奧多明尼昂貨運 (ODFL) 2014 Q4 法說會逐字稿

Good morning, and welcome to the fourth-quarter 2014 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through February 19 by dialing 719-457-0820.

The replay passcode is 8650231.

The replay may also be accessed through February 19 at the Company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

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

You are hereby cautioned that these statements may be affected by the important factors among others set forth in Old Dominion's filings with the Securities and Exchange Commission, and in this morning's news release and, consequently, actual operations and results may differ materially from the results discussed in 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 I ask in fairness to all that you limit yourself to just a couple of questions at a time before returning to the queue.

Thank you for your cooperation.

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

Please go ahead, Sir.

Good morning.

Thanks for joining us today for our fourth-quarter conference call.

With me this morning are David Congdon, Old Dominion's President and CEO; and Wes Frye, our CFO.

After some brief remarks, we will be glad to take your questions.

Old Dominion completed 2014 with its strongest quarterly performance of the year, marking the third consecutive quarter in which the year-over-year growth in revenues, tonnage, and earnings per diluted share accelerated, demonstrating the significant operating leverage in our business.

Our second consecutive quarter of 20%-plus revenue growth drove a 260 basis point improvement in our operating ratio and a 47.3% increase in earnings per diluted share to $0.81.

We have no doubt that our nearly 20% growth in LTL tonnage for the fourth quarter was due primarily to the consistency and dependability of our outstanding service as we produced in excess of 99% on-time deliveries for the quarter, and a claims ratio of 0.39%.

Our long-term leadership in these categories is the intentional result of many factors, including our continuous investment in our people and technology, combined with expanded capacity in our network and equipment.

While this investment strategy clearly differentiates Old Dominion among our industry peers, we believe it is the skill and commitment of our employees that ultimately makes the difference in our ability to sustain such high-quality service.

Fourth quarter clearly demonstrates the strength of the OD family.

Our service performance remains at extraordinary levels for the quarter, despite the heavy and increasing volume experienced during the period and often poor winter weather; and the meaningful addition of new employees throughout the year to handle our increased volume.

Our fourth-quarter performance validates our core commitment to providing our employees ongoing education and training as well as our continuous investment to make sure our OD family of employees have all the tools they need to exceed our customers' expectations.

Our culture of service, innovation, and flexibility supports our ability to provide superior service at a fair and equitable price.

We expect it to continue contributing significantly to our long-term growth in earnings and shareholder value.

So thank you for joining our call today; and now here is David Congdon.

Good morning.

We are very pleased with Old Dominion's financial results for both the fourth quarter and the full year.

The rate of our top-line growth accelerated for each period, driving substantial improvement in our operating ratio and strong growth in earnings per share.

The dynamics of our business model were abundantly clear during the fourth quarter.

The 19.8% increase in LTL tonnage highlighted our significant continuing gains in market share, while our 3% increase in revenue per hundredweight, excluding fuel surcharge, again demonstrated that our customers value our superior service, sophisticated technology, and comprehensive capabilities.

Virtually all our tonnage growth generated within our existing service center network; our freight density increased accordingly.

This improved density, combined with stronger yield, was primarily responsible for the 260 basis-point improvement in our OR to an 84.4 for the quarter.

Similar dynamics for the full year drove a 130 basis-point improvement to a record 84.2 for 2014.

This improved performance occurred even as the Company increased our employee base by 16.8% in response to strong tonnage growth.

As a result, we continued to experience some negative pressure on our productivity metrics, particularly our dock operations; however, the combined impact of the strong improvement in density and yield more than offset these negative pressures, and our incremental margin rose to 27.6% for the quarter.

Our long-term and ongoing record of outperforming the LTL industry supports our belief that we enter 2015 in a strong, unique, and sustainable competitive position.

We are confident that through a clear focus on the execution of our proven business model, we can further leverage our leadership position for the benefit of our customers, our OD family of employees, and our shareholders.

Thanks for being with us today, and now Wes will review our financial results for the quarter in greater detail.

Thank you, David, and good morning.

Old Dominion's revenue increased by 21.7% for the fourth quarter of 2014 to $721 million from $592.5 million for the fourth quarter of 2013.

Fourth quarter earnings per diluted share increased 47.3% to $0.81, $0.55 for the fourth quarter of [2003].

And as David mentioned, our revenue growth reflected a 19.8% increase in LTL tonnage, comprised of a 17.1% increase in LTL shipments and a 2.3% increase in the LTL weight per shipment.

In addition, fourth quarter revenue per hundredweight increased 1.5% versus the same period prior year quarter, and revenue per hundredweight excluded fuel surcharge increased 3%.

Revenue per hundred weight was negatively impacted by a 2.3% increase in weight per shipment, and a 0.2% decline in our average length of haul, both of which are long-term positive trends driven by ongoing shift in our freight mix to higher-weighted contractual business and increased volume in our next-day and two-day regional lanes.

Holding this weight per shipment and length of haul constant, we believe our increase in yield was just over 5%.

On a monthly basis, LTL tonnage per day decreased sequentially by 2.3% for October into September, increased 4.4% for November, and decreased 10.2% for December.

This performance generally compares with our ten-year average sequential monthly trend that shows a decrease of 2.9% for October, an increase of 2.9% for November, and a decrease of 8.8% for December.

On a comparable quarter basis, LTL tonnage increased 20.8% for October, 20.6% for November, and 18.5% for December.

January 2015 LTL tonnage per day increased 15.3% versus January of 2014.

In the first quarter of 2015, assuming normalized sequential trends, we expect LTL tonnage per day to increase in a range of 12% to 13% compared with the first quarter of 2014.

Monthly year-over-year tonnage increases during the first quarter of 2014 compared to 2013 were 10.1% in January, 11.7% in February, and 19.7% in March.

First quarter of 2015 has the same number of working days as the first quarter of 2014.

We expect revenue per hundredweight, excluding fuel surcharge, to be in a range of 4.5% to 5.5% for the first quarter compared with the first quarter last year.

Old Dominion's operating ratio improved 260 basis points to an 84.4% for the fourth quarter from 87% for the fourth quarter of 2013, driven primarily by our increased freight density and stronger yield.

We also benefited from improvements in our group health and Workers Compensation costs, and savings from lower fuel prices, fuel purchasing strategies, and fuel efficiencies which primarily accounted for the 200 basis-point reduction in operating supplies and expense.

Capital expenditures for the fourth quarter of 2014 were $56 million, and $368 million for the full year of 2014.

Consistent with our strong growth in 2014, we estimate CapEx for 2015 will total approximately $463 million, including planned expenditures of $165 million for real estate; $272 million for tractors, trailers, and other equipment; and $26 million for technology and other assets.

We expect the sales of assets during the year of 2015 to be approximately $5 million for a total net CapEx of approximately $458 million.

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

Effective tax rate for fourth quarter of 2014 was 36.7% compared to 37.2% for the fourth quarter of 2013, and we expect the effective tax rate of 38.6% for the first quarter of 2015.

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

Thank you.

(Operator Instructions)

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

Thanks, good morning.

Just to clarify, Wes.

You mentioned expectations for first quarter revenue per hundred weight to be up 4.5% to 5.5% year-over-year.

Was that on an ex-fuel basis?

It was, yes.

Okay.

So how do we think about that in sort of in conjunction with lower fuel and some of the mix headwinds?

Does that imply that pricing is sequentially getting stronger or are you expecting some of the mix headwinds to subside relative to Q4?

Well, that's just our indication of what we experienced in January and our continued emphasis and focus on overall customer profitability and looking to adjust base rates where that profitability isn't up to our expectation.

So, fuel is only a portion of how we look at that by a customer.

We also are looking and getting meaningful increases just in our base rate as well.

Okay, and what does that imply for incremental margins?

Should we see you sort of continued a trend above your sort of longer term range of 15% to 20%?

That implies we'll have an incremental margin.

We're not giving guidance on that and I know it's been strong, but we still say long term with our margins where they are, that 15% to 20% range and we'll just have to see how pricing, how the economy and other factors that influence that presents themselves during the course of the year.

Got it.

Okay, thank you very much.

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

Hi.

Thanks.

Morning, guys.

So, Wes, I think you mentioned that the December tonnage was a little bit worse sequentially than the normal seasonality.

What about January?

Was that better or worse than normal sequential?

It was slightly worse, but not materially so.

So what's your take on that?

Is that something changing in the economy in some of your end markets or is that some of the spillover from truck loads starting to reverse?

I know it's just two months, but what do you make of that?

It wasn't a material enough change that we associated with any detailed dynamics.

The ten-year average is an average, so that means there's variances each year around that and as long as they're in a reasonable variation of that, then it's just an expectation, so generally January being down compared to December is typical, and the fact that it was down a little bit more I don't know at this point it's very clear that we can make a statement about that.

Okay.

That makes sense.

And then just wanted to get your take on fuel and what's your -- any sensitivity you can give us in terms of the potential margin drag or operating income drag could be from lower fuel, and I don't know if you guys have updated your fuel surcharge tables yet.

Are you planning to do so and, if not, why not?

When you say drag or headwind, tail wind or whatever it was, I assume -- are you referring to the fourth quarter because we really aren't in a position to indicate or give any guidance on what we expect for the first quarter for the year as yet.

For the fourth quarter with the fuel costs declining as it did and as rapidly specifically in the last few weeks of the quarter, we think we've got a little bit of a benefit but not a lot, maybe 20 to 40 basis points of benefit.

How that goes into the first quarter is still early to determine.

But our general view, Scott, is that things will stabilize and we think that we've seen the bottom of fuel prices and they'll probably start gradually increasing during the year and our fuel surcharge mechanisms are merely one of many components of the pricing equation, and we'll keep an eye on that on a customer by customer basis so as to maintain a fair and equitable pricing arrangement with our customers.

Which is what we've always done is taken the view of customer profitability and not be reactionary necessarily of what's going on in the market.

Take it on a one-on-one basis and make sure that we're credible with our customers and pricing still produces a fair and equitable price.

Thank you, guys.

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

Good morning.

Thank you for your time.

I had a couple questions around the CapEx side.

Is this increase in your CapEx an expression of confidence of your cycle or is it more a function of your idiosyncratic growth opportunities?

It's a little bit of both.

Our CapEx, as you see, is quite a bit and we keep expanding our network, and obviously that's anticipating continuing taking market share which we think we are able to do.

The other thing that CapEx includes with all of the rail problems, and we use some rail, not a lot, no more than 1% of our cost, specifically in the Pacific Northwest and some of those other lanes that have been, as you well know, negatively impacted from a service standpoint to the extent in order for us to protect our Customer Service and maintain our 99% on-time service, we actually put our own equipment and our own drivers, and so some of that additional CapEx is just investing in our own equipment and drivers so that we can maintain service.

That's really helpful.

And then just with regard to the [attractive] CapEx.

Can you give us a percent of what is growth versus replacement?

Thanks.

We don't give that detail, Tom.

I'm sorry.

Alright.

Thanks for your time.

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

Great, thanks.

Good morning, guys.

Just wanted to come really quick back to fuel and fuel surcharges for a second.

Just kind of curious as you have been generally speaking about fuel.

In a lower fuel environment, does that have any natural pressure on account profitability?

I guess I just want to sort of understand that if possible a little better.

Every single customer has a unique pricing situation based upon their freight and their freight characteristics and over the years, fuel surcharge versus base rate versus discounts and this unique freight mix of each customer, it all boils down to the profitability and the operating ratio that we have with each account so there's no way to make any kind of a blanket statement regarding where fuel prices are and fuel surcharges are in general for us as we've taken all on account by account basis.

Okay.

That's helpful.

And then I guess just thinking sort of broadly about the end market demand and sort of how you're seeing strength or weakness in any one of the individual end markets that you serve.

I guess there's some concern about sort of the industrial economy and potential deceleration of growth in those end markets.

Just want to get a rough sense of how you're seeing of that?

I know it's early in the first quarter, but any color would be helpful.

Yes, it's too early in the first quarter, obviously for the year in general, but around 45% of our business is industrial so the fact that for the year we're up almost 20% in revenue and for the quarter almost 21%, well of course what clouds that is market share, so it's hard to make a statement on what's going on in the macro overall, but I think it's just relatively steady.

We don't see any end markets that's really greatly growth or any regions of our country that's kind of an outlier in terms of growth.

It's all fairly consistent across the board.

Okay.

Alright.

That's very helpful.

Thanks for the time, guys.

Appreciate it.

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

Hi there.

Good morning.

I wanted to ask you a little bit about what we see going on overall in the marketplace on pricing.

Of course there's efforts on GRIs and raising fuel or re-basing fuel surcharges I should say, and I'm curious if you think that puts you in a much, much stronger position because you can sort of do this approach which is much more sort of regular and you don't try to kind of react as quickly, and so should we expect that that could actually result in even better market share gains looking forward or is this something that you'll react over time and so maybe you won't be that far off with the rest of the market is doing on price for very long?

Bill, we have never, and especially during the downturn that started in 2006 for us, have never been reactionary.

We've always wanted to make sure we maintain credibility with our customer base and do things as we see them on a customer by customer basis.

So, the fact that that's manifest and our previous market share increases, the fact that we are consistent in how we look at that could still benefit us from a market share standpoint.

That makes sense.

Let me, Wes, also ask you obviously you've been enjoying significant tonnage growth and even the comments that you've made so far this year suggests continuation of that trend and so we've had a step up in CapEx and some of that's for service, some of that presumably for capacity.

How would you manage a situation whereby demand changes in a way that surprises us to the downside?

Could you adjust the cost structure?

Are you going to find yourself with too much capacity because you got a little bit ahead of yourselves given the growth you've enjoyed?

Well, much of our capacity growth and kind of fixed growth is in service centers.

We're committed to keeping expanding our network.

Had we not, then we wouldn't be enjoying the growth or the market share that we're achieving and we're probably the only LTL carrier that's actually over the last decade have been investing in network growth as opposed to network reduction.

So, we'll continue to do that.

There could be a downturn in the economy for whatever reason growth, but we still will be committed in expanding our network.

On the equipment side, we can adjust the equipment fairly rapidly if we have to on the capacity on that and that's how we'll look at it, but we are committed to continuing to grow the network from a service center capacity.

And you don't feel like you'll get caught with too much capacity?

Bill, keep in mind, just to put my accounting hat on, that the effect on your -- now, obviously it's a cash effect which we have tremendous borrowing capacity, but on the income effect of service center acquisitions, it has a minimal effect.

Keep in mind that if you spend $10 million on a service center, the land portion of that which would be expensive depending on the area of the country, could be 25% to 50% of that cost which is not depreciated, so there's no impact on your income statement, and then you take the structure and you put a residual on that and then you depreciate the net of that over 20 years.

Right.

So that has much less of an impact by investing in the structure than it would be if you leased it.

Leasing always has a direct effect because most leases have CPI inflators every year, so it increases accordingly.

And I might mention that we own almost 80% of our service centers now and close to 90% of the number of doors.

So from that standpoint we are somewhat insulated because we own those facilities going forward on the impact of our income statement.

Bill, as far as feeling like if we had a downturn in the economy have we over invested and have too much capacity or whatnot, my answer to that would be we see the LTL industry as a very viable industry for the long term future of our country and we are committed to growing our position as the leader in the LTL industry, and I don't think we'll ever feel like we over-invested because we're here to continue to grow and be a very strong player.

So, if there is a downturn in the economy, we will adjust our variable expenses as we did in the last downturn, but it sure is nice to adjust your expenses from an 84 operating ratio as opposed to the rest of the industry as 95.

Yes, for sure, for sure.

Alright.

Great.

I appreciate it.

Thanks for the time, guys.

We'll take our next question from Rob Salmon with Deutsche Bank.

Thanks.

Good morning, guys.

As a follow up to kind of one of Bill's question, Wes, with regard to the tonnage guidance of 12% to 13% in Q1, are you assuming any impact from some of the competitor adjustments that fuel surcharge programs as I haven't seen any adjustments to date on your website.

Since we not geniuses on how that's affected we have not assumed that.

So we just look, as I mentioned in my comments, what would be a normal sequential trend as the quarter progresses and that's what we base it on.

Keep in mind, I also mentioned in my comments we're 15% up in January but I've only given you guidance 12% to 13%.

As the quarter progressed, the year-over-year percentage growth was stronger such that it was almost 20% in March of last year.

Okay.

That makes sense.

That color is helpful.

And in terms of just us better understanding kind of the puts and takes of the fuel expense, can you give us a sense of how big that is as a percentage of the operating supplies and expense category?

We're not giving that detail currently.

Okay.

Thanks for the time, guys.

We'll take our next question from John Barnes with RBC Capital Markets.

Hi, guys.

Congratulations on a great quarter.

Wes, thinking about longer term in terms of the market share it seems like Old Dominion has done a great job of capturing market share, the better quality freight, the stuff where high service demand where you get paid really well to move that kind of freight.

As you start to look at capturing share maybe in the next bands of freight, does it carry with it risk to pricing or risk to the margin at all to capture maybe once you've exhausted the opportunity in kind of the higher levels of freight?

Is that a risk at all?

Well, it's for sure that the LTL market and whether you say that's $35 billion, $40 billion, or $50 billion depends on who you're talking to, there's a certain portion of that market that's very pricy to this, but obviously there's a significant and growing portion of that market that is service sensitive as well and that's the market that we play in so that we continue to get service.

There's no reason to think that we won't continue to achieve growth in market share and we've given guidance that we expect to reach double digit market share in the next three to five years and that depends on what your denominator is.

Okay.

Alright.

Very good.

And then one other question just on the labor front.

Obviously a couple of your competitors have been distracted by labor issues.

Can you just talk at all, has it cropped up with you guys at all?

Have you seen any attempts anywhere because thus far it certainly seems isolated to a couple of your competitors.

We have had no labor problems.

We have an excellent relationship with all of our employees.

We work at it day and night and we have something we call it the Old Dominion family spirit, but our people feel like they're part of our Company family and we treat them so well that we would be mighty surprised if these teamsters were able to gain a foothold in Old Dominion.

Okay.

Thanks for taking my questions today.

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

Yes, good morning, gentlemen.

Thanks for taking my question.

Wes, I wanted ask you a little bit about the meaningful acceleration in pricing based on your comments.

The revenue per hundred weight ex-fuel was up 3% in the fourth quarter and you guided to 4.5% to 5.5%.

Could you just talk about how that sort of progressed and is that a function of more aggressive pricing actions you started taking last year or is there some mix impact of that, or just help me understand a little bit why we're seeing that acceleration?

Yes, Brad.

If you remember what I said in my comments, I indicated that if the 2.3% increase in weight per shipment and the reduction in length of haul were fixed, really that yield in the fourth quarter was more like 5% or maybe a little above that, so you've got to compare the 5%.

Now, I'll have to say that we're expecting the weight per shipment at the length of haul in the first quarter to be relatively flat, so year-over-year in the first quarter compared 2014, so therefore we're not expecting quite that pressure on the [rate] per hundred weight.

So when you look at it that way the, 4.5% to 5% compared to the adjusted 5% in the fourth quarter it becomes fairly constant.

And furthermore, Brad, the rest of your question was have we taken any different actions and the answer is no.

We continue to, as we've always done, look at each and every account on its own merit and I think it's mostly more of a mathematical thing than any change in strategy or direction.

We are staying consistent with our strategies.

Got you.

And maybe more of a higher level question that kind of piggybacks off the last one.

Are you seeing any pressure, inflationary pressure on wages?

It seems like some of your competitors have raised wages in order to try to put to bed some of those labor issues.

As a result, are you seeing pressure on that line or what in general would you expect your inflationary bucket to be this year on your cost line items?

Well, Brad, we aren't seeing pressure because we've been consistently and giving wage increases all during the downturn and currently meaningful wage increases, so we believe that we should give wage increases that are based upon the productivity and the motivation that our OD family gives and we've been very consistent in that so, no, we're not getting any pressure wages.

Okay.

Well, great.

Thanks for the color, guys.

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

Thanks.

Good morning.

So, just a follow up on the CapEx budget which is pretty robust for 2015.

I'm trying to get a sense for if you can provide more color in terms of service centers and potentially the number of service centers that you plan to open in 2015, and then maybe also talk about expanding capacity at some of the existing centers in your network?

I won't get too detailed but you'll notice just looking at our service center count, it really hasn't increased that much in the last three or four years, so most of what our CapEx is, is either replacing an existing service center that we've outgrown with a larger one or expanding an existing service center, and 80% of that $165 million is for that purpose, so we continue to invest in increasing or building larger facilities.

For example, we spent $30 million building the new Memphis facility that's state-of-the-art last year in 2015, so we still have some of those projects that we included in this year.

As far as opening any additional service centers, my guess is it will be less than five for the upcoming year and we've got our eyes on a couple of cities where we might expand and open a new service center and it all kind of hinges as it always has on finding either land that you can build on if the local people will allow you to build a truck terminal or finding a facility that we can either renovate or expand to meet our needs.

Okay.

Very helpful kind of helping along with thinking about density as we move out and you guys grow, and then the second question relating to headcount.

You guys ramp up headcount at a pretty quick pace to support the strong tonnage growth that you had within your network.

It looks like tonnage is coming down a little bit in first quarter, part of that just on more difficult comps, but just trying to think about headcount and how you're thinking about headcount additions during this year.

Obviously, we're in a slower period of time in the part of the first quarter and we anticipate needing a little more headcount as we get into March, but one good thing about moderation, if you will, in our growth rate is that it should allow us to regain some of that dock productivity that we lost and continue also to maintain and improve our claim ratio where it is now.

So a little bit of moderated growth rate is not bad for right now to give us a slight breather and it could actually helps us with our bottom line.

We look at where we see our sequential trends going with shipments and tonnage going forward and we will obviously add headcount as we deem fit going forward to be able to handle whatever shipment and tonnage levels we anticipate.

Okay, appreciate the color.

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

Great, thanks.

Good morning and congratulations on the quarter and a strong year.

David, just on that last point.

Is there a way for us to think about where the employee productivity is?

The numbers are obviously very strong, the incremental margins are good so it's difficult to really see kind of where the employee productivity is coming through or maybe it isn't, but is there a way to think about the average tenure of the employee or how the employees are today versus how you think about it from a normalized level?

Obviously, the fact that we hired over 2000 employees this year, we have some relatively young tenured people on the payroll right now.

Aside from the new people our general tenure and turnover, tenure is long and turnover is low with our workforce, but as far as the productivity side of it maybe, Wes, do you want to offer any comments on that?

Yes, we maintain pretty good productivity considering that almost 17% addition to our employee base, but we did have some headwinds especially on the docks, on the platforms, and we saw productivity drop there because there was so many new adds and the training period is 60-90 days and we've been going through that all year, so we expect to see some improvements in productivity in 2015 on that and pick up and delivery.

We actually had some improvement in our latent load average, which is our line haul productivity measure, last year so we will look to improve in that more, but we did have some headwinds with the new employees and we expect that to improve.

Wes, do you have a sensitivity from an OR standpoint, how many basis points of margin that might have been?

We do have a sensitivity, but we're not going to give that detail.

Okay.

That's fair enough.

And then I'll ask another one kind of along the same lines, but it seems like maybe in 2014 your purchase transportation was suboptimal given some things outside of your control, if it was the rail service or elevated third party costs.

How do we think about the purchase transportation given the investment that you're making in the fleet and maybe some normalization rail service as we move forward?

Well, I'm not sure what you mean when you say our purchase transportation was suboptimal.

Purchase transportation as we report -- keep in mind that there's three categories to that purchase transportation.

There's obviously -- the purchase transportation that we use in certain lanes on rail and truckload with the LTL, and that's really only about 2% and the rail portion which historically is only 1% dropped only half of 1% because we've been putting our own equipment and drivers in those lanes for which the rail service has been, as you know, very poor.

So we are supplementing that with our own equipment.

And the other two pieces, we have two other segments of our service and products which is truckload brokerage and also our freight forwarding, global freight forwarding, so that uses all purchase transportation as well and those two segments have had meaningful growth, so mathematically as that grows so will they as percentage.

Oh, I'm sorry, and our dredge operation is currently all lease operators as well which is recorded in purchase transportation.

Okay that's good color.

Yes, I was thinking about the piece that should be moving on rail but hadn't been and that seems like that's less than 1% or something like that.

Currently, we have no shipments moving on rail because of the service.

We are all utilizing our own drivers and equipment for that and we have no rail purchase transportation currently, and it dropped almost to nothing but the end of the fourth quarter.

But you would expect to resume that as you move through 2015 if the rail service can get back to more normalized levels?

Not necessarily.

Right now we've already invested in our own equipment to provide superior service, so we may choose to opt to keep that cost there and continue to grow market share in those lanes which is what we're currently doing because of the service we're providing in those lanes.

Okay.

That's helpful.

Thanks a lot for the time today.

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

Good morning, gentlemen.

Good morning, David.

David, I've got a question on the hours of service roll back.

You mentioned last year that the changes to some of the provisions were costing you a little bit of productivity in the line haul network and with the roll back at least the kind of start/stop times, are you getting any more productivity back or are you just assuming that this provision is eventually going to come back in and leaving the network [as it was] changed last year?

It did create a little bit of a headwind back when they made the change last summer, but it should increase our flexibility a little bit now where the city drivers can run a trip on the weekend now where they did not under that -- during that period of time and also some of our road drivers will be able to get an extra trip in as well, some of the scheduled guys that like to run an extra trip on the weekends and they'll be able to use the 34 hour restart the way they used to.

It's not a material thing to be honest with you.

Any update on the LCV push in DC?

Hopefully, David, we're making some progress on the Hill, educating members of Congress and the Senate and the House side.

We're hopeful that we'll get some language to allow 33-foot trailers for the LTL carriers in this highway deal if we get a highway deal.

First objective is to get a highway deal and I think that Congress is working diligently on making that happen, so -- and if that happens, we're hopeful to get some productivity improvements [within] 33.

Excellent.

Thank you very much.

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

Good morning.

I just wanted to ask how many service centers there are?

I have 230 in the fourth quarter.

I don't know if that's right.

That is not right.

We have 222.

222 in fourth quarter.

That's from the beginning of the year.

There wasn't any increase, in fact it may have decreased?

It was 221 at the beginning of the year, I believe.

I don't have that number in front of me so that's the addition of one.

If my math is correct, Dave.

And you may increase it as many as five new ones this year?

As David mentioned, subject to being able to find the land and getting to appropriate approvals we may add anywhere from three to five.

And if you didn't do that, would you expand existing facilities?

If we could expand them, likely we would as that's what we would already be doing, but in some cases we either because of the density of the metro area it's more efficient to add service centers in metro areas rather than to expand.

Embedded in our CapEx for this upcoming year is $165 million toured real estate and to be honest with you, the majority of those projects are on the smaller scale size and they're really dedicated toward expanding some capacity at various sundry service centers.

Most of that is not for new centers?

There may be one or two new ones in that list.

That's all but the majority of it is expansion and renovation of existing facilities.

So, if you opened up five or began work on five, CapEx might be more?

We don't anticipate CapEx being anymore than what we've budgeted because we've looked at that very closely.

Right.

Okay.

All my other questions have been answered.

Thank you very much for the help.

Thank you, David.

We'll take our next question from Willard Milby with BB&T Capital Markets.

Good morning, guys.

Just wanted to see if you all could provide a couple figures you normally give with the Q's and K's.

Starting off with I guess the fuel surcharge as a percent of revenues both for Q4 and the year and then the diesel fuel expense for the year as a percentage of revenues?

I don't know where you get that from our 10-Q's.

We do not disclose that.

The fuel expense you don't, but the surcharge dollars as a percent of revenue.

No, we do not disclose that.

I mean you can calculate it and we'll let you do that by looking at certain statistics, but we do not--

Maybe it's the surcharge dollars then?

We do not disclose that.

Okay, all right.

Moving on.

The propane tax credit I guess for other LTLs you're seeing.

What are you all affected by that this year and what was that?

Well we don't know that it will be extended into 2015.

We did have a positive number on that in our book tax in the fourth quarter.

And what was that fourth quarter?

Well, it's all embedded in our effective tax rate which could include others, but that was one of the reasons our effective tax rate was lower than what we originally guided to.

All right.

Well, those are my questions thanks for the time.

We'll take our next question from Ben Hartford with Robert Baird.

Good morning, guys.

Real quick, Wes, just want to get your perspective on weather and the impact in the first quarter of 2015 versus 2014.

Obviously, we have the northeast storms recently, but I'm assuming that you're modeling the weather-related expense and impact in this year's fourth quarter to be below prior year, is that right?

Somewhat.

And obviously we don't know what the weather entails for us for the rest of the quarter, but certainly last year, especially in January and February as I'm sure you recall, all the way through and so obviously January, we had negative impact January this year.

I'm not sure how overall compared to January of last year, but we're just kind of fashioning that the weather will at least be fair for the rest of the quarter and that sequential trends will be fairly normalized.

Okay.

That's helpful.

Thank you.

It appears there are no further questions at this time.

I'd like to turn the conference over to Mr. Earl Congdon for any additional or closing remarks.

Thank you.

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

We appreciate your questions and your support of Old Dominion.

Feel free to give us a call later if you have further questions and good day.

That does conclude today's conference.

Thank you for your participation.