奧多明尼昂貨運 (ODFL) 2015 Q3 法說會逐字稿

Third-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 November 12 by dialing 719-457-0820.

The replay passcode is 256290.

The replay may also be accessed through November 12 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 the forward-looking statements.

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

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

Thank you for your cooperation.

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

Please go ahead, sir.

Morning, and thanks for joining us today for our third-quarter conference call.

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

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

I am pleased to report that Old Dominion produced very solid financial performance for the third quarter of 2015.

Including a 90 basis point improvement in our operating ratio, to a third-quarter Company record of 82.1%.

That contributed to a 10% increase in our earnings per diluted share.

Although our tonnage slowed this quarter from its double-digit pace for the first half of the year, reflecting an uncertain economic environment that has affected the entire industry.

This quarter is being compared against the third-quarter of last year, when tons increased 18.7%, a tough year-over-year comparison.

Despite these headwinds, Old Dominion continued to win market share for the quarter, and we experienced double-digit growth in shipments for the seventh consecutive quarter.

The strength of these results is further evidenced that our promise of on time, claims-free delivery strongly differentiates Old Dominion from our competitors, and continues to resonate favorably in the market.

Even with our strong 11.7% growth in shipments during the third quarter, our on-time service was 99%, and our cargo claims ratio was 0.35%.

Because our customers value and depend on this superior service, we continue to achieve our yield objectives, with revenues per hundredweight, excluding fuel surcharge for the third quarter increasing 5.2%.

As always, our successful long-term execution of our value proposition depends on the tremendous commitment and hard work of our dedicated employees.

We will continue to invest in the equipment, infrastructure and technology, as well as the training and continuing education, that supports our industry-leading team in their efforts to consistently produce superior performance.

Thanks for your support of Old Dominion.

And now, here is David Congdon.

Good morning.

Let me begin by saying that I, too, am pleased by the Company's performance for the third quarter.

Our business model, which we have been refining for nearly two decades now, is built around an innovative and flexible team of people providing superior service at a fair price.

We continued to invest significantly in the Company, to execute with discipline, and to strengthen our customer-focused culture.

We are fully committed to further strengthen our market differentiation, through consistent and sizable investments in the resources, training and education that our employees need to exceed our customers' expectations.

By doing this, we can also continue to focus on yield management, to ensure every account has an appropriate return on that investment.

While we are actively returning capital to our shareholders through stock repurchases, we are also committed to maintaining the balance sheet strength required to support the investments in the equipment, real estate and technology that is necessary to provide our customers with the superior service they expect and depend on.

With ongoing execution, we expect this commitment to enable us to continue to deliver on our unique-value proposition, and continue to outperform the industry.

We remain confident in our ability to produce further long-term gains in market share, earnings and shareholder value.

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

Thank you David, and good morning.

For the third quarter of 2015, Old Dominion's revenue was $779.5 million.

That's an increase of 4.8% from $743.6 million for the third quarter of 2014.

Our operating ratio improved to an 82.1% for the third quarter, from an 83.0% last year.

And earnings per diluted share increased 10%, to $0.99, from $0.90 in the third quarter of last year.

Our revenues for the third quarter reflect a 6.6% increase in LTL tonnage, which was comprised primarily of an 11.7% increase in LTL shipments, and a 4.6% decrease in LTL weight per shipment.

LTL revenue per hundredweight decreased 1.6% for the quarter, primarily due to a reduction in the fuel surcharge.

Revenue per hundredweight excluding fuel charge increased 5.2%.

The decline in weight per shipment for the quarter had a positive impact on the revenue per hundredweight, somewhat offset by a small decline in the length of haul.

On a monthly basis, LTL tons per day decreased sequentially by 1.2% for July from June, increased slightly by 0.1% for August, and increased 3.4% for September.

This performance compares to our 10-year average sequential month trends that show a decrease of 2.4% for July, an increase of 0.6% for August, that's 0.6% and an increase of 3.2% for September.

So on average, sequential trends were slightly higher during the quarter, when compared to our 10-year average.

On the comparable quarter basis, LTL tons per day increased 7.7% for July, 5.8% for August, as previously announced, and 6.4% for September.

Comparable quarter growth in shipments for July, August and September were 12.9%, 11.7% and 10.7%, respectively, while our weight per shipment declined 4.6%, 5.3% and 3.9% for the same months.

We've now had three sequential quarters at a declining weight per shipment, which we believe is driven by several factors, including the truckload capacity challenge during the third quarter of 2014, that resulted in additional tonnage migrating to LTL carriers, that was not repeated in 2015.

Also, customers modifying their LTL shipping patterns to smaller, more frequent shipments.

And also, as well, by the softness in the economy.

Looking to the fourth quarter, we expect LTL tons per day for October to increase approximately 4.1% versus 2014.

Sequentially, this represents a 4.4% decrease in tons per day compared to September, versus a 2.8% decrease for the 10-year average.

The increased tons include approximately a 10% increase in the number of shipments, offset by a 5% decrease in the weight per shipment.

The sequential 10-year average in tons per day, for November and December, is 3% increase and an 8.7% decrease, respectively.

We also expect revenue per hundredweight, excluding fuel surcharge, to increase 5.5% for October.

For the fourth quarter, we will again face tough comparisons versus last year.

Monthly year-over-year LTL tonnage per day increased during the fourth quarter of 2014, compared to 2013, by 20.8% for October, 20.6% for November, and 18.5% for December.

Fourth quarter of 2015 had the same number of workdays as the fourth quarter of 2014.

As David discussed, the 90 basis point improvement in the Old Dominion's operating ration primarily reflected our increased freight density, stronger yield, as well as some improvements in productivity.

While the significant decline in fuel prices affected our revenues through a reduced fuel surcharge, it also resulted in a 360 point reduction in operating supplies and expense.

Some other expenses expressed as a percent of revenue were higher during the quarter, which was partially attributable to a lower denominator, due to the decline in fuel surcharge revenue.

Salary and wages and benefits expense also reflected the partial-quarter impact of a 3.5% increase in wages, beginning in September, as well as an increased use of Company owned equipment and employees in lieu of rail service.

Capital expenditures for the third quarter of 2015 were $130.8 million.

We now estimate CapEx for the entire year of 2015 will total approximately $451 million, including planned expenditures of $139 million for real estate, $278 million for tractors, trailers and other equipment, and $34 million for technology and other assets.

After anticipated asset sales, we expect total net CapEx of approximately $431 million.

A preliminary CapEx investment for 2016 should be in the range of $430 million to $460 million.

Our effective tax rate for the third quarter of 2015 was 38.4%, compared with 37.1% for the third quarter of 2014.

We expect an effective tax rate of 38.6% for the fourth quarter of 2015.

This concludes our prepared remarks this morning.

And operator, we will be happy to open the floor for any questions at this time.

(Operator Instructions)

Rob Salmon with Deutsche Bank.

Hello, good morning guys, and thanks for taking the question.

I guess there's been a lot of talk with investors about the LTL pricing environment, given some concerns from some competitors' statements.

It looks like the yield, net of fuel, was pretty solid in the month of October as well.

Can you give us a sense of what your contractual renewals trended last quarter?

As well as your thoughts about a general rate increase?

I don't think I've seen one hit the wires yet, but just curious how you're thinking about that?

Rob, it looks like it's about 3.5% to 4% is what we are seeing on the contractual.

And how does that compare to what you guys saw in Q3?

Yes, very comparable.

Okay.

Great.

If I can shift over to the weight per shipment, it looks like that declined sequentially in the third quarter.

I'm curious, David, what you think the drivers for that are?

Because typically, if the weight per shipment declined, I would expect to see an acceleration of the shipment growth, because people are moving down to the smaller shipment.

It doesn't look like that played out.

Is this just the business mix shifting more toward retail and a little bit away from some of the traditional manufacturing LTL shipments?

Or any color, whether that's just economic related or business mix that you think is driving that?

Wes made some comments about that.

But yes, the comparison for last year, we were -- there was some fall-off from the truckload carriers last year that we're not experiencing this year, that has affected the weight per shipment.

And then the general macro trends of the economy being a little soft.

Shippers are -- their orders are smaller, and they're shipping smaller orders more frequently.

That's what we're hearing for our sales force.

And the third point is, we're obviously winning some market share.

And when you look at our overall weight per shipment compared with our industry competitors, ours is heavier.

So if we are winning market share, we are winning smaller shipments, which would also impact our weight per shipment slightly.

And Rob, also, it's not unusual that the weight per shipment drops in the third quarter compared to the second.

It did the same last year.

And it did the same the year before.

And I think maybe that's because, as the seasonal moves start to tick up, as you had already mentioned, retail starts to hasten a little bit, as well, which typically is a lower weight per shipment.

That make sense.

I think we're also seeing some shift to LTL, just given the elevated inventories that we saw show up in the Q3 report, as well.

But I'll leave it there.

Thanks so much.

Thank you Rob.

Alex Vecchio, Morgan Stanley.

Hello, good morning, thanks for taking my questions.

David, can I ask for you to maybe talk a little bit more about the pricing environment for the industry as a whole?

It sounds like you are still getting some solid rate increases here.

But naturally, we've heard from other carriers that there's been a little bit of a chinks in the armor, if you will, from other carriers trying to get a little bit more aggressive on price.

Can you comment on what you're seeing, from a competitive standpoint?

Or do you concur that there are some other carriers out there maybe getting a bit more aggressive?

Or is that just something you're not seeing at this point?

Overall, we continue to feel that the pricing environment is stable.

This is based on the feedback from our pricing department, as well as our sales force.

You will always have a pocket, here or there, where one carrier or another may do something irrational, or in our opinion, perhaps stupid, which is nothing new.

So the way we see it is still somewhat stable.

We've specifically tried to ask if what we heard this week from another carrier was true in our case, and we just don't see it that way yet.

Okay.

That's helpful commentary there.

Switching gears to the operating ratio, another good quarter here.

Typically, I think in the fourth quarter, we see the OR erode by about 150 basis points, if we look historically on average.

Can we -- how should we think about that?

Is this fourth quarter -- I know you don't give explicit guidance.

But maybe, can you talk to some of the puts-and-takes that might be a little bit unusual this fourth quarter, to the extent there are any?

And how we should think about that?

You're right, Alex, we don't give any guidance on the fourth quarter.

So you'll just have to take our historic variants and make your own conclusions on that.

Okay.

All right.

And then just one last one here, if I could.

Your load factor was down about 5% in the third quarter, and I realize that's partially a function of the weight-per-shipment declines.

But is this something that we should be concerned about at all, with respect to the density in your network?

And it doesn't seem to have had a significant impact on your margins; you still had very solid margins.

But how should we just interpret that data point specifically?

I just want to reiterate the fact that our tonnage is one thing, which affects our laden-load average.

But keep in mind that we are still in double-digit growth on shipments.

So in a time when you wait for shipment drops, you expect your laden-load average to drop, as well, simply because you just have lighter shipments.

But on the other hand, if you look at our productivity in terms of shipments per hour, shipments per stop, all those measures on shipments, it's still a positive factor, and resulted in part of our positive results [or so].

So we still get positive results on shipment, if you look at it in units instead of pounds.

Okay.

Got it.

Great, thanks very much for the time, gentlemen.

Allison Landry, Credit Suisse.

Thanks, good morning.

So I wanted to ask, how does your market-share strategy play out when the industry does get competitive?

I'm thinking about your lower-cost profile, particularly relative to where you guys were, heading into the last downturn.

[Can I] afford you additional flexibility to balance volumes versus price?

Or should we take your earlier comments about irrational pricing behavior in the industry as a clear indication that you won't deviate from your strategy of price discipline?

Allison, I can assure you we're not going to deviate from our pricing-discipline strategy, and the notion of trading off price for volume, or volume for price, is not in our vocabulary.

Got it.

Okay.

And then as a follow-up question, on the salaries and wages line, thinking about that as a percent of sales.

Sequentially, it looks like it increased more than the historical average.

I know that there was a wage increase that was implemented, but Q3 is typically when you do that.

So I was just wondering if there was anything unusual there, or maybe if your head count is a little bit elevated, relative to the demand growth that you were expecting for the quarter?

Yes, Allison.

I mentioned in my comments that -- a couple reasons.

One is mathematically, when you have less fuel surcharge, you would expect those costs, outside of the operating supplies and expense, to increase as a percent of revenue.

And that's just mathematically one factor.

Another thing is, when we were having -- in 2014, we saw -- we were using a lot of rail up around the Midwest and the Pacific Northwest.

With the service problems from the rail carriers at that time, we converted all that rail to company-owned equipment.

And so part of that is converting -- and we've had tremendous growth in the area, also.

Converting that has put an increase in salary and wages, converting that to rail.

You will notice that an offset, our [push in] transportation is down, as well, which reflects that offset.

Secondly, we have a drainage operation that we're converting from lease-operator model to a Company-owned driver model.

And so that has an effect, as well.

Okay.

Excellent.

Thank you so much.

Jason Seidl with Cowen.

Hey, Earl, hey, David, hey, Wes, Adam, how are you guys?

Quick question here.

Wes, you went over a lot of numbers, and when you were talking about the sequential shifts in tonnage, you lost me.

Could you repeat that for us?

I can't, because I was lost, too.

(laughter) All right, let's go through that.

July -- let me get to the right ones.

So July, our tonnage per day decreased by 1.2% from June.

The 10-year average there that, that decreased for July, from June, is 2.4% So that was the last in the sequential.

For August, we increased 0.1%, that's 0.1% from July, and the 10-year average is 0.6%.

So that was a little less.

For September, we increased the tonnage from August 3.4%, and the 10-year average is 3.2%.

So that was above.

So if you look at all that averages together, on average, our sequential trend was even maybe on par, to slightly, higher, than what would be the 10-year average.

Okay.

That's good.

Sorry, I just couldn't keep up with you as you were rattling off all of those numbers.

I guess still not slow enough.

No.

(laughter) The weight per shipment, I thought -- not to harp on it.

When are you guys going to lap a clean comparison in the weight per shipment?

In other words, when is it not going to be impacted by the truckload business?

Is it going to be Q1?

We were faced with this truckload spillover most of 2014.

So we won't really lap it until we get into 2016, most likely.

2016?

Okay.

Also, in the quarter, did your mix shift any more towards third-party logistics guys?

Or has it been pretty stable?

Yes, our percentage of revenue to third party has been growing slightly, and it did in the third quarter.

But not by leaps and bounds, but our ratio indicates that we're still getting good results.

And we have a very good relationship with our 3PL's.

Have you seen the 3PL's try to get more aggressive with you guys, on bringing on board business?

Of course.

That's where price discipline comes in, our added value.

(Multiple speakers) And really, just to make a comment there, the 3PL's need to provide their customers with best in class service, because they wanted to -- obviously, to prevent turnover of their own customer base.

So they realized that assets are important.

And then the other thing is, high levels of service are important.

And they are willing to make sure that we are getting compensated sufficiently for that.

The investment, and the service that we provide.

Okay.

Wes, thanks for the time, as always.

Chris Wetherbee with Citi.

Hello, thanks, good morning guys.

Wanted to touch back on pricing for second, and just getting a sense.

Can you give us any sense of the benefit that weight per shipment adds to core pricing ex fuel surcharge?

I don't know if it's any different, but is it a little bit lower with that?

I guess I just want to try to make sure I understand some of the dynamics going on within that pricing.

There's no question that the 5.2% is influenced by the reduction in weight per shipment.

But as David already pointed out, we are getting contractual business of 3.5% to 4% of increases, so it's the net of that.

Okay.

So its a reasonable proxy to use for, short of ex weight per shipment.

Right.

It's a reasonable proxy, if you neutralized that difference in weight per shipment, we would still be showing some improvement.

Okay.

That is helpful.

I appreciate it.

Typically, when you think about economic or freight cycles, weight per shipment relative to tonnage, I guess how do you think about it leading that dynamic?

I guess I just want to get a sense if there's anything -- how the weight per shipment trends might be foretelling tonnage trends, going forward, I guess?

I don't know if you've been able to glean a real strong relationship in the past.

Yes, over the last couple of decades, I think whenever we have seen weight per shipment fall off, it's a precursor to a softer economy.

And when the weight per shipment gets larger, orders are getting bigger, and the economy is improving.

That is a general correlation that I think has existed as long as I can remember.

There's been two -- one thing that -- contra to that, when we had the slowdown in 2008 and 2009, we actually did not see a drop in our weight per shipment.

We saw an increase in our weight per shipment.

And what was happening, because of the sluggishness of the economy, our shippers were, instead of shipping weekly, were holding the shipments and shipping every two weeks.

So we saw a decrease in the number of shipments, and an increase in the weight per shipment.

In this cycle, this environment, we are seeing the opposite.

We're seeing an increase in the number of shipments, which is a positive sign, but a decrease in the weight per shipment.

So what is going on is, more frequent shipments.

One of the reasons is, we are seeing smaller but more frequent shipments.

I think back in 2008, 2000, it was just such a drastic change in the economy that caused that phenomenon that Wes just said.

But now, since we've been coming out of the recession, we've just been in a steadily increasing, but slowly increasing economy.

Since it was pronounced, I guess in July of 2009 that we came out of a recession, we've just never seen any kind of a strong rebound of the economy.

But now, it's just gradually gotten soft.

And in a gradual shift of the economy, I think you do see the correlation between weight per shipment and the economy.

But that drastic-type period was different.

Right.

And just to make sure, there's no question that the weight-per-shipment drop this year is definitely related, to the greatest degree, to the spillover of the truckload last year.

Second thing is, the macro is causing fewer widgets are being demanded, so that's causing it, also.

And as I mentioned, some customers are just shipping more frequently, with smaller shipments.

But if you look at our weight per shipment this year, its actually compares quite favorably to 2013 and years before.

So it was just that last year was an outlier.

Now what will happen next year?

With -- right now, there's a lot of capacity in the truckload market, because of the, call it the economy softness.

Now if that heats up a little bit, is there going to be enough driver availability?

Is there going to be enough capacity that, that can't happen again?

We don't know.

We will just have to wait and see.

But our weight per shipment this year, it is really quite comparable to 2013.

That's really helpful color.

I appreciate it.

One final quick one.

Just when I think about CapEx for 2016, you gave a range of how you are thinking about it.

Any detail you can provide behind that?

Particularly how you think you want to address capacity additions in the current environment?

Just how do you think about that, within that 2016 CapEx target?

We are, Chris, we are anticipating growth for next year.

This is, yes, we're bullish on ourselves, more certainly [than the economy].

We think we continue to have opportunities in this marketplace, to continue to win market share with our superior service level.

So within that CapEx range, there's definitely some CapEx for growth.

Okay.

That's great.

Thanks for the time, guys.

I appreciate it.

Tom Kim with Goldman Sachs.

Thanks very much.

With regard to your comment on market-share gain opportunities, are you seeing any rationalization or talks, at least amongst your competitors, that might be leading towards that path?

We obviously know that you've been mostly focused on yields, over the last several years.

But I'm curious, just given the environment and to what you are saying about the pricing environment being stable.

I'm wondering if you're hearing anything that your competitors might be looking to maybe get, to rationalize existing capacity, to keep the pricing environment firm?

Thanks.

Not sure I quite understood the question.

I am sorry.

Sure.

And just with regard to your share opportunity, obviously, we appreciate that your service levels continue to improve as you reinvest in the business.

I'm wondering, to what extent your ability to gain share could also be bolstered by possibly competitors maybe rationalizing in this more, or a softer environment?

Or do we just need to wait and see demand maybe [retrace] more before that might happen?

Are you saying, Tom, that the possibility that some of the LTL competitors will not invest in additional capacity?

And therefore, it has to find a resource, and that could be us?

That our -- is that what you're asking?

Correct.

Okay.

We don't know.

(laughter)

All right.

Fair enough.

Obviously, it is still a very fluid market.

I think a lot of us are just concerned that obviously, demand trends have been slowing, particularly in the industrial space, and we all get that.

And you guys are clearly the gold standard for the LTL industry.

You've made amazing progress in your OR and your cost structure.

To what extent can you comment on the stickiness of that?

And do you need volumes to increase next year, to keep your OR down?

Keep going down?

Thanks.

I addressed this in the past that, as we continue, if we continue to win market share and put density across the network, with a reasonably decent pricing environment, which we believe we still are in.

And we are continuing to improve efficiencies in little ways across the entire Company, that our operating margins can continue to improve.

So we still see it that way.

If those variables change, i.e.

the pricing environment got worse because of -- and usually that's because of a worsening economy -- and by the way, we don't see a worsening economy.

We don't get any feedback from our sales force that customers are worried about a worsening economy.

So I think we're going to keep seeing a steady economy, which should mean a decent pricing environment.

I think all the factors are still good for continued margin improvement, at least as far as we're concerned.

Okay.

That's really helpful.

Can I squeeze in just one last one?

Obviously, you've got this strong balance sheet.

And given that your stock has pulled back pretty significantly, would you be inclined to let your leverage ratios move up, and buy back stock, while still sustaining your CapEx plans?

Yes, and we've continued to buy stock this year.

We bought, throughout the third quarter, we had bought up to $85 million.

And so far in the fourth quarter, we bought another $20 million.

So in total, we've bought up to $105 million on the current $200 million facility now.

So we think we can continue to invest heavily in the LTL network, which we intend to, based on our CapEx guidance for next year.

But we can also execute buy-backs, as well.

Thanks very much.

David Ross with Stifel.

Yes, good morning, gentlemen.

Good morning.

These questions have not been quite as tough as the moderators from last evening's debate.

(laughter) But if I could just ask, on the cost pressures you guys are seeing in the business, heading into 2016.

You just put in a wage increase.

I assume there will be another wage increase next year, because that is how it goes, especially in a driver market that is difficult.

Besides that, what are you worried about, or what are you telling customers about -- does it justify the rate increase?

Is the equipment cost going up?

Maintenance cost going up?

Trailer cost going up, et cetera?

All of the above.

We're generally facing increases in all costs, capital, equipment.

The real estate continues to rise, the price of property continue to rise.

The real estate, for example, we were able to take advantage of some real good real estate deals years ago.

But as we're looking at real estate today, and the size of facilities that we need, there's no deal in real estate now.

Everything is expensive, from the land to the construction cost.

And even if occasionally we will run across a large service center that suits our needs, and they are not cheap like they had been in the past.

So you just generally have cost increase pressures across the board, including your wage increases, that justify the need for pricing, and modest price increases each year.

Excellent.

Thank you.

John Barnes with RBC Capital Markets.

Hello guys, thanks for taking my question.

In terms of all of the conversation around maybe a weaker macro environment playing out, and recognizing that you're doing incredibly well on the margin performance.

Can you talk a little bit about when and if you start putting contingency plans in place, from a cost reduction perspective?

Is it that you actually feel like you need to make cuts in the event of a weaker macro?

Or is it just maybe you slow down the pace of hiring, or something like that, in the event that you are still taking some market share, even in that kind of environment?

Thanks.

John, we keep an eye on -- our largest cost area, obviously, is labor cost, to move shipments, pick up and delivery and dock, and so forth.

And we're watching that on a daily basis, hourly basis, down at the supervisory level, actually.

And historically, when you look at any given year, September is usually your peak in shipments and tonnage per day.

And then as Wes pointed out on the back -- on the sequential trends, what you've got and what you see in September usually carries out to the end of the year.

And we've built up to handle that peak volume.

And we are not hiring through the rest of the year.

It's pretty -- except for replacements of people that we might lose, or just anywhere that we might see that we need to add someone.

But we just keep our finger on the pulse, and if we were to see a slowdown, we can take action if we need to, to reduce headcount.

But we haven't seen the need for that at this point in time.

Are you still there?

Yes.

Thanks, I appreciate you taking the question.

Todd Fowler, KeyBanc Capital.

Great.

Thanks.

Good morning everyone.

I guess just to start, David, what percent of your freight do you think, at this point, is retail versus industrial manufacturing end-markets?

Retail is in the 10% to 15% range, and industrial manufacturing, somewhere in the 45%.

Great.

And then what would be the other, I guess, 40% or so?

A good measure of that would be the 3PL's, and we don't have the transparency underneath that to see what the mix is.

Okay.

That helps, Wes.

And then just to make sure I understand how you are thinking about the third quarter, obviously, you gave us the sequential trends.

But it sounds like that there was normal seasonality during the third quarter.

But then the October decline, versus September, is a little bit greater.

So are you seeing more softness now, as you move into the fourth quarter, versus what you saw in the third quarter?

The tonnage comparisons are even tougher, year over year, in the fourth quarter than they were in the third quarter, approaching 20% for the fourth quarter of last year.

So it's a very tough comparison.

I guess what I'm referencing, Wes, is you gave that October was down, I think, 4.4% versus September, versus a normal decline of 2.8%.

So I was just trying to get a sense of, was September stronger, and that is why October is taking a step down?

Or is it just that it's within the range of what you would normally see, maybe a little bit weaker, but nothing too concerning?

We think that macro is definitely -- has some softness in October.

I can put a little color on this, on October.

I was doing a little study this morning.

We have a report by our non-operating regions, and looking at which regions are stronger than others.

And it's interesting that our strongest regions happen to be up against easy comparisons last year, and our weakest regions for October are up against harder comparisons for last year.

So overall, to me, it looks like our growth is pretty well balanced.

But if there is some weakness, it would be in what we might call the oil and gas related states, and regions of the Pacific Northwest, the Gulf Coast region, and our central states regions.

And that would be -- it's not terribly weak at all, for us, in those regions.

But yes, they're still relatively good.

But if there's any weakness, that's where it is.

Okay.

That helps.

And David, you just made me feel bad for looking at ESPN.com this morning.

That is where I spent my time.

So just one last one, Wes.

It sounds like that you are saying that fuel didn't have a significant impact in the OR in the third quarter.

Did I catch that right?

Or do you care to quantify, maybe, the impact of fuel on the OR, just as we think about it sequentially, going into the fourth quarter?

Thanks.

The impact, it was relatively neutral.

Very little headwind on the reduction in fuel surcharge, relative to -- because I would say, if at most, it would maybe be 10 basis points

Okay.

Thanks for the time this morning.

Ari Rosa, Bank of America.

Hello, good morning guys.

Nice quarter.

Just wanted to ask first, so in terms of the market share gains, wanted to get a better understanding of first, where that is coming from?

And second, as you look forward over the next few quarters, where you're targeting your efforts for additional market-share gains?

Our market-share gains are really across the board.

There's no particular company, or region of the country, where they are stronger than another.

It's -- we have a very balanced service product, with multiple regional operations, multiple inter-regional, connecting regions, with adjacent regions and national service.

So we are competing with those small regional players, the multi-regional companies, and the national players.

And we're just get a little bit here and there.

It's just a matter of working with a customer, and getting your foot in the door, and proving yourself, and then building your business.

And it's happening all over the Company.

Okay.

Great.

And recently, I guess we've seen some challenges from some of your peers.

I'm wondering, in the opportunity to gain share, how quickly could you guys ramp up scale, if that were necessary?

And what would that entail?

The thing that -- the unique thing that we have going for us is that we have continually invested in our Company.

We have invested in real estate significantly, and have continued to build service centers with excess capacity, to handle future growth.

So if something drastic were to happen in the marketplace, with a competitor failing, for example, we could ramp -- the hardest thing to ramp up is labor.

And that would be the hardest thing.

But we have excess capacity in our real estate, and excess capacity in trailers, to handle a surge.

And obviously, you can rent tractors and trailers.

The hardest thing to ramp up in short order would be drivers.

Drivers and dock people.

But we certainly don't anticipate anything drastic in the competitive marketplace happening in the near term.

Okay.

That's helpful.

And then just the final question I had was, it seems like the CapEx plans to confirm, Wes mentioned it was for $430 million to $460 million anticipated for 2016.

Is that right?

Correct.

And it seems like that's a little bit elevated, relative to what it has been in the past.

Is that a new shift for you guys?

Or is there something structurally different that you are seeing that is allowing you to put more money to work?

It is pretty much on plane, for the most part, for what our CapEx was this year, or will be this year.

But in terms of -- look at -- as we get larger, as a percent of revenue, the CapEx that we're looking at next year is actually smaller, as a percent of revenue.

And much of that CapEx is still going into expanding network and expanding real estate.

Yes.

I guess that's what I'm asking is that, is there a ramp-up period that we see, and then it comes down, as a percent of revenue, as you get to a point where you feel comfortable with where your service center network is?

And maybe the number of tractors you have, et cetera?

Yes, we do expect to maintain -- obviously, maintain our fleet on a replacement cycle.

And then, as David mentioned, we expect growth.

And it is all included in that.

But on the real estate, we will spend what we need to spend to take opportunities.

But certainly, as a percent of revenue going forward, we do expect our CapEx as a percent of revenue to start to drop.

Okay.

Great.

Very helpful.

Thank you.

Brad Delco with Stephens.

Hello, thanks, good morning.

I guess Wes, I don't know if this is accurate or not.

Is this your last earnings call?

It is.

I do want to take the opportunity just to thank you, and congratulate you on a long career.

And I guess my follow-up question for you would be, how much have you guys accrued, at this point, for your retirement bonus?

(Laughter) It is $3.99.

Per share?

(laughter)

In total.

(Multiple speakers) To get to the real question.

Wanted to ask about your exposure to specifically XPO?

And what the acquisition might mean to you, from a 3PL perspective?

Are you at risk of losing that business, now that they have an internal source to move that LTL freight?

Or is that somehow offset with other opportunities that may come about?

Just to [give me] some perspective on that would be great.

Directly, we do very little business with XPO logistics directly.

So we don't see really very much risk there.

However, we do, do a lot of business with other 3PL's, and so we think that we'll probably gain market share on that front.

Got you.

So we heard that yesterday, that potentially, some 3PL's may just be challenged to -- provided some of the information to a carrier, now that it is effectively owned by a non-asset based logistics provider.

So you do think that's an area of opportunity for further market-share gains?

Yes.

Okay.

Wes, thank you very much.

If you wanted to go out with a fourth quarter of 2016 EPS guidance range, I'd welcome that, as well.

I would, but then they may take away my $3.99 bonus.

(Laughter) Congratulations, and best of luck to you.

Thank you, Brad.

And Brad, thank you for bringing this up.

We're going to miss Wes.

He has been with Old Dominion for 30 years, and has meant just the world to our Company, in adding value to what we do internally with his expertise and financial management, and analytical skills, and the whole thing.

It is going to be -- we're going to miss him.

I am sure.

Fortunate for Adam, he has got really big shoes to fill.

Or unfortunately, I should say.

If you've ever seen Adam's feet, his feet are bigger than mine, so he's very capable of doing that.

(laughter)

Thank you guys for the time.

Best of luck.

Thank you Brad.

Scott Group, Wolfe Research.

Hello, thanks, morning, guys.

So I know there's been a lot of questions on pricing.

I don't know if anyone asked about just your pricing expectations for next year.

Do you think that 3% to 4% range that you are seeing on contractual renewals, is that a good placeholder for pricing next year?

We don't give guidance on that, Scott.

We think -- as David already mentioned, there's no reason why, if the macro is halfway decent, we still think that the LTL competitors have got to maintain price, in order to improve their return of vested capital.

And even to provide funds to invest in capital.

We would be surprised.

But we expect pricing to be stable for most of next year.

Okay.

When you look at the sequential tonnage drop in October, can you see what -- was the 3PL business any better or worse, within that trend?

No.

To tell the truth, I haven't done any detailed analysis to see where that is, Scott.

Okay.

When do you think you start to see some of that market share come over from Conway?

That's hard to say.

I think it's still uncertain exactly what they will do with Conway, and how they would execute on that.

So it is hard to say.

When they put that [IP] together, if they don't do it properly, and it is going to be very difficult, it could cause some business to come over.

Okay.

And then just last question.

Have you -- is there, in your mind, a difference in the margins that you get on organic tonnage growth versus market-share tonnage growth?

By definition, there should not be.

We price -- whether it's organic or whether it's additional, we still price it to earn the margins that we need, relative to investment.

So I guess the point of the question, I guess, is if in a slower economy, if more of the growth just is going to come from market share, and less from organic growth, in your mind, that doesn't have any implications for the margins or margin improvement?

How are you defining -- are you defining organic growth as just general growth in the economy?

Yes.

Okay.

Because -- it's hard to say.

If market share is from deeper penetration of existing customers taking away, than we do get some leverage.

Because now we're getting multiple pickups that were going to competitors that are coming on our trucks.

So it is some leverage there.

Yes.

But we could be getting market share, and just starting fresh, with a brand-new customer, is only giving us single shipments to begin with.

And the margin on that is worse than one where you can additional shipments from existing [customers].

Yes, it's just hard to answer your question, Scott.

Okay.

Understood.

All right.

Thank you for the time, and again, Wes, best of luck, congrats.

Thanks Scott.

Thom Albrecht with BB&T.

Hello guys.

Most of my questions have been answered, but a couple things.

Let's say the economy stays in this soft patch for a while.

Does it -- what's your preferred course of action, to continue to grow?

Would it be to expand your sales force, and bring in more brand-new shippers?

Or to rely, maybe disproportionately, on the relationships 3PL's can bring you?

We've been in a soft patch since the recession ended, almost.

And then --

It's a fresh soft patch, more recently.

I think, we have not added that many salespeople to our ranks, or to our sales force, over the last couple of years.

We have been pretty stable with the size.

And we're just successful winning market share that way, even in a soft patch.

So if it got worse, would we increase the number of salespeople?

I don't necessarily think so.

Would we try to increase our focus on 3PL's?

I don't really think so.

We're just steady as she goes with our strategies, and they seem to be working, regardless of the economic cycle we are in.

So I just see us staying focused on doing what's working for us now.

Okay.

And then lastly, maybe just a little clarification.

David, at the Analyst Day, you described the economy as somewhat soft.

At the same time, earlier in the call, you've said that the feedback you are getting from the sales force is not necessarily indicating a decelerating economy.

And yet some of the October data suggests maybe it has.

How do I package all that together?

Keep in mind, Thom, that the comparison in October is against almost a 21% increase in tonnage last year.

Sure.

So yes, it feels a little bit soft.

But soft doesn't mean down, and that's what the indications are.

Soft is the 2% to 3%.

It is still -- on the GDP, it is still soft.

And that's how we are defining that.

You were looking at shipments, and shipments sequentially, in the fourth quarter, is right on target with 10-year sequential trends.

And so we're not seeing a softness on our shipments.

On the number of shipments per day.

They are just smaller, because of the softness in the economy, primarily.

And Wes, did you give the November/December 10-year average for shipments?

I know you gave it for tonnage.

10-year average for shipments?

Yes.

Just for November and December.

I'll provide it.

When you say average, are you talking about the 10-year average sequentially?

Yes.

On shipments, not tons.

Yes, the -- for October, the sequential in shipments is down 3.3%.

That's what it is -- that's what it was in October this year, from September.

The 10-year average is 3.5%.

So you can see it was actually better sequentially.

Okay.

And then do you have November/December?

Because you gave --

We expect it to be up 1.7% from October, and the down 9.6% in December, compared to November.

Those are the 10-year averages.

That's the 10-year averages.

Right.

That is exactly what I was looking for.

Okay.

Guys, thank you.

Okay.

Ben Hartford with Baird.

Thanks.

Quick question on tonnage growth relative to salary wages and benefit growth.

If you look over the past five years, salary wage and benefits growth, the growth rate has outpaced tonnage growth by about 200 basis points.

And so I'm interested in whether that relationship should hold, or even widen, over the next couple of years?

Given this trend that you've talked about, with regard to smaller, more frequent shipments.

Any perspective on that, as we think about 2016 and beyond?

Part of that increase, there is a couple of components there.

Number one is fringe benefits, which is medical, group health, workman's comp, which, as you know, has always been inflationary, for the most part.

And secondly, some of that increase in wages, and especially wages, is, as I've mentioned, is substitution for lower purchase transportation.

In fact, it hardly will be for our LTL division, we are not hardly using any purchase transportation whatsoever.

It is all on green Old Dominion trucks, with company drivers.

So some of that is just an offset to that.

Okay.

So is it fair to think about that relationship holding?

You have got some offsets -- maybe you could help us understand what the offsets would be?

Or is it just, we should think about that 200 basis point spread as being constant, even with this trend toward more frequent shipments?

I guess, as we had already also talked about, some of that mathematically is due to the fact that the fuel surcharge is so much lower.

So whether it goes in the future, some, I hate to say it, will depend on what the fuel cost is, and how that affects the fuel surcharge.

So that will have a relationship, going forward.

So I'm not sure what to expect the relationship will be, because of the top line, and then that, and how quickly we continue to substitute purchase transportation with Company-owned equipment, especially in our container drayage division.

Okay.

D&A took a sizable step up sequentially.

This $42.5 million level, is that a clean base?

And we should build from that, as we go through 2016?

We don't give guidance on that.

We've given you a -- we will give you some more details on our CapEx breakdown, on the January conference call, into what is equipment, real estate.

And then maybe you will have a better basis to make your own calculation then.

Okay.

Thanks, Wes.

David Campbell, Thompson Davis & Company.

Yes.

Thank you.

Thank you for taking my question.

How would you describe your expedited business in the third quarter?

Was it up as much as the overall LTL tonnage?

And were the shipments same relationship as the general business?

Expedited revenue was up better than overall revenue for the quarter, yes.

It was up better than?

Yes, higher than.

Is that anything you would consider an indicator of future business activity?

Because I would think expedited would be weaker than the general business.

Except for just growth, whether you call it through market share or our own focus on that, which offsets it.

When you're saying expedited, we talk about expedited more in domestically, not globally.

Right, right.

Okay.

Thank you very much, and congratulations, Wes, on your retirement.

I'm going to miss you, too.

Thank you, David.

And we have a follow-up from Alex Vecchio with Morgan Stanley.

Thank you for taking the follow-up.

Wes, can I ask you to just repeat the 10-year historical sequential trends in tonnage for November and December?

Yes.

For -- in tonnage, sequentially -- let me get to it.

I'll do it another way.

Okay, the sequential trends in tonnage, for November, the 10-year average is 3% up from October, and a reduction of 8.7% in tonnage for December.

Got it.

Okay, thanks for that.

And then I guess just one more.

Wes, do you have a rough estimate for how much you would need core pricing to increase, in order to sustain margin expansion?

Or said another way, if your pricing -- if the market wasn't able to give you pricing.

So let's say if pricing was X, it would be difficult for Old Dominion to expand the margins.

Yes, our margin improvement is based upon three things.

We need to see a macro that is behaving halfway, that is at least a positive.

We have to see discipline from pricing in the LTL sector.

And of course, the last thing -- both of which are not necessarily within our control there.

But thirdly is, the own leverage that we all have, from density growth.

And I guess there really is a fourth thing, and that is that we remained disciplined on pricing because we are providing best-in-class service.

And so how much -- we think we could still -- and the last two things, which is density on margin improvement, and the fact that we still providing best-in-class service, I think still allows us to be able to increase margins through the combination of those two.

But if those were affected by a macro, or by a price aggressiveness our in the market, which is not in our control, then we will have to see how that goes.

But as far as a specific number on -- I think you he's asking, if yield went from 3% positive to 0%, or what would the number be, for us not to be able to improve margins.

Yes, how much --

And I answered that question very, very, very vaguely.

We don't know -- we're not going to give you that, I think is what he said.

Okay.

It's -- we haven't really run that calculation, to be honest with you.

Okay.

Another way to ask it is just, how much do you need to just offset basic inflation?

Are you able to roughly estimate that?

Or also a little bit tough?

I'll just say that obviously, we impose our own inflationary factor in wages, by giving a 3.5% increase.

Now of course, that doesn't apply across the board.

So -- and we think we are, in fact, getting some of that back through improved productivity.

And we will get some of that back through just density.

So to make up for that, there has to be a pretty positive number.

It wouldn't be 3.5%.

It would be something less than that.

Yes, because wages are, what, (multiple speakers) 60% --

40%, 50% of our total --

You need 2%, almost, to (multiple speakers).

Yes.

Okay.

That is actually really helpful.

Appreciate the time.

And then I'll just echo my sentiments.

Wes, congrats on a great career, and wishing you the best of luck.

Thanks, Alex, I appreciate it.

We have no more questions in queue.

I would like to turn the conference back over to Earl Congdon for closing comments.

Guys, as always, we thank you all for your participation today, and we appreciate your questions and your support of Old Dominion.

So please feel free to give us a call, if you have any further questions.

And thank you again, and good day.

This does conclude your teleconference.

Thank you for your anticipation.

You may now disconnect.