奧多明尼昂貨運 (ODFL) 2008 Q2 法說會逐字稿

Good morning, and welcome to the second quarter 2008 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay, beginning today and through July 31, by dialing 719-457-0820. The confirmation number for the replay is 8004753. The replay may also be accessed through August 24 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 2008.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without 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 this morning'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 Executive Chairman, Mr. Earl Congdon. Please go ahead, sir.

Thank you all for being with us for our second quarter conference call. Joining me is David Congdon, OD's President and CEO, and Wes Frye, our CFO. We each have some brief remarks that will cover our second quarter results and our outlook, and then we'll be glad to take your questions.

Let me begin this morning by saying that we were pleased with Old Dominion's performance for the second quarter during a period of weakness and uncertainty in the national economy and rapidly increasing fuel prices that reached record levels.

To be able to produce a double-digit tonnage gain in this environment and, as a result, increase our earnings guidance, is a further indication of the strength of our business model. While each of our regional markets produced growth for the quarter relatively consistent with our expectations, our strongest results have occurred in the Pacific Northwest, the West, and the upper-central regions. This growth in today's environment truly validates our long-term strategy to increase our geographic footprint while continuing to invest in capacity to serve our growing market share in our older markets.

Since the beginning of 2006, these strategies led us to add 38 new service centers in 12 states in these western regions including three states in which we had not previously operated.

Also, during the past two and a half years, we've made four acquisitions in the West - starting with UW Freight headquartered in Salt Lake City; Priority Freight in Sumner, Washington; Bullocks Express in Denver; and Bob's Pickup & Delivery in Sidney, Montana. Through these acquisitions we added 29 service centers to our network and consolidated the operations of another 18 service centers into existing centers.

We also opened, organically, nine new service centers in these states over this time period including the opening of Pocatello, Idaho during our latest quarter.

Finally, all this expansion activity allowed the launch of full-state coverage in six western states since the start of 2006. Our plan is to open two more service centers in the Northeast during the remaining year of 2008. Our expansion efforts combined with the continued development and growth of our value-added services have strengthened our position as a single-source provider of regional, interregional, and global transportation solutions.

It is clear that our strategies are working and have enabled us to grow at rates significantly higher than the industry through all the economic cycles of the past 12 years. We expect to continue developing and deploying our strategies in the quarters and years ahead to expand our full-state LTL coverage to all 48 states in the continental U.S to reach as our global reach.

During the past two years within our OD-Global services, in addition to substantial growth in North America LTL revenues, we have increased our efforts to expand ocean container drayage domestically. And we have successfully introduced LCL, CL, and air freight service to and from China. Over time, we believe our expansion of OD-Global can grow into a more meaningful component of our business while also diversifying our revenue streams.

After roughly a year of planning and development and as a result of listening to the needs of our customers, we recently announced the introduction of OD-Warehousing. This new service product is designed to provide the complete array of warehouse services and software solutions for our existing customer base as well as new customers whom we have not yet tapped. We've begun by contracting with five strategically located warehouses in San Francisco, Los Angeles, Dallas, Chicago, plus one in North Carolina. As this is a new business venture for us, we are approaching it carefully. We expect our initial growth to be slow; however, we are excited about its prospects for long-term growth.

Going forward, we have numerous opportunities to continue delivering industry-leading profitable growth and gains in market share. We will continue to make long-term investments to take advantage of these opportunities.

Lastly, I have the utmost confidence in our management and team of dedicated employees to deliver long-term growth of shareholder value.

Thanks again for being with us today. And now, let me ask David to discuss our second quarter in more detail.

Thanks, Earl, and good morning, everyone. In our last quarterly conference call I said that during this extended period, operating in a challenging environment, we would focus on maintaining and improving profitable pricing of our accounts, increasing tonnage, and decreasing expenses.

We think that our second quarter results clearly demonstrate our progress toward all three of these goals. We focused intensely on maintaining discipline with our revenue quality improvement processes in order to regain ground with our operating ratio that had deteriorated over the last several quarters, primarily due to the highly competitive pricing environment. Through these processes, we demonstrate to our customers that the value we provide, through our comprehensive services and service performance, is worth the price.

We continued to drive tonnage growth with a 10.2% increase for the quarter, which represents a substantial gain over the 8.3% increase produced for the first quarter of 2008. This double-digit growth in tonnage, in light of our continued pricing discipline and a weak economy, is the clearest demonstration that we are continuing to expand market share through the strengths of our service products and our outstanding service performance.

Our strong tonnage growth for the quarter helped drive improved operating efficiencies and was complemented by our continuing initiatives to improve productivity and lower expenses. These efforts encompass all aspects of our line haul, dock, pickup and delivery operations, and clerical expenses.

We achieved a 2.3% improvement in line haul, lade, and load average; a 1% increase in [P&D] stops per hour, a 9.3% improvement in platform pounds per hour, and a 2% improvement in clerical wages per shipment.

In addition, for the second consecutive quarter, we produced our lowest cargo/claims ratio in the history of the company at 0.66% of revenue, as our insurance and claims expense, as a percent of revenue, fell for the fifth consecutive comparable quarter period.

The cost of fuel rose to record levels during the quarter and was primarily responsible for a 560 basis point increase in operating supplies and expenses. We are taking a proactive approach to increase fuel efficiency, including reducing the top speed of our trucks to 65 miles per hour. We have communicated our focus on energy conservation throughout the Company and have given our drivers specific guidance on methods to improve fuel efficiency. We are also planning, and will soon implement, a Company-wide program to drive home the importance of this goal and the steps we can and will take to achieve it.

We fully realize that the cost of fuel and economic cycles are factors beyond our control; however, we are encouraged by the responsiveness and the innovation of our team as we work everyday to make the best of the current situation. We have learned, in the weaker portions of earlier economic cycles, that by pressing hard now to improve the efficiency of our operations while we continue to provide superior service for our customers, we can differentiate Old Dominion and prepare for stronger growth in the future.

In summary, we remain a uniquely positioned leader in a consolidating industry with proven growth strategies, differentiating advantages, capital resources, and management experience.

We remain confident of our ability to continue outperforming the industry and to meet our long-term objectives for growth in earnings and shareholder value.

Thank you for your interest in Old Dominion. And now, Wes will address our financial results and our outlook in more detail.

Old Dominion's revenue increased 16.2% to $418 million for the second quarter of 2008 compared to $360 million for the second quarter last year. While our shipments for the quarter increased 2.8%, our tonnage rose 10.2% as a result of a 7.1% increase in weight per shipment, almost half of which was due to a freight mix toward heavier loads. Excluding this effect, weight per shipment was still up 4%. This increase combined with a 3.1% decrease in length of haul act to reduce revenue for underweight, which did increase 5.4% for the second quarter including fuel surcharge and declined 3.1% excluding fuel surcharge.

While it is difficult to measure the impact of these two metrics, we estimate pricing was relatively flat on a comparable quarter basis; however, it would still characterize the environment as highly competitive although somewhat more stable. Despite this environment, tonnage growth enabled us to produce a 13% increase in revenue per shipment for the quarter and a 3.8% increase excluding fuel surcharge.

As David mentioned, we were successful in improving productivity and lowering claims expense for the second quarter, primarily as a result of volume-driven operating leverage. Salaries, wages, and benefits improved to 49.8% from 52% for the second quarter of last year. And insurance and claims fell to 1.6% from 2.5% for the second quarter of last year.

Offsetting these improvements, however, operating supplies and expense rose to 21.8% from 16.2%, largely as a result of the fuel cost increase. As a result, our operating ratio for the quarter was at 89.7% compared to an 88.7% for the second quarter of last year.

The effective tax rate for the second quarter of '08 was 39% versus 39.5% for the second quarter last year. We anticipate our effective tax rate for the remainder of '08 will also be 39%.

Our net CapEx for the second quarter was $67 million. We continue to plan net capital expenditures for the year of approximately $155 million to $165 million, down from $190 million for 2007.

The 2008 budget includes approximately $40 million to $45 million for equipment; $95 million to $100 million for real estate, a portion of which was to complete projects started earlier in the year; and $10 to $13 million for information technology. We remain well positioned to fund these planned capital expenditures with cash flow from operation. And we expect to produce a marginal level of free cash flow for the year excluding any additional acquisition or expansion opportunities.

During the second quarter, we further reduced debt and strengthened our balance sheet from the year end 2007. We had cash and short-term investments of $37 million at the end of the second quarter. And our ratio of net debt to total capitalization improved to 29.5% from 32.2% at year end. We expect this ratio to be between 30% and 32% by year end.

As presented in our news release, we remain cautious in our outlook for the remainder of 2008, primarily based upon the uncertain economic environment and the (technical difficulty) competitive pricing.

As you know, we increased our full year earnings guidance last week to the range of $1.90 to $1.95 per diluted share from the previous range of $1.85 to $1.90 per diluted share. Today we again affirmed this range.

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

Thank you. (Operator Instructions).

We'll take our first question from Ed Wolfe with Wolfe Research.

You talked about raising the guidance. But, in actuality, since guidance went up $0.12 in the quarter on the strong beat, only raising the whole year $0.05 is reducing the backend guidance. Can you talk to what your thoughts are in terms of being conservative versus what you're seeing out there in the marketplace?

Well, we had a very good second quarter. But we're still cautious about the second half of the year not only in terms of pricing but also in terms of the economic activity. And we just choose to be cautious in that venue.

If you go through, Wes, month by month, through even July, what were the tonnage trends like and what were the yield trends like net of fuel? And is there something there that's giving you a little bit of concern as you go out?

Well, from a tonnage standpoint, each month sequentially was a little bit down. Of course, some of that was due to the fact that April started off with a bang, since it excluded a holiday. So the tonnage was up almost 13% in April, up almost 9.5% in May, and up 9% in June. We started off July, again, in double digits. So it's starting off fairly strong from a pricing standpoint. We looked at pricing and we've had a focus on our yield. And from May to June we saw some slight improvements, especially on the contract side. But it's still very competitive out there, although, somewhat-- as I mentioned in our comments, somewhat stable. We're not saying that the remainder of the year will get better or will get worse. We've kind of held the pricing sequentially throughout the remainder of the year relatively flat.

How do we get to things are improving a little bit throughout the quarter in pricing when year over year at [11.44%] they're down, depending on how you look at--?

When you've got 7% increase in weight per shipment and you've got a 3% decline in length of overhaul, that has a fairly significant effect on your revenue per hundredweight.

But in the first quarter you had similar--

No, we did not. The weight per shipment in the first quarter was only up about 2% to 2.8%, and the length of haul was fairly flat. The weight per shipment was only up 2.6% in the first quarter, and the length of haul was down 1.4%. It's more than doubled. Those metrics have more than doubled in the second quarter.

Okay. But if I look at pricing, our yield net of fuel, it was positive 08 versus minus 3. That's more than a doubled change, it feels like.

The 3.0 is a little bit skewed also because-- You may or may not recall. Last year we had a one-time cumulative rate adjustment of $2 million in the second quarter of last year.

I've adjusted that to 2.5 is what I--

Okay. 2.5 is the number without that.

So negative 2.5 versus positive 08 still feels like, directionally, things are not getting better but maybe getting a little worse. Am I looking at that wrong?

We think so. We don't think they're necessarily getting worse. But, also, we don't think they're necessarily getting better. That's why we use the word stable.

Is there a way to look at that negative 2.5 kind of month by month from April through July or is that not something you have?

We don't have it.

I think there's too many variables affecting that with the way our length of hauls changed and our weight per shipment to try to get into that discussion at this point.

That makes sense. When you think about pricing more kind of broad based, and you look at this X amount on contracts, X amount on GRI, how is that mix now? And if pricing were to firm up-- There is a sense capacity's tightening. Let's say we get to a point in a couple quarters where demand improved and things really tightened quickly. How quickly can you get out and get that pricing or does it take a year to kind of play through? Can you talk about that directionally?

Working with contracts is sort of a year-round thing for us. So we're always approaching our accounts as their due dates come up. Demand increases, that doesn't necessarily mean we're going to go out to our contracts and start trying to raise prices, unless, of course, we have an issue with the profitability of that particular account. Now that could accelerate our approaching an account. Our contract business, as a percent of total, has definitely increased over the last several years. And our freight that we move on our 559 tariff has declined as a percent of total. We think that will probably be a continuing trend over time. I don't know if that answers your question.

David, roughly what percent is contractual right now versus GRI?

It's around-- On a revenue basis-- Yes, probably 60%.

So that 60%-- I'm guessing you got to wait until they're priced throughout the year when they come up. How quickly can you go out and change a GRI-priced business? Can that happen pretty quickly?

Well, nothing happens real quickly when you have 70,000 customers. And any time you go to try to re-price a business there's a delay factor where customers will put you off for while. And you can't press it so hard, unless you want to run the business off. And we don't want to do that.

Okay. Just switching gears for a second, the tonnage was a really nice step up. And is some of the reduction in yield, as you see it, kind of a base strategy to get more tonnage? Or is it just you're seeing some competitive things in the marketplace where it's easier to get tonnage, and there's been no change in the way you're looking at pricing?

I think a lot of it is just the way the market is doing right now, for some reason. I think more and more people are trying to get spot quotes on larger shipments. We keep hearing anecdotally that shippers are holding-- Instead of shipping smaller shipments each week, they'll hold it until the second week and move a larger shipment and try to get a spot quote. So there are spot quote businesses up a lot. That's part of what's driving, to some degree, our weight per shipment being higher.

And even the revenue per hundredweight.

In the revenue per hundredweight on those spot quotes are lower than average.

Is that the exports? I mean, exports are generally heavy. Do you think that's what the change is?

Well, that's not necessarily reflected in spot quotes. But our container division, which is exports and imports-- Their tonnage was up 21% and revenue up 37% for the quarter. So that's doing well. And, although we don't really track what exports and imports, just anecdotally, from talking to those centers, the export is stronger than the imports.

You said you reduced speed to 65. Where were you coming from? Where did it come down from?

We were 68 to some trucks as high as 70.

Thanks a lot, guys, for the time. I appreciate it.

Thank you. We'll take our next question from John Langenfeld with Robert W. Baird.

To follow up on the spot quote commentary, how do you look at the profitability of that, generally, in terms of trying to keep the spot quote business separate from your core line haul capabilities so you don't ruin your price point?

Our pricing mechanism for spot quotes-- We've got a formula built in that's kind of a cost-based formula. So we've got a good profit built in to spot quotes.

And does that only happen on certain lanes? Because if I'm a customer and I can become conditioned to having a spot quote opportunity, maybe I wait to ask for the shipment to be moved. Or is it only on back haul type lanes?

Well, we have a pricing method for all lanes, be they head haul or back haul. People that are shipping in back haul lanes might tend to get a better price than those shipping in the head haul lanes.

Right. But am I wrong to think that if I'm a shipper and if I do a spot quote, I'm generally going to get a better rate than what a list price or a contractual rate would be? Or is that not--?

We got one last week who got a spot quote. He took it, and it turned out that his contractual rate was cheaper. So now he's asking us for his money back. That was just one particular customer. So our spot quotes may or may not be as good as the rate that they already have in place under their contract or their discount or whatever kind of pricing program they have. A lot of customers are-- Although they have a program in place, they still call up for a spot quote to see if that's any better than how they move it under their standard deal.

I got it. Okay. And then is there something about the freight characteristics in the West or the Pacific Northwest that would contribute to this rising length of haul--?

Declining length of haul--

--or declining length of haul and rising weight per shipment?

I don't have a feel for that.

Well, getting into Montana was an example of new regional business that tended to work toward declining out length of haul.

Okay. So maybe that contributed a little bit.

A little bit.

But do you see it even in the Southeast? For instance, are you seeing similar trends in terms of declining length of haul and weight per shipment?

We haven't looked at, necessarily, length of haul and weight per shipment by region of the country. At least, I haven't studied those metrics yet for this quarter.

Okay. And how much of this do you think is truckload business versus the example you gave, where they're holding maybe a couple LTL shipments and doing it later and less frequently?

Where we separate-- Even on the truckload-- and I'll just define that for our purposes as anything over 10,000 pounds, which is not necessarily truckloads (inaudible)--

Might be a [pup] load.

The weight per shipment, just in that category, is up 3.9%. And if you look at all of our shipments less than 10,000 pounds, that's up 3.9%. That's what was commented. Overall, our shipment was up 4%, although we reported 7%. But we're saying that the difference is due to the mix because of the higher growth and the spot quotes and in the container. Container average shipments is 26,000 pounds. On the spot quotes the average shipment is around 10,000 pounds.

I see. So this is something more than just tightening truckload capacity out there?

We've had significant growth in our container division - planned growth. It's not economic. We've been paying a lot of focus on the container. And it's growing quite nicely right now.

It's possible that the tightening of capacity in the truckload industry is causing for more of this stop-off type freight to be finding itself in our spot quotes. And we might be moving some of the stop-off freight.

And I'm assuming because you can handle more product-- I'm assuming you handle more product with fewer hours just because there's fewer number of shipments-- The incremental profitability you can get off this type of growth is actually very strong?

That is correct. If you're going to grow volume, it's more efficient to grow it by weight per shipment than to grow it by number of shipments.

Got it. Remind me where we are with the wage increases. I think that's coming up here in the third quarter.

Our wage increases will be in the 3% range.

And that was last year-- pretty consistent I believe?

Yes. It was maybe a tad bit more than that last year.

Okay. Good. And then the last thing is on the fuel side. Can you just update us in terms of where you are getting your fuel surcharge--? where you want them to be or where you think they can go relative to maybe some of the short falls in the first quarter.

We made a diligent effort to look at our accounts that had any kind of special fuel surcharge arrangements. And each and every account was looked at on an individual basis because you have to. I mean, every account has different mixes of freight. They have different base rates, different discount levels. And whenever we established a fuel surcharge with an account, we also had to look at these other components. So we kind of look at it as component pricing.

So we went and looked at those who had caps or lower scales and tried to approach the accounts to see what we could do to make improvements. But we had to look at the operating ratio of the account too. And if the fuel portion was killing us, which we found in numerous cases, we were able to renegotiate all three components of the pricing. It wasn't necessarily that we got so much more on fuel, but we might have done something different on base rates or discounts as well.

But you've cycled through the accounts is what you're--?

We've made an initial cycle through. But, you know, we call it a revenue quality improvement process. It's a never-ending thing. You're always looking at your accounts because mix of freight always changes and conditions change. So you've got to keep a continuous eye on individual account profitability.

Understood. Nice quarter. Thank you.

We'll take our next question from David Ross with Stifel Nicolaus.

Question first on the operating ratio. If tonnage remains flat in the third quarter versus the second quarter, just absolute levels, is there any reason the operating ratio should not be similar?

Well, keep in mind-- When you go back 15 years, there's an average of 200 to 300 percentage points' improvement in ratio between the first-- sequentially between the second quarter and first quarter. Much of that's due to the higher volume. Now on a tonnage being equal--

We'd have to go ahead and run the model over again.

We're not planning on flat tonnage in the third quarter.

Okay. Can you talk a little bit about the growth in the different markets - you know, how the next-day product's growing versus the two-day versus the longer haul business?

Right now the regional business-- mainly because of acquisitions in the last two or three years, are growing-- When I say regional, I'm talking about-- First- and second-day is growing faster than the longer haul markets.

But the longer haul market's still growing?

It's still growing. But the growth rate of our longer haul-- I'd say the over three-day, the four-day and more mark has slowed down this year. And there's maybe several contributing factors. I think the economy's probably the biggest part of it.

Okay. And can you talk a little about where the labor force is now versus a year ago in terms of headcount or number of employees?

Sequentially it's flat. We have not been growing our headcount. And year over year-- Wes, do you have that?

We don't have those numbers before us right now, Dave. I can circle back to you later.

That's fine. And then can you talk a little bit about the consolidation that's gone on in the industry recently with Jevic shutting down and Allvan? Are you seeing much benefit from that? Was that a significant contributor in the quarter?

We have not been able to ascertain whether those were significant contributors or not. Our growth in the Northeast was pretty strong in the quarter as well. Based upon reports we have from our sales force up there, we have gained some Jevic business. Now their business tended to be heavier, to my recollection, than our normal LTL shipments. So that could be part of the driver on our increase in our spot quote business and our heavier weight shipments.

Okay. That's very helpful. Thank you very much.

We'll take our next question from Tom Wadewitz with JP Morgan.

Wanted to ask you a little bit more on the pricing. I know you've had quite a few questions on it. But I'm not sure if you touched on the difference in regional versus national pricing in a competitive environment between those two. So I wondered if you could give us some comments on those.

I would say, historically, and probably still today, regional pricing has tended to be more competitive than long-haul pricing because you still have some very small players in some of the regional markets. And when their only game is the regional business and they don't have the wide array of services and coverage that carriers like ourselves have, they find themselves having to live off of cheap prices in order to keep maintaining their volumes. I'd say it's still that way - a little bit more competitive in regional than in long haul.

So from some of the big long-haul players you haven't really seen a change in their competitive action? You haven't seen an increase in the attempts to hold onto business from certain carriers or a more aggressive approach to market share from others in long haul?

We have seen some-- over this year some increased aggressiveness in price by long-haul players. But that's as far as I could go with that.

But it's still not as competitive as regional?

True.

Okay. Wes, on a cost side you've continued to show some pretty strong improvement on the cargo claims and then on the insurance. How comfortable are you on extrapolating-- I know there's some noise in that line, but how comfortable are you extrapolating that to second half in terms of what we put in our assumptions?

Well, both in BIPD and cargo we've had good experience. But when you're self-insured for the first $3 million on BIPD and self-insured for a good sum on cargo you-- Even though we've had good experience, we still remain cautious. So we're still conservative going for the rest of the year that-- We're confident that the experience will continue but conservative in our outlook.

Okay. All right. And depreciation and amortization as a percent of revenue was down somewhat year over year. Can you tell us what's behind that and if that trends likely to continue as well?

Well, we've had significant investment mainly in real estate. But real estate doesn't really affect your depreciation as much as you think. First of all, you put a residual on the real estate. And, secondly, you don't depreciate the land at all so even though we've put $100 million in real estate, that doesn't hit depreciation. Correspondingly, as we have grown - tonnage 10% and revenue 16% - that leverage of growth against the investment has reduced that expenses as a percent of revenue.

Okay. So part of it would be mix of the CapEx which you're focused on?

Right. And fortunately our equipment expenditures this year is lower relative to what they have in the last couple of years, our investment being $160 million in total CapEx this year relative to $190 million last year.

Okay. Last question for you, and I'll pass it on to someone else. On the wage increase, what's the impact look like in the third quarter operating ratio? How do we think about that? Is there some offset to that or is that something where you say, Well, given pricing's not particularly strong right now, it's challenging that you've got to factor that in and maybe that hurts the OR versus in a normal third quarter you might be able to offset more of it?

Well, we gave you our guidance, and that's about the extent we'll discuss it. We'll let you figure that out. The 3% usually hits the first of September. So it affects the third quarter somewhat and affects the full fourth quarter.

Okay. So more of a fourth quarter impact? Okay, great. Thank you for the time.

We'll take our next question from Jason Seidl with Dahlman Rose.

How has this sluggish market impacted the amount of potential acquisition candidates that are coming across your desk? And are you seeing the prices that they're asking for themselves come down?

It's constant. We'll be approached by several carriers each year. And we evaluate all of them. But I don't see a big change in the availability of carriers. There just aren't very many suitable carriers out there that might be available.

Okay. Fair enough. That's all I had, guys. Thank you.

We'll go next to Matt Troy with Citi.

I was wondering if you could talk about the OD-Global initiative. I was wondering. If you think about growing that business longer term, tactically, what's the strategy there? Are you trying to grow by specific lane? Are you targeting geographies? Is it really customer driven? And, also, do you have any or have you set out any longer-term objectives be it growth rate or absolute dollar and revenue on a longer-term basis? I'm just trying to get a sense of the investment strategy and grow strategy in that piece of the business.

Well, we began offering worldwide LCL and CL services probably three or four years ago. And it was doing okay but nothing to jump up and down about. And then we decided to focus on China as a lane and turn that refocused effort with a partner on that side and a couple of our operations here to have a door-to-door sale or a port-to door sale or whatever sale that the customer wanted. So we've started with China.

We're going to look at additional countries and try to find asset-based partners in those countries-- and sell to and from the U.S. would be where we're going with that. We still see good opportunities in North America, between the U.S. and Canada and Mexico. So we're still focusing on those markets as well.

I would say, in terms of an investment, it's more of an investment in people. It's more of an investment in technology for tracking. I anticipate that we'll grow more on a kind of non-asset base and not have to-- We don't have to invest in the company offshore. That's not to say we won't. But we see opportunities to grow these markets without making major investments.

And have you found the ability to attract and retain the headcount? These relationship-- Maybe that's outside of the domestic U.S. Have you been pleased with your ability to get good people in, or is that a fairly tight market in terms of talent and headcount, given some larger forwards and larger boats in this trying to hire away some of those relationships?

Well, we don't have any employees in China at this point in time. We have our candidates here in the U.S. that are calling on our customers here. We have no problem attracting qualified people here.

Okay. My last question is just-- On the quarter you just reported, just a broad sense looking across the network, were there any customer industries that stood out as either particularly strong relative to a broader economic environment that's been soft or any end markets that were particularly weak relative to what your plan was going into the quarter? I'm just trying to get a sense for what's moving out there by industry and what might not be. Thanks.

I'm not sure I can give you a sense. We just don't know that right off hand from that detail at this point. But about 50% of our business is coming through manufacturing. So I would assume that the manufacturing sector for us is doing better.

Now, it's hard to distinguish that growth - how much is market share and how much is economic from their standpoint and how much of the weight per shipment is due to economic and how much is due to other factors.

All right. Thank you.

(Operator Instructions). We'll take our next question from Justin Yagerman with Wachovia Securities.

On the purchased trans line, that was flat year over year. We've seen fuel show up in a lot of other quarters that we've looked at so far in that line. I'm just curious. Have you guys--? Now that you've got more geographic expansion, should we see that line actually coming down a little bit as you got more of your own in house that you don't have to go out and buy some cartage?

Yes. Yes, we could.

Okay. Is that why it's flat year over year, or is there something kind of different going on in there?

Well, as I mentioned, that line includes our container division. Our container division is up 37%. So while the-- On the domestic general commodity side, we are seeing reduction of those costs. We're seeing increases in the container due to the growth there. So, overall, that's why it's flat. But it's actually down if you can break out that between what's the container division and what's the LTL.

That would imply, then, that the growth we've had in the quarter has been more so within our network that is served with our Company trucks.

Interest expense - flat year over year and up a little bit quarter to quarter. Are you guys paying a little bit higher on your debt? Is that yielding less on your cash? How should I think about that trending going forward?

The debt is fixed. It's a fixed rate. So the difference is the yield on the cash. As you know, we took it out of the-- It's more in the money market, just to keep-- make sure our liquidity stays there, which has a lower yield.

Got it. Looking out in the second half-- You guys don't give quarterly specific guidance anymore. But the fourth quarter stands out to me as a quarter where you usually see sequential decline not as pronounced in consensus numbers right now. And, depending on how you look at your guidance, it's curious to see how the seasonality plays out. So I'm just kind of curious. Is there anything different about this fourth quarter as we look out to the second half of the year? Are you picking up a benefit as we move into the fourth quarter from the third quarter where you should see more of a flat quarter-to-quarter transition? Or should we see that typical seasonal downtick as you lose two days in the calendar year?

You might recall I made a comment earlier about-- Our assumption in the rest of the year is that the revenue per hundredweight will remain relatively flat. That's excluding fuel surcharges. However, when you look in comparison year over year, last year, our revenue per hundredweight for the third quarter through the fourth quarter was declining. So, when you go full circle on that, you get a slightly easier comparison on the fourth quarter with respect to revenue per hundredweight in the fourth quarter than you did in the third quarter and in the second quarter.

Got it. So maybe you'll pick up a little bit of help on that end. When I think about the seasonality in the quarter-- When I spoke to you guys in mid June, I think weight per shipment was up about 6%. How big were the last two weeks of June in terms of the truckload spot quote business? I guess, if you could characterize June, because it was the first month for the industry that we've really seen this kind of ramping seasonality-- I'd be curious just to get a little more granularity, I guess, on how June progressed, what kind of conversations you were having with shippers, and how serious the demand was for freight at that point.

Well we did see, sequentially, year over year, an increase in the weight per shipment from April to May to June. And it even is higher, so far, and forecasted in July. And, as I've already mentioned, we do-- Basically half of that is the mix of just heavier freight. But we are seeing revenue per shipment increase around-- pretty much across the board.

It's all anecdotal why those things are happening within the weight categories. But, as we had mentioned before anecdotally, possibly shippers are combining shipments to try to save on fuel and transportation costs.

There's another phenomenon that might be occurring that we haven't really-- It's just coming to mind. The Olympics and the shipping that may have taken place in advance of the Olympics because of China going to be shut down for that period of time. So that could have affected some of the metrics that have occurred in the second quarter.

That's actually really interesting.

And we didn't know if that was only secular to ourselves, but it seems like all of the reporting carriers are showing weight per shipments that are higher year over year.

Sure. That's really interesting. Just one last question. I asked it yesterday on the Arkansas Best call, but maybe it's more applicable here. David and Earl, you're both pilots. If you were kind of using the analogy of flying in a storm and had to trust your instrument panel as opposed to just looking out-- and all the noise in the economy with the financials and housing and all that-- What do the pure numbers tell you right now as you go back and look at cycles? You're talking about truckload spot quote business tightening up. ATA truck tonnage has been tighter. There's definitely headwinds. And the fuel environment's changed from past cycles. But how does this compare to comparable periods of time as you guys go back and think about past cycles?

I think you might be asking if we can see out the window too. I think things are looking a little better.

Okay.

I feel very good that business is more likely to go up than down.

Fair enough. All right. I appreciate the time, gentlemen. Thanks a lot.

We'll take our next question from David Campbell with Thompson Davis.

Yes. Thank you very much. Most of my questions have been answered. But I was curious on two things. One, you mentioned adding two more service centers in the Northeast and that your business up there is strong, possibly because of Jevic. So are these new service centers related to that in general or are they related to specific new accounts that you could service there that need these service centers?

They were both real estate opportunities that presented themselves in Markets that made sense for us to be into. I don't want to divulge where they are yet. But that's why. And our business in the Northeast is up not just because of Jevic. It's been strong anyway because of our competitive position in that marketplace. We're gaining market share there, and Jevic just helped.

Okay, thanks. And the last question is, you mentioned slowing the speed of your trucks; will we notice any impact on either fuel surcharge revenues or fuel costs as a result of this or is it--? We won't really see it?

It will not have any effect on fuel surcharge revenues, but hopefully it will have an effect on fuel cost. Reducing speed by, say, three miles an hour means three tenths of a mile per gallon improvement in the overall fuel economy, which does add up to a lot of money. But that's only on your line haul fleet. And we may not achieve a full three tenths of a mile per gallon improvement. In fact, in May and June we're, to be honest with you, seeing negligible effect at this moment. But some of that just may be the way that our fuel and mileage counting goes. We might see some of it in July when we average--

We haven't governed down the whole fleet yet.

And we haven't finished governing down the whole fleet. So I think it'll take a little time to see the effects of our fuel efficiency programs take hold.

But there's likely to be more impact in the third than there was in the second?

Yes. We certainly hope so.

Okay. And what about the customers? I mean, obviously, your delivery times will lengthen.

Not necessarily. It will not really affect it. Our schedule run operation-- You're talking about maybe ten minutes more or no more than 30 minutes more on a 500 mile run.

Right.

This has no negative effects on our transit times.

Okay. Thanks for the good numbers.

(Operator Instructions).

We'll go next to Tom Albrecht with Stevens Incorporated.

I know everybody wants to move on here. David, I look at your shipment count-- Everybody's focused on tonnage, but it was only 2.8%, that was the lowest since 2001. What do you read into that? I mean, it's kind of some of the weirdest sets of numbers across the board with the industry right now - up tonnage, which used to be down during downturns; but shipment counts are very modest. What's your thought?

My thought is that it's economic more so than anything. We're seeing-- Even though ours is low, it's still, when you compare it with our industry peers-- theirs is worse than ours. So we're still gaining share. But I see it more as economic. And the second thing is that with the weight per shipment being higher, we have shippers that are holding freight for two weeks to make a shipment as opposed to shipping once a week.

Wes, what was your cargo figure a year ago-- that 0.66 was versus what?

It was about 0.9.

And then July tonnage? Did you give us a window into that?

I did. I mentioned low double digits, at this point.

Okay. And June was the best month in the second quarter, I guess?

For the tonnage growth?

Yes.

Year over year it was not. Actually, April was. April was benefited by the lack of a holiday.

Oh, yes. Sure.

Smooth all that out, it was roughly consistent between the months year over year.

Okay. And then I'd be remiss not to ask a little bit about the guidance, and I appreciate that the economy isn't red hot so there's some level of cautiousness. But, basically, you just had 12% earnings growth. I don't know how to allocate the two quarters in the second half of the year. But at the high end of your range, I could take like a $0.58 and a $0.45 number-- gets me to $1.95 for the year, and, yet, that's only 7% earnings growth when you just had a real nice quarter. And I'm taking that $0.03 revenue adjustment out, a year ago. And I'm surprised that the third quarter wouldn't be at least closer to the second quarter, especially with your earlier comments on tonnage being probably at or a little above, sequentially. How's that for a long question?

I understand what you're saying. But when you're self-insured on cost-- We run into a group of lawyers-- Of course, a lot of people would pay us if we did. But when you're self-insured for $3 million-- And it happens. I mean, we're running 200 million miles a year. And you've seen it happen. And we just are cautious in making sure that we have accounted for any of that eventuality. Now we have one of the lowest accident frequency ratios in the industry, and it's improving. Of course, we've had a tremendous focus on workman's competition and on BIPD, but things do happen. And we just look at that on a long-term average basis.

Right. Is there a particular case or two either going to trial or just that you're negotiating on that might have you little bit more worried?

(Inaudible). If they were, it would already be in our cost.

Okay. All right, so maybe you'll have good news for us later on then?

We certainly hope so.

Okay. Well, that's it. I appreciate the time, guys. Keep up the good work.

And it appears we have no further questions. I would like to turn the conference back over to Earl Congdon for any additional or closing remarks.

Thanks to all for your excellent questions as usual and for your support of Old Dominion. If you have any further questions, just give us a call. Bye.

Thank you, ladies and gentlemen. Once again, that does conclude today's conference. We thank you for your participation.