Forward Air Corp (Delaware) (FWRD) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for joining Forward Air Corporation's first-quarter 2011 earnings release conference call. Before we begin, I would like to point out that both the press release and this call are accessible on the Investor Relations section of Forward Air's website 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 first-quarter 2011 results, which were furnished to the SEC on Form 8-K and on 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 may be deemed to be forward-looking statements. Without limiting the forgoing words such as -- believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by 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 forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future event or otherwise.

And now, I'll turn the call over to Bruce Campbell, Chairman, President, and Chief Executive Officer.

Thank you, Operator, and thanks to each of you for joining us today. We will again be very brief in our introductory statements so we can quickly go to the Q&A session.

In spite of the worst weather we have ever had to experience, our team was able to deliver solid, across-the-board results. We saw good revenue gains in each of our product lines, and more importantly, improving margins, which will bode well for the balance of 2011. We are grateful to have such a dedicated group of professionals working hard to deliver best-in-class results.

And now I will turn over the session to Rodney Bell, our Chief Financial Officer.

Thank you, Bruce. Let's jump right into the results. Operating revenue for the first quarter was $120.2 million, an increase of 12.3% from the first quarter 2010.

In our Forward Air, Inc. business segment, airport-to-airport revenues were $82.2 million, an increase of $11.2 million and 15.8% compared to last year. This resulted from a 4.1% increase in average weekly tonnage, and a 9.4% increase in yield. The yield improvement consists of 4.1% from line-haul pricing, a 3% benefit from net fuel surcharge, along with a 2.3% positive impact from Forward Air Complete, which grew 32.2% in the quarter.

Logistics revenues were $16.6 million, an increase of $2.6 million, and 18.6%, compared to Q1 of 2010.

Our Forward Air Solutions segment revenues were $15.2 million, a decrease of 7.2%, compared to the prior-year quarter.

New business wins were not enough to offset $2.8 million of impact from a loss of a major customer, and weather-related losses -- loss of sales in the quarter.

Moving to expenses for the first quarter -- consolidated purchase transportation was 41.8%, as a percentage of revenue, compared to 41.6% last year.

Within the Forward Air, Inc. segment, our people continued to match PT very well, with expense as a percentage of revenue at 44.6%, a 40 basis point improvement over last year.

Solutions slid 90 basis points compared to the prior-year quarter, primarily as a result of no longer having the proportionally high cost associated with loss of the large customer mentioned earlier, along with lower freight density on fixed routes.

Salaries and wages were down $175,000 or 330 basis points as a percentage of revenue. The increase in volume-driven variable salaries was more than offset by a large grant rolling out of share based compensation, better work comp, and health insurance experience.

Operating leases, D&A, and insurance and claims were down 60, 40 and 30 basis points as a percentage of revenue, respectively. Other operating expenses in dollars were essentially flat but down 100 basis points as a percentage of revenue. Good cost control within our Solutions segment, partially offset from volume-related costs from our airport-to-airport service, combined for this result.

Our operating ratio was 88.9% for the first quarter compared to 94.3% last year, a 540 basis points improvement in our OR.

Operating income was up 118%, or $7.2 million, on $13.2 million of additional revenues. We are now estimating our income tax rate for the year to be 40%, and that's what it was for the quarter as well.

Net income compared to Q1 2010, increased $4.5 million or 130%, to $7.9 million, and income per diluted share will increase $0.15 to $0.27, 125% increase from the prior-year quarter.

CapEx for the quarter was $7.3 million.

Cash increased in Q1 $11.2 million to end the quarter at $85.7 million.

We ended the quarter with $50 million outstanding on our line, and $38.3 million available.

Lastly, we anticipate the first -- the second-quarter revenue growth to be in the range of 8% to 12%, compared to 2010 period. And expect income per diluted share to be between $0.34 and $0.38, compared to $0.27 last year.

This concludes our comments. Now back to the Operator for your questions.

Thank you. (Operator Instructions). Our first question is from the line of Kevin Sterling from BB&T Capital Markets. You may proceed.

Thank you, Operator. Good morning Bruce and Rodney.

Good morning.

Bruce, any way to quantify the weather impact in your Solutions business in the first quarter?

That's pretty -- our views on that is that it's pretty much of a waste of time. You do the best you can and you move on. Obviously, it impacted us and it impacted us in certain cities a whole lot more than others.

Okay. Bruce, in the press release you talked about capacity being tight. Are your customers coming to you now looking to lock in capacity for peak season as a result of tightness you are seeing today?

Not in our airport-to-airport business. We do -- we have had a couple occasions on our TLX product line where we have locked in pricing going forward, which in effect, is locking in capacity.

Right. Okay. And some of the western truckers have reported -- have talked about seeing a bit of softness on the West coast, are you seeing any of that?

We did. It was an unusual first quarter in terms of balance for our airport-to-airport operation. And as a result, we had to fight through some tightness, in terms of being able to operate our system in the normal fluid manner that we do. We adjusted to that as the quarter went on. And then fortunately, we have seen the West coast come alive, so it is no longer an issue.

Good. Along those lines, could you comment on what you are seeing so far in April?

April is a surprisingly good month so far.

Okay. Well, very good. That's all I have today. Thanks so much for your time this morning.

Thanks, Kevin.

Our next question is from the line of Alex Brand from SunTrust Robinson Humphrey. You may proceed.

Good morning, gentlemen.

Good morning.

So I want to ask about two things primarily. One, the cost controls in the quarter were phenomenal. What are the thoughts about how sustainable those cost trends are?

Well, they need to be sustainable throughout the year. We are going to incur additional costs as the year goes on, strictly from additional volumes and the normal seasonality. It's a tribute to our team and Chris, and his group of RVPs, they just did an extraordinary job. We don't see that changing. Again, we'll adjust to increased volumes. But from an efficiency standpoint, they just did a terrific job; we think they can sustain that throughout the year.

What about, Bruce, on PT -- a sub 40 PT in the first quarter is, obviously, quite good; but aren't you going to need to jack up the rate per mile as the year progresses?

That could happen. We haven't faced that yet, we have done a lot of work -- Jeff Woods and his team have done a lot of work to ensure that we keep this number down. We are actively recruiting. We have had success in recruiting. Anytime we can run the freight with our owner operator versus going outside, it saves us money. Anytime we can balance the lane --- if we have to go to a TLX load, it saves us money. So we are doing all those things to push that back as far as we possibly can.

Now, what happens in August, September is what we are concerned about. Because we think we are going to see a really tight market. And at that point, we will address it. But right now, we are in good shape. Our team has done a good job with current situation and they have done a good job of preparing for the future.

And then on the volume side, can you, at least qualitatively, help us understand that 4% growth, how much was it affected by weather? And it sounds like it has really accelerated in March and maybe even into April. Just help us understand what those trends look like.

It's very difficult, as I said earlier, to put an actual number on that. But when you have cities that are shut down, obviously you know you have been affected. So we got through January -- we were on the plus side. We were happy with that, considering how many down days we had. We saw February improve over January, and then March made a significant step, and April has continued that trend.

Which is unusual for April. Is there anything you can point to, is there something that makes you think that it's sustainable in a month that usually is not seasonally strong?

Well, Rodney points out, and rightfully so, we have seen the West coast come alive. And throughout this process, even with the weather, the Midwest has just been kicking fanny. So we've seen a lot of really positives in spite of what we went through. And now with the West coast coming alive, we think this is going to carry on for a bit.

Last question for me, Solutions looks like it lost a couple cents in the quarter, and obviously, it's somewhat affected by weather. Can Q2 on be at least break-even or better?

Yes.

Okay. Thanks for the time.

You're welcome.

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

Hi, guys, it's Scott Weber in for Ken this morning.

Good morning.

Just following up on the last question regarding softness on the West coast versus East coast during the first quarter, can you give us an sense of what was driving that? While we have seen the West coast come alive, I'm just wondering what the causes might have been and trying to get a sense if those could rear their head again?

We can repeat all the things that you have probably already heard. Obviously, imports suffered a bit, there was available capacity on the rails. And if you look at the pecking order -- the last place they come to for capacity is a truck. So it had an impact on us. But then as volumes improve, we see the positive side of that. So we think it is back to normal. It appears to be back to normal. It appears that all the signs are there that that will continue.

Okay. Terrific. And then in the pool distribution business, have you purged all the lower margin contracts out of the business at this point? Are there still any legacy contracts that you are looking to replace?

No, we are in good shape there. Even though our results -- and trust me, we are results oriented -- but even though we don't have it where we need it to be, we have been through the painful process, and the painful part of it. And I would tell you they are operating as efficiently as they ever have. And as we bring on new verticals, which we have already had some success on, and many in the pipeline, you will see them really do a good job.

Okay. And then just following up on that end, and bringing in new verticals -- a fair amount of cash on the balance sheet here now, and when you think about maybe potential acquisition opportunities, is there anything left for you in the line haul --in the airport-to-airport line haul business? Or are the bulk of opportunities in the Solutions business? And if we were to think about potential acquisitions, would those more than likely be smaller tuck-in type acquisitions, or one or two larger-scale acquisitions?

I understand where you are headed, but our response to that is always that we will look at any acquisition that makes sense -- and by making sense that it fits within our current strategies, that it's accretive or can become accretive very quickly. And if that were a company that would enhance our Solutions business, we would certainly do that. If it was a company that enhanced our airport-to-airport, we would certainly do that.

Sure. All right, terrific, thanks for the time.

Thank you.

Your next question is from the line of George Pickral from Stephens Incorporated. You may proceed.

Good morning, guys.

Hey, George.

Bruce, in your -- in the press release last night for Solutions, you said we were going to build density from new business wins. You may have just alluded to it, but are these new business wins you already have, or hope to get over the coming weeks or months?

We brought on three in the latter part of the first quarter -- of decent size, not huge ones, so not to mislead you there. And then we have a number in the pipeline that we hope to bring in the second quarter and third quarter.

Okay, so both?

Yes. You're more succinct than I am, George.

Secondly, last year about this time you mentioned pricing gains in line haul. Given the volume trends, given the tightness in the overall truck market, is it -- should we think about pricing gains later this year, or -- can you maybe touch on that a little bit?

We evaluate our pricing situation annually. We're in that process today, as we speak. And when we are ready to announce that, we will let everybody know.

Got you. And last question here, incremental margins in Q1 were 55%. The midpoint of your guidance implies around 37%, which I think is also kind of your average, historically. How are you thinking about the sustainability of that number going forward? And you also mentioned getting back to pre-recession operating margins overall. Can you give any sort of -- A, the sustainability of the incremental margin, and B, how quickly or how long do you think it could take you to get back to that -- call it 15% to 18% overall operating margin?

Well, obviously, that depends on the environment, in terms of how solid are our customers and their ability to generate more and more revenue. We do reach a stage in any growth period where it will level off, and then we have to go squeeze harder to get to those margins. But if you go back to our pre-recessionary margins -- the best we ever did was, I think, a 21.5%, and we were helped by a number of environmental issues, I call them. One is, it was an extremely robust economy, and we had very good volumes.

Two, was there was great truck availability, so we weren't paying outrageous fees to move trucks. And a number of issues -- the pricing environment was very good. We weren't having to spot as much as we have throughout this process. So everything went right. And for us to get there, everything has to go right again. We think we are well on the way. We think we positioned in the first quarter about as well as we could, considering the circumstances. So we are happy with where we are. We think it is a bright future for the -- at least for the foreseeable nine months and we are ready to go.

Great. Sounds good and good luck with that. Thank you for the time.

Our next question is from the line of Edward Wolfe from Wolfe Trahan. You may proceed.

Thank you. Good morning, Bruce. Hey, Rodney.

Good morning.

Bruce, can you talk a little bit about operating leverage? It feels like there wasn't particularly strong tonnage, there wasn't particularly strong pricing, net of fuel, but this quarter it felt like we saw some leverage finally that we have been waiting to see. Can you talk about what's really kicked in here?

Well, I think -- and you are exactly right, that's what we saw, and we were all happy to see it kick in. But I think, again, if you look at our model, and as it moves up, it does a step function as opposed to a linear function. And we hit that, especially considering it was the first quarter. And I think the leverage now will really play out as we go through the balance of the year. So we don't anticipate any huge additional costs. If you look back two and a half years, we started incurring additional facility costs -- and those were all really good investments from the standpoint that, gee, everything was great, and then all of a sudden a recession hit, right?

So we are sitting on a $34 million facility in Dallas, and business was as low as it has been since 2002. So we looked stupid then, today we look pretty smart -- maybe not smart, but better. So all those investments we made in 2007 and 2008 are really starting to pay off for us now, in terms of us being able to handle the additional capacity and handle it efficiently.

If I look at 31 million tons per week in the quarter, versus a peak of 34 million tons in 2008 and more capacity added, it seems like 31 million got you back to one step. Where is the next step where, maybe back in the day -- you could do 31 million back in 2007, and have an 80 OR, but today because of the capacity additions, you need to be at 35, 36, 37 million. Do you have some idea where that needs to get to really see the leverage?

I'll give you a range. Remember, it depends on where it comes from. Because if you start throwing off balance, then that's a higher cost revenue. If it cedes balance, it's an even lower cost. So we think the number is probably somewhere -- 33 to 35, somewhere in that vicinity. But again, it depends on if it is low cost revenue, or high cost revenue. Not to confuse the situation, but balance is everything there.

I got you. How about fuel? Obviously, you don't have the fuel impacts that the truckload guys have, the LTL guys have the ability to recover in a higher fuel scenario. And you're kind of a hybrid that you pay your drivers truckload, and you get LTL, so I'm guessing fuel is a benefit here, as well. How much of a benefit. And how do think about that?

Fuel is a benefit if we execute. And the key to executing is obviously keeping our load averages high and minimizing empty miles. Because regardless of -- as you stated, we are paying the driver rate per mile and that's basically a flat rate that is out the window when we dispatch the truck. So our objective, and our operating group's objective, is to maximize that load average, so that they maximize the fuel surcharge revenue. When we are operating well, that bodes well for us.

And in the first quarter we did okay with it. We have done better with it in the past, in those peek seasons. And we have done worse with it, when we had some difficult operating circumstances. So we don't count on that. Obviously, if it is a good time, it'll be a benefit to us. If it is a bad time, it will be a negative.

Am I looking at it right, about $0.03 to $0.04 benefit in the quarter?

I think you are a little bit high.

You said that the West coast has come alive. And you aren't really a port company -- an ocean port company, you are more of an airport company. What do you mean by comes -- came alive? And how is it relative to the East? And when did you start to see it come alive?

We really saw it start popping a little bit at the end of March, say mid March to the end, and has continued. And when we say come alive, we simply had more volumes. We had gone through -- which is very unusual for us. We had gone through the first part of the year with -- it wasn't horrible, just the West coast typically leads us in terms of revenue. They were caught by Chicago and the Midwest, which by the way, is a good thing, not a bad thing, because they were really doing well. But we are back to where we wanted to be.

Am I right about that though, you are not really in the ocean ports, you are more at the airports there?

Yes, but what happens there -- if you look at the chain, it just keeps getting bumped. So when there's a lot of capacity, they go the cheapest way. We are the high price provider, right? So they just bump their way down, and then they will bump their way up when capacity gets tight.

Right now, where would you say the West is, relative to the Midwest and other parts of the country?

I would say we are about two-thirds to 75% of where we expect to be.

Meaning the West is not quite up to where the others are, or everything is not quite right you think it's going to be?

The West is not quite up. They are well on their way.

Okay. Just as a refresher, how do you pay your owner operators? Is it per mile, is it percentage of revenue?

It is all per mile.

So are you seeing some pressure there? I know some of the larger truckload guys like Schneider and some others have started to put pay increases only on the owner-operator not on the company side yet. Are you starting to see any of that inflation pressure or not yet?

We have not yet, realizing that obviously our system is a bit different for the owner-operator than an irregular route carrier. And we bring certain qualities that they can't, simply by the nature of our network. Does that mean we're not going to have an increase? Probably not. But we are going to work very hard to make sure that if we do have an increase, we can recover it through productivity.

And last question. Solutions -- if Solutions is operating close to break-even in first quarter, should we think in terms of, what was a 7% or 8% fourth-quarter margin in the last couple years, could be a 17% or 18% in the fourth quarter again?

I really think that's a true statement.

Okay. All right. Thanks a lot for the time. I really appreciate it.

Thank you.

Your next question is from the line of John Barnes from RBC Capital Markets. You may proceed.

Good morning, guys. Bruce, looking at the Solutions business, you talked about the three customers I think you brought on at the tail end of the third quarter. Could you talk a little bit about what kind of verticals you are pursuing there to diversity away from all of that retail exposure?

The big push is really in three areas. One is medical equipment -- let's just throw it under medical. Two is the hotel industry, believe it or not, that's a really nice little niche. And then the third there -- they are doing almost a mixture of different timed deliveries, so it's so much key to the vertical as it is to the type of delivery demanded.

Okay. Can you -- with those new customers that you brought on, what's the mix now, retail versus non-retail?

Still, by far, dominated by the retail. Which again, we are okay with. We are trying to remove some of the seasonality of that business model and as we bring on these other businesses -- or other verticals, I should say, we are hopeful that it does.

All right. Do you have a feel for what that break down between retail and non-retail needs to look like for Solutions to be profitable consistently in the first quarter?

We would probably look at a minimum of 25% of it being outside of the typical retail delivery.

All right. Very good. In talking to a couple of the truckload carriers about the current bid season -- and I know you don't get as caught up in that as they do -- but a couple of the truckload guys have talked about shippers have gone into witness protection. Whereas a year ago they were out in the marketplace banging away for lower rates, this year they have gone into hiding and are making the carriers come to them. Have you seen anything similar, as you have had rate negotiations with your customer base, that it's a little bit harder to get in front of them right now? Or are you still having pretty good success at sitting down and having the conversation?

Our truckload business is somewhat specialized, in that we primarily want expedited traffic. We didn't get banged horribly hard a couple years ago, although we were pressured, as everybody else was. Nor are we going to go out and beat up people and jerk them out of the witness protection program and make them pay higher -- outrageously higher rates. So we really try to keep this on a rational basis, as much as we can.

Okay. And then lastly, just going back and taking a look at that tonnage per day, in getting the right operating margin back to maybe where you were in the prior peak. Can you just -- is that a one -- is that kind of a one cycle event, that you can get there between rolling through the next year on your rates and kind of continue the rate -- increasing the rates like you have the last year or so, getting the volume? Do you think you get there, kind of in that one-year period? Or do you think this is a couple of rate cycle process -- you need a couple more years of volume growth to get back there? Or do you think it's sooner on the timeline?

Well, we hope it is sooner. And I think, in reality, it should be. We always -- it's obvious that besides price, we have to control our costs, so -- in order for us to get to the margins that we want. Now, the costs that we have absolute control over, we're comfortable that we can do that as we move forward. We have great systems in place and we have great leadership. The costs that we don't control, for instance, outside carriers, those are the ones that we're concerned about as we go forward.

So the answer to your question is, all over the place. If we execute well, if we can manage our yield well, then we can get there quicker. If we start running, however, into pricing -- or costing situations, then it's going to be tougher to do. We think, again, we are positioned well to get there. But we'll have to watch the environment because it will have an impact on us, obviously.

All right, and then just one question about the network at this point. You made the investment during the downturn, I like the idea that you kind of kept spending on the network and got it where it needs to be. Where do you think you stand in terms of further investment on a go-forward basis? Is it we are going to see a lower level of investment in the network over the next couple of years, as you digest what you have already put in place? Or are you already seeing, with some recovery in volumes, some stress points in the network that are going to have to be addressed?

We are in really good shape, John.

Thanks for your time, nice quarter.

Thank you.

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

Bruce, Rodney, good morning.

Good morning.

I know there's been some consolidation going on -- or co-locating of facilities with the airport-to-airport business and the pool distribution business. How much more of that is there to be done? And then what benefits should we be seeing on the Solutions margin from that?

We are -- today, I believe, it's 11 out of the 19 terminals are now consolidated. And the benefits, obviously, come from paying one rent as opposed to two. We are as far as we can go with that, at this juncture, until we see leases expire and then we can move forward. And that will occur over the next year and a half or two. The other cost advantages are -- we obviously think when we have our team together as one, that we provide a much more efficient product and that efficiency is spread over both the airport and the pool business. There are a lot of things there, David, that impact us and help us.

And then, when I look at average shipment size in the airport-to-airport network, it is up off the bottom, but it's still about 10% below where it was in 2008. Do you think that's really just a function of the economy -- after (inaudible) fell, when the economy fell and it has recovered -- as the economy has recovered, is that a good economic indicator that you look at? Do you expect to see heavier average shipment size as the recovery gains traction? What's the impact there on the margin?

We obviously, as we talked about in the past, watch that number very closely. What could be clouding that, David, is the fact that typical shipment sizes are shrinking throughout the industry. So that's not just a Forward Air phenomenon; that is across the board.

You can look at all the various products that are shipped and see that they are compacting and becoming smaller. So there's a little bit of that in it. But I also think -- our view is that we will see that number continue to grow, probably throughout the year. We are hopeful that it does. And it'll probably peak sometime in early December.

And if you look at the complete traffic versus your normal airport-to-airport line haul traffic, is there a difference in shipment size in those shipments?

Not really.

And then when you look at your trailer fleet, I know you don't have a lot of assets, has that been aging at all through the downturn? Are there any replacement trailers that need to be -- a little bit more than normal in the next cycle?

The quick answer to that is we did slow down our purchases throughout the recession, but we did continue to buy. The fleet is a bit older but not -- certainly not out of any normal standard that we couldn't live with. We are in the process of bringing on 200 trailers, as we speak. We will view that in terms of what the does volume look like for the balance of the year, and if we need to go back and supplement that, we will.

One of the things we did do during the recession was begin using some leased trailers to give us some flexibility, in terms of going up and then we had the ability to rid them as times slowed down. So you will probably see us do a little bit more -- a little bit more of that throughout the year.

And then, on the brokerage side, the margins weren't squeezed in the first quarter, but truckload rates have certainly been rising since then. Is the cost per mile up in April, significantly? Have you been able to offset that with higher rates to the customers?

It's -- David, it's Rodney. It is pretty consistent with what it was in Q1. I know what everyone is saying, that it is timing and we know that it is, and certainly region by region, you see it. But thus far, there's been really no impact.

Excellent, thank you very much.

Thank you.

Your next question is from the line of Jon Langenfeld from Robert W Baird. You may proceed.

Good morning. Just to piggyback on the last question, in terms of brokerage; how has the purchase transportation rate off the West coast specifically trended -- not necessarily your owner-operators, but more your -- the flex capacity you use?

I'm not really sure we know, John, because we had our owner-operators out there, and didn't have the need for going outside. But today, and I think we need to stress this, today we don't feel the pressure. We, however, are anticipating it. So far so good, but we're not sure that's going to continue through the year.

Okay. And then the revenue per mile, and the cost per mile, relatively flat in that brokerage business, obviously your volume was up nicely; but I'm assuming there's some mix effect, in terms of the type of product you're -- or the length of haul or something going on there?

Not really. It was a fairly normal -- in terms of business moves. Remember, in that group -- in our TLX group, we run a number of our own owner-operators, that helps us keep the cost down. We have a number of good contracts that tend to be very stable, so it's not quite as irregular route as maybe a typical truckload operation. So we should be able to keep that as we go forward in balance, if you will.

Okay. And -- I'm guessing, though, that the revenue per mile trends up with the -- maybe not at the same magnitude, but it trends up as truckload rates go up?

Yes, it absolutely will.

Okay. And then the personnel cost side, you addressed this briefly in your prepared remarks, but the fact that the core business personnel cost was only up 2%, how does that trend moving forward? And why was the increase so modest, relative to expanding volumes and business activity?

Well, there's a number of things. Let me talk on the productivity side and then let Rodney do the other. On the productivity side, we have never been more efficient, in terms of handling freight. And we know that because we measure it every single day. So that is a significant portion of that cost, and Chris and his team have done a really good job of being extremely efficient in that area. And the other thing that helps them, obviously, is volume. So whenever we experience volume increases, especially when you are looking at a year-over-year basis, they should be able to do that.

So then on the other side -- Rodney.

John, there were three items that offset the increase due to higher volumes in the network. The first was -- and they are all about the same size of magnitude, right around $300,000 each. The first was a grant that rolled off out of share based comp back in the fourth quarter. That may come back in and may not come back in, as far as recurring.

The second item was health insurance; we tweaked our plan late last year, which went into effect the first quarter to -- we basically recognized that our plan was too rich versus our peer group, and dialed that back a little bit. So that's going to be recurring.

The third item was, we had better work comp experience. We hope that is recurring. It is a focus area that we will be as safe as we can on our docks and keep our people from getting hurt. So that really mitigated the uptick in dollars.

Okay, good. And then last question, what were your volumes in March, on a year-over-year basis, in the core airport-to-airport business -- percent change?

They were up 6% in -- for the entire month, they were up 6%.

So that was basically consistent with the full quarter?

The full quarter was a step. So the full quarter was 4%.

Okay, so on a daily basis, it was up 6%? Your total pounds for the quarter were up 6%. Pounds -- weekly pounds were up 4%, but that 6% compares to the 4% on a weekly basis?

Correct.

Okay. Thank you.

Thank you.

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

Good morning, gentleman.

Good morning.

Hey, Bruce, wanted to talk just a little bit here on Jon's question, in terms of looking at the weight, in terms of the number of pounds per week. How did you see that trend throughout the quarter and then into April?

Part of this is going to be a little bit of BS and that's because we have to temper it with the weather impact. So what we saw in January was improvement, but not big improvement, again, tempered by -- we had cities shut down. We saw that improve on a month-over-month and a year-over-year basis in February. And then we saw it again when we really got going full bore in March. And we have seen the -- so far in April, the number continue to improve.

And obviously, that's a pretty good indicator to give you the confidence going forward of just the various levels of economic improvement, I would assume.

It does.

And when you talk about -- you have obviously talked a lot about on the West coast and what has gone over there, and you talk about the strength in the Midwest; is that just general economic activity, or do you think that you are gaining some share? Or is that new business wins for you? Just if you could elaborate on that a little bit.

I think the simple answer, and the true answer is, it is a combination. But without question, in the Midwest, the economic activity is greater.

Great, very helpful. Thanks, Bruce.

Thank you.

Your next question is from the line of David Campbell from Thompson Davis. You may proceed.

Good morning, I wanted to ask you a couple of questions about the expedited business. You mentioned your truckload business is -- a lot of it is expedited in logistics. So did that pick up in March, like you mentioned some parts of your airport business, the West coast for example? Did the expedited pick up, as well?

It did, David. Very comparable.

And that has continued in April?

It has.

Is that more or less than it has been in prior years -- that is, the seasonal change?

On a year-over-year basis, we are up.

And in prior years that didn't always happen?

In prior years, April has not always been a stellar month for us. But so far it has been.

Right. Right, right, right, right. And remind me, you had a rate increase in the airport-to-airport business in the second quarter. Is that correct?

Yes, it was effective May 1 last year.

A 5%?

It depended on the customer, in terms of their classification, but in general, 5%.

Right, right. And Rodney, what about CapEx for the year, do you have any new numbers?

It is consistent with the prior guidance, David -- so $19 million to $20 million.

And most of -- some of that is for IT, and some of it is for warehousing and so forth?

It is primarily revenue, equipment, forklifts, trailers, and then IT also.

Right, right. Are there any new developments in information technology that you can talk about, that's adding to the efficiency of the Company?

Well, we touched on this earlier, David. During the downturn we made the decision to spend on some maintenance software that we're utilizing and getting some really good information. As we look at our aging trailer fleet and determined which trailers to roll out of that, that will give us some real good information to make decisions on which pieces of equipment are costing us the most, so we can make informed decisions. But other than that, it is pretty much just the normal kind of enhancements that you make when you build your own IT system.

Right, right, right, right. And you mentioned before, in answer to a question, that you thought there might be some August and September tightness in capacity, that's just a seasonal situation that usually happens. Is that what you are looking at?

Well, we are doing a couple of things there David, one is -- everything you read says that the number of carriers and the number of drivers shrink as we go forward. If that happens or not, we don't know. But I think it is incumbent upon us to prepare for it. So our whole focus has been to make sure that we are in good position, that regardless of what happens to outside capacity, we can handle our needs. And that's our whole push.

Right, right, right, right. Okay, I think that the rest of my questions have been answered. Thanks for your help.

Sure.

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

Hey, thanks. Good morning, Bruce and Rodney. I will be quick. The owner-operator account and a tight driver market currently -- Ford being able to keep relatively healthy numbers, and a good balance between your -- the volumes you drive inside of the network, and the purchase transportation volumes that go outside of the network; just curious as to how you have been successful in maintaining and growing the owner-operator account, and your thoughts on owner-operators moving out this year, in a tight market?

We would again point you back to -- we think we have a very unique company for an owner-operator to work for. They don't have to go through the -- what we call the irregular route syndrome. They tend to know when they are going to run, when they are not going to run, they know how much money they are going to make -- all of those really positive qualities that are provided by our network. So that's -- that helps us in our recruiting.

And then I think when -- we pay well, we treat them well, we -- they are a viable part of our Company; we want to make sure they know that. And our people do a good job with that. So all of those things -- a lot of intangibles add up to giving us success on the recruiting trail. And not to mention, we have some really good people who recruit. So we have got a lot of emphasis on that going forward in 2011, and you will see us continue to do that.

Okay. And growing your freight volumes doesn't hurt either. Looking out, do you think you are well-positioned enough, with the owner-operator count where it is currently, the ability to successfully recruit at this point, where you are able to keep a better balance of volumes being sourced in-house versus having to go out into the market, into a rising price purchase transportation environment? Or do you think, as we move out and we go closer into this August, kind of peakish time period, you are going to have to source a greater amount of loads outside of the network, and that balance gets a little bit skewed, if you will?

Right. Well, today, we are positioned well, and our goal will be to make sure we are positioned well in August, which obviously will require additional owner-operators. And it will also require that we make sure we are keeping the network in balance. Because if not, it's hard to use the owner-operators. So a lot of work going on in that area.

Okay. And does that -- I'm guessing recruiting costs, and you spoke to it a little bit, but recruiting costs could be increasing this year, potentially taking -- upping the wage a little bit with your drivers? How are you thinking about that?

If we look at recruiting costs, any time we get into a situation like we are today, it will go up. But it is not a significant number. In terms of the driver -- the actual pay to the owner-operator, we will assess that as we go forward. Today we are okay with where we are at, but again, that's an ongoing assessment.

Okay. Swinging over to the pool business, you have talked in the past regarding diversifying the revenue base. It sounds like that -- those efforts are starting to bear a little bit of fruit. My question is, when do we start to see larger accounts outside of specialty retail start to sign up and start to simulate stronger revenue results at pool?

Well, we are hoping to see that this quarter, Matt, but that's a sales cycle that can be as short as three months, and as long as a year. We are about -- we are hard into the fourth month of a new sales program. We have had some success. We haven't had the great big one that we would like to bring on, but I think we are well on the road. So we are hoping that sometime in the second quarter, no later than the third quarter, we are able to do that.

Okay. And final question, fuel spiking up and where it's at currently, how does that impact? Or do you look at that as a positive, i.e. shippers using a greater amount of the deferred air freight to try to lower their costs and get away from paying for actual air freight? Or is it potentially a negative?

It's really neutral, because the day of going in the air in the domestic market is just about over. I mean the only time we go in the air is truly emergencies. So it's really a neutral impact on us.

Okay. On the international side, though -- conceptually thinking about it, the West coast picked up in March; fuel obviously made a very big move in March, potentially have shippers -- has fuel reached a tipping point where shippers are looking to shift away from the final leg of the journey on a plane and flipping that freight over to you guys -- have you heard that from your customers? Was that part of the pick up on the West coast?

I follow your theory and it makes sense. But I can't sit here -- and I don't think anybody in our Company can say that's in fact what happened. It could have been.

Okay. All right, guys, thank you.

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

Great, thank you. Good morning, everybody. I apologize, I jumped on a little bit late, so hopefully I'm not redundant. Bruce or Rodney, can you talk about -- in the revenue guidance for the second quarter, did you give a break out -- is pool distribution, is that revenue expected to be up on a year-over-year basis in the second quarter?

It is expected to be a break, as far as the guidance goes, Todd. We were hoping for some upside but we are not counting on it.

Okay. So the expectation is that pool distribution revenue should be flattish?

Yes, flattish.

Okay. That's helpful. And the only other thing I have is -- I would just be curious to know -- or hear a couple of comments on Forward Air Complete. It's probably been two years since there's been a lot of focus on that business; it's had some good trends in the past couple of quarters; shipments up 20-ish% or so, looking like it is favorably impacting yield. I was curious to hear what you had to say about what, specifically, is going on there.

They have just done -- and they being our complete management group -- and then all our ASMs, our sales people and managers have done a terrific job with this product line. They continue to gain traction. I'm convinced, as we go forward, they will gain more and more traction, because of the ease of doing business, number one; and number two, their ability to execute as the customer wants; and number three, our ability to provide the IT, the information flow that the customer wants. So we are extremely pleased with that. We have had great leadership and our people have really done a good job.

An so is there still a lot -- is there still opportunity in that business, let me ask it that way, that you can continue to see that sort of shipment growth, and those sorts of trends, going forward?

One of the numbers we look at every week, Todd, is how many shipments had a complete attachment to it. It's gone from, obviously, zero, but we got stuck around 10%; we've got it up to 14% of the shipments now. So that tells us that we have a lot of opportunity. We will never get to 100%.

Right.

But there's still just a lot of opportunity there.

Okay, good. That's really all I had. Thanks a lot for the time, nice quarter.

Thank you.

And ladies and gentlemen, thank you for joining us today for Forward Air Corporation's First Quarter 2011 Earnings Conference Call. And please remember, the webcast will be available on the IR section of Forward Air's website at www.forwardair.com shortly after this call. You may now disconnect.