Saia's (SAIA) Rick O'Dell on Q4 2015 Results - Earnings Call Transcript

| About: Saia, Inc. (SAIA)

Saia Incorporated (NASDAQ:SAIA)

Q4 2015 Earnings Conference Call

February 05, 2016 11:00 AM ET

Executives

Doug Col - Treasurer

Rick O'Dell - President and CEO

Fritz Holzgrefe - CFO and VP, Finance

Analysts

David Ross - Stifel Nicolaus

Brad Delco - Stephens

Scott Group - Wolfe Research

Alex Vecchio - Morgan Stanley

Tom Albrecht - BB&T Capital Markets

Art Hatfield - Raymond James

Matthew Frankel - Cowen & Company

Operator

Good day, and welcome to the Saia Incorporated Fourth Quarter 2015 Results Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Doug Col. Please go ahead.

Doug Col

Thank you, Dede. Good morning everyone. Welcome to Saia's fourth quarter 2015 conference call. Hosting today's call are Rick O'Dell, our President and Chief Executive Officer; and Fritz Holzgrefe, our VP of Finance and our Chief Financial Officer.

Before we begin, you should know that during the call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ.

Now, I'd like to turn the call over to Rick O'Dell.

Rick O'Dell

Well, good morning and thank you for joining us. This morning, we released our 2015 fourth quarter and full year results. The full year's earnings per share of $2.16, represents our fourth consecutive year of record earnings per share by Saia. We believe our long-term strategy of improving our value proposition through our customers continues to resonate in the marketplace as the fourth quarter represented our 22nd quarter in a row that we successfully increased our yield. The yield improvement coupled with belt tightening and process improvements throughout the organization allowed us to post a 93.9% operating ratio in the fourth quarter. This is 20 basis points better than the third quarter and represents a nice rebound after a disappointing third quarter performance.

For the full year our operating ratio of 92.6 was 70 basis points better than the prior year and represented our sixth consecutive year of operating ratio improvement. A few comparisons to the fourth quarter of 2015 results to last year’s fourth quarter include. Revenue decreased 7.1% to 288 million as LTL tonnage fell 8.9%, LTL revenue per hundredweight increased by 2.1% despite the negative impact of lower year-over-year fuel surcharges. Productivity and cost metrics rebounded in the fourth quarter and our operating ratio of 93.9 compares to 93.4 in the fourth quarter of last year, diluted earnings per share of $0.45 compares to $0.53 in the fourth quarter of last year. LTL tonnage trends throughout the quarter showed very little change from what we experienced in the third quarter. I'm pleased to report that the pricing environment remained rational throughout the fourth quarter and Saia achieved another nice sequential gain.

In the fourth quarter contract renewals included average rate increases of 5.3%, so another nice increase there with our contractually priced customers. Just a couple of comments now on the full year results before I turn it over to Fritz. LTL yield improved by 3.2% and revenue per shipment fell only 0.1% despite materially lower fuel surcharges and lower average rate per shipment. The investment dimension has continued to support our yield initiative, at year end we're utilizing 30 dimensions as across our network and we'll add three more early this year.

Purchase transportation spend fell by 34% in 2015 and purchase transportation miles were 10.1% of total miles compared to 13.7% in 2014. We continue to manage our line haul network effectively and to ensure that we're being properly compensated for lane imbalances. Depreciation expense as a percent of revenue increased to 5.3% versus 4.6% in 2014, a reflection of our continued investment in tractors and trailers. The increased depreciation expense is offset by maintenance savings and better fuel economy.

Cargo claims expense was down 14% in 2015 demonstrating that investments and training and equipment to reduce claims and are generating a nice return for shareholders and supporting our yield initiatives. In 2015, we achieved our 98% on-time delivery goal and combined with the previously mentioned cargo claims improvement raised our service reputation with our customers.

I am going to turn the call over to Fritz to review our financial results in more detail.

Fritz Holzgrefe

Thanks, Rick, and good morning, everyone. As Rick mentioned, the fourth quarter diluted earnings per share were $0.45. Earnings per share in the fourth quarter included a $0.04 per share benefit from alternative fuel tax credits enacted in the fourth quarter but earned for the full year. The credit relates to our use of propane for our forklifts. Total revenue of 288 million compares to 310 million in the fourth quarter last year, operating income of 17.6 million compares to operating income of 20.6 million in last year's fourth quarter. Both periods included 62 work days. Fourth quarter LTL yield rose 2.1%, reflecting the positive impact of our continued pricing actions partially offset by lower fuel surcharge contribution.

Next, I'll mention a few key expense items and how they impacted the fourth quarter. Salary, wages and benefits rose less than 1% to 164.4 million in the fourth quarter. This figure includes a general wage increase implemented July 1st, which averaged 4% across our employee base offset by a reduction in force that took place in the fourth quarter.

Purchase transportation expenses declined 40% to 13.4 million, or 4.7% of revenue versus 7.2% of revenue in the fourth quarter of last year. Purchase transportation miles as a percentage of total line haul miles were 7.4% in the quarter compared to 12.5% in the fourth quarter last year. This comparison results from lower volumes in the quarter and better management of our own capacity. Depreciation and amortization of 16.5 million compares to 14.8 million in the fourth quarter last year due to continued investments in tractors and trailers. As our tractor fleet age continues to drop, we benefit from enhanced fuel efficiency. Fuel mileage improved by 3.1% to 6.7 miles per gallon in the quarter.

Claims and insurance expense was 6.5 million in the quarter, compared to $6.9 million in the fourth quarter last year, a 5.8% reduction. Our cargo claims ratio of 0.99% represents an improvement over the 1.03% level in the fourth quarter last year. For the full year revenue declined by 4% to 1.2 billion while operating income improved by 5% to 90 million. In 2015, net income rose 5.8% to 55 million compared with 52 million in 2014. Diluted earnings per share are a record, $2.16 for the full year up from $2.04 a year ago. Our effective tax rate was 31.9% for the fourth quarter of 2015 and 36% for the full year the same as last year.

At December 31, 2015, total debt was 69 million. Net debt to total capital was 13.9%. This compares to total debt of 83 million and net debt to total capital 17.7% at December 31, 2014. Net capital for 2015 was 13 million including equipment acquired with capital leases and excluding the February 2015 purchase of LinkEx. This compares to 112 million of net capital expenditures in 2014. In 2016 net capital is forecasted to be approximately 130 million including the investments in terminal infrastructure improvements as well as continued investments made to lower the age of our tractor, trailer and forklift fleets.

Now, I would like to the turn call back to Rick.

Rick O'Dell

Thank you, Fritz. While they are measured by earnings per share, improved service levels, better cargo claims experience or improved accident experience 2015 was a successful year. In trucking though experience dictates that our time is best spent on looking forward and planning for an ever-changing landscape rather than reflecting on the past.

In 2016, it looks like we will continue to operate in an environment marked by modest GDP growth, a tentative consumer base and soft industrial activity. At Saia, we will focus on opportunities to improve our business through a variety of initiatives which include equipment purchase programs that are expected to yield fuel and maintenance savings in both the track fleet and our forklift fleet.

With these investments, the average age of tractor will approach five years from the current 5.7 average years. And we will also plan cycle out some 30% of our forklift fleet lowering the average age to three years from six. The 500 plus tractors to be replaced this year, will continue to include the latest available technology to support improved fuel economy and assist our ongoing efforts to train, reward and counsel our driver workforce on safe in-cab habits and defensive driving.

Terminal maintenance investments in 2016 we will target properties where we can relieve door or yard pressure and enhance our ability to support future growth and gain efficiencies overtime. While with the continued positive effect of dimensioners on our yield improvement, we also implemented a general rate increase of 4.9% on December 7th, and this increase is holding up well in the market. We look forward to the planned opening of our Grayslake terminal which is north of Chicago later this month. The state-of-the-art facility positions us to be closer to customers in this key market. So in spite of some concerns about the macro trends, we’re optimistic that 2016 will be a year of continuous improvement in our operations and will serve as a building block for growth and profitability in the years to come.

With these comments, we’re now ready to answer your questions, operator?

Question-and-Answer Session

Operator

Thank you [Operator Instructions]. Our first question will come from David Ross with Stifel.

David Ross

Rick, the revenues are really is tough to predict and the volumes where they’re going. But sometimes you get a little bit better read on the costs. Can you talk about the cost headwinds in 2016, what you’re seeing on the labor front, equipment front, in terms of what you think you will need in terms of pricing this year, just to cover those cost increases.

Rick O'Dell

Fritz, do you want to kind of step through some of this?

Fritz Holzgrefe

I mean David as you look through kind of as we looking forward in our expense structure of the next year, I think we’re going to be challenged and again continue to remain competitive in our healthcare and salary and benefit cost. So, salary cost I don’t think will increase the wage cost it won’t increase at the same rate as last year. We mentioned that last year we had a roughly a 4% increase on average across the work force. This year I think that number is going to be under 3, probably 2.5 to 3. You’re going to see probably pick a number of healthcare we modeled the 10% healthcare cost increase overtime, we’ll see that.

I think you will see some of our initiatives around maintenance, fuel economy are really driven by our capital investment around new equipments. So, we continue to have pretty high levels of investment. We’ve projected about $130 million next year, and a big chunk of that is going to be continuing to monetize the fleet which drives sort of maintenance cost reductions in further fuel economy. But if you kind of carve out those big areas of inflation wage, healthcare, and I think the balance of it you’re going to look normal macro inflation rates. So, we’ve got to continue to look for opportunities to drive our yield to be able to cover those kinds of increases.

David Ross

And Rick, as you have discussions with customers, are they still understanding that this is the general environment that cost continue to go up, so they’re going to continue to have to pay more? Or is there a sense that hi tonnage is dropping, let's try to get a lower price, even if it doesn’t make sense from a carrier perspective?

Rick O'Dell

Yes we were successful with contract renewals at 5.3% in 4Q and we’ve continued to advance our yield not only through the quarter but into January, so I am not dissatisfied with what we’ve been able to achieve in terms of revenue mix management and our contract renewals with existing customers. And people read analyst reports and obviously see what’s going on in the industry. So you have some people that are looking to test the market. But, thus far, our conversations have been constructive and there is no reason to handle business in lanes that are at an operating loss. So we go through that on a detailed basis. And I think what we’re obviously work, build and lay on is to make sure that the business that we’re handling makes sense for us. So, thus far it's been constructive in a rational environment.

Operator

And next we’ll take question from to Brad Delco with Stephens.

Brad Delco

When we look at the tonnage down 10% I know there has been a lot of iterations in terms of what you guys are doing with yield and pricing. But is there any way for you to give us color as to where you’re think the majority of that tonnage is coming from? Or is it purely based on price, is it based on maybe some of your energy exposure. Can you just try to quantify it for us?

Rick O'Dell

Yes the energy exposure is a pretty big factor for us. So if you look at the quarter where shipment decline was up 6%?

Fritz Holzgrefe

Yes 6.2%.

Rick O'Dell

Up 6.2% I would say 2% of that’s probably oil field sector for us, and then of the remainder probably half of that is pricing and load shifts. And I think most everyone is seeing some declines in weight per shipment I am not sure I totally know where that came from right, but seems to be kind of across the board from a market perspective.So you just have to fight through those things from an operating efficiency standpoint as well as from a yield perspective. And we were able to hold our yield, hold our revenue per shipment flattish with the declining weight per shipment. So we’ve been able to overcome it from a yield perspective and a business mix perspective. And I don’t know we might talk a little bit about what we’re seeing in January, our shipment trend was much less negative than what we saw in 4Q. So I'm not displeased with what we're seeing sequentially into January, you want to run through that Fritz?

Fritz Holzgrefe

Sure, sure so Brad if you look at this LTL shipments just by broken out by month in the fourth quarter, October was minus 7.5%, November was minus 5.3%, December was minus 5.4%, so full quarter minus 6.2% and then you compare that to January our full month of January shipments were down 1% year-over-year.

Brad Delco

And Fritz do you mind giving the tonnage for that month?

Fritz Holzgrefe

Yes absolutely here you go, so October, November, December for the fourth quarter LTL tonnage was down minus 8.7%, minus 8.5%, minus 9.6% and then but through the end of January minus 5.1%.

Brad Delco

I guess maybe Rick just going back to the first question so when you look out in 2016 I guess we shouldn't be thinking about that there is this -- I know you guys are always going to be focused on price, but it's not like any of these customers will be getting massive rate increases for the first time and there's still kind of intentional culling of freight I mean this is -- you are kind more to the point of fine tuning, is that the right way to thinking about it?

Rick O'Dell

Yes, I think it's right this year I think we'll have a little less wage inflation that we saw in the past, our productivity execution has been improved through the fourth quarter and into the first quarter we have these cost savings that we've targeted which are more material than what we had last year. So, we're kind of targeting increases in the 4% type range for contract renewals. So, I don't think we're in the current environment I don't think we're not only do we not need it much from a corrective action pricing standpoint. We've got a balanced -- I think there's an opportunity for us to better balance between volume and yield. And you will have some good results.

Brad Delco

And you think with 4% type yields that in this weaker industrial economy, is that enough to keep margins flattish?

Rick O'Dell

Sure.

Operator

And next we have a question from Scott Group with Wolfe Research.

Scott Group

Good morning, guys. So just to follow up on that, Rick, you think you can have a flat operating ratio in full-year ’16 versus ’15 or improved?

Rick O'Dell

Well, that's our target, right and the first half comps are challenging right, we had such good results in the first half of last year and then now let's say 3Q is disappointing, there was a big investment in wages et cetera, but our target is, it certainly wouldn't be it to go backwards.

Scott Group

Okay. And so that improvement in tonnage from the fourth quarter to the first quarter and improvement in shipments, what do you attribute that to? Where do you see the improvement coming?

Rick O'Dell

It's pretty, fairly broad I guess, the West Coast is a little stronger than some of the other markets. The oil patch obviously isn't getting any better, I don't know it's pretty broad and the comps are obviously easier as well.

Scott Group

Okay. And then just last thing, can you share with us kind of where revenue per hundredweight is tracking up in January and where contractual renewals are tracking in January?

Rick O'Dell

Yes, I mean it’s only one month but they've been in that 4% range for the first month. I would tell you, something obviously it depends -- you go to a customer and one customer might still operate poorly or have a segment in his business that needs to be materially re-priced and another one operates well. We don't ask the same increase across those customers it depends on how the business operates, but I think our January renewals were constructive, yields stepped up, nicely from December into January. And we're not displeased with what we're seeing from a rate increase perspective.

Operator

And next we'll take a question from Alex Vecchio from Morgan Stanley.

Alex Vecchio

Good morning. Thanks for taking the questions. Rick, I wanted to touch on weight per shipment. It sounds like that the declines may have actually accelerated a bit there in January, based on tonnage being down kind of 5 and shipments down 1. Do you have a sense for what's driving that and maybe the expectation for the weight per shipment going forward?

Rick O'Dell

I don't know. To be honest, I mean we have such a diverse customer base, I really don't know.

Alex Vecchio

Okay. Do you worry that it might hurt density a little bit?

Rick O'Dell

Think that a little, but I mean our revenue per shipment with our yield increases has been flattish right. So, [Multiple Speakers] but as long as you get paid for it, I mean…

Alex Vecchio

Yes sure that makes sense.

Rick O'Dell

Our shipment -- so that is we're working on it's a mix, right.

Alex Vecchio

Okay, that makes sense. I think, last quarter, you had suggested that normal seasonality implied your tonnage for 2016 might be down 2%-ish if I remember correctly. Is that still the bogey you are looking for at this point, or have your thoughts changed there?

Rick O'Dell

Yes, something in that range. I mean shipment wise we're down one in January, so just kind of…

Alex Vecchio

Okay.

Rick O'Dell

I mean if that seems reasonable right and at some point we're going to overlap the decline in weight per shipment because it has been pretty consistent weight per shipment has been down in the 4% range most of the months and last six months or so, right.

Alex Vecchio

Right. Yes, that makes sense. And then just lastly, a housekeeping question. Can you provide the quarterly workdays through 2016?

Rick O'Dell

Through 2016?

Alex Vecchio

Yes, just by quarter.

Rick O'Dell

Can we circle back with because I don't have that one right in front of me.

Alex Vecchio

Yes, sure, no problem. We can follow up offline. I appreciate the time. Thank you.

Operator

And next we have Tom Albrecht with BB&T.

Tom Albrecht

Really nice rebound from the third quarter there. You may have given this, but I don't know that I heard it and that is what was your average yield increase, excluding fuel surcharges in the fourth quarter?

Rick O'Dell

Well contract renewals were 5.3% and then if you adjust for mix in our theoretical model adjusting for a weight per shipment and length of haul, those are -- actual yield was up a little over 6%.

Tom Albrecht

Okay, I was thinking it might have even better a little bit higher than that because you're the only -- go ahead.

Rick O'Dell

It is 63, the real number was 63.

Tom Albrecht

Okay.

Tom Albrecht

About 6.3%, I mean, it was a nice increase for the quarter in a difficult environment and economically and again the trends have been pretty positive into January as well.

Tom Albrecht

Yes, you were the only public carrier whose yield inclusive of fuel was up in the quarter, so it suggested that that base increase was pretty strong. You talk about…

Rick O'Dell

I would say some -- a lot of the other carriers took a little bit earlier general rate increase than we did as well ours was the second week in December.

Tom Albrecht

Okay yes and yours was 47 or 49, I forgot?

Rick O'Dell

49.

Tom Albrecht

Okay. I know you talked a little bit about energy and that. Can you be a little more descriptive maybe in the energy states Louisiana, Texas, Oklahoma, not so much energy shipments, but just what you are seeing in those economies because they are so tied to energy and I've been looking at housing starts in Houston and they are down double-digit now and just kind of wondering what the freight flows are like in general in those three states?

Rick O'Dell

Okay so we have regions that are kind of the South Texas we call our Houston region which is also would have some field Louisiana locations there right.

Tom Albrecht

Yes.

Rick O'Dell

It's down excluding fuel surcharge the revenue is down 20%.

Tom Albrecht

Wow.

Rick O'Dell

And most of the other like Oklahoma would be down in the same range 20%, Dallas has a little bit more diversified economy its region is down about 10%. I would comment and from a cost management standpoint our Houston region's operating ratio was actually flat with last year in spite of a 20% decline in business. So we've done a good job about kind of mitigating the -- we still made way less operating in, we had 20% left the operating income, right. But we held it flat, so the cost execution has been good considering what we're dealing with on the environment.

Tom Albrecht

Have you made additional adjustments to your headcount beyond what you described in the October conference call?

Rick O'Dell

It drifts down seasonally just with -- turnout we're not replacing, we kind of start our staffing for peak periods in February, March time period, so it's continued to drift down from the 4% reduction that we did.

Tom Albrecht

Yes, so, I guess I was really asking very proactive step as opposed to normal seasonal adjustments, that 4% was a very proactive to get on top of your cost structure.

Rick O'Dell

It was effective and we haven't done anything in addition to that.

Tom Albrecht

And then last question, are you going to growing your salesforce this year or is that just not something that make sense in the current climate?

Rick O'Dell

We've added a couple of national count resources from some competitor turmoil that we saw just from an opportunistic standpoint and then we're -- our other focus is quite frankly on inside sales from a lead management perspective to help our fields in national count sales be more effective, right, for permitting customer perspective and that's been it. So other than we're not looking to add.

Operator

And our next question will come from Art Hatfield from Raymond James.

Art Hatfield

Good morning, everybody. Rick, in those three regions you mentioned, did you see a gradual downdraft in volumes or was it a cliff that you experienced last year?

Rick O'Dell

It is kind of a cliff, and then a gradual downdraft.

Art Hatfield

So when do you start to lap that cliff?

Rick O'Dell

The biggest portion of that is going to probably come in 2Q.

Art Hatfield

Okay.

Rick O'Dell

And then 3 it stepped down again pretty significantly, 3 is probably the biggest comp.

Art Hatfield

Okay. If I look at the numbers I have for first quarter of last year and your shipment counts, it looks like your easiest comp was January and it looks like it was down 0.6% and February it dropped to 4.4% and then down 3.8% in March. That step down, I remember that you guys were very firm on 3PL pricing last year and we had some weather in February, but can you talk about what happened in February with the step down and how we can think about that from a comparative standpoint this year?

Rick O'Dell

I don’t know, we haven’t adjusted our 3PL pricing yet this year, which we did in January of last year as you commented. I guess from this year’s perspective obviously very early in February but thus far it feels a little bit where we had the negative 1% in January thus far, it's been a little better than that in February. I don’t know what other color you are kind of looking for I mean under the first…

Art Hatfield

No, that's helpful. I'm just trying to remember if there's anything else significant other than kind of what you were doing on the pricing side. And as I look at comp for a lot of carriers, it looks like there was a step down in February and if that was kind of the beginning of what we saw throughout the year. And just wanted to see if you could recollect anything specific about last year's first quarter?

Rick O'Dell

Seems like the weather was probably was a challenge in February of last year too, just if you look at some of the days. We’re looking at days now comp to last year and there were some pretty low days just associated with weather, it looked like to me.

Operator

[Operator Instructions] And next we’ll take Matthew Frankel from Cowen & Company.

Matthew Frankel

I'm just on for Jason Seidl this morning. Thank you for taking the question. First thing I wanted to hit on was if you could break down your consumer and industrial exposure in terms of your client base, but more specifically if you can go a step further and talk about -- let's say within the consumer section -- what percentage is apparel specifically? And the reason I ask is we've heard from several very large apparel companies over the last few days about inventories remaining bloated and I'm just trying to get a sense for what your exposure is there.

Rick O'Dell

Ours would be pretty small from an apparel standpoint, but other two businesses with Walmart and Cado Stores and some of those folks who would have some of that in what I would consider to be our consumer retail. We generally kind of look at our businesses from a big picture perspective about 40% is industrial, 40% is more retail consumer, and 20% is like distribution type business, I don’t which category you would put that in but that’s kind of how we look at it, it's pretty spread out and there is a big concentration in any one segment. And our biggest customer is Lowe’s and we all know what they do right.

Matthew Frankel

All right, well, thank you. Second thing is if you can just remind us what the 1Q 2015 monthly tonnage trends were? I appreciate it.

Rick O'Dell

Last year tonnage?

Matthew Frankel

Yes if you don’t mind.

Rick O'Dell

We’ll have to get them, I will have to give you offline we didn’t put that in our sheet, sorry about that.

Matthew Frankel

Okay. No worries. And then, finally, on the purchase transportation for the quarter, a big step down year-over-year. Just curious what drove that and what you're seeing? Will that remain? Any kind of color you can give on that we'd appreciate?

Rick O'Dell

Last year with the tonnage increase and some truck load spill over and I think we had some sub-optimal purchase transportation on our network and you put that in and you take care of customers and then you re-optimize that over a period of time. So, that’s really what has driven that and it's a constant process that we put into place through managing our line haul network effectively. So I guess from a looking forward basis right and unless we see a big spike in tonnage or something you can probably assume more of the current trends going forward as opposed to where we were in 2014.

Matthew Frankel

Thanks guys, I’d appreciate…

Rick O'Dell

To give you some purchase trend, I mean obviously seasonality wise you have to look at that because we use some purchase transportation in the summer time to cover some vacations and what not particularly for teen drivers.

Operator

And now we have a follow-up from Scott Group with Wolfe Research.

Scott Group

So Rick, you usually share some perspective on what you think the margins can do sequentially, any thoughts on first-quarter operating ratio versus fourth-quarter?

Rick O'Dell

I'm sure as you look back as we did our fourth quarter to first quarter trends have been all over the board, and so it kind of it depends on where the holidays fall timing of general rate increases in different years, success with contract renewals not only in the current quarter but where you came out of the prior quarter, you got maximum volatility and winter weather so -- this year is going to be really interesting, maybe even more so the normal just because it'll largely be determined like it often is with the 23 workday month of March, if you look at all these factors and current trends and assuming normal safety quarter you probably something around flattish type operating ratio from 4Q to 1Q.

Scott Group

Okay. And then maybe just last thing, big picture, so a quarter ago, the world was ending and tonnage kept getting worse and wasn't clear if we could grow earnings next year. And just the tone from you is just so much more positive this quarter. Obviously, you had a better quarter relative to expectations, but big picture what's changed over the past three months, why you sound so much more positive? Is it just that you've gotten a grip on some of the costs, or pressing is holding up better, but I don't know, but certainly there is a big shift in tone and I just want to understand what's driving that?

Rick O'Dell

Yes, obviously we've had much better quarter and if you look at it, it was driven by yield and our core cost execution and we have a confidence that there are core cost execution will continue to perform clearly better than we did in the third quarter of last year as we move forward and the yield has held up maybe better than I would have thought, coming into 1Q, we're running at a higher rate than I would have thought, 60 days ago. So, that's positive and we're seeing positive trends from a contract renewal perspective, volumes are holding up okay sequentially from that perspective so it gives you confidence that we can continue on this type of execution both from a yield and a cost perspective.

Scott Group

And the competitive pressures you talked about in third-quarter pricing have those gone away?

Rick O'Dell

Yes, I mean I, I think I have made some comments on some people pricing with 3PL's for volume and some people still do that, just people to give discounts for the weak seasonal period from December to February or whatever, we don't do that. I don't know that it's gone away but it hasn't accelerated and our contract renewals have been constructive thus far, we haven't seen a lot of crazy activity out there. I think people recognize you got to partner and there's still going to be issues with drivers moving forward and as we head into next year and overall volumes have held up pretty well. We're working diligently with our pipeline management for new customers. So, if you do come to -- in past from our rate negotiation perspective we're looking to replace that customer with that somebody who better values our execution in the marketplace from an operational and service standpoint.

Operator

And now we'll take a follow-up from Tom Albrecht with BB&T.

Tom Albrecht

Yes Rick, two things, one on the tax credit, is that propane or is that just some accelerated depreciation Fritz I guess?

Rick O'Dell

Propane, that's propane.

Tom Albrecht

All right, and then I just want to make sure…

Rick O'Dell

[Multiple Speakers] On that obviously that got renewed into this year as well. So, you'll see that, that a $0.04 in the fourth quarter when it got enacted retroactively. Our rate will come down $0.01 a quarter.

Fritz Holzgrefe

So, if I kind of you are probably thinking about an effective rate around 36.5.

Tom Albrecht

Okay. That was another question then. All right. And then do you have a D&A target for this year, Fritz?

Fritz Holzgrefe

We don't separately break that out, but I think if you -- with $130 million sort of capital spend sort of ratably during the year you kind of run that out compared to what we had last year.

Tom Albrecht

Okay. And then I just want to make sure I heard you correctly, Rick. On the sequential change in the OR from Q4 to Q1, historically, you are not flat, although it's been all over the ballpark from very modest declines. Are you saying you think that will happen, or you were just kind of talking out loud?

Rick O'Dell

No, I think flattish is the reasonable expectation at this point. And I guess if you look at comparisons of this, let's say last year for instance, we had a nice improvement but we were getting much higher contract renewals last year both in fourth quarter and first quarter. So, it's a much bigger yield step up.

Tom Albrecht

Okay. That makes sense. I just wanted to make sure I heard that. Okay. Thanks again. I will see you guys next week.

Operator

And we have no further questions.

Rick O'Dell

All right, thank you for your interest in Saia. We look forward to catching up with you guys over the next month or two.

Operator

And that concludes today's conference call. We appreciate your participation.

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