奧多明尼昂貨運 (ODFL) 2012 Q2 法說會逐字稿

Good morning and welcome to the second quarter 2012 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through August 17th, by dialing, 719-457-0820.

The replay pass code is 9068412.

A replay may also be accessed through August 17th at the company's website.

This conference call may contain forward-looking statements within 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 statement of historical fact may be deemed to be forward-looking statements.

With that, that would be the words believes, anticipate plans and expects and similar expressions are intended to identify forward-looking statements.

We hereby caution if these statements may be affected by the important factors among others set forth in Old Dominion filings with the Securities an Exchange Commission and in this mornings news release.

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

The company under takes 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 any questions today but ask that you limit yourself to just a couple of questions at a time before returning to the que.

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 our second quarter earnings 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.

I am very pleased to report another quarter of strong operating and financial results for Old Dominion.

We again produce several new Company records including the highest revenues, earnings, and profit margins ever.

In fact, our research indicates that our operating ratio of 84 .7, for the quarter, is the best any public LTL Company with national coverage has produce over the past 20 years.

Our results, once more, demonstrates that despite a somewhat softer economic environment in the second quarter, Old Dominion has continued to out perform the LTL industry both in terms of revenue growth and increased market share as well as setting the industry standard for service, productivity and efficiency.

We believe both that our performance and strong competitive position are attributable to our industry leading service at a fair and equitable price.

The strength and longevity of our performance and market positioning reflect our structural advantages as a fully integrated company offering comprehensive regional, interregional, national and international services through one organization.

They reflect decades of substantial and continuing investment in technology, infrastructure and capacity that has enabled us to keep our promise of on time claims free service throughout the economic cycle.

And they reflect a fundamental commitment by our entire OD family to delivering this value proposition over the long-term which has supported the yield discipline necessary to provide the highest quality services.

We believe our momentum will drive further growth in revenue and earnings for 2012 and that the experienced and the OD family, combined with our proven business model will continue long-term growth in earnings and shareholder value.

Thank you again for being with us today and your interest in Old Dominion and now here is David Congdon to discuss our second quarter operations in more detail.

Thank you, Earl, and good morning.

Old Dominion's outstanding results for the second quarter were highlighted by the 180 year-over-year basis points improvement to achieve our 84.7operating ratio.

This level of profitability was driven by continued long-term focused on our well establish core business principles and strategies.

Among these our service center density increased with solid tonnage growth with 9% in the quarter seasonally stronger volume.

Our tonnage growth slightly below earlier expectations reflecting, we believe, some softening in the economic environment during the quarter.

Our revenue yield improvement however at 4.1% excluding fuel surcharge was above expectations.

In addition to the revenue and margin benefit of a good mixture of tonnage growth and improved revenue yield we continued to deliver exceptional service to our customer.

For the second quarter we again produce on time service of 99% on tight standards which we believe lead the LTL industry.

We also achieved a17% improvement in our cargo claim ratio to set a new Old Dominion record of .38% of revenue which we also believe is one of the best in our industry.

Improved results across all 4 of our primary productivity metrics further to our historic operating ratio.

For the second quarter pickup and delivery of shipment and stops per hour increased respectively 1.1% and 1.3%.

Platform pounds per hour increased 4.1% and line hall laden load average improved 0.4 of 1%.

With the consistency delivered by our team in delivering industry leading service, we are confident in our ability to continue winning market share throughout 2012 and beyond.

We expect increase density supported by a rational pricing environment to produce additional leverage of our substantial and continuing investment in our infrastructure.

On a longer term bases, we expect to continue our investment to maintain opt mal equipment capacity for organic and core consolidation growth opportunities.

We plan to continue to refine and enhance the services we provide to our customers including our value added services.

As mentioned in the release, we opened one new service center in the second quarter and 3 thus far in the third quarter.

Giving us a total of 218 service centers.

We target the addition of another 30 plus centers overtime as well as the continued expansion of existing service centers operating at high capacity utilization as appropriate real estate opportunities become available.

The confidence we have in our short and long term growth prospects, reflects our long record of strong strategic execution and industry out performance.

With the operating momentum demonstrated quarter after quarter by our OD family and with our strong financial position we believe we can continue this performance.

Thank you for being with us today.

And now I will ask Wes to review our financial results for the second quarter in greater detail.

Thank you David.

And good morning.

Old Dominion's revenue for the second quarter increased 12 .8% from the second quarter last year to $541 .5 million .For the first time we have exceeded the $.5 billion dollar milestone for quarterly revenues.

With a company operating ratio of 84 .7 for the quarter our earnings per diluted share increased 20.3% to $0.83 for the second quarter this year from $0.69 for the same period of 2011.

The growth in revenue reflect a 9% comparable increase in tonnage and a 3.4% increase in revenue per hundred weight.

Our tonnage growth was comprise offend 8.6% increase in shipments and 0.4% increase in weight per shipment.

This was our second comparable quarter increase in weight per shipment following 4 consecutive quarters of reductions.

Sequentially throughout the second quarter tonnage growth per day was 9.6% for April, 8.7% for May, and 8.9% for June compared to the prior year periods.

The second quarter as a whole was slightly below the 10 year average sequential increase from the first quarter.

Tonnage growth per day for July increased 8.8% compared with July of 2011.

And we currently expect tonnage to increase in a 6% to 7% range year-over-year for the third quarter.

Taken into account that the current third quarter has one less working day compared to third quarter of last year.

On a per day basis this equates to approximately 7.5% to 8% increase for the quarter.

Comparisons for August and September become more difficult with monthly increases for July, August, and September of 2011 versus 2010.

Up 7.9%, 10.3% and 10.6% respectively.

The 180 basis points improvement in Old Dominion's comparable quarter operating ration for the second quarter reflects improved yield and density as well as productivity.

Revenues per hundred weight excluding fuel surcharge, increased 4.1% for the second quarter despite the .4% increase in weight per shipment and the 1.4% decline in our average length of haul.

Considering these changes, we believe actual yield improvement more in the range of 4.5% to 5%.

We expect our Revenue per hundred weight excluding fuel surcharge increase year-over-year in the range of 3.5% to 4% for the third quarter.

Revenue for hundred weight for July excluding fuel surcharge was up approximately 3. 5%.

Density as measured by revenue excluding fuel surcharge and shipment per service centers year-over-year by 12.7% and 7.8% respectively.

Even as we added service centers during the 12-month period.

And lastly direct labor and operating expenses excluding fuel expense improved 50 basis points due to an improved laid and load average, pickup and deliveries shipment and stops per hour and platform pounds per man hour.

Fuel expense as a percent of the revenue was a 150 basis points in the second quarter 2011-- excuse me 2012-- compared to the same quarter last year.

However only 20 basis points or 15% of the reduction was due to the lower department of transportation average cost of fuel.

The remaining 130 basis points reduction was due to an improved revenue yield.

A lower increase in Company miles relative to volume as a result of laid and load average TND stocks per hour ands miles per stop.

a 2.3% improvement in miles per gallons and more efficient fuel purchasing initiatives.

Capital expenditures for the second quarter were $120.6 million and $211 million year-to-date.

We continue to expect total CapEx for 2012 to be in the range of $300 million to $350 million to including real estate expenditures of $90 million to $120 million.

Equipment expenditures of $195 million to $210 million and technology expenditures of $15 million to $20 million for 2012 we expect to continue funding much of these expenditures from cash flow in our available bar capacity.

Total debt to total capitalization improved to 22.3% At June of 2012 from 22.5% at the end of the first quarter and 23 .9% at the end of 2011.

With full implementation of our existing CapEx plan 2012 which is subject to the availability and timing of real estate we expect our total debt to total capitalization remain below 25% at the end of this year.

Our effective tax rate for the second quarter 2012 was 39 .5% compared with 35 .3% for the second quarter last year of benefited from propane tax credits.

We anticipate an effective tax rate of 39 .5% for the remainder of 2012.

This concludes our prepared remarks this morning.

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

Thank you.

(Operator Instructions).

We will take the first question today from Tom Wadewitz from JPMorgan.

Good morning and congratulations on the strong results.

It looks like gradually the economy didn't have much effect on you.

Can you give a thought on what the mix of growth looked like in terms of long hall-enter regional and regional..

It was fairly equal across the board.

We had a good growth in both the regional business as well as the long haul business.

The mix didn't change a lot to tell the truth in terms of shipment it stayed about the same.

That indicates the growth was pretty much the same as well.

Okay.

All right.

And your guidance seems to be I guess indicates stability in tonnage, I guess you got some effect from the comp's give us more thoughts on where you might be seeing a little bit of weakness and how material that if it is areas of the country or the customer base.

How much risk you think there is to see further deceleration in the 3rd quarter.

the guidance material economic weakness going forward more thoughts on that.

Thank you.

Tom, this is David Congdon in looking at our 9 operating regions of the country we are seeing pretty strong growth across all of the regions no major weakness all of our communications with customer indicate -- are not indicative of any weakness in any particular part of the country.

Our guidance for tonnage growth reflects our differentiated position compared to the rest of our industry where we are able to continue to grow our market share and we are not to vulnerable economic conditions like the rest of the industry.

The guidance Tom, reflects sequential tonnage growth in the third quarter compared to the fourth quarter just maybe ever so slow so slightly below a 10 year average pretty much on that.

Are there any verticals that look different.

Or is it pretty much you are seeing a good outlook?

We see a stable outlook.

We read all the economic reports like everyone else and the economy did clearly slow down a bit in the second quarter and I think the prospects for the rest of the year is we are somewhat stuck in a slow growth mode economically speaking.

So that is the way we see the economy.

We are just different than the rest of industry peer group in that we are winning market share with our superior service product.

Okay.

Great.

Thanks for the time.

The next question comes from Dave Ross with Stifle Nicolaus.

Good morning gentlemen.

Good morning Dave.

Pretty damn good quarter . Can you talk a little bit about your GRI that was just implemented to 4.9% couple percent below most of the peers to your tariff and I know you had a similar strategy last year, is that one of the reasons for the market share gains?

It is too early to tell on that.

and it might have helped us it probably helped us retain a little bit of the our 559 tariff business last year, we saw a little bit less deterioration than is normally happening with those type of tariff in this type of environment.

A little bit about capacity, you say on the last call thatChicago is one of your biggest capacity constraints for getting permits to build a new facility in that area, I hope to complete an upgrade move in there on September is that on track or is that still a capacity issue.

That is not on track in September.

We had a couple of other opportunities arise with some facilities that have now fallen through building and are back on track to building the facility out there in west Chicago, but it is not under construction quite yet.

Is that going to have any negative impact in margins for the near term before that constraint is relieved?

No.

We are pretty just fine up there.

Thank as lot.

We will now go to Christian Weatherby with Citi.

Good morning this is Seth Lowry in for Chris.

Congrats on the quarter.

If I could start off with the tonnage forecast for the third quarter and your yield forecast for the third quarter length of haul weight per shipment and density metrics are those expected to trend flat issue or any changes in any of those 3 metrics that we should be aware of?

They're expected to trend about the same.

Which as you know our length of hall has been down in the 1% to 2% range and our weight per shipment has been up slightly in the 2 quarters so it kind of continues that trend.

Okay.

And then more generally speaking industry, I think the industry has been a bit more committed to putting through pricing increases as tonnage has fallen off as we progress in July in these first 2 days of August getting a bit more competitive on pricing, did you say any cracks any where.

No.

Okay.

And then lastly, I know there has been some moving parts within salaries, wages and benefit particularly with healthcare cost is there any abnormality going in the third quarter any large claims expected or any other catch up in costs?

We are very stable in the area of cargo claims.

Were you talking about cargo or health claims.

Health claims.

Health claims.

That's pretty stable there and no major blips.

We do give a general pay increase the first Friday in September and that has been our practice over the years.

We are not in a position to tell you a percentage on this call because it has not been announced internally.

Okay.

Thanks very much I will turn it over.

We will now go to William Green with Morgan Stanley

Good morning.

I wanted to just ask about seasonality.

If we look at the third quarter relative to the second quarter obviously I realize you have tougher comp's, but is there anything from a seasonal perspective either on the cost side or what not that would effect the way that margins would move, because typically, I think they are sort of flattish in giving the great performance you had in the second quarter, I'm not sure that can continue if you have a slowing economy.

Any color would be helpful.

well, you know, our margins in the third quarter compared to the second quarter if you look at it historically, actually kind of averages to flattish, but the range of those margins are going anywhere from the third quarter being 2 or 3 percentage points higher, to 1 or 2 percentage points lower.

So there is Nothing at this point to expect it to be out of that range.

Okay.

That makes sense.

The 1 fewer operating day will that matter for the margin?

Well, I mean 1 day makes about 1.5 percentage points difference in the revenue level to the extenuate that is not there to cover what would be fixed cost makes something of a different.

Compared to the third quarter of last year.

Right.

That makes sense.

If you look at some of your long term goals you dealt with that $3 billion.

The fact that these tougher comp's on the tonnage we are sort of seeing them in the third quarter, should we think about kind of as you get towards that $3 billion an increasing percentage of that will need to come more from price and less from tonnage growth, just large, large numbers?

Well, pricing in getting there, you know, assuming that a disciplined pricing kind of corresponds of the a GDP growth is kind of our assumption here.

obviously that $3 billion doesn't assume there is another economic downturn that we saw in 2008-2009 with a lot of price competition, but that goal is assuming that the economy stays stable and disciplined in price remains at the forefront as well.

Thank you for the time.

Next is please go ahead.

I'm sorry it is actually Todd Fowler with KeyBanc.

Thanks can you hear me.

Yes.

Okay.

Thank you.

Good morning and congratulations.

Just a question on the incremental margins, they were very strong in the quarter tonnage was good and pricing was good higher incremental margin haven't been as strong as you think about the incremental margins, is that a function of building some density in some of the less mature markets or do you look at it as the efficiency gains that you've had.

I guess, how do you think about the strengthening of the incremental margins here and the opportunities you have going forward.

Todd, this is David density across our network contributes to that, but also you have now and we believe that this good yield environment and we believe this good yield environment will stay with us going forward not only this year and the years to come so long as there is not a recession nor amnesia by some of the industry peer group.

The third element that is contributing to our incremental margins is continued improvements in our productivity and our other operating efficiency.

While we stay on track in all 4 of those areas we should be able to continue to deliver strong incremental margins.

whether they can be up in the mid to high 20s like we saw, what was it this time Wes, 29% that is pretty strong but we should continue to have strong incremental margins if those 4 elements that contribute to it stay true.

Okay.

That is helpful and that makes sense.

And then Wes can you remind us where you are as far as the fleet replacement from a CapEx standpoint and I guess what I'm thinking about, going into 2013 I know that real estate can be a variable, but what would you look at for kind of a normalized CapEx on the fleet side, on the rolling stock side and what would you be thinking about for growth.

We don't give guidance for growth.

Just replacement for equipment probably fleet replacement is in the range of $125 million to $130 million.

Just to maintain our optimal equipment age.

Okay.

Got it.

The last 1 I had kind of along the same lines.

Do you have a number of the -- I know you have had some more terminals come into the network, but just from looking at doors from a year-over-year basis trade up where you have expanded certain facilities do you have a comparison of doors year-over-year just to get a sense of terminal counts is 1 way to think about capacity but I guess a sense of the doors would help as well just for how much you have grown the network from a capacity standpoint.

Our number of doors, without given the numbers, we haven't disclosed the numbers, but our number of doors increased about 5% to 6% quarter-over-quarter.

That is obviously with additional service centers most of that is coming from the expansion of existing service centers.

Good that is a helpful way to think about.

Thanks for the time and congratulations again.

We will now go to Tom Albrecht with BB&T.

Good morning guys first one clarification and then a follow-up question.

David or Wes, one of you gave the P&D stops and P&D shipment s, can you repeat those figures please?

Let me get this right here.

The P&D shipment per hour were up 1.1% and the stops per hour increased 1.3%.

Okay.

Thank you.

On your guidance on a per day basis I know it is 7.5% to 8.5%.

It seems like that maybe does reflect the more tepid economic environment than people are thinking about.

Because your comp's in the second half of last year, got to be a little bit easier, you had 14% to 20% months in the first half of 2011 and you are kind of 8 to 10.5 in the second half of last year.

I just wanted to explore, is it that your growth rate is slowing a little bit or are you just allowing more from what you have seen in the economy and offering that 7.5% to 8.5% versus slightly easier year-over-year comp's?

I think it is latter extenuate.

David mentioned in his comments we did feel the effect of some softening in the second quarter that was the biggest reason why our tonnage growth of 9% didn't meet the range of the 9 .5%.

I had already mentioned the third quarter tonnage guidance is slightly below what would be our normal average that we would expect.

So I would generally say while we think the economy is still a little bit sluggish we still anticipate taking our normal market share.

Okay.

That is helpful.

And then I would assume in that environment that 7.5% to 8.5% your ability to drive productivity does not diminish versus when you have a higher growth rate would it change it all, would it become more productive, less productive any thoughts you have there on that.

Tom, just having that level of additional tonnage through the network is network density that leverages our fixed cost of our service center network and helps us improve our unit operating costs.

So therefore we will and should get some improvement in productivity as result of that density improvement but we obviously continually have things we have doing to improve productivity and efficiency across the network in other ways.

Okay.

Thank you very much.

We will now go to Scott Group with Wolf . Please go ahead.

Good morning guys.

Morning.

In terms of the tonnage deceleration it still feels like you are seeing less of a deceleration than the other guys, so it feels like market share is reaccelerating a little bit this quarter.

Can you give us a sense of -- do you think that it's because of the lesser GRI are you seeing some other guys struggle a little bit and more customers coming to you.

Why you think you are getting a little bit more share.

Well, Scott, I think it is just a result of a real long term focus on building the best value proposition in the LTL industry.

And our service level at 99 % on time against industry leading standards our low claim ratio our high billing accuracy ratio.

Just service in general is winning market share.

That is it.

We are clearly differentiates in this space from a service, operation standpoint, strategic stand point, and for investor from a financial stand point we are out liar.

More of the same you are not seeing any of your competitors struggle anymore than they have been struggling.

I guess Scott you will have to ask them if they are struggling.

I know they are seeing improvement because I think they realize they have to maintain and prove their prices more and more obvious as you get this CapEx bubble which we think if you maintain the average age but most of the LTL space has not.

To get an appropriate return on that invested capital you have to get that return through better pricing and better yields.

Okay.

David mentioning 30 service centers overtime.

What is the time frame for that and does the pace of that slow relative to the initial thoughts macro uncertainty and if there is any way, just give some color about the process for opening one of these up and how long does it take, what are the startup cost, how quickly does a service center become profitable.

Any color would be great.

Our historic opening of service centers, has a lot hinged on the availability of centers in cities that we had on our list to open up in the future.

So the timing of expansion of our network will hinge on real estate availability.

But in a lot of cases, the service centers that are on our list cities that are being served on a long pedal run from another city.

We might be driving 100 miles to get in to the service area to make deliveries, but due to the fact that we are not there in terms of having a service center we don't necessary capture as much of the share of the out bound market from that location.

But normally when we are opening up a service center and it is basically taking over this long pedal run might have 3 or 4 trucks in the area our cost of ramping up that center and making it profitable and the time frame is very short.

Because we already have business in that area.

We have just a handful of areas where we still use some agents to do pickup and delivery.

And that is the same case where we might choice to open up a center and display an agent we already have revenue in that area and the cost of cranking them up is minimal.

I would also say that the service centers on our list are relatively small and their impact or drain on the company is minimal for us.

Does that explain it.

That is really helpful.

Appreciate it thank as lot guys.

Thank you.

And we will now go to Chris Suraso with Credit Suisse.

Good morning this is Patrick Egion for Chris.

a few questions for you.

First one is the housekeeping one..

What were the monthly pricing trends for the quarter.

I'm sorry.

Say that again.

What were the pricing trends during the second quarter on a monthly basis?

Hold on a second I am getting there.

For the full percent overall generally speaking -- generally speaking it was roughly 4.5% in April, 4.5% in May, and 4% in June.

Okay.

And the comment you made earlier about the Q3 guidance e tonnage guidance coming up below what you normally expect.

Do you think that has anything to do with customer holding back given what appears to be a policy paralysis out of Washington right now?

We don't know all the intrinsic reasons why the economy has slowed but I'm sure that has some effect.

would you think there is more certainty could unlock more demand or is it beyond that.

I think you need to ask your local economist that question I'm not sure we are in position to.

Understand thank you very much.

We will take the next question from Anthony Gallo with Wells Fargo

Can you hear me okay.

I apologize for the cell phone.

Yes we here.

So a question about facilities as they begin to reach capacity Chicago had mentioned earlier, just remind us some of the things you can do operationally to alleviate that and then is there some margin degradation that takes place and then is recovers once that capacity is relieved?

One of the things that we try to do operationally and this has been our practice for years, is to open up satellite service centers in these large cities but in the case of the Chicago maybe totally full and we can't do anything more we might have to farm out some business to an agent to deliver.

We are not near that position at this point in time.

we're picking up and delivering freight in that market with our trucks and we are going to be fine in that market until such time as we get our new center built.

Okay.

I have to ask this question were there any disappointments in an otherwise remarkable quarter.

If you are asking me heck no.

I was hoping you could give me something, but I suspected not.

Thank you, gentlemen.

congratulations

We will go to Justin Yagerman with Deutsche Bank.

Good morning.

The general increase you announce 4.9% was a bit below the rest of our competitors at least from a public standpoint, can you talk through the rationale where that came in and how you see positioning in the market from a pricing standpoint.

We don't just come up with a number we have a fairly exhaustive process of what we're looking at, looking at both lanes and looking at where we are in the competition on our general pricing and we normally try to stay in the upper 25 percentile, not being the highest and certainly not being the lowest, so it is not that we decide a percentage going in ,we look at the metrics and look at the lanes etcetera and see what it takes to get a fair price for the investment that is what it comes out to.

Sure.

It shows in the margin.

Can you remind us what percentage of the business is covered by the GRI?

Ours, the 559, which is our tariff actually only covers 26% of our business.

Okay.

When I think about the margin improvement and where you are relative to the rest of the industry which is remarkably ahead, can you talk about any of the technology you are employing I know in the past we've seen things like dimensional scanners from you guys and most of your competition doesn't employ have you rolled that out to more facility is that having an impact something else new you are doing.

Just trying to get a little more insight as the productivity leap seems to be continuing.

Justin, we have continued the roll out of those dimensional scanners and they are very helpful in the yield management process.

We also are putting in a lot of new 28-foot pup trailers this year that have the loading racks in them so this should be a further improvement in our claims ratio and also our laid and load averages.

Fantastic.

And a point of clarification the 5% to 6% number that you gave in terms of doors increases, Wes, you said quarter-over-quarter is that Q2 versus Q1 or is that Q2 this year versus Q2 last year?

Q2 this year versus Q2 last year.

Okay.

That's helpful.

Thanks so much.

I appreciate the time guys.

We will go to Ben Hartford Barrett Capital

Good morning guys.

Wes, could you give me a sense for how many of the shipment are being handling by agent today and maybe compared to a year ago.

Actually, our purchase transportation in terms of cartage what we call cartage is probably less than not 2/10ths of 1%.Not a lot.

Good.

Also the mix of third party broker freight handled this quarter versus a year ago, can we get that last quarter on the LTL side.

Probably in the tariff of 30% to 35%.

Both quarters?

Probably up slightly.

It was.

Any sense where that could go , are you satisfied at these levels or could that number continue to move higher.

It is a fact of the matter that it is moving higher and has been moving higher for years and we are comfortable with that, we treat them as any customer and both from a service standpoint and certainly from a pricing standpoint.

Okay.

I guess conceivably could that number get to 40% or 50% of the total or is that unrealistic?

That is hard to predict Ben.

Okay.

Is that fair.

On the opps supplies line, Wes, you talked about fuel prices did fall but in terms of any irregularities this quarter how should we think about that line in the back half of year maybe as a percent of revenue.

I just want to clarify that the reduction in that line number which you don't see the fuel I gave you the fuel specifically the fuel of that line number in operations supplies and expense most of that as you can imagine is fuel and that did drop 150 basis points but most of that drop was due to the prices drop most of the drop was due to investments and processes that we have in place and so obviously we expect that to continue and in fact improve.

We continue to see improvement in our miles per gallon we see the contingency improvements in how we go about purchasing fuel and we still see the improvement in our productivity, I mean laid and load average improvements and pickup stops per hour improvements results in fewer miles and therefore results in less fuel expense and we fully intend to continue to see improvements in those metrics.

Typically the sequential trend is up.

1Q or 2Q is down.

and obviously did play a role.

In terms of thinking about this $93 million, $94 million run rate this quarter.

normalizing for fuel, I mean that sounds like that number can continue to work lower.

The question would be sequentially how do we think about it directionally up or down or is it too difficult to predict look for a little bit of direction there.

The number we can't predict is the overall cost of fuel and we don't give guidance on the percentage of revenue for operating supplies and expenses.

So I guess the conclusion is there is nothing irregular in this quarters number given some of the operational opportunities that you have is that right is that fair?

I would say that our goal is to maintain and improve our operating efficiency and we are doing a very good job with our efficiencies and there was nothing unusual in our efficiency that drove that number to what you saw in the second quarter.

Our goal is maintain those levels and continue to make incremental improvements in operating efficiencies.

How much better can it get is hard to predict.

Okay.

Thank for the time.

We will go to Tom Albrecht with BB&T.

I had kind of an usual follow-up question.

Shippers do different things as they negotiate with you on rates and one is to not answer the phone and be out of the office for weeks on end.

I'm just curious from the time a contract expires and you put in place the next year prices I'm sure it's not exactly on the annual date.

How much of a gap is there, is it 2 months or 3 months.

Have you ever tracked that between the renewal of the new pricing versus with when the contract end.

It is not as bad it as it used to be.

We used to have a lot of the delay tactics, we try to get ahead of the power curve with contract negotiations and start the discussions, you know, several months in advance at the end of the contract and we have been successful in minimizing those delays and trying to keep things on schedule.

would you say the improvement is due more to shipper concerns that capacity is at or is it more primarily because of your own initiative?

I think more our own initiatives that drive the whole contract renewal process and staying ahead of the power curve is more our doing than the customers.

Okay.

That is helpful.

Thanks guys.

And next is Jack Waldo with Stephens Incorporated.

Good morning and congrats.

Thank you.

I have two questions.

One is on your comment about the equipment age.

Do you guys have an average age for the tractors or trailers and has there been any change over the last couple of years?

Our equipment age, our goals and the way that we look at trackers and trailers and their age has not changed all that much overtime.

However it did change a little bit as we went through the recession.

We held back on replacement of our fleet a little bit.

We also during that period were parking a lot of old trucks so we would have excess capacity in the event of potential industry consolidation event and that drug our average age of our fleet up and trailers we pretty much tried to keep trailers in the 15 to 20 year range on our pup fleet and our vans.

The total life would be in the 10 to 12 year range.

With the first 4 years in long haul and remaining life in a pickup and delivery operation.

Our sleeper tractors will run 4 to 5 years on a million miles so we try to turn them at period of time.

Overall our average age of our line off fleet is around 3.4 years and that is probably a little bit higher normal we probably would be in the 2.8 to 2.9 and that is one reason why our CapEx for equipment this year is the $195 to $210 million is to getting that somewhat back to what we view as a more optimal age.

Got you.

I was wondering of the 9% volume growth, do you have it broken down between regional, interregional or long haul or do you don't look at it that way between mile classes?

We don't look at that level of detail.

Okay.

It is just in a big bucket.

Well we look at it we just don't want to discuss it.

Okay got you.

Would you be willing to say that more growth came in a certain segment?

Well the fact I will just say this the fact that our length of the haul was down slightly and our shipments growth in the regional was a little bit higher we would say we had a fairly good growth in the next day regional market.

Got you.

Better than the longer haul still the margin of growth wasn't that spread.

Got you.

Thank you very much.

Thank you.

And that will conclude our question-and-answer session for today I would like to turn the conference back to Mr. Earl Congdon.

For any additional or closing remarks.

As always guys, thank you for your participation.

We appreciate your questions some very good ones.

We appreciate your support of Old Dominion and we welcome to give you a free hand to give us a call later today or thereafter if you have any further questions.

We look forward to speaking with you on the third quarter and hopefully we can deliver some more good numbers.

Good day.

Thank you very much and that does conclude our conference for today.