奧多明尼昂貨運 (ODFL) 2013 Q1 法說會逐字稿

Good morning and welcome to the first-quarter 2013 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through May 11 by dialing 719-457-0820.

The replay passcode is 245-2470.

The replay may also be accessed through May 11 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 historical fact may be deemed to be forward-looking statements.

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

You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release and consequently actual operations and results may differ materially from the results discussed in the forward-looking statements.

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

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

Thank you for your cooperation.

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

Please go ahead, sir.

Good morning.

Thanks for joining us today for our first-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 will be glad to take your questions.

Old Dominion's operating and financial performance momentum continued for the first quarter of 2013.

We produced growth in tons and pricing that tracked our expectations and drove a 150 basis point improvement in our operating ratio to 87.6%, the best it has ever been for our first quarter.

With solid revenue growth and increased operating leverage, our earnings rose just over 30% for the quarter.

We produced these results despite an uncertain economic environment, more severe winter weather than the first quarter of 2012, one less business day then last year, and Good Friday, occurring during the first quarter of this year.

We also believe that we gained market share during the first quarter because we continued to deliver on-time, claims-free service at a fair and equitable price.

We expect that our outstanding and long-term record of service execution will continue to differentiate Old Dominion from our competitors.

We intend to sustain our unique value proposition through continuing investment in technology and systems, as well as ongoing education and training of our employees.

In spite of the winter storms that affected much of our coverage area, we actually improved our on-time percentage to above 99% and decreased our cargo claims ratio to a new Company record of 0.34%.

The level of execution that enables this kind of superior performance over the long-term, which in my opinion is a one-of-a-kind, is what sets Old Dominion apart in the industry and drives our past and future success.

It is an easy value proposition to understand but it is complex, difficult, and expensive to implement and maintain.

We recognize the great job our dedicated employees do in providing our customers with this value proposition every day.

Thank you again for being with us today and now here is David Congdon to discuss our first-quarter operations in more detail.

Thank you, Earl, and good morning.

Most of you are familiar with the value proposition that Earl discussed and the strength of the competitive position it gives Old Dominion.

You've also heard us discuss the importance of density, yield, and efficiency to driving our outstanding results from our business model.

In fact, in our call last quarter, I specifically stated that given increased density and yield in a stable economic environment, we continue to believe that our incremental operating profit of 15% to 20% is possible.

Our first-quarter results bore this statement completely.

In an economic environment that is going slowly at best, but that is reasonably stable, we increased density in our system with a 5.2% increase in tons per day.

In addition, with industry supply and demand dynamics creating a stable pricing environment, we have produced 3% growth in revenue per hundredweight for the quarter.

Combination of these increases was primarily responsible for the strong improvement in our operating ratio for the quarter.

Increased efficiency also contributed, as we generated improvements in our platform pounds per hour and our laden load average.

The winter weather had an impact on pickup and delivery productivity, as we maintained our shipments and stops per hour about even with the first quarter of last year.

Our capital expenditures support our ability to continue driving increased operating leverage through improve density.

With the geographic footprint of our service centers now serving virtually the entire country, most of our CapEx on real estate will be directed toward expansion or replacements projects for existing service centers, such as the eight projects completed in the first quarter.

In addition to focusing on real estate expansion and replacement projects, we also will continue to invest in productivity-enhancing technology, and in ensuring our employees have the training and education to maximize this investment.

Through these investments, we believe that further improvements in our operating ratio can be achieved given an improving economy and continued execution of our business model.

Although we are one of the largest LTL carriers, we currently have only a single-digit share of the LTL market and we see opportunities to continue expanding our business for the foreseeable future.

We are confident that we have the Management experience and the financial resources to support this goal.

Our growth strategies are time-tested and our fellow employees in the OD family have proven their ability to execute our value proposition.

Because of these strengths, we are confident that we will continue meeting our long-term growth objectives.

Thank you for your interest in Old Dominion and now I will ask Wes to review our financial results for the first quarter in greater detail.

Good morning.

Thank you, David.

Old Dominion's revenues for the first quarter was $532.6 million, a 7.1% increase from the first quarter of 2012.

The growth in revenue reflected a 3.5% comparable quarter increase in tonnage or 5.2% per day.

In addition, revenue per hundredweight increased 3% compared with the first quarter of 2012 or 2.9% excluding the effect of fuel surcharge.

Tonnage growth was comprised of a 2.6% increase in the shipments and a 0.9% increase in the weight per shipment.

The increase in the weight per shipment combined with a 1.1% decline in average length of haul, typically creates downward pressure on revenue per hundredweight.

So we are pleased with the increased yield during the quarter.

Sequentially through the first quarter, tonnage per day increased 7.9% for January versus December; 2.4% for February; and 2.8% for March versus the 10-year average sequential growth of 1.2%; 2.6%; and 4.7%, respectively.

The increase in January reflects the tonnage dip in December we discussed last quarter and the below-average growth for March reflects the impact of Good Friday falling in the first quarter of 2013.

We expect tons per day for April year-over-year to be up approximately 5% and remain in the range of 4.5% to 5% for the quarter overall.

Our revenues per hundredweight for April is expected to be up approximately 1.5%, excluding fuel surcharge.

Although we expect to realize a 2% to 3% yield increases from our contractual business during the second quarter, our freight mix contributed to the reduced revenue per hundredweight for April compared to the first quarter.

At this point, we expect our experience during the second quarter would generally resemble our April mix of business and, as a result, we are tempering our expectations for revenue per hundredweight, excluding fuel surcharge, to a range of 1.5% to 2% for the quarter overall.

Our operating ratio the first quarter of 2013 was an 87.6% compared with an 89.1% for the first quarter last year.

As anticipated, depreciation and amortization increased 50 basis points as a percent of revenue for the quarter mainly due to the increased purchases of tractors, trailers, and other equipment in 2012.

This increase was more than offset by 110 basis point improvement in salary, wages, and benefits and a 100 basis point improvement in operating supplies and expenses.

I will note that about 40 basis points of the improvement in operating supplies and expenses were due to reduced equipment repairs and maintenance costs.

This reduction, which nearly offsets the increase in D&A expense, mentioned previously, is partially tied to the reduction in the average age of our tractor fleet, which is a big part of the reason for the increase in the depreciation and amortization.

In addition, the reduction in operating supplies and expense as a percentage of revenue reflected reduced expense due to better fuel efficiency and purchasing methods.

Capital expenditures for the first quarter was $26.1 million.

For 2013, we continue to expect CapEx, net of sales proceeds, to be approximately $270 million, including real estate of $95 million, $150 million for equipment, and $25 million for technology and other assets.

We expect to fund these expenditures primarily through operating cash flow as well as our available borrowing capacity, if necessary.

Total debt-to-total capitalization improved to 17.1% at the end of 2013 first quarter versus 19% at December 31, 2012 and 22.5% at the end of the first quarter last year.

Our effective tax rate for the first quarter of 2012 was 36.1% compared with a 39.5% for the first quarter of 2012.

This decrease is due primarily to recognition of propane tax credits and is consistent with the 35.9% guidance I gave in our last earnings call.

We continue to expect our effective tax rate for the remaining quarters of 2013 will average 38.6%.

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

(Operator instructions)

Chris Ceraso, Credit Suisse

Good morning it is actually Allison Landry in for Chris.

I was wondering if you could talk a little bit about the mix changes that you are seeing in the business in April and the expectation for those to continue into the second quarter?

Freight mix changes continuously, and we do not really want to get into the details but we are seeing in our contractual business, as I mentioned in the conference call, generally increases in revenue per a hundredweight including, excluding fuel surcharge in that 2% and 3% range.

So, a mix change does not really affect the pricing scenario of what we expect, but it will affect your revenue per hundredweight just as does the length of haul or changes in weight per shipment.

Okay.

And then just as a follow-up question, I was wondering if you could talk about the capacity situation in LTL versus truckload.

It seems that we have heard from some of the truckload carriers that capacity has become a bit looser.

But you guys still seem to be getting good price and conditions appear to be tight.

So, I'm just wondering if there has been any change maybe in the last few weeks as we have seen some deterioration in the macro data?

Have you guys seen anything that suggests maybe LTL capacity is changing a little bit as well?

Back during the recession, the LTL industry took out somewhere in the neighborhood of 15% in terms of terminals and doors, and this is going off of some data that one of the transportation analysts had put out.

And tonnage dropped almost 20% during the recession, but the tonnage is back up to -- not quite back to the levels that it was at in, say, the peak of 2007 -- but the service centers have not come back.

So, I think capacity has not increased in the industry as a whole.

Our capacity has at Old Dominion, but I believe it is the supply-demand equation that has allowed for the improvements in pricing for the industry as a whole.

Okay.

That is really helpful, thank you for the color.

Todd Fowler, KeyBanc Capital Markets

Great.

Thanks.

Good morning, and congratulations.

David, I wanted to follow up on your comments about the incremental margins.

And I understand your comments about density and improving revenue per hundredweight.

But when I look at the quarters here, you've had quarters in the past where you have had stronger increases in tonnage, higher increases in revenue per hundredweight, and the incremental margins have not been quite as strong.

Is there something with the network now -- some of the investments that were made over the past couple of quarters, that you're gaining some efficiencies?

Is it more of the investment that you've made in the network paying off?

Is there something different to think about with the incremental margins now versus what we have seen in the past couple of quarters?

Go ahead, you want to go, Wes?

Todd, it is funny, I do not mathematically you've gone through the permeations, but the lower your growth is, the less improvement in operating ratio that causes higher incremental margins.

What I am saying is, if you had a 150 basis point improvement, and our growth was 7%, if we were going to 15%, you would've had to improve your operating ratio by almost 8 points to get the same incremental margin so it is a quirk in the math.

And so I will just leave that with you to test on your own.

But we had a strong quarter, the yield improvement was good, the yield overall was good, we have got a great mix of business, we had density improvement across the network, we had some continued improvements of efficiency.

So like Wes said, a bit of it is the mathematics of it.

When you improve your OR 150 basis points on a 7% growth rate, you get a 30% margin improvement.

If our OR improvement was 150 points, and we had grown 15%, you would not see 30%, you would see something less.

Okay, so now I have got some homework to do on this.

But just to follow-up on that, has part of it been the way to think about it that growing in this mid to single-digit range is more of a sweet spot and you get better incremental margins because of that, and some better efficiencies versus growing at something faster than that?

Well keep in mind, we're not really being aided by the macro at all.

And no one is.

So, our growth rate right now is pretty much market share for the most part.

And so, obviously to get back to something higher, we would have to see some continued improvement in the macro environment.

When that will occur, I know that I am not qualified to answer, maybe you are.

You've got better information than I do.

The second one that I had, then I will move on, but we're thinking of moving into the second quarter.

Obviously you had some of the calendar shift here in the first quarter.

There was weather.

Are there any things -- and you've talked about your expectations for tonnage right now and your expectations for revenue per hundredweight.

But anything on the calendar side or the cost side that we should be thinking about from a sequential standpoint, first quarter to second quarter, that could impact the costs?

Thank you.

Todd, I will say that we still have weather issues even into April.

And you've probably the rain, floods--

Oh, yes.

And the snow, so we're still getting affected by some weather compared to last year.

But I will say sequentially, if you calculate the number -- the sequential tonnage into April from March, is going to only be in the 1% to 1.5% range, which is pretty much on the 10-year average.

Our expectation was that it would be more, because obviously this April does not have the Good Friday in it and March did, so we actually expect more.

And so we are just a little bit hesitant about the macro going into April despite the year-over-year tonnage of being 5% in April, as I'd already mentioned.

Sequentially we were expecting better and we will just have to attribute that to maybe a macro environment that still is a little bit soft -- or at least not growing to expectation.

So what we're saying is, the economy is really the only potential headwind into this quarter/ Otherwise we do not have any looming cost increases that are headwinds for the Company.

Sure, okay, all of that is helpful, thanks for the time.

David Roth, Stifel.

Can you talk a little bit about the length of haul decline that you are seeing?

Is that something targeted in your approach to marketing and bringing on new business, or is that just the way the markets are growing with regional growing faster than the long haul?

It is not necessarily targeting.

We see profitability of any shipment, whether short haul our long haul adding to density.

But what we did see was a little bit higher shipment growth in our next day for the quarter.

And, obviously, it was not changed that much.

So we do not put a lot of foundation in that, but we did see a slight increase in the Regional business, and I am not sure if that is market share, or just how the regions grow, it is hard to have visibility on just small changes like that.

And that would be one element of this mix change we referred earlier, because more regional business brings down revenue per hundredweight, and therefore that is part of what we are seeing in our guidance for revenue per hundredweight.

But is not being done necessarily intentionally, because as we have stated in the past, we look at each and every customer individually and we serve all segments of the market and all freight is good if it is priced right.

True.

B to C shipments, are they becoming much of a factor for you all?

Which shipments?

B to C --residential deliveries, specifically.

No, it is still -- we have some of that in our home moving and some other services, but it is not material at this point.

Okay and then the last question is just change fuel efficiency you are seeing from the new fleet that you are bringing in versus the old equipment.

We are continuing to have improvements in our fuel efficiency.

A lot of it is due to the efforts we have made working with our drivers and utilizing the onboard systems that record fuel mileage.

But we have also continued to focus on the tractors, and the aerodynamic features on the tractors, as well as the implementation of the side skirts on all of our pup trailers.

And so, we are seeing continued improvements in fuel economy.

Excellent.

Thank you very much.

William Greene, Morgan Stanley

Wes, can I ask you for clarification on some of the comments you made on the sequential change, particularly as it relates to OR.

Is the loss of an operating day in the first quarter material to the margins such that getting it back and having a normal comp year-over-year on operating days would be something that is a bigger positive than we might appreciate?

Well, I do not know that one day out of the quarter is material.

It probably can affect it by 20 or so basis points unless it is made up other ways through other efficiencies, but if 20 or even call it 30 basis points, which is probably stretching it a little bit, is material, then I will leave that definition up to you.

But -- so it does have an affect -- materiality of it depends on your fixed variable cost relationships.

Yes, make sense.

And then you mentioned in your comments as well that you do not really foresee any significant change in some of the cost trends.

Is there any reason that we need to think about wage increases again?

Is that something that you need to do electively or preemptively at all?

We do that electively, but those do not go into effect until September, and we have not made any decisions or had any discussions with that at this point.

Okay, and then just one last question one, which is, do you see any shift in market share related to some of these contract negotiations at competitor on the labor side?

We do not really have that visibility.

Obviously, what we are getting is market share for the most part.

Where it is coming from -- it is just not very transparent to us to know where and why.

Necessarily.

Okay, okay, that is great, thanks for the time.

Justin Yagerman, Deutsche Bank.

You're running into a high-class problem that you are generating a decent amount of cash, or forecasted to for the year, and your debt is coming way down, in terms of percent of capitalization.

When I think about opportunities for that cash, or when you think about opportunities for that cash, what are you thinking about?

Are we eventually going to see a dividend payment from you guys?

Or, can we expect share buybacks?

Or potentially, I know you guys have thought about acquisitions for a while now, but we have not seen you act in quite a bit of time.

Is that something that is heating up as a priority?

We will wait to see if the cash generation -- if it gets there -- is a trend, or if we can put any cash to better use by reinvesting in the Company, so it is a little early for us to even think about that, we had not really been faced with that problem in quite a few years, so we will evaluate that as we see that being more of a -- something other than maybe a one-year deal and going forward.

And Justin, we -- as we look at our overall share of the LTL industry, our market share still remained -- is around, let's call it 7%, and there is no reason why we cannot get up in the double digits, and as we accomplish that, we will have continued needs for capital to grow our fleet, to continue reinvesting in our fleet, to continue reinvesting and growing our service center capacity.

So I agree with Wes, it is too early to consider dividends and share buybacks at this point in time until we see a longer-term track record, and until we find that it is -- we do not have any more room for growth.

But while we continue to look at acquisitions, and we will continue to grow that LTL market share, we have -- our return on invested capital is pretty doggone strong and we hope to keep deploying it when we have returns of this level.

That is definitely fair enough.

And Wes, as a follow-up to that, you have $270 million capital budget this year, when you think about where that is in the spectrum, could we see that jump materially?

Or do you think you're at a healthy clip where you are able to grow a little bit out a service center here and there but maintain a similar level of CapEx on an ongoing basis?

Well, we have not given any guidance to that effect, but certainly going forward, we expect our CapEx to be a less percentage of revenue for sure.

Not sure about the dollar amounts, but certainly a less percentage of revenue.

Okay and any more terminal expansions slated for this year?

Maybe two, or three is on the drawing board or in search or in process.

Great.

Thanks, guys, appreciate the time.

Tom Wadewitz, JPMorgan

Good morning, it is Alex Johnson on for Tom.

Just curious first of all as a housekeeping item -- the growth rates you gave for tonnage were month-over-month sequential, and was wondering if you could give those as year-over-year growth rates January, February, March?

Yes, I can.

The month-over-month, in January was 5.6%; in February was 6.5%; and in March, year-over-year was 3.8%.

And the 5% in April that you mentioned, that was a year-over-year, is that correct?

Yes it was.

Okay, great.

And then just a question on the projects that you completed in the first quarter --

Those were on a per-day basis, by the way.

Per day.

Okay, perfect.

And the eight projects that you completed in the first quarter, how should we think about the benefit to profit from doing any one project and how much of the benefit from doing those projects came in, in the first quarter?

How much starts to ramp in the second quarter?

Obviously, when you are talking about expanding service centers, you are talking about a long-term benefit.

You do not, obviously, expand a service center to suit your needs for the freight at that point.

And the reason we expand these is because we foresee the growth in a particular market to be fairly strong and we are getting close to capacity.

So -- let me put it this way -- the negative effect of not expanding and being out of capacity is much greater than the short term with a higher depreciation, and so those investments that we have made over the years and have to be beneficial to our return on invested capital.

And if you look at our track record, despite all of the CapEx that we have -- the massive CapEx that we have invested over the last several years, all of that cost is embedded in our continuously improving operating ratio.

So, it is obvious that these investments are very worthwhile, and not impactful in any great way for any particular quarter.

Right, okay.

Congratulations on the strong results.

Thank you very much.

Art Hatfield, Raymond James.

This is Alex Scott in for Art.

Most of my questions have been answered at this time, but I just wanted to say, with the weather in the quarter, pretty impressed with the ability to keep your service metrics up, and just wondering if you could quantify maybe the impact of weather?

Well, from a revenue standpoint, it is hard to assimilate that because you do not know where it ends up on the net-net basis, and what the consumer demand would've been otherwise, but just on the cost standpoint, and these are just operating costs like snow removal, and things like that, it adds up.

It is not a material number, but it does have an effect probably in the $0.5 million dollar for the quarter.

And then we have some, as we stated in our conference call comments, you had a little bit of a dampering effect on some of our productivity numbers especially on the pickup and delivery.

And I am not sure what cost that is, but there is a slight cause there, but we have not really quantified or gone through the whole system to determine what the overall cost is.

I see.

But I will say this, that our performance is despite those cost.

Definitely.

And then I congratulate you guys on the solid effort in the quarter.

That will do it for, thank you.

Chris Wetherbee, Citi.

Maybe just a question on pricing.

If you cut through some of the mix effects that you have going on, as you think about this quarter and then going out into the second quarter, how does the pricing environment feel?

I know you've mentioned the contractual rates, but when you think about new business, or just more broadly, how do you think about pricing at this point?

It is really still very stable in our view.

We are not seeing any abnormal irrationalities.

There is normal irrationality that you see pockets of it all the time, but it is basically the same stable level that we have been seeing for the last couple of quarters.

Okay, that is helpful, and it may be certainly too early to think about this, but when you think about the general cadence of general rate increases, what timing should we be expecting, or have you guys thought all about that as we move out into 2013?

We typically are one of the later ones that come out with GRI, and so we will be one of the later ones to discuss it.

Okay.

Fair enough.

And then just another question about the competitive dynamic within the Business right now, you have a few competitors who are maybe adjusting the way that they are thinking about tonnage and where they maybe want to focus specifically on lanes.

Are you seeing any increased competition particularly on some of the more regional or shorter haul lanes that arguably could be a little bit more on the profitable slide?

I just want to a sense if there is any impact that you guys are seeing so far?

No.

Okay.

No impact.

Okay.

That is very helpful, and then my last question would just be around capacity and network.

Is there any specific areas that you guys are looking at that maybe could use a little incremental capacity on the margin?

Well, actually we like incremental capacity anywhere, but the expansion projects that we already discussed by definition indicates those areas that we would like more -- that we need more capacity, so that we can grow more efficiently.

Okay, all right, that is very helpful thanks very much for the time, I appreciate it.

John Barnes, RBC Capital.

Nice quarter.

Wes, given the whole operating day issue in the first quarter with having one less, can you just walk us through the next three quarters and make sure that we have the right number of operating days per quarter for ODFL?

Yes, I will see -- this quarter is 64 days and that's compared to 64 days of last year; the third quarter we had 64 days, and that is compared to 63 days for the third quarter of 2012; and the fourth quarter in both years, this year and last year, has 63 days.

Okay, very good.

Are there any other things out there that you see that are going to impact tonnage on a per day basis, like the operating days or was that really it -- was the first quarter -- was it really confined to the first quarter?

You get that one difference in the third quarter, but outside of that, anything else we should be paying attention to on that front?

Change in holidays, where they fall, or anything like that?

Not that I am aware of.

July 4 this year falls on a Thursday, and that could cause people to take off on Friday, so that Friday might not be very strong.

And obviously, the country will be closed on Thursday, so, I do not think it will be material.

Okay, all right, very good.

And then just in terms of cost on a go-forward basis, you're absolutely crushing it on the margin right now, very great job on the margin.

Where do you see your biggest challenges from here from a cost inflation perspective?

Yes, you give the yearly increases in wages, that kind of thing, but you've been able to absorb those pretty well.

Is there any bucket out there that you are more concerned about than others from a cost inflation perspective?

Yes, the biggest one is, has been, and continues to be the cost of group health cost, we'll self-insure for a big portion of that.

So any inflationary costs hits us directly.

And that will also impact the cost of treating injuries.

Right.

Workers compensation expense.

Correct so that is probably the biggest -- another secondary continues to be governmental regulation and the cost of that.

Okay.

All right, and then lastly, just going back to a comment you made earlier about growth still -- it sounded like you said most of the growth is still coming from market share gains, is that fair/ Is that what you said?

Well, the reason we say that, John, is I do not think the GDP was up 5.2% in the first quarter, so that is our only conclusion.

Okay, as you look at it, and I recognize you do not have perfect transparency into market share gains, but as you look at it, obviously you have got the unionized carriers are pulling back from the regional markets and especially the one in Kansas City is focused on, obviously, the three to five day market, that kind of thing.

Are you seeing a greater degree of regional traffic versus longer haul traffic?

Or are you seeing -- just any transparency into that would be helpful, in terms of where that market share is coming from.

If you looked at our growth by length of haul, as I mentioned, our regional next day grew a little bit better.

I do not know if that is a macro statement, or just how it falls out, but generally speaking, all of our lengths of haul, in terms of shipment growth, seems to be fairly ratable across each one, indicating that the market share growth we are seeing is from across a spectrum of carriers, both regional and long haul.

Okay, all right.

Very good.

Again, nice quarter guys.

Thanks for your time.

Thom Albrecht, BBT.

Pardon the cold this morning.

Congratulations on another great quarter.

Couple of a quick questions.

Wes, what was that exact dollar amount of the propane tax credit -- you had talked about $1.5 million to $2 million, I just want to be exact?

It was about $1.6 million.

Okay.

And then the last two quarters, you've had a nice drop in miscellaneous expenses down to about $1.6 million.

It used to be $2.5 million or so higher.

What is behind that drop?

And is it sustainable at these levels?

Just see -- make sure which area are you talking about, on miscellaneous?

Yes.

Yes.

Sometimes a big part of that is bad debts, and how we use outside services, and et cetera.

And sometimes it is not necessarily a drop other than we had some additional costs in the previous year, but to answer your question, we see that level being sustainable.

Okay.

And then lastly, what is your depreciation outlook for this year?

I have got you at about $122 million, but I like to double check that periodically?

It is going to be a little bit higher.

Okay.

Probably at $125 million.

So the latest interest expense, given the cash flow characteristics of this year, we could probably model that coming down still a little bit further, right?

Yes.

Okay.

All right, thanks very much, guys.

Scott Group, Wolfe Trahan.

So just want to go back to one of the earlier questions on incremental margins, because we entered the year -- you talk about 15% to 20% and it came in north of 30%, and I certainly understand the math you did on that 7% revenue growth.

But based on what you talked about for tonnage and pricing for second quarter, we should be thinking about similar 7% revenue growth.

And I know you don't give guidance, but just talk through some of the gives and takes you had -- weather hurting and the calendar hurting, were there any things helping or is there anything that -- what we saw in first quarter that does not feel sustainable, or should we be thinking about maybe a higher run rate going forward on incrementals?

Well, that would be getting into some guidance, which we do not give.

We have always given the guidance of 15% to 20%, but given the scenario of density improvements in a stable pricing environment, with some stability in the economy, so we will just stick with that at this point.

Okay.

Now keeping in mind, Scott, that the second quarter, last year we operated at 84.7%, which is a--

Which is extremely strong.

Very, very strong quarter, so, the second quarter is a very tough comparison.

Mathematically, it is harder to achieve the150 basis point improvement off that number.

So if it is less, and the revenue growth is the same, the incremental margins are going to be last, mathematically, so.

Yes, no that is fair.

I know it is more of a truckload issue, but how are you guys thinking about hours of service and the impact we could see come July if it happens?

First of all, yes, we are fortunate that the hours of service change that is due has to do with that 34 hour re-start, and it is not an impact on us.

It will be more of an inconvenience than any kind of a calculatable financial impact.

But, it is not even much of an inconvenience, because 70% of our drivers are scheduled and running the regular route network that we have and set running times between service centers.

Our network is geared properly to where this is no impact.

Okay, great.

And then just last thing, bigger picture, I know you said home delivery and e-commerce and B to C is a pretty small percent of what you are doing.

But you guys are thought leaders in this space -- how do you think about preparing for a world of more home delivery and e-commerce going forward?

And what are you doing to prepare for that?

At this point, we are not doing a whole lot in that regard.

We still see that even with e-commerce and home deliveries and more of them, there is still going to be a huge market for LTL into the distribution centers that subsequently ship those home deliveries, and we have ample room for growth in the LTL environment without worrying about that.

And also, without trying to take on FedEx and UPS.

Seems fair.

All right.

Thanks guys.

Ben Hartford, Robert W Baird.

Wes, I know it's early, but should we be thinking about a wage increase come September and if so, plus or minus 3%, is that a good number to think about?

We don't -- we have not even discussed that, Ben, so I don't really want to even get into any specifics on that -- when or how much.

Yes.

Understood.

The weight per shipment trend in the first quarter, up sequentially, which seems to be somewhat counter to the normal seasonal trend in 4Q to 1Q.

I know you have got this mix issue going on.

Is it solely mix, or is there something else going on with that weight per shipment being up sequentially, which seems to be unusual?

Yes, the increase in the weight per shipment and the increase is so relatively minor, we do not attribute much to it and probably more mix than anything.

Okay, good, thanks.

Only up 0.9%, so that fluctuates by just on a timing standpoint of whatever the calculation is.

Okay, very good, thank you.

(Operator Instructions)

Thomas Kim, Goldman Sachs.

Can you provide details on same-store sales growth?

I'm sorry on what Tom?

On the like-for-like basis, excluding the impact of new service centers, would you be able to provide the amount of revenue growth or volume growth?

Oh, like stores sales?

Yes,

Added to service centers net in the year, and so everything is same-store sales.

Yes it would be -- it wouldn't even be a rounding error.

Okay and then -- but does that also incorporate any service centers entered from last year?

Yes, usually the service centers that we are adding now, usually are spin-offs of other service centers as we expand the footprint.

Okay.

And so again, I would say 99.98% of our growth is all same-store sales.

Okay, great.

And then, separately -- or sorry, related to that, what timeframe are you envisioning achieving double-digit market share growth, and how much of that do you think would be coming from organic growth versus new service centers or new terminals?

Well, we have not given a specific time on double-digit growth, and part of that is going to depend on the macro and a lot of other things, but well, we have at the end of the quarter, 219 service centers, and we would likely add another 30 to 40, so that's over the timeframe, we are not sure what that is, and in a lot of cases it depends on the opportunity of when they become available.

Okay, thank you.

Brad Delco, Stevens.

Maybe Wes or David, is there any way to quantify how much capacity you are adding this year with the two or three planned additional terminals from a terminal door perspective or what you think that does for your capacity overall?

I would say that in terms of number of doors, probably 5% to 6% capacity.

Got you, so is it fair to say, with tonnage guidance around that mid-single-digit range, you are basically keeping a lot of capacity available in the network.

But if your tonnage is growing faster than that, that creates opportunities like we've seen in the first quarter when you get better density and you see the margin improvement.

Is that the right way to think about it?

That is the magic of density, yes.

Okay and then maybe speaking more specifically about recent freight trends you are seeing, or April or maybe March, are there any geographies that are maybe more competitive where you are seeing more strength than others, and any color as to why maybe you're seeing that would be helpful?

Well, some of the -- obviously some of our regions are more mature than others, so just looking at it each's growth as a pure percentage is not necessarily a statement.

But I would say that generally all of our regions are growing and growing appropriately compared to the maturity of that region from a percentage standpoint.

There is none that are trending converse to what all the regions are doing.

But you are not seeing any more tightness in the Southeast because weather is a little bit warmer versus last year, and any impacts like that, that suggest some regions has come back or picked up faster than others?

We have not, Brad.

Okay, guys, well thanks for the time, that does it for me.

(Operator instructions)

Jason Seidl, Cowen Securities.

It is a little bit late, but let me just get some quick ones in.

Wes, you mentioned that it was going to be probably a minor loss in terms of your operating margin with some of the differential in the days, and the same tone, do you pick up maybe a little bit with Good Friday shifting around into the second quarter?

In terms of the comp?

I do not know.

I already made the statement that sequential into April from March was not up to what we were expecting.

So I do not know that that's -- that is a macro statement in my view, or in our view, so I am not sure that we see any tailwinds from the Easter being in March as opposed April.

And any impact from the recent flooding in the Midwest?

Or it's too early to tell?

Absolutely.

We are getting impact from the flooding, as well as some of the other inclement weather or adverse weather that we are having about parts of our coverage areas.

Okay, and on an housekeeping question, your average employee headcount for the quarter?

Our employee headcount at the end of the quarter was 12,983 [colfa].

Guys, thanks for the time as always.

Matt Brooklier, Longbow Research

Thanks, good morning.

I jumped on late, so apologize for any redundancy in the questions.

But just given recent news per your union-based competitors, potentially augmenting and shrinking their overall networks, I am just curious to hear your thoughts on the potential for that actually to happen.

And if so -- these potential consolidation does go through, is it enough to have somewhat of an upward lift in terms of overall industry pricing?

We cannot speculate on what is going to happen at the competitors, that would -- we are just not going to do that.

So, ask another question.

Okay, you're not touching that one.

That is fair enough.

You also recently announced plans or word is out there that you are building a new distribution center in upstate New York.

Just curious to hear as to -- a little bit more color on that particular facility.

Yes, we have a regional breakbulk in Albany, New York and that is where we are building a new center.

It will just give us additional capacity there.

Okay, so this isn't a, we are moving from one breakbulk to another, this is additive to the network?

It is just expanding -- basically expanding a break that exists up there.

Got you, okay.

Where we're at is too small.

Got you, understood, all right, thank you for the time.

And it appears we have no further questions at this time.

I would like to turn the conference back over to Earl Congdon with closing remarks.

Well, as always guys, we sure thank you for your participation today.

We appreciate your questions, they were great, and particularly your support of Old Dominion.

So please feel free to give us a call if you have any further questions and we will look forward to talking with you on the second-quarter call.

And that does conclude today's conference.

We thank you all for joining us.