奧多明尼昂貨運 (ODFL) 2012 Q3 法說會逐字稿

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

Today's call is being recorded and will be available beginning today and through November 10 by dialing 719-457-0820.

The replace passcode is 9696245.

The replay may also be accessed through November 10 at the Company's website.

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 the historical fact may be deemed to be looking statements.

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

You are herby cautioned that these statements may be affected by 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 again 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 would be glad to take your questions.

Our revenue and earnings for the third quarter were the highest we've ever achieved for any quarter, while our operating margin was the highest we've ever produced for a third quarter.

Revenue growth for the third quarter represents the tenth consecutive double digit percent increase, and earnings per diluted share have increased more than 20% for 11 consecutive quarters.

Looking forward, while we expect to be affected to some degree by the relative weakness national economy, we also believe that Old Dominion is well positioned to continue outperforming our industry peers throughout the economic cycle, and that our prospects for long-term growth are substantial.

We continue to deliver what we believe are the leading service standards in the industry in terms of financial performance, on-time delivery, and cargo claims ratio.

The strength of our market position is indicative of the strength of the OD family, and we commend all of our employees for their hard work they do to help ensure the Company's continued success.

Thank you again for your interest in Old Dominion.

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

Thank you, Earl, and good morning.

Old Dominion's results for the third quarter again reflected the operation leverage that increased density provides to our financial performance.

Although we believe final industry data will show that growth in industry tons slowed with the softer economic conditions in the third quarter, we continued to produce meaningful growth in tons on a year-over-year basis.

With one less day in the third quarter this year versus last year, our total tons increased 5.3% year over year, and 6.9% on a per day basis.

While we opened four new service centers during the third quarter, most of our tonnage growth was due to increased freight density within our existing service center network.

This density combined with an increase in revenue yield of 4.2% drove the 110 basis point improvement in our operating ratio for the quarter.

The improvement in our revenue yield for the quarter is also consistent with the outstanding service metrics we continued to produce.

Our cargo claim ratio improved 7 basis points to 0.45 compared to the same quarter of last year, and we maintained our on-time service at 99%.

We believe that the strength of Old Dominion's value proposition and the business model that supports it positions us well for continued profitable growth.

We will expand our service center network as opportunities become available, although we believe much of our revenue growth will continue to come from further market share gains within our established service center network.

We also will continue to invest in equipment and service center capacity to insure that we are prepared to leverage industry consolidation and growth opportunities.

In addition, our investments in both training and education of our employees and in productivity enhancing technology will remain priorities.

Through continued focus on our core business principles and strategies, we are confident that we will continue to drive long-term growth in earnings and shareholder value.

Thanks again for being with us today.

And now I'll turn it over to Wes to review our financial results for the quarter in greater detail.

Thank you, David, and good morning.

Old Dominion's revenues for the third quarter increased 10.1% from the third quarter of 2011 to $544.5 million.

We had 110 basis point improvement in our operating ratio for the third quarter, which drove earnings per diluted share to $0.59 for the third quarter of 2012, a 31.1% increase over $0.45 for the same period in 2011.

The growth in revenues reflect a 5.3% comparable quarter increase in tonnage, which is 6.9% on a per-day basis, and a 4.2% increase in revenue per hundredweight.

Our total tonnage growth was comprised of a 5.1% increase in shipments, and that's a 6.7% on a per-day basis for the quarter over all, and a 0.2% increase in weight per shipment.

Sequentially, throughout the third quarter, tonnage growth per day was 8.9% for July, 6.3% for August, and 6.1% for September compared to the prior period year periods.

The third quarter as a whole was slightly below the ten-year average sequential increase from the second quarter, mostly do to an August sequential softness, followed by return to sequential norms in September.

Although October still has five working days remaining, including today, based upon month-to-date, we expect growth per day for October to be in the range of 5.5% to 6% compared to October of 2011.

And based upon sequential trends we have seen in recent quarters, we expect tonnage per day to also increase in the 5.5% to 6% range year-over-year for the fourth quarter.

However, unlike the third quarter, the current fourth quarter has one additional workday compared to the fourth quarter of last year, which we will believe will result in an approximate range of 7% to 7.5% tonnage growth for the quarter over all.

The 110 basis point improvement in Old Dominion's comparable quarter operating ratio for the third quarter reflects improved density -- yield and density.

Revenue per hundredweight excluding fuel surcharge increased 4.3% for the third quarter.

This is despite a 0.2% increase in weight per shipment and a 0.9% decline in average length of haul.

We expect our revenue per hundredweight, excluding fuel surcharge, to increase year-over-year at a range 3.5% to 4%, excluding fuel surcharge, as I mentioned, for the fourth quarter.

Revenue per hundredweight for October, excluding this fuel surcharge, is expected to be up approximately 3.6%.

Density as measured by revenue, excluding fuel surcharge again, per service center was up 8% year-over-year, even as we added service centers during the 12-month period.

This density combined with our yield improvement during the quarter was a major reason why salary, wages and benefits, and operating expenses were combined a 120 basis points lower in the current quarter compared to the same quarter last year.

Capital expenditures for the third quarter was $99.6 million and $309.7 million year-to-date.

And we expect total capital expenditures for 2012 to now be in the range of $345 million to $355 million, including real estate expenditures of $120 million to $130 million, equipment expenditures of $210 million and technology expenditures of $15 million.

We expect to continue funding these expenditures through cash flow and through our available borrowing capacity.

The debt to total capitalization remained at 2.3% -- 22.3%, excuse me, at September 30, 2011, which was even with the 22.3% at the end of the second quarter, and down from 24.5% at the end of the third quarter of 2011.

With full implementation of our existing CapEx plan for 2012, we remain -- which remains subject to availability and timing of real estate, we currently expect our total debt to total capitalization to remain below 24% at the end of this year, 2012.

Our effective tax rate for the third quarter of this year was 34.9% compared to 38.8% for the third quarter of last year.

For the latest quarter we had a tax benefit of $2.7 million related to discrete tax adjustments during the quarter.

We further expect our tax rate for the fourth quarter to be 39.1%.

And this concludes our prepared remarks this morning, and operator, we will be happy to open the floor for questions at this time.

Thank you.

(Operator Instructions).

And we will take our first question from Tom Wadewitz with JPMorgan.

Yes, good morning.

Let's see.

I wanted to see if you could give us a sense of how view the competitive environment and pricing and so forth.

It feels like it's pretty stable despite the -- some softness in the economy.

What do you think of the competitive dynamic in LTL right now?

It's obviously always competitive, but from a pricing standpoint it's still stable as we see it.

There's no irrationality going on right now.

Okay, so if you stay at kind of a slow -- I don't know, maybe you don't see further than this year -- let's say you have kind of slow growth in the economy going into 2013.

Do you think you'll stay at that 3% to 4% pricing level, or do you think that will deteriorate a bit?

It's really hard to say which way it goes, but I think in the long range for our industry that the demand for our services will grow, and the constraints for adding capacity in the industry remain very high, and that the supply-demand equation will continue to allow us the ability to take moderate or reasonable price increases to cover our ever-expanding cost increases.

Okay, it sounds like you guys feel pretty good about the competitive environment.

Let's see, what about the impact of fuel?

Typically don't think you necessarily have a very big impact on LTL from fuel or sometimes it's different direction from the other guy.

But was there much of a fuel impact on your numbers in the third quarter?

No, we adjust, as we often mention, weekly according to the DOT.

Our fuel surcharge adjusts.

So we've been able to pass any of that increase or decrease through.

Fuel cost in the third quarter was about 1.5%, from the DOT standpoint, higher than the second quarter, but we have initiatives going on that still allow us to save on fuel costs, and actually our miles per gallon improved 1.2% year-over-year.

So we're not totally at the mercy of the price of fuel, but still, we're able to pass those increases through in fuel surcharge.

Right, okay.

Great.

Thank you for your time.

And we'll take our next question from Chris Weatherbee with Citi.

Thanks, good morning.

Maybe a quick question just on the pace of incremental margins when you think about it relative to fewer workdays or more workdays.

I guess you're transitioning from fewer in the third quarter to more in the fourth quarter.

How should we think about how that may impact your ability to layer on or to continue the pace of incremental margins into the fourth quarter?

Chris, we don't discuss or give guidance on margins, so I think you can think from the logical standpoint and come to your own conclusion.

Okay, fair enough.

That certainly makes sense.

I guess -- when you think about, I guess, going back to the over all competitive dynamic within LTL, can you get a sense of maybe what the underlying pace of activity -- I know obviously there is a lot of market share penetration you're capturing here, but the pace of overall freight within LTL, do you get the sense that you're seeing kind of that slowdown that we've been hearing about from the truckload carriers on the LTL side?

Or is there any differing dynamic that you can kind of pick up?

It's really going to be hard to tell until you see all the carrier's report as to what the final tonnage trends are for the industry.

Obviously we are -- we believe that we are continuing to win a market share, so we'll just have to wait and see how all the reports fall out to see what the overall impact of the economy is on the LTL industry compared with TL.

Okay, that's helpful.

I appreciate it.

I'll pass it along.

Thanks very much.

We'll take our next question from David Roth with Stifel Nicolaus.

Good morning, gentlemen.

Good morning, Dave.

David, you mentioned that you saw rational pricing environment out there.

Is that true in all regions, or is there any particular region that may seem more aggressive pricing than another?

It's true everywhere.

There is no regional differences.

Any regional differences on the demand side of things?

No, as far as we're seeing, our growth is fairly consistent across the country.

Obviously it tends to be a little bit slower in our more mature regions, but that's just a mathematical calculation because it's got a larger base, maybe, and a larger market share.

But we're seeing good consistent growth across the entire country.

Looking at your operating stats, inner city miles are up more than shipments or tonnage, and that's even as length of haul has come down.

Also, looking back, it has typically grown faster than tonnage.

Can you talk a little more about that and why that may be the case?

Dave, are you speaking about our length of haul?

I'm just saying the inner city miles year-over-year, they were up 7.3%, but shipments were only up 5% and tonnage was up about 5%.

And length of haul has also come down, so is there a reason that miles driven are going up faster than volumes?

I think inner city miles have gone up a little bit more, and that just depends on where the growth is.

If your growth is in those sections of the country that are -- like the West Coast, for example, or the Pacific Northwest that have a longer length of haul --

Wasn't our length of haul up?

Our length of haul was actually down.

It was down 0.9%.

But overall, if a lot of that growth was in the longer haul lanes, I mean, that would cause it.

We did have a slight reduction in laden load average, but nothing material.

We're kind of at the pinnacle, or not the pinnacle, but we're very strong in all of our productivity numbers, but they do vary slightly depending on mixed freight, et cetera.

But we did -- our shipment growth has been stronger in the one and two day lanes year-over-year than is has been in the longer haul, which doesn't explain the deduction in length of haul.

But it's kind of a lot of different variables, which it's difficult to shift through all of them, but the increase in the line haul inner city miles is something that we watch, but we're not overly concerned with it at this point.

The fact of the matter is, all of that still included in our results.

It may just reflect the fact that you're a bigger company now with a national footprint.

Sure.

And last question is, as you grow and continue to add equipment and service centers, has labor availability become more of a challenge?

We're not having any issue of attracting and retaining employees where we need them.

Thank you very much.

We'll go next to William Greene with MS.

Hi there.

Good morning.

I wanted to come back to just the operating day impact on the third quarter.

Did that have a material negative impact on your margins?

Are you able to estimate fixed versus variable cost?

Well, obviously it has an effect.

We don't discuss that in the detail.

I'll let you do that, but it does have an effect.

Obviously our results already include that effect.

So it's still -- obviously we're able to overcome that.

I will say that if you look at the second quarter compared to the third quarter, and you look at the sequential margin, which was up slightly of about 0.3%, that appreciation was a fairly size -- was almost explained all of that increase.

And so that was where you would have a lot of effect on the fixed cost, but that's also as a result, the fact that we've spent $200 million through the first half of the year on CapEx, so the third quarter will have pretty much the full brunt of that full depreciation, so if you look at our financials, depreciation as percent to revenue was up about 3 percentage points, 30 basis points from the second quarter to the third quarter.

So in essence, that would be part of the effect of having one less day.

Yes, okay, that makes sense.

The other question I had is, do you have any measurements for how to think about what a service center add means to either tonnage or revenue?

I assume that you grow, the impact will be smaller, sort of definitionally, but maybe the places that you're adding them, maybe it won't quite work out as simplistically as the simple arithmetic would suggest.

Do you have color around that?

What that could add, an additional service center?

Most of our service center adds have been where we are adding a service center to an area where we are serving that area on a long pedal run from another service center.

And so when we crank them up, we already have business.

So it's not really a material effect on our operations or on our operating ratio to open a new service center.

I'm not sure if that answers your question or not.

So is it just to handle the growth, or is it actually an efficiency metric that allows you to save on costs as well?

It actually -- when we opened these new centers, it puts us closer to the shippers in those cities and allows for improved service to the shippers, and an increase -- the ability to grow our market share, our outbound market share from those areas.

So it's two-fold.

Okay, that's great.

Thanks for the time.

We'll go next to Scott Group with Wolfe Trahan.

Thanks.

Good morning, guys.

I wanted to ask first maybe about a density and capacity.

When -- I missed the number in terms of shipments per service center, if you could give that, and maybe just give us a sense of how much capacity there is left.

If you didn't add any additional capacity, how much room do you have to increase shipments per service center today?

And then, in terms of capacity, how much total capacity, either service centers or total doors, do you think you added this year, and what is your initial thought of what you'll add next year?

We don't have any numbers right in front of us how many doors exactly we added and what that capacity was, but the density -- I mean the service center capacity can range from service centers having the capacity to increase business 50% to 70% to service centers that are at capacity, and we are in the process of either building a new one or adding on to them.

So our capacity over all varies across the whole network.

How much more could we handle in our existing network, I'm not going to even try to answer that.

But do you think that there's room for density to continue to improve?

There always is.

We always have room for continued density.

We have -- we probably have more capacity in our service center network than any other LTL truck line out there.

Because of all the investments we've made in growing capacity to sustain our future growth, and the market share gains that we're realizing.

So I know you don't give margin guidance, but based on that comment, does that suggest that margins continue to improve, or are there other things that may limit it at this point now that you're kind of at peak levels?

We're not at peak levels whatsoever, Scott, so I believe that we can continue to improve margins.

We don't give guidance on how much those margin improvements can be.

But density across the network and a yield environment that is positive and continuing to improve efficiencies, when you have those three things working together, you can certainly improve your margins.

Okay, that's helpful.

Last thing, in terms of inflation when you think about labor and maintenance and healthcare, do you have a sense of what inflation is costing you percentage-wise?

And any initial thought on what that would look like in 2013?

We haven't given any discussion on 2013, but certainly some -- most of our inflation is self imposed because about 50% of our cost is labor, and we gave a 3% increase in wages per hour and salaries effective September 7. So as far as other inflation, we're subject to the same dollars inflation that everyone else is, that is in the cost of group health, and in the cost of fuel, which is pretty much neutralized to a degree, but also in the cost of equipment.

It's hard to determine what that is.

I think this year probably it's also in the 3% to 5% range, but -- so that's about what we're seeing.

Okay, appreciate it.

Thanks a lot, guys.

And we'll go next to Todd Fowler with KeyBanc Capital Markets.

Thanks, good morning.

Wes, on the tonnage comments during the quarter, it sounded like there was a slowdown in the middle of August, but did things come back to normal in September?

It's a little bit different.

A lot of truckload carriers have talked about weakness until the end of the September.

And know you have difficult comps here into the fourth quarter.

How does October feel, and from a seasonal standpoint, areyou expecting normal seasonality in the fourth quarter, or are you expecting things to be a little bit seasonally weaker?

I'd already said in the comments that the projections or the guidance that we gave in terms of tonnage and tonnage per day in the fourth quarter was based upon what we were seeing in the trends for this year, which was slightly below what would be our normal ten-year average.

The October number is pretty much in that range.

It's below the ten-year average, but not materially so.

Okay, that helps.

Then I guess, are you seeing anything different then -- I mean obviously there is some weakness -- or it's below seasonal patterns.

But are you seeing any difference in shipping patterns?

It looks like weight per shipment hasn't moved around too much.

Is there anything that you're seeing within the network as it relates to how it relates to how your shippers are thinking about inventory levels or planning or anything like that you can comment on?

No, we're not seeing anything unusual, Todd.

Okay, and then I guess the last one that I have, just thinking about costs going into next year, obviously you have your CapEx this year on the real estate side.

How should we think about depreciation, and as you added real estate, has most of that started to depreciate when you've made the additions, or is there something that's a step function once a facility is actually completed and then put into operations?

I mean I guess can you have a bit of an impact on incremental margins as some of the facilities come online, before they get fully operational and up and running.

It doesn't seem that you've had that problem in the past, but I'm just curious just thinking about the real estate this year going into next year.

Yes, the real estate this year doesn't have tremendous impact on the incremental margin depreciation, because as you probably know, on real estate you don't depreciate the land.

And then you put a residual on the building costs, so that all your -- the net net of what you depreciate is depreciated over 20 years.

So most of the effect of our depreciation this year is actually on the additions and the replacement of the equipment, not really the real state.

And, Todd --

We're replacing rental -- go ahead.

Yes, as Earl was about to mention, also a lot of our ownership of the equipment is replacing terminals that we currently lease, so that's offset.

Another point to make is that if you just look at us over the last three years and the money that we have spent and invested in real estate over time, and we have kind of been in a bubble situation in the last few years, we have delivered very strong incremental margins and operating ratio improvement throughout that entire period.

So you can kind of see that the effect of adding real estate and even expanding the network is not creating any material negative impact on our performance.

Right, that makes sense.

Just to clarify that.

So it would seem to me that the land piece out of what you're spending on real estate would be the bigger portion of the spend, and the actual building piece that's going to get depreciated plus the residual over longer period would be small relative to the over all dollar amount opposite the real estate purchases.

It depends on where you buy the land.

Fair enough.

Congratulations on a good quarter.

Thanks a lot.

And we'll go next to Chris Ceraso with Credit Suisse.

Good morning, this is actually Allison Landry in for Chris.

I wanted to talk a little bit about density, and you've mentioned there is a significant amount of room to improvement this in the network.

But if I look at the pace of growth in shipments per terminal and revenues ex fuel per service center, it looks like there was a slow down in the year-over-year growth rate from the second quarter.

So I wanted to gauge your comments on this.

The metrics are still strong, but is there any read through here to the changes and possibly the pace of the density improvements?

I would say Allison, that it is -- we continue to be up against tough comparisons because our rate of growth and market share -- and growth in our market share was really strong during the late 2010 and throughout 2011.

So the comparisons have been tougher.

And secondly, there's no doubt there's been an economic slowdown in the second half of this year primarily, brought on by all the political uncertainty over the elections, and all the dysfunction in congress, and everybody in this world waiting and seeing what's going to go on with our economy.

So that's certainly had a little impact on us as well.

But as Wes pointed out, in the third quarter we had tonnage growth in the 7% range.

We're looking for tonnage growth in -- what did you -- didn't you get the 7% range?

7%, 7.5%.

For the fourth quarter.

So we don't anticipate much more slowing of our growth rate.

And depending on what happens on November 7, when we see the result, we'll try to see -- the economy will either remain in an uncertain state, or I think it will turn positive and attitudes will change and we'll have a stronger uptick in the economy next year, is our opinion.

Okay, that was very helpful.

And then as a follow-up question, in terms of market share, do you have a sense of what you gained in the first half of 2012?

I know that you had mentioned earlier that you weren't quite sure about the third quarter, but I was wondering if you had any sense for the first half?

We don't normally discuss that particular statistic on these calls.

All I know is it went up, and I'd rather not try to answer that.

Okay.

Thank you.

Fair enough.

Thank you.

And we'll go next to Ben Hartford from Baird.

Morning.

Wes, could you provide some perspective again, I think you've given this in the past, but in terms of how quickly it generally takes for one of your new open service centers to arrive at a contribution margin that's either adequate or at corporate averages?

Is there a rule of thumb and can you talk about that progress here in the third quarter with these four additional centers?

Well it just depends on where that service center is.

If it's an additional service center and a current location and we're just expanding, it probably takes about four hours for it to be profitable.

There's no real rule of thumb.

It really depends on where the service center is added.

And how much business it starts off with that.

Normally these are being opened where we are already serving the city on a long pedal run from other cities.

And if we have -- normally we'll have three or four drivers going into the city every day with freight.

So they're starting off out with in-bound freight, their starting off with some level of out-bound freight.

It usually doesn't take very long, and given the size of our network, those service centers will have no material impact on our operations.

Or our operating ratio.

Okay, good.

Then can you talk about value-added services revenue in the quarter?

What the trends have been like, I guess year-to-date, what the growth was like during the quarter, and what the outlook is in the fourth quarter as you go into 2013 in terms of the traction on the values added services side?

Ben, we're not giving details to those numbers at this point.

Directionally, has there been a change relative to the cadence that you were experiencing in the first half of the year with that specific item, with value-added services particularly?.

Still having -- I think probably the results are similar.

Okay, that's fair.

Thank you.

(Operator Instructions).

And we'll go next to Anthony Gallo from Wells Fargo.

Good morning.

Congratulations, I think this was the highest rate of operating income growth among all the transports, quarter-to-date.

And I know it was against a tough comp, so remarkable performance.

Just a couple of housekeeping items, Wes.

The tax rate was lower.

What was behind that?

We don't want to discuss the detail, but it was some discrete tax adjustments and credits that we had realized this year, that we booked all in the third quarter.

But that is -- we'll continue to get the benefit of some of that and it's the reason why our the tax rates for the fourth quarter is lower than what I originally guided to.

Q4 tax rate will come in a little bit as well?

Yes, it's about 39.1%, as I mentioned, is the guidance on the tax rate for the fourth quarter.

Great.

And then I don't want to get too far ahead, but first quarter of 2013, it's against a very tough weather comparison, given how easy the winter was this year.

Can you just remind us operationally what -- I know it's a basic question, but what winter does to you?

I'm trying to think about how 1Q 2013 might shake out if we get a normal winter.

You're right, we're not ready to discuss the first quarter.

You can talk more about the election then.

No, I'll just --

That's right.

We'll see how the winter bears out.

But there was -- you're right, I think it's more of a macro situation than a weather situation, of what the economy is going to look like in the first quarter rather than weather.

That's fair enough.

Thank you.

We'll go next to Justin Yaerman from Deutsche Bank.

Hey, guys.

It's Rob Salmon on for Justin.

Could you talk a little bit, just circling back to some of the inflationary items that you discussed earlier in the call, could you talk about some offsets from the productivity side that could reduce some of those headwinds looking out to next year?

I realize you guys are sensitive [on terms], talking about technologies and the like, but the types of savings you could realize that are currently deployed across the fleet.

We've mentioned in previous calls that we have some onboard computers that we're working with, and some other technologies.

Actually, we really don't want to talk about anything specific on our technologies on this call.

But with regard to that 3% to 5% wage inflation that you discussed, how much of that do you feel you can offset with some of these productivity initiatives that are currently being deployed?

I'm not sure you can relate one specific technology initiative to how we're going to offset a wage rate.

We don't look at it that way.

They've been primarily financed with price increases.

Okay, and we should continue to expect density tailwinds looking out into next year?

That's right.

All of the things we do with technology and operational systems and the way we manage the business are all geared toward making continuous incremental improvements in the ways that we operate the business, and we still think we still have room for tweaking.

You never finish that process.

So we just expect to get -- we're making -- our yield improvement, and our technology -- our operational improvements, as our results indicate, are paying for that wage increase.

That's helpful, and if I shift gears to the tonnage growth that you have achieved in the quarter.

If we think about the roughly 7% growth that you guys achieved on a per-business day, how much of that was just growth of additional business from your existing customer base versus new customer wins that occurred as a result from service center expansion and just your performance in the market?

We just don't -- we don't have any detail on that, but I would just characterize it by saying all of the above.

Okay, that's helpful.

Thanks, guys.

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

Yes, thanks very much, I just have two questions.

One is, you may have answered this before, but the CapEx target for the year of $345 million to $355 million, is that net of gains on sales of equipment.

No, that's gross.

That does not include any net proceeds.

Okay.

Thanks.

Then second question is more theoretical, but most of my other questions have been answered.

That is, I'm not predicting a fuel price decrease next year, but what if -- in your opinion, what would happen if prices, say, went down 30% on fuel prices, you think that -- probably would be that reduction of fuel surcharge revenue, pretty much offset by lower fuel costs.

What do you think it would do to the impact on demand?

Theoretical answer, it would be I think to ask your economist that, but --

We don't have one.

[Boomer] standpoint, obviously, lower fuel costs means they have more disposable income.

I'm certainly not qualified to answer that question in detail.

But spend more money, and it all trickles throughout the supply chain and freight shipping should be up.

Personally I would drive to a vacation that is further than I originally planned.

Right.

Or flown.

But the fuel surcharge revenue decreased would be offset by fuel cost decreases pretty much.

Is that the way to look at it?

That is not theoretical.

That's reality.

Okay, great.

Thank you.

Thank you.

And we'll go next to Tom Albrecht with BB&T.

Hi guys, a couple of different things.

Wes, do you have an estimate for depreciation for 2013 and/or Q4?

And then on the business days, I want to make sure, so 62 this year versus 61?

We haven't given guidance on anything on 2013, and we haven't really set out our CapEx anyway.

But depreciation on Q4 probably as a percent of revenue will be fairly similar to Q3, maybe a little bit higher simply because we've taken on all of our CapEx for the year, and you have a seasonal downtick in the fourth quarter.

I'm speaking as percent of revenue.

Right.

On the days, and then I have one other quick questions.

Yes, on the days we're looking at 63 days on the Q4 compared to 62 last year.

Okay, and then, David, I always enjoy when you give the productivity statistics.

Can you talk about the rate of change for platform pounds per hour?

P&D?

Stops per hour?

Line haul laden and the P&D shipments per pounds?

Wes is digging.

Actually, I can do that.

I think he has them right here on his screen.

We did have -- on the weight load average it was down 1.2%.

The P&D stops per hour was up 0.2%, and platform pounds per hour were up 2%.

So we had improvements in the P&D and platform, a little bit of less on the laden load average.

And then what about P&D shipments per hour?

P&D shipments per hours was basically flat, down slightly.

We maintained a very strong -- our levels of productivity are very, very good, and we're able to continue to maintain those levels and make some slight improvements in what Wes just mentioned.

And, again, the line haul was not material for that decrease.

Right.

Okay, thanks very much, guys.

And we'll go next to Jack Waldo with Stephens Incorporated.

Good morning, Congrats on the quarter.

Thanks, Jack.

I had one housekeeping item, and then a longer-term question.

Wes, you mentioned there was a 3% wage increase effective September 7?

Correct.

Do you have what that was a year ago?

It was about the same time frame.

I think it was the September 5, without looking, and it was around probably 2.5%.

Okay, and then a longer term question is, if we look at competitors -- nationwide competitors that seem a little bit more mature in the business model, it seems that the number of terminals that they operate is somewhere in that kind of 280 to 300 range on average.

I was wondering if there is anything different about your model or if there's anything different about the world we live in today that would impact where you think your terminal count will go over time to get the type of service that you guys want to offer -- three, five -- over the long term, I guess?

Well, historically, Jack, we have leaned at having fewer terminals and running longer pedal runs, and that's just been our general philosophy.

Being a non-union company, that also allows us the flexibility where we're not constrained by eight hours days.

It allows us to stretch ourselves out a little bit.

And we will maintain that philosophy of running long pedals before we invest in a service center.

But I will tell you that as we've been talking over the last few years we do have additional service centers, a list of other places that we will open.

We're in the process of refreshing that list.

We've been telling the street it's 35 to 40 more service centers.

It's still around that number -- more around the 40 number than it is 35.

And we are effectively serving the entire United States with 100% of full-state coverage in the 48 states, now with the 219 service centers.

Again, in order to further penetrate markets and gain more market share on the outbound markets from where we're serving on long pedals, it will require us to open up some more markets.

That also helps to not -- keep us from outgrowing some of the existing service centers.

Say a service center that's got these long pedal runs.

If you're about to outgrow it, we open up new service centers on the pedal run areas and it takes the pressure off of these service centers that you were just about at capacity.

Gosh, that makes sense.

Good luck to you in the fourth quarter, and I guess good luck to all of us on November 9.

That's right.

We all want a more positive outcome from this election.

So please, please, please vote.

There are no further questions in the queue.

Okay, then, as always, thank you all for your participation today.

We appreciate your questions, and your support of Old Dominion.

Feel free to give us call later if you have any further questions.

We look forward to speaking with you on the fourth quarter call.

Good day.

This does conclude today's conference.

Thank you for your participation.