奧多明尼昂貨運 (ODFL) 2015 Q2 法說會逐字稿

Good morning, and welcome to the second 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 August 14 by dialing 719-457-0820.

The replay passcode is 7835868.

The replay may also be accessed through August 14 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 some similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important factors among others, set forth with Old Dominion's filings 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 Vice Chairman and Chief Executive Officer, Mr. David Congdon.

Please go ahead sir.

Good morning, thank you for joining us today for our second quarter conference call.

With me this morning is Wes Frye, our CFO, and Adam Satterfield, our Vice President and Treasurer.

After some brief remarks we'll be glad to take your questions.

Old Dominion continued its record setting pace during the second quarter of 2015, achieving our best quarterly results for revenue, operating ratio, and earnings per diluted share.

We achieved these results despite reduced fuel surcharge revenue, and a second consecutive quarter in which weight per shipment declined.

Nevertheless, the growth in shipments and tons per day for the quarter increased our freight density, and a stable pricing environment supported a 5.3% increase in revenue per hundredweight, excluding fuel surcharge.

Our record operating ratio of 81.5 represents the fifth consecutive quarterly improvement in our OR of 100 basis points or better.

Also our OR has now improved for 21 of the past 22 quarters.

These consistent improvements in OR have also driven our double-digit growth in earnings per diluted share for the same 21 quarters, as evidenced by our 16.3% increase to $1 for our second quarter completed.

Old Dominion continued to operate at a high level for the second quarter.

Even with 13.4% growth in shipments for the quarter, we again provided an on time delivery ratio of over 99%, and a cargo claim ratio of just 0.33%.

We also responded well to the increase in LTL shipments with relatively strong improvements in our productivity metrics for P&D shipments per hour, and platform shipments per hour, while other productivity metrics, such as platform pounds per hour and round haul laden load average were pressured by the 3.8% decrease in LTL weight per shipment.

In sure capacity in a capacity constrained industry, we're continuing our long term strategy of differentiating Old Dominion through a consistent and sizable investment in our infrastructure, equipment, and technology.

We also continue to invest in the training and education of our Old Dominion family of employees who optimally leverage our capital investment.

We continue to focus on price discipline to ensure an appropriate return on each account.

As a result, we have created the strongest financial position that the Company has ever experienced, which enables the investment required to sustain the service standards that set us apart in our industry.

Many factors have contributed to Old Dominion's long term performance, but the overriding key continues to be our successful delivery of on time claims-free service at a fair price.

Our performance record reflects the growing demand in the marketplace for this value proposition, and we believe that we stand alone in our ability to deliver the high service standards it requires.

We expect our strong competitive market position to enable us to further increase our market share, earnings, and shareholder value.

Thanks for joining us today, and your interest in Old Dominion, and now Wes will review our results for the second quarter in greater detail.

Thank you David.

Good morning.

Old Dominion's revenue was $762.2 million for the second quarter, an increase of 8.4% from $703 million for the second quarter of 2014.

Our operating ratio improved 100 basis points to an 81.5 for the second quarter, and earnings per diluted share grew 16.3% to $1.00, from $0.86 for the second quarter of last year.

Our financial results were driven by a 1.2% increase in LTL tonnage for the quarter, comprised primarily of a 13.4% increase in LTL shipments.

A 3.8% decrease in LTL weight per shipment.

LTL revenue per hundredweight decreased 0.8%, .8 of a percent for the quarter, and revenue per hundredweight excluding fuel surcharge increased 5.3%.

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

On a monthly basis, LTL tonnage per day decreased sequentially by 1.1% for April, and March, increased 3.3% for May, and increased 1.6% for June.

This performance compares with our 10-year average sequential month trends, that show an increase of 0.9 of 1% for April, an increase of 4.2% for May, and an increase of 2.2% for June.

On a comparable quarter basis, LTL tons per day increased 9.7% for April, 9.6% for May, and 7.8% for June.

These sequential results were downly influenced by the reduction and the weight per shipment.

But actually the number of shipments for the quarter, number of shipments that is, was sequentially above the 10-year average trend.

We believe the decline in our weight per shipment for the second consecutive quarter reflects, among other things, the increased number of truckload shipments split into LTL shipments last year, as well as a reduced demand for customer products this year.

In addition, we believe some customers are modifying their LTL shipping patterns to smaller, more frequent shipments, which is reflected in our higher shipment volume with reduced weight per shipment.

Beginning this quarter, we will stop providing forward quarter estimates year-over-year tons per day, and revenue per hundredweight, excluding fuel surcharge, instead we will provide a realtime estimate for the first month of the new quarter on the earnings call as I will today for the prior quarter.

We will also publicly update this information with actual results for the second month of the quarter, which will be released early in the third month, and we will report the full quarter results at the time of our normal release and call.

Importantly, these two workdays remaining in July, we expect LTL tons per day for July to increase approximately 8% versus 2014.

Sequentially, this represents a 1% decrease in tons per day compared to June, versus a 2.4% decrease for the 10-year average.

Increased tons include a 13.6% increase in the number of shipments, offset by a 5% decrease in the weight per shipment.

Sequential 10-year average in tons per day for August and September, as a note, is 0.6 of 1% for August from July, and a 3.2% increase for September versus August.

We also expect revenue per hundredweight excluding fuel surcharge to increase approximately 4.7% for July.

As a reminder, monthly year-over-year LTL tons per day increased during the third quarter of 2014 compared to 2013 by 18.8% for July, 19% for August, 18% for September.

A tougher comparison.

Third quarter of 2015 has the same number of working days as the third quarter of 2014.

100 basis point improvement in Old Dominion's operating ratio primarily reflected our increased freight density, longer yield, and some improvements in productivity.

A significant decline in fuel prices resulted in a 340 basis point reduction in operating supplies and expense.

However, the decline in fuel prices also decreased our fuel surcharge revenue.

As we saw last quarter, other expenses expressed as a percent of revenue were higher during the second quarter, which is partially attributable to the lower denominator, due to the decline in fuel surcharge revenue, for example, salary and wages and benefits increased 240 basis points, despite some gains in productivity and improvements in certain employee benefit expenses.

Capital Expenditures for the second quarter of 2015 were $159.1 million.

We estimate CapEx for the full year of 2015 will total approximately $469.3 million, including land expenditures of $164.7 million for real estate, $277.8 million for tractors and trailers and other equipment, and $26.8 million for technology and other assets.

After anticipated asset we expect total net CapEx of approximately $450 million, which we plan to fund primarily through operating cash flow, as well as our available borrowing capacity if necessary.

In the second quarter, we repurchased approximately 407,000 shares of the Company's common stock for $29.1 million under our previously authorized $200 million share repurchase program.

Since the November 2014 announcement of our share repurchase program, we have purchased approximately 658,000 shares for $47.9 million.

Effective tax rate for the second quarter of 2015 was 38.6%, compared to 39% for the second quarter of 2014.

At this point we expect an effective tax rate of 38.6% for the third quarter of 2015.

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 will take the first question today from Alex Vecchio with Morgan Stanley, please go ahead.

Hey there.

Wes, I just wanted to get a little more color on the rationale behind removing quarterly guidance.

It seems you guys have actually, had a fairly good track record with respect to kind of being reasonably close to what you've guided to, so I just wanted to get a little more color there.

Is there more uncertainty this quarter than there has been in the past in terms of how trends might evolve going forward, or is there anything to read into that?

Well, I think you said it.

I think it was uncertainty in this economy that seems to go up and down, et cetera.

We thought it would be better color just to give you actual numbers, and at the same time, as I provided to you sequential trends of the 10-year average which would help you forecast what the remaining quarter is.

We thought it was more instructive to give maybe a little more detail than we do just on those two guidance.

To give you additional statistics as we update the quarter for obviously July of this conference call, and then August we'll submit an 8-K and update August.

As well as the actual for July, which yes, as of today we only have two days remaining.

Right, right.

July actually turned out.

That's true.

But that's the rationale for us.

Okay, that makes sense.

And then secondly you mentioned there's the decline in the weight per shipment seems to be about, at least partly a function of customers seeking to refine to smaller and more frequent shipments.

Do you think this is a function of kind of the macro, or what's kind of driving that change, do you think, and what are the implications for your density, and your ability to kind of expand margins to the extent you have in the past?

Is this kind of a good thing, a bad thing, or neutral?

How should we sort of think about that change in customer behavior if it continues?

If you think it will continue?

Well, I'll say that those three reasons that I gave are a little bit anecdotal, although we actually talked to some of our Top 50 national accounts, about what they were seeing and why the weight per shipments they were seeing were less than they were last year, and that was the three responses.

And the biggest overriding response, maybe 30% to 40% of the responses were in fact because of lack of truckload capacity last year, they were diverting some loads and slipping them down into LTL.

Second reason, they just said the macro is that our demand for our widgets are just a little bit less.

And then the third one, they were citing the fact that we have just moved to a trend of more frequent shipments, but smaller.

All of the things are, I guess you could call it indirectly and directly macro oriented.

Whether the smaller, more frequent shipments is a continuing trend, we'll just have to wait and see.

It was the opposite back in 2009 when we saw larger, less frequent shipments combining.

The fact that our number of shipments, and I know some of it is market share, but it's still, and our view a pretty good sign on the economy that we're still seeing a lot of velocity of shipments.

As far as the weight per shipment, when we gave guidance of the 9.5 to 10.5 we were seeing pretty good sequential trends in June, and then it kind of fizzled out and the difference between the 9.1 that we reported at 9.5 really isn't that much based upon the thousands of shipments that we haul.

In fact it's like a 20-pound difference, which is about the weight of a bag of cat litter.

So it sounds like it but it really is close, and quite frankly we expect June to build, and it just didn't build up to expectations this year.

But my commentary into July is our sequential is actually better than the 10-year average, and our growth in shipments is still very strong.

Great, thanks very much for the time.

Next is Scott Group with Wolfe Research.

Hey, guys.

Morning.

So, Wes, just wanted to follow up on that last point.

So it looks like when the monthly sequentials in the second quarter were maybe a little bit worse than the sequential average in terms of most of the months, but July now better.

What do you make of that?

Is this a sign that the macro is starting to pick up a little bit again, or it was a easy comp versus the second quarter?

Just curious on your thoughts of why July now is starting to feel better?

It feels better, but not great.

I think it's still too early to see if we had any, from our standpoint, any significant change in the macro.

The weakness in the second quarter of volume trends per day was primarily related to the lower weight per shipment.

Right.

And as Wes also pointed out in his commentary, our actual shipments per day trended greater than our 10-year sequentials.

So that's primarily the market share wins that we are having.

Okay.

And then just your thoughts on the pricing environment overall.

There's concern out there when you see several of the carriers with negative tonnage that at some point something is going to give, and the pricing environment is going to start to be a little less rational.

What's your outlook for pricing back half of this year, kind of early views on next year?

Are you seeing anything out there that gets you worried about pricing momentum?

Well, the only worry we have is amnesia.

Other carriers.

But obviously, we haven't seen a reaction to the negative tonnage yet.

Time will tell whether we will or we won't, but so far it sounds like everyone is really focused on their yield management, as they should be.

Okay, great.

All right, thank you, guys.

Next up is Chris Wetherbee with Citi.

Great, thanks.

Good morning, guys.

Wes can I trouble you to repeat the sequential trends for the third quarter?

I want to make sure I caught them now that you changed sort of the structure here?

Yes, that would be fine.

Trends for the second quarter

Third.

Historical financials?

Yes.

The sequential trends for the third quarter with 10-year average on tonnage would be, July would be 2.4% reduction, June, August is a 0.6% increase compared to July, and September is a 3.2% increase from August.

Okay.

That's very helpful.

I appreciate you doing that.

I guess when you think about sort of the weight per shipment and sort of what you're seeing there, I guess I wanted to sort of hone in a little bit on the 3PL business that you do.

It's obviously a reasonably large piece of your business.

How do you think about, are there any differences between sort of how you think about the growth in that business and what that may due to the weight per shipment relative to what's coming from your core customers?

Just want to get a sense of how that stacks up?

We think about 3PLs from a profitability standpoint, and it's obvious from our results that we do, as we would any.

We don't look at the 3PL on its own we look at the customers underneath that 3PL, and we do the same pricing and analysis of their shipments that we would if it were direct, and that's what we base our pricing on, is to the individual customers underlying the 3PL business.

But there's no meaningful mix difference relative to sort of your regular book of customers?

A lot, most of those are on contracts, and we did see a lot of reduced weight per shipment on shippers within our 3PL group.

Okay.

Okay.

That's helpful.

That's sort of what I was wondering.

And then, I guess sticking on sort of that topic, when you think about that market, you guys have been very successful there.

Are you seeing any increased level of competition amongst some of the other asset based guys pushing into that market, or competing for some of that business?

Just kind of curious of how the dynamics of that specific market looks?

We just don't have that visibility, Chris.

No real change from the norm.

Okay.

Okay.

Well, that's helpful.

Thanks very much for the time, guys.

I appreciate it.

We'll now go to Brad Delco with Stephens.

Good morning gentlemen.

Wes, congratulations on your upcoming retirement.

Thank you.

Wes, wanted to ask you maybe a broader question on the industry, and whether or not you think the LTL industry as a whole Dave this may be for you as well, is prepared for upcoming electronic logs in the truckload industry.

I'm trying it figure out do you think the LTL industry is prepared for tightening capacity in using third party line haul?

And obviously you guys would be in a unique position there.

So just curious to in your opinion, how that's going to play out for you going forward?

Okay.

Brad, I'll try to answer all that.

First of all, as far as we are concerned, we implemented on board recorders and logging, electronic logging, like almost five years ago.

So that's not going to be a major factor, as far as we're concerned.

As far as the truckload industry is concerned, most of the large truckload carriers already have the electronic logs.

I think it's going to primarily affect the smaller LTL fleets, where it may cause some capacity to come out from the smaller fleets.

So is the LTL industry, or are we in particular prepared for tightened capacity, especially from a line haul, you mentioned line haul.

We don't do any line haul with purchased transportation to speak of.

Just occasionally for balance purposes, but it's a very small part of our line haul, so we don't see that as a problem for us.

Some other carriers who rely on purchase transportation line haul might see, you need to ask them what their plan is, but it's not going to affect us.

Yes, that's exactly kind where I was going.

My thought was, you'd see purchase transportation costs go up for LTLs that rely on third party line haul, but because you do most of it yourself, or if not all of it yourself, you won't see that as a headwind, but you may benefit from what happens with industry pricing in that event?

Yes.

I think that's probably a fair guess on your part.

Okay.

All right, guys.

That's it for me.

Thanks for the time.

And Allison Landry with Credit Suisse is next.

Good morning.

So sort of another question on pricing.

So last quarter you indicated that core price ex all of the noise from fuel and mix was about 5%.

Was that tracking at a similar pace in the second quarter?

That's the mix in the, Alison, could you repeat the question?

I was diverted doing something else.

Sure.

So during the first quarter you had talked about a core pricing number which, exclusive of fuel and the impact from weight per shipment and length of haul, that figure was about 5%.

So I was wondering if that was similar in the second quarter?

Length of haul.

Adjusted length of haul may be a little bit lower than the first quarter, but on the other hand, in the first quarter, overall, we had the GRI on the tariff business, and that was lapped in the second quarter, so that would explain some of that reduction.

But I can say that pricing, just anecdotal feedback from our pricing people, we are successful in getting increased rates from our national accounts, anywhere from 3% to 5%.

So that's on a fairly consistent basis.

Okay.

And on the productivity side I know you were expecting some incremental improvement on several metrics.

Maybe if you could run through some of those in the quarter, that would be helpful?

Thanks.

We got good productivity increases, if you look at productivity and David's comments in shipments per hour and in platforms per hour.

With the large increase in the number of shipments that we had 13.4%, typically that would result in more labor to move those, as opposed to a shipment that's heavier.

In our case it was a positive because what we saw was, is a lot of those increased shipments were from an increased number of multiple shippers.

In other words that was shippers that we picked up multiple shipments from.

In fact, we had 6% increase in the number of multiple shippers.

And within those multiple shippers, we also had an increase in the number of shipments that they tendered to us by 7.5%.

So those two things are getting leveraged on, and on that density standpoint, with the increased number of shipments.

And that's why we were seeing productivity in the shipments per hour, both on platform and DOT.

Now, on the pounds per hour, as David also mentioned that was influenced by the fact that our weight per shipment was down 3.8%, but the more telling, after all we do haul shipments, not necessarily weight, and that was a positive sign from our, and helped us in second quarter.

Okay, that's helpful.

Just as a quick follow up, was there in terms of the trends that you just mentioned with increase in the number of shippers, and the shipments that they're moving, is there any specific end market that you saw more or less of this in?

For example, retail versus manufacturing?

Not really, Allison.

It's pretty much across the board, where we're seeing this growth in multiple shippers, multiple

Okay, great.

Thank you.

Okay.

We'll go to Bob Salmon with Deutsche Bank.

Thanks.

As a follow up to Allison's question, can you give a little more color in terms of the multiple shipments that you're picking up?

Are these going to kind of different warehouse, or different distribution centers across the country?

Or is it just kind of multiple shipments to the same store?

I'm just trying to get a better understanding of this mix that's going on between tonnage and shipments that's bifurcated?

Multiple shipment shippers are usually shipping out of a distribution center, going to their end customer.

But we also track and look at multiple shipment consignees, and how many shipments we deliver to a multiple shipment consignee.

We're seeing some growth in those areas as well, but it's more pronounced on the shipper side, which is a clear indication to us of winning additional market share.

Typically when we think about that growth in terms of shipments, it's a positive for the economy, yet the kind of feedback from customers is it's a little bit more macro.

What do you think is going on with the shift to the breakdown in terms of the smaller shipment size?

Is there something we should be reading more broadly, in terms of from a supply chain standpoint, or from a macro regard to this trend?

To be honest, we don't really know why it's happening, and the anecdotal feedback has not given us much to go on there.

But is there more demand for just in time, or are people ordering smaller shipments more frequently to keep their own inventory levels down, there may be some correlation with average inventory levels out there in the macro, but we haven't tried to draw that correlation.

But that thought comes to my mind.

That makes sense.

Wes, as a piece of clarification, were the shipment trends, in terms of year-over-year growth rates roughly constant throughout the quarter?

You had indicated I think they were up north of 13% in July.

I was just curious if that trend was sequentially--?

They were, in April it was at 13.4%, 13.6% in May, and 13.2% in June.

Perfect, thanks so much, guys.

You're welcome.

Next up is David Ross with Stifel, please go ahead.

Good morning, gentlemen.

Good morning David.

Good morning.

As you continue to grow and add personnel to handle the increased shipment volume, are you seeing any pinches in terms of driver availability, or any driver wage pressure that could cause rates to go up more than average this year?

We've been pretty successful finding drivers.

I mean, we've got some tight markets, David, but in general we've been able to fill the positions that we've had.

And from a wage standpoint, we're not seeing any pressure that our wages are out of line.

Actually, they're pretty much up at the, pretty close to the top of the industry most everywhere that we operate.

So no real problems there.

And then just a little nit, Wes, the other expense line item on the income statement, what was driving that, and is that more kind of a one-time issue, rather than anything that should be--?

Not necessarily.

In that number is bat debts and consulting fees.

We are in our modernization, converting to the Oracle platforms at the start ups, especially during last year, we were using some consultants, and some of that was going through that line.

And as that rolls out, those are not less, but are capitalized, start to develop.

So that's probably one of the big reasons of that reduction.

Okay.

So that should maybe continue at a few hundred thousand a quarter for the next few quarters as you roll this out?

Right.

Okay.

Thank you.

You're welcome.

And we'll go to Tom Kim with Goldman Sachs.

Good morning, and thanks for your time.

I wanted to ask, where is your market share today?

It doesn't seem like there's anything that's really going to impede your share growth, but I'm wondering what are some of the risks that we should be mindful of?

That depends whose denominator you use for market share, but if you use an ATA number that's up from the $45 billion to $50 billion category, we're at 7% of that.

And then if you use some of the other databases in maybe a $37 million market, where are we there, about 8.5%.

8%.

I didn't quite understand the question.

Yes.

So what I was basically driving at is, I know you're aiming to hit the double digit share, and it doesn't look like there's anything that's going to impede that based on what we're hearing from your competitors.

I'm just wondering, is there anything that we should be mindful of, or is the runway here really pretty straightforward?

We are delivering a really strong value proposition in the marketplace, and a strong service value to the market, and the customers are recognizing this, and they are continuing to reward us with additional business, and lanes, and so forth, and we're winning new customers as well, because of the service value that we deliver.

And so as long as we're perceived by the marketplace as delivering superior service value, we think that we can continue winning share.

Another component to that is making sure we've got the capacity to be able to grow into, and I think we're seeing that we've made significant investment to ensure that we've got the service center capacity, as well as on the equipment as well.

Good point, Adam.

No doubt.

Yes, I mean, no doubt, it's impressive that you guys continue to reinvest at such profitable rates of return.

Just with regard to the some of the comments around the weight per shipment shifts.

Is there really a material difference, when we're talking about, let's say, for example, shifts between your B to C, versus you B to B customers?

Not, not really.

Just keep in mind on the weight per shipment, when you take 2015 weight per shipment and compare that to 2013, it's kind of in line.

So we just had an unusual last year with the splits of the truckload into LTL.

Now that's not to say that won't happen again, because some of those capacity issues I think are still looming on the truckload market, but it's not as if the weight per shipment this year is a trend forever.

It's kind of in line with what was normal prior to that.

So we'll just see how that goes.

Okay.

That's very helpful.

Thanks, guys.

And we'll go to Todd Thaler with KeyBanc Capital Markets.

Great, thanks.

Good morning everyone.

David, I know you've been asked this when you guys were at 84 OR, 83 OR, 82 OR.

Can you talk a little now about being in the 81 OR, your confidence, continuing to be able to show margin expansion?

I think about your longer term incremental guidance of 15% to 20%, now all of the freight coming into the network would be at a OR higher of where you're running in the second quarter, so kind of high level thoughts on the ability to continue to expand the OR from where you're at right now?

Todd, I'm going to take part of that question, then David can jump in.

Everyone focuses on incremental margin, and we've given a range of 15% to 20%, assuming that the macro is behaving, pricing is somewhat disciplined in the sector, and we still have density improvements.

I want to make a comment on all this focus on incremental margin.

The incremental margin, in other words, mathematically, the less percent that you grow, less improvement in OR it takes to get an incremental margin of, say 30%.

In other words in you cut your growth in half, it takes half of the incremental improvement in OR to get that same OR incremental margin.

So if someone reports an incremental margin of 30% like we did in the second quarter, and our growth was 8%, if we grew it at 16% it would take a 200 basis point improvement in OR to get that same incremental margin.

Yes.

Going forward you need to consider that.

Therefore, as we get larger and percent of growth may drop, it influences how much of that improving OR that you get to get to that incremental margin.

So we still maintain 15% to 20% given those three qualifications, and it's been stronger than that.

Keep in mind with those three things, more or less, we are confident we'll certainly get up to the 20%.

Obviously, that implies an 80 OR.

So I think that's good.

And of course we're at 81.5% for the second quarter, which typically is our best, with a close second being the third quarter.

But we've still got the full year to come on how we look at that.

Anything to add, David on that?

No, it's just all about density, yield discipline in the industry, have a little help from the economy is good, and continuously improve your efficiencies, which we do that as well.

So we could maintain the 30 OR if we just reduce our growth to say 3% and improve our OR by (inaudible) basis points.

I wasn't suggesting that ,and I appreciate the help in thinking through it.

It was more along the lines of in the environment that you're in, the things that you need to continue to show the margin improvement, and obviously it's a good problem to it be comping up against.

So all of that is helpful.

The follow up I wanted to ask, Wes, and I'm not sure if you addressed this, but thinking about the OR sequentially into the third quarter, I think historically it's gone up by about 50 basis points or so.

What are the things we should be thinking about second quarter versus third quarter in 2015, that could make the OR change either greater or worse than what we've seen historically?

The third quarter historically always includes a wage increase.

Okay.

And just the normal, I mean, the normal sequential things.

I think last year we had a 50 basis point increase in OR in the third quarter compared to the second, but we had about a $3 million gain on real estate in the second quarter of 2014 that didn't repeat itself.

So you've got all of these moving parts that can influence either quarter.

But I guess in 2015 specifically, I mean, you have the wage increase every year.

I mean, was there anything maybe in 2Q was that a fuel benefit, or anything like that?

I think you mentioned to one of the earlier questions about the operating expenses, but there's nothing, or is there anything else, I guess, that we should be thinking about third quarter from second quarter that would be dramatically different than what we've seen historically?

Not offhand.

Okay.

Thanks for the time this morning, guys.

Thank you.

We'll go to John Barnes with RBC Capital Market.

Hey, thank you guys, for taking my time, my question.

First, Wes, your comments around just the shift towards smaller but more frequent shipments, and having to take a wait and see approach.

From an operations and planning perspective, is there much you have to do?

If this becomes a more consistent trend, and you see that as kind of the new norm, what are the major changes you have to make in operations?

Is it just the labor side, more personnel to handle the more shipments, the increase in shipments, or is there something else you have to do?

Yes, I want to be clear.

We got feedback from the shippers.

That was one of the reasons and that was the less of the three reasons that were cited.

I don't want to give the impression that that's a clear trend that's going to apply materially that was just one of the reasons.

Then I said wait and see, see if that for some reason will be a continuing trend, an increasing trend, or become just kind of neutral.

We just have to wait and see.

But obviously we'll gear up for whatever happens.

Right.

From an operations or planning perspective, there are no major changes that have to be made if this is some kind of ongoing trend.

It's just you're handling slightly less heavy pallets, but you still have to move them across the dock the same way you always have.

Okay, all right, all right.

That's what I was looking for.

And then going back to the conversation about the OR, can you talk a little bit about how you balance I know you want margin improvement, but obviously you still view yourselves very much of a growth company.

If you think about taking that market share, whatever it is today and say you take it 1.5 point, 2 points, 3 points higher, and you continue to take on that share, how are you to I've got to have market improvement as I do this?

There is going to be investment that needs to be made.

How do you balance those two, that pursuit of growth versus, do you let the OR kind of shake out where it does as you gain that density and all, or is it, hey, I've got to pay attention to both, the growth and where that OR shakes out?

We pay attention to both all the time because we focus on every account to reach a targeted operating ratio.

And it's never been our practice to trade off growth for less margin or cheaper prices.

That's not the way we think.

So we've been on the right course, as you can see from our numbers and our performance.

And we're going to stay on the course we're on with the yield management velocities that we have, and with the service product that we've been building, but we're not going to, you won't see us start trading off margin to try to get growth.

John, here's the deal, and it's probably unlike most of the other LTL carriers.

First of all, we price the shipments to be profitable to us.

That's the key.

To do that you have to have accurate costing to do that.

Then if we see that our growth is more than anticipated instead of trying to quote call some freight out to match that capacity, we simply invest in more capacity.

And that's why you see our CapEx continue to go up.

And why do we do that?

And the answer is we because we can, we have the margins, we've got the return on invested capital that gives us the power to do that.

As David pointed out, that's what we'll continue to do.

And with this continued growth in our CapEx and our investing in the company, all of the costs of those investments is embedded in the 81.5% operating ratio, and another thing to think about is that, we have really fine tuned operations in this Company, and we are very efficient.

Otherwise we would not be operating at an 81.5%.

So when we go to price an account because we're so efficient, the price that we charge is fair and perceived as a darn good value in the market, because we don't have to charge as much as anybody else does that doesn't operate as efficiently, and still achieve the results that we are looking for.

Very good, very good, Wes, because we can is probably the best answer I've heard this entire earnings season, so thanks for that.

Thanks for taking the questions.

Thanks.

We'll go to Jason Seidl with Cowen and Company.

Hey guys.

Good morning.

At this stage of the call just one quick one from me.

If the log situation starts tightening up truckload capacity again, how should we start looking at LTL pricing?

Could it take an upwards turn again?

Or do you think it will just maintain sort of where we're at?

The LTL capacity is aside from our sales, we have more capacity than any other LTL out there.

But generally LTL capacity is fairly balanced right now, or perhaps tight, and so if the electronic logs cause LTL capacity to tighten, and freight comes the way of the LTL carriers in general, you would you think that pricing would be more positive than it is now.

Should we see more value come in the way of LTL.

One of the other points we failed to mention earlier, talking about these electronic logs, is the effect that they may have on the overall owner operator truckload market.

We think that EODRs are going to really put a squeeze on the owner operators, they're pretty well squeezed as we speak, and it's going to put more of a squeeze, which reduces truckload, some truckload capacity out there.

I don't know what percentage of truckloads is hauled by owner operators this day and age, but that's going to be a squeeze.

Unless of course you're a big, maybe a big company that already uses them with your owner operators.

Thanks for the color, guys.

We'll go to Ben Hartford with Baird.

Hey, Wes, quick follow up question on gains on sale this quarter.

What is the number, and is there a way to allow us to think about what gains on sales should be through the balance of the year?

Hard to tell for the balance of the year.

This quarter it was about $1.6 million.

Okay, great, thanks.

We'll go to David Campbell with Thompson Davis & Company.

Thanks.

Good morning.

I just wanted to ask if you could give me the number of employees on June 30 versus March 30?

Total full time employees was 17,319 at the end of the quarter.

Okay.

And March was what?

The end of March we had 16,835.

Okay.

Thanks.

Second question is, do you have last year's sequential tonnage gains, for July, August, and September?

I gave them to you.

You gave us last year.

Yes, did you.

I got them.

Or yes, I got them, I got them.

I didn't get September.

September sequential, the 10-year average for sequential in September for tonnage is 3.2% over August.

Oh, yes, yes, okay, I got it.

I'm sorry.

I've got it.

Yes, I've got it.

Thank you for your help.

I really appreciate it.

All right, David.

And we'll go to Willard Milby with BB&T Capital.

Good morning, guys.

Real quick on the gains on sales don't show up in that miscellaneous expenses, is that correct?

Yes.

And we've kind of been developing a trend the past couple quarters with Q2 being the low mark for the year for miscellaneous expenses.

Is that a trend we can expect to continue 2016/2017?

Or is the past three years kind of unique with sales and just timing?

We don't give that guidance, and right now to the extent that gains is in there, it's hard to project what those will be.

Sometimes we have a large real estate gain just because we sold a big service center, and we always have some equipment disposals coming and going, but it varies a lot.

Okay.

I was just curious if there was something special about Q2?

It's kind of been that way for the past three years?

We've been very consistently selling some excess real estate that was there because of investments in larger facilitates, as part of our growth.

Okay.

Fair enough.

That's all I had.

Thanks for your time.

And we'll go back to Scott Group with Wolfe Research.

Hey guys, thanks for the follow up.

Wes, just one quick thing.

Now that you're giving us the monthly revenue per hundredweight, do you have what yields growth net of fuel was by month in third quarter last year, just so we can think about the comps?

Scott, I don't have those offhand.

Okay.

I can follow up offline.

Okay.

Thank you.

That the time I would like to turn the call back over to David Congdon for any additional or closing remarks.

Okay, as always, thank you all for your participation today.

We appreciate your questions.

We appreciate your support of Old Dominion, and feel free to gives a call if you have any further questions.

Thank you, and good day from all of us.

Thank you very much.

And that does conclude our conference for today.

I'd like to thank everyone for your participation, and have a great day.