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Celadon Group, Inc. (NYSE:CGI)

F1Q2011 Earnings Call

October 27, 2010 11:00 am ET

Executives

Steve Russell - Founder, Chairman & CEO

Paul Will - VC, EVP & CFO

Analysts

Jason Seidl - Dahlman Rose

Chaz Jones - Morgan Keegan

Todd Fowler - KeyBanc Capital Markets

John Larkin - Stifel Nicolaus

Jack Waldo - Stephens Incorporated

Edward Wolfe - Wolfe Trahan

Operator

Good day ladies and gentlemen and welcome to the Q1, 2011 Celadon Group Earnings Conference Call. My name is Michael and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operators Instructions).

I will now like to turn the presentation over to your host for today's conference Mr. Steve Russell, Chairman and CEO. You may proceed.

Steve Russell

Thank you Michael and thanks for joining the September '10 conference call. I am joined here in Indianapolis by Paul Will, our Vice Chairman and CFO, Chris Hines, our President and COO, and Jon Russell is calling in from changing planes and moved back from Knoxville, Tennessee so he will be on for a little bit.

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 defer from management's expectations.

Despite a relatively weak economy and the impact of Hurricane Alex on the Mexican road system in July which we had indicated on our prior conference call was likely to have a $0.02 adverse impact.

Earnings per share of $0.20 this September quarter was up significantly compared with $0.03 per share for the September 2009 quarter.

Operating ratio imputed on revenue before fuel surcharge improved to 93.2 compared to a 97.5 in the prior year September quarter and 95.2 in the June '10 quarter. The operating ratio and earnings per share represent our best performance since the June '07 quarter and these levels were achieved despite a relatively weak overall economy in the US.

Driving earnings growth were a series of factors, our average rate per loaded mile increased to $1.471 up $0.064 or 4.5% from the September '09 quarter. This factor accounted for a $0.11 in the earnings per share improvement. Every penny per mile by the way in changing rate is worth about $2.7 million per year and pretax income on an annual basis.

A $1.47 by the way compares with a $1.55 in the later half of December of 2006 calendar year because it's still down about $0.08 from where we were in last half of '06. The rate improvement in the September '10 quarter was achieved despite the weakness in the US economy.

Additional positive factors in the quarter were meaningful efficiencies that our organization achieved in operating areas such as fuel and equipment which contributed about $0.06 in the earnings per share improvement compared with the September '09 quarter. The significant profit improvement achieved in the quarter was accomplished despite as I said earlier, relatively weak demand environment.

Demand was marginally weaker than in the June '10 quarter, a portion of which related to the impact of Hurricane Alex in Mexico with the balance related to the slower demand in frankly I think in America.

Looking forward we're quite confident with where we are. Operating efficiencies that we've achieved, strengthening of our non-asset based businesses and a positive rate environment will tend well for our future. The positive rate environment is being driven by a significant change in the relationship of supply and demand particularly in the long haul segment.

The financial weakness of many of our competitors coupled with the fact that the average over the road truck in America is now approaching seven years, where our average truck is about 1.5 years old. And new truck builds remain low because of the spread from the cost difference between new tractors and the value of use. These have created a positive rate situation. If the economy improves as well and creates greater demand, we believe in even stronger rate environment is possible.

I'd like to touch on one other subject before opening the floor to questions. Relates to the driver situation and the truck loan industry particularly over the road industry.

The US government is leaning towards a reduction in hours of service. Right now a driver could drive 11 hours a day. It's likely that that's going to be reduced and coupled with the implementation of CSA 2010 by the US Department of Transportation. We believe these factors are likely to cause more meaningful capacity reduction particularly again in the long haul segment of the truck load industry. Our average length of haul by the way is 900 miles and it's been that from many years.

These will create an even more positive environment for Celadon's future. In my view if the US economy also turns positive, I believe our position is such to provide the opportunity for continued significant earnings growth.

One last point. Our liquidity remains strong with EBITDA on the September quarter was about $15.6 million. Total debt was 27.7 million for which there was no bank debt. Michael, be happy to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question comes from the line of Jason Seidl of Dahlman Rose. You may proceed.

Jason Seidl - Dahlman Rose

Steve can you talk about pricing as in move through the quarter, obviously you noted that things felt a little softer even excluding the hurricane impact. Can you talk about how pricing moved throughout the quarter?

Steve Russell

It continues to go up during the quarter but I think we're now at the point where historically, virtually no customers have bids coming due in the October-December timeframe because that's been historically the peak season. So, it's likely to stay relatively flat the October quarter and then continue beginning in January.

Jason Seidl - Dahlman Rose

So we should, when we're modeling, kind of expect things to be flat in 2Q and then pick back up again in 3Q?

Steve Russell

Yes

Jason Seidl - Dahlman Rose

Could you talk about your empty mile factor in the quarter? I don't know if I caught that or missed it your release.

Steve Russell

It was up a tad from the prior year, part of that was basically the impact of Mexico because our Mexican business has less dead head than our domestic business or Canadian business and that's because the truck gets to Laredo and then wait for a trailer to go back north so there's no dead head on that and our dead head was somewhat higher higher in July because of the problems created by hurricane Alex.

Jason Seidl - Dahlman Rose

So if you exclude hurricane Alex would you have seen an improvement year-over-year?

Steve Russell

I think it was probably pretty similar.

Jason Seidl - Dahlman Rose

Can be pretty flat, okay that's fair enough. If you look at the Mexican, turnkey market and the capacity there versus the capacity in the US, is there appreciable difference? Are things pretty tight with both markets?

Steve Russell

The north bound Mexican business is totally related to state of the US economy because its things being imported. It's been a meaningful amount of shift of production from China to Mexico, once the case of the NAV value. So the trade between the two countries is up but the US economy hasn't shown any resilience to speak up in the September quarter nor in October.

Operator

Your next question comes from the line of Chaz Jones of Morgan Keegan. You may proceed.

Chaz Jones - Morgan Keegan

Good. Was wondering first of all could you just comment on what you have seen, what's demand in October maybe just kind of comparing it what you experienced in the third quarter and then whether you have any type of optimism for a pickup before the end of the year?

Steve Russell

I am not sure. I think it may depend on what happens in the election. I think that September-October have not been terrific months, neither was August. So the overall demand levels don't seem to be picking up at this point. Is that likely to be a peak season. There hasn't been a peak season for three years. So I am not sure this is going to be one this year.

Chaz Jones - Morgan Keegan

I guess from your comments, it sounds like October and August were better than September and October, is that correct?

Steve Russell

I don't think this is real appreciable difference

Chaz Jones - Morgan Keegan

Okay.

Steve Russell

Okay.

Chaz Jones - Morgan Keegan

And then just on the acquisition front, it's been a while since we talked about acquisitions of you guys, almost two years since you did your last one. Market's getting a little healthier here; balance sheet continues to improve equipment values are coming up. I guess my question is are you guys perhaps going to become more active on pursuing acquisitions as we move forward. Since my sense was that maybe over the last couple of years that was on the back burner.

Steve Russell

Well, I think compared with few years ago; there aren't reasons to do it. We used to do it because we needed customers. In March '02 70% of our business was automotive. In June of '06 3% of our business was automotive. So, the major push that we did to get out of dependence on the automotive industry no longer exists, but we are also known as the buyer on last resort so we often get information from companies that are looking to sell, we look at them. I think the acquisition that we did in December of '08 of Continental, we dint buy the stock, we bought the tractors and trailers and took on most of the customers worked out very well. So I wouldn't rule it out, but there is no need to do it, but if the right opportunity came along, we certainly have the capability to do it.

Chaz Jones - Morgan Keegan

Would it be more geographically oriented or is that not necessarily the case?

Paul Will

I think, well it makes sense to continue to what like we do with Continental is continue to increase our density in the lanes we are in. The other thing I would add to what Steve said is that, the last couple of years you are correct as far as we are focused on other things, equipment values weren't there, a lot of guys were sniffing underwater and we already had all the equipment that we needed and couldn't get rid ourselves.

So now we're in a position where we streamlined, and as you can see we brought down our total number of tractors, total number of trailers. We're in a lot different position today than we were a year ago.

And what we're seeing on acquisition front side is a lot guys have aged out their fleet, both in years and in miles. So there are a lot of fleets out there right now and as you can see that in the new truck builds obviously, that they just have a lot of old trucks, old trailers and they're going to have to do something we believe which puts them in our sights in the sense of, as Steve said looking as the last resort type of purchaser, which should be good for us.

Steve Russell

In fact we're not closing the door to it, but it's probably not likely. Yet another thing that's really important I think is that we have a very strong customer base right now, very diverse, but very strong customers. This is an amazing factor. We get about $530 million in revenue in the fiscal year that ended June of '10. Our total receivable write-offs debts totaled a $122,000. We've got a strong customer base.

Chaz Jones - Morgan Keegan

I don't know if John's on the line, but it seems like the logistics in brokerage growth has certainly accelerated. Just kind of curious what's driving that other than good management and is it sustainable?

Steve Russell

We're adding customers. We've been focused on growing it, I think there's also been a much more cooperative attitude that existed three years ago with our trucking sales guys trying to divert business and not divert from our fleet, but divert to the warehousing business with the supply chain business and we're also in the LTL business between the US and Mexico, which is growing as well.

Chaz Jones - Morgan Keegan

Okay and then last one. I know as the balance sheet improves here, there's perhaps some opportunity to decide to perhaps which from some of the leases that you have into owning equipment outright. And Paul I don't know if you have this handy, but could you remind us where we stand on the off balance sheet operating lease obligations at the end of the quarter, and maybe where that was a year ago?

Paul Will

Yes, when we look at it, right now we've got about 40% of our trucks are owned, 50% of our trailers are owned. If you look at year-over-year when you take both on balance sheet and off balance sheet debt, we've gone from 203 down to 147, of which what Steve would tell you is that there is probably half that 147 split between residual payments and the net present value of the payments themselves.

Steve Russell

We are more comfortable with those residual values.

Paul Will

To me what's more important is that, with a newer fleet, which a lot of guys, they can produce a number their amount of debt but then they have an old fleet. We've got a relatively new fleet as you know. On average in 1.6 years or so, but yet our debts gone from 2 or 3 down to 175 ball park, which I think is pretty impressive. That puts us 159 top most equity and 175 in total debt. I think that's a good sign.

Chaz Jones - Morgan Keegan

Okay, did you say 175 or 147? I'm sorry.

Steve Russell

147 is the operating lease portion. (Inaudible) the balance sheet, it's the capital lease portion of that 147, half of that is residual values when the leases are up.

Operator

Your next question comes from the line of Todd Fowler of KeyBanc Capital Markets. You may proceed.

Todd Fowler - KeyBanc Capital Markets

Steve or maybe Paul as a follow-up to the earlier questions on pricing, do you actually have what revenue per mile was during the month of September? Obviously, we're seeing the average rate here for the quarter, but for a run rate for the fourth quarter I was hoping to see where September was.

Paul Will

I think what you'll see is that it trended up. During the quarter as Steve said, I think the average, it maybe slightly higher than December quarter. But as Steve said, you should model basically similar to the September quarter and December quarter.

Todd Fowler - KeyBanc Capital Markets

And then I guess, Paul with the fleet and where it's at right now, obviously the average tractor count in the quarter came down year-over-year in a bit sequentially. How do we think about that? I mean it sounds like you are trying to balance some of the density you have in lanes, is the fleet where it needs to be or do you assume like that's going to start to grow going forward or do we see some more contraction?

Paul Will

I think what you saw in the fleet account standpoint about 60 trucks which is really and the size of fleet we have is really nice, is a good number one way or the other. What we're trying to do is our goals continue to grow their fleet. Our mix between company and own operators is still so much the last quarter about 16% owner operators, 84% company and we expect as we move forward grow that total number, but really focus on what we're doing, the business we are doing, what we're hauling the profitability of businesses is key driver right now. And as Steve said, as things continue to gradually improve in the economy with capacity continuing to come up, I think you'll see another up tick in rates starting in the first quarter as well. That's what we're hoping.

Todd Fowler - KeyBanc Capital Markets

And can you talk about where you are at on the drivers' side. Could you seat more tractors if you had more drivers, or is it conscious decision of where the fleet count is and then also anything that you are doing with regard to drive pay?

Paul Will

We are fine from the standpoint of drivers. The driver class' size is coming in, terminations, the voluntary; we're in fine shape and at this point we do not see the need to raise driver pay. I think there will be a point probably some time at mid '11 calendar year when that's going to be required as the impact of CSA. Now the changing driver hour is not likely to happen until probably a year from now but the CSA is going to be happening sooner. In fact the ratings of all trucking companies will be available on the web on the US department of transportation website showing each carriers' CSA ratings. And that I think will also cause folks to get rid of drivers and therefore further reductions in capacity.

Todd Fowler - KeyBanc Capital Markets

Got it, okay. And then the last one that I had is looking at where operations and maintenance expense was during the quarter. Given the age of the fleet, my expectation would be and also the fleet itself coming down a little bit, but that line item in the P&L would start to move a little bit lower, kind of when against me here this quarter. I was wondering if you talk about anything unusual that's going on there how we should think about that moving into the rest of the year. Obviously I understand there is going to be some seasonality?

Paul Will

There is difference, that line has different things in there, it's got operations, it's got tolls, it's got lumber charges, it's got maintenance as well. One thing that we did see through this summer was a significantly higher amount of tire class primarily related to the weather. Therefore the hot temperatures has caused us to spin it and burn through more tires than we normally would have if you look at year-over-year basis.

That was the major component, some torrent costs associated with some of the equipment during the quarter as we take out lot of trucks and trailers as you could see in the stat section. I think the expectation would be that we turn back down quarter-to-quarter similar to what we see in the past. But we're still looking at that as far as what that made the value turned it down. Not as high as 10 too but maybe not as low as 8.6 on a go forward basis.

Steve Russell

Interestingly Todd, the June quarter turn to claims cost were well above the standard level and cost us about $0.05 or so a share in the June quarter in which we made $0.17 but there was $0.05 hit related to that and you could see it's come back to a more normal next level in the September quarter.

Todd Fowler - KeyBanc Capital Markets

Right. I got that. That was a nice recovery there.

Operator

Your next question comes from the line of John Larkin of Stifel Nicolaus, you may proceed.

John Larkin - Stifel Nicolaus

I don't know Steve if you are up to speed of the date that John usually talks about but often you are able to lean some insights from the TruckersB2B data with respect to the health of some of the smaller perhaps more financially strapped carriers out there. Any thoughts on that regard?

Steve Russell

Yes, the number of failures is declining. But the amount of purchasing that doing has not in other words that buying as few tires as possible, few trucks is possible systems because they were all pretty tight from the financial standpoint. Somebody in Indiana commented that the number of truck tires that are supporting a part on the road has gone up substantially and that's frankly because many trucking companies just can't afford to buy new tire. So that's basically the answer to the question.

John Larkin - Stifel Nicolaus

I guess the other angle on that is, is that as drivers become more and more concerned about the equipment they are operating for fear that they might get marked down for having pulled a trailer that has an inoperative brake light or something like that, it seems to me that these smaller carriers are really going to struggle to hold onto any respectable drivers.

Steve Russell

You are absolutely right and we're seeing that already and we're seeing that with drivers who were joining us because we have a younger fleet because they now and we essentially if they get too many scores against them on CSA and that's true for logging accidents, speeding tickets, various things like that but also the shape of the truck that they are driving its becoming something that every driver is concerned with because they can loose their career. I mean basically they won't be hired by anybody if they go rough at certain level on their CTLs.

Up to now it's been managed by states and it's only been its been managed by states and it's only been speeding tickets, three speeding tickets they get suspended for six months or nine months or whatever. No big deal relevant but this way they're going to lose their right to be a road driver, an interstate driver.

John Larkin - Stifel Nicolaus

Now over the years, you've had a lot of success in hiring what I would call older, more experienced drivers, who are looking for perhaps more miles or production, maybe a newer fleet. As we get deeper into 2011, into 2012, would you consider converting some of your hires over to trainees? Or do you think you'll be able to even withstand the very tight supply and demand in the driver market with your current strategy going out after the next let's say 12 to 24 months?

Steve Russell

I believe we have an outstanding reputation among drivers, it's actually a four page article in Trucker magazine about two weeks ago on how different, we are from that standpoint. We do no intend to hire trainees and I think what's going to happen is this will be almost a magnet to frame drivers in for us because of the age of the trucks and the reputation of the company.

John Larkin - Stifel Nicolaus

Okay. Any word on any movement on the Mexican border dispute? I believe that the Mexicans still have in place those fairly major tariffs, which are hurting some farmers and other agricultural producers up in the Pacific Northwest. Is the Obama administration ever going to get off square one to move forward with some kind of resolution of that issue?

Steve Russell

The Secretary of Transportation LaHood and to a degree even President Obama indicated some months ago that they were close to a resolution which would open the boarder. At my age they don't buy green bananas anymore so I am not anticipating anything happening tomorrow. The reality is at some point they will probably do it I mean the Canadian boarder has been open since 1982 without any issues but there's been no concrete steps taken so far and I have no idea what, when and if they will.

John Larkin - Stifel Nicolaus

Then may be just one last question, Paul, you've mentioned that your debt equivalent balance is about a 147 million which has come down dramatically. There is a new accounting rule that I understand may go into effect relatively soon. Would that put you in a position where you would have to actually show that on your balance sheet, those operating leases?

Paul Will

Yes that goes through and we have that at the back of our mind over the last several years well but our goal as you know has been to continue to operate the fleet and pay it on debt and focus on that and that's panned out in house come down. I know its one thing that you guys point out typically when you look at fleets but the 147 flipped over the balance sheet that's correct and it all in essence be cap lease instead of operating lease.

Steve Russell

And so which would basically put us in a one-to-one debt to equity ratio.

Paul Will

Yes, and as time goes on by time that would flip in if we continue to execute the business plan the way we have offset number will continue to come down even further before we get to that point.

John Larkin - Stifel Nicolaus

Okay. Do you have a long-term or even medium-term goal in terms of where you'd like to see the debt to total capital ratio? Would you like to say, see it at 35, 45? Where do you think is the sort of optimal point for the company?

Steve Russell

It has in that direction. We have made tremendous strides in the last couple of years despite the status and stature in the US economy.

Paul Will

The reality is that there is a really good acquisition that came in front of us and it made a lot of sense. Obviously their earnings is something that's we take precedent over worried about that sort of debt market.

Steve Russell

It would have to be immediately accretive John.

John Larkin - Stifel Nicolaus

As a practical matter, your fleet is so new that you're going to have a bit of a moratorium, are you not, on capital expenditures over the next say year to 18 months?

Steve Russell

Yes.

John Larkin - Stifel Nicolaus

And that's going to really I would guess drive down this fully loaded debt number more dramatically or otherwise driven down is that a fair assessment?

Steve Russell

Its fair.

Operator

Your next question comes from the line of Jason Seidl of Dahlman Rose. You may proceed.

Jason Seidl - Dahlman Rose

Kind of along of what John just asked there. Paul, if we were to see rates appreciably increase in calendar 2011, would you be looking to add to the fleet then and would your decisions on shelving any tractor purchases change?

Paul Will

It may well but, let's see what happens to the US economy first.

Steve Russell

I think we are just at the ATA American Truck Association conference and if you talk to most of the carriers out there and you said it publicly as well that the focus is on rate utilization and improving the bottom-line not necessarily through growth but through well growth is bottom line but not through the top line is the initial focus I think people are pretty much taken to that.

Jason Seidl - Dahlman Rose

Thanks a lot, Paul and Steve. Hopefully you'll feel better enough in the coming weeks to start buying green bananas again. Take care, guys.

Operator

Your next question comes from the line of Jack Waldo of Stephens Incorporated. You may proceed.

Jack Waldo - Stephens Incorporated

I know you are not buying green bananas, were you buying any stock in the quarter?

Steve Russell

We did not buy, we have the authority to buy in 2 million shares, we did not buy any stock in the quarter.

Jack Waldo - Stephens Incorporated

Were you restricted for part of that time just knowing where the quarter was going to come in?

Steve Russell

Partially but…

Paul Will

Once we announced that the buy back of stock obviously jumped up and as the economic environment seemed to improve our belief was that, would escalate stock price or increase the stock price coupled with what we believe is a good opportunity to redeploy that money for other sources or other reasons whether it be acquisitions or reinvestment of fleet overtime. So we did not end up for the same thing this quarter. We also knew literally two weeks, they are around the time we announced that we're going to do better than the street estimate and therefore we couldn't buy anyway.

Jack Waldo - Stephens Incorporated

Fair enough. Paul on purchase transportation, it continued to pick up a little bit and we also a pick up in your O-O tractors. Are those two 100% correlated or did you see some other inflationary pressures on the product trans line?

Paul Will

Fuel is up year-over-year so obviously the purchase transportation is going to go up for that fuel surcharge to point that we paid to the owner operator. However if you look at pure numbers, our own operators are up about 40% year-over-year and the purchase transportation is above 42%. The difference, it's a direct correlation only difference between the two, that 2% really represents fuel. Our total count went from 160 or 296 to 416 and if you look at the percentage, the fourth quarter represents about 16% roughly.

Jack Waldo - Stephens Incorporated

Got you. And then last question, Steve, and I kind of asked this to you twice before, as you look out for I guess the rest of this year and more importantly next year, what type of rate environment would surprise you on each side of the equation? I think you said three to five was a pretty good range or it started off at three and then went up as the year went on last year, or excuse me, this year.

Steve Russell

My view is that, because of the regulation changes being implemented by the government both from the standpoint of reduction analysis service which is likely as they said the more 11 to 10 or nine hours per day, and coupled with a CSA impact, I think '11 calendar year bring tremendous opportunity for rate increases. I mean FTR Associates which consulted for them to many vendors in the industry, the guy Noel Perry made a speech at the NAFC, The National Accounting of Finance Council in May saying that rates in swing markets which is long haul essentially and unusual kinds of moves are likely to go up by 30% within the next 12 months.

And last at that when I heard it the first time I wasn't there Bart Middleton our VP and Controllers at the meeting, but when you look at the presentation and it said 30% that goes out of whack, but the reality is, in the environment with these regulatory changes in the long haul segment its not out of the question, here I'm not saying model or anything along those line and its certainly not inconceivable.

Operator

Your next question comes from the line of Edward Wolfe of Wolfe Trahan. You may proceed.

Edward Wolfe - Wolfe Trahan

Is the tractor fleet is now down 9% since fiscal third quarter and you've talked about not spending on growing the fleet. But do you start trading in vehicles and shrinking the fleet? How do we think about that?

Steve Russell

It's basically see the count is not down at all. What that is, if you go back six months or nine months ago we just have to sell trucks because the truck market was so horrendous and that's become easier due to several reasons. One is we now have our own used truck lots which has been an effective way of selling trucks, but in addition to that the used truck market has strengthened somewhat, because the new trucks in 2006 was $95,000 and a three year old truck was worth $50,000. So a company needed $45,000 to go out and buy a new truck and there were plenty of vendors around to do it.

2010, a new truck to a smallish kind of fleet to $120,000, and a three year old truck is worth $30,000. So it's 90,000 and basically, that's causing the used truck market to strengthen. And that's what's enabled us to make sure we streamline the fleet to the right number. And the trailer market is ticking up as well and we sold some trailers in the quarter. And we probably have, even at this level somewhat several hundred more trailers than we need. So we will grow, and we will probably grow on the operator side faster than we do in terms of stock to add incremental trucks. But it's not out of the question.

Edward Wolfe - Wolfe Trahan

So if I look at tractors at period end of 3,062, are we pretty much through the non-seated trucks at this point? So that's a fair number to go-forward?

Paul Will

Yes, as the tractors in that period, obviously the difference between that and. the average tractors there's ins and answers open, clean. There's probably in that number, probably about 70-75 tractors for sale. So that number is really closer to 3,000 probably. And that's probably a good number.

What we did, obviously the third and fourth quarters last year we're continuing to take equipment parts and engines, new engines come in 2010. So there is significantly obviously more equipment last year than there is this year. We continue to bring that number down to match up with the number of trucks really that we've actually have seated right.

Edward Wolfe - Wolfe Trahan

Are there some gains on sales in this quarter?

Paul Will

It's basically flat.

Steve Russell

No, but there were lawsuits a year ago in the September quarter of about $400,000 debt.

Edward Wolfe - Wolfe Trahan

And going forward how should we think about that?

Steve Russell

As far as gains and losses?

Edward Wolfe - Wolfe Trahan

Yes.

Steve Russell

No losses. Yes certainly no losses.

Edward Wolfe - Wolfe Trahan

Okay. When you think about seasonality and the fiscal second quarter, the December quarter relative to the quarter you just reported, if I go back historically there are puts and takes where one year one's got a better margin and better earnings, one year the other has. What's your sense, is $0.20 a pretty fair number as you go out to fourth quarter or because of Mexico, it could be a little better? Or seasonally, things have slowed down in October? How do we think about that?

Steve Russell

We don't give guidance, but traditionally because of holiday season and so on we tend to be somewhat lower in December than September quarter. But we don't give guidance.

Edward Wolfe - Wolfe Trahan

Okay, but if I look directionally, you have got pricing that's firmed so the year-over-year should be bigger even if it doesn't go up from here. And it feels like the other inputs utilization and deadhead and so forth are pretty stable right now. And your costs, you said, for drivers aren't going up in the near term. So if I look at all of that, if in my own model I had a flat revenue in fourth quarter over third, then there's nothing that's major that's going to change in the margin. Is that a fair way to think about it?

Steve Russell

The only impact beside would be the holiday season in which there are more holidays in December quarter than the September quarter.

Edward Wolfe - Wolfe Trahan

But that would impact revenue. So that's assuming I guess that revenue trends picked up if I had flat revenue fourth over third?

Steve Russell

Yes.

Edward Wolfe - Wolfe Trahan

Okay. And then just the final question. You talked a little bit about the October environment and we've heard a lot of different things. But I think the general consensus we've heard is July and August were better than the end of September, which is unusual. And October is maybe okay but not great, and June was great, and everything else after that was in between. Is that fair or for you has it been different than that?

Steve Russell

I think it's probably been similar to that. July was impacted by the hurricane. So for it we had a tougher July than normal and what you described.

Operator

(Operator Instructions)

Steve Russell

There are no questions. Thank you very much everybody and nice getting back to decent numbers. Thank you very much bye bye.

Operator

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a good day.

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