Pacer International, Inc. (PACR) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.25.13 | About: Pacer International, (PACR)

Pacer International (NASDAQ:PACR)

Q2 2013 Earnings Call

July 25, 2013 8:30 am 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

Scott H. Group - Wolfe Research, LLC

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

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

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

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

David P. Campbell - Thompson, Davis & Company

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Pacer International Second Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded. I would now like to introduce your host, CFO John Hafferty. Please go ahead, sir.

John J. Hafferty

Thanks, James, and good morning, everyone. Thank you for joining the Pacer International Second Quarter 2013 Earnings Call. Following my brief introduction, Dan Avramovich, Pacer's Chairman and CEO, will give an overview of our second quarter results. Then I'll give a more in-depth update on our financial results. Paul Svindland, Pacer's Chief Operating Officer, will then summarize our intermodal segment. And Bob Noonan, Pacer's Executive Vice President for International Logistics, will comment on our Logistics segment. We will then open the call up for questions.

At the outset of our call, we remind everyone of our normal disclosures regarding forward-looking statement 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.

In addition, as of January of this year, we now act as Union Pacific's network manager for US-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 intermediaries servicing to our U.S. to Mexico automotive business. For comparability, we included a schedule in our release today, which excludes these rail transportation costs from our comparable 2012 revenues. And our comments on today's call will be comparing our 2013 results against the 2012 adjusted figures.

As information, a replay of this earnings release conference call will be available through August 25 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. Our second quarter results were strong overall but mixed by segment. We generated adjusted operating income of $3 million, which was 20% over last year, led by our intermodal segment, which was up 15%. Those intermodal results were again driven our efforts of -- over recent quarters to achieve acceptable margins for our services, which resulted in intermodal adjusted gross margin being up 220 basis points from last year.

We continue to make progress in the areas critical to improving margins, that is, our mix of business and managing our cost for drayage equipment, network and accessorials, all of which contributed to the margin improvement in the quarter. We expected, and as we discussed in our last call, intermodal volumes and revenue decline this quarter from last year's result of pairing low margin freight really as the result of last year's bid season. We do expect the volume trend to reverse in the second half, improving to positive mid single digit growth.

Also of note was our bringing on of Julie Krehbiel in the quarter as our new Head of Retail Intermodal. Julie was with Union Pacific for 23 years in increasingly -- roles of leadership, most notably, including periods as President of Union Pacific Distribution Services and as head of UP's Automotive business. Julie also adds tremendous value to Pacer as we continue building our retail business, including executing our plans to convert automotive business from wholesale to retail.

In contrast, the results in logistics were disappointing this quarter. We generated an operating loss of $2.8 million, which is slightly worse than last year. Our year-over-year revenue decline continued to shrink marginally.

Although we were expecting to turn the corner and see more revenue improvement than we actually generated in the quarter, we did begin to see some good progress in our Asia expansion, with new people and alliances and business coming on in the quarter. We also signed a multi-year agreement with CTS International Logistics, which gives us broad and rapid access to the China market. We'll also generate business to feed our domestic intermodal network.

Despite the slower ramp-up in logistics revenue, our plan continues to be to achieve double-digit revenue growth in the second half of this year, which will allow us to achieve breakeven run rate for the segment by year end. Bob will go into this in more detail when he speaks. I'll now turn it back to John to walk us through more of the financial results.

John J. Hafferty

Thanks, Dan. For the quarter, we are in $0.05 per share, which includes the effect of a charge we took for approximately $800,000 or $500,000 net of tax to settle property tax disputes relating to our intermodal equipment. Adjusting for this item, we achieved earnings per share of $0.06, adjusted operating income of $3.8 million, adjusted gross margin of 14.1% and adjusted intermodal segment income of $11.6 million. Our adjusted operating income of $3.8 million was up 52% from last year and our intermodal adjusted operating income was $11.6 million, which was up 23% over last year.

Our logistics segment had an operating loss of $2.8 million, which was slightly worse year-over-year and was primarily due to the soft global economy that most global transportation providers experienced during this quarter. Our total company revenues of $238 million were down by 12% versus last year, primarily as a result of lower volumes in both segments.

In the intermodal segment, revenue of $184.3 million was down by 12% from last year, with domestic intermodal volumes declining by 3% and international intermodal volumes declining by 20%, primarily due to a drop in drayage volumes from an ocean carrier customer who moved their transportation model to beyond port in the middle of 2012.

Our logistic revenue was $54 million and was down by 13% from last year, due to a soft global economy and our continued transition from a wholesale to a retail model for freight forwarding. The company's adjusted gross margin was 14.1%, which was up 210 basis points from last year, with intermodal improving by 260 basis points and logistics up by 30 basis points. As Dan described, the increase in intermodal gross margin percentage came from a favorable mix of higher margin freight and better management of our equipment, drayage, accessorial and network repositioning costs.

Our logistics segment's gross profit of $6.7 million was down by $800,000 from last year as a result of the segment's revenue decline. The logistics gross margin rate was 12.4%, which is up by 30 basis points from last year due to a better mix of business within the segment.

Our selling and general administrative expenses remained under solid control in the quarter as we came in at $29.9 million, which was flat year-over-year. Intermodal logistics continued to decline year-over-year by $300,000 each, mostly as a result of controlling our staffing levels. Our corporate SG&A was up $600,000 over 2012 as a result of increased incentive compensation due to us achieving our targeted operating results.

Our tax rate in the quarter was 32% due to a favorable tax adjustment in one of our foreign subsidiaries, and we expect our tax rate for the full year to be 37%. This reduction in the tax rate have no impact on our reported earnings per share.

Our cash generation remains on track overall with us generating $11.4 million in operating cash flow year-to-date and comparing to last year, where we used $10.3 million in the first half of 2012. For the quarter, we generated $800,000 of cash from operations and ended the quarter with $27 million of cash on hand. We remain debt-free and our borrowing capacity was $65 million, which is consistent with our last quarter.

Now turning 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 $0.35, which is the more than double the $0.12 we earned in the 2012. This guidance includes an expectation that our intermodal volumes will increase in the second half of the year in the mid-single digits as a result of this year's bid season activity and that intermodal margins in the second half, as a whole, will be consistent with the first half. We expect logistics revenues to grow on the second half as a result of our new direct sales team and our Asia expansion, with margins ticking up slightly as a result of the mix of business.

SG&A costs should remain relatively flat with the first half figures with small increases coming from investments and sales generation. We also continue to expect our revenues to range between $1 billion and $1.1 billion, which would represent flat to mid single digit growth over 2012. I'll 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, and good morning. Our intermodal results continued to benefit from our ongoing focus on profitable growth, which is reflected in the segment's adjusted operating income being up 23%, even while our volume and revenues were soft. Like last quarter, this quarter's revenue decline came as a result of our efforts in the second half of last year to pair a low-margin freight than we had won in the first half of 2012, but later became unattractive due to large, unexpected rail cost increases in Transcon lanes. Repricing that business resulted in some volume declines.

We continued to focus on achieving acceptable margins this year and maintained discipline in our pricing during bid season. These factors combined to result in domestic intermodal volumes that were down by 3%. Transcon lanes were again affected the most, declining double digits, partially offset by north/south lanes up mid single digits. The combination of price, fuel and business mix negatively affected domestic revenue by 10%, resulting in revenue down 13% on the 3% lower volumes, with mix being the main driver.

Our international intermodal revenues were down year-over-year by 9%. As in the prior few quarters, the decline was primarily driven by port drayage in the Pacific Northwest, where a customer moved from off-dock to on-dock services in the middle of last year, resulting in a reduction of 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.

As both Dan and John mentioned earlier, intermodal margins, again, improved significantly on a year-over-year basis, with our adjusted gross margin percentage up 260 basis points and overall gross profit up 8% from last year, despite the lower revenues. These margin results come from our multipronged approach of improving our mix of freight, improving our management accessorials, lowering our equipment and network cost and improving our street efficiencies, all of which contributed to the improved margins. We expect that these efforts will continue to bear fruit for the remainder of the year.

Container turns for the quarter were 1.8, up from 1.7 in the first quarter and flat with last year. In spite of softer volume levels, we were able to manage our asset levels and costs in order to maintain consistent utilization year-over-year.

For the rest of 2013, we expect our domestic intermodal volumes to turn positive on a year-over-year basis in the third quarter and accelerate that momentum into the fourth quarter, resulting in mid single-digit growth for the second half of the year as a result of bid season wins and as we lapped last year's second half repricing activity.

Our overall take on this year's bid season was that it started off as a very challenging price environment, with certain players being very aggressive to fill capacity additions. The second half of the bid season saw a more moderate pricing environment, where we were able to make solid wins while maintaining pricing discipline. We anticipate that all [ph] volumes will grow in mid to high single digits in the second half, with normal seasonal timing for plant shutdowns in the summer and year end.

Overall, for the full 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 our logistics segment.

Robert W. Noonan

Thank you, Paul. Good morning, everyone. As Dan mentioned, our logistics segment results were not up to our expectations as the segment's operating loss of $2.8 million was a little larger than last year's loss of $2.5 million. Like most of the market, we continue to experience soft revenues, which were down year-over-year by 13%, which are primarily the result of the difficult international transportation environment, coupled with our shift in business model toward ramping up retail freight forwarding, while we also maintain our wholesale NVOCC business.

The soft global freight market is resulting in very difficult conditions, in particular for wholesale NVOCC business, which is highly price sensitive. Despite these results, there are several positive developments in the quarter, most notably, our Asia expansion efforts to continue to gain momentum. In the quarter, we brought on several highly experienced resources.

We also put place some multi-year agreements with CTS International Logistics. We are very excited by this arrangement which we expect to be greatly beneficial to both companies. CTS will gain access to Pacer International's domestic intermodal networks, while Pacer gains an extensive sales presence throughout China and other Asian markets that should allow us to ramp up our Asia inbound business more rapidly than we could do in our own.

We continue to upgrade our global footprint elsewhere, also including in Germany, where we implemented Menzell in Frankfurt as our OWL representative office. We also completed implementation in Asia with our new global operating system, which will allow us to have global end-to-end visibility in the growth profit leads through process improvement and productivity gains. We are now moving on to implement this system in Europe and the U.S. and the program remains on track.

Our Pacer Distribution Services and highway brokerage business also had positive quarters, with operating results up slightly over last year in each. Both businesses continued their positive trends of building pipeline in revenue and leveraging those into profitable growth.

Overall, we continue to expect that our transition in logistics will gain momentum in the second half of the year, resulting in double-digit revenue growth, which will allow us to achieve profitability on a run-rate basis by the end of the year.

With that, I'll turn -- I'll now open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Scott Group with Wolfe Research.

Scott H. Group - Wolfe Research, LLC

So I want to understand the revenue guidance a little bit for the second half of the year. It seems like, on both intermodal and logistics, you're assuming a pretty material rebound in growth. Do you have any numbers you can give us either for June or what you're seeing so far in July that start to show some signs of that improvement that can give us some comfort that some of these numbers are achievable?

John J. Hafferty

Scott, we're not going to comment on July, but we're comfortable with what we see with our pipeline and how we see both segments ramping up. And we're comfortable that we'll achieve in the intermodal the mid single digits and actually, probably double digits in the logistics segment, for the second half.

Scott H. Group - Wolfe Research, LLC

Maybe -- do you feel comfortable talking about June at all? Or was June less worse, did June start to get positive?

Daniel W. Avramovich

What we did see, Scott, is in the first part of the year in our bid season was a lot more competitive, all right? And we saw that tail off somewhat in the second quarter into the third quarter from a bid perspective and we are able to achieve and take advantage of that going in -- which will flow into the second half of this year.

Scott H. Group - Wolfe Research, LLC

Okay. In terms of logistics, I just want to get a sense of the big picture here. If this thing works out and you get to breakeven by the end of this year, where do you think the upside is? If things go right, are we thinking a 1% margin, a 5% margin, just because it's tough to understand that there are commitment here given all the losses? And maybe if we get a sense of what the upside could be, we can understand a little bit better.

Robert W. Noonan

Yes, I think -- Scott, this is Bob Noonan. I think if you really run the movie forward and you take a look at what it's there, it's really all about what the integrated solution is for the customers, right? And our direction really is it's not only to tap in into the enterprise business that we have across the whole portfolio, which we're making great progress on, by the way. We talked about that in the past and we have more business that we brought in. That's only a piece of it. There's a huge piece of it out there that we obviously look at from the standpoint of the middle market for, let's say, the top 25 forwarders that will penetrate business on. Our pipeline is strong, it's there, and long-term operating margins, we're looking at probably 3% to 5% for the segment.

Daniel W. Avramovich

Again, Scott, I mean, this is really focusing on one, making a transition, just like we did in the intermodal side. Ideally, we could be very precise on exactly when things actually change and that we feel very comfortable with the progress we've made, both in the salespeople that we've brought on and new alliances that we've gathered, that we announced actually during the quarter and really after the quarter with Germany. And nobody -- and I continue to say this, nobody takes advantage or can take advantage of the integration of our product offerings with our domestic intermodal franchise. Nobody can do that, all right, and we're going to do it.

Scott H. Group - Wolfe Research, LLC

Can you give us a little bit of color on those 2 new contracts, relationships, and what's the revenue implications or margin implications from this?

Robert W. Noonan

Yes, certainly. Let me try to add some color to it, but I don't really want to go into the margin because I don't think that, that's a subject that we really want to talk about. But CTS certainly is the largest multi-year contract, right, within China. It gives us a tremendous entrée into the China market without a major investment in order to do that. We have a significant -- and anticipating that we might have some questions on it, we have significant input from the CTS organization coming back to us with business. Their whole concentration is really on export business from the U.S.A. into China, as well as their business to use our intermodal network. The size of their sales force is huge, which they're really putting in place for us to support us, with 43 resources throughout China in order to be able to do that. We'll be able to reach the interior. On the Germany part of the equation, that really allows us to open up the OWL network, which is on the NVOCC wholesale side and BCO side of the business in that market where we were a little bit exposed because we didn't have the coverage in the past. In the first month of operation, which was July, we're seeing very good returns from that business. We have further associations that will be developing and we have a very definitive plan for the cross marketing of our business within the organization, so we expect that we will see an uptick in the second half of the year.

Scott H. Group - Wolfe Research, LLC

,

Okay. Just last thing, so if I look -- intermodal operating margins are now north of 6%, so probably second best in the industry. Where do you think those can go from here?

John J. Hafferty

Well, as we look at it, they can probably continue to move up. But right now, we're probably -- for this remainder of the year, we're probably consistent where we're in the first half of the year. That's the way we're looking at it, Scott. We continue to focus on driving out costs. We continue on optimizing our network. We continue to look at how we get the street and density on the street, so we continue to focus on that. But again, we're looking at, as I said, the 6% and basically staying that way in the second half of the year.

Daniel W. Avramovich

I think the key there, Scott, is really kind of balancing between being able to get kind of the margins in pricing that we see -- that we need, offset by increases in rail prices, but then, really balancing that with the kind of continued improvement on their street efficiencies, which would continue to see good progress in.

Operator

Michael Weinz from JPMorgan is next.

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

I guess, I was wondering if you can talk about intermodal pricing first. In the first quarter, you identified that being up around 1%. What was it roughly in the second quarter?

Paul C. Svindland

This is Paul Svindland. I think we're still consistent with that type of 1% range.

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

Is there any ramp expected on the back half or is that pretty much locked in with the bid season? I think your cost structure was expected to be relatively stable throughout the year, so...

Paul C. Svindland

Right. I don't think that's pretty much locked in with the bid season, so that's consistent. The 1%, I think, is a good number.

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

Okay. And then earlier in the bid season, you indicated that it was a little bit more challenging than the second half. What caused that to change? Was it a material change in the competitive dynamic or were there certain areas that you were targeting, like certain operating regions that -- or specific lanes that were just opening up in more accepting of price increases?

Paul C. Svindland

Yes, I mean, I think there's a couple of things. I think one, some of our competitors got very aggressive in the first half and basically locked in certain amount of freights, so they probably became a little bit less competitive and less aggressive in the second half, freeing up and giving us more opportunities to win freight. We continue to maintain our margin discipline. We had target margin numbers that we want to hit and we approached the second half the same way. Again, I think, we just saw more opportunities given that some of our competitors that locked in to commitments already.

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

And then on the capacity side, I believe you're looking for an addition of 1,500 containers in 2013. Is that still the goal?

Paul C. Svindland

Yes, I think the expectation is to add 1,500, but really to have more of a net effect of around 1,000.

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

Okay, is that change or just a clarification from first quarter?

Paul C. Svindland

That's a clarification. That's always been our intent. We're on plan with what we wanted to do from the equipment box perspective.

John J. Hafferty

I think we did say that we're at 1,500, but we're -- actually, we're retiring some of our boxes, so that's where maybe the confusion is. So that's probably -- so that's why Paul indicated it's 1,000 net.

Paul C. Svindland

More of a clarification.

Daniel W. Avramovich

Yes, and we use their retirements really as a flex point based on volume.

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

Right. That all makes sense. And I guess, it just means that there's really no change in your CapEx number for the year.

John J. Hafferty

Yes, no -- or no, and that...

Paul C. Svindland

That's correct.

John J. Hafferty

That's correct.

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

Okay, great. Actually, one more. Did you mention your in-house drayage percentage that's being handled?

Daniel W. Avramovich

77%.

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

77%. Okay, that's a good step up. You're -- what are you targeting?

Daniel W. Avramovich

85%.

Operator

The next question is coming from the line of Ben Hartford with Baird.

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

I wanted to get clarification on the automotive volume guidance that you provided for the back half of the year. I think you said mid to high single digits and I think last quarter, you said mid single digit growth. So I'm just curious about the upper end of that range moving. Paul, maybe, how much of that is due to the SAR number moving slightly higher through the quarter versus some traction or new wins, et cetera, that might be more organic to you guys? Can you provide some context there?

John J. Hafferty

First, let me just clarify. You said automotive. We said intermodal, not automotive. Intermodal is what we -- it's the segment.

Daniel W. Avramovich

Yes, we do expect automotive to run a little faster.

John J. Hafferty

We -- a little faster, but what we're talking about is our intermodal segment.

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

Understood. So can I clarify that real quick? I think you just made the comment that you expect it in the back half of the year. Automotive volumes to be up in the mid into high single digit range, is that right?

Paul C. Svindland

Yes, that is correct.

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

Okay. And then I think the last quarter, you had said that you expected automotive volumes to be up only mid single digits. So Paul, I'm just wondering if there is the upper end of that range rising a little bit and if so, what's driving that?

Paul C. Svindland

Right. And again, I think it's really just working closely with the railroads as well as the OEMs, the automotive companies to understand what their forecasts are and their expectations for the back half of the year. And so given additional and further guidance from those 2 sources, that's why we bumped up the adjustment slightly.

Daniel W. Avramovich

Yes. And we have had a few wins that were -- we've been working on in the pipeline here again as part of our migration there on -- from the wholesaler retail side. So clearly, that's the case.

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

Yes. And those wins, are they coming more on balance on the automotive side as opposed to broader FAK traffic as you talked about the new UP agreements specifically?

Daniel W. Avramovich

We have had wins -- more wins because there's been more focus on kind of development of the retail side there. So clearly, we're working off a small base there.

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

Sure, of course. And I guess the question was are the wins coming more on the automotive side of the fence or are you seeing an equal amount of wins on the non-auto or just broader FAK traffic side?

Paul C. Svindland

I think we're seeing a nice mix.

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

Okay, good. You talked about the container growth expectations for this year. In the K, you has provided a chassis count update, about 15,500 chassis. Directionally, where should we think about that number in the back half of the year, maybe at the end of the year 2013, the chassis count number?

Paul C. Svindland

Yes. I think we would assume basically maintaining that number.

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

Flat? Okay, good, that's helpful.

Operator

The next question is from the line of Todd Fowler with KeyBanc Capital Markets.

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

Just a question on the guidance range now for the back half of the year. If I understand kind of how you're thinking about the guidance, you've got visibility at this point based on the bid cycle in the first part of the year and what's happening within the logistics segment. What's the difference at this point between the low end of your guidance range and the high end of the range? Is that basically all economic at this point or is there something else that's in there?

John J. Hafferty

I mean, we put the range out there based on how we see the revenue ramping up. So I mean, if you looked at it, I mean, it's just really how we perceive the good the ramp up move forward. So there's really no economics that's looked after the $0.25 to $0.35 on the range.

Daniel W. Avramovich

But it will be really -- the range will be focused on kind of the size of the growth.

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

And I guess that's what I'm asking. I mean, basically, the economy impact on that, I'm assuming that you've got comfort in getting to the low end of the range. But to get you to the high end of the range, we would need a stronger second half from a volume perspective, what we used to call the peak season, that sort of dynamic.

Paul C. Svindland

And that plays into it.

John J. Hafferty

Yes. [indiscernible]

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

Okay, that helps. And then I think that the comment was made that the expectation is that the intermodal gross margins are going to be flat sequentially for the back half of the year. First, did I hear that, right? And then second, if you could comment on the visibility that you have from your rail partners, on your rail pricing at this point in the year?

John J. Hafferty

First, yes, you heard that correct. As far as how we look at the margins, margin will be pretty probably a little higher in Q4, a little -- and probably about the same in Q3. So that's kind of that way we're looking at it. So at average, it's to be about to same as we look at it right now. And we still anticipate being able to pass through our rail costs and that's been anticipated in our margin assumptions moving forward.

Daniel W. Avramovich

And we have complete visibility.

John J. Hafferty

And we have complete visibility as we talked about in the last quarter.

Paul C. Svindland

[indiscernible] understand, we have clear visibility on the rail cost side.

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

Good. Yes, I just wanted to confirm that. And then one other, I think, just point of clarification that I had. I thought I heard the comment that in the quarter, the combination of price, fuel and mix was, did I hear it right, that was down 10%?

John J. Hafferty

Yes.

Paul C. Svindland

That's correct.

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

Okay. And it sounds like the peer price was up 1. Is a lot of the decline then related to the softness or the transition of the Transcontinental volumes here in the quarter? I mean, is that what really is the driver of the down 10% here on the price, fuel, mix comment?

Paul C. Svindland

I would say, for the most part, that's right. It's really truly a mix, right? Fuel was basically flat. We've talked about the price, so the remainder of this is a mix issue.

Operator

The next question is coming from the line of Kevin Sterling with BB&T Capital Markets.

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

Just -- Paul, you'd talked about your container turns. I think they were 1.8 were, up from 1.7. Can you continue to improve on them as you increase your intermodal volumes, is that your goal? And if you so, where would you like to be maybe by the end of the year?

Paul C. Svindland

Yes. I mean, I think our expectation is we should be able to continue to improve that. I sense, between now and the end of the year, ideally, we're not getting any worse. Expectation, ideally, hopefully we get up to 1.9 by year end.

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

Okay. By year end, okay. And then I guess your goal is 2, continue to improve on that as -- even as we look to the next year or 2, I mean, could we see over 2? Is that kind of -- as your target even maybe a longer-term goal?

Paul C. Svindland

Yes. I mean, I think 2 would be a good target. But I think, at this point in time, to commit to anything, to say anything above 2 might -- wouldn't make sense.

Daniel W. Avramovich

A big part of that, Kevin, is driven by kind of our mix in automotive, which -- we continue to work with our customers on driving efficiencies there. And again, we don't want to charge them for the use of the boxes. We just want the boxes to turn faster. And so we're making decent progress there.

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

Okay, great. And you guys, you're talking about your intermodal volumes, I think, rolling mid single digits in the second half. Obviously, it sounds like some new business wins, bid season picked up a little bit sounds like in the later part of bid season. A couple of questions there. Are -- as you look at some of these business wins, are they some sizable wins or a lot of small wins that kind of gives you confidence in this volume growth number? And also, really, what vertical did most of your wins come from? It sounds like maybe won some new business in retail.

Paul C. Svindland

Yes. So Kevin, I think one, the wins that we have been awarded as of late, or let's call them the second half of the bid season, they're a good mix of some larger size, some midsize and a couple even smaller-type customers. I think our confidence level in the volumes in the second half of the year is, given history, we have a good sense of what's the adoption rate going to be range, right? And so if it's a conversion from truck to intermodal, sometimes, that takes a little bit more time. But if it's a switch from one intermodal provider to us, we have a higher level of confidence that you'll see. You'll see a good percentage of awarded volume. So we've had pretty much a bottoms-up approach to what we believe the volumes would be for the second half of the year. And I think that's why we are -- we feel pretty confident in the guidance that we provide as it relates to the volumes.

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

Okay. And Paul, let me take that question a little bit further, if you don't mind. As we look at your business wins, are you expanding relationships with customers? Is it new customers, is it truckload conversion? Is there any way to kind of break out some of the primary drivers of some of the spreads you see?

Paul C. Svindland

Kevin, I think it's all of the above, right? So it's a combination of -- we continue to win to expand with existing customers. We brought on some new customers. We anticipate bringing on some additional customers with the addition of Julie and some additional sales folks that we're adding to the team. And a part of those existing customers and new customer wins, the expectation is to continue to drive the conversion from over the road. And so I mean, that's always been part of our strategy. And so we would anticipate the contingency growth there as our competitors will as well.

Daniel W. Avramovich

We also recognize that in order to grow truck conversion, you need a strong relationship with the customers and we really focus on that. Now, our service is next to none and that allows us to basically get into a different type of position with customers that will aid us and does us in driving truck conversion.

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

Okay, great. And then just touch on logistics, too. I know there's been some discussion on that. As you continue to target double digit revenue growth by the end of the year, breakeven and logistics, is it fair to say we at least should see sequential improvement in Q3 over Q2 for logistics? And really, I guess what's driving your confidence is a healthy pipeline, is that right?

Robert W. Noonan

Yes, it's absolutely true, Kevin. The number one -- it's the expansion we're doing, the people that we put in place. We've redesigned the whole system. We'll get the benefit with global visibility from our systems. But we have new business that's starting to come on board right now awarded, that's number one. And that comes from all of the above, right? CTS in Asia that comes from our Menzell relationship in Germany, also comes from the agent network that we had and down into Mexico, which we have a new partnership as well. The pipeline is very robust. Our people are actively engaged in bringing that business on board and I think you'll see an improvement in Q3 over Q2 that will be very good.

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

Okay, great. And one last question is probably more for you John. As you continue to build your cash position, could we see a stock buyback? How -- what are you thinking about in terms of cash deployment?

John J. Hafferty

Kevin, the way we look at cash is we're going to consider all our options, what makes the most sense. And so we'll consider the options and evaluate them, and we also may be looking at some acquisitions as well, depending on where we can drive better growth of profitability and returns to our shareholders.

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

Okay. Well, you mentioned acquisitions. Are you seeing opportunities in logistics or is it intermodal or maybe a combination of both?

John J. Hafferty

Combination of both.

Operator

The next question is from David Campbell with Stifel.

David P. Campbell - Thompson, Davis & Company

I wanted to focus in a little bit on the quarter for logistics. I believe I read in the press release that volumes are down in both segments, but I don't think I heard the discussion in terms how much logistics volumes were down year-over-year and if that was down sequentially as well from the first quarter or not.

Robert W. Noonan

Yes, the volume was down, right? And it's really driven, David, by the softness in the market, number one. And I think, number two, under our wholesale model, a lot of the business has really gone from door-to-door to a port-to-port type environment because the forwarders are obviously struggling to make money out there. It's really changed the conditions within the marketplace and that has driven volume to some degree.

John J. Hafferty

But the volume wasn't down sequentially. It was year-over-year, what Bob was referring to.

David P. Campbell - Thompson, Davis & Company

Okay. And how much can you quantify that, the year-over-year change in volume?

John J. Hafferty

Year-over-year, I don't have that right at the top...

Robert W. Noonan

4%.

John J. Hafferty

4%, yes.

David P. Campbell - Thompson, Davis & Company

Okay. And is that an acceleration or deceleration from a year-over-year change in volumes in the first quarter of the year?

Robert W. Noonan

It's a deceleration.

John J. Hafferty

Deceleration.

David P. Campbell - Thompson, Davis & Company

Okay. And then kind focus on the CTS announcement, obviously, very positive. Is there a timeline for that to be fully integrated, kind of fully ramped? Obviously, it probably started out a little bit slow or maybe not, maybe it's come on full board. How long do you think you can fully maximize that relationship and get to kind of what you're internally generated revenue targets are for the relationship going forward?

Robert W. Noonan

Yes, so there's 2 things. Number one, we currently have a roadshow within China that's underway with the staff, right, as we ramp up and we implement. What we won't do, David, is we won't take business and try to bring that on quickly and impact our revenue growth. So I think we get fully ramped, the roadshows and the implementation will go now through the September timeframe and October, we'll start to ramp that up. We're actually seeing viable revenues from that now, but there's a number of locations to cover to get the full impact. Full board in 2014, I think, is where we really see the significant jump in revenue, although the revenue will be very good in 2013.

David P. Campbell - Thompson, Davis & Company

Okay. And then just -- I guess, from the amalgamation of comments that I heard, it sounds like there are no contracts expiring or going to be renewed or renegotiated in the back half of 2013 on the intermodal side?

John J. Hafferty

No.

Robert W. Noonan

No.

David P. Campbell - Thompson, Davis & Company

Okay. And then if you could -- could you just -- obviously, the mix change...

Daniel W. Avramovich

What you're saying, contracts, contracts with the railroad or...

David P. Campbell - Thompson, Davis & Company

Contracts with the rails, but also with any customers.

Daniel W. Avramovich

Well, we still have bids going on, okay? The size of the bid season is a lot less than the second half, if you will, but that's just normal for us.

Paul C. Svindland

But typical type of activity.

John J. Hafferty

Yes, normal activity.

Daniel W. Avramovich

Normal activity, right.

Paul C. Svindland

And nothing on the rail side.

David P. Campbell - Thompson, Davis & Company

Right, got it. And then could you speak to what your length of haul has gone year-over-year and maybe sequentially with the change in mix, with Transcon coming down and your north/south increasing?

Paul C. Svindland

Yes. I think based on the mix, I would say, it's -- the length of haul has shrunk a little bit.

Daniel W. Avramovich

Just because the Transcon business is going down.

John J. Hafferty

Right, exactly.

Paul C. Svindland

Right. So based on mix, it's more north/south versus more so called west/east or east/west.

David P. Campbell - Thompson, Davis & Company

Right. Can you put any numbers on that, maybe bracket my thinking on how much of a change that's been, possibly, if you have the numbers in front of you?

John J. Hafferty

No, we don't have that, David.

Operator

Todd Fowler with KeyBanc Capital Markets is next.

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

I just had 2 quick follow-ups from a modeling perspective. I guess, thinking about the direct operating expenses going forward within the intermodal segment, should those move up because of the increase in volumes that are expected in the second half of the year?

John J. Hafferty

I would say slightly, not materially up.

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

Okay. And then same sort of question on the SG&A line. And I guess, thinking about it maybe on a consolidated basis, $29.9 million here in the second quarter. And I think maybe there was a comment about incentive compensation that I didn't fully get. If you could go over what that was during the quarter and then how we should think about SG&A for the second half of the year. Those were the remaining ones that I had.

John J. Hafferty

What we said in the quarter was it's up -- it was -- basically, our corporate was up year-over-year. And primarily, that was driven by the long-term incentive or compensation target because we're hitting our operating targets. So you would expect that kind of a change year-over-year in the third and fourth quarter. But the way I would think about it, Todd, is if you look at the quarter, it's going to be slightly up. The third and fourth quarter, the same way.

Operator

We have no more questions. Mr. Hafferty, please continue.

Robert W. Noonan

Thank you.

Unknown Executive

Thank you, everyone. And that concludes Pacer's Second Quarter's 2013 Earnings Call. Thank you for your participation and your continued interest and support of Pacer International.

Operator

That does conclude our call for today. Thank you for your participation and for using AT&T's Executive TeleConference. Today's call will be available for replay after 11:00 A.M. through August 25 at midnight. You may access the AT&T TeleConference replay system at any time by dialing 1 (800) 475-6701 and entering the access code 296041. International participants, please dial (320) 365-3844. You may now disconnect.

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Pacer International (PACR): Q2 EPS of $0.05 misses by $0.01. Revenue of $238M misses by $17.67M. (PR)