Celadon Group Management Discusses Q2 2014 Results - Earnings Call Transcript

Jan.31.14 | About: Celadon Group, (CGI)

Celadon Group (NYSE:CGI)

Q2 2014 Earnings Call

January 31, 2014 11:00 am ET

Executives

Stephen Russell - Founder and Executive Chairman

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

Analysts

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

Matthew Elkott - Cowen and Company, LLC, Research Division

A. Brad Delco - Stephens Inc., Research Division

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

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

Reena E. Krishnan - Wolfe Research, LLC

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Operator

Hello, and welcome to the Q2 2014 Celadon Group Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Steve Russell, Chairman. Please go ahead, Mr. Russell.

Stephen Russell

Thank you very much, and welcome to our December 2013 quarterly earnings conference call. I'm joined in Indianapolis by Paul Will, our President and CEO; Eric Meek, our Chief Financial Officer; Jon Russell, our President of the Asset-Light businesses.

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

I'd like to provide a brief overview of the quarter before I turn it over to Paul Will, who will give further insight into the results of the December 2013 quarter, and then proceed to open the floor to questions.

The operating statistics, evidenced in the December '13 quarter, were truly outstanding. In an industry where the number of failures for small fleets in the last quarter was the highest since 2007, and virtually every fleet is feeling the impact of driver shortages, we were -- Celadon was able to achieve wonderful gains in key metrics. As indicated in the press release compared with the December 2012 quarter, seated count increased significantly, up by 720 units or 27%.

Revenue was $193 million, up by $45 million or 31%. Revenue per loaded mile improved from $1.57 in the December '12 quarter to $1.63, or an increase of 4% compared to the earlier quarter.

Financial results, net of a decline in gains on sale, which were down slightly, were down from 2012, primarily related to the typical immediate negative impact of an acquisition. Higher deadhead as newly truck -- newly-acquired trucks are moved around, higher maintenance costs, trucks are renewed, and similar integration changes also contributed to the negative short-term impact.

We're very comfortable with the recently completed acquisitions and believe our confidence in our future has meaningfully improved. The 2 acquisitions were the Yankee in Canada and Osborn in Alabama.

I'd now like to turn it over to Paul for additional comments on the quarter. I'd also like to make a comment that Paul and his management team are doing a wonderful focused job and very happy with where they are and where we're going. Paul?

Paul A. Will

Thanks, Steve. I'd like to give some detail on fleet composition, miles and intermodal revenue for the quarter, and some clarity on expenses pertaining to the current December 2013 quarter and expectations on future quarters.

Average company tractors increased by 462 trucks from 2,237 last year to 2,699 this December 2013 quarter. Company miles increased by 12.4 million from 58.2 million miles last year to 70.6 million this December 2013 quarter. Owner operators increased by 258 tractors from 461 last year to 720 this December 2013 quarter. Owner operator miles increased by 6.5 million from 12.4 million last year to 18.9 million this December 2013 quarter.

Intermodal revenue increased by $5.4 million from $4.4 million last year to $9.7 million this December 2013 quarter. Included in this year is $3.3 million related to container movements in Canada. That, obviously, was not included in last year's numbers, that comes from the recent acquisition of Yankee this year in the December quarter.

Next, I would like to address some expenses incurred in the current December 2013 quarter. Fuel during the quarter was negatively impacted by 2 key factors. The first relates to the addition of tractors acquired through recent acquisitions. These approximately 450 tractors, which represent approximately 17% of our fleet currently, are less fuel-efficient and not equipped with anti-idling solutions like the existing Celadon fleet. This resulted in approximately $1 million of additional fuel expense compared with equipment currently operating in Celadon's existing fleets.

Secondly, the extreme temperatures experienced in a large portion of the U.S. and Canada, has resulted in an increase in idle times to properly protect our drivers when temperatures drop below 15 degrees Fahrenheit. With the addition of the Canadian business, which currently represents about 21.5% of our business, up from about 14% last year, a lot of that weather-related to Canada, as well as the northern part of the U.S. and the Midwest.

Our running miles per gallon did not change in the quarter, but our total miles per gallon decreased by 2/10 of a gallon, which we estimate that, that has resulted in an increase of approximately $1 million in fuel cost for the quarter. We believe as the weather breaks and begins to warm up to a more normalized level, we should see this cost reduced to more historical levels.

Maintenance, which is included in operating, supplies and expenses, was higher by approximately $2 million related to the increase in miles, $1 million related to the cost of operating the newer equipment having newer emissions with the 3 emission changes we've had over the last 7 years. And $1 million related to the operating of older tractors acquired through the acquisitions recently, which as I said earlier, comprised about 450 tractors, which we believe we can mitigate those costs over time as that equipment is refreshed in the June quarter.

Salaries, wages and benefits were higher primarily due to a higher seated count of company tractors. The cost per mile has remained relatively flat. We have addressed 3 areas within this expense classification that we believe we have an opportunity to improve upon over the next several quarters. Recruiting expense should decrease over time, as we have just opened our new driver school building and the number of students graduating is continuing to increase. These drivers become full-time drivers at a lesser pay rate until they obtain 1 year of over-the-road driving experience.

We incurred approximately $600,000 of additional medical benefits expense in the quarter that we believe will be more onetime in nature and should return to a more normalized level in future quarters.

Finally, we have been taking steps to review and reduce administrative salaries due to synergies from previous acquisitions and efficiencies generated in our existing operations. We believe those should result in expense reductions over the next several quarters. We are pleased with our progress to date and believe we have positioned ourselves to benefit from a more robust freight environment resulting from both economic improvement, and more importantly, a decrease in capacity in the marketplace over time.

I would now like to open up the phones to questions.

Question-and-Answer Session

Operator

.

[Operator Instructions] Our first question on line comes from Mr. Todd Fowler.

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

Paul, can you just talk at a high-level how we should think about the cadence of acquisitions? And I guess, really what the question is getting at is you continue to do acquisitions and I think it kind of masks a bit of the core earnings part of the company or at least the margin profile. What would the thought process be on digesting some of the acquisitions that you've done to improve the margins versus continuing to go and do acquisitions at the pace that you have been?

Paul A. Will

I think when we stepped back, and we've, obviously, talked as a management group and I think we've communicated to the Street as well, we've done a good job over time, over the last couple of years, probably last 9 to 12 months, of really managing our cost structure, increase earnings through that -- doing that. Through some of the previous acquisitions we had done, we hadn't retained obviously the top line or the top line was relatively flat. So we've made a conscious effort over the last 9 to 12 months to do the acquisitions and retain the top line. That's been done through, as we discussed, the driver school that we started over a year ago now, the recruiting and orientations at outside terminals, and of obviously through the acquisitions. But I think we've done a really good job demonstrating that we can -- we've got a model in place now that we can retain the topside -- top line revenue. The next step is, to your point, I mean, our goal at this point in time, now that we've got that, I think we've positioned ourselves well to really reap the benefits as things -- as capacity continues to tighten over time, the economy picks up or capacity comes out. So our next steps are just exactly what you point out, which is to step back now that we've got the top line revenue, generate the synergies, get the cost out and do what we've done in the previous 2 years, which is replace out, refresh the equipment, get more anti -- or equipment in there that's better from a maintenance standpoint, better from a fuel economy standpoint, and that has anti-idling devices that will reduce fuel as well. As I pointed out in -- earlier, that I think from maintenance standpoint and a fuel standpoint, those are 2 key components of the equipment that we brought on through the acquisitions. But also from an administrative wage synergy basis, we believe there's cost there as well. So our goal is, over the next 12 months, to take our OR, which is approximately 94% in the quarter, and try to shave off a point each quarter, in essence. But more specifically over the next 12 months, to get our OR back down towards the 90 OR level. So that's kind of our -- what our goals are internally. And those goals should be met relative to rate increase over time, cost being taken out and operating the fleet more efficiently. One thing to point out is that we look specifically at our outer route or our deadhead. If you look at deadhead percentage, which is 9 -- or 12.4% in the December quarter this year compared to 11% last year, a large portion of that is obviously through the acquisitions, especially like if you get the Yankee acquisition, and we had to switch them all over to our operating authority, that means you have to bring all the trucks in. When you look at Canada and how that Yankee expedited freight runs, it's a significantly longer length of haul. And therefore to get a truck in, in those outlying areas could be deadheading as far as 1,000 miles to get that driver through orientation. So the process of that, between that and several holidays at the time that we brought in the Yankee acquisition, that contributed to a higher deadhead. So but if you really step back and look at it, bringing our deadhead down by a point is worth about $0.02 in earnings per share when you kind of run the math. So then you step back and look at the March quarter, the March quarter, January's deadhead last year was 11.5%, it was 11% in the month of February and it was 10.5% in the month of March, which makes sense because you have more volume and you're busier in the month of March. The average for the March quarter is 11%. So we think that it's reasonable to say 11.5% because that's what we're currently running in the current June -- or current January period, which is comparable to last year. So if we only average 11.5%, that will take obviously cost out of the system as well. So those are, in a general sense, how we're looking at the cost side, so it's basically a tier point to take a breather on the acquisitions and integrate what we have today. That's not to say if something opportunistic came up, it's -- acquisitions are when they're available, not necessarily when you necessarily always want to do them. So although we've done a lot recently, it's a lot to digest, I think we're in the process and we will be in the process over the next 6 months to digest the recent acquisitions.

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

Okay. Yes, that really makes a lot of sense. And I think the point about where you're at right now looking out for the next 6 months, I mean what our takeaway should be is that if there's something opportunistic, you wouldn't pass on it. But maybe the cadence of acquisitions the we saw in the second half of calendar '13 will be slow from this point, and then we should see some of the items you laid out in the quarter, those headwinds start to go down sequentially as you integrated your -- as you refresh the fleet, as you don't have the repositioning costs or the licensing costs for those sorts of things.

Paul A. Will

Correct, that's correct.

Stephen Russell

And, Todd, very interesting. I was at the -- this is Steve. I was at the American Trucking Association executive committee meeting in Washington, Monday through Tuesday, and there are about 50 executives with the 50 major fleets that are on that committee. And 3 of them came up to me, not altogether, one at a time, and described where they were, private companies. And said, "Would you guys be interested in buying us." And we, after the third one, the answer is we've become known as the buyer. So we're not -- are there opportunities? We'll see. We're not jumping after them but I would allow another 1 or 2 but not in the next few months, just to add.

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

Okay. Paul, you gave me a lot of information, so I'll turn it over. But the last one I just wanted to ask is, so based on your comments there and what you have going on with the driver school, what should our expectations be for the fleet count going forward? Are you at the point where you've got enough drivers and the seated tractor count is where you want it to be or are you still going to be bringing in drivers to grow the seated tractor count sequentially, but a lot of that's going to be through the driver school?

Paul A. Will

Yes. When you look at what we believe will happen over the next quarter, we'll probably be up maybe 100 trucks, so you have to think about the previous acquisitions coming in, and we look at the average number of trucks and so forth. But one other thing I would point out is that the drivers that are coming out of the school, once they get finished with their training program at -- in a Celadon truck with a trainer, we're teaming those individuals up, so that should help from a utilization standpoint as well down the road. But from a seated count standpoint, I think you could say maybe model 100 greater than where we're at today.

Operator

Our next question on line comes from Jason Seidl.

Matthew Elkott - Cowen and Company, LLC, Research Division

This is Matt Elkott for Jason. Can you guys give us a sense on how truckload demand has trended in the quarter, and if you've seen kind of a similar uptick to what the some of the other carriers have seen?

Paul A. Will

Yes. What we've seen is, in the quarter, it was picking up in the back half of the December quarter. December, the month of, was strong. And so we've had some of those similar questions. And what I would tell you is even with the weather, although the weather is going to be negative for at least this part of the quarter, we've seen pretty robust freight in between snowstorms and cold weather and so forth. So we're pleased relative year-over-year to the freight volumes we've seen to date, which is kind of what we heard from our competitors as well.

Matthew Elkott - Cowen and Company, LLC, Research Division

Got you. And as far as the weather impact, you mentioned the increase in idle time. Was there anything else that -- from weather that affected your results? And have you guys tried to kind of quantify the weather impact in the quarter?

Paul A. Will

Yes. When we look at it from a weather standpoint, our total MPG -- and this is obviously is comparing this year to last year from a cold temperature standpoint, this year's MPG. So we look at running MPG on our existing fleet, forget the -- if you basically isolate and take out the acquisition tractors, so you have apples-to-apples. But it's the running MPG's comp year-over-year on the comparable trucks, more like same-store sales. But if you look at the MPG associated with total MPG on those trucks, it's down about 2/10. That 2/10 results in approximately $1 million in additional fuel expense or consumption this year relative to last year, had the temperatures not been as cold as they are. And that's really comprised of, as you know, how cold it's gotten even in the Midwest, and obviously the Northern Midwest states, et cetera, even down to Indianapolis. But also a higher composition of miles in Canada. And as you know, how cold has been Canada this year relative to what we've seen in the past. So that's kind of those costs. Obviously from a snow and ice storm standpoint, you'll typically see a little bit higher maintenance costs as far as repairs associated with accidents and insurance and so forth. But it's -- we saw a bigger impact, at least in the summer quarter, in the area of fuel as it relates to weather. And obviously then, you have less miles with snowstorms and so forth, not necessary from the coldness.

Operator

Our next question on line comes from Brad Delco.

A. Brad Delco - Stephens Inc., Research Division

Paul, can you talk a little bit about the conversation you've had with shippers? I mean, clearly, we're seeing tightness in the market. What are the expectations on rates, and could that change between now and March, when we typically see more strength in the market?

Paul A. Will

Yes. Right now, I think we're still talking about -- based on volumes that we've had to date, really more still in the 2% to 3% range. Maybe now you'd say maybe closer to 3% than the 2%. But what I would tell you is if volumes -- if the weather breaks, volumes continue at what we expect the rate to be, our expectation is any bids that come out later on in the first part of this -- or end of this quarter, first part of the second quarter, calendar, will probably be higher rates than even the 3%, based on what we're seeing today. There are obviously pockets of strength even within areas, but also types of equipment needed. We've had a lot more interest in our newly-formed refrigerator division or temperature control division, especially right now. More for -- some of it even from a protect standpoint if you think about stuff that doesn't have to be refrigerated, but just be protected from the cold temperatures, which has put pressure on rates from a shipper perspective, but obviously good from a carrier perspective. But that's kind of our feel as it stands today. But we're very optimistic that the back half of the year should be good for carriers, based on demand levels that we see today.

A. Brad Delco - Stephens Inc., Research Division

Got you. I appreciate that. And then you may have addressed this, sorry, I've been on 2 calls. But the -- seems as if you guys are going to get some expenses out tied to these acquisitions. But excluding that, I mean, is 2% to 3%, or maybe the higher end, 3% margins enough to exceed your inflationary cost pressures? And if not, where do you think you're going to see some of the most inflationary cost pressures this year?

Paul A. Will

I think that those rates, based on -- if you took the December quarter as a baseline, that's going to work fine for us. But we're -- probably the cost pressures, the most cost pressure we've really seen, if you exclude fuel, relative to the weather and so forth. And if you exclude the tractors that we acquired through acquisitions that we'll refresh, you're seeing some pressure on just general maintenance associated with the new emissions. There's been 3 emission changes, and with that, you've got STR[ph], you got DPS [ph] equipment, that all costs more than what it did running like a 1998-equivalent emissions tractor. So maintenance has ticked up somewhat. I think we've got opportunities to offset wage pressure, if you take as well the December as the baseline, through bringing on the inexperienced drivers that go through the school, because their first year, their pay is less due to the fact that we don't pay them the full amount until they have 1 full year experience, so there's less pressure there. And then efficiencies, we believe we'll still take out the system relative to previous acquisitions, synergies from that, as well as efficiencies. We believe we could take out headcount as it relates to how we operate our existing business.

A. Brad Delco - Stephens Inc., Research Division

Got you. And then maybe just one last quick one. Priorities on use of cash, debt paydown, where does that stand?

Paul A. Will

We kind of did -- net CapEx, we believe, will be about $20 million if you look at it for the calendar year, as what we have budgeted today. But we kind of mapped out, if you take now to the end of June, we should see a probably $20 million reduction in our current debt balance. We have about $15 million cash on the balance sheet. That was more of a timing issue to pay down the debt. But between that and just regular debt paydown, you see our debt go down by $35 million and our cash go down to a couple of million dollars, if you look at any SEC document as it relates to June 30, probably, is our expectation.

A. Brad Delco - Stephens Inc., Research Division

Okay. Got you. So $20 million by year -- fiscal year end?

Paul A. Will

Correct.

Operator

Our next question on line comes from Mr. Tom Albrecht.

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

Paul, I wanted to explore the increase in the average rate per loaded mile. On a sequential basis, it was up about $0.04. How much of that is because of a little bit of a different mix with the acquisitions? How much is the influence of Canada becoming bigger and even the reefer, which typically has higher rates than van?

Paul A. Will

Yes. We don't have that broken down. That's something we can get to you broken down by bucket. But I would tell you that reefer, definitely if we look at our rates, that is a higher composition than our driving rates. However, that's obviously, as you know, is a smaller piece. We currently have about 200 trucks running in that division and we have about 300 trailers currently deployed in that division. Reefer runs, from what at least we're experiencing to date, probably $0.20 higher on a rate per mile, at least on the freight that we're hauling. We don't have a significant portion like some of the other sole refrigerated carriers. If you look at our Canadian rates, our Canadian rates tend to run between $0.20 and $0.25 greater than our typical U.S. rates, and that's primarily because of supply and demand. It's not -- you can't -- the reason we've really expanded into Canada is because of the rate opportunity there and a lot of U.S. carriers don't want to go in and out of Canada. But obviously, having the Canadian drivers that's -- they're going home to their domicile. The other benefit that we've achieved with the Canadian operations is typically when the Canadian operators come into the U.S., they don't have sales force, they don't have customers in the U.S., so they have a difficulty getting back. So we basically paired that up with our customers going back into the Canadian provinces. So that's been beneficial to us. So I think your point being that, that's exactly right, that that's really helped us as far as drive rates up.

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

Okay, that's helpful. And then in terms of the average tractor count, it rose 394 units from the September quarter. Was that almost all because of acquisitions, or can you pinpoint a ballpark number that -- between the school and the local -- or excuse me, regional recruiting efforts that, that was behind some of that? I mean, can you help us -- where did that increase mostly come from?

Paul A. Will

Yes. Approximately, I would say out of the 390, 240 was from acquisition, about 150 was just from our own recruiting efforts/the school. So that's what we've, I think, communicated over the last several quarters. And I think we've achieved the opportunity to get our seated count up, even though it's been a lot more difficult today than it was maybe a year ago for most fleets to attract and retain drivers. I think we're finally to a point where we're doing a good job to be able to not only get the top line growth, but then maintain that top line growth while we now have an opportunity to digest the acquisitions and reduce our costs. So I think we feel pretty good about where we're at and what we're starting to accomplish here.

Stephen Russell

Tom, the building housing the driver training school opened on Saturday and it's truly fabulous. It's a gymnasium, bikes, spins, treadmills, health-oriented stuff, fabulous, 100 dorm rooms, wonderful facility and the reaction of the drivers to it is fabulous.

Paul A. Will

The unfortunate thing is it has 104 rooms for the drivers and it was full when we opened it, so we haven't seen -- it's a good thing. We didn't build it large enough, that's like the government is.

Stephen Russell

We were paying $40 or $50 until now, putting them in motels, so -- and they're happier with it.

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

Yes. So my last question would be -- this is not intended to be a crap question, but given so many changes at your company with acquisitions, beginning to maybe take out some costs and be more aligned with -- and integrated. Historically, the March quarter's earnings are a little below the December quarter. Do you have any thoughts on what is maybe a realistic possibility this year?

Paul A. Will

We, obviously, as you know, we tend not to give guidance, but our expectation is definitely to be higher than last year.

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

That's good. That's what I've got in my model. So

that helps.

Paul A. Will

Which I know -- but no, we're pretty optimistic that borrowing -- we believe the weather will break. And if trends stay the way they are, weather breaks, we believe we should have a good quarter.

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

So are miles -- I mean, I know they're going to be up because of the acquisitions, but do you have a way to determine would miles have been 2% or 3% higher, had weather been a little milder?

Paul A. Will

In which -- what -- and if we look at...

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

Just the month of January.

Paul A. Will

Month of January. We haven't broken down the month of January yet, but I think that's probably reasonable. As you know, I mean, there's 14-hour traffic jams in Atlanta because of the ice storms and so forth. Here in Indianapolis, we obviously had -- it was a challenging time to get a foot of snow and there's -- all the counties surrounding our headquarters were in emergency-vehicles-only travel mode, so individuals are working from home. So when you try to get the drivers out of the homes after Christmas, New Years, that obviously delays that. So 2% to 3% is probably reasonable, but we're pretty optimistic relative to what we're seeing in volumes today, even with the weather that we've had. So it's really more important to us looking at what's going to really happen in February and march's. Those are the more important months, now that we've got January behind us. But they seem -- the volumes seem to be good, so it's a good sign, at least.

Operator

Our next question on line comes from Mr. Chaz Jones.

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

Most of my questions have been answered, but just wanted to maybe fill out. Obviously, you guys have done a great job on the last year in terms of your driver initiatives. But just was curious, I guess, with that success, I wouldn't think that you guys are facing any sort of driver pay increases any time soon as we kind of look out to calendar '14.

Paul A. Will

No. As we discussed, I think what helps us as far as these drivers coming out of the training school, it takes them a year to get 1 year of experience, and they get paid the same as an experienced driver coming in. So that's an opportunity for us to try to maintain our current pay cost structure. But we don't believe there's any pressure today. Not to say that down the road there won't be, but we're not seeing any today.

Stephen Russell

And also because our average truck is so much younger than other fleets, drivers have been applying for jobs with us, even seasoned drivers.

Paul A. Will

Yes, I think as you look down the road, it's obviously not this year or next year probably, as it stands, but electronic logging devices and those kind of things, when you have an even playing field and everything else is being equal, I think you're going to see more drivers gravitate towards the larger, more well-capitalized large fleets like the Celadons, Swiss, Knights, the Harlans, et cetera, which will help from a recruiting and pay standpoint. Because at that point, you might as well go with a fleet that has newer equipment and it won't break down as much.

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

Got it. I don't know if you have this handy, if not, no big deal, but just was curious with all the acquisitions that you've done in the last several years. Do you have any sort of breakdown of sort of the composition of the truck fleet in terms of how much of the revenue now is regional versus reefer versus dedicated or expedited and so on and so on?

Paul A. Will

We don't -- We can get that for you, Leslie or Catherine can get that for you, but that's one of the things that they've been working on as far as trying to start to really dissect, to breakdown those specific classifications and categories, so we can start to identify growth opportunities within those areas, when you look at it sequentially or annually, year-over-year. So we can get that for you.

Operator

Our next question on line comes from Reena Krishnan.

Reena E. Krishnan - Wolfe Research, LLC

First of all, just if I could clarify, sorry, there are so many questions on this. In terms of the added fuel cost you mentioned, Paul, regarding from the acquisitions, is it $1 million in total in terms of the older equipment from the acquisition, as well as the weather conditions in Canada? Or is it $1 million from the older...

Paul A. Will

Yes.

Reena E. Krishnan - Wolfe Research, LLC

So it's $1 million total?

Paul A. Will

No, no. You're correcting for it[ph] . So it's $1 million as we look at -- what we do is we broke out the equipment that we're running, what the MPG on that is relative to our existing fleet and relative to the older tractors that are in the acquired fleets. There's about 450 of those tractors and that represents about $1 million on a quarterly basis relative to if they were running our trucks. Now there's 2 components to that. There's, really, you're driving MPG, which we believe is better, but also with the anti-idling device, which none of those trucks have, that saves money as well from the idling standpoint. And that gets you more to what we'd say is a typical Celadon refreshed fleet total MPG. That's about $1 million. In addition to that, what we did was we went back and said, "Why -- if you take out those tractors, why is our total MPG down about 2/10?" So the first thing we do is we look at what's our driving MPG to make sure it wasn't associated with driving habits or anything of that nature. And our driving MPG was comparable year-over-year, which makes sense because we have a pretty comparable fleet relative to engines and trucks and chassis. So the only thing that, that could be is additional idle associated with if the temperature drops down to less than 15 degrees, we allow these trucks to idle as opposed to using the anti-idle device to make sure, from a safety of driver standpoint, that they're -- from a comfort level standpoint, and the temperature remains at a level that they stay warm. That, we believe, is about $1 million.

Reena E. Krishnan - Wolfe Research, LLC

Okay. Got it. All right. The other thing I wanted to ask is just with the recent acquisitions and with the acquisitions in Canada, how are you guys thinking, I guess, if there's any sort of redundancies in terms of property or there's potential to maybe reduce cost and that -- maybe it's just a different labor environment versus your core markets and how we should think about that maybe as it would impact costs positively or how it would impact your seated tractor count, if you guys are looking to make any adjustments there, basically.

Paul A. Will

We continue to look at any -- any time we do an acquisition, there's always drop yards or other properties that makes sense to get rid of their redundancies, so we're constantly doing that. So there's a few properties from that perspective. And then also when we look at acquisitions, we look at where we're currently renting properties that we can get rid of drop yards, or properties that we're renting that we could go into another property. So I think we've done a pretty good job of that, but there's still some costs that we're working on, to your point, that will come out over the next several quarters. But one of the things like with the Yankee acquisition, a lot of the centralized dispatch and all those operations from a really more -- I should say, more from a customer standpoint are done in the United States and in Indianapolis centralized. The driver management remains in Canada. So a lot of that has been brought down here and we've taken out any, what you would consider, redundant costs. But so if you look at the quarter, there's a significant amount of cost that we paid for salaries up in the individuals that were in Saskatoon, that ultimately we had the U.S. individuals train with them and then bring those operations and that control down to the United States. So those costs were in the December quarter, which won't -- we won't see those again in the March quarter.

Reena E. Krishnan - Wolfe Research, LLC

Okay. Okay, thanks. That's helpful.

Paul A. Will

A little bit into January, I should say, because we integrated through the end of January. But for the most part, you'll see most of it out in January, or the March quarter, then we should be totally clean in the June quarter.

Reena E. Krishnan - Wolfe Research, LLC

Okay. And then one more question. Just in terms of the Osborn acquisition, can you give us some color in terms of what you were looking at with this acquisition, like it was a new market customer base or was it just drivers, and maybe just your thoughts on acquisitions going forward, as it seems like it's not necessarily just to gain drivers, but it is to look at some newer markets that you could probably get some advantage from either rates or just looking at something -- looking at a new business line to kind of complement your existing business line?

Paul A. Will

Yes. When we look at it, we've been -- we've sold them trucks over time through our quality network, and we've known them for -- probably really been talking to them for about a year. They talk to some of our competitors, large competitors that ultimately want to get into that market as well. They've got a really nice setup. It's probably 80% dedicated. Their driver turnover is about 30%. They really have not grown a lot because they've been around since, I think, 1956. They've got a really good setup. The individual, Mark Scalvin, [ph] who is currently running the operation, he didn't necessarily want to put all the resources up to own it himself, so basically what they decided was he want to partner up with someone that he wanted to work with long term. So we were pretty excited about the opportunity to work with them. With the resources, we believe we can continue to grow that. And he's got relationships with some large customers that we don't currently do business with. So the kind of thought was dedicated opportunity, it's making money with additional resource, they get drivers with additional resources, and/or they can get additional business with their existing customers, we felt like that would fit nicely in the rest of our network. So it's kind of how that all played out. And we're pretty excited about that opportunity.

Reena E. Krishnan - Wolfe Research, LLC

And can you give us a sense about what their annual revenues look like?

Paul A. Will

They're at a run rate of about $25 million to $28 million.

Stephen Russell

Reena, about -- right now, about 20% of our business is Canadian-related, about 30% Mexican and the balance, sole[ph] U.S.

Operator

[Operator Instructions] Our next question comes from Jeff Kauffman.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Two questions. Paul, you reiterated the $24 million in CapEx for the calendar year. In light of your other comments on the different utilization you're seeing from the inherited tractors in the acquisition, are there any thoughts about maybe changing that view a little bit and possibly replacing some of those tractors with these new 8-mile per gallon tractors that are being sold?

Paul A. Will

No. The number I gave you is to anticipate to do the 450 trucks this fiscal year. So that's the CapEx we need. One of the things that we did is we went back and looked at our gains, that's one of -- been one of the items that's come up a lot. And we had significant gains in 2012. And this year, if you look really back at the gains and start to -- we're really overlapping at this point. This is the last quarter, December-to-December, where we have a lot of gains, $4 million last year to $800,000 this year. But then if you look at the March quarter last year, it's about $300,000; the June quarter, $600,000. So basically we refreshed our entire fleet, so there's really no CapEx required for that. And that's why the CapEx I gave you is really just for those acquisition tractors.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Okay. So that's already in the numbers.

Paul A. Will

Yes, correct.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Okay. And then secondly, I can't help but notice that Canadian dollars moved a little of late. How does the weakening of the Canadian dollar affect the reported results of Yankee as you bring them back to the U.S.?

Paul A. Will

Let me check that, who is on the call, as far as -- if there's any customers first, no. This can't be -- as we look at that, that's a good opportunity for us from the standpoint of any freight that goes in and out of the U.S., it's billed in U.S. dollars. So since it fluctuates up and down, anything that's billed in U.S. dollars that we have Canadian trucks hauling that freight, and obviously we have a pickup of -- in the neighborhood of 10% relative to averaging about $1 last year parity to, I think, it was $1.115 yesterday. So assuming that stays up there, that's definitely a pickup and it's beneficial. The other thing that we've looked at internally is, when you look at tax rates in the U.S., call it 39% blended U.S. for federal and state, if you look at Canada -- or Mexico about, say, 30%, but Canada is around 26.5%. So if you notice our -- basically, our effective tax rate for the quarter was down somewhat year-over-year, and that's directly related to -- as Steve said, our percent of Canadian business is up to 21%, up from about 14% last year, which is at a lower tax rate. So you get 2 things when you look at Canadian business: One, the opportunity for running the Canadian trucks on freight that goes to and from Canada on U.S., as well as the tax rate. If you look at the Yankee business, a significant portion of that is done -- or I'd say 60% to 65% is done in Canada, so therefore, you have a natural hedge in place, if you will, on that business. You're going to bill in Canadian dollars and your expenses are Canadian dollars, so you really don't get a pickup. It's only in the business obviously that you bill in U.S. dollars and you use Canadian drivers. So the more business that we push using our network, U.S. network of customers, Canadian network of customers and now the U.S., that's where we're going to get a bigger benefit. The other thing we're doing to generate more Canadian drivers so we can do more Canadian business in and out of Canada is to put a school in place in Canada, similar to what we've done in the last year in the U.S.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

And last question. At the Analyst Day last year, you gave us a long discussion of some of the new technology initiatives, that you're in the process of implementing some of the route optimization software, communications software. Could you just give us an update on where you are in that deployment and how much more there is to go in terms of opportunities and benefits?

Paul A. Will

Yes. We've deployed a lot of what we talked about when everybody was in for the Analyst Day. At this point in time, we're trying to enhance what's out there. So it's first installing it, and then it's enhancing it with -- marrying that up with all the acquisitions we've done and generating synergies. That's why we're pretty confident that we should start to see cost reductions through synergies through the acquisitions, because of the technology we have in place.

Operator

Our next question on line comes from Mr. Brad Delco.

A. Brad Delco - Stephens Inc., Research Division

Paul, sorry, one quick follow-up and I think you somewhat addressed it. But recognizing the mix shift in terms of your geographic exposure, what's a good tax rate to use going forward?

Paul A. Will

I think, based on the mix that we're seeing today, about 35%, maybe 36%. That will fluctuate, obviously, depending on how the mix continues to play out. The more we get in Canadian, obviously it will positively impact the lower type of tax rate.

Operator

[Operator Instructions]

Paul A. Will

It appears there's no more questions. We appreciate everybody spending the time on the call and hopefully we answered all your questions. If anybody has any further follow-up questions, you could contact myself, Steve, Eric Meek, Catherine Schaeffer [ph] or Leslie Tarble. [ph] Thank you very much for your time.

Stephen Russell

Thanks very much, everybody. Thank you. Bye-bye.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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