Celadon Group Management Discusses Q2 2013 Results - Earnings Call Transcript

Jan.24.13 | About: Celadon Group, (CGI)

Celadon Group (NYSE:CGI)

Q2 2013 Earnings Call

January 24, 2013 11:00 am ET

Executives

Stephen Russell - Founder and Executive Chairman

Paul A. Will - Chief Executive Officer, President and Director

Jonathan Russell - President of Asset Light Business Units

Analysts

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Donald Broughton - Avondale Partners, LLC, Research Division

Ryan Mahoney - Stephens Inc., Research Division

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

R. Alex Scott

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Scott H. Group - Wolfe Trahan & Co.

Barry George Haimes - Sage Asset Management, LLC

Jack Waldo - Stephens Inc., Research Division

Operator

Ladies and gentlemen, hello, and welcome to today's event titled Celadon Reports Second Quarter Earnings. [Operator Instructions] And now to start off our conference, I would like to welcome and turn the call over to Mr. Steve Russell, Chairman. Please go ahead.

Stephen Russell

Thank you very much, Lisa, and welcome to our December 2012 quarter earnings conference call. I'm joined here in Indianapolis by Paul Will, our President and now CEO; Eric Meek, our Chief Financial Officer; Jon Russell, our President of our Asset-Light businesses, as well as some other members of senior management.

I'd like to remind you that my comments and those of others representing Celadon may contain forward-looking statements, which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management expectations.

We are pleased with our results for the December 2012 quarter. Earnings per share of $0.32 represented our best December quarter in Celadon's history compared to a $0.24 in the December 2011 quarter. Operating ratio improved 91.5, 89.2. These results were achieved despite adverse weather conditions, particularly significant snowstorms in -- late in December and the effects of Hurricane Sandy, which adversely impacted our miles per truck per week. Further, there was a onetime noncash charge of $1.6 million or $0.04 in earnings per share related to the early vesting of restricted stock grants for myself as approved by the Compensation Committee, the Board of Directors and as described in the 8-K that we filed on December 6, 2012.

[indiscernible] increase in rate per loaded mile from $1.528 [indiscernible] during trailer age improved to 1.1 years, [indiscernible] resulting in reduced maintenance costs and an improvement in miles per gallon achieved. Average seated count improved by 2.5%.

The acquisitions that we have completed in the past 15 months have certainly contributed to our results. These acquisitions, more specifically, have helped to improve and diversify our service offering and set up the foundation for further growth opportunities by increasing freight lane density and our primary freight lines -- lanes, in addition to growing our book of business with both new and existing customers to improve utilization and freight volumes. We're extremely pleased with the performance of our management team and with the direction the company is headed.

And Lisa, you can open the floor to questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Tom Albrecht from BB&T Corporation.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

A couple of thoughts here. You don't have quite the same consumer and retail exposure as other carriers, so is that the primary reason why mileage utilization continues to be down? I know you have a lot more than you had 5 or 8 years ago, so that would be kind of part 1. And part 2, can you just kind of give your latest thoughts on the acquisition climate? And I look forward to your comments.

Paul A. Will

Yes, this is Paul. I think when you look at utilization, I think utilization for the quarter was down about 60 miles. If you look at -- we're really looking more sequentially per week per truck, of which probably half we would attribute to the storms, really the more of the Midwest, the Iowa, the Indiana, Illinois and going East. A couple of storms in the month of December, as well as obviously, the hurricane as we've got about 90 trucks in the Northeast operation that was somewhat disruptive. But the reality is, I think you're right on the retail side of it, different than maybe some of our peers. They have more retail exposure, which is obviously very good in December quarter, and you see that drop off for some of them in the March quarter. When we look at it, obviously, one of the things that we've done all through the acquisitions and how we try to bid business is to try to get more of a blended mix of freight and get more into the retail side of business, so you have more consistent freight throughout the year with a higher -- obviously a little bit more concentration because of the demand for how they see it in the fourth quarter. I think you're seeing that in our numbers more from a -- from the standpoint of taking seasonality out of it with our customer mix. But I think we've got a long way to go as far as improving our utilization, which is one of the key metrics that we'll be focusing on over the next 12 months. Through bringing in the acquisitions that we brought in, we've moved some freight around, modified some of the freight lanes we're in. But our key focus going forward over the next few quarters is really improving upon what we're doing in our lanes, increasing density. But in our key, what we call our legacy lanes, being our international freight, we believe that will do a few things. One, that will improve, obviously, from the driver standpoint the miles that they're getting on the trucks. It will improve our utilization, and obviously, the miles on the fixed cost structure, which we believe -- now we have our cost structure in a pretty good position so that obviously any incremental growth from a mileage standpoint all drops down from a margin standpoint to bottom line. As far as acquisition opportunities on a go-forward basis, I think I just saw someone had put out the failure bankruptcy in the fourth quarter was up. Year-over-year it's trending up, if you're looking sequentially. And I think we're kind of seeing that as well, as well as individuals that, based on age in all the different regulations, whether our service is changing in July. The forced EOBR is probably next year, really and then the cost of equipment as we've discussed in the past is really bringing a lot of individuals to the forefront to have conversation with us. One thing I would say is when you look at the acquisitions, doing the distressed acquisitions that we've done up to now have been good from a growth standpoint as far as our customer base and positioned ourselves with a service offering such as Northeast operations, Southeast operations, some dedicated, some local business and the most recent adding a little bit of warehouse business as well that complements the 1 million square feet or so we've got under roof already. We -- I think, look in the last couple of acquisitions, we've really tried to really step back and do acquisitions where we could really maintain a lot more of the business because they're not as distressed. What that allows us to do is to bring on customers and then ultimately position ourselves to be able to grow with our existing customers and the customers we get through the acquisitions, which is a little bit more challenging when you're in a distressed situation. The company's ready to go under and it is hard to really service the customers, bring the drivers in and maintain the service that they had, especially when you consider some of the business that you don't want based on how they were servicing it. It may not make sense in the lanes that they were doing and definitely not in the lanes that we're doing. So it's a different kind of transition than really what we tried to do in the last couple of acquisitions, albeit those were a couple -- somewhat smaller. So I think the environment's still good out there. We believe there'll be opportunities out there, but what we're trying to do at this point is take what we have, look at the acquisitions on a go-forward basis as really more how can we integrate them into our system and bring on the business that really complements what we're doing more than maybe some of the acquisitions that we've had in the past.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Okay. And one follow-up and then I'll jump back in the queue. So is it time for a driver pay raise? I mean, is that part of why the unseeded truck count is flat to declining a little bit?

Paul A. Will

If you step back from that standpoint, what we did was we put a driver school in place that we started about 2 months ago, now a little about 2 months, maybe 7 weeks, 8 weeks or 9 weeks or so. But we put that in place for the purpose of being able to bring in drivers, so that we could do a couple of things. One, bring in drivers that we could bring through and bring them into the Celadon way, the way we want to do business, so they don't have preconceived bad habits, notions on how to run a truck and so forth. So they go through a 4-week school here at Celadon and then from the school -- and we worked on that for about 1 year and just rolled it out a couple months ago. But in addition to going through that 4-week program, then they're going train with a trainer in the Celadon network for 6 weeks. So it's a process by which, when they get done with their 10-week program between the school and actual real-life experience on the road, we'll have drivers that -- similar to some of the other large fleets out there that are doing it, you're going to bring a driver in and that's going to be contractually obligated for a period of about a year after they get done with the school and get done with their training, and that will allow us to have a retention level more in the 30% range, which is what a lot of the fleet have trainees coming in would tell you. The other thing that you -- we're looking at as far as if you look at our owner-operator/lease purchase programs, that turnover in that program is less than 20%. The most recent 2 months, it's been as low as 10%. If you take those 2 lower turnover percentages, we believe that's going to allow us to really start to grow organically our fleet and bring in drivers that really, we believe, that will be more in-tune with what we're trying to do as far as dovetailing into how we're servicing our customers, on-time pickup, on-time deliveries and really through a lot of the efforts Eric and his group has been doing on the operation side, as far as trying to figure out how do we basically scorecard the driver, scorecard the customer and dovetail those 2 together to better service customer and grow the business with those customers. So what we're really thinking is that, that we should -- our seated count, independent of acquisitions, should trend back up to where we were in September, which would be up about 40 trucks. And that would be organic not through acquisition. And then from there, we believe, it will continue to grow based on bringing the drivers through the school and training program.

Stephen Russell

The other thing, Tom, is because our average truck is 1.1 years old, which is substantially below, I think, any fleet in America, drivers like that. An over-the-road driver is very focused on his truck. There's a big difference between a 6- or 7-year-old truck and a 1-year-old truck.

Paul A. Will

And the only other thing I would say is when you look at it from a compensation standpoint, even if we -- we believe that this will help us. As we always look at our cost structure, this will help us from a cost standpoint because those trainees for the period of the first year will end up making less, no different than what our peers are paying until they become basically an experienced driver with 1-year experience. So that should offset any type of increase that may or may not be necessary for experienced drivers.

Operator

Our next question is from Todd Fowler with KeyBanc Capital Markets.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Paul, I was just hoping that you can go through the equipment gain share in the quarter, and how much you would look at as being a normalized level related to trade activity. How much might be a little bit higher than normal? And I know that you still have about $19 million of equipment that's held for sale on the balance sheet. What should we expect for equipment gains as we move to the next couple of quarters?

Paul A. Will

Yes. As far as equipment gains, it ends up being around $3.9 million for the quarter. It's up from last quarter, which is about $1.7 million. What we look at is that you had $3.9 million, as Steve mentioned. And we previously reported the noncash adjustment for the early vesting of the stock was about $1.6 million. So when we kind of net those 2 items out because a lot of times, individuals look at the gains even though we've, in theory, over- expensed them over a period of time, they look at it onetime in nature. So the net of those 2 is about $2.3 million, which is comp the last quarter. If we look at on a go-forward basis over the next 2 quarters, we believe it will between $1.2 million, $1.5 million each of the next 2 quarters to get us to the end of the fiscal year. At that point in time, we believe pretty much all of the equipment out for resale will be sold and our -- the remaining of our refresh cycle will be done at that point in time as well.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay, got it, that definitely helps. And then I guess this is a bit of follow-up to Tom's question about your customer base, but do you have any comments as far as what expectations are right now going forward. One of the things that one of your competitors was just talking about is maybe a little bit of increased confidence with their customer base in the past couple of months. They were indicating that inventory levels seemed lean. I guess I'm curious if you had any anecdotal commentary kind of along those lines as we think about the first and second quarter on a calendar basis.

Paul A. Will

I think the answer is that we'd see something similar to that. Obviously, it's not robust, but yet I think, it's picked up somewhat, but then also confidence picked up somewhat. But I think what shippers are seeing right now is that it's -- they're getting concerned about what's going to happen the next 6 to 12 months as far rates, business, demand and what capacity will be out there to haul their freight. But I wouldn't say it's -- they're overly concerned right now, but I think they're getting a little bit concerned or antsy.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

And then just the last one I have is on the pricing side, I mean, what would you expect to see. I mean, the revenue per mile here on the quarter was actually up a little bit more than what we were expecting, it was up sequentially. I mean, do you think it's realistic to continue to see somewhere a little bit north of 2%-type revenue per mile increases based on what you're seeing with contracts? Or should we be thinking something different than that?

Paul A. Will

Well, typically what we see and going from December to March quarter is pretty much flat rates year-over-year or sequentially. And then what you typically see in the June quarter is it trends up somewhat year-over-year, so we would see something similar. As far as any increases based on freight demands right now, I think, what everybody's been talking about is 2% to 3%, which I think is reasonable based on our early indications at this point in time.

Operator

Our next question is from Donald Broughton from Avondale Partners.

Donald Broughton - Avondale Partners, LLC, Research Division

I'm looking at your operating data, your per mile expenses. You certainly did a great job of holding per mile expenses, sans fuel, in check. It looks -- -- I estimate that you were up, what, $0.01 a mile on a year-over-year basis. Fuel gave you a benefit of, what, call it, $0.025 a mile, it's almost $0.03 a mile here. You've been very active in these acquisitions and that has helped you keep your cost in control, in check. Can you break out for us -- can you tell us if you weren't doing that activity, what you see the industry cost per mile going up, is -- what is the cost inflation factor right now?

Paul A. Will

As far as -- I mean, all the -- what I'd tell you is all the cost buckets, other than the drivers that we brought on, which we believe that independent of acquisitions on a go-forward basis, school is going to put us in a position where that should not be an issue. But outside of that, I don't think really any of the acquisitions really did anything to reduce our cost structure. I think the internal initiatives, whether it be fuel purchasing, fuel network, tolls, what we're doing from scales, what we're doing internally as far as how we're managing the business, I think that was all independent of the acquisitions. So I don't think there's anything specifically to the acquisitions that affected the cost structure with the exception of [indiscernible].

Donald Broughton - Avondale Partners, LLC, Research Division

Okay. Yes, exactly. Let me ask a question another way then, Paul. What is the -- I mean, we know the cost of your equipment has gone -- been going up, we know the cost of drivers has been going up, we know the cost of insurance has been going up. What do you see as the industry norm for cost inflation per mile? Obviously, you're doing a much better job of managing that cost than your competitors. What do you think the industry norm is just to kind of give us a benchmark as to what you -- how well you guys really are doing?

Paul A. Will

I think where you're seeing the cost inflation for most is in equipment. Fuel, they're not using anti-idling devices and aerodynamic devices.

Stephen Russell

Insurance if they had bad CSA scores.

Paul A. Will

And you got -- from a maintenance standpoint, you've got the tires aspect of it. As everybody knows, tires has gone up dramatically. One of the things -- you're right from the standpoint that -- since in 2 years, we refreshed 100% of our fleet. Obviously, we didn't get the impact on tires that others have had because that's included as part of your equipment cost. So I would say tires, the equipment cost, we got some insurance based on accidents. You've got fuel dependent on how you've managed that process.

Donald Broughton - Avondale Partners, LLC, Research Division

Well at the risk of lead -- go ahead, Steve. I'm sorry.

Stephen Russell

Well, I think that if you look at the truck load space, 25% of the industry are the bigger guys; 75%, little guys. The little guys are suffering in many ways that I would expect they're looking at 5% to 6% increases per year in their costs to squeeze out.

Donald Broughton - Avondale Partners, LLC, Research Division

That's where I was going. They -- well, it's even in the reported results of competitors, your competitors that have already printed, were running around 6% per mile increase in cost.

Paul A. Will

And in part too, if you look at some of the competition is doing those sign-on bonuses, retreating bonuses and some adjustments to pay. So yes, I mean, there's no question that people are talking the 5%, 6% increase in costs.

Operator

Our next question is from Jack Waldo with Stephens Inc.

Ryan Mahoney - Stephens Inc., Research Division

This is Ryan Mahoney on for Jack Waldo. First question, I was just wondering how far are you willing to stretch the balance sheet to finance additional M&A? And what type of leverage are you comfortable with taking on?

Stephen Russell

We have $100 million bank line, which we were using at the end of...

Paul A. Will

$29 million.

Stephen Russell

$28 million. So there's $70 million there but our bank line is 75 basis points over actual LIBOR with no minimum required, and there's plenty of flexibility.

Paul A. Will

I think once we get a refresh done, which is in next 5 months, actually at this point in time, we'll be cash flowing net of not just EBITDA, but net cash, free cash flow about $65 million. So we believe between the bank line and the free cash flow post our refresh, which is basically done, as I said, we should be in a pretty good position since we don't have to buy trucks really. Other than through growth we don't have to buy trucks until, you're talking about, June or -- June, July of '14 and trailers. Since our average age is down to 2 years, which we believe is the youngest in the industry, we won't have to take trailers for another 8 years.

Ryan Mahoney - Stephens Inc., Research Division

Okay. I'm just wondering about your auto industry exposure. What is it? And have you seen any impact in the cross-border Mexico biz as more factories come online in Mexico?

Paul A. Will

Yes. Our exposure is less than 10%. At this point, we would take everything all-in, parts, OEMs to all that type of stuff, manufacturing side of it. We believe that, that is a big opportunity on a go-forward basis. One of the things that we're concentrating on when you look at the length of haul to and from Mexico, it's our core competency, it's our legacy business. And we believe that business provides a big opportunity for us down the road to increase utilization and margins.

Operator

Our next question is from Chaz Jones with Wunderlich Securities.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

I guess the first question I had was on the ops and maintenance expense. Obviously, that's been coming down with the average age of the fleet. And then I know, Paul, you mentioned maybe as the fleet starts to age back out, you'll have some prepaid tire expenses. But just kind of looking at that $7.7 million, is that going to come down anymore? Or should that kind of flatten out and then start to come back up?

Paul A. Will

I think when you look at that as a last -- year-over-year it looks like more dramatic, but when you look quarter-to-quarter sequentially, it's only down a few hundred thousand dollars. But I think you're going to see it flatten out here, maybe start to trend up obviously, with the average age of 1.1 years on the trucks and 2 on the trailers. Trailers are not as big of a deal from a maintenance standpoint or cost standpoint, but you'll probably see it flatten out from here and start to trend up somewhat as our fleet ages.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Okay. And then, I guess, getting back to the acquisitions and correct me if I'm interpreting this wrong, is maybe that the near-term focus here is to, from an operational network productivity standpoint, focus on utilization. If the right acquisition comes along maybe you execute it, but maybe today you're not as aggressively seeking acquisitions as you have in the last, call it, 12 to 18 months?

Paul A. Will

No, I don't know if it's -- I think we're strategically, we've obviously learned from the acquisitions, bring them in. I think we've taken a different approach on the last couple of acquisitions on how we're going to integrate those and what type of business that we're going to bring on in the acquisition. So maybe a little more selective, but I think there's enough opportunities out there that I would say that we wouldn't pursue acquisitions at any kind of different pace than we've done up to now.

Stephen Russell

And Chaz, essentially, we're viewed as the buyer of last resort. And as a consequence of that, we hear from them as opposed to us trying to find the opportunities. And we see the opportunities because they're coming to us. And the appropriate ones, we will pursue, the not appropriate ones, we will disregard.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Got it. And then, Paul, maybe circle back around as we look at calendar '13, CapEx should be fairly minimal. Did I hear you say something about free cash flow of $65 million?

Paul A. Will

Yes. Our net CapEx requirements, net of any kind of leasing, is probably about $30 million between now and the end of June. So net of that, from that point forward, you could figure that our free cash flow is about $65 million, okay? And that would -- go ahead.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

So that's more from the June time frame forward?

Paul A. Will

Correct.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Okay, got it. And then last one, I'll get back in line. Without getting maybe overly specific with the new fleet being so old, is there maybe a percentage of MPG improvement that you guys have kind of realized over the last, call it, 1 year or 2?

Stephen Russell

As much as we have customers on the call, I'd rather not we go into the specific detail. Certainly, the newer fleet has impacted our MPG and skirts on the trailers helped.

Paul A. Will

If you look at our financials, obviously, you could look at the fuel surcharge and the cost, but it's really -- we've driven it really more from a cost standpoint with the aerodynamics, the anti-idling devices, et cetera, similar to our competition.

Operator

Our next question is from Jeff Kauffman with Sterne Agee.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

I jumped on a little late, so I apologize if this has already been asked. But do you feel that with fiscal cliff resolved and some of the economic uncertainty removed, even though it's still the weak part of the first quarter, do you feel as if your customers are more optimistic for a spring restocking at this point?

Stephen Russell

Marginally. I don't think there's enormous positivism in the economy, but it's certainly better than it was 6 months ago in terms of the action if you ask that to our customer bases.

Paul A. Will

And the customers are gearing up like they normally do for spring surges. And I think it's too early to tell whether or not it's had any kind of impact as far as people believe that things are a lot better or will be.

Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division

All right. And one other question, you may have alluded to this, Paul, in your comments about free cash flow. Obviously, it's your market in terms of looking at distressed businesses, but are there any other priorities or now that you're kind of at the stage you're at, are there any other things on the plate in terms of how you might use that $65 million?

Paul A. Will

The primary goal is to pay down debt, to be in a position when we do our next cycle of trucks in '14 to -- our goals is to own all those trucks through the turn. And then, obviously, any acquisitions that come up, that's why we have the $100 million line to be prepared, obviously, to do acquisitions if they're available?.

Operator

The next question is from Andrew Rem with Nuveen asset management.

The next question is from Art Hatfield with Raymond James.

R. Alex Scott

This is Alex Scott in for Art. And I just want to ask a question on the debt net percentage. I saw that ticked up in the quarter. And looking forward, that's usually been up sequentially into the March quarter, but since it was -- could you talk about how you see that going forward? Do you see that maybe holding flat or creeping up like has been the case in the past couple of years?

Paul A. Will

No. I think what you'll see -- you saw some of it weather-related, but I think you'll see that soft volume and weather. But you'll see that trend back down below 11% for the March quarter.

R. Alex Scott

Okay, all right. And then one other question I had on depreciation, [indiscernible] looked like that dipped down here. Can you talk a little bit about that and kind of going forward, how to think about that?

Paul A. Will

That's really a function of gains or net against the depreciation, so that's why you see it higher. And gains for the quarter were higher than they were in the previous quarter.

Operator

The next question is from Dave Tamberrino with Stifel, Nicolaus.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Kind of looking at the revenue per loaded mile increase year-over-year, what portion of that is a function of rate adjustments and price increases? And what percentage is driven by improved customer, freight and lane selection?

Paul A. Will

We don't -- obviously, our rates are up about 2.5%, but we haven't really broken it out between the difference in freight selection compared to just pure rate increase.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then, I mean, you -- the assets held for sale came down about $10 million quarter-over-quarter. How is the used truck market currently as it has compared to, say, all of 2012?

Paul A. Will

It's still -- I mean, I think what you see in the trade publications, it's not as robust as it was, but we're obviously near the end of our cycle, so we're pretty comfortable with it. It's still strong relative to where it's been historically, but we're pretty much through our cycle at this point in time, so it's worked out well for us.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then for the past 3 quarters after making a couple of adjustments specifically for this quarter for the $1.6 million expense, you guys have been running at an OR of about in the 87% range. What's the sustainability of that going forward based on your current cost structure?

Paul A. Will

Our goal is to run sub-90%, and obviously, that's predicated -- since our cost structure is pretty much in line, it's really predicated off the top line growth in the future. So that's what -- one of our key focus is on getting utilization on the equipment to lighten the haul. And if you look at where our key power lanes are and have been, that's where we're going to focus on, which should help us maintain the sub-90% OR.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then the one last one, I guess, since I have you. How did your cross-border Mexico business fair in the most recent quarter? And how do you think about that going forward?

Paul A. Will

As far as the most recent quarter, I mean if you look at year-over-year, it's down somewhat. Our Canadian business is flat. Mexican business is a total percent, the miles are up somewhat. And that's really where we're going to be focused on a go-forward basis. When you look at the opportunities and the concentration we put as far as personnel and resource that were putting into our Mexican-U.S. lane, we believe that's going to be a big growth opportunity for us over the next 12 months.

Operator

[Operator Instructions] And our next question is from Scott Group with Wolfe Trahan.

Scott H. Group - Wolfe Trahan & Co.

A couple of things. Paul, I missed your comments about the seated tractor count coming down sequentially. What were you saying about where that should go from here in the next couple of quarters?

Paul A. Will

I think what we've said between how -- where our turnover is today based on the mix of fleet that we have today between lease purchase, owner-operators and then ultimately, the trainer/trainee, the students coming out should help bring that back to where it was in the September quarter, which is about 38 or so over from where it ended this quarter. And then from there, we believe, organically, we will continue to grow independent of acquisitions, our seated count, which we believe is a good foundation to build off of especially we think that either fleets going to leave the marketplace, volumes will pick up, housing looks like it's picking up. Ultimately, we're going to have the drivers when we need them and the lanes when we need them at the right time to expand off our pretty much established cost structure.

Stephen Russell

And the driver training school that Paul described earlier, we think is a real opportunity for us from the standpoint of adding drivers.

Scott H. Group - Wolfe Trahan & Co.

Okay, that's helpful. Paul, you mentioned kind of a change in the acquisition strategy away from some of these distressed sellers. Can you explain -- that strategy of buying these guys and bringing on the drivers seem to have been really successful over the past year. Why do you think that doesn't work anymore?

Paul A. Will

No, I'm not saying it doesn't work. What I'm saying is that we are, in addition to the distressed, we're looking at also acquisitions where it may not be a fully distressed situation where we could actually utilize their SCAC code, run under their operating authority for a period of time and have a smoother transition, than some of the acquisitions where you just have to go in there, they're going to go out of business on Friday, and you have to just take the business, take the drivers. And because you're doing it in that kind of a nature or you're in that kind of situation, you end up having to bring the drivers through orientation, and so forth, because you can't run them smoothly. And therefore, your disruptive somewhat to the business, which is why you don't always bring on all the business you'd like to bring on. So it's not a complete change from what we're doing. It's in addition to looking at those kind of distressed acquisitions. We're also trying to do acquisitions where, say for instance, the Robinson acquisition, they're -- you had an individual, Rick Robinson, 66 years old. He is kind of doing okay for the last 4 years, but it's a situation where he was -- the truck costs were going up, trailer costs were going up, fuel is going up, doesn't have the buying power of a large fleet and just wanted to exit. So we were able to transition that business and keep a couple of his large customers. He had 4 customers that represented, say, 70% of his business, which is perfect for us because you could -- then you only have to really focus on 4 customers and not 30 or 40 customers, and that works well into bringing it into our system and concentrating on those accounts. So it's really more, can we add some of those to help grow the business, book a business as opposed to more -- as many distressed situations. So I wouldn't say we're going to shy away from any distressed situations, if they makes sense.

Scott H. Group - Wolfe Trahan & Co.

Yes, that makes sense. And with the kind of the OR sub-90%, are you getting closer to thinking about just growing the fleet organically?

Paul A. Will

Well -- and that's what the comments earlier -- we feel as much as, obviously, we'd like utilization to be higher, the one thing we really feel good about is we've had a lot of internal initiatives to service customers better, to utilize systems, to do that and those are really starting to materialize now. But with the opportunity, with the school and the bringing the drivers on, we believe that now we will have an opportunity to grow organically, independent of acquisitions. So a combination of the acquisitions dovetailing into the organic growth, we believe we have a lot of opportunity. And now is, obviously, we believe that the right time to have that expansion when things, we believe, are going to start picking up. So we believe that the timing's good.

Scott H. Group - Wolfe Trahan & Co.

So Paul, I mean, assuming that the driver schools work and all that and drivers become less of an issue, I mean, do you think -- would you think about growing -- start growing the fleet 5%, 10% a year?

Paul A. Will

I think that's very feasible. I mean if the freight's there and it make sense and we're going to get the margins on the business, absolutely. I think our key focus is really, as I said, lane density, work the business that makes the most sense for us, but also really growing with our existing customers and the customers we've brought on through the acquisitions, becoming a larger piece of their supply chain management so that we're important to the customers, as well as the customer is important to us. So that, that's easier to grow a book of business with a customer instead of adding a lot of customers because it's easier to administer what they need, their needs, their requirements, just getting more volume with one customer is a lot easier. So that seems to be working well right now as far as our objectives.

Stephen Russell

And I think that, Scott, the reality is that until it's clear that the economy is, in fact, improving, I don't think we need to grow for the sake of growth. And if the economy does start to improve, then we will grow it as Paul indicated.

Scott H. Group - Wolfe Trahan & Co.

Okay, that's helpful. And then just 2 things more, what percent of the fleet now has -- the trailers have skirts, or what percent of your fleet has all the fuel efficiency stuff you've been doing? I'm just trying to get a sense if there's more to go there. And then just lastly, do you have cash from ops and CapEx in the quarter?

Paul A. Will

I would say that about 80% of the fleet. The real key that you're going to see, I believe, is coming into the summer months, because last year we averaged maybe 60% to 70% maybe that had all of the aerodynamics on the trailers or the anti-idling devices on the trucks. So you'll see -- we've had the bunk heaters for the previous truck cycles. So real anti-idling comes into play more in the summer, which we didn't have before. So I think the end of the March quarter, or really more into the June quarter and part into the September quarter is where you're going to see a full impact of all the anti-idling devices and skirts. Our freight cycle, refresh fleet of the fleet is going to be done basically the end of March, first of April. So you'll have everything in place at that point in time.

Scott H. Group - Wolfe Trahan & Co.

That's great. And then cash from ops and CapEx?

Paul A. Will

About, say, $25 million to $30 million cash from operations.

Operator

Our next question is from Barry Haimes with Sage Asset Management.

Barry George Haimes - Sage Asset Management, LLC

I had, I guess, 3 quick ones. One, Mexico, could you remind us about what percent of revenues Mexico accounts for now? And if you had -- help us on what you think the secular growth rate might be over the next couple of 3 years? Is there a range you'd like us to think about for Mexico? And then secondly, the acquisitions, when you go back and evaluate the ones you've done so far and do the post-audit, how are you thinking about the metrics whether it's driver retention or customer retention or return on invested capital? And how do you go back and think about that? And do you have any comments for us about that? And then third quick one, Navistar has made a bunch of product changes, and I think you've used them in the past and I'm wondering how you're thinking about them as a supplier in the future versus what you may have done in the past.

Paul A. Will

If you look -- our Mexican business is about 37%. We believe that will grow, as I said earlier, over the next 3, 6, 12 months based on our key -- our focus on that. It's obviously a good utilization. It's -- we have got a good knowledge base of that and it's been our legacy business up to now. So -- and I think the opportunities from near sourcing and new plants and so forth are going to give us those opportunities to grow that business. If you look at key metrics and so forth on the acquisitions, I think the real drivers, as we talked about before, is what customers we've brought on. So we track the customers we've brought on and try to not only bring them on, but bring on the growth of those individual customers; so bring them into the network and then grow those customers. If you look at the drivers, we look at the turnover on the drivers. What drivers are we bringing in, and basically how do we retain those drivers after the acquisitions. And typically, drivers acquired through the acquisitions are typically going to be the drivers -- or the jobs we offer to those are typically the drivers that aren't really moving around, hopping around from fleet to fleet. They would rather stay at the fleet they're at, but only because the other fleet is going out of business is the reason that they're moving. So our retention level, we believe, has been pretty good with the acquired drivers. So those are the 2 key components to the acquisitions. It's not -- they add density in given lanes, but it's not -- we don't look at it as being a separate entity brought in, obviously, because it's really drivers and business. And if you look at, I guess, the third, the last piece I guess the Navistar, the -- running their 'trucks and bringing -- implementing that, I think that's worked out really well for us from the standpoint of the aerodynamics on the trucks, the battery part APUs that they -- that come with the truck. And we have not really been having any trouble as far as uptime on those trucks, so that's worked well for us up to now. The 13 leaders worked well as far as servicing our needs as far as our freight and mix for our customers.

Stephen Russell

I think that maybe the fact that, Paul, who became COO in October of '10. If you look at our performance since then, it's been outstanding. And I believe that the questions you're asking are real and certainly, specific. But we've got a management team that really could react to changes. I think that's one thing that's added to our strength.

Paul A. Will

I think it's really more the latter. The management team, as a whole, has done a really good job evaluating the business, working on evaluating the metrics and what we're doing and putting Celadon in a position to do well in the future with a good foundation, a good mix of business, good cost structure and an opportunity now to grow organically through growing drivers.

Operator

Our last question is from Jack Waldo with Stephens Inc.

Jack Waldo - Stephens Inc., Research Division

Sorry, I missed the first few minutes. Congratulations, Paul, on the promotion.

Jack Waldo - Stephens Inc., Research Division

I had a question on your -- these recent acquisitions and the verbiage on expanding your -- the service offering. Could you talk a little bit about your thought process on the temperature-controlled industry? What you're doing there? Where you see that going long-term? And then could you also maybe talk a little bit about the equipment that you have in each of these segments that you're calling out?

Paul A. Will

Yes. If you look at, from the refrigerated side, there's only about 40 trailers that are associated with that, and it's really more temperature-protect than refrigerated in the pure sense of hauling freight. We are contemplating purchasing some additional refrigerated trailers, not only for that business that they have, but for the opportunity to grow with some of the customers. We've gotten with -- a lot more as, I think, Tom Albrecht had asked earlier as far as retail and so forth. We've got a lot more food-type products that -- companies that on the dry side that we've been bringing on in the last 12 to 18 months that they're looking for a lot on the refrigerated side as well. So we believe there's an opportunity for us not really to go full fledged into refrigerated, but really more to service the existing customers we have and expand with them and provide opportunities. Like if you go in and out of Canada, you may need to be temperature-protect with customers that you can't get the business the rest of the year because they're going to give the business to the individuals that have the capacity to haul a temperature-protect in the winter. So that's kind of what, at least, our goals are and why we're driving towards that. If you look at, like on the local dedicated, when we've done a couple of the acquisitions they've had a local dedicated spot or trucks that -- where you're putting trailers in and out of the docks basically. When you get your foot in the door in some of these accounts by providing those types of services, what that does is it gives you an opportunity if you're hauling that freight to be able to get preference in some cases to be able to have your trailers bumped up to the docks to be able to get that freight. And then it also builds a good rapport with the customer at the plant location to be able to service those in -- on a go-forward basis. So from a local standpoint, we've got about 125. If you talk from a regional standpoint, we have about 450 to 475 trucks, and that's comprised really of a Texas regional, a Northeast regional, a Southeast regional. We've had some of that in the past, but through the acquisition of Teton, the Southeast and Knoxville, and the Glen Moore acquisition in the Northeast in Carlisle, those 2 facilities now provide us the opportunity to really get into some business that, if you can't get a big enough book of business with some customers, they won't even let you in the door. But by being able to do some of the Northeast, Southeast regional freight, that allows us to get a big enough book of business through the bid process for them to allow us to start hauling freight for them. So when we talk about expanding our service offering, it's to be able to do things for customers that allow us to get our foot in the door and then have the foundation to be able to grow as opposed to historically, and I'm talking 5, 6, 7, 10 years ago, Celadon would really just focus on to and from Mexico, pick out 3 or 4 lanes. And customers, today, really looking more for a full service offering so that if you have less carriers instead of more carriers, so the core group of carriers they want to minimize from a simplicity stake in their back office as well. So when we kind of look at it, we've got a slow growth in the dedicated that's, obviously, a little bit more challenging to get incumbents out of there, but we've got all 50 trucks in that business segment as well.

Jack Waldo - Stephens Inc., Research Division

And then on the warehousing piece?

Paul A. Will

The warehousing piece, right now, we have a little -- about 1.1 million, I think was in the most recent release. That's not -- square feet, under roof. That's -- we believe that's a good opportunity. We've grown that business. We've grown it really more on a specific customer by customer, but this is only our second, really, multi-tenant facility that we believe that it will provide more of an opportunity on a go-forward basis to really complement, not only the business that we're doing, but if you have multiple facilities, it will give us an opportunity to utilize those facilities at a starting point with existing customers we're dealing with on the existing facilities. And maybe Jon could add a little bit to that. Jon Russell?

Jonathan Russell

Yes. And we already used, in addition -- yes, we're at, after the Rock acquisition, we're over 1.25 million square feet. We also use outside third-party providers in our consolidation business. So beyond our -- these are our fully leased facilities or owned facilities, we also utilize smelt-tail [ph] carriers and other providers in 4 other locations. So our reach is bigger than just the states we own it in, as we've developed the relationships going forward.

Jack Waldo - Stephens Inc., Research Division

Got you. And is there a -- how is the management -- how is the management structured in handling these areas? Have you added a head of temperature control, a head of certain regions? Has there been an increase, I guess, in the overall managerial account with the growth into these new areas?

Paul A. Will

No. And like I said with the refrigerated, we only have 40 trailers so it's really on a go-forward basis. We believe with what we're doing from a -- utilizing the system standpoint, we don't believe that necessary refrigerates going to have to be broken out separately for some time even if we added some trailers for existing customers. As far as the warehouse side of it, that's all structured underneath Jon Russell and we've had the same staffing in place even with this acquisitions. The nice thing is, no different then on the truckload side, when you have a management group in place you could expand, then. And that's why when we look at our cost structure, I think we're in pretty good position to really be able to expand the number of miles and the utilization that we get on our equipment without adding overhead.

Stephen Russell

Any other questions?

Operator

That was our last question in queue.

Stephen Russell

Thank you very much, everybody. I appreciate the time to listen to us and feel free to contact any of us with any questions. Thank you, everybody. Bye-bye. Thank you, Lisa.

Operator

Thank you, ladies and gentlemen, this conference has concluded.

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Celadon Group (CGI): FQ2 EPS of $0.32 in-line. Revenue of $148.1M (+2.7% Y/Y). (PR)