奧多明尼昂貨運 (ODFL) 2013 Q4 法說會逐字稿

Good morning and welcome to the fourth-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 February 20, by dialing 719-457-0820. The replay passcode is 5701390. The replay may also be accessed through February 20 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're 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 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 President and Chief Executive Officer, Mr. David Congdon. Please go ahead, sir.

Good morning. And thanks for joining us today for our fourth-quarter conference call. Earl Congdon, who normally leads off our remarks is traveling today and unavailable for the call. With me this morning is Wes Frye, our CFO, and after some brief remarks we'll be glad to take your questions.

As you've seen from our news release issued this morning, Old Dominion produced record fourth-quarter results to close out a record annual financial performance for 2013. For both the fourth quarter and full year of 2013, our revenues and earnings were the highest ever, and our operating ratios for each period has never been better.

During the fourth quarter, we continued to gain market share, improve yield, and deliver the high-quality service that our customers expect. In addition to our substantial operating momentum entering 2014, our balance sheet at the end of 2013 has never been stronger. While we expect to continue investing significant capital to expand our operating capacity and technology platform, we also expect to fund our capital investments almost entirely through operating cash flow.

Our commitment to improving density, yield, and productivity, combined with a positive economic environment, have resulted in sustained high-performance and an operating ratio that leads the LTL industry. During the fourth quarter, our 10.9% increase in tons per day resulted in record revenue per terminal, per door, and per employee. Which provided the operating leverage to produce a record of fourth quarter margin for the Company.

We haven't seen all the industry statistics, yet, for the quarter, but based on the reports of our peers, to date, we are confident our increase in tons per day, and our 9.4% growth in shipments, represents another meaningful increase in our market share and density.

As we have also discussed for the past few quarters, changes in freight mix and other factors directly impact our yield. The company's revenue per-hundred-weight, excluding fuel surcharge of 1% for the fourth quarter, reflects in part, the negative impact on this metric of a 1.4% increase in weight per shipment and a 0.9% decline in length of haul. Wes will later discuss the impact of mix on our yield metrics as well as reporting our tonnage and revenue per-hundred-weight data going forward. Our yield discipline and philosophy have not changed. We analyze the cost of each customer and shipment and base our rates on our internal operating ratio targets for the services provided to that particular customer.

We experienced slight declines in productivity in our dock and pick up and delivery and line haul operations during the fourth quarter. A portion of these declines were caused by inefficiencies associated with bringing on and training new employees in the third and fourth quarters, as hiring ramped up in the third quarter to address higher volume and more restrictive hours of service regulations. In addition, severe winter weather that began in December also had an impact on productivity as we act in these situations to protect our service standards, even at the expense of productivity.

Our service performance remained best-in-class for the fourth quarter and included a 20% improvement in our cargo claim ratio to a 0.32% from a 0.40% of revenue in the fourth quarter of 2012. In addition, we continued to exceed 99% for our on-time delivery record. All totaled, productivity losses due to our unfailing emphasis on best-in-class service, cost us about 60 basis points in our operating ratio for the fourth quarter. While we expect to fully recover this lost productivity, the fact that we produced a company record fourth-quarter operating ratio demonstrates the fundamental strength of our people and our operations strategies.

To summarize, Old Dominion had a strong fourth quarter and a great 2013. We entered the new year very well positioned to continue gaining market share and increasing density, yield, and productivity. Our commitment to our value proposition is stronger than ever, as is our commitment to investing in our people, capacity, and technology infrastructure.

I'll note the increase to $47 million in our 2014 CapEx budget for technology and other assets. This increase reflects the beginning of a 3 to 5 year process to expand and enhance our technology platform to prepare for our anticipated growth trajectory over the next 10 to 20 years. As part of these growth expectations, we are positioning Old Dominion to expand its market share into the double digits from the mid-single digits today.

With our long-term record of profitable growth and strong market position, we are confident in our ability to leverage the growth opportunities before us, achieve our long-term operating and financial objectives, and produce additional long-term growth and shareholder value. Thanks again for being with us. And now I'll ask Wes to review our financial results for the fourth quarter in greater detail.

Thank you, David, and good morning. Old Dominion produced its second consecutive quarter of double-digit growth in revenues for the fourth quarter of 2013 with revenues of $592.5 million. An increase of 11% from $533.8 million for the fourth quarter of 2012. For the quarter, our revenue growth reflected a 10.9% increase in tonnage per day, a 9.4% increase in shipments per day, and a weight per shipment increase of 1.4%. The revenue per-hundred-weight decreased 0.3% for the fourth quarter and the revenue per-hundred-weight, excluding fuel surcharge, rose 1% despite the increased weight per shipment and almost a 1% decline in length of haul.

Sequentially, through the fourth quarter, tonnage per day decreased 4.6% for October from September. Increased 5.2% for November. And decreased 8.4% for December compared to November. This trend was, on average, comparable to the 10-year sequential month change, which decreases about 2.5% for October, increases 2.9% for November, and decreases about 8.4% for December. Year-over-year tonnage per day during the quarter increased 8.5%, 10.3%, and 15.4% for October, November, and December respectively. Year-over-year tonnage per day for our LTL transportation services in January was up 11.6%, and we expect tonnage for the first quarter of 2014 to increase in a range of 10% to 11%, compared to the first quarter of 2013. Both quarters have the same number of workdays.

Previously, we discussed how revenue per-hundred-weight differences are impacted by changing freight mix. And our non-LTL services, which include drayage, truckload brokerage, global forwarding, supply chain consulting and warehousing. Revenue for the non-LTL services are predominantly determined on a mileage, load, or container basis, unlike LTL revenue, which is more weight based. After excluding these non-LTL services from our calculations as reported, our LTL revenue per-hundred-weight excluding fuel surcharge actually increased 2.6% for the fourth quarter of 2013, compared to the same quarter of 2012. While LTL weight-per-shipment increased just barely 0.1% and length of haul declined a full 1%. We believe this change in how we are discussing this will better reflect changes in the LTL yield.

Our LTL transportation services make up 97% of our overall revenue, and going forward, we will produce revenue per-hundred-weight and certain other operating metrics, which will exclude the non-LTL services, thereby, eliminating this mixed variable and the revenue per-hundred-weight equation. Revenue per-hundred-weight, excluding fuel surge charge for our LTL transportation services, increased approximately 2.4% in January. And we expect it to be in a range of 2% to 2.5% for the current quarter. This range is consistent with our expectation for continued mixed changes toward higher-weighted contractual business and a decrease in the length of haul due to increased volume in our next-day and two-day regional lanes.

Turning to our operating ratio, we had a 40 basis point improvement for the fourth quarter of 2013 to an 87, which is our best fourth-quarter margin performance ever. We had a second consecutive quarter with 150 basis point decline in operating supplies and expense reflected continued savings from fuel purchase strategies, fuel efficiency, and fleet maintenance cost.

In addition, we continue to benefit from the disposal of unused service centers due to our relocation to larger service centers, as well as reductions in lease service centers as we purchase new centers. However, these gains were mostly offset by a 160 basis point increase in salary, wages, and benefits, driven by a slight productivity headwinds, increased group health cost, workers compensation expense, and required adjustments to our stock-based retirement plan.

Capital expenditures for the fourth quarter were $66.4 million and $295.6 million for the entire year of 2013. We estimate CapEx for 2014 to total approximately $342 million, including planned expenditures of $132 million for real estate, $163 million for tractors, trailers, and other equipment, and $47 million for technology and other assets. We also expect sales of assets during 2014 to be approximately $9 million for a total net CapEx of approximately $333 million. 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 13.4% at the end of 2013, down from 19% at the end of 2012. Our effective tax rate for the fourth quarter of 2013 was 37.2%, compared to 38.6% for the fourth quarter of 2012. We expect our effective tax rate for 2014 will be approximately 39%. This concludes our prepared remarks this morning. And operator, we'll be happy to open the door for any questions at this time.

(Operator Instructions)

We'll take our first question from Allison Landry with Credit Suisse.

Good morning. Thanks for taking my questions. I guess, if you could just clarify what you were saying about yields excluding the non-LTL services being up 2.6%. Does that also exclude the changes in weight-per-shipment and length of haul or does it include those changes?

Well, Allison, what we've normally reported, is just total tonnage and total statistics for the entire company, which we include -- which includes our drayage operation, our brokerage, and other, what we call non-LTL. And really the yields, or the revenue per-hundred-weights on those, really, aren't relative because they're not really weight-based. They're more of a mileage- and load-based.

So we're just getting back -- we're just getting to -- as those grow, then the distortion of mix becomes more predominate -- more material, so we're just decided to start doing what most of the other LTL companies do in reporting the LTL statistics only without these non-LTL numbers. So to answer your question, that 2.6% increase excludes those non-LTL, but it does include the effect of the length-of-haul and the weight-per-shipment.

Okay.

Of the LTL transportation services.

Okay. That's what I was getting at. And could you quantify the negative effect or drag that it had on the 2.6%?

What we reported -- if you'll recall is only a 1% increase in our revenue per-hundred-weight for the total company. So when you exclude these non-LTL services, that becomes 2.6% so it has a tremendous effect on the mix and that's obviously a big reason why we're making the change --

I think her question is whether the length-of-haul and the weight-per-shipment -- what amount of drag does that have on the 2.6%? It's hard to --

We don't have an algorithm to calculate that.

Sorry for my confusing question.

It does have a drag. Because both of them -- both the decrease length-of-haul and increased weight-per-shipment has a negative effect on the revenue per-hundred-weight, but I'm not sure what that is.

Okay. That's fair enough. That was very helpful. And just sort of as a follow-up question, in terms of pricing, did you see any irrational behavior by any of your competitors during the fourth quarter, just given some of the financial and union trouble that one of your competitors -- was anyone behaving a little bit differently?

Allison, the answer is no.

Okay.

We continue to see a relatively stable pricing environment.

Okay. Fantastic. Thank you.

We'll take our next question from Bill Greene with Morgan Stanley.

Hello. Good morning. Wes, can I ask for just a little bit of clarification on thinking through sequential changes in OR. Should we be adding, or -- sorry -- subtracting out 60 basis points from the OR in fourth-quarter to use a base that adjusts for some of these productivity headwinds? And then, when we think about the weather impact in first quarter, how will that affect how this sequential -- the historical sequential change, I think, is about 170 basis points, so I want to make sure we think about that. Kind of, rebasing for all of these moving parts.

Yes. I mean -- there was -- the 60 basis points that David mentioned includes not only the headwinds from weather, but it includes compliant with the powers of service regulation so that's -- that would be ongoing. What's relative to weather, obviously would be ongoing, except for, as you well know, January and starting in February still has pretty significant weather issues so there could be some drag in the first quarter on our productivity as we still try to maintain a 99% on-time service.

Right. Okay.

We're not discussing the first quarter in that level of detail at this point, however.

Yes. I understand. Now, in the past, when we saw hours of service rules change, didn't it benefit you, from a tonnage growth standpoint? Do think it's doing so this time, even though it's causing, of course, some productivity headwinds? When it nets out, is it a net negative for you?

The hours of service thing -- what it basically did is it took away some income from our road drivers and our city drivers who, historically, have made extra trips on weekends. They'd be able to reset their time and be able to go back into their normal schedules beginning on Monday. So consequently, we ended up having to hire some number of additional people in the third quarter, that carried on into the fourth quarter, to pick up the slack to run those extra trips on the weekend.

So -- but from a line-haul standpoint, that didn't necessarily cause line-haul costs to go up. It's more of the fact that we're providing benefits --

And training --

-- and training to those excess people that are picking up the slack to move our freight. That's the primary result of the hours of service change.

Right. But you didn't get any benefit on the tonnage side, you don't think, or you can't measure it?

No. I mean, when we look at our spot quotes, which is not really truckload. It's really 8,000 to 9,000 pounds. There's no real change there.

Okay. All right.

Since we're not a truckload carrier, we manage that very -- on a very fine basis to make sure we don't get a lot of it. And if we do get a lot of it, we make sure it's priced profitably.

Okay. All right. Thanks for the time.

We'll take our next question from Chris Wetherbee with Citi.

Great. Thanks. Good morning. Just one more point of clarification just on the pricing side. If I looked at that 2.6% pricing in the fourth quarter for the LTL business, X fuel, how does that compare to, maybe, the last couple of quarters of 2013? So thinking about second and the third quarter going into the fourth quarter. I just want to get a rough sense of how that compares.

I'll remind you, Chris, that that's yield not pricing.

Sure.

I think we reported a number of about -- in the fourth quarter -- I think it was about 3.8% is what it was up.

Okay. I'm just trying to get a rough sense of, sort of, apples-to-apples looking at LTL versus the non-LTL.

Right. To tell the truth, at this point, I haven't recalculated going back and what the increase over 2012 was for those other quarters. But it would be, obviously, a little bit higher than what we reported because of that and the fourth quarter we actually reported a 3.6%. And if you take the same spread, it would have been definitely higher than 3.6%. I'm not sure exactly what that number is at this point.

Sure. Okay. That's helpful. I appreciate it. And then, when you think about the continued push on market share and the further expansion of the company over the next several years as you grow that share into double digits, I just want to get a rough sense; how do you think about the potentially impacting your ability to keep pace with incremental margin guidance that you've historically given us? Is there any -- has there become a point where that changes at all? It doesn't seem like that's something we should be thinking about for 2014, but, I guess that's -- sort of bigger picture -- just kind of get a rough sense of how I think about the ability to translate that growth into profitable operating income.

Keep in mind, Chris, that we've never discussed our incremental margins in terms of what they have been in the last couple of years, which have been in the 25% to 30% range, dependent on the quarter. We've always discussed the incremental margins should fall in the range of 15% to 20%.

So we're obviously mindful going forward that, as we grow and take more market share, that margins might drop some. Although 15% to 20%, still, is allowing for improved margins overall.

So -- and the other thing -- I'll pull it out again. I think I've shared this numerous times in the past but, there's three or four key ingredients to having good incremental margins.

One, is improving density across the network. Two, is a stable yield environment. Three, is continuously improving efficiencies in your operations. And the fourth one would be a generally decent economy, because if the economy goes south, it will tend to have impacts on those ingredients.

But, so going forward, we see the continued ability to gain market share in density. There is no doubt that we believe -- we're seeing it happen. And we believe that will continue.

The yield environment is stable. Right now. We're getting good pricing. I think the way that we're looking at the yield, or at least presenting it to you, now, and going forward, will give a better reflection of how we're doing with our yield.

Efficiency improvements is a continuous process at our company so we're gaining there. And the economy is predicted to be a little stronger for 2014 than it was in 2013, so, I think, that that bodes for a good incremental margins in 2014. You know, we had a lot of slack -- a lot of excess capacity we were filling over the last two or three years, which helped contribute to the very strong incremental margins that we posted, but as Wes said, we -- going forward, 15% to 20% is a good range and hopefully we'll exceed that range.

All right. That's helpful. It sounds like you've got the ingredients you need. Thanks for the time. I appreciate it.

(Operator Instructions)

We'll now take our next question from Jason Seidl with Cowen.

Hello, guys. Good morning.

Good morning, Jay.

When I think about your growth here, obviously, you're far exceeding your peers in terms of tonnage and you guys are taking market-share. Can you talk to us about the terminal network? And are there any pinch points that are going to be coming up that will keep your CapEx a little bit higher to accommodate all this growth?

Jason, our network right now is in really good shape with good excess capacity. Our brake balks are in great shape. We don't have any pinch-points in the network, today.

As we announced, we are continuing to invest about $132 million in real estate this year. And it's a lot of different projects across the network, but that's just a result of the growth that we've been experiencing. And we have outgrown some centers, but we don't have any service pinches in the network, right now.

Yes. I'll mention, Jason, that the $132 million -- when you've got $220 million and you own, about, almost 80% of them, you've got a lot of-- also, maintenance and upkeep that are capital in nature, even on your existing facilities. That is, paving, re-roofing and things that you got to do to maintain it -- and best-in-class service.

And we -- and that 132 includes a lot of, just, capitalized improvements in our existing facilities, not necessarily new facilities. And those LTL carriers that aren't spending very much on real estate. You wonder -- sometimes you wonder why, they aren't maintaining.

But we keep our facilities in tiptop shape and beautiful order. And I know you've seen some of them and know just how nice that they look. And that costs you something, but on the other hand, it's a good motivating factor for the employees that work in that environment.

I'm not so sure you got the floor, but it's pretty close, Wes. When I think about weather, you know, you had Conway go this morning and they had some very dire forecasts in terms of just what weather hit them for January. I just want to be clear about some of the near-term headwinds for you guys, with weather, and what you are inferring on the OR.

Were you talking about another 60 point -- basis point hit for 1Q or is that, sort of, up in the air? And could that be higher based on how February started?

Yes. As I've mentioned earlier, we're not getting any guidance on January other than our growth. I think it will have an effect. Just as December had an effect.

There will be an effect. We're not sure, ultimately what it is, because, as you know, weather issues hurts you while it's happening. But a lot of that freight comes back and, therefore, helps density when it comes back and should provide you some good positive results going forward. If we ever get out of the weather situation, which, sometimes, it might be until April. Who knows?

Well, I hope not, Wes.

But the ultimate effect on that is still not determined.

Okay.

The fact, if you recall, the fact that we're up 11.6% in tonnage for LTL transportation in January -- and includes the weather effects is pretty strong.

Okay. Without a doubt. Gentlemen, listen, I appreciate the time as always.

All right, Jason, thanks.

We'll take our next question from Scott Group with Wolfe Research.

Hello. Thanks. Good morning, guys. So, Wes, I just wanted to follow up on that last point about the tonnage in January. Do you have any idea what weather cost you per tonnage? And I'm a little surprised that you're expecting full-quarter tonnage to be less than January, given that weather probably hurt January, and the comp doesn't seem to be much tougher in February and March. Is there something we're missing on the tonnage guidance?

You're not missing it. It is what it is. And we were up 11.6%. How much we lost -- I think probably there was about seven or eight really bad days around the system that we lost and then it would come back fairly strongly a couple days after that. So what the net, net is -- but probably cost us at least a couple million in January just on revenue just due to the weather.

I don't -- we don't -- we're not sure what to expect in February and March. March, if you'll recall, was kind of a strange month with the Easter falling on the last day of the month in the quarter. So, in some sense, that might be a fairly -- an easier comparison, but we'll just have to wait and see.

Yes. I guess that's why I was surprised you are expecting 10 to 11 for the quarter when you're already up 12, despite weather in January.

Are you saying it's conservative?

I'm just wondering if it's conservative, or if there's something we're missing that is causing it to decelerate in the next few months.

Well, I'll say that, probably, during January, when YRC was in their negotiations and lost the first Teamster vote, we did get some transitional revenue during that January month that is probably been re -- I guess --

That may or may not stick.

That may or may not stick as they are getting closer and closer to an agreement and to a refinancing.

Okay. That makes sense. And then, I don't know if I missed this -- did you guys get some numbers around the incentive comp and the health and benefit costs in fourth-quarter? And do you have a view on what kind of year over year change we should expect on those two lines in 2014?

Yes. The group health has been a headwind going forward. Now, we're not clear, at this point, where the group health will continue into the first quarter or even into 2014.

We're thinking, possibly, to avoid some of the increased costs in 2014, that we had a lot of our employees to accelerate any health issues. And whether that -- that is kind of -- was a spike in, especially, the latter half of 2013, we are not sure at this point. We'll have to wait and see.

I can't really answer the question whether that will be -- the group health with an issue going forward, but I suspect that it will not decrease materially.

Now, on the retirement benefits, that was about a $3 million accrual in the fourth quarter and that changes each quarter based upon the stock price. And so, while that was a negative in the fourth quarter, may be -- may or may not be in the first quarter. But it was, pretty much, an offset to the real estate gains that we had. So that was kind of a wash against that.

Okay. That's great color. Thanks, guys.

We'll take our next question from Thomas Kim with Goldman Sachs.

Thanks. Good morning, guys. Let me just start off with one quick question on the real estate gains. Can you specify how much you earned in the fourth quarter related to that? And to what extent can you provide guidance as to further asset disposals during the course of this year?

The gain on real estate was a large gain that we had on one particular facility. It was about $3 million. We do have, obviously, still unused facilities that we'll be selling in the -- in 2014, but at this point, we're not totally clear about the gains. There, more likely, will be some gains. In what quarter and how much, we're not disclosing, or maybe not even know the number at this point.

Okay. And just to follow on one of the earlier questions on your long-term margin opportunity. Obviously, these share gains are going to invariably lead to earnings curve. And I'm just wondering, you, obviously, can achieve earnings curve through both top-line and margin expansion, but I'm wondering to what extent would you be willing to accept lower margin, instead of the expense of faster revenue growth as you potentially have the opportunity to increase your volumes a little bit more quickly?

Tom, we have a value proposition in -- at Old Dominion of delivering a really strong service product and it costs money to deliver that product. We're not going to compromise our yields management processes to deliver -- to be able to arrive at a fair and equitable price for the services we provide to our customers, so that we can continue investing in the business to continue to give -- to deliver this high value service. So the answer is, no. We're not going to compromise yield just for the sake of tonnage.

Great. Thank you very much.

We'll take our next question from Justin Yagerman with Deutsche Bank

Hello, guys. Good morning.

Good morning.

I wanted to just get a housekeeping question of the way. The 2% to 2.5% revenue per-hundred-weight guidance that you gave for Q1, Wes, that compares to the 2.6% that adjusted number? Or does that compare to the 1% net --

No, that compares to the adjusted number. For just the LTL transportation, Justin.

Okay. Just curious why you think that that takes a little bit of a step back here. It feels like the spot-market was tight in the fourth quarter, at least on that truckload side. Should, kind of, have a psychological impact as we go through bid season. And with this weather, if we ever get some catch-up going on, you'd think that capacity's going to tighten across the board a little bit.

Maybe I'm being wildly optimistic here, but I mean -- I'm a little unclear as to why you think it would take a step back. So just kind of curious.

Well, what we did see in January is 2.4%. So we gave a range. What we don't see, which could be a better environment going forward into the February/March, could be, but that's just the range that we're giving. We don't see it as a step back.

You've got year over year comparisons as well. And so, sometimes the percentage increase is comparable against a period that has a more robust increase in yield. So --

Your talking about a half a percent.

The difference between 2.6 and 2.5 at the high end is --

Yes. Yes. All right. Maybe, I was splitting hairs there a little bit. In terms of the hours of service commentary, where is that really impacting you guys? Why is that an LTL issue?

It's -- the biggest issue with it, Justin, is -- take city drivers that work a five day week and they want to run an extra trip on the weekend to boost their income. They are then able to reset their time, if you will, to go back to work on Monday and the same thing is the case for a lot of our road drivers -- You know, city drivers get into that -- has to do with the ones that are required to log based on going beyond 100 miles and so forth.

But on the road drivers, that run a five-day-a-week schedule, some of them have been able to run an extra trip on a Saturday, reset their time, between Saturday night and Monday morning, and they go back out on their long-haul schedule Monday night. But they're not now -- not able to do that, because of the 34-hour restart provisions that the new law put in place.

Requiring the two consecutive periods off. And so these guys have lost income and we've had to replace them and had to hire additional road drivers and rework various sundry schedules to be able to pick up the slack.

When this thing first went into place on the first two weekends of a going into place back in July, we lost nearly 250 weekend dispatches that were being handled by city drivers and/or road drivers picking up that extra slack. So we had to cover that 250 dispatches on weekends with additional people on the payroll.

This administration seems good at destroying jobs.

Looking at the market-share commentary you guys made and the step up in CapEx, Wes, kind of curious how you think about the way that market share should proceed on an ongoing basis. At 10% or so revenue growth, you guys are probably 7 or 8 percentage points above industrial production. And when I think about trying to benchmark what a market is doing for LTL.

What do you think is sustainable for you guys in terms of if the market's X, we can do X plus Y. What's that Y number?

Well, we've historically -- our tonnage growth has exceeded the sector anywhere from 300 to 500 basis points. So I think we can still sustain that with our business model and our best in class service going forward. As David had mentioned, we think that -- is certainly within in some a finite timeframe we'll get from the mid-single-digit market share to double-digit.

Okay. And the last question, sorry to ask of you here. What's the deferred tax headwind that you're going to face 2014? If bonus depreciation isn't renewed?

Well, it's not -- the biggest thing is the fact that the propane credits, which were available to us in 2013 -- we don't think that they'll be available to us in 2014. In fact, at this point they won't be unless something changes in Congress or with the regulations.

Okay. So do you have any kind of -- is that part of the reason the tax rate's up where it is?

It is. Yes.

Yes. Okay. All right. I'll take the rest of line. Thanks, Wes, I appreciate it. Thanks, David.

Thank you.

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

Good morning gentlemen.

Good morning, David.

As you look out for that future growth and are expanding the network, it sounds like you're planning on growing all organically, but would acquisitions potentially play a part in any of the growth, or are you at the size now where it really doesn't make a lot of sense?

On the LTL company, we are basically covering the entire United States with 223 service centers now and 100% coverage in the 48 states. So we do not need an LTL acquisition to help us expand geography or to help us expand any real coverage. So, therefore, we'll be looking primarily at organic growth.

And we still have about 35 or 40 service centers that we would add in various states to enhance our coverage in those states and enhance our ability to increase outbound market share in certain areas. So I see it primarily that way.

Our businesses outside of the US -- we have agency relationships in Canada and Mexico, Alaska, Hawaii, that I don't know -- there could be an acquisition perhaps in those areas. Would be a possibility. But we're very happy with relationships we have and the service levels that we have to and from those markets, today.

So acquisitions, often times, come across our desk in our asset-light areas and then for drayage and perhaps warehousing and break forwarding and things like that that we look at and if it makes sense, strategic sense and financial sense for to pursue one of those, we will.

Sounds great. Also sounds like you're not losing any customers because you don't have those other services. As far as average fleet age is concerned, where is your tractor fleet today? Do think it's going to go any lower? How are you managing that?

The fleet replacement program is pretty well stable along the lines of what we've been discussing for years. During the downturn in the economy, we continued our replacement cycles through that period and now that we're back into a little bit more of a stable economy I'd say we're just -- we're right on with our replacement cycle.

Our team trucks -- we'll run of four to five years and 1 million miles and our conventional non-sleeper equipment, we run them in Whitehall for four to six years. And then we go into a city operations for another 4 to 6 years and the trucks that we sell, the conventionals will have -- will be anywhere from 10 to 12 years old and 800,000 to 1 million miles. So we get all the goodie out of them and that's where we are.

You know, Dave, our average age of just our line-haul fleet is probably around 2.5 to 2.6 years, so that's what we think is fairly optimal. And that's where we're at. We got a little bit higher than that during the downturn in 2008 and 2009, to, maybe, three years and then we spent 2010 and 2011 getting that back down. So we're pretty pleased with our average age and think it's pretty close to optimal.

And it's shown up in our maintenance expenses too. We've had a real stable maintenance cost per mile for the last three years and a lot of that's attributable to good management. I'd throw that into in for our VP of maintenance and all of his team, but also the fleet age we think is pretty much in an optimal state.

Thank you. Very helpful.

(Operator Instructions)

We'll now take our next question from Todd Fowler with KeyBanc Capital Markets.

Great. Hello. Good morning. David, your comments on the IT CapEx and the beginning of a three to five year process, is that three to five years to rollout the new technology platform? Or is that three to five years of investing in the entire network? So technology terminals, you know, everything else you need to hit those market share targets that you have?

What we announced today is a $47 million for technology and other assets. And $38 million of that $47 million is for our technology platform.

Our general run-rate over the last several years for technology has been $15 million to $20 million. Therefore, what we're looking at for 2014 is an additional $20 million over and above a normal run-rate and here's why.

As you all know, our historical growth over the last 10 to 15 years has been quite significant. The systems that we have in place, today, and have had over this period of time are excellent and have definitely facilitated the growth of the company.

But, much of our legacy software was written 10, 20, and even 30 years ago. And as we look at our vision for the next 5, 10, and 20 years, we see a need to continue building a platform to support that growth. So we are embarking on a process to modernize our systems, which involves the following.

First of all, is a change in our mainframe platform. I'm not at liberty to discuss that any further, as to what it is exactly, but we will be increasing our scalability so that we can accommodate our growth.

We will be enhancing our redundancy and our speed. We will be -- as we go along with this process, we will be improving the efficiency of our business processes. We will enhance management tools for improving service and efficiency.

And lastly, enhancing our customers' experience. And that's where this initial outlay, this year, of this $20 million is the investment in the new platform that we are migrating too.

So does that imply that there's going to be -- I mean, so -- if it's $20 million higher than your normal IT spend in 2014, is there going to be another $20 million over the next couple of years or is this the big chunk of that?

This is the big chunk of it and we should return back to an annual spend in the $15 million to $20 million range for IT going forward.

Okay. And then just my follow-up. Wes, what does that do to your depreciation numbers -- I guess, maybe, if you have a number for depreciation in 2014, I'm not sure if you gave that now, I just missed it -- but what did that do for depreciation --

We haven't given that yet, Todd.

Do you want to do it now?

No. That's forward-looking information we're not providing at this point.

Okay. Well, let me ask it this way, is there something that, you know, where there's going to be investment on the IT side and then once the system goes live you'll start depreciating it at some point going forward?

Right. We, obviously, will start depreciating that as we take on this additional $20 million this year. And so that'll affect the depreciation -- increase depreciation, obviously, for the next three to five years for IT. So that's a fact.

We typically depreciate IT over three to five years but since this is a longer-term investment for the longer-term, then we may find that we're able to depreciate that over a more -- greater length of time. We're still in the process of evaluating that.

Okay. That all makes sense. Thanks for the time guys.

We'll take our next question from Tom Wadewitz with JPMorgan.

Good morning. It's Alice Johnson on for Tom. The question that I wanted to ask, there was an earlier question about impact from one of your union competitors and their labor negotiations. One of the other unionized carriers is going to be going through a network change here in the first quarter and you guys know the balance between service and price, really, better than anyone.

So, I guess, I'm curious whether you think that there's an opportunity to, maybe, pick up some share as that process is ongoing at one of your competitors.

I -- that remains to be seen. We don't know if and when, or what that would be at this point.

Okay. Well, have you -- I don't know. Historically, have you seen when some of your competitors have closed terminals that, maybe, some of the customer base will look to migrate to Old Dominion?

Generally speaking, any time any of our competitors have operational issues or network change issues, or things that impact their service in a negative way, it presents opportunities for us to pick up market share.

Okay. And I asked this question on the Conway call earlier and in terms of weather impact -- I guess, naturally, we think of the winter weather, but there's also significant drought going on in the West. I don't know, with your market share gains over the years, what your market share would be in the West, or what kind of impact there could be?

But I thought I would ask if there's -- if you see any impact, or if you're hearing anything from, maybe, any agricultural type of customers that you have, if there's anything to be considered there?

I'll give you the same answer they gave you. We've seen nothing.

Okay. Fair enough. Just wanted to check the box. Thanks for the time this morning.

Thank you.

We'll take our next question from Matt Brooklier with Longbow Research.

Thanks. Good morning. Wes, do you have a sense for the number of potential new service center openings that could unfold this year? And, maybe, talk to some of the geographies that you would be getting into that are potentially new for the company?

We don't discuss where we're opening up, specifically, on these calls. Whatever our openings are, they might be three or four.

And, generally speaking, they would be opening in areas where we already have freight being delivered and, maybe, on a long peddle-run. So that the P&L impact of opening a handful of service centers is not even measurable, or anything that you need to could be concerned about cost impacts.

Most of our CapEx, Matt, is a really expanding or replacing smaller facility that we're already in for larger capacity. Very little of our CapEx is for additional service centers that expanded. In fact, some of those four or five, that David mentioned, maybe, in fact, leased instead of owned.

Okay. That's good color. And then, I guess, with higher percentage of your CapEx going towards terminal expansion versus new setup, the service center openings, do you have any bigger expansion projects in the pipeline? I know you guys did a good amount of two or bigger brake-bolt facility expansions the past couple years. Is there any of that ahead of us, or are these terminal expansion plans smaller in scale?

There are still -- within the $132 million I think there are two -- I don't have the list in front of me. There are two or three that are fairly sizable facilities that we're expanding.

But as Wes said earlier, continuing to keep our capacity and our network is -- we will always have an ongoing expense for expanding service center facilities and -- but the $132 million this year still is a little bit higher than, maybe, what a maintenance CapEx will be going forward.

Okay. Appreciate the time.

Okay.

We'll take our next question from Brad Delco with Stephens Inc.

Yes. Good morning. Thanks for taking my question.

Wes, talking about capacity, is there any way that you could -- I know you said three or four additional terminals. Can you identify what your terminal door growth maybe this year and maybe what it was last year.

Last year it was around 4.5%. And It probably -- somewhere in that range this year as well. 4.5% to 5%. Obviously, expanding current facilities either by expanding the existing facility or replacing the smaller facility with a larger facility.

Got you. Thanks. And then, I feel like I need to ask a balance sheet question here because the metrics continue to improve. How much more thought have you guys given to dividend and or share repurchase given that you'll be able to likely find most of your CapEx with cash flow? And what are some of the parameters around that thought process?

We've given that additional thought and formal attention with the board and when we see what makes sense from the shareholder standpoint, we will look at either stock buyback or dividends, whichever maybe appropriate. But that's still in evaluation and is on our minds.

Okay. Thanks, Wes. Appreciate the time.

We'll take our next question from David Campbell with Thompson Davis & Company.

Yes. Good morning, David and Wes. I just had two questions. One is, can you tell me the expedited growth in LTL services in the fourth quarter was it a -- do you have the percentage, or was it better or worse than the rest of the business?

Yes. We're not giving that level of detail, David, but it was a good growth in our expedited.

Okay. And what about the growth of the non-LTL services, containers, freight forwarding, etc. Do you have any number on that?

We don't break out and give any specifics on that. But the container growth has been a higher percentage growth than the overall LTL. It's been a higher growth rate.

And that's part of the reason why we want to portray our revenue per-hundred-weight just on our LTL operations going forward because as we -- in the fourth quarter our revenue per-hundred-rate growth, excluding fuel surcharges, in total was up 1%. But as Wes pointed out, if you pull out those non-LTL services, the revenue per-hundred-weight growth was 2.6% for the fourth quarter. And there in lies the reason for pulling those out.

Because we think it's really those services and the growth that we've had in the container division, for example, distorted the numbers. And makes our yield management practices look like something has gone wrong with them and it absolutely has not changed.

There's no reason to think that won't continue. That is, container growth.

Yes.

Exceeding the rest of the company.

Well, yes. But it's still a very small -- as we said, 97% of our revenues today are in LTL, so the container and other services are only 3%. So it's still a fairly immaterial segment of our total business.

All right. Okay. Thank you very much.

Thank you.

We'll take our next question from Matt Young with Morningstar.

Good morning, guys. Thanks for taking my call. Just a quick follow-up on the tractor refresh. I think you had said $153 million this you can you remind us what that was in 2013? And would that be about what you would expect in terms of a normalized maintenance run rate?

I know you said the refresh cycle was pretty normalized at this point.

We know that 163 is not just tractors. It includes trailers. It includes other operating equipment like forklifts, switchers and other. So it's not just tractors. But our CapEx in 2013 was --

I just meant equipment in general. It doesn't have to be -- tractors and trailers together.

Our equipment in 2013 was about $152 million. It probably, just to -- in our view, it takes 6% to 8% of revenue just to keep a replacement cycle. So that would be in the $120 million to $130 million --

And the rest would've been just to handle the growth tonnage.

Yes. Right.

Okay. So it, probably, wouldn't change all that much from here? I guess, is the bottom line.

I think if you want to keep a replacement cycle you've got to spend somewhere in that percentage range.

If we grow another 10% in 2014, that is not guidance. But if we were to grow 10%, you would expect equipment to be somewhere in the $3 million range.

Okay. That's fair. On a relative basis. And then, just one more quick when here. Do you guys use the rails much for a portion of your line-haul moves?

I know it's something -- or is it something, maybe, you'll do in the future? Not sure about the service trade-off for a top-tier carrier, like yourselves, but I know that some of your competitors have talked about it in the past and found it beneficial.

Well, our use of the rail -- our only planned use of the rail that we have in the network involves Chicago to the Pacific Northwest. However, we have stepped up some rail use this year to the West Coast from a variety of locations because we've seen a change in the East Coast/West Coast balance situation. Where our tonnage and shipments heading westbound are stronger.

There's been a weakness coming eastbound off the West Coast. I think a lot of manufacturers and shippers in California are tired of higher taxes and regulations and so forth and they've moved.

I think, as we go into -- and secondly, I think there's been a pick up in activity on the East Coast ports where people that have sourced to China have moved to India and so the product has moved to the US through the Suez Canal and across the Atlantic as opposed to coming in on the West Coast. And nonetheless, the bottom line of it is that we've seen some weakness coming off the West Coast and the East which has caused us to buy more purchase transportation rail and line-haul heading westbound.

Okay. All right. That's about all I had. Thank you.

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

Thank you. Congratulations on a great year. You mentioned a number of steps that you're taking, obviously, technology being a big one, to make sure that the foundation is in place to continue this growth over multi-years. I'm wondering if there's anything that needs to be done differently, or enhancements to your employee training and recruiting program?

Obviously, it's a different dynamic for LTL drivers versus TL, but just broadly speaking, is there anything different that you need to be doing on the recruiting side for either drivers, dock workers, or even salesman as this growth continues? Thanks.

Well, you're very perceptive. We're very much in the people business. And our attention to employee development has been a pretty strong emphasis for many years and it will continue to be so going forward.

But we don't have any -- I'd say monumental tasks ahead of us or anything major that we're going to be doing differently going forward. It will be a continuation and continued tweaking of some of the practices that we've had in place for years.

And along those lines, can you remind us -- I think there was a pick up in employee count, in this quarter, and that was some of the expense headwinds. Typically, how long does it take for a new hire, either dock or driver, to reach of the productivity of the average employee in that role? Thank you.

Probably, several months, I'd say. At least a quarter -- three to four months, probably, to get up to a maximum productivity level.

Great. Thank you.

We have no further questions in queue at this time. I would now like to turn the conference back over to Mr. David Congdon for any closing remarks.

Well, thank you all for your participation today and we appreciate your questions and your support of Old Dominion. And feel free to give us a call if you have any further questions.

Have a great day and let's hope it quits snowing.

And this does conclude today's conference call. Thank you all for your participation.