Hub Group Inc (HUBG) 2008 Q2 法說會逐字稿

Good afternoon, and welcome to the Hub Group second quarter conference call. We will begin with a discussion of the financial results led by Terri Pizzuto, Executive Vice President, Chief Financial Officer and Treasurer, followed by an overall business discussion to be conducted by David Yeager, our Vice Chairman and CEO. The company will make its prepared presentation followed by a question and answer session. Mark Yeager, President and Chief Operating Officer will join us for the question and answer session.

At this time all participants are in a listen-only mode. Comments made by Hub Group employees during this conference call may contain forward-looking statements. Actual results could differ materially from those projected in these forward-looking statements. Our SEC filings contain additional information about factors that could cause actual results to differ materially from those projected in these forward-looking statements. Copies of these SEC filings may be obtained by contacting the company or the SEC.

Now I would like to introduce Terri Pizzuto, the Chief Financial Officer of Hub Group. Please proceed.

Thanks, Denise, and good afternoon. We are glad to have you all with us. I want to begin by covering three things. First we had a record quarter on a difficult comp. Second, we are excited that we grew net income and intermodal volume in spite of the challenges that we face from the sluggish economy and owner-operator strike in northern California and the service delays caused by the floods in the midwest. Third, we maintained our cost discipline and we started to see some results from our sales growth strategy.

Here are the numbers. For the second quarter, Hub's diluted EPS increased 14% from 2007 to $0.40. Hub's second quarter operating margin was 4.9%. That's compared to 5.5% in 2007. At the end of June we had $54 million in cash and no debt.

Now I'll discuss details for the quarter starting with revenue. Intermodal revenue increased 17%. This change includes a 5% volume increase and a 12% price increase related mostly to fuel. Last year we also grew intermodal volume by 5% in the second quarter so we are feeling very confident about our ability to grow our volume this year. The two biggest increases in volume during the quarter came from our consumer products and transportation customers. Volume with our consumer products customers was up 7%, mostly in the food and beverage segment.

Volume with our transportation companies was up 32%. This includes our wholesale customers that travel on the BNSF Railroad and third party logistics companies. We've been successful in holding on to existing business and winning new business during bids. Some of the customers we grew with converted freight from truck to intermodal.

Truck brokerage revenue increased 34% due to higher volume, pricing which includes fuel and mix. Some of our fastest growing truck brokerage customers are retailers. We were again able to grow with both new and existing customers because of our collaborative approach and differentiated service. Many of our truck brokerage customers think of us as the core carrier since we use a consistent carrier base and have a high level of on-time performance. The pipeline of business in truck brokerage looks promising.

Logistics revenue was 50% higher than last year due for the most part to new customers. We are continuing to bring on new logistics customers and save them money. For example we recently landed business with another bottle manufacturer that will start up in September.

Gross margin grew by over $2 million during the quarter. The two biggest contributors to this $2 million increase were logistics and truck brokerage. These increases were partially offset by costs related to the owner-operator strike in northern California.

Let me give you the story on the strike. Owner-operators from the major drayage companies in northern California staged a work stoppage most of the month of May. The owner-operators wanted more pay because of skyrocketing fuel costs. We had 68 owner-operators working in Stockton before the strike. We think that our fuel program was fair and closer to the top end of the market. In fact we didn't have any problem hiring or keeping drivers before the strike. Our drivers were intimidated by threats of violence and so they chose not to work. We then had to pinch hit by flying in employee drivers from our other locations and renting tractors for them. A couple of our carriers helped us by providing dedicated drivers. Hubs' intermodal operations management was stationed on site in Stockton to help ensure things ran smoothly.

Our drayage costs for the month of May were more than twice what they would normally be in Stockton. We spent an extra $1 million related to the strike. We are proud that our team worked diligently and creatively to make sure that there was minimal distribution in service and that loads were covered. To prevent this from happening again we're moving toward a mixed operation in Stockton, that is made up of both employees and owner-operators. We currently have 63 drivers in Stockton, a little less than a third of them are employees.

You can see that our yield in the quarter was 12.2% compared to 14.4% last year. The 14.4% gross margin last year was unusually high. The four major reasons for the yield compression are, number one, intermodal pricing excluding fuel was down between 1% and 2%. Its competitive out there. We are protecting our base of business and bringing on new business at slightly lower margins. Once we have that freight inhouse we work on improving the margins.

Number two, truck brokerage margin deteriorated 200 basis points since capacity started to tighten and we covered loads with less than desirable margins. I'm going to tell you how we'll fix that in a minute. Number three, because of dramatic jump in fuel costs and some customers lagging with fuel surcharge adjustments, fuel negatively impacted our yield compared to last year. Number four, the strike in northern California cost us an extra $1 million in drayage.

Total cost and expenses for the quarter were $35.8 million. That's compared to $35.6 million last year. We expect that our quarterly cost and expenses will be in the range of between $36 million and $38 million for 2008. We had 1,086 employees excluding drivers at the end of June. That's an increase of 15 people compared to the end of March. Most of the people that we added were in logistics and truck brokerage. The gross operating margin was 4.9% compared to 5.5% last year. While it's a difficult market, we are still shooting to improve the operating margin. There are three areas that we are focused on. First, David Marsh, our Chief Marketing Officer, and his team have the strategies and plans in place to increase our volume and take advantage of our scalability.

Second, we are working hard to improve the yield in truck brokerage. As I said we had an issue in the second quarter where we accepted loads with low or negative margins. Now we have the processes in place to require management preapproval before we take any low margin freight. We will also do more bids with truck brokerage carriers and implement detailed customer action plans. Third, we can increase intermodal yield by more effectively use our new optimizer, purchasing drayage at lower costs and continuing to work on improvement plans for lower margin customers.

Turning now to our balance sheet and how we will use our cash. During the quarter we spent $1 million on capital expenditures. We bought 4,900 shares of stock in July. What will we do with the $54 million of cash that we have? One option is buying stock. We have $74.8 million remaining under our current share buy-back plan that doesn't expire until June of 2009. Our board prefers that we use our cash for acquisitions. So we are continuing to look for drayage in other acquisitions that are current with our strategic plans.

Now I will discuss 2008 full year earnings guidance. Each quarter end we compare our full year EPS forecast to the publicly available analyst range. For 2008 we are comfortable that our diluted EPS will be within the current analyst range of between $1.59 and $1.69. The weighted-average diluted shares for 2008 are estimated to be 37.6 million. To wrap it up, we are happy with our progress this quarter. Our earnings per share climbed 14% in a troubled economic environment. Hub has a winning team and we are in a strong position for the future. And with that I will turn it over to our CEO, Dave Yeager.

Great. Thank you, Terri. Due to impressive intermodal growth and a solid quarter from truck brokerage and logistics we produced another record quarter despite a slow freight economy. Our intermodal business grew nicely during the quarter with volumes up 5% over a tough comparable in '07. We brought on some new business and had better success in bids versus prior years. We remain focused on growing business in corridors that have the most positive impact on our network. Although the realignment of our sales and pricing and marketing groups last fall is still quite recent, we do believe the changes we made in these areas helped contribute to our growth and allowed to us take share.

Last quarter we predicted that our intermodal volume would be up for the year despite the decline in the first quarter. After just six months our volume is already up for the year thanks to strong growth in the second quarter. Although in the past you've seen us grow volume one quarter, and shrink the next, we expect to continue to see volume growth in both the third and fourth quarter's of this year as our intermodal pipeline remains quite robust. Rail service improved in April and May. Due to the well publicized flooding in the midwest, we did see rail service deteriorate in June. However, the railroads managed to keep freight moving despite very difficult conditions. We were very impressed with how quickly they rebounded from the floods. Their networks recovered more quickly than in years past and service is approaching preflood levels.

Our intermodal volume was no doubt hurt by the floods, but it's very difficult to quantify the exact amount of lost business. 53-foot capacity was generally adequate for most of the quarter, but definitely tighter than last year. Fortunately Hub has already received approximately 400 of the 1,000 additional new containers we are getting this summer. The rest will be in place before peak season. The utilization of our fleet continued to improve during the second quarter even with the drayage strike in northern California and the flooding in the midwest. Our operations team is doing a great job deploying the fleet in the lanes where it makes the most sense for our network and keeping the fleet turning. As far as ISO containers, consistent with what we saw in the first quarter they remain in short supply. We expect that tightness to continue through the year.

We are very pleased with the performance of our intermodal business and believe we have the right long-term rail strategy. We have a strong partnership with each of the four major US railroads and are the largest IMC on each network. By having a significant relationship with each railroad we can take advantage of areas where given a railroad has a particular cost or service advantage. An example of that is for loads going from the west coast to the midwest BNSF has the best service offerings. For loads going from the west coast to the southeast, Union Pacific has the best service. Since we have a significant presence on each railroad we can offer our customers the best price and service combination available. Additionally certain markets are only served by one railroad and by being in each network we can offer our customers access to all available intermodal destinations.

We feel very good also about the future of intermodal. The railroads continue to invest in their networks and are working to improve service. At the same time, many of our customers are beginning to focus on green initiatives and are looking to reduce their carbon footprint. Our intermodal service not only saves customers money, but is more fuel efficient than truck and is better for the environment. As an example we recently examined the network of one of our largest consumers products customers. By converting a portion of their freight from truck to intermodal they can reduce their carbon emissions by 29,000 tons per year or 52% while saving 28% on their transportation spend. We think these trends bode well for intermodal over the long term.

Our brokerage group had another excellent quarter. Revenue was up 34% over last year driven by new business wins. We continue to benefit from our efforts to cross-sell our truck brokerage to existing customers as we have better trained and equipped our sales force to sell this product. Truck capacity did tighten unexpectedly in the second quarter and covering the freight became more difficult. Quite frankly we were a little slow to react to this tightening of capacity and we took some loads at undesirable margins. We put processes in place to fix this as we believe both truck and intermodal capacity will be tight in the third and fourth quarters of this year.

Our Unyson logistics business remains very strong with revenue up 50% for the quarter. We completed the on-boarding of two customers in the second quarter and expect to have two additional customers fully on-boarded by the and of the third quarter. Our logistics team has proven to our customer base that we can save money and improve their operations by outsourcing to us. Logistics has a solid pipeline of new business pending and we expect to see continued impressive growth in the coming quarters.

In conclusion we are proud to deliver another record quarter. We managed to grow our intermodal volume by 5% and both our truck brokerage and logistics revenue by double digit levels in a tough freight market. We had had another quarter of healthy free cash flow and remain a debt free company with significant cash on the balance sheet. Thanks to our asset-lite business model and preferred position with all of our rail partners, we like the future of our intermodal business and remain confident we can continue to grow both truck brokerage and logistics over the long term. We appreciate the confidence that our investors and customers have placed in us and we look forward to a great second half. With that we can now open up the line to any questions that you may have.

(OPERATOR INSTRUCTIONS) We would appreciate it if each of you would limit your questions to no more than two questions each. (OPERATOR INSTRUCTIONS) Your first question comes from the line from Edward Wolfe from Wolfe Research. Please proceed, sir.

Good afternoon, everybody. Thanks for that explanation. It's such a change in the operating environment where you go from a low growth and yield expansion to this big uptick in growth. When you look through the gross revenue growth at your truck and your intermodal business let's take logistics out of it for now, how much of that is demand is improving a little bit, maybe some mode shift or market share and how much of that is the sales force is really starting to kick in and you get a sense that this is individual to Hub? How do you look at these things?

I would say, Ed, that this is individual to Hub. I believe that we are taking share. The sales force is beginning to kick in and some of our focus that we've had is beginning to pay off. So I do believe it is specific to Hub. I don't really see the overall freight market improving much over the last several quarters, Mark, I don't know if you have anything to add on that.

No, I think I would agree with that. When you look at it, one of the major things we did in November was put together an enterprise accounts group and we saw a 14% increase in the quarter in business generated by enterprise accounts. So I think there are, certainly some market fundamentals that are helping intermodal but I think individually we are doing a better job in the sales, service and pricing marketing area.

Mark metnioned enterprise accounts. We identify these accounts as large customers that have the capability of giving us tens of millions of dollars in business. So this is the definition, I don't think we mentioned that on the call before.

The other thing I would point to is we grew in local east to about 10% this quarter whereas first quarter we were up only 2.5%. Some of that local east business converted from truck to intermodal and was from bid awards, as well as increased business from some paper customers.

Okay. So, it sounds like things on that front feel consistent to you. You talked about, Dave, having better visibility than you've had for some time going forward yet you only raised the headcount by 15 people. I would expect to see more operating leverage. Other than the $1 million that probably is an on going related to the strike out west, am I thinking about that right, that when you have this much volume without having to raise the employees we should start to see some better cost improvement than this going forward?

Are you talking about the scalability, Ed?

I'm talking about operating leverage if you will.

Yes, I mean our operating margins for the quarter was 4.9%. We are definitely shooting to improve that. Some of the major reasons for the yield compression when you look quarter over quarter Q1 versus Q2, were because the biggest difference there was because of fuel. Some of our customers lag with fuel surcharge adjustments, sometimes on a weekly basis, sometimes monthly, and sometimes quarterly whereas the rails, their fuel schedules adjust weekly.

Can we talk about that for a second? I would've assumed you would have had a small benefit net of surcharge costs on fuel in the quarter year over year, because you would have gotten from your customers quicker than you had to pay the railroads. I was under the impression you paid them a little slower than that. Can you --

Actually, I can elaborate on that a bit. If you look at our top three reasons for the yield compression, the largest was the intermodal fuel surcharge. If you think about the intermodal fuel surcharge, 2Q was really very erratic. Diesel was up over $0.83 versus the first quarter. And as we said on the call before, for about 70% of our loads we are using our customers fuel surcharge schedule. And so it does become apparent that as fuel becomes a bigger piece of the revenue pie, that yield does have somewhat of a bit of compression. But with a lot of our customers with that lag that we have, again with 70% of our clients we are using their fuel surcharge, some of our largest customers lagged by an entire quarter. One large retailer does. Another large retailer lags by a month. And in all candor sometimes a customer just has a bad fuel surcharge that flattens out as fuel gets more expensive and it becomes noncompensatory.

So the steps that we are taking on this, Ed, is that, first, the lagging customers, they'll catch up this quarter. So that's good. That's good business for us in the third quarter. For those customers that just will not give us a compensatory fuel surcharge and our margin is negative, we will in fact either raise prices or we will walk from the business. We have one mid-sized customer right now who refuses to give us a compensatory fuel surcharge and we are going to walk from the business. We gave them our 30-days notice and we will be disposing of that business as of August 1st.

That's helpful. One last one and I will give it to someone. Can you talk about that 5% volume improvement in intermodal month by month and how it looks in July so far?

We really don't break it down by month. It was --

Fairly consistent.

Fairly consistent. And I will clarify July even though I normally don't because I have seen some of the other transcripts and we actually have not seen any decline in volumes. Things seems, for us, appear to be going strong. So I know some of the others have said it's been a little bit weaker in the beginning of July. We are not seeing that.

We are hearing similar. So you are saying year over year you feel it's similar to what's been going on year over year.

Yes.

Okay. Thanks for the time. I appreciate it. I'll get back in line.

Your next question comes from the line of Alex Brand from Stephens. Please proceed.

Hi. This is actually George Pickral for Alex Brand. Dave, are you able to at all to break down your truck division, it's revenue in terms of fuel and volume?

I can help with that. About 17% of the increase related to fuel, George. We don't disclose volumes, but --

But we can kind of back into the other 18%. And along those same lines on the 5% intermodal growth, can you break down exactly how much you think was from, call it market share gains, and how much was from modal conversion?

Well, as Terri had said,we were up 10% in local east and much of that could be that we converted from truck to intermodal -- as well as a few customers being up in that corridor and some bids. From a customer segment perspective our consumer products and durable good products segments were a little bit better by comparison to Q1. Consumer products had been down 8% in Q1 and was up 7% in Q2. And durables, which had been down 9% in Q1, was up 4%. So we do think that a lot of it is taking share. There is some conversion in there, but the majority of the new business is gaining share at this point.

Okay. While you're at it can you give your retail paper and wholesale improvements, too, if they improved?

I know that retail actually did not improve.

That was down about 13% which is the most its been down for us ever, actually.

It's actually down now to 20% of our overall revenue versus 27% year over year and at one time the high was probably about 34% of our revenue. So it continuing to go down. It's not that we lost customers or lanes; it's just that overall retailers are tightening their inventories.

And what about paper and wholesale?

That grew in the mid 30% range.

Okay. I guess lastly and I will let someone else have it, it sounds like everything is going well and you seem upbeat about the back half of the year. Is there any chance that we can see pricing going up or if you're wrong and the market is actually better than you expect, could you or would you want to take on additional container capacity if you had the demand, or do you think would you even have that chance?

That's an interesting question. It's something that when looking at -- I don't know that we'll see price increases. I do think that some of the railroads are now talking about having peak surcharges, which I think is a very possible out of the gateway cities as well as off of the west coast. So we may see some temporary price increases during that period of time. And we do think that during the third quarter and early fourth quarter that we are going to see a fair amount of capacity constraint. We saw some tightness at the end of the second quarter, tighter than normal. And we've even started out July with a little bit of tightness in certain markets. So it will be a tougher capacity environment I think for most -- than most customers may be anticipating at this point.

All right, thank you for your time.

Thanks, George.

Your next question comes from the line of John Barnes from BB&T Capital Markets. Please proceed.

Thank you, good afternoon, guys. We heard from a couple of the rails who've reported earnings here recently and specifically Union Pacific this morning, I mean in talking about the improvement that they've made in service and that type of thing within their network. And their comment was that they believe it means price increases, not only more major price increases now but price increases for a longer period of time. As rates with the rails have continued to go up at a pretty decent clip, what kind of lag are you experiencing in terms of being able to pass on that cost to your customer and to protect margins? Because I get the feeling that the rails are going to be more aggressive about raising rates as service has improved.

This is Mark. In 2004 and 2005 we saw the rails go down a path of significant price increases on a regular basis and we were able, at that time, to develop the discipline to pass those increases on. We are confident that in the event we get back into an environment where price increases are attainable, we will be able to go out into the marketplace and realize those and won't see a margin deterioration relative to price increases on behalf of the rails. Rails can normally give us enough time to get together with our customers and work our way through the increase issues.

So there normally is not a lag between a rail increase and our pricing with the customer. Every once in awhile you will see a few customers where there is a lag but it generally is not a material aspect for us. We think it is important to look at intermodal pricing versus pricing with the rest of the rail segments. Generally speaking there has not been a lot of increased activity in '07 or '08, despite the fact that rails have been able to secure some price increases in other segments. In the event that the tables do turn and we do see a tight capacity environment and the rails go out and increase prices on the intermodal side, we are confident that we would be able to react appropriately without eroding margin.

Okay. And then a follow up on pricing. Have you been stymied at all in terms of pure core price increases given where fuel is? Have you been able to secure core price and the fuel surcharge -- better, larger surcharge collection or has fuel in the rise really negated your ability? I think did you a nice job this quarter but just in prior quarters and what do you see going forward?

John, when we look at the profit on a move we look at the whole profit because the customer wants one price. So like Dave mentioned earlier, 70% of our loads are on the customers' fuel surcharge schedule. Our margin team works really hard and is very creative making sure where we've got a low margin customer that we go out and get that additional money somehow, either by changing the fuel surcharge schedule or by increasing price in a particular lane, whatever the -- or getting better rates from the drayage carriers. Let's just say there are all kinds of combinations on that. So we really don't break it out separately. The low margin team is are focusing on the profit of the low margin customers.

If we look at just pricing I think it's probably in the first quarter we had said that it was down about 1%.

Between 1% and 2%.

Between 1% and 2%. And I think we saw a similar year over year second quarter.

Yes.

As far as the environment.

Okay. And then last question, I had talked to a couple of you about this before and I'm just kind of curious as to your thoughts now. As you look at it, it does sound like you are a little more optimistic on the back half. I've had the feeling that part of the lack of revenue growth over the last several quarters, more material revenue growth especially in the intermodal product I get the sense that maybe you guys had cut too deeply into your sales force, that maybe you got into the muscle of the sales organization a little bit. Do you anticipate beginning to beef that up a little bit more? Would you consider additional sales headcount from here on out, if you're starting to get a little bit more optimistic about back half of '08 and into '09?

We certainly did cut back on the sales effort at one point in time. We have been in the process of rebuilding that sales effort. We now have rounded out our regional VP team with the addition of a new person on the west coast. We think we've beefed our sales effort up appropriately and we've now got them focused in the right areas. So we are getting more productivity out of our sales as well and really putting our best sales guys in front of the customer which is exactly where they belong. We are certainly open to adding some additional sales talent into the organization. We've had an initiative underway to develop our own sales talent as well. But I don't think you are going to see a material change in the costs associated with our sales effort. We don't think that's necessary, but we do think that we are becoming more effective in utilizing the resources that we have in place.

Yes. John, just to piggyback a little bit on Mark's comment. In 2004 when we realigned the company, one of the things we did with the sales group, which is in hindsight was probably incorrect, was that we made our best salespeople into sales managers. And so you take them out from being in front of your large customers and garnering new large accounts. We've changed that with this new enterprise group. We now have our best salespeople, not managing other salespeople, but managing clients. And then we do have regional VPs that have been trained and their sole duty, they have no account responsibility, they solely manage salespeople. So it's a different sales structure. We think it's a far better sales structure and really takes advantage of the talents of our people.

Good deal. All right. Thanks for your time. I appreciate it.

Thanks, John.

Thanks, John.

Your next question comes from the line of Todd Fowler from KeyBanc Capital Markets. Please proceed.

Good afternoon, everybody. Dave, can you help us think about how volumes should trend for the rest of the year. The 5% growth for the second quarter was against a pretty difficult comp. The comp does ease as we get into the third quarter but it sounds like there's still some moving parts with some business that you are going to be walking away from. Is there more business that continues to ramp in the back half of the year and is mid single digits where we need to be thinking, or is that maybe too aggressive or too conservative?

Todd, I would candidly be disappointed if we didn't at least continue with our current business increases. We do have more business ramping in the second quarter. Some significant accounts are coming on board, and so I'm -- despite my poor track record I'm very bullish on volume. If it's not over the 5.3%, at or above, I would be quite disappointed.

I was surprised to get that much color. I wasn't sure what the answer was going to be.

I was reading through the first quarter transcript, Todd, and I think I told you a lot of it was back-end loaded, a lot of our sales growth.

Exactly. I do remember that. And along the same lines, what are still the biggest opportunities at this point? Is it local east and what percent right now? Intermodal revenues coming from the local east? Or is it some of these other areas, food and beverage, transportation or something coming back in retail?

Well, obviously if retail would come back that would be a huge boom for us, because again we have not been losing market share within the retail space. They just -- their volumes are down significantly. An uptick in that segment would be tremendous for us. We do have a lot of opportunity within the transportation company space with the various 3PLs and some of our IMC customers and competitors. So that does continue to have a lot of opportunity.

And about 80% of our growth is with existing customers. So it's really better penetration of our existing customers and getting more business from them as well as building on the brand new relationship that we've got.

And I really feel as though one of the great things going into this capacity market that we believe is going to be tighter, is our fleets are going to give us a huge advantage over our conventional IMC competitors that don't have the fleets.

I do think also, Terri had elaborated on the strike in northern California where we spent about $1 million. We did that to and for our customers-- to make sure that their goods were being delivered in a timely fashion. Our smaller brethren were unable to accomplish that type of a feet. It was much more difficult for them. And while it certainly did have a negative impact on our quarterly results, it's something that I think we will engender a lot of customer loyalty as a result.

Were you able to pick up any share because of that situation? There are smaller IMCs that weren't able to provide that type of service. Did people turn to you in that situation and were you picking up volume because of that?

I don't think we had quite enough capacity in order to really garner a whole lot of market share out of it. We did obviously put a lot of effort towards servicing our customers and probably enjoyed some greater share of that business where we might be splitting it with another IMC who was struggling to provide capacity. But I think more important to Dave's point, is that people saw, even in an adverse circumstance, we were able to step up and serve our customers, despite the fact that there was a short term cost to the company to do so. We do know, and I don't know if you can directly attribute it to the measures that we took, but we had several nice wins out of northern California and into. So I don't know if partially it's attributable to the efforts we made or not, but that certainly remains a very strong and viable market for us.

Okay. And as far as profitability in some of the different segments that you serve, how wide is the variation between a retail customer, doing business for another transportation company, local east moves? Is it a pretty wide swing in what you can see in the margin of those shipments or is there a pretty narrow band and generally profitabilities are pretty close along the different business lines.

I would say by business lines it's pretty comparable. You have fluctuations. You have a broad band as far as customers and where the margins are and if it's a strategic move into a gate way or into the west coast. So it really varies. But I don't think there's really much of a difference in margin by customer segment.

Okay. And then just lastly here, with the share buy-back my impression is that you guys are going to look to execute the entire $75 million within the next 12 months. Is that still the right way to think about that, is there a chance that that doesn't get done if something comes up? And as you talk about the guidance it basically sounds like the share count is going to remain relatively flat. So maybe a little color on what you are thinking with the share buy-back and then as it relates to acquisitions as well.

We would love to have a large acquisition to put in there that would preclude us from purchasing the shares. But at this point in time, we don't have that in the pipeline. So it is our intent to complete the share buy-back over that period of time. As you can tell we had a strike price where we did purchase a few shares. But the stock price didn't stay at that level for long.

Yes. We had put a plan in place in the second quarter.

Which I guess is both good and bad, so --

Yes, exactly.

You're right, Todd, that the share count that I gave did not assume any buy backs.

Okay. That's helpful. Thanks a lot.

Thanks, Todd.

(OPERATOR INSTRUCTIONS) Your next question come from the line of Jon Langenfeld from Robert W. Baird.

Good afternoon. The transportation side of Intermodal, that customer base, how big is that as a percent of total?

Bear with us one second.

Okay.

-- 10%.

How has that trended over the last call it 12, 18, 24 months? Has that become a bigger part what have you do.

It has been, yes, especially with the wholesale customers that we have it's a big piece of it, and then some third party logistics companies.

Got it. Okay. And how about truckload companies? Are they in there as well?

Not really.

No?

Not too many. A few but not too many.

There would be some truckload within the wholesale branch, a very small percentage.

Okay. Okay. Good. And then fuel. How much do you think that lag cost you in the quarter?

We think it was the biggest drag on yield compared to Q1.

Okay. So bigger --

After that would be the yield deteriorating in truck brokerage, and then finally the $1 million of strike costs. That was really the biggest component.

Alright. Good enough. And on the truck brokerage side the gross margin compression there, how much of that if you kind of think about what you'd expect given where fuel prices are at? I mean is it worse than what you'd expect? Or are we just in an environment here over the last couple of years, where maybe it's probably been a little bit better than what it should have been? And so now we are kind of coming back to a normal victim if you will?

John, I would tell you that it's worse than we would expect and worse than we will accept.

But it really wasn't related so much to fuel in the truck brokerage side. We are talking a drag on --

But it was particularly I think a function of the fuel.

Yes.

I think more customers are pushing back on receiving cost increases and the trucking space and so we were subject to that. And we, candidly, we took business that we shouldn't have taken, that we are not taking now. And the reason we were given it is probably because the primary carrier said, I can't accept it at this rate level. So we are being very aggressive on that. John, we have got a lot of processes in place to stop that, and I think we are already seeing some improvement as a result of that.

And so in today's environment after you've kind of made some changes, if I'm a customer service rep and I want to accept a zero gross profit or even a negative gross profit load, how does that proceed through the organization?

You need a manager's approval. You would need Dave -- not necessarily Dave but if he were your manager, you would need --

I'm hoping not.

-- his approval before you even accept that load. A lot of what we were doing before was accepting all the loads coming in. So Ike Nixon, our EVP of highway says it is like a smorgasbord. We were automatically accepting and eating all these loads and then we felt sick afterwards.

Okay. Alright. Good, thanks for the color.

And your next question is a follow-up question from the line of Ed Wolfe from Wolfe Research.

It was asked and answered. I will get it off-line. Thank you.

Okay, Ed.

(OPERATOR INSTRUCTIONS) At this time we have no further questions in the queue.

Okay. Great. Well, again, thank you for joining us on the conference call. If there's any further questions, etc., please don't hesitate to give us a call. As I had said earlier, we are very appreciative of your support and we do look forward to a very solid second half. So thank you again for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.