奧多明尼昂貨運 (ODFL) 2016 Q1 法說會逐字稿

Good morning, and welcome to the first-quarter 2016 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today, and through May 6, by dialing 719-457-0820.

The replay passcode is 3664816.

The replay may also be accessed through May 28 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.

(Operator Instructions)

At this time, for opening remarks, I would 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, and thanks for joining us today for our first-quarter conference call.

With me this morning is Adam Satterfield, our CFO.

And, after some brief remarks, we'll be glad to take your questions.

First quarter of 2016 was a period of mixed results for Old Dominion.

From a headline standpoint, slower top-line growth and increased operating expenses resulted in an increase of 80 basis points in our operating ratio, and a $0.01 decline in our earnings per diluted share.

It was still a good quarter, though, given the challenging environment and a comparison against our record first-quarter results in 2015.

After a tough quarter -- after a tough fourth quarter of 2015, we were encouraged by the sequential growth in tons per day of 2.2% in January, as compared with December, which was slightly above the 10-year average.

February and March were not as strong as we would have liked, and as a result, our tons per day for the quarter decreased 3.3%, as compared to the fourth quarter of 2015.

Note that the tons per day for the first quarter of 2016, was negatively impacted by Good Friday occurring in March this year, as compared to April in 2015.

As you know, our long-term record of margin expansion has been built on increasing freight density and yield, which generally requires a positive macroeconomic and pricing environment.

1.2% year-over-year increase in our tons per day reflects the sluggish macro-environment, and does not help much with freight density, given the significant investments we have made in capacity.

While we didn't gain a significant amount of density in the quarter, we were able to improve our platform productivity with a nearly 6% increase in platform shipments per hour, and a 2.7% increase in platform pounds per hour.

Our pickup and delivery productivity metrics were also consistent with the first quarter of last year.

Our line haul laden load average decreased 3.5%, as our line haul productivity continued to be negatively impacted by a lower weight per shipment.

The other key component to long-term margin improvement is yield.

We maintained our price discipline during the quarter, and our expectation of achieving 3% to 4% price increases this year has not changed.

Revenue per hundredweight, excluding fuel surcharges, increased 3.8%, as compared to the first quarter of 2015.

Continued growth in revenue per hundredweight is indicative of a relatively stable pricing environment, although we have recently noted an increase in price competition.

This has been primarily at select locations and customer accounts, which you might expect in a slower economy, and has not been broad based.

Nevertheless, we believe our growth in tons and shipments per day demonstrates that we continued to win market share for the quarter.

This ability to win market share continues to be based on our ability to deliver total value to our customers by providing superior service at a fair price.

We continued to deliver 99% on time, and our cargo claim ratio was 0.37% of revenue.

We look forward -- our plan in the face of either ongoing macro weakness or a stronger environment is absolutely clear, and has not changed.

We will continue to provide our clients superior on-time, claim-free service at a fair price.

We will maintain our pricing discipline, and we will continue to invest in capacity, technology, and training and education for our team.

These factors all contribute to a value proposition that allows us to keep the promises we make to our customers, and their customers, every day.

Consistent focused execution of this fundamental approach to our business has helped us create one of the strongest records of growth and profitability in the LTL industry across the long and the short term, and through the full economic cycle.

As a result, we are confident in our ability to continue winning market share, and in our long-term prospects for further profitable growth and increased shareholder value.

Again, thanks for joining us today.

And now, Adam will review our financial results for the first quarter in greater detail.

Thank you, David, and good morning.

Old Dominion's revenue was $707.7 million for the first quarter of 2016, a 1.6% increase from last year.

Earnings per diluted share were $0.72, which is -- was a 1.4% decrease from the $0.73 earned in the first quarter of last year.

Our operating ratio was 85.9%, which was an 80-basis-point increase over the first quarter of 2015.

Revenue growth for the first quarter, which included one extra workday, included a 2.8% increase in LTL tons that consisted of a 6.2% increase in LTL shipments, offset by a 3.3% decrease in LTL weight per shipment.

In addition, our LTL revenue per hundredweight increased 0.3% for the quarter, but this metric continued to be impacted by the significant decline in fuel surcharges.

Revenue per hundredweight, excluding the fuel surcharges, increased 3.8%.

David mentioned we view the pricing environment as relatively stable and have not seen broad-based irrational pricing.

We continue to believe that maintaining a disciplined approach to pricing is the path to improved profitability for any LTL carrier.

And, given the low margin profile of our industry, pricing should remain firm overall.

On a sequential basis LTL tonnage per day for the first quarter decreased 3.3%, as compared to the fourth quarter of 2015.

This was lower than our 10-year average sequential trend, which is a 2.2% decrease.

Started the quarter with a sequential increase in tons per day for January of 2.2%, which was slightly above the 10-year average change of 2%.

February and March, however, were both below our long-term trends for those periods.

We are somewhat cautious with our outlook for the second quarter, based on April's trends.

We were expecting April's LTL tons per day to be back above the 10-year average sequential trend of plus 0.3%, which is typical when Good Friday occurs in March.

LTL tons per day for April of 2016, as compared to March, are currently flattish, however, which is indicative of the challenging environment.

On a year-over-year basis, our month-to-date LTL tons per day in April have decreased 0.3%, as compared with the same period in April of 2015.

Our year-over-year revenue for the second quarter will also continue to be negatively impacted by the declines in fuel surcharges and non-LTL revenue.

We will provide an update for actual April trends when we file our 10-Q.

Our operating ratio for the first quarter of 2016 increased 80 basis points, as compared to the prior-year quarter.

This increase was primarily a result of an increase in salaries, wages, and benefits due to a 6.7% increase in the average number of full-time employees and higher benefit costs.

Our fringe benefit costs were 34.6% of salaries and wages, as compared to 33.1% of salaries and wages in the first quarter of 2015, due to increased costs for our group health and paid time off benefit, as well as retirement plan costs that are related to the performance of our common stock.

We also had an increase in depreciation associated with the long-term investments we've made in real estate, equipment, and information technology.

While the significant decline in fuel surcharges had a deleveraging impact on our expenses, it also accounted for the 200-basis-point reduction in operating supplies and expenses that helped offset the previously mentioned items.

Old Dominion's cash flow from operations for the first quarter of 2016 totaled $168.4 million, a 2.4% decrease from the prior-year quarter.

Capital expenditures were $120.3 million, and we repurchased $44.6 million of our common stock during the quarter.

Completed the quarter with $7.1 million in cash and cash equivalents, $125.3 million of total debt, and a ratio of debt to total capitalization of 6.9%.

The end of the first quarter, we have repurchased an additional $13 million of our common stock, which leaves approximately $23 million available for purchase under our previously authorized $200 million repurchase program.

We expect to purchase this remaining amount during the second quarter, and we'll seek authorization for a new share repurchase program.

We estimate that CapEx for 2016 will total approximately $405 million, which is a $35 million reduction from the estimate we provided in February.

We reduced this estimate based on current volume trends.

The revised total includes planned expenditures of $170 million for real estate and service center expansion projects; $200 million for tractors and trailers; and $35 million for technology and other assets.

Our effective tax rate for the first quarter of 2016 was 38.4%, compared with 38.6% for the first quarter of 2015.

We currently expect our effective tax rate to be 38.4% for the remainder of 2016.

This concludes our prepared remarks this morning.

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

(Operator Instructions)

Allison Landry, Credit Suisse.

Good morning, thanks.

So thinking about the weaker tonnage trends and margin into April, do you think that, that is reflecting sort of a normal lag in the ISM index?

And if you think that's the case, does it feel like maybe we are nearing a bottom here in terms of LTL tonnage consistent with the recent recovery we have seen in the index?

So Allison, that's a kind of hard to say.

It was encouraging to see the ISM bump back up, and historically there has been a lag, so hopefully it means things will turn around a little bit.

But we are clearly in a soft economy.

We saw it pretty much throughout 2015, especially so in the third, fourth quarters and the first quarter of this year, and going into April.

But when we survey our field and our sales force out in the field, the customer feedback across the board is, that it's just generally soft.

It's a little bit hard to know what the ripple effect is of the energy sector across the whole nation as well.

We have seen a little bit more hard hit in our Gulf Coast regions and central states regions where we do some energy-related business, but it's just generally soft.

So we are obviously as hopeful as everyone else that things will turn around and get better, but if they don't, we are prepared for it.

Okay.

And then thinking about Adam in terms of the cost increases you saw on the labor line in the first quarter, how do we think about those trends on a go-forward basis?

Well, obviously, we don't give guidance in terms of margin, but we continue to do our best with managing our labor trends.

Some of the headcount increase that you've seen, or that we talked about the 6.7% increase includes where we have changed our drayage model to an employee-based model, versus our use of owner operators in the past.

And so, you saw somewhat of a shift from purchase transportation into salaries and wages.

So I think that we have done a good job.

When you look at full-time, the number of full-time employees that we had at the end of the year, that decreased from December to March.

So we are doing those things and we're just generally keeping our belts as tight as we can when it comes to any discretionary spending across the board, while our revenue levels have been a little softer.

But I think that you saw, when you look at our depreciation and the increase that we had from first quarter of 2015 to 2016, that's just indicative of the long-term investments that we've made in the business and in systems that we think will give us long term strategic advantages, going forward from an operating efficiency standpoint and generally having the capacity to grow.

So in the short run, depreciation can be more of a headwind from a margin standpoint, when our revenues have just been a little bit softer than we would've liked.

Okay got it.

And just to clarify, in terms of the fringe benefits that were an increased percentage of the total labor line in the first quarter, should we think about the increased cost for group health et cetera, as being elevated for the balance of the year?

That's a hard one to say.

We first saw the increase in our group health costs in the fourth quarter, and it sort of was out of line with trends that we had seen, really for the first three quarters of last year and 2014 trends as well.

So we spent a lot of time going through that, and what's driving the increase right now is just the number of claimants that are filing claims.

Our average severity trends, at least in the first quarter have been pretty consistent.

But generally, when we have seen increases like this, when you go back into 2013, we kind of had a period of several quarters with increasing trends.

That has continued, and frankly in April, our group health the payments that we make out every day, have continued to be at this similar elevated level.

And so, we are doing everything we can, in terms of looking at reasons why.

We're having claims filed, and if there any type of preventative programs, generally the way we think of it is, this is the health and welfare of our employees, and their dependents.

And so, we want to make sure that we're doing all the things we can to make sure that our people are healthy.

Got it.

Thank you so much.

Chris Wetherbee, Citi.

Thanks, good morning.

Wanted to touch on the pricing environment.

So certainly you held up well, but you did mentioned that you're seeing some issues on the margin.

I guess maybe two questions.

First, in terms of sort of the national trend if we see volumes stay week, when would you expect maybe some of these isolated pricing issues to maybe get a little bit wider?

And then do you think that there are specific players who may be doing things, in order to sustain tonnage or maybe turnaround businesses that could be impacting you, and it's specific players are more economically driven?

I'll take that one Chris.

First of all, our yield is still in line with our expectations for the year, at 3.8% ex-fuel, and the industry behavior seems relatively good.

And when I say relatively, I am saying relative to what happened in 2008 and 2009.

One of the things that I think is a real positive for our industry is the amount of focus that so many of our competitors are putting on technology, and dimensioners in particular.

That's something that we implemented over a decade ago, and those dimensioners are really important for accurate costing, they're a really important tool.

And it's good to see the industry looking at that.

We see our GRI holding as we would've expected it to, and our ability to get contract increases are still in the 3% to 4% range which is what we expected.

So we think the market's really hold the line pretty well on its yield management.

We have seen some spotty -- in any market you will see spotty irrational pricing behavior.

And a lot of and I think it's just because the competitor doesn't understand handling characteristics of the freight, might just put in a price that is just crazy in our view.

Okay.

That's helpful color.

When you just think about sort of the resources of your business, relative to maybe what the tonnage outlook might be, if we stay sort of in the sluggish pattern we've been in every least for the past two months, how do you think about what you might need to do with resources?

Or that sort of the levers you can pull to kind of manage the cost side of the equation, to match what could be lower tonnage than maybe we've seen the last couple of years?

No, we obviously the labor is the biggest thing to manage, and that's what we've been doing.

And making sure that we are matching our productive labor cost, with what our actual volume trends are.

Our [RET] variable cost if you will, are somewhere around 60% -- in the low 60% range.

So when you've got those other costs that are generally fixed, some of that is investments that we're making.

And again, when you get back to -- we believe in the fundamentals of our business plan and our long-term strategies.

So we want to make sure that we are continuing to make investments, particularly on the real estate side that we've got the network that can handle the long term market share growth, that we believe we can win by continuing to deliver best-in-class service at a fair price.

But some of those other things you just don't want to necessarily go into when -- but with sort of a short-term way of thinking.

But the biggest thing is we'll continue to monitor our labor costs.

And then we'll continue to look at areas where we do have discretionary spending, and make sure that we've got adequate control over those costs.

Okay, that's helpful.

Thank you for the time.

Appreciate it.

Ravi Shanker, Morgan Stanley.

Thanks, good morning, everyone.

Thanks for the video in April, and you said volumes are flat so far.

Can you give us more color in terms of how weight per shipment and our revenue per hundredweight ex-fuel is trending as well?

Yes.

For basically our revenue per hundredweight when you exclude the effect of fuel is generally staying in a similar type of range with where we have been, and it's trending around 3%.

Weight per shipment continues to be down.

We talked about this before that on a sequential business, our weight per shipment is kind of hanging right in there around 1,545 pounds, 1,550 pounds range, and we'll continue to have that headwind in the second quarter.

So it's trending down in kind of the 1.5% range.

But overall, weight per day, at least month to date was down 0.3%, and really we anticipated this to -- when you have Good Friday in March, we anticipated that April would be a little bit stronger than it was.

And when I look back at the last times that April was -- or I mean Good Friday was in March, your April sequential trend was up to more in the range of 2.5% to 3%.

So we're just not seeing the same type of sequential change at this point.

I think that we continue to win share every day.

We've had a couple of big customers that we have lost though, and so those can have impacts on some of your trends.

Got it.

And just looking back, as you said on a bigger picture question, how is the current environment compare to say a 2009 or past recessions.

I mean, obviously we're not in a recession, but maybe that makes it tougher.

And what point, do you decide to take a deeper hack at costs, if the environment does not improve?

Well, in 2009 our tonnage fell off like 19%.

We are nowhere near any kind of a recession like we saw back then.

But back to Adam's comments, we manage our labor costs every single day.

We've got the systems in place to monitor, and crew our docks to match the tonnage and shipments that we're expecting to come across the dock each day.

And we might have pointed -- I think we pointed out earlier that our dock productivity has improved by 6%, in terms of I think the shipments per hour or the tons per hour.

So we're getting a good productivity.

We have reduced our headcount since the fall by roughly 2%, which is good.

But honestly, we thought the first quarter would come in stronger than it did.

But it did not, and it's clearly -- from what we've seen so far, the macroeconomic environment.

We have the systems in place.

We've got the management in place, and we will -- if we have to cut back more drastically, we will certainly do so.

Great.

Thank you.

Brad Delco, Stephens.

Yes, good morning, David.

Good morning, Adam.

Good morning.

How do we think about -- or maybe this is for Adam, how do we think about maybe back on the salaries, wages and benefits line, the impact of shipments being up 6%, but because of declining weight per shipment, tonnage being more muted?

I mean, do you essentially have to employ based on your shipment count, meaning we should see your -- sorry your workforce or headcount adjust according to your shipment count, more so than your tonnage?

I believe the answer is yes on that, Brad.

Because, if shippers are shipping a slightly less weight on a shipment, which is what's happening, when we open up the back door of a trailer, and have to move shipments across the dock, we are moving them one at a time as a shipment.

And if the weight on that shipment is 200 pounds less, and that turns into $10 or $15 less on that shipment, our cost of moving that shipment across the dock didn't change, but we're getting $15 less.

It's kind of like the guys who are pumping oil out of the ground and getting $30 a barrel, where they used to get $80 a barrel.

Their cost of extracting a barrel of oil out of the ground is what it is.

You can't hardly cut back on that cost.

So that is part of the pressure we're seeing on our salaries, wages and benefits line.

Got you.

And then, maybe just longer term, and I know e-commerce has been a big topic.

I mean, do we think that the industry sort of has to get more intelligent on how to appropriately price some of this lighter weighted shipment and could that be some of the pricing pressure we're seeing, or do you think is something more than that?

The pressure that we have seen, I mean, like we've said, it continues to be relatively stable overall.

And it's just been -- and like David mentioned earlier, it's been spotty in places, but it seems like it has been more sort of localized with a few accounts, maybe in a few locations.

So I don't necessarily think that e-commerce in today's environment is necessarily driving any changes.

But back to David's point earlier, is that shipment dynamics change you've got to understand the weight of your shipment, the dimensions of those shipments as well, and we have made investments in dimensioners and competitors are doing the same thing.

So with all of the focus on the industry, we think that bodes well for pricing to remain firm.

And we get back to the point as well that we've made in the past, that the industry in general is operating with call it, single-digit profit margins, if you are not earning an appropriate return to cover your cost of capital, you're not seeing investments in capacity really other than anyone other than ourselves.

And so, we think that, that will keep pricing somewhat in check.

The average makeup of that mid single-digit margin is skewed differently in today's environment than it was back in 2006 as well.

So we think that ourselves included, but carriers that are focused on improving their profitability will continue to be disciplined with their pricing.

Makes sense.

Then Adam just maybe housekeeping item, did you give us what March year-over-year tonnage was?

Sorry if I missed that.

March year-over-year tonnage was, tons per day was down 1.6%.

Okay, thanks guys for the time.

Just to clarify too, we don't -- some carriers may, you may have seen numbers that adjust for Good Friday being a half day or anything like that, we count it as a full workday.

So that was skewed negatively a little bit, but we count it as a full workday.

Matt Brooklier, Longbow Research.

Matt, your line is open.

We're unable to hear you.

If you will please check your mute button.

Yes, sorry, mute was on.

Good morning.

I wanted Adam to ask another question on headcount.

You mentioned the 6.7% increase and headcount this quarter, a portion of that was due to the change that you made in taking the drayage component of your business in house.

Do have a sense for how much of the growth in headcount was related to that change?

Yes, if you sort of back those employees out that we've added, it's probably more in the -- the increase was between 4% to 4.5%.

Okay.

And then when, I guess, the change in model was made last year, when did that take place?

I'm just trying to get a sense for when do we lap that?

Really more so in the fourth quarter.

We started making some of those changes in the back half of the year, but really you see it more in the fourth quarter, they'd about flesh themselves out [by now].

Okay.

And then, just going back to pricing, you mentioned that the thing that's getting a little bit more competitive was kind of a recent event.

Do you have a sense as to when things potentially took a step down?

Was it a mid-quarter event?

Was it more in March?

I'm just trying to get some more color, in terms of when there was a change in the market?

There has not been a change in the market.

There has been -- a competitor that has stepped up some activity of pricing in the market.

And that's all as far as I am going with that.

And but in general, when we are in the face of a soft market, all of us, we do business with nearly 90,000 unique shippers every month, and all of our LTL competition has pricing in place for the shippers as well.

We're all competing for a lot of the same business.

And as we've talked about, and as you've seen in some of our numbers, when we look at our pricing per hundredweight, compared to the industry going back to 2008, we tend to be a higher priced carrier for LTL.

But we have a higher value of our service, and that's why shippers have chosen us.

But in a soft economy, if there is another carrier that has pricing that's a little cheaper, some shippers will shift some business to a cheaper carrier.

But that does not necessarily mean that someone came in and cut prices.

It's just the price is what it is, and it has been that way.

So it's not really a competitive pricing thing, where somebody is coming out and try to cut prices to get our business.

Okay.

So it sounds like specific actions that one carrier took was a little bit more impactful here, albeit obviously the macro is not great, but it sounds like it was -- this [spotting] may have been isolated to one or maybe a couple of carriers.

Okay.

Appreciate the time.

David Ross, Stifel.

Yes, hi.

Good morning, gentlemen.

Hey, Dave.

David, in looking through the stats, the inner-city miles were up almost 9%.

It seemed a little high, given even where shipments were and lengths of the haul was.

Any commentary around that, and what might be going on there with the network?

A good question.

I have no earthly idea.

(laughter) I'll be honest with you.

Adam, do you have any?

Yes, I mean, some of that is last year, we were still using a little bit of purchase transportation (multiple speakers)

Would this would be part of the drayage in the inner-city [miles]?

No, it's just in general, some of the purchase transportation we were using within our own line-haul network.

And so, as we continue to evaluate our use, and we've essentially eliminated for the most part, any use of purchase transportation within our own line haul.

But we continue to evaluate schedules everyday, and look and within our line-haul operations to make sure that we're given the best on time service.

But that their lane transit times are as quick as they need to be as well, to even improve service.

So I think that when we look through line haul, and we mentioned that their laden load average has trended down, which has somewhat impacted by the decrease in weight per shipment as well.

But that's an opportunity as weight per shipment normalizes, and just increase, in again revenue and density.

That's an area of improvement that we can stay focused on as we progress through the year.

That's a good point, Adam, because we were really focused in the fourth quarter of 2014 and the first quarter of 2015 on getting rid of purchase transportation, and shifting our West Coast rail operation to company trucks and even more so reducing PT going into this year.

And then on the CapEx side, you guys are still buying more trucks and trailers than almost anyone right now.

Given the softness in the production, are you guys able to get any better pricing on the trucks and trailers you are going to be bringing on in 2016?

Most of our orders were already in.

And like many things that the pricing we get I think is pretty fair.

And when we're consistently buying units year in and year out, I think that we get a fair pricing in any given period.

But we are bringing in equipment, we brought that number down a degree.

We went through and looked at the number of units that we could cut out, that we weren't already obligated to, without any type of penalty.

And so, that was a piece of that $20 million decrease in the tractor and trailer CapEx, to really be more consistent with what the replacement factor needs to be, but what current volume trends are as well.

And buying year in and year out, it keeps your fleet age sort of consistent, or continuously improving which helps on our maintenance cost per mile as well.

And if you make significant changes in one year or the next, really that can create a bubble within your own buying down the road, which we think frankly, is somewhat the industry may be dealing with that same type of factor.

But we can always bring in equipment and get rid of maybe some of the older power units in particular, that really we've put the miles on.

Excellent, thanks.

John Barnes, RBC Capital Markets.

Hey, thank you.

Just one quick question.

So just back on the pricing for a second.

During the quarter, it seemed like there was a little bit of a bifurcation in pricing, that you kept hearing from the carriers themselves, that pricing with the shippers seemed to be still pretty firm, and there was no irrational activity.

Yet on the 3PL side, it sounded like it was much more competitive in the LTL market, that they were finding significantly lower purchase rates.

Did you see the same between a normal shipper on the 3PL side?

Did you see that bifurcation between pricing?

Well, about 35% or more of our revenue is with 3PLs.

And so, when you look, obviously if that were the case, that probably had more of a negative implication on what our reported revenue per hundredweight is.

But the way we deal with third party logistics carriers is over the long run, has been that we want to make sure we understand the freight that we are hauling.

And it's more of a strategic relationship and partnership if you will.

And we don't look and go after transactional type business that we try to bring into the system with them.

And where price may be moving more up and down, that we want to understand the customer that they are out, and bringing to us with those shipment characteristics are.

And then, we put the pricing in place that can be profitable for us and meets our margin objectives.

And I think they can help us, and we can help them as well.

And John, I'll just add to that, that in our relationships with our 3PLs, we have not seen an increase in activity from them coming to us, trying to beat us down on price.

That has not happened.

They are always price conscious trying to do the best they can for their customer, but we've not seen a step up in activity from the 3PLs, those who visit us regularly.

Okay, all right.

Thanks for the color.

I really appreciate the time.

Scott Group, Wolfe Research.

Hey, thanks.

Good morning, guys.

Scott, good morning.

Adam, just back to the tonnage in April for a second, I know there is some noise with Good Friday.

And so, just as we think about that and the comps, what's a good kind of tonnage number to put in the model for second quarter?

(laughter)

Yes, I guess, we are not ready to roll out any guidance in terms of what our tonnage expectations are.

But we made the comment that we thought April would be a little bit stronger than it's been, and it's just it's underneath.

When you again go back to 2005, 2008 and 2013, when you had the same Good Friday occurring in the first quarter in March, we would have expected to see growth more in that 2.5% to 3% range over March.

And it's more of kind of the flattish range right now.

So it remains to be seen with what the economy is doing.

But I think we, like David mentioned earlier, we are encouraged by the fact that the ISMs started increasing.

Generally, there's a couple months lag with that.

Industrial production was down last year.

And so any kind of improvement we see in that industrial economy, obviously would bode well for starting in May and June.

So we'll have to just keep in touch with that.

And then obviously we'll continue to put our mid-quarter updates out, and we'll give our May tonnage, once we finish that period.

Okay I know a bunch of people have already asked about headcount.

But and I know you guys are saying that you are going to do -- you're looking into doing, you're going to do whatever you can.

I mean, should we -- is it possible that we can get headcount to kind of flat year over year, excluding the drayage change?

Or is that something you want to be doing to get headcount back in line with tonnage?

There may be some continued decrease in total full-time employees.

But keep in mind, our shipment volumes have been up, and so there should be on a year-over-year basis probably a continued increase.

More importantly, what we can manage are hours as well.

So we may have the people, but we may be working them less, and sort of getting hours back in line as well.

So that number may vary.

I don't think that sequentially that we'll probably adding as many people in the second quarter as maybe in prior periods.

But again that's going to be based on the level of growth that we continue to see, and we monitor every day.

Okay.

And then just one more if I can.

In the past you've talked about the 20% to 30% -- sorry, 15%, 20% incremental margins.

And I am not sure that it's the right way to be thinking about the model right now with flattish tonnage, but maybe, so just maybe thinking about operating margins, can we improve operating margins without tonnage growth right now?

I guess, should we be expecting margins to continue to see a little bit of pressure in the next few quarters, until tonnage turns positive again?

I think that 20% that we talked about last quarter is the right number to be thinking about long term for us.

And when you get into long term margin improvement, what we've talked about in the past is, you need improving density and improving yield, and you need the macroeconomic environment and the pricing environment to contribute to those factors.

And so, right now we just don't have all of those factors working in harmony, or least we didn't in the first quarter.

But so, with the investments that we've made, some of our fixed cost can become a higher percent overall as revenue, and can be a headwind when revenues are not as strong.

And frankly, we need a little bit more contributing factor from the economy, I think.

Okay.

All right.

Thank you guys.

Todd Fowler, KeyBanc.

Great, thanks.

Good morning.

Just on the increase in the operating ratio here, from the first quarter of last year, have you taken a look, or do you have any sense of how much the impact of Easter might've been on the OR year over year?

And same sort of question, how much fuel might've hit the OR year over year in Q1?

We don't necessarily try to quantify any impact from Easter, and what that may have missed on vacations and work and things like that.

But the fuel continues to be a headwind, I would just say, as that continues to decline.

I mean, we dealt with it all of last year, and you need to deal with it this year.

What it is, it's a component of revenue and as it comes down, it obviously has a deleveraging effect on other things.

But it was a key driver in the 200 basis point improvement in the operating supplies and expenses.

But overall, that goes into all of your direct costs, and those are doing good.

It just a matter of, right now our fixed cost are becoming a higher percent of revenue, as the revenue levels have been a little bit softer.

Okay.

Yes, that makes sense.

And then just with the non-LTL revenue, have you exited all of that here in the first quarter?

So is the run rate that you are at in Q1, is that what we should think about throughout the rest of the year?

And then, can you also maybe just talk a little bit about strategically, why you made the decision to get out of some of those services?

I'll have Adam can talk about the run rate, but I'll just touch on the three services.

I want to point out though, that our non-LTL services are less than 2% of our total, so it's not the key driver of the Company at all.

It's a small portion.

The drayage, starting off with that, we shut down some underperforming locations on the West Coast and Chicago, and we've had as we all know, a decrease in imports and a decrease in exports.

So and had some fairly significant price competition in that area, so that has impacted our revenues in drayage.

Second piece is the ocean freight forwarding.

We had an in-sourced operation with our own people managing our ocean forwarding.

We chose to outsource that model in a new partnership with Mallory Alexander, and by the way that's going real well.

But we have seen, where we were booking the entire revenue from port to door, and we're also booking purchase transportation [to ocean fees].

And if we were doing the drayage, purchase transportation with an owner operator for the drayage piece.

And so, we have seen that gross revenue and PT go down, and we're earning -- we have a commission arrangement on the loads that we are outsourcing through Mallory now.

And the last piece of non-LTL would be our truckload brokerage.

And it's down, I think primarily due to the macro environment and truckload demand being down.

But the good news is the profitability is up on that, and we're making some better margins on our truckload brokerage.

But those would be kind of what's going on in those areas.

As far as the run rate is concerned, Adam?

Yes, I mean, it's normalized now, Todd.

It was about $13 million revenue in the first quarter.

The fourth quarter was pretty normalized as well.

It was -- although we still had a little bit of revenue there, the fourth quarter was about $14.5 million of revenue.

Okay, that helps.

And then just one last one if I could, just on the share buyback.

Would the expectation be that the order of magnitude is somewhere similar to the $200 million that you had previously, or if CapEx comes down, could you do something greater than the most recent authorization?

I mean, we're -- I guess, I don't want to necessarily comment on that, until we take our recommendations to the Board, and get full approvals.

And once that happens, we'll obviously we'll publish that.

But you can look and see, I think we stepped up our buying in the first quarter, in comparison to what we've done in the past, purchasing about $45 million.

And we've already stepped up our buying in the second quarter as well.

And some of that was, we've got a 10b5 program going, but it's also opportunistic as well.

And when some of our share price was lower in the first quarter, that was when we took advantage of that, and stepped up that buying.

So I think overall though, we feel like we've got a really strong balance sheet, that will continue to allow us to invest in our LTL business, and continue to grow that, where we've really enjoyed healthy returns.

We'll continue to be disciplined, but we'll continue to take looks at mergers and acquisition opportunity.

But what we just finished is looking at ways that we can return capital to our shareholders, to really improve the total return on our share price.

Okay.

Thanks a lot for the time this morning.

Rob Salmon, Deutsche Bank.

Hey, good morning, and thanks for taking the question.

I think Adam when you're talking about the market share gains, that Old Dominion has experienced, and clearly we are seeing that with your shipment growth relative to peers out there.

You had mentioned kind of a couple of big customer losses, as well within that sentence.

Can you give me a sense of when that occurred, and how we should be thinking about that in context of the April tonnage update?

And any sort of color around what drove that?

I'm assuming it was on the pricing side, but any additional color would be helpful?

I mean, we obviously have customers that come and go, and we did had a couple of big ones that we lost.

And those were, or probably more pricing driven than anything else.

But we always evaluate customers, and we go through a bid process, and our costing department is doing that every day.

And I think that our win percentage on the bids that are coming through, have been consistent with what we have seen in the past.

But we obviously, we'll continue to evaluate those, but those had an impact in some of our first-quarter trends.

Okay.

So would it have been toward the end of the quarter, or I am assuming it was after January, but I'm just trying to bifurcate potential impact from that, versus the economy softening up a little bit?

Yes, I mean, it doesn't just all go away at one time.

So it was somewhat happening, it happened, probably more of it was felt towards the end of the quarter.

But again, we have nearly 90,000 unique shippers every month, and our largest customers are less than 2% of our business, and we only have a couple that'd make it even 2%.

And then it's 1% on down to a very small percentage of our business.

So we just only made the comment, that we've seen some pricing pressure out there in the field, on a couple of our large accounts.

Not that they had a significant impact on the quarter.

What you saw primarily is the impact of the macro economy on the quarter.

No, understand.

I guess as we are thinking about the variable costs there, I would imagine there will be a little bit of a short-term headwind as you adjust the network to reflect some of those customer changes that we are seeing?

On the specific locations that handled these specific accounts, we took costs out for the pickup and/or delivery cost.

But as that freight flows through a network, you can't get rid of the costs, when the shipments are scattered and moving all throughout a network on trailers.

You do to a degree maybe, but you can only control the controllable, the real direct controllable costs, and we did take cost out.

No, makes sense.

And clearly, we're seeing in the margins.

So thank you.

I mean, we had seen accounts that were operating for us, large accounts that were kind of marginal on the OR like high 90%s, being taken away for a 25% to 30% discount off of our net charges.

And we're not going to haul something at a 120%, 130% operating ratio.

That makes sense.

Not, certainly when you're OR is 85.9%.

Nice results in a tough environment.

Thanks guys.

Thanks, Rob.

Ari Rosa, Bank of America.

Good morning, guys.

First question just wanted to ask about the ELD mandate.

We heard some positive commentary from a lot of the truckload guys, in terms of expectations for second half, maybe boosting pricing a little bit of being, and a little more supportive of the large national carriers.

who are already ELD-compliant.

Just wanted to see if you guys are seeing the same thing on the LTL side?

I think the ELD mandate is going to have more of an impact on the truckload industry, most of the LTLs, not all, have some kind of an ELD in their trucks.

There are a couple of LTLs, you might want to ask, when they have their earnings calls, where they are with ELDs.

But we put them in our trucks nearly, I don't know, it was 2010, six, seven years ago, we put them in the trucks.

And we are totally compliant, and ready to roll.

And if somebody has a headwind because they don't have them in their trucks, we'll haul the freight.

No, well, I understand you guys have it, I just meant more in terms of industry wide, is there a chance that, that then reduces the amount of capacity or the available capacity?

But it sounds like that's not really the case.

I don't think so in the LTL sector.

If it reduces capacity in truckload obviously, that could be an opportunity of freight to shift into LTL mode.

That's true, Adam.

You're right.

Okay, great.

And then the second question just wanted to get a little bit of commentary, if you guys are seeing any major differences between geographies or customer types.

No, it's really across the board.

The only geography things that we're seeing would be in the states where the energy sector has an effect, like Texas and Montana, where the oil and gas industries have been impacted.

Okay, great.

Thank you.

David Campbell, Thompson Davis & Company.

Yes, good morning, everybody.

Thank you.

Your commercials on TV are very good I think, and they seem to have increased a lot in the last six months.

Where is the expense of those commercials on the P&L?

In G&A costs.

In depreciation and amortization?

General and administrative costs.

General and administrative?

Okay.

Okay.

Would that be an area that you'd cut back, in case the economy doesn't improve?

It's certainly an area that could be cut back, but a lot of those are negotiated for the upcoming year under a contract basis, and you cannot cut them back.

Okay.

And finally, my last question is, has your expedited tonnage have been like your other LTL tonnage, has it been relatively flat?

Expedited for us, I mean, is we roll that into basically, the reported numbers for LTL.

And it's a premium service offering for the LTL business, and we continue to do well in that area.

Generally, it -- a lot of times follows some of our other trends.

Right.

So it's really much the same as your other types of services, okay.

Okay.

Thank you very much.

Art Hatfield, Raymond James.

Good morning.

Thanks for taking my questions.

I will try to be quick, David and Adam.

David, just a quick question back on pricing.

I know you've kind of beat on this, but I thought I heard in one of your responses, that one of the things that you may be seeing as well, it's just not pure price cuts but customers basically parading down to a lower cost service level, is that a fair way to think about it?

I think historically whenever the economy has gotten soft, that shippers generally come more price conscious, as opposed to service conscious.

When things are going stronger, they shift back the other way.

And so, if you are a shipper, and you feel like you've can save a buck, and your boss is saying you're the traffic manager, and your boss is saying, save us some money, they can be under some pressure to put some of their freight on a lower cost alternative.

Yes, that's something we cannot measure.

I am just saying kind of anecdotally that could be happening a little bit.

And that historically, if we look at how we've gained market share over the years, in times when the economy was tougher, our rate of gain of market share has been less.

When the economy turns around and gets strong, our rate of gain of the market share is stronger.

And that's kind of what I am alluding to there.

No, that's great.

And the challenge that we have, is to make sure and we've seen this happen in the past, that we go into those shippers and demonstrate the added value of our service.

So if you're comparing an invoice or list price from us, versus a competitor, if you have made some type of shift like this, what has your on-time service been, what has your cargo claims been, what have charge-backs been?

So when you look at basically their internal expenditures, how does that really compare from one versus the other?

And have they really generated any sort of savings on a total cost of ownership basis?

That's very helpful.

Thanks for that color.

Last question, just real quick.

As you look at where you sit relative to your competitors, have you seen any change or any narrowing in the service gap, where you sit relative to what your peers have been, any improvements they been able to put into their network and their services?

We continue to focus on ourselves and getting better every day, and we're proud of winning this Mastio award for six straight years.

And so I don't necessarily think that our competitors are sitting still.

But I know that we aren't either.

We're looking every day at how can we make improvements to our own service and business model, and how can we make sure that our cost structure is sound that our pricing can continue to be fair for the service product that we offer.

Thanks for the time today.

Great, good help, thanks.

Willard Milby, BB&T Capital Markets.

Good morning, guys.

Just kind of looking at quarterly trends.

Historically you been able to improve the OR about 350 bps Q1 to Q2.

With the market the way it is and the way you're seeing April kind of not live up to expectations, it doesn't seem like that's feasible for this 2Q.

Just wondering if you had any comments around that?

None specific, Will, other than what we mentioned earlier, that a lot of that is based upon what -- that improvement is based on what sequential trends and growth from a revenue standpoint is, is the revenue is building in those periods and getting leverage on our fixed costs.

Leverage of the density.

That's right.

All right.

And just a few quick housekeeping things, did you give March's yield ex-fuel, at 3.4%?

Hang on just a second.

March, 3.3% revenue per hundredweight ex-fuel.

All right, great.

And you said contract renewals are, for Q1 were between 3% and 4%?

Yes, we continue to see our renewals in that 3% to 4% range, and that's really what we believe we'll continue to see as we progress through the year.

We haven't made any changes in that regard, for what our expectation would be.

All right.

Great, that's it for me, thanks.

Thank you.

There are no other questions.

I would like to turn it back to David Condon for any additional or closing remarks.

Thank you all for your participation today.

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

Thank you and good day.

Thank you very much.

That does conclude our conference for today.

I would like to thank everyone for your participation.