奧多明尼昂貨運 (ODFL) 2008 Q4 法說會逐字稿

Good morning, and welcome to the fourth 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 February 2nd by dialing 719-457-0820.

The confirmation number for the replay is 3004857.

The replay may also be accessed through February 28th 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 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're 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 President and Chief Executive Officer, Mr.

David Congdon.

Please go ahead, sir.

Good morning, and thanks for joining us today for our fourth quarter conference call.

With me is Wes Frye, the Company's CFO.

Earl is our Executive Chairman, and is out of the office today and not available to participate.

Wes and I will have some brief remarks, and then we'll be glad to take your questions.

I'll begin this morning by acknowledging the obvious, which is that the fourth quarter was extremely difficult for the national economy and for the transportation industry.

Our results show that we are not immune to the impact of the downturn.

The decline in tonnage for the quarter was the first we've experienced in over eight years, and our decline in revenue was the first we've had since 1995 when we were a much smaller, less diversified Company.

While our tonnage for the fourth quarter did not fall as much as we thought it would in mid December, the declining trend accelerated each month of the quarter.

Furthermore, at this point we have not seen any indications that would provide much potential for a near term recovery in the economy.

Within the context of this environment, Old Dominion has continued to produce results that lead the LTL industry segment.

The OD team did a great job in the quarter to counter the deleveraging affect of reduced tonnage through outstanding operating performance and disciplined pricing.

As a result, while our margins were pressured for the quarter we were solidly profitable.

We continued to gain market share, and we have yet to see any other LTL company with a fourth quarter operating ratio close to our 93.2.

For you guys in the OD Management that are listening to this call, you deserve a major pat on the back for a job well done.

As we've discussed previously, we certainly want to work as efficiently as possible in this kind of environment, but our primary concern is to continue providing outstanding customer service, which is an essential part of our value proposition and our efforts to sustain and improve revenue yield.

We achieved both of these goals for the quarter.

Our productivity statistics, on time service performance, safety, and cargo claim metrics remained at industry leading levels.

Our long-term focus on providing superior customer service is a key foundation for our disciplined pricing strategy.

Our pricing is determined on an account-by-account basis, and reflects many variables that in aggregate tell us exactly what services we are providing our customer, the value of those services, and the pricing needed to meet our account profitability objectives.

As the stability of our revenue per hundredweight, excluding fuel surcharge, throughout the second half indicates, we have succeeded in producing industry leading results without sacrificing pricing to achieve volume.

This performance is only possible, we believe, because our customers understand that pricing is just one aspect of the value our comprehensive, integrated services represent.

That said, we have continued and will continue to defend existing customer relationships against competitors who are throwing out cheaper prices to attempt to achieve higher volume.

Our philosophy remains consistent and firm, that we will not willingly or knowingly offer lower prices to win new business.

We believe that using price in this manner undermines our value proposition that has taken years to create and is essential to our long-term growth.

In our model the economics of price cutting just doesn't make financial sense because it takes a 3% to 4% increase in tonnage to offset a 1% decrease in pricing just to breakeven from an earnings per share standpoint, and even more tonnage growth to maintain an equal profit margin.

This is difficult to achieve in a good economic environment and almost impossible in the recessionary freight environment that we are currently in.

We believe that our continuously strong operating fundamentals truly differentiate Old Dominion in the industry today.

As a result of our successful long-term strategies, we believe we are the best positioned LTL carrier to weather the current storm, capitalize on industry consolidation, and to continue strengthening our ability to resume a significant rate of profitable growth as the economic cycle improves.

I will summarize the strengths that support this leadership positioning.

First, our comprehensive services are delivered through one company that combines the best features of regional, interregional, and national providers.

Since we have expanded business primarily through organic growth we have no operational or integration issues like many of our industry competitors are facing.

We continue to invest in the Company, creating new value added services and employing the latest technology that allows our dedicated nonunion employees to produce industry leading, on time service, safety, and cargo records.

These investments and our demonstrated operational controls have enabled us to produce the LTL sector's best operating margins.

In addition to having continued opportunities remaining to pursue, geographic expansion of our service center network, we are well prepared with the capacity, the service products, and other infrastructure to benefit from industry consolidation, either through the exit of industry participants or through acquisitions.

We have maintained a strong balance sheet, with ample liquidity, and can act decisively on opportunities we choose to pursue.

In closing, the success we've continued to achieve is not happening by accident, it is a direct result of our well seasoned Management Team and the hard work and determination of our entire Old Dominion family.

We are committed to our proven long-term strategies, even when the short-term environment may challenge some of our courses of action.

We are being appropriately cautious with regard to our current and near term operations, but we remain clearly focused on building this Company to achieve long-term growth and earnings and shareholder value.

Now, Wes, you want to discuss some more details?

Certainly.

And good morning.

Old Dominion's revenue for the fourth quarter was $336 million, a decline of 6.4% from the fourth quarter of '07.

As presented in our news release, a decline in shipments of 11.8%, combined with an increase in the weight per shipment of 7.8% resulted in a 4.9% increase in total tons.

The increase in weight per shipment was primarily a result of a 4% increase in LTL shipment weight, with the remainder caused by a higher mix of volume shipments.

While an increase in weight per shipment has a positive impact on operating efficiency, it also causes the revenue per hundredweight to be lower, as does the 3.3% decrease in length of haul for the fourth quarter.

We believe these measures primarily explain the 1.4% year-over-year decline in revenue per hundredweight excluding fuel surcharge.

Consequently, we believe our pricing remained relatively stable for the quarter, both from a year-over-year as well as a sequential view.

We remain committed to a disciplined pricing approach by understanding the cost of our services and by working with our customers so that they understand and are willing to pay a fair price for the value that we provide.

This decline combined with the increase in weight per shipment gave us a 6.3% increase in revenue per shipment excluding fuel surcharge.

To offset the financial impact of reduced tonnage, we focused on improved productivity and management of our variable, as well as overhead cost.

As a result, our line haul, pickup and delivery and dock operations experienced meaningful productivity improvements.

During the quarter we saw a 3.7% increase in our line haul [laid and low] average, a 2.9% increase in shipments picked up and delivered per hour, and a 16.7% increase in platforms, pounds per man hour.

These improvements resulted in a 60 basis point decline in the percentage of these costs on a direct basis to revenue.

While these efforts could not fully offset the deleveraging impact of reduced revenue on our fixed and semi fixed costs, they did contribute to our maintaining a relatively strong GAAP operating ratio of a 93.2 for the quarter, while also maintaining, by the way, a 99% on time delivery on very tight standards.

Our net CapEx for the fourth quarter was $75.7 million, $60 million of which was opportunities to acquire available real estate, bringing the total CapEx for the year to $183 million, down from $195 million for 2007.

Almost two-thirds of this 2008 expenditure were acquiring what we view as real estate opportunities or expanding undersized existing facilities.

Our net cash provided by operation activities for 2008 essentially funded those expenditures, as well as debt reduction, that contributed to a significant improvement in our debt to total capitalization to 31.1 at the end of '08 compared to 35% at the end of '07.

For 2009 we anticipate capital expenditures of approximately $190 million, which includes approximately $89 million for equipment, $85 million for real estate, and $13 million for information technology.

We again expect to fund most of those expenditures with operating cash flow and cash on hand.

We also have $175 million in availability under our existing credit facility which doesn't mature until August of 2011.

As presented in our news release, we remain very cautious in our near term outlook because of the economic environment, its impact on competitive pricing, and a negative trend in tonnage and shipments throughout the fourth quarter.

With limited visibility about the duration and depth of the economic downturn, we cannot provide financial guidance with a necessary degree of confidence.

As a result, we will not be providing guidance until further notice.

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

(OPERATOR INSTRUCTIONS.)

We'll go to Tom Wadewitz with J.P.

Morgan.

Yes, good morning.

Good morning.

Good morning.

Let's see, so what do you think the impact is going to be as we have what appears to be a pretty active bid season?

And, you know, you said pretty clearly your approach on pricing, which makes a lot of sense, but to what extent can you resist the downward pressure on price if shippers and broad bases put a lot of business up for bid?

Tom, we have been very successful for the last number of years with our pricing philosophy and our value proposition.

So I don't think it's going to be a whole heck of a lot different than it has been in the past, and we should be continuing to be successful with our approach with customers.

So--?

It's not -- our bids go year round, it's not like it's all of a sudden we're going to have a big bid season and all the prices are going to be adjusted.

The contracts that we have with customers go pretty much year round, and we're not having any trouble convincing our customers on our value proposition.

So you think you can, I mean maybe you see a little more pressure, but you don't anticipate seeing a big step-up in pressure on rates in terms of what you're able to achieve?

Not for us.

Maybe some others, other carriers might choose to play the price game, but we're just, you know, we weigh every single account on its own merit and look at the -- we have a certain profitability that we expect to achieve and that we've got to achieve in order to give the service levels that we're giving, and that's the value proposition.

And it sells well when you, in fact, have the underlying value.

Makes sense.

Let's see, the tonnage, I may have missed this, I don't know if you said by month or talked about that at all, but can you give us a sense of what the progression was in tonnage year-over-year by month?

And if you have any comments on what it looks like in January so far?

Yes, tom, we didn't give the specific numbers, but October we saw tonnage basically flat, down two-tenths of 1%.

That accelerated to 6% year-over-year down in November, and then 8.5% down in tonnage in December.

We are expecting January at this point to be also down in the high single digits.

January has been really negatively affected by weather.

I jokingly asked our Senior VP of Operation has there been any day this month or any period this month that we haven't had some affect of winter throughout our system, expecting him to say, no, we haven't.

He did say that it was Monday that we didn't have much of an affect.

But we have virtually had a weather affect that's contributing to this high single digit.

Short of that, and I'm not sure what the affect has been, to tell the truth, but it has had an affect.

But we are expecting January to be down in tonnage in the single high digit.

Okay.

And do you think that -- and it seems like you've had this pretty, in transports in general you've seen a pretty sharp fall-off in December and January demand, but I think there's an anticipation that this can't be representative of the run rate and that economic activity has to pick-up a little bit off this very low base.

Are you hearing that from any of the customers that February or March would look like they would pick-up a little bit from the low level in December, January?

Not necessarily from customers, but we track our sequential trends, and while we don't think the sequential trends will be back to historical proportions, we think that they will in some sense have some bearing.

So, if for nothing else, we do expect at least February, March to sequentially track at some level.

To track a little better.

A little better at some level, yes.

Okay.

So if you look at those March, February and March year-over-year in terms of tonnage, you would think they'd be a little better than the down high single digits?

We do.

Okay.

All right.

Great.

Well, I appreciate the time.

Thank you.

We'll go next to Jon Langenfeld with Robert W.

Baird.

Hi, good morning, guys.

Nice job in the quarter.

Thanks, Jon.

So a little bit on the pricing side or maybe just conversations you're having with customers, I mean how many, outside of new bids and formal bid processes, are customers just coming to you to talk about their freight bucket more and what their strategy is for their carrier selection and asking you if you can do more without doing the official bid process?

I would say those conversations do take place, but there's been an awful lot of activity out there in the recent couple of months with carriers concerned about industry consolidation, potential for some industry consolidation, and so we've had a lot more of those type of conversations recently with some concerns out there in the marketplace.

But the discussions with the customers, a lot of these are folks that we currently do business with, but then some are companies that we don't do any business with, but like I was trying to say earlier, we're very determined to maintain profitable pricing.

We're in this business to serve customers for the long run and to deliver on our promises and to do it with the highest levels of service available in the industry.

And consequently it's only fair for us to expect and to earn a reasonable rate of return.

Yes.

No.

Good enough.

How do you balance I mean volume is down 10% in December, that's probably than the market so you continue to take share, but how do you monitor that?

I mean you've got to be, I guess you've got to be on your toes here in terms of the balance between price and other companies taking your share.

And my guess is in this bid process it's going to be pretty complex in terms of trying tow the right line?

Well, we're winning some and we're losing some, and we lose -- if we lose a bid it's because of price, that the pricing does not meet our requirements.

But we continue to have just basic anecdotal evidence here that customers come back to us for the service level that we provide, later.

I mean we -- so we've had customers leave us for price but then they keep coming back.

It is a balance, but we believe, as I told you earlier, reducing price by 1% requires 3% to 4% offset of tonnage in order to breakeven on an EPS basis, and even more tonnage to offset, to have the same rate of return, the same operating margin.

So if pricing gets to a point where it's just an absolute clear loser, we're going to walk away from it, because if somebody is going to haul it and it's a clear loser, that freight is going to come back into the marketplace eventually because companies cannot operate freight at a loss and stay in business.

So we're in it for the long run, we would rather deal with softer tonnage and manage the blocking and tackling of our business, which we are clearly doing, as opposed to playing the price game and knowingly losing money in a big way on an account.

Yes, fair enough.

Now, if you think about the bid process, I mean where -- when do most of these bids get awarded?

I know it's spread-out, but I mean is this something that you'd expect by March to have new business shifted into your freight bucket, or is this more of an April timeframe?

What are you thinking there?

Jon, it's -- again, it's around the year, it just goes all year long with us.

I think the only difference is that there is some stepped up activity going on right now surrounding the potential for industry consolidation.

And if I put a -- if I'm a shipper and I put out a bid today, you know, mid or large sized shipper put out a bid today, am I looking basically four weeks, six weeks to actually have it implemented, the results implemented?

I think it all depends on who the shipper is and the complexity of their own internal network to change routings on purchase orders.

Some can change in a week, and some might take a little bit longer.

I think with technology today the -- it's easier to change, but you've got -- they may have orders in the pipeline that are already routed a certain way that they cannot change very easily.

So given the soft rate environment there aren't a whole lot of orders in the pipeline either.

Yes, true.

And so I would say it could change more rapidly than to be prolonged.

Okay.

Good.

Thanks for the color.

We'll go next to Jason Seidl with Dahlman Rose.

Hey, guys.

Hi.

Hi, Jason.

A quick question regarding the tonnage trend.

You were down sort of almost double-digit levels I think you said in December, right, down 8.5%.

You're about down the same in January, but that's with tough weather.

So can I infer that maybe January is not quite as bad in terms of the underlying demand than December?

I think that's generally true, and I don't know what percentage points you would take off of that high single digit due to weather.

But maybe slightly better year-over-year, but that's not to say good.

Now, are your January comps easier than your December comps?

I haven't checked to see what the comps, but I think probably a little bit are easier.

So they're a little bit easier.

So net, net January is probably then, once you factor out weather and factor in easier comps, you're about the same as December demand then?

That's probably a good, a reasonable statement.

And another point, our March last year was a lousy month, and so that one is probably an easier comp.

Is that fair to say?

On March, yes.

At least that particular month might have been easier.

If you recall, March last year, Jason had the Easter holiday in it?

Yes, I remember.

Well, hopefully, you guys won't have this weather extend into March, that won't be too good.

On the real estate side, can you talk to us a little bit about how many terminals that means you guys plan on adding, or are these all upgraded terminals?

Most of these, you mean you're talking about '08 or '09?

'09, '09?

Probably only three or four additional terminals.

That are committed for right now for '09.

Right.

However, as real estate opportunities arise we probably still have nearly 40 on our list of cities that we would like to open in the future -- 30, maybe 35 to 40.

And if real estate opportunities arise and it's the only game in town, we will do as we have in the past, and that's buy it or try to lease it or, and go ahead and open it while that opportunity is there.

For the most part the facilities are either leased that we are going to own because of opportunities on the market or it's just facilities we've simply outgrown, but believe it or not we still are outgrowing facilities even in this environment.

That's interesting.

That's good color, guys.

On the fuel surcharge, obviously fuel came down pretty dramatically in the fourth quarter.

It's at a much lower base.

Can you talk about how that impacts your results a little bit here in 1Q?

Well, there's two impacts.

If you recall, the first quarter of '08 that we saw a negative impact because the fuel surcharge caps that we had in place, which we I think had done a good job mitigating through the rest of the year.

And obviously in the fourth quarter of '08 obviously those caps were not an issue, and so that spread that we lost in the first quarter we got back in the fourth quarter.

But it's no doubt at the level of fuel cost and consequently fuel surcharge there is some slight negative impact in the quarter.

As an industry we have negotiated fuel surcharge in lieu of base rates, and I'll say that it's probably affected us no more than, however, 20 to 30 basis points.

Okay.

Fair enough.

Last question, and I'll turn it over to somebody else.

You guys did preannounce the quarter turned out better than expected, what was the delta, what changed, what did you guys not see when you guys put out your preannouncement?

Yes, well, the most part, it was three items.

We, the revenue as we stated, in that last half of the year, the last five days to be specific in December was about $2.5 million better than expected.

In other words, we were expecting a really negative trend throughout the Christmas season, especially in due of the fact of how Christmas specifically fell, and it came in better than that.

I'm not suggesting it was a real surge, it just came in better than our expectation.

Okay.

Understood.

And keep in mind that if you're going to provide, and we, even in the quarter, in this downturn, we provided 99% on time service.

If you commit to that then pick-up and delivery in line haul at some point becomes a fixed charge.

And so with the additional incremental revenue that we had we were able to better control that cost as opposed to the revenue levels that we expected.

The other thing is although roughly 80% of our revenue by the time the 23rd of December came along was known for the quarter, we were still in an audit, and therefore not all of your costs are known until you get the appropriate audit.

And, as you know, actuaries come in and look at reserves, and we quite frankly were expecting a negative reserve adjustment that did not happen.

And so those and those are the principal things that happened that caused much of the difference between what we were feeling in mid-December and what our ultimate results were.

Wes, that was very helpful.

I appreciate it.

Thank you for your time, as always, guys.

Thank you, Jason.

Next to David Ross with Stifel Nicolaus.

Good morning, gentlemen.

Good morning.

Weight per shipment has been rising really since 2003, and you talked a little bit about the fourth quarter, I think 4% of its increase is due to higher weight per LTL shipment, and the rest of it was due to increased truckload shipments.

Is that kind of, you know, where do you see those going forward.

I guess do the comps become much harder, is there much more weight per shipment, you see you should gain?

Or is that likely to tail-off and be--?

Yes, we -- it's hard to tell, but we think that there is a dynamic shift in this economy on weight per shipment, just combining shipments.

And we think that that will continue, but not necessarily increase.

So we're assuming that the weight per shipment will just kind of hold steady, that most of that dynamic shift has happened and so that's our assumption.

Okay, that makes sense.

And for length of haul, it declined during the quarter, you talked on the last conference call about not wanting to compete as much in the long haul market because you thought, and I guess that was a little bit more price competitive.

Is that one of the reasons that I guess the regional grew faster in the long haul this quarter, as well?

Well, it's not that we did not want to compete in the long haul markets, it's just that there were a couple of carriers out there, butting heads on pricing, trying to gain that long haul market share, and some of that pricing was outside of our profitability parameters that where we've just chosen not to participate in certain business or the price.

Said another way, the price that we were willing to haul it for was just too high for those particular customers and we just didn't want to get in the price war.

And is the Oak Harbor strike out West still helping you guys on the tonnage side?

Not material.

Okay.

And your Canadian operation, Wes, you noted that I guess the change in length of haul reporting was due to how you accounted for some Canadian shipments?

Yes, we restated -- we have restated for all those that may be compared to last year and see that the number for last year has changed.

We were actually calculating line haul to the end point in Canada, where in fact we were only delivering it to the border, and it was given to another Canadian partner carriers.

So we corrected that calculation, and that's the reason, and we'll send out to those that request it restated line haul numbers for the past four years.

Okay.

That makes sense.

And do you see Canada as being an entry point where you would no longer partner with a carrier but maybe either buy your partner carrier or just grow organically up into that area?

David, you know, we're very happy with our arrangements up there right now, but that's obviously also in our longer range thinking that we're interested in our own operations in Canada.

Okay.

And the last question is on the technology.

You guys have always been very good at investing heavily in your operations and networks, the technology infrastructure.

Are there any new technology improvements initiatives you guys have underway for 2009 that you could talk about?

There's one in particular that I'm very excited about, and that is we have made a commitment to put computers in the trucks.

I'll refresh everyone that we have handheld computers with our local drivers, and those communicate over cellular networks, back and forth to our systems right now.

But that don't have any GPS involved.

But we've made a commitment to move ahead with PeopleNet, and you all are probably, have heard their name, with their Blue device in the trucks.

And we're in the midst of -- we went through a pilot last year with three different vendors, and chose PeopleNet, and we're in the process of doing one of our major service centers right now and also working through a number of business processes that we want to put in, make sure are up, running, in place, ready to be managed before we roll past doing our Greensboro service center.

And the target for those, for that device is to focus on fuel efficiency from a driver and tractor standpoint, as well as fuel accountability, to implement electronic onboard recorders for the logs for our line haul drivers, to also have a better handle on our pick-up and delivery cost and the time in and out of our stops and the miles and so forth.

And there's probably a dozen more internal processes.

Another big, big thing is safety.

We're very excited about being able to see the driving behaviors of our drivers and to integrate this with the [Iterius] lane departure warning devices, which will give us a real-time indication, if we've got a sleepy driver driving down the road, and think of what that might be worth.

You know, if a guy is making sudden stops, or if he's got an inordinate, an excessive amount of departures from his lane for a given, for the distance he's traveling, that we get an alert, and we can call the guy up on his cell phone or ring him on the computer and say, "Get off the road and take a nap."

That -- I'm -- just saving two or three or four of those type things, where you have a $2,750,000 deductible per accident could pay for the whole project.

So we're very excited about that process going forward and see a lot of opportunities to continue to improve our efficiency.

Thank you very much.

We'll go next to John Barnes with BB&T Capital.

Hey, good morning, guys.

Good morning.

Hey, John.

Hey, going back to the discussion on fourth quarter guidance, could you just give us an idea when you made the change in guidance on December 23rd, how late in the quarter did you have good information at that point?

I mean were you basing that off of data through the end of November, were you pretty much up to date with a flash report or something like that?

I'm just trying to get how much data you had before you made that call?

Basically, we had closed October and November and had some, obviously some sense for our labor cost at least through that point.

Okay.

But you didn't have any data at that point on volumes or anything?

Oh, yes, we have that, we have all of that, every day, every hour.

We obviously had data on the volumes, that's the revenue line, but we didn't have visibility on the remainder of the month that had a fairly positive, much better than we had anticipated when we gave the guidance.

But as far as the cost side, we had total visibility at least obviously through October and November and labor for the first three weeks.

Okay.

And the $2.5 million, Wes, you said it was $2.5 million better.

And I'm sorry if I missed this, was that $2.5 million better revenue, was it $2.5 million better operating income?

I'm just trying to get a read there.

$2.5 million higher revenue for the last six days of that month.

And what do you--?

In other words, John, we were very pessimistic on what the revenue was going to look like for the remainder of December when we -- and cautious, when we put out that guidance.

Okay.

All right.

And -- all right.

And then -- okay, so $2.5 million on the revenue side, you know, what were you forecasting at the time you thought you were going to have in terms of an adjustment to your reserves?

Do you know kind of what you had in mind when you lowered that?

Yes, we did.

We thought we would have anywhere from $3 million to $4 million of negative adjustment in some of our reserves that when we got the actuary review did not happen.

Okay.

That's helpful.

All right.

In terms of CapEx, as you go into 2009, could you just talk about contingency plans in case there's some type of event, like a failure or something like that in the space, and what your intentions are?

You and I talked about this a little bit before, back in November, but now that we're six or eight weeks later just kind of curious have you updated your plans on how much equipment you might hold on to, that type of thing?

Yes, we have not changed our plan from probably what we've discussed that you're -- you know, the previous discussions.

We're bringing in about a 10% increase in our tractor fleet in the first quarter of this year.

They're actually trade tractors, we don't have any for growth, and we're going to hold on to those trades, so that will give us about a 10% cushion parked against the fence.

And the same thing for trailers.

Okay.

So the same thing?

The trailers will take a little bit longer.

Okay.

All right.

Very good.

Thanks for your time, guys.

Thank you.

We'll go next to Justin Yagerman, Wachovia Capital Markets.

Hey, good morning, guys.

How are you doing?

Good, Justin.

How are you?

Good.

Wanted to ask you a couple of questions here.

On the heavier weight shipment and I mean a lot of your competitors are seeing their weight per shipment decline, it sounds attributable to an increase in truckload freight and maybe some of the LTL profile freight, as well, as you said.

But is that something that you're directly out there marketing in a big way, and I mean at least on the truckload side is that someplace that you're gaining a bit of traction relative to your competitors, do you think?

I wouldn't say so.

The -- we're still having a significant increase in spot quote shipments this year, and the spot quotes, I think it's just a sign of the times, the shipper has an 8,000, basically anything over 5,000 pounds they're tending to call around to see if they can get a better deal than their current price levels dictate.

And our average spot quote shipment weighs in the 8,000 to 9,000 pound category, and I think they're about double this year versus where they were last year, the quantity of shipments.

Yes, if you -- just to be specific, during the quarter, Justin, our volume was the 8,000 to 10,000 pounds went from 13% of our total tonnage, it's only about 3%, 4% of our revenue but it's about, last year, but 13% of our tonnage, it went to 16% of our tonnage, and 6.5% of our revenue.

So although it's still only 85% of our tonnage roughly or 16% it still has a meaningful impact on the weight per shipment since it's around 8,000 to 10,000 pounds.

Another factor in this thing, too, is probably, I don't know what total impact it has, but our Container Division grew nicely, and those shipments weigh 25,000 or 26,000 pounds.

We have changed up our leadership and our management of that Division almost two years ago, and that team is just doing a great job of growing that business in excess of the growth rate of the Company.

So that's impacted it just a little bit.

Yes, as far as that 13% to 16%.

But that's about the only thing that we've, if you want to say we've marketed better, it's probably the Container Division.

The rest of it is just sort of a natural what's going on in the market, I'd say.

That's fair.

Curious, I mean when I look at your performance throughout the year, you guys have had better tonnage experience, stayed positive longer than most of your competition, but in fourth quarter the drop-off in the delta on a sequential basis is fairly severe.

What changed as we went from third quarter to fourth quarter, maybe that was more company specific to Old Dominion, as opposed to the industry?

Did you have a significant segment of customers that fell-off and started to dip into that decline?

Where would you actually identify that tonnage drop-off, because I mean you really were much more resilient, I'd say, than the competition for the duration of the year, and still obviously lower declines than a lot of the other guys who have reported out there so far?

But nonetheless the drop-off in Q4 was fairly dramatic.

We don't have our regional changes yet to be able to say if it's one region of the country or another.

But, in general, Justin, it's been across the board everywhere, and what you've seen with our tonnage decline is purely economic, it's not any fall-off of certain customers or segments of the business or anything like that.

Justin, in the third quarter, I guess where you're getting to, our tonnage was up in the 5%, 5.6% range, and in the fourth quarter it was down 5%, so it's a 10 percentage point spread, and your question is that deeper than the competition?

I know I haven't made that calculation but anecdotally we balance pricing against tonnage.

Yes.

And we've chose to be disciplined on pricing.

Now, anecdotally have we given up any tonnage as a result of that?

Maybe, maybe not, but you've got to look at the results.

Oh, absolutely, I mean and they do speak for themselves.

But I guess what I'm wondering about is from a pricing standpoint you guys have been very firm in saying that you won't go out and underbid to win business, and I don't think that you guys do that.

But what I would think is that maybe you out-operate your competition and as a result your pricing is lower and making you more competitive in a lot of the markets that you go into, which has always been to your benefit.

But are you seeing now industry pricing come down to a point where that competitive factor is getting diminished because you've got competitors out there who are just willing to run at a loss?

Well, one of your points that you just made, I think we are a low cost, high service provider, and that does win customers.

So one of -- another metric that we have is a market share metric that we watch from a national traffic database, and the universe of carriers that report to that, their volume both in shipments, tonnage, and revenue was off worse than ours.

And consequently our market share did increase.

So we're kind of tracking with the group but not as bad as the group.

I'm not sure if that totally answered all of your points.

If you look at our revenue per hundredweight and less, exclude fuel surcharge just for comparable purposes, in the second quarter our revenue per hundredweight was lower than it was in the fourth quarter, so we've done a good job maintaining price stability and that was the basis of our comment.

So that in the fourth quarter of '08 our revenue per hundredweight was actually better than both the third quarter and the second quarter.

So I think whatever we're giving up in tonnage we're making back in price stability and trying to maintain margins.

And we just firmly believe in that ratio that we talked about on price versus tonnage, that it's better, I mean declining price, a declining tonnage environment, if you want to maintain your profitability you'd better keep your prices right.

We get feedback from our sales force of discounts out there that are double-digit discounts out there in the market.

And, my gosh, our formula is if you price, reduce your price 1% you need 3% to 4% more tonnage just to breakeven, so that kind of implies a 10% additional discount, does that mean you need 30% to breakeven, of more tonnage?

Well, that's not possible in this environment, so it just seems to be crazy.

Let me elaborate on what he just said.

There's a particular carrier out there who is offering a 12% discount off the current pricing of any carrier of the YRC Group.

Now, that's just sort of a blanket thing.

They're faxing this, some letter of intent out to customers, and YRC has been cutting prices to try to survive and get their -- keep their tonnage that's been falling off, they're trying to keep their tonnage up, so that's 12% off of already low pricing.

How can you go another 12%?

Yes.

But with our rational that it takes 3% to 4% of tonnage to offset 12, hell, they've got to grow their tonnage 40% to offset this thing.

So, to us, that's financial suicide.

No, that's a fair point, and I appreciate all the color on what's going on in the industry.

It sounds like it's very, very competitive.

Wes, on the purchased transportation line, it looks like you guys have gotten a nice amount of leverage, is most of that fuel or are you getting better pricing with your inter-line partners, or just handling more regions yourself in this type of an environment?

Principally it's -- in that line is our container operation, which is all lease operators.

Yes.

The rest would be cartage and any line haul or rail that we'd be using, and although containers are a slightly higher percent, the other we are using more of our own equipment, so that's significantly reduced.

Got it.

And I guess not to harp on it, but was the last week of December just extremely strong from a tonnage standpoint, not necessarily -- you mentioned $2.5 million more revenue for six months, but the delta between the 6% to 7% guidance and the 4.9% that you guys ended up with is fairly large to make-up for in a week.

I mean was--?

Hey, Justin, I can't help but laugh -- strong, business sucks out there, there isn't nothing strong about this market.

Yes.

All right.

Fair enough, guys.

I appreciate all the time, and thanks for answering the questions.

Okay, Justin.

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

Hey, David, Wes, and everybody else.

Wes, you talked about how you thought that you may -- needed to have increased the reserve, but the audit went well, I guess.

But when I look at your expenses, insurance and claims was 4% of freight revenues and, more importantly, in an absolute dollar sense was $11.5 million, and it's been between $7 million and $8.5 million in recent quarters -- was that not a reserve adjustment there?

It was, but it was offset by a positive adjustment in workmen's comp, it's actually part of fringes, so that in essence is washed out.

Okay.

Okay.

So but workers comp would be in the SW&B line, right?

It would be, yes.

So were you also thinking that you wouldn't have gotten that workers comp or were you thinking you were going to have a big increase in your bad debt reserves?

Combining all of them together we expected the possibility of a negative.

Okay.

And how it turned out was there was a negative in the BIPD, it was in the insurance line, but that was offset be a positive in the workmen's comp line.

Yes.

And so on the BIPD was that new accidents or just truing up reserves on prior incidents?

It's truing up reserves based on actuarial computations.

Okay.

And then what was your bad debt expense during the quarter?

Bad debt experience as a percent of revenue -- well, I haven't calculated that number.

I'll have to get back to you on that.

Yes, yes, I was just curious, because when you're in a recession I just want to keep track of that stuff.

And then cargo claims had been going really well.

I didn't -- I don't think I heard you guys explicitly talk about that percentage this quarter.

How'd that go?

It's still very good.

I think we ended our claims this year at like a 0.86 and the last six months of this year was a 0.92, and that even includes, and that's with less fuel surcharges, a whole lot less in the last couple of months.

So we're still a sub 1% on our claim ratio, and versus last year we're about a 29% improved claim ratio.

Okay.

And weren't you like 0.6 mid year, or that's just the whole fuel revenue surcharge?

Well, that was at the peak of fuel surcharges.

So as a percent of revenue it's influenced by that number.

Sure.

Okay.

And then back to Justin's question on the operating supplies and expenses, I know in the 2007 10-K diesel fuel cost including fuel taxes were basically about 14% and 13% in '07 and '06 of that ops supply line.

What was it in 2008 or just as good even in the fourth quarter?

Fuel surcharge and percent of revenue?

No, the fuel cost, including fuel taxes in '07 that item was --

We don't get that specific in our numbers on that.

Okay.

But you'll probably have it in the 10-K, I would assume, because you've had it in the 10-K in recent years?

I can't give you those numbers off the top of my head.

Okay.

I mean what are your thoughts on the GRI?

Last year everybody went as early as they'd gone in a decade or more, a lot of February GRIs.

What's your thoughts right now?

We're planning on taking one.

We have not decided the exact timing, but it's coming fairly soon, but we're going to give our customers a warning, an adequate warning before we implement it.

And any sense whether it would be comparable to, less than, or greater than last year's?

I'd rather not say right now, but we'll just have to wait and see what the, until we make our announcement.

Okay.

I think that's it.

So, guys, thank you very much for the time.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS.)

We'll go to Ed Wolfe with Wolfe Research.

Hi, good morning, guys.

Good morning.

Good morning.

Can you just give the trends of the yields net of fuel?

They were a negative [1.4].

I know there's a lot of mix and stuff for the quarter.

How did that play out through the months, kind of like you did the tonnage?

You say net of fuel?

Yes.

They're positive 1, I'm sorry, minus 1.

Revenue per--?

Yes, rev per hundred, net of fuel?

I'm looking for it.

Thanks, Wes.

Go ahead and ask another question.

I'll get back with you on that.

Sure.

David, can you talk a little bit about whether there's much of a difference in the competitive nature of the markets either in long haul versus regional or some parts of the country geographically versus other?

Nothing significant has really changed there.

We compete in all of the markets, regional, interregional and long haul, and have service basically throughout the United States in all those markets.

Now, so.

That's why I'm asking, I mean are you seeing a difference in any of them?

Now, you know, in what way?

Do you mean from a service or transit type standpoint?

No, from the pricing, are certain products, either the long haul or the regional right now more competitive?

I think everyone across the board is scraping for freight and price competitiveness is out there.

Maybe some of the small regional players might have a little bit less overhead and can price a little cheaper than some of the larger carriers can, but there's no -- I'd say there's no real regional differences.

Not worse in the Midwest, for instance?

No, not necessarily.

Did I imagine it, or did you used to -- you said 3% to 4% tonnage to offset 1 percentage of price, didn't you use to say 5% tonnage?

Have you gotten more efficient?

We did revise the calculation based upon the '08 numbers as opposed to the '07 numbers when we made that statement before, so the fact that our labor, despite the fact that the fuel cost is down consequently, which would place an upward pressure on direct cost as a percent of revenue, we still improved our direct labor as a percent of revenue in the fourth quarter, so that would have an affect on efficiency.

And we have implemented technology and to monitor and, as David had already mentioned to our operating folks, they just done a terrific job controlling labor.

So to answer your question, yes.

I just wanted to make sure what I was hearing.

And, by the way, on the quarterly, on the monthly, it was fairly consistent throughout the quarter as far as the percent change excluding fuel surcharge month by month.

So December and January you were down about--?

I would say that maybe a little bit higher in December but it stayed consistent in October and November, about 1% and went up to about 1, a negative 1.7% in December.

And January is similar?

January, we haven't calculated that number yet.

Okay.

Thanks for the time.

I appreciate it.

Okay.

Thank you, David.

And we'll take a follow-up from Jon Langenfeld with Robert W.

Baird.

Can you just talk a little bit about the cost initiatives in place and maybe magnitude and how far into the quarter were you before you implemented those?

Well, Jon, first of all, we manage cost and have been managing cost and productivity aggressively all along, and that's why, a major reason why our operating ratio has led the industry for the last several years now.

So managing costs is just something we do all the time, but as we were seeing trends coming off of the summer, the declining trends in tonnages and shipments, in August, September, just October, November, all the way through the third and fourth quarter, we took appropriate steps to adjust to those new tonnage and shipment levels.

So, and that's why our results have been what they are.

But nothing that you see as additional layoffs or major cost initiatives that, anything out of the ordinary other than just scaling the business for the -- to meet the volume environment?

That's basically what we've done, and I feel like we're in pretty good shape with our quantity of people on the payroll, and the control of hours and things like that.

Now, obviously if the economy is to fall-off further, if we go into some kind of a spiral into a depression that would dictate some action.

But we're just managing the day-to-day of blocking and tackling.

Great.

And then, Wes, do you have the cash number at the end of the year, and then cash flow from operations?

Our cash was around $28 million, and we got -- I can't give you off the top of my head the cash flow from operations.

Okay.

Great.

Thanks a lot.

And we'll take a follow-up from Jason Seidl with Dahlman Rose.

Hey, guys.

Back to comments on the GRI, I kind of recall last year you guys had fairly good retention of the GRI as you moved throughout the year.

Regardless of when you announce it and also regardless of sort of what levels you try to announce this year, do you anticipate that it might be a little bit tougher given current market conditions to maintain the GRI as you flow throughout 2009?

It would stand to reason that it might be a little tougher to maintain it, but we believe that the fact that we have such a high level of service and broad ranges of services and our value proposition is so good that our ability to retain price increases, unnecessary price increases will be good.

Okay.

Appreciate the color, guys.

Thank you.

And we have no further questions.

Okay.

Well, folks, you can see from our results and the discussion that we had today that we are clearly differentiated from the LTL group.

We have got rock solid blocking and tackling going on.

No issues, and in our opinion nothing in our way of continuing to pursue our long-term strategies.

And, again, to our Management Team, I want to thank you guys for making these results possible, and thank all of you analysts and investors for your questions and support of Old Dominion.

Feel free to give us a call if you have any further questions.

Good day.

Ladies and gentlemen, this concludes today's conference.

We appreciate your participation.

You may disconnect at this time.