奧多明尼昂貨運 (ODFL) 2009 Q2 法說會逐字稿

Good morning and welcome to the second 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 July 31 by dialing 719-457-0820. The confirmation number for the replay is 3521174. The replay may also be accessed through August 22 at 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 maybe 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 maybe affected by 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.

As a final note before we begin, we have a lot of people on the call today so we ask that you to limit yourself to just a couple of questions before returning to the queue. Thank you for your cooperation.

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

Good morning. Thank you for joining us today for our second quarter conference call. With me is David Congdon, Old Dominion President and CEO and Wes Frye, the Company's CFO. We each have some brief remarks and then we will be glad to take your questions. As you well know during the quarter the transportation industry continued to be faced with the worst environment that anyone has seen in this country in a very long time. While we experienced a seasonal lift in the second quarter, our tonnage declined at a greater comparable quarter rate than we experienced for the first quarter and pricing competition was every bit as severe. None the less, the Old Dominion team, again, rose to the occasion to deliver outstanding customer service to strengthen targeted operating efficiencies and produce solid profits of $10.7 million for the quarter. Similar to the first quarter, our revenue yield strategies faced perhaps the toughest challenge we ever seen. They, again, were primary drivers of a financial performance that we expect will lead the LTL industry.

For those of you listening who are new to Old Dominion a simple description of our revenue yield strategy has two key parts. First we provide our customers a sustainable value through consistent high quality service as measured by superior on time and claims-free performance. But there is a lot more to Old Dominion's value proposition including the comprehensive array of our service products, the breadth and depth of our national and international coverage; Our highly competitive transit times;. A technology infrastructure that makes our delivery operations highly transparent for our customers and a flexible innovative nonunion work force. All of this is delivered through one integrated company.

The second key element of our revenue yield strategy is to work with each of our customers to understand the cost and value of the services we provide as the basis for setting a fair and profitable price. This part of the strategy is just as important to a successful long-term relationship because we must receive an appropriate return on the continuous investment required to deliver superior service if we are to have a sustainable business model.

Perhaps the two most fundamental tests of our approach to revenue yield are whether we can consistently deliver superior service and whether our customers value that service enough to pay for and use it. These tests become even more critical in an environment like today's in which price competition is rampant. So the good news is that we have continued to achieve superior service with on-time deliveries of nearly 99% and one of our best cargo claims ratios ever. We also maintained very stable pricing with revenue per 100 weight excluding fuel surcharge of $11.43 for the latest quarter. Only $0.01or less than one-tenth of 1% below the second quarter of last year. We quite possibly lost or failed to gain some tonnage because of our revenue yield discipline. But we also continued to have customers who may have left us for a cheap price returned to us because they weren't getting the service they needed to be able to serve their own customers well. More important, we firmly believe these strategies contributed significantly to producing a profit margin of 3.4% and an operating ratio in the low 90s.

Before I ask David to address other factors that contributed to this performance, I will note that sequential tonnage trends were not encouraging during the first half of 2009. And we have little visibility with regard to near-term improvement in industry conditions. Despite this uncertain outlook, the past two quarters has strengthened our confidence in our differentiated business model and in our ability to manage through these turbulent times. The strength of our revenue yield management reflects the performance driven nature of our customer relationships. We believe these relationships position old Dominion well to leverage eventual improvement in the economics cycle into sustained growth in earnings and shareholder value.

Thank you again for being with us this morning and now here is David Congdon. Thank you, Earl, and good morning. Those of you who have followed Old Dominion are familiar with the strong benefits we had over the years from increasing operating leverage driven by double-digit growth in tonnage such as we achieved as late as the second quarter of last year when tonnage rose 10.2%. The deleveraging impact from an increasing rate of decline in tonnage for the past three quarters is also very evident, Although we have succeeded on a number of fronts in mitigating the worst of its effect.

In addition to our focus to maintain revenue yield as Earl discussed, we incrementally strengthened our margins through managing variable costs. Our investment and information technology has enhanced our planning, scheduling and realtime management capabilities, improving our ability to match direct labor cost with our freight volumes each and every day.

In addition, our ongoing infrastructure investments have continued to improve the efficiency of our operations, further reducing the direct labor costs. For example, our platform pounds per hour for the second quarter improved 18.5%. And pick up in delivery pounds per hour increased 3.9%. And as a result, our direct variable costs as percentage of revenue, excluding fuel surcharges, declined by 13 basis points on a comparable quarter basis. Administrative salaries and wages were also reduced by 50 basis points as a percent of revenue, excluding fuel surcharges, compared with the second quarter last year. This comes as a result of reduced head count combined with reduced variable compensation that is tied to profits.

Finally, our full time head count as of June 30, 2009 was approximately 14% less than it was at peak employment in September of 2008. We believe these factors combined to help us offset a significant portion of the pressure on our operating ratio from declining tonnage and density. As we discussed with you last quarter, we also made strategic choices during the second quarter that had immediate costs but position us better for the future.

As always, we continued to maintain and use the resources needed to achieve our service standards even if doing so can have a short-term negative cost impact. Our lime haul laden load average declined 70 basis points for the second quarter -- from the second quarter last year primarily as a result of our commitment to continually improving on time service. In addition, we know from past experience that an economic downturn of this magnitude will inevitably create market share opportunities due to the industry consolidation or the competitive weakness of distressed industry participants. We have prepared for these opportunities by continuing our capital expenditure program for 2009 and even accelerating our equipment purchases. Through the end of June we had spent 68% of our CapEx budget for 2009 including $69 million for equipment.

As we explained to you in our first quarter call, our tractor and trailer purchases for 2009 were in a accordance with our normal equipment replacement schedule. But we have not disposed of the trade equipment as we usually would and instead, are keeping them to ensure additional capacity if needed. Therefore, we have added 9% more tractors and 6% more trailers to our fleet compared with the end of 2008.

We have also continued to relocate and expand existing service centers into new larger facilities completing seven in the second quarter and nine in the first quarter. In addition, we opened a new service center in Wittville, Virginia, in the second quarter and two new service centers in the first quarter. The resulting effect is that we have expanded our service center door capacity by 11% year-over-year. While our work force is operating at a relatively lean level currently, we had substantial capacity to increase average weekly hours back to a more normal level of approximately 45 to 50 hours per week. We also have access to a substantial number of experienced people not currently employed by Old Dominion. With this contingency planning, we expect to be able to respond aggressively to appropriate opportunities as they arise without a material affect on our current incremental costs. Should we not need additional capacity, we will expect to benefit from reduced capital expenditures next year.

In closing, Old Dominion has continued to perform well in the context of the economic downturn and relative to the LTL industry. We believe we were well positioned because of our proven business models, strong financial position, seasoned management team and nonunion employees to continue weathering the downturn and are prepared to take advantage of opportunities as they may arise. When and as the economic environment strengthens, we are confident of returning to a path of sustained growth in earnings and shareholder value.

Now, I will turn the floor over to Wes to review our financial results in more detail.

Thank you, David and good morning. Old Dominion's revenue for the second quarter 2009 was $316 million and that was down 24.3% from the second quarter of 2008. This decline reflected the combined impact of a 14.6% reduction in tonnage for the quarter and an 11.6% decrease in revenue per 100 weight. The drop in tonnage resulted from a 16.6 decline in shipments partially offset by a 2.5% increase in weight per shipment. The combination of these factors produced a 9.4% decrease in revenue per shipment.

We did experience a seasonal sequential increase in tonnage per day of 5.5% for the second quarter of '09 compared to the first quarter. Although the sequential tonnage trend for April and May were above historical norms, the sequential May to June tonnage trend was below normal, essentially flat, up only 10 basis points. The decline in revenue per 100 weight for the second quarter was virtually all related to the decline in fuel costs, since the second quarter last year, which reduced our fuel surcharges. Excluding the impact of fuel surcharges, revenue for 100 weight declined just one-tenth of 1% to $11.43 from $11.44 for the second quarter of last year. This pricing discipline combined with an increase in weight per shipment resulted in a revenue per shipment excluding fuel surcharges to be 2.4% higher for the quarter.

Old Dominion's operating ratio for the second quarter increased 350 basis points from last year to a 93.2. As you know, the impact of increasing or decreasing fuel surcharges is generally offset by a similar increase or decrease in operating supplies and expense. So the primary driver of the increase in the OR for the quarter was the deleveraging effect of the decline in tonnage. As in the first quarter, we successfully offset a portion of the tonnage impact on margins by matching direct labor on a daily basis with our freight and by continuing to generate increased efficiencies and productivity. As a result, our direct labor and movement costs declined 13 basis points as percentage of revenue excluding fuel surcharges on a comparable quarter.

In addition, as David mentioned, we will reduce overhead significantly primarily through a 14% reduction in our base of employees. Also administrative salaries and wages as percent of net revenue, excluding fuel surcharges, was 50 base points less in the third quarter compared to the second quarter of last year. We attribute the stable financial performance to the efforts of our dedicated employees and therefore have not rolled back wage increases awarded hourly employees last September and we also have left our employee benefits intact.

Despite these efforts, the net of the impact from fuel surcharges, the 350 basis increase in our operating ratio can be materially attributed to two cost categories. First, appreciation and amortization increased 200 basis points as a percent to revenue. This is excluding the effect of fuel surcharges. Part of the increase in depreciation related to front loading our equipment purchases for 2009 largely in the first half of the year as discussed earlier. Most of the remaining increase in the operating ratio was related to the increased Group Health benefits during the quarter when compared to the second quarter of '08.

Through the first six months of 2009, our net CapEx totaled $129 million including $69 million for equipment and $53 million for real estate. We continue to expect total CapEx for the full year to be $190 million including 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 half of 2009, our debt-to-total capitalization increased to 34.5% at the end of the first quarter from 31.1% on the end of '08. We project our debt to total capitalization to be between 32% and 34% at the end of 2009. We continue to have ample liquidity with available borrowing capacity on our unsecured revolving credit facility of $114 million and this facility does not mature until August of 2011. Our effective tax rate was 40.1% for the quarter and we project that it will be approximately 39.3% for the second half of the year.

This concludes our prepared remarks this morning and operator, we will be happy to open the floor for any questions.

(Operator Instructions) We will go first to Chris Ceraso with Credit Suisse.

Good morning. The question about the terminals that you picked up, what has happened with the old terminal. Have you kept them or sold them? I am trying to get a feel for the impact on total capacity in the industry.

That's a good question. Released. I would have -- I haven't really thought through that. But most were leased that we relocated out of into a new one. About half of those that we went into appear to be leased and about half are owned. No real change would be the answer. No real impact.

You had the lease terminals that will go back on the market whether released to other trucking companies remains to be seen. And in our case we try to timing when the lease expires that we have the ability to purchase a larger facility.

You walk away when the lease is up and don't know if they were resold?

We do not.

Weight per shipment is still positive but looks like it's getting smaller.

We expected that, you can't continually increase the weight of the shipment. We expect it to come full circle when we saw it increasing in the first and second quarter of '08. It is not unexpected and we will expect it to continue to not be as high and probably to level out in terms of the weight per shipment as the year progresses.

Year-over-year.

Year-over-year basis and sequentially possibly.

Thank you very much.

Next with Tom Waldewitz with JPMorgan.

I wanted to ask you about your strategy with essentially if YRC goes away that market rationalization scenario, clearly you are putting a lot of capacity in place to handle that event. How much excess capacity do you think you can have within a short period of time, if it's a week or two weeks of the event, how much excess capacity and ability to add to your freight mix will it be? Is it 15%? 30%? What's the right number?

It's closer to 30%. We could add from current freight levels we could take on 30% pretty easily.

And what would your pricing strategy be if that event takes place? Seems a couple different scenarios. Everybody can scrap for the freight given that there is most carriers would have a lot of excess capacity. A huge amount of freight coming to the market so you would hope that there will be a significant opportunity to take up rates as well. So would you expect to be able to go out to customers and perhaps to do a general increase, perhaps reprice some of your poorly priced freight or some of the freight that's at the lower end of pricing in your mix, do you think there is probably an opportunity to do that? What would be your sense of how you may approach pricing in that event.

Well, first point I will make is repricing poorly priced freight that's a continues process for us regardless of the economic conditions. And we are addressing that continuously. We have as we stated in our prepared remarks continually look at every single account on its own merit and we tried to establish a fair and profitable price. Not adsorbent but a fair and profit price in exchange for very, very good service package. We don't really need to go raising prices for a lot of our accounts. So the ones we will raise prices on are primarily those who are not paying their way. I don't think that we will need to just -- or address a strategy of just going across the board and Jacking up prices because YRC goes out of business. We don't really need to. Bringing home the extra volume will have a tremendous amount of operating leverage and bring our operating ratio down and our profitability up.

Now, on the other hand we think that some of the competition that's out there giving prices that equate to discounts that exceed 90% are going to have to go raise their prices. If you have a discount exceeding 90%, the operating ratio on that account is up 140, 150 range and those carriers will have no choice but to raise their prices. I think you will see some of the people that are leading the price war out there forced to raise their prices and we won't have to. Maybe that will bring more freight our way.

So that's helpful. You are doing a great job maintaining flat pricing X-fuel in a very difficult environment. Would you expect those numbers to quickly move uso you will get price increases X-fuel, post the potential event?

David stated that we have not been participating in this price war so a lot of the prices are fair and they are rushing -- returning an adequate profit to us as now. As our volume increases, earnings will get better without raising prices but we do have those accounts that are not turning -- returning an adequate return and we will be addressing those. As David said, that's an ongoing process.

Right. Okay. Great. I appreciate it. Thank you for your time.

Next Art Hatfield with Morgan Keegan.

Thank you for taking the time. Earl made the comment about the disappointing seasonal trend you saw and you gave us some indication of that. I think it was David, Wes. I can't remember much can you tell us historically forgetting about last year what the normal seasonality and tonnage is from Q2 to Q3?

I have to kind of look at it differently because historically we might see a tonnage increase from 1Q to 2Q and the 8% range, but when you look historically some of that could be caused by acquisitions or expansion.

General market share --

And market share. Although our 5.5 is below that, I'm not sure if you on an apples to apples comparison where it would be. But I think generally it is still slightly below where we expect. When you go back to the years 2000 and 2001, it's actually fairly comparable doing the last slowdown. As I mentioned in my comments, we did see very strong -- I meant above normal April and may but it seemed that June just kind of leveled out and was very sluggish relative to the sequential of the other months.

Can you tell us kind of what that number is for the seasonal improvement from Q2 to Q3 that you seen historically?

I can. In April we saw a two percent increase in tonnage per day relative to March. And that on average is in the 1 to 1.5%.

He is asking from Q2 to Q3. From June to July historically.

I'm sorry. Clarify your question.

Just what the seasonal trend is you have seen historically in the Q3 months.

Historically -- I don't have the number right for me for that.

Historically, July falls off a little bit from June by.

Just talk about July because I'm not sure in August, but July we normally see a dropoff from June from 3 to 3.5% in tonnage. We are expecting, in fact we are witnessing at least a month to date for it to be in the 2% range I don't see that as glimmer. I see this starting off from a low base of June.

You said you don't have it in front of you. But any recollection on what September has been relative to August in the past?

From September, August into September.

On average for the last five years, August to September is about in the 3 to 3.5% range.

Up. Up.

That's helpful in then one last quick thing on pricing and forgetting about the big event everybody focuses in on. In last down turns and really in past recoveries, what kind of lag do you see of pricing relative to tonnage improvements through the recovery? Is it one quarter, two quarters, three before you see real improvement in pricing?

Is that based upon some event?

No, no. Excluding what everyone is focused on YRC and past recoveries as you see the recovery in tonnage, how much of a lag had you seen in general market pricing getting better.

Difficult to say because when you look through the last recovery we had a fairly significant event and CF went out of business. That distorted and caused a failure immediate increase in pricing. What it would have done without that I'm not sure.

Thank you very much. Thank you for your time.

Our next question from Ben Hartford with Baird.

Good morning, gentlemen. Just to touch on the pricing situation here in the near-term assuming there isn't an industry consolidation event, when you look at your market share metrics having held them steady here over recent quarters and varied admirable . But as we get further into the year if it there isn't an improvement in volumes. How do you expect that philosophy to change if you are forced to protect more market share if that business is not coming back.

Our strategies have worked well for us so far and we will stick with them until we see some something change our mind to do anything different. We continually examine our pricing versus volume strategy and question ourselves. Are we doing the right thing? And we come back to the same answer every time we debate this issue. And we are doing the right thing. Even so, our strategy isn't applied overall. We actually apply that strategy per customer and examine the customer's profitability on its own and make appropriate decisions based upon where the profitability is of that customer and where from a pricing competition standpoint where it might be and then make a decision based upon that -- based upon the circumstances of each and every customer.

I guess broadly speaking what David when you talk about changes in event or situation that might force you to change your mind. Is it a situation where those market share figures slip internally that you have to act on pricing.

That might be a factor that would cause a change in our philosophy. We haven't seen that yet. We continue to see our market share jump maybe ten basis points a quarter.

When we think of the second half of the year, nothing is normal about this environment when we think about seasonal improvement sequentially 3Q over 2Q from an EBIT perspective, should we think about that normal seasonal pattern holding true this year?

We're not in a position to comment about the seasonal pattern holding true. As you said, our visibility is not very good going forward so we with hold any comment about that at this point.

Okay. Thank you for the time.

Okay.

We will go next with Jason Seidl with Dahlman Rose.

How is everything?

Good.

Question, you mentioned obviously on the sequential basis June got weaker. But if we go back to June of last year, wasn't that one of the stronger months in the year?

Started off bad but the last two weeks it ended up real good and the month was affected very positively by the last two weeks.

In '08?

Yes. In '08. This year June was really disappointing.

Okay. Are you expected to see any residual benefit from some of the auto plants coming back online and some of the production going up?

No, not really we historically have not done business with the auto plants. We do business with some of the aftermarket companies, but not with autos coming back up.

There could be a minor benefit on some of the stuff down the line?

There could be. Whether we participate is not likely since we by and large have not done business with the automakers to begin with.

Wes, on the real estate side, is there anything else you are looking at in terms of terminals converting lease-to-owned for the rest of the year.

That's a conditioned process and we are looking at that. Don't have the numbers for you at this point.

Some of the customers you said they came back that walked away because you were sticking to your price discipline. How did that trend through the quarter, did they walk away toward the beginning and come back in the end or was that normal rolling process?

A normal rolling process.

Fair enough. Gentlemen, thank you for the time as always.

Thank you.

Next question with David Ross with Stifel Nicholas.

Good morning.

Good morning.

David, I think you are doing the right thing. Certainly seems to be working in this awful LTL market. Question on the sales force. Have you been adding people to your sales for this year or sales about the same as last year?

It's actually down a little bit this year. Wes is looking for the numbers.

Okay. And then a lot of your competitors have been taking wage cuts and making other comp adjustments, like reducing benefit plans, have you been doing any of that to try and save some margin here?

We have not done any wage cuts nor changes to our benefits.

The high on-time service levels that you cited, near 99%. What was that compared to a year ago? 98, a year ago, 97?

In the 97 range a year ago. It was like a 97.6 --

-- 98-6 was the final number for the quarter.

And our sales force is down about 10%.

Okay. And then the last question just relates to business with existing customers versus bringing on new customers. If shipments were down 17% year-over-year, was business with existing customers did they have shipment declines of 25% and maybe brought on a certain amount of new business. (inaudible)

We don't know those numbers offhand.

Your general sense of it is though are you gaining more market share with current customers or new customers?

I would suggest probably new customers for the most part.

Thank you very much.

We will go next to Jack Waldo with Stephens, Inc.

Good morning, gentlemen. Can you hear me?

Yes, Jack.

Thanks for the color on the terminal door capacity. I wanted to ask you about capacity but for your guys and throughout the industry. When you talk about your head count reductions and then look at the terminal door capacities and the terminals you added. How do we reconcile that for what the net impact is on capacity for you guys?

As I mentioned in my comes and look at depreciation and that includes real estate equipment is up about 2 percentage points when you eliminate the affect of fuel surcharges. It accounts for quite a bit of the increase in our OR. And we see that as we said all along as part of the strategy that goes through the slowdown that starts in '06 Is we continued to condition to invest in the infrastructure and our strategy hasn't changed on that, and it is affecting our margins at this point. We will accept that while also doing a great job of controlling our variable out of pocket direct costs. Another way to answer your question if we had 11% more doors and our shipments are down say 16% and add those two together and that gives you 27% capacity to grow. If we were not at full capacity before we added the doors, you might add another 10% to that and therefore in the service centers we probably have on average 30 to 35% capacity.

But some of that is not unusual even as we are growing our infrastructure we are adding more capacity before our business dictated even before the slow down because the long-term nature of the investments a lot of the large distribution centers.

If I look and know this is imperfect but if I look at all of the information we can find on terminals for your competitors it seems like since 2006 there is, call it an 8 to 10% decrease and I don't know where those end up. Then on employees it's been 15%. Do you think that's indicative of the guys -- what capacity has exited the LTL marketplace in the last 2.5 years? Or do you have an estimate on the aggregate has happened LTL capacity since 2006.

No, we don't character like that.

My last question is on trends on the tonnage side and I respect your desire not to comment on what's going on now. My question is, did what you experienced, did it surprise you that June sputtered out? Or did it surprise you we haven't seen a big impact yet?

In this market nothing surprises me. I will say that we did not expect for to be as flat relative to May that it was.

The biggest question I'm trying to answer is if one of your competitors experiencing substantial business loss and where is that business going?

For the most part the business is not going anywhere, it is not there.

Which makes it more of a macro environment.

Yes.

My last question is piggy backing on a previous question about your customer base. And I commend you for taking a hard stance on price and profitability for shipment. Do you think that strategy has impacted your customer base and maybe a way to look at it is if you look at what used to be contractual or spot market, has that changed over the last year or so?

Yes, we have seen a fairly sizeable increase in spot market tonnage. It's relatively small overall business. There is some accounts that even we have pricing in place that will go to the spot market on shipments that are larger in the 8 to 10,000 pounds.

I lied have I one final question. Could you break down, Wes, what the business was down on a regional, inner regional and long haul basis?

I don't have those numbers in front of me. It takes -- it comes from our terminal profit and loss system where I get those numbers and I don't have current.

Thank you for your time.

Thank you.

We will take our next question with Satish Jindel with SJ Consulting.

Hello, David. Thank you for producing a great quarter. Probably another support. (inaudible) What I would like to maybe bring forward here is some of the questions were asked with respect to the overall capacity in the market and how you are adding capacity that service centers and that even the business that is being lost by them is not showing up anywhere. Just evaporate from the market. Why increase in capacity in your network is going to turn out advantageous to you and the industry. I have difficulty understanding if you have 30% over capacity what would be the benefit of adding capacity instead of holding the capacity where it is.

When you see some of the other cares of the close in terminals and in essence reduce capacity, there are for the most part full networks, mature networks. We were not a mature network. We are still building our network and though we cover the national footprint , we still see that we need to add service centers some major markets that a competitor may have three or four service center in a major market and we may have one. As it happened to us in Atlanta where we had one service center and now we have three. We are still building network capabilities and our strategy is to continue building that network because with consolidation, potential consolidation we want to make sure we are in a efficient position to take advantage of that.

And then in the interim if that consolidation done come about based upon the labor concessions the company is getting and banks continue to give them (inaudible) does it not make the industry situation worse if this continues for next three months, six moneys, one year?

Our decision aren't based what the industry is doing. It's based what our advantages and opportunities are. And we still see opportunities and in our network in certain strategical areas.

And let me on a different note. There was a question about increase in average wage that you expect it to slow down. One of your competitors a few weeks ago announced a new pricing concept called true LTL pricing, which is clearly aimed at heavier shipments. Do you have any comment as to how that may affect the average weight for you? You have a higher average rate per shipment than all of your competitors.

These heavier late shipments in our experience are all being shopped by the customers right now we address that on a shipment by shipment basis, customer by customer basis through our spot quote system in our view we think that the our approach to that is good. We have not yet seen the impact in the marketplace of that new program.

Just one last one for clarification when you mentioned that you had 34% ability to handle 30% increase in volume. Were you referring to the respect of the normal volumes in the year? Or what would it be if it was during the peak time of the year? Still 34% or during October, November peak months, it would be lesser?

Last year in May and June I think we were in the neighborhood of 28,000 shipments a day. And we are only handling in the neighborhood of 23,000 shipments a day today. So you take that -- that's a difference of 22% just to get back where we were last year and we added 11% more doors so you can add 11 on 22 and you are up to 30.

33.

Now if the consolidation event would have occurred a year ago we would have had a heck of lot more trouble handling 30% more tonnage. On a -- on top of 28,000 shipments a day.

Wonderful. Thanks a lot.

Thank you.

We will take our next question from John Barnes with RBC Capital Market.

Good morning. Could you talk a little bit on the productivity initiatives. Seemed like some pretty nice numbers on the productivity side. How much more do you think there is and especially get an event and start adding in 10, 15% more volume, 30% more volume. How much more do you think you can handle with existing head count before you start having to layer back in a lot of head count?

The productivity initiatives that are driving the dock productivity numbers we are continuing to deploy some technology that I do not want to talk about on this call that we can still get continued improvement in dock productivity. The same thing in our pick up and delivery area. We are doing new things with technology and management and information systems to give our front line management some new tools to look at that. And I think we will see some continued improvement there. We are also implementing the PeopleNET Systems in our trucks and that will take a two year time frame to get that fully implemented and we see productivity enhancements to come if that. Primarily in the biggest one to be in the fuel efficiency area. But there are other labor productivity areas that will save in, too.

As far as the capacity to take on additional tonnage with our existing labor force, we -- our head count is down about 14% overall, but ours per week are reduced maybe is it 22 or 25%? It's down in the low 20s and that indicates that our people are working in the low 40 hours a week range and have historically averaged in the 45 to 50 range. But if we are let's say working 40 hours and had a 30% increase in business all of a sudden and we needed to -- need our folks to work 52 hours or 55 hours a week or whatever temporarily until we can bring on additional head count, I think people our people will welcome the additional money and time and they would work the extra hours. I think have the ability to take a certain surge of business, should it occur and we have a long list of folks we can call back to work, good people that we hated to let go.

So you said last quarter that you were in that 40 hour a week range so you are still in that 40, 42 hours a week?

Somewhere in that category.

You give good color last quarter on the whole spot versus contractual pricing and 8000 pound loads and that type of thing. Can you talk a little bit in the second quarter was the pricing pressure, was it more of an issue in the spot market in that piece of business or were you seeing an equal amount of pressure on the contractual side of the business?

We were seeing price pressure on the spot market but it is relatively small part of our overall revenue. We did see more pricing competition in the short haul lane which are the regional players and also in some of the longer haul lanes, 1000 to 1500 mile category. That is where we saw most of the price competition. And you got the small regional carriers that are competing on price and then you have some of the lodge haul carriers competing on price. That's what we are seeing and probably perceived out there is where the pricing is.

And that's all on the spot basis?

No, no.

That's total?

Spot bases is on its own. As I mentioned that had an overall minimal effect because it's not a large proportion of our revenue. Overall, we saw higher price competition in the regional markets, under 650 miles and kind of a longer haul markets of 1000 miles to 1500 mile.

Wes, two small clean up items. One, I don't know if you gave it and you can, the year over year tonnage decline by month in the quarter and then also gave the run down on the CapEx spend for the balance of the year. Could you go over that as well?

As far as the tonnage trends, year-over-year, we saw April was down 14.6%. We had an improvement year-over-year in May, down 13.6. And then as I mentioned June, was flattish and down 15.4% year-over-year. Behind that was the 14.6. The overall CapEx we expect still to spend $190 million, of that approximately $90 million is for equipment, $85 million for real estate and about $13 million for IT.

Okay. And is that a gross number or a net number?

Those are net numbers.

Thanks so much. Nice quarter.

Thank you. We will take our next question from David Campbell, Davis & Company.

Thank you. Most of my questions were answered. I did want to say I can't find number service centers in your press release.

209 at currently.

209 at the end of June?

Correct.

And regarding the potential diversion, from your remarks it doesn't sound like the company is seeing any gains from the Yellow's financial problems, Yellow Roadway financial problem to date. In other words-- shippers who don't want to ship them are not shipping with anybody else. You haven't seen any particular, any new accounts coming to you that you thought were yellow account? Yellow Roadway accounts?

We were getting YRC business on a daily business. What is happening is that some of our existing business goes out the back door when the Yellow comes in the front door and the existing business goes out the back due to our unwillingness to cut prices. We are losing some business as we are gaining business and that explains why YRC can be down 40% and we aren't up significantly.

So you are losing the existing business not necessarily YRC but other discounting competitors?

When the discounts get into unreasonable levels that we are clearly going to be losing a lot of money, we are just not matching those discounts.

Thank you very much for your answers.

Thank you.

We will go next to Edward Wolfe with Wolfe Research.

Wes, do you have the July tonnage today?

I do but I don't want discuss it because it's still mid-month.

Okay. Do you remember weight per shipment increasing in an economic downturn before? Or is this --

No, the indications has always been especially like in 2001 is weight per shipment would decline and we first saw it increasing early in '08. Not on conclusion but anecdotally the shippers were combining shipments to save on costs due to the high fuel costs last year and still that still happening.

Higher fuel gave them the invention and people saw it's working and they with will keep doing that and that's part of how they operate is how you are seeing it?

That is the conclusion. It will be interesting to see if and when the economy improves will we see a decrease in beat per shipment because now they have to ship more frequently to meet demand.

You talked before having 30% extra capacity if YRC wept out and if you just look at what that means, it means if I look at your tonnage you are about 11% if you got 30% more above '08 levels which makes sense. Obviously that will help utilization and density. Have you modeled or thought about what does that do for your operating ratio you in that scenario where there is 30% more tonnage and back to 11% above your last week in tonnage. Does the operating ratio get back to where it was in '08 or '06? What do you think about that?

I'm not sure. Did you say if we go 30% above '08 numbers?

No, no. If you go 30% above where you are now it takes you into effect back to 11% above your last peak of '08.

It would have a favorable effect because we have a lot of leverage currently. But we haven't been getting guidance specifically what that ratio could be.

And I'm not looking for specific number. But directionally do you think you would blow passed the last peak margin or get towards it. I'm guessing there is extra cost with taking all that freight on at once as well.

Our focus has been to increase tonnage in our existing network therein lies a better incremental margin and we often discussed that margin being 10 to 15%. I would say that margin in this market because of the leverage would be even higher.

We have trimmed the company so much and also improved productivity our productivity levels today are better than they were a year ago and my logic and we have not modeled it would say that we might have a better operating ratio than last year in than 2008? Yes. I think it's possible.

But you don't know that there could be a lot of calls for not even thinking about if all of a sudden we had a 30% more tonnage.

But pricing would have to play a part in that.

And if pricing does not firm up, general marketplace is still flat and we just got 30% because the competitor went out of business. The pricing environment may not improve near as much as it did back in the (inaudible) cycle.

One other monkey wrench. How do you think about the of average Yellow revenue per hundred weight or Roadway is $23 and regionals are, like yourselves are 13. It's obviously got different revenue and different costs associated with it. Is there some amount of freight that provided risk? Remember, when Overnight took too much freight after the LTL strike and locked them up a little bit. How do you think about that issue and being selective about it?

You think our competitors are for more at risk on that issue than we are because they are cutting prices and we have not. If we get more high quality business we don't run as much risk of running into an Overnight area than it would be had we been cutting prices along with the others. As David said earlier that our competitor, many of them will be forced to raise freight rates rather than to be swamped with low price freight and that will be some additional opportunity for us as they raise prices some of those shippers might likely jump ship on those carriers that have raised the price up to a fair level and come to us for a better service product.

Does it make the USF freight more in your target hairs than the Yellow or Roadway or are you agnostic you don't care where that freight comes from or whether it's from one day or four day freight?

I think the latter is true. We are equipped to have any length of haul. And glad to have it.

Thanks guys. Appreciate the time. I know it's gone long.

We will take our next question from Justin Yagerman with Deutsche Bank.

Yes, Justin go ahead.

Hey. Wanted to get a sense on the acquisition market. How you have typically been acquires of tuck in smaller companies and I guess a twist on that also with the kind of lenient financing that we are seeing out there, I was wondering if any banks are coming to you in start to discuss taking over any problem companies that they have been financing or have on their books?

We have not had any banks come to us that way. We see deals occasionally that folks are bringing us to look at. More in the asset life area than LTL.

What do those multiples look like now? When you evaluate those companies? Are they reasonable or coming back -- coming down or have they not really moved all that much yet in this market.

They are coming down.

You guys are in the position of waiting and seeing and making a choice at some point later on I would assume?

We are -- our appetite is not very great until the big bang either happens or it doesn't.

Makes sense. On the weight per shipment you spoke about that a little bit. I was wondering if you had the weight per shipment by month for the quarter, Wes. And just I guess to clarify, you are chalking most of that weight per shipment bump that you have been seeing to the spot quote business and combination to heavier weight shipments rather than any kind of underlying economic activities?

Certainly, the mix has some influence on the weight per shipment but even when you look underneath and look at the LTL it's still up. Year-over-year in April it was up 4% and we expected that percentage to decline as the quarter progressed and in May it was up 1.6% and in June it held steady year-over-year up 1.7%.

And following up on Ed's question on July, tonnage, I know you didn't want to give an actual number and that's understandable at this point, but can you give us a sense of whether that's trending better or worse than June at this point?

Sequentially we expect a tonnage to be down from June and historically it's down 3%, as I mentioned at this point we expect it and it's running at a rate that's down 2%. Better than normal but on the other hand denominator of June was very sluggish and that is probably some of the basis for that.

Got it. That's all guy the. Appreciate the time.

All right, Justin.

Thanks.

We will go next to Jason Seidl with Dahlman Rose.

Thank you for the quick follow-up. Have you seen a pick up in business from your standpoint in terms of 3PL carriers? In terms of freight brokers? More freight brokers using you in this market?

We have seen more of our mom and pop shippers move to 3PLs this year. To try to get a better price. It's been the primary reason for that. In our business coming from 3PLs as a percentage of total is inching upward. I don't have a good number on that in front of me. But I sense that it's inching upward.

Okay. Maybe Wes can get to me off-line when things are quieter for you guys. I appreciate the time. Thanks.

Thank you.

It appears we have no further questions at this time. I will turn the call back to our speakers for additional or closing remarks.

Okay. Listen, thank you for your participation today. You asked some really good questions. We appreciate your support of Old Dominion and give us a call if you have any further questions. Good day.

Once again that does conclude today's call and we appreciate your participation.