奧多明尼昂貨運 (ODFL) 2016 Q4 法說會逐字稿

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

Today's call is being recorded and will be available for replay beginning today through February 11 by dialing 719-457-0820.

The replay passcode is 6904652.

The replay may also be accessed through March 2 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'd like to turn the conference over to the Company's Executive Chairman, Mr. Earl Congdon.

Please go ahead, sir.

Good morning.

Thank you for joining us today for our fourth-quarter conference call.

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

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

For the fourth quarter, Old Dominion continued to produce sound financial results.

Although our earnings per diluted share decreased by $0.02 as compared with the fourth quarter of 2015.

These results reflect the impact of having one less business day than the same period of 2015.

In addition, we had another quarter with higher depreciation and amortization expense, along with an increase in fringe benefits costs that were largely tied to the 25% increase in our share price during the fourth quarter of 2016.

On a positive note, our revenue trends improved as the fourth quarter progressed.

Net revenue per day increased by 3.2%, which is the strongest growth we have seen in the last five quarters.

We also returned to year-over-year growth in LTL tons per day.

After two quarters of decline, our LTL weight per shipment increased 2.5% and LTL revenue per hundredweight increased 2.6%.

With momentum continuing into January, we believe Old Dominion is well-positioned to benefit from a potentially stronger economic environment in 2017.

One reason is that consistent with our long-term strategy, we continued substantial investments in infrastructure and technology in 2016 while also investing in our employees by providing ongoing education and training as well as a 3% pay raise in September.

Our cash flow provided by operations allowed us to make these investments, while we also returned $130 million of capital to our shareholders in the form of share repurchases.

To further improve shareholder return, the Company announced today that our Board of Directors has declared a quarterly dividend of $0.10 per share to be paid in the first quarter.

Given the long-term strength of our financial position and our cash flow generation, we are confident in our ability to return additional capital to our shareholders, even as we continue to fund significant investments in our business to leverage our near- and long-term growth opportunities.

Thank you for joining us this morning.

Now here is David Congdon to give you more details on the quarter.

Thanks, Earl, and good morning, everyone.

Stepping back from the specific quarterly numbers for a moment, I will begin by saying that the overall fourth-quarter operating environment was similar to what we experienced throughout 2016.

We had a slow start to the quarter, but our revenue and tonnage marginally improved on a year-over-year basis as the quarter progressed.

Our LTL tons per day essentially trended in line or slightly above normal sequential trends for November and December.

This continued into January, as LTL tons per day were also in line with normal seasonality.

These trends combined with the increase in LTL weight per shipment and other improving macroeconomic indicators for the fourth quarter provided us with a sense of cautious optimism for an improved economy in 2017 which also concurs with economic forecasts for improved GDP.

As I mentioned more than once in 2016 and regardless of the economic environment, we remain focused on the things that we can control by continuing to deliver superior service at a fair price while also remaining diligent with regards to cost.

Our on-time delivery and cargo-claim ratio each improved for the fourth quarter and the full year compared with respective periods of 2015.

Providing the superior service that our customers expect can create cost inefficiencies within operations in periods when our volumes are not as strong.

We operated very efficiently throughout 2016 however, as evidenced by an improvement in our variable operating costs as a percent of revenue for both the quarter and the year.

I think this is a real testament to the value of our team who effectively managed productivity and costs in the face of lower volumes throughout the year.

As you have heard me say before, to improve our operating margin over the long term, we need improvements in density and yield, both of which require the support of a positive economic environment.

Our yield suffered a bit in 2016 with the decrease in fuel surcharges, but it remained positive in what was a generally stable, albeit competitive, pricing environment.

The pricing environment continued to be stable in the fourth quarter, and our LTL revenue per hundredweight increased 2.6% or 1.6% when excluding fuel surcharges.

While this rate of growth was lower than the first three quarters of the year, the fourth quarter included a 2.5% increase in weight per shipment and a 50 basis point decline in average length of haul.

These changes generally have a negative impact on the LTL revenue per hundredweight.

But as I just mentioned, we are encouraged by the increase in LTL weight per shipment which is typically an indicator of an improving economy.

We obviously did not have benefit of a strong economy in 2016, and the reduction in volumes did not help with density.

As a result, we were unable to average our fixed cost to improve our operating margin in the fourth quarter and the year.

Our OR increased 30 basis points for the fourth quarter and 60 basis points for the year.

Even so, we are only 40 basis points below our record fourth-quarter operating ratio and 60 basis points above our best annual operating ratio performance.

We remain confident that we can increase our margins in the future with improved density and yield supported by a positive economic environment, and therefore are encouraged by the potential for stronger growth in 2017.

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

Thank you, David, and good morning.

Old Dominion's revenue was $745.7 million for the fourth quarter of 2016, which was a 1.5% increase from last year.

Our revenue on a per-day basis increased 3.2%, as the fourth quarter of 2016 had one less operating day than last year.

The operating ratio was 84.8% and earnings per diluted share were $0.83, which was a 2.4% decrease from the $0.85 of earnings per diluted share in the prior year.

The increase in revenue for the fourth quarter reflects a slight increase in LTL tons per day, as well as an increase in yield.

LTL revenue per hundredweight increased 2.6% for the quarter, and increased 1.6% when excluding fuel surcharges.

I will repeat what David just said, and note that these metrics were impacted by changes in our mix and do not reflect any change in our pricing philosophy.

LTL tons per day increased 0.3% as compared to the fourth quarter of 2015, as our LTL weight per shipment increased 2.5% to offset the 2.2% decrease in LTL shipments per day.

On a sequential basis, our LTL tons per day in the fourth quarter decreased 2.6% as compared with the third quarter of 2016.

This change was in line with our ten-year average sequential trend.

For January, our revenue per day increased approximately 5% on a year-over-year basis, as we continue to see good yield performance and our LTL tons per day increased 2.2%.

Our operating ratio for the fourth quarter of 2016 increased 30 basis points as compared to the fourth quarter of 2015.

This change reflects a 60 basis point increase in depreciation costs as a percent of revenue, as well as a 50 basis point increase in salaries, wages and benefits.

The increase in salaries and benefits was primarily the result of a $7.7 million increase in our fringe benefit cost as compared to the fourth quarter of 2015, as retirement plan expenses were impacted by the increase in our share price.

It is important to note that a portion of the increase in both depreciation and employee-related costs resulted from our reduced reliance on purchased transportation during the year.

As a result, purchased transportation costs as a percent of revenue improved 70 basis points.

Old Dominion's cash flow from operations totaled $155.5 million for the fourth quarter and $565.6 million for the year.

Capital expenditures were $66.8 million for the quarter and $417.9 million for 2016.

The Company currently expects capital expenditures for 2017 to total approximately $385 million, including planned expenditures of $185 million for real estate and service-center expansion projects, $155 million for tractors and trailers, and $45 million for technology and other assets.

We've repurchased $11.3 million of common stock during the fourth quarter and $130.3 million for 2016.

These purchases left us with $200 million available for purchase under our current $250 million repurchase program.

We intend for our repurchase program to be our primary form of returning capital to shareholders, although repurchases in fourth quarter were lower than previous quarters this year due to the increase in our share price.

We are excited about today's announcement of the quarterly dividends, which provides us with another means to consistently return capital to shareholders while also leaving dry powder for other investment opportunities that can drive long-term growth.

Our effective tax rate was 38.5% as compared to 35.5% for the fourth quarter of 2015, which included certain discrete tax adjustments.

We are hopeful for corporate tax reform in 2017, however, we currently expect our effective tax rate to be 38.6% in the first quarter of 2017.

This concludes our prepared remarks this morning.

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

(Operator Instructions)

Amit Mehrotra from Deutsche Bank.

Thanks for taking my question, appreciate it.

Just going back to the -- just a question on basically tried to ask about tonnage growth.

And if you have a tightening environment, do you expect to see where market share essentially will go relative to your geographic space?

And I think last quarter you talked about potentially increasing up to 35 to 40 service centers.

Is that the case given maybe a little bit better macro backdrop?

And then following up on that, in a strong ring economic environment, where do you expect market share to trend or where did it go in the quarter given some of the expansion and better service levels of some of the competitors?

Thanks.

Good morning.

This is Adam.

We still have our list of 35 to 40 service centers that we want to add to the network over time.

And certainly we continue to look and evaluate if there are opportunities to purchase land and those opportunities present themselves, we certainly would look at taking advantage of that.

From a market share standpoint, typically when periods are slower like the economic environment that we were in, in 2016, and perhaps price becomes more of an issue for shippers versus looking along the spectrum towards the service side of things, then our market share gains were not as strong as they have been in better periods.

So certainly our trends turned positive.

We felt good in the third quarter.

We started out a little slow.

October from a sequential standpoint was a little bit below what our normal sequential trend is.

November came back was better than our normal sequentials, December was right in line and January of 2017 was pretty much right in line with those normals as well.

So we'd looked to get some sustained improvement in the economy, and we feel like when that happens we certainly can get back to growing market share like we have over the longer term.

Thanks for that.

And then on the weight per shipment trends, there was some nice sequential uptick at least.

Can you talk about the sequential change in January, and is there anything in particular that drove that of was that broad based and you would expect that to continue into 2017?

Thanks.

The weight per shipment trended about the same all year long, around 1,550 pounds plus or minus 10 pounds.

We saw definitely an increase moving into November.

It increased above 1,600 pounds there in November and December.

So it was a nice increase year-over-year and a sequential basis.

It dropped a little bit in January to about 1,570 pounds, but that is pretty normal.

You normally will see a little bit of in history your weight per shipment decline.

So we still feel good.

It has been consistent.

We're seeing it across the board.

And like we mentioned in our comments, we feel like that's just one more data point that we look at that's indicating that maybe we are turning the corner with the economy and can see some sustained improvement there.

And just the last one on dividend.

Just wanted to get an understanding on the thought process there.

Have you been hearing from your investors that dividend would be appreciated looking to maybe expand out the share capital base?

And it is a pretty obviously nominal amount on a yield basis, would you look to slowly improve that over the next quarters or so and essentially make this more of a dividend growth story?

Just trying to understand, one, the reason for the initiation of the dividend and then how you see that involving over time.

Thank you.

We thought like that with the quality of our cash provided by operations, the strength of the balance sheet that we certainly had, the room to be able to initiate.

As we mentioned, we continue to want the share buyback program to have the priority in the terms of returning capital to shareholders.

We have heard over the course of years, when we first put our buyback program in place, that shareholders would have appreciated a dividend.

It's something that we evaluated back in 2014, and we have continued to evaluate it.

So we felt like we were in a good position to do so.

It is a nominal amount.

But as we have said, that we still feel like we are a growth company, and we have got plenty of dry powder to continue to invest in our business.

That is where our best return on invested capital comes from.

That is what we're going to continue to focus on, but this is just one of another complementary means of improving overall shareholder return.

Great.

Okay, thanks for taking my questions.

Appreciate it.

Allison Landry from Credit Suisse.

This is Danny Schuster on for Allison.

Thank you for taking our question.

We were just wondering if you could clarify what the normal historical sequential trends are for October, November and December?

I know you mentioned that they were fairly in line with normal sequential trends in November and December 2016.

And we are also wondering if you could share the same details for January, February and March?

Yes.

So the normal sequential trend for weight per day, October would be down 3.5% as compared to September, November would then be up 3.2%, December would be down 9.2%.

And then in the first quarter, January would be an increase of 1.9%, February would be an increase of 1.9% and March would be an increase of 5%.

Great, that is very helpful.

Thank you.

Shifting to the capital allocation, it looks like you are stepping up the capital you are putting towards real estate and technology this year and holding back a little bit on tractor and trailer investments in 2017.

I was wondering if you could give us color into what projects you're working on, on the real estate and tech areas this year?

The real estate projects are -- I think it was somewhere in the neighborhood of 70 different projects that involved expansion of service centers.

We have got repaving yards and reroofing facilities, we have got land in there for future building projects.

It is just a wide variety of real estate projects.

I think -- I do not think we have given a count on how many new service centers we anticipate opening, but there is a handful.

There's about four or five new facilities we think we will open this year.

And on the equipment side of the equation, as we said, we are approaching this year as cautiously optimistic.

I will say that back in the fall when we first, in October, when we first did our equipment projections and our growth projections for next year, we were less optimistic about the economy.

But when the election results came out, we have become more optimistic about the economy for next year.

And frankly, our equipment numbers are basically our replacement program, and we do not have much equipment in there.

There is a little bit but not much equipment in there for growth.

Should we see the economy actually pick up and as we watch our equipment and volumes going into next year, there could be a possibility of increasing the equipment spend as we get into the year and see how things are actually trending.

Great.

Thank you for the color.

Todd Fowler from KeyBanc Capital Markets.

Great, thanks.

Adam, I know you probably don't want to get into giving specific items on the OR for first quarter, but given some of the moving parts in the fourth quarter with the variable compensation, can you help us maybe think about the basis point impact from some of those things in the fourth quarter and then what we should think about for the progression into 1Q?

I was going to give you the detail on the first quarter, but since you gave me the out (laughter).

One of these days, I'd going to learn just to ask the question.

One of the biggest things that really hurt us this whole year was the increase in our fringe benefit costs, and it fluctuated.

And this past quarter, it was a little over 36% of our salaries and wages where it had been 34% of that number for basically earlier in the year and that started back in the fourth quarter of last year.

So that is something that we have got some opportunity on, but we do not necessarily see that there is a short-term fix or a silver bullet for that.

So we are looking at that probably continuing more in a 34% of salaries and wages range.

Again, a lot of the increase that we saw just in this fourth quarter and overall it was a net $7.7 million increase, but a lot of that was coming from the impact of the increase in the share price on our retirement plans that are linked to that.

Obviously, we have got wage inflation in those numbers.

We have still got, if you remember last year, we were still in a little bit of year-over-year growth in January and February.

It was really March where we started rolling off.

We had our top-10 customer, we spent a lot of time talking about last year.

But had a few large customers that rolled off the books, but we still were seeing tonnage and shipment growth in January and February.

So we have got that to deal with.

But overall, I think for next year, we are probably looking at cost inflation excluding the fuel of around 4% just with some other that things we have going on.

And then obviously from a fuel standpoint, where we are today, we're just shy of $2.60 a gallon.

I think the average in the first quarter of last year was $2.08, so we've got definitely a fuel cost headwind that we will be looking at.

You gave me the answer, but I have got to do some work to get to the specifics I guess.

I appreciate the color there.

My follow up I wanted to ask, I got the comments on the January tonnage trends and the revenue per day.

So the thought on the revenue per hundredweight here in January, where are you seeing that trend at and how is that versus where you were in the fourth quarter?

We do not really talk about the revenue per hundredweight on a month-to-month basis because there is more impact of mix when you look at it on the month.

But we still feel good about the performance of our pricing.

I think that our contract renewals, those that renewed in the fourth quarter, were consistent.

It was a pretty good size increase in weight per shipment, and we had the decrease in length of fall.

On an absolute basis, our revenue per hundredweight excluding fuel was $1,678 in the fourth quarter, and that was down a little bit sequentially from the third.

But it was still above where we were in the second quarter, despite our weight per shipment being up between those two periods compared as well.

So we still feel good about the environment overall.

All the reasons that we felt good about, the pricing environment in the industry last year are all still in place and you have got an economy that may be improving.

So we still feel good about pricing overall for the industry, and we certainly will continue to look and execute on our pricing philosophy of trying to get an increase that will offset our own cost inflation.

But from a reported yield standpoint, with an increase in weight per shipment just like we saw in fourth quarter, it's likely that rate of growth on a year-over-year basis could be lower than the 3% or 4% true price increases that we target.

Okay.

Thanks for all of the thought this morning and the time.

Great quarter.

Thank you.

David Ross from Stifel.

Any more optimism on twin 33s with the new administration, David?

I think there is a decent chance that may go through.

Fred Smith is the one that is really leading the charge on the twin 33s.

We have been studying our lanes and load averages and so forth, and we are honestly finding that our long-haul lanes where we could get the most bang for the buck are being loaded very, very full and we do not have as much potential benefit from them as we once thought.

So we are leaving it up to Fred to lead the charge on that.

And should the law pass, we anticipate trying to figure out the best places and ways that we could use them in our fleet.

Then on the CapEx side, because you have got about $155 million budgeted for the year for tractors and trailers, are you doing anything different on the replacement front in terms of either equipment vendors or types of equipment that you are buying?

The vendors are basically the same.

Our freight liners, our predominant vendors, we are equipping all of the trucks this year with the crash mitigation systems that have the automatic braking and we believe that is a very good feature to put on the trucks, a worthwhile safety feature.

That's probably the predominant difference in what we are doing this year.

Excellent, thank you very much.

Chris Wetherbee from Citigroup.

Great.

I do not know if I missed it, but did you give the December year-over-year tonnage?

December's year-over-year tonnage was plus 2.6%.

Okay, got it.

Then when you think about growth in January as well, it seems like a little bit of a pickup at least onto your stack basis.

You've talked about the sequential trends and how that is playing out.

Generally speaking, when you're talking to customers or at least seeing activity in the market, are there certain areas where we're seeing pickup is a little bit more broad based?

Just want to get a rough sense of maybe how you are looking at the freight environment.

It seems like it's a touch better than it was, certainly at some point in the middle of last year.

Yes, it generally feels better.

There is no one particular area that is growing.

We have got some that are in pockets growing faster than others, but it is pretty balanced across the system which is good and what we would want.

But we are getting it across the board I guess.

But we are getting positive feedback from customers, we are starting to see some pickup and customer wins.

And that is already reflected and some of the numbers.

But even some of the customers that we lost some business with last year, some of that is coming back.

It may not be all of it, and we may not want all of it back.

But we are getting some pockets of that.

So we feel like we have got some positive momentum going with us from a revenue standpoint.

Okay, got it.

That is helpful.

And when you think about the outlook for -- you talked about pricing for 2017 or at least the environment and it sounds like you feel good about how things are playing out.

I guess I just wanted to get a sense of what you think it takes to maybe accelerate pricing.

So I think some of us might argue that 2016 probably outperformed the tonnage environment, pricing outperformed, tonnage environment was a bit sluggish on the tonnage side but we saw decent pricing.

Do you need a big step forward you think in tonnage to be able to see a reacceleration of pricing?

I'm just trying to get a sense of maybe how you are approaching the market and what you need to see.

Chris, this is David.

The forecast we hear for GDP next year is like 2.5% compared to 1.6% this year, which is not a huge increase.

I guess it is close to 50% more credits than we had this year, so maybe that is a huge increase.

But I think you will see some acceleration in yield that would come with that.

But perhaps the biggest potential acceleration in tonnage and yield could be with this electronic logging device mandate that's scheduled for the end of 2017.

The predictions that we hear is that some time in the latter half of the year, we are likely to see some capacity come out of the truckload arena.

And with the for-hire truckload market being roughly 10 times the size of the LTL market, if you had a 1% falloff in tonnage from the truckload arena it could equate to 10% increase in the LTL arena with larger LTL shipments.

So that could be a significant increase in our business in the latter half of the year or a surge.

If we have a surge, I would expect pricing will surge along with that increase in tonnage and reduction in trucking capacity.

That is really helpful.

And one just very quick follow up on that point, I think it's an interesting one.

When you think about or when you talk to customers as we are entering the early part of 2017, are they engaging with you at all in terms of conversations about contingencies for that potential implementation?

I just want to get a sense of maybe it's in the customer conversation on the LTL side yet or maybe just something that could come later in the year.

We are not having the conversations -- we're not hearing much about it yet.

I guess I hear more about it at conferences and different things and people speculating, and we are certainly not betting on anything in particular happening.

But we will keep our ear to the ground and stand ready to increase our truck buying if we need to in the latter half of the year as it comes along.

One thing to add to that as well is that we do know that we probably lost a little business that is managed by the third-party logistics companies with the weakness in truckload pricing.

I think they were able to leverage their relationships and maybe fund some trucks that were available to move some heavier weighted shipments that otherwise would have moved through 3PL.

So if you get that general tightening, it may be rate inflection up in truckload that certainly could be a benefit to the LTL industry.

Let me add one more thing is that we believe and I believe very strongly personally that we are in the best position in the LTL industry.

With capacity across our network because of the investments, the continued investments we have made in our real estate over time to stay ahead of the power curve and to build out and expand our centers in the markets where our growth is the strongest and where we see the potential for future growth.

So should there be a sudden surge in the latter part of the year or first part of 2018, we are ready to handle it.

That is great.

Thank you very much for the time, guys.

Very helpful.

Ben Hartford from Baird.

Adam, a few balance sheet related questions.

Did you provide a debt reduction or a debt paydown target at all for 2017?

And how do you think about carrying debt level as you reconsider or consider dividends as an option to return cash to shareholders plus the reduction in CapEx for 2017?

Any change as to how you think about carrying debt going forward?

We do not have any scheduled maturities with our debt in the coming years or next year, we have got one in January of 2018 that's coming due.

We had about $105 million of debt, there was a little bit outstanding on the revolver at the end of the year, but not a lot.

Frankly, that is what -- our debt to cap was 5.4%.

That is one of the things that we were looking at as we were going into next year, and making the decision on implementing the dividend.

We feel like we've definitely got some opportunities, and we can afford to put a little debt on the balance sheet but we want to make sure that we are prudent with our decisions and that we are doing it in the right ways and for the right reasons.

I guess to that point, and I imagine there is more to come on that front.

But you have got to look back to where you carried debt levels during the previous cycle, it was obviously materially higher.

Can we think about one times debt to EBITDA as a reasonable target without pinning it down on a specific number?

Yes, I would rather not say, because we do not just have a stated target.

Again, I think that we want to look at ways that we can enhance shareholder return, and I think we have done that through the implementation of the repurchase program.

We increased our repurchases in the early part of 2016, and ended up buying $130 million last year on that.

Now we have added this other component.

But we are still looking at ways that we can expand and grow the business, and if that is available real estate that we can take advantage of above and beyond what is already planned, we will look at those opportunities or other opportunities to invest in some of our non-LTL business and try to generate some growth there.

But certainly, we know we have got an opportunity with the balance sheet, we just want to make sure that we are using it in a smart way.

Okay.

And to finalize that point, you had talked about expanding into complementary and potentially non-LTL businesses.

Does the fact that you are introducing a dividend reduce the likelihood or does it suggest that you are less inclined to do acquisitions to expand above and beyond LTL?

How do you think about acquisitions in the context of organic growth opportunities outside of LTL specifically?

Our priority for allocating capital really hasn't changed.

It starts with reinvesting in the LTL business, that is where our best returns have been and that's what we're going to continue to stay focused on.

We continue to say that acquisitions are in second place, and granted we have not had one since 2008.

We have looked at plenty of them, and the pricing, the evaluation, whatever just did not make sense or strategically we did not think it made sense.

So we have not executed, and that is why we implemented the shareholder return program.

But to answer your question directly, in no way is the dividend going to take away from that focus.

And we are going to continue to look at investing first in LTL.

If we can do that at a higher level this year or in the next coming years, we will and we will continue to evaluate acquisition opportunities as well.

Okay.

And the last one if I could, the $7.7 million that you called this quarter in fringe benefits cost that you tied to incentive comp, if you will, tied to the stock price.

Is that all of that $7.7 million that you highlighted, or was there some other element to that fringe cost above and beyond the share price appreciation related inflation?

That was a lot of it.

It was not all of it, and that is something that we wanted to give as information.

It's definitely not something that needs to be adjusted out or anything of that nature, it was just trying to disclose more information about something that changed.

I guess our retirement plan expense has been or it was choppy this whole year as there was a lot of volatility with our stock price up and down movements.

And most of the annual expense came in the fourth quarter, but in the third and fourth quarters as we saw a good surge in our share price.

So that is there, and you can look.

And we disclosed in our 10-K the number of vested shares that we have in the phantom stock programs and make some calculations on the dollar movement in our share and do a the back of the envelope calculation with those.

But the other costs that we have seen, as I mentioned earlier, we have had inflated group health and dental costs this entire year.

And that is a trend that really is something we can manage to and something we are looking at.

We're continuing to evaluate, work with our Partners and trying to put other wellness programs in place, other types of preventative programs that we can try to get a good control on the health and well being of our employees and their families.

Okay, that is great.

Thank you.

Ravi Shanker from Morgan Stanley.

So just to follow up to your responses for a few questions already on this call, when do you -- you said that you are seeing the shift in your customers from service to price.

What gets them to focus back on service?

Is it just going to be [ELDs] and the potential shortage form that, or do you think that the market is close enough to being in a balance that even an improvement in demand with seasonality should get them there?

I think some of it, Ravi, will come from just the general uptick in the economy.

And the other part is, we have seen this time and time again through previous down cycles where customers that will leave us because a competitor offers a lower price than ours, And when they get a taste of someone else's service compared to the service levels they had at OD, they come back to us.

And we are seeing that happen now.

We believe as the market and capacity might tighten up going into next year and as orders are picking up and customers are trying to make their customers happy, that they will lean toward our premium service.

Got it.

And just sticking with pricing, you altered your pricing strategy a little bit last year and [see] the timing of it in terms of when you announced your GRI.

Can you give an us update on what your experience has been with that, what your customer's reaction been and what can we expect for 2017 in terms of timing?

Are you saying we altered our pricing strategy --?

The timing of your GRI announcement.

The only thing we did was we pretty much announced for the most part in line with the industry.

It was on a 10-month cycle, we came out at the end of September in 2015 that was at the end of November.

But pretty much came out in line with the rest of the group really, and I think there was only one large carrier that pretty much did not go out in the same timeframe.

But really nothing has changed in that regard, and I think that the GRI went through.

There was not a lot of pushback because most of the other carriers were out seeking rate increases as well, which we think they need to continue to push for.

If the industry is going to get healthier from a margin standpoint to be able to support any reinvestment in capacity, and we frankly have not seen it on a total basis other than us, we believe that the industry has got to continue to push price up.

Got it.

And just lastly, you spoke of a focus on technology.

Can you talk about what are you hearing in terms of platooning?

Are you running any platooning trials our there, and do you have a potential timeline for implementation?

Ravi, we have not joined in on platooning at this point, and do not have any plans to do so in the near future.

But we are watching how things are transpiring on that front and the autonomous front and so forth.

Great, thank you.

Scott Group from Wolfe.

Adam, did you say what weight per shipment is up in January?

I did not say what it was up, but -- let's see it is about 1,570 pounds versus about 1,540 last year give or take.

Okay, we can do that.

So I want to go back to the question on margins.

If we think about the environment of the low-single-digit tonnage in low-single-digit revenue per hundredweight and add a fuel and fuel higher and some of the cost inflation, directionally, is this an environment where we should be expecting year-over-year margin improvement?

We always expect margin improvement, and we are always focused on it.

This year, obviously, we talked about or I mentioned earlier some of the cost inflation.

And I think in David's prepared comments, certainly we think that the ingredients for margin improvement are certainly there.

If these trends continue, if we continue to have a strengthening economy that will be supportive of a positive yield environment, and certainly we think that we are already seeing year-over-year tonnage growth.

And as I mentioned, those numbers can look a little bit better once we get through March.

Certainly we have got a density opportunity, and we have got the yield opportunity that is in front of us.

We just need the economy to really continue to be sustained.

As we went through last year, we'd see a couple of good months and then you'd take a step back.

And it felt really rocky and bumping along on the bottom.

I think the ISM number that was released yesterday, it's one of the strongest numbers in a couple of years.

There is a lot of things we feel like are turning, but I can tell you we are certainly focused on managing our costs, managing productivity and all of these things are certainly looking better than they looked when we entered 2016.

Another thing is that our fixed cost structure this year includes a lot of investments we've made in IT and also our human resources functions.

Those costs should be relatively level going into 2017 and beyond, and as the growth improves a little bit we should be able to get some leverage against those fixed costs.

Okay, that is helpful.

Maybe I will try and ask it a little bit differently.

Is there historically a tonnage level that you think you need to see to see margin improvement?

And then when I think about the mix of weight per shipment going higher and revenue per hundredweight net of fuel a little less, does that generally help or hurt incremental margin?

If you look at revenue per shipment, certainly this year that can be higher.

And if you look at our revenue per shipment and then compare that with what our cost per shipment and how those are trending, that is the more relevant comparison I guess.

But there are so many variables that go into it, Scott, it depends.

We get asked that question a lot, well what tonnage do you need?

It depends on what other actions are we taking.

I think we have had margin improvement in periods with lower tonnage and with higher tonnage, but what level of CapEx do we have?

There are so many other variables that go into it that it is hard to say what specific number of tonnage growth we need because you'd have to have the wide variable of what's the yield increased offsetting.

Obviously, we would like to have more yield, that increasing versus the volume.

We always used to say that a 1% change in yield or decrease you would need 5% to 6% increase in tons to offset.

Okay.

Then lastly, I think you in the past have talked about your goal is to grow tonnage 500 or 600 or 700 basis points faster than the market.

Is that still your goal, is that still a realistic goal once the environment gets a little bit better?

It is a little bit harder to get that much tonnage -- that much spread on our growth rate today than it used to be back when we were expanding geography.

And also when you look back at some of the disruption in the marketplace with the fallout of business from [YRC] and we've touched on that I think last fall in a conference call.

Then also when the market is soft and the freight environment is soft, our spread in tonnage growth has gotten down to a -- if you take aside one of the carriers who was using price to get tonnage recently or this past year, our spread in growth is down in the 200 to 300 basis point maybe difference between us and the rest of the LTL industry.

So as the environment is changing and the overall economy is getting a little bit better, maybe 300 or 500 sounds better -- is maybe more realistic than 500 to 700 bips of difference.

Okay.

I appreciate the time, guys.

Thank you.

Aaron Rosa from Bank of America Merrill Lynch.

So wanted to touch on the competitive landscape.

Just was hoping you could talk about how competitors may be expanding their geographic footprint and how come back to your business if at all?

And what competitors are doing broadly on the pricing front and what you're seeing out there?

I think that on the pricing front, we continue to feel like it has been stable.

No signs of increasing competitiveness or anything along that front.

I would say too that we mentioned we are getting some business back that we lost last year, and generally when we lose business it is on price and I think some of that freight is being rebid.

So some of the carriers that maybe took it at a little bit cheaper price last year figured out it did not operate as well, and are trying to push prices up a little bit more.

And that may be contributing again to some of our marginal improvement.

But it takes service, price and capacity to grow.

And as David mentioned before, we feel like we are definitely in the best shape in the industry in terms of service.

We continue to have award-winning service, 99% on time and a low claims ration each year.

We've certainly got the capacity and the network and prices is now becoming maybe more normalized, so we certainly think that if price is not a factor that we're going to win on service and capacity.

So we feel really good from that standpoint.

Okay, that is helpful.

Thank you.

And then just switching a bit to the [EL] within capital allocation.

You mentioned that the decision to start paying a dividend was a little bit driven by the fact that the share price had risen somewhat.

I was hoping you provide a little bit of visibility into what the criteria is that you are using internally as you look at the share price and as you decide [what would be] a reasonable level to buy back shares and that would be additive to shareholder returns and why you may have decided that this quarter wasn't such a good time?

Thanks.

I got you.

You are breaking up a little bit, Aaron, so I'm going to answer what I think you asked.

But yes we did --

Sorry about that.

I can ask it again I don't know if you heard.

I was saying what level is the criteria is that you are using to decide when is a good time for share buybacks, and what was behind the decision to pay a dividend instead of increasing the buyback?

I got you.

So we have a grid and we do not disclose the details of that for which buying our shares, and obviously we want to buy when the price is lower.

And I think when you look at the average price, as we put this program in place, we bought shares at about an average price of $65.

And that does not mean that is our ceiling, we certainly have bought when the price is higher.

But we continue to execute on that grid.

We changed it a little bit at the beginning of 2016.

If you go back into 2015, we had not bought more than $35 million in a quarter, and we stepped that up in the first half of 2016 when our share price was lower and bought about $90 million in the first half of the year.

So as the price increased, we've started buying fewer shares.

It's the way our grid is designed, and we have been out of the market of late.

And we will continue to evaluate the change in landscape and perhaps make changes to our grid this year, but we would rather buy it when the price is cheaper.

That did not impact the decision on the dividend is not to replace, but anything with the buybacks.

And as I mentioned, we continue to think that the buyback is a better form of returning capital and that is our intention and that would be the primary means of doing so.

But the dividend just is one complementary means of returning capital, it's consistent and that was some of the decision making in adding that cash dividend.

Great, that makes sense.

(Technical difficulty) talk about deregulation.

I was hoping you guys could talk about you think the impact of that might be across the industry, and if there are any regulations in particular that you guys are targeting as going away and what impact that might have on your cost structure?

You broke up a lot, and I think you are asking about regulatory reform that's (multiple speakers) come out.

Yes, exactly.

I do not think any of us know exactly what that regulatory reform might look like.

I know one thing in particular that there was a proposed rule making last year for speed limiter devices for the tracking industry, and that is highly, highly contested by different parties within the American Trucking Association.

And we'd like to see that thing rolled back right now.

Most all the fleets out there today have speed limiting devices already on our fleets, but due to the wide variance in speed limits across the nation there is no perfect speed that could be uniformly applied across this United States.

That is one that needs some attention.

But other regulatory reform, who knows what's going to come down the pipe.

Okay, great.

And then just one real quick housekeeping, could you just give the number of working days by quarter in 2017, and also just say the number again of what LTL tonnage per day was up in January?

Sure.

The tons per day in January was up 2.2% on a year-over-year basis, and workdays, let me get to it, by quarter for 2017 it's 64 in the first quarter, 64 in the second quarter, 63 in the third quarter and 62 in the fourth quarter.

Okay, great.

Thank you very much.

Thank you.

Matt Brooklier from Longbow Research.

Is 3% to 4% price growth, is that still a good bogey to think about for this year?

As I mentioned before, that is what we target with our contractual renewals.

And our pricing philosophy is that we look at our own cost inflation, and that is what we ask for in the form of a price increase to offset.

Now from a revenue per hundredweight standpoint, that yield metric, as it was in the fourth quarter, is likely to be lower than 3% to 4% because of mix changes.

And when you have got an increase in weight per shipment like we had in the fourth quarter, that's certainly going to have a negative effect on that reported metric.

It does not mean that underlying core pricing is weaker at all or in any way.

So we still feel good about being able to get those 3% or 4% targeted increases this year.

Okay.

Then can you remind us when the weight per shipment comps, when those get easier this year?

Easier in terms of when it will comp with where we were in the fourth quarter?

Yes.

When do we lap, I can look back on my model, but when do we lap the increases in weight per shipment that we saw last year, the beginning of that?

It trended again of ballpark about 1,550 pounds in each of the first three quarters.

So we have been closer to 1,600 pounds in the fourth quarter.

So depending on if we stay at around 1,600 in the first three quarters of the year, making that assumption, then obviously we'd have an increase there and an impact on -- that impact on yield for those first three quarters.

Okay.

Then the question on headcount, I think headcount was down in fourth quarter.

You guys did a good job of managing headcount into a less robust growth environment.

Now that tonnage is picking up, how should we think about headcount going into first quarter?

I think traditionally, headcount has grown sequentially.

But are you at a point with tonnage starting to pick up again here meeting that heads in first quarter, and then maybe some color on the progression of potential headcount growth through the rest of the year?

I think we are in pretty good shape with the workforce where we are and the volumes we have.

Certainly at the local levels, it is up to each terminal manager to make decisions on what their volumes are and what their headcount needs should be.

We always, to protect service, we like to add our employees before the volumes are picking up.

Because we want to make sure they've had suitable time to train and to be able to protect our own service.

So certainly if we continue to see volumes picking up, there could be an increase in headcount for that reason.

Okay.

But you are not getting pinched right now just given the fact that we are in the initial stages of tonnage reaccelerating potentially?

No, I think we are in pretty good shape, and our headcount overall was down slightly in December compared to September, which a lot of times could be normal.

But I think [we're in pretty good shape] across the network with where we are today, but certainly we are finally starting to see some year-over-year growth and we will continue to be mindful of what those labor needs should be in each particular area.

Okay.

And then last question, where did the service center count end the year?

That was 254.

I am sorry -- wrong number.

225.

225.

You're already a couple years out there, Adam.

Okay, thank you for the time.

David Campbell from Thompson Davis & Company.

My questions have been answered.

I think that you may report it in your press release, so I haven't seen the number of employees at the end of the year.

The number of employees -- the actual number at the end of the year was 17,543 full-time employees.

Okay, great.

Thank you very much.

All my other question have been answered.

Thank you.

Thank you, David.

There are no further questions in the queue at this time.

Okay.

As always, thank you all for your participation today.

We appreciate your questions and support of Old Dominion.

Please feel free to give us a call if you have any further questions.

Thanks and good day.

That does conclude today's conference.

Thank you for your participation.