretty significant. You may recall that it was 1,208 pounds in the first quarter of '04 and 1,167 pounds in the first quarter of '03. Our average shipment size continues to increase, and we view that as a good thing.

In addition, ABF experienced some slight profile changes in commodity density, which increased by 0.7%, and commodity classification, which dropped by 0.4% in the first quarter. These changes reduced the revenue per hundredweight, but most of them represented neutral or even positive changes in the quality of the freight and its profitability. While a review of the revenue per hundredweight is reasonable and it's the only yield surrogate that's available to an outsider, the ultimate comparative metric, of course, is profitability.

As one point of reference, ABF's pricing renewals on contract and deferred pricing agreements were completed in the first quarter, averaged 3.3%. Of course, these are our most price-sensitive customers. ABF initiated a general rate increase of 5.9%, effective April the 3rd. That was seven weeks earlier than last year, but it is consistent with the actions of most other carriers. During the first 18 days of the month, our bottom-line retention has been on target.

We're pleased that our productivity, as measured by total weight per labor hour, increased 2.4% during the first quarter. This improvement is primarily due to the larger increase in total weight per shipment. As you know, larger shipments require more labor, but the weight per hour tends to be less.

Looking at Clipper, Clipper had a great quarter. In a time when the railroads are raising prices and creating administrative expense and providing poor service, Clipper has done a good job. In particular, the management and sales force of Clipper is proving to be nimble in reacting to market changes, including truckload capacity issues. In the first quarter, the revenue was $25.7 million; that's up 9.5% per day. Operating income was 0.5 million, compared to a small loss in the first quarter of '05. And their operating ratio was 98 compared to 100.1 in the first quarter of '05.

And with that, we will open floor for questions, David.

I think we are ready for some questions.

(OPERATOR INSTRUCTIONS). Edward Wolfe of Bear Stearns.

First of all, just a quick one, Judy. What was the 932,000 other net?

That was really a combination of two things. One, part of that related to a gain that we had on some life insurance policies that related to a death of the former Carolina officer. And then, the other piece related to just gains that we have on cash surrender value for the [policies] that we hold there.

So neither of those are kind of things that go forward, though, right?

Well, you know, the cash surrender value gains -- a lot of those policies are invested somewhat like you would invest pension plan assets, and so those could be positive, depending on the market, or negative.

And what percentage of the 932 is that? Is that about half of it?

About half. That's about right.

And just to clean up, the Workers' Compensation impact -- should that continue going forward the rest of the year?

No, that's an adjustment that related purely to this update of the development factors in the first quarter.

So another way of saying that is, give or take, your salaries line was 2.5 million worse that it should be viewed, going forward?

Yes. Certainly, this adjustment related to making a change in the data that we used to calculate the factors, and that's not something we're going to continue to do for the rest of year. It's an annual update.

And it's in the salaries and wages line, though?

Yes.

Bob, you mentioned that you have to adjust for the Easter effect and tonnage is a little stronger. How do you do that? What does that mean? Is that just adding an operating day back, or is there more to it than that?

We look at history of the last five or ten years. We try to find comparable month. And it's not a full day you add back. What you do is you just look at your average experience and try to adjust for it.

It feels like your tonnage growth is actually better than it's been for a little while. And you said pricing feels relatively firm although, net of fuel, it has decelerated. Should we expect you, in that environment, to still have margin improvement in front of you? Or have we gotten to about as good as it can get for this cycle?

I guess I don't understand the question.

Well, you had down year-over-year margin, [OR] at ABF for the first time in a while. And there are certainly these one-timers. If you take them away, then it was fairly flat. Yet the tonnage feels better than we have seen. And so the question is, why didn't we see a little more leverage in the margin, I guess, going forward? Could we still see margin improvement from here, year over year, or should we think about it in terms of flattening out on the margin side?

Well, if you take away those two factors, you see something better than flat; you actually see a little bit of improvement, both in operating income and in the operating ratio. And I think that reflects some of the operating leverage that you're talking about.

So 30 basis points year over year is kind of what we should think about, similar to this quarter, net of those two things going forward? Is that as fair as any to project out?

Well, we don't, as you know, give guidance. I won't predict the future.

Can you talk a little bit about the pricing market in long haul versus short haul? Are there certain regions that feel more competitive, certain distances versus others that feel better or less, pricing-wise?

The big change, of course, is in our length of haul. We are growing faster in the shorter lanes, but if you look at across the country, I don't see any pockets of pricing activity. As we've said for several quarters in a row, it's plenty competitive out there, but it's reasonable. We find lots of customers who are willing to consider value and not just price. I think the environment is pretty similar to what you have seen over the last couple of years.

And does it feel pretty similar in the one and two-day markets as it does in the four and five-day?

We are just growing in the one and two-day markets, and I'm not sure that our experience is representative.

Justin Yagerman, Wachovia Securities.

You had spoken with Ed just before, and you said that you didn't expect the Workers' Comp costs to continue going forward. But are you guys now calculating using 13 years, if you have any more incidents going forward? So do you expect any quarters in this year to have a higher incident rate, and then have to calculate them using this new accounting method?

It's actually not a new accounting method; it's just using more years of data than we used before. Certainly, as you add new claims when they come on, the expectation is that they will cost you a little bit more because you are expecting that maybe they will have a life longer than they did before. But certainly, as those claims come on, the impact on operating income or the significance of that is not going to be nearly as great as what you saw in the first quarter, because we were updating our entire book of business for that change.

So everything is updated now, in other words?

Yes.

You mentioned in your prepared comments that even though you have more labor working on the heavier tonnage, with the weight per shipment having gone up, that wages per hour are slightly lower. And I just actually wouldn't mind if you guys could explain a little bit more on the dynamic there and how that works. Is it just that you're getting more productivity out of your workforce, or how is that?

The comment that I made is that the weight per labor hour actually improved 2.4%, and that is because the average shipment size is up. There's a certain fixed cost in handling freight and then a variable cost in handling freight. So, when your average shipment size goes up, the weight per hour improves, and that's the factor you've seen. Our actual labor rate went up -- I don't have the number in front of me, but it's about what you've seen in previous quarters.

You guys are getting good productivity out of your workforce, in other words?

Yes. That's the bottom-line takeaway, is that we are pleased with the productivity that we see.

When I look at tax rate, just a little housekeeping, it was 50 basis points lower year over year. What should we be modeling going forward for the rest of the year?

You should expect the rest of the year to be consistent with where we were in the first quarter, just in terms of a rate.

So low 39%?

Yes. What is happening there is we have some tax-exempt income that obviously is tax-exempt, and so that helps us on the rate. And so you've seen some improvement in that rate over time.

Where were you guys in the quarter in terms of percentage of rail usage?

About the same as we were in the first quarter of last year. It was 14.7 this year and 14.6 last year.

What was service like, as far as you guys were able to tell?

It varied some by rail carrier, but it was still not acceptable.

You guys are not considering using more than historical norms going forward?

We will continue to use the rail lanes that we feel like the service is competitive and the cost is competitive. As you know, we don't use as much rail as some of the similarly situated carriers. I don't expect that to change. Rail represents somewhat of an overflow valve for us. And so seasonally, you'll see the rail usage increase in the second and particularly the third quarter. But I don't expect it to be like it would be in '04, for instance.

Just one last question, and it refers to Clipper. I'm trying to get an understanding of what an optimized operating ratio looks like for that business. If you guys have any color on that, that would be great, and kind of where you are in terms of improving that business this year -- you know, just generally, what stage you think you are at. Are you halfway there, or do you think you are going to get to those kinds of goals this year?

Keep in mind that Clipper is an asset-light business, so it's not fair to use the same operating ratio standard that you would use on an ABF. Their return on capital employed for the quarter was 15 and change, which is well above what we have set as our minimum acceptable target of 10. So on that basis, they are certainly contributing. I will say that Clipper does not have synergy with the rest of the enterprise, with ABF. It has to stand alone. And on that basis, it needs to be bigger than it is today to contribute to the Company.

But I'll say again, Clipper's management and salespeople have done a great job in a real tough environment. They have three operating businesses. All three of those businesses are growing, and I want to take the opportunity to compliment what they have done.

Chad Bruso, Morgan Stanley.

Just a quick question on something you said in your release here. I noticed, when you were talking about your volume trends, you said that you were not satisfied with 4% tonnage trends in the quarter. I guess I was wondering if you would share with us what type of tonnage trends you were expecting or targeting?

I don't think it's a matter of targeting them. I just think that we can grow faster. And I think, as we begin to do a better job of penetrating the regional lanes, we can see larger numbers than we saw.

I guess, just as I think about going forward for the rest of the year, in targeting the regional lanes, would you be disappointed if your tonnage levels were below 4% for the remainder of the year?

I am not going to target a level, but I can tell you that we are setting expectations for our salespeople that are above the levels that we achieved in the first quarter.

And just in terms of the next-day product offering there, I know you said it's not material at this point. But at what point should we expect that to be material or, maybe said differently, at what point should we expect you to roll this out to other regions?

We announced earlier that we expected that to roll out over an 18 to 24-month period, and that still holds, in that timeframe. As you know, in the Northeast, we have a pilot operating at 13 terminals. And the pilot, while it's limited, has certainly met our expectations. Just today, we met with employees and reached agreement to expand that pilot to 52 additional facilities ranging from Maine to South Carolina. That will place this improved flexibility in about a quarter of our terminals, and it will place it across the entire Eastern Seaboard. We are obviously -- [we're about to begin] to expand the next-day product in that area. And again, I won't predict a schedule for success, but we will be at full swing on that product.

On that product offering, are you seeing most or all of the freight that you are getting as new customer wins or new freight from customers that you currently have? Or are you seeing some of your customers that might be shipping a three-day product, upgrading to a two-day product for the same freight?

We have a mix of existing and new customers, but again, the results that we have had in the 13 facilities have not been material for our results. The pilot's been useful in helping us develop administrative procedures to make sure that our operating models work, and to see the impact on our employees who embrace this change with some enthusiasm. So I wouldn't draw any conclusion about the kind of freights or customers we have seen so far.

John Barnes, BB&T Capital Markets.

Could you talk a little bit about just -- give us a little color on the delay in deliveries on the tractors and trailers? I'm just curious there.

Well, you know what we had with both with respect to our tractors and our trailers. As happens in any given year, we have a schedule where we plan the rollout of those. And with just getting the specifications right and getting things rolling, we ended up having that occur a little bit later rather than earlier in the quarter. So you shouldn't draw any -- there's not really anything in terms of conclusions to draw from that.

I just wanted to make sure it wasn't an OEM issue, that you were having trouble getting it from the OEM itself or something like that.

Well, there were two factors that come into play. First of all, there was a short labor stoppage at one of the plants. That's over, and deliveries are back onstream. And secondly, as you know, there's a lot of equipment purchases this year. And those -- the plants are stressed. We are on target. I think we're maybe, this year, a little ahead of where we were last year in deliveries.

Yes, we are. In fact, in terms of the deliveries that we have had, we actually have more equipment earlier this year.

We don't anticipate any problem in getting new equipment in, and particularly in time for our peak season.

And then on the real estate, given your comment about you weren't satisfied with the volume trends being -- if volumes continued at this level, would you rethink some of the real estate plans that you have now? Or are you still catching up a little bit from what has been pretty good growth over the last couple of years?

Real estate is -- it's as lumpy as anything ever is. In real estate, you are looking at which facilities you have more pressure in, and even in a flat year you will be expanding some facilities. So we re-look at the door pressure on our facility constantly. The biggest problem that we have, as you might expect, is simply getting permit approvals. The process is more protracted than we would like, and as I look year after year, our CapEx on facilities seems to drag during the year. And it is due to finding proper facilities or getting the right [improvements]. We are not disappointed with our pace on that.

And then, lastly, I typically think of you guys as being kind of the pricing leader. I don't think there's any other way to look at it. If I match you guys up against anybody else on a revenue per hundredweight or however you want to measure it, you guys typically come out as the most disciplined when it comes to pricing and the most aggressive about raising rates. And with all the fear we heard in the quarter about volumes being light, I think most expected your volumes in the quarter to be down, especially given how strict you are about your pricing discipline.

Can you just give us some insight into the quarter as to why we saw a better balance of both volume growth and price growth this time out of ABFS? We have not historically seen this. Typically, in a weak volume quarter, I have always gotten the impression that you guys would have been better off on price than everybody else, but a little weaker on volume. And this time it looks like you may very well lead the pack or be close to the top on both metrics.

Perhaps we just did a better job this quarter.

Come on, give me something to work with.

Well, I can take doing a better job on the quarter. But there's nothing out there you see -- I just want to make sure I understood your comments. You don't see anybody being irrational in the marketplace on either volume or price, and you are pretty comfortable with the competitive environment the way it is now?

I've made this statement before, and I'll make it again. Our perspective is one of looking at the industry since 1980. And during recent years, this environment is so much more sane than it was in the 15 years after deregulation. There's some humps and bumps occasionally, but by and large, this industry operates rationally.

Could you just give me your just overriding theme in terms of LTL industry capacity? Do you feel like there is an equal balance of supply and demand? Do you feel like there is still pretty tight capacity in the market? And what would your comment be in terms of the additions we have seen announced out of the industry?

To some extent, capacity doesn't have a lot of meaning in our industry. Every LTL carrier out there could haul an additional X% freight within their existing platform, with their existing equipment. There's a lot of expandability in our business. We have the ability to use rail, for instance. So I guess I have to discount the capacity issue and say that there is additional capacity in the industry, but it doesn't cause the participants in the industry to engage in any aggressive pricing.

All right, guys, nice quarter.

Jordan Alliger, Deutsche Bank.

Just wondering, did you see anything in the quarter regarding a so-called inventory destocking by any of the retailers?

Yes, we did. We saw in February our retail business a little softer than it was in January; then we saw a recovery in March. As you know, we probably don't have the exposure to retail that some of our competitors have, but our experience on what we have was consistent with their comment.

And then just another question -- just sort of curious. The volume growth was pretty good in the quarter, and I'm just wondering, can you talk about some of the productivity stats that you had? I know you mentioned one in the press release on total weight per labor hour. I'm just sort of wondering, some of the other key metrics that you guys have talked about in the past, like dock productivity, et cetera. And I'm just curious how that looked.

On a shipment basis, it was -- in other words, shipments per hour -- it was actually off a little bit. But that's to be expected because of the higher weight. I don't have a breakdown in front of me of -- well, I do now -- on bills for street hour was about flat. Yard productivity was flat, bills per dock hour actually was about flat, maybe off a little bit. So I think what you see is that there weren't any surprises either on the dock or the street or the yard. In composite, the shipments per hour were off a little bit. The weight per hour was up by 2.4%.

So these are things that generally should look better as we get into the heavier -- the meat of the shipping season, or how do we think about that?

Sure, but they are seasonal. I'm making comparisons back against the first quarter of last year. So it is, in a sense, seasonally adjusted.

Ken Hoexter, Merrill Lynch.

Judy, I just went to clarify one quick thing on the trailer or tractor delays. Any volume impact, or did you just keep your car and tractors a bit longer to meet whatever demand you were looking to catch?

We had no volume impact from that.

Secondly, Bob, are you seeing Yellow get any defocus from all their acquisitions? Is that causing any of the volumes? Or would you step back and say, this is an industry growth rate that we are benefiting from? Or can you even see or hear from your competitors that they are just shifting freight?

Ken, I don't see any impact. It's impossible to assign our growth to any particular competitor. When Consolidated Freightways went out of business, it was pretty clear where the business came from. But we're always swapping business with other players. I can't assign our growth to any particular carrier.

Again, not looking at a particular carrier, I'm just trying to figure out what you would feel would be the industry's growth rate versus share shifting, just from what -- are you getting it from new customers, more often, or is this just increasing penetration within your existing customers?

Ken, we have got 80,000 customers we do business with -- 25,000 or 30,000 customers in a given year. And there's just a lot of stories in the big city.

And then, similarly, I'm going to ask you another question on the competitive impact. But since UPS has taken over Overnite, I know they are more focused on the regional side. But have you noticed -- I mean, UPS and FedEx, we have seen some pretty aggressive freight additions from the companies. Have you noticed any impact in your business from the rebranding that they have been working on, those two companies?

I notice their numbers, and I don't know what is taking place at UPS. You may have an apples-and-oranges situation when you consider motor cargo. I don't know when they lap that, and also don't know to what extent UPS is shifting freight from their hundredweight program over to their platform. I do understand they may be shifting some volume freight away from Overnite and onto a truckload subsidiary.

But just in general, Ken, what I'll say is that I think the acquisition of Overnite, now UPS Freight (inaudible) UPS will be good for the industry in the same way that the acquisition of American by FedEx proved to be good for that company, but also for the industry.

That's helpful. I was just trying to get a kind of view of the overall kind of market growth. But I just want to stick on your results for a last second here. You did a great job on getting some volume growth, but yet your SG&A expenses -- even if, I guess, you normalize for that Working Comp change -- still seemed to outpace or kind of keep in line with that volume growth. Are there any programs that you are working on to try to pull back the growth of the SG&A line at all?

I think some of the fixed costs we had went higher than I would have liked. I say fixed costs increase; it seems like an oxymoron. And we are working on fixed cost expenses. We think (indiscernible) a little bit -- nothing serious, but it's one of the items we are looking at.

But not something -- you are not putting a line in the sand here and saying this increase was just too much, we need to launch some new focus on this? It's just kind of a gradual --?

We have got a pretty good record of cost control, both in scaling our labor expenses and also in controlling our fixed costs. Our folks are pretty good, and we don't need to launch a new program for cost control. It's something we do every month of every year.

David Ross, Stifel Nicolaus.

Can you talk a little bit about the Northeast business again -- use of premium service employees up there? Are those new employees you brought on as premium service employees to do the regional product, or are they old converted teamsters from those terminals that kind of learned new tricks and are helping you out there?

It's a little of each, but the way it really works is we give our employees the chance to do those jobs if they want to, and what's kind of rewarding is at almost every terminal, the existing employees have said I want to do that job, which tells you something about our employees and the kind of work it is. But then we replace those workers with new folks that we hire, so the expansion in these facilities does represent new positions in the terminal.

Is there a particular reason you started in the Northeast? Was that just because of the closures of Red Star and APA and others that maybe provided some labor or freight opportunities?

Two reasons -- one, there's a lot of freight density in the Northeast, particularly in the next-day product. And the second reason is that our employees in the Northeast were particularly enthusiastic about it. And it makes sense to start where there's freight and where you have a great deal of worker acceptance.

And then also, with weight per shipment, now you don't break out LTL shipments versus truckload shipments. I know it's a $10,000 cutoff. But do you have a sense for what weight per shipment, LTL weight per shipment was in the quarter, increase year over year?

Well, again, we don't break that out. But I think you can infer that the larger shipments grew faster than the smaller shipments.

With the LTL fuel surcharge back up to 18.5% this week, that's a couple of percentage points higher than it was at the end of the quarter. Has that changed, I guess, your outlook for pricing and margins this quarter at all?

Well, I guess I'm not sure we articulated an outlook for that. The fuel surcharge has bubbled up and bubbled back; I think, in general, the higher fuel surcharge isn't healthy, particularly for our customers. And it looks like that may be with us through the summer.

Tom Albrecht, Stephens, Inc.

What did you say the commodity mix change or the freight class change did to results in the quarter, Bob?

I think I said that the freight classification dropped 0.4 points. And what that does is basically has a lowering effect on the nominal revenue per hundredweight. You would expect that with heavier shipments; that's cross-correlated with a lower classification. It changes the revenue per hundredweight without necessarily changing the profitability of the freight.

So where are you, like 76.5 or something?

I don't have the numbers in front of me, and I don't think I'd disclose it, if I did.

Edward Wolfe, Bear Stearns.

Thanks, guys. Asked and answered.

(OPERATOR INSTRUCTIONS). Jordan Alliger, Deutsche Bank.

Just a quick follow-up on the fuel surcharge. With fuel rising again, you guys just [massed] a general rate increase. I'm just sort of wondering how you're going to attack or approach sort of fuel surcharge when it comes to talking about pricing negotiation. Are you going to be able to keep that separate and tacked on as 18% to the bill? Or what is your thought on that?

Certainly, we're going to try to keep them decoupled. And that's the right thing to do working with our customers. It's not fair to build in a fuel surcharge into the rates, because if fuel goes back down, and it surely will, customers don't get the benefit if it's bundled. But, as you have heard from other carriers, there is some coupling of the issue. So we are having to deal with those.

But I'll say again that the fuel surcharge mechanism that we have in the industry is there because it rises and falls directly with a federally published index of fuel prices. And it does allow -- as we saw in post-Katrina, when fuel prices fell, our fuel surcharge fell by over 7%, and that went immediately back to our customers. So we continue to support that mechanism, and the vast majority of our customers do also.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions.

Well, we thank you for joining us this morning. We appreciate your interest in Arkansas Best Corporation. This concludes our conference call.

This concludes today's Arkansas Best Corporation first-quarter 2006 earnings conference call. You may now disconnect.