Forward Air Corp (Delaware) (FWRD) 2010 Q2 法說會逐字稿

Thank you for joining Forward Air Corporation's second quarter 2010 earnings release conference call. Before we begin, I'd like to point out that both the press release and this call are accessible on the Investor Relation section of Forward Air's web site at www. forwardair.com. With us this morning are Chairman, President and Chief Executive Officer, Bruce Campbell, and Senior Vice President and Chief Financial Officer, Rodney Bell.

By now you should have received a press release announcing second quarter 2010 results, which were furnished to the SEC on Form 8-K and the wire yesterday after market close. Please be aware this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding the Company's expected future financial performance. For this purpose any statements made during this call that are not statements of historical fact maybe deemed to be forward-looking statements. Without limiting the foregoing words such as believe, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements maybe affect by the important factors among others set forth in our filings with the Securities and Exchange Commission and in the press release issued yesterday. And consequently actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. And now I will turn the call over to Bruce Campbell, Chairman, President and Chief Executive Officer.

Thank you, Operator. Good morning to each of you and thank you for joining our second quarter 2010 earnings call. I'm going to discuss our results this morning by operating segment, beginning with the Forward Air, Inc. segment which includes our legacy airport-to-airport service offering, TLX, which is our expedited truckload brokerage service offering, and Forward Air Complete, which is our pick up and or delivery service offering. Obviously each of these service offerings enjoyed excellent revenue growth, achieving aggregate 26% year-over-year result. Equally impressive was our team's ability to control the cost side of the equation ,allowing us to convert much of the incremental revenue to the profit line. It was an excellent job across all product lines by our team of professionals.

While our Forward Air Solutions group produced a slight loss, adversely affected by still sluggish retail specialty markets and unusually high healthcare costs, we did make good strides on our strategic initiative to position this segment for future growth and profitability. As previously discussed, we discontinued conducting business with a large profitable customer, yet were able to replace much of this lost business with good, profitable business. Along with cleaning up the revenue side of our business, we continued our push for even better cost controls and feel we made good progress so far but have work remaining. On a longer-term basis we completed our background work on expanding our revenue verticals, which we feel is an essential building block for our future growth and year round profitability. We will be working this new area of opportunity very hard over the coming months. I would like now to introduce Rodney Bell, our CFO, for the financial results.

Thank you, Bruce. Thank all of you for joining this morning. Following our prepared comments we will open the line for your questions. Operating revenue for the second quarter was $122.1 million, an increase of 22.5% from the second quarter of 2009.

Our Forward Air, Inc. business segment, airport-to-airport revenues were $105.6 million, an increase of $22.3 million or the 26.8% compared to last year. This resulted from 18.5% increase in network tonnage and a 5.7% increase in yield. The yield improvement consisted of 1.8% from line haul pricing, a 3% benefit for net fuel surcharges, along with a 0.9% positive impact from Forward Air Complete. Logistics revenues were $17.9 million, an increase of just over $5 million, which improved -- which increased 41.5%, compared to Q2 2009. Our Forward Air Solutions statement revenues were $16.9 million, an increase of 1.2% compared to Q2 2009. New business wins were not enough to offset the loss of the customer that contributed to second quarter 2009 revenue base. Additionally, as Bruce mentioned, specialty retail sales continue to be sluggish throughout the quarter, resulting in same-store sales being flat.

Moving to expenses for the second quarter, our operations and line haul teams did another outstanding job managing load factors and network miles. In total overall PC improved 70 basis points. Salaries and wages were up $3.9 million, or 13.4%, but were down 220 basis points as a percentage of revenue. The (inaudible) increase resulted primarily from a $2.1 million increase in second quarter performance-based incentives and a $1.7 million increase in volume-driven variable wages. Operating leases, D&A, insurance and claim and other operating expenses were down 160, 60, 50, and 60 basis point respectively.

Our operating ratio was 88.9 for the second quarter compared to 95.1 last year, resulting in a 620-basis-point improvement. Operating income up 175.5%, or $8.6 million on $22.5 million of additional revenues. Net CapEx for the quarter was $3.3 million, and $8.7 million year to date. Cash increased in second quarter by $3.3 million to end the quarter at $47.9 million. We ended the quarter with $50 million outstanding and $38.2 million available on our line of credit.

Lastly, we anticipate that third quarter revenue will be in the range of 20% to 25% over the comparable 2009 period and expect income per diluted share to be $0.28 to $0.32 per share compared, to $0.13 per share for third quarter 2009. That concludes our comments, now back to the operator for your questions.

Thank you. (Operator Instructions). You may as many questions as you like, but please do not requeue. Our first question is from Alexander Brand from Stephens. You may proceed.

Hey, guys this is Sterling, good morning.

Hey, Sterling.

Can you discuss the healthcare issue that you had in pool, what size was that and would that have substantially offset the loss you had there?

Sterling, the part that was unusual was shock losses that hit the maximum, it was a handful of high claims that hit that 135 stop loss that we have there, where were self insured and it was about $500,000.

Okay, great. The airport-to-airport segment, we have volume here, how did that trend each month in the quarter, if you could give us volume each month in the quarter on a year-over-year basis?

The simple answer to that, Sterling, is it went up each month.

Very good. The pool business, you had one large customer -- or one large competitor announce their exit from the business, could you talk at all about if you have been able to pick up some of that customer bas,e if some of that was signed in the Q2 or if you expect more of that customer base to come on line in the third quarter?

The majority of it came on during probably mid-quarter to, let's put it this way, mid-May and then additional start-ups throughout the month of June. So we reaped some benefit, but we didn't obviously get a full quarter of the revenue benefit. We probably have two additional opportunities going into the third quarter as a result of this.

Okay. Thank you very much, Bruce and Rodney, have a good day.

You, too.

Your next question is from the line of David Ross from Stifel Nicolaus. You may proceed.

Good morning, gentlemen. On the TLX side, you saw your margins expand there as revenue-per-mile grew faster than cost-per-mil,e that was pretty impressive given what we were hitting was a tight capacity environment in the second quarter. If you could give a little comment on what you are seeing in the brokerage capacity market?

I think we do, in fact, experience some pressure there. But we also, a year ag,o weren't going to our core group of carriers and beating them up for lower pricing. We were very fair to them and as a result they are very fair to us today. But without question, we have seen some costs go up.

What really helps us in that area is the fact that we move our owner-operators over in to the TLX, where we need to balance a lane or where we need to do certain things with the operator, and as a result of that, that's a much lower cost to us to move the truckload shipment. So we will experience in the future certainly some escalating outside carrier costs but we think we can mitigate that by utilizing our own owner-operators when it makes the most sense.

Because your owner-operator versus outside carriers split didn't change much quarter-to-quarter but you were able to get a lot more revenue than you had to pay out.

Yes, and that's a great point, David. Because a year ago we were really fighting, as everybody was, a market where the price was $1 yesterday and it's $0.90 today and if you don't want it, we got 100 carriers that will take it. And obviously that reversed beginning with really the first quarter now into the second quarter. So there is a bit of pricing power there that's helped us.

Seasonality in your business has been a little bit tough the last couple of years with the market acting the way it has, the second quarter used to be often your best operating ratio quarter for the core line haul piece. Do you think that holds true this year or is there further leverage opportunities to move through the year where maybe you could see a better OR in the third and fourth quarter for Forward Air?

I think, David, if -- and I should say we think, as we go forward this year, that it will continue to get better. As a result the leverage will continue to improve and obviously that drives profitability.

And lastly, Bruce, anything concern you in Washington right now with all of the regulations that potentially could impact the trucking industry, what might have the biggest positive or negative impact on Forward Air?

I think in general, my answer is there are so many things going on in Washington today, it's compounding at best, our largest concern is dealing with CSA as we go forward. We do have a, we think, a good grasp on it at this stage, but we also feel that will change, the regulations will change between now and -- we now call it CSA 2011, it will probably called 2020 before it's all over. But we are aggressively positioning the Company so that we are not harmed in the long run.

Excellent, thank you very much.

Thank you.

Your next question is from the line of Todd Fowler with KeyBanc Capital Markets. You may proceed.

Thank you. Good morning Bruce, good morning, Rodney. Bruce, can you share with is your thoughts on -- we've heard some of the international forwarders and UPS talk about the strength in the international air freight market, can you talk a little bit about what you think is driving the strength you're seeing in the domestic deferred air freight market right now and what your expectation would be for that as the year progresses?

We have said probably now, Todd, for almost all of 2010, we represent an interesting dichotomy , because in our airport-to-airport business, that is primarily B to B business. We think there has been a fair amount of companies expanding their CapEx or buying CapEx-type of equipment, which most people realize is all high-value equipment, and that feeds us, that helps us greatly. We just have not seen throughout the course of the year any let-up there. We very rarely even have a bad day, let alone a bad week and certainly have not gone through bad month. So that part of it is very encouraging.

What we -- on the dichotomy part of this, the other side of it is, the Solutions business is, as you know, all consumer-related. We have not seen an improvement there, except maybe the last two or three weeks, we are hopeful, but that is a very quick response to a couple of weeks. We are not confident that will carry on through the end of the year, although we are very hopeful that it does. So a quick recap of that, airport-to-airport represents B to B and it's doing well. Solutions represents consumer-type business and it's just struggling

Okay. Got it. That makes sense. What is the expectation for core line haul yield? It was up -- I've got roughly% here during the quarter. I think you had the GRI in the first half of the year. Do you expect to see continued sequential improvement in that as the year progress?

We do, Todd, but for a couple of reasons, the first was in the second quarter we only had two out of three months benefit of the GRI. So automatically that extra month is going to be a 1.7% impact on third quarter and beyond over -- sequentially over Q2. But also we continue to tighten down our spot rate pricing, it's half of what it was a year ago, our people are continuing to bang on that and so that will have a positive affect on yield as well.

Okay. Got it. Then on the capacity side, it seems like you are not having an issue in -- it seems like your capacity base is relatively stable and you are not losing any owner-operators to the strength in the market. Is that a true statement? Is that something that you have some potential risk as we continue to see firming in the truckload environment in general looking ahead?

It is -- your statement is correct in that it has not affected us so far. Although obviously we see tight situations across various geographic points throughout the year. Now the other side of that is we work very hard to make sure we don't have that issue. So our owner-operators, it's a very stable workforce, they've done a great job for us and we have been able -- pardon me -- to add to that, and then, again, we take care of the carriers that take care of us and we have been able to tract outside carriage where we need it.

Okay. The last one that I have, is there is way to think about the point that you would actually need to bring back in some cost to the airport-to-airport network, either on a pounds-per-week-type-basis or a total pounds during the quarter. To me it seems like you still have a little bit of capacity to the network you are bringing back or the volume's coming back and you're not adding any more costs. Can you talk about, either from a network capacity standpoint or pounds-per-week standpoint when you think that some incremental cost would come back in to the network?

We will always have incremental costs come back that deals -- any type of expense that deals with touching freight. For instance, obviously dock labor, those type of things. So that's very normal. We expect that type of expense to come back as we grow volume. Where we think we have the Company positioned, because we did not let up on this a year ago, is that we have almost -- an example would be our terminal facilities, we will not have another move for the balance of the year, and probably won't other than where we have leases expire for quite a while. In other words we have our facilities and our system and our network exactly where we want it. That was completed over the last two weeks when we finally got in to our new building in Philadelphia, and last weekend when we finally got in to our new building in JFK. And at that point we are really done there, Todd. So we think if you look forward, the only cost you'll see really added to the model will be, again, the costs that concern freight.

Okay. Were there costs in the quarter associated with moving those facilities?

There is always some cost.

Okay, but nothing worth calling out?

No.

Okay. Thanks a lot for the time and congratulations on the nice quarter.

Thank you very much.

Thanks, Todd.

Your next question is from the line of Matt Brooklier from Piper Jaffray. You may proceed.

Good morning, guys. If we look at the incremental margins on your airport-to-airport business, I think it was roughly 50% cited in the press release and we think about the third quarter, is it -- and also you guys are getting more price on that freight, I'm assuming that the incremental margins are something similar to what they were in second quarter if not better in third quarter, is that a fair way of looking at it?

They should be as good certainly as the second quarter.

Okay. So under that assumption and looking at your revenue guide for third quarter year-over-year, I think it's 20% to 25% growth, and I assume those incremental margins may be a slightly better than what you did in second quarter, and if I take the top end of the guidance -- revenue guidance range, it doesn't exactly line up with your EPS guidance range. I'm looking at a bigger number. Are there some incremental costs that I'm missing that would take some of that margin and EPS upside away, or is it potentially you guys being a little bit conservative looking at the third quarter?

It would be the latter.

Okay. Very good. On the pool distribution side of your business, understanding that there were one time costs you guys -- and removing those costs more of a modest operating loss in second quarter. How should we look at the second half of this year or are you guys expecting profitability in the second half and if so how does that breakout per third and fourth quarters?

Typically, Matt, if you recall, this business has more seasonality to it than our legacy business. Obviously -- and we are hopeful, I should say, that it has the Christmas rush and all the other positive things that go on in the second half of the year for them.

So yes, we do expect profitability in this operating segment. We expect that not only because of the improved revenues but because of the improved operations in our -- we've really pushed hard to clean up the model. And we think we will see some very good things coming out of that in the second half. The third quarter should be better, it should be right across a straight line first quarter, second quarter and third quarter up and then fourth quarter should be our best quarter in Solutions.

Okay. And you guys had previously discussed diversifying the customer base on pool distribution. I think you're in an evaluation process in terms of different industries or verticals that you can get into. Are you guys ready to talk about what those specific industries or verticals are and where you can add customers and diversify the freight mix within pool?

Well, we are complete with -- with our strategic plan to move into other verticals. I'm dancing on you here in case you didn't notice. And the reason I am, we really don't want to share at this point what those verticals are because all that does is feed the competition.

Okay.

And we are just not comfortable doing that. But I would like to say this, even though we are expanding verticals and we've cleaned out some of the retail specialty, the balance of our retail specialty customers we really like. We think this is a great model that we can build on into the future, that it has been overshadowed by this unbelievably slow consumer condition but the good thing about that is, it's taught us to rebuild the house, rebuild the foundation, and now again we think we have a strong foundation to build off of, not only with the new verticals, but with good retail specialty business into future.

Okay. Understood. And just a final question, looking forward and expanding that business, do you guys need to be profitable before you can potentially add on or make an acquisition within pool? Or is that something you guys would be able to do in the near-term even despite the fact that we are running at a slight operating loss in that business?

I think it would depend on acquisition, obviously. Who the candidate was, and would it accomplish all the criteria in terms of if we made the buy. Our Board has always been supportive of us. One of the beauties is if you bought somebody who is already in the other verticals, I mean we are immediately into that business, and we have the opportunity to expand it. So our answer to that would be, again, depending on opportunity, would probably be yes.

Okay. Thank you, guys.

Your next question is from the line of Nate Brochmann with William Blair & Company. You may proceed.

Good morning, gentleman.

Good morning, Nate.

I wanted to talk a little bit about, in terms of the volume strength throughout the quarter, in terms of whether that's coming from existing customer base or picking up a lot of new customers there. Also kind of a tangential question in terms of the acceptance of Forward Air Complete, that business seem to be doing better, whether it's because of market acceptance or whether it's because some of your own efforts.

Well the answer to the latter, our people have done a wonderful job at Forward Air Complete. As you well know it started off slow and it has just really taken off. I would like to think and actually I believe that without question our people have just done a terrific job and our customers for the most part make us prove that we can do what we say, as they should. And I think over the past two, two-and-a-half years, we've proven that we can deliver a really good product there, no pun intended. And as a result, they experienced really nice growth.

Okay. In then in terms of the other question, in terms of whether some of the airport-to-airport business is coming from new customers or kind of what you are seeing from the existing base?

We always bring in new customers but probably 95%, 96% of our business is from existing customers who have supported us throughout the year. They simply are having more business opportunities and as a result we get more business opportunities.

Great. Then just the last question, in terms of, obviously you're doing a very nice job in the price side, and just wanted to talk about in terms of where you feel that is in terms of market acceptance on that, too, in terms of whether you are getting push back or whether that's a little bit more easily passed through?

We really -- again, I go back and congratulate our team. They did a terrific job of taking it out to our customer base. Our customer base was very fair with us. Obviously we had not had an increase in over three years when we implemented the increase, and at some point you have to get an increase. Again our customer base was great with us. We are happy with where we have it positioned today. The only additional steps we have to take now is to really watch, as Rodney touched on earlier, our spots. Now that's not to say that we would -- that we are eliminating spots because there are many times it makes sense to spot. But we just want tighter control on it. We are happy where we are on the yield side. We haven't said that for a long time.

Sounds great. Thanks a lot.

Your next question comes from the line of David Campbell with Thomas Davis & Co.

Hi, Bruce, hi, Rodney. How are you? I wanted to ask you a little bit about the logistics business. Where have you seen the growth? You've got new customers and some of it international. Picking it up at the airports. What is going on there?

David, it's really across the board. But a lot of our forwarder customers, a lot of domestic and international airline customers have increased their business and a fair amount of integrated business. So it's really across the board, that strength.

And so it's sustainable at, where, $17 million? It's sustainable that rate?

We think so.

Okay. And in the warehousing and truckload brokage and all that stuff, seems to will relatively flat, doesn't seem to be growing like the rest of the business, any reason for that?

David, that is almost entirely temporary business. So a customer will come to us and say, hey, we got this situation, can you warehouse something for three months for us? It's a very opportunistic business. You will see it move up and down like that.

But there were times in the past where you would say things like that Dallas Fort Worth fixed-base -- not fixed-base, the tax-free operation there and you were going to try to do more of those, isn't that the kind of thing that grew that business in the past?

That was our pre-trade zone operation. We do that today in a in each terminal where they have the opportunity. Obviously in Huntsville, Alabama there aren't a lot of opportunities for that. We do have opportunities in the gateway cities and we do that and some of that revenue actually gets put in to the airport-to-airport. My answer to you is it's an important -- it's a nice little additional piece of business for us. It is really driven by the local sales and management team and where they have opportunities they take advantage of them, but it is not a singular focus of ours today.

Okay. Well you can't focus on everything at once. But you've identified the growth -- places where you are going to grow. That's the important thing. What about stock buying back stock? You haven't said anything about that for awhile. I know you have been trying to pay down debt, that still the plan?

David, I guess as we look at the cash that we are accumulating, the best way we can deploy that would be making the right acquisitions, so that's number one. To date we have not paid down any debt but as we come closer to our facility coming due and pricing is not going to be nearly as favorable as right now, we will start paying down some debt, but stock repurchases will be a distant third way that we would deploy cash.

Great. Right. So the final question is, you mentioned the consumer business is largely impacting your logistic -- your pool distribution business, but ultimately, if consumer continues to slow down, isn't it going to have an effect on your airport to airport?

I guess if we were economists we would be able to really answer that question. We have not seen that, David, over the last year. And you would have thought we would have during that period of time. So far, no, the answer is no. But, again, we are not economists.

Right. Okay. Thanks for the help.

Thank you.

Your next question is from the line of Edward Wolfe from Wolfe Trahan.

Thank you, good morning, guys.

Morning.

I know you've talked about pool margins but can you talk about when you think that you were going to see profitability in a non-fourth quarter and what do you need to do the make this a 10% kind of margin all year around business?

We need to continue what we started basically in the second quarter, Ed, and we literally went in and cleaned out some bad situations both on the revenue side and in some cases just not very well-executed operations. We will continue our focus on what I call Forward Air basics, where we operate better than anyone else and we expect is same on the Solutions.

So it's a real focus on the fundamental side of the business and I can tell you that their whole focus as we go through the end of the year will be, while we should and will make money in the third and fourth quarter, their focus will to be make money when we don't have that the benefit of -- the upsurge in revenue. So there is a lot of work going on.

Okay. I heard underlying those comments that profitability in third quarter?

Yes. Okay. Does there become a point or a level where you say, we are going to sell this business and focus back on the line haul or are you not close to that point at this point? Obviously, that's an option, Ed, but we are not there yet. We still -- we think we are very good moving freight city to city and moving truckload brokage. We really want to fill out the portfolio with a good delivery company. We should be able to do that. We have not been totally successful there yet, but we will be. Then if I have to eat those words, we will certainly look at selling them. But that's not even on our radar today.

That's fair. When you think about the economy, certainly we are hearing strength across freight, do you see signs from your customers that there is something short-lived with inventory restocking or anything else that might lead you to expect a slowdown or from where you see do you expect more of the same going forward for the foreseeable future?

Our comment on that would be, Ed, based on conversations with customers, is that while there may have been some restocking because it just got so low, they have very lean inventories at the store level. So I'm not convinced we went through a huge restocking process, especially on the consumer side. I think it's still very narrow there.

What is your sense for visibility to the strength of tonnage and volumes?

On the airport-to-airport side we think we have good visibility, at least throughout the balance of the year, and it's very -- it continues to be strong and we are planning for a strong balance of the year. On the Solutions side of the world, we are seeing some improvement there but our visibility at best is based on historical as opposed to looking forward. Historical we know we will have a good second half.

Okay. And when you think about pricing for line haul, you're getting a better yield than even the 5% you put in. Is it a possibility to get a second bit of the apple this year? Could you get a second increase? Could we? The answer to that os probably yes. Would we, no, because we have to be fair with our customer base. They were great to us, in giving us this increase. It's an increase that accomplishes our yield objectives, and I don't want to get into gouging.

Okay, if the world does slow in 2011, can you still get pricing then? Or is this something that you're going to wait to see where you are then situation? The way we view yield is, is it at an adequate level today that substantiates continued investment into our Company. If the yield is still adequate at that point, we probably would not do an increase. However, if things change and they typically do, we'll review our GRI again next year.

Okay, and then last kind of bigger picture. When you think of the way the line haul, your old ORs used to be 80% sub-80, and here you are, you're massively improved but you're still up at 86% or so. How do you think about what it takes to grind it back to 78% or 79%? Is it you need pricing or is there something beyond that.

We have to make sure we are comparing apples-to-apples Ed. When we were hitting the 78%, 79%, all systems were go. And we did not have these ancillary businesses that we've developed over the last couple of years. While we love truckload brokerage, we love Forward Air Complete, they do diminish our operating ratio a bit. They simply don't operate as well, although they produce good results. So the way we view it today as we sit here, is to get back to the 78%, 79% is going to be difficult unless a lot of things occur right, but we think the model will go back to an 82%, in that vicinity. That's where we are headed.

Okay. Thanks a lot for the time, I appreciate it.

Thank you very much.

Your next question is from the line of John Bond from RBC. You may proceed.

Hey, guys. Let me pick it up right there. Bruce, can you elaborate a little bit on what you think the ultimate timing is, and I'm not asking for a specific quarter but is it a 2011 event to get back to an 82 or it is going to take a little longer than that?

Our response is that it's strictly a volume issue. If we continue to see growth that produces really good revenue numbers, we could get there quickly. If we just move along at the levels we are today, which are good, I mean we are happy with those, it's going to take a while to get the rest of the way down. Okay. I think a long -- maybe it was last quarter, you talked a little bit about you kind of viewed the world, growth in 2010 and improvement in 2010 over some combination of the 2008 and 2009 results, not just looking at setting parameters based on what you did in 2009 but factoring in the good margin performance you had in 2008 and that type of thing. Is it fair to assume that we could get back to something in that 15% margin range that you posted in 2008, as early as the back-half of this year or is that a little soon? We are very hopeful. I think you know and others know that our focus this year has not been on 2009 but for comparative purposes to 2008. That's what we are driving for. And that is achievable again with the expectation for things to stay where they are.

Very good. Again kind of looking at the balance of the year, do you anticipate a real peak season this year for all of your -- for the core airport-to-airport and the -- obviously the pool distribution has a seasonality, are you anticipating a normal type of peak season?

I think we would best characterize it as just a normal peak.

Okay. So nothing out of the ordinary, but just kind of a normal continuation of the normal seasonality?

Exactly.

Very good. Just in terms of your tonnage, the LTL's have all talked about one of the fastest growing product lines has been truckload, we know how tight capacity has gotten in truckload, you've seen that spill over in to LTL. Do you think you seen -- do you think your core volumes are being influenced at all by maybe some pick-up of nontraditional freight into our system? Just given how tight that capacity is and has that volume cascaded down?

We can't sit here today, John, and tell you yes we seen that. Typically what happens in truckload capacity, jumps -- pardon me gets very tight is we see those are the guys that went after the forwarders and other customers trying to get their 5000-, 6000-, 7000-pound shipments because they could get enough money to keep the truck moving. What you see happening when truckload tightens up capacity is those shipments come back in to our network. We've seen a little bit of that. I think there is, while the truckload capacity is tight, I think people got a little bit carried away with it. I don't think it's that tight yet. Now it could get there.

Okay. All right. Very good. Lastly, just again a question on the pricing and the yield. You talk about -- I think the yield improvement was 5.7%, you talked about something nearly 2 percentage points of that was the result of base pricing improvement. As the year progress should we see similar yield improvement in the third and fourth quarter but maybe the pure pricing, the pure rate increase becoming a larger contributor to that yield number?

It will, John. I think I mentioned this earlier but the simply the fact that there was two out of three months in second quarter that we had the impact of the GRI and obviously we will have three out of three. We pick up 1.7% right there on base pricing plus we're going to be hammering on these spot rates and that's going to cause a pick-up, as well. So we are expecting improved core pricing for the balance of the year.

Do you have a feel for the breakout of your revenue spot versus contractual?

Today, spots on a percentage basis of tonnage, we are spotting about 10% of the tonnage.

What do you think is the right mix?

Something probably closer to 5% or 6%.

The thing tough remember about spotting it's a daily management process that we go through. For instance, on the weekends when we surge, our network gets filled, we don't want to do hardly any spotting. Because it doesn't make sense. There is not capacity available. However Monday night, we might do more. It's really important, that's why I said earlier we need to continue spotting, we just need to be smarter about how and when we spot.

Very good. That was a nice quarter. Appreciate your time.

Thanks very much.

Your next question come from the line of Ken Hoexter with Merrill Lynch. You may proceed.

Good morning, Bruce and Rodney. Just on the -- you noted there was building into a peak. Just want to understand your visibility, your advance views on orders (inaudible -- technical difficulties)?

Ken, you were breaking up, can you repeat the question, please?

Yes, I just want to understand what is your visibility, your advanced views on orders, both in the airport-to-airport and the pool distribution side.

On the airport-to-airport side, our visibility is tonight when they bring the freight. And literally it's that limited. On the other hand we know, Ken, historically we can project pretty accurately what the business will be. On the Solutions side, depending on the customer, we get as much as a month advance on what they're anticipating to ship.

Okay. As you are looking at peak, you are really just looking at maybe towards the end of August, I guess building into peak but nothing beyond there?

Yes, peak is a bit different, Ken, not to complicate it, but typically our larger good customers sit down with us, usually in August, and we go through a peak planning session, so that everybody is aware of what needs to be done and all of that. So we will know much better in mid-August or towards the end of August exactly what they are anticipating peak to do.

Great. On the low margin contract replacement you talked about, are there more opportunities like that to address some low hanging fruit?

Actually we are very pleased with our customer base today now that we are rid of the others.

All right. Great, thanks for the time.

Thank you.

Your next question is from the line of Kevin Sterling with BB&T Capital Markets. You may proceed. Good morning, Bruce, and Rodney.

Good morning.

Bruce, you talked a lot about your trends throughout the quarter, getting better each month, particularly in your core line haul. Can you talk a little bit about how July is shaping up now that we are near the end of the month?

We have had a good July so far. How about me saying that?

Okay. That sounds good. And there has been talk about pricing, too, and with your tremendous yield improvement, is this a sign that the squirrelly pricing from a year ago has abated, or is there still some squirrelly pricing out there in the marketplace?

We think it has abated. Obviously there is capacity some issues in the industry and it's really been helpful. In all candor, not only us, but the industry, needed for pricing to settle down and to gain some sanity.

Right. Then you're replacing that large customer and pool distribution, are you replacing the large customer with a few large customers or are you mainly focused on a myriad of smaller customers and pool distribution?

It was one large customer and three smaller customers.

Okay. Great. Well that's all I have, thanks so much for your time today.

Thank you.

(Operator Instructions). Your next question is from the line of Jon Langenfeld from Baird. You may proceed. Morning, Bruce, morning, Rodney. This is Ben Hartford in for Jon.

Morning, Ben.

Kind of to dive into the competitive landscape on the line haul side. Bruce, maybe could you describe how it's trended through the first six months of the year relative to your expectations, given what we know about the trends and capacity leaving and rates firming. Is it better, worse in line with what you would expect it to be today?

It's what I would say in line with what we expect, nothing dramatic out there. Fortunately most of us, both our competitors and us, are working hard to do a better job for our customer and not doing so many silly pricing things.

You talked about some of the acquisitions, sounds like the focus was on the Solutions side, but is there any opportunity, given the inflection in the market, given some of the opportunities that may have emerged over the past six months to do an acquisition, either on the line haul side or the logistics side?

I think that window is opening. I'm sure you are aware that people had sellers, if they were sellers a year ago, were of the opinion that if they sold they would be leaving money on the table, it was simply not a good time to sell. And then as result, if anybody was for sale it was a bad situation. We didn't want to get in to that. But we think that window is changing. So our eyes and years are open. Could you do any sort of meaningful acquisition on the line haul side or it's going to be focused on logistics and some of the ancillary services? There are probably a couple of decent-sized opportunities maybe on the line haul. But certainly nothing we are chasing today. Probably our bigger focus would be, from the Solutions standpoint, could we make a purchase of a Company who would help us quickly get in to the other verticals. If that were the case we would be much more serious about that than probably about anything else.

Okay, and then on the CapEx side, what do you have tart targeted for 2010, and have you thought about 2011? What kind of placeholder should we have there?

Ben, initially we said $10.6 million, as volumes have continued to tick-up we are looking hard at our equipment needs, whether or not that may change upward slightly, additional players, that kind of thing. We are looking at that now, but as we speak today it's $11 million.

For 2010?

For 2010.

Great. Thanks for the time, guys.

Thank you very much.

Your next question comes from the line of Art Hatfield with Morgan Keegan. You may proceed.

Good morning, Bruce and Rodney.

Hey, Art.

Virtually all of my questions have been answered, but just -- I hate to pick on the peak season thought process, but as you look out, not so much what your expectations are but if your customers come to you and all of a sudden there is a spike in air demand into this country and you've got a lot of customer freight to move, are you in a position to add the necessary capacity and be able to move that incremental freight profitably?

Yes.

Okay, why do you say that so quickly, if I may ask.

We have been through it obviously in past surges, so our people are -- they know how to handle increased revenues. We are not restricted from the standpoint of additional equipment, we go out in the market and buy it if we have a very heavy night out of Dallas, as an example, and will we need additional capacity to move that, we can do it. We have well trained people who can move it across the dock and we have a network that's set up to handle surges.

So you are not too concerned about if things are really tight in the truck market that you would be able to access the capacity and access it in a price that you would still be able to make money.

Without question we would still be able to make money. It does impact us if we are paying $2.25 out of LA where we were paying $1.50 three months ago, and if we pull it on our truck it's $1. So it does impact us, but that makes us exercise stronger yield discipline.

Got it, okay. That's helpful. So you could theoretically see margin pressure on a particular load, the incremental dollar would be positive to the Company?

Without question.

Okay. That's helpful, thank you for your time.

You're welcome.

Gentlemen, there are no other questions in the queue. Ladies and gentlemen, thank you for joining us today for Forward Air Corporation's second quarter 2010 earnings conference call. Please remember the web cast will be available on the IR section of Forward Air's web site at www. forwardair. com shortly after this call. This concludes the presentation, and you may disconnect.