奧多明尼昂貨運 (ODFL) 2008 Q3 法說會逐字稿

Good morning, and welcome to the third 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 October 30, by dialing 719-457-0820. The confirmation number for the replay is 7346634. The replay may also be accessed through November 23 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 Cogdon. Please go ahead, sir.

Good morning, and thanks for joining us today for our third quarter conference call. With me is David Cogdon, OD's President and CEO, and Wes Frye our CFO. We each have some brief remarks that will cover our third quarter results and our outlook, and then we'll be glad to take your questions.

As you've seen from this morning's news release, Old Dominion produced strong financial results for the third quarter. Given tough industry and economic conditions, we achieved double-digit revenue and earnings per share growth, improved profit margins, and strengthened our financial position.

David will cover the details, but let me say first that this strong performance was years in the making. Those of you who have followed Old Dominion are very familiar with the successful execution of the strategies we laid out over ten years ago to take the company to a new level of long-term growth and profitability.

Among these strategies we leveraged both our regional and interregional capabilities through geographic expansion. We expanded our service products and performance to provide superior single-source solutions. We invested in and implemented the types of leading edge technologies and systems that have revolutionized our operational capabilities and permanently raised the bar on performance integration, and visibility. And we committed ourselves to the continuous process of enhancing revenue yield, understanding the costs of serving each customer and by working with our customer so that they understand and are willing to pay a fair price for the value we are providing.

Our team has carried out these strategies while being ever mindful of the need to balance profitability and growth, to maintain a strong balance sheet, and to value the flexibility and innovation of our non-union workforce.

I describe this history because it has contributed to the unique and strong market position we occupy today, and to our ability to outperform the industry in the third quarter, as well as throughout the economic cycle. I'm not saying that we won't be tested, possibly severely in the months and quarters ahead. We have little visibility as to the duration and depth of the current downturn. But I believe we are better positioned for a difficult economic environment than perhaps any other carrier in our industry because of our single-source capabilities, our service performance, our financial strength, and our experienced management team.

As our guidance makes clear, we've entered the fourth quarter cautious about business conditions and the competitive pricing environment based on trends evident in the second and third quarter, and the fourth quarter to date. We stand ready to pursue market share from further industry consolidation that tough times can create with the capital, capacity, and experience to seamlessly integrate new opportunities.

Our strategies that have supported us well historically remain relevant to our approach to the challenges of the future. We will focus on increasing density in our existing service center network to drive efficiencies and productivity, and will continue geographic expansion depending on the availability of appropriate real estate. We will enhance our service product to better serve our customer's needs and maintain our yield management discipline.

By continuing the consistent implementation of these long-term strategies, we're confident that we can maintain and build our competitive position. As we emerge into a stronger economic environment we will be well positioned to drive substantial long-term growth. So thanks again for being with us today, and now I'll turn the floor over to David to discuss our third quarter in more detail.

Thanks Earl, and good morning. We are pleased with OD's financial performance during the third quarter, and by the yield management discipline and productivity improvements that contributed to our results.

Tonnage increased 7.4% for the third quarter year-over-year versus a double-digit growth of 10.2% for the second quarter year-over-year. Responding to the credit crisis and economic slowdown, both sequential as well as year-over-year, tonnage growth slowed during the quarter contra to historical seasonal trends.

The 7.4% tonnage increase for the quarter was a result of an 8.4% increase in weight per shipment spread over slightly fewer shipments than in the third quarter of 2007. This increase in weight per shipment was a result of both shifts in freight mix to heavier shipments, as well as to our customers reducing shipments and combining loads.

Revenue per 100 weight increased 7.2% for the quarter, and declined 1.5% excluding fuel surcharge. While pricing competition increased from a few competitors during the third quarter, we believe our long-term yield management discipline mitigated this pressure to a large degree. Revenue per 100 weight was downwardly affected by the significant rise in weight per shipment, and by the decline in our average length of haul.

As economic challenges persist, we intend to continue our yield management discipline because we are confident of the value we provide our customers. Anecdotally, over the last year or so, we've had customers leave our company for a cheaper price only to return to us for our superior service capabilities. We plan to continue our investments in superior service standards, as well as staying on the leading edge in technology and service products. Our yield management discipline not only helps us to maintain our margins, it also is necessary to fund these investments.

In addition to yield management, efficiency improvements also contributed significantly to our increase profitability for the third quarter. Our lade and load average increased 2.8% for the quarter versus the third quarter last year. Pick up and delivery operations produced a 2.9% increase in deliveries per hour, and on the dock we achieved a whopping 10.6% increase in pounds per hour.

Combining these metrics with our low cargo claims ratio, and outstanding on time service performance, supports the fact that our operating fundamentals are strong giving us additional advantage in the current environment.

The impact of these metrics on our P&L statement for the quarter are reflected in the improvement in salaries, wages, and benefits as a percentage of revenue which more than offset the fuel cost driven increase in operating supplies and expenses. While insurance claims increased 20 basis points on a comparable quarter basis after declining for five consecutive quarters, this metric remains at the low-end of our normal operating range.

In summary, our third quarter results highlight the strength that our business model and the performance of our people provide in the face of economic challenges we and the industry are facing. We are confident in our ability to weather this part of the economic cycle, and as Earl mentioned, we are well prepared to leverage further industry consolidation. Simply put, we expect to continue outperforming the industry thereby strengthening our ability to produce long-term growth in earnings and shareholder value.

Thanks for interest in OD, and now Wes will address our financial results and outlook in more detail.

Good morning. Old Dominion's revenue for the third quarter was $416 million, an increase of 14.5% over the third quarter of 2007. And as David mentioned, our tonnage increased 7.4% for the quarter, and we had a reduction in shipments of 9/10 of 1% indicating a weight per shipment increase of 8.4% for the third quarter.

While heavier shipments improve our efficiency, they have the affect of decreasing revenue per 100 weight which compounded with the effect of a 2.6% decline in length of haul, caused the downward affect in revenue per 100 weight. Despite this effect, comparable quarter revenue per 100 weight improved 7.2% for the third quarter versus the second quarter 2008 increase of 5.4%.

Revenue per 100 weight excluding fuel surcharge declined 1.5% in the third quarter versus a decline of 2.5% in the second quarter indicating a modest improvement in our pricing. This pricing plus the heavier weight per shipment produced an increase in revenue per shipment of 16.2%, or 6.8% excluding fuel surcharge for the third quarter of 2008.

Productivity improvements David discussed helped drive a 370 basis point improvement in salary, wages, and benefits as a percent to revenue for the third quarter. While operating supplies and expense increased 350 basis points primarily due to fuel cost.

As anticipated, we continue to benefit from the reduced depreciation and amortization on both a dollar and percentage of revenue basis, and from a reduction in purchase transportation as a percent to revenue.

The net result of these and other changes in expense item was an improvement in our operating ratio to a 89.8 from a 90.6 for the third quarter last year. Our affective tax rate increased to 39% for the quarter as expected from 36% for the third quarter of '07. We expect a tax rate for the fourth quarter to remain at 39%.

Our net CapEx for the third quarter was $46 million. We plan net Capital Expenditures for the year of approximately $160 to $170 million, down from $195 million for 2007. The 2008 budget includes approximately $50 million for equipment, $105 million for real estate, a portion of which is to complete projects started in earlier years, and $11 million for information technology.

We remain well positioned to fund most of these Capital Expenditures with cash flow from operation. We had cash in short-term investments of $40 million at the end of the third quarter, and our ratio of net debt to total capitalization improved to 28% from 29.5% for the second quarter of 2008, and 32.2% at the yearend 2007. We expect this ratio to be between 30% and 32% at yearend.

As presented in our news release, we remain cautious in our outlook for the fourth quarter of 2008, primarily based upon the economic environment and its impact on competitive pricing and trends in tonnage. As a result, despite our third quarter results exceeding expectations, we today affirm our established guidance for the full year of 2008 in the range of $1.90 to $1.09/$0.95 per diluted share.

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

Thank you, sir. Ladies and gentlemen, (Operator Instructions). And we'll pause for just a moment to assemble our queue. We'll take our first question from David Ross of Stifel Nicolaus. Please go ahead.

Good morning gentlemen.

Good morning, David.

Good morning, David.

You guys seem to be doing well in this tough environment.

Thank you.

Question on the fuel surcharge caps that were a big issue earlier in the year. I know you guys worked very hard to negotiate those away during the second quarter especially. When you did that, probably not expecting fuel to drop as drastically as it has recently, do you have to give up any of the base rate? Is that coming back to hurt you now?

David, the negotiations that took place have to take into account the surcharge, the base rates. Every customer is different. It's hard to make any kind of a blanket statement about that, but we did not do away with caps, we may have raised caps, and we may have implemented new fuel surcharge scales that allowed a better recapture of our increased fuel cost. So I'm not sure if that answers your question or not. It's really a case-by-case basis on how you deal with that.

I understand I guess it's a case-by-case basis may be a better way to put it, David, would be you guys were getting killed like all the other LTLs when fuel surcharges were up at 38%, but you might have had caps at, say 18%. When you went back to those customers, did the discussion go more like, "Hey, we're getting killed on fuel. Can we get this capped from 18 to 21?" And they'd say, "Okay," and you didn't have to give anything on the base rate? Or would it be more like, "Okay, if we take the cap up to 21, we'll give you a 1% discount on the base rate."

I would say we did not have -- when we were able to negotiate improvements in fuel caps, and/or fuel surcharges, we did not have to trade it off to where it was a wash, and we've got nothing. I mean, we were able to gain from the negotiation in most all cases. Not necessarily what we wanted to gain in some cases, but we were able to gain in most cases.

David, if you just look at our contractual business, and that's where most of the caps reside, and you look sequentially at our revenue per 100 weight from the second to the third quarter, net of fuel surcharges, we had an improvement there, a slight improvement, but that's despite the fact that our weight per shipment and length of haul was down. So I think we have been successful in trying to minimize the effect that the fuel surcharge both directly and some success in the tariff charges themselves.

Okay, that's very helpful. Also you showed, I guess, with the decline in the length of hauls that the regional business is growing a little bit faster than the interregional or long haul business. Is there a specific reason for that? Is that because maybe the long haul market's more price competitive at the moment, and you're choosing not to take some of that freight. Or are you just kind of realizing some of the, I guess, synergies of these acquisitions you've made over the past couple years in the regional markets?

I think it's probably all of the above. I mean, the small -- the regional type companies that we have acquired we had some success in building those regions specifically and obviously in the Montana markets, the Pacific Northwest, as well as the Southwestern markets. So I think all those things above. It seems that we have witnessed lately that the long haul market's pricing has gotten a lot more competitive and in some cases, so competitive that we have chose not to meet those prices.

And you mentioned the Pacific Northwest, and one of your competitors out there has had a strike going on for sometime. Are you seeing any increased activity due to that?

(Inaudible) very successful growth out there some of which I'm sure has to do with that, but how much is just our normal market share penetration, and how much is due to that, I'm not sure we know.

Okay, and the last question is, a lot of the talk on the calls of the other LTL carriers this quarter has been about September being weaker than August, and October being weaker than September. Are you seeing similar trends if you just talk about, I guess, the seasonality of those three months?

We are. As we said in our remarks, the sequential trends from July, August, September, and even into October has trended downwardly which is contra to what seasonally we would expect during that period.

Now, is that a trend down of the growth rate or a trend down on an absolute tonnage basis?

It's a trend down on the growth rate.

Okay, thank you very much.

And we'll take our next question from Chris [Aruso] of Credit Suisse.

Thanks, good morning.

Good morning, Chris.

Good morning, Chris.

A couple of questions. First, maybe a strategic question. Can you handicap for us your views on the likelihood that employees may try to organize in an administration that's more union friendly? Is that something that you worry about?

Well, I think we and this whole country ought to be concerned about the Employee Free Choice Act, the resurgence of the Employee Free Choice Act under a democratic administration. And we feel very comfortable -- not comfortable. You're never totally comfortable, but we feel pretty good about our relations with our employees. We've have maintained a union free company for quite sometime, and have been very successful in keeping the union out. The Employee Free Choice Act offers the union a lot easier way to get into a company, and we are taking some proactive steps internally with communications and education to try to stave off any kind of problem we may have with that should that come to pass.

Okay, you mentioned the sequential decline from month, to month, to month as a quarter progressed in terms of tonnage. Did you see similar trend in terms of pricing-to-pricing deteriorate month-to-month?

Yes, only because of the fuel costs was falling. As far as our price (inaudible) we've held I think a disciplined position on that.

But on a net basis, price was pretty steady even though tonnage was declining.

Yes.

Okay. And then last question on the salaries, wages, and benefits which were lower, do you expect it to stay down at this level, or should we see that migrate higher as the fuel component of your revenue starts to diminish?

It could increase for that reason somewhat, and also for the fact that we had a wage increase that did not affect the entire third quarter, but will affect the fourth quarter that was effective in early September. But on the other hand, I think we are appropriately managing the productivity in the Company to minimize that affect.

And operating supplies and expenses will comedown with fuel costs coming down.

Right.

Okay, thank you.

The next question is from John Langefeld of Robert W. Baird. Please go ahead.

Good morning. Just looking at your numbers and listening to your commentary, I just want to make sure I have this right. You seem to imply that your -- you feel that your pricing has stayed relatively consistent with where it was in the second quarter, although the external environment looks like it's getting more price intensive. Is that a good summary? Do I have that right?

That's a pretty good summary, and it's a result of our discipline to price. We recognize that for the first quarter of this year, that after being in a almost an 18 month environment of soft business, and increasing -- ever increasing price competition, we were not happy at all with our operating ratio in the first quarter, and that the only way we were going to get our OR back inline was to put more discipline into our internal yield management processes, and we've done so. And we're maintaining that we need to maintain good, profitable, fair, competitive pricing, and not stoop to some of the crazy pricing that's out there today.

Good, let's hope some others follow. Great work there. Now, when you're having the conversations with shippers nowadays with fuel prices having fallen, and the surcharge having backed off meaningfully, does the conversation change at all? Is there more -- are they more receptive to talking about base rates? Does your discussion change in terms of how aggressively you try to get base rates, or maybe just give us a little color there.

Well, we've tried to -- in our negotiations, we look at the whole ball of wax, and the components of pricing, and cost, and it's not our objective to have ever made money on fuel surcharge. We have viewed it as a pass-through mechanism, and so the conversations are -- really just boil down to, "Are we still making money or not with the accounts, and our ongoing yield management process will drive us -- may drive us toward having to ask certain customers for improvements in base rates. But to the extent that our fuel surcharges have been fair, which we believe they are, then we should be okay for the most part on our base rates.

And does it feel like, I mean, I know you don't see the competitor bids directly, but you're hearing about them, does it feel like to you that there's other out there that have maybe given up some base rate to get fuel surcharge increases? And then, in a falling environment, maybe they're forced to comeback to the table now, and get better base rates?

Every customer is different, and every competitor is different. It's hard to make any blanket statements.

Okay. Fair enough. And then did you say what your volume growth was to start the month of October? Or could you?

We're in the low single-digit growth tonnage.

Okay, and then lastly, on the productivity gains, you covered that pretty well, but is there anything we should think about where the gains you've made on the productivity side, whether it's with the operating supplies, the claims, the personnel that aren't sustainable moving forward, or we're just operating at a such a high level that there's room for downside as we move forward?

Well, keep in mind that we still have tonnage growth, therefore we still actually improving density.

Yes, good point.

But as that volume declines, obviously we'll be more challenged, but the one thing that we're very mindful of is on time service which is the highest it's been in our industry. And the one thing that we will not negatively reflect is that service. So whether that affects our productivity at some point I think is in, we consider it an investment, so that when times do return, eventually the economic environment improves, that we will have provided the service through in both the up cycles, and the down cycles.

Got it, okay. Thank you for the color. Nice job on the quarter.

(Operator Instructions). We'll take our next question from Tom Wadewitz of JP Morgan. Please go ahead.

Yes, good morning.

Good morning, Tom.

Let's see, I wanted to see if you could talk a little bit about 2009, and give us a sense of what kind of pricing, or tonnage, or some kind of a combination of those two might you need in order to maintain margins in 2009? It seems like a reasonable base case scenario would be a recessionary economy for at least a couple quarters, so you're not going to get much for the market. But how do you think about that as you look to 2009, and maybe what you need in order to keep kind of flattish margins.

Tom this is most difficult forecasting environment we've ever experienced in our life, trying to determine where we will be, and we're not giving any guidance right now on 2009 because of there's so much -- so many variables that are uncertain at this time.

I mean, let's say you're -- the market's down, but you kind of continue to take share, and tonnage is flat. Is there enough cost savings opportunity in productivity that you can maintain the margin if pricing is also flat? Or just how do you think about that, and maybe inflation within the cost base, and how much you offset with productivity. Maybe that's a better way to say it.

Tom, before we give any color on '09, we'd like to see a little bit about what this fourth quarter is holding out for us. So we'll reserve that question if you don't mind until maybe our fourth quarter conference call, and then maybe the visibility will be a little better. As David mentioned, the environment is so uncertain now, we're not sure what to expect, and how we'll play into that market at this point.

But from a efficiency standpoint, you can never be satisfied with status quo and we do believe that we have continued room for efficiency improvement in the company. We've made a lot of progress over the last several years, and we believe that the progress that we have made is sustainable, and that we can continue to improve.

The systems that we have put in place to be able to adjust and manage labor from a dock and a pick up and delivery standpoint, and our line haul cost also, should allow us to continue managing as we have through these turbulent times. As I said earlier, believe and had put a lot of emphasis, and continuous emphasis on our yield management processes. It's our objective to be able to charge a profitable price because without a profitable price, we can't continue to deliver the service that customers are demanding today, and so we're pretty intent on maintaining that stance.

Can you give a sense on the cost side? You mentioned a wage increase that would partially affected third quarter. What was that? Would that have been like 3% or 4%? Or what was that number?

It was about 2.5% to 3%.

2.5% to 3%, and so is comp and benefits inflation, on per worker/per hour basis, is that going to be a little bit less next year than you might have seen past couple years?

Group health, and that type is always subject to inflationary pressures just from the medical, as is workmen's comp, but I think we have managed those costs pretty well, so that we've actually had some positives especially in workmen's comp this year on our experience. And we expect to manage those going into '09 as well; so that I think that we can minimize inflationary effect on both workmen's comp and group health.

Okay, good, and last one, and then I'll turn it over to someone else. What do you think about the weight per shipment? I don't know if you addressed this before, but do you think that significant divergence where you're growing tonnage entirely on increase in weight per shipment. Do you think that trend is something which continues for a few more quarters, or is that something which is pretty temporary and you'd expect that to normalize fairly quickly?

Well, Tom, that's going to be interesting to watch because I think typically we've always viewed, and I think the industry's viewed in general, that the weight per shipment is a kind of bell weather for economic activity, and the heavier the shipment, the more orders the customer's essentially getting. But this is kind of an unusual time such -- as we said in our comments, that it looks like in order to more efficiently transport goods is that they are combining shipments and therefore saving some distribution costs. At least fuel surcharge.

When the economy picks up, and let me point out, that probably because of the slowed economy, they have the luxury that they can do that instead of transporting two widgets every week, they transport one, or two every other week instead of one every week. But in an improved economy you may not have that luxury. You have to increase the frequency of shipments. And so it could be that during an improved economic environment, when they see the weight per shipment actually drop, that that's antidotal, but it will be a metric that we'll be watching.

Right, right, okay, great. Thank you for the time.

Yes, thank you. Tom.

There's four questioners in queue right now. We'll take our next question from Ed Wolfe of Wolfe Research. Please go ahead.

Thank you. Good afternoon guys.

Good afternoon.

Hello, Ed.

Can you take us through, and I apologize, Wes, if you did it, but I didn't hear it, kind of the sequence through the quarter of tonnage and yield growth.

It was not asked, and I will do that. In July, our tonnage year-over-year was up 8.6%. In August, that increase dropped to 6% growth year-over-year. And at September, the growth dropped to 2.3% year-over-year.

And October's kind of inline with September it sounds like?

Yes, at this point, yes.

Okay, and in terms of yields net of fuel. Can you talk about that?

Sequentially, I don't have those numbers.

Did they change or would you think they were probably --

We talked about it from the (multiple speakers) from the quarter and sequentially from the second to third quarter, but as far as month-to-month, we don't have that.

Okay, but just directionally in your head, it sounds like you didn't think there was much change in that throughout the quarter month-to-month, right?

Not too much change. It stayed -- to tell the truth, it stayed fairly consistent throughout the quarter on a revenue per 100 weight excluding fuel surcharges.

What's this $790,000 expense in the other income line that worked against you a little bit in the quarter?

What that is, is our nonqualified plans. As you might imagine, we kind of mark that to market based upon the participants. In '07, we had a positive because the Dow and the Stock Market was doing very well, and as you might imagine, it's not doing so well the third quarter of this year. And so it went from a positive last year to a negative -- the quarter this year.

And which plans are these?

We have a nonqualified deferred compensation plan.

Okay, I'm just trying to square the guidance of $0.35 to $0.40 which you back out for the fourth quarter. With the strength of this quarter at $0.63, obviously you've got tonnage coming down. Fourth quarter's always a slightly weaker quarter because if nothing else, like you said, the labor kicks in fulltime in fourth quarter, the wage increases, but to have a 41/42% reduction quarter-over-quarter, you've never done that before. You've never seen that. Is some of that fuel surcharge and the timing of how that kind of laps itself?

Well, as we've said in our comments, we're just very -- based upon the trends we're seeing now, and if those trends continue, we're just being very cautious in our outlook for the year overall.

But is fuel is one of those trends? I 'm guessing at some point this quarter we're going to see fuel of a sudden year-over-year be down, not up, and that'll change kind of some of the timing of some of these things. Is that a fair way to think about it?

I don't think that we'll see fuel costs actually drop below last year. I'm not sure what it'll do. It depends on the winter months, and what the expectation there is.

What have you assumed in your thought process for kind of WTI?

In our thought process, we assumed as is mostly the case, that fuel costs will kind of inch back up sequentially during the fourth quarter, and it won't stay at the levels that they are now. Although still over -- I mean, in the fourth quarter of last year, our fuel cost X taxes, et cetera, was $2.72. We don't think it'll at any point during the quarter will drop below that, but still staying at a fairly consistent stable level although slightly increasing as the winter months starts to affect us.

Is there an average kind of WTI or diesel number you're using just because about every hour it changes here.

That being said, every hour it changes, we have to make some assumption and then that assumption is up maybe $0.10 to $0.15 as the quarter progresses.

So --

Per gallon, that is.

But can we say $80 or $70? Is there some WTI number you use in the back of your head?

The price per barrel?

You mean, price per barrel?

Yes, or diesel, whatever you want to say, is there some --

We look at it by price per barrel. We look at what our actual cost is now, and what we think it might do going forward. And that cost per gallon, we think may go up $0.10 to $0.15 as the quarter progresses. And if you look at -- and what that price is, is in the lower $3 range.

Okay, that's perfect. That's what I was looking for. Thank you. Just kind of the bigger picture question that you've gotten a little bit, that the bigger shipment size, we've seen that now for a year or so, and clearly what you guys said about normally that says the economy's improving, but it doesn't feel like it this time around. How much of it do you think is people bundling shipments because fuel price got higher, and maybe they've trained themselves to do it. How much is does it have to with changes in packaging, or environmental concerns, or other things? In other words, I'm trying to get at how much is this is cyclical to fuel do you think, and how much is a secular change that's going to be ongoing as you see it?

I think it has more to do with fuel. The fuel surcharges were getting so high. They start thinking, "How can I -- if I can combine shipments and ship every other week instead of weekly, but make the shipment larger, I end up with a lower rate per pound, and lower fuel surcharge, and overall lower transportation costs per pound of freight that I'm shipping." We've heard antidotally from our sales force that their shippers are offering their customers discounts if they will order 5,000 pounds or more product, and they will ship it prepaid instead of the customer paying the freight. And then low and behold, the shipper goes and calls all the carriers and gets spot quotes. And that's why our spot quote business is up 100%. It's doubled over last year, and those shipments are weighting about 8,000 to 9,000 pounds. And so I think it's more a function of high fuel driving these combined shipments. I don't have a feel at all for the packaging aspect, and whether the packaging has become denser because if it's become denser, then they have to ship -- they would be shipping -- and if they're shipping larger shipment, that means they're shipping more product. And I don't think that's happening.

Yes, no, that makes sense. You've got a very large competitor that's been struggling, and I'm guessing, one, is getting quite competitive, and two, you're probably seeing some of their market share in the marketplace. Is that a fair comment? Is it fair to say that the economy might even be worse than what you're showing for tonnage, if not the largest player in the industry losing well above the market right now?

Ed, it's Earl. Yeah, that's a correct statement.

Are they the biggest competitive player out there? Or some others as well?

You mean on price?

On price.

Oh, there's some others. They're a big one, but there are some others.

Okay, thank you very much. I appreciate the time as always.

And next we'll hear from Tom Albrecht of Stevens, Inc. Please go ahead.

Hey, Wes, Earl, David, great quarter.

Thank you Tom.

Just wanted to delve into a couple of other things. First off, I think you said your lade and load average was down 2.8%. Why would that be down?

Up 2.8%.

Okay, then scratch the question because I was trying to figure that out with a weight per shipment increase. You gave the monthly progression of tonnage, but I'm just curious about shipment too because that ended up negative for the quarter. Can you walk through those same monthly numbers Wes?

Yes. The number of shipments was actually up in July, down 2.2% in August, and down 6% in September. In October, again, the trend is holding steady at this point compared to September.

Right, so how much was it up in July?

Just under 1%.

Okay. So as you look at the productivity opportunities, you have -- obviously tonnage has been part of driving productivity, but does a 5% to 7% decline in shipment count start to hurt your ability to be as productive in some of the statistics that you shared earlier for example on T&D stops per hour, if there's simply fewer shipments, pallets, whatever you want to label it. Don't you start to have to squeeze more in there, and there's only so much you can do on a particular routing?

Well, Tom, part of the good news in T&D is we have a very good planning and optimization system that allows us to plan our routes, and combine routes, and with the density that we have built over the network over time, some of our large service centers where you might have 12 to 25 or 50 drivers on the street, if you have 50 drivers on the street cutting back and combining routes, you can pretty well do that and maintain your productivity levels. In the smallest of service centers where you might only have four or five drivers going north, south, east, west, and one staying in town, it begins to hurt you in those towns more so. But they're small and they have a smaller impact on the whole network. Gauging across stock tonnage from a dock standpoint, you can pretty control your labor to that.

Maybe the line haul costs category because of our focus on maintaining our on time service performance might be the cost area that's impacted worse than the other two.

The line haul, you said?

Yes.

Okay, that would make sense. So in the current climate, I mean, I know there's daily planning that goes on, but it would seem to me that you must have made a decision that it's just going to get worse, so everyday your planning must have been very tight, very conservative. Would that be a fair conclusion to draw?

Well, that is a fair conclusion. Another conclusion we've drawn goes back to yield management and pricing discipline that we see it as a double-edged sword to be fighting declining tonnages and cutting price at the same time. And if we're going to try to maintain our margins so that we're able to continue to invest in our company for the future, we must maintain a discipline to pricing.

Right. Okay and then how did you do on cargo and worker's comp?

We still continue to have very good results in both of those. Cargo itself is down in the 6/10 of 1% range, and maintained that through the third quarter. And still we had consistently good results and experience in our workmen's comp.

What's that? Like 1.5%?

We don't express that in terms of percent of revenue. We do express it in terms of percent of payroll, and I don't have that number in front of me at this point, Tom.

Okay. Let's see here, if I had anything else. What's your thought -- obviously one of your competitors is going to be attempting to sell a number of terminals. I think you've made a few comments on that, but maybe not publicly. Would they potentially have properties, I guess, more importantly, even if freight were very sluggish throughout '09, if the right opportunities came along would you act on them to continue to build out your network through terminal purchases?

The answer is yes, Tom, and we are obviously in contact with that situation. We still see about 50 to 60 more locations across the country that we are interested in opening. Probably more on the 50 side right now, and we also have probably as always a half a dozen to a dozen locations that are either approaching capacity, or at capacity where we need larger facilities. So we're trying to marry up our needs with what they may have, and what else might be on the market. So we're not letting this slower economy stop us from building our company for the future.

Okay. And then I guess lastly, on the yield management pricing comment, as you stay disciplined on that front, are you finding that your account turnover has increased? It seems like over the years, maybe that's been 30% to 35% annual turnover, and I'm wondering if that has been heightened or increased as you've tried to maintain your discipline.

Well, Tom, one thing, we don't have 30% turnover with our accounts. Maybe 5 to 10 years ago when our service products were not as good. Our service products and service performance was not as good as it today, we may have been fighting account turnover, but we do not have account turnover today because of our impeccable service products, and the service is our value proposition. We're able to negotiate fairly with our customers, and we meet market prices to the extent that we can still make a buck at it. Yet, we're able to give the customer a higher value for the price that they pay.

We have questioned ourselves and questioned this declining shipment growth and declining tonnage, whether it's a result -- how much of that is a result of our yield discipline, and the answer we get as we're polling our internal group is that we're not losing accounts in a big way because of yield management. The accounts that we do lose are usually over price, or a pricing issue, but it's where a competitor comes in with a -- maybe we're in there at a 78% discount, and they come in with a 89% discount, and there's just no way in heck you could possibly make a buck at that kind of pricing. And nor can you get anywhere halfway toward that price level. So if we were looking at defending our price, or defending our freight against somebody -- some competitor's crazy discount, we're can only go so far because we still have to have a profit so that we can continue to invest in our service products and technology, and everything else that provides the value.

To that extent, so often you see announcements coming from carriers where they've sped up service in 20,000 lanes, or 6,000 whatever, and typically those were longer haul carriers. I've never really seen that same amount of press releases and focus come out of non-union firms that have more nimble over the years, but I'm wondering if even in a system like yours there's opportunities to speedup transit times in lanes.

We did ours a long time ago.

So that's not a continuing evolution I guess, is what I'm saying.

I can remember about 10 or 12 years ago when we only had 75 locations. It was 43,560 lanes when we -- we enhanced service on 15,000 of those lanes back then. And then as we have built our network going forward, and established regional operations and interregional operations, our goal has been to put the fastest humanly possible transit times in from the get go. That's why you're not seeing us announce all these service improvements is because we went in with the very best in service that you could physically do.

Start calling you guys, "Usain Bolt." Anyway, thanks for the answer guys.

Thank you, Tom

Thank you, Tom.

(Operator Instructions). Gentlemen, we have two questions left in the queue, we'll take our next question from David Campbell of Thompson Davis & Company. Please go ahead sir.

Yes, good morning everybody. I wanted to ask you about labor costs. They were up $14 million roughly in the third quarter, and revenues were up $18 million. That's a relationship that you really can't sustain in the long run. I mean, you got to have more revenue growth (inaudible) salaries and labor costs growth. Do you look at it that way, or is there something else I'm missing?

Well, our labor -- salary, wages, and benefits for the quarter was up only 6.7% compared to the 14.5% increase in revenue.

But that included fuel. I'm saying take the fuel out. Your revenue growth --

You can't take the fuel out, it's part of our revenue base. When you look at the -- what we do look at, and the revenue base is a kind of a combination of fuel surcharges and base rates, but if you look a the productivity of our workforce, we've had as we've already discussed, very good improvements in that.

Right, so you don't look at it as a percentage of revenues excluding fuel.

That would be -- looking at it excluding fuel surcharge, would be a very, very conservative way of looking at it, and we do look at it that way. But it's hard to relate it to revenue when you've got fuel costs that fluctuate, thereby fluctuating your revenue. What we choose to do is look at our productivity. Our labor to revenue, X fuel, has improves, at least the reports that we look at everyday, and every week.

Okay, and you admitted in the conference call that you have very little visibility in this environment. So I wondered why you bother to estimate earnings? I mean, I'm not being critical, I just don't understand since there is no visibility, why bother?

(multiple speakers) well, we have a choice of either affirming guidance, raising guidance, or lowering guidance, and we've saw no good reason to take it up, or to take it down at this time. So we stuck with what we have.

But notice we did not give guidance into '09 for the very reason that you just mentioned at this point.

Well, I mean I would think you'd continue that policy of not giving estimates for any timeframe.

Well we'll take to advisement.

I mean, no matter what happens, it's a very difficult process of predicting earnings.

Does that man that you'll stop giving guidance or consensus estimates yourself?

No, no, it means I'll be wrong and right. I'll be wrong and right all the time.

That's kind of our case too. We'll either be wrong or right as well.

But I'm not going to stop giving estimates because that's my job. I don't really think it's necessarily your job to give out estimates, or any company's job to give out estimates. I remember years ago when they just didn't do that. Especially before full disclosure. And so I would encourage you to -- and there are some companies that still don't do it in your business.

You're right.

But thank you very much. I appreciate your comments.

All right, thank you.

And our last question today before turning the conference back over to Mr. Earl Cogdon is from Justin Yagerman of Wachovia. Please go head.

Wow, last but hopefully not least. Most of my questions are asked and answered. I wanted to get a sense, guys, obviously the weight per shipment's up. You spoke about shoppers bundling more of their shipment together, and shipping heavier weight, and so obviously not necessarily as in the past very indicative of economic improvement. In fact, probably not at all. But are you guys doing any amount of business where you've got truckload carriers bringing freight to you into your terminals, and then you guys doing the distribution for that? And I guess, what does that do to the weight per shipment if you are doing that business, and how does the margin compare versus your core LTL business?

Justin, we do have TL carriers bringing freight in for distribution. How the characteristics of that freight have changed, I cannot answer that right now. But typically if a TL carrier is bringing freight in for distribution, the shipments are going to be then short haul shipments and the revenue per 100 weight on those shipments will be less than our average revenue per 100 weight. They would tend to drag revenue per 100 weight down. That's not necessarily bad. The bottom-line is are we charging enough for the service we're providing, and making a buck on that distribution account?

Has that business picked up at all as you see these shippers? I mean, that kind of to the [enths] degree where it skips the level from LTL freight to truckload fright. But are you seeing more of that going on as maybe more shippers are looking at cost conscious ways to consolidate their freight?

Yeah, I've read more about it in magazines than we have seen in practice. So the answer is, no, we have not seen a real increase in what people call "pool distribution".

Got it. When you look at the quarter, and you look at the fourth quarter, is there any business that you guys picked up because of the storms in the Gulf Coast where you think that that helped you out, and maybe goes away, or maybe there's stuff that's lined up from a rebuilding standpoint that you think may help things out in the fourth quarter here?

We have not added -- I would say, no to you question.

Okay, and last and turn it over, you spoke about terminals that are potentially an opportunity with Yellow Roadway consolidating to a greater degree. Have you seen anything from the fright side, and are you still seeing freight coming your way from the regional's there as they've pulled back on their footprint, and how much of a contributor to your make share gain do you see that as right now? Is that trend accelerating or decelerating?

Justin, it's Earl. That trend is accelerating, and it's not a major portion of our revenue at the present time, but it's certainly helping.

And then I guess, while I got you Earl, I think I asked you this last quarter, and I'll continue to, but you've got probably one of the best perspectives on this industry, and how it's changed over the years of anyone we'd speak to. What are your thoughts on where we stand right now from the economy? How does this compare to past cycles that you've seen and are there any bright spots, or anything that you're looking for as a sign of things turning at some point?

Oh, the fuel cost less, I think that's a bright spot for the entire economy. It's the only one we see. I'm not an economist, but we're sort of expecting a fairly severe recession.

All right, fair enough. Thanks a lot guys. Appreciate the time.

Okay, Justin.

Thank you ladies and gentlemen. At this time I'd like to turn the conference back over to Mr. Earl Cogdon for any closing remarks or final comments.

Okay, well, in closing I would certainly be remiss if I did not give credit to our entire management team, and the Old Dominion family that has executed so well both during up and down economic cycles, and I think their past performance speaks for itself. And those guys are ready to deliver the future for our shareholders. And also would like to thank all of you for participating today, for your excellent questions, for your support of Old Dominion. So give us a call later today if you have further questions. Bye.

Ladies and gentlemen, this concludes today's Old Dominion Freight Line conference call. Thank you for joining us, and have a wonderful day.