Saia, Inc.
Q2 2008 Earnings Call Transcript

Published:

  • Operator:
    Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the Saia Second Quarter 2008 Earnings 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). Thank you. Ms. McKenzie, you may begin your conference.
  • Renee McKenzie:
    Thank you Ashley. Good morning. Welcome to SAIA's second t quarter 2008 earnings call. Hosting our call this morning are Rick O'Dell, our 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 Renee. SAIA’s second quarter revenue reached 276 million which was an increase of 9% from prior year. Operating income was 10.9 million with net income of $6.2 million. After clarity all comparisons are from continuing operations and our quarter results compared to the prior year quarter. A few key points which include our operating ratio was 96.1 versus 94.2. LTL tonnage was down 1.9% with total tonnage down 0.7%. Our LTL shipments decreased by 2.6%, while LTL weight per shipment increased by 0.7%. LTL yield was up 10.8% primarily due to the impact of higher fuel surcharges and the longer length of haul. SAIA’s second quarter margins declined compared to the prior year quarter principally due to weak shipping environment that saw expenses impacted by higher fuel cost and pricing pressure. We continue to address the challenging market through SAIA’s specific initiative which includes implementing new processes rolled out by our industrial engineering team, moving new technology into production and the field while increasing our marketing efforts and achieving sustained growth in our synergy revenue link. Our synergy revenue from the Clark Brothers acquisition, which was completed four years ago, continues to grow and now exceeds $149 million on an annualized run rate, and just over a year after they were integrated, our synergy revenue from the connection and Madison freight acquisitions is now an annualized run rate of approximately $94 million. We improved our operating ratio by three points compared to the seasonally weak first quarter, and this improvement was primarily due to traction regain in our cost initiative, particularly in our dock operation. Our line haul routing and optimization project that we’ve discussed in the past is now complete and really beginning the yield improvement. Line haul optimization itself is a process and not a project with an end we will require our knowledge and our experience in this area to ensure that as we grow tonnage our routings are constantly reoptimized. Our partnership with Georgia Tech is now moving into the next phase which is a work together develop a true dynamic planning tool and we’re certainly excited bout that. The rollout of our wireless cross-dock system now cover 75% of our cross-dock moves and this project was completed in May and this is up from 30% last year. Some other successes that we had in January, we completed enhancement of our weight inspection program with an initial target of $5 million of additional revenue after a year, and this effort is meeting our expectations. In mid March we achieved a target of $3 million annualize reduction in our purchase transportation expense, and through consistent training and focus on safety we also saw our performance improve and we’re pleased to see reduction in accident severity and some continued improvement in our safety. We’re making progress in addressing inadequate fuel surcharges and eliminating cash and our industry leading extreme guarantee product is still unmatched in the industry, it continues to be a part of our success. I am also pleased to announce that during the quarter we launched the unique year long corporate campaign SAIA on the road with Susan G. Komen for the cure. The Susan G. Komen foundations is one of the most well-known and respected charitable groups in the fight against Breast Cancer. We proud to partner with them in this unique venture. On May 14th we unveiled a 53 foot trailer that we’ve dedicated at this cause for the year. The trailer features are work designed to raise awareness and the need to increase research, to find the cure, a campaign is not only informative but it also involved providing common foundation with additional dollars that they certainly need. Our Pink Truck will travel all 34 states beside serve direct to make sure that we get the messages out to as many people as possible. You can join them and help by going to our website and click for the cure and for additional information to track our trucks progress and to learn more about the campaign itself we invite to visit SAIA’s webpage and help us make it different. While I am with the quarter’s improvement there is a still a lot of work to be done. I believe SAIA is well positioned to take advantage of an improving economy and any future industry consolidations that may occur. In the meantime, our 8400 dedicated employees remain focused on costing issues to improve our profit while providing unparallel customer satisfaction as defined by our six customer service indicators. Now I would like to have Jim Darby review our second quarter results, Jim.
  • James Darby:
    Thanks Rick and good morning everyone. For clarity all comments reflect results from continuing operations. For the second quarter 2008 earnings per share was $0.46 compared to $0.51 per share last year. The results this quarter include recognition as an alternative fuel tax credit related to prior period of $0.10 per share. For the quarter revenues were 276.1 million with operating income of 10.9 million. Fuel prices continue to rise during the second quarter adding 57% higher than a year ago. During the quarter fuel cost rose in average of 6% for month. However, unlike the first quarter where the rapid rise in fuel price is resulted in net additional expense. The cost per gallon increases were offset by the increase in fuel surcharge during the second quarter. Accident expense was $2 million lower than prior year due to reduced severity. The company continues to show favorable accident frequency trend reflecting our ongoing incidents on safety and driver training. Due to the decline in a share price during the second the company had an equity based compensation benefit of 630,000 or $0.03 per share versus prior year expense of 790,000 or $0.03 per share. For future modeling with about of 160,000 shares in its plan each dollar movement inside share price results in a 160,000 in expense or benefit. Depreciation and amortization were in 10.4 million during the quarter versus prior year of 9.8 million. Our effective tax rate from continuing operations for the quarter was 20.4%. For modeling purposes we project our consolidated effective tax rate to be around 38%. For the full year of 2008 excluding the impact of the alternative fuel tax credit related to prior period. Year-to-date revenues were 525.4 million compared to the 484.6 million in the prior. Operating income was 12.9 million with net income up5.4 million, compared to operating income of 21.6 million with net income of 10.4 million in the prior year period. Earrings per share from continuing operation were $0.40 compared to the $0.72 in the prior year. At June 30, 2008 debt was a 160 million, net the company at 5.6 million cash balance at quarter end, net debt to total capital was 42.8%. Our consolidated net capital expenditures for the first six months of 2008 were 19.6 million compared to the 28.5 million in the prior year period from continuing operations. Anticipated capital expenditures for the year are approximately 35 million. A quick comment on discontinued operations. During the quarter the company recorded net expenses of 875,000 or $0.06 per share as discontinued operations for liability from indemnification obligation related to the 2006 sales of a former subsidiary. Now I would like to turn call back to Rick.
  • Rick O'Dell:
    Thank you, Jim. Before I close, I would like to make some statements regarding the second half of 2008, in my view the economy remains challenge by commodity prices, weak housing and type credit markets, and we should also note that for the past two years our second quarter has been the strongest quarter of the year as a result of the lack of seasonal upturn during that second half, and while I, while I believe caution is appropriate due to the external environment I am encouraged by some of SAIA’s trends and certainly our market position. We’re benefiting from several key engineered cost initiative and also believe that our synergy will continue and will achieve density benefits and improved margins in those newest regions overtime. While certainly in the third quarter I am also encouraged by month to date tonnage and a weight for shipments trends in July. So again, while there is still a lot work to be done, we’re progressing in the right direction and achieving some improved results. Now I would like to open up it for questions.
  • Operator:
    (Operator Instruction) your first question comes from David Ross for Stifel Nicolaus.
  • David Ross:
    Can you hear me?
  • Rick O’Dell:
    Yeah we can, good morning David.
  • David Ross:
    Good morning guys. First I just wanted to ask a little bit about the tonnage trends in the second quarter if you could take it through kind of what April, May, June look like and also in the July you tended that kind of trends held up, but if you could just put the number around that would be great?
  • Jim Darby:
    Sure. I will be glad to cover to that, in April as reported year-over-year tonnage trends for LTL we were down 2.3% from a year ago in April, we were down 2.2% in May, we were down 1.1% in June, and for the quarter we down 1.9%. I would point out though if you would look to adjust for the Good Friday affect in April that number really get blown up to minus 4.6%, and for the quarter it would be minus 2.7, and David that of course related to the fact that Good Friday was not in April this year where it was a year ago.
  • David Ross:
    Yes of course, and then it also was the connection company acquisition last year you launch the major customer and I want to say that was in the second quarter, was that in first quarter?
  • Jim Darby:
    No, it was – you’re right, it’s in the second quarter and it was towards the end in the second quarter primarily around June.
  • David Ross:
    Okay.
  • Jim Darby:
    And then month-to-date, I think you asked about month-to-date off. So month-to-date for July we’re showing that we’re up 1.7% in LTL tonnage.
  • David Ross:
    Okay. So that’s probably, totally the effective lapping, the customer loss I would assume?
  • Jim Darby:
    Is that a little bit from industry consolidation and I would say also as Rick mentioned the synergy revenue continues to be positive for us as we go forward.
  • David Ross:
    So did you see this in amount of Jevic business coming you way in the quarter, so do you probably knew that company better than anyone else?
  • Rick O’Dell:
    I think we had favorable impact from that, from some of those business segment we had some overlapping customers.
  • David Ross:
    Okay. And then you guys talk I guess a little bit about on the Georgia Tech initiative with the dynamic planing model for line haul, you said you moved in the second phase, what does that mean and when should we start to see some intangible benefits from that?
  • Rick O'Dell:
    Yes sure, we’re really in the design phase now of a true dynamic planning that looks at the tonnage that’s actually in the system and it considers both bad as well as your historical pattern by days or week, it provides you some additional real time data that should us to look for optimization opportunities instead of looking at averages over a weekly period and again its in design phase at this point in time. So the earliest benefit from that would be as we go into next year, but some of the analytical data indicates there are some pretty significant opportunities there.
  • David Ross:
    And you talked about your 8400 employees, what was that employee count a year ago in second quarter '07? Did you kept head count roughly flat or is that up slightly down slightly?
  • Jim Darby:
    We don’t have that in front of us we can certainly get back to you of that offline.
  • David Ross:
    Okay. That’s all I have.
  • Rick O’Dell:
    I say it’s pretty close to flat.
  • David Ross:
    Okay thank you very much.
  • Rick O'Dell:
    Cure.
  • Operator:
    Your next question will come from Arthur Hatfield with Morgan Keegan.
  • Arthur Hatfield:
    Hey Rick, I actually got on the call late and you just basically answered it from David but did you see anything out from (Allwyn) or are you seeing any kind of volume shifts in your direction over shipper concerns about any particular carriers?
  • Rick O’Dell:
    Yeah, I mean, I think in anytime you had a couple of people go out which we hadn’t seen of late, we obviously spend a difficult environment, I think there is -- you get a flight to quality as that comes in and I guess secondarily to it’s some of those guys, some of the second tier guys that they may have more trouble in the current environment, it tend to be more price player. So it provides an opportunity for some pricing stabilization.
  • Arthur Hatfield:
    And you got you seen that kind of reverse itself where you have not seen as much aggressive pricing from some of this lower Tier guys?
  • Jim Darby:
    Yeah, I guess, what I would say is that I think there some science that the pricing environment stabilized. Negotiations certainly remain difficult because of the economic environment, we are having some success addressing inadequate fuel search charge mechanisms and certainly tax as well, and I think these higher price and the couple failures also have kind of heightened the need for or the awareness of the need for some raised stability. And then, kind of obviously, what we are seeing to is with some of our improving tonnage trends, some of the increase in fuel cost pressure you know, quite frankly, we’re increasingly willing to put an adequate price business at risk. In spite of this the economic environment those are the things that you just have to do. So, again why I would say that the science are positive, the other thing I would kind of caution on we’re probably at a lower yield coming out of the core than we where going in, but there seem to be some reverse utilization particular in the back half of the quarter.
  • Arthur Hatfield:
    Okay what's your feel Cap situation?
  • Rick O’Dell:
    You know we have some customers that having either Caps or inadequate fuel surcharges I mean, we look at by based on total yield and how that’s producing, I would say people that have really inadequate fuel surcharges is probably less than 10% of our customers and we are constantly working that list of reevaluating those. And when I say its adequate meaning, may be it was adequate at different price, but with the run up you’ve got to go back and negotiate, but something on the table and it just takes sometime.
  • Arthur Hatfield:
    And are you seeing a lot of push back from customers on that or they understand it what the needs of the carriers are?
  • Rick O’Dell:
    You know its mix, I guess, what I would tell is while everybody is understating you know, it's a difficult environment and maybe I would call sympathetic right?
  • Arthur Hatfield:
    Right.
  • Rick O’Dell:
    But, its still, those are the very difficult negotiations and the way some people are you just have to tell them we’re willing to walk away and we’re going to send you a cancellation and then you find out whether he was that serious about or they need to take the increase or you have to walk in them, and we are doing some of that, I mean, obviously we are taking a very firm stands with these guys.
  • Arthur Hatfield:
    Well, that’s very fair. And then finally you may have mentioned this, but did you have a positive contribution from your equity comp accruals in the quarter?
  • Jim Darby:
    Yes we did. The equity of todays comp Arthur was favorable with a benefit in this year second quarter of 630,000 and a $0.3 a share.
  • Arthur Hatfield:
    Okay.
  • Jim Darby:
    And then a year ago it was an expense of 790,000 or $0.3 a share.
  • Arthur Hatfield:
    Okay. So, on the benefit just this particular quarter was just $0.3?
  • Jim Darby:
    Yes.
  • Arthur Hatfield:
    Okay, okay, thank you. Thanks for your time.
  • Jim Darby:
    Sure, thanks Arthur.
  • Operator:
    Your next question comes from Thom Albrecht with Stephens Inc.
  • Thom Albrecht:
    Jim, congratulations on the great quarter and that was been a long term to come in and hopefully there is a lot more. Couple of different question first off Jim, what’s your average length of haul in the quarter?
  • Jim Darby:
    Average length of haul Thom was 678 and its up 9% from a year ago, and quarter-over-quarter its up 2%.
  • Thom Albrecht:
    Do you have that actual year ago I think by now primarily less?
  • Jim Darby:
    Sure, I have got it; I am looking at 622 for a year ago.
  • Thom Albrecht:
    Okay. And then, Rick I know you have indicated in the last few years second half profitability and I think you’re probably especially pointing to the third quarter has been below your high water mark in the second quarter, but that’s also been a period in which your economy went down, and a lot of carriers in a more normal environment are able to see earnings at or little bit above in the third quarter, it shouldn’t things remain stable, what would the opportunity that you could perhaps challenge the second quarter that you just had, and I am really kind of viewing the second quarter is about $0.36?
  • Rick O'Dell:
    I guess I am, I guess I did think obviously we don’t provide guidance first of all which is certainly you are aware, I did think maybe there is kind of a laundry list of things that should be considered both positively and maybe cautionary.
  • Thom Albrecht:
    Thanks.
  • Rick O'Dell:
    Let me go through maybe some of those and I just think some caution is appropriate due to the economic uncertainty, I think we’re coming out of the quarter with a yield that set a lower run rate then we went in. There is obviously some inflationary pressures for fuel and other commodities as we said and I don’t know what the economy has been – we really haven’t seen the seasonal upturn in the last two years, I know we want to talk about last year and clearly that was a downturn last year. So I don’t know, I am not sure we, any of us know what normal seasonality is anymore.
  • Thom Albrecht:
    Right.
  • Rick O'Dell:
    But you know we just have an tick up like historically it did when retial I think, in store retail was probably such a big part of the seasonality. You know, Jim commented earlier on the potential impact of the stock price on equity comp and obviously when you take a look at that I mean, because and that was $0.3 this year. So the question is where your $0.36 is really $0.33 or not right? On a run rate basis, and you know we would expect that to reverse itself obviously the stock clarity run up pretty substantially from where it was at the end of the quarter. And I think its, that while – on the other side of that I think while caution is appropriate and we’re seeing some better tonnage trends in July. I think we’re kind of early in the process, but I believe there are signs of the more stable pricing environment, I would expect that to continue to execute well, you know, on the cost side and also you can look at and say that TL capacity is clearly tightening and there is some lead over of heavy LTL coming back to us that maybe gone to truckload on the positive side. So you know volume can change quickly if there is a competitive failure or some other industry consolidation type event. So, I mean, I think there is reason to be both cautious about some of the external factors and also certainly optimistic on a number of items and I guess you know, the point to consider I guess is, at this point I think its and we don’t want to get carried away too much in either direction.
  • Thom Albrecht:
    And I could appreciate that. Let me just ask a little bit more any particular line items within your income statement that would maybe be more on the cautious side for example, insurance claims improved about 2 million bucks year-over-year, there was always a little bit of role of the dice there but buying another action and as if unreasonable to assume that maybe half of that improvement would be sustainable.
  • Rick O'Dell:
    I think that’s a fair to look at it. It was -- you recall second quarter a year ago severity report and so that contributed to big change year-over-year. So I think you are about right. We would have expected to be about -- it was about a million dollars better than we would have expected.
  • Jim Darby:
    Yeah I think, what -- obviously Tom that’s evolve inline with high deductible at $2 million, so you know, on average that’s probably right and you are going to have some quarters of a better and peer out that you are going to have some that are worsen. I guess, if you look at loan average we should be due for several good quarters, but as we experience last year there is not guaranties with that. And we have good profit, this is from a safety standpoint, I am confident of our ability to execute there overtime. But as you commented that’s kind of a risker for a volatility standpoint.
  • Thom Albrecht:
    Sure. And then Jim on the equity based compensation is the stock price average weekly, monthly I mean can you just give a little extra insight in there, because if we want to stat up sort of an average for this quarter, something that would be helpful, some thoughts?
  • Jim Darby:
    When we made internally, we measure the change every month, but its from really the beginning of the quarter to the end of the quarter. And the end of the quarter number I believe was $10.90 which was unusually low and that’s why we ended up with the favorable the benefits in the quarter. I would expect that would go up as we move forward.
  • Thom Albrecht:
    I can look it up. But what was the actual end of quarter like booking or something?
  • Jim Darby:
    10.92.
  • Thom Albrecht:
    Okay, I am sorry.
  • Jim Darby:
    Yeah.
  • Thom Albrecht:
    So that was at the end of the quarter.
  • Rick O'Dell:
    End of quarter. I am not sure about end of first quarter.
  • Thom Albrecht:
    Okay.
  • Rick O'Dell:
    But I would expect since we got about the benefit that we got it was around, a bit around 15.
  • Jim Darby:
    Rick, I think we went about 14 or 15 to 11 and we expect to go from 11 to somewhere higher, right.
  • Thom Albrecht:
    Sure. And then how much of the quarter did you make during the month of June, because I think you were still cautious much of the quarter, I detect a little bit of a smile on you face in June, but this -- I mean you give us a real smile this morning. So I am just curious how big June was?
  • Rick O'Dell:
    I mean actually you know, April had 22 work days was a good month for us as well. June was good. Even May was solid. So I don’t think there was anything in one month that was out of line.
  • Thom Albrecht:
    Okay. And maybe you are just has in it that the first part of the quarter that indicates coming off a rough first quarter, because I think a lot of folks may have read you that way as well?
  • Rick O'Dell:
    You know, April wasn’t close when we did the call. Again we had solid cost execution through the quarter and you see obviously, you have some seasonal pick up and for the kind of just per day you know, it gets pretty solid and May and June, you get your lineal operation and you are doc productivity you know, in the areas which you would like to be and you get some good revenue prior to it. And that’s when you really see the results. And Jim as you noted and Jim commented you know, we had some improved safety. So there is number of things kind of came together there. The fuel surcharge mechanism obviously, kind of came back in the line and you could see that it appears to work properly over a period of time where we are certainly challenged by that in the first quarter as well.
  • Thom Albrecht:
    And then my last question would be you did alluded to the truck load phenomena, was there a particular statics maybe above 5000 or 7500 pounds or even 10,000 that really validates that you are perhaps benefiting from the truck load shrinkage?
  • Rick O'Dell:
    We call truckload tonnage shipments over 10,000 pounds and what was that up, Jim?
  • Jim Darby:
    5.6% year-over-year.
  • Rick O'Dell:
    I was up 5.6% year-over-year.
  • Thom Albrecht:
    So that would be the like the number of shipments in the amount of pounds?
  • Jim Darby:
    That would be the TL, that would the be tonnage.
  • Rick O'Dell:
    That’s the tonnage, but our wait for shipment didn’t really changed.
  • Thom Albrecht:
    Yeah.
  • Rick O'Dell:
    It was pretty close, on the TL side. It was actually pretty close to what those are. As you know, more shipments and they have categories and sometimes as you know that foretells or something as well, all right.
  • Thom Albrecht:
    Yeah, sure.
  • Rick O'Dell:
    So some of that type of business as well.
  • Thom Albrecht:
    Okay. Well guys, keep up the good work. Thanks for the additional commentary.
  • Rick O'Dell:
    Sure. Thanks Thom.
  • Operator:
    Your next question will come from John Barnes with BB&T Capital.
  • John Barnes:
    Hey good morning guys.
  • Rick O'Dell:
    Good morning John.
  • Jim Darby:
    Good morning John.
  • John Barnes:
    Just a follow up on that line of thought in terms of cost. You had some areas where you had nice trend lines like insurance. Can you give us an idea of the other couple of line items where you are really taking a hard stance on cost? And can you talk through labor a little bit because that was clearly much better than I was anticipating? Just talk about what you are doing on the labor side. Do you have some additional cuts you can make there? If this volumes kind of stay where they are, do you think you have kind of got them where they need to be?
  • Rick O'Dell:
    Yeah. Well obviously, we have a nice fixed operating ratio, so they are not where we need it to be. We obviously -- I think where we are John is there is always opportunities for improvement and we have both project as well as our management team working everyday on manpower planning and make sure that our staffing is aligned with our volume so that we can both meet our service requirements for the customer as well as meet our cost opportunities. I would tell you that some of the technology that we have rolled out with where we are, I think there are some good opportunities and there is a foundation there to make some improvement particularly as the density builds. And like I said, there is always some opportunities to tweak. I don’t think there is areas where we just over-staff where you could make significant adjustments and make some headway there. It's more -- we need to continue to use technology and engineer process improvements so that we can achieve both benefits from a cost standpoint as well as maintain a very high level of service because that’s the other key factor when you get it through a tough time like this. It's kind of easy to cut cost and just let your service and things deteriorate but particularly in a challenging market with a lot of good players out there, still fighting over the freight you got to make sure you got that balance there. So we will take the project management techniques that we use in these projects and start a new list of projects and work on those and those are obviously -- they are always in different phases. You have got some that are under development and some that are in the roll out. We targeted the ones that were we thought had the biggest impact and could be implemented as quickly as possible first. I mean if we hadn't done, we wouldn't be very smart. So those are kind of in-process and then you take that foundation of the Dock technology and the other things that we have that we are looking at including optimizing the P&D network, which is little more complicated and more widespread to go to all of those terminals and you are beginning to phase through those from an improvement opportunity standpoint.
  • John Barnes:
    All right, very good. And then again a follow up on some of the closures that you have seen, you have got a big player redefining the regional footprint, you have got a couple of failures. Just kind of curious, if you didn’t see really pull-through, if you didn’t see a lot of that volume, it sounded like you saw a little bit but you didn’t see a lot. Are you beginning to see more of it come on online now this potential captured volume from some of these failures?
  • Rick O'Dell:
    I guess maybe a couple of other people pointed out. When you look at seasonality, I don’t know -- I am not sure what normal seasonality is after last couple of years we have and then obviously we have had some company unique things going on there particularly with the connection issues that we had with some turnover of business there. We are beginning to overlap that. I think it's a little more difficult to ascertain trends and as we move forward from here as we are overlapping really a lot of the connection integration issues that we have in the future quarters would really that us whether we are -- how we are doing or not in terms of market share, benefiting from those opportunities there. So I would tell you it's probably a little less certain because there is some noise in the history in some of our comparisons there. I would say probably two things there. I mean from a volume environment, it feels a little bit better and I think from a pricing stabilization you heard my comments there, I think we are early in that but we are certainly committed to take in a firm stance and progressing forward. And then we tend to see that generally when things kind of turnaround and obviously on the truckload market I think it’s more a supply demand balance as opposed to things turning around. But generally you see that that has an upturn first. So it does feel a little better.
  • John Barnes:
    It does feel a little better. Okay, all right, very good. Well listen guys, nice quarter. Congratulations and I appreciate your time today.
  • Rick O'Dell:
    All right, thanks Steve.
  • Operator:
    Your next question will come from Ed Wolfe with Wolfe Research.
  • Ed Wolfe:
    Thanks. Hi Rick, hey Jim.
  • Rick O'Dell:
    Good morning Ed.
  • Jim Darby:
    Good morning Ed.
  • Ed Wolfe:
    Just a followup on the last comment, things feeling a bit better. Do you think that’s been driven more on the supply side more on the demand side, it’s hard to tell. What's your thought there?
  • Rick O'Dell:
    I think it’s hard to tell, there is probably some flight to quality and some consolidation benefits there as well I would think. I mean to me when we talk to customers, you don’t have a sense that’s a lot better out there with customers. So I would tell you that.
  • Ed Wolfe:
    Sounds more like the supply side.
  • Rick O'Dell:
    I think there is some.
  • Ed Wolfe:
    Okay. I am sorry, if you said this, I didn’t quite catch it. What was the exact benefit in the second quarter from the incentive comp and then can you talk about what that formula is, so that we can figure out what the drag becomes going forward, so that we can understand this normally?
  • Jim Darby:
    Sure Ed. In second quarter and its really driven by our non-qualified plan and the changes in that. And benefiting the second quarter when the stock price went down during the quarter was 630,000 or $0.03 per share. And a year ago it was the other way, it was an expense of 790,000 or $0.03 per share the other way was an expense last year, a benefit this year. And the way that would work is for every dollar movement in the stock price, it's about a 160,000 in expense of benefit. And we closed the quarter at a fairly low stock price $10.90.
  • Ed Wolfe:
    We can do the math. That’s great, that’s very helpful. Thank you.
  • Jim Darby:
    Sure.
  • Ed Wolfe:
    Second, just a little education would be helpful if you could. On the claims and insurance line, because it’s so volatile, can you talk a little bit about what the key components that make up a best that expense line?
  • Jim Darby:
    Well, if you make pieces they are really BIPD and cargo and so the real benefit the $2 million swing was primarily due to the benefit in BIPD from severity year-over-year.
  • Ed Wolfe:
    BIPD stands for what?
  • Jim Darby:
    I am sorry, BIPD stands for Bottling, Injury and Property Damages, it would be accident expense Ed.
  • Rick O'Dell:
    Its insurance expense you know, are deductible for accident expense and cargo plains.
  • Ed Wolfe:
    Okay. And the 2 million swing was mostly for…?
  • Jim Darby:
    For BIPD.
  • Rick O'Dell:
    Accident expense.
  • Ed Wolfe:
    Okay. Thanks for dummying it Dell. And auto premiums coming to this whole thing?
  • Jim Darby:
    We renew once a year and our premiums were pretty -- well they were slightly down year-over-year. And we renew every year on March 1st.
  • Ed Wolfe:
    And roughly what percentage, as you look at 7.5 million in the quarter what percentage of that is premium related?
  • Rick O'Dell:
    Well there is no volatility and it’s small, in fact it’s a smaller segment.
  • Jim Darby:
    Yeah, it’s about a $1 million.
  • Jim Darby:
    Correct Dan, it’s about a $1 million.
  • Rick O'Dell:
    Yeah $1 million a quarter.
  • Ed Wolfe:
    And what's your deductible?
  • Jim Darby:
    2 million for first incident, and that’s been consistent for several years.
  • Ed Wolfe:
    That didn’t change in March.
  • Jim Darby:
    No that didn’t change.
  • Ed Wolfe:
    Okay, thanks. That’s helpful. What do you think, if you look at and said over the next 6 to 12 months our inflationary pressures, lets take fuel off, I know you can't, but lets pretend fuel is just. What do you think the rest of cost when you look at equipment and things like insurance and you know, labor and so forth what do you think that the right 12 month kind of inflation rate is net of fuel?
  • Jim Darby:
    Well that’s difficult to say. I would tell you like in our fuel line and operating expense I mean we have seen some higher cost in there for vehicle parts and of by maintenance and we are driving more miles, so those dollars are up. But that’s a difficult question.
  • Ed Wolfe:
    What are some other things you are seeing more expense I am going to guess purchase transportation?
  • Rick O’Dell:
    Yeah purchase transportation because some of that is driven by the fuel surcharge that we’re getting charge for BT. As the fuel cost goes up we see that go up, vehicle parts and outside maintenance as I mentioned are up as we are driving more mile as our length of haul continues to go up and year-over-year that’s about an increase of about 1.6 million, and then I guess for – the other spending that we are seeing that’s economically related, non-inflation related, but its economically related is that are bad debt expense, is up about 800,000 in the second quarter this year versus a year ago, because our receivables are going up, our payments are slowing down for our receivables and we’re seeing more bankruptcies than normal among our customers.
  • Jim Darby:
    I have seen that across the board absolutely.
  • Ed Wolfe:
    So it sounds like insurance is up positive year-over-year some of these other things you know, some inflation, how about equipment cost, have you started or do you have any engines at this point since’07?
  • Jim Darby:
    It’s a minor because we pulled back on some of our revenue equipment purchases, and I really haven’t seen close for the next year yet.
  • Ed Wolfe:
    Yeah.
  • Jim Darby:
    I think it’s going up and I haven’t really -- I haven’t seen those cost yet.
  • Rick O’Dell:
    As you know, the biggest issue for us are going to be on the weight side and really, that will be effective on December the 1st and obviously we do want to tell our employees about that before we want to talk about it publicly. So we participate in surveys and we will see where we need to go with that and we should be in a position to talk about that in the latter call.
  • Ed Wolfe:
    The teams has just signed 3.9 all in for you give or take I am guessing is going to be that different from that, is that fair to say?
  • Jim Darby:
    We are non-union company, but this is benchmark out there, I don’t know.
  • Ed Wolfe:
    You don’t know.
  • Jim Darby:
    Yeah, and then you got to look at the all end cost with benefits in those type of things as well.
  • Ed Wolfe:
    Yeah, when we look seasonality for se, it’s been very choppy lately but should third quarter be your best quarter seasonally vise normally?
  • Jim Darby:
    Yeah, I mean, we don’t provide guidance and I think it would inappropriate for us to make a comment on that, in the last couple of years certainly you’ve been in uncertain environment in the last couple of years and I don’t know what normal seasonality is right now to be honest with you.
  • Ed Wolfe:
    I want to say second and third are generally stronger than first and fourth?
  • Jim Darby:
    Yes.
  • Rick O’Dell:
    Yes.
  • Jim Darby:
    Yeah, I think that starts pretty easy, you know, whether second is being a best or third I think dependent upon how that seasonality develops.
  • Ed Wolfe:
    That’s fair enough.
  • Jim Darby:
    In terms of the best opportunity. It used to be where – like for us it used to be that the second was, it used to be clearly that the third was the best and as rate increases have gone to moved up then the second became the best and then you combined the earlier rate increases with the lack of development on volume standpoint, you know, we have that for a couple years now. So – and I think there is an opportunity for the third quarter to maybe still be there like you said one of those too.
  • Ed Wolfe:
    Pricing, can you talk a little bit what are you seeing on underlying pricing trends in terms of – are there parts of your territory that feel better or worse, are there longer haul versus regional that feel better or worse? And if had to look at fuel pricing for '09 and budgeting here do you think of it in terms of euro 1% minus one, how do you think about, what’s going to full their bottom line with low prices?
  • Rick O’Dell:
    Yeah, I think its too early to talk about ‘09 regard, we got to have to look and see how the supply demand balances through the second half of the year and what you are looking at going into that, I am not sure – we already made cautionary statements about what the outlook is as we all know too and that can change on the supply side as well with some possible activities there. So I just think its too early to speculate on that.
  • Ed Wolfe:
    What were your cautionary statements, what do you mean by that?
  • Rick O’Dell:
    We just said it the uncertain economic outlook, when you got some people there say its going to turnaround and then you got others that have a clear view that it may get worse so.
  • Ed Wolfe:
    But with all…
  • Rick O'Dell:
    And you are asking me to predict the economy, maybe talk to somebody else about that. I think (multiple speakers). If you know what the economy and the volume and supply/demand looks like, you can predict pricing.
  • Ed Wolfe:
    No, I am not asking about the economy. I am asking to predict pricing. Given all the different mixes and changes in length of haul and fuel and all of that, it's just real hard to know, what do you believe that the pricing, revenue per hundred weights up 10, 11%, but what do you think actual underlying base pricing is doing year-over-year if you had to look apples-to-apples?
  • Jim Darby:
    We are probably flat.
  • Ed Wolfe:
    And if you had to say, hey, six months from now that flat, I got to make a bet to fill my model. Would you say flat a place to go?
  • Rick O'Dell:
    When you got contract negotiations is all they have I presume there won't be a generate increase till we get in the next year or so.
  • Ed Wolfe:
    That's as good a guess any at this point?
  • Rick O'Dell:
    Yeah, and as I indicated I think the negotiations are obviously difficult and again you are probably getting everybody has an individual circumstance in terms of what their base rate and their fuel surcharge is.
  • Jim Darby:
    I guess it's clearly a tough market, again as a tough economy and the customers aren't doing very well and you get big increase at the same time. We have got always inflationary pressures and you just have to look at the accounts here and operate on what needs to be done.
  • Ed Wolfe:
    You mentioned there was a fuel -- a small year-over-year fuel benefit in the quarter? How do we think about that? That means that surcharges came in more than the additional cost including in the transportation line relative to what happened a year ago?
  • Rick O'Dell:
    We didn’t say that was a benefit in the quarter Ed, what we said was the mechanism work better than it did in the first quarter when obviously there was a significant run up and there was some lag in the fuel surcharge adjustment.
  • Ed Wolfe:
    So should we mean by that that there was more compliance with the surcharge in this quarter or didn’t run up as much?
  • Jim Darby:
    It was really in the first quarter was simply timing of the rapid rise in the fuel went up faster than we adjust our mechanism because we do it on about a week-and-a-half lag and so that caught us and cost us net expense of about 1.3 million in the first quarter and I kind of average that, the fuel surcharge did it job in the second quarter and offset the rising fuel cost. It was an issue that we commented on at first quarter because of the timing of the rise in the fuel we are not being completely offset by the fuel surcharge.
  • Ed Wolfe:
    So again though fuel might have been up more in this quarter, the way it went up was more efficient for you?
  • Jim Darby:
    Yes. That's the way to say it.
  • Ed Wolfe:
    Okay.
  • Rick O'Dell:
    I think the issue there is the fuel surcharge mechanism works over time. The timing of the way it ran up at the end of the first quarter was the surcharge was still playing some catch up.
  • Ed Wolfe:
    Last one, Rick in the last couple of quarters when I have asked you said you are going to be very focused on operations and not acquisitions. Net-net you have starting to get your footing on the operation side. Do you start looking at acquisitions again, are there opportunities, how do we think about that?
  • Rick O'Dell:
    I think there are opportunities that we are going to pass at this point in time and focus on these opportunities to improve our margins through these engineered cost initiatives, build intensity of our network and our marketing opportunities.
  • Ed Wolfe:
    Thank you very much for your time. I appreciate it.
  • Rick O'Dell:
    Sure.
  • Jim Darby:
    Thanks Ed.
  • Operator:
    Your next question will come from Jason (Inaudible) with Dahlman Rose.
  • Jason:
    Jim, how are you guys today?
  • Jim Darby:
    Good morning Jason.
  • Rick O'Dell:
    Good morning Jason.
  • Jason:
    Don’t worry, I am not going to ask you to predict the economy. I wonder if you can give me the lottery numbers that will be much appreciated.
  • Rick O'Dell:
    All right, we have those on our website for you.
  • Jason:
    Great, I will access it after the call. Jim, a quick question here. The charge related to Jevic, that was a cash charge fact?
  • Jim Darby:
    Well, we accrued the liability for that. We have specific items that were indemnified with the sales contract and those are coming back to it and so we accrue for those.
  • Jason:
    With the sale of Jevic's assets sort of going on next month, I mean is there anything else coming or is this take care of you?
  • Jim Darby:
    No, we think this is it, Jason. We recorded the liabilities, the indemnifications were responsible for it and we believe this is it now. They could change slightly or go up and down but we think that this is it. We think we are done.
  • Jason:
    Okay. If I could switch to the increase in length of haul, I am going to assume is just basically from you reaching the new territories and obviously the business between the, I guess the old side and the new side of growing, is that the way to look at it?
  • Rick O'Dell:
    Yeah, I think it’s a combination of things particularly this, you know, when you look at year-over-year because we also has some turnover of particularly lot of automotive business that was very short length of haul business in the connection geography, and then obviously you’re kind of replacing that with business that goes a longer length of haul on average.
  • Jason:
    Okay, fair enough. That’s all I have guys, thanks for the time as always.
  • Rick O'Dell:
    Thanks David.
  • Jim Darby:
    Thanks David.
  • Operator:
    And your last question will come from Thom Albrecht with Stephens Incorporate.
  • Thom Albrecht:
    Yeah guys a quick actual followup, what was your cargo percentage revenues and it was in the year ago?
  • Jim Darby:
    That was about (Inaudible), and imagine that most of the guys that are talking about their cargo planes ratio the once that have particularly low planes and that remains an opportunity for us, we’re at about one point Rick.
  • Thom Albrecht:
    Okay, alright, well it do actually spell.
  • Rick O’Dell:
    Yes, directionally correct and I think obviously we’ve got some newer operations and some scar things in the workout that we expect to continue to make some progress there and because we’ve talked about that as one of our opportunities for margin improvement, it was good and bad with that, I guess the bad sides we haven’t achieved it yet, the good side is there is still some opportunity to improve.
  • Thom Albrecht:
    Absolutely.
  • Rick O’Dell:
    And its in our control.
  • Thom Albrecht:
    Alright, thank you go again.
  • Rick O’Dell:
    Alright.
  • Operator:
    And you have no further question sir.
  • Rick O’Dell:
    Alright, great, we thank you for your interest and we will talk to you soon.
  • Operator:
    And this concludes today’s conference call. You may now disconnect.