Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Old Dominion Freight Line (NASDAQ:ODFL)

Q1 2013 Earnings Call

April 25, 2013 10:00 am ET

Executives

Earl E. Congdon - Executive Chairman and Chairman of Executive Committee

David S. Congdon - Chief Executive Officer, President, Director and Member of Executive Committee

J. Wes Frye - Chief Financial Officer, Senior Vice President of Finance, Treasurer and Assistant Secretary

Analysts

Allison M. Landry - Crédit Suisse AG, Research Division

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

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

William J. Greene - Morgan Stanley, Research Division

Justin B. Yagerman - Deutsche Bank AG, Research Division

Alexander K. Johnson - JP Morgan Chase & Co, Research Division

Alex Scott

Christian Wetherbee - Citigroup Inc, Research Division

John L. Barnes - RBC Capital Markets, LLC, Research Division

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

Scott H. Group - Wolfe Trahan & Co.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Thomas Kim - Goldman Sachs Group Inc., Research Division

A. Brad Delco - Stephens Inc., Research Division

Jason H. Seidl - Cowen Securities LLC, Research Division

Matthew S. Brooklier - Longbow Research LLC

Operator

Good morning, and welcome to the First Quarter 2013 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 11 by dialing (719) 457-0820. The replay passcode is 2452470. The replay may also be accessed through May 11 at the company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact, may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

[Operator Instructions] At this time, for opening remarks, I'd like to turn the conference over to the company's Executive Chairman, Mr. Earl Congdon. Please go ahead, sir.

Earl E. Congdon

Good morning. Thanks for joining us today for our first quarter conference call. With me is David Congdon, Old Dominion's President and CEO; and Wes Frye, the company's CFO.

After some brief remarks, we'll be glad to take your questions. Old Dominion's operating and financial performance momentum continued for the first quarter of 2013. We produced growth in tons and pricing that tracked our expectations, and drove a 150-basis point improvement in our operating ratio to 87.6%, the best it has ever been for our first quarter.

The solid revenue growth and increased operating leverage, our earnings rose just over 30% for the quarter. We produced these results despite an uncertain economic environment, more severe winter weather than the first quarter of 2012, 1 less business day than last year, and Good Friday occurring during the first quarter of this year.

We also believe that we gained market share during the first quarter because we continued to deliver on-time claims-free service at a fair and equitable price. We expect that our outstanding and long-term record of service execution will continue to differentiate Old Dominion from our competitors. We intend to sustain our unique value proposition through continuing investment in technology and systems as well as ongoing education and training of our employees.

In spite of the weather storms that affected much of that coverage area, we actually improved our on-time percentage to above 99% and decreased our cargo claims ratio to a new company record of 0.34%. The level of execution that enables this kind of superior performance over the long term which, in my opinion, is a one-of-a-kind, is what sets Old Dominion apart in the industry and drives our past and future success. It's an easy value proposition to understand, but it is complex, difficult and expensive to implement and maintain. We recognize the great job our dedicated employees do in providing our customers with this value proposition every day.

Thank you again for being with us today. And now here's David Congdon to discuss our first quarter operations in more detail.

David S. Congdon

Thank you, Earl, and good morning. Most of you are familiar with the value proposition that Earl discussed and the strength of the competitive position it gives Old Dominion. You've also heard us discuss the importance of density, yield and efficiency to driving our outstanding results from our business model. In fact, in our call last quarter, I specifically stated that given the increased density and yield in a stable economic environment, we continue to believe that our incremental operating profit of 15% to 20% is possible.

Our first quarter results bore this statement out completely. In an economic environment that is growing slowly at best but that is reasonably stable, we increased density in our system with a 5.2% increase in tons per day. In addition, with industry supply and demand dynamics creating a stable pricing environment, we produced 3% growth in revenue per hundredweight for the quarter. Combination of these increases was primarily responsible for the strong improvement in our operating ratio for the quarter.

Increased efficiency also contributed as we generated improvements in our platform pounds per hour and our laden load average. The winter weather had an impact on pickup and delivery productivity as we maintained our shipments and stops per hour about even with the first quarter of last year.

Our capital expenditures support our ability to continue driving increased operating leverage through improved density. With the geographic footprint of our service centers now serving virtually the entire country, most of our CapEx on real estate will be directed toward expansion or replacement projects for existing service centers, such as the 8 projects completed in the first quarter.

In addition to focusing on real estate expansion and replacement projects, we also will continue to invest in productivity-enhancing technology and in ensuring our employees have the training and education to maximize this investment. Through these investments, we believe that further improvements in our operating ratio can be achieved, given an improving economy and continued execution of our business model.

Although we are one of the largest LTL carriers, we currently have only a single-digit share of the LTL market, and we see opportunities to continue expanding our business for the foreseeable future. We are confident that we have the management experience and the financial resources to support this goal. Our growth strategies are time-tested, and our fellow employees in the OD family have proven their ability to execute our value proposition. Because of these strengths, we are confident that we will continue meeting our long-term growth objectives.

Thank you for your interest in Old Dominion. And now I'll ask Wes to review our financial results for the first quarter in greater detail.

J. Wes Frye

Good morning. Thank you, David. Old Dominion's revenues for the first quarter was $532.6 million, a 7.1% increase from the first quarter of 2012. The growth in revenue reflected a 3.5% comparable quarter increase in tonnage or 5.2% per day. In addition, revenue per hundredweight increased 3% compared with the first quarter of 2012, or 2.9% excluding the effect of fuel surcharge.

Tonnage growth was comprised of a 2.6% increase in the shipments and a 0.9% increase in the weight per shipment. The increase in the weight per shipment combined with a 1.1% decline in average length of haul typically creates downward pressure on revenue per hundredweight, so we are pleased with the increased yield during the quarter.

Sequentially through the first quarter, tonnage per day increased 7.9% for January versus December, 2.4% for February and 2.8% for March versus the 10-year average sequential growth of 1.2%, 2.6% and 4.7%, respectively.

The increase in January reflects the tonnage dip in December we discussed last quarter and the below-average growth for March reflects the impact of Good Friday falling in the first quarter of 2013. We expect tonnage per day for April, year-over-year, to be up approximately 5% and remain in the range of 4.5% to 5% for the quarter overall. Our revenue per hundredweight for April was expected to be up approximately 1.5% excluding fuel surcharge.

Although we expect to realize a 2% to 3% yield increases from our contractual business during the second quarter, our freight mix contributed to the reduced revenue per hundredweight for April compared to the first quarter. At this point, we expect our experience during the second quarter would generally resemble our April mix of business and, as a result, we are tempering our expectations for revenue per hundredweight excluding fuel surcharge to a range of 1.5% to 2% for the quarter overall.

Our operating ratio for the first quarter of 2013 was an 87.6% compared with an 89.1% for the first quarter last year. As anticipated, depreciation and amortization increased 50 basis points as a percent of revenue for the quarter, mainly due to the increased purchases of tractors, trailers and other equipment in 2012. This increase was more than offset by 110 basis point improvement in salary, wages and benefits and a 100 basis point improvement in our operating supplies and expenses. I'll note that about 40 basis points of the improvement in operating supplies and expenses were due to reduced equipment repairs and maintenance costs.

This reduction, which nearly offsets the increase in D&A expense mentioned previously, is partially tied to the reduction in the average age of our tractor fleet, which is a big part of the reason for the increase in the depreciation and amortization. In addition, the reduction in operating supplies and expense as a percentage of revenue reflected reduced fuel expense due to better fuel efficiency and purchasing methods.

Capital expenditure for the first quarter was $26.1 million. For 2013, we continue to expect CapEx net of sales proceeds to be approximately $270 million, including real estate of $95 million, $150 million for equipment and $25 million for technology and other assets. We expect to fund these expenditures primarily through operating cash flow as well as our available borrowing capacity, if necessary.

Total debt to total capitalization improved to 17.1% at the end of the 2013 first quarter versus 19% at December 31, 2012, and 22.5% at the end of the first quarter last year. Our effective tax rate for the first quarter of 2012 was 36.1% compared with a 39.5% for the first quarter of 2012. This decrease is due primarily to recognition of propane tax credits and is consistent with a 35.9% guidance I gave in our last earnings call. We continue to expect our effective tax rate for the remaining quarters of 2013 will average 38.6%.

And this concludes our prepared remarks this morning. And, operator, we'll be happy to open the floor for any questions at this time.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Chris Ceraso of Crédit Suisse.

Allison M. Landry - Crédit Suisse AG, Research Division

It's actually Allison Landry in for Chris. I was wondering if you could talk a little bit about the mix changes that you're seeing in the business in April and the expectation for those to continue into the second quarter.

David S. Congdon

Freight mix changes continuously, and we don't want to really get into the details, but we are seeing in our contractual business, as I've mentioned in the conference call, generally increases in revenue per hundredweight excluding fuel surcharge in that 2% and 3% range. So a mix change doesn't really affect the pricing scenario what we expect, but it will affect your revenue per hundredweight just as it does length of haul or changes in weight per shipment.

Allison M. Landry - Crédit Suisse AG, Research Division

Okay. And then just as a follow-up question, I was wondering if you could talk about the capacity situation in LTL versus truckload. It seems that we've heard from some of the truckload carriers that capacity had become a bit looser. But you guys still seem to be getting good price, and conditions appear to be tight. So I'm wondering -- I'm just wondering if there's been any change maybe in the last few weeks as we've seen some deterioration in the macro data. Have you guys seen anything that suggests maybe LTL capacity is changing a little bit as well?

David S. Congdon

Back during the recession, the LTL industry took out somewhere in the neighborhood of 15% in terms of terminals and doors, and this is going off of some data that I think one of the transportation analysts had put out. And tonnage dropped almost 20% during the recession, but the tonnage is back up to -- not quite back to the levels that it was at in, say, the peak of 2007, but the service centers had not come back. So I think capacity has not increased in the industry as a whole. Our capacity has at Old Dominion. But I believe it's the supply-demand equation that has allowed for the improvements in pricing for the industry as a whole.

Operator

Up next from KeyBanc Capital Markets, we'll go to Todd Fowler.

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

David, I wanted to follow up on your comments about the incremental margins, and I understand your comments about density and improving revenue per hundredweight. But when I look at the quarter here, I mean, you've had quarters in the past where you've had stronger increases in tonnage, higher increases in revenue per hundredweight, incremental margins haven't been quite as strong. Is there something with the network now, I mean, some of the investments that were made over the past couple of quarters, that you're gaining some efficiencies? Is it more of the investment that you've made in the network paying off? Is there something different to think about with the incremental margins now versus what we've seen in the past couple of quarters?

David S. Congdon

Well, we -- go ahead. You want to go, Wes?

J. Wes Frye

No. It's funny. I don't know if mathematically you've gone through the permeations, but the lower your growth is, the less improvement in operating ratio that causes higher incremental margins. What I'm saying is if you have a 150-basis point improvement and our growth was 7%, if we were going to 15%, you'd have had to improve your operating ratio by almost 8 points to get the same incremental margin. So it's kind of a quirk in the math, and so I'll just leave that with you to test on your own.

David S. Congdon

But we have a strong quarter. The yield improvement was good. The yield overall was good. We've got a great mix of business. We had density improvement across the network. We had some continued improvements of efficiency. So like Wes said, it's the math -- a bit of it is the mathematics of it. When you improve your OR of 150 basis points on a 7% growth rate, you get a 30% margin improvement. If our growth rate -- if our OR improvement was 150 points and we had grown 15%, you wouldn't see 30%. You'd see something less.

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

Okay. So I'd -- now I've got to get some homework to do on this. But just to follow up on that, I mean, is part of it then the way to think about it that growing maybe in this mid-single digit range is more of a sweet spot, and you get better incremental margins because of that and some better efficiencies versus growing at something faster than that?

David S. Congdon

Well, keep in mind, we're not really being aided by the macro at all, and no one is. So our growth rate right now is pretty much market share for the most part. And so, obviously, to get back to something higher, we would have to see some continued improvement in the macro environment. When that will occur, I know that I'm not qualified to answer. Maybe you are.

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

Well, you've got better information than I do. The second one that I had and then, I guess, I'll move on, but we're thinking about moving into the second quarter. Obviously, you had some of the calendar shift here in the first quarter. There was weather. Are there any things -- and you've talked about your expectations for tonnage right now and your expectations for revenue per hundredweight, but anything on the calendar side or the cost side that we should be thinking about from a sequential standpoint, first quarter to second quarter, that could impact the costs?

David S. Congdon

Cut out. I would say that we still have weather issues even into April. Yes, and you've probably seen the rain, floods and snow. So we're still getting affected by some weather compared to last year. But I'll say, sequentially, if you calculate the number -- the sequential tonnage into April from March, is going to be -- only be in the 1% to 1.5% range, which is pretty much on the 10-year average. Our expectation was that it would be more because, obviously, this April doesn't have the Good Friday in it, and March did. So we actually expected more. And so we're just kind of a little bit hesitant about the macro going into April despite the year-over-year tonnage of being 5% in April, as I'd already mentioned. Sequentially, we were expecting better. And we will -- we'll just have to attribute that to maybe a macro environment that still is a little bit soft or at least not growing to expectation.

Earl E. Congdon

So what we're saying is the economy is really the only potential headwind into this quarter. Otherwise, we don't have any looming cost increases that are headwinds for the company.

Operator

We'll go next to David Ross with Stifel.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Just talk a little bit about the length of haul decline that you're seeing. Is that something targeted in your approach to your marketing in bringing on new business? Or is that just the way the markets are growing, with the regional growing faster than the long haul?

David S. Congdon

It's not necessarily targeting. We see profitability of any shipment, whether short-haul or long-haul, adding to density. But what we did see was a little bit higher shipment growth in our next day for the quarter. And in that -- I mean, obviously, it wasn't changed that much, so we don't put a lot of foundation in that. But we did see a slight increase in the regional business, and I'm not sure if that's market share or just how the regions grow. It's hard to have visibility on just small changes like that.

Earl E. Congdon

And that would be one element of this mix change we referred to earlier because more regional business brings down revenue per hundredweight. And therefore, that's part of what we're seeing in our guidance for revenue per hundredweight. But it's not being done necessarily intentionally, because we -- as we've stated in the past, we look at each and every customer individually, and we serve all segments of the market, and all freight is good if it's priced right.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

True. B2C shipments, are they becoming much of a factor for you all?

David S. Congdon

Which shipments?

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

B2C, like residential deliveries, specifically.

David S. Congdon

No, it's still -- I mean, we have some of that in our home moving and some other services, but it's not material at this point.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then the last question is just change in fuel efficiency you're seeing from the new fleet that you're bringing in versus the old equipment?

Earl E. Congdon

We are continuing to have improvements in our fuel efficiency. A lot of it is due to the efforts we've made working with our drivers and utilizing the onboard systems that record fuel mileage. But we've also continued to focus on the tractors and aerodynamic features on the tractors, as well as the implementation of the side skirts on all of our pup trailers. And so we're seeing continued improvements in fuel economy.

Operator

We'll go next to Morgan Stanley's William Greene.

William J. Greene - Morgan Stanley, Research Division

Wes, can I ask you for a clarification on some of the comments you made on the sequential change, particularly as it relates to OR. Is the loss of an operating day in the first quarter material to the margins, such that getting it back and having a normal comp year-over-year in operating days would be sort of something that is a bigger positive than we might appreciate?

J. Wes Frye

Well, I don't know that it -- 1 day out of a quarter is material. I mean, it probably can affect it by 20 or so basis points, unless it's made up other ways through other efficiencies. But if 20 or -- or even call it 30 basis points, which is probably stretching a little bit, is material, then I'll leave that definition up to you, but -- so it does have an effect. The materiality of it depends on your fixed variable cost relationships.

William J. Greene - Morgan Stanley, Research Division

Yes, makes sense. And then you mentioned, I think in your comments as well, that you don't really foresee any significant change in some of the cost trends. Do you -- is there any reason that we need to think about wage increases again? Is that something that you need to do sort of electively or preemptively at all?

J. Wes Frye

We do that electively and -- but those don't go into effect until September, and we haven't made any decisions or had any discussions at that -- with that at this point.

William J. Greene - Morgan Stanley, Research Division

Okay. And then just one last quick one, which is do you see any shift in market share related to some of these contract negotiations at competitors on the labor side?

J. Wes Frye

We don't really have that visibility. Obviously, what we're getting is market share for the most part. Where it's coming from, it's just not very transparent to us to know where and why, necessarily.

Operator

We'll go next to Justin Yagerman of Deutsche Bank.

Justin B. Yagerman - Deutsche Bank AG, Research Division

You're running into a high-class problem that you're generating a decent amount of cash or forecasted to for the year, and your debt is coming way down in terms of percent of capitalization. When I think about opportunities for that cash or when you think about opportunities for that cash, what are you thinking about? Are we eventually going to see a dividend payment from you guys, or can we expect share buybacks? Or potentially, I know you guys have thought about acquisitions for a while now, but we haven't seen you act in quite a bit of time. Is that something that's kind of heating up as a priority?

J. Wes Frye

We'll wait to see if the cash generation that -- if it gets there, is a trend, or if we can put any cash to better use by reinvesting in the company. So it's a little early for us to even think about that. We haven't really been faced with that problem in quite a few years. So we'll evaluate that as we see that be more of something other than maybe a 1-year deal and going forward.

David S. Congdon

And, Justin, we -- as we look at our overall share of the LTL industry, our market share still remains in -- is around, let's call it 7%, and there's no reason why we can't get up in the double digits. And as we accomplish that, we will have continued needs for capital to grow our fleet, to continue reinvesting in our fleet, to continue reinvesting and growing our service center capacity. So I agree with Wes, it's too early to consider dividends and share buybacks at this point in time until we see a longer-term track record and until we find that it's -- we don't have any more room for growth. But while we continue to look at acquisitions, and we'll continue to grow that LTL market share, we've -- our return on invested capital's pretty doggone strong, and we hope to keep deploying it when we have returns of this level.

Justin B. Yagerman - Deutsche Bank AG, Research Division

That's definitely fair enough. And I guess, Wes, as a follow-up to that, you have $270 million capital budget this year. When you think about where that is in the spectrum, I mean, could we see that jump materially? Or do you think you're at kind of a healthy cliff where you're able to grow a little bit out of service center here and there but maintain a similar level of CapEx on an ongoing basis?

J. Wes Frye

We haven't given any guidance to that effect, but certainly going forward, we expect our CapEx to be a less percentage of revenue, for sure. Not sure about the dollar amounts, but certainly a less percentage of revenue.

Justin B. Yagerman - Deutsche Bank AG, Research Division

Okay. And any more terminal expansions slated for this year?

J. Wes Frye

Maybe 2 or 3 is on the drawing board or in search or in process.

Operator

We'll hear next from Tom Wadewitz with JP Morgan.

Alexander K. Johnson - JP Morgan Chase & Co, Research Division

It's Alex Johnson on for Tom. Just curious first of all as, I guess, a housekeeping item. I think you've -- growth rates you gave for tonnage were month-over-month sequential and was wondering if you could give those as year-over-year growth rates, January, February, March.

J. Wes Frye

Yes, I can. The month-over-month in January was 5.6%, in February was 6.5%, and March, year-over-year, was 3.8%.

Alexander K. Johnson - JP Morgan Chase & Co, Research Division

And the 5% in April that you mentioned, that was a year-over-year, is that correct?

J. Wes Frye

Yes, it was.

Alexander K. Johnson - JP Morgan Chase & Co, Research Division

Okay, great. And then just a question on the projects that you completed in the first quarter...

J. Wes Frye

Those were all on a per day basis, by the way.

Alexander K. Johnson - JP Morgan Chase & Co, Research Division

Per day? Okay, perfect. And the 8 projects that you completed in the first quarter, how should we think about the benefit to profit from doing any one project? And how much of the benefit from doing those projects came in, in the first quarter? How much starts to ramp in the second quarter?

J. Wes Frye

We -- obviously, when you're talking about expanding service center, you're talking about a long-term benefit. You don't obviously expand the service center to suit your needs for the freight at that point. And the reason we expand these is because we foresee the growth in a particular market to be fairly strong, and we're getting close to capacity. So the -- let me put it this way, the negative effect of not expanding and being out of capacity is much greater than the short-term with the higher depreciation. And so those investments that we have made over the years and have proved to be, I think, beneficial to our return on invested capital. And if you look at our track record, despite all of the CapEx that we've -- the massive CapEx that we've invested over the last several years, all of that cost is embedded in our continuously improving operating ratio. So it's obvious that these investments are very worthwhile, and not impactful in any great way for any particular quarter.

Operator

We'll hear next from Art Hatfield of Raymond James.

Alex Scott

This is Alex Scott in for Art. Most of my questions have been answered at this time. But I just want to say with the weather in the quarter, I'm pretty impressed with the ability to keep your service metrics up, and just wondering if you could quantify maybe the impact of weather.

J. Wes Frye

Well, I -- from a revenue standpoint, it's hard to assimilate that because you don't know where it ends up on the net-net basis and what the consumer demand would have been otherwise. But just on a cost standpoint, and these are just operating costs like snow removal and things like that, adds up. But it's not a material number, but it does have an effect, probably in the $0.5 million range for the quarter. And then we had some, as we stated in our conference call comments, you had a little bit of a dampering effect on some of our productivity numbers, especially on the pickup and delivery. And I'm not sure what cost that is, but there is a slight cost there. But I -- we haven't really quantified or gone through the whole system to determine what the overall cost is. But I'll say this: that our performance is despite those costs.

Operator

We'll go next to Chris Wetherbee of Citi.

Christian Wetherbee - Citigroup Inc, Research Division

Maybe just a question on pricing. If you kind of cut through some of the mix effects that you have going on as you think about this quarter and then going out into the second quarter, how does the pricing environment feel? I know you mentioned the contractual rates, but when you think about new business or just kind of more broadly, how do you think about pricing at this point?

J. Wes Frye

It's really still very stable in our view. We're not seeing any abnormal irrationality. There's normal irrationality that you see pockets of it all the time, but it's basically the same stable level that we've been seeing for the last couple of quarters.

Christian Wetherbee - Citigroup Inc, Research Division

Okay, that's helpful. And, I guess, it may be certainly too early to think about this. But when you think about the general kind of cadence of general rate increases, what timing should we be expecting, or have you guys thought at all about that as we move out into 2013?

J. Wes Frye

Well, we typically are one of the later ones that come out with the GRI. So we'll be one of the later ones to discuss it.

Christian Wetherbee - Citigroup Inc, Research Division

Okay, that's fair enough. And then just another, I guess, question about the competitive dynamic within the business right now. You have a few competitors who are maybe adjusting the way that they're thinking about kind of tonnage and where they maybe want to focus, specifically on lanes. Are you seeing any increased competition, particularly in some of the more regional or shorter-haul lanes that arguably could be a little bit more on the profitable side? I guess, I just want to get a sense of if there is any impact that you guys are seeing so far.

J. Wes Frye

No. No, we're okay.

Christian Wetherbee - Citigroup Inc, Research Division

That's very helpful. And then, I guess, my last question would just be around capacity and network. Is there any specific area that you guys are looking at that maybe could use a little incremental capacity on the margin?

J. Wes Frye

Well, actually, we like incremental capacity anywhere, but I think that the expansion projects that we already discussed, by definition, indicates those areas that we would like more -- that we need more capacity so that we can grow more efficiently.

Operator

RBC Capital Markets, John Barnes has our next question.

John L. Barnes - RBC Capital Markets, LLC, Research Division

Wes, given the whole operating day issue in the first quarter with having 1 less, can you just walk us through the next 3 quarters and make sure that we have the right number of operating days per quarter for ODFL?

J. Wes Frye

Yes. I will see. The -- this quarter is 64 days, and that's compared to 64 days of last year. The third quarter, we have 64 days. That's compared to 63 days for the third quarter of 2012. In the fourth quarter in both years, this year and last year, it has 63 days.

John L. Barnes - RBC Capital Markets, LLC, Research Division

Okay, very good. Are there any other things out there that you see that are going to impact tonnage on a per day basis like the operating days, or was that really it? Was the first quarter, was it really confined in the first quarter? I guess, you get that one difference in the third quarter, but outside of that, anything else we should be paying attention to on that front? Change in holidays, where they fall or anything like that?

J. Wes Frye

Not that I'm aware of. I mean, July 4 this year falls on a Thursday, and that could cause people to take off on Friday. So that Friday might not be very strong. And, obviously, the country will be closed on Thursday, so it's -- I don't think it will be material.

John L. Barnes - RBC Capital Markets, LLC, Research Division

Okay, all right, very good. And then just in terms of cost on a go-forward basis, I mean, you're absolutely crushing it on the margin right now. I mean, very great job on the margin. Where do you see your biggest challenges from here, from a cost inflation perspective? I mean, yes, you give the yearly increases in wages, that kind of thing, but you've been able to kind of absorb those pretty well. Is there any bucket out there that you're more concerned about than others, from a cost inflation perspective?

J. Wes Frye

Yes, the biggest one is, has been and continues to be the cost of group health cost. We're self-insured for a big portion of that, so any inflationary cost hits us directly. And that will also impact the cost of treating injuries, workers' compensation expense.

David S. Congdon

Right. Correct.

J. Wes Frye

So that's probably the biggest and, I guess, another secondary is -- continues to be governmental regulation and the cost of that.

John L. Barnes - RBC Capital Markets, LLC, Research Division

Okay, all right. And then lastly, just going back to a comment you made earlier about growth still. It sounded like you said most of your growth is still coming from market share gains. Is that fair? Is that what you said?

J. Wes Frye

Well, I think the reason we say that, John, is I don't think the GDP was up 5%, or 2% in the first quarter. So that's our only conclusion.

John L. Barnes - RBC Capital Markets, LLC, Research Division

Okay. As you look at it, and I recognize you don't have perfect transparency into market share gains. But as you look at it, obviously, you've got -- the unionized carriers are pulling back from the regional markets, and especially, the one in Kansas City is focused on, obviously, the 3- to 5-day market, that kind of thing. Are you seeing a greater degree of regional traffic versus longer-haul traffic? Or are you seeing -- just any transparency into that would be helpful in terms of where that market share's coming from.

J. Wes Frye

I think if you looked at our growth by length of haul, as I already mentioned, our regional next day grew a little bit better. I don't know if that's a macro statement or just how it falls out. But generally speaking, all of our lengths of haul, in terms of shipment growth, seems to be fairly ratable across each one, indicating that the market share growth we're seeing is from across the spectrum of carriers, both regional and long-haul.

Operator

We'll hear next from Tom Albrecht of BB&T.

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

Couple of quick questions. Wes, what was the exact dollar amount of the propane tax credit? You had talked about $1.5 million to $2 million. I just want to be exact.

J. Wes Frye

It's about $1.6 million.

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

Okay. And then the last 2 quarters, you've had a nice drop in miscellaneous expenses, down to about $1.6 million. It used to be $2.5 million or so higher. What's behind that drop, and is it sustainable at these levels?

J. Wes Frye

Let me see. Make sure which area are you talking about. On miscellaneous?

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

Yes.

J. Wes Frye

Sometimes, a big part of that is bad debts and how we use outside services, and et cetera. And sometimes, it's not necessarily a drop other than we had some additional costs in the previous year, but I think to answer your question, we see that level being sustainable.

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

Okay. And then lastly, what's your depreciation outlook for this year? I've got you at about $122 million, but I like to double check that periodically.

J. Wes Frye

I think it's going to be a little bit higher, probably about $125 million.

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

Okay. I guess so the latest interest expense, given the cash flow characteristics of this year, we can probably model that coming down still a little bit further, right?

J. Wes Frye

Yes.

Operator

Scott Group of Wolfe Trahan has our next question.

Scott H. Group - Wolfe Trahan & Co.

So just want to go back to one of the earlier questions on incremental margins because I think we entered the year -- I think you talked about 15% to 20%, and it came in north of 30%. And I certainly understand the math you did on that 7% revenue growth, but based on what you talked about for tonnage and pricing for second quarter, we should be thinking about similar kind of 7% revenue growth. And I know you don't give guidance, but maybe just talk through some of the gives and takes you had, weather hurting and the calendar hurting. Were there any things helping or is there anything that we saw in first quarter that doesn't feel sustainable, or should we be thinking about maybe a higher run rate going forward on incrementals?

J. Wes Frye

Well, I think that would be getting into some guidance, which we don't give. We've always given the guidance of 15% to 20%, given the scenario of density improvements and a stable pricing environment or some stability in the economy. So we'll just stick with that at this point. Now keep in mind, Scott, that the second quarter of last year, we operated at 84.7%, which is a very, very strong quarter. So the second quarter is a very tough comparison.

David S. Congdon

So mathematically it's focused. It's harder to achieve a 150-basis point improvement off that number. So if it's less and the revenue growth is the same, the incremental margins are going to be less mathematically, so...

Scott H. Group - Wolfe Trahan & Co.

Yes, that's fair. I know it's more of a truckload issue, but how are you guys thinking about hours of service and the impact we could see come July if it happens?

J. Wes Frye

First of all, yes, we're fortunate that the hours of service changed. It's due -- it has to do with that 34-hour restart, and it is not an impact on us. It will be more of an inconvenience than any kind of a calculatable financial impact. But it's not even much of an inconvenience because 70% of our drivers are scheduled and running the regular route network that we have and set running times between service centers. Our network is geared, geared for the -- geared properly to where this is not an impact.

Scott H. Group - Wolfe Trahan & Co.

Okay, great. And then just last thing, bigger picture. I know you said home delivery and e-commerce and B2C is a pretty small percent of what you're doing. But you guys are thought leaders in this space. How do you think about preparing for a world of more home delivery and e-commerce going forward? And what are you doing to prepare for that?

David S. Congdon

At this point, we're not doing a whole lot in that regard. We still see that even with e-commerce and home deliveries and more of them, there's still going to be a huge market for LTL into the distribution centers that subsequently ship those home deliveries, and we have ample room for growth in the LTL environment without worrying about that and also, without trying to take on FedEx and UPS.

Operator

We'll move on to Ben Hartford of Robert W. Baird.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Wes, it's -- I know it's early, but should we be thinking about a wage increase come September, and if so, plus or minus 3%, is that a good number to think about?

J. Wes Frye

We don't -- we haven't even discussed that, Ben. So I don't really want to even get to any specifics on that, when or how much.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Understood. The weight per shipment trend in the first quarter, up sequentially, which seems to be somewhat counter to the normal seasonal trend in 4Q to 1Q. I know you've got this mix issue going on. Is it solely mix, or is there something else going on with that weight per shipment being up sequentially, which seems to be unusual?

J. Wes Frye

Yes, the increase in the weight per shipment and the increase is so relatively minor, we don't attribute much to it and probably more mix than anything. Only up 0.9%, so that fluctuates by just on a timing standpoint or whatever the calculation is.

Operator

[Operator Instructions] We'll hear next from Thomas Kim of Goldman Sachs.

Thomas Kim - Goldman Sachs Group Inc., Research Division

Can you provide details on same-store sales growth?

J. Wes Frye

I'm sorry, on what, Tom?

Thomas Kim - Goldman Sachs Group Inc., Research Division

On a like-for-like basis excluding the impact of new service centers, would you be able to provide the amount of revenue growth or volume curve?

David S. Congdon

Oh, like-for-like stores, added to service centers net in the year, and so everything is same-store sales.

J. Wes Frye

Yes, it would be -- wouldn't even be a rounding error.

Thomas Kim - Goldman Sachs Group Inc., Research Division

Okay. And then but does that also incorporate any service centers entered from last year?

David S. Congdon

Yes, but -- usually, what the service centers that we are adding now, usually are spinoffs of other service centers as we expand the footprint. And so again, I would say 99.98% of our growth is all same-store sales.

Thomas Kim - Goldman Sachs Group Inc., Research Division

Okay, great. And then separately -- sorry, related to that, do you -- what sort of time frame are you envisioning achieving double-digit market share growth? And how much of that do you think would be coming from organic growth versus new service centers or new terminals?

David S. Congdon

Well, I don't -- we haven't given a specific time on double-digit growth, and I think part of that is going to depend on the macro and a lot of other things. But well, we have at the end of the quarter 219 service centers, and we would likely add another 30 to 40. So that's -- over the time frame, we're not sure what that is. In a lot of cases, it depends on the opportunity and when they become available.

Operator

Brad Delco of Stephens.

A. Brad Delco - Stephens Inc., Research Division

Maybe Wes or David, is there any way to quantify how much capacity you're adding this year, I guess, with the 2 or 3 planned additional terminals, maybe from a terminal door perspective? Or what you think that does for your capacity overall?

J. Wes Frye

I would say that in terms of number of doors, probably 5%, 5% to 6% capacity.

A. Brad Delco - Stephens Inc., Research Division

Got you. So is it fair to say, I mean, I guess, with kind of tonnage guidance around that mid-single digit range, you're basically keeping a lot of capacity available in the network. But if your tonnage is growing faster than that, that creates opportunities like we've seen in the first quarter where you get better density and you see the margin improvement. Is that the right way to think about it?

J. Wes Frye

I think that's the magic of density, yes.

A. Brad Delco - Stephens Inc., Research Division

And then maybe kind of speaking more specifically about recent freight trends you're seeing, April or maybe March. Are there any geographies that are maybe more competitive or you're seeing more strength than others? And any color as to why maybe you're seeing that would be helpful.

J. Wes Frye

Well, some of the -- obviously, some of our regions are more mature than others, so just looking at each of the growth as a pure percentage, isn't necessarily a statement. But I would say that generally, all of our regions are growing, and I think growing appropriately compared onto the maturity of that region from a percentage standpoint. There's none that are trending converse to what all of the regions are doing.

A. Brad Delco - Stephens Inc., Research Division

But I guess you're not seeing any more tightness in the Southeast because weather is a little bit warmer versus last year? Or any impacts like that, that suggest some regions have come back or picked up faster than others?

J. Wes Frye

We have not, Brad.

Operator

[Operator Instructions] From Cowen Securities, we'll go to Jason Seidl.

Jason H. Seidl - Cowen Securities LLC, Research Division

It's a little bit late, but let me just get some quick ones in. Wes, you mentioned that there was going to be probably a minor loss in terms of your operating margin with some of the differential in the days. In the same tone, do you pick up maybe a little bit with Good Friday shifting around into the second quarter in terms of the comp?

J. Wes Frye

I don't know. I already made the statement that sequential end to April from March was not up to what we were expecting. So I don't know that that's -- I think that's a macro statement in my view or in our view. So I'm not sure that we see any tailwinds from the Easter being in March as opposed to April.

Jason H. Seidl - Cowen Securities LLC, Research Division

And any impact from the recent flooding in the Midwest, or is it too early to tell?

David S. Congdon

Well, absolutely. We're getting impact from the flooding as well as some of the other inclement weather or adverse weather that we're having around parts of our coverage areas.

Jason H. Seidl - Cowen Securities LLC, Research Division

Okay. And on a housekeeping question, your average employee headcount for the quarter?

David S. Congdon

Our employee headcount at the end of the quarter was 12,983.

J. Wes Frye

Full-time. Full-time.

Operator

And our final question today comes from Matt Brooklier of Longbow Research.

Matthew S. Brooklier - Longbow Research LLC

I jumped on late, so I apologize for any redundancy in the questions. But just given recent news per your union-based competitors potentially augmenting and shrinking their overall networks, I'm just curious to hear your thoughts on the potential for that actually to happen. And if so, there -- this potential consolidation does go through, is it enough to have somewhat of an upward lift in terms of overall industry pricing?

David S. Congdon

We can't speculate on what's going to happen at the competitors. That would -- we're just not going to do that. So ask another question.

Matthew S. Brooklier - Longbow Research LLC

Okay. You're not touching that one. That's fair enough. You also, I think recently, announced plans or it's out there that you're building a new distribution center in upstate New York. Just curious to hear as to a little bit more color on that particular facility.

David S. Congdon

Yes, we have a regional breakbulk in Albany, New York, and that's where we're building a new center. It will just give us additional capacity there.

Matthew S. Brooklier - Longbow Research LLC

Okay. So this isn't a -- we're moving from one breakbulk to another? This is additive to the network?

David S. Congdon

It is just expanding, it's basically expanding a break that exists up there. But it's too small.

Operator

And it appears we have no further questions at this time. I would like to turn the conference back over to Earl Congdon with closing remarks.

Earl E. Congdon

Well, as always, guys, we sure thank you for your participation today. We appreciate your questions, they were great, and particularly, your support of Old Dominion. So please feel free to give us a call if you have any further questions. And we'll look forward to talking with you on the second quarter call. Bye.

Operator

And that does conclude today's conference. We thank you all for joining us.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Old Dominion Freight Line Management Discusses Q1 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts