Old Dominion Freight Line Management Discusses Q3 2012 Results - Earnings Call Transcript

Oct.25.12 | About: Old Dominion (ODFL)

Old Dominion Freight Line (NASDAQ:ODFL)

Q3 2012 Earnings Call

October 25, 2012 10:00 am ET

Executives

Earl E. Congdon - Executive Chairman and Chairman of Executive Committee

David S. Congdon - Chief Executive Officer, President, Director and Member of Executive Committee

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

Analysts

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Christian Wetherbee - Citigroup Inc, Research Division

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

William J. Greene - Morgan Stanley, Research Division

Scott H. Group - Wolfe Trahan & Co.

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

Allison M. Landry - Crédit Suisse AG, Research Division

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

Robert H. Salmon - Deutsche Bank AG, Research Division

David P. Campbell - Thompson, Davis & Company

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

Jack Waldo - Stephens Inc., Research Division

Operator

Good morning, and welcome to the Third Quarter 2012 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 10, by dialing (719) 457-0820. The replay pass code is 9696245. The replay may also be accessed through November 10 at the company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. 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 this morning's news release. And consequently, actual operations and 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. [Operator Instructions] Thank you for your cooperation.

At this time, for opening remarks, I'd like to turn the conference over to the company's Executive Chairman, Mr. Earl Congdon. Please go ahead, sir.

Earl E. Congdon

Good morning. Thanks again for joining us today for our third quarter conference call. With me is David Congdon, Old Dominion's President and CEO; and Wes Frye, the company's CFO. After some brief remarks, we'll be glad to take your questions.

Our revenue and earnings for the third quarter were the highest we have ever achieved for any quarter, while our operating margin was the highest we've ever produced for our third quarter.

Revenue growth for the third quarter represents the 10th consecutive double-digit percent increase and earnings per diluted share have increased more than 20% for 11 consecutive quarters.

Looking forward, while we expect to be affected to some degree by the relative weakness of the national economy, we also believe that Old Dominion is well-positioned to continue outperforming our industry peers throughout the economic cycle, and that our prospects for long-term growth are substantial.

We continue to deliver what we believe are the leading service standards in the industry in terms of financial performance, on-time delivery and cargo claims ratio.

The strength of our market position is indicative of the strength of the OD family, and we commend all of our employees for the hard work they do to help ensure the company's continued success.

Thank you, again, for your interest in Old Dominion. Now here's David Congdon to discuss our third quarter operations in more detail.

David S. Congdon

Thank you, Earl, and good morning.

Old Dominion's results for the third quarter, again, reflected the operating leverage that increased density provides to our financial performance. Although we believe final industry data will show that growth in industry tons slowed with a softer economic conditions in the third quarter, we continued to produce meaningful growth in tons on a year-over-year basis.

With 1 less day in the third quarter this year versus last year, our total tons increased 5.3% year-over-year and 6.9% on a per day basis.

While we opened 4 new service centers during the third quarter, most of our tonnage growth was due to increased freight density within our existing service center network. This density, combined with an increase in revenue yield of 4.2%, drove the 110 basis point improvement in our operating ratio for the quarter. The improvement in our revenue yield for the quarter is also consistent with the outstanding service metrics we continued to produce.

Our cargo claim ratio improved 7 basis points to 0.45 compared to the same quarter of last year, and we maintained our on-time service at 99%.

We believe that the strength of Old Dominion's value proposition and the business model that supports it positions us well for continued profitable growth. We will expand our service center network as opportunities become available, although, we believe much of our revenue growth will continue to come from further market share gains within our established service center network.

We also will continue to invest in equipment and service center capacity to ensure that we are prepared to leverage industry consolidation and growth opportunities.

In addition, our investments in both training and education of our employees and in productivity-enhancing technology will remain priorities. Through continued focus on our core business principles and strategies, we are confident that we will continue to drive long-term growth in earnings and shareholder value.

Thanks again for being with us today. And now I'll turn it over to Wes, to review our financial results for the quarter in greater detail.

J. Wes Frye

Thank you, David, and good morning.

Old Dominion's revenues for the third quarter increased 10.1% from the third quarter of 2011 to $544.5 million. We had 110 basis point improvement in our operating ratio for the third quarter, which drove earnings per diluted share to $0.59 for the third quarter of 2012, a 31.1% increase over $0.45 for the same period of 2011.

The growth in revenues reflect the 5.3% comparable quarter increase in tonnage, which is 6.9% on a per day basis and a 4.2% increase in revenue per hundredweight.

Our total tonnage growth was comprised of a 5.1% increase in shipments, and that's a 6.7% on a per day basis for the quarter overall, and a 0.2% increase in weight per shipment.

Sequentially, throughout the third quarter, tonnage growth per day was 8.9% for July, 6.3% for August and 6.1% for September compared to the prior-year periods.

The third quarter, as a whole, was slightly below the 10-year average sequential increase from the second quarter, mostly due to an August sequential softness, followed by return to sequential norms in September.

Although October still has 5 working days remaining including today,based upon month to date, we expect growth per day for October to be in the range of 5.5% to 6% compared to October of 2011. And based on sequential trends we have seen in recent quarters, we expect tonnage per day to also increase in the 5.5% to 6% range year-over-year for the fourth quarter. However, unlike the third quarter, the current -- fourth quarter has 1 additional work day compared to the fourth quarter of last year, which we believe will result in an approximate range of 7% to 7.5% tonnage growth for the quarter overall.

The 110 basis point improvement in Old Dominion's comparable quarter operating ratio for the third quarter reflects improved yield and density.

Revenue per hundredweight, excluding fuel surcharge, increased 4.3% for the third quarter. This is despite a 0.2% increase in weight per shipment and a 0.9% decline in average length of haul.

We expect our revenue per hundredweight, excluding fuel surcharge, to increase year-over-year at a range of 3.5% to 4% excluding fuel surcharge, as I mentioned, for the fourth quarter. Revenue per hundredweight for October, excluding this fuel surcharge, is expected to be up approximately 3.6%.

Density, as measured by revenue, excluding fuel surcharge again, per service center was up 8% year-over-year even as we added service centers during the 12-month period. This density, combined with our yield improvement during the quarter, was a major reason why salary, wages, and benefits and operating expenses were a combined 120 basis points lower in the current quarter compared to the same quarter last year.

Capital expenditures for the third quarter was $99.6 million and $309.7 million year-to-date. And we expect total capital expenditures for 2012 to now be in the range of $345 million to $355 million, including real estate expenditures of $120 million to $130 million, equipment expenditures of $210 million and technology expenditures of $15 million.

We expect to continue funding these expenditures through cash flow and through our available borrowing capacity.

The debt to total capitalization remained at 2.3% -- 22.3%, excuse me, at September 30, 2011, which was even with the 22.3% at the end of the second quarter, and down from 24.5% at the end of third quarter of 2011.

With full implementation of our existing CapEx planned for 2012, which remains subject to the availability and timing of real estate, we currently expect our total debt to total capitalization to remain below 24% at the end of this year, 2012.

Our effective tax rate for the third quarter of this year was 34.9% compared to 38.8% for the third quarter of last year. For the latest quarter, we had a tax benefit of $2.7 million related to discrete tax adjustments during the quarter. We further expect our tax rate for the fourth quarter to be 39.1%.

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

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Tom Wadewitz with JPMorgan.

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

I wanted to see if you could give us a sense of how you view the competitive environment and pricing and so forth, it feels like it's pretty stable despite the -- some softness in the economy, but what do you think of the competitive dynamic in LTL right now?

David S. Congdon

It's obviously always competitive, but from a pricing standpoint, it's still stable as we see it. There is no irrationality going on right now.

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Okay. So if you stay at kind of a slow -- I don't know, maybe you don't see further this year but let's say, you have kind of a slow growth in the economy going into 2013, do you think you'll stay at that kind of 3% to 4% pricing level or you think you might see that deteriorate a bit?

David S. Congdon

Yes. It's really hard to say which way it goes, but I think in the long range for our industry, that the demand for our services will grow and the constraints for adding capacity in the industry remain very, very high, and that the supply-demand equation will continue to allow us the ability to take moderate or reasonable price increases to cover our ever-expanding cost increases.

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Okay. But it sounds like you guys feel pretty good about the competitive environment. Let's see, what about the impact of fuel, like typically, we don't think that you necessarily have a very big impact on LTL from fuel, or sometimes, it's a different direction from the other guys. But was there much of a fuel impact on your numbers in the third quarter?

David S. Congdon

No, we adjust as we often mentioned weekly, according to the DOT, our fuel surcharge adjusts, so we've been able to pass any of that increase or decrease through. Fuel cost in the third quarter was about 1.5% from a DOT standpoint, higher than the second quarter. But we have initiatives going on that still allow us to save on fuel costs, and actually, our miles per gallon improved 1.2% year-over-year. So we're not totally at the mercy of the price of fuel, but still, we're able to pass those increases through in fuel surcharge.

Operator

And we'll take our next question from Chris Wetherbee with Citi.

Christian Wetherbee - Citigroup Inc, Research Division

Maybe a quick question just on the pace of incremental margins, when you think about it relative to fewer work days or more work days, I guess, your transitioning from fewer in the third quarter to more in the fourth quarter. How should we think about how that may impact your ability to call out later on, or continue the pace of incremental margins into the fourth quarter?

David S. Congdon

Well, Chris, we don't discuss or give guidance on margins, so I think you can just think from a logical standpoint and come to your own conclusion.

Christian Wetherbee - Citigroup Inc, Research Division

Okay, fair enough. That certainly makes sense. I guess, when you think about, I guess, going back to kind of the overall competitive dynamic within LTL, can you get a sense of maybe what the underlying pace of activity, I know obviously, there's a lot of market share penetration that you're capturing here, but the pace of overall freight within LTL, do you get the sense that you're seeing kind of that slow down that we've been kind of gearing them up from the truckload carriers on the LTL side? Or is there any different dynamics that you can kind of pick up?

David S. Congdon

It's really going to be hard to tell until you see all of the carriers report as to what the final tonnage trends are for the industry. Obviously, we are -- we believe that we are continuing to win market share, so we'll just have to wait and see how all the reports fall out, see what the overall impact of the economy is on the LTL industry compared with TL.

Operator

And we'll take our next question from David Ross with Stifel, Nicolaus.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

David, you mentioned that you saw a rational pricing environment out there. Is that true in all regions or is there any particular region that may see more aggressive pricing than another?

David S. Congdon

It's true everywhere, there is no regional differences.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Any regional differences on the demand side of things?

David S. Congdon

No. As far as we're seeing, our growth is fairly consistent across the country. Obviously, it tends to be a little bit slower in our more mature regions, but that's just the mathematical calculation because we've got a larger base, maybe, and a larger market share. But we are seeing good, consistent growth across the entire country.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

And then looking at your operating stats, intercity miles are up more than shipments or tonnage, and that's even as length of haul has come down. Also, looking back, it's typically grown faster than tonnage. Can you talk a little bit more about that and why that may be the case?

David S. Congdon

Dave, are you speaking about our length of haul?

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Well, I'm just saying, the intercity miles year-over-year, they were up 7.3%, but shipments were only up 5% and tonnage was up about 5%. And length of haul has also come down. So is there a reason that miles driven are going up faster than volumes?

David S. Congdon

Well, I think intercity miles have gone up a little bit more. And that just depends on where the growth is. If your growth is in those sections of the country that are -- like the West Coast, for example, or the Pacific Northwest that have a longer length of haul-- our length of haul was actually down. But overall, if a lot of that growth was in the longer haul lanes, that would cause it. And we did have a slight reduction in late load average but nothing material, and we're kind of at the pinnacle of -- or not the pinnacle, but we're very strong at all of our productivity numbers, but they do vary slightly depending on mix, freight, et cetera. But we did -- but our shipment growth has been stronger in the 1 and 2 day lanes, year-over-year, than it has been in the longer haul which doesn't explain the reduction in length of haul. But it's kind of a lot of different variables, which is difficult to shift through all of them. But the increase in the line haul, intercity miles is something that we watch. But we are not overly concerned it at this point. The fact of the matter is all of that's still included in our results.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

It may just reflect the fact that you're a bigger company now with a national footprint.

David S. Congdon

Sure.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

And then, last question is, as you grow and continue to add equipment, service centers, has labor availability become more of a challenge?

David S. Congdon

We are not having any issues attracting and retaining employees where we need them.

Operator

And we'll go next to William Greene with MS.

William J. Greene - Morgan Stanley, Research Division

I wanted to come back to just the operating day impact on the third quarter. Did that have a material negative impact on your margins? Are you able to sort of estimate fixed versus variable cost?

J. Wes Frye

Well, obviously, it has an effect. We don't discuss that in detail. I'll let you do that, but it does have an effect. Obviously, our results already include that effect, so it's still -- obviously, we are able to overcome that. I will say that if you look at the second quarter compared to the third quarter and you look at the sequential margin, which was up slightly, of about 0.3%, that depreciation was a fairly -- was -- almost explained all of that increase, and so that was where you would have a lot of the effect on the fixed cost. But that's also, as a result, the fact that we've spent $200 million through the first half of the year on CapEx, so the third quarter will have pretty much the full brunt of that full depreciation. So if you just look at our financials, depreciation as a percentage of revenue was up about 3 percentage points, 30 basis points from the second quarter to the third quarter. So in essence, that would be part of the effect of having 1 less day.

William J. Greene - Morgan Stanley, Research Division

Okay, that makes sense. The other question I had is, do you have any measurements for how to think about what a service center add means to either tonnage or revenue? I assume as you grow, the impact will be smaller sort of definitionally, but maybe the places that you're adding them, maybe it won't quite work out as simplistically as the simple arithmetic would suggest. Do you have any color around that, what that could add, the additional service center?

David S. Congdon

Most of our service center adds have been where we are adding a service center to an area where we are serving that area on a long pedal run from another service center. And so when we crank them up, we already have business, so it's not really a material effect on our operations or on our operating ratio to open a new service center. I'm not sure if that answers your question or not.

William J. Greene - Morgan Stanley, Research Division

So is it just to handle the growth, or is it actually sort of an efficiency metric that allows you to save on costs as well?

David S. Congdon

Actually, when we open these new centers, it puts us closer to the shippers in those cities and it allows for improved service to the shippers and an increased ability to grow our market share or add back market share from those areas.

Operator

And we'll go next to Scott Group with Wolfe Trahan.

Scott H. Group - Wolfe Trahan & Co.

So I wanted to ask, first, maybe about density and capacity. I missed the number in terms of shipments per service center, if you can give that. And maybe just give us a sense of how much capacity there is left? If you didn't add any additional capacity, how much room do you have to increase shipments per service center today? And then, in terms of capacity, how much total capacity that either service centers or total doors do you think you added this year, and what's the initial thought on what you'll add for next year?

David S. Congdon

We don't have any numbers right in front of us, how many doors exactly we added and what that capacity was. But the density -- I mean, the service center capacity can range from service centers having the capacity to increase business 50% to 70% to service centers that are at capacity and we are in the process of either building a new one or adding onto them. So our capacity, overall, varies across the whole network. How much more could we handle on our existing network, I'm not going to even try to answer that.

Scott H. Group - Wolfe Trahan & Co.

But do you think that there's room for density to continue to improve, that [indiscernible]?

David S. Congdon

There always is. We always have room for continued density. We have -- we probably have more capacity in our service center network than any LTL truck line out there because of all the investments we've made in growing capacity to sustain our future growth and the market share gains that we are realizing.

Scott H. Group - Wolfe Trahan & Co.

So I know you don't give margin guidance, but based on that comment, does that suggest that margins continue to improve or are there other things that may limit it at this point now that you're kind of at peak levels?

David S. Congdon

We are not at peak levels whatsoever, Scott. So I believe that we can continue to improve margins. We don't give guidance on how much those margin improvements can be. But density across the network and a yield environment that is positive and continuing to improve efficiencies, when you've got those 3 things working together, you can certainly improve your margins.

Scott H. Group - Wolfe Trahan & Co.

Okay. That's helpful. And just last thing, in terms of inflation, when you think about labor and maintenance in health care, do you have a sense on what overall inflation is costing you right now percentage-wise? And any initial thought on what that could look like for 2013?

J. Wes Frye

We haven't given any discussion on 2013. But certainly, some of -- much of our, or most of our inflation is self-imposed because about 50% of our cost is labor, and we gave a 3% increase in wages per hour and in salaries effective September 7. So as far as other inflation, we are subject to the same dollars inflation that everyone else is, that is in the cost of group health and in the cost of fuel, which is pretty much neutralized to a degree, but also in the cost of equipment. So it's hard to determine what that is. I think this year, probably, it's in also the 3% to 5% range. But -- so that's about what we're seeing.

Operator

And we'll go next to Todd Fowler with KeyBanc Capital Markets.

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

A question on the tonnage comments during the quarter, it sounded like that there was a slowdown in the middle of August. But did things come back to normal in September, it's a little bit different, a lot of the truckload carriers have talked about weakness until the end of September. And I know you've got difficult comps here into the fourth quarter, how does October feel from a seasonal standpoint, are you expecting normal seasonality in the fourth quarter, or are you expecting things to be a little bit seasonally weaker?

J. Wes Frye

No, I've already said in the comments that the projections or the guidance that we gave in terms of tonnage and tonnage per day in the fourth quarter was based upon what we were seeing in the trends for this year, which was slightly below what would be our normal 10-year average. The October number is pretty much in that range, it's below the 10-year average, but not materially so.

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

Okay, that helps. And I guess, are you seeing anything different then? I mean obviously, there's some weakness, or it's below seasonal patterns. But are you seeing any differences in shipping patterns? It looks like weight per shipment hasn't moved around too much. Is there anything that you're seeing within the networks as it relates to how your shippers are thinking about inventory levels or planning or anything like that, that you can comment on?

David S. Congdon

No, we are not seeing anything unusual, Todd.

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

Okay. And then, I guess the last one that I have, just thinking about costs going into next year. Obviously, a heavier CapEx this year on the real estate side. How should we think about depreciation? And as you've added real estate, has most of that started to depreciate when you've made the additions, or is there something that just stop functioning-- once the facility is actually completed and then put into operations? I mean, I guess, can you have a bit of an impact on incremental margins as some of the facilities come online before they get fully operational and up and running? It doesn't seem that we've had that problem in the past, but I'm just curious thinking about the real estate this year going into next year?

David S. Congdon

Yes, the real estate this year doesn't have a tremendous impact on incremental margin depreciation because, as you probably know, real estate, you don't depreciate the land and then you put a residual on the building costs. Then all your -- the net of what you depreciate is appreciated over 20 years. So most of the -- or the effect of our depreciation this year is actually on the additions and the replacements of our equipment, not necessarily -- not really the real estate. And as Earl was about to mention, also, a lot of our ownership of the equipment is replacing terminals that we currently lease, so that's an offset.

Earl E. Congdon

Another point to make is that if you just look at us over the last 3 years and the money that we have spent and invested in real estate over time, and we've kind of been in a bubble situation the last few years, we have delivered very strong incremental margins and operating ratio improvement throughout that entire period. So you can kind of see that the effect of adding real estate and even expanding the network is not creating any material negative impact on our performance.

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

Right. That makes sense. And just to clarify that, so it would seem to me that the land piece of what you're spending on real estate would be the bigger portion of the spend and the actual building piece that's going to get depreciated, plus the residual over a longer period, would be small relative to the overall dollar amount on the real estate purchases.

J. Wes Frye

It depends on where you buy the land.

Operator

And we'll go next to Chris Ceraso with Credit Suisse.

Allison M. Landry - Crédit Suisse AG, Research Division

This is actually Allison Landry in for Chris. I wanted to talk a little bit about density and you've mentioned that there's a significant amount of room to improve this in the network. But if I look at the pace of growth in shipments per terminal and revenues x fuel per service center, it looks like there was a slowdown in the year-over-year growth rate from the second quarter, so I wanted to gauge your comments on this. The metrics are still strong, but is there any readthrough here to the changes and possibly, the pace of the density improvements?

David S. Congdon

I would say, Allison, that it is -- we continued to be up against tough comparisons because our rate of growth and market share -- growth in our market share was really strong during the late 2010 and throughout 2011. So the comparisons have been tougher. And secondly, there's no doubt there's been an economic slowdown in the second half of this year primarily brought on by all the political uncertainty over the elections and all the dysfunction in Congress and everybody in this world waiting and seeing what's going to go on with our economy. So that's -- certainly, had a little impact on us as well. But as Wes pointed out, in the third quarter, we had tonnage growth in the 7% range, we are looking at tonnage growth and when you just -- then you get the 7% range -- 7.5% for the fourth quarter. So we don't anticipate much more slowing of our growth rate. And depending on what happens on November 7, when we see the results, we'll try to see, the economy will either remain in an uncertain state or I think it will turn positive and attitudes will change and we'll have a stronger uptick in the economy next year, is our opinion.

Allison M. Landry - Crédit Suisse AG, Research Division

Okay. That was very helpful. And then as a follow-up question. In terms of market share, do you have a sense of what you gained in the first half of 2012? I know that you had mentioned earlier that you weren't quite sure about the third quarter, but I was wondering if you did have any sense for the first half?

David S. Congdon

We don't normally discuss that particular statistic on these calls. So -- all I know is that it went up and I'd rather not try to answer that.

Operator

And we'll go next to Ben Hartford from Baird.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Wes, could you provide some perspective again -- I think you've given this in the past, but in terms of how quickly it generally takes for one of your new open service centers to arrive at a contribution margin that's either adequate or at corporate averages? Is there a rule of thumb, and can you talk about that progress here in the third quarter with these 4 additional centers?

J. Wes Frye

Well, it just depends on where that service center is; if it's an additional service center in a current location that we're just expanding, it probably takes at least 4 hours for it to be profitable. But there's no real rule of thumb, it really depends on where the service center is added.

David S. Congdon

And how much business it starts off with that -- normally, these are being opened where we are already serving the city on a long pedal run from other cities and if we -- if we have -- normally, we will have 3 or 4 drivers going into the city every day with freight, so they're starting off with the inbound freight, they're starting off with some level of outbound freight and it usually doesn't take very long. And given the size of our network, those 4 service centers will have no material impact on our operations or our operating ratio.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Okay, good. And then can you talk about value-added services, revenue in the third quarter, what the trends have been like against year-to-date? What the growth was like during the quarter? And what the outlook is in the fourth quarter as you go into '13 in terms of the traction on the value-added services side?

David S. Congdon

Ben, we're not giving the details of those numbers at this point.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Directionally, has there been a change relative to the cadence that you were experiencing in the first half of the year with that specific item, with value-added services particularly?

David S. Congdon

We still, having -- yes, I think probably, the results are similar.

Operator

[Operator Instructions] And we'll go next to Anthony Gallo from Wells Fargo.

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

I think this was the highest rate of operating income growth among all the transports, quarter to date. And I know it was against the tough comps. Just a couple of housekeeping items, Wes, the tax rate was lower, what was behind that?

J. Wes Frye

We don't want to discuss the detail but it was some discrete tax adjustments and credits that we had realized this year that we booked all in the third quarter. But that is -- we'll continue to get the benefit of some of that and it's the reason why our tax rate for the fourth quarter is lower than what I originally guided to.

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

The Q4 tax rate will come in a little bit as well?

J. Wes Frye

Yes. It's about 39.1%, as I mentioned, is the guidance on the tax rate for the fourth quarter.

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

Great. And then, I don't want to get too far ahead, but first quarter of 2013, it's against a very tough weather comparison given how easy the winter was this year. Can you just remind us operationally, what -- I know it's sort of a basic question but what winter does to you. I'm just trying to think about how 1Q '13 might shake out if we get a normal winter.

J. Wes Frye

You're right, we are not ready to discuss the first quarter. We'll see how do the winter bears out, but there was -- you're right, there was -- I think it's more of a macro situation than a weather situation of what the economy's going to look like in first quarter rather than weather.

Operator

And we'll go next to Justin Yagerman from Deutsche Bank.

Robert H. Salmon - Deutsche Bank AG, Research Division

It's Rob Salmon on for Justin. Could you talk a little bit, just circling back to some of the inflationary items that you had discussed earlier in the call, could you talk about some offsets on the productivity side that could reduce some of those headwinds looking out to next year? I realize you guys are sensitive in terms of talking about technologies and the like, but types of savings that you guys could realize that are currently being deployed across the fleet.

David S. Congdon

Yes. We've mentioned in previous calls that we had some onboard computers that we're working with and some other technologies. Actually, we don't really want to talk about anything specific on our technologies on this call.

Robert H. Salmon - Deutsche Bank AG, Research Division

But with regard to that 3% to 5% wage inflation that you had discussed, how much of that do you feel you can offset with some of these productivity initiatives that are currently being deployed?

David S. Congdon

I'm not sure you can relate one specific technology initiative to how we're going to offset our wage rate, we don't look at it that way.

Earl E. Congdon

They're being primarily financed with price increases.

Robert H. Salmon - Deutsche Bank AG, Research Division

Okay. And then, we should continue to expect some density tailwinds looking out to next year?

David S. Congdon

That's right. As you know, all of the things we do with technology and operational systems, and the way we manage the business are all geared toward making continuous incremental improvements in the ways that we operate the business. And we still think we have room for tweaking, you never finish that process. So we just expect to get -- I mean, we are making -- our yield improvement and our operational improvements, as our results indicate, are paying for that wage increase.

Robert H. Salmon - Deutsche Bank AG, Research Division

That's all fine. And if I shift gears to the tonnage growth that you guys have achieved in the quarter, if we think about the roughly 7% growth that you guys achieved on a per business day, how much of that was just growth of additional business from your existing customer base versus new customer wins that occurred as a result of the service center expansion, and just your performance in market?

Earl E. Congdon

We don't have any detail on that. But I would just characterize it by saying all of the above.

Operator

And we'll go next to David Campbell with Thompson, Davis & Company.

David P. Campbell - Thompson, Davis & Company

I just have 2 questions. One is, you may have answered this before, but the CapEx started for the year at $345 million to $355 million, is that net of gains on sales of equipment?

J. Wes Frye

No, that's gross, that does not include any net proceeds.

David P. Campbell - Thompson, Davis & Company

Okay. And second question is, more theoretical but most of my other questions have been asked, answered, and that is -- I mean, I'm not predicting a fuel price decrease next year, but well I'll ask this, I mean, in your opinion, what would happen if prices, say, were down 30%, fuel prices, you think they probably would be -- that reduction in fuel surcharge revenue pretty much offset by lower fuel costs, what do you think it would do to impact on demand?

David S. Congdon

Theoretical answer, it would be -- I think to ask your economist that. But from a rumor standpoint, obviously, lower fuel costs means they have more disposable income, I'm certainly not qualified to answer that question in detail.

J. Wes Frye

[indiscernible] Spend more money and it all trickles throughout the supply chain and freight shipping should be up.

Earl E. Congdon

Personally, I would drive to a vacation that is further than what I would have originally planned.

David P. Campbell - Thompson, Davis & Company

Right. Or flown. So but the fuel surcharge revenue decrease will be offset by fuel costs decrease, is pretty much...

David S. Congdon

That is not theoretical, that is reality, yes.

Operator

And we'll go next to Tom Albrecht with BB&T.

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

A couple of different things. Wes, do you have an estimate for depreciation for 2013 and/or Q4? And then on the business days, I want to make sure, so 62 this year versus 61?

J. Wes Frye

Well, we haven't given guidance on anything on 2013, and we haven't really set out our CapEx anyway. But depreciation on Q4, probably as a percent of revenue will be fairly similar to Q3, maybe a little bit higher simply because we've taken all of our CapEx for the year, and you have the seasonal downtick in the fourth quarter. And I'm thinking as a percent of revenue.

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

Right. And then, on the days? And then I have one other quick question.

J. Wes Frye

Yes. On the days, we're looking at 63 days for the Q4, compared to 62 last year.

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

Okay. And then David, I always enjoy when you give some of the other productivity statistics. Can you talk about the rate of change for platform pounds per hour, P&D, stops per hour, line haul laden and the P&D shipments per pounds?

David S. Congdon

Wes is digging. Actually, I think he has them right here on the screen.

J. Wes Frye

We did have on the laden load average, it was down 1.2%. The P&D, the stops per hour was up 0.2%, and platform pounds per hour were up 2%. So we have improvements in the P&D and platform a little bit of -- less than the laden load average.

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

And then what about P&D shipments per hour? Is that a little different stops?

David S. Congdon

Q4 was basically flat, down slightly. So we maintained a very strong -- our levels of productivity are very, very good, and we're able to continue to maintain those levels and make some slight improvements in what Wes just mentioned. And again, for line haul, those are not material for that decrease.

Operator

And we'll go next to Jack Waldo with Stephens Inc.

Jack Waldo - Stephens Inc., Research Division

I had one housekeeping item and then a longer-term question. Wes, do you know what the -- you mentioned there was a 3% wage increase effective September 7?

J. Wes Frye

Correct.

Jack Waldo - Stephens Inc., Research Division

Do you have what that was a year ago?

J. Wes Frye

It was about the same timeframe, I think it was the fifth, without looking, and it was around probably 2.5%.

Jack Waldo - Stephens Inc., Research Division

Okay. And then the longer-term question is, if we look at competitors, nationwide competitors that seem a little bit more mature in their business model, it seems that the number of terminals that they operate is somewhere in that kind of 280 to 300 range, on average. I was wondering if there's anything different about your model, or if there's anything different about the world we live in today that would impact where you think your terminal count will go over time to get the type of service that you guys want to offer 3, 5 -- over the long-term, I guess?

David S. Congdon

Well, historically, Jack, we have leaned toward having fewer terminals and running longer pedal runs. That's just been our general philosophy and being a nonunion company, that also allows us the flexibility where we are not constrained by 8-hour days, it allows us to stretch ourselves out a little bit. And we will maintain that philosophy of running long pedals before we invest in a service center, but I will tell you that as we've been talking over the last few years, we do have additional service centers -- a list of other places that we will open, we're in the process of refreshing that list. And we've been telling the Street, it's 35 to 40 more service centers, it's still around that number, probably in the 40, more around the 40 number, than it is 35. And we are effectively serving the entire United States with 100% full state coverage in the 48 states now with 219 service centers. But again, in order to further penetrate markets and gain more market share on the outbound markets from where we're serving our long pedals, it will require us to open up some more markets.

Earl E. Congdon

That also helps to -- keep us from outgrowing some of the existing service centers, say, a service center's got these long pedal runs, if we're about to outgrow it, when you open up a new service center on the pedal run areas and it takes the pressure off of these service centers. And you're just about at capacity.

Operator

And there are no further questions in the queue.

Earl E. Congdon

Okay, then. As always, thank you, all, for your participation today. We appreciate your questions and your support of Old Dominion. Feel free to give us a call later if you have any further questions. We look forward to speaking with you on the fourth quarter call. Good day.

Operator

This does conclude today's conference. Thank you, for your participation.

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