Hub Group Inc (HUBG) 2010 Q4 法說會逐字稿

Good afternoon. Welcome to the Hub Group 2010 fourth 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 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 (Operator Instructions).

Comments made by Dave, Mark, or Terri during this conference call may include 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 Crystalyn and thank you all for joining us. I want to begin by covering two main themes. First, we had strong growth in intermodal and logistics. Second, growth margin increased by $10.1 million, which is the largest increase in gross margin dollars since the fourth quarter of 2006. Here are the key numbers. For the fourth quarter, Hub's diluted earnings per share increased 31% to $0.34. Hub's fourth quarter operating margin was 4%. That's compared to 3.8% in 2009. At the end of December, we had $115 million in cash, and no debt.

Now I'll discuss details for the quarter, starting with revenue. Our business generated revenues of $480 million, which is an 18% increase over last year. Taking a closer look at the business lines, intermodal revenue increased 19%. This change includes a 14% volume increase, a 4% increase for fuel, and a 4% price increase, partially offset by a 3% decrease for mix. The exciting news is that this was the fourth straight quarter of double-digit intermodal volume growth where we increased market share.

Shippers are looking for reliable, cost effective and environmentally friendly transportation, and that's Hub intermodal. Customer direct 53-foot business, which is the biggest piece of our intermodal business, was up 16%. Driving that growth was a 30% increase in loads with retail customers and a 19% increase in loads with durable goods customers. Intermodal prices were up 4% this quarter. That's because we successfully passed on price increases and peak season surcharges to customers. Mixed was down 3%, because our average length of call was down by 52 miles or 3%. That's due to local east business being up 24%. Again, truck conversion freight is the story there. Some of our fastest-growing customers in this market converted freight from truck to intermodal.

Truck brokerage revenue was flat. Although we didn't grow, we focused on improving profitability with rate increases and better purchasing. If that meant losing some negative margin freight, it was okay. We're happy that truck brokerage gross profit, as a percentage of sales, is up from last year and back to historic norms.

Logistics revenue was 38% higher than last year. We ramped up with several new customers and continued to grow existing business. One example of growth with an existing account is that we're now managing all the inbound and outbound marketing materials and products for a longtime pharmaceutical customer.

Gross margin as a percentage of sales was 11.8%. That's up 40 basis points compared to last year's 11.4% margin, but it's down slightly from last quarter's 12%. This decrease from the third quarter is due to logistics gross yields declining 280 basis points. That's because most of the growth in logistics came from transactional, as opposed to management key business which carries a lower, although still acceptable, margin percentage. In short, even though yield and logistics is down, gross margin dollars are up compared to last year.

Total gross margin increased by $10.1 million, or 22%. This is the biggest increase in gross margin dollars since the fourth quarter of 2006. In order of magnitude, intermodal margin grew the most, followed by truck brokerage, and then logistics. Intermodal is up because we handled 14% more loads, did more of our own drayage, and improved fleet utilization.

Turning now to our head count. We had 1,123 employees, excluding drivers, at the end of December. That's an increase of 25 people compared to the end of September. We added seven people in intermodal logistics and 11 in intermodal to support our drayage operation. Total costs and expenses were $37.4 million in the fourth quarter of 2010, compared to $31 million in 2009. The main reasons for the increase in cost and expenses are higher salaries, bonuses, and commissions.

Now I'll discuss 2011, full year earnings guidance. For 2011, we're comfortable that our diluted earnings per share will be within the current analysts range of between $1.43 and $1.65. Our weighted average diluted shares for 2011 are estimated to be 37 million.

We think that our quarterly costs and expenses will range between $38.5 million and $40.5 million in 2011.

Turning now to the balance sheet and how we used our cash. During the quarter we spent $12.3 million on capital expenditures, mostly for containers. We think we'll spend $25 million on capital expenditures during 2011. The majority of that $25 million is for technology investments. This $25 million capital expenditure estimate does not include any purchases of containers or property. We haven't decided whether we'll lease or buy the $33 million worth of containers that will be be delivered this year. We're also exploring a new operating center, which could cost between $15 million and $20 million.

We spent $1.2 million during the quarter to purchase 36,100 shares of stock at an average price of $34.30 a share. $6.4 million remains on our current share buy back authorization that will expire in March.

Of course, we'll always continue to look for good acquisition opportunities. To wrap it up for the financial section, the 24% increase in operating income motivates us. That inspired our theme for 2011, which is providing innovative solutions to our customers while driving profitability upward. And now you'll hear from our CEO, Dave Yeager.

Thank you, Terri. This past year was a year of transition. 2009 was a difficult year with excess capacity and horrific downward pressure on pricing. Fast forward to 2010, and you have a year of tight intermodal capacity with rising prices. The progress over the past year has been quite significant. The fourth quarter alone, we've seen solid intermodal growth of 14% over a strong 2009 comparable.

The highest growth came from local east, Texas, and the southeastern markets. Strong rail service and continued railroad investments are making intermodal an attractive alternative to truck for shorter lengths of haul. Another positive note is that we've been successful in closing the gap to restore our pricing to pre downturn levels. The market has accepted these much needed adjustments as reflected in the 4% year-over-year pricing increase in the fourth quarter. The overall freight market improved in 2010, and as a result we're on boarding new customers at these more normalized pricing levels. Demand continued to be very strong through December. We were fortunate to have added an additional 2500 containers during peak as they contributed to our ability to grow.

This added capacity helped solidify some of our longstanding customer relationships, as well as attract sizable new accounts that were struggling to source capacity during the peak shipping period. As we discussed in our last call, we're planning to add 3,000 new containers to our fleet during 2011. The manufacturing will begin shortly, and we're expecting to be on-boarding the new containers throughout the year.

Rail service remained solid during peak. Both the Union Pacific and Norfolk Southern showed improvement in on-time performance and declines in containers left on the ground. Due to these improvements in our internal operational initiatives, our fleet utilization was again better year-over-year despite the increased number of containers in our network. As we expand our fleet this year, we will continue to keep a close eye on operational efficiency to ensure good utilization.

Our Comtrak drayage division had a breakthrough quarter. As a result of an aggressive recruitment campaign, we were able to add 138 drivers during the quarter. By the end of the fourth quarter, Comtrak met its goal of handling 50% of Hub's intermodal business. In addition, we recently opened two new Comtrak terminals in Indianapolis and Milwaukee. The expansion will allow us to more efficiently cover our regional freight, as well as attract local drivers in these markets.

Highway brokerage revenue was flat year-over-year. While we saw an overall volume decline, we were able to improve margins. Despite the dip in volume, our brokerage division remains one of the nation's largest truck brokerage operations, and has significant upside potential.

Unyson Logistics had revenue growth of 38% this quarter and now controls over $750 million in freight spend. As we previously announced, effective January 1st of 2011, we combined the Unyson Logistics and truck brokerage divisions together under a single banner, Hub Supply Chain Solutions. This group is led by Don Maltby, a 20 year Hub veteran and the highly successful head of Unyson Logistics. Not suprisingly, we see tremendous opportunity in leveraging synergies within these divisions. This unified structure will allow us to take greater advantage of the solution development capabilities of Unyson and the market knowledge and executional expertise of our truck brokerage division.

In conclusion, 2010 has been a great year for Hub Group. We grew our intermodal volume an unprecedented 19%. We added 2500 containers to our fleet and over 300 drivers. Comtrak is now handling over 50% of our intermodal business. Highway and Unyson together had yet another year of solid double digit growth. We are at $1.16 a share, and we finished the year with $115 million in cash and no debt. As we enter our 40th anniversary year, we're focused on sustaining profitable growth and accelerating the value that we bring to our customers.

At this time we'd be more than happy to open up the line.

(Operator Instructions). Today's first question comes from the line of Ed Wolfe with Wolfe Trahan & Co..

Terri, you gave some guidance in terms of expenses and other things, and you talked about this is the fourth quarter in a row of double-digit volume growth for intermodal. Now that the comps are about to start getting more difficult, within the guidance range and so forth, what's the rough guidance? What do you expect for volume growth going forward for intermodal?

Oh, I couldn't begin to predict volume growth, but I can talk to the cost and expense guidance. But really we are focused on improving our volume definitely in 2011. We do have tough comps. You're right, but that's our goal. If Dave wants to predict it, I'll let him.

We are obviously adding 3,000 containers to the fleet, so we are expecting growth. And I think you can extrapolate that it's probably in the low to mid teens.

And what happens if the economy were to weaken severely? How easy is it to trade out our boxes or to reduce that count? What's the impact if you're halfway in the year, the economy changes, and you don't want all 3,000 boxes?

Well, I think that at this point in time, our plan is to go forward with the 3,000 boxes. It is important to understand, our model, and that is a model in which only 70% of our freight does move in our fleet. So we do have some ability to flex our usage of alternative assets. So, we would not anticipate seeing an environment in which we would pull back on that order at this point in time. Like anything, it could be done, but there would be some financial penalties associated with that. It wouldn't be something we'd want to do.

Is there enough day-to-day stuff still in the network that you could offset a good portion of that if you needed to?

Well, right now, like Mark said, only a certain percent of our boxes, of our 53-foot boxes, are our fleet. If you were to look out today and say, how many of our containers that we're moving are our fleet, it's only 70%. We still have the other 30% to flex up or flex down.

Yeah, I think that's right, Ed. Right now our fleet is fully deployed. We don't have any assets parked, our utilization is solid and it's late January. We feel good about that. The boxes won't be coming until the second half of the year. At that point in time, certainly based on the demand conditions we saw last year, we could have fully deployed the additional 3,000 at that time. We feel like the boxes will be coming in at the right time. If we're going to see an excess capacity situation, it probably would be more likely to occur in the beginning of next year, but we're not anticipating that either.

Okay. And in the expenses, how much is the head count expected to rise?

We don't go by line item, but what I can tell you is that the biggest increase is in salaries and benefits due to the head count adds during 2010, which is about 95 people. Then the planned head count adds for 2011, which is between 70 and 80 people. So that's the biggest increase in the cost guidance from where we were at to the $38.5 million to the $40.5 million a quarter. On top of that, in salaries and benefits, we had wage increases go into effect January one. Then our restricted stock expense is higher than last year by about $1 million. So those are the primary components.

How much was the wage increase?

On average, it was 3%.

Okay. Thanks. I'll get back online. I appreciate the time.

Our next question comes from the line of Alex Brand with Suntrust Robbins Humphrey. Please proceed.

Thanks. Good evening, guys.

Hi, Alex.

Hello.

Truck brokerage, Dave I think you said that the business was down on volume, but improved on the gross margin front.

That is correct.

Is that kind of, is this Hub specific because you guys were still trying to work out some of the issues, or was there something in the market that caused you to lose the volume that you maybe couldn't control?

Well, we did have some of the business that was converted from truck to intermodal. We did that with a variety of accounts, taking advantage of the better economics with intermodal. But as you know, we basically, we're focused more on yield than on revenue or volume growth. We had some business which just was not profitable or extraordinarily marginal that we took price increases on, and some of that left and some of that stuck.

And is it too soon to talk about the strategic outlook for truck brokerage now as part of a combined Unyson division? I mean, is there something that you specifically thought about, about how you're going to attack the market, make truck brokerage a more meaningful part of your business?

Yeah. Alex, this is Mark. We've been bullish about truck brokerage for some time. It's been growing quite well for us. We think that combining these two divisions gives us the opportunity to really develop account relationships along a continuum so we can go from the transactional beginnings of a relationship to a much more robust partnership with our customers. That is what it's designed to do, to break down the silos within the organization that were limiting the growth that we felt was achievable with our customer base. A little too early to tell whether that strategy's going to pan out, but we're encouraged by the initial plans and by the reception we're getting from our sales group. It's designed to really give a better product for them to sell.

Terri, I heard you say local east was up 24%. Did I miss your comments on how much Transcom was up?

No, you're exactly right. I said local east was up 24%. Business to and from the West Coast was up 6%.

Six, got it. Just one more, if I could. Of the 4% price, can you give us some idea how much of that was the peak surcharge?

About a third of it.

Okay. Great. Thanks for the time, guys. Appreciate it.

Our next question comes from the line of Ben Hartford with Robert W. Baird & Company, Inc.. Please proceed.

Good evening, all. Dave, you talked about intermodal pricing being close to the level with where it was pre downturn. I'm wondering how close you are, whether we're a year away from getting back to those levels, whether we're a month away. How long until we get back to the pre downturn levels?

We're actually a couple hundred basis points away from the pre downturn levels. We think we'll be there, or at least at a run rate, by the second half of the year.

Okay. And if we look at gross margin on the intermodal side, stripping out some of the noise from the other two pieces, what was the progress like sequentially in that segment, from 3Q to 4Q?

Gross margin as a percent of sales, it was up a bit. In terms of dollars, it was also up. So, improved.

Okay. So I think , Mark, you talked about last call, needing one more full pricing cycle to get back to historical peak levels. Do you still feel you're in the ballpark, you're on track to attain that type

Yeah, I think so. We thought the 4% was a good solid step in the right direction, and we think through another pricing cycle we ought to be able to get there.

Okay, good. On the container side, are all 3,000 containers expected to be received in the second half of the year? I think the original plan was to take about a third of those by the end of May. Has that been pushed back at all?

No, that has not been pushed back. We're anticipating to begin accepting the containers in May, and it will push probably through October.

Okay, good. And then on the last part, the cost guidance aside, if we think about the pressure points of cost in the business, all three businesses, but the primary drivers of some of the cost pressures in the business and the risks that we see some of that percolate here over the course of the next 12 to 18 months, what do you think the primary risk points are?

Well, our single largest cost is, of course, transportation, purchased transportation. So I would suggest that if we see like we did in the second quarter of 2010, see extreme pricing increases in the motor carrier industry that can certainly impact our brokerage operation. You can see the same in drayage within the intermodal segment. So that's our single largest exposure, and that's the single largest risk.

Okay. Great. Thanks for the time.

Our next question comes from the line of John Barnes with RBC Capital Markets. Please proceed.

Hey, guys. Back on the truck brokerage for a few. If I look at sequentially you were down about $7 million in gross revenue in truck brokerage from the third quarter to the fourth. If you had to look at that bucket, what percentage of a decline was business you required converted over to intermodal and what do you think was business that left the system as a result of your pricing decisions?

That's an interesting question. Obviously it would be normal for there to be some sequential decline third quarter to fourth quarter. To a certain extent some of that is natural. At the same time we've done some studies. We don't think that most of the decline was attributable to price increases. Probably more of it is attributable to being more conservative on new opportunities. There was one particular customer in which we did lose some share due to being overly conservative, I think, from a price perspective, and that in and of itself actually, probably contributed the to the majority of the decline. It's a healthy relationship. It's one we are working on. It's moving in the right direction at this point, but we were probably a little overly conservative in our emphasis on yield during that time frame.

All right. Do you think that you've kind of permanently reset the run rate on your truck brokerage on both gross revenue and the margins, or do you think this is a number that will recovery pretty quick back to the run rate you were on?

We feel like it will recover. I'm not sure it's going to recover in one quarter's time, but we certainly believe we're going to be back on the strong double-digit growth path this year with truck brokerage revenue on both the top line and bottom line contributions. It's a very healthy product. We feel good about it. We like the changes that we've made in terms of growing more substantial relationships with bigger customers.

Okay. And then lastly, you indicated Comtrak, I think, hit its goal of 50%, handling 50% of your drayage moves in 2010. Do you have a goal that you can share for where you think that percentage will be, say at the end of 2011?

Yeah. We are sticking by our goal of 60% for 2011. We definitely think that's achievable. Our internal goal is a little more aggressive than that. Externally, yes, absolutely 60% for 2011 is a good goal. It would require us to add pretty substantially to our driver base, but we've been able to do that up until now, and we think we can keep that moving in the right direction.

What would change that? What would Comtrak have to see in their business for you to back off of the 60% goal?

I think we saw an environment, for example, in 2009 in which at some point in time it made sense because truck rates got so cheap. It made sense we could buy it cheaper than we could pay for it and do it on our own. So a significant decline in dray rates could lead to moving away from that strategy. I don't think that's going to happen based on everything we know. We think truck pricing is probably going up. We think that's probably a remote possibility. We see doing our own drayage as more than an improvement in our costs. It's also a strategic imperative.

All right. Very good, thanks for your time, guys. .

Our next question comes from the line of Todd Fowler with KeyBanc. Please proceed.

Great. Thank you. Good evening, everybody. Terri, the comments on the gross margins in the quarter and the impact from the transactional business with Unyson Logistics, can you give color, what exactly that business is?

Sure. That's business that we completely manage. We actually end up picking the carrier to use for that particular customer, and we recognize the revenue, all the revenue associated with those shipments, as well as the costs. And we pay the carriers for it. That is versus the customer actually paying the carrier, and managing the relationship directly with the carrier a little more than we would be.

So some of that, when we look at what happened to the gross margins here in the quarter, some of that optics, where now you have the revenue associated with that coming through your gross revenue as well as your PT costs versus just picking up the margin piece of that before?

Right. That's exactly right, yes.

Okay. How should we think about gross margins going into 2011? Is that something that normalizes and we should see gross margins improve from where they were here? Do you have any sort of thoughts about how we should be thinking about gross margins this year that would be helpful.

Sure. We expect the headwind to continue for logistics, but logistics isn't a huge impact on our numbers. We expect our yield to improve from the 11.6% we were at for all of 2010. There's a lot of room for improvement, including the drayage initiative, improving fleet utilization, price increases in connection with bids, and our routine low margin freight review. Also, as Mark talked about, we hope to have double-digit growth again in truck brokerage, and that's our highest margin business, so that should help. So overall, we hope it will go up.

And so on an order of magnitude, what does all of that imply? I guess where I'm going with this, too, I hear that the intermodal pricing is getting back to where it was prior to the downturn. When I think about where your yields or gross margins ran in 2006 and 2007, feels like there's a lot of room to get back to those levels.

Right. Probably more in the second half of the year, after we get the pricing from the bids in. Yes, we agree with that.

Okay. And what right now what does it feel like pricing will look like on the intermodal side of the business from a contractual standpoint in 2011?

For all of 2011, it's hard to say. We would guess that maybe for first quarter of 2011 it could be up between 3% and 4%. We were up 4% in Q4. That included the peak season surcharge. That goes away. But, on the other hand, we've got business that we're repricing bids, and that we're repricing because of our low margin freight review that will offset that peak season surcharge goes away.

Okay. That's helpful. Two last ones. You mentioned in the prepared remarks about a technology investment. I was wondering if you could just expand a little bit on what exactly that would entail.

Yeah. That's tracking and tracing for equipment, and systems development. Those are the two primary components of those investments.

And is there a P&L impact from that in 2011? How do we think about that in terms of where it could show up in the numbers?

It would be in depreciation, because we would capitalize that, yes.

Okay. The last one I have, same sort of thing, you mentioned an operating center. Is that for personnel and people or is that like a drayage center?

It's actually personnel and people. As part of our integration of Comtrak into our operations, we're looking at these operating centers being located where our Comtrak operations are. It's basically an off shoot of that.

Okay, very good. That was all very helpful. Thanks a lot.

Great.

Our next question comes from the line of Kevin Sterling with BB&T Capital Markets. Please proceed.

Dave, could you touch a little bit on rail service. How's rail service? As it relates to that, how fast are you turning containers these days?

As far as the rail service, it's been very solid. Our two primary carriers are Union Pacific and Norfolk Southern. It's been quite good. I think in particular what we've seen is what we call left on the ground. That's containers that are on the ground before train cut off, in fact, don't make the train, because it may be full, has declined pretty substantially. And is actually at the lowest historic level it's ever been.

We're quite pleased with it. I think we've seen our average miles down go a bit because some of the railroad investments are allowing for shorter lengths of haul. Obviously there the consistency of service is so very key. It's more difficult to make up a lost day. So, the rail service remains solid through peak. And of course now there's less in the system, so outside of some of the weather-related issues that we've been having, it continues to be quite good.

Okay. How fast are you turning container?

We actually picked up a couple of tenths of a point in terms of utilization over prior year this quarter, so under 14 days. It's up slightly from third quarter, but that, once again, is normal, given the fact that you have two pretty significant holidays in the fourth quarter that you don't have in the third quarter. So, actually better despite the fact that the fleet is about 3,000 units larger than it was at this time, or at that time a year previous.

Thank you, Mark.

Sure.

And, Dave, do you guys have any more low margin business to price in truck brokerage or are we done seeing the gross revenue fall off?

The gross revenue, we're pretty well done with that. I mean, there's always the lowest-performing business. We're always looking at it and quite focused on making sure that everything is consistently paying for itself. But no, I think that major initiative and effort is pretty well done for right now.

Okay. Last question, how are January volumes so far? Are they pretty good?

We really don't comment on the current quarter. I think, if you look at obviously what the rail reportings have been, they are up, albeit not quite at the pace they were prior.

Okay. All right. Well, thank you so much for your time this evening. I really appreciate it.

Thanks.

Okay.

Our next question comes from the line of Michael Wines with JPMorgan. Please proceed.

I was wondering if you could comment on whether or not you're seeing a lot of customers brace for potential truck load capacity issues later in the year that might drive increased interest in intermodal services.

Yeah. There's definitely an interest among our customer base, and I think the shipping public in general in intermodal. The rail service has been good, and been good for a sustained period of time. I think that most shippers believe that truck costs are going up. There's a debate whether truck costs go up in the second half of this year, or really don't start to move up until the first half of next year.

If you're trying to plan longer term, I think you have to anticipate that all of the major factors that are in play right now are likely to move truck up higher, and as long as rail service continues to perform, there's really not a reason to not be using a significant amount of intermodal right now. So most folks have a conscious effort to convert at this point.

Yeah. I would add at this time there's a lot of concern about capacity, particularly among the large importers, that import at peak. Many of them suffered some real severe capacity constraints this past year. Had to buy at transportation at a much higher level. I think that's' major concern for customers right now, trying to lock up some of that capacity for when peak of 2011 occurs.

Yep.

So, is it potentially driving forward the period of time when you would be locking in these bids, or just in terms of getting ahead of potential price increases later in the year, or are you hearing new customers come in and saying they're interested in intermodal, or is it mostly a shift within existing customers that would shift away from truck and more toward intermodal?

I would say it's both. There's certainly existing customers who are now looking at new lanes, to shift to intermodal, and then there are those who shied away from intermodal, largely for service reasons historically, but now feel compelled to take a closer look at it. We're certainly seeing a lot of bids out there right now. That indicates to me that shippers are looking to get in and secure capacity early in the season, as opposed to waiting and seeing how the market plays out. So, it should be an active bid season right now, and right now it is.

Okay. Could you provide some commentary on what you're seeing from some of your competitors in the intermodal market place?

It's a little early. We really are, haven't gotten results back from the bids as of yet. We anticipate that it's going to, continue to be a competitive marketplace, but we're hopeful that we're going to see more rational competition certainly than we saw in 2009. 2010 was an improvement. Based on what we're hearing, folks are planning on taking a more disciplined approach this year. We're hopeful that's going to be the case.

Okay. And just one last one, if I can. How much visibility do you have to the large rail operators raising their rates? For example, U.P., Norfolk, and CSX for that matter?

They will keep us apprised of what they're thinking. We don't have any clarity at this point yet what they're thinking about. Certainly for peak, we were successful this year, in 2010, in passing on the increases that we saw from those three rails, and were able to pass that on effectively and not see a deterioration in margin. So, a lot of it depends on demand conditions as we get closer to peak, and we probably won't know that until the second quarter.

Okay. Great. Thanks for the time.

Our next question comes from the line of Matt Brooklier from Piper Jaffray. Please proceed.

It looks like the rate of share buy backs from third quarter into fourth quarter slowed a little bit. And what we're hearing from you maybe that 2011 will be a heavier year in terms of investing in the business, or technology that you're purchasing. There's some operating centers that you're opening. Kind of walk us through your thought process in terms of uses of cash in 2011, and kind of the weighting between investing back into the business versus share buy backs, and maybe some commentary on 2011CapEx if you have it.

Yeah, sure. Our first use of cash would be an acquisition, and that's always been our hope. We think there's great acquisition candidates out there now. So we're keeping our powder dry for that. Secondly, you're right, we plan to do the investments in our technology, and we plan to spend cash on those because of the bonus depreciation rules for tax purposes that we can take advantage of this year. It's a good time to do it.

We need the tracking and tracing for the equipment. And then, we still haven't decided if we're going to lease or buy that $33 million worth of containers. It depends on what the rates are from the leasing company. And then there's the operations center. We're still exploring different alternatives for that, too. It's not really cast in stone which way we're going to go.

Okay. Any sense, what was CapEx for 2010? Maybe a range, if you will, on what the 2011 number could look like.

Sure. In 2010, our capital expenditures were $25.6 million. In 2010, that is what we spent. If we don't buy the containers and don't buy an op center, it would be $25 million in 2011. If we end up doing either of those, you add on the $33 million for the containers, or the $15 million to $20 million for the op center.

Okay. So this could be a heavier year, if you will, in terms of spent on the CapEx side, but sounds like a good use of cash. Getting back to the 3,000 containers, trying to hone in, in terms of taking delivery on that, your plans are in the first half of the year to take 1,000 containers. I just wanted to clarify, when do you expect to start receiving those containers? Because if I look at the contract that you have with your manufacturer, that document reads that you'll start to receive containers beginning in March. So, you start to receive containers in March through May, and then you have the all 1,000, and then you move on to the second and third traunches. What's the month to month timing, if you will, on delivery of those containers?

Yes, Matt, we actually anticipate we'll start getting them in May. Yes, the contract does allow for an earlier window. We would doubt that they'd be coming in at that time. March would actually be a nice time to get some containers on the West Coast, but that's probably not going to happen. We're anticipating May through October.

Okay, May through October. But if the manufacturer can get to them to you, it is possible that March could be the kind of start of on boarding the new containers.

They'd have to step it up right now if they were going to make that happen.

There's a lot of production restraints right now with the amount of isos that are being built. While it's possible, it's highly unlikely.

Our team was just there watching the prototype, and watching some of the testing, and so forth. I doubt they'll start arriving that early.

Okay. And last question, I just want to qualify something that David said earlier. When you were referring to intermodal growth in 2011, and I think it was a low teenish type growth rate, that was a volume growth number, correct?

Yes.

Okay. Thank you.

Our next question comes from the line of Anthony Gallo with Wells Fargo. Please proceed.

Thank you. In the past, you used to give us the sequential change in gross profit margin by each of the units. I didn't catch if you're doing that. Can you share that with us, Terri?

Change in gross profit dollars. I've given one out in the past, but we don't give every single line of business. Otherwise, that would be too would be too information. Are you talking about sequential, Anthony?

Yes. I'm trying to get my arms around the sequential drop in gross profit margin. You mentioned the logistics blend. That's hard to separate out.

Oh, yeah. Sure. Logistics sequential was down about 200 basis points.

And how about truck brokerage revenue and intermodal?

They were both up slightly.

Up slightly.

Sequentially, in terms of gross margin as a percent of sales, yes.

Even with the price improvement in intermodal, it wasn't quite enough to move the needle on gross margin because the rail costs are higher. Is that the right way to read that?

Well, it's really a couple different things. We spent money during the quarter to reposition equipment, to meet our customers' needs, and because of the capacity constraints. And in other cases we use suboptimal equipment just to keep the freight moving. We wanted to be sure to meet our customers' expectations, so we incurred a little extra cost to do that.

And you did that so you can set them up for the proper price increases this year, right? [LAUGHTER] You don't have to comment on that.

We actually need to live up to our commitments, but set them up for that as well.

There's one other company out there that could do the same thing, maybe it would be nice for all of us. Just a quick question. Is there anything to make of this chassis shortage? Is it just really noise or is that creating problems for anyone?

There were some issues with it during peak where chassis have somewhat imbalanced, but we've been talking about the various railroads, and they are increasing their supply of chassis commensurate with their increase in the number of containers within the network. I don't really think that's going to be a problem. Once in a while they will get imbalanced and there will be a spot shortage, but for the most part I think the chassis- to container ratio is pretty solid.

I'll count that as my two questions. Thank you very much.

Our next question comes from the line of Art Hatfield with Morgan Keegan. Please proceed.

Thank you. Actually good afternoon. All my questions have been asked and answered. Thank you.

Great. Thank you.

Today's final question comes from the line of Ed Wolfe. Please proceed.

Thanks. We're good to go. Thanks guys.

That concludes today's question and answer session. I'd like to turn the call back over to Mr. Yeager for closing comments.

Again, thank you for taking the time to listen and participate in our conference call. As always, Terri, Mark, and I are available for additional questions that you may have.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.