Hub Group Inc (HUBG) 2009 Q4 法說會逐字稿

Good afternoon and welcome to the Hub Group fourth quarter conference call. We will begin with a discussion of the financial results lead by Terri Pizzuto, Executive Vice President, Chief Financial Officer and Treasurer, followed by an overall business discussion to be conducted by Dave Yeager, our Chairman and CEO. The Company will make its prepared presentation, followed by a question-and-answer session. Mark Yeager, Vice-Chairman, 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 those 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.

Thanks, Shamika, and thank you all for joining us. I want to begin by covering three things. First, we had volume growth of 6% in intermodal and 11% in truck brokerage for the quarter. Second, as we expected, the pricing environment took a toll on our margins. And third, we had great cost control. Here are the key numbers. For the fourth quarter, Hub's diluted earnings per share was $0.26. Hub's fourth quarter operating margin was 3.8%. That's compared to 5.4% in 2008. At the end of December, we had $127 million in cash and no debt.

Now I'll discuss details for the quarter starting with revenue. Intermodal revenue decreased 7%. This change includes a 6% decline for fuel, a 5% price decrease and a 2% decrease for mix, offset partially by a 6% volume increase. The exciting news is that our customer direct 53-foot business, which is the biggest piece of our intermodal business, was up 11%. Contributing to that growth was a 44% increase in loads with our retail customers. Wholesale and ISO now only represent 8% of our total intermodal volume. Wholesale, which is the business we do with other intermodal marketing companies, is down 45%. ISO business, which is business that is mostly in 40-foot international containers, is 26% lower than last year.

Truck brokerage revenue decreased 4% due to a 10% decrease for price and mix, and a 5% decrease for fuel, partially offset by an 11% volume increase. Mix change because our haul went down by 6% or 45 miles. Truck brokerage gross margin, as a percentage of sales, was consistent with last year but was down 230 basis points compared to last quarter. We have now experienced the full impact of the bids in our margin. The big growing customer segments for truck brokerage are retail and consumer products. We had 15 new customers in the top 50 growing customers.

Logistics revenue was 2% higher than last year, since a couple of our new customers are now ramped up. The pipeline in logistics looks promising.

Gross margin as a percentage of sales was 11.4%. That's down compared to last year at 12.5%. Total gross margin went down by $7.3 million. The majority of that decrease was from intermodal. As we've said before, pricing is a huge lever on our margin. We're battling that 5% price compression by focusing on reducing transportation costs. We saved money by better managing our drayage operations and equipment last year and will continue down that path in 2010.

Total cost and expenses were $31 million in the fourth quarter of 2009, compared to 30.7 million dollars in 2008. In 2008 we had a $1.7 million credit for bonuses, whereas this year bonus expense is $500,000. Salaries was $1.1 million less than last year, since we have 70 fewer people. Travel, office expense and rent are also lower than last year. We had 1,028 employees, excluding drivers, at the end of December, which is about the same as the end of September. We think our quarterly costs and expenses will range between $34.5 million and $35.5 million in 2010.

Now to discuss 2010 full-year earnings guidance. For 2010 we are comfortable that our diluted earnings per share will be within the current analyst range of between $1 and $1.15, assuming there is no further deterioration in the economy. Our weighted average diluted shares for 2010 are estimated $37.8 million.

Turning now to the balance sheet and how we used our cash. During the quarter, we spent $1.7 million on capital expenditures. We think we'll spend around $10 million on capital expenditures in 2010. Free cash flow was $4 million in the fourth quarter. That's partly because DSO was a few days higher than last year. As I mentioned earlier, we ended the year with $127 million in cash. We'd like to use that cash for acquisitions, so we are continuing our hunt for acquisitions that are consistent with our strategic plan.

To wrap it up for the financial section, we are well positioned to continue to control our costs and enhance operational efficiencies. And now you'll hear from our CEO, Dave Yeager.

Great, thank you, Terri. With intermodal volume up 6%, our fourth quarter results were far better than the expectations of a 4% to 8% decline we had anticipated on our last call. Our volume increase is due to substantial growth from both new and existing customers in our retail, paper and durable goods segments. From a geographic perspective, we had strong growth in the local-east market as we continue to convert customers from truck to intermodal and take market share. In addition, our business moving between the Southeast and the West Coast grew 21% in the quarter. The UP/NS service uses the most direct rail route, there by creating a service advantage of Hub over the bi-modal competitors. Customers are coming to recognizing the advantage the UP/NS routing has and are taking advantage of that enhanced service.

Our gross margin remained under pressure due to the weak economy and a highly competitive market. As we discussed on prior calls, the pricing environment during the bid season was extremely aggressive, and as expected we saw the full impact of this pricing during the fourth quarter. Despite these challenges, we struck a good balance between pricing to maintain our market share while still focusing on maintaining a reasonable gross margin. We have also maintained tight cost controls. The difficult cuts we made earlier in the year enabled us to reduce cost and expenses by $9 million.

Intermodal service was very good during the quarter with no issues with any of the service providers. The fourth quarter saw continued improvement in both speed and reliability across our network. We are now in the third year of a very real rail service-improvement story, and we anticipate this will continue through 2010.

Our fleet utilization was very solid, improving substantially during the fourth quarter compared to the prior year. In fact, our containers that we had converted to the Union Pacific in July turned 9.1% faster in the fourth quarter than when this fleet operated on the BN. This service is due to two factors. First of all, our conversion to the UP in the west has created tremendous efficiencies for our network. The service we have received from the BN has been excellent -- excuse me, from the Union Pacific has been excellent, with consistent on-time arrivals and with on-going improvements to transit time. The second reason for the enhanced fleet utilization lies in the operational execution by our intermodal operations team. Quite simply, we're getting pretty good at managing of containers. There does remain room for improvement, but our fleet management skills are far superior to prior years. And finally, our fleet is the right size for our current needs, with all of stored capacity now back in service.

For much of the fourth quarter, capacity was tight off the West Coast, particularly Los Angeles. Equipment was also tight at times in the gateway of Chicago, Memphis, Kansas City and St. Louis. Although we continue to see strong demand this quarter, there is ample capacity available at this time.

Despite the challenging freight environment, our Comtrak drayage operation had a solid quarter. As we predicted on our last call, Comtrak was fully compliant with the California Air Resource Board, or CARB, which went into effect on January 1. Because of aggressive recruiting, Comtrak has increased the driver base and is close to handling close to 40% of Hub's freight. This is up substantially from last year. Early in January, it was announced that the founder and president of Comtrak, Mike Bruns, will be retiring during the second quarter. We are deeply grateful to Mike for the great job he has done for Hub these last four years. Comtrak remains a key component to our overall business strategy. We have begun a search to find a replacement for Mike, although I might add for those of you that know Mike, you know these are big shoes to fill, and we certainly will miss him greatly.

Our brokerage business had a good quarter, with volume up 11%. This growth came from more effective cross selling and greater success in this year's bid season. While some of our wins are small positions with larger customers, we will look to grow these relationships over time. We again saw record productivity from our brokerage team. Over the last year we invested in systems enhancements and various tools to improve productivity. These enhancements are paying off, as productivity was up 33% over the fourth quarter of 2008.

Unyson Logistics had another steady quarter, with revenue up 2% and close to 3% for the full year. This growth resulted from Unyson adding several new accounts in the quarter and increasing its scope of service with existing clients. Unyson has two additional accounts going live in the first quarter, and continues to maintain a strong sales pipeline that is expected to generate double-digit growth for 2010.

In conclusion, 2009 was a challenging but successful year for Hub Group. To mention just a few accomplishments, in 2009 we successfully converted our private fleet to Union Pacific, giving us a simplified operating model, resulting in better service for our customers. We protected our market share in an extremely aggressive pricing environment. We reduced our costs and expenses by $9 million compared to 2008 in response to the economic downturn, earned $0.91 per share while generating $41 million in free cash flow, and finished the year with $127 million in cash and no debt. The economic outlook for 2010 does remain uncertain. We plan to spend 2010 focusing on those items we can control, including driving operational efficiencies and providing exceptional service to our customers so we grow and prosper in the year ahead. At this time we would be more than happy to open the line up to any questions.

Thank you. (Operator Instructions.) Your first question comes from the line of Ed Wolf of Wolfe Research. Please proceed. Dave Yeager: Hi, Ed. (Multiple speakers.)

Hi, Ed here. Hi, Terri, Mark.

Hi.

Can you talk a little about your expenses, particularly on a labor side? They are so in check. Is this something that can go forward if volume is still growing?

We will maintain tight controls on our head count. But the cost guidance that we gave of $34.5 million to $35.5 million a quarter for 2010, the reason that is going up is because of bonuses and wage increases for the people that we have.

I didn't hear that $34 million, $35 million earlier, so explain to me, that's $3 million or $4 million relative to this quarter, and it is all for bonuses? How is that accrued for and paid for during the year?

It would be accrued radiably throughout the year, and it is paid after year-end, generally in February. And it would only be paid if we met our bonus targets, which the Board will set in February.

Right. Ed, basically this year there was no EPS bonus payouts. There was for personal goals, but we didn't hit the EPS mark, and so nothing was paid.

Exactly.

And what was paid for personal goals?

About $4 million.

So why are you so confident -- and I remember you guys set expense goals last year too that you beat -- but why are you so confident you are going to pay them this year?

Based on our budget, we would hope we would meet those EPS targets and so -- that the Board will set, and so that's why we have them built into our model.

Is it fair to say that incentive would be above the $1 to $1.15 that you blessed.

That's something set by the Board. That's not something we have yet, Ed.

Okay. Can you talk a little about the -- you mention you are still looking for acquisitions with the cash. But it's been a long time since you have been looking for that acquisition. At some point, now that the world feels a bit better, do you also start to go down the share repurchase avenue again? What's the thought process there?

This is Dave. The thought process is we are disappointed that in 2009 we didn't come through with an acquisition. I know we talked about it all year. We still do believe that is the best usage of our cash is to find a good, solid acquisition or several acquisitions. If in fact we do not as the year goes on in 2010, we'll certainly talk to the Board about potential share repurchase. That is something that would definitely go back on the table if it doesn't look like we can get an acquisition done.

Okay. Can you take us through, Terri, if you have them, the volume growth for intermodal and for truck throughout the quarter by the month?

We don't like to give out the monthly guidance, but we went up each month.

For both of them?

Yes.

And has that continued into the first quarter?

Yes, it has. Volume continues to be good. It's obviously very early, but through the 21st of this month it certainly does look stronger.

Okay, and then on the gross yield squeeze, you said -- I thought I heard you said most was in intermodal. How does that start to improve, and what is the timing? What steps do you need to take? What needs to happen, and when would you expect that to happen?

Ed, this is Mark. I think that our view is that it remains a challenging pricing environment out there. We won't see a significant amount of bid activity for the foreseeable future. It probably isn't until the second half of the year that we will see how aggressive the bid activity is likely to be. I don't think we are anticipating in our guidance or in our models that we are going to see a significant uptick in the price environment from where we are right now. What we would need to see I think is a firming up of the truck supply environment, which could then translate into a firmer price environment on the highway side. And that very well may translate into the opportunity to increase pricing on the intermodal side. But until that happens, it is not likely we're going to see a highly favorable rate increase.

Could higher fuel do that as well for you possibly?

That certainly would make intermodal more attractive and potentially widen the gap to a point where there might be some room.

And on the other side, Mark, of the equation, is there a way to reduce your rail costs? Or is that something at this point that is unlikely?

Well, we have been working on our cost of transportation pretty diligently, and we are continuing to work on those costs. I think David eluded to improved equipment utilization. We are doing better with matching our dray loads and showed a lot of real progress there, particularly in the second half of the year. We're doing better with pool compliance, a number of operational efficiencies are being. So I don't think the rail community is very excited about price reduction, so we need to find ways to control our cost to purchase transportation that are more about taking out inefficiencies. And I think we are making a lot of progress there.

Your next question comes from the line of Alex Brand of Stephens. Please proceed. Alexander Brand: Hey, Dave, Mark and Terri.

Hello, Alex.

Hey, Alex.

I guess I want to focus first on volume. I think your guidance for Q4 was minus 4 to minus 8, and you come in at plus 6. And not just intermodal, but truckload volumes were pretty strong as well. I'm wondering if you can just give us some color as to how much of that you think was the economic effect of a recovery on existing customers versus internal initiatives that you guys have had that are starting to pay some dividends.

I don't have the exact figures as far as how much of this might be new clients. We have been developing some new, significant relationships which certainly contribute to this, as well as I think that the way we are going about the bid process in 2009, our understanding of the dray costs and understanding where we -- our network creates efficiencies has certainly expanded. I think that this is certainly -- some of this has been business that has been with existing customers that has increased. So it is probably a pretty good mix of both at this point. Do you have anything to add to that, Mark?

No, I think I would agree with that. What we saw is growth with customers who were historically maybe outside of our top 20, but grew pretty dramatically and became, in some instances, top ten. So I think we were -- it wasn't that the customers were growing that dramatically, but we were taking share within those customers, and I think we did a pretty effective job, and that manifested itself particularly in the fourth quarter.

And now -- part of the response you just gave to Ed on volume and -- or really on price for this year, that you don't have much expectation. Is there anything I should read into this kind of volume growth that you have been a little more aggressive in the market, and maybe you're more willing to sort of protect share than maybe you have been in the past?

Well, price will be a much greater lever than volume for us. As Dave eluded to, we are trying to strike a balance between share preservation and margin. We are still committed to protecting our margins, and we are certainly not eager to go out and try to gobble up share. But I think we were able to -- if you look at some of the other folks in the industry that have seen substantially more price erosion than we did, I think it indicates we did a reasonably good job of finding that balance.

What about your -- you now have your fleet fully utilized, what you already had. Is there -- are there any plans to do anything with the fleet this year, either grow it or shrink it or -- I guess there is too much capacity in the market, so are you doing anything to address that internally?

Well, again, our utilization is the best it's ever been. And so we have ample demand for the fleet. We're still looking at our fleet plan. We have not made a decision yet on whether or not to expand the fleet for 2010. But that certainly is on the table. And I don't think we'll have a great deal of difficulty, in all candor, in getting manufacturing capacity if we make decision on a -- over the short-term.

Yeah, probably not.

No.

All right, one more question then, and I'll turn it over. Last quarter you guys were pretty disappointed with what had happened in local east. How did that look in the quarter, and any thoughts you have now that JB Hunt is public, that they have a deal, that it may or may not affect local east going forward?

Again, our local-east numbers were up 12% for the quarter, so that's pretty positive. As we said on the call last when -- last quarter, just after the Hunt announcement, we have been told by the Norfolk Southern that in fact we have a comparable deal, that we are not at a competitive disadvantage from either a pricing or service perspective. We take them at their word, and we believe there is plenty of business that is local east that is available to be taken off the highway that Hunt and Hub don't have to keep butting heads in order to -- for both of us to share.

All right, guys. I appreciate the time.

Your next question comes from the line of Jon Langenfeld of Robert W. Baird. Please proceed. Jon Langenfeld: Good afternoon.

(Multiple speakers.) Hi, Jon.

Local east side up 12%. What would Transcon have been?

To and from the West Coast in the fourth quarter was down 1%.

Okay. What -- did I miss a number? I thought there was a number you provided in the prepared remarks. The 21%?

21%, yes, and that's between Southern California and the Southeast.

Okay, specific to the Transcon line.

Right, to where the Union Pacific Norfolk Southern have a service advantage.

And have you seen your volume on that business come from existing customers or new customers? I'm assuming a lot has to do with your newer relation -- or your expanded relationship with UP.

It is a combination of both existing and new clients, but certainly again we think that with the service where it is, we've got a full day advantage. That it really does offer clients with a very good option for those that are trying to compress their inventory at this point.

Okay. And then conceptually can you walk me through the logic. The pricing this quarter was down about 5%, and I think last quarter you said it was down 4%.

Right.

And then your gross margin sequentially, what, that was down almost 100 basis points?

Correct.

But yet that was just intermodal. It sounded like brokerage -- I guess brokerage had sequential. But I guess what I'm trying to understand is pricing was worse in the fourth quarter than the third, is what you are telling us. Is that true on an absolute basis, or more just the way the percentage is in year-over-year comparisons?

No, that's true. But also when you go sequentially from Q3 to Q4, truck brokerage was down 230 basis points, so that also played into the yield when you compare sequentially. And Comtrak yield was a little worse, because we had a few more accidents.

Okay. And does the ability to drive -- I know it is not a big part of it, but do you have the ability to drive some peak season pricing because of box scarcity that occurred out there?

I wish. No, we were not able to. There was box scarcity out there, Jon, in all candor, but there was no peak surcharge for 2009.

And so you're -- if you kind of looked at pricing on an apples-to-apples basis, in the fourth quarter relative to the third quarter, on an absolute basis, it was down?

Slightly. Number one, I think that's all of the bids, all of the results of the bids were finally in in the fourth quarter. And so you are seeing there what was accumulation of six months worth of bidding, if you will.

Would you expect, if I'm a shipper that has rebid in the last 12 months, and I'm coming to the industry this month, this quarter to rebid again, what would be the expectation? Would the rates be up from where they bid a year ago?

That's a really good question, and we're very early in the bid season at this point. I would think if you bid in 2009, it could be somewhat tenuous going back out to bid in 2010. Now, I'm not sure how the market is going to react as of yet. Again, it is too early. But certainly the pricing appeared to strike the bottom during the bid season in 2009. So that has yet to be told, that story. But --

Yes.

It could backfire on those who put it out to bid again.

Okay, and the last question. Just a tax rate, what do you expect that to be next year, or 2010?

38.6%.

All right, very good. Thanks, guys.

Approximately.

Your next question comes from the line of John Barnes of RBC Capital Markets. Please proceed. John Barnes: Hey, guys. Going back to the question on the rail cost and understanding they are not necessarily willing or looking to lower their rates, how helpful have they been in terms of making sure their costs are lined with what the bid situation is? So if you guys lose share, UP loses share. So how does that relationship work? While they are trying to protect their pricing, I get it, but how do they manage it with you in order to protect share?

Well, I think that the railroads have been appropriately commercially oriented. They certainly aren't -- they haven't been as aggressive say as the over-the-road community, no doubt about that, but it is hard to argue with that rational. They are obviously reluctant to make any significant concessions. They look at business on an account-by-account basis and try to make sure there is an adequate return associated with it. I would say they have remained reasonably disciplined, but at the same time I think we have a good working relationship with the rails, and we have been able to work with them to preserve our share. So it has been challenging. There's no question about it. And we have had to show that we are executing on our end in trying to drive out as many inefficiencies as possible. But, end of the day, I think they worked with us well, and -- but there is no doubt that as we go forward, they are going to be looking to recapture some of the price erosion they experienced in 2009.

Okay. Very good. I'm sorry if i missed this, did you give the percentage of your drayage that's being handled internally?

We did. It's up to 40%.

Up to 40%. And as you look at 2010, where do you anticipate that number going?

That's a really good question.

It should increase, there's no question about that. I think we would be happy -- we would be very happy if we were to be able to pick up 10 points. That's probably on the aggressive side. A lot of it depends on what happens with dray pricing. Should we see firming up in the dray pricing environment, then I have no doubt we could get up to 50%. If it remains soft as it has, it is more likely we would make incremental gains, something along the 45% range.

Okay, very good. Thanks for your time, guys.

Thank you, John.

Your next question comes from the line of Todd Fowler of KeyBanc Capital Markets. Please proceed. Todd Fowler: Hey, good afternoon, everybody.

Hi, Todd.

Hey, Todd.

Dave, going back to I think it was an earlier question made by Alex, talking about where your guidance was on the volume side of down 4 to down 8 and coming to a plus 6. I guess if you can go through what was the biggest doubts or what made it come in that much stronger. Was it the affect of the bids still outstanding at that point? That you were more successful in taking in new freight? Was it strength of the existing customers? What drove the positive volumes surprise?

It is a number of things. First of all, we did see a stronger peak shipping period, where by particularly electronics out of Mexico, imported goods into Los Angeles, that coupled with some of the bids that we were successful on that in fact were not implemented until later on in the year, all contributed to the 6% increase in volume. Because if you look at it year-over-year the prior year, '08 versus '07, we were only down 2% that -- during that period. So that was -- it is not as though the comparable was weak. So we had some very strong weeks and some pretty decent quarter from a volume perspective. We're quite pleased with it.

And then, I guess just conceptually, when the volume comes in stronger like that, is it that the incremental freight just comes in, and there is not a lot you can do on the cost side and that's why you get the margin squeeze? I would just think -- or was capacity that much tighter, where the additional volume didn't translate into a little bit better on the gross margin line just from a utilization factor from the network? Anything along those lines?

Most of the customers we have have longer-term pricing stability. So going back and attempting to raise prices in the middle of October and giving them a week's notice probably does not create a great deal of customer goodwill. And so as a result of that, we make commitments, we stick by them. We don't try to take advantage of what may be an artificial spike in demand. Certainly we could have done that and candidly could have raised our margins dramatically, but that's not our strategy. That's not the way we deal with our clients.

Okay. No, that's helpful. And then, not trying to get you to predict volumes going forward, based on what you saw in the fourth quarter, I mean what is realistic or what is the expectation? Was there anything that you would say that -- was this is a peak season push you saw here, and then it is not going to continue into the first half? Is there anything that gives you more conviction that there is more tail to what you so on the volume side? Or anything that you take a step back and say that was a good fourth quarter, and we will be more cautious as we get into 2010?

Well as we said, the first 21 days of this month have continued to be strong. I think the real key is going to be Chinese New Year which occurs in mid-February, and if shipping continues or builds thereafter. I think that will be a real key indicator for what we're going to see from a demand perspective.

Okay.

Anything to add to that, Mark?

No, I would agree with that.

(Multiple speakers.) You don't want to add specific volume guidance?

Probably not. But I think one of the things that does give us some comfort here is the growth is not coming from a single account. Or is not highly concentrated, right? We saw a number of relationships that became sizable, and that's encouraging. So we are not depending on one development or one bid or anything along those lines. It is a fairly balanced growth picture.

With the ISO and the wholesale business coming down here, is that by design? And is that a level where we should expect that to be at on a go-forward basis And from a profitability standpoint, how does that business compare with the larger 53-foot box business?

Our wholesale business was predominantly due to the fact that we have a relatively large fleet on Burlington Northern. And at that time there were certain clients within the IMC community that desired to be on the BN to some extent, but didn't have any equipment, so they went through us. As our relationship has shrunk dramatically with the Burlington, so has our ability or need to have wholesale business shrunk. And so it is kind of where it is right now, and I don't look for that to grow. I think the margins were -- overall they were competitive, but there has been an awful lot of compression during 2009, which makes that business just that much less attractive.

And then on the ISO side -- the ISO I thought was a business you were looking to get into at some point, and maybe now you are scaling back a little bit there?

Yes, I definitely wouldn't say the shrink in ISO is by design at all. It has become a very, very price-competitive market place, and the supply has been -- of 40s has challenging at different periods throughout the year. I would say that's an area we would like to reignite growth in, and there is not a reason we can't do that. But at this point in time we did lose to price several fairly large ISO engagements, and that has driven our numbers down during the course of 2009. We would like to turn that around, think we can, but for right now we are fighting an uphill battle there.

Okay. And then just the last one here. Maybe this is for Mark. Mark, on the truck brokerage margins, my impression has always been that your truck brokerage business is a little different from a true brokerage model, ie CH Robinson. Can you remind me a little bit about how the margins in that business would work, and why you would see that margin squeezed here in the quarter? And I guess when we can expect that to reset and normalized on a go-forward basis?

Sure. Our truck brokerage model is different than CH Robinson's. It is not as transactional or day-to-day. We are not in the market constantly mining for the cheapest capacity. We have improved how we go out to the market place to try to secure competitive pricing, but it doesn't tend to be nearly as dynamic. It is also associated with more repetitive business in which we have pricing commitments over a longer period of time. So it naturally -- it has the ability, potentially, to somewhat get squeezed in certain types of market conditions. So I think what we saw in the fourth quarter was a situation where we did see some firming up of the capacity environment that we weren't necessarily able, because of prior commitments, to pass those costs on to our customers. More importantly, what we saw with margin compression in highway really was a result of mix of business we were handling. We were bringing on a fair amount of business through bids. It was highly competitive business, so we priced it accordingly. So I think that was the greatest impact, as opposed to our model on the margin compression that we saw in highway.

Okay. And then does that freight rebid again here this year, kind of consistent with normal truck-loading bidding season?

Generally speaking, yes, absolutely. This would be conventional bid freight.

Okay. Thanks for the time.

Great.

You have a question from the line of Kevin Sterling of BB&T Capital Markets. Please proceed. Kevin Sterling: Good evening, Dave, Mark and Terri.

Hi, Kevin.

Hello.

Terri, could you run through the components of your truck brokerage revenue again? I got the volume gross, but I missed the price fuel and mix, if you don't mind.

Sure, price and mix for truck brokerage are down 10% and fuel was down 5%. And then the volume increase was 11%.

Okay, thank you. And Dave, I believe you mentioned -- you talked about rail service levels are really good, and you improved your utilization with UP. So how fast are you turning your boxes now?

For the fourth quarter it was 13.8 days. So that's pretty fast.

And you think you can get better?

Yes. Yes, we've got awfully good at it, but I think there is still a lot of room for improvement here, particularly when you look at some of the service we are getting now. With that type of consistent service and the enhanced transit times, it gives you the ability that you don't have to build in excess days when you are making appointments at the time of pick up. So all those components allow us to continue to reduce -- or increase actually the overall fleet speed.

Okay, thank you. As you think of the shorter length of haul for intermodal, maybe in the 650 to 1,000 mile range, are you gaining any traction there? Are you taking share from truck? Or is there still too much truck capacity out in the market place causing the truck pricing to be competitive?

Well, there is certainly too much truck capacity out there. There is no question about it. But I think a lot of shippers are convinced that that's not sustainable, so they are looking for ways to use intermodal in shorter haul. Our local east clearly is -- the growth we've seen there is clearly indicative, I think, of the ability to capitalize on that trend. We're growing. The one area that we are shrinking is 2,000 miles or more. Between 0 and 1,000 and 1,000 to 2,000, we are continuing to grow, and we are growing greater than the industry growth rates as well. So we are very confident that there remains a lot of conversion opportunities, and that that's a long-term trend as you look at, particularly in the east -- I think there's some in the west as well, but particularly in the east, with some of the investments that Norfolk Southern is making, for example, in the crescent corridor, they are targeting large-scale conversion, million load plus converse rates off the highway. And we think that is realistic.

Okay, thank you, Mark. And, Dave, one last question. As you talk to your customers, how do they feel about 2010?

I think that everybody is a little leery. We certainly all felt a little bit better. I think that people in general felt better with the stock market going up and with just a better feel for the economic environment. But I think that everybody is a little bit leery to be predicting victory, that we will be moving forward without a few dips here and there. So again, I think our customers feel better. They do feel as though volumes will have the potential to increase somewhat. But again, so much is just dependent on the consumer and whether in fact we are intending to spend more and get this -- get out of this -- the poor economic environment we have been in.

Okay, thank you. And one last follow-up. I think you said you feel good about where your capacity is and the number of boxes you have. If you wanted to -- if things were to really pick up and you needed additional capacity, would you get most of that from the UP?

Well, if we were going to go out and acquire our own boxes, that would move on the Union Pacific railroad, yes.

Okay, thank you. That's all I have. Thanks for your time today and great quarter.

Thank you, Kevin.

Your next question comes from the line of Matt Brooklier of Piper Jaffrey. Please proceed. Matt Brooklier: Yes, good afternoon. Not to beat a dead horse here, but just looking at your gross yields and kind of the sequential tick down from 12.4% to 11.4%. As I understand it, a lot of that had to do with increased purchase transportation costs within intermodal, ie the rails taking up rates with you guys. And also due to the fact -- or due to your truck brokerage model, in terms of you guys locking more into price with capacity. I guess my question is, are we at a bottom here in terms of kind of gross yield compression? Do you think rates -- you're going to see increased rates on the intermodal side or truck side in first quarter? I mean, how should I look at that 11.4% gross yield going forward?

To answer your question as far as with pricing, we really don't look for pricing to increase in the first half. We think it's up for debate whether or not it will increase in the second half. There may be some opportunity for that. But certainly as we live out the contracts that we currently have from last year's bid season, we don't see rates increasing in the first half of this year.

Okay. So you're comfortable that you guys won't see incremental purchase transportation costs going forward?

From our -- from what we're paying to the rails, at this time we don't see any increase in rates in the first half. Again, if the market would suddenly -- demand suddenly begins to outstrip supply, we may see that. But at that time we would also be able to pass on the increases to our clients.

And when do you think the timing would be for that in terms of passing on? You took a good amount of incremental transportation costs in fourth quarter. I realize it is a pretty competitive environment competitively. At some point in time I'm guessing you are looking to pass some of that rate on to your customer. What's the potential timing of passing some of the rate on to your customers?

Yes, just to be clear, our purchase transportation cost in both highway and intermodal have actually gone down. They just have not gone down fast enough to completely offset the price erosion. We have not seen a systematic rail increases in the fourth quarter, and we didn't see increases, from a highway perspective, in a systematic way in the fourth quarter either. We did see some tighter -- on the highway side, tighter demand conditions that did, on a transactional basis, raise some rates. But in the aggregate, we are purchasing transportation cheaper than we were.

Okay, and with your current contract with UNP, if you guys bring -- let's say the demand picks up materially, and you guys start to bring more volume to the Union Pacific, are there price concessions? Do you guys get lower price on a go-forward basis if you in fact do bring more boxes to Union Pacific?

We -- obviously we don't talk about our contracts. We certainly wish that was the case, but unfortunately it is not. But we can't really talk about our contractual agreements with the Union Pacific.

Okay. And you guys indicated that you are getting more efficient with the rail service at Union Pacific. I think the box turns was 13.8 days. Do you have those numbers for third quarter and second quarter, just to get kind of a feel for the direction of improvement?

Yeah, I don't have that.

We can get back to you.

We'll get back to you on that.

Okay. Very good. Thank you for the time.

Great, thanks, Matt. You have a question from the line of Mike Baudendestal from Stifel Nicolaus. Please proceed.

Thanks and good evening.

Hi, Mike.

I had a question a little bit related to the last one about efficiency. Part of the rational for making the transition from BN to UP in the West is that you would utilize your containers and equipment more efficiently. Wondering if that has progressed as you expected it to? And kind of -- if you could describe that a little bit.

Well I certainly think that, number one, the way our fleet is turning is indicative that having one western railroad to deal with has made our network more efficient. I think that you also, as we look at our drayage costs, we have been able to compress those and create fewer empty miles for our drivers. And again, this is a part of that efficiency that we are gaining by having one network, one ramp. We have one ramp in Dallas, Texas, right now, versus having one in Alliance, Texas, and one in Dallas. There is just a lot of efficiencies to be garnered, and I do think we are realizing them. And, again, I think that there is more opportunity.

Okay, so using the East as a benchmark, it does sound like there is some more efficiency that can be improved in the West from utilizing the one network. Is that fair?

Yes.

Okay. That's all I had. Thanks for the time.

Okay. Thank you.

(Operator Instructions.)Dave Yeager: Okay. Well it appears there's no other questions, so if -- obviously if anything else does come up, please feel free to contact Terri, Mark or I. And, again, thank you for listening to our fourth quarter call.

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