奧多明尼昂貨運 (ODFL) 2009 Q4 法說會逐字稿

Good morning, and welcome to the fourth-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 February 6 by dialing 719-457-0820.

The confirmation number for the replay is 3390456.

The replay may also be accessed through February 28 at the Company's website, which is 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 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 fourth-quarter conference call.

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

After some brief remarks, we will be glad to take your questions.

I will start this morning by stating what we all know, which is that the LTL industry continued to face a very tough environment for the fourth quarter of 2009.

Demand remained weak and excess capacity drove heightened price competition.

This environment had a negative effect on Old Dominion's results for the quarter.

But as we experienced throughout '09, we performed relatively well considering the circumstances and the performance of our peers.

The foundation of our success continued to be our focus on providing superior on-time claims-free customer service at a fair and equitable price.

The strength of our value proposition is evident with the consistency of our tonnage trends combined with the fact that our revenue per hundredweight, excluding fuel surcharge, was flat for the fourth quarter and the year compared with the same periods of 2008.

We again improved productivity while tightly managing direct labor costs.

We maintained the capacity in our fleet and service centers to take advantage of industry consolidation, and also enhanced our financial strength and liquidity to take advantage of strategic growth opportunities.

Although our tonnage declined 4.4% for the fourth quarter, the rate of decline slowed from the double-digit pace for the first nine months of 2009.

After September's decline of 13.1%, October was down 8.7%, November down 3.9%, and we had a slight increase in tonnage for December.

January tonnage to date has improved even further, both sequentially and on a year-over-year basis.

While we may have lost or even failed to gain some tonnage due to competitive pricing, we continued to earn new business and regain customers because of our high-quality service, which enabled us to gain market share for the quarter and for the year.

The end result of these efforts was a profit of $9.7 million for the quarter and $35 million for the year.

We expect that our fourth-quarter operating ratio of 93.9% will again be among the best in the industry.

Looking forward into 2010, we remain cautious due to limited visibility regarding the economy and the potential for industry consolidation.

Furthermore, our industry continues to face numerous possible regulatory headwinds.

Despite these factors, we remain focused on our long-term strategies to increase market share and density within our existing network, provide the highest quality service and state-of-the-art technology, improve revenue yield, increase operating efficiency, and selectively expand our geographic footprint and services either through organic growth or acquisition.

While the challenges are clear, we believe Old Dominion is positioned to continue managing well through the current environment and to return to a course of profitable growth in a stronger economy.

Well, thanks again for being with us this morning, and now here's David Congdon.

Thank you, Earl, and good morning.

For the fourth quarter and over the past year, we are very proud of how well the Old Dominion team has produced such an enviable financial record in such a challenging environment.

We believe our strong service performance, improved productivity and increased capacity positions Old Dominion for future growth, even if equipment utilization may have been negatively impacted in the short term.

We continue balancing our short-term operating decisions against long-term growth objectives.

The central pillar of our business model is the delivery of high-quality service.

Our other strengths such as geographic reach, comprehensive product offerings, revenue yield strategies, and financial position would be discounted in the market if we fail to deliver high-quality customer service.

To continue improving or maintaining service standards in the current environment says a lot about our priorities, our systems and our people.

For the fourth quarter, our on-time service was 99% and our cargo claim ratio was 0.66% of revenue, which we believe leads the industry.

We also improved productivity for the fourth quarter, reflected in a 2% increase in platform pounds per hour, a 2.7% increase in pickup and delivery stops per hour, and a [2/10] increase in line haul laden load average.

Our long-term investment in state-of-the-art technology continues to enable us to achieve these productivity improvements and match direct labor with freight demand more than ever before.

During 2009, we made a number of decisions to increase our capacity in order to be positioned to benefit from industry consolidation or growth.

We prepurchased our replacement tractors and trailers for 2009 early in the year, and chose to hold onto and park our used equipment rather than to sell them as normal.

We knew that if the need for this capacity did not materialize, we would suffer increased depreciation and amortization expenses in 2009, but we would also benefit from reduced CapEx expenses for 2010.

Secondly, we continued to selectively enhance and expand our service center network.

Four new service centers were opened during 2009, and we relocated 27 centers to larger facilities.

This activity increased our service center doors by 8% at the year-end '09 versus year-end '08.

By maintaining the fleet and service center capacity, we believe we have the ability to increase tonnage by 25% to 30% or more with little additional cost or service delay, and we are very well positioned to benefit from industry consolidation, improved economic activity and organic market share gains.

The added expense incurred in 2009 from expanding our capacity while upholding our on-time service standards added to the margin pressure already caused by the deleveraging impact of reduced tonnage.

We mitigated these impacts through the improvements in productivity and direct labor, and in our insurance and claims expense for cargo and DIPD.

In closing, let me add that our operating and financial results for 2009 clearly demonstrate the strengths of our business model, perhaps as well as at any other time in the economic cycle.

A rising market can mask a lot of deficiencies, but to produce profitable and industry-leading results consistently through an extended recession is clear evidence of the experience and the flexibility of the team and the value we provide our customers.

As the economy improves and our industry continues to consolidate, we expect that shippers will increasingly favor companies like Old Dominion that delivers solid value propositions.

With these factors in mind, let's close the door on 2009, and we will focus our efforts on producing profitable growth for 2010.

I thank you, and now I will ask Wes to review our financial results in more detail.

Thank you, David, and good morning.

Old Dominion's revenue for the fourth quarter of 2009 was $311 million, a 7.4% decline from the fourth quarter of 2008.

Our revenue for the quarter reflected a 4.4% decline in tonnage and a 3% decline in revenue per hundredweight.

The decline in tonnage was driven by a 7.2% decrease in shipments, offset in part by a 3% increase in weight per shipment.

The decline in revenue per hundredweight was essentially related to the decline in fuel surcharge compared with the fourth quarter of 2008.

Revenue per hundredweight, excluding fuel surcharge, was $11.40 for both the fourth quarter of 2009 and 2008.

Offsetting the downward pressure on revenue per hundredweight exerted by the increase in weight per shipment, we experienced a 5.4% increase in length of haul for the quarter to the highest level since the first quarter at 2007.

Our operating ratio was at 93.9% for the fourth quarter, an increase of 70 basis points from the fourth quarter of 2008.

As we have done throughout 2009, we lessened the impact of the lower tonnage on operating ratio by matching direct labor on a daily basis with our freight volume, and by continuing to generate the increased productivity discussed earlier.

I will add that insurance and claims declined by more than $7 million to 1.4% of revenue for the latest quarter, from 3.4% for the fourth quarter of 2008.

A significant majority of this improvement resulted from continued improvements in our driver safety experience and fewer cargo claims.

We also recorded a positive adjustment of $1.9 million in the fourth quarter of 2009, related to the annual actuarial adjustment for insurance reserves.

These mitigating factors could not fully offset the increase in salary wages and benefits as a percent of revenue, which increased to 56.9% percent in the current quarter from 55.1% last year.

Of this, however, direct wages and salaries decreased 8.2% to 42.5% of net revenue, from 42.9% in the fourth quarter of 2008.

The overall increased percentage primarily reflected the higher fringe benefits, which includes inflationary medical costs associated with group health and workmen's compensation.

In addition, depreciation and amortization increased to 7.7% of revenue from 6.6%, primarily related to our equipment and real estate purchases for 2009.

Capital expenditures for the fourth quarter totaled approximately $30 million, bringing net CapEx for the year to approximately $211 million.

As anticipated, the ratio of our long-term debt to total capitalization improved 100 basis points from the third quarter to 34% at year-end.

While cash provided by operating entities funded the majority of our CapEx for 2009, total long-term debt increased $54 million at the year-end 2009 versus the year-end 2008.

And we had available borrowing capacity on our credit facility of approximately $110 million at the end of 2009.

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

We again plan to fund these expenditures primarily with operating cash flow.

Our effective tax rate of 37.5% for the quarter, lower than anticipated because of larger than expected tax credits related to propane usage.

We estimate our tax rate in 2010 to be approximately 40.3%.

This concludes our prepared remarks this morning.

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

(Operator Instructions) Justin Yagerman, Deutsche Bank.

Hey guys, how are you doing?

I wanted to dig into pricing a bit.

I was speaking to one of your LTL competitors out there in the market place who has been fairly aggressive on pricing.

I think they are the largest LTL now in the market, and have said basically that they are shifting focus less to market share and now back to addressing the pricing book that they've got, which is a bit screwed up at the moment.

What are you guys seeing out there in the marketplace?

Are you seeing a little bit of that additional discipline here in beginning of the year?

Justin, this is Wes.

It's a little early to tell, but we expect our pricing at least in January to be -- excluding fuel surcharge to be flat, maybe up slightly.

Marketplace pressure seems about the same.

It may be subsiding slightly, but it's still too early to tell.

Do you see any trend in the quarter?

Can you take us through revenue per hundredweight net of fuel on a monthly basis in Q4?

Yes, we saw -- actually, revenue per hundredweight was fairly consistent, Justin, throughout the quarter, averaging the flattish number, but it -- even sequentially through October and November, it was pretty consistent throughout the quarter.

As we mentioned -- as Earl mentioned on the comments, our tonnage continued to improve, so that by December we did have a very slight increase in tonnage year-over-year compared to December of the previous year.

Into January, we expect our tonnage to be up year-over-year 3%, at least 3%, maybe slightly more.

And sequentially, we expect it to be a little bit above what would be normal over the last five and 10 years sequentially on a per-day basis.

That makes sense, given the base.

A question on just, I guess, operating leverage here.

You guys have a decent amount of sidelined equipment, I think, but when you think about the capacity on the network that's running today, how much additional tonnage do you think you can add before you've got to start bringing trucks back, I mean before there's additional drivers and labor that's involved with the tonnage that you're taking out?

From an equipment and service center capacity standpoint, we can easily take 25% to 30% above today's tonnage levels or more, in some locations more than that.

But with added tonnage would come some adding back some people.

I think the people would come back on a little bit slower maybe, because we still have some folks that are not working full weeks.

But nonetheless, if we were to have a sudden increase in tonnage, we would definitely have to add some people back.

Got it.

All right, I'm going to turn it over to someone else.

If I have more, I'll jump back in the queue.

Thanks for the time, guys.

Jack Waldo, Stephens Inc.

Good morning, guys, nice quarter.

Destroys my theory of maybe cutting costs or cutting wages in 2010, with that operating ratio.

I wanted to ask you guys, I guess, a bigger picture question on your philosophy versus some of your competitors and what it might mean.

It seems like particularly in 2009, you kind of zigged while others have zagged.

A lot of your competitors have been more price aggressive and they are at 100% or close to that capacity utilization, where you guys are talking about 25% to 30% excess capacity.

I guess my question is how does that -- what does that mean for 2010 and beyond?

How do you guys capture that difference and use it for your benefit?

Well, you know, we will continue our philosophy of trying to match a fair and equitable price with the service levels that we are offering to our customers.

This does not change that approach.

I think we want to stay consistent with that.

If we were to have significant capacity exit the marketplace right now, we feel that we are -- the fact that we are in the best position to take on additional freight at prices that we feel are fair and equitable for the customer and for us.

I think we've got an awful lot of operating leverage, and I think we have the best value in the marketplace to take on that freight.

If it tries to find itself with the lowest-cost providers whose capacity is used up, those carriers are going to have to raise prices significantly.

And that could also cause other freight to shift around, and I think we are just in the best position out there of any carrier.

Makes sense.

Then just to follow up on Justin's question on the rate environment and your kind of alluding to maybe some firming, could you talk a little bit about two things?

One, what do you think is causing that?

Is it more industry driven or is it more economic driven?

Then two, was there anything -- how did your freight mix change, your business mix change in the fourth quarter, and did that impact the yield trends that we saw?

I'm not sure I understood the first part of your question, Jack.

If you are seeing some firming in rates, is that a function of competitors being more disciplined or is that a function of shippers being more willing to pay up because they are seeing signs in the economy?

Is it industry driven or economic driven?

I wouldn't say we are seeing firming in rates to any extent, to any great extent right now.

It's still extremely competitive out there.

Okay, okay.

We are managing our yield, but it's more internally managed than a function of the marketplace.

Got you.

And then the question on anything -- did you have any big business mix change that impacted your yield in the fourth quarter?

Well, obviously, I mean had an increase in length of haul.

So we did see some improvements in the length of haul.

And that would have impacted the revenue per hundredweight positively.

Got you.

So I guess the last question would be do you have an idea what pure base on an apples-to-apples basis rates did?

Probably flattish, because the weight per shipment also was up.

So those tend to somewhat offset each other.

So probably still remains somewhat flattish.

Thank you, guys.

Congrats on a good quarter.

Jon Langenfeld, Baird.

Good morning, guys.

Can you talk a little bit about your inflationary costs as you think about them in 2010, where the area of most pressure will be?

Probably health benefits.

Yeah, I was going to say probably the most pressure as I discussed in the comments from anything relating to medical benefits.

So in a flattish type environment where you're not having to add people, I mean is the ability to drive that salary wages and benefit line to even be flat year-over-year, will that be a -- can you just kind of narrow us in on how big of an impact that might be?

For the year, the effect of our health benefits as well as workmen comp just in the fourth quarter was up two percentage points.

Part of that was due to just the swings and the year-end reserve adjustments, but still we faced inflationary costs in those of about 10%.

Another part that hurt us there were the COBRA benefits that were mandated by the federal government at the beginning of the year, and that came on the heels of trimming our workforce back.

Right now, we are down about 16% from the levels that we had -- the deployment levels we had in September of 2008.

So all those folks that are no longer with us, we had to provide COBRA -- extended COBRA benefits.

And you talked about reserve adjustments in there.

Was that in the fourth quarter '09 or '08?

Well, we had some of that in both quarters.

It was more positive, as I indicate in my comments.

We did have positive adjustments in the fourth quarter of about $1.9 million.

I must have misunderstood.

I thought that was on the insurance line.

Well it is.

It was on the insurance line.

Well, you're right, it was the insurance line that that did hit.

Okay, so not related to salary, wages and benefits.

Yes, that is correct.

Okay, great, good color there.

And then the second question I had just had to do with the sequential trend.

When you looked at the tonnage in the fourth quarter relative to the third, how did that compare historically for you?

The numbers I look at, it looked like it was on the lower end of what you've experienced over the five or 10 years, the exception being last year, but maybe I'm looking at it differently.

Well, actually during the fourth quarter, as the fourth quarter proceeded, we saw sequential from October to September, from November to October, from December to November all a little bit better than what we have experienced over the last five to 10 years, albeit on a lower base.

But only slightly better, not anything to the extent that you could associate with any significant improvement in economic activity.

Some of it we would have to assume also came from the increased market share which we saw in the fourth quarter.

Sure.

Okay, great.

Thanks a lot, guys.

Tom Albrecht, BB&T Capital Markets.

Hey, guys.

Congratulations on a nice quarter.

A couple of different things.

Wes, why did you stop providing inner-city miles?

Inner-city miles?

In your stat sheet?

It has always been a good statistic that you provided.

Well, I'm not sure what we did.

I have to go back and look at my notes, but I am sure I had a good reason.

Okay.

I may circle up with you a little bit later.

In the fourth quarter of '08 when insurance was about $11.5 million, in my transition I have lost some of my notes.

Did you quantify how much of an adverse adjustment there was to reserves at the end of '08?

Because normally, your insurance is kind of $6 million to $7 million.

Yes.

If you just hold on a second, I can give you a little bit of color on that, not wanting to get into too much detail.

We had about $2.5 million that was officiated with BIPD negative last year.

Okay.

And then let me see here, over on -- I forgot where it was now.

So are the propane tax credits behind us?

Is that why the tax rate is going to be a little over 40%?

Unfortunately, that is the case, and that is why our tax rate for '10 is estimated to be just over 40%.

Okay.

Would it be fair to assume that if your weight per shipment flattens out or even declines a little bit that unlike previous cycles that that might be a little bit of a bullish signal, considering how much truckload spot market you have done, where that has been maybe a better thing for you this recession than some of your competitors?

I think it would be interesting.

Now, it is true that some of our increased overall weight per shipment does come from an increased overall mix of spot type shipments.

But even when you look in the LTL, we were still up.

But that would be an interesting metric to watch, because I would expect our weight per shipment to drop and our number of shipments to increase as the shippers would have to ship more frequently.

Yes, that's kind of what my interpretation is.

And then on the other expense net, it's so tiny this time that it's easy to look past it, but the last quarter or two there has actually been a favorable entry for gains in your nonqualified deferred comp program.

Was that a factor once again?

It is, yes.

And how much?

I don't know the number, but obviously with the improvement in the stock market overall compared to what it was last year, which we had some negative adjustments last year and some positive adjustments this year.

I think it was about $700,000 positive.

Okay.

All right, that's all I had.

Keep up the good work, guys.

Tom Wadewitz, JPMorgan.

Yes, good morning.

Wanted to get your sense of optimism or whatever the sense is on pricing.

It appears that one of the big competitors has eased up a little bit on their approach on pricing, but at the same time it would seem if YRC doesn't go away that the market probably is sitting with a lot of excess capacity.

And I am wondering in that scenario, do you think it's realistic to see pricing really improve in the next couple quarters here in the near term, or is that pretty challenging to do, given that you may be sitting in the market with a lot of excess capacity?

Tom, it's real hard to say, but another factor that could improve pricing would be the carriers looking at their -- just basically at their operating ratio.

And heck, if they look at ours and see how successful we are with good pricing discipline, maybe they will give some religion and try not to be so aggressive.

Because it really doesn't pay off in a poor tonnage freight environment.

So that might could help a little bit, but I think with the excess capacity in the industry out there that that is going to continue to put pressure on pricing throughout 2010, until there is some change in the supply and demand equation.

Okay, and if I look at your pricing in 2009, you have done great job at keeping your pricing pretty flat sequentially.

I guess there is a little malaise, but you have really done a good job with discipline on your own pricing.

And yet at the same time, we have seen the margins sequentially come under a little bit of pressure in terms of third quarter a little worse than second.

And I guess whether or not you want to add back that 1.1 -- whatever it was, $1.6 million I think that you mentioned.

Wes, if you add that back, then it looks like kind of 94.5% OR versus 93.8% in third.

So if you don't get any kind of a rate in 2010, is it reasonable to think that the margin comes under further pressure and you see another 100 basis points against you, or are there some cost levers that maybe I am not seeing that you really can push on in order to keep that margin flat?

Well, I think it is still unclear.

And obviously, we are not providing guidance just because of those uncertainties.

But it depends on what happens in the economic environment where we see some improvement and some additional tonnage just due to economic activity.

But as David mentioned, without a YRC exit, it's hard to tell what pricing will do.

And it just depends on what the competition does to improve their margins.

I think that probably when you look at all the cost structures of the LTL sector, what you can take out in cost -- and that is wage reduction and other forms of reduction -- is pretty much that hand has been played.

So the only other avenue is to improve pricing, and whether the discipline of that plays out, we will just have to see.

We continue to have some areas for productivity improvement within the Company, and I'd rather not get into those specifics because some of them are competitive in nature.

Okay, but Wes, on your comments when you say you kind of pushed on the cost levers, you're talking about not only the market but yourself as well.

Well, I mean we haven't played -- not that we even considered it.

I think that we choose to continue to focus our efforts on productivity and we still have, as David mentioned, still have some -- I think some initiatives to continue that to keep pressure off of the margins.

Right, right.

Okay, great.

You guys are doing are well on the productivity and so forth, so thank you for the time.

I appreciate it.

John Barnes, RBC Capital Markets.

Good morning, guys.

Thanks for your time.

In terms of the employee, Wes, I think you indicated that you might have to add some people if you started to see an increase in tonnage, but you feel like it would be slower.

It sounded like they weren't working the full workweek yet.

Could you give us an idea of where the employees are in terms of their workweek and where can they go?

I am assuming they are working less than 40 hours, and what have you historically let them run up to from an overtime standpoint before you started layering people back in?

Our normal workweeks have been 45 to 50 hours, and we are probably in the 40 to 45 hour -- the low 40s right now.

We are getting fairly full if you want to call 40 hours a full workweek.

So we are talking about adding four or five hours a week per person, or maybe they could work maybe 10% more than they are now to go back to the historic levels.

It's important to note that we do not pay time and a half until about 60 hours.

Okay.

All right, very good.

Then understanding that you guys didn't play the volume price swap as aggressive as others or at all, I'm still curious as to given where rates are today, is there are some percentage of your revenue, is there some percentage of your business right now that is at '09 compensatory rates that you can attack in 2010?

Or do you feel like at this point you are making a sufficient return; you're generating a significant rate on all of your business?

John, there is certainly a percentage of business at '09 compensatory rates.

I can't tell you exactly how much it is, though.

I don't have a number on not that.

And we would expect in a balanced supply/demand situation that we will certainly go back to those '09 compensatory accounts and raise prices.

But on the majority of the rest, we don't have a need to make major price adjustments should we have industry capacity leave.

Okay.

Of the business that is at the '09 compensatory rates at this time, is that business that has been won in the last six to 12 months and is stuff that came over from, whether it be YRC or another ailing competitor?

Or is that business that maybe the contract expired and just too difficult an environment, too big a risk at losing the share to go out and try to change the rates?

John, I would give you a quick answer.

I don't know.

Okay.

It's hard to answer that one.

Some of that business has been onboard all along, and we've had to defensively protect it and have had to take it from the profitable category to the slightly unprofitable on a fully-allocated cost basis in order to hold it.

And those would be accounts that we would expect to go back to with an attempt to improve the pricing.

Okay, very good.

Then lastly, can you comment on growth plans in 2010?

Specifically, how many terminals do you think you need to upsize; how many additional service centers you think you might open in 2010?

Just give us some color there.

Under a YRC lives scenario, we don't have any appreciable needs for additional capacity anywhere.

If they exit the market, we will have to reassess our needs.

Okay, very good.

Nice quarter, guys.

Thanks for your time.

Matt Brooklier, Piper Jaffray.

Thanks.

Good morning, guys.

My question had more to focus on kind of your current strategy with respect to your capacity -- your capacity levels and your pricing.

You guys have indicated on the call that you have roughly 20% to 30% incremental capacity at this point in time.

You have stuck to your guns on pricing; you have held firm there.

I guess the question is how committed are you guys to this strategy on a go-forward basis?

Is it kind of you are comfortable with kind of the current capacity levels and your pricing strategy going forward over the next six to 12 months, or how are you guys thinking about this given the fact that YRC one day could be around or could exit the market?

We have worked really hard for years and years to be consistent with our approach to customers to reach a fair and equitable price that is a win-win for both parties.

And that is that philosophy is not going to change, so we will continue trying to achieve that fair balance with the customers.

Under that scenario, our service levels are so good that our customers are sticking with us and they believe in us.

We think that this is the right approach to the marketplace, and we have no intention of changing it.

Okay, so it sounds like there's no change in terms of your mentality or strategy on price.

What about on your current capacity levels?

Say we move out six months from now and it looks like YRC is going to be around a little bit longer than people had anticipated, is there the thought that maybe you need to trim back a little bit on capacity?

Or are you guys currently very comfortable with kind of your current capacity levels?

I mean if I look at your earnings report today, you guys are doing just fine and still running with excess capacity.

Matt, we are not operating for the next quarter or the next six months or the next 12 months.

We are a long-term player, and our plan is to continue growing the Company.

We have actually probably 40 or more cities on our horizon for the future to continue filling out the US and Canada and North America, if you will.

So we are a growth company and we plan to be here for the long run.

So we have no intention of reducing capacity.

Okay, very good.

Thank you for the time.

David Ross, Stifel Nicolaus.

Yes, good morning, gentlemen.

Your team must be very proud of the operating that you do through this great freight recession we are currently in.

Anyway, can you talk a little bit about the average number of employees?

You mentioned that workforce is down 16% from September 2008, but maybe kind of sequentially from the third quarter to the fourth quarter what happened and kind of where are you in terms of total employee count?

It's roughly the same.

We are slightly under 10,000 full-time employees, and I don't think it has changed more than 25 or 30 at the most from third quarter '09 to fourth quarter of '09.

Okay, then it sounds like it's (technical difficulty) up in the first quarter so far from the fourth, probably continues to grow (technical difficulty).

On the DRI that was announced last week, I know you guys did it on the length of haul basis, and it averaged out to maybe 4.4%.

What percent of your business does that apply to immediately versus what percent has to be done with contract negotiations over the course of the next year?

It gets a little hard to look at, but the pure revenue that it is in our 559 is about 38% of our revenue.

But we also have some contracts that may reference the 559 as well.

So it may be a little bit more than that.

Okay.

And then lastly, just commenting on other services.

I know you guys have been growing a little bit under the radar in your container services and other expedited logistic markets.

How much of that business is kind of revenue number, and then what's the growth rate on that compared to the LTL business?

Wes, do you have those numbers?

We had -- in our container business, it was down as well.

For the most part, down at the earlier of the year, then started to improve as the year proceeded.

But it was down 19% percent for the whole year as well, but we had some significant increases in some of our other added value.

The expedited freight was up about 17% for the year, so we had some positives in that number.

Still accounting for only about 1.7% of our revenue, but still had meaningful growth there.

That expedited freight, that's over-the-road trucking expedited?

Well, it could be; depends on the customer requirements.

Okay, it could also be air expedited, just depending on --.

A little bit of air, but it's mostly ground.

Then have you all looked at the exhibit, kind of like the exhibitions conference arena type business, and whether or not that's a big piece of your LTL market?

Well, do you have some freight there?

There's a lot of freight there.

We are not in that market to speak of.

We do serve a little bit of it, but it is not big at all.

Okay, thank you very much for the time.

Edward Wolfe, Wolfe Research.

Good morning, guys.

Wes, can you take us through what depreciation looks like now that you ramped up CapEx this year but you're coming down next year?

How should it look throughout the year?

Through which year?

2010.

Well, we would anticipate that our depreciation would be up slightly as you get a full year of depreciation on the equipment and real estate that we added.

But it ended this year at just under $75 million.

We expect it to be somewhere in the $100 million range in 2010.

Kind of ramping up gradually through the year kind of thing?

As we start to depreciate -- although our CapEx is significantly down, we do have CapEx, as we mentioned, in $90 million to $100 million.

But also on some of the equipment that we added in '09 would be a full year of depreciation on that equipment as opposed to a partial year in 2009.

We are buying -- I believe it was $25 million of the $90 million to $100 million is in tractors and trailers.

Correct.

Okay.

David and Earl, I know a lot of people have been trying to get at pricing.

Just another question here.

When do the GRIs go into effect?

Middle of January.

Ours went into effect the 18th.

And the last couple, three years, everyone has put in GRIs even a little higher than this and seen nothing, if anything, given way.

What is your approach to the 4.9%, and is it your sense that it is sticking any different, better or worse or different?

I know it's real early.

It's just a couple weeks relative the last one a year ago.

So far, it is sticking.

So if it is sticking and it's a 30-year business, why shouldn't a 30-year business is up 5%, why shouldn't we see flat go to positive 1.5% by year-end if nothing else changed?

Is that a fair thought process?

It's still very early, Ed.

Okay, but assuming this --.

If nothing else changes, your math may be correct.

Directionally, though, I would think -- am I wrong, David and Earl, that if you had to guess right now for the next 12 months, given what's going on with consolidation -- not just YRCW but consolidation overall and like you said, people learning that holding your discipline seems to have value -- would you guess around the edges pricing directionally should improve, not get worse from here?

And if that's the case, that 1.5% is obtainable by year-end?

In my opinion, I don't know whether David and Wes agree or not, but I think pricing is going to get slightly better this year.

And another thing, January offers some hope that the economy is improving.

Our January is looking pretty darn good under the circumstances.

And if that's the economy, hopefully, we are going to get some help there and that should help to firm up prices a little bit.

And the added volume should -- some of it is going to fall to the bottom line.

So we feel real good about '10.

Can you tell us that January is related to YRC volume coming your way or the economy?

Ed, we can't.

Anecdotally, we do see that our length of haul is again up almost 5% month-to-date in January, year-over-year.

Okay.

Is it possible that if volume feels good in January that your OR could actually improve in first quarter relative to fourth quarter?

Well, I am not sure we suggest that it feels good.

It feels better, but we are not giving guidance on the OR.

Sure, okay.

Thanks guys, appreciate it.

Chris Ceraso, Credit Suisse.

Good morning.

This is Allison Landry in for Chris today.

How are you guys?

Hi, Allison.

A couple of quick questions.

If we could just go back to the insurance claims, what's a good run rate to use going forward?

I know for 2009, it was about $23 million.

Should we expect something similar to that or down a little bit?

Typically, our insurance -- well, at one point -- we have continued to improve insurance, specifically as it relates to both the BIPD, which is the auto liability, as well as the cargo claims.

Our cargo claims in '09 was about 1.2% of revenue or 1.1%, improved about 0.7%.

So that hasn't happened by accident.

That's happened because of a lot of investment and attention, and we anticipate that continuing.

On the BIPD as well, we have seen continued improvement in our accident frequency ratio, which in '09 improved 12% over what it was in '08, and we'll continue to maintain focus.

So the 2.3% insurance that we experienced in '08, we expect to do that plus better than that on a run rate into 2010.

Okay.

Then if we could go back to weight per shipment, I know it was up 3% year-over-year in the fourth quarter, and that's compared with something around I guess flat in 3Q '09.

Can you talk about what changed?

Because it seems like if I go back to even 2Q '09, it was up about 2.5%.

What changed is we had heavier shipments.

But I'm not -- and part of that was an increased -- overall was an increased mix of spot quotes, increased that.

But as I mentioned earlier, we did see about a 1% increase in weight per shipment even within the LTL category.

And I am not sure if I can give you all the reasons.

There would be many reasons and I'm not sure I could enumerate exactly why, other than continued consolidation of shipments into larger shipments by our shipper base.

Makes sense.

Thank you for the time.

Arthur Hatfield, Morgan Keegan.

Good morning, everybody.

Most of my questions have been answered, but just to clarify, Wes, on your CapEx guidance, that's a net number, correct?

That is a net number, yes, Art.

Great.

And then you've spoke about this on the weight per shipment and you just discussed it further, and you said you probably did see it, but are you saying anything in particular areas of the country or with a particular industry that would tell you anything about what's going on with weight per shipment?

I can't give you details of exactly where it is, but just generally, just overall.

Okay.

Then finally, I haven't heard this in the past with LTL carriers.

But with global trade and everything, do you all see a change in shipping patterns in the first quarter based on where Chinese New Year falls?

I --.

I take that as a no.

No, I'll take that as a no.

There seems to be -- I mean everything I read and our numbers indicate that there is increased global activity with containers coming into the US.

And also there appears to be some increase in air traffic also from the Far East into the US.

So maybe that is a precursor to more domestic tonnage.

Okay, that sounds very good.

Thanks, that's all I've got today.

Jason Seidl, Dahlman Rose.

Earl, David, Wes, how are you guys this morning?

Guys?

Yes, Jason, we are here.

Just making sure you heard me.

The comments on closing the door on 2009, I think that's pretty accurate, but I would just say make sure to lock it and bury the key somewhere in the backyard.

I agree.

Wes, you talked about the depreciation hit you guys took for holding excess equipment to make sure that you had available capacity if YRCW were to go out of business.

Could you clarify that for the year and how much that might've hit you?

The depreciation?

Yes, the excess from the equipment that you guys were just holding just in case?

The real estate and the equipment probably hit us by about 150 basis points on the OR year-over-year, with buying that.

In other words, if we hadn't bought that equipment or bought that real estate, our OR would have been about 150 basis points better.

Of course, that would have come back to us in 2010.

You can't postpone those purchases forever, and we are getting the benefit of that in 2010 with our equipment to CapEx only being $25 million.

We got a [big one] on engines, too.

That's true.

I mean the fact that we bought that equipment in '09 did save us from having to buy it and spend about $8,000 to $10,000 more per unit in 2010.

And that's for 500 tractors.

That's great color.

Thanks, Wes.

Kind of in relation to that, we have seen a lot of your competitors defer their capital spending almost down to the bone to where it's probably below maintenance levels, well below maintenance levels for like the last 1.5 years.

As you look to 2011, a lot of these companies are going to have to start putting cash back into their fleets.

Do you think that actually could bode well for pricing?

Is that going to bring some more rationality behind the marketplace?

Well, for sure that will increase their cost, and pricing would be a good way to help that, yes.

Well, hopefully, they use you guys as a blueprint for success.

Thanks for the time as always.

This does conclude today's question-and-answer session.

At this time, I would like to turn the conference back to our host, Mr.

Earl Congdon.

Please go ahead.

Okay.

Well, listen, thanks again for participating today.

You had some real good questions.

We appreciate your support for Old Dominion, and feel free to call us if you've got any further questions.

This does conclude today's conference call.

Thank you for your participation.