奧多明尼昂貨運 (ODFL) 2010 Q3 法說會逐字稿

Good morning and welcome to the third 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 November 5 by dialing 719-457-0820.

The confirmation number for the replay is 4559306.

The replay may also be accessed through November 27 at the Company's website, which is at ODFL.com.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding Old Dominion's expected financial and operating performance.

For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release 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 would like to turn the conference over to the Company's Executive Chairman, Mr.

Earl Congdon.

Please go ahead, sir.

Good morning.

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

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

After some brief remarks we'll be glad to take your questions.

We are very pleased to report that the strong growth trends Old Dominion produced over the first and second quarters of 2010 accelerated for the third quarter.

After comparable quarter tonnage growth of 5.8% for the first quarter and 13.4% for the second quarter, our tonnage increased 21.5% for the third quarter.

Shipments, which rose 0.1% in the first quarter and 6.9% for the second quarter increased 13.6% for the third quarter.

This increase helped to drive a 22.7% increase in revenue for the third quarter and a 132% increase in earnings per share.

Ain't it fun?

Through this performance we set a new record for quarterly net income and earnings per share, surpassing the previous record which we set in the second quarter of 2008.

And while a strengthening economy supported industry tonnage growth and firmer pricing for the third quarter, we believe aggregate industry results will indicate that Old Dominion again outperformed the industry by a significant margin.

Our continued market share gains reflect outstanding execution of very sound and proven strategies.

Because of the long term consistency of our execution we were well positioned to capitalize on improved economic and industry conditions as well as the competitive implications of industry peers having to address service, pricing and/or consolidation issues.

As we move deeper into the fourth quarter and look toward 2011 and beyond, we remain well positioned to build on this momentum.

We are confident of our ability to continue to deliver a value proposition of on-time claims-free service at a fair and equitable price that continues to draw customers that demand a dependable logistics partner.

In addition, as tonnage growth and other factors shrink limited excess industry capacity we expect pricing trends to continue to strengthen, building on an inflection point that appears to have occurred during the third quarter.

As a result we are encouraged about our future and see numerous opportunities to expand our services, revenues, service center densities and our margins.

Our strong financial position also provides ample dry powder in the event attractive consolidation opportunities arise.

And, lastly, we are confident that we have the team in place to harness this growth to create further increases in earnings and shareholder value.

Thank you again for being with us today and now here's David Congdon to discuss our third quarter operations.

Thank you, Earl, and good morning.

Let me begin by saying how proud we are of Old Dominion's performance for the third quarter and the OD family that helped make this performance possible.

In response to the tremendous efforts of our team throughout the recession and the improving results we were seeing during the year we granted wage increases of approximately 2% at the start of September.

While you can see some impact from this in the 16.1% increase in salaries, wages, and benefits for the third quarter, our operating leverage from increased density combined with productivity improvements more than offset the increase.

Similar to what we discussed in the second quarter conference call, this operating leverage was nearly all driven by our 21.5% growth in tonnage.

We did continue to see some productivity improvements, but these were offset by some incremental cost increases as we ramped up our operations quickly to maintain high service standards across our network.

These factors drove both our 32% incremental margin for the quarter and the 480 basis point improvement in our operating ratio versus the third quarter last year.

We were in a fortunate position because of the excess capacity we had built into our infrastructure over the last year or two to be able to capitalize on our growth in tonnage and continue delivering industry leading service.

During the third quarter it is our view that industry pricing reached an inflection point and competitive pricing pressure eased.

Our internal pricing improved as revenue per hundredweight remained relatively consistent with the third quarter of 2009 despite a significant increase in weight per shipment.

We believe that a general lack of excess capacity throughout the industry before even entering the third quarter created the most positive pricing environment that we have seen since mid 2007.

Looking forward, we believe that Old Dominion will benefit from this stronger pricing environment both in terms of an improved operating ratio and in helping us to fund a significant increase in capital expenditures dedicated to capacity expansion.

We identified a portion of this increase related to 2010 in our news release.

These increased expenditures are primarily for delivery in December and January of our recent order of 400 tractors.

We are also continuing to expand our service center capacity and may possibly open a couple of new centers during the fourth quarter.

Having recently completed our annual long range strategic planning process, we plan further capacity expansions in 2011, which Wes will address in more detail.

As these plans indicate, we are optimistic about our growth potential into 2011 and beyond.

Because of our operational and financial strength through and coming out of the recessionary economic environment, we have the advantage approaching the new year of being able to focus primarily on maintaining our superior service standards as we strengthen our ability to handle substantial growth in tonnage.

Again, my hat is off to the entire OD team for operating efficiently and providing the highest quality service to our customers which has made our success possible.

Thank you and now I will turn it over to Wes to review our financial results in greater detail.

Thank you.

And good morning.

Old Dominion's revenue increased 22.7% to $396 million for the third quarter of 2010 from the third quarter of 2009.

This increase was primarily driven by a 21.5% increase in tons and a 1.1% increase in revenue per hundredweight.

Our tonnage growth reflected a comparable quarter growth of 13.6% in shipments and a 6.9% in weight per shipment.

Approximately 50% of the increased weight per shipment was due to heavier LTL shipments with the remainder due to changes in the mix of shipments.

This is the third consecutive quarter in which shipments have accelerated and actually the fourth quarter for acceleration in weight per shipment.

Sequentially through the quarter tonnage growth year-over-year was 21.3% in July, 19.9% in August and 23.1% for September.

Although visibility is difficult for all of the fourth quarter, we are experiencing tonnage growth month to date in October of almost 22% year-over-year.

Also as we have discussed with you before, the increase in weight per shipment, while obviously a positive metric for our overall financial results, generally puts downward pressure on revenue per hundredweight.

Our revenue per hundredweight, excluding fuel surcharge, decreased 0.8% for the third quarter but showed sequential improvement throughout the quarter, from a negative 3% in July to a positive 0.7% in September.

Revenue per hundredweight through October excluding fuel surcharge is positive year-over-year by almost 2% with the weight per shipment up just over 1%.

The strong growth in tonnage for the quarter generated substantial operating leverage which was primarily responsible for the 480 basis point improvement in our operating ratio for the third quarter.

The 90 basis point increase in operating supplies and expense as a percent of revenue mainly reflects increased fuel expense.

The 90 basis point increase in purchased transportation resulted from our greater use of this resource to meet the surge in tonnage for the quarter.

Most other expense categories improved as a percent of revenue due to the beneficial impact of tonnage growth including salary and wages and benefits which declined 300 basis points despite the wage increase effective at the start of September.

Capital expenditures for the third quarter totaled $23.5 million all of which was funded with cash provided by operating activities.

Our cash flow from operations also enabled us to reduce debt by $23.1 million during the quarter which helped lower our debt to total capitalization to 29.1% at the end of the third quarter from 35% a year ago.

As David mentioned, we are increasing our capital expenditures in the fourth quarter in response to continued strong growth in market share for the fourth quarter and for 2011.

We now expect our CapEx to range between $115 million to $135 million for the full year of 2010, consisting of approximately $45 million to $65 million for equipment, depending on delivery and service dates, $51 million for real estate and $12 million for IT.

We expect to fund the majority of these expenditures with cash provided by operating activities while still maintaining a ratio of debt to total capitalization at year end below 30%.

Our recently completed plans for 2011 capital expenditures will be in the range of $260 million to $300 million.

This range includes approximately $120 million to $140 million for equipment, up to $120 million to $140 million for real estate, subject to availability, and the $15 million to $17 million for further investment in our IT infrastructure.

Consistent with our past performance, we expect to fund most of these expenditures through cash flow from operation and available borrowing capacity for the remainder.

Our effective tax rate was 40% for the quarter compared to 39.1% for the third quarter last year.

We also estimate our effective tax rate for the fourth quarter of 2010 to be also 40%.

And this concludes our prepared remarks this morning.

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

Thank you.

(Operator Instructions).

We will take our first question from Tom Wadewitz with JPMorgan.

Good morning.

It's Alex Johnson in for Tom.

First question I wanted to ask is are you giving a tonnage guidance for the fourth quarter?

I think you said 22% month to date in October, but do you have a fourth quarter guidance that you can provide?

Well, we are not, Alex, at this time giving a fourth quarter number.

We are just a little bit unsure about the continued visibility, but it has started obviously strongly at 22%, which is the projected increase in October.

Do comparisons get harder as you move through fourth quarter?

And would you expect a potential slowing from the strong 22% in October or is it just hard to tell?

Yes.

You're still trying to get guidance, but we don't see the comparisons getting harder.

Okay.

And then on depreciation in the fourth quarter, I think earlier in the year you said that the impact on net income for the year would be $7.6 million.

You said in this press release that you're sort of on pace with that.

I think the first quarter was $1.3 million.

I think you said last quarter $3 million.

What was the impact in the third quarter and what does it imply for the fourth quarter?

It's -- not giving the number for the fourth quarter but in the third quarter it was again about $3 million.

So if I take the $3 million from third quarter, $3 million from second quarter and $1.3 million from the first quarter from the $7.6 million does that get me in the ballpark?

I think your $1.3 million possibly is after tax and the $3 million in both the second and the third quarter is before tax.

So you need to -- if you're trying to get an earnings per share effect, you need to tax effect both the second and third quarter number that you -- that was mentioned.

Okay.

Yes.

Okay.

I wasn't sure -- you had referred to in the second quarter net impact.

I wasn't sure if that was -- if you were also talking about I think some equipment sales so -- okay.

I'll look into that.

Thank you very much.

Okay.

We'll go next to Davis Ross with Stifel Nicolaus.

Yes, good morning, gentlemen.

Good morning, Dave.

Let's talk a little bit about where you're taking market share.

Are there any regions that are specifically stronger and you're seeing more tonnage gains or is it a length of haul type market share gain or are there any industries in which you think you're stronger than others?

I think it's all of the above.

We can't identify any particular area or industry that's growing stronger than the other.

The obviously from percentage growth standpoint some of our less mature regions are growing stronger percentage wise just because of the mathematics but we're seeing strength in each region.

And then you mentioned that business is a little bit better than you expected in the third quarter in terms of an unusual ramp up sequentially and that you had to kind of catch up near the end of the quarter with new hires to appropriately staff.

Are we going to see any catch up costs in the fourth quarter that may not have been there in the third quarter to maybe dampen the OR near term?

I wouldn't think so, Dave.

Most of -- we have hired a lot of people in the third quarter and most of the training has been accomplished.

And if our tonnage levels stay relatively consistent all through the fourth quarter I wouldn't think that we'll have a tremendous amount more people that we have to hire at this time.

And then as far as the capacity expansion goes for next year, with all the new equipment you're bringing in, are you bringing in any used equipment?

I know some people are balking at the new higher tractor prices and are getting some good late model used equipment.

Are you going all new or is there a mix of used in there as well?

On the tractors it would all be new.

There may be some used trailers, but that's consistent with our ongoing practice.

Excellent.

Thank you very much.

We'll go next to Jason Seidl with Dahlman Rose.

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

How are you doing?

Hanging in there.

I want to focus on pricing a bit.

Obviously you made some comments in the press release and in your prepared remarks that it's improving.

How should we think about the revenue per hundredweight sequentially 3Q from 4Q?

Should we see a stronger improvement in 4Q on a sequential move than we actually saw in 3Q?

We haven't given guidance on the 4Q overall for pricing other than just stating what we're seeing in October.

October is up 2%.

October year over year is up 2% and so obviously -- even during the third quarter as we mentioned in our prepared remarks as well we saw sequentially improving pricing.

Our thought is that would continue throughout the fourth quarter.

Okay.

Yes.

That's what I would think as well.

I mean I'm assuming the industry as a whole you're seeing even the people that used to be more price aggressive now sort of change their tune in the marketplace?

That's true.

One thing that you will see, Jason, is that our percentage increase is likely to be less than what you may see from some other competitors out there because --

You held on price more than they did last year.

They're digging out of a deeper hole.

That is true.

Wes, once you guys pull forward some of these equipment purchases here in 2010 where do you think you're going to end in terms of average age for your tractor and trailer fleet?

Jason, I haven't made that calculation yet so I couldn't tell you.

I know that overall our equipment age is around 7.5 years and obviously that will improve as we go through next year and the equipment CapEx, but I haven't ventured to project what that might be.

That's tractors and trailers 7.5 years?

No.

That's just tractors.

Trailers are longer.

Right.

Okay.

Do you have an average age in the year for trailers?

Probably in the 10 to 11 year range.

10 to 11 year.

Okay.

Fantastic.

I will let somebody else have at it guys.

Thanks a lot.

All right.

Thank you Jason.

We will take our next question from Ed Wolfe with Wolfe Trahan.

Good morning.

Morning.

Morning.

Just an update.

I don't know if it was David or I think it was Wes who gave the kind of sequential tonnage in yield.

I think I missed what you said in July.

You said 19% in August and 23.1% in September.

What was the July number?

July number was 21.3% and then it toned down a little bit in August to 19.9% and then up to 23.1% in September.

Okay.

And then -- and I heard what you said on October.

And then on the yield side you said minus 3% in July and positive 7% (sic) in September, almost 2% in October.

What was August?

August was positive by -- August was still -- was flat year-over-year.

So it went from a minus 3% to a flat to a positive 0.7%.

Perfect.

To a positive 2% in October.

To a positive 2% in October.

Are you guys planning an early GRI like a lot of the other guys have done or are you going to wait until next year?

We plan to announce a GRI in the next couple of weeks to be effective mid fourth quarter.

Any sense of what that number is going to be?

Well, we have not discussed it yet with our sales force or our customers so we'll wait for the release.

Okay.

And when you talk about an inflection in pricing and not feeling this way since 2007, what is it, if you could give a little more meat on those bones, that makes you feel confident in this inflection?

Is it your ability as contracts come up to get rate, is it not losing business or having people call on your customers like they were?

What are you seeing that gives you that confidence?

Well, from that point in 2007 it was a continuous downhill slide in yield and continued increases in competitive pressures.

And so the inflection point was when some of the industry price leaders changed their tune and we can obviously see the inflection point in our numbers that gives us confidence.

So is it freight coming to you because they are culling it out or is it less pressure on your existing business or all of the above?

Well, there's less pressure on bids for new business that -- the pricing required to get new business, there's less competitive pressure there.

There's the fact that the industry capacity is much less today than it had been in 2007, 2008, and 2009.

There just seems to be a lot less capacity.

In fact, we're definitely, from a people standpoint, we have stretched our capacity; and it is indicative in our purchased transportation in the quarter.

From an equivalent standpoint we have less excess equipment.

And we're still in very good shape in service centers, but we do have a handful of service centers that are stretched to capacity right now.

So I think it's just the overall capacity and those other items that I just mentioned that cause us to feel confident that we've turned -- that we've reached that inflection point and yields are going up.

Thanks.

That was very helpful.

I have a couple more, but I will get back on line.

Thank you.

Okay, thanks.

We'll take our next question from John Barnes with RBC Capital Markets.

Hey.

Morning, guys.

Wes, could you just talk a little bit about depreciation expense?

And namely is it sustainable at these levels or as you go through maybe pulling some of the CapEx forward or have to add some more resources as a result of this tonnage trend that you're seeing, should we expect that number to creep back up over say the next five to six quarters?

Well, I think it would be difficult to say that it wouldn't creep up when you're adding $300 million to your CapEx.

Yes.

But we still would bounce that off of future tonnage growth.

So to answer your question yes, we expect it in both dollars and percentage to creep up some.

Okay.

In both dollars and percentage?

Right.

Okay.

All right.

Very good.

And then you have commented before in prior calls just on the amount of business that you could handle with the existing resources.

And now understanding that you've added some additional personnel back into the system you're obviously pulling forward some of this CapEx that you talked about.

Where do you think that number is now or are you now in a situation where with every incremental step in tonnage you're going to have to add an incremental amount of resources as well?

Well, just in terms of equipment we probably had about 20% excess equipment at the beginning of the year and then sequentially as you have witnessed, we've seen year-over-year tonnage growth so that it hit 21% in the third quarter.

So that's taken quite a bit of our excess equipment.

So that now I would put our excess equipment at anywhere 5% to 10% which is kind of a normalized of what where you want to be.

You don't want to be much less than that.

So that would be one reason why we're looking to add equipment going into next year.

And on the service center side, we had excess terminal capacity in the 20%, 25% range.

And we still have a fairly healthy capacity there except for some bottlenecks that we're looking to improve the capacity in.

And what about on personnel?

Well, I mean that's pretty much a direct correlation to your current tonnage that you have to add that.

We're still not back up to the employment level that we were at the peak of 2008, but we've added a relative number of employees back to the payroll relative to the 21% increase.

And are you still above 40 hours a week with your employees?

Probably somewhat above that, yes.

Probably back into our norm of 45 to 50.

Okay.

Very good.

Thanks for your time.

Nice quarter, guys.

Okay.

We'll take our next question from Jon Langenfeld with Robert W.

Baird.

Good morning.

On the pricing strategy how do you look at that relative to the market?

Your rates obviously have held up a lot better than everyone else's, so you can afford to accept, I guess, more modest rate increases.

Do you end up focusing more on market share or how do you think about that balance now that we're in a better environment?

Well, our yield management philosophy is the same throughout the recession.

And that is that when we weigh the service that a customer is requiring to the price that we charge, we try to target a profitable operating ratio; and we've pretty well stuck with that throughout the recession.

But as with anyone's customer base, you have customers who have high operating ratios and you have some who have lower operating ratios.

So you just have to continually work on trying to improve those that are on the high-end of the scale to work them toward a more profitable price.

But do you feel like in a low double digit margin range that gives you the acceptable returns on the capital you're investing?

Well, I will tell you with the price of equipment today and some of the other costs that are being imposed on our industry and some of the regulations, et cetera, et cetera, I believe that the motor carrier industry needs a better operating margin than they have historically been able to live with.

So it's imperative if we will -- if we're going to survive and continue to -- as an industry -- and continue to provide the service that customers are requiring we have to have better operating margins to do so.

Okay.

Great.

And then one last question.

If you kind of normalize for these depreciation change expenses your incremental margin has been around the 30%, 25%, 30% range.

Any reason to think that that range is not sustainable here?

Can you maintain that level as you look out over the next couple years?

Well, this year the margins have been so strong because we went into the year with such excess capacity in terminals and equipment and we really -- and we had some excess -- we had some time that we could add to people's work schedules during the week.

But as we have basically taken the equipment up to near capacity at this 5% to 10% excess that Wes mentioned, and as we're going to have to implement -- or spend a significant amount of money on CapEx next year the incremental margins you would think are not sustainable in the 30% range as we go into next year.

It would be less but it's not going back to any -- I don't think it'll be 10% or 15%.

It may be still hopefully in the 20%s.

Thank you.

The incremental margins at some point will have to be driven by pricing and I think that as we stated we're positive on the idea of being able to improve pricing both for ourselves and for the industry next year.

I think that's required in order to justify, as we mentioned, the increased investment to maintain the networks.

Thank you.

We'll take our next question from Thom Albrecht with BB&T.

Hi guys.

Good morning and congratulations on a good quarter.

A couple of different things.

As you look at your purchased transportation cost and the fact that your CapEx is now going to be going up, would you expect that that rate of increase, which I think was up a little over 60% year-over-year, would begin to moderate and perhaps parallel the changes in tonnage over the next four to five quarters?

And then kind of related to that what do you believe are the biggest obstacles to productivity at this juncture with your network and your equipment?

To answer your first question yes, we would expect purchased transportation to moderate somewhat at least over the growth percentages that you indicate as we put some additional capacity back into the system.

Would it get back to kind of levels we saw three or four years ago which I think were more like 3% to 3.3% of revenues, as opposed to --

I think that historical range is appropriate.

We have kind of run at that range because we pretty much governed our capacity so that we can minimize purchased transportation.

As you probably realize, it is more expensive.

And then kind of the obstacles just as you look at -- you mentioned that obviously pricing is going to be key to the incremental margin going forward.

But just as you look at your network and how you're trying to make the network and people and equipment more productive, what are the one or two biggest things that you're really focused on?

Well, we have some continued investment in technology that we're making that we actually think we can continue to improve productivity, efficiency, fuel economy, safety, and things like this with respect to the onboard computers and also some other technology that I'd prefer not to talk about on this call.

But you can only move freight so fast across a freight dock, so once you achieve a certain level it's hard to keep improving year-over-year.

I've been very proud of our operating team because they've found ways to continue to improve the layout of our docks, the way that we move freight through the docks to minimize the handling and so forth.

I think we've got continued improvements that we can make there, but we don't really want to turn up the speed on our forklifts.

Would you expect safety and on-time performance to slightly deteriorate with the kind of growth that you're now back into?

Thom, that's our number one -- that is a concern but also our number one priority.

We understand that it's the service that got us where we are today and so we will viciously protect that going forward with whatever means that we have at our disposal.

As our service center density improves a lot of things get better like your telephone costs and your communications costs and your service center rent or whether it be depreciation and interest or whatever.

All of those things begin to get better.

I think Old Dominion service center density historically has been rather low compared to several of our competitors and so we should see some improvement in earnings as that density improves.

And also in pickup and delivery density, miles per stop, and things like that.

Shipments per stop.

Yes.

That's even a bigger item than service center density probably.

Very good.

I'll get back in the queue.

Thank you.

We'll go next to Anthony Gallo with Wells Fargo.

Thank you.

I'll echo the congratulations.

I guess -- a couple questions.

As I understand it or if I understand it correctly, heavier shipments can improve labor productivity but it looks like there's a bit more at work here than just that.

Wes, in the past you've given some statistics, pickup and delivery shipments per hour, stops per hour, cargo claims ratio.

Can you share some of those with us so we can get a better handle on the productivity?

Yes.

We saw continued improvement in our laden load average on the line haul side.

Productivity on the P&D was flat.

And we saw a little bit of a drop in productivity on the pounds per man hour due to the fact that we had to add additional people and had to go through some training exercises.

Okay.

And then on the heavier shipment can you put any color around that, what you think might be driving that and how sustainable it might be?

Well, I don't know that I can put color on what's driving it, other than it is what it is, but most of it is just on the LTL side as opposed to mix.

It's about a 50/50 split.

On the LTL side we would attribute the larger shipments to a greater demand and, therefore it's somewhat economic in source.

Also, as we increase our mix toward the larger contractual type of national customer base, their weight per shipment does tend to be larger than the tariff business.

That would make sense.

Do you think that that business you picked up is as others have tried to reprice?

I think that question was asked earlier.

Or are you doing things differently on the sales front?

I mean everything seems to be coming together nicely.

I am I just trying to get a better handle on it.

Well, it's a little bit of both.

I mean we're continuing to refine our sales force and get stronger people on board and improve our methods of working with our customers and trying to get a bigger share of their business.

But some of the actions in the marketplace, pricing actions have also -- where we may not have gained tonnage or may have lost some due to extreme pricing by competition during the recession, as prices are being taken back up the customers are looking back to us for our superior service.

That makes sense.

And it is really a fair and reasonable price.

Thank you, gentlemen.

Next question comes from Justin Yagerman with Deutsche Bank.

Hi.

Good morning.

It's Rob Salmon on for Justin.

When I'm thinking about the pricing you had indicated that it was up about 2% currently; and how about if I think about that on a mix and fuel adjusted basis?

We saw some really big increases on a weight per shipment which would normally compress pricing.

If you normalize for that what would you estimate the pricing was up?

I think that the pricing -- the 2% gets back to a more pure comparison since the weight per shipment is only up 1% in October.

So it kind of neutralizes the effect of the weight per shipment and the length of haul which is up 2%.

So it may be a little bit less than that, given the fact that the weight per shipment is up.

That would tend to bring it down some; but the increase in length of haul would tend to bring it up, so those were kind of offset.

So we feel that that 2% or call it 1.5% to 2% is a true pricing metric for us.

All right.

Thanks.

That's really helpful.

When I'm thinking about the tonnage growth, it was very strong and above our expectations.

Could you give us a sense in some of the strong growth areas that you have recently seen in both the port and expedited?

What sort of growth rates are you seeing there and how does that book of business compare to your overall profitability?

Well, we have seen strong growth in both our container business and also on the expedite that's -- of course, the dollar amounts are fairly small so mathematical growth percentage doesn't mean a lot in pure terms.

But we are seeing container business up 30% and expedite up 60% to 70%.

Thanks a lot for the time.

We'll go next to David Campbell with Thompson Davis and Company.

Hi.

Good morning.

I've heard a lot about weak seasonal peaks from other companies since September.

What do you see, or how would you classify this season in terms of a peak versus what might be considered normal?

Well, yes.

The last couple of years the peak was actually June and I think for the first time we're getting back to something of a normalized peak which at this point looks like it would be probably be the third quarter, specifically September, but obviously the --

It's kind of hard to tell until we see the total industry results where the peak was because it appears obvious to us that we're winning and gaining some market share here.

Right.

Right.

I understand.

And second question is can you estimate the cost of your wage increase that was included in the third quarter results?

Well, just 2% for September so you can kind of weight that and see what it would look like.

All right.

So all employees got a 2% wage increase?

Correct.

Thank you.

We'll take our next question from Matt Brooklier with Piper Jaffray.

Yes.

Thanks.

Good morning.

I wanted to better understand how you keep pace with current tonnage growth.

I think the number in October thus far is 22%.

I think that David or Wes you may have mentioned the need to ramp up headcount if you do maintain this level of overall growth.

I guess my question is, how many additional people or personnel do you think you would have to add during fourth quarter and how does that compare to your third quarter headcount additions?

Well, basically those people have already been added.

Sequentially and seasonally the fourth quarter would historically, on tonnage per day, would be down somewhat over the third quarter if you would look at what the historical trend is.

We don't think the fourth quarter we would have to add any additional people.

In fact, it would be governed to whatever the level might be for the third -- fourth quarter sequentially from the third.

Okay.

I thought I had heard differently but that doesn't sound like that's the case.

It sounds like the needed heads are kind of in place at this point in time and you can continue to grow at maybe a plus 20% growth rate in fourth quarter and have enough personnel.

My second question, you guys have guided a pretty healthy real estate CapEx number.

I'm trying to get a feel for how many additional terminals you could be opening up in 2011 and how much flex is there.

I guess there is a fair amount, but how much flex is there in terms of that real estate CapEx?

Is the thought process just to have those funds available and kind of opportunistically purchase real estate, and then make the decision to open up a new terminal or are you kind of locked into a terminal expansion plan in 2011.

Just a little bit more color, please.

The 2011 real estate CapEx is primarily increasing capacity in existing cities.

The number of terminals we are opening next year, we are not divulging that at this point, but it -- and a lot of that depends on what happens with industry consolidation and also what happens with -- there is a carrier or two out there who are in processes of consolidating their operations; and we do not know yet what facilities may come on the market.

And the terminals that actually are on our list for the CapEx that Wes indicated earlier could very well change as we see what happens in the real estate market going into 2011.

Okay.

So it's fair to say that your real estate CapEx budget for 2011 is kind of factoring in some competitive dynamics and again like you said the potential for consolidation.

I guess my question is, if there wasn't this potential consolidation do you think the real estate number is lower in 2011?

I don't see the real estate number in 2011 being any lower than the number we gave.

Okay.

Now, whether we can spend all the money that's in that number is a question because there are a couple of projects that are on our list that, depending upon finding land, getting permits, getting past all the local regulations and things like that may cause those monies to be spent further out into 2012.

So to that extent the number we spend could be less.

But with FedEx announcing 100 terminals to be closed in their consolidation, and they have not yet divulged where those facilities or which of those -- which facilities those are, we don't know yet what opportunities we might see with that.

And the ongoing consolidation at YRC, we don't know what opportunities may come up through that.

Got you.

Okay.

Thanks, guys.

We'll go next to Neal Deaton with BB&T Capital Markets.

Hi guys.

Congrats again on the good quarter.

I know you touched on some of the productivity metrics earlier.

I didn't get all of them and I wanted to see if you could just give the specific figures.

I think you said platform pounds per hour dropped a little bit.

Could you give me the other figures you normally provide, P&D shipments per hour and P&D stops per hour?

Neal, let me get with you offline to go through those numbers.

Okay.

That's not a problem.

That's all I've got.

Thank you.

Our next question comes from Jack Waldo with Stephens Inc.

Morning guys and congrats on a great quarter.

Thank you, Jack.

I wanted to ask I guess a question on two topics.

One your CapEx guidance, Wes, is that net or gross?

That's net.

That's net.

Okay.

And if I look back, it's significantly higher than any of the past years which is kind of surprising given how much you guys have grown.

I guess my two questions.

How much of that CapEx would be replacement of current tractors and trailers?

We're not giving those numbers at this point, Jack, but I will say that especially on the real estate side, keep it in mind that we do choose to own our real estate rather than lease it and if you looked at our real estate portfolio five to seven years ago, we only owned 45% of our real estate.

Now we own 60% plus.

In terms of the number of doors we actually own well over 70%.

So part of that increase, that continued spend on real estate is converting from a leased portfolio to an owned portfolio and eventually as we continue to own a higher and higher percentage we do expect that CapEx on real estate to drop and therefore be a source of cash flow in the future.

It's almost, at least in my opinion like you've hit this inflection point where you can continue to leverage and get great returns over what you have already or you continue to grow with your magic beans.

I'm just wondering this type of CapEx expenditures how does it factor into your long term plan?

Where do you envision Old Dominion in terms of size in three to five years from now?

Do you expect to be one of the biggest players in the industry?

Are you going to focus more on cash flow and returns?

How does that factor in?

Or am I reading to too much into the CapEx guidance.

Well, that's definitely a forward-looking statement, Jack.

We intend to continue to grow.

We see that our opportunities for growing our domestic network and gaining market share are still -- our advantages in the marketplace are still there.

And we think that we will definitely be a bigger player in domestic LTL and as we also pursue our value added services we see additional opportunities for growth there, complementary opportunities that will complement the domestic opportunities.

We just see ourselves as continuing to get larger.

But the other thing is that we want to continue delivering the best returns in the industry as well and I think we've proven that we can do that and that's our intention going forward.

We are in a capital intensive business and we will continue to invest capital in the business.

It's not that we're going to shift gears and try to be an asset light company.

That is not what we are.

There's a lot of people out there that think asset light is the way to go but somebody in the end has to own the trucks and we think we're the kind of company that knows how to do it and that we can price our services accordingly and get the very best return possible as an asset based organization.

And we only have about 6% of the LTL market so we would like to have some more of that 94% that we don't have.

It looks like the opportunity's in front of you.

My last question, current consensus calls for 30% earnings growth in 2011.

I know you don't provide earnings guidance.

I just wanted to get on a more 30,000 foot level and just ask what kind of environment, what kind of a business environment does it take to have that type of growth?

Obviously we still feel there is going to be some consolidation next year and that the economic growth will sustain at least in the 2% to 3% range.

Plus, the fact of the matter is when you look at least at the first half of next year, the comparison is a lot easier.

It will -- obviously you'll get tighter toward the second half of that, but we think that the economy will pick up in the second half of 2011.

Let's hope so.

Thank you guys for your time.

Okay, thanks.

We'll take our next question from Ed Wolfe with Wolfe Trahan.

Thanks, hey guys, just a couple of quick follow ups.

What -- can you give a sense of the number of people that you've hired in the third quarter, and as a percentage of the workforce, and who they were, what types of people?

Again, Ed, I don't have that detail with me, I'll get back with you offline and give you those numbers.

We'd laid off about 2,000 out of 12,000, and we brought back about half, is that (multiple speakers)?

That's real close.

Okay, that's great.

And mainly what kinds of people are those?

Those are drivers and what else?

Mostly freight handling people.

Drivers and warehousemen.

Okay.

And when you think about your CapEx now, is it possible, or maybe there isn't a maintenance CapEx number at this point because you're still growing.

Where do you think kind of, if you said we're not going to grow the network anymore, we're not going -- we're going to try to sustain our revenue other than pricing where it is, what's the maintenance CapEx at that level give or take?

Well, if you're not going to grow any more, then by definition that means your Real Estate CapEx goes to zero.

Both in terms of existing facilities as well as additional.

So all you're getting therefore, too, is the equipment CapEx.

And with the increase in cost of equipment, which is increased from $70,000 to $80,000 a few years ago to $100,000, just by definition that increases your maintenance.

But probably just for equipment maintenance, I'd would put $80 million to $100 million just to maintain replacement cycle on equipment.

And then IT, is there some kind of maintenance there of $5 million or something?

Well, yes, probably in the $12 million to $15 million range.

Maybe a little bit less than that if you're not growing.

Which we have no intention of doing, if you're just going to stay status quo with your IT, maybe you'd be a little bit less than that, maybe in the $8 million range.

Yes.

And then Wes, if you have this, if not I can get off line with you.

Do you have the cash flow from operation and the CapEx for either year to date or the quarter?

I will give you that off line, I don't have it right in front of me, Ed.

Okay.

Thank you.

Thanks guys.

We'll go next to Jason Seidl with Dahlman Rose.

Hey guys, just a quick follow up.

Wes, you mentioned that some of that purchased transportation expense was up because you guys were growing a little bit faster than you could hire during the quarter.

As that goes out, are the increases in there mainly going to be from some of your substitute line haul, and can you talk a little bit about how much the substitute line haul costs may be up?

Well, the increase is a combination of line haul as well as delivering agents at some facilities.

So I think the best way to look at that is we should get back to a normal percentage of revenue as we put on additional capacity and equipment.

So I would use more of a historical number going forward.

Okay, that's fair enough.

That's all I have.

Thanks guys.

Our next question comes from Thom Albrecht with BB&T.

Hi guys.

As you look at your facility CapEx, do you have any big bottlenecks within your break bulk or larger hub facilities?

And the GRI, for most folks, what it covers as a percentage of their revenues has been generally coming down over the years.

Approximately what percentage of your revenues would be covered by that GRI?

About 35% to 40%.

Okay, so still a healthy number.

Right.

And then any -- I know over the years, back in 2002 and 2003, some of the opportunities really freed up bottlenecks at a couple of your break bulk facilities, and I'm wondering if there's one or two that are really maxed out.

There are three in particular that are -- they're not maxed out totally, we have some more capacity, but we do need more doors in three of our large breaks, and that's part of our CapEx.

Sort of like my waistline in the winter.

Just a little snug.

That's right.

Okay, thank you.

We'll go next to David Campbell with Thompson Davis and Company.

Yes, I wondered if you could tell from UPS and FedEx pricing actions whether they're less aggressive than they were earlier in the year?

They talk a lot about pricing going up, do you see that in the actual market?

Well, I'd say yes, anecdotally.

We get a feel to a degree through our pricing department and from our sales force that they are less aggressive or are taking some prices up.

Yes.

And the second question is, what type of shippers feel better about their business outlook?

Based upon the fact that the tonnage is going up, there must be some of your customers that are feeling better about their business.

Who are they and what are they?

Our tonnage going up is pretty much across the board from just a variety of shippers.

I think more of it is market share gain than customers feeling really good about their business now.

We still hear just what we all -- what everyone on this call hears, in the economy, that it's still soft out there, but we're just gaining customers because of our service product.

Okay, thank you.

It appears there are no further questions at this time.

Mr.

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

Thank you.

Listen, thank all of you for participating today.

The questions were excellent, and we appreciate your support of our Company, and if you want some off line help with Wes, why he's standing by.

Thank you, goodbye.

That concludes today's conference, thank you for your participation.