奧多明尼昂貨運 (ODFL) 2015 Q1 法說會逐字稿

Good morning and welcome to the first quarter 2015 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through May 15th by dialing (719)457-0820, replay passcode is 8002657.

The replay may also be accessed through May 15th 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.

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

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

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

Thank you for your cooperation.

At this time, for opening remarks, I'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 first 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'll be glad to take your questions.

Old Dominion had a great start to 2015, with strong first quarter results, despite severe weather in many regions during the quarter and a somewhat stagnant economy.

Although our revenue growth for the quarter reflected the expected decline in fuel surcharge, we continue to produce double-digit growth in tons per day with a strong yield improvement.

As a result, we achieved a company record for first quarter revenue earnings and operating ratio, highlighted by a 200 basis point improvement in OR for the quarter and a 37.7% growth in earnings per diluted share.

We continue to credit our substantial and consistent long-term growth with our ability to deliver on time claims free service throughout our expansive network at a fair price.

The success of this value proposition reflects the high level of commitment by our outstanding team of dedicated employees.

We will continue to provide our employees with the tools and technology, the training and education and the infrastructure and equipment capacity that is necessary for us to continue to exceed our customers' expectations.

We expect that our continued successful execution of our business model will draw further growth and market share, earnings, and shareholder value.

So thanks for being with us today and now here is David Congdon.

Good morning.

We continue to be pleased with Old Dominion's outstanding performance, as evidenced by our strong profitable growth for the first quarter of 2015.

Growth in tons per day of 11.4% in a quarter in which our revenue per hundredweight, excluding fuel surcharge, increased 6.2%, is a compelling indication of the demand for our truly differentiated value proposition.

We continue to deliver on our promise to provide superior customer service during the first quarter, with will a time service of over 99% and a cargo claim ratio of just 0.36%.

We have been able to sustain this performance over the long term through our focus on execution, discipline, and investment.

Our success in executing our business model is evidenced by the long-term consistency of our industry leading service performance.

The sustainability of our model has been tested by economic downturns, severe winter weather, strong volume in market recoveries, and even by the 17% increase in employees over the past year.

Yet throughout, we have maintained our commitment to best in class customer service.

Our discipline is also evident in the decisions we make every day.

We operate a proven, flexible and innovative business model but it requires constant discipline in yield management and investments in our network, people, and technology to make it work well.

These steady investments in our network infrastructure and equipment have created strong long-term gains in productivity and efficiency as well as giving us flexibility to take advantage of industry consolidation and strong volume growth.

We have also created and continued to enhance a cutting-edge technology-based operation that offers our customers tremendous transparency into the services we provide them.

To leverage this investment and capacity in technology, we also invest in our employees.

Our focus is not only to give our entire team the education and training they need to exceed our customers' expectations, but also to sustain a company-wide service-oriented culture that rewards the innovation and flexibility with which our employees approach their jobs.

Old Dominion's long-term performance validates our business model with a consistent focus on execution, discipline, and investment.

In creating a strong, unique and competitive market position that increases our ability to drive long-term growth in earnings and shareholder value, we think we have also redefined what it takes to be competitive in our industry.

Thanks for joining us today and for your interest in Old Dominion.

Now Wes will review our financial results for the first quarter in greater detail.

And thank you, David, and good morning.

Old Dominion's revenue was $696.2 million for the first quarter, which was up 12.2% or $620.3 million for the first quarter of 2014.

With a 200 basis point improvement in our operating ratio, to a 85.1 for the latest quarter, earnings per diluted share grew 37.7%, $0.73 from $0.53 for the first quarter of last year.

Financial results were driven by 11.4% increase in LTL tonnage for the quarter, which was comprised of a 13.5% increase in LTL shipments and a 1.8% decrease in LTL weight per shipment.

LTL revenue per hundredweight increased 0.4% for the quarter.

And excluding the revenue per hundredweight of fuel surcharge, it increased 6.2%.

Revenue per hundredweight was favorably affected by the decrease in weight per shipment, while length of haul was relatively flat.

Holding the weight per shipment constant, we believe by increase in yield just under 5% for the first quarter.

At the midpoint of our guidance of between 4.5% and 5.5%, which was based upon that assumption.

On a monthly basis, LTL tonnage per day increased sequentially by 1.3% for January from December, decreased 0.3% for February and increased 8.3% for March.

This performance compares with our ten-year average sequential month trend that shows an increase of 1.9% for January, an increase of 3% for February, and an increase of 5% for March.

On a comparable quarter basis, LTL tonnage per day increased 15.3% for January, 9.4% for February, and 9.2% for March.

We expect April 2015 LTL tonnage per day to increase approximately 9.5% versus April of 2014.

The second quarter of 2015, assuming normalized sequential trends, we expect LTL tonnage per day to increase in a range of 9% to 10% compared with the second quarter of 2014.

Monthly, year-over-year tonnage increased over the second quarter of 2014 compared to 2013 were, 14.1% in April, 15.5% in May, 14.8% in June.

Second quarter of 2015 had the same number of workdays as the second quarter of 2014.

We expect revenue per hundredweight, excluding fuel surcharge, to be in the range of 5.5% to 6.5% for the second quarter compared to the second quarter of last year.

This expectation assumes a year-over-year LTL weight per shipment to be down 3% to 3.5% with a flat length of haul.

In April our LTL weight per shipment is expected to be down 3.4%.

Strong improvement in Old Dominion's operating ratio primarily reflected our increased density and strong yield.

Significant decline in fuel prices resulted in a 450 basis points reduction in operating supplies and expense, however, the decline in fuel prices also decreased our fuel surcharge revenue.

Revenue is the denominator in the operating ratio equation.

Other expenses expressed as a percent of revenue, increased through the quarter as a direct result in the decline of fuel surcharge revenue, for example, hourly wage, salaries, wages, and benefits expense increase 270 basis points, despite only a slight reduction in productivity and an improvement in our group health workers' compensation cost.

Capital expenditures for the first quarter of 2015 were $72.2 million.

Continue to estimate CapEx for the entire of 2015 will be approximately $463.3 million, including planned expenditures of $164.7 million for real estate, $271.8 million for tractors, trailers, and other equipment, $26.8 million for technology and other assets.

After anticipated asset sells, we expect total net CapEx of approximately $458 million, which we plan to fund primarily through operating cash flow as well as our available borrowing capacity, if necessary.

Our effective tax rate for the first quarter of 2015 was 38.6% compared with 40.6% for the first quarter of 2014.

We expect an effective tax rate of 38.6%, also, for the second quarter of 2015.

This concludes our prepared remarks this morning.

Operator, we'll be happy to open the floor for any questions at this time.

Yes, sir, thank you.

(Operator Instructions).

We'll take first question from Chris Wetherbee with Citi.

Oh, great thanks.

Good morning guys.

Maybe starting with a question on the cost side, you mentioned the headcount up 17% and as we're still seeing very robust volume growth but maybe at a slightly slower pace then what we've seen in the last several quarters, how should we think about that going forward?

Do you feel like you're staffed appropriately for the growth you expect this year or should that continue to ramp up and maybe how do you think about that in terms of the incremental margins you're able to put up, knowing that you don't give guidance on that topic?

Chris, this is Wes.

It's not, it's kind of usual that we will add in the first quarter, we'll add employee counts faster than our revenue growth in anticipate of the seasonal uptick in the second quarter because, one reason, just because of our training timeline, so that it's not unusual.

It happens pretty much every first quarter as we anticipate further tonnage growth.

Okay.

So this is typical seasonality is the way to think about it.

And thinking about, sort of, the second quarter and maybe the rest of the year, I guess, are you seeing any sort of pockets of softness within the, you know, customer base that you're looking at and sort of how are you guys thinking about maybe sort of the rest of this year as it might play out?

Are you a little bit more concerned about the pace of tonnage growth?

I know it's still robust, you're taking share, but I just kind of want to get a sense of how you're thinking about the world.

I guess we can address that by just talking about some of the details of what we saw in the first quarter.

As we mentioned, our weight per shipment in the first quarter was down 1.8%.

You look underneath that, it was clear to us that the biggest sector, industry sector of that decline was in the retail sector, and I think two things are going on there.

Number one, as you obviously know, the GDP, overall, and even in the retail sector, was fairly stagnant.

I think it was like 0.2%.

And so we expect that to be slow.

And the second thing is the truckload spillover, as you recall, last year, I think maybe it's our opinion that the retail sector was diverting a lot of what would normally be truckload over to LTL to get goods to the market.

And that's one reason why we saw and are still seeing a pretty robust philosophy in number of shipments.

Albeit they're just lower weights, is that we're having to get those to the market.

We're still seeing in April, which I had mentioned, our weight per shipment is down 3.4%, and we still think that's still a combination of macro and still a combination of the change in the truckload or spillover.

So hopefully that helps.

It's just the retail is probably the most.

We actually saw industrial weight per shipment and velocity fairly strong in the first quarter and are still seeing that, so I guess the bottom line, you've got to produce it before you sell it.

All right.

That's very fair.

Thanks for the time, guys.

I appreciate it.

Our next question comes from Allison Landry with Credit Suisse.

Thanks, good morning.

So just following up on that last point, you know, expectations for weight per shipment continue to be down in the second quarter.

What does that sort of telling you about, you know, sort of the macro environment going forward?

Are your customers concerned about inventory levels, you know, do you think at some point the consumer will actually, you know, start buying some goods?

What's your overall view there?

Allison, this is David.

Let me throw in just one more element that Wes didn't mention.

And it has to do with the port strikes and all the backlog of container ships and so forth, that, you know, when the product finally hit the shores where it could be shipped, shippers were shipping, you know, what they had to or they shipped what they had to ship, what they had available to ship, waiting for the product to hit the shore.

And I think that had an impact on the overall weight per shipment in our industry in the first quarter.

You know, will we all see a decline in weight per shipment in the second quarter and is it a macro?

I really, you know, it's really, really hard to say because, you know, if retail shipments were slower in the first quarter, that's what Wes was saying, and their shipment sizes were slower, I think a lot of that did had to do with that port congestion and the issues on the West Coast.

So, you know, another thing that might be affecting our weight per shipment is that, you know, it's obvious that we are winning some market share, and it's basically coming, you know, across the Board, across the country.

You know, our industry peer group has a lower weight per shipment than we have.

And so it stands to reason that if we're winning market share, that might be pulling our weight per shipment down a little bit.

Okay.

That makes sense.

Actually, good color.

And then just following up, speaking about headcounts, you know, just sort of it's, you know, tonnage and store demand does fall off, you know, what's your sort of contingency plan for headcount for the balance of the year?

Keep in mind that we still guided second quarter to be in a range of 9% tonnage growth, so I wouldn't call that a falling off, but to David's point, that tonnage is based on the fact that we're seeing a reduced weight per shipment, and as he also pointed out, we don't really know.

If we do get some traction on retail and GDP in the second quarter, it could be that weight per shipment does start to go up again.

Another point I'll add is that you've seen our history of managing through downturns, upturns or whatever.

We have a very good control over, you know, how our tonnage is going and our headcounts that we need to, you know, serve our customers and keep our cost in control.

Absolutely.

All right.

Thank you guys so much for the time.

Next question comes from Brad Delco with Stephens.

Good morning, gentlemen, thanks for taking my question.

Wes, the first one for you, is there any way to sort of quantify on a year-over-year basis what the weather comp looked like for you?

I know weather was an issue this quarter, but was it, anyway you could dollars to what it was this year versus last year?

Well, keep in mind, Brad, there is a way to do it, we just haven't really spent a lot of time doing it.

And the reason is, neither the first quarter of 2014 or 2015 had any spring-like characteristics to it.

They were both kind of bad.

So to try to get the differential, you can't get the differential this year without going back and seeing what the effect was last year, and to tell the truth, we think that was kind of neutral.

January of 2014 was the really tough month of weather in 2014, and it turned out that it looks like February was the really tough month regarding weather this year.

So, it's kind of an offset between those two months.

But overall they both had very similar in negative effect.

So getting the differential, you know, may not be that much, and we didn't take time to look at that.

We still improved our operating ratio 200 basis points.

No, no, results were clearly good.

I was just trying to get a sense in terms of a comparison.

Was it a better weather quarter year-over-year or roughly the same?

It sounds like it was roughly the same.

Roughly the same.

They were both terrible.

Yeah, both terrible is the description, correct.

And then, Wes, on your commentary about revenue per hundredweight up 5.5% to 6.5% year-over-year, that's an acceleration from what you guided first quarter.

Obviously weight per shipment will adjust that number.

Is it fair to say that roughly, if you adjusted weight per shipment, that core pricing, excluding mix, it's around the 4% range or what's kind of the?

Maybe you were late but I did comment on that in my script.

If you hold the weight per shipment constant in both quarters, then the revenue per hundredweight yield would have been up around 5%.

So looking at it that way and keeping in mind that the guidance that we gave in the first quarter of 5.5% and 6.5% was based upon that assumption, that we're really right at the midpoint of that assumption.

And it wasn't, oh, I'm sorry, you're talking about this quarter.

Yeah, I'm sorry.

This quarter if you didn't hold that constant, we would still be in that 5% range.

Okay.

Perfect.

That's just a point of clarification.

I apologize for the wrong answer.

No worries.

Well, thanks for the time, guys, and congrats on the good quarter.

Next question comes from Bill Greene with Morgan Stanley.

Hey there, good morning.

You know, Wes, I just want to ask for a little bit of clarification on some of the second quarter guide.

So we've got a little bit of slowing tonnage growth but not so bad but you've hired in advance so I assume we'll see some productivity as those new employees get up and become more productive.

We typically think of the second quarter seasonality being a 400 basis point improvements in margins but second quarter is often a really strong quarter, so how do you way those pieces, tonnage growth slowing a little bit, yields holding but productivity getting better?

My sense is it could end being quite a good quarter, even though I know you don't give guidance, but I'm just trying to think through the puts and takes there.

You want me to answer all those questions, Bill?

Well, the basic question is, can seasonality, is that a reasonable basis for thinking about second quarter?

Because there's a lot of moving parts.

I think, overall, overall the second quarter was a little bit tougher comparison as evidenced by our tonnage growth in the second quarter of 2014 over 2013.

So the comparison is maybe a little bit tougher.

But, still, I think the 9% and 10% guidance was based upon what we're seeing in April, and the big, and we're still getting tremendous velocity on number of shipments.

The fact is that the weight per shipment is down to 3.4%, and that's kind of what I based our guidance on.

If that should change, then we could be a little more optimistic.

But right now we don't see that transparency at this point.

Hopefully we will.

But, you know, we had some slippage over the last, you know, five or six months or maybe even longer on the dock because we had hired so many people and we had so much ongoing training expense with them and, to be honest, I think it takes a dock worker at least six months to get up to speed and get to where he can produce at the level that the, you know, more seasoned workers produce at.

So we would expect, some incremental improvement in our dock productivity, you know, during the second quarter because we are fairly stabilized with our quantity of people handling our current shipment levels.

The other thing, Bill, you know, our increase in our 559 was effective this year on January 1, 2015, so we got the benefit in terms of yield on that for the entire quarter, whereas in the second quarter, when you look at kind of the lower, the yield guidance, it's based upon the fact that last year we had May 1 implementation.

And I know that the yield guidance was actually stronger in the second quarter and what actually was in the first quarter but that's because the weight per shipment is down 3% as opposed to 1.8% in the first.

Okay.

That's very helpful color.

David, I would like to sort of run one question by you, and I know, we don't know if this will happen yet, but insofar as we got 33-foot trailers approved here, Old Dominion's always been out and ahead on productivity.

How big a deal is that for you from a productivity standpoint?

I think it will be, take a little bit longer firm to gain the productivity on this because if we get 33-foot trailers, you know, we will obviously shift the production of 28s to 33s and start gradually putting them into our network, and determining which traffic lanes we will be running these 33s in.

I see us implementing this thing on, you know, sort of a longest haul lanes that have the highest amount of freight lane density first.

So, you know, it will be something that we will be putting them in as we're buying new trailers.

We have not made any decisions yet on retrofitting or extending our current 28s.

The cost of that has turned out to be a little bit higher than we originally thought, but I just see it as not a major transformational thing.

Now, if we were able to haul triple trailers all of a sudden across the country, then you'd see a transformational change.

Okay.

Very helpful.

I appreciate the time.

Thanks so much.

Next question comes from Tom Kim with Goldman Sachs.

Thanks.

Good morning.

I have a question on labor productivity.

Your shipments per employee or tonnage per employee has been sort of trending down since 2013.

And I know you said that you're adding headcount ahead of growth, which makes a lot of sense, but I'm wondering like, you know, can you get back to 2011, 2012 levels of productivity and how long does that take?

Well, obviously you're dividing that by total employees, and total employees, all of them doesn't move freight.

And so we've been into modernization and we've had to add IT resources and others as we grow.

But I think we can still get back as we, of course, getting back to that productivity somewhat implies that maybe we aren't growing as strong, and we don't think that that'll be the case.

We'll always have a certain amount of new employees that are in the training mode, as David mentioned earlier.

But I certainly think that we can get back to the 2012, 2013 levels.

But the dynamics of freight movement continues to change.

More and more requests for appointment freight and certain characteristics that just takes more labor as well.

The only question is, if that happens, can you get that into the price and apparently we've been very successful in doing that.

That's definitely absolutely right.

And I guess just, also, with regard to utilization levels, I'm trying to understand like your incremental costs associated with additional volume you're bringing on.

I'm wondering, you know, where are your service yield elevation rates presently and can you continue to push more shipments or more tonnage through per station?

You know, that's an ongoing process when it comes to service centers and capacity and how much more you can push through stations.

You know, as evidenced by our CapEx for term, for service centers, you know, we're continually having to expand and/or build new centers for our largest cities where we grow the fastest, whereas some of the smaller cities that we may have 50 doors in the city that only needs 20 or 25, and, heck, you could more than, you could handle a heck of a lot more freight through some of our service centers.

It's just a kind of ongoing evolutionary thing.

Understood.

Thank you.

Next question comes from Jason [Siddle] with Cowmen & Company.

Hey Earl, hey David, hey, Wes, guys.

Thanks for the time this morning.

Wes, going back to the weight per shipment trends, obviously the West Coast Port is probably throwing an upon can I wrench in the comparison.

Are you seeing now in 2Q now at the port moving and the cleanup going through, are you seeing more retail shipments early in 2Q?

I'll say that the weight per retail shipments starting off in April is not down as much as what it was in the first quarter.

So that's an indication that perhaps it has improved.

Still not positive.

It's still down.

But that would indicate some improvement.

So is the weight per shipment on the industrial side that's dragging down more in 2Q then for you?

Well, the weight per shipment on the industrial side in the first quarter was relatively flat.

At least in April, at this point, we're seeing it down slightly.

So they produced them in the first quarter, now they're moving them, and now they got to start producing some more.

Okay

But we still see the macro, at this point, I don't know how else to characterize it other than very sluggish at this point, and I know the economists are talking about 3% GDP for the year, and it was only 0.2% for the first quarter, is that there should be a pickup.

And so we'll be interested, as everyone, to see if our weight per shipment and demand increases.

And to tell the truth, we expect it to.

You know how estimates are, Wes.

You make estimates and you make them often.

On the 3PL, business you're doing with the 3PL are you seeing a change in the shipments that you're getting from them, either up or down?

About the same.

In the second quarter our weight per shipment for our 3PL's and logistics partners were maybe down slightly but okay, and it's still down, but keep in mind that that's a pretty good mix of retail/industrial and we don't necessarily have transparency on that across the board.

But we still are growing favorably and developing very good relationships with our 3PL partners.

Okay.

I think, Wes, that about does it for me so I appreciate the time, as always.

Thank you, Jason.

We move next to Rob Salmon with Deutsche Bank.

Hey, thanks.

Good morning, guys.

As a quick follow-up to Jason's last question, Wes, with your comments about the 3PL shipments, were you speaking as a percentage of your total shipments or just the absolute numbers in terms of it being, you know, flattish to slightly down?

I was speaking of the weight per shipment, Rob, on our 3PL in the first quarter.

Okay.

I guess, you know, Wes, then if you're thinking about just the overall shipments, did that remain pretty constant as a percentage of the book or kind of tail off?

It remained fairly constant but growing.

It's, right now it's around 34% to 35% of our total shipments.

Okay.

That's really helpful.

You know, Wes, if I could switch gears a little bit to some of the ancillary services that you're offering, it looked like that growth accelerated a little bit last quarter.

How are you guys thinking about the growth there?

Are there any new verticals that you're adding to the suite of services like kind of the home delivery, well not home delivery, but home movement services that you're already offering and the dredge business?

Well, of course, in the first quarter our dredge business was significantly impacted by the West Coast ports, as you might imagine.

Right.

And resurgence there as we speak.

And as far as the home moving, of course, right now that's a seasonal business and while it's growing very nicely, we expect that to continue to grow at least from a revenue standpoint, so we expect still continued growth in all those services, freight, forwarding, dredge, and our specialized LTL services like home moving and expedited.

So we do expect, and truckload brokerage, we do expect continued growth in all those segments of our business.

Okay.

So it sounds like it was just more execution as opposed to adding any new services in terms of last quarter.

I think so.

Yes.

Yes.

Thanks so much for the time.

Next question is Todd Fowler with KeyBanc Capital Markets.

Great.

Thanks.

Good morning.

I just wanted to ask, on the balance between share repurchases and CapEx, it's going to be a heavy CapEx year and it feels like it's going to be building in the next couple quarters, you're buying back some stock here in the first quarter.

How do you think about, you know, share repurchases?

Do you look at that opportunistically and if CapEx is going to go up, do the share repurchases slow then?

No, no, not at all.

I think we have a strong organizational structure that we do both.

And keep in mind we are in fact doing both.

We have repurchased about just under $28 million of shares since its effective date in December currently, and that's on the, even though we've indicated $460 million of CapEx.

So we will still do both.

Executing and investing in growth in terms of our network, et cetera, and while also looking at returning some proceeds to shareholders in terms of a we purchase.

So I think our balance sheet, our profitability and margins allow us to do both and we continue to look at that.

Okay.

That helps.

And then, Wes, just maybe a follow-up for you.

The insurance and claims here in the quarter, you know, do you view that as kind of a normal rate for the first quarter?

Was there anything that was elevated and how do we think about that going forward?

It's a good number.

I was just curious if you viewed that as being normal for the first quarter.

We see that that's fairly normal.

That includes our DIPD coverage in that line as well as our cargo claims, and we've been very active in managing both of those expenses, and we continue to see that as being a positive number.

Whether it goes down or up as a percent of revenue, as we pointed out in our script, the optics of that isn't as much as you think since our-.

We showed it going from 1.3% to 1.4% but the revenue is down because of the fuel surcharge.

Right.

Right.

So the number is actually better as a percent of pre-fuel is your charge revenue.

And that's a good point.

I would say probably it's more flattish.

But I think that's a range we expect to maintain this year.

Yeah.

And that's why I framed up the question the way I did because I think it's optically a little bit confusing so I just wanted to get your thoughts on how insurance felt during the quarter so I think I got what I need with that.

Thanks for the time this morning.

Next we move to David Ross with Stifel.

Yes.

Good morning, gentlemen.

Good morning, David.

There's been a lot of M&A activity in the 3PL landscape and you talked about having a good amount of your business moving through the 3PL network.

Can you talk about any impact you've seen from consolidation of the larger brokers on the business or how you see that playing out in the marketplace?

David, I don't think, you know, as far as we're concerned, we've not seen any effect on our relationships with the 3PLs that we do business with.

Our stamps on how we work with 3PLs will remain the same, and we've had a successful relationship with our 3PLs.

Then just on the equipment side, you guys spending over $270 million this year.

Anything different in what you're buying versus prior years in terms of new specs for the tractors, different, you know, brands or, you know, OEMs, different engine types, anything there that's changing?

Our mix of brands is the same this year as it has been the last couple of years, from the tractor standpoint.

Trailers are about the same.

There's nothing in particular different in any major way.

Mix of engines and the whole thing, it's all about the same.

And we're testing some automatic transmissions or what do they call it, semi automatic transmissions, but we're not, you know, haven't moved ahead with anything in a big way on that.

Have you guys looked into, you know, net gas tracks at all for any of the P and D routes?

What's your turn thinking there?

We've been watching the whole natural gas evolution for the last several years, and we're definitely on a wait and see approach.

We don't think that we're ready for that or that's ready for us.

Keep in mind, David, that our tractors that are used in the P and D routes were previously line haul tractors as we get the ten-year economic life.

So we do not buy a separate pickup and delivery fleet so that makes it a little more cumbersome to try.

And line haul, clearly, natural gas just isn't even close to being practical for us, as I assume for the industry.

Excellent.

Thank you very much.

Next question comes from Scott Group with Wolfe Research.

Hey, thanks, good morning, guys.

Good morning.

So I wanted to ask about the impact of fuel and from a couple sides here.

Do you have a, kind of an estimate on how it may have hurt the operating income or not in the quarter and how you think it might impact second quarter, and then just separately on fuels, since you guys didn't change the fuel surcharge or I don't think you changed the fuel surcharge, have you heard from customers that that's been an impact in terms of incremental market share gains for you?

On your first question, yeah, we did realize a little bit of tail wind in the first quarter, maybe 20 basis points to 40 basis points on the fuel.

We expect that to reverse to a slight headwind as the year progresses and as fuel costs start to go up and fuel surcharge perhaps lags that a little bit.

So, yeah, that was our currents.

And what was your other question again, Scott?

About the fuel surcharge and the customers.

We've not had, honestly, not a lot of, you know, direct feedback nor any way to really measure whether our stance of not taking increases on our fuel surcharge tables, whether that has contributed to mark share gains.

We really, it's impossible to measure that.

I would just say that our 559, which is where that would have affected, saw pretty nice growth in the first quarter, so maybe.

Okay.

Not necessarily above what would be the overall.

It's hard to make a conclusion that we got additional, but we still think that that was the fair thing for us and the right thing for us to do.

No, ma makes sense.

And then I know there were a bunch of questions already on headcount but I don't think I heard.

Did you give an estimate of what headcount is going to be up in the second quarter?

We had not given that guidance.

Okay.

And that's not something you want to share with us?

Correct.

Okay.

One last thing, just how does lower weight per shipment impact incremental margin?

We understand the impact on revenue per hundredweight, but I'm not sure I'm clear on how it impacts incremental margins.

We have a lower weight per shipment in the first quarter, and I think our incremental margin was 30%.

Okay.

Thank you.

(Inaudible) by that versus overall yield and density across the network, I think yield and density across the network were more influential to our 200 basis point improvement in OR.

But it would have maybe a slight negative effect on incremental margin in that we do haul shipments, so we're hauling more shipments, which means that you've got more movement on that, but the impact would have been minimal, as David points out, the real question is, are you getting appropriately compensated in terms of yield.

And certainly we have and expect to.

Okay.

Helpful, guys.

Thank you.

(Operator Instructions) And we next move to Tom [Allbrecht] with BB&T.

Hey, guys, good morning.

You know, just with how weird this economy is and that, I'm just kind of wondering if you've had any major shifts in kind of the breakdown between your overnight, second day and third day deliveries?

I kind of look at it at about 30% overnight, 40% second day, and 30% third day or later but it's been a while since I've asked you about that.

It's been relatively constant, although our overnight and second day is growing perhaps slightly more than our longer haul.

And that's kind of been the trend.

But other than that, we haven't seen any sudden or significant shifts in that.

Okay.

And then, David, on the issue of the 33-foot trailers, do you have some thoughts on either age or mileage where you would use a trailer kit to expand the length of the trailer versus buying brand new 33 footers?

We are keeping our trailers, our Pup trailers, in the range of, I think it's 18 or 20 years.

Is that about right, Wes, somewhere in that neighborhood?

Yeah.

So I think you would probably only make a conversion if they were less than ten years old, would be my, that's just my educated guess right now.

Okay.

Obviously if it gets past, you'll study it a little bit more.

The other thing, you know, kind of back to the headcount, would it be fair to sort of extrapolate that there's a good chance your headcount will actually lag your tonnage growth in the second quarter, just because you already did so much advance hiring?

It could go either way.

Okay.

You're still actively hiring quite a bit, it sounds like then, at least at the beginning of the quarter.

Even at a, sequentially our tonnage will be obviously higher in the second quarter than the first.

And year-over-year we've already discussed 9% to 10% tonnage growth.

And even more shipments growth.

Keep in mind that probably the more comparable metric is number of shipments growth with respect to employees, not tonnage growth, because we actually move shipments, not necessarily tonnage.

So it takes, so we anticipate that the tonnage growth, that the shipment growth will be higher.

And that means you've got to have the people in place to move it.

Yeah, well definitely be, you know, adding people during this second quarter because June will be another peak month.

Just like March is the peak month to the first quarter, June says the peak month to the second quarter and we've got to be getting geared up to be able to handle the volumes in June.

And then we hope everybody takes a little bit of a vacation in July and then here we go again with the next peak in September.

Last question.

You know, just on a typical week or month, however you might look at it, you know, approximately what percentage of your shipments are being run through a freight dimensioner?

Keep in mind you don't, the percentage isn't necessarily relevant.

I mean, if you've got a customer and you want to, and you need to run, say it's a new customer.

You only get a sampling of that shipment to see if the cube the weight per cube is what was agreed on from a pricing standpoint.

If I had to guess, I would say 30% to 40% of our shipments go through a dimensioner.

On a daily basis.

Okay.

That's helpful.

Thank you.

Appreciate it.

Next question comes from David Campbell with Thompson Davis & Company.

Wes, thanks for taking my question.

You said earlier that your next day business is up a little more than the long haul business.

Does that mean expedited, your expedited shipments are going faster than your overall business?

Well, keep in mind expedited doesn't necessarily mean next day.

Expedite is expedite regardless of the length of haul.

If we have a customer that needs a shipment going from the East Coast to the West Coast, that's expedited but that's not necessarily having anything to do with the transit time.

It's with the immediacy of the shipment.

So that wouldn't necessarily be the reason why our next day shipments are, as a percent of overall has increased.

It's just one of the things, it is growth, continued growth in our regional, obviously, business, but it's not necessarily expedited.

Right.

So is expedited increasing about the same as your overall business or faster?

Faster.

Faster.

And is that any change or that's, it seems like in the past it hadn't grown faster, but maybe it has.

Yes, it has.

Yes, it has and I'm not sure how you know that number because we don't disclose that amount of detail.

Just guessing.

Coming off a lower base of revenue, too, that's why the percentage growth might be faster.

All right.

Thanks a lot.

Our next question comes from Ben Hartford with Robert W. Baird.

Hey, good morning, guys.

Wes, can you remind us what type of sensitivity do you have to the 15% to 20% long-term incremental margins that you've guided, specifically on the bottom end?

What is the bottom end of that incremental margin target, assume from a core pricing standpoint, and is the bigger risk to falling below that long-term incremental margin target range, is it core price or is it continued productivity gains?

I think, as long as the macro is in place, doing okay, as long as we see continued discipline from a pricing standpoint, and assuming that we still have the density improvements, all of which we think is the case, there's no reason why we are, our incremental margin wouldn't be definitely at the high end range and of course it's been above that with those ingredients in place.

For it to get to the low range, I think we would have to see all of those things having a negative effect and therefore just not doing well.

And that's for you and the economists to decide if that ever happens.

But that would be the reason why it would ever get down to the low end of that range, would be because of those factors, being not positive.

Okay.

That's really helpful.

Thanks.

And, ladies and gentlemen, with no further questions in queue at this time, I'd like to turn the conference over to Mr. Congdon for closing remarks.

As always, thank you all for your participation today.

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

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

Thank you and good day.

Ladies and gentlemen, that does conclude today's conference.

We do thank you for your participation.

You may now disconnect.

Have a great rest of your day.