ArcBest Corp (ARCB) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the second-quarter 2012 earnings conference call. Through the presentation the participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator Instructions) As a reminder this conference is being recorded Tuesday, July 31, 2012. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations and Corporate Communications. Please go right ahead, sir.

Welcome to the Arkansas Best Corporation's second-quarter 2012 earnings conference call. We'll have a short discussion of second-quarter results, and then we'll open up for a question and answer period. Our presentation this morning will be done by -- Ms Judy R McReynolds, President and Chief Executive Officer of Arkansas Best Corporation; Mr Michael E Newcity, Vice President, Chief Financial Officer 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 risk. 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 Mr Newcity.

Thank you for joining us this morning. Continuous improvement in tonnage and pricing levels at ABF led to a profitable second quarter. While we are encouraged with the positive result, we know we have more to do to return our Company back to a level of historical earnings. In mid-June, we completed our acquisition of Panther Expedited Services. This important transaction in the premium-logistics space is part of a long-term strategy to grow our non asset-based businesses, expand our product offerings, and better serve our customers. Later, Judy will give her thoughts and perspective on our recent results and the addition of Panther into the Arkansas Best family of Companies, but now I would like to cover the details of our performance for the second quarter of 2012.

Arkansas Best second-quarter 2012 revenue was $511 million compared to last year's second-quarter revenue of $499 million. This included approximately $11 million of revenue from Panther for the second half of June, following the June 15 closure of its purchase. Excluding Panther, Arkansas Best's second-quarter revenue was slightly above that of last year's second quarter. In the second quarter, we earned $0.44 per share, compared to $0.20 per share last year. This quarter's net income included tax benefits of $0.31 per share and transaction costs of $0.05 per share associated with the Panther acquisition. Excluding both of these items, our adjusted second-quarter net income was $0.18 per share.

In the 2012 second quarter approximately $8 million of valuation allowances related to deferred tax assets were reversed, contributing $0.31 per share to second-quarter earnings. These valuation allowances were initially established due to limitations on the amount of deferred tax assets that could be recognized. Approximately $5 million of these valuation allowances were established in the first quarter of 2012, reducing first-quarter earnings. Approximately $3 million were established prior to 2012.

Previous limitations on deferred tax assets no longer apply. This is due to Arkansas Best's net deferred tax liability position resulting from $32 million of differed tax liabilities recorded in purchase accounting, combined with the improved operating results generated in the second quarter of this year. As a result, the year-to-date benefit tax rate is 61.6%. This compares to a more normal effective tax rate of 41%, which is what we currently anticipate for the second half of 2012, excluding the effects of adjustments to valuation allowances. Throughout the remainder of the year our quarterly tax rates will vary, depending on our financial results. Due to the recognition of benefits derived from periods prior to this year, our company's 2012 full-year tax rate will differ from past full-year rates.

With the help of a third-party valuation firm, we are assessing the fair values of acquired assets and liabilities for Panther in the amount of goodwill recognized as of June 15, 2012. This assessment requires a significant amount of judgment, and as it relates to the valuation of Panther, we have not yet completed this analysis. Based on the preliminary purchase price allocation provided in the second quarter earnings release, amortization of intangible assets, including software, is estimated to total approximately $8 million per year.

Following our use of $80 million of cash resources in the Panther acquisition, we ended the second quarter with unrestricted cash and short-term investments of $100 million, which we believe provides us financial flexibility going forward. Combined with the available resources under our AR securitization agreement, our total liquidity equals $173 million. As a result of the $100 million five-year term loan that is now in place associated with Panther, our total debt is $180 million, and our trailing 12-month net debt-to-adjusted EBITDA is 0.76 to 1.

Our total debt also includes $80 million of capital leases and notes payable, primarily on ABF equipment. The interest rate on the Panther term loan is based on a grid structure in the range of Libor plus 125 to Libor plus 250. The current rate is Libor plus 175 which equates to 2%. Our year-to-date cash provided from operations of $14 million was reduced by an $18 million contribution to the Company's non-union pension plan. Full details of our GAAP cash flow are included in our earnings press release.

On a year-to-date basis, adjusted consolidated EBITDA improved by over $3.5 million despite increased expenses that included unusually high first-quarter workers' compensation costs at ABF, and year-to-date investments in sales, customer service, and IT for all subsidiaries. In the second quarter, on a percentage of revenue basis, workers' compensation costs were below historical levels.

The second quarter cost impact of sales and IT investment moderated compared to the first quarter. Year-to-date third-party casualty claim costs, as a percent of revenue, are comparable with historical levels and below 2011 amounts. Our year-to-date results also include cash surrender value market gains of $0.05 per share compared to gains of $0.11 per share for the same period last year. This includes second-quarter cash surrender value market losses of $0.01 per share, compared to a gain of $0.01 per share in last year's second quarter.

Moving on to ABF's results for the quarter. ABF reported second-quarter revenues of $446 million, compared to $452 million in the second quarter of last year. ABF's tonnage decreased 6.3% per day, compared to last year's second quarter, when tonnage increased nearly 10%. Total build revenue per hundredweight increased 4.7%, compared to the second quarter of 2011. ABF's second-quarter operating ratio was 98.3%, the same as in last year's second quarter. ABF's OR reflects improvement of over 700 basis points versus the first quarter of this year.

On a combined basis, our non asset-based business segments grew revenues during the quarter, highlighted by 56% revenue growth in the Truck Brokerage and Management segment, and 29% revenue growth in the Emergency and Preventive Maintenance segment. As mentioned earlier, each of these business segments continues to be affected by costs from additional sales, customer service, and IT investments, but to a lesser extent than in the first quarter. And now, I will turn it over to Judy for her thoughts about our quarter.

Thank you, Michael, and good morning, everyone. The second quarter marked an important development in our Company's history with the acquisition of Panther. In the last several years, we have seen how the supply chains of our customers have become much more multifaceted and, as a result, how their end-to-end logistical needs have greatly expanded. We have made, and continue to make, investments in various service offerings under ABF and other subsidiaries. At the same time, we have reviewed a number of industry segments as well as potential acquisition targets that could expand our offerings to meet the evolving needs of the marketplace.

Panther was one of those targets in a segment that speaks to the needs of our customers. As one of North America's largest expedited transportation providers, Panther possesses an expanding platform in premium freight logistics, expedited transportation, freight forwarding and transportation management. Panther is complimentary to our asset-based core LTL business at ABF. It aligns well with the competencies of our organization, and it extends our ability to provide the integrated supply chain solutions desired by our customers. We're excited about the addition of Panther, and we believe its expertise in expedited transportation and premium logistics is an excellent strategic fit with our Company's history of doing the difficult things well.

And now turning to our second quarter results. ABF maintained a high level of customer service and improved pricing across the broad base of its accounts in the midst of a shifting economy that lacks consistency. The freight environment is better than in recent previous periods, but growing economic uncertainty limits its strengths. In the second quarter of 2011, ABF began an initiative to address inadequate pricing and improve the profitability of many accounts across its network. As a result of comparing back to those previous time periods, though year-over-year percentages of ABF's pricing improvement remain positive, the magnitude of those improvements moderated the second quarter.

As Michael previously mentioned, our second quarter build revenue per hundredweight increased 4.7%. This compares to near -- a nearly 10% yield increase at ABF in last year's second quarter. Recent price increases received from our contract and deferred accounts remain at good levels relative to historical trends. As previously announced, ABF implemented a 6.9% increase in its general rates and charges effective June 25. With the initiative to improve overall pricing, we expected and experienced market share loss in the second half of 2011.

That loss moderated in the first quarter of this year, and our market share has improved year-to-date. ABF continues to be the beneficiary of additional freight from various sources, including new and existing customers, and from shippers who have come back to ABF seeking our traditional level of superior customer service. Going forward, we believe ABF's account pricing is in a better place and offers the opportunity for improved profitability as freight levels rise. For the month of July to-date, ABF is experiencing some weakness in historical sequential tonnage trends driven by, what we believe to be, a further softening in the economy.

July's daily tonnage change from June is expected to be slightly below the historical average. On a year-over-year basis, we expect ABF's July total daily tonnage to be approximately 3% below July of last year. July total build revenue per hundredweight will increase approximately 2% over July of last year. Excluding fuel surcharges, July's total build revenue per hundredweight is expected to increase approximately 3.5% over the same period last year. On a sequential basis, compared to June, total July yield is up approximately 2.5%, both with and without fuel surcharges. We're intently focused on initiatives to reduce ABF's cost structure and set our Company on a pathway for future success.

ABF's lawsuit against the Teamsters and various other parties related to the modifications to the National Master Freight Agreement is ongoing. We received a favorable ruling in the appeals court about this time last year, and ABF is currently waiting on the lower court to take the next step. Based on the information provided by a large multi-employer pension plan to which ABF contributes, approximately 40% to 50% of the payments ABF makes to union multi-employer pension plans go toward the benefits of employees who never worked for our Company. ABF continues to be an active participant in a broad coalition of stakeholders committed to developing a permanent solution to correct this cost inequity.

In late June, I testified before the US House Subcommittee on Health, Employment, Labor, and Pensions, commonly called the Health Committee. I was joined on a panel of witnesses that included -- a representative from the Kroger company, who contributes to some of the same multi-employer pension funds as ABF; a representative from the Teamsters Western Conference Pension Fund; and other multi-employer pension and legal experts.

The Health Committee members displayed a good understanding of this challenging problem and expressed a genuine interest in trying to find a workable solution for all parties. They are focused on steps that could result in legislation to replace existing Pension Protection Act measures that are set to sunset in 2014. These issues are complex and the solutions will require cooperation, patience, and creativity by all stakeholders. We are committed to being part of the solution.

And finally, ABF is preparing for negotiations of the new labor agreement prior to the conclusion of its current contract on March 31, 2013. There are numerous internal activities going on regarding research and preparation for the negotiation of this labor contract that is very important for ABF's future. Historically, these negotiations have begun in the fall, prior to the spring contract expiration and we are not aware of any reason why that would not be the case again.

I always like to highlight the positive things that are happening at our Company and there seems to be a number of things every quarter to talk about. In early June, ABF driver Chuck Smetzer earned the title of Grand Champion in the Maryland Safe Truck Driving Championship. Chuck wont the Grand Champion title for the second year in a row, something that has never happened before the 65-year history of this event. In addition, Chuck earned this year's second championship while competing in an entirely different driving classification. We are very proud of Chuck's consistent accomplishments of excellence. He is just one example of exemplary employees representing ABF throughout North America.

Once again in the second quarter, ABF provided an extremely high level of cargo care for its customers. For the quarter, ABF's cargo claims ratio was 0.39% of revenue, which represents record results for our Company. ABF has an everyday focus on providing superior service in every area of customer contact. Cargo care is an important element of that focus, and ABF takes pride in working to continually provide safe and damage-free care of all customer shipments. In July, ABF was recognized for the third consecutive year for its excellence in supply chain sustainability. Inbound Logistics magazine cited ABF as one of its Green 75 Supply Chain Partners in honor of our efforts to participate in public/private partnerships, corporate sustainability initiatives, and collaborate with customer-driven projects.

Arkansas Best continues to make progress on our internal objectives as we return growth to our LTL business. ABF's account based and customer pricing levels are better positioned to offer opportunities for improved financial results. We're also finding that more and more of ABF's customers are utilizing our other services in addition to our traditional LTL offering. We have had very positive overall reaction from customers to the Panther acquisition to-date.

We have add a number of customers specifically inquire about how the Panther acquisition can benefit them, or about the specific services they know Panther provides. The acquisition itself seems to have resonated with customers on both sides, and has heightened awareness of the fact that we can now better serve their supply chain needs. As always, we are working to move our Company forward in a manner that benefits our shareholders, employees, and customers. And David, now I think we're ready for some questions.

Tommy, I think we're ready for questions.

(Operator Instructions) One moment for the first question. Chris Wetherbee.

Maybe Judy, just a quick reference point, and I apologize if I missed it, but did you mention what core pricing was in the quarter or pricing ex-fuel was in 2Q?

Well, quote -- the all-in number, the reported number, was up 4.7%. Excluding fuel it was up in the mid- to high-single digits.

Okay. And you mentioned that that number now is trending in the 3.5% range for the month of July.

Ex the fuel, yes.

Ex-fuel, okay. That's helpful. I guess, you think about being a year, into the addressing the customer accounts -- the underperforming customer accounts. I know it's an ongoing process, but how do you feel the progress you've made so far? Do you still have a significant portion of folks that need to be addressed from a customer perspective? Or does it feel like it's more -- just more on the edge now, as opposed to some significant improvements you need to make?

Well, you know, I will you give two responses to that question. One, from the initiative standpoint, we feel like that we have really gone through, kind of, the worst performing accounts and dealt with those in a pretty thorough way. But the other thing I would mention to you, is that when you look at where we are, from a pricing standpoint, because of what happened to us in the depth of the recession, and with some of our competitors going through a very competitive time from a pricing standpoint, we're still at basically 2008 levels for pricing. And so that tells you that we still have a lot of work to do from a blocking and tackling standpoint and making sure that we're asking customers to pay us for the value that we provide to them.

Okay, that's helpful. And then just maybe one final question, just on the Panther acquisition, as you have now gotten a little bit of more time under your belt, and probably taken a little bit of a deeper look at the company, can you give us a sense of how we should think about the -- any potential progress of, not just integration, but necessarily kind of customer focus and drilling down on your customers where you may have some cross-selling opportunities? And maybe just give us a little bit of a better perspective of how we should be able to think about that starting in the second half of the year? That would be great.

Well, we feel like that everything is just proceeding very smoothly. Both companies were familiar with each other prior to this transaction, so there weren't really any surprises in terms of -- or changes from expectation as we went through the month of July. But we have identified and prioritized some specific areas where we can strengthen our company by Panther and ABF looking at business opportunities together.

The initial area of focus has been collaboration between Panther and our expedited solutions group at ABF. We have begun to work on some medium- and longer-term initiatives that will aid us in cross-selling other services, like our truckload brokerage, air and ocean forwarding, and to some extent, transportation management. Both sales teams are really seeing increased customer interest, and there are some cross-selling opportunities, and we're very focused on those.

And so we have seen excitement in both teams of employees, both at Panther and at ABF, and the people at Panther are genuinely thankful for being in a situation of stability. They can go to their customers with confidence that they will have good operating results, and they will be able to invest in their company as they need to, to grow it. So, it's been a very exciting month.

And that's probably going to happen starting in the third quarter, is the way we should start to think about some of the opportunities coming back, or coming through?

Yes, I think that as we go through 2012, there will be more of those opportunities that are taken advantage of. There is some low-hanging fruit that will be quicker, and then there will be some discussions, that are ongoing now, about some longer-term initiatives, and the list is, that I've seen, is at least three pages long of opportunities that we have. So, we're working through those one by one.

Actually, there is --

(Multiple speakers) I appreciate it, thank you.

Justin Yagerman.

I guess I wanted to start with the Teamster side of things. Very curious to what extent you think that your lawsuit is going to color any of the negotiations and -- as we head into the actual contract expiry next year. Do you think you can get these guys to the table while this is still kind of up in the air, or are we going to have to wait for some resolution from the lower court in order to see some early talks with labor?

Well, you know, we think of those two events, or sets of circumstances, as separate from each other, at this point. We -- as we go into the fall of this year, we don't have any expectation other than we will enter into normal activities, as far as the discussions go. The lawsuit will be the timing that the judge chooses, and we really don't have a lot of direct influence over that.

They're both -- the common theme between them is that we are attempting to address our cost structure in each of those two, as I say, sets of circumstances or events, and so that's the common theme, but you really have different paths that those things are going on. I will mention to you that we have seen no change in, just the conversations or activity levels between the parties as a result of the lawsuit. So, we don't have any concern over that being a negative factor.

Okay. I think in your prepared remarks, Judy, you mentioned some slowdown in the economy. Obviously it's been fairly well publicized. I'm curious, from your specific vantage point, what you are seeing, how that's manifested in your business, if it has yet, and what you're hearing from your customers? And then, along those lines, if you have the numbers, I would love to hear how tonnage declines progressed through the quarter.

Well, with respect to how the weakness in the economy has impacted us, I would say that we started to see some weakness from our expectations in about the third week of June. That was -- it's a week where you're expecting a lot of up-tick in activity, and it was a little flattish, from what we had expected.

And then in July, when we look at what our expectation would be on a sequential basis, relative to June, we're seeing tonnage looks like it's going to be down about 3%. That's slightly worse than the historical average. So it's not terribly worse, but it's slightly worse, and again, sometimes it's difficult to tell exactly what's happening in a month like July, because of customers, businesses, and activity levels and that sort of thing. But we're not hearing anything specific from customers that has been reported to me that would indicate anything negative. And so what I'm going do, Justin, is turn it over to David, and let him recite to you the tonnage by month.

Thanks.

April was down 9.1%. All of these are total tonnage per day; April down 9.1%, May down 5.5%, June down 4.3%. And then as we said earlier, July we are expecting to be down about 3%. We are going to go ahead and move along.

Thanks, appreciate the (multiple speakers)

Scott Group.

Judy or Mike, I'm wondering, can you give us year-to-date revenue and operating income for Panther, just so we can think about a base for modeling the back half?

We will give that to you off-line. It's a part of what we're going to be filing with our 10-Q, and so, to just kind of move this call along, we'll give that to you off-line. But we have it.

Okay, perfect. That's great. I'll follow up off-line.

okay.

So, with the economy feeling like it's slowing a little bit, I'm wondering if you are thinking about slowing on the pricing a little bit, and focusing a little bit more on tonnage? And then maybe, with that, you were able to keep margins in LTL pretty flat year-over-year despite some pretty large declines in tonnage. Do you think that the environment of less/worse tonnage, but maybe, less strong yield growth, if that's an environment where we can start to think about some margin improvement on the LTL side in the back half of the year?

Well Scott, here's what I would suggest to you. It's what I did, so I think it's a good exercise to go through. We went through this initiative to address the worst performing accounts, and we knew that there would be some tonnage loss associated with that, and we experienced that in the second half of 2011. But as we moved into this year, you could look at our first-quarter results, look at our second-quarter results, and then compare the two, because there is about a 11% more revenue in second quarter, and about a 7% improvement in the OR. That's the best indicator for me, and should be you, as to what we can do with additional business.

And how do you think about the margin question, in terms of is this the right environment where we can see margin improvement in the back half of the year, or is the goal to maintain margins like you did in the first half?

No, our goal is never to maintain margins, particularly when they're 98.3%. Our goal is to get back to our historical margins, and I think what we're doing is to work through our account base to try to improve the profitability of it, on an account by account level, so that we do have the opportunity to grow the business more profitably as we go forward. When I look at our incremental operating ratios associated with our top 50 accounts, it's in a great place in comparison to history. And so what we need, as I mentioned before, is more business. And when you look at times where we have more business, and do those comparisons, you can clearly see the margin improvement.

Scott, I think we're going to move it along.

All right, thanks.

Todd Fowler.

Judy, I just want to make sure I understand some of the puts and takes within the salaries and wages line here in the quarter. Maybe it's a question for Michael, but it sounds like, in the prepared remarks, there was some movement within workers' comp, a little bit unfavorable in the first quarter, maybe a little benefit here. So I just wanted to follow up on the salaries and wages and make sure I understood the moving parts with workers' comp and how we think about that; what the run rate should be going forward.

You know, Todd, when we look at the salaries and wages line, there -- as you said, there are lots of puts and takes. The workers' comp costs in the first quarter were clearly out of line, and what we saw in the second quarter was a normalization of that. And so we did see the other -- (Technical difficulties) Well -- Todd, why don't we do this. Would you be able to call back, and we'll be sure that you get in the queue.

I'll get back in the queue, thanks so much.

Thank you.

Ken Hoexter.

Back on the union, when you look at the negotiations, can you address the major issues like pension, and those kind of issues on the new contract? And if you can, and when you think about the negotiations, what would a deal be for you? Just -- what can we start to look forward to in to terms of the negotiations?

Well, you know, the one question that you asked that I will answer is that on the pension side, we will be able to address that in the normal negotiations process. But outside of that, we're not really going to get into the details of our negotiation strategies, nor what we expect from the other side, as we really don't feel like that will benefit us in, kind of, a public view of that prior to the negotiations.

Understood. Judy, to your comments, you mentioned that market share is improving, but I just want to understand, if volume is down, and are you suggesting that the overall market is declining rapidly, as well?

I don't think rapidly is a fair word, but we do have information for market share, even through the month of June, that indicates that we have gained market share.

Okay, it sounds like it's getting better.

Well, we are trying. We've got our telephone guy in the room here with us trying to figure it out.

Last one, real quick, is just; last September, I think your freight turned negative. So you've got some easier comps coming up. Is anything -- you're talking about the economy getting a little softer here, just wondering how you look at that, kind of, as you move forward. Do you think we start seeing positive on the volume side, or do you start using that price a little bit more aggressively to keep those volumes at these levels? Just wondering how you look at that going forward.

No, we would not use price as a lever to grow tonnage, because what we want to do is improve our Company, and we know that if we -- if the plan is to grow revenues profitably, that you really can't do that. I think -- I don't know if you were on the call at the beginning, but I mentioned, I think to the first person that asked a question, that our pricing levels, even as much work as we've done, which is a tremendous amount of work over the last year, our pricing levels are still somewhere in the neighborhood of 2008 levels.

And that's something that is going to require a continued diligence on the negotiations of each account, and on our contracts and deferred pricing agreements. We are continuing to see good effort and good results in that regard. I do believe that as the economy improves, that we will be able to grow both. And if you look at last year's second quarter, we had a quarter last year where we grew tonnage and pricing by about 10% each. And we had a good result, in terms of operating ratio improvement when that happened.

Certainly, as we go into the next few months, it's going to be easier to report positive tonnage figures because of the declines that we experienced last year. But what we want to do is to grow our Company and build a base of good accounts that are more profitable for us. And we believe that, that is the process, on an account by account basis, that is going to return the historical profitability of our Company. That plus having a cost structure that is more in line with the market.

Wonderful. Thank you for the time.

Todd Fowler.

Thanks for getting me back in, I will try and make it quick. So I just wanted to make sure I understood the workers' comp sequentially and year-over-year, and thinking about that going forward. And I've got one follow-up to that.

The workers' comp, as you know, it was about pretty close -- it was between 1.5% to 2% worse than history. And by that, we mean longer-term history, 5- and 10-year averages in the first quarter. The second quarter was much more normal, and so you do have the benefit of that as you do a comparison of second to first in the numbers.

There's -- outside of that, the only other unusual aspect to it is we have continued to invest in some sales folks, customer service people and IT in each of our business lines, and we believe that those are investments that will pay off for us, some of those in the second half of 2012. And so it's a -- but with respect to workers' comp, the unusual period was first quarter. Second quarter was much more normal.

Got it, okay. That makes sense. And then just the last piece on the salaries and wages, and I can follow up off-line on the rest are the stuff I had, but you did have the 2% wage increase on April 1, is that correct? And then, do you have an estimate for what you are thinking on, the health and welfare piece coming in August? And if you would quantify what piece that applies to from an expense base, that would be helpful.

The health and welfare piece is August 1. It's going to be about 3.7% increase on that. And that flows into the -- it's in the salaries, wages, and benefits segment.

Todd, when I think of our costs there, what you have got to do is think 75% of our people are union workers subject to that increase, and about one-third or so of the costs associated with those people is health, welfare, and pension. Two-thirds of it is really their wages. So that's really how you think through that.

Okay, that's helpful. And then the 2% wage increase did come through in the second quarter?

Yes, --

Okay, got it.

It was April 1.

Okay, thanks for the time. I will follow up off-line.

David Ross.

Was fuel a net positive year-over-year, or net negative, given that there were changes both in the level of fuel prices, and also with your fuel surcharge programs, I think, versus a year ago?

It can -- when you look at what happened on the revenue line, there was actually less revenue from fuel surcharge in the second quarter. And again, we look at it on a total account profitability basis, and so that 4.7% increase that we quoted includes the effect of fuel surcharges. And so on a -- kind of an overall pricing basis, we had good results, particularly when you consider the 10%, or so, increase that we had last year.

If fuel hadn't declined through the quarter and kind of stayed at the April levels, would the quarter have been more profitable or less profitable?

Well, there are a lot of different factors that are involved there. We -- not only do you have the diesel fuel price, which is typically less than what we have on the fuel surcharge, you also have the factors involved with rail fuel surcharges, and other elements of your cost structure that are impacted by that. So, it would be hard to say.

Okay. And then going forward, the amortization; $2 million a quarter, it is going to be in what segment? Is that going to be in ABF or Panther, or is it going to be in --?

It would be in Panther, yes, definitely. And that's going to be separated out. You can see, I mean, it's not much, but it was two weeks worth, but you can see that, that's a separate segment if you look at the press release, how we have handled it.

Okay. And last question is the union reaction, so far, to the Panther deal?

Really, just fine. We had no negative reaction, no positive reaction, just kind of -- we let them know, and they accepted that news.

Excellent. Thank you.

Tom Wadewitz.

Let's see, I wanted to ask you on competitive environment; it sounds like there's some degree of, I don't know if you want to say, modest weakening in demand. It looks like the GRIs, or most of the GRIs are pretty similar, but how do you think about competitive dynamic and how you would expect pricing to, maybe, progress in second half?

Well, we -- when you look at pricing for the second half, on a year-over-year basis, you are going to see what appears to be lower numbers than you've been used to seeing earlier this year, and kind of toward the end of last year. And that's just because we had this initiative to address the worst performing accounts, and now we're business as usual, so to speak. But business as usual is always an effort to get adequately paid for the value that we provide, so understand that.

The competitive environment, you know, really not much change. We always talk about that at a monthly meeting that we have with the ABF folks, and when you look at the accounts that we gained and that we lost, we feel pretty good about how we are coming out there, no concerns. But not a lot of change from normal, is what I would say.

Tom, to reiterate what Judy was saying, third quarter last year, revenue per hundredweight was up 17.2%, and in the fourth quarter last year it was up 12.8%.

So the 3.5% ex-fuel in July, that number will hit -- may decelerate further because the comp gets more difficult by month? Or is July representative of what the third-quarter comparison looks like?

I don't -- I would expect that we may see some weaker numbers, in terms of the year-over-year, but really the best thing to do is to look sequentially.

Right

That's when you're in this kind of a period. And I think we reported that sequentially, July compared to June is up about 2.5%, which is right in line with what would you expect, given the general rate crease that occurred.

Okay, all right. And then a second one, with respect to the negotiation with the Teamsters; I think last time around, YRC was -- kind of dominated the discussion with the Teamsters, and you had to wait until they were done, then you maybe didn't have a lot of opportunity to reach a different deal than they had. This time around, obviously it's a different setup. Are there activities, with YRC first, that you think the Teamsters are going to do, or is that essentially out of the way, given that they had extensions in some of their agreements?

I think it's out of the way. I think their agreement doesn't expire until 2015, at least as they've agreed to with the IBT. So I think that, that's a non-issue.

Okay, thanks.

John Barnes.

Judy, with the commentary around deceleration in volumes, kind of across the universe, and I know you are going to get into easier comps in the back half, but if we are beginning to see some additional slowdown in the economy, do you have a plan in place on where you need to attack the cost structure, the things you can attack, to make quick changes to better align your infrastructure with whatever that volume level may be if the economy were to slide into a little bit weaker position?

Yes, we have -- when you look at our business, the weekly activity that you have with hours matches up pretty well. But whenever you get into a rougher period, there are changes that you have to make, in terms of the headcount that is dedicated to the business, and make the appropriate changes. The trick in our business is to be able to see that quick enough, to be able to react to it quick enough, and have it implemented quick enough. And, I will be the first to say, that in past periods, we could have done a better job of that.

We are concerned about the PMI index that was reported, I think last month. There may be a new number out there that I haven't seen yet, but probably isn't out yet today. But, there was a move down in the PMI index, so we're watching that. That causes us to think along the lines that you're discussing, and the only other factor there that, I think is a positive on the other side, is that housing. There's some indicators and activity for housing that are looking up, and that's what's been missing from our business in the LTL market in general since late 2006.

So we have to be able to adjust and adapt to any environment, and I think we get better and better at that all of the time. We have increased the number of employees that we have that are utility workers, that can do both loading and unloading and driving, and that gives us more flexibility in our network than in past periods. And the more that we continue to get those changes of operation through that give us that flexibility, the greater ability that we will have to have a variable cost structure.

But we can look out there, just like you can, and see that there might be something to plan for. We're not going to say that there is or say that there isn't, but we will have a plan that is implemented and is appropriate for whatever business level we have.

Thanks.

Jack Waldo.

I wanted to ask -- could you tell me what the -- you mentioned easier comparisons. Do you have the July, August, and September tonnage comparisons from a year ago?

Yes. David will give them to you.

I sure do here. Okay, July of last year was basically flat, up 0.1%. But then in August it goes negative, minus 3.5% in August. September was minus 5.1%.

Okay, so the comps get materially easier. I guess what I'm trying to reconcile is, basically, earnings in the second quarter were pretty flat with a year ago. And if tonnage -- let's say tonnage is flat with a year ago, and at the end of the third quarter, and pricing is up from a year ago, aside from cost structures and then adding in the accretion for Panther, are there -- is there anything else that would be big moving parts to you duplicating the earnings of a year ago in third quarter, which I think were $0.46?

We -- I think if you have an environment where tonnage is flat or growing, and pricing is up, you have a much better opportunity to perform better. I think that David pulled something together for me that shows that based on history, our third quarter is typically better than our second quarter, by about a 1.5%, or something like that. Obviously there's a range there, of performance, that we've had over the years, but we typically have some improvement as you move into the third quarter from the second.

Okay, I appreciate it.

Will Green.

Can I just ask -- I know you mentioned earlier in the call you wouldn't use price as a weapon to gain market share or whatnot, but what are you seeing, sort of, competitively? Are the GRIs sticking broadly, that sort of thing?

Yes.

So others are not using --.

We are seeing nice results on the general rate increase so far. It's early, but we are seeing expected and nice results from that.

So others are not using price at all in the comparative environment?

We haven't seen any evidence of that. There's always a story on a given account where you will see that, but it's not a pattern, or even something to get overly concerned about at this point. I think things are going along just fine on that front. And that's, like I mentioned before a couple times, that's where it needs to be.

Yes, exactly. And then just on July; the timing of the holiday, do you think that affected the comps at all? Were you profitable in the month? Thanks for the time.

Well, we really haven't closed the month of July yet to know that, but we have an expectation of profitability. And I think the comps are affected, always, by the timing of the 4th of July. But you can make arguments probably in any direction on that. Because of it being Wednesday, you could argue that, well, maybe people didn't do as much in terms of taking a long weekend, or you could argue that they took the whole week, you know. So, there's a lot that you can speculate about on that, but we try not to speculate and just look at the numbers after we close the books.

Got it. Thank you for the time.

Thom Albrecht.

A couple of things here. Number one, sometimes will you give the average contract renewal rate. Do you have that figure? And then I have a follow-up.

It's 4.5% for the quarter.

Okay, thank you. And then, Judy, I was just a little bit confused about your July commentary, and I wanted to clarify that. So I think you said tonnage down about 3% year-over-year.

Right.

Did you give a figure on how much it's varied seasonally versus June? You did mention that it seemed to be a little bit weaker seasonally.

It's slightly weaker. We look back at the past 20 years of history, in this case 23 years of history, and this is hitting right in the -- I guess, 13 of 23 years is what it is, and so it's just slightly worse than normal. And again --.

Can you put a figure on that? What doe July normally do, versus June?

Well, it would be down. And if we are saying that it's 3%, so it would be down something less than that. It's not much different. It's hard to do that, Thom, because there's a range. If you look at all the years that are in there, you've got some negative 4%'s, some positive 1%'s, but we're trying to look at a longer period of history and give you an average. And that's really probably -- it appears to tell you more than does, is probably the way to think about that.

That's fine. And the Health and Welfare increase of 3.7%, what is that, about $0.50 an hour?

It's about $0.60, I think.

Yes, that's right, $0.59.

Okay, that's all I've got. Thank you.

Jason Seidl.

Judy, just a real quick one. When Siar reported they talked about a benefit in the quarter between wholesale and retail spreads blowing out a little bit on diesel, did you see a similar benefit, and how should we look at that for the next quarter?

I think it's possible that there was, but you have so many other moving parts to that. Your MPG, the mixture of 2010 engines versus 2007s, there is just a lot to that and you see that. That's not -- they're reporting that, but that happens sometimes. And so -- and I have no way of predicting that for next quarter.

But did you see a benefit in the quarter from that? I'm just trying to --

I'm sure there probably was. We haven't looked at that to carefully study it, because we don't think it was a really big factor.

Okay. That's all I have. Thanks.

Ben Hartford.

I was hoping if you could talk a little bit about productivity during the quarter. If we look at pounds per employee, I know tonnages were down about 6%, shipments down 6% as well, salary, wages, and benefits down about 1%. I assume we have some wage and benefit inflation in there. So can you talk a little bit about pounds per employee in the quarter, with the tonnage and shipment declines, and how we should think about productivity gains going forward, in the context of some of the IT initiatives that you have ongoing? Thanks.

We had a little bit of a hit on productivity during the quarter. Our pounds per DSY-hour were down about 1.7%, and then our pounds per mile were -- I guess that was about flat, so there was not really a concern there. When you have lesser tonnage levels, like we did in the second quarter, when you're looking year-over-year, you are going to have some impact, so it's not surprising that there's an impact here. But the way to think about that is, if you have more flattish tonnage comparisons or a lesser tonnage decline, you are going to have better productivity statistics, generally speaking.

Great, thanks for the time.

Jeff Kauffman.

This is actually Ryan calling in for Jeff. I had a question about the capital plan for 2013 and how the Panther acquisition would affect that?

You said the capital plan? I'm sorry, Ryan.

Yes, the capital plan.

I think it's maybe a $1.5 additional CapEx from Panther, and that's it.

And that's it? Okay.

Yes.

Because you had mentioned on the Panther call, right, you're looking to see some aggressive growth with that, with the economic headwinds out there. Has that thought changed at all? Or slowing down, maybe, how fast you want to pursue that?

Well, no. You could -- you absolutely want to pursue it at the highest level that makes sense for your organization. So our enthusiasm for pursuing growth with Panther has not dampened. It may be impacted by economic conditions, but we still believe that it will -- that business will have above average growth, relative to our core business.

And that the thing that makes me most confident in that, is that they have really been saddled with a great deal of interest expense and cash resources devoted to that cost, under their previous ownership, that is not there today. And they have much better capital structure for that business. So, when they see business opportunities, we're actually able to act on those fairly quickly.

Most of those business opportunities are going to come through people, additions to their organization, that can really add to the revenue base that they have. And so -- but we have not changed our view of the growth that we expect out of that business, but I will be the first to say, I can't necessarily predict the economy, and if the economy is headed in a rough direction, that will impact that.

Hey, just for clarification, I'm not sure if you had said CapEx year-to-date or CapEx for 2013, but it's $1.5 million for the remainder of this year, and probably an annual run rate is about $3 million for Panther on CapEx.

Okay, great. Thanks for the time.

I think we have got one more -- time for one more question.

Certainly. Matt Young.

Just a quick question, again on the CapEx. What would you, for 2012 or 20 13, how much would be associated with equipment spending, and would you expect that run rate to change? I think you had mentioned in the past $55 million, or so.

Yes, I think that's probably about right. We're -- our total for the year is $80 million to $90 million, and, Michael, do you have the revenue equipment part of that?

Yes. We are -- currently it's at -- you have $47 million for the year, and we're currently at $40 million total CapEx for the year.

Okay.

That's not net, it is about $37 million net. Again, like Judy mentioned, the $80 million to $90 million.

Okay, just one last question. It sounds like, for the most part, you're keeping Panther separate, but have you given any thought to combining the -- your legacy brokerage and Panther's brokerage operations, perhaps to capitalize on buying scale and such, over time?

Yes, that's something that we will be talking about. We have a good, smaller, but a really good operating platform that we currently have in a subsidiary called FreightValue that -- and then Panther, has a solution for truck brokerage. And that's something that we're going to evaluate and do the thing that is best for the customers.

Okay, that's all I had. Thank you.

Okay, well I think that concludes our call, and we appreciate you joining us this morning, and our call has now ended. Thank you very much.

Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation and ask that you disconnect your lines. Have a great day, everyone.