Knight-Swift Transportation Holdings Inc (KNX) 2014 Q4 法說會逐字稿

Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 and year-end 2014 conference call.

(Operator Instructions)

Jason Bates, please go ahead, sir.

Thank you, Amy. Just to clarify, we have received all of the questions already, so there won't be a question-and-answer session following the prepared remarks this morning. We would like to welcome everyone out to the Swift Transportation fourth-quarter and year-ended 2014 question-and-answer session. As a reminder, we have posted a comprehensive letter to stockholders summarizing our results on the front page of our Investor Relations website.

We are going to start the call today with our forward-looking statement discloser. This call contains statements that may constitute forward-looking statements, which are based on information currently available, usually identified by words such at anticipates, believes, estimates, plans, projects, expects, hopes, intends, will, could, may, or similar expressions, which speak only as of the date the statement was made. Such forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are inherently uncertain, are based upon current beliefs, assumptions and expectations of Company Management, and current market conditions, which are subject to significant risks and uncertainties as set forth in the Risk Factors section of our Annual Report Form 10-K for the year ended December 31, 2013.

As to the Company's business and financial performance, there are many factors that could cause actual results to differ materially from those in any forward-looking statements. You should understand that there are many important factors, in addition to those discussed and in our filings with the SEC, that could impact us financially. As a result of these and other factors, actual results may differ from those set forth in the forward-looking statements, and the prices of the Company's securities may fluctuate dramatically. The Company makes no commitment and disclaims any duty to update or revise any forward-looking statements to reflect future events, new information, or changes in these expectations.

In addition to our GAAP results, this call also includes certain non-GAAP financial measures as defined by the SEC. The calculation of each measure, including a reconciliation to the mostly closely related GAAP measure, and the reasons Management believes each non-GAAP measure is useful, are included in the schedules attached to our letter to stockholders.

With that out of the way, I would like to recognize the members of the Swift Management team on the line today. We have Jerry Moyes, our Founder and Chief Executive Officer; Richard Stocking, our President and Chief Operating Officer; and Ginnie Henkels, our Executive Vice President and Chief Financial Officer. Again, my name is Jason Bates, Swift's Vice President of Finance and Investor Relations Officer, and I will be moderating today's Q&A session. We appreciate all of the questions that were submitted prior to the deadline last night. Similar to quarters past, we have categorized them, and will do our best to provide detailed responses to each. To extent you have additional follow-up questions, feel free to reach out to me after the call.

So with that, we'll start the Q&A portion of the call today with a couple questions on adjusted EPS trends and guidance, before moving to discuss the various operating segments. You raised the full-year 2015 guidance slightly, despite the higher projected CapEx and interest expense. I want to dig into some of the specific assumptions underlying the guidance. But in general, would you say this new guidance range incorporates (technical difficulty) conservative, or is this your current best guess for full year 2015?

In other words, would you say there's an equal probability of your actual full-year 2015 results coming in below this guidance as there is of your results coming in above the guidance? Or are you keen not to repeat the guidance issues encountered in Q2 of 2014, and therefore including some cushion in your initial 2015 outlook?

Thanks, Jason, and good morning, everyone. I'm glad we started with this question, because it did make me smile. As with any guidance we give, we have both stretches and conservatism included in the range. There are many moving pieces that go into our results, no pun intended. If many things go well, we could exceed the range. If many things turn against us, we could miss the range. Our intention is to give you a realistic expectation, given a very reasonable scenario.

Why have you decided to no longer provide quarterly guidance? As we go through the year, will you provide updates to, or affirmation of, your full-year outlook with each quarterly report?

It was never our intention to give quarterly guidance. We fell into that practice in 2014, after the significant weather impact in the first quarter. We have told people throughout the latter part of 2014 that we were not going to continue that practice going forward. If we end up in the latter part of 2015 and we are seeing a significant deviation away from our full-year guidance, we would likely update the range at that time.

You address several disappointments experienced in 2014 in the release. More notably, being late to the driver wage increase, integration challenges at CRS, start up costs and dedicated, and discouraging claims trends. Which of these items do you think made -- you made the most progress on in full year 2014? And, more importantly, which areas do you see as showing the greatest improvements in full year 2015.

Thanks, Jason, and good morning, everybody. With regard to the driver wage increase, we relate to the gain but believe the changes we've made to pay, in addition to the other softer aspects of driver satisfaction, started to take hold in the second half of the year. In the area of pay, we fully expect to give another wage increase in 2015. With regards to the softer aspects, this is an area of continuous focus, and we believe there are many more things that we can do in this area, and we are truly striving to be the employer of choice for our drivers. We believe we've made very good progress this year.

On the CRS, the integration challenges are mostly behind us. We still have further opportunity to the build on the progress we've made in the fourth quarter, and are looking for sequential improvements as we go forward. For example, we have talked in the past about the large dedicated account CRS brought in right before the acquisition, and that it had operated at a loss from the very beginning. We're officially exiting that business tomorrow, as we have worked with the customer over the past several months to transition this business to other carriers.

In addition to that, I'm excited about the team we have in place up there now, and the progress we are making in all facets of the business. The demand is strong. We have a fantastic customer base. We're growing trucks again through the retention of our drivers, as well as recruiting efforts. We're aligned with our systems and our leadership teams, and we love the potential of this line of business.

Moving on to dedicated, the start-up costs should mostly be behind us, as we expect the pace of growth in the new dedicated accounts to slow somewhat. We are still working on improving the efficiencies of some of the new dedicated locations by filling in back hauls and slip-seeding equipment, so gradual improvement is expected in that arena as we move throughout this year. The challenge in the fourth quarter for dedicated was more safety related, which brings us to the discouraging claims trends portion of your question. I'll turn some time to Jerry to respond to that.

To start with, I'll tell you our safety trends of 2014 were absolutely unacceptable, and this was really true throughout the year. So when we look at opportunities, we'd better make progress in 2015. We've started this year by having our driver leaders have a special safety conversation with each and every one of the drivers. With over 20,000 drivers, this is no small feat, but we believe it's very critical and important to us for the safety of our drivers, and the motoring public. We're starting to see improvement with our safety in the month of January.

In addition to that, and several other safety initiatives, we are also equipping all of our new trucks with enhanced safety features to help prevent crashes from occurring in the first place. This new technology is very impressive and includes automatic transmission, collision avoidance systems, lane departures, and other items that will help to fuel efficiency of this new equipment. I have personally drove this equipment and this equipment -- and how it applies to brakes when we had a pace car that would purposefully pull in front of us and stop.

We cannot, and will not, have another year like 2014, which is why we have decided to accelerate our trade cycle on our tractors to about 3.5 years. This is important for us as a Company, for the safety of our drivers and for the safety of you and the motoring public. This new equipment will help us in our safety expense, better fuel economy, lower repair and maintenance, and better driver satisfaction.

Great. Thank you, Jerry. Next question. Your commentary suggests taxes and fuel will likely be headwinds. The tax rate was lower in 2014 versus 2013, and could reverse higher, but why would fuel be a headwind for full year 2015? The current DOE national average diesel price is 25% below the average price seen in 2014, and 22% below the level on October 23 when you provide your initial full-year 2015 guidance. Even if fuel prices rise sequentially from here and throughout the year, why would you not expect fuel to be a nice year-over-year tailwind for 2015?

Since we have fuel surcharges in place with our customers, our primary exposure with regard to fuel is the lag effect between the DOE diesel fuel index and the prices we are paying -- or the DOE diesel fuel index that we charge to our customers, which is generally a trailing number, and then the current prices that we pay at the pump. With the exception of the first quarter of 2014, fuel prices were generally declining for all of 2014, and then dropped significantly in the fourth quarter. Looking at the forward curve for oil and heating oil, both suggest the opposite trends for 2015, with the first quarter being somewhat flat, and then steadily increasing throughout the rest of the year. This would suggest the first quarter would have a year-over-year tailwind with regard to fuel, and the rest of the year would have a headwind, with gale force winds in the fourth quarter.

I realize you do not intend to provide quarterly guidance, but can you clarify your comments about expected normal seasonal softness in Q1? Is it fair to assume that while Q1 will repeat -- will represent the smallest percent of the full-year 2015 earnings, it should still show reasonable year-over-year growth, given the weather-related challenges experienced in Q1 of last year?

Yes, this is a reasonable assumption.

Dedicated aside, your margins in each of the other segments were the best we've seen in quite some time. What drove the strong margin performance in Q4, and are you expecting further margin improvements in each of your other segments in 2015?

Specific to the fourth quarter, all of our segment ORs benefited from the fuel declines, seasonal project business, and/or repositioning activities for our customers. In addition to that, the contractual rate increases are helping to offset the driver wage increases that we gave in the third quarter, and other operational improvements such as utilization and productivity improvements are also helping to drive the results. As for 2015, we are targeting improved margins in each one of our segments, with the biggest opportunities in intermodal, CRS and dedicated.

Great. We're going to go ahead and move into questions about the specific operating segments now, starting with the truckload segment. Considering the signals, potential drivers of increasing capacity, such as class 8 order -- truck orders above replacement demand, suspending of hours and service rules, driver wage increases, potential for layoffs and energy end markets to alleviate the driver shortage, et cetera, would you expect growth in revenue per loaded mile ex-FSR in switched core truckload segment in 2015 to accelerate, decelerate, or remain consistent with growth seen in 2014?

For 2014, we achieved a 4.6% increase in our truckload revenue per loaded mile, excluding fuel surcharge revenue. Our most recent guidance for 2015 was for rate increases in that segment to be in the 4% to 5% range, which is a range that we feel confident in reiterating. However, with that range, there will be customer accounts or lanes which could necessitate significantly more than 4% to 5%, while others may warrant less. Obviously, there are a variety of factors, many which were mentioned above, which could cause us to meet, or even exceed, the weighted average of that 4% to 5% range. However, as we've discussed previously, a good portion of those increasing will be passed along to our drivers to ensure they continue to be appropriately compensated.

There's been a lot of discussion about the possibility of capacity growth in the industry, both from physical capacity and from hours-in-service relaxation and what this will mean for pricing. Both you and Knight have indicated plans to grow your fleets in 2015. We are also seeing somewhat weaker performance in the various truckload industry indices in the first few weeks of the year. What is your view on industry pricing this year, and what level of rate growth is contemplated in your 2015 guidance? Do you expect industry pricing gains to slow, or are the weaker truckload indices we've seen so far in January more a function of very difficult year-over-year comps versus last year's weather-driven distortions than they are representative of weakening industry pricing power?

As it relates specifically to pricing thus far in Q1 of this year, recent experiences in customer interactions indicate to us that pricing remains strong. Although Q1 year-over-year comparisons will be slightly distorted, due to the large impact weather had on the first quarter last year, we feel very confident in our ability to meet or exceed the previous stated year-over-year rating guidance.

What is driving the improvement in loaded miles per tractor? Are you seeing drivers focused more on this metric to seek out fleets that can offer them more miles?

As discussed in previous quarters, we are fully committed to delivering a better life to our drivers. To help realize this commitment, we created an entire cross-functional strategic focus team at the beginning of 2014, as well as a handful of tactical teams, with the specific task of addressing processes that will enable us to increase the number of miles driven each week by our drivers. The reported increase in our loaded miles per tractor is a direct result of this hyper focus. We are proud of the improvements we have seen thus far in this metric, but are even more excited about our future potential, as well as the positive impact it has had on the lives of our drivers.

So a quick question about CRS segment. Central margins did improve in the fourth quarter, but remain well below Swift's other trucking segments. It feels as if central continues to under-perform, and hasn't fully benefited from the improvements seen in the truckload segment during 2014. What changes are being made, and how much of an impact should we expect in 2015?

As we communicated last quarter, our goal is to generate consist year-over-year improvements each and every quarter in our CRS segment. In Q4, we were able to grow the fleet roughly 10%, as well as realize improvement in our driver turnover trends throughout the quarter. To help further facilitate growth and improved operational metrics, key truckload personnel have been assigned to further train and assist with these implementations. We are pleased with the team's ability to deliver upon this commitment in the fourth quarter, and expect to continue to do so throughout 2015. However, as we have indicated in quarters past, the process-oriented strategic and structural changes do not come quickly.

Keep in mind, it took Swift several years to improve its truckload operations from the mid-1990s to mid-1980s, and this improvement was primarily achieved through relentless focus on, and adherence to, process improvement. We are confident in our ability to drive similar improvements in our CRS segment, but it will take time, patience, and a lot of hard work.

There were several questions related to the dedicated segment. The first, your margins showed very nice improvement in all segments, with the exception of dedicated. What drove the margin degradation at dedicated, and what is your outlook for the dedicated segment margins in 2015?

As we stated in the letter, insurance and claims expense in our dedicated segment was significantly higher year over year. As Jerry discussed previously, we are addressing these issues and expect our incidences to improve in 2015. Although fully reserved to the best of our knowledge in 2014, due to our internal claims expense allocation process, we expect to see elevated insurance expense allocated to this segment for the entire year. Additionally, our dedicated segment recorded significantly lower gain on sale in the fourth quarter of 2014 compared to the prior year. For the full year 2015, we expect some margin improvement in spite of the elevated insurance expense, as we continue to make operational improvements, especially with the new business that we brought on in 2014.

In the past, contract start-up costs were often cited as near-term headwinds to dedicated margins. Was this a similar issue in the fourth quarter? And how is this contract challenge being addressed in 2015?

During the fourth quarter this year, we did not bring on any significant new accounts. Therefore, we did not have substantial start up costs in the fourth quarter. As we mentioned last quarter, we wanted to ensure that we did not pull resources from our truckload segment during what we expected, and experienced to be, a very robust season.

Going forward, the start-up costs will depend on the type of business we win. Large contracts cause more disruption in our network and, therefore, carry more meaningful start-up costs. If we grow the same number of trucks with smaller accounts, the disruption is not as impactful. We have taken steps to help mitigate the impact by changing our driver recruiting efforts on dedicated accounts, increasing lead times, et cetera. We expect these changes to mitigate, but not eliminate, dedicated start-up costs on a go-forward basis.

Is there any difficulty recruiting and retaining drivers within the dedicated segment? Are you able to pass along driver wage increases to customers? How are driver wages being negotiated with dedicated customers in the current environment?

Dedicated is typically easier to hire and retain drivers, due to the nature of the business. Drivers do not travel far from home. Their paychecks and their daily activities are more consistent, and they are able to be home with their families on a more frequent basis. During the year, we have increased driver wages in several fleets, but only when we have received rate increases from the customer. Our customers are fully aware of the driver environment and are understanding of the need to increase the driver wages.

Can Management discuss what percent of dedicated contracts are expected to re-price over the next 12 months into what appears to be a continued strong rate environment?

We analyze each contract individually and make adjustments with our customers on an as-needed basis. If we are not able to make the required turns on equipment, if the business is not hitting our profitability expectations, or if something materially changes such as a tough driver market, we will work with our customers to find the right solution. This could mean changing a few things operationally or repricing the business. We have great relationships with our customers and have a track record of working with them to find the right solutions.

Historically, our dedicated segment has operated at better margins than our truckload segment, although that dynamic has recently changed. This change puts added pressure on our dedicated teams, and we have raised the bar with them for profitability expectations on both our existing business, as well as any new business we are considering. We have, and are taking, this into consideration, as we decide where to invest resources.

Is it safe to say that recently added dedicated contracts are less profitable than older contracts?

This is true only in regards to the new accounts in which we experienced increased insurance expense, as we discussed previously, or in contracts where we have less of a required asset investment, meaning that we're pulling the customer's trailers, and therefore lower requiring operating margins. We can maintain the same or better ROI with lower margins if the customer provides the trailers, operating facilities, shops and fueling stations. Overall, we expect our new business to be as profitable or more profitable than our existing business. As we decide where to invest resources, we look at our business in its entirety, and as previously mentioned, we continually raise the bar for each business unit, including dedicated.

There were a few questions on the intermodal and logistics business. The first, intermodal profitable posted material improvement in the fourth quarter, similar to trends in 2013. For the past two years, what drives the earnings upside in Q4m and what has been done to address profitability improvements throughout the year?

Yes, we are very excited about the improvements we are seeing in our intermodal business. Over the past three years, our full-year adjusted operating ratio has improved from 102.3% in 2012 to a 98.1% in 2013, and now a 97.4% in 2014. We've made several strategic changes and implemented various process improvement initiatives to this business during that time period, and we are beginning to see the results of those investments pay off.

The margin expansion over that time has been driven by revenue growth, enhanced asset utilization, and improved rate efficiencies. For the fourth quarter, margin improvements were also driven by additional seasonal project business. Even with these positive changes, we feel significant opportunity for improvements remain in this segment, and we believe that great team -- or that we have a great team in place, combined with our well-defined strategy, will enable further margin improvements going forward.

Discuss how we should expect container turns to perform in 2015 in the intermodal segment?

During the fourth quarter, container turns were better each month on a year-over-year basis, even though we had added several containers in the latter half of 2014, and we expect this trend to continue throughout the entire 2015 year.

Any changes to plans for container additions in 2015?

As we mentioned last quarter, we don't have any plans to add containers, especially in the first half of 2015, and our view has not changed. We still believe we can improve utilization of our current fleet to handle our revenue growth expectations for the full year. However, if the market conditions are stronger than we expect, we may increase the fleet in the latter half of the year.

The railroads were experiencing congestion in the Chicago area toward the end of the year. Did that impact your operations, and do you see any change? How much of a tailwind will an improved rail service level be to intermodal revenue and EBIT in 2015? Was the sequential improvement from Q3 to Q4 in railroad intermodal service enough to get service levels back to where they were in 2012?

Great question. Rail congestion in 2014 negatively affected our service levels as well as our profitability, and we're not limited to just one provider. These rail issues progressively waned throughout 2014, as the rails invested in infrastructure and added addtional crews and locomotives. These changes should continue in 2015, providing a tailwind. Even with the 2014 improvements, service levels did not return to the same levels as 2012. In spite of these headwinds, we've focused on strategies that were in our control, such as improving [rate] efficiencies through the increased usage of Swift Power.

Having both the truckload and intermodal perspective, have you seen customers' decision on freight mode change in any way, as the price of diesel has dropped?

So far, we haven't search any significant changes. We have seen some business come back to the rails as the services improved, but we do not expect lower diesel prices to be a headwind for intermodal revenue growth in 2015.

With so many truck brokers growing so quickly in the marketplace, is it difficult to grow your own brokerage as quickly as you would like?

We are actually seeing tremendous growth within our brokerage business. We feel that the significant amount of time spent in 2013 and 2014 solidifying the foundation, bringing in the right people, systems, et cetera, was time well spent. By the first part of this year, with this core in place, we began to see consistent customer awards, with revenue growth really taking off in the second half of 2014.

Our revenue opportunity is currently very strong, our pipeline is full, with traditional brokerage, single sourced, and freight under management opportunities. We have also been awarded several significant accounts scheduled to started later this quarter and into the first part of Q2. This business is profitable for us, with encouraging return on investment capital trends. We expect continued profitability expansion in 2015, and we are extremely excited about the people we have in place, the customers we have in the pipeline, and the strategy implemented for this business.

There were a few questions on debt and CapEx. Can you please explain more around your guidance for a $0.16 to $0.17 interest expense savings in 2015? This seems to imply $60 million savings in interest expense. The payoff of your second lien notes will save you about $40 million, which implies another $15 million to $20 million in interest savings from further discretionary debt paydown. Can you tell us what is the underlying assumption for this additional debt reduction in 2015, and what the interest rates on the debt to be paid down are, so we can better understand the mechanics of the savings? Thank you.

Firstly, $0.16 to $0.17 is roughly $37 million to $40 million of interest savings, not $60 million. This assumes a tax rate of 38.5%, and 143.5 million shares outstanding. We have also applied the LIBOR curve to our estimates, and that assumes that three-month LIBOR will increase from 25 basis points at the beginning of the year to 85 basis by the end of the year. Our debt reduction will depend on our ability to successfully grow the fleet, as we discussed in the letter, but with the planned reduction in our trade cycle and the corresponding increase to CapEx, the debt reduction in 2015 will not be as much as prior years.

Our goal remains to reduce the leverage ratio, and we currently expect to achieve this reduction more through EBITDA growth in 2015 rather than through debt reduction. With the significant reduction in our weighted average cost of debt achieved in 2014, we believe we have the opportunity to make enhancements to our fleet to drive further safety and operational improvements going forward with the investments made in 2015.

Your leverage continues to shape down each quarter, and is expected to do so again in 2015, even with higher CapEx. What is your leverage target? Is your goal to eventually get to zero net debt? Or would you consider a share repurchase or other capital deployment options in the nearer term?

Over all leverage target is to be under 2, or somewhere between 1 and 2. We do not anticipate, or plan, to have zero net debt. [Pre-REO], Swift used share repurchases as a means for capital deployment. In the future, once our target leverage rate -- once we are in our target leverage range, we may consider share repurchases or dividends if we cannot generate sufficient returns reinvesting in the business.

What kind of trucks do you plan to buy in 2015? Has your choice of equipment vendors changed at all?

We're primarily buying Freightliners with some Kenworths. We are trying to streamline our purchases with two major manufacturers to eliminate the complexity in our shops across the country.

Now that the refinancing of your 10% notes is behind you, is an equity deal to accelerate deleveraging less likely?

When we considered an equity deal a couple years ago, it was related to an equity clause in the notes, and as we said then, we would only trigger that if it was an accretive transaction. That obviously did not play out, and we waited until we could call the note to take them out. Therefore, we do not have any current plans for an equity deal.

Moving on to some miscellaneous questions, starting out with drivers, where are the new drivers coming from in your fleet? Are the majority coming out of your schools or are they coming from other fleets?

We attract drivers from a variety of sources. You know of our various in-house academies, which we have established throughout the US. We attract new drivers from outside academies as well. Additionally, we look to hire what we call [as] pros, which are experienced drivers who generally come to us from competing carriers. The majority of our new hires come from the academies, but our more recent focus, especially after the strategic structure pay changes last year, has been on retaining drivers, regardless of where they come from, so that we can gradually increase the average experience level of our overall driver population, which can have various long-term benefits to the organization.

Can you describe the current driver market? Has it become easier to hire drivers, especially with some of the recent layoffs in the oil and gas industry? How much does Management expect to increase driver wages in 2015?

That's a good question. I don't think I would use the term easier, as it relates to driver recruitment and retention. However, I would say that we have received a lot of positive feedback on our compensation package, as well as our -- the variety of driving opportunities across our various service offerings we offer here at Swift. Our academies continue to be full, and our driver retention remains much better than the industry average. We have also seen some drivers come into the -- our organization from the oil and gas industry, as you referenced.

However, as far as the overall truckload industry is concerned, I would say the driver market continues to be a challenge, and we expect further improvements to our overall driver compensation will be needed to address this at some point in 2015. As discussed last quarter, we have a variety of proprietary initiatives and programs underway, designed to increase the overall W-2 of our driver. Outside of providing straight pay increases, however, we will continue to monitor the driver situation very closely, soliciting input and feedback from our drivers to ensure we stay ahead of the curve going forward.

To what extent did ongoing labor issues at the West Coast ports hurt you or help you during the fourth quarter?

The impact of -- to our operation looks very minimal. If anything, the delays created a more elongated peak for the fourth quarter shipping season, enabled us to realize a more balanced freight pattern on the large volume of freight that we moved from these local warehouses to the final destinations.

Would you expect 2015 to be a big year for truckload consolidation via M&A activity? Will Swift be a likely participant?

Well, there will likely be several M&A opportunities in our industry in 2015. We believe we have significant opportunity to grow organically, without having to pay a premium for an acquisition, and then losing some of the drivers. The key to our growth in 2015 will be recruiting and retaining drivers. While we are always open to reviewing anything that may be a strategic fit and accretive to stockholders, our primary focus for the foreseeable future is to continue to leverage our CRS acquisition, and enhance both the top and bottom line of that business unit through cross-selling the suite of services, combined with ongoing operational process improvements, as well as growing the core Swift business organically.

Can you give any thoughts on the regulatory environment and what may be the impact on industry capacity as ELDs are implemented?

We welcome any regulatory action as it relates to ELDs. A lot of the larger players in the industry, like Swift, are already utilizing these tools, and we would love to see an even playing field. We are hearing that 2015 will be the introduction of the soft enforcement, with hard enforcement not far behind. We do believe that ELDs, if mandated, will further constrain industry capacity and place more pressure on the driving force.

With Target shutting down its operations in Canada, have you had to find replacement customers in order to maintain your lane balance? If so, has that been accomplished yet?

Good question. We've actually have hired sales support in Canada earlier this year, as we've been focused on slowly increasing our presence north of the border. The sales team has been working to create a stronger mix and increasingly diverse customer base out of Canada into the United States and into Mexico. That said, such as the Target situation takes place, there's very minimal impact on our operations up there.

Are you seeing the benefits of near-shoring or in-sourcing, either in Mexico or in the US?

Yes, especially in Mexico. Product assembly, as well as manufacturing, have been on the rise in Mexico. This has increased our northbound freight, which had a positive impact on our volumes and our balance, and our profitability for both Swift as well as the [trans mix] operation and our intermodal operation. We are very bullish on our Mexican operation.

Was the lower tax rate primarily due to the exercise of the bonus depreciation option that was renewed by Congress at the 11th hour in December of 2014?

The lower tax rate was related to this tax extender that the Congress passed at the 11th hour, but it was not the bonus depreciation that caused it. Bonus depreciation helps cash flow, but doesn't have an impact on our effective tax rate, since it just creates timing differences. The tax rate was affected by certain federal employment tax credits that were reinstated for 2014.

What are Management's expectations for gain on disposal of property and equipment in 2015?

We are expecting gains to be down somewhat from 2014. As you may recall, we had $3 million of gains from the sale of the redundant central properties in 2014 that will not recur in 2015. In addition, given the type and the age of equipment we will be disposing of in 2015, we're expecting the gains on the equipment to be lower as well. This will also depend on our ability to grow and seat the equipment, and the number of units that we ultimately sell.

Can you provide additional color on the non-reportable revenue growth? Are there plans to begin breaking out the logistics business from this category?

Yes, as Richard discussed, logistics is gaining traction and growing well. Revenue was up just over 20% in the quarter and the operating income improved over 40%. Although growing logistics is only a part of the other category, and we will consider breaking this out as it becomes more substantial. This will likely be in 2016. The other services captured in the other category are also growing, and they include the shop services we provided to owner/operators and other third parties, our equipment leasing activities, and our captive insurance premiums for insurance products provided to owner/operators.

What was the main driver of the strong sequential improvement in non-reportable EBIT during in the fourth quarter? How should we think about this segment's contribution to expected 2015 EPS guidance?

In the third quarter, we also -- we had a $2.3 million impairment on software that hit the other segment, which did not recur in the fourth quarter. Also, similar to prior years, some of our seasonal project business runs through the other segment, which boosts revenue and profit in the fourth quarter. In addition, the profitability of logistics improved sequentially as well as year over year.

Keep in mind, the amortization of intangibles related to the LBO transactions runs through the other segment, as well as certain other corporate expenses. In 2015, we would expect growth in both revenue and operating income in our other segment related to growth and logistics, as well as the other services I just described.

So that concludes the questions that have been submitted. We'll turn it over to Richard for a quick recap.

Thank you, Jason. In summary, we are proud of our team for the hard work and dedication in 2014. We -- there was a lot of people skeptical on our ability to achieve Q3 and Q4 guidance, but our team pulled together and hyper-focused in the right areas to finish 2014 very strong. We believe that, that has set us up well with great momentum going into 2015.

Jerry mentioned the safety and insurance trends. We have a major focus, even a bigger focus, on safety going forward, as we've put in specific initiatives that touch each individual driver, as well as the equipment that he talked about that will definitely help as well.

The industry is shaping up very well for our Company, supply and demand. As you know, capacity has been extremely tight. We have that momentum into this year so far, and we believe capacity will remain tight throughout the rest of the year. Driver retention and recruitment will obviously be critical to our success. We feel we have a very solid program in place. Again, our academies are full, our trucks are full, and demand has been very strong.

2015 should be a very good year for large, well-positioned, diversified carriers. We pride ourselves in providing great solutions to our customers, where they are able to take advantage of several of our service offerings. We are excited about the strong progress in many of our operating segments. As we mentioned earlier, intermodal, CRS, and logistics are all making improvements, and we feel like we have the right people and the aligned systems to continue that progress.

We're especially proud of our truckload segment, and obviously want to continue to grow that, as we have had a lot of hard working people streamline processes to help our drivers and our profitability in that line of business. We also have a renewed focus on our dedicated, to really make sure that comes back into line, and we have got great progress there.

We want to thank all the great people at Swift that are supporting us, our team of office and shop individuals, our Company drivers, and our owner/operators. We also are very proud of our customer base, and appreciate their support, their understanding of the driver situation, and being able to sit down and create a good win/win situations, as well as our stockholders.

We are extremely excited about 2015 and beyond. As I've said, we have a great environment, lot of momentum in the US, Mexico and Canada. Our team is very focused on strategic priorities, our revenue growth, the asset utilization of all of our equipment, the success of our drivers, both in retention and recruiting, and our cost control initiatives that we have in place. So we thank you, and have a great day.