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Saia, Inc. (NASDAQ:SAIA)

Q1 2008 Earnings Call Transcript

April 25, 2008 10:00 am ET

Executives

Renee McKenzie – Treasurer

Rick O'Dell – President and CEO

Jim Darby – VP of Finance and CFO

Analysts

David Ross – Stifel Nicolaus

Thom Albrecht – Stephens Inc.

Art Hatfield – Morgan Keegan

Ed Wolfe – Bear Stearns

Todd Maiden – BB&T Capital Markets

Operator

Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2008 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions)

Ms. McKenzie, you may begin your conference.

Renee McKenzie

Thank you Kelly. Good morning. Welcome to SAIA's first quarter 2008 earnings call. Hosting our call this morning are Rick O'Dell, SAIA's President and Chief Executive Officer; and Jim Darby, our Vice President of Finance and Chief Financial Officer.

Before we begin, you should know that during this 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

Thank you for joining us this morning. SAIA's first quarter revenue of $249 million was an increase of 8% over the prior year. Operating income was $2 million and I believe the first quarter of 2008 will be defined by the difficult economic conditions, escalating fuel prices, and severe weather resulting in a weak and inconsistent trade environment.

A few key points for the quarter include, our operating ratio deteriorated to 99.2 from 97 in the prior year. LTL tonnage declined 4.4% from the prior year quarter. LTL shipments were 3% lower than the prior year quarter, and LTL yield was up 12% due to increasing length of haul and the impact of higher fuel surcharge.

I'm clearly disappointed with the start of the 2008 year. SAIA, along with our peers, is addressing a difficult economic environment with soaring oil prices and lethargic U.S. shipping volumes due to persistent housing and credit concerns. Margins during the quarter were challenged by higher fuel prices, severe weather, and higher operating cost, with February being particularly challenging.

Even with this difficult economic and operating environment, we believe there are positive indicating signs moving in the right direction. Our top line successes include our synergy revenue from the Clark Brothers acquisition, which was completed four years ago, continues to grow and now exceeds $125 million on an annualized run rate. A year after they were integrated, synergy revenue from the connection and Madison acquisitions is now an annualized run rate of approximately $75 million.

Excluding fuel surcharges, 8 of size 14 sales regions had positive revenue growth. And we continue to have solid success with our industry-leading Xtreme Guarantee product. We're confident SAIA 's long term growth prospects due to our industry-leading products, which include our Xtreme Guarantee, our strengthening brand, synergy revenue from past acquisitions, and the opportunity to increase market share, particularly in some of our less mature markets.

Couple of interesting items I'd like to point out to you to demonstrate SAIA's commitment to quality, the environment, and our customers. SAIA recently became the first non-bulk LTL carrier with the American Chemistry Council's Responsible Care partnership program to become fully certified in technology specifications for RC 14001.

RC 14001 is a robust voluntary environmental, health, safety, and security management system. This allowed us to build a single environmental, heath, and safety management system demonstrating to SAIA's customers the outstanding quality of the company's operation.

We're also proud to be a SmartWay Transportation partner. SmartWay is a voluntary partnership within the freight industry and the EPA that establishes incentives for fuel efficiency improvements and greenhouse emissions reductions.

Our primary goal remains to build density and improve performance on our current geography. This will be accomplished through our strategy to increase productivity, enhance automation, and target marketing efforts while focusing on cost initiatives to improve our operating ratio and prudently manage yield. An update on some of our current cost initiatives include our line haul routing optimization, which was 80% complete in March and is beginning to yield some improvements. We have $50 million in purchased transportation which was placed out for bid and achieved our targeted reduction, which were effective in mid-March. Unfortunately, the majority of these savings were offset by higher fuel surcharges that are charged by these providers.

The rollout of our wireless cross-dock, which will cover 70% of our cross-dock moves by May is right on track. This is up from 30% in the prior year. In January, we completed the enhancement of our weight inspection program. Our initial target is for $5 million of additional revenue annually and this effort is meeting our expectations. The current challenging environment does require that we better align cost with volumes. I'm confident that SAIA's initiatives combined with increasing our density and continued to support – continued support from SAIA's dedicated employees does provide us the ability to continue to advance our market position and enhance our financial performance in the upcoming quarters.

Now, I would like to have Jim Darby review our first quarter results.

Jim Darby

Thank you, Rick, and good morning everyone. For the first quarter, net loss per share was $0.06. This compares to earnings of $0.21 per share in the prior-year quarter. Our results included revenues of $249.3 million, with operating income of $2 million.

First quarter margins declined primarily due to significantly higher fuel prices, severe weather, and higher costs. After a fairly encouraging January, February was a particularly difficult month due to declining volume, severe winter weather, and escalating fuel prices. Fuel prices were 47% higher in the quarter than prior-year quarter. The rapid rise in fuel prices was not fully offset by the fuel surcharge due to the lag in retail pricing and the reset mechanism. This resulted in approximately $1.3 million in additional expense.

We implemented our annual general rate increase in February at 5.4%. This affects approximately 30% of our revenue. As the economic softness has continued, contract renewals have become more difficult.

Our effective tax rate from continuing operations for the quarter was 36%. We project our consolidated effective tax rate from continuing operations to be around 41% for 2008. At March 31, 2008, debt was $185.3 million. Net of the company's $5.3 million cash position, our net debt to capital was 47.4%.

To take advantage of the lower interest rate environment, we drew down on our remaining $25 million of availability under our shelf agreement with Prudential Financial prior to its expiration in March. The new terms follow the original terms of the facility with principal reductions delayed for three years, interest rate of 6.17% and a final maturity date of December 31, 2017. Availability under our current facilities is approximately $75 million.

Our consolidated net capital expenditures for the first three months of 2008 were $13 million compared to $21 million in the prior year quarter. As we manage for cash flow, the amount of our estimated 2008 capital expenditures is now $35 million, primarily due to reduction in anticipated real estate purchases. Capital expenditures will be re-evaluated as volume outlook increases.

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

Rick O'Dell

Thank you, Jim. Again, I'm clearly not satisfied with the quarter's results. We're managing through this challenging environment with our targeted sales and marketing programs to build density, while continuing to pursue engineered cost and efficiency initiatives. Given these uncertain conditions, SAIA remains committed to providing excellent service to our customers. With service as our foundation, we'll combine effective yield management with the cost initiatives required to achieve long-term benefit for our customers, shareholders, and employees.

We'll now open up the lines for your questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of David Ross.

David Ross – Stifel Nicolaus

Rick and Renee.

Rick O'Dell

Good morning David.

David Ross – Stifel Nicolaus

First question on the Xtreme Guarantee product, actually. You said you're doing a nice job of growing revenue with that product, but is it coming at a cost that at sometimes those guarantee program lose money occasionally? Didn't know where the margin was on your Xtreme Guarantee business versus a regular business.

Rick O'Dell

Actually, that's the smaller customer segment that tends to have higher yield characteristics as well as some profitability characteristics.

David Ross – Stifel Nicolaus

Okay. And on yield, in the quarter, what was length of haul this year versus last year?

Jim Darby

Length of haul was up about 7.5% year-over-year.

David Ross – Stifel Nicolaus

Okay. And then a lot those synergy revenues you talked about some of that in connection to Madison? How much, I guess, is the customer losses you saw? I think at the connection company impacted your first quarter tonnage comparison? It wasn't, kind of, a legacy connection business not really what it was a year ago?

Rick O'Dell

Yes, actually, I don't have the specific tonnage associated with that, but I guess from a revenue basis, over that time period again, we talked about part of it was obviously the pricing environment, some of those accounts due to some pricing activities in the market up there that we walked away from. Over that time period, we were probably down about 40% of their legacy business.

David Ross – Stifel Nicolaus

Okay. And you should lap that in the second quarter mostly?

Jim Darby

That's correct. After second quarter, our comps get easier.

David Ross – Stifel Nicolaus

Okay. And then, can you talk a little bit about the debt to cap? You said that you drew down the remaining availability before the end of March. I didn't quite catch for the term. I guess the facility going forward a little higher borrowing cost. What exactly was going on there?

Jim Darby

We drew down the last of our shelf agreement with Prudential, which was $25 million. You will recall we talked about earlier that we expanded our revolver going forward as well to give us increased flexibility from $110 million to $160 million, but we expect that with what we have done drawing down Prudential that our actual interest rate will be about 0.25% less than it was a year ago.

David Ross – Stifel Nicolaus

Okay.

Rick O'Dell

Because it's a sustainable rate, David.

David Ross – Stifel Nicolaus

Yes, it's what I assumed. And do you have a target debt to cap ratio, where you'd like to be in the year kind of going forward?

Rick O'Dell

I think we are comfortable where we are. We're re-evaluating those based on the current environment. We're not drawing off as much cash from operations as we would like, but we're comfortable being where we are at 47.4. We'd like to work that down obviously with better flow from operations.

David Ross – Stifel Nicolaus

Okay. And the last question is just on the operating ratio and the improvements you've made in the line haul model and with the inspection program and everything. Sequentially, from first quarter to second quarter, operating ratio improved anywhere from 100 to 400 basis points, depending on the year you look at. This year, do you have any estimates about how much improvement we should see in the second quarter versus the first quarter from a profitability standpoint?

Rick O'Dell

Well, we really – we don't give guidance going forward, but we would expect to see somewhat normal seasonality going forward after a particularly difficult first quarter.

David Ross – Stifel Nicolaus

Thank you very much.

Operator

Your next question comes from the line of Thom Albrecht.

Rick O'Dell

Good morning, Thom.

Thom Albrecht – Stephens Inc.

Rick, Jim, hi, good morning. Let me just start with a look backwards, you've always been pretty good about providing sort of monthly tonnage figures. Do you have those available January, February, March?

Jim Darby

I do and I can give those to you, and I'll give them to you with the caveat because March gets impacted by the Good Friday effect.

Thom Albrecht – Stephens Inc.

Sure.

Jim Darby

Because it's still in March this year and it was in April a year-ago.

Thom Albrecht – Stephens Inc.

That's right.

Jim Darby

So, I'll give them to you. What they are, just straight up on a LTL tonnage comparison, January was actually above last year by 1%.

Thom Albrecht – Stephens Inc.

Okay.

Jim Darby

February was down 6% from last year.

Thom Albrecht – Stephens Inc.

Okay.

Jim Darby

And March was down 7%. But if we take out the Good Friday effect, the comparable ratio would say March was down 5%.

Thom Albrecht – Stephens Inc.

Okay.

Jim Darby

February was a little bit of a surprise being down 6% year-over-year. March, taking out Good Friday is back to being down five, and if we look at – I know you're probably going to ask about April, April's following off March's trend. It's about – down about 5% so far this month.

Thom Albrecht – Stephens Inc.

Okay.

Rick O'Dell

Well, it's actually down less than that, but if you take the Good Friday effect, which has overlapped us about five. So to me, obviously there was a step down in the quarter. I mean, January was encouraging and February and March didn't develop as you would expect given the trend line that we had in January. There is an encouraging thing and it would appear that April, at least month-to-date, has been kind of normal seasonality from what you saw in March.

Thom Albrecht – Stephens Inc.

Yes, okay. And then Jim, David asked about the length of haul. We analysts are sort of annual [ph]. Do you actually have the figures?

Jim Darby

We do. You're talking about the actual figures?

Thom Albrecht – Stephens Inc.

Yes. The actuals.

Jim Darby

I can give that to you, just a second.

Thom Albrecht – Stephens Inc.

Okay.

Jim Darby

I do have that. It's up 7.5%. I've got it, I'm sorry, 664 this year's first quarter versus 617 last year.

Thom Albrecht – Stephens Inc.

Okay. And then, Rick, did you make money in any months in the quarter?

Rick O'Dell

Actually, we made money in both January and March, and operated over 100 in February.

Thom Albrecht – Stephens Inc.

Okay. And the February would be more because of the weather? Because when you look at March, its tonnage of sort of similar to February, you'd think that you wouldn't have made money, but what would be the difference in your mind between a February and a March performance?

Rick O'Dell

Yes. Part of it was the weather impact obviously. There was a pretty substantial step down in tonnage from the trends we were seeing in January and then you also had some higher cost associated with weather. And then that was the month where the fuel surcharge lag really impacted us. So, fuel surcharge didn't move up much because the retail prices weren't going up yet. Yet the wholesale and some of the spot stuff we were doing jumped up. So we really got impacted by the lag. And by the time you got to March, the increase in the fuel surcharge mechanism was beginning to be more effective.

Thom Albrecht – Stephens Inc.

And then, I know you don't give guidance but, when you have a quarter that's a slight loss and the environment is still tough, is there any reason to believe that you'll be able to make more than $0.05 to $0.10 during the June quarter?

Rick O'Dell

Again, as you'd indicated, we don't provide guidance. I will tell you that just in terms of some of our internal initiatives are gaining traction as we move forward through the months on a per work day basis. Our productivity is improving. We would expect to get – if we get a normal seasonal upturn, just your volumes per day are going to improve. So, from a sequential trend line standpoint, unless we think something really odd is going to happen and we're not going to see anything close to a normal seasonality, we should be able to improve margins, both on our execution – put some of these fuel surcharge mechanisms begin to play catch-up now. You have prices, again, go from $120 to $140 a barrel, then we could end up in the same situation again. But, certainly – and I can't sit here today and say I would expect that. The weather impact will go away.

Thom Albrecht – Stephens Inc.

Sure. And that's why, I would describe, at least a possibility of a modest profit, but $0.05 to $0.10 is a far cry from a healthy level even in a recession. So, what about – you made a lot of comments in the beginning, some were very helpful. But, there's been under current with some of the carriers discussing pricing becoming more competitive, perhaps deteriorating maybe since early March, combined with maybe a step down in the economy. What's your feeling on those two subjects?

Rick O'Dell

Pricing for us – if we look at it absent length of haul, weight per shipment, and fuel surcharge, we were up about 2% year-over-year. If you look at – obviously we had the general rate increase, which was a little earlier than it was last year. It had a positive impact on the quarter. We are seeing, as the struggles in the economy go on longer, you've got customers that continue to be looking for their cost opportunities and they tend to look for opportunities to put that business out for bid. I think we've been stating that our contract renewals were positive in the, let's call it, in the 1% to 2% range, probably closer to 1% historically. Through most of the quarter, we saw similar trends with that. I would say it is getting a little more difficult, but our contract renewals net-net were still positive.

Thom Albrecht – Stephens Inc.

Are you getting a lot of requests? I mean there's always, with an LTL carrier having thousands upon thousands of customers, going to be calls for some flat to down. But, is the amount of request for a rollback in pricing picking up? Or is it just that the magnitude of the increase is so small that it doesn't feel good?

Rick O'Dell

You got people that are testing the market, seeing what the tolerance is. Again, as I guess we look at it and you've got to look at what the pricing is, does the account operate well? Should we be protecting that account that warrants protecting? And if it's an account that operates at the margin and they're looking for a significant decrease, we have situations like that where we're walking away from it. We believe over time you have to be prudent with pricing. You have to sell your quality and your network. And you want to do business with the people that are reasonable about properly compensating you for the service that you provide.

So, it's a challenging environment, particularly for us who have expanded our network. And we really, over time, need to build the density to generate the margins that we expect. But, we know what our costs are and we're not going to step outside of that and just do ridiculous pricing to put volume through the network. So I would describe it as an increasingly challenging environment. You've got some carriers I think that are pretty disciplined and making some good decisions. You've got a handful of people I think that are just saying, "Well, right now, we need to go out and get the volume."

Thom Albrecht – Stephens Inc.

Last question, Rick, the competitive issues you described in pricing, are those primarily the smaller niche players that cover four, five states? There's still a bunch of those or is it more of a national pricing pressure?

Rick O'Dell

I think you've got some of the more niche players, I mean, are really struggling. And obviously they're having some issues and those guys are always the price guys at the kind of bottom of the market. And then, we are seeing some other activity from some of the larger players as well.

Thom Albrecht – Stephens Inc.

Okay. Thanks for the commentary.

Rick O'Dell

Sure.

Renee McKenzie

Thank you.

Operator

Your next question comes from the line of Art Hatfield.

Art Hatfield – Morgan Keegan

Hey, Rick. Hey, Jim.

Rick O'Dell

Good morning, Art.

Art Hatfield – Morgan Keegan

Just a couple of quick questions, a follow-up on Tom. You have mentioned that you made money in January and March and lost money in February, can you give us a magnitude of kind of what the loses were in February?

Jim Darby

I don't think that's – I would just tell you, I guess we operated a little bit over 100.

Art Hatfield – Morgan Keegan

Okay.

Jim Darby

And, that includes, Art, that big impact from the run up in the fuel cost which in and on itself was about $900,000 in February.

Rick O'Dell

If you see the math on that, just that in and on of itself was a little over a point.

Art Hatfield – Morgan Keegan

All right. Okay. Hey, Rick, back on your fourth quarter conference call, you were talking about first quarter potentially being able to have a unique situation. And with some of the initiatives that you had in place, that potentially, despite seasonality, you could have a better OR in Q1. Ex the weather and the fuel issues, some of the things that you really couldn't foresee, do you think you would have been able to achieve that goal in Q1, ex some of the problems you had with fuel – as I said, fuel, weather, and maybe some of the economic issues?

Rick O'Dell

Well, actually, even if you take the economic issues out, I mean, in the fourth quarter, we operated at 98.4, a normal – we look back three years on average, we deteriorate about 1 operating point, which would have put us at 99.4, if you just took a normal seasonality.

Art Hatfield – Morgan Keegan

Right.

Rick O'Dell

And then the fuel surcharge lag and the impact of fuel was about half of a point and then the weather was obviously worse than we expected as well. And just our direct cost kind of associated with that was about $0.02, which is another – about two-tenths of an operating point. So if you take those $0.07 out, you can – it's just math, I guess, but that would put us at a 98.5 and a 98.4, which would say, on a trend-line basis, we would have achieved kind of flat fourth quarter to first quarter OR.

And I guess I would comment too just on our consecutive week-to-week productivity improvements are better. We achieved a productivity improvement in load average, PD productivity and dock productivity. First quarter was better than the fourth quarter. We're gaining some traction in some of our costs initiatives. Obviously, in the current environment from a volume standpoint, it was inadequate. But, we are gaining some traction. And while we have some challenges, obviously, in the near-term, volume environment and the yield, I would expect that to continue. And if you just got normal seasonality from here, your bills per day and revenue per day would improve. And we should be able to make some additional headway.

Art Hatfield – Morgan Keegan

All right. That's helpful. One last one – and I think this has been asked in some of the other calls. Have you seen any impact from some of these publicly announced alliances of these small regional carriers?

Rick O'Dell

No. We see generally that most of the customers that are focused on quality don't want to have hand-off associated with multiple carriers. They don't have good visibility of their shipments through those networks or the same service reliability. There's additional handling. This is going to cause some damages over a period of time. So we don't – I don't think that's a trend you're going to see in the marketplace that's going to be successful.

Art Hatfield – Morgan Keegan

I'm sorry. One last one. I know you're not really acquisitive right now, but are you having any small guys come to you asking for your help in that regard?

Rick O'Dell

We've had a couple of people that we've talked with in the past that weren't interested in selling, that have made some inquiries of us. And in most cases, their margins have deteriorated and it's changed their outlook or their interest, and in some cases, they may be forced to do something or look at some alternatives. So, I mean, obviously, if the quality players are struggling like they are and you see most of the carriers are losing two and three operating points, if you've got a marginal player that's a niche guy and he was operating at 96 or 97 before, he's going to be really struggling as well.

Art Hatfield – Morgan Keegan

All right. Okay, that's all I have. Thank you very much for taking my questions.

Rick O'Dell

Sure.

Operator

You're next question comes from the line of Ed Wolfe.

Ed Wolfe – Bear Stearns

Morning, Rick. Good morning, Jim.

Rick O'Dell

Good morning, Ed.

Jim Darby

Good morning, Ed.

Ed Wolfe – Bear Stearns

I know Tom went and you went through the progression of tonnage a little bit, but you stopped in April. And just two observations: one, you have the acquisition that grandfathered I think February 1. So maybe that helped January a little bit, relative to February and March? Or am I reading too much into that? And then can you just give a sense of tonnage in April so far?

Jim Darby

The one acquisition that was in February was extremely minor. February 1, a year ago. The other ones are all – because we had – The Connection was in for the full quarter a year ago.

Rick O'Dell

What was the other question you wanted?

Ed Wolfe – Bear Stearns

So, Madison was immaterial is what your saying for that one month in January?

Jim Darby

Yes. Right, absolutely.

Ed Wolfe – Bear Stearns

So what was April tonnage?

Rick O'Dell

April tonnage, what we're looking at is 5% and taking out the Good Friday effect again, because it's looking a little better, because Good Friday was in April last year, so as we look at it, we'll adjust for that and it is running down about the same as March adjusted for that which is 5% below on tonnage.

Ed Wolfe – Bear Stearns

Okay, so unadjusted March is minus 7 and April's maybe minus 3 kind of the thing, but they are both around minus 5?

Jim Darby

That's right.

Rick O'Dell

Actually, that's exactly right. You got it right on the notes.

Ed Wolfe – Bear Stearns

Okay. Why is the length of haul expanding?

Jim Darby

Part of it is because the – with the synergy revenue that we're seeing for the Midwest geography, it's increasing and then obviously, as we've expanded our map, we have a increasing inter-regional capability, and we actually have some targeted marketing programs focused on those as well.

Ed Wolfe – Bear Stearns

So, that's kind of continue that what you just assume that keeps moving that way?

Jim Darby

It will.

Rick O'Dell

It should and the other thing is that the business that we let go in the second quarter last year, which was the book of business from The Connection had as much shorter length to haul.

Ed Wolfe – Bear Stearns

Okay. If I look at your expense line items, your purchase transportation was up quite a bit as a percentage of revenue; salary and wages down? What's changing in the model to explain that?

Rick O'Dell

There's two impact in there, I mean part of it is – as your length of haul expands, we are using some rail and some other – some truckload providers in some cases to expand the longer geography or the longer moves. And then, obviously, the fuel surcharge from those providers also has a pretty significant impact.

Ed Wolfe – Bear Stearns

Okay. That's helpful, thank you. On the cash flow side, it looked like working capital went against you in the quarter by about $10 million. Is there something that I'm missing or is it all working capital? All I have is net income was down 0.8, you got $10 million of depreciation, and operating cash flow was down 0.4. So, something was $10 million.

Jim Darby

You see a little – you see a run-up in our receivables?

Ed Wolfe – Bear Stearns

Yes.

Jim Darby

Some of that is a reflection we think of the economic situation, people are just paying slower. And so, we're working on collections. But, some of that is to cover the run-up in the receivables.

Ed Wolfe – Bear Stearns

Okay. And, I'm sorry if you said this already, but what's the CapEx guidance?

Jim Darby

It's approximately $35 million because we looked at and delayed or pushed out some of our discretionary real estate acquisition that we had in for this year.

Ed Wolfe – Bear Stearns

And then, a gross or net number, Jim? Sorry.

Jim Darby

We announced that we projected to be at 56. And now, we are looking at about 35.

Ed Wolfe – Bear Stearns

And is that net or gross? Net of proceeds?

Jim Darby

That'll be net.

Ed Wolfe – Bear Stearns

Okay.

Jim Darby

That'll be net.

Ed Wolfe – Bear Stearns

Terrific. Thanks guys for the time. I appreciate it.

Operator

Your next question comes from the line of Tom Maiden.

Todd Maiden – BB&T Capital Markets

Hi, Todd Maiden. Just want to go over a couple of things. You talked about linehaul routing optimization in Q4. I think at that time, it was 30% completed. Did you say 80% now?

Rick O'Dell

Yes, at the end of March, it is about 80% complete.

Todd Maiden – BB&T Capital Markets

Okay.

Jim Darby

We thought we would be finish with that by the end of March. And sometimes, happens with those projects, probably running about 30 days behind.

Todd Maiden – BB&T Capital Markets

Okay. All right and then, as far as headcount, I know you had cut about 2.5% in Q4. Did you see further headcount reduction in the quarter? And are you at the number that you think you need to be, given the current environment?

Rick O'Dell

We think we're at the right number. We didn't see further really headcount reductions off to the numbers that we were. Obviously, it's at seasonal low period, you let it drift down a little bit and then, obviously, we would expect with normal seasonality, volumes to pick back up. We're managing over time down to lower levels during these time periods doing the things we have. I think, for us, it's not really an opportunity for us to take significant labor cost out through reduction. It's more of some of our engineered process improvements and got a number of projects, focused on gaining some efficiency there. And again, as I've said, kind of week-to-week, as we've seen some pickup in volume trends, we've made some headway there.

Todd Maiden – BB&T Capital Markets

Okay. And lastly, going back to the kind of the price topic. Have you been approached by anybody for multi-year contracts? I know, we've seen it among some of the other carriers,

At times, kind of heavy request to go ahead and lock in today's rates, going forward tomorrow, like a two to three-year type deal. Have you started to see any of that or is that not an issue right now?

Rick O'Dell

I think, periodically we get some of that and obviously we've seen it historically at some companies and sometimes it's not bad if you could get good pricing and a commitment for volume in this environment, and you can take the business and operationally work with the customer to gain efficiencies at pick-up and delivery, and packaging, and those types of things. It could provide – it can provide you a good opportunity I would say. I don't know that we're seeing any more of that specifically than what we've seen the past. You do have some pure price players that are coming out saying, "Hey, give me this rate and lock it in for two years," and in some cases, if the business is good and that makes sense or it's in the lane that you need it in, you may want to do that. And then in a lot of cases, some of the guys that are always there, pure price players, you know their business doesn't operate well and you just have to say, "No, we are not going to that."

Todd Maiden – BB&T Capital Markets

Okay. Thank you.

Rick O'Dell

Sure.

Operator

(Operator instructions) Your next question comes from the line of David Ross.

David Ross – Stifel Nicolaus

Hey. Good morning again.

Rick O'Dell

Good morning, David.

Jim Darby

Good morning, David.

David Ross – Stifel Nicolaus

Couple of follow-up questions. One on fuel surcharge. It seems that your fuel surcharge lags a lot of your competitors by maybe about five days, whereas this Monday's diesel price goes into effect next Monday, whereas a lot of them go – this Monday's diesel price goes into effect on Wednesday. Have you looked at modifying your fuel surcharge to maybe be more in line with the competition at all?

Jim Darby

We have not looked at that. Obviously, historically the fuel surcharge mechanism had worked pretty well and I would think obviously if you get into this type of environment and see an unprecedented change, you could have impacts that cause us to relook at that. But, that's not something we've really looked at that closely.

David Ross – Stifel Nicolaus

Okay, so I guess in the quarter, you hadn't been naturally using that as a selling point, to try to get additional business saying, "Hey, our fuel surcharge is more of a ladies and gentlemen."

Rick O'Dell

Most customers, they don't change their carrier for two, three-day difference. We are a relationship provider with our customers and you sell them the quality of service and during that time period, if there is a difference of – generally we don't see people moving a lot of business for two and 3% generally, so.

Jim Darby

All right. And this has been our process for years and customers are comfortable with that. It works both ways, if we just got caught in an extreme escalation in fuel prices.

David Ross – Stifel Nicolaus

Yes. And the next question goes to, I guess, the regional part of the business, you talked about 8 out 14 sales regions posted positive revenue growth. Could you talk a little about what are the maybe couple of regions that are doing the best right now in your view and a couple of regions that are struggling the most?

Rick O'Dell

The upper Midwest region in our new geography is growing positively. Let's see, Texas has probably been another area of strength for us, some of that obviously we participate in oil pretty significantly because we kind of grew up in Louisiana and Texas and some of the oil industries there, those guys obviously are doing well in the current marketplace and then probably consistent with where we have more retail business and is more probably consumer-oriented and some of the housing issues. Our Southern California is really soft for us and the Southeast has been soft for us, which is you know you kind of expect that I guess in Florida, the market has been hit hard. And then we probably have a higher segment of retail business in kind of Carolinas and Georgia and some of that area and that's an area that we're seeing some softness as well.

David Ross – Stifel Nicolaus

Okay. And any benefit you've seen from the pull back of USF Reddaway in Holland and those territories?

Rick O'Dell

It's one of those things, obviously, we have picked up some business there and it may partially explain too why we see Texas is being stronger than some of the other regional geographies, but it didn't really moved the needle significantly. You look at our trends where we are running in January and February and March, I would tell you it didn't move the needle. So it appeared to have been absorbed pretty quickly in the marketplace.

David Ross – Stifel Nicolaus

Thanks again.

Rick O'Dell

Okay.

Operator

There are no further questions at this time.

Rick O'Dell

All right, great. Thank you for your interest this morning and we look forward to keeping in contact with everyone. Thanks.

Operator

This does conclude today's conference. You may disconnect at this time.

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Source: Saia, Inc. Q1 2008 Earnings Call Transcript
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