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Operator
Good morning ladies and gentlemen and welcome to the first quarter 2004 Overnite Corporation Conference Call. My name is (inaudible) and I will be your coordinator today.
(OPERATOR INSTRUCTIONS)
I would now like to hand the call over to Mr. Paul Hoelting, Vice President and Treasurer. Please go ahead sir.
Paul Hoelting - VP, Treasurer
Thank you (inaudible). Good morning and welcome to Overnite's first quarter 2004 earnings call. With us today are Leo Suggs, Chairman, President and CEO of Overnite Corporation and Pat Hanley our Senior Vice President of finance and Chief Financial Officer.
Our comments today contain forward-looking statements, including projections of future results and are made only as of today's date. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Please refer to the Safe Harbor Provision at the end of our press release for a view of some of the factors that could cause our actuarial results to differ materially from our projection. In addition our comments today include certain non-GAAP financial measures.
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings press release. If you don't have a press release, a copy is available on our Web site at www. ovnt.com. Leo Suggs and Pat Hanley will pride (ph) our comments this morning followed by a q and a session. With that I will turn the call over to our chairman, Leo Suggs.
Leo Suggs - President, CEO
Thank you Paul. Good morning and let me add my welcome. I'm pleased this morning to report that our first quarter results were better than expected. On 10.9% revenue growth we increased our operating income by 30% and improved our operating ratio by six tenths of a point on a performer basis. Taking advantage of excess capacity and leverage in our network.
Our tonnage was up over 12%. This represents a all time record for the first quarter. We attribute the higher than expected tonnage growth to the strengthening in the economy, ongoing market share gains and, to a much lesser degree, the new hours of service legislation.
Over the past several years Overnite has implemented a number of initiatives to improve our service product. Such as improving transit times by at least one day on over 23 thousand lanes and that includes over 600 lanes during the first quarter of this year as well as adding several value added services such as assembly and distribution, expedited, cross-boarder. It's very gratifying to see that customers have recognized these achievements and have rewarded us with their business.
We fully expect to continue to gain market share it the foreseeable future by leveraging our national footprint non-union workforce and diverse service portfolio. This enables us to offer our customers a flexible and integrated one-stop LTL transportation service product. We also ended the quarter with a strong balance sheet.
Our cash balance was $36 million compared to only 11million at the end of 2003 and we reduced our long-term debt by more than $3 million. In summary, we had a very good first quarter and I'm very optimistic about our prospects for the remainder of the year, barring any unexpected shock to the economy.
I'd like to thank each of you for joining us. Now let me turn it over to Pat Hanley, our CFO. Pat will take you through the financial results. Pat.
Pat Hanley - CFO, SVP
Thank you Leo. Good morning folks. Our operating revenue for the quarter was 378.5 million, an increase of 37.3million or 10.9% from the 341.2 million in the first quarter 2003. Tonnage was up 12.9.
Note that this year we had 64 business days verses 63 last year. On a daily basis, our revenue was up 9.2 and tonnage was up 11.1. Our operating income was 14 million verses a pro-former operating income of 10.7 million last year, which was an increase of 30.2.
Speaking to the pro-former, as you may recall last year we made- as you may recall from our last call we're making pro-former adjustments to our 2003 results to simulate how we would have operated last year had we been a stand alone company beginning of January 1, 2003. To do that we've added stand alone operating cost interest expense on the debt we took on as a result of the transaction, and removed the interest income we received from our former parent.
Our stand alone operating costs for the quarter were 1.9 million and we still project that they will aggregate 8.3 million earn annual basis. With that said our operating ratio is 96.3 for the first quarter verses a pro-form operating ratio of 96.9 last year.
Our net income was 7.5 million in the first quarter verses a pro-former net income of 5.6 million last year, which was an increase of 34%. This equates to an EPS on a fully diluted basis of $.27 for the first quarter of 2004 verses $.20 last year on a pro-former basis.
Now let's turn to the expense, the equation in general, our expense growth was substantially below our revenue growth. There are two line items worth noting. Rents and purchase trends was up about 16%, which given our flexibility, we really should think of rents and purchase trends as part of salary, wages and benefits. And if you combined the two, you'd see that combined increase was 10.1, so it's still significantly less than our revenue growth.
The only other of item of note is in other expenses and here we had a significant increase 2004 verses 2003. The increase is really attributable to some good news and some favorable adjustments we made to bad debt expenses last year that helped us last year but caused the unfavorable variance this year.
Our net capital expenditure for the quarter was 5.7 million compared to 10.9 million last year. That's basically a timing issue, we previously indicated we'd intended to spend between 75 to 85 million in capital for 2004 verses 58 million last year.
Based upon our daily tonnage growth of 11.1 in the first quarter we're expecting to be at the higher end of the range and we may even spend more if we continue to experience double-digit growth in tonnage through the remainder of the year. We plan on spending, in terms of where that money will be spent, we plan on spending about 60% on equipment, 30% on land and building and about 10% on technology.
As Leo mentioned earlier, our balance sheet's in great shape, our cash balance at the end of the quarter was 36.3 million verses 11.1 at year-end. We paid down 3.1 million of our long-term debt. In this next quarter we plan on contributing to our pension plan. We'd indicated that we'd planned on putting 30 million in cash contribution with the pension plan this year. We'll do 15 to 20 of that in the second quarter.
Now switching gears to crate, mix and yield, as many of you probably notice, we included a schedule in our earning release, titled Revise Operating Data. That included various LTL and truckload operating statistics.
Affective January 1, 2004, we changed the criteria for what constitutes an LTL shipment verses a truckload shipment. In order to make the statistics more accurate and consistent for comparative purposes. Going forward, any shipment weighing 10 thousand pounds or more will now be considered truckload, where as any shipment weighing less than 10 thousand will be counted as an LTL shipment.
Previously truckload shipments were determined not only by the weight of the shipment but also by how much space the shipment consumed on the trailer as measured by cubic or linear feet. In addition we use to count shipment as truckload if spot quote pricing applied on back haul lanes. Although there doesn't appear to be any clear-cut standard, our investigation lead us to believe that the (inaudible) methodology we're adopting is more consistent with how most carriers in the industry define truckload and LTL shipments.
Please note that the change did not impact our financial statements. However for those of you who track our LTL revenue per hundred weight and weight per shipment, you'll need to refer to our earnings release for our restated 2003 quarterly operating stats. As I mentioned earlier, our daily revenue was up 9.2 while our daily tonnage was up 11.1. I know many of you are very interested in revenue per hundred weight. Our LTL revenue per hundred weight, excluding fuel surcharge, was $14.54 for the first quarter of 2004 verses $14.88 last year.
On the surface our rates were down a little over 2%. However, rate per hundred weight doesn't adjust for changes in class of freight nor the weight per shipment. The average classification of the freight we handled that was down almost two full points in the first quarter and the average weight per shipment was up by a little over 60 pounds. We attribute the mixed change to the economy, to the loss of small high-class shipments from one of our largest customers and a concerted effort to target more industrial freight. If you adjust for the class of the freight and the increased weight per shipment on a mix-adjusted basis, our rates, excluding fuel surcharge, were actually up about 2%.
Now let's take a look at our second quarter of full year earnings guidance. We're projecting on a fully diluted basis, to have our earnings for the second quarter between $.43 and $.48 per share verses $.38 a share on a pro-former basis last year. Our EPS projections for 2004 is now for the full year, $1.64 to $1.74 as our revised range. Our assumptions are contingent upon economic growth between 4% to 5% price improvements of two to three and a balance of our growth will come from market share gains.
With that concludes our comments. We'll open it up to any questions you may have.
Operator
Thank you ladies and gentlemen (OPERATOR INSTRUCTIONS)
And our first question today comes from Jim Valentine with Morgan Stanley. Please go ahead sir.
Jim Valentine - Analyst
Great thank you. A very good quarter guys.
First when we look at your volumes, we feel strongly they're very impressive and the other carrier that had numbers about the same or even higher was Old Dominion. And the fact that you and they are both the longest hauls, non-union players, I guess should we just assume that this continuing trend here that the non-union players are taking market share from the unionized carriers is continuing? I mean, obviously we have the economy helping us this time but your numbers and their numbers by far exceeded what's going on in the rest of the industry. I think (inaudible) I'm just kind of wondering your thoughts on the market share shifts.
Leo Suggs - President, CEO
Well, Jim, certainly we think (inaudible) market share. I'm not sure that the union, non-union is the real issue. I think that certainly as we have said all along within the last two years we completed our nation footprint and we have gone after longer haul business from mainly from our existing customers. So I think we're growing in that market place but I think we attribute it mostly to the fact that we are positioned differently today than we were two years ago in terms of coverage. And this is a market that we are pushing primarily from existing customers.
Jim Valentine - Analyst
Good, good. And the second question is your GRI for this year-I guess we're going into probably the strongest peek season, with going to GRI this season, that we've seen in probably five or six years. What I'm trying to get at that everyone each year announces kind of 4.9 to 5.9 GRIs and they rarely stick, And the essence of the question is, what portion of that do you think is going to stick this time. Do you think it's probably going to be at the higher end or do you think there's still enough competitive pressures out there that means that you might not get, let's say half of that?
Leo Suggs - President, CEO
Jim, I wish I knew the answer to that. You would certainly think that the fact that the economy appears to be pretty strong and that if it continues this way there may well be some capacity issues. You would think that it certainly provided the ingredients for a pretty strong pricing environment. Certainly we hope that's true but it's not something that we are basing our projection on.
Jim Valentine - Analyst
OK. Great. It's been a great quarter, thanks guys.
Unidentified Speaker
Thank you
Operator
Thank you and our next question comes from Ken Hoexter (ph) of Merrill Lynch. Please go ahead sir.
Ken Hoexter - Analyst
Hi, good morning. Just wondering if you can talk about the area of growth that you saw. Was it in the longer haul verses your intra-regional or was it on the shorter haul, I mean. We kind of talked about that at the IPO time. I just wanted to see if you can give an update.
Secondly, just the teamsters have been making a lot of noise over at USF lately and really working hard on one of their subsidiaries. I was wondering if there's a chance that they were just throwing out a softball and trying to jump back into the game at Overnite. And then lastly, can you just mention what truckload revenue per hundred weight was? About fuel surcharge as well.
Unidentified Speaker
Yes, I will defer the second question to Pat, if he has those numbers. Certainly we saw (inaudible) growth generally strong across the board. Actually our length of haul didn't change on a system basis from last year. We did see just maybe 1% stronger growth in the long-haul market than in the other markets but it was strong across the board. Pat, do you have the numbers on the truckload rates?
Pat Hanley - CFO, SVP
In the truckload rates, we're $5.32 verse $5.36 last year. Ken, is that the question you were asking?
Ken Hoexter - Analyst
: It was exactly what I was looking for. I was just trying to get for a complete company basis, that's helpful.
And then anyone want to jump in on the teamster question?
Unidentified Speaker
I'm sorry, tell me the teamster question again.
Ken Hoexter - Analyst
Well, just US Freightways has seen a lot of teamster activity over at one of their subsidiaries after a lot of time off. I was just wondering if it was possible that they were kind of either trying again or have they really completely backed off at Overnite?
Leo Suggs - President, CEO
Well, only the teamsters know that for sure. Certainly I think back in 1994 and 1995 when Overnite became a target of the teamsters a part of that was because of the fact that the employees of our company had lost their trust and confidence and faith in management because the company was doing so poorly.
Certainly, I think that as a result of the things that we have gone through we are constantly aware of the need to communicate fully and accurately with out employees and to do the things that we need to do in order to maintain their trust and confidence. So, I don't know what the teamsters' efforts at Dugan mean in terms of Overnite but I would expect that it may be the same situation that we experienced but there's some reason that the employees at that company are upset. We see no evidence that this is some sort of a master IBT plan but who knows.
Ken Hoexter - Analyst
Thanks a lot Leo.
Operator
Thank you and our next question comes from Scott Floyer (ph) with Smith Barney. Please go ahead sir.
Scott Floyer - Analyst
Yes, good morning gentlemen. Just a couple of questions. Could you give us a sense, maybe it's (inaudible) but were there particular regions of the countries and or industry verticals that were stronger than others as you look across the first quarter results of things that were particular better than you expected or is it pretty much even across your industry regions and your industry verticals that you deal with?
Unidentified Speaker
Scott, to be honest it was pretty strong across all quarters, that being our sixth regions. It was strong if we look regional into regional in long haul. We had significant growth in all, slightly better in the long haul but not appreciably. So we were growing in all quadrants. And I think the only other one as we talked to you able value added services and our value added services growth is doing extremely well, particularly in the area of expedited and our guaranteed products are doing very well, so I would tell you all systems are go, if you will.
Scott Floyer - Analyst
OK. And then I'm also curious and obviously I know this is a strategy that plays over time, how is the effort relative to getting the sales force to focus more on local accounts going, and could you give us any update on that?
Unidentified Speaker
Again, we're doing very well on that. We told you that we wanted to do a half a point to a point. I tell you we're right now we're exceeding a point. In terms of growing local faster than marketing nationals. And again, it's not that we don't want to grow the marketing nationals because we want to grow both. So we're seeing growth on both sides.
Scott Floyer - Analyst
OK. And then just one informational question. Could you give us total LTL revenues including fuel surcharge?
Paul Hoelting - VP, Treasurer
LTL revenue was 321million and fuel surcharge was 14.5 million.
Scott Floyer - Analyst
Great. Thank you very much.
Operator
(OPERATOR INSTRUCTIONS)
One moment while we Q for questions.
And our next question today comes from John Schultz with Tropic World Magazine. Please go ahead sir.
John Schultz - Analyst
Hi, Leo, how are you doing?
Leo Suggs - President, CEO
Good, John, how are you?
John Schultz - Analyst
Very well, sir, very well. You talked an earlier about general rate increase situation, what are you seeing as far as what are customers telling you when you go back in for contract renewals.
Are they more a tune to your cost going up in areas of fuel and insurance and driver retention? Is the environment a little more healthy when it comes to contract renewal talks.
Leo Suggs - President, CEO
John, I think certainly that depends on the individual contract, that it's hard to find customers that are receptive to any price increases but certainly when the economy is strong the customers who have the highest leverage rates with the lowest margins certainly are feeling more pressure than the ones that have better margins.
So I do think that capacity plays into it but I don't think it's necessarily because of the fact that the customers are receptive, I think it's just the fact that the market will bear a little bit more. I will tell you that our contract negotiations have been consistent and successful and certainly with regard to both price increases and our fuel surcharges.
John Schultz - Analyst
OK. Thank you very much.
Operator
And our next question today comes from Edmond Griffin with Black Rock. Please go ahead sir.
Edmond Griffin - Analyst
This morning, good quarter. Question on network utilization and also looking at your terminals geographically, I know you've talked about the 75 to 85 million in cap backs. Where would you see yourself adding more terminals? And then just looking at the-just doing a crud calculation of your incremental margin, it looked like it was about 9% year over year, and I'm just wondering that it just seems a little low to me and I'm wondering if I'm looking at that wrong or what's the cost?
Thanks.
Leo Suggs - President, CEO
I will comment on the first part concerning the capacity issues. We'd previously said that we had probably 10 to 15% excess capacity. I still think we have capacity in the range of around 10%. We do have a handful of brick and mortar pressure points in the west and in the northeast but we're in the process of addressing those situations. As we said earlier, from a revenue equipment standpoint, if things stay as strong as we see now we likely have to invest a bit more in rolling stock than what we had originally planned. Pat do you want to take the other part of that question.
Pat Hanley - CFO, SVP
Your question again on -
Edmond Griffin - Analyst
Just looking at -just change in operating income year over year verses the revenue and I know it's just one quarter but just trying to calculate the leverage of you network really.
Pat Hanley - CFO, SVP
Well, I guess as we grew revenue 11% and grew operating income 30% and your asking should it have bee 40%?
Edmond Griffin - Analyst
OK
Pat Hanley - CFO, SVP
Is that what you're asking? Sounds like. If you are, I will tell you that we are constantly looking for ways to improve our leverage and we did well but I would also tell you from a seasonally standpoint first quarter is going to be your weakest in terms of overall profitability.
Edmond Griffin - Analyst
Yes, no that actually-perhaps I calculated wrong. That's it thank you.
Operator
And our next question today comes from Dana Saysee (ph) with Fair Stairs(ph). Please go ahead.
Ed Wolfe - Analyst
Yes, hi, it's Ed Wolfe with Danaseas. Just a little more color if you would, Leo, on I think you said the regional business is growing faster than the long haul business right now. Could you kind of break out what percentage of your business is currently overnight, what's two to three day and what's longer? And directionally how you expect those to grow over the next call it two or three years?
Leo Suggs - President, CEO
Ed, actually, I said that our long haul is growing just about one point faster. And as it now stands today our long haul and our regional are about equally split, it's a little under 30% of fleet fees and our inter-regional is a little over 40%.
Ed Wolfe - Analyst
And how are you defining those?
Leo Suggs - President, CEO
The regional would be up to 500 miles. The inter-regional would be 500 to 1200 and the long haul would be over 1200.
Ed Wolfe - Analyst
And if you look at those three regional, inter-regional and long haul and you think about the longer term, how would you expect them to grow? Which one's faster than the other, directionally?
Leo Suggs - President, CEO
For the next couple years, in view of the fact that we're fairly recent in our completion of the national footprint, we certainly expect to see the-we think we have some opportunities over the next couple years to probably continue the long haul a little faster. I think if you look at it long term and in long term I mean over the next ten years, I think that just the supply chain evolution would tell you that the regional and inter-regional probably business up to 1,000 miles. It's going to be the fastest growing segment of the market place. And we expect to certainly tract that.
Ed Wolfe - Analyst
And have you seen any of the Yellow Roadway freight, and is that in your thought process over the next couple of years?
Leo Suggs - President, CEO
It's difficult to say. We are, in fact, growing in our long haul and we're taking some share. An awful lot of what we have purposely pursued is from existing customers. Now, in many cases, customers use a number of carriers, so they may be Yellow or Roadway may be one of their carriers, as well as Overnite. But it's very, very difficult to quantify, accurately, where this tonnage comes from.
I certainly have not seen any situations up to this point in time where customers have voiced alarm in saying that we're leaving Roadway or Yellow and coming to Overnite. I think it's more just as a result of our solicitation efforts and the services that we can provide to the customers.
Ed Wolfe - Analyst
Yes. And just in terms of the economy and tonnage, other than the seasonality, the normal uptake you would expect in March and April, if you look at things year-over-year and take the seasonality out, are you seeing things pick up even more so in March and April than they were in January and February?
Leo Suggs - President, CEO
I'd say so, yes. I think if you look at how our first quarter stacked out, we were strong for the whole quarter, but January year-over-year was up about 7%, February was up about 11%, March was up about 14%.
Ed Wolfe - Analyst
Any sense of April at this point?
Leo Suggs - President, CEO
It looks pretty strong.
Ed Wolfe - Analyst
Thank you very much for the time.
Operator
And our next question today comes from Brian Jellup (ph) with Jennison's Associates (ph). Please go ahead, sir.
Brian Jellup - Analyst
Hi. I just wanted to follow up on an earlier question. The upside, in my opinion, came from the strong revenue performance, not the operating ratio. And to follow up on the prior question, I would have expected more operating leverage being shown in the quarter given the strong revenue performance.
So, my two questions are, how should OR trend throughout the year, given that, at your current ratio, you're still quite worse than many of the leaders in the industry? And then, more specifically, in the quarter, why was salaries, wages and benefits up to 9% on a pro forma basis, which is higher than what I would have thought, and the purchase transportation up strongly? Are you somewhat becoming less efficient or, given the strong volumes in that, as you work out kinks it might improve throughout the year?
Leo Suggs - President, CEO
Brian, I would tell you that if you compare our changes in operating ratio on percentage basis to many of our competitors, and you look at 2003, I think, on a relative basis, we had a better first quarter in 2003 than many of them had.
When you look at where we are from a standpoint of taking improvement to the bottom line, here again, I think that we have continued to increase our staff as necessary to make sure that we provided very high levels of service.
But I also think we're pretty much on track with what we had talked, actually we're a little ahead of what we had talked about during the IPO, from a standpoint of expecting, and I think we said, based on a 4% economic growth, and 2% to 3% rate increase, that we could increase our operating income by low double digits, and certainly we're ahead of that. And I think if you look back at where we came from, Brian, you will see that it is true, that our operating ratio today is not as good as some in the industry.
But if you look at the trends that we have had since 1999, I don't think there's anybody out there that has shown the steady progress. We are slowly narrowing the gap, so I think that we have continued to focus on productivity and cost control, but we're certainly not expecting to see the changes in operating ratio as dramatic as maybe what you alluded to.
Brian Jellup - Analyst
I guess there's something, maybe, that I don't understand, not being an industry expert on the seasonality that your operating leverage might increase throughout the year as you are into more peak months, and, I guess, specifically in the quarter, I was just wondering why those two categories of salaries and the purchase transportations were up so significantly year-over-year, when I would think, with your excess capacity, that you'd have more leveraging of your existing fixed cost base.
Leo Suggs - President, CEO
Well, we did have about a 3% to 3.5% increase in wages and benefits the first quarter of the year that we had to overcome. However, I would tell you that the first quarter of the year is, in fact, traditionally the lowest profit quarter of the year. So, to address the first part of your statement, yes, as the year goes along, we certainly do anticipate more leverage. And here again, if you looked at, as an example, the leverage we had in March compared to January, the greater our revenue the greater our leverage.
But January and February, while we were profitable both months, are always the most difficult time of the year.
Brian Jellup - Analyst
Got it. OK. Thank you.
Operator
And it would seem, Mr. Suggs, that we have no further questions at this time, so I will hand the call back to you.
Leo Suggs - President, CEO
OK. Well, thank you all for joining us. I guess I don't know whether it's good results or early conference calls that enable us to get through in 40 minutes, but thank you so much. If any of you have other questions that come up later on, get in touch with Paul Hoelting and we'll try to provide you with the answers. Thanks again for joining us today.
Goodbye.
Operator
Thank you, ladies and gentlemen. This does conclude your conference call for today.
You may now disconnect.