Pacer International Management Discusses Q1 2013 Results - Earnings Call Transcript

Apr.24.13 | About: Pacer International, (PACR)

Pacer International (NASDAQ:PACR)

Q1 2013 Earnings Call

April 24, 2013 5:00 pm ET

Executives

John J. Hafferty - Chief Financial Officer and Executive Vice President

Daniel W. Avramovich - Chairman, Chief Executive Officer and President

Paul C. Svindland - Chief Operating Officer

Robert W. Noonan - Executive Vice President of International Logistics

Analysts

Michael R. Weinz - JP Morgan Chase & Co, Research Division

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Scott H. Group - Wolfe Trahan & Co.

Kenton Moorhead - Robert W. Baird & Co. Incorporated, Research Division

Ryan Cieslak - KeyBanc Capital Markets Inc., Research Division

Kevin W. Sterling - BB&T Capital Markets, Research Division

Operator

Ladies and gentlemen, good afternoon. Thank you for standing by, and welcome to the Pacer International First Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Chief Financial Officer, Mr. John Hafferty. Please go ahead.

John J. Hafferty

Thanks, Tom, and good afternoon, everyone. Thank you for joining Pacer International's First Quarter 2013 Earnings Call. Following my brief introduction, Dan Avramovich, Pacer's Chairman and CEO, will give an overview of our first quarter results. Then I'll give an update on our financial results in more depth. And Paul Svindland, Pacer's Chief Operating Officer, will summarize our intermodal performance and plans. Followed by Bob Noonan, Pacer's Executive Vice President for International Logistics, who will comment on our Logistics segment.

At the outset of our call, we remind everyone of our normal disclosures regarding forward-looking statements and predictions of future operations, which we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's beliefs and interpretations of currently available information. Such statements and assumptions involve certain risks and uncertainties, which are described in our SEC filings. Actual events may differ materially from those forward-looking statements and except as required by applicable law, we assume no duty to update these statements as of any future date.

Our press release this afternoon announced our financial results for the first quarter of 2013, including our normal financial statements and comparisons to comparable 2012 periods. As we've discussed on our last earnings call, we have reclassified certain costs from SG&A to direct operating expense and purchase transportation to reflect now how our business is being managed and to more closely align with industry practice.

In our release today, we have included a table which shows the impact of these reclassification costs on our 2012 reported results. In addition, as of January 1, 2013, we now act as Union Pacific's network manager for U.S. to Mexico cross-border shipments. Under this arrangement, we are now compensated on a net fee basis, and we no longer collect and pass through the rail transportation cost to our automotive intermediary servicing our U.S. to Mexico business. For comparability purposes, we included a schedule in our release today, which excludes these rail transportation costs from our 2012 revenues, so as to present both periods on the same net basis. And our comments on today's call will be comparing our 2013 results against the 2012 adjusted figures. As information, replay of this earnings release conference call will be made available through May 24 in the Investors section of the company's website, www.pacer.com. I will now turn the call over to Dan Avramovich. Dan?

Daniel W. Avramovich

Thanks, John. We announced first quarter earnings today that were higher than expectations, with both segments improving operating results by double digits and an 8% reduction in overall corporate cost. Intermodal and Logistics segments operating results improved 20% and 13%, respectively, versus prior year. These results reflect our continued focus on network profitability, successfully operationalizing our new cost cross-border agreement with Union Pacific, and holding the line on operating and SG&A cost. Additionally, we generated operating cash flow of $10.6 million in the quarter with $28 million in cash on hand. So overall, a solid first quarter.

Intermodal results this quarter reflect the continuation of last year's focus on achieving acceptable margins for our services. As a result, intermodal gross profit and gross margins were up year-over-year 5% and 140 basis points, respectively, with that growth coming from a better mix of business and better management of our network and equipment cost. However, both volumes and revenues were down year-over-year in the quarter, reflecting the impact of last year's effort to pare low margin freight. Paul will cover more of this in -- when he goes through his Intermodal update. Our Logistics segments -- segment, operating results were at $400,000 or 13% over last year, marking the first time in several quarters that Logistics results improved on a year-on-year basis. Also encouraging for us is that revenue was down year-over-year by a smaller amount than prior quarters. We remain encouraged and optimistic that the changes we've made are resulting in those businesses turning the quarter toward profitability. We also began executing on our Asia build-out plan in the quarter and have brought on several new resources that will contribute to growing the business in the coming quarters. Our plan is to achieve double-digit revenue growth starting in the second half of this year, allowing us to approach breakeven in the Logistics segment by year end.

I'll now turn it back over to John so he can walk through some more of the financial results.

John J. Hafferty

Thanks, Dan. In the quarter, Pacer earned $0.04 per share, which is up $0.05 from last year's loss of $0.01. As Dan previously mentioned, our operating income of $2.4 million was up from last year's breakeven with double-digit improvement in both segments. Intermodal operating income was $9.8 million, an increase by $1.6 million or 20% over last year; while our Logistics operating loss of $2.8 million improved by $400,000 or 13% from last year's loss, up $3.2 million. Our total company revenues were down by 8% from last year, primarily as a result of lower volumes in both segments. In the intermodal segment, revenue of $180.4 million was down from 5% from last year with domestic intermodal volumes declining by 2% and international intermodal volumes declining by 30%, primarily due to a drop in drayage volumes from an ocean carrier customer, who moved their transportation model to be on-dock during the second quarter of 2012. Our Logistics revenue of $52.6 million was down by 14% from last year as we continue with the transition of moving our international freight forwarding business from a wholesale to a retail model.

The company's gross margin percentage in the first quarter was up by 100 basis points to 13.7% with Intermodal improving by 140 basis points, and Logistics declining by 30 basis points. Our Intermodal gross profit came in at $25.3 million and was up by $1.2 million or 5% over last year. This increase came from a favorable mix of higher margin freight, better network optimization and lower equipment cost.

Our Logistics segment gross profit of $6.6 million was down by $1.2 million from last year, primarily from the decline in the segment's revenue. The Logistics gross margin percentage was 12.5% and down by 30 basis points from last year, due to tough pricing environment for our wholesale NVOCC business. We continue to hold the line on SG&A expenses, which declined by 7% in the quarter to $29.8 million. The majority of the reduction came from our Logistics segment, which was down by $1.3 million or 12% as a result of the cost reductions taken in 2012.

Intermodal SG&A decreased by $400,000 or 3% from lower staffing levels. Our effective tax rate in the quarter was 38%, which was down from last year's first quarter rate of 40% and down from our 43% full year rate in 2012 due to the change in the mix of our income from various states and foreign jurisdictions, and we do expect that this will continue for the balance of the year.

As Dan indicated, we had a solid quarter in terms of our cash generation. We remain debt-free and ended the quarter with $28 million of cash on hand. In the quarter, we generated $10.6 million in cash flow compared to the use of cash of $3.1 million last year, and we spent $2.8 million for capital expenditures. Our borrowing capacity was $63 million, which was down from last year end as a result of the lower account receivable balances due to the implementation of our new UP cross-border agreement.

Now looking to our guidance for the year. We are reconfirming our earnings per share guidance for the full year to be in the range of $0.25 to $0.30 -- $0.35, which has more than doubled our 2012 performance. Inside this guidance, we expect our intermodal volumes to increase in the second half of the year as a result of our current bid season activity, along with intermodal margins remaining consistent with our current quarter.

For Logistics, we expect our revenues to grow throughout the year as a result of our sales team and our Asia buildout with margins remaining fairly consistent for the remainder of the year. Our SG&A costs should remain relatively flat with any increase coming primarily from investments and sales generation activity. We now expect that 30% to 40% of the year's results will be earned in the first half with the remainder occurring in the second half. As we discussed previously, now that we completed the implementation of our new UP cross-border agreement, we are in the position to offer revenue guidance for the year, which we expect to range from $1 billion to $1.1 billion, which would represent flat to mid-single-digit growth over 2012. I will now turn the call over to Paul Svindland, who will provide more information on our intermodal results and plans. Paul?

Paul C. Svindland

Thanks, John. Our focus on profitable intermodal growth was evident in the quarter's results. Intermodal operating income was up 20% on a 140 basis point increase in gross margin, but a 5% decrease in intermodal segment revenues. Within the segment, domestic intermodal revenues were also down by 5%. The decline in domestic revenues is mostly a result of our efforts in the second half of last year to pare low-margin freight that we had won in the first half of that same year, but later became unattractive due to large unexpected rail cost increases in Transcon lanes. As we described in both the third and fourth quarters of last year, we repriced much of that business and as a result, some of that volume went away. Additionally, our approach to this year's bid season has been to be very disciplined in our pricing. These factors combined to result in domestic intermodal volumes that were down by 2% overall from last year's first quarter, with Transcon lanes declining double digits, partially offset by north/south lanes up high single digits. The combination of price, fuel and business mix negatively affected domestic revenue, which was down 5% on the 2% lower volumes.

Our international intermodal revenues were down year-over-year by 8%. As in the prior 2 quarters, the decline was primarily driven by port drayage in the Pacific Northwest, where a customer moved from off-dock to on-dock service in the second quarter of last year, resulting in a reduction in drayage needs. Additionally, inland ISO container capacity remains very tight due to a strong export market, resulting in a reduction in our business that uses those containers for domestic freight purposes. Intermodal margins improved significantly year-over-year, with our gross margin percentage up 140 basis points and overall gross profit up 5% over last year's first quarter. As I mentioned earlier, our ongoing efforts to move higher margin freight contributed significantly to these results. We also continued to work on our handling of accessorials, street drayage and network and equipment efficiencies. All of which contributed to the margin results in the quarter. These areas will continue to be the focus of our initiatives for the remainder of the year.

Intermodal container turns in the quarter were down slightly year-over-year at 1.7 per month versus 1.8 last year as a function of the lower domestic volumes. We continue to look at what the optimal mix of private versus rail assets is for us. In light of our growth outlook and the relative all-in rail costs to the alternative forms of container capacity and to this end, we still anticipate adding additional containers later in the year.

For the rest of 2013, as I mentioned earlier, we expect domestic intermodal volumes to remain challenged for the second quarter and to rebound in the second half of the year as a result of bid season wins and as we lap last year's second half repricing activity. We anticipate auto volumes to grow in mid-single digits in the second half after plant retooling ends and new plants come online. Overall for the year, we continue to expect domestic intermodal volume growth in the low to mid-single-digit range.

I will now turn the call over to Bob Noonan, who will discuss results and plans for Logistics line of business.

Robert W. Noonan

Thanks, Paul. Logistics segment started off 2013 with first quarter operating results improving by $400,000 or 13% over the first quarter of last year. We are pleased to show year-over-year improvement. We are also encouraged by the progress we made in the quarter and our efforts to return the segment to profitable growth.

And we look forward to accelerating benefit of those in the coming quarters. Logistics revenue in the quarter was down $8.5 million or 14% last year. Like in past quarters, the decline was a result of lower volumes in the wholesale NVOCC business, which are a function of very competitive market conditions, resulting in tough pricing and customer and agency churn in connection with our strategy to move from a wholesale to a retail model. Encouraging for us is that the decline was smaller than we have reported for the last several quarters. As we discussed on the call, our new sales agency development teams are continuing to build their pipeline and deliver new customer revenues. Similarly, our Asia build-out plan is progressing nicely, following the receipt of our China operating licenses in December. We brought on several new seasoned employees in China near the end of the quarter, and they have had an immediate impact on the growth of the business. We will continue adding proven resources in the coming quarter to further enhance our opportunities for growth. We also just implemented our new unified IT platform and related processes in the first pilot offices on schedule with further office rollouts scheduled for the balance of the year. Our expectation is that these changes will result in revenues growing double digits in the second half of the year.

Our Pacer Distribution Services and Highway Brokerage businesses also had positive quarters with operating results up over last year. Both businesses continued their positive trends from the second half of last year and changing our brokerage sales model in the case of Highway Brokerage and more efficient utilization of warehouse space in Pacer Distribution Services. Overall, as the market continues to improve, we expect our Logistics segment to gain additional traction toward profitability in the second half of 2013 as a result of growing revenues and managing expenses in each line of our Logistics businesses.

With that, we'll now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from the line of Michael Weinz with JPMorgan.

Michael R. Weinz - JP Morgan Chase & Co, Research Division

I guess to start off with, I was wondering if you can talk a little bit about the underlying assumptions in your guidance. Just what you're looking at from a macro-environment?

John J. Hafferty

Macro-environment -- as we said, we're looking at our volumes to grow mid-single digits in the second half of the year as we lap the third and fourth quarter. I mean right now, we're seeing that with our bid season as far how we came out of bid season.

Daniel W. Avramovich

Yes, but in regards to macro pieces, we're looking at Mexico to still be maintained at a strong position, all right. Overall, domestic intermodal revenue volumes in the low single digits, if you will, in terms of growth. And then international volumes, probably in the 4% to 6% range.

Michael R. Weinz - JP Morgan Chase & Co, Research Division

Okay. Now I was thinking more in terms of what are you looking at for GDP growth in 2013 that would be giving you confidence in these forecasts?

John J. Hafferty

We're looking at GDP at about 2%.

Michael R. Weinz - JP Morgan Chase & Co, Research Division

Okay, that's fair. It's probably early to kind of get a sense on what's happening with second quarter, but I was just wondering if you can talk about trends you've seen in the first quarter and whether or not that's changed in second quarter. And I guess the -- to preface that, I'm thinking on a year-over-year basis, how first quarter performed year-on-year and then how second quarter might turn out?

John J. Hafferty

I think as we talked about, I think as Paul alluded to, we still have the issue where we're lapping the second quarter on our volume growth. So I mean, we still see the similar trend. We're focusing on profitable growth, and we are having success with our bid season right now. So that's how we're seeing the second quarter ramping up. But again, we should see similar trends on the volume year-over-year.

Michael R. Weinz - JP Morgan Chase & Co, Research Division

Okay. And with respect to pricing, I don't think you identified what your pricing was up during the quarter?

Daniel W. Avramovich

It's difficult to actually do it because of the kind of the mix change in kind of our -- going to a net basis on the auto side. But on the domestic intermodal side of the equation, we're up a little over 1% in the quarter and enough to cover essentially what our rail cost increases are. And we do plan to be able to do that going forward, and that's how we're pricing our bids going forward as well.

Michael R. Weinz - JP Morgan Chase & Co, Research Division

Okay. And then the last question, just regards to containers, what's your outlook for adding capacity this year and maybe your year-over-year change in capacity in peak season?

Daniel W. Avramovich

We haven't changed that from what we had expected earlier. Still looking at adding 1,500 units at this time. We will probably adjust on it a number of free runners that we had that had been running around 30% of overall capacity utilization, but subject to kind of how our bids turn out in the second and into the third quarter.

Operator

Next question comes from the line of Mike Baudendistel with Stifel.

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

I wanted to ask a question on the Logistics segment. Is there a room for SG&A reduction? It looks like SG&A and Logistics is about 18% of logistics revenue. Or is that related to personnel that are coming online sort of ahead of some of the Asia Pacific business?

Robert W. Noonan

We made an investment in some of our people, obviously, both on the sales side and the Asia buildout. The revenue, as we indicated, is starting to catch up and being booked. So that will become a lesser percent as the revenue comes on board.

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Okay. But it sounds like there's not costs you're planning to take out from there, or are you?

Robert W. Noonan

No. We have no plans to take out any significant cost on the Logistics side of the business. There will be occasional changes that we may wish to make but none planned on a significant basis.

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Okay, and is it true...

Daniel W. Avramovich

All costs that we will be adding are focused on sales generation period, okay?

Robert W. Noonan

Right.

Daniel W. Avramovich

And we continue to look, as we did in the quarter, for improvements in operations and backroom-type efficiency areas. So we're continuing to look at the opportunities there.

Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division

Okay, good. And also I want to ask on the Logistics side of the business, the Asia Pacific business really seems to be where a lot of the focus is. Why so much focus on that business specifically? And what do you expect Pacer will do that will be differentiated relative to other competitors that are out there addressing the same market?

Robert W. Noonan

Well, certainly I look at it from the standpoint, the Asia market is so big that we can't turn away from it. Our relationships that we have with the people in the organization with our customers, a large amount of their business is driven by Asia. The differentiator for us is that we have the Logistics side of the business as well as the intermodal side of the business and the ground transportation side which I think, separates us from many of the competitors that are out there. So it gives us a good platform to really develop the business and move forward. The opportunity that we've had has really been as a result of people within the market that have become available in order -- with proven track records in order to come on board and be able to position the business. Dan said, everything that we're doing -- we're focused on revenue generating people within the organization as we're bringing them on now.

Operator

Our next question today comes from the line of Ryan Bouchard with Avondale Partners.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

I apologize. Wasn't able to write as fast as you guys were talking. So a couple of clarifications real quick. Did you say that international intermodal revenue was down 8%? Was it -- did I hear that correctly?

John J. Hafferty

Yes, that is correct.

Daniel W. Avramovich

That's correct.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. And then the other income in Logistics of $300,000, what was that and should that reoccur?

Robert W. Noonan

That will be reoccurring. From a GAAP accounting standpoint, we have to show that, that's really nothing more than a sublease of one of our warehouses. That will reoccur. That will continue to reoccur.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. At that level, or should it ramp up a little bit, come down a little bit?

Robert W. Noonan

It would stay probably at that level. It's not going to go up.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. And then on the 140 basis point improvement in intermodal, can you kind of talk us through the components of that?

Paul C. Svindland

Yes. If you look at the -- on the margin improvement, it's primarily driven by driving down and keeping our drayage cost down as well as equipment repositioning and also our M&R costs in the quarter. And it will continue to be a focus area for us for the remainder of the year.

John J. Hafferty

As well as kind of looking at kind of the business mix that we're managing, all right. So there's really kind of those 4 components.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. Do you expect kind of a similar improvement in the remaining quarters of 2013 versus those adjusted figures in the release, or should that margin expansion come in better or worse for any reason throughout the year?

John J. Hafferty

We expect that to be relatively flat where we're at in the first quarter.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. And then lastly, on Logistics, you said that you still expect it to be profitable in the second half. Does that mean profitable just by the end of the year or does that mean that the whole second half will be profitable in Logistics?

John J. Hafferty

Not the second half. We've said on numerous calls that we expect to cross the line into -- we can break even in the fourth quarter -- on the fourth quarter. So towards the end of year, we expect to breakeven.

Daniel W. Avramovich

Yes, and what's critical to that, obviously, is the sales generation activity that we have there, where we are expecting double-digit growth in second half there.

John J. Hafferty

It's really a function of really migration from the wholesale model to the retail model, which takes a little bit of time to ramp up, which is where we're at now with the salespeople who are obviously bringing on the new customers and the relationships -- developing [ph] those to bring in the business. And that's why the second half is critical and we see the benefit.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. And then one last question, I'm sorry. The new IT system that you guys have already started rolling out, can you give us an idea of kind of what percentage of that new system is already rolled out? Is it like 10%, or is it like 50% already done?

John J. Hafferty

About 20%, 20% of the operating offices, we actually rolled it out in Asia. We changed our plan. We were originally going to roll it out in the U.S. when we had the opportunity to do the Asia buildout. We took the opportunity to move that to Asia, and those are the first offices that we rolled out. We've got half of Asia rolled out now. We'll do the close on the month of April. We'll bring the rest of Asia up starting May 6, and then we migrate to the U.S. to start to roll out the U.S., and we'll move to Europe from there.

Daniel W. Avramovich

Total time -- completion time...

John J. Hafferty

By the fourth quarter, we expect to be done by the end of the fourth quarter.

Operator

Our next question comes from the line of Scott Group with Wolfe Trahan.

Scott H. Group - Wolfe Trahan & Co.

So I hopped on the call a little late, so I don't know if you've been through this, but just in terms of the new auto relationship with UP, now that you've got some more visibility, how long do you have comfort that we're not going to see any kind of net revenue impact? I guess, my understanding is that, at some point, you're going to need to start winning some retail business. How long -- what's the amount of cushion -- how long a cushion do you have before you need to start winning that business, and can you give us any update on bids you're involved in or potential new wins on the retail auto set?

Daniel W. Avramovich

Yes. We -- as you know, Scott, we have historically been in auto on a direct basis, all right, where we've expanded into kind of what the new agreement allows us to do is go more direct on a certain business in north/south corridors into Mexico, right? So we have had some significant wins in actually our -- what I would call our traditional retail customers that should -- that will be coming online in the second half of this year. Adding to that, we are working on some nice opportunities that's -- I actually sit outside of that north/south OEM business because a lot of those contracts don't really come off or available until actually year 2 or 3 into -- from when we executed the agreement. So -- but we are seeing some nice opportunities, and I think we're positioned very well to take advantage of that.

Scott H. Group - Wolfe Trahan & Co.

Okay. Can you help us -- with the new reduced kind of gross revenue run rate for intermodal, can you help us break that down now between retail, international, Mexico, or auto, wholesale?

John J. Hafferty

We don't break down that revenue by the components. Again, as we talked about, we do manage our intermodal network in total, and so it's just the way the network flows.

Scott H. Group - Wolfe Trahan & Co.

All right. So on the Logistics side, if you back out that the $300,000 other income gain, there's really no signs of any progress here and revenue is still down double digits, Logistic loss is pretty similar with a year ago. What is changing in the second half of the year where all of a sudden revenue is going to turn positive double digits and earnings losses are going to moderate? Are you counting on a better economy? Are there contracts that you've already signed that you've got visibility to? Or what's really going to change starting in third quarter or fourth quarter?

John J. Hafferty

It's a multitude of things, Scott. First of all, we're working on contracts. We've renewed some contracts that will start in the second quarter, into the third and fourth quarters when they'll get ramped up and they're implemented. The Asia buildout, which is really an integral part of what we've been saying for the last few calls and since we came on board because of the fact that we want to make sure that we continue to build that, the Asia market because we have the opportunity to do that. So we know that the revenue is going to be there because again, we've got it highlighted, we have it identified and our migration from wholesale to retail takes a little bit of time to ramp up. Those are relationships, and it's also the crossover and the calls that we're making with the Pacer Enterprise folks that are helping us to get the entrees into that client set and working on those relationships. So they're all positive.

Robert W. Noonan

And Scott, you can't throw out the $300,000 because primarily, you have the lease cost in the Logistics segment last year with no revenues. So at the end of -- so the point is, it is an improvement year-over-year in the Logistics segment.

Scott H. Group - Wolfe Trahan & Co.

How long does that lease last? That $300,000 a quarter?

John J. Hafferty

The -- I mean, it's a multiyear lease. I mean, I don't have it, but it's a multiyear lease.

Scott H. Group - Wolfe Trahan & Co.

Okay. And then just -- the last couple of things, the intermodal -- the intermodal direct operating expenses of $23 million, do you have a sense on a good run rate for that going forward? And then on intermodal pricing, up 1% but covering rail costs, is that right that rail costs are only going up 1%? I would have thought they would be up a lot more than that.

Daniel W. Avramovich

We have adjusted kind of both as it relates to the kind of business that we secured, all right, as well as kind of in the lanes, all right, as well as kind of the holding the line on some of rail costs because as you remember or may remember, we took some fairly significant increases in March and June of second -- well, actually, first and second quarter of last year. So that has been kind of redone and we're confident that we'll be able to -- this is our bidding, that we've got clear line of sight as to what those costs are going forward, and we're pricing it accordingly.

Paul C. Svindland

But let's not forget right that the rail cost is not a 100% of the total cost, right, it's only a portion of it. And so, yes the rail costs are going up above 1%, but we believe 1% to 1.5%, we are baking that into our pricing. We have baked it into our pricing. It has been accepted, and so we're confident that the 1% to 1.5% overall increase covers the rail cost, and again we're driving down efficiencies and driving down cost on the drayage side as well. So overall in net, we're confident that the 1%, 1.5% covers us.

John J. Hafferty

And on the direct operating costs, I mean, we had $23 million in the quarter. I would expect it to range over the course of the year about $24 million per quarter.

Operator

Our next question comes the line of Ben Hartford with Baird.

Kenton Moorhead - Robert W. Baird & Co. Incorporated, Research Division

This is Kenton on for Ben. I wanted to touch maybe a little bit on the line of question in terms of just maybe new business wins. I just wanted to maybe get a sense for where you were successful just year-to-date in terms of wins. Is this largely wins on your east to west business? Is it related to your north/south? And then maybe, even like by industry end market, are you having success in winning new business on the automotive side?

Paul C. Svindland

Yes. So essentially, we like to say that there's -- the bid season has come in 2 sides to it, right? Initially, we found there are some very aggressive pricing that was being done by some of our competitors out there, and so we stayed very disciplined on keeping the profitability, staying within our network and hence we saw a little bit of a decline or we saw a decline in our east/west volumes. Over the last couple of weeks, let's say the last month, we've seen a lot more wins in the bid season and a good amount of those wins have been in the east to west also continue to see uptick and picking up volume in the north/south as well. But for whatever reason, we're having a lot more success and having a better win rate as of the last few weeks. And again, our expectation is that we will continue to see a good win rate throughout the remainder of the year, and we've been able to get the rate increases in there to offset any rail increases that we see. So we're feeling pretty good about it.

Kenton Moorhead - Robert W. Baird & Co. Incorporated, Research Division

And along the lines of those rate increases, do you guys have visibility in terms of what you see your pricing increase from the rails are going to be later on this year? Or do you have any color to add to that?

Paul C. Svindland

Yes, we have very clear visibility throughout the end of the year.

Kenton Moorhead - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then I just had a couple of housekeeping items. I wanted to double check, was it -- did you guys say that you were going to get 47% of your earnings in the first half of the year? Is that what I had heard?

John J. Hafferty

We said we now expect 30% to 40% of this year's for the first half. 30% to 40%.

Kenton Moorhead - Robert W. Baird & Co. Incorporated, Research Division

Okay, 30% to 40%. And then what is your expectation in terms of the CapEx range for the full year?

John J. Hafferty

It's -- I believe it $5 million. $5 million to $6 million.

Operator

Our next question comes from Todd Fowler representing KeyBanc.

Ryan Cieslak - KeyBanc Capital Markets Inc., Research Division

This is actually Ryan Cieslak on for Todd. The first question, just to piggyback on that one of the questions previously asked there, on the guidance of the 30% to 40% being coming from -- into the first half of the year. I think that's above where you guys originally guided that last quarter, which I think it was more 20% to 30%. Is that just a function of better results here this quarter or just a better outlook into the second quarter?

John J. Hafferty

Combination of both. I mean it's the results that we've achieved in Q1 and how we see how we're doing in bid season moving forward in Q2. So yes. I mean at the time, we didn't have a lot of visibility to that when we put the forecast together. So again, now we're achieving that and we're optimizing our network and our costs are down, so yes.

Ryan Cieslak - KeyBanc Capital Markets Inc., Research Division

Okay. And the other question I had is on the container turns. I think you said, mentioned, it was at 1.7x, was down year-over-year. How should we be thinking about that? I know that it's been an area of focus for you guys. Do you expect that to improve year-over-year as the year plays out?

Paul C. Svindland

Our expectation as you see, our volumes increased throughout the remainder of the year, which again based on bid season wins, we're -- I think we're feeling pretty confident that we will see an uptick in the volumes. So I think as a result of an uptick in the volume, you will see an improvement in the overall turns. So I think our expectation is that we would be back to the 1.8 or even slightly better.

Ryan Cieslak - KeyBanc Capital Markets Inc., Research Division

Okay. And then John, the corporate cost in the quarter, the $4.6 million or so down sequentially and year-over-year. What's a good run rate, I guess, going forward there?

John J. Hafferty

Corporate cost. I would say about $5 million -- yes, about $5 million.

Ryan Cieslak - KeyBanc Capital Markets Inc., Research Division

Okay. Is there anything specifically going on there that you guys are focusing on that, that came down year-over-year and sequentially or more just -- maybe just some color on that will be great.

John J. Hafferty

The little color on that, last year, we didn't perform like we should have performed. And so therefore we didn't have a lot of our incentives that we got in the prior year, plus we did some rightsizing through the course of last year. Right now, you're seeing the benefit to this year, so it's a combination of those 2 items.

Ryan Cieslak - KeyBanc Capital Markets Inc., Research Division

Okay. And the last one that I had is just housekeeping. Do you have a period end fleet count for you guys, where the container count is right now?

Paul C. Svindland

Yes, it's about 18,500.

Operator

Next question comes from Kevin Sterling with BB&T Capital.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Hey, just some real -- few housekeeping items real quick. What was SG&A for intermodal and Logistics?

John J. Hafferty

It's in the release, hang on one second -- that's okay, I'll grab it. Hang on a second, Kevin. I'll get it for you. Okay. The SG&A for intermodal was $15.5 million; for Logistics, it's $9.7 million; and for corporate, it's $4.6 million, for a total of $29.8 million.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Okay. And how about depreciation and amortization for intermodal and Logistics?

John J. Hafferty

We don't break that out anymore. It's just in our operating expenses, Kevin. That was part of the reclass that we did.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Got you. Okay. And John, while I got you, you guys -- you're building a nice little war chest of cash. What are plans as your cash balance continues to grow? Can we see a stock buyback in the future?

John J. Hafferty

We evaluate all options. But right now, we're looking at maintaining our cash levels and again looking to where we can reinvest to drive profitable growth for our business. And so that's kind of how we're looking at our cash right now, Kevin.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Okay. And your SG&A was once again very good across the board, just under $30 million. How should we think about a good quarterly run rate for the rest of the year?

John J. Hafferty

The way I would look at it, Kevin, and I'll give you -- I'll give it to you on a total basis for the year. We're looking at it to be probably about -- up about -- just about 1% to flat. And that's -- or flat to 1% up. That's kind of the way we're -- that's the way we're thinking about it.

Kevin W. Sterling - BB&T Capital Markets, Research Division

All right. How much in-house drayage are you doing now, and where do you want to take that to?

Paul C. Svindland

We're around 75%, 75% range. I think we continuously evaluate that and evaluate what is the appropriate mix using our -- we have a dedicated fleet with IMX, as well as leveraging our core carriers, and we continuously are looking at the appropriate mix. But I think our expectation is that we will continue to stay around that number for the remainder of the year.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Okay. And Dan, can you remind me of the duration of your UP cross-border agreement?

Daniel W. Avramovich

Multiple years, okay? So it's multiple years. And clearly, what we've been able to do is actually with our -- with KCS have a multiple year agreement as well.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Okay, so multiple years with both your partners out of Mexico.

Daniel W. Avramovich

Yes. Exactly.

Kevin W. Sterling - BB&T Capital Markets, Research Division

Okay. And last question, with this new Union Pacific agreement. If intermodal capacity does tighten in the second half of the year since you guys are managing the UP network, do you have -- would you have priority access to some of their fleet if you need it, whereas others may not be at front of the line like you are?

Daniel W. Avramovich

The UPS program is called the MCP. It's kind of a committed capacity type of arrangement. So to the extent that we are utilizing or kind of committing to capacity and we are, in certain bids, then we would have a priority to that. But from an absolute -- it's a matter of how much is we're actually utilizing and committing on a go forward basis. But if we haven't essentially committed, then we wouldn't have priority over others on some of that free running business, which is really the value of what we use our blue fleet for. But another way to think about it, Kevin, is that right now, our flex capacity is essentially in 3 free runners, and it's about 30%. So we can flex up and down with that. And as we indicated earlier, we are still planning on adding another 1,500 units in the second half of the year.

Operator

And we have a follow-up from Ryan Bouchard with Avondale Partners.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Sorry. I tried to take myself out of the queue, and I must have pressed the wrong button. All my questions have been answered.

Operator

Moving along, we'll go to Scott Group with Wolfe Trahan.

Scott H. Group - Wolfe Trahan & Co.

Just one real quick follow-up. So if I just look at intermodal net revenue, it was down a couple percent. And is that the -- there's some negative impact from the auto contract, or is that just the core business net revenue is down a couple percent?

John J. Hafferty

Our volume was down, I mean that's what really drove the net revenue down as we talked about -- I think as Paul talked about in his speech, Scott, last year, we were growing and we're growing, and it was unprofitable and then we rightsized a lot of our traffic in the second half of the year. So with our volume being down, year-over-year it's really the volume on the net revenue side.

Operator

Gentlemen, there are no further questions at this time.

John J. Hafferty

That concludes Pacer's first quarter 2013 call -- First Quarter 2013 Earnings Call. We thank you for your participation and for your continued interest in Pacer International. Have a good evening. Good night.

Operator

Ladies and gentlemen, this call will be available for replay starting at 7:30 Eastern Time this evening and running through May 24 at midnight. You may access the AT&T executive playback service at any time by dialing 1 (800) 475-6701, entering the access code of 286120. International participants may dial 320-365-3844. That does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.

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