奧多明尼昂貨運 (ODFL) 2011 Q3 法說會逐字稿

Good morning and welcome to the third quarter 2011 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through November 5th, by dialing 719-457-0820.

The confirmation number for the replay is 1741803.

The replay may also be accessed through November 27th through the Company's website.

This conference call may contain forward-looking statements within in 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 his 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'd 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 with another quarter of outstanding financial and operating performance for Old Dominion.

After producing some of the best results in our company's 77-year history, last quarter we again set a new record for our highest quarterly revenues ever at just under $0.5 billion..

We also set a new record for the best operating ratio we have ever produced which improved 30 basis points from the second quarter to an 86.2.

Due to our disciplined approach to yield management and our operating leverage, the 25% growth we produced in revenues drove a 52% increase in earnings per diluted share.

This growth reflected a quarterly increase in tonnage of 9.6% for the quarter and a 7.8% increase in revenue per hundredweight excluding fuel surcharge.

We believe that a central reason Old Dominion has delivered the strongest financial performance relative to the industry is our value proposition of superior service for a fair and equitable price.

Our customers understand the value Old Dominion brings to their supply chain, embrace it and continue to reward us with more and more business.

To close my remarks, I want to thank our customers for their loyalty and support throughout the economic cycle and for driving our growth today.

I also want to thank the members of the Old Dominion family for their dedication and commitment to providing our customers with best in class service that is helping the world keep promises.

Thank you again for being with us today.

Now here's David Congdon to discuss our third quarter operations in more detail.

Thank you, Earl, and good morning.

When we developed our strategic plan in the mid 90's, we made a commitment to the ongoing and substantial investment in people, systems and network required to provide truly superior service.

These investments have proven to be worthwhile as the third quarter results and our consistent long-term financial performance has shown.

As we look toward the end of 2011 and the future we will remain focused on four key areas that have helped produce such strong results, service, density, yield and efficiency.

This focus is consistent with the growth and operating strategies that we have implemented over the last several years.

The consistency of this implementation and the high quality of its execution is most evident in our past, current, and we're confident, future financial results.

I've always said that any company can invest in equivalent terminals and technology and have all the plans and strategies in the world, but the key is execution and we are very proud of our entire OD team for their continued dedication and commitment that is driving our success.

We thank you for your interest and support of Old Dominion and now I'll ask Wes to talk about our financial results in greater detail.

Thank you David, and good morning.

Old Dominion's revenue increased 24.9% for the third quarter to $494.5 million which represents our fifth consecutive quarter of revenue growth in excess of 20%.

This revenue growth was primarily the result of a 9.6% comparable quarter increase in tons and a 13.7% increase in revenue per hundredweight.

Our tonnage growth reflected a 12.2% increase in shipments and a 2.2% decline in the weight per shipment, which we have experienced for three consecutive quarters.

Freight mix, especially the intentional reduction of volume shipments, is the largest factor causing the decline in weight per shipment, as our weight per shipment within our LTL contract and tariff business was essentially flat year-over-year.

Sequentially throughout the third quarter tonnage growth per day was up 7.9% in July, 10.3% in August and 10.6% for September year-over-year, with each month facing tough comparisons in the high teens to low 20% increases during 2010.

Thus far for October we expect a tonnage increase of approximately 10.5% per day against a tough comparison for October 2010.

We expect this tonnage increase to remain in the 9.5% to 10.5% range year-over-year for all of the fourth quarter.

Revenue per hundredweight excluding fuel surcharge increased 7.8% for the third quarter.

A 2.2% decrease in weight per shipment for the quarter, and a 0.3% increase in length of haul had a positive impact on the revenue per hundredweight.

Assuming LPL industry pricing remains disciplined, we are seeing revenue per hundredweight excluding fuel surcharge up approximately 7.5% in October and expect it to remain in the 7% to 8% range year-over-year for the quarter.

Old Dominion's operating ratio for the third quarter was an 86.2, an improvement of 30 basis points versus the second quarter and a 280 basis points for the third quarter of last year.

The strong operating leverage generated by the increased tonnage and yield is particularly evident in salary, wages and benefits as a percent of revenue, which declined 390 basis points despite a wage increase of 3% implemented in September.

Operating supplies and expense increased 260 basis points largely due to the increased fuel expense.

Capital expenditures for the third quarter totaled approximately $68 million and $210 million for the first nine months of 2011.

We now expect total CapEx for 2011 in a range of $245 million to $265 million including real estate expenditures of $80 million to $90 million., equipment expenditures of $150 million to $155 million due in part to accelerations of 2012 planned expenditures into the fourth quarter of 2011, and technology expenditures of $15 million to $20 million.

Our previous projections for 2011 capital outlays approached $300 million.

Due to timelines on real estate, our expenditures will end at a range of $80 million to $90 million instead of the $120 million to $140 million originally discussed for real estate.

That $40 million to $50 million differential will flow into our 2011 CapEx projections.

We remained engaged in our capital budgeting process for 2012 and will give more detailed discussion in our fourth quarter conference call in January of 2012.

However, at this point, our expectation is that 2011 CapEx could approach $350 million.

This amount includes continued expansion of our service center and equipment capacity due to our current and expected growth.

Secondly, as we are evaluating our equipment replacement program, we are seeing the potential necessity to accelerate some purchases.

We have continued to fund much of this CapEx through cash flow and the remainder through our cash balance and available borrowing capacity.

We had approximately $150 million of availability on our new five-year revolving credit facility at the end of the third quarter.

Our financial position at the end of the quarter is stronger than at any time in our 20-year history as a public company.

At the end of the third quarter our total debt to total capitalization was 24.5% and we had $42.3 million in cash and cash equivalents.

With full implementation of our CapEx plan for 2011, which remains subject to availability and timing of real estate, we would expect our total debt to capitalization to be approximately 22% to 24% at the end of the year.

As expected our effective tax rate was 38.8% for the quarter, which is the rate we anticipate for the fourth quarter as well.

And this concludes our prepared remarks this morning.

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

Thank you.

(Operator Instructions) We'll take our first question from John Godyn with Morgan Stanley.

Hey guys, thanks.

Congrats on the record OR.

How should we think about how much leverage there's left to go on volumes heading into the fourth quarter given your significant shipment growth outlook?

Is there a point at which you start to trade off that OR to grow shipments more maybe by offering a better deal to customers?

How do we think about that heading into the fourth quarter?

Well, John, we are not giving any guidance at this point on our fourth quarter in terms of operating ratio margins.

Obviously there is a continued trade-off between growth -- there could be a trade-off between growth and yield but we're not prepared to discuss that.

But John, as history has shown, you know we deal with each customer on an individual basis in terms of evaluating yield and we -- it is not our philosophy to chase volume by lowering prices.

Okay, thanks.

And you know you explained some of this sequential decline in average weight per shipment in the third quarter, but are those forces still in place in the fourth quarter?

How do we think -- how should we think about that evolving into the fourth quarter?

Well, from an economic macro sense, we don't--we're not sure -- we don't have the visibility for the total quarter.

However, we do -- we don't anticipate changing our view on spot quotes.

And as I mentioned in my comments, that's the biggest reason, was mix, of why we saw the reduction in weight per shipment.

When you look at our 559 business and -- basically our LTL business, both contractual and 559, the weight per shipment is relatively flat, and at this point, there's no reason to expect otherwise for the fourth quarter.

Okay, thanks, and just last question, can you just give a sense of what you're hearing from customers right now in terms of outlook on the economy, inventory levels, and just general optimism or pessimism?

We really don't have a lot of good feedback on that now.

You know, as far as—I think most everyone -- the general feedback from customers is that the businesses' volumes will continue to be somewhat soft.

I think the general feel is that there's not going to be a major recession, by our customers anyway.

All right, thanks a lot guys.

Our next question comes from David Ross with Stifel Nicolaus.

Wes, you said in your CapEx discussion that there's a potential necessity to accelerate equipment purchases next year.

What would the reason for that be?

David, I'll take that question.

A couple of things, we honestly have fallen behind a little bit in our equipment age during the downturn.

Some of that was intentional, you know, to try to stretch the lives of our fleet.

But we are seeing some repercussion in our maintenance expenses and we see a need to do some replenishments there.

Secondly, we're faced with a situation with -- you know, when the emissions standards came out, the first level of them in 2004, with some trucks whose engines are not lasting nearly as long as the pre-2004 trucks lasted.

And we're seeing a need to cycle out some trucks as much as three to four years before we would normally cycle them out.

So that's going to hit us.

And the third area with the equipment has to do with our pup trailer fleet.

We have about 3,500 pup trailers that do not have the loading decks bars in them, and they're too old to justify a retrofit.

So we are committed to the deck trailers and what they're doing for us in reducing claims and improving load average.

And our plan is to cycle those out over the next two to three years and replace them with a -- so we'll have a complete fleet of deck trailers.

So on the trucks -- I guess you said maybe 2004, 2005, 2006 model trucks, are those the ones that don't have the life cycle that you were used to?

Yes, I think when most of the engine manufacturers, and Caterpillar in particular, started putting a lot more exhaust gas back into the engine to deal with the particulate matters and then they also added these particulate traps in the exhaust system, we're seeing a tremendous amount of maintenance cost increases.

We saw fuel mileage decreases and now we're seeing the engine life, instead of being able to get on a sleeper tractor 1 million, or 1.1 million miles we're only getting 800,000 to 900,000 miles.

And on our day cabs instead of getting 700,000 or 800,000 miles out of the trucks, we're seeing engine failures in the 500,000 or 600,000 mile range.

So this is an issue that is not only our issue, but is going to be an industry issue, as well, that's facing us.

Okay, that's very helpful.

And then last question is just -- the biggest constraint to your growth going forward would that be on the driver side, dockworker side, real estate side, or other?

Historically, our largest constraint to growth has been finding appropriate real estate, but we're holding our own.

I mean we wouldn't be growing like we are had we not found the real estate and invested in that.

But I think going forward as an industry, the driver shortage is an issue and will be a growing issue going forward.

But the fortunate thing for us in the LTL business and OD in particular is that our driver turnover is very, very low.

And we have the drivers school that we've operated since 1988 to take guys off the dock and put them in -- through our school and get them behind the wheel, and that helps us a lot with that.

We also have a history of having been fortunate enough to grant some wage increases where some of the other carriers have not been able to do so, and we think that is helping us to recruit additional drivers.

Excellent, thank you very much.

Next question comes from Chris Wetherbee with Citi.

Great, thanks, good morning guys.

I was wondering if you could elaborate a little bit on the value proposition that you offer relative to your peers.

What do you think that price differential is relative to your peers and maybe what should it be, as you continue to expand out the network?

I'm trying to get a sense of maybe what the upside potential is for pricing for you as you go forward a little bit further.

That is a hard question to answer.

You know we have a graph that we show in our presentations at the various investor conferences that shows revenue per hundredweight including fuel and how it dropped off from the beginning in the first part of 2008 through the downturn and how it's come back up since the downturn.

And the graph on Old Dominion versus the industry peer group shows a 6 or 7 percentage point spread where our yield may be -- in terms of revenue per hundredweight, may be that much higher.

But you know revenue per hundredweight is just a measurement.

I think the real key is the operating ratio of each and every account that you do business with.

As we've approached yield over the last number of years we've not really changed our approach to managing it.

You know, every account is looked at for its freight and handling characteristics and we look at the operating ratio.

But I think going forward as an industry the supply and demand picture is somewhat in equilibrium if maybe to the favor of the carriers right now.

Because a lot of capacity has come out of the industry and the amount of freight that's being handled by the industry has come back up above that level of supply just slightly.

And I think that the capital requirements to expand capacity in terms of technology, real estate, equipment, some of the squeezed margins by the rest of the industry, not Old Dominion, are going to cause capacity in the industry to not grow at the rate that demand is going to grow.

So in my view, the yield environment for our industry is good now and I believe it will remain good for the foreseeable future.

The only caveat to that statement is if we were to go into a double-dip recession or anything similar to what we went through in 2009 that could cause some negative pricing behavior.

Okay, that's actually very helpful.

I appreciate that.

When you think about the supply and demand, or the demand side of the equation I guess, in the third quarter, I know it's difficult to parse out some of the growth that you're seeing which is obviously accelerated relative to the market.

But can you give us a sense of do you feel like the LTL market was growing in the third quarter?

We're hearing some kind of flattish to maybe even slightly down volumes at some of your competitors.

I'm just curious if you think the LTL market, in general, has been growing the last three months or so.

I think after all of the public carriers report, you can see what the total tonnage of the group -- what happens to the total tonnage of the group.

We do participate in a database that indicated decent growth, actually, in August of, I think it was 5% to 7% in either shipments or tonnage on a year-over-year basis among the top 30 LTL carriers.

So -- and that was August.

I believe the July number was a positive number as well.

We just don't have September yet.

So I think the LTL industry is actually in pretty -- you know, is in a growth mode.

It's not flat or down.

Okay, great.

That's very helpful.

I'll leave it there, thanks very much.

Our next question comes from Scott Group with Wolfe Trahan.

Hey good morning guys.

Hey, Wes, how do we think about the dollar impact from the wage increases?

What percent of the salaries line does that impact?

Virtually all of it.

The only part that it doesn't is fairly small, so it pretty much impacts the entire line.

Okay, that's helpful.

So when we think about tonnage accelerating starting in August coincides with your competitors taking some pretty big GRI's and I'm wondering if you think you're taking incremental share because of them being more aggressive, most recently starting in August.

And I guess, have you seen any signs of them reacting and maybe giving up some of the GRI to get some of that share back?

Yeah, I really can't speak to any details on that.

I know that from our view, we're not getting any pushback that would that -- the GRI that we implemented, the 4.9 in September is pretty much holding.

I'm not -- I really can't comment on what the other carriers are seeing.

Well, I guess, the acceleration in tonnage in August, do you think that's incremental share?

Or do you think that's the economy getting better?

Because it doesn't look like it's an easier comp.

Well, I think it's -- obviously for us it's additional share, but as David mentioned, even the sector was up 5% in August according to our preliminary numbers, so for us it's some of both.

Okay, and then, just last question, kind of at a high level.

Obviously it's great to be at record margins but that also comes with things like wage increases and incentive comp, and just naturally just a little bit less leverage to the incremental point of volume or pricing.

I know you're not giving margin guidance but how do you think about what's the right level of either tonnage or pricing or both that you think you need to maintain, or I guess, improve margins from here ?

Well, we need both.

I think -- you know, the critical thing is that pricing remains disciplined, and that there's no amnesia out there should things slow down.

And I think there should not be -- I mean you heard David and myself, in comments, talk about what our capital requirements might need on replacement of equipment.

And we've been fairly disciplined on replacing our equipment.

We have extended the lives but we have been spending money on equipment every year during the downturn, and we still see a fairly sizeable amount due to some catch-up and due to some issues on the equipment quality.

But if we're seeing that then the other carriers have got to be seeing that as wel.

And I think we need to get -- you know, 'we' meaning you, the analysts, need to get some of those numbers.

And to get a return on that investment yield has got to be -- has got to remain disciplined and even at higher levels to get a return on that equipment replacement.

Okay, that makes sense.

And just last -- what do you think about the impact of fuel on third quarter results?

Well, it was higher.

Fuel cost was higher and as a result the surcharges was higher.

Net-net, do you think it was a positive or a drag on the quarter?

Well we don't view fuel surcharge on its own because we -- as David mentioned earlier on, we look at the profitability of the account.

And the negotiations can vary between what's base rates and what's fuel surcharged, so we look at it overall.

Okay, thanks so much for the time.

I appreciate it.

Our next question comes from Todd Fowler with KeyBanc Capital Markets.

Great, thanks, good morning and congratulations.

David, or maybe Wes, I'm not sure if it's possible to do this but can you talk about the 8% increase in revenue per hundredweights excluding fuel in the quarter -- can you break that out between, you know, what you think you got from the GRI because it came in later in the quarter, and it's on a smaller piece of the revenue, and what came from contractual rates?

Yes, we don't want to get into that level of detail.

And also, it's a little bit skewed when you look at the quarter because the GRI wasn't effective until September,.

And so you'd have to look at September and we don't want to get that (inaudible - multiple speakers) --

And our yield is more than just what we do with the price with a customer.

You know, it has a lot to do with the mix of the freight that we haul with each and every customer and the lanes that we are serving and things like this.

So, you know, improvement in yield is not just a price increase.

Sure, I mean all of that makes sense.

Maybe to ask it a different way, you know, on apples to apples contracts that are coming up during the quarter, you know, what are you seeing or what's your sense from a contractual pricing renewal in this environment?

Well, you know the GRI or the tariff business only makes up 30% of our overall business.

So obviously since we're operating at a very good margin, we are, by definition, successful in being able to get rate increases on our contractual business as well.

You can't do that on its own just from the 559, you have to look at the profitability of all accounts.

And we do that on an individual basis and that's basically what we'll continue to do.

Okay, and in thinking about the growth CapEx going into 2012, you know, the balance sheet, you know, it looks like it's in very good shape.

Obviously it could be self-funding to a certain standpoint.

Can you talk about where you're at from the 'at the market' shelf registration and would there be any thought about going back to that to fund any of the CapEx next year?

That thinking process is still ongoing.

So perhaps we can -- we'll discuss that further in January but we don't want to really give any specifics at this time.

And, Wes, how much is still remaining under that?

I can answer that.

It's a $100 million facility.

We executed half of that with net proceeds of about $48 million in March so we still have about -- net, probably $48 million to $49 million that is still available, on a net basis.

Okay, got it.

Thanks for the help this morning.

You're welcome.

Thank you.

Our next question comes from David Campbell with Thompson Davis & Company.

Yes, thank you very much.

Good morning, just a couple of quick questions.

First of all, the sources of the other expense item in the third quarter, what was that, for $1.678 million?

Yes, that -- we have compensation retirement plans, nonqualified plans, and it's tied to the stock market.

So you'll see fluctuations of our liability as there's fluctuations in the market.

So we see a negative -- you know what the stock market's doing as well as I, so we had a downward trend in the market in the third quarter, specifically in September.

So we'll see that go up and down as the year progresses and the stock market interacts, as well.

It's a recognition of losses in your pension funds?

Is that what it is?

It's not a pension fund.

It's a nonqualified plan and it's recognizing the difference between the value of the asset and the liability to the participants.

Okay.

And when it goes up you don't get any income though.

You don't get any --

Yes, we do.

You do?

Yes, if the market goes up that entry could be a positive, yes.

Okay.

In fact it was in the second quarter.

Okay.

And I'm confused a little bit by your CapEx.

In your presentation, Wes, I think you said -- I may have read it wrong -- $350 million for this year, but the press release says $245 million to $265 million.

What --

The $350 million was next year.

Oh that's next year.

2012.

This year our projection is to end up between $260 million and $265 million, I believe it was.

Right, right, 245 (inaudible) --

$245 million to $265 million this year.

I thought you said the 2012 plan was still being considered, or under consideration.

It is, yes, yes.

We wanted to give some indication of what that might look like, so it's still under evaluation and assessment, yes.

Okay, okay.

Thank you.

You're welcome.

I'd like to clarify one thing.

Because, Wes, when you were going through this, you did comment about 40—about our CapEx this year being $80 million to $90 million versus $120 million to $140 million that we had originally discussed earlier.

The difference is the $40 million to $50 million is going to flow into 2012.

And if I heard you right I think you said '11 and that might have been confu- --

If I did that was an incorrect statement.

Yes.

And that $40 million to $50 million that's flowing into '12 is part of the reason why the CapEx for '12 might approach $350 million.

Yes, that's --

That would be one of the reasons.

-- that's one of the reasons.

Nearly 50 of it is a carry-over.

Is a carry-over of what we thought we were going to spend this year that we're -- that could carry over, or will carry over into next year.

Will more than likely carry over.

Those projects are in process.

Right.

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

I'll echo the congratulations.

Remarkable stuff, guys.

Wes, would you mind sharing some of the productivity metrics that you occasionally do, and then the follow-up question would be --well I'll let you answer it.

Then I have a follow-up on the productivity issue.

Without getting into specifics at this time, we did see some positive productivity influences in the third quarter.

The only one that was slightly down was our pick-up and delivery shipments per hour.

But actually that's probably a pretty good thing because we're having a higher level of multiple shipments that take longer to either pick up or unload and that's, I think, an indication of demand.

But our laden load average that we track was up and don't remember the number offhand from last year.

And also our platform pounds per hour was up about 3% to 3.5% , so we had some pretty good indications.

We had given comments in previous that some of the additional people that we put on we had some training that we had to implement and for the most part that's been done, and as a result we are seeing back to some positive year-over-year productivity

And in a historical context, where do you think this collection of productivity measures falls?

Are we near all-time highs?

Are we towards the upper end?

I'm just trying to think out over the next couple of quarters in the context of what this might mean for margins.

Yes, I think we're at a high level where we are, but nowhere near what we think our potential is.

I think we still have productivity gains to be had as we improve density and improve our efficiency across our network.

That's very helpful.

I'll pass it on.

Thank you, gentlemen.

Thank you.

We'll move to our next question.

Matt Brooklier with Piper Jaffray.

Yes, thanks, good morning.

First question regarding utilization within your current network, maybe provide a little bit of color in terms of how full you are on a terminal level basis and then maybe also talk about the rolling stock.

First of all from a terminal standpoint, the story is pretty much the same as it has always been.

When you look across our service center network at door pressure, pounds per door per day, and you look at -- from the low end to the high end, we have service centers that might have, you know, 50% to 60%, or 70% capacity in them, and we have some that are at capacity or bursting at the seams and those are the ones we are generally -- that's the reason for our capital expenditures in real estate is to expand service centers and make them larger and gain capacity.

But I would say overall, if you take the average door pressure of our service center versus those that are at the peak door pressure we probably have at least 25% to 30% average capacity across the entire network.

From an equipment standpoint we will always try to carry, you know, some level of excess capacity, because, you know, when there are pick-ups to be made, the last thing you want to not have is a truck and a trailer to go make those pick-ups.

So we carry typically 5% or so excess capacity in that area.

But over the last couple of years we have carried maybe a little bit more than that because of the potential for industry consolidation.

Okay, and as we think about it moving out it feels like you have, on average, a good amount of excess capacity.

I guess the question is, in kind of a moderate economic environment, but the LTL industry still growing a good amount per your comments earlier, Dave, but if we think about it and if the economy were to accelerate over the next 12 months and given the current levels of capacity within your network, would you be able to facilitate, kind of, a double-digit type tonnage growth rate?

Would that be a possibility or do you think where you're at from a capacity perspective kind of puts a ceiling on the level at which you can grow your tonnage?

Well, you know, we have equipment coming in this fall and in the first quarter of next year that was committed for last -- or earlier this year, and some of that was for equipment that we would be trading out.

We could hold on to our trades and just run them a little longer in pick-up and delivery operations.

So we've always used our equipment replacement program and the holding of equipment that should be traded for longer periods of time as our relief valve with equipment.

You certainly can't build a terminal overnight for capacity.

But you know we have ways, if there was any -- we certainly don't expect any sudden economic surge.

If there was any other surge due to industry consolidation we have a long list of strategies and a planfor how we're going to deal with it.

Okay, and my final question.

You ramped up the headcount at the beginning of the year, given the rate of growth.

You're still growing at a very nice rate.

How should we think about headcount?

Is it time to add more heads to the model at this point?

I mean, not right now.

We have adequate headcount to cover us going through the remainder of this year.

You know, typically the peak shipment and tonnage volume occurs in September of each year.

And what you have in September carries that volume -- carries through October and November with some slight fluctuations up or down by 1% or 2%.

So we're holding steady on headcount through the end of the year.

Okay, helpful.

Thanks for the time.

Thank you.

Our next question comes from Tom Wadewitz with JPMorgan.

Yes, good morning.

I wanted to ask you a little bit about the -- I think a broader question that comes up somewhat on how you view margins and how we might think of that looking forward.

But how do you -- what would you favor if you had a choice of saying -- well we'll keep high single-digit tonnage growth or we could take a little less growth and see more margin expansion.

How would you tend to look at -- if you had a choice, which you would favor, margin relative to keeping a higher tonnage growth rate?

Tom, I think some of our competitors may think that way about turning the yield knob one way or the other to make those trade-offs.

You know, our focus is on building our customer base, building our relationships with customers and growing profitably in our relationships with our customers by offering them a superior value at a fair and equitable price and that's just how we manage our business.

We're winning market share with service, not by going out and cutting prices to get our volume.

Okay, so that -- I guess you're saying you would look at both then.

You wouldn't necessarily favor one.

I mean obviously your margins are extremely strong, but you would, kind of, consider both.

It's not like you favor one over the other in terms of tonnage versus more price to drive the margin.

Yes.

Our focus is on building density across the network.

It always has been.

That's the key leverage that we have, and, you know, we just do it in the way that I just described to you.

So it's not favoring one or the other.

It's doing what's right and striking a fair balance with the customer in our value proposition with each individual customer.

Okay, and then one more question.

If you saw the pace of pricing kind of settle down, if that's in 2012, or '13 or whatever, but if it kind of settles down to a level that maybe offsets the underlying inflation you have and -- then would you expect the margin from where it's at today to improve purely based on tonnage growth?

Or, you know, is that reasonable to think it would be the case?

Given an appropriate level of pricing relative to what our investment is, we think that we can improve margins simply on density expansions, for sure.

Okay, that makes sense.

Thanks for the time.

Our next question is Justin Yagerman with Deutsche Bank.

Hey good morning, guys.

It's Rob on for Justin.

If we think about, kind of, the overall growth that you guys achieved in third quarter, it was obviously very strong and you guys were taking some market share.

Could you talk to us a little bit about growth by the various regions across your network?

And as we think about the $3 billion revenue goal you guys have looking out to 2016, where are your expectations for the fastest growth across your network?

It's not too instructive, Rob, to look at growth by region because we've got mature regions and we've got newer regions.

But we're seeing, pretty much representative, a good growth across all of our regions and I think that probably going out to 2015, 2016 at our stipulated goal of reaching $3 billion, that would represent growth in all of our regions.

Perhaps we've got more growth in some of the less mature regions which we are very aware of and very attendant to, but we've had good growth in all of our regions and expect to continue that in the next few years.

I guess getting back, then, to the productivity discussion, certainly you guys will stand to benefit quite a bit as you expand your network, just from density gains alone.

You guys have made a lot of investments in IT going back, historically, you know, whether it's, kind of scanners or hand-helds.

Can you talk a little about your IT investment pipeline and the types of productivity gains, either anecdotally or quantify, if you can at all, about some of the potential pipeline as we look out?

Well, we've invested $70 million to $80 million in IT for many reasons.

One of them is productivity and we really don't want to get into the details of exactly what that is and how that's enhanced our productivity in a conference call.

But I guess, you know, all of it comes down to the margins that we're getting.

It's not one thing, its many things and that's just one of them.

Understand on that.

Congrats on a great quarter, guys.

Thank you.

Next question comes from Tyler Brown with Raymond James.

Hey good morning guys.

You all made some interesting comments about shying away from your volume business.

Should I read that you're taking a more firm stance on the 3PLs and the broker business?

And maybe what percent of your business is 3PL and brokerage, say, versus five years ago?

Well, you know, the volume spot business is -- I mean it's a fact of life, it does come to you.

And those shipments, by the way, range between 8,000 and 10,000 pounds, you know, and we prefer to fill up our trailer with LTL.

Generally that's more profitable.

But some of that downward pressure in the tonnage on spot quotes is purposely with rates that are compensatory.

I mean we're an LTL carrier, not a truckload carrier, or a hybrid truckload carrier, but if we do take on those spot quotes we want that to be profitable just like any business.

So yes, we can -- the tonnage is down.

The revenue, actually, is -- may still be up slightly due to the fact that the rates are very compensatory.

But you know that fluctuates based upon a lot of different variables, truckload, over-flow, what the customers' habits are.

But we purposely price the truckload despite quotes so that if we did that in our trucks that it is providing incremental margins as well.

Okay, yes, that's fair.

And then, just a quick question on pricing, you know, up 8% very good.

But has your average class been -- has it and is it positively impacting you?

There are a lot of things that go into that as we've already talked about.

The lower weight per shipment, even though that's mixed, still influences the overall.

The length of haul and certainly class affects it also but we don't really have an algorithm that goes through every -- all of the 600 variables that could influence revenue per hundredweight to exactly tell what affect each as on the other.

But certainly -- to tell the truth, I don't know if the weight class changes or any mix in that has had an impact.

I suspect that it has, I just don't know what it would be.

Then just a real big picture question, David, I wonder if you could make some comments related to the industry's push for increased weight limits, maybe longer combination vehicles.

If I recall, you had been involved in those talks in the past.

Maybe you could just handicap what the likelihood of something happening there, and just talk broadly about what those changes could mean to OD particularly on your line haul side?

I'll say maybe I have some insight on where this might go, but your guess is as good as mine whether it will work or not.

You know we're working through a coalition called Cleaner Safer Trucking and this is a group made up of primarily the LTL carriers.

And our primary focus is on increasing length and with the extensive use of -- the 100% use of doubles in our fleet, double 28-foot trailers across the network and triples in the 15 states where we have the capability of running triples and in the industry most of the LTL carriers run doubles, that's the most efficient way to move freight through an LTL network.

And if we were able to pull triple trailers -- and I did a study on just 10 cross-country and north-south routes -- we could save as much as 10% of our line haul miles just on 10 routes that criss-cross our country, 10%.

And that would be a significant amount of fuel and carbon reduction and so forth.

But, you know, if you could enable triple operations on all the interstate highways, we haven't calculated the amount, but heck, when line haul costs, in total, represents, what, 35%, 40% -- and sometimes 40% of our total costs, and if we could save 20% you could see a dramatic improvement in profitability and also a dramatic reduction in our carbon footprint.

There's movement on this highway bill, but it's moving very, very slowly.

I think the House bill is not likely to come until after the first of the year even though Chairman Mica has said he wants to get it done before the end of this year.

I think it's going to flow into next year.

I'm hopeful and our group is hopeful that we will have some kind of language that will return the authority for setting weight and length limits back to the states and then we'll go and work with the states to try to create maybe some corridors for more efficient trucks.

All right, yes, perfect.

That was some very, very good color, so thank you.

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

Hey guys, I've gotten my questions answered, so thank you and continue to --congratulations on another great quarter.

Thank you and we'll move to our next question.

Chris Ceraso with Credit Suisse.

Thanks, good morning, just a couple of things here.

You're clearly growing tonnage faster than the market.

Can you give us a feel for how much of that is because you're adding real estate and expanding into new regions versus how much may be share gains in existing lanes?

It is primarily the latter, just share gains.

You know, we've only added three service centers over the last 12 months to our network, so we're winning market share through a superior value proposition with the customers out there.

Okay.

And then, presumably you've always had a focus on what you talked about, pursuing service, density, yield and efficiency.

Yet, as you mention, you're making new highs in terms of margins.

So can you share with us the one or two things that are different about your business or that have changed in your model or the market that are letting you reach these new highs?

Yes, density -- when you think about it, I think density with a decent yield, with fair and equitable yield, is driving the margins the most.

I mean, today we're handling 3,000 shipments a day and nearly 5 million pounds a day more freight across the same network we had a year ago, at favorable yields, so that's probably the primary driver.

But the secondary driver is our efficiency.

We are moving freight and through our technology investments, through our investments in our team and our people and our drivers and our dock workers and all the people that make up the OD family we are operating the Company at the highest efficiency levels we've ever operated, and we have room for continued improvement, which is a good thing.

Okay, that's great.

Thank you.

Next question comes from Jack Waldo with Stephens Inc.

You guys are threatening to have the best OR in the whole trucking space.

Congratulations.

Thank you very much.

My two questions -- less the -- it was a good quarter but it looks to me like it could have been better if it wasn't for this other expense of $1.7 million.

Going back in time that looks like the biggest other expense we've seen in quite a while, several years.

What exactly was in that line?

I've already -- I explained that to, I think, Mr.

Campbell.

That's a nonqualified retirement investment fund.

It fluctuates with the market, so as the stock market, goes up and down that liability to the participants also fluctuate, but it's recorded below the line.

Okay, and then you guys opened a new drayage facility in August.

I think it's your third new one this year.

Could you talk a little bit about that business offering and what you guys are doing there?

I'm sorry.

Which are you talking --

The drayage facility you opened in Maryland, I think it was.

I was just wondering if you could give an update on what you guys are doing on the drayage side.

Oh, I see.

We're operating right now about -- I think it's 12 or 13 service centers that do drayage.

We operate in the ports now from Baltimore all the way through Jacksonville and also in LA and Long Beach and then inland ports at Salt Lake City, Chicago, Atlanta, Memphis and Charlotte, North Carolina.

And you know, we're just continuing to expand our drayage capabilities at inland ports and sea ports.

Thanks for the color.

Thanks you guys.

Congratulations.

Our next questions comes from -- a follow-up from Matt Brooklier with Piper Jaffray.

Yes, thanks.

I'll be quick.

You showed nice leverage in the purchase transportation line this quarter.

Just curious as to what drove that and if there's been a change in the network and how should we think about the PT line going forward.

Thanks.

Most of that purchased transportation line is the lease operators that we use in our drayage operation so that will fluctuate based upon the growth in that particular segment compared to the overall growth.

Okay, so we -- taking, kind of, the current -- what you guys did in the third quarter may not be applicable to upcoming quarters, is that fair?

Right.

I think it's remained fairly consistent over time, you know, in the 3%, even to 3.5%.

but that will fluctuate.

But it stays fairly consistent within that range and that's what we'd expect going forward.

Okay, thank you.

Our last question comes from David Campbell with Thompson Davis & Company.

Thanks, just one last follow-up.

Sometimes you mention expedited revenue growth or expedited demand in your quarterly comments.

You didn't say anything about expedited yet, and how was that business in the third quarter?

I know that some of it may have been adversely influenced by the auto business and so forth.

Do you have any comments on expedited growth?

It's doing well.

But we don't break that out.

Yes, I realize that.

I just wondered whether it's doing as well as the rest of the business or better as the rest of the business.

Yes, it's doing very well.

Okay, thank you.

Thank you and I'll now turn the call over to Mr.

Earl Congdon for any closing remarks.

Well as always, guys, we thank you all for your participation today and we appreciate your questions --had some good ones -- and for your support of Old Dominion.

So please feel free to give us a call if you have any further questions.

Good day.

Thank you and that does conclude today's conference.

Thank you for your participation.