Old Dominion Freight Line, Inc. Q1 2008 Earnings Call Transcript

Apr.30.08 | About: Old Dominion (ODFL)

Old Dominion Freight Line, Inc. (NASDAQ:ODFL)

Q1 2008 Earnings Call

April 23, 2008 10:00 am ET

Executives

Earl E. Congdon - Executive Chairman of the Board

David S. Congdon – President, Chief Executive Officer and Director

J. Wes Frye - Chief Financial Officer, Senior Vice President – Finance, Treasurer, Assistant Secretary

Analysts

Justin Yagerman - Wachovia Securities

Tom Wadewitz - JP Morgan

Jon Langenfeld - Robert W. Baird

David Ross - Stifel Nicolaus

Tom Albrecht - Stephens, Inc.

[Ed Wolfe - Wolfe Research]

Art Hatfield - Morgan Keegan

Operator

Welcome to the first quarter 2008 conference call for Old Dominion Freight Line. (Operator Instructions)

This conference call may contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion’s expected financial and operating performance for 2008.

For this purpose, any statements made during this call that are not statements of historical fact, may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by important factors among others set forth in Old Dominion’s filings with the Securities and Exchange Commission and in yesterday’s news release, and consequently, actual operations or results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

At this time for opening remarks I’d like turn the conference over to the company’s Executive Chairman, Earl Congdon,

Earl E. Congdon

Thank you all for being with us for our first quarter conference call. I am here today with David Congdon, OD’s President and CEO; and Wes Frye, our CFO. We each have some brief remarks that will cover our first quarter results and our outlook and then we’ll be glad to take your questions.

Considering this sluggish economic environment, we were not disappointed with 8.3% growth in tonnage for the quarter. This tonnage growth included a negative impact in the first half of March from severe weather and followed by Easter weekend, which fell in March this year versus April of last year. As a result, our tonnage growth for March was below that of January and February, but it has recovered to higher levels thus far in April.

We produced an increase in revenue per hundredweight, net of fuel surcharges for the quarter of 0.8% or eight-tenths of 1% in a pricing environment that remains very competitive. This metric was impacted downwardly, we believe, by several factors which include an increase in weight per shipment, a decline in length of haul, a decrease in average freight classification and higher than average growth in spot quote and container drayage shipments.

Nevertheless, we were pleased with solid growth in tonnage for the first quarter. On the other hand we were disappointed that the benefits of tonnage gains were largely offset by a sharp increase in fuel prices for the quarter. While we generally recover increased fuel cost through our fuel surcharge mechanisms, the cost increase for the first quarter was large and rapid enough that negotiated fuel caps in our contracts and tariff items limited our ability to recover our cost.

We’re working with our customers to counteract this issue in the quarters ahead and on a long-term basis. While we are making progress in these discussions, we do not expect to resolve this issue fully during the short term.

In closing, let me reiterate that economic cycles are a reality with which we’ve long been accustomed and through which we have successfully operated. Consequently, our strategy is focused on building our company for the long-term through outstanding customer service, constant attention to daily operations and steady expansion of our network and services.

We have the utmost confidence in the prospects of Old Dominion to continue gaining market share and achieving substantial long-term profitable growth.

And now here’s David.

David S. Congdon

As we move further into the second quarter and think about the rest of 2008, there are a number of initiatives we have undertaken to support our guidance in a year that will continue to be challenging.

Our primary focus is to intensify our revenue quality improvement processes. While we already implement these on an ongoing basis, the constant enhancement of our services products, our value proposition and expanding customer relationships, provide us with an opportunity to improve our yields.

It’s pretty obvious that our industry remains in “a freight recession” and we are surrounded with signals that spell economic uncertainty, which unfortunately means sluggish conditions for an unknown period. Because of price competition caused by flat to down tonnage growth, rising cost, especially fuel cost, our industry operating ratios, including our own, are rising. So what do you do in this environment to improve profitability?

It’s a combination of three things. First, lowering expenses and we have numerous initiatives in this area. Secondly, increasing volume, and we are doing pretty well in this area and lastly, improving yields. In order to continue providing our customers with superior service to continue investing in our company for future profitable growth and to reverse the negative trends in our operating ratio, we’re placing the highest priority of maintaining our focus on profitable pricing of our accounts.

In the last couple of conference calls, we shared our sensitivity analysis that to make-up one percentage point reduction in pricing would require tonnage growth equaling 4 to 5 percentage points to breakeven. This math works in reverse as well. In other words, increasing pricing 1% has the same effect of a 4% to 5% increase in volume.

Therefore, faced with this challenging and soft freight environment for the foreseeable future, the most important thing we can do to maintain or improve profitability is to maintain discipline to our revenue quality processes. We have seen little advantage in reducing a competitors price to win new business and believe that this has been a primary factor resulting in the industries’ deteriorating operating ratio.

Most competitors, we included, will protect their existing market share within reason. The key is selling your services based upon value and not price. We are continuing our increased focus on improving operating efficiency, productivity, and cargo claim reductions. These efforts encompass all aspects of our operations in line haul, our dock and pick-up and delivery.

In the first quarter, we achieved a 1.2% improvement in P&D efficiency, a 1.6% increase in percent direct loaded shipments, a 4.8% improvement in platform pounds per hour, and we posted our lowest cargo claims ratio in the history of the company.

Unfortunately, these improvements were not nearly enough to offset the effects of the pricing environment, the rapidly rising cost of fuel and the increases in other operating costs.

The latest acquisition of Bob’s Pickup & Delivery in Montana is the third strategic transaction we completed within a year and is representative of continuing opportunities we have to achieve our expansion targets with the help of acquisitions.

In addition to adding 12 new service centers to our network, this transaction took us into the last state in the lower 48 in which we did not have a direct presence and gave us the ability to immediately launch full-state coverage in Montana. We now offer full-state service in 39 states, with a goal of expanding to all 48 in the Continental US.

Consolidation pressure in the transportation industry has grown as the cost of offering competitive services, transit times, coverage and superior technology have increased. Given these factors and the current economic environment, we would expect to see continued consolidation during 2008 from which we are positioned to benefit.

To maximize this benefit, we are also continuing our internal effort to strategically expand our service center network, both through development of new centers and expansion or relocation of existing centers.

The pace of opening these centers is affected by the difficulties involved in acquiring and developing real estate for a freight terminal. In building out our service center network, we not only leverage our existing infrastructure, customer base and sales force, we also further enhance Old Dominion’s structural competitive advantages.

Throughout the economic cycle, we have demonstrated an ability to gain market share as customers respond to our providing outstanding service standards, extensive coverage and rapid transit times through one organization and one non-union workforce. It is because of this strong competitive position that we are confident of our long-term growth prospects, despite the uncertainty of the current environment.

Thanks for your interest in Old Dominion, and I’ll now turn the floor over to Wes to discuss our numbers in more detail.

J. Wes Frye

Old Dominion’s revenue rose to a record of $368 million for the first quarter of 2008, up 15.1% from the first quarter last year. This increase was comprised of a 5.6% increase in shipments and a 9.1% increase in revenue per shipment. This growth in revenue per shipment reflected both a 6.4% increase in the revenue per hundredweight and a 2.6% increase in the weight per shipment, as tonnage grew for the quarter at 8.3%.

Revenue per hundredweight, excluding fuel surcharge, increased 0.8% and revenue per shipment increased 3.3%. Our operating ratio for the quarter was a 94.3% compared to a 92.2% for the first quarter of ‘07. As discussed, the more significant items affecting this result were pricing, high fuel costs and effects from winter weather. We estimate that the harsh winter effect on the EPS to be approximately $0.035 per share for the quarter.

Excluding fuel surcharge, our revenue per hundredweight increased, as I mentioned, 0.8% for the quarter. A 1.4% reduction in our length of haul and a 2.6%, about which of half of which is freight mix, increase in the weight per shipment have an effect of lowering the percent revenue per hundredweight change.

Though difficult to measure, the revenue per hundredweight percentage increase net of fuel surcharge would be higher, estimated in the 1% to 1.5% range. This overall increase was a result of tariff increases implemented on February 11 of approximately 5.8% which affected approximately 34% of our net revenue.

Also difficult to measure, but certainly affecting the quarter, was our inability to recover all of our fuel costs through an increase in the fuel surcharge. The deficit resulted mostly from the fuel surcharge caps on a portion of our business. Although the line of distinction between rate and fuel surcharge negotiation is blurred, we estimate that the OR effect on the caps during the quarter to be between 100 and 200 OR basis points.

We offset a portion of this increase through reductions in salary, wages and benefits in purchased transportation as a percent of revenue, and we also benefited from the fourth consecutive comparable quarter decline in insurance and cargo claims experience as a percentage of revenue.

The effective tax rate for the first quarter of 2008 was 39% compared to 37.7% for the first quarter of last year, and we anticipate our effective tax rate for the remainder of 2008 to be also 39%. Our net CapEx for the first quarter was $27 million, including the acquisition of Bob’s Pickup & Delivery.

And we continue to plan net capital expenditures for the year of approximately $155 to $165 million, down from $195 million for the year 2007. The 2008 budget includes approximately $40 to $45 million for equipment, $95 to $100 million for real estate, a portion of which is to complete projects started in earlier years, and $10 to $13 million for information technology.

With our solid profitability for the quarter and continued cash flow from operations, we reduced debt and strengthened our balance sheet from year-end 2007. We completed our first quarter with cash and short term investments of $38 million, while our ratio of net debt to total capital improved to 34.4% from 32.2% at year-end.

For 2008, we expect free cash flow from operations to be marginally positive without giving consideration to additional acquisition or expansion opportunities that might become available during the year. As presented in our news release, we remain cautious in our outlook for the remainder of 2008, primarily based on the uncertain economic environment and continued competitive pricing.

As a result, we have reduced our established guidance for the earnings per diluted share for the year in the range of $1.85 to $1.90, from the previous guidance of $2.00 to $2.05. In April, we are experiencing tonnage growth in the low double-digits, driven by shipment growth and weight per shipment in the mid single digits, each.

However, we anticipate that pricing year-over-year will worsen to a negative 1 to 2 basis points in April, excluding fuel surcharge. Unclear at this time, however, is how much of this revenue per hundredweight decline is attributable to the increased weight per shipment, and the lower length of haul.

This concludes our prepared remarks this morning, we’ll be happy to open the floor for questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Justin Yagerman - Wachovia Securities.

Justin Yagerman - Wachovia Securities

Wes, at the very end you said you’re right now experiencing revenue per hundredweight down 1 to 2 basis points?

J. Wes Frye

1 to 2 percentage points.

Justin Yagerman - Wachovia Securities

What’s going on with the fuel surcharge and where these caps are. Earl or David, I think you said in your prepared remarks that you don’t expect this to abate in the near-term, and if this is a 100 to 200 basis point hit on the OR, I just like to get a bit more clarity on where these caps are. How much of a percentage of your business these caps are on, and to what extent you think you can alleviate them, and in what timeframe should we continue to expect that drag on the profitability if fuel stays where it is or goes up?

J. Wes Frye

Most of the caps are related to our contractual accounts which do account for about 42% of our overall business. Within that, we estimate maybe 20% to 30% has a cap.

Justin Yagerman - Wachovia Securities

On average, where does fuel cap out on those on that 20% to 30% of the 42%?

J. Wes Frye

It varies and the difficulty is, there are several basis points between what would be the normal fuel cap and what the contractual, what you don’t know, and the uncertain that makes it difficult to measure. If there is a fuel cap that we negotiated, then how much, in many cases, we increased the rates. In other words, we look at the profitability of the overall account combining both rates and fuel surcharges.

Justin Yagerman - Wachovia Securities

Can you do that in real time though? Is there a provision in the contract for that?

J. Wes Frye

I’m just talking about as we renegotiate the rates on accounts, so in the more recent months.

Justin Yagerman - Wachovia Securities

So, you’re going to have to wait for contracts to actually roll over in order to get to the healing process on these caps if fuel is staying where it is.

David S. Congdon

No, we are not waiting till expirations of contracts. We are looking at every account that has any cap on it and instructing our sales force to address the issue of the cap with customers now.

So, most all contracts, although they may have a beginning date and an ending date, they all have 30-day outs by either party. Not that we want to go out and put business at risk and that kind of thing, but we certainly have the relationships with our customers and the superior service products that we’re giving to our customers that justify our need and our position to go out and ask for some relief on the fuel.

Justin Yagerman - Wachovia Securities

If you had to set yourselves a goal, what’s the timeframe that you’d hope to have this issue shored up within?

David S. Congdon

This process started about a month or two ago, really focusing heavy on it, and so within the next couple of months, I would say.

Justin Yagerman - Wachovia Securities

So, you wouldn’t expect to necessarily, maybe get some relief in second quarter, but hopefully by third quarter this is an issue that you’re recovering more of your fuel surcharge?

David S. Congdon

Yes.

Justin Yagerman - Wachovia Securities

And is there something different about your fuel surcharge versus other major LTL fuel surcharges on an average basis that would lead to the higher fuel impact?

David S. Congdon

All of them are negotiated differently. So, there is no real consistency I don’t think between our surcharges and everyone else.

Justin Yagerman - Wachovia Securities

On the salary, wages and benefit line, there was an increase of about 14% year-over-year on a dollar basis. With tonnage of 8%, that sounds like a lot. Is there a workers’ comp issue going on in there?

J. Wes Frye

Yes, not workers’ comp, but we did have a negative entry and whether that’s a one-time entry or whether that’s the trend, we had a fairly large adjustment, we had to make in group health. That was about a 20% increase in group health year-over-year costs, so without being tax affected, the total entry we had to make was about $2.7 million.

I caution it’s too early to say whether that’s a one deal or if that’s a general trend, so I’ve mention that because you asked about it, but we didn’t put that as part of any unusual items in our discussion.

Justin Yagerman - Wachovia Securities

But at the end of day, that’s impacting you to the tune of $0.04 a share, so it’s the difference between what you reported and consensus, so I think it’s meaningful. In the tax rate, it’s also up to 39%, last year it was at 37.7%. Is there something different in the way, We think we were modeling at that increase, but just curious on a year-over-year basis, would you expect it to stay at 39% going forward this year?

J. Wes Frye

Yes, last year we had a one-time favorable impact on our tax rate in the first quarter of ‘07. We do anticipate it remaining, at this point, at 39% for the remainder of this year.

Justin Yagerman - Wachovia Securities

And on your acquisition of Bob’s, I know it’s small, but just curious if that had any drag in the quarter getting that operation ramped up?

J. Wes Frye

Without the start-up cost, just on the operations itself trying to build density, it had about $0.005 result drag on our earnings in the first quarter.

Justin Yagerman - Wachovia Securities

Where are you seeing the most competition on a cost basis or on a revenue per hundredweight basis? Being that you are in the long haul and into regional and regional lanes, is there more competition in one length of haul versus another or is it generally the same pressure you’re feeling across the board?

David S. Congdon

Justin, I’d say it’s the same that we’ve been feeling across the board, you have long haul pressure and you have short haul pressure. I still think you tend to have a little bit more pressure in the regional business because of the small regional players are real price leaders if you will in their regions, because that’s all they have to sell and they are under competitive pressure of the carriers we can do more than they can do.

Justin Yagerman - Wachovia Securities

Yes, aside from the large national player that talked about getting out of some of the regional space, have there been any of the smaller guys who have, at this point, capitulated or decreased their service footprint?

David S. Congdon

I am not aware of any.

Operator

Your next question comes from Tom Wadewitz - JP Morgan.

Tom Wadewitz - JP Morgan

On the fuel side and on the guidance side maybe if you could just give us a sense of what, what’s the greatest factor in your lower ‘08 guidance? You mentioned a couple of different things. Is it really the concern on pricing is the biggest one or is it, half of it’s the pricing issue and half it’s fuel. How do you look at that, not necessarily in the first quarter, but on change in the full year guidance?

David S. Congdon

The major issue we have is a price issue, but it is a fuel issue too. And the fuel surcharge recovery issue, as we’ve stated before, our fuel surcharges, base rates and discounts have all become so blurred over time the general pricing is the major issue affecting our change in guidance.

Tom Wadewitz - JP Morgan

And then when you look at the fuel assumptions that you have in the new ‘08 guidance, are you assuming that fuel stays flat where it is at the present level or and then if fuel went up further, then you have some risk to where the guidance is or what have you baked into that ‘08 guidance for your fuel assumptions?

J. Wes Frye

Our estimate includes that fuel prices will probably remain pretty much at the current levels, at least through the summer, and then maybe abate a little bit, but not a lot for the second half, that’s what our assumption is based upon. Whether that’s true or not, we need some more expertise on that, but that’s our assumption at this point.

Tom Wadewitz - JP Morgan

But if fuel went up meaningfully further from where we are, then there is potential that would be a little better for the pressure versus the range?

J. Wes Frye

Yes, correct.

Tom Wadewitz - JP Morgan

In terms of some of the other cost factors in the first quarter and the margin pressure in first quarter, how are you looking at? It seems like fair number of those were one-time and if you look at the margin out the next few quarters, do you think the deterioration will be a little bit less, or how are you thinking about margin going forward and whether most of the cost in first quarter is one time or not?

J. Wes Frye

Well, Tom we don’t give guidance on margins. David talked about some improvements in productivity, the one area that we did not improve in productivity was our line haul, and specifically line haul wages did deteriorate.

But on the other hand, as we’ve said before, the one thing that we will continue giving during this slowed economy, and we think it’s crucial, is keeping our service, on time service very high and that can really affect your line haul cost. As the year progresses, we have some other opportunities and in fact in April have seen some better results in our laden load averages is the metric we follow in that regard. And so we’ll be focusing on that among other things, as David mentioned, have a main focus on that.

Operator

Your next question comes from Jon Langenfeld - Robert W. Baird.

Jon Langenfeld - Robert W. Baird

When you look at the pricing environment, how has it trended, if you step back and look over the last six months? Has it been a steady decline in terms of deterioration or has it been more dramatic here as fuel prices have run up?

David S. Congdon

If you look at just look at the literal revenue per hundredweight and obviously if you look at it excluding fuel surcharges, it’s been fairly steady, but year-over-year, there has been a decline. Throughout the first quarter in January we saw a fairly good increase and I’m talking excluding fuel surcharges to get that out, we saw about a 70 basis points improvement in revenue per hundredweight in January.

In February as we implemented the rate increase in our general tariff, it went up to 1.9%, but in March it declined 20 basis points. So we saw it doing very well, fine in January, increasing in February, and then declining in March. When you look at our rate per hundredweight, we are maintaining the revenue per hundredweight increases pretty much in the general tariff area, where the really price competition seems to be occurring, is in the larger contractual which is what you would expect.

Jon Langenfeld - Robert W. Baird

If I look at your revenue per hundredweight ex-fuel and it was flat to negative in the second half of last year and then it popped to positive here and now it’s back to negative, so it actually seemed a little bit more volatile than maybe what I would have expected. Would you agree?

David S. Congdon

Yes, I guess it is somewhat volatile.

Jon Langenfeld - Robert W. Baird

And then how do you, how do you go about and just maybe relay the conversations you’ve had with customers thus far, how do you go out and ask for better fuel surcharge, when essentially that’s price and you are going to your biggest customers that where price aggression has been the most acute. How do you have those discussions and come away successful in this environment?

David S. Congdon

Well, it’s not the easiest thing in the world, that’s for sure. But, when you can go to a customer with facts on paper in front of you from our freight costing model which is very accurate and very sophisticated, and you can show this customer that, we had a X operating ratio, let’s just say we have a 95 operating ratio on your account or 90 operating ratio. And now, because of the impact of fuel, and because of this fuel cap, we have a 120.

That’s pretty compelling facts and evidence to present to the customer, and to also say this is what we are doing for you in terms of service here on the lanes, here is the transit times, here is the claim ratio, here is all the value we are adding to you for the freight dollar you are spending. And we just plain alone can’t live with a 120 operating ratio. And you start negotiating from there to get some relief, and hopefully get it back to a respectable ratio. So, that’s how we address it.

Jon Langenfeld - Robert W. Baird

Is it your sense that others in the industry, particularly some of the smaller regional LTLs also have caps in place on certain contracts?

David S. Congdon

Yes.

Jon Langenfeld - Robert W. Baird

So, they are basically battling the same issues?

David S. Congdon

Well, we, if we had our druthers, we would not have any caps. I would say that a lot of the caps that we have are because of competition, because of other people putting in caps. We don’t put in caps knowingly or willingly and voluntarily.

It’s because of the competitive pricing environment that has caused us to have the caps that we happen to have. Well, the customers, or the customers are requiring it or insisting upon it, but usually it’s because of a competitive situation. If someone else has one, so everyone is required to bid the business with a cap.

Earl E. Congdon

I think that when these caps were negotiated sometime ago, that no one, carrier or customer, envisioned the rapid rise that we’ve had in the fuel cost, so it makes sense to our customers, I think, to grant us some relief from those caps.

Jon Langenfeld - Robert W. Baird

And would you say all in, maybe the trends in the quarter weren’t what you expected, but if you look at the quarter in total, did pricing come relatively in line with what you would’ve expected?

J. Wes Frye

No, no it was more competitive than we expected.

Operator

Your next question comes from David Ross - Stifel Nicolaus.

David Ross - Stifel Nicolaus

Start off with weight per shipment, I think Wes you said that half that increase was due to growth with existing customers, maybe half was due to the increased truckload business you did in the quarter, is that?

J. Wes Frye

Yes, when we look at just our LTL portion of the freight weight per shipment, it was up about 1.2% to 1.3% against an overall 2.6%. So that’s where I got the half is that the LTL was up that much, so that we had increases in our mix of freight for container, for spot quotes, etc., that drove it up more on an overall basis.

David Ross - Stifel Nicolaus

Also, with the network growth going from 184 terminals up to 204 service centers today, do you have, and I know it’s going to be a range because of the real estate issues, do you have a goal for year-end where you want to be in terms of network size?

David S. Congdon

David, we actually do not have but one definite terminal on the drawing board that we know for sure we will open before the year-end. So, we should still be at about 205 at year-end, but opportunities could present themselves that cause us to open more service centers by year-end.

David Ross - Stifel Nicolaus

So this year is expected to be more of a density build year rather than a expansion year?

David S. Congdon

Yes.

David Ross - Stifel Nicolaus

Also we hear talk out in the marketplace of some of the regional carriers, not being able to offer the same inter-regional service that Old Dominion does. They can’t get all 48 states. So, they get together and they form these interline partnerships and sometimes partnerships with a national scale. Are you seeing any increased competition from that, and also if you could talk a little bit about how your model is differentiated from those.

David S. Congdon

David, I know the one that you’re talking about, and no, we’ve not seen any real impact from that recent alliance that was formed. And we don’t anticipate any pressure from that. Because, the fact of the matter is, that we, with one truck, can make the pickup and through our fully integrated line haul system, we can move freight across the country very seamlessly through one network with green and white trucks on both ends of the deal and in the middle on line haul, so it’s all one seamless thing.

And it’s hard to sell a multi-regional, interline partnership against a fully integrated, multi-regional, inter-regional national network that we have.

Earl E. Congdon

We had that experience in past years, and David’s right, it’s a tough sell.

David S. Congdon

And when you are working with business partners in different areas of the country and you are trying to sell an interline type or partnership program, invariably you find that the operationally, when you are dealing with problems day-to-day like cargo claims and service problems, 90% of the problems you deal with every day have to do with these interline and partner points, not with your direct business, so it’s operationally difficult to manage.

David Ross - Stifel Nicolaus

Also you mentioned container drayage, I think you had some growth there, could you talk a little bit more about that, is that mostly international business, is that export business?

David S. Congdon

Our export business has increased because of the dollar, the value of the dollar primarily, but secondly we have made some changes in the leadership of that group and also in the way that we are managing our container drayage operations at various terminals that do that, and so the growth is primarily coming from management change, more so than increases in imports or exports, because obviously imports are somewhat down this year, but we are just growing because of management.

David Ross - Stifel Nicolaus

Everyone has talked about a tough pricing environment out there and that’s the reason that some of your competitors have lower guidance for the year and people are reporting worse than expected numbers occasionally in the LTL space, but everyone is still showing improvement in revenue per hundredweight really, even excluding fuel surcharge.

So I’m having a hard time understanding how bad it can be if yields haven’t gotten negative yet or is it mostly people that haven’t been reporting yet or those that don’t report that are showing the pricing pressure and that those that have reported are more disciplined?

David S. Congdon

I think in the first quarter, the positive yields, revenue per hundredweight, probably generates mainly from the rate increases that were passed on in January and February by most carriers. The question is, is how do you hold onto those and the implication maybe is you can’t in this economy. So, as the year and the quarters progress, you may not see that positive.

On the other hand, when we circle around to the last half of the year, the comparisons become a little easier comp, because we know we saw the deterioration starting to happen in the third Q of ‘07. So, it could be a combination that the first quarter had a rate increase earlier than it did for the first quarter of ‘07. And as we go circle around the year, the comps start to get a little easier.

Operator

Your next question comes from Tom Albrecht - Stephens, Inc.

Tom Albrecht - Stephens, Inc.

David and Wes, did you mention your approximate monthly tonnage percentages for January, February and March?

J. Wes Frye

I did not. But I will give those to you Tom. And as Earl alluded to in his comments, January we started with a tonnage growth of 9.2%.That year-over-year declined to 8.8% in February and declined further to 7.1% in March. But as I alluded to in my comments, at least it looks like at this point that we’ll be in the lower double digits in April.

Tom Albrecht - Stephens, Inc.

And then you mentioned cargo trends were, I think, favorable. Did you give a percentage?

J. Wes Frye

I did not, but I will give it to you. We’ve been progressively throughout the year, because it’s been a main focus to improve our cargo claims. The first quarter of ‘07, it was about 1.5%. And as the year has progressed, we’ve gotten it to 90 basis points to 0.9%, and for the first quarter it’s the best, I think that we’ve had in our history, at 0.7 continues to improve.

Tom Albrecht - Stephens, Inc.

David, the stops per hour, was that up 1.2%?

David S. Congdon

Yes, it’s a blend of stops per hour and shipments per hour. It’s a general overall efficiency improvement in P&D.

Tom Albrecht - Stephens, Inc.

Okay, and then the dock pounds per hour?

David S. Congdon

That was 4.8%.

Tom Albrecht - Stephens, Inc.

What about your load factor?

J. Wes Frye

Load factors I mentioned in response to one of the questions, it was actually down 1.6% for the quarter.

David S. Congdon

Some of that came about as maybe a little impact, very small of the Bob’s operation and some of the dispatches out there in that new territory with less freight on those trucks.

Tom Albrecht - Stephens, Inc.

Direct load, did you say you increased that by X percent?

J. Wes Frye

1.6%.

Tom Albrecht - Stephens, Inc.

Going back to your guidance for a minute, I was reviewing my notes from January’s conference call and the transcript, I think you were pretty clear at the time that you expected ‘08 to be very competitive on pricing then, and you even mentioned a potential range that yields could drop by 1% to 2%.

So, it seems to me like in some ways you’re just reaffirming earlier comments. It’s just that maybe we’re closer to a real-time experience, or is there something more that’s occurred, because you were very clear in January?

David S. Congdon

I think what we said in January has played out for the quarter. The thing that is so unusual about the quarter was the rapid and dramatic rise in the fuel cost that was not offset by enough fuel surcharge.

Tom Albrecht - Stephens, Inc.

And Wes, when you talk about contracts are 42% of your business, I am assuming you mean contracts provided by the shippers?

J. Wes Frye

Yes, negotiated contracts. The contracted terms and pricing.

Tom Albrecht - Stephens, Inc.

So when you stand firm on, call it base rates, how much willingness is there by shippers to just shop that business around? It’s always been competitive, but because there are some people more vulnerable, are they quicker to yank the hook on you? Can you just talk about that dynamic a little bit?

Earl E. Congdon

One of the things that we’re witnessing is that a customer might leave us because of a better price, and 60 days later, he’s back. Some of the competitors that are offering lower prices are not giving service.

Operator

Your next question comes from [Ed Wolfe - Wolfe Research].

[Ed Wolfe - Wolfe Research]

You went through the January through April tonnage, can you do the same for revenue per hundredweight, gross and net of fuel?

J. Wes Frye

On a gross basis, the revenues per hundredweight in January was up 5.3%, in February it went up to 6.2%, and in March it went up to 7.1%. And obviously that’s due to the rising fuel costs for the most part. If you look at it on a net basis, and I think, I talked about these numbers somewhat, but net of fuel surcharge, it went up by 70 basis points in January, went up to 1.9% positive in February and then declined 20 basis points in March.

[Ed Wolfe - Wolfe Research]

Do you have both of those for April or a sense at this point?

J. Wes Frye

Yes, for April, and it’s difficult to understand why at this point, but it looks like gross, that’s in the 4.5% to 5% range. And when you exclude fuel surcharge as I’ve already mentioned, it should be in the negative 1% to 2% range.

We have several things playing in April that are very unusual that I mentioned on my comments in the conference call that we had, is we’ve got a 5.6% increase at this point in weight per shipment and also our length of haul was down 2%, in other words we are growing in the shorter length of haul. Those would have a fairly I think significant effect on that revenue per hundredweight, and at this point it’s just not clear what that effect is.

[Ed Wolfe - Wolfe Research]

Why you think your weight per shipment is up? I just got off UPS, their weight per shipment is down.

J. Wes Frye

Well, certainly some of it is revenue mix, but at this point we are comparing a partial month to a full month. I can’t give you a clear answer on that at this point, but certainly some of that would be mix.

[Ed Wolfe - Wolfe Research]

Has anybody approached you, we are hearing it from the other side, the customer side, for two year or even three year deals and have you accepted any of those?

J. Wes Frye

If it’s 50% higher we would.

[Ed Wolfe - Wolfe Research]

So, has anyone approached you and have you accepted any? It sounds like some have approached and you haven’t accepted any. Is that fair?

David S. Congdon

I haven’t heard much about being approached on two to three year contracts.

[Ed Wolfe - Wolfe Research]

On the fuel, we came into this year and it really wasn’t clear, at least to me and my team, whether fuel was going to be a negative or positive for the LTL guys, given how fast it went up.

It felt like in fourth quarter it was actually a positive for most people if anything, and in first quarter it’s been a big negative and I’m just trying to ask you, it feels like two things have happened from fourth quarter to first quarter. The overall pricing environment, the competitive environment, has gotten worse and second, fuel has spiked even further, so if you had a cap or you had someone with their own plan, you got further behind than a quarter ago. Is that a fair way to think about this or am I missing something here?

David S. Congdon

I think you’re right on the money.

Operator

Your last question comes from Art Hatfield - Morgan Keegan.

Art Hatfield - Morgan Keegan

But with all the talk of pricing in the industry and fuel going up so much and maybe what we’re seeing now is a precursor to this. But we don’t hear enough about capacity leaving the marketplace. Are you seeing any changes in that or do you think the current environment is a precursor to that really picking up in the second or third quarter of the year?

Earl E. Congdon

Yes, we’re hearing that truckload carriers are exiting the scene in droves. But as far as LTL guys are getting ready to close the doors, we’re not seeing anything like that. Other than that, I believe there is a mid-western carrier that’s having some real problems. But aside from them, I don’t know of any.

David S. Congdon

And obviously the USF or the YRC regional group closing some service centers in the Gulf state region.

Art Hatfield - Morgan Keegan

But outside of that, are you surprised that you’re not hearing more of it? We’ve heard on the truckload side, but more of that going on in the LTL environment.

David S. Congdon

You have the small regional mom and pops that you really don’t hear too much about and I’m certain that’s occurring. They’ve got to be faced with tremendous pressure. Small, $10, $20 million, but a lot of that doesn’t come to the media or even come to our attention.

J. Wes Frye

I will anticipate that we will see more of it in the next three to six months.

Operator

There are no additional questions in the queue.

Earl E. Congdon

Thanks to all of you for your participation and if you have any further questions, give us a call. Good day.

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