奧多明尼昂貨運 (ODFL) 2013 Q2 法說會逐字稿

Good morning, and welcome to the second 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 August 10 by dialing 719-457-0820.

The replay passcode is 9910575.

The replay may also be accessed through August 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 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 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 second 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 performance for the second quarter was strong, especially against a somewhat tepid economic environment.

We again produced solid tonnage growth and a yield to drive a 140 basis point improvement in our year-over-year operating ratio, which is the best we have ever achieved.

As a result, our earnings per diluted share increased over 20% for the quarter on an 8% increase in revenue as compared to the same period last year.

We expect that our performance will again be best in class among our LTL peers, as well as many other transportation sector performance averages.

We also believe our tonnage growth suggests a steady gain in market share.

We believe our position as the industry's service leader was strengthened during the second quarter as we maintained a 99% on time delivery percentage and produced our best cargo claims ratio ever at 0.31%.

By maintaining and enhancing our service metrics at such high levels, we have clearly reset our customers expectations' and established higher benchmarks within the sector.

With our ongoing significant investment in equipment and technology and in preparing our employees to optimize that investment, we expect to further differentiate our sales from our industry peers through continued improvement in service performance.

While change remains a constant in our industry, driven by innovation and technology, we believe our proven business model positions us well to continue gaining market share as we move forward.

We believe we have the resources, the discipline, the focused innovation and most importantly, a talented and dedicated team of employees throughout our Company to continue to execute our strategic initiatives.

We thank you for 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.

Our second quarter results and especially our Company record 83.5% operating ratio are further validation of our disciplined focus on density, yield, and efficiency.

Earl has already mentioned our solid tonnage growth and yield performance for the quarter, which are key drivers for improved margins.

With tonnage per day increasing 5.6% for the quarter, and revenue per hundredweight excluding fuel surcharge increasing 3%, we exceeded both our expectations for the quarter and the growth rates for these metrics in the first quarter of 2013.

Due to our capital intensive infrastructure improved yield and density increases our inherent operating leverage.

In addition to the benefits of higher operating leverage, our primary measures of productivity also improved for the second quarter with the exception of a slight decline in line haul weight and load average.

Beyond these metrics we work to improve efficiency throughout the Company in numerous ways such as our investment in new tractors that contributed to our 20 basis point reduction in our maintenance costs and our sustainable fuel initiatives which reduced our fuel expenses by 80 basis points.

We believe that we are far from exhausting our ability to produce additional operating leverage in our business and to achieve further gains and efficiencies.

As a result, we continue to be confident that given increased density and yield in a stable operating environment, we should produce incremental margins in the 15% to 20% range over the long term.

To achieve increased density and yield especially in a slow growth economy we will remain focused on delivering on time, claim free customer service at a fair and equitable price.

As we have discussed before, the investment required to successfully deliver this added value is primarily funded by having the discipline and knowledge to maintain pricing for superior service at a reasonable level.

Through our execution of this value proposition over the years, we have developed an organization with an infrastructure, workforce, capital resources, and capabilities that are truly differentiated as our long-term out-performance of the industry continues to demonstrate.

To second Earl's closing remarks, I believe Old Dominion is positioned to achieve substantial and profitable long-term growth as we execute on our strategic opportunities using our proven business model.

We've made a great start toward this objective through the first half of 2013 and we look forward to updating you on our progress on the third quarter call.

Thanks for being with us today and now I will 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 second quarter increased 8% to $590.2 million from $546.5 million for the second quarter of 2012.

As discussed in today's news release, our revenue growth was primarily the result of a 5.6% increase in tonnage per day and a 2.4% increase in revenue per hundredweight.

Shipments also increased 5.6% for the quarter, due primarily to the weight per shipment being flat as compared to the second quarter last year.

In addition, length of haul was also flat compared to the second quarter of 2012.

So with no particular bias from changes in weight per shipment or length of haul for the second quarter, revenue per hundredweight excluding fuel surcharge increased 3% compared to the second quarter last year.

We believe our yield improvement is indicative of a stable pricing environment and consistent with our yield management process.

Sequentially through the second quarter, tonnage per day increased 1.4% for April versus March, 4.2% for May, and 2.1% for June.

This trend was better than expected but in line with the 10-year average sequential month growth of 1.2%, 4.1%, and 2.2% respectively.

We expect our year-over-year tonnage per day for July, which has one week left, obviously, to be approximately 6.5% and remain in the range of 6% to 6.5% for the third quarter.

Please note that total tonnage for the quarter will be higher as a percentage due to an additional work day in the third quarter of this year compared to the third quarter of 2012.

We expect revenue per hundredweight excluding fuel surcharge to increase approximately 4.5% for July, and expect revenue per hundredweight excluding fuel surcharge to increase in a range of 4% to 4.5% for the third quarter.

In today's news release we noted that we made an immaterial correction related to how we present cost of purchased transportation for certain truckload brokerage and freight forwarding services, which were previously netted against revenue.

And by the way, this is a traditional method for LTL sector to record interline transactions.

These cost will now be presented separately in our operating expenses.

The resulting adjustment increased revenue and increased purchased transportation expense, but had no effect on operating income, net income, or earnings per share for any period presented.

Our operating ratio improved 140 basis points to an 83.5% for the second quarter of 2013 compared to 84.9% for the second quarter last year.

Salaries, wages, and benefits accounted for 30 basis points of this improvement.

Somewhat similar to the first quarter, there was a 30% basis point increase in depreciation and amortization as a percentage of revenue for the quarter, mainly due to the increased and replacement purchase of tractors, trailers, and other equipment for the year.

Much of this increase was again offset by reduced equipment repairs and maintenance cost partially tied to the reduction in the average age of our tractor fleet, which contributed 20 basis points to the 100 basis points reduction in operating supplies and expense as a percent of revenue for the quarter.

The majority of the reduction in operating supplies and expense margin reflects reduced fuel expense to better fuel efficiency and purchasing methods.

We also benefited from a 50 basis point -- that's a 40 basis points net when compared to the second quarter of '12 -- but a 50% basis points improvement in net miscellaneous expenses primarily due to the sale of unused service centers that became available after we relocated to expanded facilities.

Capital expenditures for the second quarter was $121.6 million and $147.7 million for the first six months of 2013.

We have increased our expectations for CapEx net of sales proceeds for the full year to a total of approximately $305 million versus $270 million previously related due to accelerating five real estate projects slated for 2014 into this year's CapEx budget.

Therefore, the total includes planned expenditures of $130 million for real estate -- and that was increased from $95 million -- $150 million for equipment, and $25 million for technology and other assets.

And 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 16.9% at the end of the second quarter of 2013 from 17.1% at the end of the first quarter and a 22.3% at the end of the second quarter of last year.

And we expect this ratio to be in the range of 14% to 15% at the end of this year.

Our effective tax rate for the second quarter of 2013 was at 38.6% compared to 39.5% for the second quarter of 2012.

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.

Operator will be happy to open the floor for any questions at this time.

(Operator Instructions)

Allison Landry, Credit Suisse.

Good morning, I noticed that shipments per terminal increased about 9.5% sequentially.

So I just wanted to see if you could provide any color behind this and then maybe how we should think about the capacity that you have left in terms of your service centers.

Obviously, you would expect shipments per terminal to sequentially increase over the first quarter just because it's just normal seasonality.

And also I think we saw a little bit improvement overall in the economy on a macro basis in the second quarter compared to the first.

So without going to a lot of detail, or answer -- not sure about your detailed question, that would be that the main reasons we saw the increase in the second quarter compared to the first.

Much of that is -- it would be a normal a sequential trend.

And to the second half of the question about our capacity.

You know, we have been adding capacity as indicative of our CapEx budget for the last, you know, six or seven years and we continue to have adequate capacity in the network for continued profitable growth.

Yes I would say on average, from a service center standpoint, we have in the range of 20% to 25% capacity.

And that ranges from no capacity at some service centers, which we are in the process of expanding and much higher capacities, some others that we have expanded already.

Okay, that is great color.

And then just a follow-up question, in the press release you talked about an improving pricing environment for the industry.

And I was just wondering what you are seeing that's causing that improvement.

Well, I think generally speaking I would think it is generally discipline.

Understanding that all of us have to invest capital and to do that we have to improve our margins to be able to justify that and get an appropriate return.

So obviously we haven't heard from our -- the public LTL peers.

And so we are assuming based upon what we have seen from our own increases that we are seeing the same discipline from the other carriers.

So I think it is just the fact that supply demand is in somewhat of a balance.

Economic picture, while not too awfully rosy, is still, you know, positive.

And that with the idea that we all have to improve margins to justify significant investments in equipment and infrastructure are the reasons why, that we expect the improving pricing to been here in the second quarter and to continue.

Okay that's great, thank you so much.

Chris Wetherbee with Citi.

Thanks, good morning.

Was wondering maybe if you could talk a little bit about you know, kind of the tonnage progression.

It seems on the margin like things are accelerating a little bit into the third quarter.

We have heard some kind of, I guess, mixed commentary from other folks within transportation.

I guess I just wanted to get a rough sense is it that market share gains are accelerating from anywhere in particular within the market or if it's market overall is picking up a little bit.

I know you have easier comps but it seems like there is a little bit of a pickup year.

Yes, if you look at each month in the quarter Chris, it was almost to the 0.1 of a point the same.

We had a 5.7% increase in tonnage in April year-over-year, 5.8% in May and 5.7% in June.

And sequentially it turned out to be about pretty much on par with a 10-year average on each of those months as I mentioned in the comments.

Originally we were expecting it not to get there because we were a little bit uncertain about the health -- the economic picture.

But still, we would have to conclude that although it was fairly strong for us, it was still only on a 10-year average.

Now in July, we are seeing some good growth as I had mentioned in my comments.

We expect tonnage year-over-year to be up about 6.5%.

And that's -- and tonnage last year, I'm not sure I had that information up at this point -- but tonnage last year in July was up 8.9%.

So it's still a fairly healthy comparison and still up another 6.6%.

At this point we still think that that's market share, we are not certain what the macro is doing, whether we have some acceleration of the seasonal shipments in July and they were tempered down.

We are not sure how that will play out.

But we are seeing a fairly -- we saw a very strong end to June and seeing a pretty strong July at this point.

Sure, okay, that is very helpful.

And then just a follow-up when I think about, you know, the sequential progression of profitability in the business the addition of an extra day, I don't know if that necessarily has a significant impact in, you know, kind of the normal seasonal improvement that you would see generally speaking.

Or I guess it's relatively closer to flat-ish between second and third quarter but just any thoughts about how we think about that extra day relative to the normal sequential progression of profitability of the business.

Well I mean -- assuming your costs are all relative and remain comparable, you know, one more day will have some minor affect.

It would not be material.

It will have some minor positive effect, depending on what you do with it.

Sure, absolutely.

Okay, that is helpful.

I will leave it at two.

Thank you.

Brad Delco of Stephens.

Yes, good morning thanks for taking my question.

Wes, I guess, wanted to focus on the balance sheet a little bit.

I think, you know, clearly you've seen it continue to improve and you're calling for a debt-to-cap to be closer to 14% to 15%.

Any longer term thoughts on where the goal is there?

Do you eventually want to be a debt-free company or, you know, any plans down the road to return value to shareholders?

Just what are your high-level thoughts on that?

We certainly don't have an objective that we must be debt-free.

In fact, we hope that we have continued investment opportunities and we have a strong balance sheet to be able to take on to that.

So, you know, we will look at the balance sheet relative to opportunities and are willing to take on more debt if there's opportunities will provide an adequate return on capital.

We also will valuate based upon our free cash flow, and our cash flow going forward whether we should consider returning some of that to the stockholders.

Whether it be in the form of a dividend or a stock repurchase still remains up for discussion and consideration.

Got you.

And then maybe just a follow-up question to go back on pricing.

If I remember all the details correctly I thought originally you guys thought pricing ex-fuel would be up 1.5% to 2%.

Clearly you guys exceeded that.

And I think, Wes, you said you expect pricing to be 4% to 4.5% in the third quarter.

You know, what is it that you are seeing in the market that is causing this kind of acceleration and expectations on pricing?

Is it purely supply demand?

Is it the industry just being very disciplined?

Or is there anything specific that you guys are focused on that is driving that sort of rate performance?

Yes, you will recall, hopefully, last quarter we talked about some mix changes that were negatively impacting our comparison of revenue per hundredweight year-over-year.

And we were talking about that, it obviously was at our first quarter conference call in April.

And in April we were having really a, quite a negative type implication on a mix change that kind of rode out itself as the quarter progressed.

So that the revenue per hundredweight ex-fuel surcharge in April was only up 1.4% because of this mix.

Then that mix started -- that comparison started to disappear somewhat in May such that May was up 2.9%.

And then it was -- it totally became ineffective from, and became comparable in June such that in June, our revenue per hundredweight ex-fuel surcharge was up 5%.

So now we're just seeing a continuation of that as I'd mentioned, July expected to be up in -- somewhere in the range of 4.5%.

So all those are initiatives of -- and by the way June also had a reduction in weight per shipment as opposed to April and May, which would have had an increasing effect on that revenue per hundredweight.

So July was just kind of seeing a continuation of June without these mix comparisons.

And the other thing is obviously we -- effective we have the increase in our GRI effective in early July, which has a positive effect on that as well.

So we see that as playing out and we're assuming that the economy or that the competitive landscape of pricing and discipline that I just discussed on another question plays out.

And we will be able to see that revenue per hundredweight ex-fuel surcharge stay in that range.

Thanks Wes.

That is still indicative of the fact that we think the price -- the environment for yields is still pretty disciplined out there.

We will see that manifest itself over the next few days and weeks as we see some of the other peers report.

Thanks Wes, that is great color and congrats on a good quarter.

Thank you.

David Roth, Stifel.

Yes, good morning gentlemen.

Hey Roth.

Morning Dave.

Can you talk a little bit about average age of your fleet?

You mentioned that you have been replacing tractors, actually adding new tractors for growth, which should be bringing the age down.

Is that where you want it to be and should it get any younger from here?

Yes, we actually peaked at our average age of our tractors back in 2008 and 2009 and even in 2010 as we were delaying some replacements due to the economic environment.

And then we had a, as you recall, our CapEx for equipment in 2012 was about $210 million.

And part of that was getting back to what we thought was a better replacement cycle and we continue to do that this year.

Such that at the end of 2012, our average tractor fleet reduced about 4.2 years and now it is running about 4 years, which I think is getting close to more of an optimum replacement cycle.

And then as far as your growth is concerned, has driver recruiting been an issue in terms of you want to add more trucks, you want to grow, you know, the tonnage in certain regions but you can't find the drivers?

Hey David, this is David.

The driver recruitment has not been a real issue for us as most of you know the LTL industry driving job tends to be more attractive than a full truckload driving job.

You know, with the drivers being home every night for the pickup and delivery drivers and 70% of our long-haul drivers are scheduled.

So recruiting and retaining drivers is pretty good for us, and we haven't had much trouble finding them.

We are still running our driving school as we have since 1988, generating a couple to 300 drivers a year out of that, and so we just haven't had much trouble with that.

And then last question is just on the other services you have been adding, you know, freight forwarding, brokerage, OD household services.

How is the growth there?

Profitability, you know, what is your, I guess, favorite of those other services?

Obviously we are earning at 83.5% ratio overall, they would have to be pretty compensatory as well.

And the growth there has been strong and double digit.

We don't -- we're not giving specific guidance on that growth at this time but it has been good growth in all those added value services.

Thank you very much.

Justin Yagerman of Deutsche Bank.

Hey good morning guys it's Rob Salmon on for Justin.

Wes, we are clearly seeing the benefits from increased density as well as the solid yield environment.

And David you sounded pretty confident about Old Dominion's ability to expand margins further as you continue to build density in your network.

How much room do think there is to expand margins in the current backdrop and, you know, kind of thinking about it a little bit differently as we look out with your growth plan?

How should we be thinking about EPS growth coming from top line expansion versus some continued improvement in the OR?

Rob, I will take a shot at it.

You know, here we sit with a network that is pretty efficient, obviously.

And we are continuing to improve efficiencies in a lot of different areas.

So, you can couple improved efficiencies with a stable pricing environment and market share gains, we think that we can continue to improve our margins so we have not peaked out yet.

And, you know, if the economy flips the other way or gets -- goes bad, things in that formula change.

But the way that our network is structured right now, and with a good day diversified mix of customers, and good geographic diversity and decent density, but improving density, we think we can continue to improve margins.

But we are not giving any guidance on how low the margins can -- or how high those margins can get.

Understand and as my follow up, I noticed the OD logo at Family Park this past week and it's been consistently showing up in industry regs and financial publications.

Could you discuss your advertising and marketing strategy and how that fits into OD's five-year plan of getting to $3 billion in revenue by 2016?

Well, to some extent, I would say the -- our marketing strategies are proprietary and confidential.

And so, you know, what you are seeing out there is what everyone is seeing.

I would really rather not discuss it much but I would say that it is integral to our overall long-range strategic plans.

I appreciate the time guys.

Jason Seidl of Cowen and Company.

Jason, your line is open.

Hearing no response we will move on.

Tom Wadewitz, JPMorgan.

Yes, good morning.

I wanted to ask you, I know you've had a lot on price here, but wanted to go back for that just to try to parse it a little bit further I guess.

When, Wes, when you're talking about the mix effect and how that kind of changed during the quarter are you saying that the, I guess the increase in revenue per hundredweight ex-fuel or the acceleration in that is primarily driven by mix?

Or is there actually some, you know taking out mix, is there also some acceleration in what you're seeing on pricing?

And maybe I don't know if that would show up in what you're asking for in your contracts or what you are receiving in contract pricing.

But wanted to see if you could talk a little bit more of that, kind of what is actually peer base price increase relative to mix.

I'm going to take a shot at this, because, you know, revenue per hundredweight, honestly, is an end result of a whole lot of things that we do within our yield management processes.

And, you know, just because we had a change of mix that -- where obviously we had a higher revenue per hundredweight last year, and we had a lower one in April of this year did not necessarily mean anything with respect to how much money we made.

Or what our end results operating ratio was as you can see from our results that we have put up.

So you know, we just had some changes and some things that -- business that we were handling last year that we just did not have this year, which was the change in the mix.

But you know, as we manage yields, we look at each and every customer on their own merit and try to arrive at a fair and equitable price that, for the services and value that we are delivering.

So, you know, I know we always watch revenue per hundredweight and revenue per hundredweight changes and we call that pricing.

But it's -- but pricing is more about managing yield on a customer by customer basis.

So there is some noise within the numbers but it's not like you are changing your approach and being, you know, purposely more aggressive on what you ask for in rate increases.

No, not at -- that has no implication whatsoever on any changes in our strategies.

Okay, and then the second question, I guess, on the incrementals, you tend to do better on the incrementals then, you know, your 15% to 20% guidance so that is fair enough.

But I guess if you're getting more of your revenue growth looking to second half as driven by the revenue per hundredweight, which we think of as price, are there -- is there reason why the incrementals shouldn't also be a little stronger?

I mean, we think incrementals on prices are greater than incrementals on volume.

So, you know, how would you think about that just in terms of incrementals in second half?

We clarified that 15% to 20% in terms of long run, in the long-term.

So certainly have had incremental margins that have exceeded that over the last few quarters.

And that could be the case in the short-term.

But again, that depends on pricing, economic density added and all of those other variables.

But that is just a long-term guidance that we give and, you know, I stated before, some of this incremental margin is mathematical in how much of your increase is due to pricing how much is -- what is the level of your increase.

All of those things mathematically affect it.

If our growth would have been double digit in the second quarter as opposed to 8% that incremental margin would have been a lot lower.

So, you know, you just got to play all that and not take it literally necessarily.

It depends on a lot of conditions of how you've got to look at that but we still give that number because we -- as David mentioned -- we still believe that we can improve margins.

And obviously to improve margins your revenue growth has to have an incremental margin that is better than what your existing one is.

And that is all we're really saying is we still think we have the potential to continue improving our margins.

Okay, but there is not an offset that you would say okay prices accelerating a little bit but our margin, incremental margins couldn't get better.

I guess there's not a reason to think that that logic can apply.

Obviously, if all of your increased in revenue was all due to pricing your incremental margins would be really good.

Yes, right, right.

Okay, fair enough.

I appreciate it, thanks.

Todd Fowler, KeyBanc Capital Markets.

Thanks, good morning and congratulations.

I seem to remember the third quarter is generally when you do something on the wage side.

I guess I'm curious if you have any initial thoughts on potential wage increases here this year and if you can remind us what it was last year that would be helpful.

Todd, last year we were right around 3%.

And we have not announced our pay increases for this year, so we are going to have to defer on that question.

And what was the timing of the 3% last year?

Was it in the middle of the quarter or was it --?

We normally have a wage increase that is effective the first Friday in September.

Okay.

And then, David if you can talk about the decision to pull forward some of the facility investment this year, you know, what drives that?

Is that basically what is happening from the capacity side within the network and you've got pinch points?

Is it more opportunistic with, you know, either real estate that comes available?

And then, how do we think about -- well I guess you're probably not to the point where you want to give, you know, CapEx numbers for 2014.

But with the expectation be then that, you know, that is truly a pull-forward or would there be more investment that comes in 2014 based on how the network is operating?

That's a lot of questions but I will try to answer them.

Honestly, we -- for the first time in a long time, we got ahead of ourselves with some of the projects during 2013.

And instead of having delays in building projects, we got them done a little early.

And it looked like we could accelerate some of the ones that we had on slate for next year.

And due to some permitting opportunities and things like that, we decided to pull some forward into this year.

That should come out of next year's planned CapEx, which we obviously have not -- we won't be announcing our 2014 CapEx until January, as is customary.

But that $35 million acceleration into this year does come out of what we thought -- what we have been thinking we were going to spend next year.

Okay that helps and then just one last one kind of along the same lines.

I mean, when you think about, you know, your ability to grow, you know, the economy doesn't feel like it's recovered I think to the extent a lot of us were expecting a couple of years ago.

Some of your competitors seem like that they are maybe being, or maybe that they're a little bit more financially stable.

What is your outlook for your ability to grow over, you know, maybe the intermediate term relative to the past couple of years?

You know, I think we have always kind of looked at a spread of our growth relative to the ATA trucking index and also CPI.

And at one point we were probably 1000 basis points over that as we were come out of the downturns.

And more recently we're averaging anywhere from -- in the 500 basis points to 300 basis points.

And we think that with our business model and our superior service, going forward, that whatever the predictions are with ATA freight indexes or GDP or other measurements, we should be able to have a spread in the 300 basis points to 500 basis points above that.

Okay.

Those are interesting thoughts.

Thanks a lot for the time.

Scott Group Wolfe Research.

Hey guys, it is Carolyn for Scott.

I just want to dig a little but more into margins if you'll let me.

I know you guys mentioned that fuel efficiency, you said, was a benefit for you this quarter and contributed to kind of the reduction we saw in general supplies and expenses.

Can you quantify that?

And then also looking forward into 3Q -- I know you don't give guidance -- but what, you know, we have the extra day which is probably going to be a positive, we've got a slightly easier tonnage comp.

Is there anything else that maybe in this quarter that we should be thinking about being there or not being there for third quarter?

Well we did quantify in our comments the fuel efficiency as it relates to our fuel expense.

Our fuel expense -- even in view of the DOT prices being either flat to flattish, that we are able to reduce our fuel expense as a percentage of revenue by 80 basis points.

Which was the major part of our operating supplies and expense improvement of 100 basis points.

So that was fuel efficiency and also efficiently purchasing fuel in the markets.

So there's no reason why -- that we should -- there is no reason why that should, that inefficiency shouldn't continue into the third quarter.

Now, all of that would be relative to what happens to fuel prices and of course we've seen some upticks in the last couple weeks on that.

And we are as unclear on where that will go for all of the third quarter as anyone else.

But certainly our efficiently and how we buy and use fuel should remain in effect through the third quarter and even through the fourth quarter.

I think those are definitely sustainable, the gains that we have had there.

That is great thanks.

As far as anything else, you know, I -- we've just, nothing that comes to mind.

We did report as I'd mentioned in my comments, the gain on sale of real estate that had a 50 basis points improvement in the quarter.

You know, whether, by the way, you know we have excess terminals continually as we continue to move into larger facilities and put the existing facilities on the market.

So we have fairly routinely gains on sale of real estate, whether that will be 50 basis points, you know, probably not in the third quarter at least that is our thoughts at this point.

So that is something that's happened in the second quarter that likely will not re-occur in the third quarter.

Great, thank you.

And then just one question on orders of service.

I know it is early still and it's not usually as much of and LTL issue generally but have you seen any impact to your own local or line haul operations?

And then, I know it sounds like July you guys talked about this a little bit has been pretty strong sounding so far could that possibly be some of the spillover from truck growth market?

And that's my last one I'll pass it off after that.

Yes, we haven't really seen an uptick in spot quotes, which would be where that would fall into.

So I can't say that we have seen any -- any of that convergence to the LTL carriers from the truckload on concerns of that.

And we really haven't seen any affect of the change at this point and don't expect to at least from our standpoint since we have -- we are for the most part 80% of our runs are scheduled, and already encompass those regulations.

Wonderful, thanks.

Thom Albrecht, BB&T Capital Markets.

Hey good morning everyone.

Most of my questions been answered.

I did want to ask, Wes, given the slight changes in the financials, are we going to get some restatements for Q1 of 2012, Q3 and Q4?

Especially on the yield front?

Because those with what you did with PT and all that, it changed the year ago revenue per hundredweight.

And revenue per shipment figures just slightly.

Yes Thom, and thanks for the question.

I should have already indicated that but we are working on revising all those numbers so you will have apple-to-apples comparisons.

When do think that might be available?

Soon.

Okay.

(laughter) That's all I had then, thank you.

Anthony Giles, Wells Fargo.

Good morning, thank you.

I was hoping you could maybe touch on what influence the brokers are having in this business.

There seems to be more of them and they certainly seem to be more active in the LTL market and I'm wondering if they had any influence on the Q1 mix issue.

The answer to your last question is no.

I mean, we are -- we have been working with third party logistics and brokers for a number of years and I think have fashioned a reasonable a profitable process to do that.

So you know, we don't see any real problems with continuing to work with those.

Given that we understand that we still are going to price their customer base based on the profitability that we need from each of their customers.

And so we will continue to do that.

I think they make up about 25% of our base at this point.

And if that grows it will be grown as a result of us -- of them wanting a best-in-class carrier for their customers.

And it will be based upon a reasonable and profitable pricing for us.

Where might that have been a couple of years ago, that percent of base?

It would have been lower.

I don't know, just off the top of my head but I would say 15% to 20%.

Okay.

Obviously years ago starting from zero.

Great, okay, I will pass it along.

That's all I have.

Thank you gentlemen.

Bill Greene, Morgan Stanley.

Hi there, good morning.

Can I just ask you, Wes, to sort of come back to the comments you were making just on the growth rate spread over the industry?

We see some of the competitors trying to do different things on pricing and maybe their costs and you know, maybe to some extent almost try to mimic what you guys have done so successfully.

Have you not noticed that at all in the market?

Do not see any sort of market impact from what folks at some of the competitors are trying to do on lane-based pricing or costs?

Obviously we do.

But we all are assuming that they're progressing and we are standing still.

And I think that, you know, we still have opportunities to keep improving our operations although as David already mentioned, we are pretty darn efficient.

But we don't plan on standing still.

So in terms of not only our efficiency but on our focus on customer service.

Yes, okay.

And then the second question is we're seeing obviously a lot of growth in industrial productivity or production, I should say, going into places like Mexico.

Can you talk at all about your ability to tap into some of that growth?

Yes we've had a service into Mexico for at least a dozen years.

And that is a lane that is growing for us but it is not a very big one.

But we are doing okay in there.

We haven't really seen a big, you know, any major changes, though, as it relates to more production taking place in Mexico.

Okay, thanks for the time.

Art Hatfield, Raymond James.

Hi there, this is Alex in for Art today.

If I could circle back to your comments on the tepid economic environment, just curious if you're seeing any pockets of strength geographically or maybe any markets where you're seeing outsized market share gain?

I can't say we are.

When we look at our growth geographically by region it is pretty healthy across the region.

Now obviously the percentage will be different as the maturity of different regions are at different levels.

But still we are seeing pretty good growth across all regions.

Alright very good, and that does it for me.

All my other questions have been answered at this point.

So thank you for your time.

All right Alex.

David Campbell of Thomas Davis & Company

Good morning I just have a couple of questions.

First one is when do -- what about yields per pound?

Is there some point from your history that you can feel like that potential loss of traffic to other modes of transportation or truckload transportation because the yields go up so much and the customers are saying no more we'll find some other way to transport it?

Do you ever get to that point?

Well, David, I think that, you know, the segments of the transportation industry are going to -- will be here forever.

You know, you're always going to have parcel I think you're always going to have LTL and you're going to always have full truckload.

To the extent, you know, over the years, there has been some modal shift that occurs all the time.

I think the parcel carriers have upped the weight limits that they handle shipments.

Some of the truckload carriers try to pick off on the higher weighted LTL shipments and put together multi- stock truckloads.

And over time, you know, those shifts occur.

But I just think that is something natural that has been occurring and will continue to occur, but you know, not everyone can buy a full truckload of products.

So they're going to buy in LTL quantities and then as you are seeing the proliferation of more people buying things over the Internet, you know, you might see an increase in parcel traffic.

But everywhere that people order this stuff online from distribution warehouses, those warehouses are receiving LTL inbound, they're receiving truckload inbound.

I mean, there will be a shift but there will clearly be an LTL marketplace out there for us, for the future as we see it.

But you have not seen -- I mean, you would see it in your customers requesting for some reason or another a truckload shipment or combining two, three lessened truckload shipments into one.

You haven't seen any of that in general?

I think we may see it more the other way as some of these CSA rules and hours of work rules become effective.

And it will be the truckload carriers that will get pinched more than LTL, that you might see some of that divergence the other way.

That you might see what would be normally truckload shipments being split up into LTL shipments to get it moved because of lack of capacity in the truckload sector.

Okay.

And the last question is number of employees?

Can you give us a number of employees in the second quarter?

Yes.

You have another question until I find it?

Not really -- but -- (laughter)

Yes, hold on a second.

I will give it to you.

You have done a good job of answering all the other questions so there's nothing much left.

At least that I have.

At the end of the quarter, you are right, Earl always said it was 13,303.

Great, thank you.

You are welcome.

Thomas Kim of Goldman Sachs.

Thanks if I could just piggyback off of the last comment on e-commerce.

To what extent is your business already enjoying some of the benefits of the growth in that industry?

And then, could you perhaps talk about how you see e-commerce possibly -- or how your Company is considering strategic developments around that business or that vertical showing long-term structural growth prospects?

Thanks.

Well, as far as the long-term view on it -- and we are going to play in the market -- that is yet to be determined.

But it is certainly something that we have to consider.

I don't think that you know, as -- that we have seen a tremendous change in our business because of the increases in e-commerce over the last few years.

I think one thing that it -- you know, people want their product quickly.

We have had a proliferation of more and more regional distribution centers.

So, you know, the regional side of our business, the next day and two day freight has been growing.

And we have positioned ourselves in markets -- regional markets, all over the country because of that.

So to some extent we've, I think we have enjoyed some of the benefits of the e-commerce.

Okay, thanks for that and if I could just dig a little bit deeper into the market share gain commentary, obviously it's very impressive.

I was wondering if you could give us a sense of how much of those gains are coming from existing customers versus winning new business?

And then as we look further forward as you continue to gain share, do you expect that additional market share gain to come incrementally at maybe, a higher cost?

Do think you need to spend a little bit more on, whether it's marketing or more sales people or in terms of just other operations that might sort of incur incremental additional cost?

And what incremental impact it might have on margins going forward?

Thank you.

Well Thomas, you know our market -- obviously when you're gaining market share it is a good mix of both between, you know, winning new customers and growing with existing customers.

You know, we see that in our numbers.

As we track, you know, customer activity.

It's just a good mix of both.

I'm not sure I quite got the second half of the question.

In terms of -- were you asking was there going to be any additional cost involved?

Yes, just so, you know as you gain share I was wondering to what extent the share gains may come at sort of an incremental additional cost to whether you need to hire more salespeople?

Or whether there is more possibly, sort of incentives in terms of pricing or whatnot that might result in possibly a dampening impact on margins going forward.

Not really.

I would say this, you know, our overall cost of our network, our business model, the cost of winning market share is already embedded in the cost that you see within the 83.5% operating ratio.

And we would not see any major or anything out of the ordinary costs that we would have to increase to continue winning market share.

It is pretty much inherent in our business model now.

Great, thanks very much.

Jason Seidl, Cowen and Company.

Hey guys, sorry about the phone issues before.

At this state, Wes, I just have a clarification.

You said 6.5% tonnage growth in 3Q, is that a tonnage per day growth number or total for the quarter?

That range was 6% to 6.5%, Jason, and that is per day.

Per day, okay.

Thank you so much guys.

Congrats on the quarter.

And it appears there are no further questions at this time.

I will turn the conference back over to Earl Congdon.

Well fellas, as always we thank you for your participation today, and we appreciate those great questions and your support of Old Dominion.

Please give us a call if you have any further questions, and have a great day.

Goodbye.

And that does conclude today's conference.

Thank you all for your participation.