奧多明尼昂貨運 (ODFL) 2007 Q3 法說會逐字稿

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  • Operator

  • Good morning and welcome to Third Quarter 2007 Conference Call for Old Dominion Freight Line. Today's call is being record and will be available for replay beginning today and through November 1st by dialing 719-457-0820. The confirmation number for the replay is 4615805. The replay may also be accessed through November 25th at the Company's website, which is at odfl.com.

  • This conference call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others regarding Old Dominion's expected financial and operating performance for the fourth quarter and full year, 2007.

  • For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements. That limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward looking statements.

  • You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in today's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. The Company undertakes no obligation to update publicly any forward looking statements whether as a result of new information, future events or otherwise.

  • At this time, for opening remarks, I'd like to turn the conference over to the Company's Chairman and Chief Executive Officer, Mr. Earl Congdon. Please go ahead, sir.

  • Earl Congdon - Chairman, CEO

  • Good morning and welcome, everyone. Joining me today is David Congdon, our President and Chief Operating Officer and Wes Frye, our Chief Financial Officer. As usual, we have some brief remarks about our third quarter performance and the Company's outlook and then we will be glad to take your questions.

  • I'll begin this morning by saying that we were pleased to have achieved third quarter earnings within the range of our guidance. Also, as anticipated, our 8.7% increase in tons reflected a modest improvement over first half tonnage growth of 7.4%, and given the soft environment, this tonnage growth is a meaningful accomplishment. But I think the real story of the third quarter is that we achieved this tonnage growth during a highly competitive period.

  • You may remember our discussion in last quarter's call, in which we said that our pricing philosophy is to meet competitive pricing levels that enable us to achieve our account profitability objectives and to never knowingly or willingly initiate price cuts or increased discounts to win new business.

  • Economic conditions were such in the third quarter that this philosophy was thoroughly tested as competitors continued to cut prices in an attempt to gain market share. I think our results demonstrated that these are words by which we actually live. Our ability to use pricing discipline very effectively and rationally is the result of our long term commitment to an investment improving revenue yields.

  • Our information technology and freight costing software enable us to aggregate and analyze a tremendous amount of data about the different characteristics of each customer and we have a very sophisticated understanding of what we need from a pricing standpoint to achieve our account profitability objectives.

  • This [light] by making our customers aware of exactly the value we add in serving their needs through products and services, performance, transparency, flexibility and we're successful in steering the purchase decision away from a focus on price alone.

  • To summarize my comments, we would all, of course, enjoy a stronger market. But the true test and the key to our long-term success is how well we perform relative to the market in both the down and up phases of economic cycles. We believe our results for the third quarter are evidence that Old Dominion continues to produce industry leading financial performance. Now, I'll turn it over to David for his comments.

  • David Congdon - President, COO

  • Thank, Earl, and good morning, everyone. I'm pleased to say that third quarter results came in as we expected with high single digit tonnage growth. In meeting this expectation, we also achieved our earnings guidance. Approximately 95% of our revenue growth for the quarter was generated in our service centers that have been open more than one year. We opened seven centers in the first nine months of this year and we expect to open two additional centers during the fourth quarter, bringing our total to 191.

  • For the last decade, despite economic cycles, we have been committed to the steady expansion of our service center network. In doing so, we are continuing our goal of not only having direct operations in every state in the lower 48, but also providing full state coverage in each of these states. We anticipate continuing this process into 2008 and beyond.

  • Over the last year, our efforts to increase our focus on improving productivity and efficiency are continuing. The savings from these efforts partially offset the growth in salaries, wages, and benefits which accounted for 100 of the 150 basis point increase in our operating ratio for the quarter.

  • The increase in salaries, wages, and benefits as a percentage of revenue was driven mostly, however, by the competitive pricing environment that has caused our yield improvement to flatten as opposed to any control issue in these expense categories.

  • We announced today that we are lowering our full year guidance from the original 2000 guidance that we established in January of this year, representing a reduction of only 4% to 5%. Considering the economic environment, we feel this is still a very respectable performance. This revision is based on our experience thus far in October and is triggered primarily by the weak pricing environment. We are very focused on meeting or exceeding this new target.

  • Longer term, Old Dominion remains well positioned to continue outperforming our industry in generating top and bottom line growth. The market is increasingly demanding comprehensive logistics capabilities, high service levels, broad coverage and competitive transit times and Old Dominion remains unique in its ability to meet all these demands through one fully integrated non-union Company.

  • Thank you for being with us today and for your interest in O.D. and now, here's Wes Frye to review our financials.

  • Wes Frye - CFO

  • Thank you, David. As disclosed in our press release this morning, Old Dominion produced 7.6% growth in revenue for the third quarter to the new record level of $363 million. Earnings per diluted share for the quarter was $0.54, but within our guidance of $0.53 to $0.56 for the period and flat with earnings for the third quarter of last year.

  • Our 8.7% tonnage growth was a combination of a 6.3% increase in shipments and a 2.4% increase in weight per ship. The competitive pricing environment combined with the increase in weight per shipment contributed to a 7/10th of 1% decline in our revenue per hundredweight, somewhat deeper than our expectation.

  • Our operating ratio increased 150 basis points to a 90.6 compared to the third quarter of last year. This increase is mostly attributable to salary and wages, operating supplies and expense, and depreciation and amortization that combined increased to 77% of revenue, compared to 75% last year.

  • Wages per hour and/or per mile were up almost 5% year over year against the backdrop of a reduced revenue per hundredweight of almost 1%. However, these increases were offset by improved productivity in line haul, lane load average of 3.4%, pick up and delivery shipments per hour of 4.4%, and pounds per man hour on the dock of 5.7%. In addition, these increases were also practically offset by reductions in insurance, claims and purchase transportation costs.

  • The third quarter results were also favorably impacted by a lower effective tax rate, which we expect to be 38.3% for the fourth quarter and remainder of the year. We expect our CapEx expenditure for 2007 to be in the range of $205 million to $210 million. This total include $99 million for tractors and trailers, almost all of which have been spent, about $92 million for real estate and about $10 million for IT initiatives.

  • With our substantial level of cash flow from operations we have continued to fund our capital expenditures primarily from cash flow and cash on hand. As a result, our ratio of net debt to total capitalization was 34.6% at the quarter end, consistent with our target of about 35% by the end of '07.

  • As David mentioned, based upon ongoing pricing pressure, we have reduced our range of expected earnings per diluted share for the full year of '07 to a range of $1.92 to $1.95 from the previous range of $2.00 to $2.05 established in January this year.

  • Today we also established our guidance for the earnings per the diluted share for the fourth quarter of '07 in a range of $0.41 to $0.44. We remain optimistic that growth in tons will improve for the second half from the first half. Our fourth quarter guidance is based upon pricing excluding fuel surcharge to be down in the 1% to 2% range and tonnage to be up in the high single digits.

  • This concludes our prepared remarks. Operator, we'll be happy to open the floor for any questions at this time.

  • Operator

  • Absolutely. (OPERATOR INSTRUCTIONS). And we'll go first to Edward Wolfe with Bear Stearns.

  • Edward Wolfe - Analyst

  • Hey, good morning.

  • David Congdon - President, COO

  • Morning.

  • Earl Congdon - Chairman, CEO

  • Morning, Ed.

  • Edward Wolfe - Analyst

  • Can you talk a little bit more about pricing? Where is it that you're seeing most of the pricing pressure come from? Is it coming from UPS and FedEx because they're trying to take share? Is it coming from people taking new states, other than Old Dominion that are growing in new territories, is it coming from the long haul guys getting into your business more? Where is it coming from?

  • David Congdon - President, COO

  • Ed, this is David, it's really across the board and I don't think it's fair to talk about any specific competitor's names on the call.

  • Edward Wolfe - Analyst

  • But outside of specific names, can you talk about maybe lanes? Is it more regional or longer haul where you're seeing more pressure?

  • David Congdon - President, COO

  • Regional business has probably been a little more price competitive than long haul, I would say.

  • Edward Wolfe - Analyst

  • Is there any way to quantify if revenue per hundredweight net of fuel is slightly down right now overall, is it slightly up in the long haul and slightly down in the region, how do we think about those things?

  • David Congdon - President, COO

  • Ed, its not really up anywhere, it's that we're getting pressure through the different weight breaks in lanes. So I can't characterize that the revenue per hundredweight is up in one and lower in the other. I would generally say that it's lower pretty much in every category.

  • Edward Wolfe - Analyst

  • Okay. How do we think about now there's this recent big spike in fuel? There was a period where you guys were, as a group, not saying specific to Old Dominion, but where fuel was going up it was almost a benefit. It feels like with pricing power, with the shippers more so than with the trucking companies now, that rising fuel might be different. Do you have customers that have changed their fuel, or capped their fuel? Is it harder to get all of the surcharge?

  • David Congdon - President, COO

  • to some extent it's nothing new that we have customers that have caps on the fuel costs for the past few years. So that's really nothing new.

  • Edward Wolfe - Analyst

  • Is there anything that's been new over the last 6 or 9 months as pricings weaken in terms of either starting the base of the fuel surcharge differently or changing the spread of the bracket of when they go up or anything like that, are you seeing?

  • David Congdon - President, COO

  • We've seen no real change there, Ed.

  • Edward Wolfe - Analyst

  • And how about compliance with the surcharges? Any changes?

  • David Congdon - President, COO

  • No changes.

  • Edward Wolfe - Analyst

  • Okay. Is 38.3% as good as any as a tax rate for '08 as well at this point?

  • David Congdon - President, COO

  • Too early to say. We -- probably it will go up, back up in the 39% range, but we'll give more guidance on that in the fourth quarter call.

  • Edward Wolfe - Analyst

  • Okay. At some point, if you can remain as disciplined as you have, if the economy doesn't improve, I'm guessing it's hard for tonnage to improve too. At some point can you cut CapEx, or how do we think about that going forward in '08.

  • David Congdon - President, COO

  • We'll be prepared to give a CapEx, but certainly we'll look at our CapEx and relate that to the extra volume growth. Obviously in the number of new tractors, but even in real estate we'll look at that. Well not -- we -- you're keeping in mind that we want to, even during this down period, we still want to open and develop our 48 state footprint, but we always had the option of leasing rather than buying to keep the balance sheets in order in that specific instance.

  • Edward Wolfe - Analyst

  • Can you talk a little bit about demand, the tonnage in your network and maybe also the revenue per hundredweight sequentially as you went through the quarter kind of year over year. Has it gotten better, worse, or stayed flat?

  • David Congdon - President, COO

  • I would say that it got sequentially -- especially from July, which was (inaudible) it was basically flat, took a more aggressive stance in August and September.

  • Edward Wolfe - Analyst

  • Could that have been related to FedEx's fuel surcharge announcement do you think? Or is that unrelated?

  • David Congdon - President, COO

  • I would say generally unrelated.

  • Edward Wolfe - Analyst

  • Okay. And in terms of tonnage can you talk about those progressions, July through September.

  • David Congdon - President, COO

  • Yes, sure. In July our tonnage on a per day basis was up 8.8%, then it increased to 9.6% in August and was up 8.2% in September.

  • Edward Wolfe - Analyst

  • And October, to date, do you have any sense?

  • David Congdon - President, COO

  • Yes, October - we expect tonnage in October to be up in the range of 9% to 10%.

  • Edward Wolfe - Analyst

  • And in terms of pricing trends are similar? The trend is going the wrong way in October?

  • David Congdon - President, COO

  • Yes, the trend is going the way, as I said in our comments, we expect pricing, net a fuel surcharge, to be down in the 1% to 2% range in the fourth quarter. From what we're seeing in October at this point.

  • Edward Wolfe - Analyst

  • Okay. And just last thing, Wes, do you have the cash flow from operations and the CapEx you spent in the quarter?

  • Wes Frye - CFO

  • I should have that prepared. You always ask it Ed, but I do not at this point.

  • Edward Wolfe - Analyst

  • Okay. I'll get back to you off screen. Thank you very much for the time though.

  • Wes Frye - CFO

  • Bye, Ed.

  • Operator

  • Thank you. We'll take our next question from Tom Wadewitz with JPMorgan.

  • Tom Wadewitz - Analyst

  • Yes, good morning.

  • Wes Frye - CFO

  • Morning.

  • Earl Congdon - Chairman, CEO

  • Morning, Tom.

  • Tom Wadewitz - Analyst

  • Wanted -- wanted to ask you about how you think the margins play out, given the pricing pressure. I mean obviously you had some deterioration in third quarter, given the visibility of the competitive pressures, are you able to do some things on the cost side that prevent, I guess, further acceleration in the pace of margin deterioration? Or how does that tend to play out given what you see right now?

  • David Congdon - President, COO

  • Going all the way back to '06, we were still growing tonnage in the 7% to 18% range and at that point, we're getting tight on adding drivers. So in '06 we gave a very meaningful wage increase of 5%. So that's a 12 month cycle, that even during the third quarter, we've got that additional 5% on an hourly or a mileage basis that is in our results. In hindsight, maybe we shouldn't have given that but we did.

  • But on the other hand, we are getting some good productivity. I mentioned in the conference call, on the laid and load average we're up 3.4% and productivity on the dock and both in the P&D are both doing well and that's serving to reduce the effect of that 5% increase.

  • Tom Wadewitz - Analyst

  • When was the 5% granted?

  • David Congdon - President, COO

  • Granted in September of '06.

  • Tom Wadewitz - Analyst

  • September '06. Okay, so you pretty much lapped that in fourth quarter.

  • David Congdon - President, COO

  • By the late - obviously in September. Then we added another 3% to 3.5% increase in September of this year.

  • Tom Wadewitz - Analyst

  • Okay. Since you're 3% -- since you're 3%, to 3.5% this year, that gives you a little less pressure on the comp and benefits line. What about productivity. The productivity numbers seem pretty impressive. Is it reasonable to think in the fourth quarter in 2008 that you can continue along that pace or is that something which is difficult to sustain.

  • David Congdon - President, COO

  • Tom, this is David, I believe we can continue our improvements in productivity in year over year. We have a team of field service engineers that are out there in the field looking at working with our service centers on all aspects of productivity and there are a number of facilities that have not been addressed yet, but I think we can continue our productivity improvements bottom line.

  • Tom Wadewitz - Analyst

  • Okay. And are there other expense line items, setting aside comp and benefits that you have some room to push harder when the market is tougher, or is it difficult to do that?

  • David Congdon - President, COO

  • We still have -- I think we're having good results in the insurance specifically, the cargo claims which continue up into improve on as the year progresses. One thing you might note when you look at our comparison is the depreciation was up a half a percentage point during the quarter and that was due to an aggressive and a pre-buy on a lot of our equipment.

  • All of our tractors for the whole year was pretty much delivered in the first half and so that will kind of catch up with itself in addition to about $60 million of CapEx in real estate. So as we continue to grow, we should see those numbers as certainly as a percent of revenue improve somewhat.

  • Tom Wadewitz - Analyst

  • Okay, so I mean, it sounds like its fair to think that you're going to have cost - cost pressure slowing down a little bit if you look at fourth quarter and beginning of next year. How should we think about the margin performance and how that trend might play out? Your guidance in fourth quarter indicates margins off again.

  • David Congdon - President, COO

  • Well, the bottom line is for every 1% of pricing, that's 1% -- the same 1% of margin. So, that's the key and as we mentioned in our conference call comments, we are seeing some pricing pressures prompted mainly by competition. So I guess to the extent that the margins improve will have to do with the economic environment and do with getting some more discipline in the pricing as an industry. And some of that we can't predict, but I think we're overcoming it to a great degree by just keeping our nose to the grindstone on cost and productivity.

  • Tom Wadewitz - Analyst

  • Yes, I mean it certainly seems like you're doing very well in a difficult environment. What your comment in the - I guess this is my last question, you comment in the press release indicated that you thought that the pricing pressure might last for a couple - into 2008 I believe was the way you said it. So, is it reasonable to think that then the margin, year over year margin pressure, lasts into '08 as well?

  • Wes Frye - CFO

  • I specifically said the fourth quarter, but I think the most predictions on the economic level goes over into the - at least the first half of '08. So we might expect some continued pricing pressure at least through the half - first half of '08.

  • Tom Wadewitz - Analyst

  • Right.

  • Wes Frye - CFO

  • We haven't given any guidance for '08 at this point.

  • Tom Wadewitz - Analyst

  • Right. No, I understand that. I just want to make sure I had the -- if pricing pressure continues then its tough to do a lot with the margin there.

  • Okay, thank you for the time and the comments. It's helpful.

  • Wes Frye - CFO

  • Okay, Tom.

  • Operator

  • Thank you. We'll take our next question from Justin Yagerman with Wachovia.

  • Justin Yagerman - Analyst

  • Hey, good morning, gentlemen. How are you?

  • David Congdon - President, COO

  • Good morning, Justin.

  • Wes Frye - CFO

  • Morning.

  • Earl Congdon - Chairman, CEO

  • Good morning, Justin.

  • Justin Yagerman - Analyst

  • I guess, focused on a little bit of what feels like some growing pains here maybe on the margin side, when you think about the next few years, bigger picture, are you still focused on the 2010 goal of getting to $2 billion on the top line and then within the time period between now and then, how -- do you readjust the growth expectations in each of the years accordingly or is that a goal that you're kind of pushing towards and you actually queued on regardless of the economic conditions that are out there?

  • Earl Congdon - Chairman, CEO

  • That goal of $2 billion was set without the expectation of a recession. Now it's too early to say we can't achieve it. It's a sort of a wait and let's see. If this transportation recession doesn't last to long we shouldn't have a big problem reaching that goal of $2 billion. If the recession lasts for a long period of time, and I'm speaking of even '08, then we may have to adjust it.

  • Justin Yagerman - Analyst

  • Earl, it would be interesting to get your perspective, I guess, having seen many different freight cycles. Does this one compare to any that you can remember in recent history. And if not, how do you think about best course of action from now until the next 12 months going forward to say competitive in this environment?

  • Earl Congdon - Chairman, CEO

  • It's pretty typical I think. We're going to do some things. I think we're going to get some relief next year on depreciation because we are going to try something that I think is going to work beautifully. We're going to keep our pick up and delivery fleet for an extra year beyond what we have historically been doing and it's a question of how many engines do you blow, so to speak, by trying to get another 40,000 miles out of them and I believe its going to be successful.

  • And as Wes said, we did overbuy a bit because of the engine situation. So we have been a little over fleeted this year. So I think you will see some relief on depreciation next year that's going to be a help and we're going to enlarge our sales force more next year than we did this year. We're not going to cut back on that. That should help us to stimulate our growth rate a bit. So we're expecting a decent year next year.

  • Justin Yagerman - Analyst

  • That's really helpful. When you guys think about, I guess, the current environment, you've used tuck-in acquisitions as a strategy for growth at different points in the cycle. I've got to assume that valuations haven't risen, I don't know if they've some in yet considerably on companies out there, but are you seeing an increase in companies that are asking them to give you a look, or is there anything that has peaked your interest in different areas where you're looking to fill in density?

  • Earl Congdon - Chairman, CEO

  • The - not in the LTL area. There has not been any great increase in the number of LTL carriers that would like to sell to someone such as ourselves but we're constantly looking for a suitable acquisition and as you know, we've probably averaged one per year. So we're constantly looking for something like that, but have not seen a major change in the availability.

  • Justin Yagerman - Analyst

  • Okay. Last question, Wes, on the operating supplies and expenses, it felt like things crept up a little bit there this quarter, at least on a percent of revenue basis, was there anything specific driving that increase?

  • Wes Frye - CFO

  • Well, the most -- most of that would relate back to the fuel costs, which averaged a little bit more this year than it did last year. It's about -- I don't know, about 5% more in the fuel costs, which is about 15% of that category. That would be the main thing.

  • Justin Yagerman - Analyst

  • Got it. All right. That's helpful. Thanks, guys. Appreciate the time.

  • Wes Frye - CFO

  • All right. Thank you.

  • Operator

  • Thank you. Next we'll go to Jon Langenfeld with Robert W. Baird.

  • Jon Langenfeld - Analyst

  • Morning, guys. On the sales force side, can you just give me some idea of how much the sales force has increased this year versus last and then kind of what your target would be for next year?

  • David Congdon - President, COO

  • Jon, we actually did not increase our sales force that much this year, maybe by 20 or so. We are still working on the numbers for next year and actually, I'd rather not talk about how many sales reps we plan to add.

  • Jon Langenfeld - Analyst

  • Okay, that's fine. And your growth this past year, the 20 -- I mean how has that been trending over the past several years? Was this a lighter year, I'm assuming?

  • David Congdon - President, COO

  • I think slightly lighter, actually it hasn't increased but about -- what is that, Wes?

  • Wes Frye - CFO

  • [420] -- it --

  • David Congdon - President, COO

  • Last year it was -- we only increased -- this is '06 over '05, we only increased the force on an average of about 10 to 15 and it's about 20 that -- part of that -- both of those comes with acquisitions. But in previous years it's been a little more substantial. So we're not adding nearly as many now. Neither in numbers nor percentage wise that we have in the past.

  • Jon Langenfeld - Analyst

  • Got it. That's fair. And then on the pricing side, we came into this cycle thinking that the pricing environment would hold up much better, given it's a much more consolidated market. But what would be your take on that relative to the early 2000? I know you had consolidated freight weights that's doing a number of crazy things out there, but I guess sitting here at this pint in the cycle, it doesn't feel that much different than where we were in 2002.

  • David Congdon - President, COO

  • I'm not sure -- I mean we were showing, I think, in 2002 revenue per hundredweights that were down more than it is now. And I think basically there was really some pricing anchors in that period with consolidated freight waves being the main culprit there and we don't have that.

  • And there is some pricing very competitive pricing that we're dealing with, but I don't think it's quite the scenario this year than it was then. But keep in mind that for us, at least, at every 1% in pricing is like $0.06 on a quarterly basis. So it's fairly meaningful.

  • Jon Langenfeld - Analyst

  • And if you think about that, I guess you even said earlier, you got to get four or five, six percentage points of volume growth just to equate to 1% of price. Have you looked at not growing as fast and the implication on pricing whether that would be a favorable trade off?

  • David Congdon - President, COO

  • Well, believe it or not, we've already - we've done that. We only grew at 8% tonnage.

  • Jon Langenfeld - Analyst

  • Yes.

  • David Congdon - President, COO

  • I mean if we clearly wanted to put on the pricing hat you may grow more but I think we have been selective in pricing, but keep it in mind that that's not only just growth, that's maintain the customer base that you have. And so much of our pricing has been more defensive - defensively oriented rather than growth oriented. If you know what I mean.

  • It's defending competitors addressing our pricing on a basis and we -- with our cost remodel, we pretty much examine exactly what effect that might be and the quarterly make a decision to either meet the competition's pricing or at least negotiate. So much of the pricing effect that we've had has been more defensively than on the aggressive side form a growth stand point.

  • Jon Langenfeld - Analyst

  • I see. I see. And if the environment doesn't change from here, the balance of having pricing down a percent or so and volume up in the upper single digits, that's a trade off that you're comfortable with in this type of environment?

  • David Congdon - President, COO

  • Well, it's a trade off that we will address. I mean I guess the 7/10ths that we were down, our guidance is based upon flat to maybe slightly down, which in my estimate was like 10 to 20 basis points. In fact, I was half a point more equates to $0.04 or $0.05 a share, it's fairly meaningful. But, on the other hand, I think that we've done a good job on the balance just by having a reduction of only 7/10ths against a backdrop of an increase in tonnage of in excess of 8%. So I think we're having a good balance on looking at that price volume relationship.

  • Jon Langenfeld - Analyst

  • And does eventually - I mean when you get into the first quarter, first half of the year really with the freight being seasonally lower, I mean is that typically going to be more price aggressive, period than the second half of a given year.

  • Earl Congdon - Chairman, CEO

  • It's hard to say, Jon.

  • David Congdon - President, COO

  • Just depends on the economic environment in any period.

  • Jon Langenfeld - Analyst

  • I guess if you normalize, if you say there's no change in the environment in a given year, it seems to be like the first half of the year is typically more price aggressive than the second.

  • David Congdon - President, COO

  • Well, typically the first half of the year has a rate increase in it. So - and although maybe you'll give that some back, there is a timeline there that you still have that rate increase. So, in that term, maybe you don't really get the effect of the pricings environment until the third and fourth quarters.

  • Jon Langenfeld - Analyst

  • Okay. Okay, that's fair. And then finally. What was - do you know what your organic volume growth was in the quarter? Or --

  • David Congdon - President, COO

  • Yes, organically, about 95% of our growth was organic.

  • Jon Langenfeld - Analyst

  • Okay.

  • David Congdon - President, COO

  • That was with same store sales.

  • Jon Langenfeld - Analyst

  • So the acquisition --

  • David Congdon - President, COO

  • Excuse me, all of it -- practically all of it -- let me restate that.

  • Jon Langenfeld - Analyst

  • Yes.

  • David Congdon - President, COO

  • Practically all of the growth was organic, but in the same source sales category, about 95% was of service centers that were already opened more than a year. But this year we've only had one very small acquisition.

  • Jon Langenfeld - Analyst

  • Yes.

  • David Congdon - President, COO

  • Of a priority freight that was less than 1% of our growth.

  • Jon Langenfeld - Analyst

  • Okay. That's what I was getting at. All right, thanks a lot, gentlemen.

  • Operator

  • Next we'll go to Jason Seidl with Credit Suisse.

  • Jason Seidl - Analyst

  • Morning, gentlemen. A couple quick questions here guys. When you're looking at opening new service centers, has the time lengthened in terms of -- until you expect profitability at a new centers because of the marketplace?

  • David Congdon - President, COO

  • If anything -- well, because of the marketplace it may take a little bit longer, but for the most part the centers that we have opened in the last couple of years, the majority of them have been spin offs in areas where we already had a base of business and the profitability has been good in a very short period of time.

  • Jason Seidl - Analyst

  • Okay.

  • David Congdon - President, COO

  • Does that answer you?

  • Jason Seidl - Analyst

  • Yes, pretty much, David. Wes, how much -- I guess projected in '07, are you going to spend on your P&D fleet for CapEx?

  • Wes Frye - CFO

  • We don't - keep in mind, we don't actually buy P&D fleets outright.

  • Jason Seidl - Analyst

  • Oh, you cycle them through.

  • Wes Frye - CFO

  • Yes, we cycle through. We buy line haul and use it in the line haul for the first -

  • Jason Seidl - Analyst

  • Right, right.

  • Wes Frye - CFO

  • Five years, and then put it into P&D for another five. So we don't actually buy direct P&D fleets.

  • Jason Seidl - Analyst

  • Okay, so in other words, this is actually going to spend on your line -- so this is going to affect your line haul spend from next year then, in terms of, you're not going to cycle any more line haul into the P&D as well, is that correct?

  • Earl Congdon - Chairman, CEO

  • That's essentially correct.

  • Wes Frye - CFO

  • Yes.

  • David Congdon - President, COO

  • Yes.

  • Jason Seidl - Analyst

  • Okay. So what is your line haul spend for this year then I guess?

  • Wes Frye - CFO

  • This year?

  • Jason Seidl - Analyst

  • Yes.

  • Wes Frye - CFO

  • '07?

  • Jason Seidl - Analyst

  • Yes.

  • David Congdon - President, COO

  • Wes is looking that up.

  • Jason Seidl - Analyst

  • All right.

  • Wes Frye - CFO

  • Our total tractor spend this year is about $52 million.

  • Jason Seidl - Analyst

  • $52 million. Okay, thank you, Wes. All right, I'll jump to my next question, when you're looking at sort of the different LTL segments; regional, super regional, and long haul, can you talk about your growth rates at each of them and if there's any notable differences?

  • David Congdon - President, COO

  • Our growth rate still remains the strongest in the --

  • Wes Frye - CFO

  • The regional and longer.

  • David Congdon - President, COO

  • Yes, in the longer haul. Regional is up in the -- and I'm talking about shipments, is up in the 5% range and so the -- the longer haul is up in the 7% or 8% averaging back to our 7% or 8% tonnage growth.

  • Jason Seidl - Analyst

  • Okay. And Wes, you mentioned that the pricing pressure is less pronounced in the long haul lanes.

  • Wes Frye - CFO

  • I think, generally speaking, that much of our pressure is coming from the regional carriers.

  • Jason Seidl - Analyst

  • So, because you're growing faster in the long haul lanes, it's safe to say that you're gaining market share based upon your product offerings and service more so than price?

  • Wes Frye - CFO

  • We think that's a fair statement. And that would be both in long haul and our gains in regional business.

  • Jason Seidl - Analyst

  • Okay. Fair enough. Gentlemen, as always, thanks for the time.

  • Earl Congdon - Chairman, CEO

  • Hey, Jason.

  • Operator

  • Thank you. We'll take our next question from John Larkin with Stifel Nicolaus.

  • John Larkin - Analyst

  • Okay, good morning, Earl. Good morning, David. Good morning, Wes.

  • Earl Congdon - Chairman, CEO

  • Morning, John.

  • David Congdon - President, COO

  • Morning, John.

  • Wes Frye - CFO

  • Morning, John.

  • John Larkin - Analyst

  • I had a question on the pricing intensity which you say is ramped up here. Let's say that that continues on through the first half of next year but around the middle of next year you see supply and demand tighten up a bit. Would there be a bit of a lag before pricing rebounds, before the carriers have a chance to reset the pricing, or does that happen pretty much simultaneously with the tightening up of supply and demand?

  • Earl Congdon - Chairman, CEO

  • John, I think it takes -- just as it has taken time for pricing to erode, it takes time for pricing to improve. We will take a general rate increase on our 559 tariff sometime in the - toward the end of the fourth quarter.

  • And our contracts are coming due all year long and as supply and demand tightens up it takes you a year to cycle through all of your contracts and I'm not sure we will necessarily go to our customers early for price increases just because supply and demand changes, unless of course that we have a bad operating ration situation or profitability situation with any particular account. That's really the only time we go to customers early for a price increase under our contract.

  • Wes Frye - CFO

  • But just looking sequentially, John, year over year, the first quarter of this year the pricing was still fairly, I think, favorable. We were up about 2% in revenue per hundredweight during the first quarter, so lapping around, I would suggest that the first quarter will still be a tough quarter, year over year. But in the second quarter of this year is when we first say, I think a real tightening of price.

  • And depending on what happens to the economy on a specific basis in the second quarter of '08. We'll have pricing pairs -- it will be an easy comparison so to speak. And then continue to be easier throughout -- certainly the second half of '08.

  • John Larkin - Analyst

  • Okay. Remind us what percentage of your traffic flows under the 559 tariff.

  • Wes Frye - CFO

  • About 34%.

  • John Larkin - Analyst

  • And that's down from let's say, what percent a year or two ago?

  • Wes Frye - CFO

  • I want to say, without looking at the number, around 36%.

  • John Larkin - Analyst

  • And, say five years ago, would that have been close to 50%?

  • Wes Frye - CFO

  • No, I don't think so.

  • David Congdon - President, COO

  • Maybe in the mid 40's.

  • Wes Frye - CFO

  • Yes.

  • John Larkin - Analyst

  • Okay. So it's just very slowly dropped.

  • Wes Frye - CFO

  • Yes.

  • John Larkin - Analyst

  • Okay, I noticed that the average shipment size increased and your length of haul decreased very slightly.

  • David Congdon - President, COO

  • Right.

  • John Larkin - Analyst

  • I guess naturally those two trends would have the impact of watering down yields just a little bit. Do you have a sense for how much impact you realized in the third quarter as a result of those two changing metrics?

  • David Congdon - President, COO

  • I do not. It's an algorithm we've been able -- not been able to perfect on what effect, but obviously it does have some effect, I just cant quantify exactly how much.

  • John Larkin - Analyst

  • So, if those had held steady, maybe the revenue per hundredweight wouldn't have dropped quite so much. That's a fair statement, right?

  • David Congdon - President, COO

  • That would be a fair statement.

  • John Larkin - Analyst

  • Okay. Fair enough. Normally, during a period of economic slow down you would see weight per shipment decline.

  • David Congdon - President, COO

  • Correct.

  • John Larkin - Analyst

  • But yours has increased, which must speak to a different mix of customers. Could you elaborate on that a little bit?

  • David Congdon - President, COO

  • I think it speaks maybe to a different mix of customers, which I will address. One is that much of the economic downturn is focused on auto building supplies etc. and as a percentage of our revenue, those type of industries are very low and in some cases even non-existent.

  • We do no autos specifically, we do some after market. And we do no Home Depot, any of those that are mostly affected by the housing problems. So I think our mix is more diversified away from those categories of economy that maybe are a little more negatively affected.

  • John Larkin - Analyst

  • Okay, so you're seeing strength from certain categories of shippers as evidenced by the increased weight in shipment. That's not a --

  • David Congdon - President, COO

  • I don't know if it's strength or just simply market share. I mean if you're now serving more coverage and you're now getting --

  • John Larkin - Analyst

  • Got it.

  • David Congdon - President, COO

  • Three shipments instead of two because you're -- you've expanded your coverage, that certainly has an influence there as well, John.

  • John Larkin - Analyst

  • Got it. That's a good answer. Thanks. And the, I know you've had a number of initiatives over the years to try and capture a higher percentage of what I would call the LCL distribution market. And over the years you've have had a [dredge] operation that's quite small. But can you talk a little bit about whether you've had much luck penetrating that market especially given your strong positioning in the southeast. I would have thought that that might have been a little stronger with, I think, Savannah's inbound container flow up something like 20% year over year.

  • David Congdon - President, COO

  • Our container division growth rate is slightly more than the Company average growth rate. I believe, in revenue.

  • Wes Frye - CFO

  • No, it's under --

  • David Congdon - President, COO

  • It's for overall growth rate, its up only about 3%. But it's really impacted by the lease operators and the inability to find them at the - and that's because the pricing in that container is very competitive.

  • John Larkin - Analyst

  • What percentage of the traffic do you haul with owner operators on chassis ends up at one of your service centers to be distributed by the LTL operation? Do you have a rough feel for that?

  • David Congdon - President, COO

  • I do not.

  • Wes Frye - CFO

  • Yes, we don't have that.

  • John Larkin - Analyst

  • But isn't that the juicier part of that opportunity?

  • David Congdon - President, COO

  • It is a good opportunity and we continue to try to build that business but I can't tell you right now how much that has grown.

  • John Larkin - Analyst

  • Okay. Okay. And then just one sort of much longer term question, I know Bill Graves, the Chairman of the ATA has now abdicated longer combination vehicles and heavier trucks as a green initiative for the industry. And just wondering if your network would be particularly enhanced if you were able to run say triple 28s?

  • Earl Congdon - Chairman, CEO

  • John, it would be greatly enhanced. Now, how much of the enhancement would ultimately end up in the customers pocket we're not really sure. But you know it's a -- some of it would probably end up as a savings to the customers, and some of it is, hopefully, an improvement in our profitability.

  • John Larkin - Analyst

  • But if there were to be a change like that, you could handle that change without a huge amount of incremental capital expenditure right? You wouldn't need new road tractors or any new equipment per se?

  • Earl Congdon - Chairman, CEO

  • Well, it takes a little different tractor to pull triples than the doubles and this would be a gradual thing as we are aging out of our vehicles and buying additional, or new line haul equipment. It would be -- I believe the engines would need to be slightly larger.

  • David Congdon - President, COO

  • But all of our converted gear and pedal hooks are spec for triple operations now. So our pup fleet is ready for triples.

  • John Larkin - Analyst

  • So you would be supportive of Bill Graves's initiatives?

  • David Congdon - President, COO

  • Absolutely.

  • John Larkin - Analyst

  • Okay. Terrific. Thanks very much.

  • Earl Congdon - Chairman, CEO

  • Thank you, John.

  • Operator

  • And we'll take our next question from Tom Albrecht with Stephens Inc.

  • Tom Albrecht - Analyst

  • Hey, guys, a few different questions. Wes, I know it's a small initiative, but one you're excited about, international I think was $41 million in revenues last year, first half of the year I think was up 23%. Do you have any figures you can share with us for maybe the nine months, or the third quarter, whatever you're comfortable with?

  • Wes Frye - CFO

  • Yes. Our global --

  • Tom Albrecht - Analyst

  • Yes.

  • Wes Frye - CFO

  • Percentage wise is up very meaningful in terms of dollars it's not too meaningful, but it's up like -- it's tripled almost, but it's still not having a big impact dollar wise at this point.

  • Tom Albrecht - Analyst

  • So you don't have a growth rate handy?

  • Wes Frye - CFO

  • Yes, its 192%.

  • Tom Albrecht - Analyst

  • Oh, okay.

  • Wes Frye - CFO

  • It went from $1.00 to $1.90.

  • Tom Albrecht - Analyst

  • I was thinking of some of the other numbers that we talked about in summer, but I'll maybe go offline there. How about your number of days - I want to make sure not only that I've got the current working or billing days, but do you have the proper quarterly days for 2008?

  • Wes Frye - CFO

  • I do -- oh, for 2008?

  • Tom Albrecht - Analyst

  • Yes, and then I want to review that I've got the right 2007, if you've got those as well.

  • Wes Frye - CFO

  • 2008, we may gain a day. It looks about 255 days for the year.

  • Tom Albrecht - Analyst

  • Do you have that by quarter?

  • Wes Frye - CFO

  • 64, 64, 64, 63.

  • Tom Albrecht - Analyst

  • And this year, 64, 63, 64, 63?

  • Wes Frye - CFO

  • Okay, yes, 64, 64, 63, 63.

  • Tom Albrecht - Analyst

  • Okay. Okay, and then the -- what was the swing in other? Other income expense was an expense of $408,000 a year ago. Was a positive help of $626,000. So about $1 million swing, about $1.08 a share, tax effected.

  • Wes Frye - CFO

  • Mainly -- that was mainly -- we have non-qualified plans to most of our -- many of our employees. And had a good performance in terms of its investments.

  • Tom Albrecht - Analyst

  • Okay. So you were able to -- you had overpaid in and you were able to take advantage of the good gains those portfolios had had?

  • Wes Frye - CFO

  • That, in essence, serves to reduce the balance sheet liability.

  • Tom Albrecht - Analyst

  • Okay. And then, let me think, another question I had here. Why was the tax rate lower? You mentioned it was lower, but I don't know --

  • Wes Frye - CFO

  • We benefited from the propane -- some propane credits that the Federal government is --

  • Tom Albrecht - Analyst

  • Oh, okay. Yes, [yellows] talked about that.

  • Wes Frye - CFO

  • Right. I would say that I think it was generally calculated, but one of the analysts said that was about $0.03 a share. However about a little over one penny of that was in fact attributable to the third quarter, not all of it.

  • Tom Albrecht - Analyst

  • Okay. So the other was catch up for the first two quarters?

  • Wes Frye - CFO

  • That's correct.

  • Tom Albrecht - Analyst

  • Yes. All right, and then insurance. You had a pretty big insurance in claims line item in the June quarter. I believe it was over $9 million, back to about $6.5 million here in this quarter which was down $500,000 year over year. Can you talk about that because it's been extremely volatile since the fourth quarter of '06? It was almost $9 million.

  • Wes Frye - CFO

  • Well, you can thank some of the accounting pronouncements for being volatile because they've come to a conclusion that actuarial is an exact science. And so we have to book to an actuarial calculation pretty much consistently throughout the year and for the most part address that in the quarter.

  • But on the other hand, we've had some very good experience on our insurance costs, specifically in cargo claims, as well as BIPD our experience has been very good this year. And that would - and knock on wood, we hope that continue.

  • But we have been focusing especially on the cargo claims, we've had a tremendous focus on reducing cargo claims this year and had been successful in doing that and that's a great part of that reduction compared to the third quarter of last year. But we also had some favorable experience on the BITD with regard to some cases that were settled much below what they were reserved at.

  • Tom Albrecht - Analyst

  • Cargo claims as a percentage of revenues are approximately what?

  • Wes Frye - CFO

  • They're about 1.2%.

  • Tom Albrecht - Analyst

  • All right. And what would you have been maybe a couple years ago, before you focused on this?

  • Wes Frye - CFO

  • In the 1.8% range.

  • Tom Albrecht - Analyst

  • Okay. All right. And then I think I've got one last question. You gave some productivity numbers, I didn't quite catch all of those, 3.4%, 4.4% --

  • Wes Frye - CFO

  • In line haul.

  • Tom Albrecht - Analyst

  • Yes.

  • Wes Frye - CFO

  • In line haul, lane load average is kind of one of our bellwether metrics on that. It was our lane load average was up 3.4%. On the pick up and delivery, one of our metrics is shipments per hour and that was up 4.4%. And on the platform, one of our measurements is pounds per man hour and that improved 5.7%.

  • Tom Albrecht - Analyst

  • Okay. Good. All right, thanks for going over that information, guys. Talk to you soon.

  • Operator

  • Thank you. We'll go next to David Campbell with Thompson Davis.

  • David Campbell - Analyst

  • Yes, good morning, everybody. I just wanted to ask about the pricing pressure, there's really no way to predict that accurately. I guess it depends a lot on the industry utilization of the capacity, is that basically what drives that?

  • David Congdon - President, COO

  • Well, David, if you can accurately predict what the Dow's going to do an hour from now then we can accurately predict what the pricing pressure is going to do.

  • David Campbell - Analyst

  • I wouldn't be here if I could do that.

  • David Congdon - President, COO

  • Yes, right.

  • David Campbell - Analyst

  • I would have retired 20 years ago.

  • David Congdon - President, COO

  • Right. It's difficult to -- we hope that it gets some semblance of discipline in there, but there's no way to know. But we will defensively stay in there with our pricing. But I -- we -- as I said in my comments, we're anticipating that maybe without fuel surcharges to be down 1% to 2% in the fourth quarter.

  • David Campbell - Analyst

  • Right. Now I understand its not going to have any, probably immediate impact, but is obviously, I guess, going to be some increase in need in southern California for trucks as a result of that horrible disaster that's still going on. I don't know if it's anything quite the size of what the impact Katrina had, but do you have any thoughts on that?

  • David Congdon - President, COO

  • I don't have any specific quantitative type thoughts, other than we have about 8 service centers in that area which obviously will be impacted. To what extent, to how long, I don't know.

  • David Campbell - Analyst

  • Have they been shut down by the fires? Or are some of them shut down?

  • Earl Congdon - Chairman, CEO

  • No.

  • David Congdon - President, COO

  • Nothing is shut down at the moment.

  • David Campbell - Analyst

  • Right. Okay, I think all -- most of my questions have been asked, you don't have any outlook for -- I mean on specific numbers for CapEx next year, you talked about it in general terms, but --

  • David Congdon - President, COO

  • No, we'll get something more specific on our fourth quarter conference call, David.

  • David Campbell - Analyst

  • Which is scheduled for -- do you have a date for that?

  • David Congdon - President, COO

  • We do. Let me see if it have it --

  • Earl Congdon - Chairman, CEO

  • January.

  • David Congdon - President, COO

  • It is --

  • Earl Congdon - Chairman, CEO

  • January 31st.

  • David Congdon - President, COO

  • 31st.

  • David Campbell - Analyst

  • Okay. Okay, thank you very much.

  • Operator

  • Thank you. We'll take our next question from Satish Jindel with SJ Consulting.

  • Satish Jindel - Analyst

  • Hello, David, thanks very much for giving me the chance. One of the things -- and I'll be brief here, it's been a long call already for you. Looking at your OR, which is probably the best of the public companies and even many of the private companies we follow, I'm surprised at the kind of grilling you're getting from the people on this call. Let me ask this --

  • David Congdon - President, COO

  • Thanks for pointing that out Satish.

  • Satish Jindel - Analyst

  • What's that?

  • David Congdon - President, COO

  • Thanks for pointing that out.

  • Satish Jindel - Analyst

  • Yes, I mean I look at your OR and I am saying, what's wrong here. But -- and even in terms of your pricing and you're talking about the pricing pressures, when I look at your year to date without through surcharge, and even for the quarter, you've maintained your pricing, so let me get to some of my questions and see if you can shed some light on what you see is happening in the market.

  • You comment about the soft economy, but at the same time, how much would you say is the impact on the industry is a function of the economy versus the capacity expansion that the [applicators] have also done, just like the truckload guys. Both in terms of terminals and the trucks that they have added - can you share this too, how much of it is the economy and how much of it is the damage done by the industry itself?

  • Earl Congdon - Chairman, CEO

  • Some of that problem I think is - this is Earl, is that some of the LTL carriers that have been heavy in building materials and automotive have found themselves with excess equipment and they gave possibly weakened their pricing philosophy and gotten more into some of the commodities that we haven't. And that I think is causing the price pressure on us as much as anything.

  • Satish Jindel - Analyst

  • So the shift in the economy from some of the sectors, you're saying, is bringing competitors into your space, so it's a combination effect.

  • Earl Congdon - Chairman, CEO

  • It's giving us more capacity in our space.

  • Satish Jindel - Analyst

  • Right. Okay. The other thing was, if you look at UPS's results for the third quarter, especially the UPS freight, they had a double digit increase for their revenue for freight, and similarly double digit increase in the shipment growth. I know of that company a little well in terms of their shipment profile.

  • You look at your average weight at 1,500 lbs and yes, I know you've pointed out that you have some of your truckload in it. But even if you take that out, what would be your average? What would be the percentage of your shipments that are under 1,000 pounds?

  • David Congdon - President, COO

  • Under 1,000?

  • Satish Jindel - Analyst

  • Yes.

  • David Congdon - President, COO

  • Well, generally our LTL was also up about 2%.

  • Wes Frye - CFO

  • This is our less than 10,000 pound shipments.

  • David Congdon - President, COO

  • Yes, less than 10,000 is also up 2% on a per shipment basis.

  • Satish Jindel - Analyst

  • Right. But what percentage of your total shipment have less than 1,000 pound weight?

  • David Congdon - President, COO

  • In terms of shipments --

  • Satish Jindel - Analyst

  • Yes.

  • David Congdon - President, COO

  • Less than --

  • Wes Frye - CFO

  • 1,000?

  • Satish Jindel - Analyst

  • Yes, less than 1,000.

  • Wes Frye - CFO

  • I don't know that off-hand.

  • Satish Jindel - Analyst

  • Because I think -- if you look at your mix of freight by shipment weight and third class, you've probably are at the highest end in terms of your shipment weight and could that be contributing to your pricing and yield per hundredweight that tends to go up as your shipment tends to come down?

  • David Congdon - President, COO

  • Well, absolutely. As we said in our comments, factor that the weight per shipment does have the tendency to reduce your revenue per hundredweight.

  • Satish Jindel - Analyst

  • But from your sales point of view, are you purposely trying to not seek shipments that are 500, 600 pounds?

  • David Congdon - President, COO

  • We are purposely trying to seek any size shipment.

  • Satish Jindel - Analyst

  • Okay, all right. And the last comment -- question I have is in terms of pricing. With the [STP] rulings that effect the rate bureaus and the freight classification, do you see any of that affecting pricing in the industry in starting '08 or you think it will be months or years before the impact of that is felt in terms of pricing?

  • Earl Congdon - Chairman, CEO

  • You know, Satish, we will just look at our situation and determine our price increase in our 559 tariff based on what we feel we need to recoup our various cost increases that we've had and I don't see that the STP ruling is going to affect us in any kind of a negative way going forward.

  • Satish Jindel - Analyst

  • All right. Well, guys, I still think you had a great quarter. You probably have a lot in common with UPS in that sense that as part of having good numbers, if they're not as good as last quarter you have to apologize for them. Thank you.

  • Earl Congdon - Chairman, CEO

  • Thank you.

  • Operator

  • (OPERATOR INSTRUCTIONS). We'll go next to Kevin Wenck with Polynous Capital Management.

  • Kevin Wenck - Analyst

  • In terms of what your tonnage growth was this quarter, how much more tonnage growth do you think you could have had if the overall freight environment wasn't softer than you would like? And how much tonnage growth do you think you've foregone because you weren't willing or you wanted to be more disciplined with pricing?

  • David Congdon - President, COO

  • There's no telling -- I don't know if we know how to answer that question. Last year -- if we grew our tonnage like 8%, if the economy were better, maybe it would have been 12%. I mean that would just be a guess. And there's no way to know how much we have foregone because of not being as price aggressive as some other carriers out there.

  • Kevin Wenck - Analyst

  • One of the reasons we're asking the question goes back to something that was mentioned earlier on the call, which was the $2 billion of revenues in 2010. Because, from where you are now, if pricing stabilizes, you need tonnage growth of probably 12% to 14% in '08, '09 and '10.

  • And it's not that far away from where you are now and conceivably it's achievable with a stronger economic environment and more stable pricing. I mean, what are your thoughts in general though on let's say 12% to 14% tonnage growth over the next two to three years and whether that's achievable.

  • Earl Congdon - Chairman, CEO

  • We've been getting those percentages and much better in the past and we think they're still achievable in a good economy.

  • Kevin Wenck - Analyst

  • Okay. And then a very small thing from the income statement you just reported. Communications and utilities was up a bit, anything going on there?

  • David Congdon - President, COO

  • No, not really. I mean those are impacted by inflation but there's nothing that I can put a finger on that's caused that 10 basis point increase. Other than pricing. The pricing would have influenced that as you know. I mean we've got -- we're growing at 8% tonnage wise, but our revenue is at 7%. So we have to build our service center and have to build our network for an 8% or a 9% growth.

  • Kevin Wenck - Analyst

  • Okay.

  • David Congdon - President, COO

  • So you get lower price and all of your categories go up slightly.

  • Kevin Wenck - Analyst

  • Okay. And then one final question, if you're modeling per mile fuel costs for the fourth quarter, at this point, what would they be in relation to what you had in the third quarter?

  • Wes Frye - CFO

  • We're anticipating our fuel cost in the fourth quarter. And of course it's to be just slightly higher than the third quarter overall.

  • Kevin Wenck - Analyst

  • Okay. All right. Thanks for your help.

  • David Congdon - President, COO

  • You're welcome.

  • Operator

  • Thank you. And at this time, it appears we have no further questions. I'd like to turn the program back over to Earl Congdon for any additional or closing comments.

  • Earl Congdon - Chairman, CEO

  • Well, listen, you've had some really good questions today and we want to thank you all for your participation and your interest in our Company. So if you have anything further give us a call. Good day.

  • David Congdon - President, COO

  • Good day.

  • Operator

  • And that does conclude today's conference. You may disconnect your lines at this time.