Knight-Swift Transportation Holdings Inc (KNX) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

My name is Lee and I will be your conference operator today.

At this time I would like to welcome everyone to the second-quarter 2005 earnings conference for Swift Transportation.

All lines have been placed on mute to prevent any background noise. [OPERATOR INSTRUCTIONS].

I would now like to turn it over to Jerry Moyes.

Please go ahead, sir.

All right.

Good morning, everyone.

Welcome to Swift Transportation's second-quarter conference call.

I will begin today with the disclaimer and give a brief summary of the quarter results.

Then Bob Cunningham will give us an update on the operational performance, and then Glynis Bryan will highlight the major financials.

Then we'll open up for questions.

Today we will begin with the legal disclosure.

Today's presentation's discussions will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Words such as expect, believe, anticipate, intends, estimates or similar expressions are intended to indemnify -- to identify those forward-looking statements.

These statements are based on Swift Transportation's current plans and expectations, and involve risk and uncertainties that could cause future activities and results of operation to be materially different from those set forth in the forward-looking statements.

For further information of these risk and uncertainties, please refer to Swift Transportation's reports and filings with the Securities and Exchange Commission.

All right.

Starting off.

First of all, we -- our autohaul disclosure was completed in mid-April.

We're excited to have that complete.

Rate negotiations continued.

Our revenue per mile was up $0.02 a mile over first quarter.

Our revenue is up 15.5% in the quarter.

It's up 9% excluding fuel surcharge.

An operating ratio of 92.9 is a 250 points basis improvement from Q1 '05.

However, it's up 150 basis points from a very strong Q2 of '04, due primarily to insurance costs versus last year, but improving from Q1.

We also experienced softer demand in April and May, which was offset by operational improvements.

We saw some strengthening in June, which is continuing into July.

In addition, our earnings per share was impacted by a charge from Transplace of just under $0.015 in EPS.

Now I'll turn it over to Bob to walk us through our operational highlights.

Good morning, ladies and gentlemen.

I'm going to start with slide 4, which is our revenue per loaded mile.

We had steady progress in our revenue for loaded mile year-over-year, despite increasing length of haul and the sale of our autohaul business.

Our revenue per loaded mile is up over $0.05 year-over-year, or 3.4%.

That's despite a 21-mile increase in our average length of haul that would generally be about $0.015.

And in addition, as Jerry mentioned, the disposition of the autohaul business, which we previously estimated at 2.5 -- $0.02 to $0.025.

That equates to approximately $0.085 to $0.09, or approximately 6%.

We remain focused on improving our revenue per mile, and we continue to have success.

In fact, if you'll look at this next slide, you can see our revenue per loaded mile by month for 2005.

Our autohaul was divested in April.

April was the $1.555, May $1.562 and then June $1.582.

So we're making progress and our rates are moving in the right direction.

This next slide, slide 6, reflects continuous improvement in our utilization.

Our weekly loaded truck miles were 1912, which was up from 1902 year-over-year and 1844 in Q1.

And at the same time, our deadhead was 12%, that's down from 12.9 year-over-year and 13.1 in Q1.

Once again, that's a great trend.

My last slide shows our revenue per tractor per week excluding fuel surcharge.

As you can see, our yield and utilization improvements are resulting in steady improvements in our revenue per tractor per week.

Our Q2 numbers was 2994, which compared to 2880 year-over-year.

And 2851 for Q1 '05.

The message that we want to deliver this morning is that we're moving in the right direction.

This is a great team.

We are united in our direction, and our goal is to continue to produce results that are increasingly favorable to our shareholders.

And we appreciate your support.

We'll now turn it to Glynis for the financials.

Thank you, Bob.

As Jerry mentioned, we had a strong revenue -- we had strong revenue growth in the quarter.

Our revenue is up 15.5% versus a year ago.

Fuel surcharge revenue is up 118%, driven by the increase in the DOE fuel index and the change to our fuel surcharge program made late in the [technical difficulties] quarter last year.

Year-over-year total revenue's up 17.3%, and fuel surcharge revenue is up over 130%.

Moving on to slide 10.

Excluding fuel surcharge revenue, net revenue for the quarter was up 9% year-over-year, and keep in mind that we disposed of the autohaul operation in mid-April. 60% of the net revenue growth was driven by an increase in miles, while 40% is due to increasing rates.

Year-to-date, net revenue is up over 11% compared to prior year, and approximately 70% of this growth comes from an increase in miles, while 30% is due to rates.

Since fuel surcharge is primarily dependent upon the cost of fuel and not specifically related to our non-fuel operating expenses, we believe that using our net revenues excluding fuel surcharge is a better measure for analyzing our expenses and operating metrics.

The following slides will summarize our operating expenses as a percentage of net revenue then.

Moving on to slide 11, salaries wages and employee benefits.

Our salaries and wages are up 35.4% of net revenue in the quarter -- or, 35.4% of net revenue in the quarter, down 90 basis points from the fourth quarter of last year.

This is including a increase in driver wages of approximately $0.015 per mile, compared to the second quarter of 2004.

Year-to-date, our salaries and wages are at 36.1%, also an improvement over the prior year.

Fuel -- moving on to fuel, as you can see, fuel expense continues to increase as it's over 18% of total revenue in the second quarter.

The good news, however, is that our fuel surcharge program continues to mostly offset the impact of rising fuel costs, and net of our Company-related fuel surcharge revenue, fuel expense is relatively flat as a percentage of revenue and also on a per -- cost per mile basis for the quarter.

Moving on to slide 13, purchase transportation.

Excluding the reimbursement for fuel surcharge revenue paid to our owner/operators, purchase transportation increased to 18% of net revenue in the quarter.

This increase is largely due to the pay increases we've made to our owner/operators, as well as to increases in intermodal activity in the quarter versus last year.

Year-to-date purchase transportation excluding owner/operator fuel surcharge is 17.3%, versus 17.2 a year ago.

Rent, depreciation and amortization, we continue to replace leased assets with our owned assets; but when you look at the combined total, it's dropped from 8.9% of revenue to 9.9 -- versus 9.9% last year.

In the second quarter 2004, we had a loss on the sale of equipment of approximately 940,000 and the second -- in the second quarter this year, we had a gain of almost a million, so net-net, a swing of about $2 million in gains impacting that number.

Year-to-date rent depreciation and amortization expense is 9.3% of revenue.

Down from 10.1% for the first [technical difficulties] last year.

Insurance and claims expense in the quarter were 5% of total revenue.

As a percent of net revenue, insurance and claims expense was 5.6%, down from 6% of net revenue in the first quarter, so an improving trend for us relative to expectations.

Year-to-date insurance claims are averaging 5.2% of total revenue.

Moving on very briefly to the balance sheet.

Our balance sheet remains healthy, debt to total cap is just under 44% in the quarter.

Our net CapEx for the quarter was approximately 129 million, bringing year-to-date CapEx -- net CapEx to 183 million.

The vast majority of these expenditures have been related to replacement of equipment.

We do not expect any significant prebuy in advance of the '07 engine.

And with that, we will open it up to questions from the floor.

Go ahead, Lee, we'll open it up to questions.

[OPERATOR INSTRUCTIONS] .

Chad Bruso, Morgan Stanley.

Good morning, Chad.

Good morning, great.

Thanks.

Just wanted to ask you a quick question here on utilization to start off.

I know one of the goals of the prioritization tools that you guys have been working with over the last year, I believe, has been to improve the -- the utilization of the fleet.

And according to your release yesterday, the utilization was actually down year-over-year, although I think you put up a slide earlier that showed it was up modestly, so I'm not sure what the disconnect is there; but either way I'm not sure it's where you guys want it to be.

How much of this do you think relates to the softer freight environment that we're starting to see versus some of the changes in mix that you guys are going through?

Chad, the difference is our loaded versus our total miles, and so that's -- that's the reason.

If you look at -- that's why we showed the loaded miles, that's what we get paid on, and that's why we use the loaded slide in this presentation.

So that's why we were up.

And as far as not -- our goal is obviously to continue to increase that, and as Jerry mentioned, we were softer in April and -- and May than we had hoped.

Was any of that due to the fact that we might have been walking away from some more freight, culling out some of the low-margin business, or was it just the softer freight environment?

No, sir, I would say it was primarily the softer freight environment.

And then one question then for you on the pricing environment.

I believe there were a couple large-scale bids that still haven't closed, most significantly for you guys it'd be the -- the Wal-Mart bid.

Did that cost you anything in the quarter given that the pricing hasn't gone into place yet, and could we recoup some of that once the pricing does go into place?

Well, we're not giving specific guidance about -- about any customers as far as that goes, Chad.

I would tell you that we're continuing to push for increases where appropriate; and obviously, the sooner we get them, the sooner they'll reflect in our results.

Craig Harris, Arizona Republic.

Morning, Craig.

Good morning, gentlemen.

Could you please give an update on where things are at from the SEC and the FMCSA?

I didn't hear anything when the conference opened.

Craig, everything is the same.

We're co-operating with the SEC and nothing new and the same with the FMCSA, it is the next -- it's scheduled for December, as we've previously announced.

Thank you very much.

Edward Wolfe, Bear Stearns.

Good morning, guys.

Can you give a little more details on the impact of getting rid of the autohaul business?

You discussed that the revenue per mile is actually apples-to-apples a couple cents better.

Can you talk about the impact?

Did that make the -- the deadhead look a little bit better and the impact on the utilization and the rest of the metrics, maybe how much revenue year-over-year that you would have had that you didn't have, and those kind of things?

Ed, we did say that the estimate would be previously about $0.02, and we think that's the case.

And -- and obviously there was a little bit of help with the deadhead; and we don't have that broken out.

I can't tell you specifically how much that is.

$0.02 of EPS in the quarter?

No.

No.

No no.

That's not what we said.

On our revenue per mile a couple of cents.

We didn't break out our -- how that impacted the EPS.

I think at your conference you said something like 90 million for the year and $0.05 to $0.08 EPS historically; is that right?

That's correct.

Jerry, you said something about a charge for Transplace.

Were you referring to the operating loss, your percentage of that in your minority interest in the quarter?

That's affirmative, Ed.

Where -- where is that broken out?

Other -- other expense.

Below the line.

Below the line.

And how much was that -- that's the 392?

That's the net number there.

It was actually 1.6 million.

So there was something else that was positive that -- that reacted versus that?

Right.

What was that?

Just one second.

We'll have to get back with you on that, Ed.

Okay.

Also, Jerry, you made comments about July feeling strong.

Is that seasonally versus a year ago July, or is July unseasonal?

Can you give a little more [inaudible - background noise] --

Oh, I think it's just -- basically, Ed, we're referring to the ISI index on -- on volumes and business; and we're tracking that pretty good, so just kind of follow that.

Okay.

So I mean I -- what I'm hearing and tell me if you -- if I'm hearing this wrong, is that seasonally July is slower than June, but it feels like a decent July.

I'd agree with that.

Okay.

And can you talk a little bit about -- we're starting to hear more comments about the impact of the October '02 engines as they become a bigger part of the fleet.

Can you talk to what percentage of your fleet are the new engines, give or take, right now, and some of the impacts you're seeing versus your expectations there?

Ed, we don't have that broken out.

Obviously we're seeing more and more of our -- of our tractors with the new engine.

Right now our average age is 2.7 years, and we're continually updating that.

They're performing about as we had expected, a little deterioration in fuel but they're performing fine.

Donald Broughton, AG Edwards.

Good morning, gentlemen.

Fuel line.

I got to tell you.

Congratulations.

If I can go back and look at gross fuel expenses, subtract up fuel surcharge collected, obviously, I got to set aside the amount you give to owner/operators, you more than doubled your fuel surcharge per mile.

Most of your competitors complained about fuel.

How'd you accomplish that?

Is this Donald Broughton talking?

Well, it is.

Go ahead.

I mean, how did you accomplish it?

The -- your fuel -- your fuel recovery is dramatically better this year.

I mean, I've got your net -- essentially flat, but I slide with 3/10th of a cent per mile better.

Lower fuel expense and with a dramatically higher fuel price market.

Our sales team done a great job by going out and strengthening and changing our fuel program here --

Last fall.

Last fall.

And obviously it's reflective in the numbers, Donald.

And we've been blessed with very supportive customers as well.

Can you give me the particulars?

You mentioned it real quickly.

Gain, I know you had a loss of 942,000 last year this same quarter on sale of owned and leased tractors.

I heard gain of just less than a mill.

Can you give me the -- that -- what exactly that number was?

A million -- a million 90.

Okay.

A million 90.

Trucks.

Unseated.

I had open trucks at the end of first quarter at around 820, is that right?

And what does it stand at now?

I think that's a little high.

It was --

299

299, I think is what we reported and we're fairly consistent with that right now.

All right.

And -- but you had a price -- you had a raise for the drivers, 2 to -- $0.02 to $0.05 a mile.

And that was effective March 15th, Donald.

And so that hasn't essentially changed your unseated count at all.

Correct.

It hasn't, no, sir.

All right.

I was curious, the salaries and wages line was only up 2.7% on a per mile basis, and it's actually even 3 /10ths of a cent per mile less than it was two years ago.

I know you increased the amount you required employees to pay for their health care last year and that helped you on the line, but you raised driver pay by $0.02 to $0.05 a mile.

How did you -- how did salaries and wages not go up by a larger amount?

The net increase in our driver wages across the entire population was a penny and an a half, so we raised it $0.03 to $0.05, but based on how it's spread out across new drivers versus older drivers net-net it ended up costing us a penny and a half in the quarter.

And there was a change in the per diem between 2004 and 2005, but all of that gets reflected in the percentages that you're looking at in salaries and wages.

So I would say that there are a couple of other things driving the reduction as a percentage of revenue.

Our revenue per mile actually is increasing.

We're getting higher pricing in terms of driving that number.

And that probably has a big factor going against it, and our Workers' Comp and our health and benefits as a percentage of revenue are lower this year versus last year.

Yes.

No, I understand the pricing, but I'm -- the math I'm doing is on a per mile basis not as a percentage of revenue basis.

And on a per mile basis, your salaries and wages line is still below where it was two years ago; and I mean that either means you were paying too much two years ago or -- everybody else in the industry is -- is seeing that line accelerate on a per mile basis.

Donald, I think we had a early retirement that effected last year, if I remember right.

There was quite a bit, some other things put in the second quarter last year, if I remember right.

All right, all right.

Insurance and claims reserves, long and short term at the end of the quarter, what were they?

The reserves?

We break that out?

Do you have that?

Yes.

Hang on a second, we'll grab it for you.

All right.

Approximately 224 million, Donald.

224 million total?

Yes, sir.

Long and short?

Yes.

Very good.

I'll let someone else have -- have a stab at it.

Thanks, Donald.

Ken Hoexter, Merrill Lynch.

Hi, good morning.

You talked a bit about the intermodal cost increasing your purchase transportation.

Can you kind of talk a little bit about your -- your growth in the Intermodal side?

Have you taken delivery of the containers that you were planning?

Where are you in the -- in the rollout of the Intermodal division?

We have not taken delivery of those containers yet.

There are 1500 containers that we previously announced that will be coming this next quarter.

And into early fourth quarter.

We're continuing to ramp up our Intermodal business.

We've got a good team there.

We've got very good response from our customer base, and we still think that there's a great opportunity to grow and leverage those relationships with those existing customers and participate in their Intermodal business that they're currently giving to somebody else.

Could we see Swift engaged with a railroad to -- to buy out some containers from -- from their inventory to speed up your rollout?

At this stage of the game, we don't have anything to announce in that regard at all.

Okay.

And then on the -- on your productivity gains, it looked like -- if I do the math right, correct me if I'm wrong here.

Your tractors in service -- average tractors in service were up about 5% year-over-year.

But your monthly miles per truck were down 0.5%.

Why would you look to increase the number of tractors in service if you're -- if the productivity continues to decline at that level?

Would you start to slow the -- the tractor rollout, or what is your goal on adding tractors going forward?

Our goal is to remain flat with our tractor growth while we continue to drive our operating improvements and bring our operating ratio down.

And -- and in actuality, we are -- we are down from first quarter, and some of that just has to do with timing of these new trucks coming and the seating.

Okay.

So -- so the 5% increase in tractors in service would be more a timing issue than it is Swift looking to expand its fleet?

We are -- we are not looking to expand our fleet, and that'd be correct.

Okay.

Great.

Thanks a lot.

John Langenfeld, Robert W. Baird.

Good morning.

A couple of questions for you on the tractor side.

Just so I'm clear.

That the numbers at the end of Q1, did that include the autohaul -- the 400-plus autohaul units?

Yes, it did.

So sequentially then, I guess your net truck count for the van and dedicated basically went up.

That's correct.

Okay.

And then on the insurance side, you kind of had said 4% to 5% of revenue insurance.

Is that looking to be something you can accomplish over the next year or two?

Clearly you've been -- been above that level.

Is that just certain adverse experience you've had thus far?

What -- or what are your thoughts there?

Probably going to remain at about the 5 -- excuse me, at about the 5%, I think.

Okay.

So it's going to come down from where it's been in the first half of the year?

Yes.

I mean, it's down -- it's down 5.4 to 5, and I think we're going to see it leveling off at about the 5 number, which is a little higher -- higher than what we had projected later on -- earlier on.

Is that just due to experience levels?

Yes.

Okay.

And then driver turnover, how has that trended here in the second quarter?

It's -- it's just about the same as it has been.

It's up slightly, but still pretty good shape.

Okay.

And then finally on the pricing side, if you go back and -- your six months removed from -- from when you got the fuel surcharge increases from your clients, and obviously did a great job there, do you think you had to give up some of the -- at the time what was the -- the rate increases on the core business to get the fuel surcharges?

And obviously, that's going to benefit you here and is already, but do you feel like you had to sacrifice some of that at the time to get the fuel surcharges in at a better rate?

No, sir, I don't think that's the case at all.

I think hindsight's 20/20 and we weren't as aggressive as we could have -- wished we would have been.

And the good news about that is we take advantage of these prioritization tools as we're continuing to look for opportunities with our customers to -- where we -- potentially below market because we weren't as aggressive as some of our competition.

I think there's still some upside for us.

So the --

That's what we're in the process of exploring right now on a customer-by-customer basis on a lane-by-lane basis.

Okay.

Good.

And I guess from your standpoint it doesn't sound like the -- the weaker freight environment necessarily precludes you from getting some of these gains that -- that you've been talking about on the pricing side.

That would be a true statement.

Okay.

Thank you.

Thank you.

Tom Wadewitz, JP Morgan Chase.

Good morning, this is Brannon Cook in for Tom.

You -- I had a question on the -- on the demand environment.

You mentioned that June and July strengthened versus earlier in the quarter.

Could you maybe give us a sense if there are any regional differences in demand east versus west, etc.?

Typically the toughest area for us is in the northeast, but the -- the demand was -- was relatively consistent across the board.

Okay.

I know historically you've gotten a better operating ratio in the west than in the east and if you -- the east in particular, the northeast is an area for OR improvement or the potential for more margin expansion.

Did you -- did you see any regional improvements in OR, even as the overall OR deteriorated year-over-year?

And the -- are you -- are you having success in terms of your improving margins on the east -- on the east side of the country?

We are having success in improving our margins across the board; and we are, once again, using our prioritization tools and our network management piece that we talked about in the last conference call to help optimize our system and to make sure we're not putting too many trucks in areas where we have difficult getting out of.

We are continuing to constantly tweak that model.

Okay.

And finally is, obviously the -- the driver pay increase implemented in March, it sounds like driver turnover's about static with -- with where you thought it was going to be.

Do you feel pretty comfortable looking at the back half of this year where your driver pay is in the industry and your ability to -- to recruit new drivers?

I think our retention numbers speak for themselves and are indicative of the fact that we have a competitive pay advantage.

We're going to dispatch 3 million loads this year, and we have great opportunity to use that volume to get our drivers home; and we are -- we believe that that'll help us on a go-forward basis maintain, and we're striving to continue to improve that turnover number.

Thanks.

Thank you.

John Larkin, Legg Mason.

Hey, John.

Hey.

Good morning, everybody.

Just to stay on drivers for just a minute.

There's been some tension in the industry between the carriers that recruit experienced drivers and those that tend to bring new people into the industry and train them.

Can you refresh our memory as to what your approach is there and whether the changes in the driver market are going to cause you to change that current approach as you go forward?

John, as you know, we've always been a little heavier on training and that continues.

Although we have seen a -- a pickup in experienced drivers and -- as well as [technical difficulties] that already left us.

So don't see a big change in -- in that direction.

What percentage, Jerry, of your drivers are coming from the training program versus the ranks of experienced drivers?

John, I don't know that we have that specifically broken out.

It's definitely a higher percentage that are coming from our training program.

I think it's about 75/25, John.

Okay.

And then as you gave us an update with the Intermodal piece of the equation, would you also do the same with -- with dedicated?

I know, Bob, you had mentioned a quarter or two ago that that was going to be an area of focus for you as you moved forward.

It continues to be as it is for -- for all of our competition.

And the reason for that is our turnover's better, our customer service is better, our operating ratios are better, our safety numbers are better, dedicated business is very desirable.

And we're -- we're up in our division slightly, and we're going to continue to look for opportunities to increase that business on a go-forward basis.

Is that basically because existing relationships are expanding?

Are you actually landing some new business?

Some of both.

We're looking under every rock.

Okay.

And then on the maintenance expense side of the equation, I think I heard you say something about the fleet age coming down some.

Did you mention that earlier?

We just said the tractors are at 2.7.

I think that's fairly flat, John.

Okay.

So really with the [inaudible] coming in there's been no [inaudible] in the fleet age and probably no reduction in maintenance expense, is that a fair statement?

Just a second, John.

I think -- I think that tractor age is definitely -- is down a bit.

We're down from 277 in Q1 to 271.

Our Q4 number we are 281.

If you look at it year-over-year, we were 292.

So our average age of tractors Q2 '04 was 292.

That compares to an a 271 for this quarter we're reporting on today.

And has that contributed to a reduction in your maintenance expense?

Not appreciably.

Okay.

Are you happy with the performance of the Volvos?

We are, John.

They're -- they're performing well.

Okay.

And then one last question.

I had heard through the grapevine that there was a change in leadership of your eastern division.

And wasn't sure whether that was because the person who was running the east decided to pursue other alternatives or because you -- you thought there might be need for a change?

Could you comment on that, please?

No, sir, we -- that's not the case.

We had Kevin Jenson, who's been a long time employee for us and an Executive Vice President who -- who left and he owns 20 acres up in Star Valley, Wyoming and he moved to Wyoming.

Do you have somebody else in that slot already or are you still looking at alternatives?

We've -- we've divided -- we've divided his responsibilities amongst some of our existing management team.

And -- and do not anticipate hiring anybody to replace Kevin.

Okay.

Thanks.

He was not in charge of the east.

That had already been changed some time ago.

Okay.

Thank you very much.

Thank you.

Jordan Alliger, Deutsche Bank.

Yes, hi.

Just a couple quick questions.

Just again on the revenue per loaded mile, the pricing side.

If you sort of adjust the autohauler business, is it safe to say that the year-over-year improvement was something more like 5% or 6% and if so is that the type of adjusted order of magnitude yield improvement we should be looking at?

Your -- your assumption is right on a go-forward basis.

We're not giving specific guidance there.

We're going to get as much as we can, wherever we can, and it makes good business sense.

But adjusted, that is the type of order of magnitude?

That is correct.

And then on -- just quick question follow-up on the fuel side.

If you look at sort of the differential between what you picked up on fuel surcharge year-over-year and the increment in fuel expense, is it safe to say -- obviously, there's some other adjustments in there -- that the effectiveness of your surcharge program contributed at least a few cents a share to EPS this quarter?

Well, inasmuch as that our -- as a percentage of revenue it remains flat.

I don't think that's the case.

Okay.

I was just looking at the -- the year-over-year delta in fuel expense versus the year-over-year delta in fuel surcharge revenue.

There would be a -- a very marginal increase there as a result of that, yes.

Thank you.

You bet.

John Barnes, BB&T Capital Markets.

Hi, John.

Can you give us an idea what percentage of your fleet you think you'll have replaced by the end of '06 as you go into the '07 engines, and where you think the average age of the fleet may be by then?

It's going to continue to go down, John.

We -- we have a new two-year agreement that -- with -- with Volvo for '06 and '07 that we're very happy with.

And I don't have the specific numbers, but that average age of tractors are going to continue to go down.

Okay.

So you're not worried about taking the '07 engine into your fleet?

No.

We're not.

I mean, we -- we're going to be as prepared as we can, but we're going to have to deal with it -- we don't have a whole lot of choice throughout the industry we're going to have our normal replacement cycle that we're going to have to deal with in 2007, and we'll be prepared to do so.

I think, John, this engine's going to be much better prepared for the industry than the October '02 was.

People are -- actually have some of the engines running today, and I think we either have one or are going to get a couple of them very quickly and -- so we're going to have a lot of time to -- to experience with that engine and the manufacturers are just much better prepared.

Okay.

And it is going to cost us more money, so --

Okay.

Jerry, the charge on Transplace, can you remind us of what the charge was a year ago, and what do you see in terms of frequency going forward?

I mean, is it -- is it going to be somewhere in this magnitude, this kind of $0.015 to $0.02 a quarter going forward?

Are things getting a little bit better there, or getting a little bit worse there?

Just to kind of prepare us for the future.

I think all last year it was about $750,000 and I would say that it's not probably going to be in the range of just under a penny and a half going forward, it will be something less than that, and it's not going to continue indefinitely.

We're hopeful that they're turning the corner shortly.

What do you mean shortly?

As soon as possible.

As soon as possible.

They're optimistic about some of the changes they've made down there and their operating plan would -- gives us hope that they're going to be profitable going forward.

Okay.

And then lastly, maintaining -- I guess the -- in looking at the fleet count and that type of thing, down -- or looking at a kind of flat to slightly down.

I mean, do you think right now is the appropriate-sized fleet for the business that you want to pursue, and especially with kind of the growth in dedicated and Intermodal?

Is this the right-sized fleet or would you like to see it come down maybe a little bit more?

We're not looking to reduce it.

We're looking to optimize what we have.

And -- and we will do that through our prioritization tools through dedicated opportunities and just maximize those assets that we currently have on the books.

Okay.

Guys, thanks for your time.

Thank you.

Tom Albrecht of Stephens.

Hey, Tom.

Hey, everyone.

Good morning.

I think a lot of my questions have been answered, but let me just throw out -- we've had a slowing economy in 2005, although the last four to six weeks maybe feel a little bit better.

Can you talk about your ability to really use the prioritization software in an environment that's slowed?

And also maybe kind of weave in some of the cultural challenges since your firm for so long was all about just getting freight, but now trying to aggressively get it in the context of the best lanes and best prices, and how 's the organization adapting to all that?

Tom, I think this team is united in our direction from -- from top to bottom.

And everybody's excited about the -- the changes, and everybody's excited about the opportunity that we have in front of us as we take advantage of -- of these tools that we have.

And so from a cultural change, it's totally embraced; and everybody's excited about it.

I think on a go-forward basis, regardless of what the economy does, this always gives us an opportunity to be maximizing our book of business.

And we -- our goal is to continue to be looking at that bottom 20% of our -- of our business as far as from a profitability standpoint, and how can we either fix that either operationally or with a new rate, or do we need to replace it?

And -- and so regardless of what happens with the economy, these -- these tools and our new culture is going to be continually looking for that opportunity to upgrade our book of business.

So as you review the 2005 book of business, I mean, the software was just finished being developed in November, December.

It was really the first quarter before I think enough people were trained on it to be able to go out into the marketplace and make a difference.

Have you been able to review that worst 20% book of your business, or where are you kind of in that process, and what's the push back from customers?

First of all, it's an ongoing -- it's an ongoing process.

Right.

I would -- I couldn't tell you we've looked at all of it.

There's still a lot of work to do.

We're really just getting started.

But -- and -- the push back from customers is -- on a customer-by-customer basis depends on -- of course the market -- the marketplace and how far off we -- we might be.

But we're -- if you look at our growth with our existing customers, Tom, we're obviously not having a whole lot of push back.

We've had significant growth with our existing customers, and I think that's a sign that we've got a good partnership with those guys and we're continuing to -- to build on that partnership and that -- and we're continuing to look for that partnership to help us in intermodal business.

So we're not going in and giving them either-or-else edicts.

We're in a true form of partnership going in to work with them to see where we can improve and come up with win-win situations as much as possible.

Can -- I mean, the way rates have slowed down in their improvement, particularly in the results that are being reported for the second quarter, if you go back to the beginning of the year I think there was some hope for 6% to 8%.

I think 3% to 5% is kind of the moving target right now.

But you're still at a discount to many competitors, at least in terms of the published rates we see.

I know there's a lot of activity by various lane and account, but can you be as aggressive with rates as maybe others were last year, given that you're still lagging where the rates are on a loaded per mile basis?

Well, if in fact -- and it's true, we weren't as aggressive as we could have and should have been last year.

We obviously have more upside this year to come up to where the rest of our competition is.

And -- and that's what we're trying to do, is identify those areas where we have an opportunity and I think because of the fact that we -- we weren't as aggressive as we in hindsight wished we would have been in 2004, there is still room for upside in 2005.

And that's exactly what we're trying to explore and exactly what we're -- we're looking for those opportunities.

Okay.

Okay.

Thanks, Bob.

Thanks, Tom.

Scott Flower, Smith Barney Citigroup.

Good morning, all.

Scott.

Yes.

Just a couple questions.

I know there've been a lot of things asked.

I just wanted to maybe get some nuance.

I know that you talked about the soft patch in April and May, and I understand that obviously a big and significant part of your book of business is sort of consumer non-durables, but can you give us any flavor on particular verticals?

Was it across the board that things were soft?

Was it in particular verticals that things were softer and now have come back in terms of the customer mix that you saw soft and now it's getting better?

Scott, I would say for the most part it was across the board.

Okay.

Also curious.

And I know that -- on just relative mathematics in terms of -- and you've mentioned that you could have been more aggressive last year.

There's the opportunity there.

But is it a different dynamic when the market is not as robust?

Last year, it almost seemed like a momentumy type market where carriers could name prices and get pretty close to those.

Does it make your job just a little tougher that, yes, the mathematics would suggest you've got opportunity, but that the market itself does -- is not quite as robust; i.e., not as momentumy?

Well, we're below market.

I think the answer is no.

I mean, if we're, in fact, below market and we're looking for opportunities that -- that we missed to get back up to market and to get back up to perhaps where some of our other competition was, then I would say that's not the case.

Okay.

And then I know that you've made a number of changes, obviously the network management efforts, some of the changes in organization incentives.

Are there some fine-tunings that you've done as you've got into this?

I mean, I'm just trying to get, if you will, it's maybe an update question of are there things that you've been tweaking around the periphery versus those things that you've been changing in managing Swift?

And I'm just trying to get a sense of what things might there be a midcourse correction on, or a tweaking if you will, fine-tuning as you've had more experience with some of the changes that you've been making?

Well, we continue to refine our model and our prioritization tools.

It's -- it's an ongoing process.

I hope we never get to a point where we say it's perfect.

There's always going to be room for opportunities for improvement.

And -- and that's going to be part of our new culture is an ongoing looking for those opportunities and exploring those opportunities.

Okay.

And then last few questions and I know that we broached around them, but I guess I'm taking maybe perhaps a different angle.

But with the pay increase, and I know that the turnover numbers have been commented on, but I take it that this hasn't really had any favorable impact relative to your recruiting trends?

Because obviously as you put a pay increase and it's only been less than a full quarter or a little bit more than a quarter away, [inaudible] perhaps a little time to build up.

I'm just curious has that had any impact on forward recruiting or not really?

Well, I think the important thing, Scott, is we have not had a deterioration of our turnover.

Okay.

And with the demand for drivers out there that is probably worse than it's ever been, our turnover stayed pretty flat, and our unseated truck's pretty flat.

We're pretty excited where we are.

Okay.

Summer's also typically the time when we face the most fierce competition with construction and all those things.

So I would say to remain flat during this particular time is a good sign.

Right.

And then lastly, what has your safety experience been over the last several quarters?

Has it been improving?

Has it been about the same?

I'm just trying to get a sense of actual incidence and severity, not necessarily getting into the accruals you all have made, sort of more long-term normalizations.

I think our safety numbers are pretty consistent with what they've been.

I would say they're the same.

Okay.

Terrific.

Thanks very much.

Thank you.

Andy Pasner [ph], American Capital Partners. [Technical difficulties].

Mr. Pasner, your line is open.

Please go ahead with your question.

Yes, hi, how are you?

Hi, Andy.

How are you guys doing?

We're great.

I got a quick question.

You were supposed to report your numbers on July 25th initially, was there a specific reason that you put them forth for today?

We've never -- we never indicated we were going to report them on July 25th to my knowledge, and there was no reason for them.

Right.

So there was no -- there was no announcement saying that you were going to report on July 25th?

No, sir.

That was speculation, I guess.

All right.

Another quick question.

You also used an internet NetWolves Corporation.

You've had a contract with them since '99 and you ceased to go forward with them.

Is there a specific reason why?

Yes.

It was a cost-saving initiative, and we've signed a new agreement with another provider that we believe is going to give us better service and significantly reduce cost.

Right.

So up until a week ago when you guys announced that you were going to report today, you didn't have a specific date on when you were going to report the earnings?

That is a correct statement.

All right.

Very good.

Thank you very much.

That's all I have to ask.

Thank you.

Dimitri Portnoy [ph], American Capital Partners.

Hi, Dimitri.

Hello?

Hi.

Hi, how are you doing?

Yes, that was just me.

Andy happened to be my partner so I took the initiative, so you answered both our questions.

Very good.

Thank you.

What have we got?

One more, I think.

Edward Wolfe, Bear Stearns.

Hi, guys.

Just a couple real quick wrap-ups.

The tax rate going forward.

Is 39 fair going forward?

We believe that's the case, yes, sir.

Okay.

And you haven't given any official guidance, but, Bob, you talked about a sense that yields should get better year-over-year, they should accelerate a little bit from 3.4%?

Is that fair to say as we try to project in our models?

Ed, rather than giving guidance, we intend to let the numbers speak for themselves.

Okay.

Thank you.

Thank you.

There are no further responses at this time.

Thanks, everybody.

Thanks for your participation.

Thanks for your support of Swift Transportation.

Have a good day.

Ladies and gentlemen, thank you for your participation in the conference today.

You may disconnect at this time