奧多明尼昂貨運 (ODFL) 2010 Q2 法說會逐字稿

Good morning, and welcome to the second quarter 2010 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through August 6th by dialling 719-457-0820.

The confirmation number for the replay is 5294879.

The replay may all be accessed through August 28th at the Company's website which is at www.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 effected by the important factors among others set forth in Old Dominion's filings with the securities and exchange commission, and in this morning's news release.

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

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

As a final note before we begin, we welcome your questions today, but ask in fairness to all that you limit yourself to just a couple of questions at a time before returning to the queue.

Thank you for your cooperation.

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

Earl Congdon.

Please go ahead, sir.

Good morning.

Thank you for joining us today for our second 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.

Old Dominion's strong results for the second quarter of 2010 clearly demonstrate that we are continuing to recover from the recessionary economic environment.

Revenue for the second quarter increased 16.5% following a 7.7% increase for the first quarter.

As anticipated, revenue growth at this rate generated significant operating leverage, which was primarily responsible for the 100% growth in earnings year-over-year for the quarter.

We are encouraged by the trends in our revenue growth for the quarter, both in terms of volume and pricing.

Our tonnage increased 13.4%, reflecting a growth rate in the year-over-year tonnage per day that has increased sequentially during each month of 2010.

This sequential monthly acceleration has continued thus far in July, when historically we have experienced declines in tonnage per day, compared to June.

In addition, we were pleased to produce nearly a 7% increase in shipments for the quarter.

Growth in shipments year over year had slowed in the first half of 2008, and had been negative since the third quarter of 2008, until they increased a slight 0.1% for the first quarter of this year.

While our tonnage growth is in part attributable to slowly improving economic conditions, it has been further strengthened, as anticipated, by volume attracted through our high quality service at a time when other providers are having to raise prices in order to improve their operating performance.

In contrast, we have maintained our philosophy and practice to consider the freight characteristics of each customer, to ensure a fair and equitable compensation that supports our valued proposition.

The success of this strategy is evident in the consistent and growth in our volume trends and industry leading financial performance.

Our visibility with regard to the second half strength of the economy is limited and made more complex by the potential impact of legislation on health care, energy, labor and taxes.

Despite this, we believe our second quarter results and accelerating business levels, offer compelling evidence that Old Dominion is well positioned to continue producing industry leading results through a proven core strategy of providing outstanding service at a fair and equitable price.

So thank you again for being with us today.

Now here's David Cogdon to discuss our second quarter operations.

Thank you, Earl, and good morning.

For several quarters now, we have discussed with you that Old Dominion was very well positioned to leverage an improving economic environment.

In addition to the inherent structural competitive advantages, due to our integrated regional and interregional capabilities, we have a relatively lean, highly productive work force with strong morale, excess equipment and service center capacity, and financial strength.

Also as Earl mentioned, the combination of our high quality service and yield philosophy, has put us in a strong position versus some of our competitors who cut both pricing and service standards during the downturn, and who are now trying to recover.

Our positioning is strongly validated by our second quarter results, as increased revenue drove a 410 basis point improvement in our operating ratio to an 89.1%.

We produced our first sub 90% OR since the 89.8% ratio for the third quarter of 2008.

Which was a quarter in which we had 10% higher shipments per day.

In achieving this improvement in operating ratio, we increased our incremental margin to approximately 36%, compared with approximately 28% for the first quarter of 2010.

In addition to benefiting from increased density through our network, our second quarter OR included the positive impact of increased productivity in our linehaul and P&T operations.

These enhancements were offset by a slight decrease of 1.3% in platform pounds per man hour, as we hired and trained new platform personnel.

Even with this decrease, our platform pounds per hour have increased approximately 26% since the beginning of 2007.

We shipped 13.4% more tons for the second quarter, while hours worked increased just 12.4% compared with the second quarter last year.

We partially credit our continuing productivity gains over the years, to consistent investment end and effective use of technology.

With $16 million in IT capital expenditures planned for 2010, we expect to drive future increases in productivity and efficiency.

As important as our investment in hardware and software, we also continue to invest in employee education and training, that enables our team not on to understand and use the state of the art technology, but to embrace it as a means to provide increasing levels of customer service and value.

Two key elements of our value proposition are our low cargo claims and industry leading on-time service records.

For the second quarter, we improved cargo's claims slightly from what was a record low of .47% of revenue in the first quarter to .46% in the second quarter.

Our all-time service performance also remained at an industry leading level of 99% for the year.

Looking forward to the remainder of 2010 and beyond, we will continue our focus on the strategies that have driven our industry leading performance throughout the economic downturn and our strong long term record of growth.

We will also continue to increase our service center capacity, by adding new service centers through organic development and/or acquisition, and by expanding or relocating service centers as needed.

Finally, we will continue to develop new services and capabilities to expand our ability to serve our customers' needs.

In addition to our core domestic business, we see continuing opportunities for growth in OD expedited, global technology and supply chain solutions.

In closing today, I want to recognize all members of the Old Dominion family.

The performance of our team, in the extraordinary environment of the last few years, has further and beneficially differentiated Old Dominion from the rest of the LTL industry.

Thank you.

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

Thank you, David.

And like wise, good morning.

Our revenue was $368.3 million for the second quarter, an increase of 16.5% over the second quarter of last year.

This increase primarily reflected a 13.4% growth in tonnage and a 3% increase in revenue per hundredweight including fuel surcharges.

This tonnage increase is a combination of a 6.9% increase in the number of shipments and a 6% increase in the weight per shipment.

Two-thirds of the increase, in the overall weigh per shipment , was due to heavier LTL shipments.

Only one-third was due to mix.

The impact of increased weigh per shipment on revenue per hundredweight was a main factor that resulted in a 1.1% decline in revenue per hundredweight for the quarter, excluding fuel surcharges.

Adjusting for this factor and other freight characteristics, we believe that pricing remained roughly consistent for the quarter compared to the second quarter of 2009 and also the first quarter of 2010.

The combined impact of these various factors is also evident in the revenue per shipment, which increased 9.3% for the quarter, or excluding fuel surcharge, increased 4.8%.

The operating leverage created by strong tonnage growth was the primary metric that improved the Company's OR by 410 basis points to an 89.1% for the second quarter.

This leverage was clear and salary, wages and benefits for the quarter as we continued to match direct labor with daily freight.

Salary, wages and benefits increased 8.3% compared with the second quarter last year.

However, decreased 400 basis points as a percent of revenue.

This operating leverage gains was partially offset by an increase in purchase transportation which rose as a percent of revenue by 70 basis points.

In addition, due to the primarily higher fuel costs, operating supplies and expense, as a percent of revenue increased 230 basis points, while depreciation and amortization declined 230 basis points.

Capital expenditures for the second quarter totalled $18.2 million, all of which was funded with cash provided by operating activities.

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

And it consists of approximately $25 million for equipment, $51 million for real estate, and $16 million for IT.

We also all expect to fund our total 2010 CapEx with cash provided by operating activities, and applying any free cash flow generated during the second half of the year, primarily to reduce debt.

Our long-term debt to total capitalization at the end of the second quarter improved to 31.7% from 34.5% and 34.0% at the end of the comparable sequential quarters, and we expect this ratio to be 30% or less by the end of this year.

We completed the second quarter with available borrowing capacity on our existing credit facility of approximately $91 million.

Our effective tax rate was 40% for the quarter, compared with 40.1% for the second quarter of last year, andwe estimate our effective tax rate for the remainder of 2010 to be also 40%.

As mentioned, sequentially, tonnage into July has been positive, up 1.3% compared to an historic decline in tonnage, from June into July, of a minus 3% to 3.5%.

We anticipate year-over-year tonnage during the third quarter to be in the range of 15% to 20%, and yields to improve slightly as we see competitors seeking increased pricing.

This concludes our prepared remarks this morning.

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

Thank you, sir.

(Operator Instructions).

We'll take our first question from Jon Langenfeld with Baird.

Good morning, Gentlemen.

This is Ben Hartford in for Jon.

Just wanted to ask about the sustainability of driving an OR below 90%.

Certainly at this point in the cycle very healthy and we'd expect as fundamentals improve, as pricing improves that you're able to exceed the previous cycles OR and stay below 90%.

From your standpoint, what are the pressures, what are the limitations that are going to prevent you from operating at a below 90% OR here for the next couple of years?

Dan, we're not giving guidance on the OR visibility going forward.

We had strong incremental margins in the first and second quarter, and we think we can continue that, keeping in mind that those incremental margins were a result of on the increased density.

In our view, we still haven't seen the benefit for any significant increase in pricing at this point.

But we are still encouraged about going forward and how we can maintain our margins.

I would agree that pricing improvement would be the main limitation, because we've been basically flat on pricing for going on four years now.

When actually, from 2002 through 2006, we were averaging as an industry and for our Company, probably 3% to 4% annual price increases.

So you know, pricing improvement is obviously important.

Our rate increases are obviously important as the cost of doing business rises.

Okay.

Specifically on the D&A, anything beyond the expansion of the estimated useful life that drilled that lower?

Is the $90,500, is that a good base line to use going forward?

I'm not sure what you mean $90,500.

$19,500.

The D&A in the quarter that line item, that $19,500.

Is that a good base line going forward?

Yes.

Going forward, at least this year.

Next year it will depend upon, you know, anticipated increases in tonnage and additional equipment.

But, certainly base line for this year.

Sure.

And then one follow-up, if I could?

Weigh per shipment being up about 20% today, relative to kind of 2005 levels on very similar lengths of haul.

Has this been a strategic shift?

Is this sustainable?

Is this a new mix of business and you'd expect this type of weight per shipment to be representative of the business going forward during the next cycle?

I think it's a result.

Some of it potentially is a paradigm shift from trends just within the industry itself.

There is a mix there that's probably going forward will stay the same or fluctuate, depending on spot quotes, etc.

So it's hard to say exactly what that continuing will be.

For sure, as we increase our exposure into large national contractual relationships, they typically have a larger weigh per shipment.

And that's been some of the difference in the mix.

So, all those will have an effect.

It's hard to know exactly what it is at this point

Okay, great.

Thanks for the time.

And our next question comes from Justin Yagerman from Deutsche Bank.

Hey.

How are you?

Good morning.

Wes, you gave some guidance on tonnage for Q3, but can you just take us through what tonnage growth was April, May, June in the quarter and then what it's been month to date in July?

Yes, I can.

As we said in our comments, Justin, we did see incremental tonnage improvements, at least year over year.

In April, and many of these numbers I have already given, but just to reinforce, in April we saw 11% increase year over year, in May that increased to 12.8%.

And in June, that increased to just under 16%, 15.9%, to be specific.

July, which isn't done, although pretty much done except for a couple days, we are seeing 21%.

Wow.

All right.

Great.

As you look out over the next year or two, you guys are going to have a different issue to deal with, which is cash management from a free cash flow standpoint.

How do you think about that as you move forward?

You haven't historically paid a dividend.

Is that something you think about starting to instate?

You put a share buy back plan into place, so you can start thinking about defending the shares if they start dipping?

Or are you going to be focused on de-leveraging the Company, and I guess alternatively, we haven't seen you make an acquisition in a little while.

Is that something on the table?

Looking out over the next year or two, how are you thinking about managing the business if you do end up with some nice cash generation?

This is Earl.

We haven't gotten to that point.

We haven't had free cash flow long enough to maybe to know what to do with it.

But acquisitions are always on our minds, and we're always looking at various possibilities.

So the idea of a dividend right now, with the growth that we expect in the months and years in the near future, I don't believe that we're going to be interested in paying dividends yet.

We'll just use our free cash flow to gradually reduce debt and continue to strengthen the balance sheet, and it will probably find its way into the pockets of someone who wants to sell a good business.

Speaking of that, how is the acquisition market right now?

I guess what are you guys looking at in the current environment?

David, you want to?

Justin, we receive inquiries fairly regularly regarding businesses that are for sale.

We always take a look if it looks like it has a strategic purpose.

We haven't found anything yet that totally fits our needs.

I think the best thing to say is, that we keep our eyes open for them.

In LTL, being that we have nearly covered our footprint of the United States, and the remaining service centers that we wish to open are mostly fill-in centers, and with our coverage and service levels and service offerings, we can open from scratch with very little cost, those additional service centers.

So, the LTL spaces may be a little less attractive to us, but the other value added services may be a little more attractive for us to look at in the future.

Got it.

And following up on that and then I'll turn it over to someone else.

Wes, you called out purchase trends as one of the places where you saw an increase in costs in the quarter.

I'm assuming that's volume related.

Can you give us a sense of how much of that is inter winding and how much is substitution linehaul and then along those lines of the acquisition question before, is a truckload carrier something you think about looking at, as a way for offsetting some of the spot volatility and substitution linehaul?

I'll give you a more detailed look at that.

Three types of purchase transportation that we have.

We do use some carted agents to deliver to outlying agents.

To really remote areas.

And that was up 30%.

Our linehaul purchase transportation, which, keep in mind, is still a very small percentage of our costs.

It is only half of 1%, was up 130% off of small numbers, but still up.

And that was in the linehaul where we saw ourselves imbalanced in some of the longer haul lanes, specifically California as an example.

Then the third one is actually a bullish measure.

That's our lease operators, which is predominantly our container division.

And that was up 43%.

But however, the revenue on our container division is up 45%.

That's a bullish statement and not necessarily related to costs.

Just to a different mix and growth in that segment.

So all those combined is what caused that increase of 7 basis points.

At this point I think we could say that we have some interest in acquiring a truckload carrier or getting into the truckload business, possibly even organically.

I don't believe we have recognized that we need a truckload carrier to do an appreciable amount of freight lines linehaul work at the present time.

Okay.

That's really helpful and the commentary on the purchase trend was interesting.

Thanks Wes and Earl.

Our next question comes from David Ross with Stifel Nicolaus.

Good morning, gentlemen.

Good Morning.

Good Morning.

Can you talk a little on the labor side?

With taking market share, has your sales force grown at all, and then second question on the labor side would be, adding the dock workers back in the quarter has volume picked up?Was it easy to find employees or was that a constraint?

Well, finding dock workers has been easier than finding drivers at this moment.

We're surprised with how tough it's been recently to find good drivers.

But we're continuing to hire on the dock, guys that have the capability of becoming drivers, and running them through our driving school.

So that's how we're handling that.

We have grown the sales force a little bit this year as we've had opportunities to bring on some high quality people.

And then the depreciation expense savings from your change in the depreciable life, what's the one time benefit on a quarterly basis this year?

Is it about $2 million, $2.5 million?

It's less than that.

It's kind of a hard number.

Even though we increase the lines and reduce the salvage, some of that equipment may have been sold during the quarter.

But probably it's just under the net benefit would be just under $3 million for the quarter.

Okay.

And then can you comment on regional pricing versus longhaul pricing in the LTL segment.

Do you see more competition in one area than the other?

I think our long haul pricing probably is doing a little better, and that's for the most part a lot of that's contractual.

On the regional, we're still getting some pressure on the regional pricing.

And that's probably coming more from the smaller regional carriers.

Is that more pronounced in any area?

Are you having an easier time getting price increases in the Southeast, and the Northeast and the Midwest?

I don't know if that's pronounced in any particular area.

Last question, is service center count at the end of the quarter?

210, still.

Excellent.

Well thank you very much.

Thanks, Dave.

Our next question comes from Jason Sidel with Dahlman Rose.

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

Great.

This is a question probably for all you.

When we hit the downturn, it seemed like the shippers were more focused on pricing than anything else.

As you slowly start to recover, and as capacity gets a little tighter, service starts taking over the top slot again, or at least coming close to it.

Do you think the fact that you guys are out there taking market share and that your year over year tonnage growth is going up, is sort of an indication that, hey, we are on the rebound, service is becoming more apparently important to these guys especially since you guys are at a 99% on-time?

Yes.

There's no doubt about that, Jason.

In fact, we did a survey of our sales force a couple of years ago, we asked a lot of questions about customer behavior.

And one of the final questions was what percentage of the decision is service versus price?

This is during '08 and first part of '09.

It was 90% price and 10% service.

And the second question was, in a normal economy, what is the tradeoff?

And it was 55% price and 45% service.

So I think it's going back the other way now.

That service is becoming a greater factor in the decision making process.

And, it's getting harder to get the low price now, because those that have practiced that are hurting, and prices are going up from those carriers that have been reducing prices, and now there's not that big price advantage in using someone other than Old Dominion.

So we are taking some market share.

Fantastic.

On pricing, Earl, as we see some of these other carriers try to push through price increases, that were far probably below yours in the rates, is it a thing where Old Dominion will be able to start ticking up the pricing, since you guys held the line, so you were a little bit more expensive, but now with everyone else ticking up, you're going to get the opportunity to price for the differential service?

On a selected basis we will be able to increase some prices.

But, you know, we don't need the drastic price increases that some of our competitors need.

When your operating ratio is where ours is.

We're in a very comfortable position I think, selectively increased prices, where we might have an OR on a large account, of say, 110 or 115, we might want to try to pick up a little something on an account like that.

We're not going to need the increases that some of the other carriers are going to need.

One other point to make, Jason, in our analysis and one of the slides that we show in our investor presentations, indicates that on an index pricing basis from the first quarter of 2008 through the first quarter of 2010, we reduced prices by approximately 8% over that period where the competition reduced their prices on average, 15%.

Now, our 8% was just us, and the 15% was all the other public carriers that we had information on.

So, if that average was 15%, there was some of these carriers who reduced prices more than 15%, and some who reduced prices less than 15%.

But those who drastically reduced prices to gain a lot of tonnage, you saw what happened to their operating ratios.

They're having to go in and raise prices drastically to get their margins back where they belong.

That's for sure.

Holding the line was definitely the best route to take.

You guys have proved it.

When you guys are looking at potential expansion beyond your LTL businesses, are the multiples that you would pay for some of these businesses in line with LTL multiples or will you have to pay more for some of these ancillaries?

Well, we have to pay a little bit more.

The more we have to pay, the less likely we are to buy one.

One of the problems with buying, paying too high of a multiple, is that such goodwill involved, to us that every carrier and company who has bought some of these asset light models, tends to write off the goodwill in time.

And that's something we don't want to do.

That's where I was going with it.

Perfect.

That was a good answer.

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

I'll turn it over to someone else.

Your next question comes from Jack Waldo with Stevens, Inc.

Good morning.

Congrats on a good quarter.

I have two questions.

One was , you were talking about incremental markets continuing at some relative pace.

Are you indicating they should continue more with what we've seen in the first half of the year, or would you think that they would even out at that 20% incremental margin we talked about in the

I think at some point it's got to even out.

We've always said that incremental margins, when we were growing an existing network, is 15% to 20%.

Obviously, it's above that because of the leverage that we've had.

so, just looking longer term.

Right now we're filling up excess capacity, we are using trucks that were parked against the fence.

So we're having some pretty nice margins.

But when we start having to add to service centers again, that will start to eat away at those incremental margins.

Right now, in terms of capacity, we, Wes you, had a number the other day.

We still have 10% to 15% in equipment and just over 20% to 25% in real estate.

How about in your employee base, how much more excess capacity do you think you have?

We're running people pretty hard right now with tonnage levels that we have.

So we've basically taken people back up to full work-weeks.

And, we are hiring.

So we're helping the unemployment rate a little bit.

Good.

And then my last question is kind of a bigger picture question.

This earnings season we've seen some historically best sequential incremental margin improvements and also tonnage growth.

And it's not just from you guys but a lot of your competitors as well.

There seems to be this thought that there's a lot of excess capacity in the LTL space.

I'm trying to reconcile, how are we getting all this improvement , if there is all this excess capacity in the LTL space?

I would be interested to get your thoughts on that.

Also how you think capacity shapes up in the LTL

We can address ours.

But I'm not sure we can address the industry overall.

We don't know.

I do feel within the LTL, that there's less capacity than maybe what people imagined.

There's been really a lot of consolidation into space already.

If you look at the number of service centers that are existing now compared to what was existing two years ago, it's much less.

I'm not sure if I can address overall metrics for the industry overall, however.

Excess capacity has shifted from some of the carriers who have grown significantly.

They have sopped up their excess capacity.

Now the excess capacity is over on the carriers who have lost the most tonnage.

We may be the only LTL carrier that hoarded a lot of trade-in equipment expecting the demise of YRCW, which of course, we all know hasn't happened yet.

So we probably had more excess capacity than anyone.

Good.

I just wanted to say this is one of the most impressive quarters I can recall in the LTL space, particularly given the fact that there's no pricing improvements.

I think you guys deserve your kudos for producing that.

Thank you.

Thank you for your time today.

Our next question comes from Chris Ceraso with Credit Suisse.

Good morning.

Maybe just to wrap up on that discussion.

So if you still have some excess capacity, as we think about working from Q2 to Q3, if you're talking about volume up 15 to 20 year over year, that does suggest revenues will be up sequentially.

Can you do the incremental margin that you did from Q1 to Q2 which was north of 45%?

Or does cost start to come back in because you're adding people?

The incremental margin in Q2 was 36%.

In Q1 it was 28%.

Right.

But that was year over year.

If I look at Q1to Q2 sequentially, it was even stronger than that 36%.

We don't look at it that way.

You got to compare apples to apples by quarter to quarter when you look at incremental margins.

By definition, margins are somewhat seasonal, and obviously from the first quarter to the second quarter, you're going to have better margins than you would sequentially from the second quarter to third quarter.

Okay.

So you can't really compare or assume that the trend will continue if you look at the 45% sequential from Q1 to Q2, from Q2 to Q3.

So what is it that changes from Q2 to Q3?

If volume levels are going to be up a little bit, revenue will be up a little bit.

What's changing in the model?

What's changing seasonally?

I'm not sure that we are seeing anything changing.

But the visibility, even though it's strong into July, for August and September, when you look at some of the economic forecasts, still has some dampers on that.

So we're just taking those into consideration.

But otherwise, at this point, we're not seeing anything material sequentially.

Okay.

Just one question on the weight per shipment.

I understand how your math is working, I think, that higher weight is depressing the yield.

But in theory, shouldn't you be able to charge more for heavier shipments?

And is that something that will come cyclically as we work into this recovery and at some point heavier weight will be a good thing for yield?

Well, don't know about yield.

A heavier weight is good for us because, what pays our bills is the revenue for the shipment, not the revenue per hundredweight.

So if we're getting 5% more revenue for that shipment, it's not necessarily incrementally costing us 5% more to move it.

So a heavier shipment within the LTL sector is a good indicator for us.

And then you add to that, the fact that we're getting more shipments, is another positive compounding the fact which we haven't seen in the last couple of years.

So weight per shipment is good, even though the revenue per hundredweight is less.

Okay.

So we wouldn't expect to see your revenue per hundredweight bounce back.

It's not that there's excess capacity so even though the weight is up, you're not getting the increased revenue per hundredweight?

It's a good economic indicator.

It means our customers and our shippers are getting orders for three widgets instead of one or two.

So, we see that as a positive.

Anecdotally, I was curious to see as the economy improved, whether we would see a higher number of shipments, but a smaller shipment as they were shipping more frequently.

But we have not seen that, which I think is a very positive indicator in that we are seeing more shipments and those shipments are heavier.

It's kind of a double-edged positive in our view at this point.

Okay.

Thank you.

One more positive I'd like to add with regard to our tonnage.

Has to do with what's going on sequentially this year versus our historic trends.

I think Wes gave the month over month tonnage growth.

But historically, sequentially, over the last five year average, when you look at January versus December, then February versus January and so forth and look at seven months, we have historically accelerated about 12% from the beginning of the year through July.

Over ten years, we have historically grown 11% from December through July.

This year we're up almost 23% from December through July.

So we're exceeding our historic acceleration by about 10%.

I think that is a very positive indicator primarily of gains in market share.

Our next question comes from Tom Wadewitz with JP Morgan.

Yes, Good morning.

Wanted to ask you a question, couple different questions, but starting on fuel impact in the quarter.

Was it a meaningful impact in terms of the tail wind or head wind or is it pretty much neutral?

It was neutral in the net view.

Obviously fuel prices were higher as, are you talking about year over year or sequentially, Tom?

I'm talking about year over year and net impact in terms of considering fuel surcharge, as well as the increase in your fuel expense.

Obviously, year over year fuel was higher, as was fuel surcharges, and we usually gauge that to be a neutral impact.

Okay.

So it was pretty much neutral year over year.

In terms of operating ratio, I know you've been asked a couple questions and you don't give guidance on that, but, if your environment going forward looks flattish, continues to be flattish in terms of base rates and LTL and the market doesn't improve much, but you continue to show this pretty strong tonnage growth, do you think you can you make further progress towards mid 80s OR if you look out a couple quarters or into 2011, or do you start to really need, pricing to take a further step improving in OR?

Sounds like you've got some capacity, but maybe not on the labor side anymore.

If you can give some directional comments on that, it would be helpful.

Unfortunately, you're right, we don't give guidance on that

Okay.

Do you think the labor comment as you said you've got room in terms of terminal capacity and equipment, but your labor is essentially fully utilized right now.

Is the labor cost a bigger driver than the other two, in terms of thinking about added tonnage and what the incremental margin would be?

Well, labor obviously is 60% of our cost, so by definition and mathematically it would be a material number to look at.

But, I think just on a serious note, any further margin improvement I think you've got to start looking at some improved pricing.

I mean, although ours has been fairly stable over the years, our cost has increases along those lines since 2006, we have been giving wage increases.

So to get margins substantially improved, not only ourselves, obviously for the industry, has to get some reprieve in the pricing.

Right.

Would you expect to put in a wage increase again this year, later this year, or have you already put one in place?

We did not put one in place as of yet.

Your trends are pretty favorable.

Does that mean it's likely that you would?

That is under consideration now.

Under consideration.

Okay.

Very impressive results.

Appreciate the time and the questions.

Thank you.

Thank you, Tom.

Our next question comes from Anthony Gallo with Wells Fargo.

Good morning.

Congratulations again and thanks for taking my question.

First, Wes, would you happen to have some productivity metrics that you could share, maybe from a few years ago?

Obviously we're all trying to get our arms around the margin, the attractiveness of the margin relative to revenue per hundredweight.

I don't have them right here in front of me.

We did note just in our pounds per man hour, that it's improved 26% since the slowdown started.

I don't have those numbers offhand for our lead and load average, or pick up and delivery for you at my fingertip, but I can certainly get that and get back to you.

That would be helpful.

Then I just wanted to make sure I understood the pricing comments earlier.

It sounds like you are picking up pricing on those accounts that are not profitable or not as profitable as you would like.

But there's not a concerted effort right now to take up pricing.

Is that correct?

Anthony, our general pricing philosophy has been consistent for years and we, on our contractual business, where we have annual reviews, we just review those accounts annually, we're not planning to, it's an on going process.

And as we're also prospecting for new business, I think there is less pressure from competition to give as high discounts as we have historically given.

So we should be going into new accounts and into re-bids with less pricing pressure than we've been experiencing for the last two years.

So, in the course of the normal activity, as we bring on new accounts and as we re-bid, we should start getting better pricing.

But again, we feel we have established fair and equitable terms with our client base all along and we do not need to drastically raise prices like other carriers are having to do.

We do have certain accounts where we took prices down lower, much lower than we normally would have during the recession, in order to retain the volume on the truck line.

And we do plan to go back to these accounts and are going back to these accounts as we speak, to bring our pricing back up.

Okay.

And then I'm not sure if this is a fair question or not.

But if trends continue the way they are, when do you think you start to bump into these capacity constraints with, I guess mostly with equipment, we've talked about,Real Estate, sounds like you've got more cushion.

If these trends continue, is the equipment capacity tight by the end of this year, again, if these trends continue.

is it early next year?

About how long?

We will not have any equipment issues for the rest of this year.

We are just getting into our forecasting cycle for next year where we will begin to determine what we think our growth will be.

And what our equipment needs will be.

We don't see any equipment capacity issues for the rest of this year.

Great.

Thank you very much.

Our next question comes from Ed Wolf with Wolfe Trahan & Co.

Thanks.

Good morning, guys.

Hello, Ed.

So, I just want to get at a little bit of your underlying assumptions and your 15% to 20% tonnage growth.

Obviously you gave that July was up 21% so you've got some piece of that already there.

If I look at the comps from a year ago in those months, they're very similar to second quarter.

Yet you have accelerated tonnage and comments of concerns of clarity of the economy.

You mention on the call several times, market share gains.

Do you visibility to that?

Is it coming from Conway and Fedex calling out freight because they went too far and they have too much in the network?

Is it coming from YRC?

Where do you think it's coming from?

All of that.

It's all of that.

Obviously, we've done some analysis by region of the country.

And we're seeing a little more, it's hard to say it's coming from, Conway or UPS or who it's coming from.

I think it's all across the board in terms of what carriers it may be coming from.

But our growth, and most importantly our improvements in tonnage growth, are all across all of our eight operating regions.

Our sequential improvements, especially from second quarter over first quarter, are spread all over the country, in terms of the improvements that they've made versus the first quarter sequential improvements.

So it's coming from all over.

When's the next time you have a wage increase planned, if there is one?

We have historically given wage increases in September, but we froze an gave no increase in September last year.

We are discussing an increase now and planning to make a decision very shortly to announce to our employees.

So the question, if you did it, it would be in September?

In that time frame, yes.

And, is there some range that you're thinking about?

You're asking questions that I hate to answer at this moment, Ed.

That's fair enough.

I would say, given some of the lack of visibility that we have in terms of the economy in the second half, and the concerns we have with legislation out of Washington, that we need to be conservative with whatever we do.

Conservative meaning don't give too much because the world can change or conservative meaning give more because it might change and you want to be protected with your labor?

We need to be competitive with competition also, Ed.

That's an issue.

We are already in excess of these reduced teamster rates in many places now.

And we need to watch that, in addition to being concerned about what Obama's going to do to us next.

So it sounds like don't do anything drastic from here and kind of wait and see as long as you can?

We need to be thinking about a modest increase for our employees.

That's what it amounts to.

We feel like our employees have delivered the results that we have shown you today, and last quarter, and they deserve something.

But we need to keep it modest until we have a little better visibility on what's going on with the economy and Washington.

I appreciate it.

That's fair.

In terms of the mix of shipment, we're hearing from a lot of carriers that on the truckload side there's such shortages that the LTL guys are seeing more truckload.

Can you talk about that?

What was your truckload tonnage up relative to your LTL or truckload volume up, however you wan to count that, versus LTL?

In terms of mix, what we call spot quotes, during the quarter tonnage was up 27% in the second quarter.

It still roughly a small portion of our overall tonnage.

But still up fairly meaningful.

But what percentage of the tonnage, give or take?

It's about 8%.

That's it.

And that 27%, that's year-over-year?

What did that look like year-over-year in first quarter?

That's quarter year-over-year, yes.

What did that look like?

That's 2Q over 2Q.

What was 1Q over 1Q?

Real similar.

Yes, it was similar.

Okay.

Thanks for the time, guys.

Appreciate it

Thank you, Ed.

Our next question comes from Matt Brooklire with Piper Jaffray.

Good morning, guys.

Is there any way to quantify or at least discuss market share gains for ODFL during second quarter and maybe compare those market share gains versus first quarter?

I'm just trying to get a sense, giving a shift in terms of market dynamics and pricing, if some of your larger competitors starting to ratchet up price, if that's had a meaningful impact in terms of you guys taking incremental market share during the second quarter versus first quarter?

Right now I think if we grew at 13%, I don't think the overall market grew at 13%.

So therefore, by definition, we have increased market share.

You know, we'll have to wait until everyone reports before we have a definitive, quantitative answer on that, as you would (inaudible).

Okay.

But it's fair to say that you guys on boarded more new customers during the second quarter versus first?

We have a combination of new customers and growth with existing customers.

Okay.

Is there any way to provide more detail, in terms of a shift in pricing approaches by some of your larger competitors?

Was there a certain point in the quarter where it felt like you were feeling carriers who had previously been more aggressive in terms of discounting, starting to take rates up, or was it gradually throughout the second quarter?

I would say gradually, maybe accelerating some, as the quarter proceeded.

Some of that's anecdotal from just feed back from our sales force.

Okay.

And in your non-LTL business, logistic stuff that you guys did, you saw a nice up-tick sequentially in terms of the revenue there.

How should we think about that revenue line moving forward and what drove specifically that increase in that revenue line during the second quarter?

Well, keep in mind that our value added is a relatively small number.

So as we put focus on that percentage-wise, we expect to see some good percentage increases.

And part of that is just taking it away as some of the other carriers, specifically YRC, is reducing their visibility in some of those areas.

We've been the beneficiary of some of that in some cases.

Okay, thank you.

Our next question comes from Neil Deaton with BB&T Capital Markets.

Hey, guys.

Congratulations again on the quarter.

I'm on for Tom.

He couldn't make the call.

Couple quick pricing questions.

Of your freight that re-priced during the quarter, what was the average renewal rate, roughly?

We don't have that number in front of us.

Okay.

I can follow up with you offline.

And then, as far as your GRI that you implemented earlier in the year, have you had to discount much of that away or were you able to roughly maintain it?

It ended with a lot so it kind of gets difficult to keep tracking it as other factors influence that.

So it's hard to say.

In some cases we are choosing to try to build our regional business.

So it's hard to say.

I would say basically much of it's probably been given back in order to increase density in some of those lanes.

Okay.

That's helpful.

And then, of your business that you had to defend over the last year or so when others were being [dealing] with pricing, obviously, that's not a lot for you as it is for many competitors.

If you had to quantify that, what percentage of your book of business would you say pricing is suboptimal to your standards?

Well, with an 89.1 OR, it can't be a material number.

But it's there nonetheless.

Probably less than 10%, maybe 5%.

That's a good number.

Okay.

That's good to know.

Just trying to get a feel for when pricing might turn positive for you guys sequentially.

One final question.

Your other expense line ramped up a little bit in the quarter.

I realize that's sort of a catch all category and in the past there's been some volatility related to your non qualified comp plans.

What led to this increase this quarter?

Are you talking about the expense below the operating line?

Yes.

About $1 million this quarter.

Yes.

The increase, that is, in fact, the case, the non qualified plan fluctuates based upon stock prices.

And so we have to record the higher prices if the stock market improved, as it did.

So that is the preponderance of that increase.

Okay.

So that will be like it has been in the past, kind of ebbs and flows?

In other words, that's not going to continue on probably?

The good news is it does continue on.

But that means our participants are doing well in the markets.

But it can fluctuate up and down depending on what's going on in the markets in general.

Okay.

All right.

That's all I have got.

Thanks, guys.

Our next question comes from David Campbell with Thompson Davis.

Good morning.

I heard either Wes or David talk about the opportunity for growth in the expedited service segment of your business.

I was wondering if you could explain that a little bit, why you see growth opportunity there.

Well, you know, we basically have three types of service.

Our guaranteed service which just guarantees our transit time for a premium, our on-demand service, which is a time definite, faster than normal transit time type business, and our air service business.

And just seems that there's a pretty large market out there when you look at how many freight forwarders there are, domestic freight forwarders who sell deferred air freight.

And even among our customer base, we find a great deal of customers who need time definite.

It's got to be there at a certain time, a certain place, certain time, maybe a weekend service, things like this.

And we are just uncovering a lot more opportunities in that area.

Do you have any idea what percentage of your revenues is in this type of --?

Roughly 2%

Roughly 2% of your gross revenues?

Okay.

Well, thank you very much.

All my other questions have been answered.

Thank you.

It appears there are no further questions at this time, Mr.

Cogdon.

I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you.

We would like to thank all of your for participating.

Some real good questions.

We appreciate your support of Old Dominion.

If you have any further questions, feel free to give us a call later.

Good-bye.

This concludes today's conference.

Thank you for your participation.