奧多明尼昂貨運 (ODFL) 2009 Q1 法說會逐字稿

Good morning, and welcome to the First Quarter 2009 Conference Call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through May 2 by dialing (719) 457-0820.

The confirmation number for the replay is 6923401.

The replay may also be accessed through May 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 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.

Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

At this time for opening remarks, I'd like to turn the conference over to the Company's Executive Chairman, Mr.

Earl Congdon.

Please go ahead, sir.

Good morning.

Thanks for joining us today for our first quarter conference call.

With me is David Congdon, our President and CEO, and Wes Frye, the Company's CFO.

We each have some brief remarks, and then we'll be glad to take your questions.

The first quarter, as you all know, was an extraordinary period by almost any measure.

With this said, we want to recognize the tremendous efforts of people throughout Old Dominion, who, together, enabled us to produce $4 million in profits in a quarter in which tonnage declined 12.4% and revenue by 19.8%.

In this environment, we think our performance and the strategic decisions and the long-term advancements and operating philosophies that led to it clearly demonstrates our fundamental strengths.

The first quarter was characterized by the worst pricing environment we've ever experienced.

And it provided a true test of our commitment to pricing discipline.

David's going to add some more color about pricing in a few minutes.

But let me say that the stable pricing we achieved for the first quarter is tangible proof of our commitment.

We expect that our yield management discipline may have cost us some tonnage in the first quarter, and it may going forward too.

But, in our analysis, price discipline was a major contributing factor to our profitability for the quarter, and we believe our results will compare favorably to our peer group when all companies have reported.

Our first quarter operating ratio demonstrated that our operating fundamentals remain very strong.

Although it was impossible to fully counter the decline in tonnage, our estimates show that improved efficiency and productivity did make a significant difference in our results for the quarter.

For instance, we produced a 3.5% increase in line-haul, laden-load average for the first quarter, a 3.4% increase in shipments picked up and delivered per hour, and an 8.7% increase in platform LTL shipments handled per hour.

Through these improvements, we were able to actually reduce our direct variable cost as a percentage of revenue.

These improvements are even more meaningful, considering they were achieved without reducing our high service standards.

We successfully maintained nearly 99% on-time service performance and safety and cargo claims records at industry-leading levels.

Keeping our promise of on-time, claims-free service not only consistently differentiates Old Dominion in the market, but it is an essential element of our strategy to maintain and improve revenue yield.

To take advantage of industry consolidation opportunities, we have maintained assets and a strong balance sheet to respond aggressively, whether through acquisition or capturing new business from distressed competitors.

We have trimmed our operations to a degree that incremental volume increases should drive substantial operating leverage.

With our eye on the future, we continue to expand capacity and enhance our geographic footprint through the steady relocation of service centers into larger centers and the opening of two additional centers during the first quarter.

We have also completed a substantial part of our planned equipment expenditures for 2009 and are ready to respond to market opportunities.

In closing, we believe we are managing well through the economic downturn and are continuing our long-term record of outperforming the industry.

The industry dynamics and the Company's specific strengths that support our performance remain both valid and compelling and will enable us to extend our record growth in a stronger economic environment.

So thank you, again, for your time this morning.

And now I'll ask David Congdon to continue with our prepared remarks.

Thank you, Earl, and good morning.

Most of you joining us today are familiar with Old Dominion's strong commitment to profitable pricing as an essential element of our ability to provide our customers the most comprehensive, highest-quality service.

In fact, we have repeatedly discussed our philosophy of not willingly or knowingly offering lower prices to win new business.

Although we defend existing customer relationships against price competition, we believe that cutting competitors' prices to achieve volume undermines our value proposition that has taken years to create.

The impact of the economic downturn has, no doubt, increased pricing competition.

In every meeting we have with analysts and investors, we are always asked - Tell us about the pricing environment.

Are there any irrational players out there?

Is it more competitive regionally or nationally?

We've usually had answers based on general, anecdotal evidence from our sales force and yield management departments, but we've decided to take these questions a step further with a survey that I want to talk about.

Last week, we conducted a survey of our entire sales force, broken down into eight regions of the country, as well as a separate survey with our pricing and yield management departments.

The surveys were designed to provide us information about carriers serving next-day and two-day lane markets and larger, inter-regional and national carriers serving longer-haul, two- to five-day lanes.

Obviously, due to our operating infrastructure, we compete in all of these markets.

For each segment, regional or long-haul, we asked our sales force, based upon their discussions with customers, to pick three carriers that are the most likely and then three that are the least likely to have the cheapest pricing programs, as well as three that had the best and then three that had the worst overall service value.

We went on to ask what is most important to customers between price and service in today's environment versus a normal economic environment.

And, lastly, we asked an open-ended question of how they saw the pricing environment.

We did the survey for three reasons.

First, we want to more intelligently answer your questions.

Second, we want to validate or invalidate our yield management and service philosophies.

And, third, we were anxious to correlate the carrier rankings in this survey with their respective financial performance.

Well, first of all, price competition is happening in all eight regions on both a regional basis as well as an inter-regional, long-haul basis.

Our suspicions of low-price leaders, as well as price-disciplined carriers, were confirmed.

And there is a lot of irrational pricing going on out there.

Although it will be a while before we have all the carrier results for the first quarter, it will be interesting to note a correlation between our survey and the first quarter financial results, understanding, of course, that financial results are influenced by factors other than price.

We were pleased to find the overwhelming support our sales force gave our pricing discipline philosophy and practice.

They all seem to recognize that our philosophy is driving profitability at a time when industry expectations are that many peers will post operating ratios north of 100.

They also see from firsthand experience that, instead of the lowest price, it is our ability to keep our promises to our customers and to maintain our high service standards that are key determinants of our relationships.

Despite the pressure brought on by intensified price competition, our sales professionals urge us to stick with this philosophy, which they feel is the right thing to do.

Given the combination of stable pricing we achieved for the first quarter and our positive margins, we certainly agree.

In closing, let me again summarize our Company's specific strengths that differentiate OD in this market.

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

We have no operational or integration issues like many of our industry competitors are facing.

Despite the economic environment, we continue to invest in the Company, creating new value-added services and employing the latest technology that allows our dedicated, non-union employees to produce industry-leading, on-time service, safety, and cargo records.

We expect that these investments and our demonstrated operational controls have enabled us to again produce the LTL sector's best operating margins for the first quarter.

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

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

Finally, we expect to continue to benefit from our well-seasoned management team and the hard work and determination of our entire OD family.

We are committed to our proven, long-term strategies, although the current environment may continue to test some of our courses of action.

Given this environment, 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 in earnings and shareholder value.

Now I'll ask Wes to review our financial results in more detail.

Thank you, David, and good morning.

Old Dominion's revenue for the first quarter was $295 million, a decrease of 19.8% from the first quarter of 2008.

This decline primarily resulted from a 2.4% decline in tonnage for the quarter.

That's 11.1% on a per-day basis, since there was one less day in the current quarter.

This reduction was the result of 17.5% decline in shipments, offset by a 6% increase in weight per shipment.

With an 8.8% decline in revenues per hundred weight primarily related to decreasing fuel surcharges, revenue per shipment declined 3.2%.

Revenue per hundred weight, excluding fuel surcharge, declined 1% for the first quarter, which, considering the negative impact on revenue per hundred weight of the 6% increase in weight per shipment, essentially gave us pricing that was stable with the first quarter last year.

As a result, revenue per shipment, excluding fuel surcharge, increased 5% for the first quarter.

Our operating ratio for the first quarter increased to 96.6% from 94.3% for the first quarter last year, primarily due to the deleveraging effect of lower tonnage for the quarter.

To reduce this impact, we were able to control direct variable movement costs to appropriate levels for the reduced volume.

To achieve this, we were successful in continuing to improve our operating efficiency and productivity in our line-haul dock and pickup and delivery operations.

These improvements helped us lower variable costs as a percent of revenue by 80 basis points for the quarter compared to the same quarter last year, net of the lower revenue due to lower fuel prices and, thereby, lower fuel surcharges.

Most of the 230 basis points increase in our first quarter OR compared to the previous year was a result of the deleveraging effect on reduced volumes against certain fixed costs.

More specifically, depreciation on tractors, trailers, and real estate was up 150 basis points, in part, as a result of the frontloading of equipment purchases during the first quarter.

Also, salaries were up 70 basis points, although we did reduce these costs to the extent we believe practical.

Net CapEx for the first quarter was $77 million, which represented over 40% of our planned capital expenditures of $190 million for 2009.

We intentionally frontloaded these expenditures, especially our equipment purchases totaling $46 million, to add the capacity to respond to industry consolidation opportunities.

Should these opportunities not materialize during the year, our spending this year will reduce the equipment expenditures we need for 2010.

During the first quarter, we also continued to expand our service center capacity through opening two new service centers in Columbus, Georgia and Cheyenne, Wyoming.

And we relocated nine service centers to large facilities.

These moves and other real estate expenditures totaled $30 million for the first quarter.

Of our total $190 million CapEx plan for 2009, we continue to expect expenditures of approximately $90 million for equipment, $85 million for real estate, and $13 million for information technology.

We also expect to fund most of these expenditures with operating cash flow.

Because of the disproportionate expenditures in the first quarter, our debt to total capitalization increased to 32.6% at the end of the quarter from 31.1% at the end of 2008.

We project our total debt to total capitalization to be between 32% and 34% at the end of 2009.

We continue, however, to have ample liquidity with available borrowing capacity on our unsecured revolving credit facility of $150 million.

And I'll note that this facility does not mature until August of 2011.

Our effective tax rate was 39.3% for the quarter, and we project that it will remain at this same percentage for the remainder of the year.

And this concludes our prepared remarks this morning.

Operator, we'll be happy to open the floor for any questions at this time.

(Operator Instructions).

Tom Wadewitz, JPMorgan.

What's your sense of, I guess, the trend in tonnage.

I don't know if you mentioned this.

I missed a little bit at the beginning of the call.

But the trend in tonnage, by month, in the quarter?

And any sense of potential improvement as you look into April and what customers are telling you looking to second quarter?

Our trend in tonnage sequentially through the quarter, year over year, actually got worse.

It was 10% in January reduction in tonnage, 10.4% in February, and increased to 12.7% in March.

So we saw further deterioration in March, although, sequentially, the tonnage got better on a per-day basis throughout the quarter.

But, year over year, the percentage of decline increased.

In April?

Well, in April, we're not seeing any improvement.

We're still seeing tonnage declines in the double-digit-- in the 10% to 12% even in April, year over year, although sequentially in April it looks like it's back to sequential trends for March.

But, of course, the sequential trends for March, March not being very good, we don't attach that to any positive trend, for the most part.

Did you--?

I would have expected, potentially, for March to actually get a little bit better in the national side.

Did you see that, obviously, in reference to the integration activity in the Yellow and Roadway networks?

It sounded like they thought they lost some share and had some diversions.

Did you see any of that business come over, or was that just not a factor?

Actually, in the longer length of haul, we did see an improvement in the longer length of haul, offset by continued price competition in the regional market.

But we did see improvement in our longer length of haul year over year as far as the tonnage decline.

And our average length of haul increased from where it was in December.

We had an average of about 895 miles, and it went to 917, 932, and then 933 miles in March.

So we did have a slight increase there in length of haul.

So do you think you actually had some business that came from YRC in the national side?

And, if so, does that business look like it's sticky so far?

We did.

But due to the price competition, we've had it come in the front door and go out the back door due to some of the irrational pricing that's going on in the market.

Okay.

And do you see--?

I guess, as you look also through the quarter, do you see signs that the pricing is stabilized at this level?

Or do you think pricing out of the competition and the result of that hasn't necessarily bottomed?

Well, that remains to be seen for the quarter.

At least, through April, we still see a fairly stable pricing environment.

For ourselves.

For yourselves it's stable.

But do you think the market has stabilized or not necessarily?

I don't think so.

Right.

Okay.

All right.

Well, good performance in, obviously, a very tough market.

I appreciate the time.

David Ross, Stifel Nicolaus.

Can you talk a little bit about how you're managing your labor through this downturn, with tonnage down so significantly?

It looks like you haven't taken any wage reductions.

Do you think you've been appropriately minimizing hours, or have you laid a significant amount of people off?

Well, David, since our peak employment back in September, we have reduced headcount approximately 13%.

And we have reduced hours on the remaining folks that are on the payroll.

But, overall, our labor cost to revenue, ex fuel, is better than last year, and that's because of the day-to-day control and management of our expenses and gauging our labor to the tonnage volume.

So we're really proud of the job that our team's done and also proud of our employees for doing what they're doing to try to be more efficient with their work.

I mean, it's a total team effort to keep our costs in line.

That sounds great.

Also, if you could comment a little bit, I guess, on the different regions in which Old Dominion operates-- I know it's a seamless network, but there's also certain geographical regions where you have more or less density.

What are currently, I guess, the most competitive regions, and are those in your highest-density areas or lowest-density areas?

Competitive in what way?

In terms of pricing right now.

It's competitive everywhere.

In this survey that we've done, we carved the country up into eight regions the way that we have the Company managed.

And, when you look at the larger, multi-regional, national competitors, they were in every survey that we looked at.

But then, in each specific region, we looked at the small, regional players with whom we compete.

And it's just-- The pricing competition appears fairly even across the whole nation.

Every region has small, regional players still out there with generally the lowest prices.

You have some of the-- just a couple of other players whose name pops up all over the country, both on a regional and a national basis as a low-price competitor.

So, I guess when you talk about the competitive regional players especially, historically you've done a good job of little tuck-in acquisitions here and there to fill out the network.

Would you characterize this environment as being good for acquisitions because of potential low prices for players, or would you consider it may be bad for acquisition because you can't really take on the business at their price?

The atmosphere is probably better, but that's not to say-- There's not a long line of sellers waiting to dispose of their companies, in our opinion.

And finding something that really fits is not all that easy.

But we are in a great position to make an acquisition should something become available.

Thank you very much.

Jon Langenfeld, Baird.

Nice quarter.

When you think about your competitors, and maybe you see this from your salespeople but-- Do you think there's a bigger element of your competitor's price over the last year that's been gained through the fuel surcharge and so the pricing pressure that they're trying to go through and experience is trying to recoup what they've lost in the fuel surcharge?

I'm not sure I'm following.

Are you saying, since there's a lower fuel surcharge because of lower fuels, has there been an accelerated effort to increase base rates?

Yes.

I mean-- Well, I guess the question is that the pain that maybe your competitors are seeing versus yourself might be rooted in the fuel surcharge, because I think over the last couple years you've said - Look, we have not seen the fuel surcharge as a big source of profit, whereas I think your competitors definitely have.

So I'm just trying to parse out maybe some of the relative gains here.

With the pricing strategy you have, you maintained more discipline over the last couple of years with rising fuel prices than your competitors?

John, I think that all the carriers have had to strike a balance between base rates, discounts, and fuel surcharges.

And it's hard to make a hard, fast statement that they're-- It's hard to answer your question - to say that other people have addressed it differently than us and are feeling more pain over fuel, because, in the marketplace, with every account that you deal with, there's a mix of base rate, discount, and fuel surcharge.

And to get a competitive price between OD on the one hand and Carrier XYZ on the other hand, we're pretty much in the same ballpark with the competitors on the pricing formula for various accounts.

And do you think--?

When you have your rate discussion with customers, from your perspective, is the rate conversation easier because fuel prices are a lot lower today than they were a year ago?

I don't think there's such a thing in this market as an easy conversation.

But our model looks at the overall profitability of the account.

And so we don't necessarily make a distinction about what's fuel surcharge and what's base rates.

We're looking at trying to get the improvement in the overall profitability, and that's negotiated points between base rates and fuel charge.

And operating characteristics.

And operating characteristics.

In some cases, it could be that we're getting delayed at delivery or delayed at pick up.

And so, if you can address those issues, you can make the account more profitable by just being able to handle the account more efficiently.

We try all of the above to try to improve the yield of any customer.

And do you have any guesses as to what the pricing pressure is out there for the broader industry?

If you guys are flat, I'm assuming that's probably the best of the group.

What do you think the general pricing environment looks like?

The transportation people with our customers are under tremendous pressure from upper management to save money.

We all know that this economy is putting pressure on everybody.

So the pricing pressures are horrible.

Would you have a guess as to how--?

Are we talking 5% or 10% for the broader market?

I'll share a statistic out of our survey with you.

The weight of price versus service today is 80% price and 20% on service.

And, if the economy were good, it was 52% to 48%, I think - 52% on price and 48% on service, if the economy were good.

So that gives you sort of a relative picture of how important price is to shippers today.

And, yet, if the tradeoff is horrible service in order to get a wonderfully low price, they can't live with horrible service.

So they really are wanting at least decent service along with the low price.

And have you seen the anecdotes, at least within your book of business, where customers have gone away here on these rates and have come back because of service yet?

Or is that still yet to come?

It happens every week with us that customers leave us for price and come back for service.

Got you.

Okay.

Well, good job, again.

Thank you.

Jason Seidl, Dahlman Rose.

I jumped on late, so I apologize for asking this.

Did I get this correct that tonnage was down 10% in January, 10% in February, and 12% in March, or did I mishear you?

No.

That was correct.

Then how did you end up down 12% for the quarter?

I guess that's what I'm not calculating in my head here.

Well, the numbers, individually, are per day.

We were down 11%.

Oh, okay.

that's on a per-day basis and not on an absolute basis.

Okay.

That makes a lot more sense now.

And when you talked about April being down 10% to 12%, that's on a per-day basis as well, or is that absolute?

Yes, it is.

That's on a per-day basis.

Okay.

That's good.

Earl, I appreciate the commentary and the thoughts on the pricing market from you.

You've seen a lot of cycles in the LTL industry.

On the bid packages going forward for the industry, are you expecting even more pressure?

And do you think you guys can sort of hold the line, especially given those survey results that 80% of the shippers care more about price than service?

The pressure is out there.

We don't see any relaxation as yet.

The transportation people, as I said, are under tremendous pressure to save money everywhere they can.

But, yet, they don't want to leave us and take a chance on really poor service in order to make a substantial savings.

So they're weighing whether to stay or leave.

And they'll try to squeeze a little bit out of us in order to be able to stay with us.

Those negotiations are going on on a daily basis.

If anything, we'll be feeling pressure to give some small reductions in order to protect the business base that we currently have.

Okay.

That's good color.

And this question may be more for David.

Have you guys sat down and assessed the impact of what General Motors is doing to sort of the supplier business that you guys may haul?

No, we haven't needed to assess it.

We actually do not participate in much at all of their inbound supply business.

Okay.

That's very good.

Listen, gentlemen, I appreciate the time, as always.

Edward Wolfe, Wolfe Research.

Why has shipment size been going up not just for you but for all the LTLs throughout all of '08 after being down in '07?

Typically, when the economy shrinks, so does shipment size.

Yet here you were up 6.6%.

How do you explain that?

Ed, it's a couple of things.

One, we saw last year a tendency for shippers to combine shipments in order to get a lower overall revenue per hundred weight.

That was part of it.

Secondly, the spot quote activity going on out there-- If shippers have anything over 5,000 pounds, regardless of what their current pricing arrangement is, they are tending to call in and call around for a spot quote and a cheaper price.

And those shipments-- The spot-quote shipments in our book weigh somewhere in the 8,000- to 9,000-pound category the last time I looked.

And our overall statistics also include our container division.

Wes, did that have much of an impact on it too?

No.

The change in that wasn't that great.

But, certainly, the demographics of our weight mix had an influence on that 6%.

But even when you go underneath and just look at the LTL and exclude all the volume shipments, we were still up.

Our weight per shipment was still up during the quarter, over quarter , over

But that was LTL, meaning less than 10,000 pounds.

Less than 8,000.

It excludes the spot quotes.

If your spot quote's normally 8,000 or 9,000 pounds, what's your non-spot average weight?

Our spot quotes average-- In fact, in the quarter, specifically, it averaged 8,600 pounds.

How about your contractual weight - your non-spot?

What was that?

Contractual is 1,560.

And then when you look at our tariff, it's 1,124.

So you combine all that and you get our average weight overall.

But even when you exclude all the volume-related, which would include spot quote volume, container, our average weight for LTL was 1,443 pounds compared to less than 1,400 for same quarter last year.

So it was still up, actually, 3.1%.

When I do the math, Wes, it looks like, unlike all your competitors, you weren't really hurt by fuel year over year this quarter.

Is that because you're buying it more in bulk?

How do we think about that?

Well, certainly 80% of our fuel purchase is in bulk.

But I would imagine most of the LTL carriers certainly have fueling facilities at their locations and would have a high percentage of bulk capabilities as well.

I don't know what it is.

But at least 80% of ours is bulk purchases.

And we do have a slight price from the-- compared to the retail.

But one of the factors that improves our fuel expense is we had several programs of improving miles per gallon, and we've had some success in that year over year.

Am I looking at that right - that year over year there's not much impact one way or the other from fuel when you add it all up?

You mean fuel and fuel surcharges?

When you-- the lower surcharge and the lower cost kind of balanced out relative to a year ago.

I would say that there has been some impact from the lower fuel on overall spreads.

And it's-- The lower fuel has caused some negative impact during the quarter compared to the first quarter of last year.

Can you quantify that?

Excuse me?

Can you quantify it?

Is it more than a couple pennies?

I haven't calculated it, so I'd hate to put a number out there.

Okay.

As you go out-- As the pricing pressure around you is great and, in second quarter, you got an Easter comp that's tough versus a year ago and the fuel headwind becomes tougher versus a year ago, how do you--?

For operating ratio, normally, seasonally, second quarter is a better quarter than first.

But with all those other inputs-- You know, UPS just gave guidance, for instance, that second quarter's going to be worse than first, which usually isn't the case for them.

How do we think of the seasonality versus the headwinds from fuel, Easter, pricing?

Well, we haven't given guidance and don't intend to give guidance for the rest of the year because of the lack of visibility.

But, certainly, historically, the second quarter operates for us 200 or 300 basis points better than the first quarter, just from seasonality.

What it will look like this year will be based on the ongoing sequential tonnage trends, which we still don't know yet.

And the weather makes a big difference too.

That should help the second quarter versus the first quarter.

Correct.

Okay.

Thanks for the time, guys.

And, on a relative basis, my god, terrific job.

David Campbell, Thompson Davis & Company.

I wanted to ask you about your other revenues - your logistics revenues and so forth.

Can you quantify them?

How much was it up or down versus the first quarter of '08?

Logistics were up slightly.

But it's still such a small portion of our overall, at this point, it still doesn't have a material effect on either revenue or earnings.

You don't expect to have any material effect in 2009?

Probably not.

After all, we were pretty much in a global recession here.

So we expect that to reflect not only the economic environment here but globally as well.

And what about increasing export activity in your container business?

Is that going to be a factor?

Well, certainly we did see last year in our export business from a container decline, so we don't expect that to improve at this point.

Actually, our container revenues are down more than our domestic revenues.

Right.

Okay.

Well, thanks.

Good job.

Thank you very much.

John Barnes, BB&T Capital Markets.

Wes, I think you talked a couple times in the past about kind of holding on to a little bit of equipment and maybe not getting too aggressive on costs yet, with the idea that maybe there could be some landscape changing event out there, like a carrier failure or something.

As you sit here today and that's obviously been delayed, where do you stand in terms of keeping those costs layered in now?

Have you begun to strip those out and kind of rid yourself of the excess equipment?

Or is the plan to kind of continue to maintain some excess, just in the event of-- of an event like that?

We added 10% in the numbers of units to our fleet this year, and they were replacement vehicles.

We have kept all of the trades.

They're propped on our yards.

We've got space for them.

As you know, used equipment values are not all that high right now.

So we intend to hold on until we see if there's going to be any industry consolidation, because we're in a beautiful position to take on a lot more tonnage and think it would be imprudent to eliminate the older units at this time.

But, as we mentioned in our prepared remarks, if there is no industry consolidation, we're in a beautiful position to reduce our equipment CapEx for 2010.

Also, we got a lot of engines for about $9,000 each - less by buying them in '09 than if we were to buy them next year.

But we are being hit with some added depreciation this year because of what we did.

In fact, if you were to eliminate that added depreciation, I believe our OR would be pretty close to what it was a year ago for the first quarter.

Keep it in mind that that equipment that's parked against the fence-- First of all, it's, for the most part, fully depreciated.

So it's not hitting the income statement in that way.

And, secondly, we didn't even retag that equipment.

So we didn't spend the money on the ongoing cost of tagging.

So it's not really costing us a lot of basis points on the OR to just keep it in reserve for any future opportunities.

Okay.

And then, from a personnel standpoint I know you've reduced headcount from the peak; I think you said 13%.

But do you have the drivers in place for that extra equipment?

How quickly could you bring it on if you needed to?

That's the tougher part of the whole equation.

But the number of hours per week that our people are working is down in the lower 40-- close to 40 hours a week.

And, if we needed to gear up by 30% and go to 52 hours a week, we could do that for a short range.

And we have a list of folks that we could call back to work.

And we've taken applications for employment also this year just to be able to bring people back on board as quickly as possible.

All right.

Very good.

All right, guys, nice quarter.

Thanks for your time.

Justin Yagerman, Wachovia Capital Markets.

I wanted to get a little bit of detail on the new terminals.

Interesting, you guys are probably some of the few buyers in the real estate market right now.

What are values looking like?

Are you getting relative deals out there on terminals in the marketplace?

And then, I guess, where are you sourcing these from?

Are they coming from competitors that are exiting out of certain geographies?

Well, we have purchased-- How many is it, Wes, of the YRC?

11 of the YRC properties.

But some of those properties were some prime properties that we purchased.

And I would say that the price that we paid for them was not a fire-sale deal whatsoever.

The attractive service center properties are still holding their value pretty well in the marketplace.

We did purchase a couple of facilities up in the Midwest from the failure of-- What was the little carrier up there?

Saginaw and Kalamazoo, Michigan were two that we're holding off on moving into until further notice.

We're serving the areas very well from other facilities.

But we're continuing to take advantage of opportunities we see out there.

So it's more strategic that you don't want to wait until someone was in a bankruptcy proceeding when you may not be able to get a hold of those or may not be able to get in quick enough to get them?

So you're securing the ones that you want strategically now?

That's correct.

In fact, through July, we have about six service centers that we're going to be moving into that will expand our capacity.

And we have one new service center that came out of YRC in a new city that we plan to go into.

But I don't want to talk about the specific cities right now.

Okay.

Keeping on that theme, when you guys talk to customers right now, is there a sales pitch with your sales guys?

You know, if this thing is actually going to happen and YRC could go out of business, you need to establish a freight relationship with us now?

You need to be in a certain echelon of customer in order to get the extra capacity you need if and when they go out?

How is that sales pitch going right now?

We've always said to customers that, in the event of any kind of major industry event, it's better to be on board with us because we're going to take care of our existing customers before we can take on brand-new customers who don't use us at all.

So it's important to come on board.

That's been kind of a pitch forever.

How quickly does pricing turn in that kind of a scenario?

And, if it is a contract customer, what are the--?

What's the ability to change pricing within that dynamic, if and when something like that could happen?

Generally, our pricing, Justin, is higher than YRC's.

And we have passed up numerous opportunities to take over some of their business at their prices, and we just won't do it.

So, if they go out, usually the pricing is already in with those contract customers.

And sometimes we already have a small share of the business.

And that business will come on to us in the event that they go out at our price and not at YRC's.

Got it.

In terms of competitive dynamic in the market, UPS put up a number in their tonnage this morning that looked like it was a bit better than the rest of the market.

I was just curious if you're seeing them as a more formidable competitor in some of the lanes that you operate in.

We haven't heard too much about UPS freight in the last couple of years.

And it just seems like they lost tonnage at a slower rate than many of their competitors out there this quarter.

So I was curious what your thoughts were on that.

Justin, they don't break out the supply chain and the freight, so it's difficult to really assess it.

Neither do they give you operating performances.

And, at this point, we don't know any of the weight characteristics and whether any of the freight that they've taken on was a diversion from UPS packaging in any way.

So it's hard to answer that question specifically at this point.

That's fair.

I guess I was just looking for something more anecdotal if you guys are seeing them in the marketplace in a bigger way.

No more than we have over many, many years.

They're out there.

They're a formidable competitor.

Okay.

And I guess a last, Wes, you talked about, I guess, the potential for being free cash flow neutral this year.

Just judging by what you guys are saying from your CapEx plans, it doesn't sound like that's likely unless the economy picks up or you do see a big tonnage windfall from a competitor exit.

Is that a fair characterization with the thought that your debt to total cap may rise a little bit this year?

Yes, that is.

But we don't expect our debt to cap to rise measurably; as I mentioned in my comments, maybe up to 32% to 34%.

And that's, again, in this market, a fairly aggressive CapEx that we think is there for opportunities, especially on the real estate side.

And we'll continue to look at that.

I would tend to agree with that.

Thanks a lot, guys.

I appreciate the time.

Tom Albrecht, Stephens, Inc.

Most of my questions have been answered.

I did have a question that may seem a little silly in the context of the rate discussions.

But is it fair to assume that most of the GRI has already been whittled away?

I would say that it pretty much has.

It would be my conclusion based upon the revenue per hundred weight for a [559-type] business compared year over year.

I'm trying to remember.

It seems like several years ago there was one year where carriers may have put in a second GRI.

Would there be any thought internally to trying to do that as we move away from the winter months where it's always a little bit trickier to make it stick anyway?

We have not considered that yet, Tom.

We would like to put one in every week.

I'll put that in your suggestion box when I-- Anyway, that's all I had.

Thanks, guys.

Stefan Mykytiuk; Pike Place Capital.

Can you just comment--?

Is the change in your operating ratio year over year impacted at all by the decline in fuel prices?

Well, certainly, yes, because-- Well, it's kind of offset to the most extent.

When you look at the cost of fuel, obviously, it's much lower because of decline in fuel prices.

But, since revenues also declined due to the lower fuel surcharges, if you look at the other expenses, they would have an increasing effect because of the lower revenue.

That's what I'm kind of getting at.

The numerator shrinks, but the denominator shrinks also.

But is there any way--?

In my comments when I talked about the increase in depreciation and the decrease in direct variable costs what I did was adjust that for the lower fuel prices so that you could see the real change, excluding the effect of lower fuel surcharges.

Okay.

I missed that.

So those changes year over year as a percentage of revenue you gave earlier were net of fuel?

That is correct.

So you can get a real sense of what the real change is and not influenced by the fact that they would have been up anyway because of the lower fuel surcharges.

Okay.

And then, in terms of your volumes year over year, are you--?

There must be some benefit from the fact that, over the course of the last 12 months, you've expanded the number of service centers.

Right?

I wouldn't say that the number of service centers in the last year have benefitted our tonnage materially.

Maybe the service centers added in the previous two or three years may continue to help us a little bit but not-- The most recently added ones have not helped.

They don't ramp that quickly.

And they're small too.

Okay.

Great.

Thanks very much.

Chris Ceraso, Credit Suisse.

Just one question here on the trucks that you mentioned.

So, you bought some extra trucks.

You're thinking that maybe the demise of a competitor is imminent.

But is it fair to assume that the longer that that doesn't happen you're going to have to struggle a little bit with some extra carrying costs for that equipment?

I want to make sure the characterization is correct.

We didn't buy extra trucks; they were all intended to be replacements.

What we did is the trade-ins we just kept and parked along the fence.

So it does, in effect, end up with extra trucks, for sure.

And I would also say we don't say the demise is imminent.

We just don't know any more than anyone else does whether-- how they're going to do.

It's just part of a contingency plan in the event that it happens.

But, certainly, as we've mentioned, 40% of our overall CapEx and more like half of our tractor purchases were already put on the books in the first quarter.

Certainly, that has a negative effect, especially on depreciation, where we saw depreciation just for tractors alone up an operating point compared to last year.

So going ahead and replacing those trucks and frontloading the CapEx and keeping the old ones-- That's not a signal that you think something is imminent?

It's a contingency plan in the event that something happens, and we don't know whether it's imminent or not.

That's anybody's guess.

Earlier in the call you had given some color on the volume trends month by month, so we could see how things looked at the end of the month.

Can you do the same on pricing on an ex-fuel basis for you?

I don't have it on ex-fuel.

What about with fuel?

On excluded, we did see-- Well, it's hard to look at it including fuel because during the quarter last year the price of the fuel was increasing, and this year the price of the fuel was decreasing.

So it's not necessarily meaningful.

But we did-- Because of that, we did see a year-over-year acceleration of the revenue per hundred weight decline throughout the quarter.

But it's because of the difference in the trend of fuel pricing this year compared to last year.

You can't really tell if the underlying rates were getting worse as well?

Not off hand.

Okay.

Thank you very much.

And, gentlemen, there are no further questions.

Mr.

Congdon, I'll turn things back to you for closing remarks.

Thank you.

And, listen, thank all of you for participating today.

You asked some excellent questions, and we appreciate your support of Old Dominion.

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

Good day.

That concludes today's conference.