奧多明尼昂貨運 (ODFL) 2009 Q3 法說會逐字稿

Good morning.

Welcome to the third-quarter 2009 conference call for Old Dominion Freight Lines.

Today's call is being recorded and will be available for replay beginning today and through October 31 by dialing 719-457-0820.

The confirmation number for the replay is 4922098.

The replay may also be accessed through November 22 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.

As a final note before we begin, we have a lot of people on the call today so we would ask that you 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.

Thanks for joining us today for our third-quarter conference call.

With me is David Congdon, Old Dominion's 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.

Let me begin by saying that in many respects the third quarter was a replay of the second.

The environment in the transportation industry remained at a low end with a lot of capacity chasing reduced levels of tonnage.

As a result, pricing competition was as or more severe in the third quarter than the second.

Unfortunately, we currently don't see anymore material indications that the situation is changing for the better than we did in July when we had our last earnings call.

In this most difficult environment, although we are not content at all with our significantly reduced earnings, Old Dominion once again produced profitable operations with an operating ratio in the low 90s, more than $10 million in net income, and a 3.3% net profit margin.

Our balance sheet is strong, we have ample liquidity, and we continue to produce adequate cash flow from operations to fund the majority of our capital expenditures for 2009.

We expect our third-quarter results again will be among the best in the industry, although we must wait for others to report their financial results to be certain.

As our performance throughout the downturn demonstrates we continue to manage well through the current environment and expect to benefit from industry consolidation that normally accompanies a downturn of this magnitude.

This success is a credit to all our employees who make up the OD family, because their hard work and attitude makes the vital difference in this kind of environment.

Going forward we will continue to balance short-term management of the business with investments to achieve our long-term objectives.

Our primary goals are to expand market share within the existing network to improve density, continue to provide state-of-the-art services and technology, improve revenue yield, increase operating efficiency, and selectively expand our geographic footprint.

These are the basics of the long-term growth strategy that have built our competitive market position today that we are confident will lead to further profitable growth in an improving economic environment.

Thank you again for being with us this morning and now here is David Congdon.

Thank you, Earl, and good morning.

It was another challenging quarter for Old Dominion and the LTL transportation industry.

Our tonnage was down 14% from the third quarter last year, although it was essentially flat with the second quarter this year.

The decline in month-over-month tonnage hit a peak in June, which was down 15.4%, followed by a decline of 14.9% in July, 14.1% in August, and 13.1% in September.

For the latest quarter year over year we achieved a 17.6% increase in platform pounds per hour and a 5% increase in pickup and delivery pounds per hour and our [laid and load] average declined slightly less than 1%.

This decline in load average reflects our deliberate decision to maintain and improve our service standards.

As a result, and I hope some customers are listening to this, we continue to provide 99% on-time service and a cargo claim ratio for the quarter of 0.54% of revenue.

During the third quarter we continued to enhance and build out our infrastructure through the relocation of six service centers to larger facilities and the opening of a new center in Olympia, Washington.

This brings us to four additional service centers and 22 relocated and larger service centers in the first nine months of 2009, increasing our door capacity by 11%.

With this increased door capacity combined with our current level of equipment we anticipate that our CapEx budget for 2010 will be significantly reduced compared to the approximately $200 million CapEx this year.

While we have limited visibility to any near-term improvement in industry conditions, we are confident of managing our way through the current environment because of our proven business model, our strong financial position, seasoned management team, and nonunion employees.

When and as the economy strengthens, we expect to begin once more building a record of long-term growth in earnings and shareholder value.

And now I will turn the floor over to Wes to review our results in more detail.

Good morning.

Old Dominion's revenue for the third quarter of 2009 decreased 22.4% to $323 million for the third quarter last year and increased 2.1% compared with the second quarter of this year.

The decline year over year was due to a 14% decrease in tonnage and a 9.7% decline in revenue per hundredweight.

The decline in tonnage reflects a similar 14% decrease in shipments, while weight per shipment declined by a slight 1/10 of 1%, which is the first decline in weight per shipment since the fourth quarter 2006.

The combination of these factors produced a 9.7% decline in revenue per shipment for the third quarter.

This decline is still against relatively strong third quarter '08 tonnage growth of 7.4% versus the industry's decline in tonnage during the third quarter of 2008 year-over-year of approximately 2%.

Reflecting the reduced diesel fuel cost versus last year the decline in revenue per hundredweight for the latest quarter was due to the reduction in our fuel surcharges.

Excluding the impact of fuel surcharges, revenue per hundredweight increased 9/10 of 1% driven in part by a 3.4% increase in length of haul.

Revenue per shipment, excluding fuel surcharge, increased 8/10 of 1% for the quarter.

Old Dominion's operating ratio for the third quarter was a 93.8 compared with a 89.8 for the third quarter of 2008.

We successfully offset a portion of the de-leveraging impact of lower tonnage on the operating ratio by matching direct labor on a daily basis with our freight and by continuing to generate increased efficiencies and productivity.

Despite these efforts and net of the impact from fuel surcharges, the 400 basis point increase in our operating ratio can be materially attributed to depreciation and amortization which was up 220 basis points as a percent of revenue primarily related to the expenditure and the frontloading of our equipment purchases and real estate acquisitions.

With capital expenditures for the third quarter of $50.2 million our net CapEx for the first nine months of 2009 totaled $180.6 million.

We expect total CapEx for the full year to be approximately $200 million funded mostly with operating cash flow.

Our debt to total capitalization was 35% at the end of the third quarter, up from 31.1% at the end of 2008.

We expect to complete 2009 with a debt to total capitalization between 33% and 35%.

We anticipate CapEx for 2010 to range between $90 million and $100 million, and that is without giving consideration to any opportunistic acquisitions or purchases.

Our effective tax rate for the quarter was 39.1% and we project that it will be approximately 39.3% for the fourth quarter.

This concludes our prepared remarks this morning.

Operator, we will be happy to open the floor to any questions at this time.

(Operator Instructions) Jon Langenfeld, Robert W.

Baird.

Good morning, guys.

What do you think, David, about the pricing strategy?

You have obviously done an excellent job, and I am not advocating going this way, but at what point do you think about maybe getting more aggressive on price to protect share?

We have been doing what we feel is the prudent thing to do in protecting our market share by examining each and every account on an individual basis and trying to achieve a fair balance between the services that we provide the customer and the price that we charge so that we can still try to earn a fair and reasonable profit.

So that is the stance we have.

So no change in your mind in terms of what you have been doing over the last 12 months as you look forward?

We probably would not like to comment on that, John.

It's Earl.

We try to protect our market share and we don't want to get too specific on exactly what our pricing policy will be going forward.

Okay, fair enough.

I think I understand where you are coming from.

And then the other question I had is on the CapEx, significantly reduced next year.

What if you had to grow your volumes 15% to 20% next year?

Would that CapEx look appreciably different in 2010?

No, we think we have both excess and internal capacity, and also at this point in equipment, which was our strategy going into this year to pretty much handle a 15% to 20% tonnage growth without adding to that CapEx.

Great.

All right, thanks a lot.

David Ross, Stifel Nicolaus.

Good morning, gentlemen.

Can you talk a little bit about tonnage trends you have seen so far in October?

You mentioned that it was getting a little bit better on a year-over-year basis from August into September?

Yes, at least if we look to the first two weeks and project that trend for the month we are seeing that the October year-over-year tonnage decline is down into single digits.

And sequentially it's steadily in line with what the average is over the last four or five years.

Okay.

So not necessarily a drop-off from September but not a pickup either, just more of the same?

Yes.

Yes, it's kind of normalized trends and the year-over-year tonnage decline is still reducing, which the comparisons are getting a little bit easier as the year and the quarter progresses.

So that is as expected.

But certainly fairly in-line with what we would expect on a normalized basis.

On a normalized, seasonal, sequential basis.

Right, but still on a low base as you are well aware of.

Yes, I understand.

And the rate pressure out there in the market right now, is that now coming more from the carriers than the shippers?

I think in the first part of the year the shippers were really putting the pressure on the rates.

Probably more from the carriers.

Okay.

And then you talked about, I guess, holding the line on pricing because you do provide a very good service in the marketplace and the on-time percentage and cargo claims is very, very good.

Are you starting to see customers return due to the service that they can't get somewhere else that they might have gone away at a lower price?

We continue to see that every week, not in a big way but we hear reports of customers every week that come back to us for our service.

And then can you just talk a little bit about your appetite for acquisitions in this market, potentially there might be some properties available that could help you flush out a certain region or two.

Is that something you are still actively looking at or is it kind of enough to just manage the business as difficult as it is out there?

Yes, David, it's Earl.

We are still interested in doing acquisitions and always have our ear to the ground for anything that might be available.

We don't have anything right now that looks real interesting to us.

All right, thank you very much.

Edward Wolfe, Wolfe Research.

Good morning, guys.

Wes, the $90 million to $100 million that is a gross CapEx guidance?

That is a net, Ed, but we don't expect the retirements to be significant so it's fairly close to gross.

But that is a net number, $90 million to $100 million.

Thank you.

Can you guys talk a little bit about the pricing environment?

There has been a lot of talk recently that some of your competitors have gotten even more aggressive in recent weeks and months as they sense a little bit of blood in the market place.

Do you sense that that is true?

And if that is the case, if there were to be consolidation in the industry do think that suddenly changes and that is kind of what those competitors are thinking?

Or do you think that we could actually see consolidation and initially have price get worse?

Ed, I think we choose not to discuss the pricing environment and what the other carriers are doing.

When you look at your own pricing net of mix and other things and fuel where is pricing now today relative to say six weeks ago or eight weeks ago?

As new business comes up in the marketplace?

It's definitely competitive out there, Ed.

As we alluded to in our press release it's perhaps as competitive or more competitive in this quarter than it was last quarter.

So that would indicate that perhaps when you are gaining new business that perhaps it's at lower prices.

Ed, I think it would also be fair to say that pricing being quoted today for the most part is not sustainable.

What is your belief, Earl, as someone who has seen a lot of these cycles come and go, how this plays out over time?

Is it consolidation because it's not sustainable or is it the economy improves and pricing improves gradually?

How do you see this playing out?

I have never seen anything like this, so all of my years have not served me well.

But I would say that once this consolidation occurs, and everyone seems to think that it will, that we are going to see some firming up but I don't expect that prices are going to be soaring.

But those that are quoting unsustainable freight rates today are going to have to increase.

Greece.

In our case we -- well, I am saying too much.

Okay.

Are there any competitors particularly where you are starting to see more business coming from that one competitor or you are losing business because maybe they are being more aggressive to one competitor?

You don't have to name them, but is there any one or two carriers out there either way that you are either taking from or losing to that you see in the marketplace right now?

You talk about the long haul, but also it's very -- extremely competitive in the regional markets too.

So when you see our tonnage loss some of that is in the next day, which the regional carriers those that are financially just about -- pricing is about the only weapon they have.

So we are seeing it at both ends, both in the longer haul markets and in the shorter haul markets.

In terms of taking share from someone then, the other side of that coin?

Anything particularly or (multiple speakers)?

Obviously we are still taking some share.

If our tonnage loss is less than the sector overall, which we don't know yet because not everyone has reported, but I think in the middle markets where we are gaining share is still in that two- to four-day market.

But is there any competitor particularly you are taking share from?

Have you seen an increase in that or is that -- it's not one place, it's just kind of you lose some and gain some consistently across the marketplace?

I think that is a fair statement.

The latter statement?

The latter statement that it kind of comes and goes across the whole spectrum.

Thank you.

I appreciate the time.

Jason Seidl, Dahlman Rose.

Can you guys talk a little bit about your CapEx next year?

I know, Wes, you gave the $90 million to $110 million and that is great color, but how much of that is going to be in equipment?

And then could you compare that to the equipment purchases of this year?

Jason, we will be approving our CapEx next week at our quarterly Board meeting and I am not sure if we should share a breakdown at this point.

Well, we have discussed the fact that with our equipment strategies and based upon what the economy produces next year equipment could be very low.

It's scheduled about 25% that is probably equipment and 75% real estate.

Yes, that is about right.

(multiple speakers)

It's about 20 -- let's just say 25% equipment, 15% for IT, and the rest of it is for real estate.

Okay, that is very helpful.

Thanks for the color there.

Everyone talks about the industry consolidation, but let's just call it YRCW because that is what everyone is talking about.

If for some reason they could come out and surprise everyone and say that they are going to hang around longer, do you think that could possibly actually make pricing better for some of the people that have been really harping on trying to put them out?

I think that question should be answered by the other people.

But you know --

I do to.

I understand where you are coming from and that is possible, because as we said in the first quarter the overall sector operated 108 or operated at 107 in the second quarter without any density improvement.

The only way to really improve that and, as Earl said, those numbers aren't sustainable.

The only way to improve it is through pricing.

Those carriers are not going to be able to operate with the prices they have been quoting.

I think they are going to -- if YRC pulls another rabbit out of their hat and stays around for an extended length of time, I believe we are going to see prices go up.

Yes, that is what I was thinking too, Earl.

Wes, real quick on your own pricing and I will turn it over to somebody else here.

You mentioned it was up modestly, but it looks like after a couple of the things that may have helped inflate it with length of haul and your weight per shipment you are probably down a couple of percent.

Is that about the right way to look at it?

I think that it's still, even with the increase in the length of haul, we would still see it even flat to up slightly.

Flat to up slightly, okay.

That is very helpful.

Gentlemen, thank you for the time as always.

Tom Wadewitz, JPMorgan.

Good morning.

I wanted to get a sense from you in terms of cost side.

You have done a real good job on the cost side, but with pressure -- so much pressure in the market it is tough to maintain the margin.

Do your costs tend to creep up from the level you are at in third quarter or have you got some more things that are kind of partially implemented but you will fully implement them and you get cost on an absolute basis going down?

Obviously, taking out seasonality.

But if you are looking at the next couple quarters just how do you think that works?

Does cost creep up or are you able to get it down in absolute terms?

Tom, I think that we have a real good control over our costs and our efficiency really on a real-time basis that I expect we will be able to control our costs very well going through the next six months and through the winter period.

We are also continuing to implement some technologies and some other strategies on the dock end and pick up and delivery that I think will continue to improve or should continue to improve efficiency there above the current levels.

So I know that comparisons can make a difference and so forth and there is noise, but your margin was down a little bit harder year-over-year in third quarter versus second quarter.

Is that likely -- if pricing doesn't get any better, tonnage doesn't really improve much is that something you would face going forward as well that the pressure on margin would increase a bit?

Sequentially, the margin -- think of it in terms of the ratio was a 93.2 in the second quarter increased to a 93.8, so up 60 basis points.

Most of that is due to certain fringes and the cost of group health and workmans' compensation, not due to operating metrics.

And also fixed cost areas of -- we have a larger network that we are paying for at these levels of tonnage.

Right, okay.

So there is some creep in the cost structure that is hard to offset I guess.

One other question and I will pass it along.

It does seem that the market is very skewed to the assumption that YRC is going away and so that probably affects your planning on capacity and some other things.

Would your approach or how would your approach change if it looked like they weren't going to go away and instead maybe they just downsized to be a much smaller player in the market but actually not go away.

Would that change your approach very much in terms of how you manage the business or would you not really change things much?

I think the biggest change would be getting rid of excess equipment.

But as far as our footprint is concerned, our long-term strategy is to continue filling in some of our footprint.

We think that our business model can continue to allow us to gain market share, but primarily we would maybe trim out some of the excess equipment that we are carrying.

Right, okay.

Great.

Thank you for the time.

Jack Waldo, Stephens Inc.

Good morning, gents.

Congrats on a good quarter in this environment.

I wanted to ask you guys; sticking on the cost side, your revenue was 4% below our estimate but you hit our OR and EPS number.

I am a little bit rusty, but before when I have seen revenue fall below our expectations because of your leverage often earnings are substantially less.

I wanted to ask you is this all because of the productivity improvements you have mentioned or did you guys cut any wages?

Did you do anything on the employee compensation basis, 401(k) contribution cuts or change vacation accrual policies like we have seen some others?

We did not do any of that.

It's really all in the efficiency equation.

Let me ask a little bit more on that.

Have you guys done any study to look if you did that type of cost savings that others have done, what type of savings or EPS impact that would be?

We had not studied that.

If conditions were to deteriorate beyond what they are now we would begin those studies, because that is certainly our ace in the hole is other carriers have already done that to survive this economic environment and we have not.

So it's something that we could do if we have to.

But we think it's sort of a last resort type situation that we will do other things and are doing them before we face that sort of thing.

It seems to me that the market really isn't differentiating too much from guys like you and then guys that might be more aggressive doing that.

And I am just wondering if there is no benefit on the stock price from doing these type of adjustments, what you guys see is the benefit to not doing them?

Well, the benefit to not doing them is the reason that we are operating as well as we are, we believe, is because of the strength of our team.

Our team is highly motivated and they are working hard to generate the productivity improvements and a low cargo claims and the high service levels that we have.

I think cutting pay and benefits is demoralizing and that is the last thing that we want to do is destroy the motivation of our team.

Practically every thing that we measure has improved in this economic environment -- the stops per hour, the shipments per hour, pounds per man-hour across the docks.

When we have got less volume and yet we can get higher productivity, you have got to have a superb morale in your operating team to accomplish that.

Makes sense.

So you think that the benefits of productivity outweigh the benefits on the other side?

So far it's working.

But, again, we think cutting pay is not a desperation measure but it damn well gets close to that.

It's on the table.

If we have to do it we will, but up to now we think that what we are doing is working pretty darn well.

Two more questions.

If I look at your sequential tonnage trends, between the second and third quarter you guys were down 0.7%.

Historically you have been up about 2% and then we saw a competitor's results yesterday that has always had a reputation of being a very conservative pricer, a disciplined pricer and they were up 5%-plus sequentially.

It's almost like you guys have taken the baton of being the most conservative pricer out there.

I am just wondering is that the reputation that you guys want from Old Dominion or is this more a function of a game strategy for when business comes back I guess?

We are not sure we want to discuss that.

Understandable.

And then my last questions are just housekeeping items.

Wes, I think you had mentioned that tonnage was running down mid-single digits.

Correct, yes.

But my numbers for the fourth quarter of '08 they were flat in October, down 6% in November, and down 8% in December.

Does that sound right?

Without the numbers in front of me, I will take your word that is right.

Sounds directionally right?

Yes.

Okay.

And then on the D&A aside.

Jack, I have those numbers.

In October of last year year-over-year it was down 0.2% and then it was down 6% in November and almost 8.5% in the December year-over-year.

Was that sequential?

No, that was the year-over-year.

Oh, that was the year-over-year.

Was the flat number you mentioned was that a monthly, was that a sequential monthly or was that year-over-year?

That was year-over-year.

Okay, okay.

And then last question just on D&A, as we have seen depreciation tick up as you mentioned should we assume $22 million going forward?

We haven't given guidance on that.

Oh, okay.

Not even for the fourth quarter?

Okay.

I appreciate your time.

Chris Ceraso, Credit Suisse.

Good morning.

So where would you say you are right now in terms of capacity utilization?

Is it 80% to 85% because you mentioned you could handle a 10% to 15% increase in volume or is it lower than that?

That is probably a good range, 80%.

Maybe a tad less, but just call it 80%.

Okay.

And where do you think that needs to be to get back to the kind of operating margins that you did historically that you would consider normal?

It's hard to even say what is our real capacity utilization measure to be honest with you because it varies terminal by terminal.

Typically you would want to have your fleet running at 90% to 95% capacity, but you have some terminals that might be at 30% and some at 100%.

The fact of the matter, Chris, is that it takes more density in this environment to get back to historic margins; it's going to take some pricing.

And that is obviously true for the whole sector.

You are not going to get there just with density improvements.

You have got to have attended to that some pricing improvements as well.

Okay, that was going to be my next question.

So one other item -- I am sorry if I missed this -- there was a $400,000 favorable item under miscellaneous net on the income statement.

What was that?

We had a favorable entry on booking to the requirement for non-qualified participants returns.

Non-qualified deferred comp program.

Correct.

And is that a one-time thing?

That goes back to (multiple speakers) a normal basis?

A continuous thing.

You kind of mark that to market every quarter, so it depends on where the market and where the investment returns end up at the end of the quarter.

I guess what I am asking, do you expect something similar to that in Q4 and do you expect that to remain favorable?

Oh, I guess --

What is the stock market going to do?

-- if you could tell me what the stock market is going to do at the end of the quarter, I will tell you whether that is going to be favorable or negative.

The answer is, Chris, we don't know because it's tied to how the investment in the overall market does.

Understood.

Thank you.

Tom Albrecht, BB&T.

A lot of my questions have been answered, but I wanted to also ask about insurance and claims.

It was down about 28% year-over-year on the 14% tonnage drop was that favorable development of prior claims or just a really good current quarter for safety?

It actually, as we have been talking about, our claims ratio continues to improve.

It was approaching 0.9% last year and it keeps improving.

As we had talked in our comments, it was 0.54% in this quarter so it's a continued and conscious effort to keep improving our claims ratios.

So the cargo claim was more than the BIPD is what you are saying?

Yes, that is most of it.

We continue to have very good safety records and the BIPD was in good shape, but it's a combination of both experiences which we have geared to keep improving.

Okay.

And then what is the actual number of terminals you have right now?

I am just updating some things.

Right now it's 210.

210.

And the six terminals, did they come from our friends in Kansas City?

Let's see here, they came from I don't have that on here right now.

Let me think here.

What are we talking about?

The six that --

Through the relocation of six service centers into larger facilities and you had also commented about opportunistic real estate purchases.

(multiple speakers) Go ahead.

Two of them were from our friends and the others were just out of the marketplace.

Okay.

Your length of haul did go up a little bit year-over-year.

I guess the correct way to read that is you probably gained a little bit of share in the longer end of the market for reasons we know about.

Well, it's actually two things.

It's gaining some share in the long-haul markets but losing some share in the regional markets.

Okay.

A little bit of a hollow victory there?

Right.

Okay, that is all I had, guys.

Thank you very much.

(Operator Instructions) David Campbell, Thompson Davis & Co.

Morning.

Got most of my questions answered but just a couple of more.

Tonnage is normally down from the third quarter to the fourth quarter; any reason to think that would be different this year?

We don't know how to answer that because we don't know what the fourth quarter is going to produce economically.

Right.

Okay.

It could be up, it could be down.

Historical trends, if you take out the economic impacts, Wes, what is it normally?

Our expectation would be that typically, David, it is down sequentially from the third quarter.

Okay.

And you have excess capacity, under utilizing our capacity, does that mean that if utilization goes up and tonnage goes up next year that you would have to add employees or would you just be using them more efficiently?

If there was a significant increase, we would have to add employees.

If all we achieve is GDP growth of 1.5% to 3%, which is what we hear from the economists, our addition of employees would be very minimal.

Right.

The good part though, if we have 15% or 20% increase through the consolidation, we have got the terminals and the equipment.

We have also got a lot of employees that are not working full hours so we can absorb a lot with existing employees but we would have to add some, yes.

And the last question is have you had any help in the growth in -- the reduction in demand for exports and imports and your container traffic at the container ports?

Does that help any in the third quarter?

Our container business is only about 2% of our business, so it swings one way or the other it doesn't have the material effect.

But I would say that in the third quarter it was kind of neutral.

Okay, thank you.

Todd Maiden, RBC Capital Markets.

Good morning, guys.

Just wanted to clarify here, so you said given the equipment that you have in service and what you have parked you think you could take on another 15% to 20%?

Yes, probably closer to 20% to 30%.

Okay.

All right.

And then of the six service centers that you added during the quarter you gave us what the door capacity added during the year was.

Do you know what that added, just those six centers added?

I don't have that number.

What those specific six --.

All right.

Looking at the cost real quickly, operating supplies that line kind of stuck out a little bit as far as the normal progression.

Anything there that we should look at or --?

Well, the fuel cost is in there so that manifests -- the swings of the lower fuel costs which is -- on the top line is also indicated in lower fuel surcharges.

But that is by far the biggest component of that.

If you eliminate that then the rest of the operating supplies and expense were stable year-over-year, flattish as a percent of revenue.

Okay.

But even looking at it on a sequential basis and I know that is not exactly how you look at it, but it's up a few million there.

Well, it would be up a few million because fuel prices in the third quarter was up over the second quarter.

But percentage wise it seems to be up more than that, percentage wise of the fuel increase versus percentage wise of what the cost was up.

Maybe we can take it off-line but -- so other than that there is nothing else there?

No, no, no.

All right.

And the lastly, what was the monthly progression again?

The monthly progression in tonnage in July year-over-year --

I got it right here.

June, I am sorry -- June was down 15.4%, that was probably our worst in the year, July was down 14.9%, August down 14.1%, and September down 13.1% in tonnage.

And you said October is trending probably high single digit?

Yes.

Okay, great.

All right, thanks a lot.

Art Hatfield, Morgan Keegan.

Wes, just real quick -- sorry if missed this, but just a clarification on the $90 million to $100 million CapEx.

That is a 2010 estimate?

It is, yes.

And that just falls in line with the assumptions that kind of flattish to slightly up GDP?

Well, we intentionally built capacity this year and so since we have built it this year we have stated that we would expect our CapEx in 2010 to be lower.

So it really doesn't have much to do in that sense with the GDP next year.

It just has to do with what our excess and what our capacity is as we speak.

Okay, that is understood.

Is there a level though of growth or of changes in the industry that would change that or do you feel pretty comfortable that you are good to go for 2010?

I think that under most conditions we are good to go.

Now as I have stated in our comments that doesn't include any consideration.

If there is opportunistic situations out there, both with regard to real estate or acquisitions, it doesn't include any of that opportunities that may or may not present itself depending.

Great, great.

That is helpful, thank you.

And at this time we have no further questions.

I will turn the conference back over to Earl Congdon for any closing remarks.

Well, thanks to all of you for participating.

If you have any further questions, why we are here and we would love to hear from you.

Good day.

That does conclude today's conference.

Thank you for your participation.