奧多明尼昂貨運 (ODFL) 2018 Q1 法說會逐字稿

Good morning, and welcome to the First Quarter 2018 Conference Call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through May 4, by dialing (719) 457-0820.

The replay passcode is 8205556.

The replay may be -- may also be accessed through May 26 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'd like to turn the conference over to the company's Vice Chairman and Chief Executive Officer, Mr. David Congdon.

Please go ahead, sir.

Good morning, and welcome to our first quarter conference call.

With me on the call today are Earl Congdon, Old Dominion's Executive Chairman; Greg Gantt, our President and Chief Operating Officer; and Adam Satterfield, our CFO.

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

What a great quarter to start 2018.

I can think of no better way to approach the end of my tenure as Old Dominion's Vice Chairman and CEO, then to have such a strong quarter to accompany our previously-announced leadership transition.

As you know, since our last conference call, we announced strategic leadership changes that the board approved under our designed long-term succession plan.

Greg Gantt will become our President and CEO effective May 16.

I will become Executive Chairman succeeding Earl Congdon, who will become Senior Executive Chairman.

I'm very proud of the board and our leadership team for their careful planning and preparation for this change, and I expect the transition to be seamless.

Important to note that Earl and I will remain actively engaged in the company as board members and executive officers.

Neither of us is ready to retire.

We are significantly invested in this company both personally and professionally.

Our continued influence is important, and we love being part of such a high-quality team.

Just as Earl recognized that I was CEO when he transitioned the position to me, I also recognize Greg Gantt will be our CEO as of May 16.

Given this, I look forward to having the flexibility to dive deeply into my new role as Executive Chairman.

Being able to call on Earl's experience and perspective has been a great asset for Old Dominion and me personally, and I believe I can add the same kind of value in my new role for many years to come.

The board and executive management team have the fullest confidence in Greg Gantt's ability to lead Old Dominion to new highs.

He has consistently demonstrated his capabilities in his 24 years at the company.

And since 2002, when he was named Senior Vice President, Operations, he has been the primary driver of our industry-leading service product.

The intense focus on building quality and superior performance is not only his own personal hallmark, but it continues to drive the customer and people-centric culture of the company.

While every employee plays a role in providing superior service, Greg's leadership as well as that of his management team have been the motivating force behind the consistent improvement in our service metrics.

[Investors] increasingly appreciate and trust our service product as evidenced by our long-term growth in market share as well as our recognition by the Mastio & Company as the #1 LTL carrier for 8 consecutive years.

I also want to take this opportunity to recognize and thank Earl Congdon for the leadership he has given Old Dominion in his nearly 70 years of service since becoming General Manager in 1950, following his father's untimely passing.

He has been an invaluable mentor and counselor for me and our entire leadership team as well as an inspiration to the entire company.

We are delighted that he plans to continue his active participation on the board and the executive management team.

Finally, I'd like to recognize our Board of Directors for their foresight, guidance and support as we prepared the company for this transition.

I will always appreciate the board's confidence in me and my executive leadership roles at the company for the last 20-plus years and in my continuing role as Executive Chairman and as a member of the executive management team.

With that, I'll turn the floor over to Greg Gantt to discuss our first quarter results.

Thanks, David, and good morning.

Let me start by adding my thanks to all the employees of Old Dominion.

Our ever-expanding team continues to raise the bar every quarter and our ability to maintain superior service with double-digit volume growth during the first quarter was impressive.

Just in case there is any question about my focus when I step into my new role of President and CEO next month, I want to be perfectly clear.

I do not intend to deviate from the business strategies that have created our unique position in the industry and driven the significant long-term increase in shareholder value.

We will continue to focus on providing superior service at a fair price, while also continuously investing in capacity and our people to support our long-term growth objectives.

We will also look to continuously improve all areas of our operation, which is a critical component of our foundation of success.

These strategies have been in place for years and are continuously reviewed by our senior leadership team.

Thanks to this experienced team, which I have been fortunate to be a part of for many years, Old Dominion has created an unequal record of long-term growth in the LTL industry.

We entered 2018 with operating momentum and believed we were uniquely positioned to win further market share by continuing to deliver our value proposition of superior service at a fair price.

I was pleased with our first quarter results, which included significant revenue growth of over 20%.

This revenue growth included a combination of a 15.4% increase in LTL tons and a 5.9% improvement in LTL revenue per hundredweight in what has continued to be a favorable pricing environment.

Handling this kind of growth, which included a 10.5% increase in LTL shipments, while maintaining best-in-class quality standards and disciplined account profitability goals, is not always easy.

Yet, not only did we maintain the extraordinary service that Old Dominion is known for with on-time delivery of 99% and a cargo claims ratio of 0.2%, but we also produced 180 basis point improvement in our operating ratio, which is a new first quarter record for the company.

Challenges of producing this kind of performance and these circumstances are evident in some loss of productivity in our platform and pickup and delivery operation.

Nevertheless, our strong margin and earnings growth show why we will always be willing to do what it takes to meet our service standards, even if we incur additional cost to do so as we did in the first quarter.

When we deliver our value proposition, lost productivity in a given quarter represents a future opportunity to drive improvement in future periods, while maintaining the service product that our customers have come to expect and rely upon.

We are proud of our first quarter accomplishments, which differentiates our company like nothing else and proud of the people who produced them.

We thank everyone from our newest employee to our longest-serving.

On this great start to 2018, we believe favorable industry dynamics remain in place for the industry to continue its growth in 2018 and with continued execution of our business strategies, Old Dominion is uniquely positioned to capitalize on this opportunity.

Thanks for your interest in Old Dominion.

Now here is Adam Satterfield to review our first quarter numbers in greater detail.

Thank you, Greg, and good morning.

Old Dominion's revenue grew 22.7% in the first quarter to $925 million.

Our operating ratio improved 180 basis points to 83.9% and our income before tax increased 37.6%.

Earnings per diluted share benefited from a lower effective tax rate and increased 66.3% to $1.33 for the quarter.

Our revenue growth for the first quarter once again included a nice mix of increases in LTL tonnage and yield.

LTL tons per day increased 15.4% as compared to the first quarter of 2017, with LTL shipments per day increasing 10.5% and LTL weight per shipment increasing 4.5%.

We were pleased to see the accelerated pace of revenue growth that began last year continue into the first quarter.

Our growth continues to be supported by the strength of the upbeat domestic economy and general tightness of capacity within the transportation industry, which has created an environment where our business model shines.

Looking at our growth on a sequential basis, first quarter LTL shipments per day increased 0.2% as compared to the fourth quarter of 2017 which was generally in line with the 10-year average sequential trend.

LTL tons per day for the quarter decreased 0.4% as compared to a decrease of 0.9% for the long-term average.

Monthly sequential changes in LTL tons per day during the first quarter were as follows: January increased 0.8% as compared with December; February increased 2.9% versus January; and March increased 2.6% as compared to February.

The 10-year average change for the respective months are an increase of 1.9% in January, an increase of 1.7% in February and an increase of 5.2% in March.

Please remember, however, that Good Friday was in March this year, and the average sequential change for March when that is the case would be an increase of 2.9%, so we were pretty much in line for March.

To update you on our volume trends thus far into April, LTL tons per day have increased between 15.5% and 16% as compared with April 2017, and this includes a 3% increase in LTL weight per shipment.

As usual, we will provide actual April information with our first quarter 10-Q filing.

The operating ratio for the first quarter improved 180 basis points to 83.9% with improvement in both our direct operating costs and our overhead expenses as a percent of revenue.

Salaries, wages and benefit cost as a percent of revenue improved 100 basis points when compared to the first quarter of 2017, despite the impact of the anticipated increase in fringe benefit cost that we had discussed with you on our fourth quarter call.

We will remain focused on managing our labor capacity with growth in LTL shipments during 2018.

And as expected, those 2 metrics became more closely aligned in the first quarter consistent with historical trends.

Old Dominion's cash flow from operations totaled $211.2 million for the first quarter and capital expenditures were $100.6 million.

As noted in our release this morning, we increased our estimate for capital expenditures this year by $45 million based on our anticipated needs for the remainder of the year, while also giving some consideration for 2019.

Our total is now estimated to be $555 million, which includes $310 million for tractors and trailers and approximately $200 million for real estate and service center expansion projects.

We returned $28 million of capital to our shareholders during the first quarter, and that total included $17.3 million of share repurchases after we began to repurchase shares in February.

Our effective tax rate for the first quarter of 2018 was 25.9% which was favorably impacted by the Tax Cuts and Jobs Act as well as other favorable discrete tax items.

Currently anticipate an effective tax rate of 26.2% for each of the remaining quarters of 2018.

This concludes our prepared remarks this morning.

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

(Operator Instructions) Amit Mehrotra of Deutsche Bank.

Adam, I think the incremental margin performance is kind of exactly what we would expect in terms of the middle of that sort of 20% to 30% bookend.

Given the incremental investment in costs, the CapEx coming up a little bit, would you expect the incremental margin to kind of more trend now towards that 20% prospectively for the remainder of the quarter?

Is that the kind of the right way to think about it as you progress through the year?

Keep in mind that we have said that the range is really 20% to 25% when you look over a longer-term.

And certainly, there have been quarters where we've achieved 30%, and really that's just -- when you break down our operating ratio, the direct operating cost -- or generally if you look at an 83% operating ratio rounded for last year, 60% to 65% of that is the direct operating cost and then 20% to 25% is our overhead type of expenses.

So that kind of leverage that we can get in growth periods is why you can see that 30% type of number.

But the 20% to 25% range, we've averaged about a 25% incremental margin since 2010 and that's probably a more appropriate type of number.

Keep in mind that in higher growth periods, it's a little tougher to achieve some of those higher numbers because you end up with just some inefficiencies that come with the growth and there's more that obviously you have to put to the bottom line, but I thought that the 24% in the first quarter was good considering some of the loss of productivity that we had on our dock and P&D operations.

And then just some of the other cost increases that we had in some of the other types of lines like miscellaneous expenses and some of the other expenses as well.

Okay.

That makes sense.

And then just a follow-up from me.

I know you provided the April year-on-year.

If you could just -- I don't know if you've provided the sequential and how that trend has trended versus historical.

And then also just related to that, it would be helpful to just update us on what you're seeing on the Spot side of the business in terms of frequency of Spot Quotes and also the weight trajectory.

Just trying to see if we're starting to see any truckload spillover, given the tightness in that and [that work] onto the LTLs?

The April, I didn't give it.

But the normal sequential trend is 0.7% increase, but just like in my prepared comments about the Good Friday impact in March, it's got the reverse impact in April.

So when you look at it -- the few years in the past dozen or so that where Good Friday was in March, the April increase would be at 2.2%.

So where we are today, which is between 15.5 % and 16% is pretty much in line with that number, maybe slightly above, but for the most part in line.

In terms of any spillover effects, similar to what we've said in prior periods, we try to control the growth, most of that, those heavyweight shipments would come in through a Spot Quote type of basis, and whether that's phone calls or through our website, and basically, we turn up the rates to try to make sure that our operations doesn't get overwhelmed with any heavy-weighted transactional type shipments that may be more one-time in nature.

It's not consistent business that we would retain, and we certainly don't want to disrupt our normal LTL shippers.

I think the incoming calls may have increased, but we've done our best to try to control it.

Some of the -- what you can see that may be a different type of indicator, is when I look through our top 50 customers and look at the third-party logistics companies, that's where we're seeing a lot of the increase in our weight per shipment there.

And I think some of that is probably indicative of the 3PLs that are able to maximize their relationships; they were in earlier periods when truckload was a little bit weaker and maybe were able to secure capacity, whether it's a multi-stock type of arrangement.

And now that, that capacity is tightened up, they're moving heavier weighted shipments that should be in the LTL world back into our environment.

So we've seen really a low double-digit type increase in weight per shipment in those 3PLs that are in top 50.

Next we'll hear from Chris Wetherbee of Citi.

Wanted to touch a little bit on pricing and just get a sense of sort of how you see that trending and -- I guess as the quarter progressed, the first quarter progressed and then maybe some thoughts on April?

Sure.

It's obviously been a very favorable pricing environment and we've just continued to execute on our long-term pricing philosophy in trying to get the necessary increase to achieve our offset, or cost inflation rather, as well as to provide a return to continue to invest in our business and whether that's capacity and technology and so forth and things that our customers are demanding.

I think that we saw improvement as we progressed through the first quarter, and our numbers when you look at the revenue per hundredweight, excluding fuel, was up 3.7% and that's even including a 4.5% increase in the weight per shipment and the 0.7% decrease in length of haul.

So there is not a linear relationship there, you can't necessarily apply those factors because there's a lot of mix change and so forth that also goes into it.

But at the end of the day, we were able to get revenue per shipment increases to offset the cost per shipment increases that we experienced in the first quarter, and so that was a big driver of the operating ratio improvement.

Yes, okay.

Now that makes sense.

And I think that's consistent.

You guys have talked about, maybe that cost per shipment running up in the neighborhood of 4% to maybe 4.5% this year.

Is that still sort of the right way to think about it?

And I guess, when that -- I guess that sort of relationship between price and cost, I mean, you've said in the past that maybe you could be towards the upper end of that band on a pricing basis.

Just kind of curious your thoughts around that?

I mean, from a yield and continue to try to separate yield from price because they're 2 different things.

But over the longer-term basis, I mean, our pricing philosophy has been, what I said, to try to get the necessary increases.

And when you look back since 2001, revenue per shipment has averaged a 4.8% increase versus our cost per shipment increasing 4%.

And so that's what we've been able to achieve over the longer run.

In terms of the cost per shipment trends for this year, on our last quarter call, I did indicate that we anticipated costs to be up 4% to 4.5% and probably at the north end of that range.

And frankly, in the first quarter, we had higher cost inflation than that.

It was a little north of 7%, when you take fuel out and there were some different cost elements going in that impacted that, but I do believe that, we'll get back to that 4% to 4.5% range in the remaining quarters of this year, and certainly that's our goal.

Next we'll hear from Allison Landry with Crédit Suisse.

So thinking about headcounts, the increase year-over-year was obviously less than tonnage growth in the quarter.

Is that what we should continue to expect for the next 2 years to 3 quarters?

Hoping just to get a sense of where you think you are from a resource standpoint relative to demand?

Allison, this is Greg.

We are hiring -- we have a push on hiring and have had the entire year as we continue to grow and our tonnages continue to increase, we are hiring to meet those demands.

So it will trend somewhere in line with our growth, I would expect, but we are pushing very, very hard in hiring to keep up with demand, and that is a daily challenge, but so far so good.

Okay.

Are you seeing more pressure in terms of recruitment for drivers?

I mean, of course, it's not what the TL carriers are seeing, but just curious with the labor market being very tight, if that's an incremental challenge for you guys?

The challenge ramps up as the growth increases, obviously.

But we are fortunate in that we train a very large percentage of our drivers.

They come off of our platform and our truckload carriers don't have that chance.

They don't have platform.

So fortunately, for us, we've got a pretty good source to start with.

But we are able to hire, if -- biggest challenge is to catch the need; sometimes the business comes quicker than you can do the hiring and training and whatnot.

But that's what Adam was talking about with the overruns we had on the platform and P&D is, just you can get them, but to get them up to speed, to get them trained and whatnot, it takes some time.

Right.

Okay.

And then my other question, just thinking about the weight per shipment, Adam, I know that you mentioned April sort of decelerated to around 3% year-over-year, which of course is a step-down from the 4.5% in Q1.

And it doesn't look like the comps are much -- I mean, they're a little bit easier.

So I just was wondering how to think about what may have changed in terms of what would have driven that deceleration?

Great.

Well it's just cycled down a little bit.

We got up to a peak of about 1,660 pounds in December of last year and that dropped a little bit in January to 1,640, which usually drops more than that.

And then we've scaled back a little bit further to like 1,625 pounds in February and March and now we're right at about 1,600.

So a lot of that just gets into the mix of freight that we're hauling.

I don't necessarily think that there is any particular driver or whatnot that's going into that number.

I was looking through some of the accounts that are showing decreases in weight per shipment and a lot of it looks like that we've got one that's got a big decrease, but we've had like 60% growth with that particular account.

So when you grow that heavy with anyone, you're just getting a different mix of freight and I think that's really what the driver of some of the pullback has been.

But for us, I think if we can see our weight per shipment somewhere around 1,600 pounds, which is somewhere back in the ballpark that we were seeing in 2013 and 2014, that'd be a good thing for us.

We're good with that.

Okay.

And that's about where you are now, is that correct?

Correct.

Or in April.

Okay, perfect.

Thank you.

Allison, let me add one thing.

As our volumes in general with our LTL customers have been increasing fairly significantly, we keep turning up the volume or the price on our Spot Quote business, which tends to keep that from growing.

And the LTL customers have lower weight per shipment.

So it's a -- part of it's probably that, where we turn up the volume a little or the pricing on volume shipments, so that we can grow more LTL shipments, which brings the weight per shipment down naturally.

And also, Allison, as is typical, as your length of haul drops, typically your weight per shipment will drop as well.

Next we'll hear from Brad Delco of Stephens.

This is actually Scott Schoenhaus on for Brad.

I guess I just wanted to follow up a little bit on the pricing environment.

You talked about your Spot business just now.

Are you guys planning on putting a general rate increase like your competitors have put in for this year?

I think they've all put in about 5.9%.

We obviously will put one in at some point, and it's something that we're still looking at and considering.

But when the time is right -- we're evaluating it frankly -- we'll be out with one.

Nothing has been announced to date.

And I guess as my follow-up, a lot of discussion on the productivity pressure, I guess, in the first quarter.

Is there any way to put some numbers on exactly what that did to incremental margins?

And so that we can think about going forward when you're continuing to hire given the tonnage growth, how to better model these incremental margins and the effect from lower productivity on new hires?

I don't know that there is any math that goes into that.

Obviously, when bringing on new people and we've obviously got a lot of new employees on the dock, in particular, with the increases that we've had and they're not as productive, and it takes -- there is a learning curve of probably 3 months to 6 months or so.

But those employees are coming in at a lower wage as well.

So there is a little bit of offset there.

But obviously, we'd like to see them continue to -- the productivity metrics, that is, continue to improve and I think we've got some opportunity there as these employees that we brought on continue to gain experience.

The most important thing for us is to make sure that we're not letting our service metrics slip in any way.

Service, we continue to repeat it, but service has really been the story behind our market share opportunity.

And so we certainly want to make sure that despite the growth rates that we've seen -- that we certainly can keep those service metrics high.

And I'll add -- this is David -- that we can't even calculate a correlation between productivity metrics and incremental margins.

So if -- so it would be hard to -- hard to even -- hard to model that exactly, it is just -- it's very hard to model that.

I guess, only thing you can sort of model is how many dollars you might lose in platform dollars or P&D, pickup and delivery dollars, because of the lower productivity, that'd be the only way to do it.

We don't even try to correlate it to what our incremental margin is.

It just is what it is at the end of every quarter.

Next we'll hear from Ravi Shanker of Morgan Stanley.

This is actually Shaked Atia here for Ravi.

Quick follow-up on operating ratio, you typically see a 400 basis point improvement from the first quarter to the second quarter.

Anything we should keep in mind that might keep that improvement more muted perhaps?

Well, I mean, that's been pretty consistent.

And it's about a 430 basis point has been the [10-year change] there, which may make the -- when you do the math from the first quarter ratio, it may make things interesting for what that potential could be in the second quarter.

But we're going to continue to be disciplined with respect to our cost and continue to make strides in the productivity categories and -- but there is nothing that we see coming or that's significant, unusual or different in any way that we feel the need to sort of point out -- at least that we're aware of at this point.

Okay.

Great.

And just my follow-up.

So you did increase CapEx for the year, can you maybe speak about the cadence of that throughout the year?

And how that might look like?

There's -- we increased our orders for both tractors and trailers.

And the tractors will -- should come in pretty much in line with what our normal delivery schedule was going to be, regardless.

And then the trailers would be similar, so I mean, there will be a progression as we go through the second and third quarters getting things in as we're building up to the peaks later in the year.

But some of the orders and considerations that we had to give was just based on the fact that everything you read and hear about order books filling up, we're certainly going to have a need for equipment in 2019 whether it's what our normal replacements are going to be, and we haven't seen any signs or heard anything that would suggest that things will be changing with the economy.

So we still feel like we've got some good growth opportunity ahead and we just wanted to make sure that we had the necessary equipment capacity to be in place to meet what our growth objectives would be.

Matt Reustle of Goldman Sachs.

Just going back to the weight per shipment, just so I can understand it correctly.

It sounds like you're continuing to see your customers increase their order size but the mix of freight is changing.

And the reason I -- it feels like a pretty good barometer, I think you referenced in the last quarter, for the macroenvironment.

So I just wanted to understand those few drivers there?

I think the macro continues to be strong from every measurement that we have, and modeling point about the weight per shipment cycling down somewhat is just that we're growing significantly with a lot of our big accounts, and with that growth, comes a different mix of shipments in many ways.

And sometimes you're rewarded, whether it's a different DC or different states or whatever and it can have a big impact on the weight per shipment based on the commodity that we might be hauling.

So I wouldn't read too much into the fact that the rate of growth and our weight per shipment has slowed down.

Every indicator that we have and feedback that we're receiving from customers continues to show signs of strength with the economy and we don't necessarily think that any pullback in our weight per shipment would suggest otherwise.

Got it.

And then somewhat related in terms of market share growth versus general market growth.

How would you discuss those dynamics and what you're seeing?

And as you look into the second half of the year, I mean do you think you'll see a continuation of the market share growth that you guys have experienced recently?

We obviously -- our growth is mainly market share driven.

And so obviously we've got the support of the economy, but I think that it gets back -- we always say that our long-term growth comes in the form of 3 things: delivering superior service, delivering that service at a fair price and maintaining adequate capacity to be able to grow.

And I think that there is something to be said for the fact that we're consistently investing 12% to 15% of our revenue into our capital expenditures.

And that's certainly provided adequate network capacity, which we try to maintain at around 25% to accommodate growth.

And with the growth that we've had, the network capacity isn't necessarily at that 25%, it's probably in the 15% to 20% range and maybe even in the lower side of that scale.

But we've got a strong CapEx program to address any specific needs at the terminal level for capacity.

We talked about equipment capacity and I think we've talked about getting the people in place to make sure that we can achieve our growth objectives for this year.

So we feel like that everything is in place for us to continue to grow.

And that the last piece that maybe gets overlooked too is, these things aren't just percentages, we've got -- and you got to commend our sales force.

There's a lot of men and women out in the field every day going out and selling our business and they're doing a great job at it.

So we certainly commend them.

And next we'll hear from Todd Fowler of KeyBanc Capital Markets.

Greg or Adam, I'm not sure if you can share this, but I think in the past you've talked about how contract renewals are coming in.

And I think I understand the impact of weight per shipment and length of haul and yields, but do you have a number on what you're seeing from the contract renewals?

And then just with respect to timing of the contracts, in this environment, do you still work through the book just ratably on a quarterly basis?

Or do you make efforts to address some underperforming accounts just given the tightness that we're seeing in the market, maybe some ability to pull forward some of the pricing?

Todd, this is Greg.

We will certainly review underperforming accounts, but most of our contractual accounts come up annually.

And that's when we typically look at the account, how it's performed and what we need and then we go from there.

But ours -- each account's different, we look at each account on an individual basis and we look at each lane of each account.

So we'll look at it, try to determine what our needs are.

Maybe what's -- what we're better off without.

Can we grow in certain other lanes and whatnot.

So that's kind of an ongoing process that we look at every day.

But our cycle, unless something is really out of whack, we don't particularly do that again unless it's ugly.

If it's ugly, we'll look at it, otherwise it's on an annual -- when it's up for renewal.

Okay.

That makes sense.

And then did you have a number specifically for where the contract renewals are right now?

Or would you care to share something like that?

Probably not -- probably don't want to share.

Again, it's each on an individual basis.

Okay.

That's fine.

And then, Adam, just to come back to the conversation on the cost per shipments, I understand that you're a little bit higher than the range with what you're expecting for the full year here in the first quarter.

It sounds like that there is hiring that's going to come through, you're going to be adding some equipment later in the year, so to get you back into the range, that 4% to 4.5%, should we think about that mostly as the employee productivity improving?

Is it a function of seeing, I guess, some of the dealed improvements going through the year, is there some seasonality?

Just at a high level, how do you go from being above that range right now to kind of you getting back within that range as the year progresses?

Some of it, we had some specific increases that you see that I think were nonroutine necessarily, but not that material to call out.

To start with, we talked about the fact that our fringe benefit cost would increase this year and that increased a little bit more than anticipated.

But some of that was performance-based driven.

And there is an increase in our 401(k) match related to the change in our effective tax rate.

That was probably a couple of million dollars and that'll be continuing on our health, vacation, sick, our pay time off policies, there was some increases related to that.

But we had increased phantom stock expense in the first quarter that related to the improvement in our share price.

So that's some of it.

There is -- our miscellaneous expenses, they were at 0.9%.

That was a little bit higher than expected and included some bad debt expense that we certainly, knocking on wood, hope will not continue to repeat, and they're just some other little things like that, that may be stacked up against us where you've got other types of things that sometimes offset one versus another.

Okay.

So it sounds like even though you had strong incremental margin performance here in the quarter, there were also some miscellaneous costs embedded in the numbers that or that you're not calling out as nonrecurring but were unfavorable from a reported results standpoint?

I mean, the reality is there's always going to be things like this that come up and it's doing business.

And we're going to incur some of those costs and that's why we just -- it's not always going to be one specific number that we can manage to in any particular quarter.

But probably just had a little bit more of some other things in this particular period than another.

Next we'll hear from Ari Rosa of Bank of America Merrill Lynch.

Just really quickly congratulations to Greg, David and Earl on the new roles and the work they've done.

So just first question, I wanted to know -- did you guys see any weather impact, a bunch of transportation companies have been calling out kind of a challenging weather conditions in the first quarter?

We haven't really talked about it as it impacted OD, just wanted to see your thoughts on how it maybe impacted operations?

It was a tough winter and it was a long winter.

I think maybe it's finally started to subside and turn spring in most of the country, but it was a long winter.

It's not something we dwell on or talk about because you can't do anything about it.

It is what it is.

You have to deal with it.

Do the best you can and move on.

We certainly don't dwell on it.

We got to deal with it.

Do the best we can.

But thank goodness, it's about over because it was long, and it was very scattered this year.

We had a lot of issues in the west, and then we had them across the midwest to the north.

So it was a very long winter.

Hopefully we won't see any more snow in the northeast, but you can never be sure, I guess?

We're looking forward to a little spring and a lot of summer.

Absolutely.

Just wanted to -- so second question I wanted to ask, Greg, specifically, obviously you've been with the company for some time, but given the new role, are there any initiatives that you are undertaking?

Or any kind of strategic initiatives that you're going to prioritize that might be a little bit different from the predecessors?

Not really.

We have a strategy and I'll certainly continue to try to execute it just as we have done in the past.

So not really any new initiatives particularly, a lot of internal things that we'll be working on, but not any new particular initiatives we're talking about.

Okay.

Great.

And then just, I guess, last question.

I wanted to get your sense on some industrial companies have talked through the first quarter earnings about maybe this being as good as it gets.

Just wanted to hear your thoughts on kind of the sustainability of the current operating environment?

Can these really favorable conditions, can they last another one quarter, 2 quarters?

Or do you see this kind of lasting maybe 2 years to 3 years out?

And then within that, kind of your thinking on the growth initiatives.

Obviously, you're upping your spending on trucks, is that kind of a permanently higher plateau that you'd like to achieve?

Or is more of that focused on kind of replacement CapEx?

Maybe your thoughts around just kind of where the market environment stands?

And how long this could go on for?

The first part of your question may be beyond the scope of our economic forecasting abilities.

But certainly, it's a very favorable operating environment for us.

We often talk about the mix of our business being leaning towards industrial with about 60% industrial and 25% retail.

But the reality is, we still believe in the health of the LTL industry long-term and we think we're better positioned than anyone in the space.

And so I think we've got tremendous market share opportunities.

We're seeing good growth with our customers in the industrial space, but we're also seeing - there is probably more growth with our retail-oriented customers here in the quarter.

And I think that gets back to the fact that supply chains are becoming more sophisticated.

And when shippers are looking for someone to provide consistent on-time and claims-free services, they're meeting tighter delivery times and appointment times into distribution centers, we certainly feel that need and we've got increased demand there.

So we feel like we've got tremendous opportunity to continue to increase our market share and the fact that -- getting back to the investments that we have made, it's for long-term capacity because we believe in our long-term growth capability.

David Ross with Stifel.

Congrats on the evolution there -- Earl, David and Greg -- your respective roles.

With the truck orders coming up by a few hundred trucks, Adam, did you place those orders in 1Q?

And do you feel because of the rush for orders and the order book filling up and the backlog increasing, that you essentially had to place all of them in 1Q?

We actually had put them in earlier with the others, and we were...

In order to get the slots.

That's right.

We sort of had them out there as a contingency with the idea that we would evaluate what our volume trends were and continuing to look out that how our growth in the current period was and what we thought we might continue to achieve in the back half of this year, into 2019 and what replacement cycle would be there.

So on the tractor side, that was the case.

On the trailers side, that was a more recent type of thing, just looking at basically the capacity and it's mainly this is going to be designated in our van-pool, but just looking at what our trailer and equipment capacity was and where we were continuing to see some rentals in some places and just felt the need that this -- it's with any operation and certainly made sense to go ahead and get the orders in if we could.

And with the tight capacity environment, is there any more noise being made about, I guess, resurrecting the twin 33 conversation in D.C.?

Not from Old Dominion.

We studied twin 33s and just honestly could not -- once we got really deep into our study, it's -- we see some lanes where they can help us.

But we're not going to be a strong proponent, but we're not against them either.

If a -- if someone else wants to fight the fight, they can.

And we will figure out how and where we can make the most use of them, if they come to pass.

But we're not going to be a strong proponent of it.

D.C.

Scott Group of Wolfe Research.

Adam, I don't think I heard March year-over-year tonnage, and then I don't know if you gave an up -- if you can give an update on April revenue per hundredweight?

The March year-over-year tons was -- it was 14.6%.

And I didn't give an update on the revenue per hundredweight, but it's -- with the fuel, it was trending at about where we were in the first quarter.

So kind of in that 6% range, but that will be something -- we should give that in our 10-Q as well.

Okay, helpful.

How should we think about oil at a multiyear high?

Is that still an earnings tailwind for you?

Does it help or hurt incremental margins?

Just -- can you just give us a reminder about how to think about oil here?

Oil, just, I mean, it becomes a variable component of pricing (inaudible) fuel surcharge, and then you've got the cost increase.

Typically, what you'll see when fuel is rising is our labor cost as a percent of revenue will see a benefit, but then you just got the offsetting increases in fuel and other petroleum related products.

And it's primarily why we look at our total direct operating cost all sort of combined in one.

While perhaps it gives the appearance when you consider the overhead types of cost, if you got a little bit more fuel surcharge revenue in one period versus another but we try to look at all the components of both revenue and the cost streams that go into our account profitability and costing model.

And those are one of the -- that's just one of many elements that we had to consider when it comes to customer profitability.

But is rising oil still the earnings -- the net earnings benefit it used to be?

Or not as much anymore?

I don't know that, that would be the case.

I mean, because obviously we've got the -- we're going to have our cost increasing as well.

And we've looked at our fuel surcharge table a couple of years ago when the fuel was decreasing.

And we went out and tried to look at the way the table works both on the lower end and in a rising environment as well, to make sure that we've got a surge -- surcharge program in place that helps us meet our profitability objectives, wherever fuel is in any particular band.

Okay, makes sense.

And then just last one real quick.

I know you guys typically do, I think you do midyear wage increases.

Given the labor market, do you feel like you have to do a higher-than-normal increase this year?

Or do you think it'll be sort of typical?

I would say it would probably be typical.

We haven't talked a whole lot about that.

We give our increase the first week of September.

We are still a few months off yet.

So we'll start to look at it over the next couple of months and make a decision from there, but we're not there yet.

Willard Milby of Seaport Global has our next question.

So with the upping of the CapEx in the trailers and kind of hiring to meet demand, would you think that you're going to have to step up hiring?

Or would -- if you had the opportunity to hire at will, would you think you'd have the same step-up in the second half of this year that you might have seen in the second half of 2017?

Keep in mind, the second half of 2017, we got behind the curve a little bit.

And the growth really stepped up as we progressed.

We weren't really growing or we grew at 6.5%, I think our revenue in the first quarter and then that stepped up to 11% to 12% in the second and third quarters and then stepped up again in the fourth.

So and we -- I think we talked about the fact that we had hired quite a bit in the back half of the year, including the fourth quarter, which normally wouldn't happen.

So I think we've got our workforce in good shape right now with where we are, and our headcount was a little bit higher than our shipment growth, which those 2 numbers are more closely aligned.

It's the shipments, not necessarily the tonnage, that we're basing things on, but the hiring decision comes down to the managers in the local markets, they know what growth they think they will be able to achieve, and so we monitor labor to revenue trends very closely, but we want to make sure that we've got people in place to be able to make pickups and deliveries to keep freight moving.

So I think that we anticipated seeing the numbers, the growth in headcount more closely aligned with shipment counts this year.

It's what we saw in the first quarter and it's probably what you'll see as we continue to progress through the year.

And if I could kind of go back to Scott's question on the driver wages.

You're talking about 4% to 4.5% to cover your cost increases on these accounts.

I'm assuming the drivers are the biggest bucket there.

Is there not a step-up from an historical 3% to 3.5% rate you might have been putting in all the driver increases?

And can you talk about what, I guess, the second-biggest bucket of that cost inflation is?

Got salaries, wages and benefits are the biggest element and then the fuel and operating supplies.

And when I was talking about breaking down our operating ratio earlier -- those direct operating costs, including purchase transportation and operating taxes and insurance and so forth are 60% to 65% as a percent of revenue, whereas overhead is in the 20% to 25% range.

So it's wage and benefit costs which we anticipated the inflation and that went into that 4% to 4.5% number as well as all the other incremental operating supplies, general supplies and other overhead categories as well.

And next we'll hear from Tyler Brown of Raymond James.

You guys upped the CapEx on the rolling stock side, but I'm curious about the real estate side.

So obviously, you got a $200 million, that's a big budget.

But how are you feeling about actually being able to deploy that capital?

So I guess my question is you got a really tight industrial real estate market, at a time it seems to be very difficult permitting environment in some parts of the country, but are you having success finding the land parcels that you guys need to grow?

Yes, we have some locations where we're having issues.

But yes, we're having some success as well.

We do have a very aggressive CapEx on that side as you know, and we are executing.

So we were looking at potential increases in our door count this morning and it looks like it could definitely be significant.

But we have numerous facilities under construction now that should open within the next 1 to 3, 4, 5 months, and we are purchasing quite a bit of property.

So we're having success but there are locations where it's a little more difficult and it's expensive -- far more than it used to be.

Now that's sure.

There is no doubt about that.

But how much of the budget is simple door expansions at existing facilities?

And how much of it is actually going out and buying, let's say, a parcel and developing a greenfield site?

It's more so -- I don't know that we've looked at that specifically, but it's more so on the property side right now than additional doors.

A lot of the doors, a lot of the money that we have in there for doors actually were started last year.

But those properties are in the process of finishing, as we speak.

And Tyler, we started the year with 228 facilities and felt like we'd open somewhere between 7 to 10 service centers here and probably add -- increase our door capacity more than we have in many years as well.

So -- and some of that, that continuation of projects that really just fell over from last year into early part of this one, that Greg just mentioned.

Okay.

Now that's very helpful.

And then, Adam, maybe going back to the salaries and wages line.

But it seems like you got a really noisy year this year.

I mean, we've got the PPO change, I think you mentioned phantom stock, 401(k) match.

I think you had a really good healthcare experience last year, if I'm not mistaken.

And I think you have obviously the wage increases.

But can you talk about all-in total salaries wages and benefits what you expect that type of unit cost inflation to be?

I'm assuming it's going to be north of the 4% to 4.5%?

I don't necessarily want to give that level of detail, but what I'll give you and what we normally put in our 10-Q is that our fringe benefit rate which is our fringe benefit cost as a percent of salaries and wages.

It's typically about -- or last year, it's just a little under 34% and that number was about 35.5% in the first quarter of '18.

So when you do the math on that, that was an incremental $7 million; if you just use the rate that we had in the first quarter last year, $7 million of extra cost.

And we had some pluses and some minuses that went in there and the few that I've already mentioned, but there is a lot of things that go in there with respect to payroll taxes and health trends, which continue to be favorable in the first quarter of this year, workers compensation was good.

So I mean it's just a hodgepodge of cost.

I do think that, that number or I expect to see it reduce in future periods back to more of the 34%, 34.5% of salaries and wages is where I'd like to see it.

And at this time, there are no further questions.

I will turn the conference back over to David for any additional or closing comments.

We'd like to thank all of you for your participation today.

Great questions and please feel free to call us, if we can answer anything further.

Thanks, and have a great day.

And that does conclude today's conference.

Thank you all for your participation.

You may now disconnect.