PAMT Corp (PAMT) 2005 Q3 法說會逐字稿

Good day, everyone, and welcome to the P.A.M. Transportation Services third-quarter earnings conference call. As a reminder, today's call is being recorded. Please note, statements in this release which are not historical facts are forward-looking and involve risks and uncertainties, including but not limited to the impact of competitive products and pricing, increased investment to support product introductions, market acceptance of products, product transitions by the Company and its competitors, currency fluctuations, changes in product sales mix and other risks described in the Company's registration statement and other Securities and Exchange Commission filings.

At this time, I will now turn the call over to Mr. Bob Weaver. Please go ahead, sir.

Good morning to everyone. I made the statement in the press release that I am more satisfied with the operating results at the end of the third quarter. There were primarily two factors that occurred during the quarter that creates more optimism moving forward, one being the culmination of several rate negotiations that have resulted in better freight rates than we had previously. This is partially evidenced by the $0.08 per mile rate increase year over year, but we should see some additional improvement as some of the increased gain in the last half of the third quarter.

Second and more importantly was improvement in our fuel surcharge program. As you all are well aware, fuel has to date been the largest adverse factor lowering our earnings per share. The third quarter is no exception to that, but the fact that fuel rose so quickly and to such a high level, we were able to use that to our advantage to improve both the timing and the percentage of the fuel increase recovery. Once again, much of this change came about in the last half of the quarter, and the full benefit was not realized in the third quarter.

Other changes that should be mentioned with regard to the third quarter year-over-year change are the number of drivers. We added an additional 137 drivers to our driver fleet by the third quarter '05 versus the third quarter of '04. However, at the same time, because of the high cost of fuel, we did decrease the number of owner/operators by 27.

Miles per truck per workday were up by 14 miles per truck in the third quarter '05, and the average price per gallon of fuel increased 68%, on the average, per gallon. And at the same time, it was compounded by a decrease in 0.3 of a mile per gallon decrease due to the more trucks being added with the new EPA-compliant engine.

Those are sort of the highlights of the quarter. At this time, I'll turn it over to Jim to monitor any questions.

(OPERATOR INSTRUCTIONS). Neil Gagnon, Gagnon Securities.

Can you tell us about these changes that are seemingly setting you up for more favorable margins going forward? Can you give us some idea of the magnitude, or can you take the later months in the quarter and tell us what that looks like versus what you are reporting?

Neil, I can go as far as to tell you that the quarter showed improvement during each month of the quarter. And as far as giving you the exact magnitude, I'm not at liberty to do that. But I'm sure you are aware and we have talked many times about the fact that the lag time between our fuel surcharge going into effect versus the increase of the cost of fuel has been our biggest detriment to not recovering enough of the fuel.

Because of the rapid increase in both price and change, we have been able to change all of our customers over to a weekly index rather than a monthly index. And we did see a pretty immediate benefit late in the third quarter because of that. Those are the reasons that gives us a high degree of optimism going forward.

So going forward now, it will be a weekly index, and you won't then have to spend the next 30 days at last month's rates.

That's correct, yes.

I guess that's both plus and minus.

Well, if fuel starts going down, obviously we would have enjoyed 30 days, I think, if fuel went down a lot. But if I rub my crystal ball, it tells me that we're not going to see a big decrease in the price of fuel, at least over the short term. And I'm thinking we're here with my fuel prices for a long time.

On the second part, where you talk about these new negotiations, and we can see the better $0.08 per mile, are those permanent going forward?

Yes.

And if we look forward to December, we would find some more already, because of these negotiations in Q3?

Yes, there will be some additional rate increase that will show up in the fourth quarter.

What is your sense about when you want to start adding both trucks and more drivers?

It's immediate. We would certainly like to add more trucks and more drivers right now. My feeling is that the only way to do that is probably from an acquisition, although we have been able to add 137 drivers year over year. You will recall that in -- I guess it was October of last year is when we actually put the rate increase for the drivers into effect. Since that time, there's been a lot of other carriers that have also added to their driver pay, as well. And we have done some things more recently to address some of the areas that the drivers had the most concern about, pay-wise, and we think we'll see some benefit from that. But I think probably early in '06, we may again see a need to increase some driver pay.

Chaz Jones, Morgan Keegan.

Can you talk about the rate increase here? Maybe if you could give us a sense -- do you have additional business that's up for contract renewals in the fourth quarter, in addition to the rate increases you got in the third quarter?

Pretty much there are daily opportunities that come up, Chaz. And it's probably 25, 30 different kind of requests every week we look at, and try to pick out the ones that it us the best, and price accordingly. So it's just an ongoing process.

Is it safe to say that -- I mean, it's fairly evenly broken out over the calendar year that you could see as much as a quarter of your business experiencing rate increases?

(Multiple speakers) come along, that's the volume of different pieces of business that come along on a weekly basis. It doesn't mean we're replacing -- a lot of this business we are keeping; we're just getting it at a higher price.

I gotcha.

That has some peaks and valleys to it, but I wouldn't say it was significant. We see a party constant rate of requests and bids, offers.

And then, with the new fuel surcharge program, obviously, last year we saw a big decline in fuel prices in November and December, I believe about 10%. Any sort of expectation, if fuel stays at $3 here, with these new fuel surcharge contracts, what type of impact we might anticipate in the fourth quarter?

I haven't sat down and really done the math on it, but I would anticipate that we would recover another 30 to 35% more than what we have seen in the past.

Can you talk about -- I believe you have some business with Delphi, and maybe just give us some visibility on where that business stands, given Delphi's status?

Of course, as everyone knows, Delphi did file Chapter 11. And we do a significant amount of business with Delphi. And obviously, that has been good for us, but we had a number of conversations with Delphi earlier on, before -- it probably goes back two or three months -- about this particular topic. And you probably all, as we all read in the press, that Delphi was able to put together a program to continue to pay their essential vendors, both going forward and the money they were owed prior to the filing. We did fall into the category of an essential vendor; we were fairly certain of that with our conversations with Delphi. So we don't anticipate any loss in billable revenue, due to their bankruptcy filing, and business continues as usual.

Could you maybe just talk about demand trends here in October, given that we're pretty much through the month?

I'll let Clif talk about that; he's the truck guru.

You're asking about demand, Chaz? Is that what you said?

Yes. You commented in the release that, kind of on a monthly basis in the third quarter, that banks (ph) improved. And I'm just curious; has October demand held up kind of like it was at the end of the third quarter?

For us, in our niche, our exposure to the customer base that we have, it's only grown even more in October. I've heard some talk of other carriers that had more of a retail mix of freight that maybe they are not seeing as strong, but it's extremely tight, a lot of demand right now.

(OPERATOR INSTRUCTIONS). Tom Albrecht, Stephens, Inc.

I hear the optimism in your tone of voice, not only in the press release this morning. So let me just clarify Chaz's question. Right now, you don't see any receivables risk, relative to Delphi or any other automotive supplier, correct?

Correct.

And where do you stand with -- I know you've increased the number of drivers, but how has the empty number of trucks held up during that period?

It's been fairly flat over the last two or three quarters. We've still got -- we keep that 40 to 50 trucks, it seems like, all the time, that's just in flux that need drivers on them. But when I look at it daily, it will fluctuate 42 one day, 43, 50, but it's right in that area. But you'll recall, I think, back at the time that we put in the -- just before we put in the increase in driver pay at the 1st October of '04, if I recall right, I think we had somewhere around 120 or 30 trucks that were empty.

Yes, I do recall that. So 40 to 50, sort of, is the equivalent of full employment for trucking, I think. Nobody has ever been zero.

Well, you would like to think you could do that. Of course, I know, in our situation, when we get down below that, I start hearing operations holler that we haven't got any trucks for the drivers to get in. And I think, well, golly, I know where they are at.

Can you give us update on the quarter that ended, roughly the percentage of your revenue still tied to automotive and General Motors?

Yes. GM specifically, it was 36%. And automotive as a total was 50.

And I show in my notes last quarter, I think, was 49 -- last being the June quarter, not a year ago.

For automotive or GM?

For automotive in total.

Yes, 49 and change. And what you see there, Tom, if we looked at just a pure load-by-load basis, the reduction would be greater than that. But since we have got rate increases on that business as a percentage of revenue, it's still staying high.

On that subject of rates, even though the year-over-year increase was impressive, it was up less than $0.01 versus the June quarter. Does that just reflect the fact that you're in the time of there year where there's a lot less of your business coming up for renewal?

Actually, what it's indicative of is the fact that most of what we got accomplished was late in the third quarter. And of course, what you see there is a blended average of the quarter.

Can you give us as sense like last week in September/first week in October, what your average rate per mile might have been, like $1.33 or something? Is that what you're kind of saying?

I would sure hate to.

It doesn't hurt to ask.

I know.

And then, if we step back, and just sort of say, why did GM finally give in? We know they and some of the other automakers -- they have tremendous profit challenges themselves, structural challenges. But they have also been a little bit like a dinosaur in thinking progressively on surcharges. What was the straw that allowed them to finally become a little bit more progressive in their thinking?

We are really not at liberty to discuss the specifics of a lot of our top customers, by language in the contract. And although we would like to, it's just not in our best interest really to say. But you can always call them.

Let me ask the question a different way. Do you perceive that maybe they sense there's not enough capacity willing to serve the auto industry, unless they are willing to deal with the carriers a bit differently?

Let me answer it this way. We sure hope so.

That's a fair one. I know you guys don't give forecasts, and this isn't really a forecast type of question. But your earnings have been so volatile and it's hard to kind of know what's going on. In the year-ago fourth quarter, you did $0.16. Given where you stand with your current rate structure, your improved fuel surcharge program, and the fact that it sounds like you feel really good about day-to-day operations, what do you think about being able to meet or exceed the $0.16? Just thinking out loud, not taking that as guidance?

That shouldn't pose a problem, given that the third and fourth quarter are generally in the same lines, as far as workdays. So it shouldn't pose that big a problem.

I'll take that the way you intend that, then.

And that will conclude today's question-and-answer session. At this time, I'll turn the conference back over to Mr. Weaver.

And I do apologize, Mr. Weaver. We do have a follow-up from Neil Gagnon from Gagnon Securities.

In a more general sense, what is the attitude of your customers when you go in and ask for price increases today, versus what it has been?

I don't know that their attitude changes. Nobody likes to see a rate increase of any kind come. So I think, from an attitude standpoint, I think it's probably still the same. But I think it's more of an understanding that they've got, that they've come to a realization that it's got to be. But when we go for a rate increase, it generally starts out the same way -- we can't let you have one. But in reality, they know that we've got to.

So it's the same stiff body language when you go in for the first time, They don't want to see you,

Pretty much.

But they understand that fuel has gone up a lot, and you are getting your price increases?

Right. And, as bad as the fuel prices has got, that has really been the key factor to allow us to be able to make the strides that we have. You know, if we had still been beating around with fuel going up $0.03 or $0.04 a month or something like that, we might not have been able successful in doing it. But the opportunity was there, and we seized it, and we were successful.

Tom Albrecht, Stephens, Inc.

On the fuel surcharge, now that you have been able to move to a weekly standard, would you say the bias of your surcharge contracts are built around more of a 1-for-5 or a 1-for-6 increment -- in other words, $0.01 per every $0.06 increase or $0.05?

They will average about 6 to 6.5 mpg, is about what we've got them sparked at. Some of them may be as high as a $0.07 increase for $0.01. But I don't know of any right off hand that we have got that are above 7. Do you, Clif?

No. I don't.

And, while I think about it, one of the initiatives going back a year and a half ago -- and I know you made progress for awhile, but I haven't asked you about it -- was Workman's Compensation. Is that one of those areas operationally that is fixed again, in your opinion?

It is fixed as far as our self-insured Workers' Comp. We still have an ongoing battle with Liberty Mutual; there are still a few claims out there that we fight about. And we fight pretty much weekly to try to get everything resolved. They still carry a large reserve, which, in my estimation, is way over-reserved. But Work Comp is something that you can have an accident and see a quarterly bump in it. But from a self-insured standpoint, where we have been taking care of ourselves, we have done a very good job of it, and we feel like Work Comp is under control. Going forward, there will probably be some spikes in it, as we may get a shock claim or something like that. But I feel confident in ours, and I think we're going to be able to, hopefully in the near term, come to an agreement with Liberty Mutual to get them out of the picture. But until they are out, I don't have full control of those claims.

At this time, that will conclude today's question-and-answer session. Mr. Weaver, I will turn the conference back over to you for any additional or closing remarks.

Everyone, I appreciate your participation and look forward to talking with you in the future. Think you very much.

Thank you. That does conclude today's conference. We appreciate your participation.