Saia, Inc.
Q2 2013 Earnings Call Transcript

Published: 26 Jul 2013

[Operator:]

Good day and welcome to the Saia, Inc., Second Quarter 2013 Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Renée McKenzie. Please go ahead ma’am.

[Renée McKenzie:]

Thank you, Kayla. Good morning and welcome to Saia’s second quarter 2013 conference call. Hosting today’s call are Rick O’Dell, Saia’s President and Chief Executive Officer and Jim Darby, our Vice President, 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.

[Richard O’Dell:]

Good morning and thank you for joining us. I’m pleased to report that Saia again delivered record earnings in the second quarter. Our success is due to the hard work and dedication of every member of the Saia team. You see improved results across the board in everything from customer service, technology, claims and safety. It’s gratifying that we continue to achieve these meaningful improvements despite a relatively sluggish economy. To keep items comparable, all per share data in these remarks have been adjusted to reflect the company’s recent three-for-two stock split. Let me start by reviewing some highlights from the quarter compared to the second quarter of last year. Revenue was 293 million, up 2%. Earnings per share were $0.54 versus $0.48. Our operating ratio was 92.0 versus 92.6. Our LTL tonnage decreased by 1.6%. Our LTL shipments were down 0.9%; our LTL yield increased 3.2% due to favorable pricing actions in freight mix changes. Saia’s highest service quality, effective revenue management and focus on operational excellence were the drivers of our margin improvement. While volumes during the quarter were relatively soft in line with the general economy, we continue to advance our value proposition with investments in quality and customer service. As previously outlined, Saia has a number of initiatives underway targeting $20 million of annual savings and we believe that will provide a substantial offset to inflationary ways and cost pressures. Here are a few of the highlights we achieved that contributed to our results during the quarter. We delivered 98% on-time service consistently and reliably for the seventh quarter in a row. Our industrial engineering initiatives in corresponding occupational efficiencies continue to reduce purchase transportation down another 8% in the quarter. Our fuel efficiencies supported by electronic onboard devices improved nearly 7% and over 80% of all Saia drivers are meeting their progressive shifting targets. Our training and in-cap technology continue to support our safety goals action expense was 5% below last year due to improved frequency and severity. Our 20 dimensioners located in our large facilities allow us to provide quick, reliable and accurate density measurements of our shipments. Our sophisticated granular pricing and profit management philosophy continues to improve yields. Our targeted marketing efforts and additional insight sales resources are contributing to further revenue growth in fuel business. Our increased training investments, new equipment and (inaudible) related technology allow us to again improve our cargo claims ratio. Saia’s quality matter initiative has become a key component of the culture of our company. You can see quality demonstrated at every terminal, shop and office facilities across our network and I believe that our continued focus on quality, customer service revenue management and operational excellence has set the stage for additional improvements in the second half of the year. We just completed the one year anniversary of our new truckload and logistics service groups now rebranded as Saia Truckload Plus and Saia Logistics Services the acquired company supports Saia’s strategic goal of diversifying our service portfolio. We just wrapped up the training of our remainder of our sales force for this additional fleet of services to Saia’s customer base. We expect to achieve additional revenue and profit growth in cross-selling initiatives moving forward. Saia’s balance sheet and cash flow are strong which provides the financial strength to make significant investments in our people, equipment and technology that are making the enhancement of our value proposition possible. You’ve heard me say before I believe that Saia’s quality service offering, focused pricing discipline, target marketing and consistent cost execution provide a strong foundation for long-term profitable growth and increase shareholder and customer value. Now I’d like to turn it over to Jim Darby.

[James Darby:]

Thanks, Rick and good morning everyone. As Rick mentioned, the second quarter 2013 earnings per share report were $0.54 compared to $0.48 in the second quarter of 2012. For the quarter, revenues were 293 million with an operating income of 23.3 million. This compares to 2012 second quarter revenue of 288 million and operating income of 21.2 million. The LTL yield for second quarter 2013 increased by 3.2% which primarily reflects the favorable impact of continued pricing actions. Continuing our trend from the past several quarters, yield showed steady improvement as we continue to achieve price increases. Our industrial engineering initiatives and operational effectiveness have reduced our reliance on purchase transportation, significantly enhanced our fuel fluidization and reduced our self-insurance cost. The quarter however did include higher cost from wage and benefit increases necessary to compensate our work force and meet customer requirement. While we have invested heavily in new tractors and have reduced the age of our fleet, maintenance costs were again impacted by more costly routine maintenance and higher parts cost. These factors increased maintenance expense by 3.3 million compared to the second quarter of 2012. Depreciation and amortization ran 12.4 million during the quarter versus 12 million in the prior year quarter. As we previously announced, we implemented a 3% wage and salary increase companywide effective in early July. This increase will add approximately $13 million expense on an annualized basis. We anticipate the impact of this wage increase to be partially offset by further productivity and efficiency gains. Year-to-date revenues were 566 million compared to 556 million in the prior year period. In the first half of 2013, operating income was 37.8 million with net income of 22.7 million compared to operating income of 32.2 million with net income of 17.4 million in the prior year period. Earnings per share were $0.90 compared to $0.70 in the first half of 2012. Our effective tax rate was 37.7% for the second quarter of 2013. For modeling purposes, we expect our effective tax rate to be approximately 37.5% for the full year 2013. This range excludes the impact of the tax credits recorded during the first quarter 2013 that were retroactive to 2012. On June 28th 2013, we entered into an amendment to Saia’s revolving credit facility to increase our borrowing capacity, lower certain interest rates and extend the duration of the facility. I’m pleased with the terms of this agreement as it provides flexibility for Saia’s future growth opportunities. At June 30 2013, total debt was 99 million net of the company’s $2.9 million cash balance. Net debt to total capital was 25.5%. This compares to total debt of 90.7 million and net debt to total capital of 27.4% at June 30 2012. Net capital expenditures for the first half of 2013 were $71 million. This compares to $69 million of net capital expenditures during the same period in 2012. The company is still planning net capital expenditures in 2013 of approximately $90 million. This level reflects the purchase replacement tractors and trailers in the company’s continued investment in technology. As Rick mentioned earlier, Saia’s three-for-two stock split were paid in the form of a stock dividend June 13th 2013 for shareholders on record on May 31st, 2013. This increased our average common shares outstanding by 50% to approximately 24.2 million shares. We believe that stock split will improve market liquidity and trading volume of our common stock which should broaden our investor base. Now I’d like to turn the call back to Rick.

[Richard O’Dell:]

Thank you, Jim. Second quarter finished with an improved margin and profit progress achieved through effective execution across our network. I believe our ongoing investments in technology and quality have set the stage for us to build on the demonstrative results. We remain committed to our core strategies of improving yield, enhancing customer satisfaction, building density and reducing costs through engineered process improvements and continuous employee training. This strategy provides the base for long-term profitable growth and increased shareholder and customer value going forward. With these comments, we’re now ready to answer your questions. Operator?

[Operator:]

Thank you. [Operator Instructions]. And we’ll take our first question from William Greene with Morgan Stanley.

[William Greene:]

Yeah hi there. Good morning. Rick one of the things that I think you’ve mentioned in the past is that if you’re able to hit your targets or sort of inspirational OR of kind of this 93 range you’ll sort of look to expand the network in various ways and go back into kind of more of a growth mode or build mode. If you look at some of the acquisitions you’ve done in the past, as you’ve gone down and done those acquisitions how long did it take to sort of do the integration as well as deliver synergies? What kind of turnaround was that when you started to invest that way?

[Richard O’Dell:]

We actually when we made acquisitions in the past, we’ve made some we had. We were really doing it for the synergy revenue of the cost so we made the integrations were on a very quick timeline. Generally we did it within 60 to 90 days and made the company Saia and began to cross-sell essentially immediately. So I mean but I think each acquisition is different depending upon what the geography is and what you’re trying to achieve with it and may be the stability or quality of the company that you acquire could have an impact on that as well. In the past again immediately adjacent geographies with very little overlap and we did those integrations very quickly.

[William Greene:]

Yeah okay so that makes sense. So when you look at 2014 and beyond and you think about resuming sort of a growth strategy, can you just remind us sort of the level of maintenance CapEx and sort of what your comfortable spending for growth What is that realistic levels of growth CapEx? Thank you.

[Richard O’Dell:]

I mean I think our maintenance CapEx Jim you want to answer that question first

[James Darby:]

Yes and for next year we still would have some deferred tax CapEx for trailer purchases. So we would expect to have an elevated level next year in CapEx somewhat similar to what we are having this year. That would be absent growth. And then if you looked at beyond that maintenance levels we would probably run 65 million or so and then you’d have to layer in on top of that growth.

[Richard O’Dell:]

And I guess from a capital standpoint we have some additional capacity both in some in our fleet as well a significant amount in our real-estate to grow within our existing geography and obviously whether you’re acquiring the company or expanding organically would require some potentially some incremental investments depending upon the scope of the geography you expanded into potentially right?

[William Greene:]

Okay. That’s great. Thanks for the time.

[Richard O’Dell:]

Alright Thanks.

[Operator:]

And we’ll take our next question from Jason Seidl with Cowen.

[Jason Seidl:]

Guys good morning. How are you?

[Richard O’Dell:]

Good morning how are you?

[Jason Seidl:]

Hanging in there. Couple of quick questions (inaudible) in their conference call the other day basically was saying that they felt that the LTL pricing environment improved during 2Q just wanted to get a sense of how Saia viewed it?

[Richard O’Dell:]

Yeah I mean I think it stayed pretty stable I mean our contract renewal continue to be in the 3% to 4% range and that’s kind of what we had anticipated and what we’ve been saying. And then our theoretical yield model shows adjusted like the hallway for shipment that our yields actually increase in that range as well. So I think the yield environment has been pretty good stayed rational.

[Jason Seidl:]

Okay. And when I look at some of your new services that you guys have been rolling out, how should we view that going forward in terms of sort of the margins on that and the flow through towards the P&L?

[Richard O’Dell:]

Yeah I mean the margins are good on that business it’s just small and I think we would say we said initially we thought $0.04 to $0.06 accretive on a performance basis for this year and it’s performing in alignment with that. So far it’s grown nicely but I think there is clearly a lot of upside there as well. And as we’ve kind of set the business up to be scalable and handle some incremental volume there’s been some near term investments in that but the incremental margins are still good I would expect them to improve going forward. So again I think $0.04 to $0.06 accretive this year is still in line with what how we’re performing and what we expect and we would expect it to should be able to at least grow that by at least 50% a year I think going forward that’s probably should be a low number but that’s something I’d be comfortable with at this point in time.

[Jason Seidl:]

And that’s just with what you have now you should be able to grow 50%?

[Richard O’Dell:]

Yeah without making additional acquisition or something that would improve that segment of the business.

[Jason Seidl:]

Okay. And getting back to sort of Bill’s question building around the CapEx here as you pass 2014 when you’re sort of serving your catch up and the trailers repurchases are done you guys have been generating some pretty decent cash flow. Is this what you guys are going to try to use the help sort of the rest of the asset based business or are there other plans with the uses of cash?

[Richard O’Dell:]

Well I mean obviously as returns get better in the business we’d like to continue to see some growth there. I think there is plenty of opportunities to grow within our existing geography and that would require some incremental equipment. We have some facilities that we lease that we could potentially acquire over a period of time to get stability at the facility make some incremental investments for infrastructure and things like that provide some good returns for us going forward as well. So I think there are clearly some opportunities and obviously you talk about the cash flow as the catch up CapEx come behind should get better. And then we also barely believe that there is further room for margin improvement in our business through growing density of improving our value proposition and continuing to seek some cost savings moving forward right? So yeah I mean I think there is a lot of obviously opportunities to both improve cash flow and then evaluate how that should be spent.

[Jason Seidl:]

These are all good decision to make right?

[Richard O’Dell:]

Yeah right?

[Jason Seidl:]

Last question I’ll turn it over to somebody else if I heard you guys correctly maintenance expense up 3.3 million over the prior year. Should we expect those levels to sort of continue going forward or should they sort of trend back down to more normalized levels?

[Richard O’Dell:]

Some of our capital expenditures that we’d anticipated coming in the first quarter have got push back a little bit. So I think that had an impact. We’ve actually changed some of our maintenance infrastructure so we’re probably maintaining our equipment at a better level than we ever have before. And in doing that I think there is probably some catch up maintenance expense that goes as we kind of revaluate and went through that process. So I would expect it to level off and/or decline over a period of time. And we continue to look at that quite frankly the fuel economy and the new equipment is surprisingly good and we’re also evaluating whether over time we may want to take the age of our tractor fleet down and have a good payback in terms of the maintenance in the fuel equipment and fuel savings as well. So over time that could impact our CapEx look as well as long there are returns in it it’s clearly something we need to look at.

[Jason Seidl:]

Thanks guys Listen I appreciate the time as always

[Renée McKenzie:]

Thank you.

[Richard O’Dell:]

Thanks, Jason.

[Operator:]

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

[Brad Delco:]

Hi yeah good morning Jim Rick and Renée how are you all?

[Richard O’Dell:]

Good. Good morning Brad

[Brad Delco:]

Jim I think this is your favorite question but we’re seeing I guess on a year-over-year basis some LTL tonnage improvements. Did we see that through the quarter? May be can you provide the year-over-year and then may be what you’re seeing so far in July?

[James Darby:]

Sure Brad and you’re right it was improving as we went through the quarter. We reported the LTL tonnage being down 1.6% for the quarter but it did improve each month. April was down 2.5% versus the prior year April May was down 2% versus the prior year May and June was essentially flat with the prior year. So far what we’re seeing in the month of July is including a barely weak July that fell as a day by itself after the holiday. We’re showing down 0.8% if we take out that one unusually light day the rest of the days are showing that we’re actually trending up 0.7% with LTL tonnage over last year’s July.

[Brad Delco:]

Got you. So do you think we’re at a point now and I think we talked about this in prior calls where we’re going to see positive tonnage growth in potentially third and fourth quarter?

[Richard O’Dell:]

I think that would be our objective clearly and I think if you look at again kind of the weird comp takers you have that July 5th I call it as the dangling work day one day weak there not a lot of people worked apparently. So that was really light and again (inaudible) we’re trending up almost 1% compared to the negative comps we saw previously. So if we see normal seasonality from that going forward plus some of our marketing efforts we would expect to see some positive tonnage obviously that could contribute to our margin improvement going forward. And I think as we are generating some much better margins clearly it’s worth reinvesting in the business at these types of returns and obviously seeking some stronger returns from those density benefits going forward.

[Brad Delco:]

Got you. And may be a final question just to look at the year-over-year change in the operating ratio kind of decelerated a little bit in the second quarter I was wondering it’s a delay of getting some of that equipment did that have Can you kind of quantify what impact that had on the margins? And would you expect year-over-year margin improvement to kind of accelerate or reaccelerate in the back half of the year any color if you could provide on that would be helpful

[Richard O’Dell:]

I think I mean the quarter was in line with kind of our expectations for the quarter. I think it was pretty good last year’s second quarter was very strong. We had some favorable dynamics particularly with respect to some self-insurance and stuff and this year we actually had a pretty good self-insurance quarter as well obviously our claims ratio improved and we talked about our active expense be a little bit better again. So but I thought the absolute results were pretty good. The second half of last year in our last year our tonnage kind of decelerated through 2Q and at the end of the third quarter and then we had some cost challenges in the third quarter. And so I mean I think as we kind of indicated on our last call, we would expect some stronger year-over-year comps in the second half of this year with some of our with our current run rate plus some of our initiatives we have and the fact that last year actually I was disappointed in the second half of last year. So we don’t want it. We’re not planning on repeating a disappointing performance that we had last year. So I think we would expect it to be better.

[Brad Delco:]

Great Well I appreciate the time

[Renée McKenzie:]

Thank you.

[Operator:]

And we’ll take our next question from David Ross from Stifel.

[David Ross:]

Good morning gentlemen, lady.

[Renée McKenzie:]

Hello

[Richard O’Dell:]

Good morning David

[David Ross:]

Could you talk a more about the yields fuel surcharge did that have a negative impact on the yield year-over-year? And then also, given that haul is up and rate per shipment were down those were both kind of positive tailwinds for yield it seemed to me that core pricing might be below 3% if that were the case given the yields were only up 3.2% inclusive of the mix change

[Richard O’Dell:]

Yeah the main difference there is that the fuel surcharge year-over-year was actually lower on percentage basis because fuel prices are down a little bit.

[David Ross:]

But would you say core pricing 3% 4% still kind of the norm not going up much not going down much it’s pretty stable?

[Richard O’Dell:]

Correct

[David Ross:]

And then I think Jim you made a comment about higher costs from wage and benefiting increases negatively impacting the second quarter. Was that anything out of the normal wage and benefit increases that you look last year?

[James Darby:]

No you’re exactly right. We did a wage increase July of last year and so you’re going to have some of that affect second quarter compared to second quarter a year ago. So that was pretty much as expected.

[David Ross:]

Okay

[Richard O’Dell:]

But again first to second quarter last year we had the same timing of the wage increase and then our general rate increase is effective on July the 1st and essentially the increase from the general rate increase it will essentially offset the wage increase for the quarter.

[David Ross:]

And then I don’t know if I missed but did you talk about the line haul load average is that still improving?

[Richard O’Dell:]

It is our load average is actually over 4%. We talked about purchase transportation being down but we actually set an objective as far of our $20 million savings that’s in line haul optimization that included load average and our load average is up little over 4% been a nice contributor to our margin improvement.

[David Ross:]

Yeah that’s great. And then last question is based on the new revolver that you guys negotiated. What’s the impact on borrowing cost or interest expense going forward? Is there kind of an annual savings number you can give us Jim?

[James Darby:]

Dave what I can tell you that would be dependent of course on our level of borrowing. What I would tell you is that if you look at our level of borrowing in the second quarter, we would have improved it would have been about $75,000 lower from the quarter.

[David Ross:]

Okay. Excellent. Thank you very much

[Operator:]

And we’ll take our next question from Art Hatfield with Raymond James.

[Arthur Hatfield:]

Hey good morning Renée and young men.

[Renée McKenzie:]

Good morning.

[Richard O’Dell:]

Good morning.

[Arthur Hatfield:]

Just real quick lot of my questions have been answered but Rick as we think about things going forward, the last couple of years you’ve done such a good job on the cost side in a fairly tough freight environment. I think in the quarter I think my calculation was your incremental margin on the revenue growth was about 40% I think it’s been higher than that recently. Where are you at in this kind of I don’t want to call it restructuring but kind of reengineering of the company and the network? And what needs to happen for you to kind of get to be able to maintain those types of incremental margins if it’s even feasible to do so?

[Richard O’Dell:]

I mean I think there is obviously a lot of opportunities that’s we go through them all the time with quarterly reviews and try to identify where there are opportunities for further optimization and I think too We talk about in our conference calls We have had seven quarters of our 98% on-time service center in a row and that’s in terms of the history of the company that’s not really very long right? We upped our service standards and performed at a much higher level. I think this call it a rethinking kind of our pricing mechanism to be more sophisticated and targeted in what we’re trying to do and willing to do which is clearly required as your customer base gets more sophisticated. We’ve cycled through basically our existing customer base with that and I think the big opportunity is to continue to market and brand the company as a high quality value oriented organization that’s performing at a high level and market that to customer so that we can really generate some growth. And so we continue to find opportunities to find on the cost side and then I think again we’re seeing some obviously less negative comparisons from a tonnage basis you hate to talk about that way right? But that’s kind of where we’ve been and we would expect to as we get in a more normal targeted range for yield improvements that we would expect to see some positive tonnage and some benefits from that because we have some access capacity in our network. For instance our line haul operation has never performed at a more efficient level and one of the things we’re going to look at is targeting some more intermediate and longer haul that we have not done so much in the past. And part of the reason you can do that and operate more profitably is that because we’re performing better from a line haul basis from the way trailers and some of those longer haul lanes that allow you to handle that business on a profitable basis. So I think there are plenty of opportunities for us to improve and while these are good margins for us on a historical basis there is plenty of opportunities in the marketplace to do better. So I would expect our incremental margins to still be good going forward.

[Arthur Hatfield:]

Okay that’s very helpful. And in that point where you make about your 98% service levels like you said I mean seven quarters is great but it’s you want to continue to do that. Have you actually been able to see any customer wins yet based on the recent success of your on-time?

[Richard O’Dell:]

I mean clearly we have and we’ve gone back to customers that we haven’t done business with for five years and kind of represented the company as a way we are today and the way we’re performing from an on-time service acclaim free perspective and some of the technology that we have that we didn’t have five years ago. And its being well received as you know particularly for the national account side that takes longer than it does through smaller customers because you kind of have to wait till it comes up for bid you go through to that process. What happens people have a long memory for defects or problems that you had when you parted way at some prior period of time. But I think if you look at the way the company is performing on an absolute basis and the recognition I mean our existing customers scoring us very high in terms of our performance. And so there is an opportunity to expand that beyond and I don’t know if we talked to you about it I know we’ve done some things in some of our talk about the leads we’re buying now. And our market research shows that our image is improving but I think your image improving trails your actual performance and so we’re putting some additional efforts of being out there being in front of customers to make sure they recognize the opportunity the value proposition that we offer today in the marketplace. And we have really good cost structure and we have a really good product offering so we should be winning out there right?

[Arthur Hatfield:]

Yeah no again that’s great color. And then finally I’m throwing a line into the water on this I don’t know if you can even answer this and it’s very early but have you seen any business come way ahead had any conversations with customer existing customers or potential customers about their need for help based on experience that they are having due to hours of service implementation?

[Richard O’Dell:]

No I don’t not specifically I don’t think so

[Arthur Hatfield:]

I didn’t’ think so but I thought I’d ask anyways.

[Richard O’Dell:]

I mean over time you might see that happen issue impact truckload market and you

[Arthur Hatfield:]

It would flow down LTL I was thinking

[Richard O’Dell:]

Truckload stop offs you would think would become more difficult to do and less attractive and we would see that. And obviously from our weight per shipment were down so again they (inaudible) successful but one of the things we’ve actually seen it’s kind of interesting is as we’ve worked on kind of our more granular lane based pricing and that’s caused us to kind of rebalance the network in some cases where you take our unprofitable business in a head haul lane. So as we rebalanced our line haul network to some extent, we have less obvious back haul that we used to market on truckload So some of that business has actually kind of gone away impacted our tonnage on a weight per shipment a little bit.

[Arthur Hatfield:]

Okay.

[Richard O’Dell:]

Balance the network but not handling LTL business that wasn’t contributing well now I don’t need the cheap backhaul to fill that lane.

[Arthur Hatfield:]

Right no.

[Richard O’Dell:]

It had some impact on our volume but it’s been good for our profits so

[Arthur Hatfield:]

Got it. Thanks. Great hey thanks for the time today. Have a good day and weekend

[Richard O’Dell:]

Thanks. You too

[Renée McKenzie:]

Thank you.

[Operator:]

And we’ll take our next question from Thom Albrecht with BB&T

[Thom Albrecht:]

Hey everybody good morning.

[Richard O’Dell:]

Hey Thom.

[Renée McKenzie:]

Good morning.

[Thom Albrecht:]

Rick I know you mentioned the load average was up about 4% do you have a number you can share?

[Richard O’Dell:]

The absolute number?

[Thom Albrecht:]

Yeah, yeah.

[Richard O’Dell:]

I mean it’s in the mid 28

[Thom Albrecht:]

Okay. And then you mentioned fuel surcharge I know in the 10-K report you do give what that is as a percentage of revenues last year it was 17.3%. When you mentioned it was a little bit lower on a year-over-year average was it above or below the 17.3 figure?

[Richard O’Dell:]

It’s running about 0.7% last I believe Thom. It was less than second quarter this year than it was a year ago

[Thom Albrecht:]

Alright. And would that be also below that 17.3 or 0.7% year-over-year?

[Richard O’Dell:]

Yes.

[Thom Albrecht:]

I’m sorry

[Richard O’Dell:]

Compared to the 17.3 it would be about 0.7% below.

[Thom Albrecht:]

Okay. And then where do you stand Rick with the logistics trailers? How many have you taken between new and retrofitted? I know that’s going to be a big part of your productivity going forward and got underlying some in the second quarter but bring us up to speed?

[Richard O’Dell:]

Yeah sure. Just last week ran 97% of line haul schedules were run on logistics trailers and previously like we had 75% of our trailers were all logistics trailers previously but we actually ran about 80% to 82% on logistics because we have a methodology that you can’t load a flat rider trailer when you have logistics trailer so.

[Thom Albrecht:]

Okay.

[Richard O’Dell:]

So we have higher utilization of our logistics post equipment but again that’s moved up from in the low 80% range to 93% last week so that improved through the quarter and we estimate additional trailers are still being delivered but we’re probably 80% of this year’s orders have been delivered. We’re not retrofitting we’re really replacing all of our smooth side of trailers and I think retrofit thing is we’re putting the skirts on for fuel economy on the other ups that we have.

[Thom Albrecht:]

Right. So let’s say your load factor was 28.6 with a high compliance for these types of trailers where do you think that line haul load average could go?

[Richard O’Dell:]

We’ve done over 29 for a week I mean we can do it. I mean it’s part of it is dependent upon growth and density right and our execution but I would I mean our internal goal is to exceed 29 which would be another what couple percent Thomas

[Thom Albrecht:]

Yeah. And on the TT I know there is a lot that goes 6.6% of revenues you try to balance one ways and a whole variety of things. But have you brought that down about as low as you can or do you think that could be eventually something that’s more consistently 5.5% to 6% of revenues instead of 6.5%?

[Richard O’Dell:]

I think where it is, is probably right I mean obviously we’re always looking for opportunities to optimize it but a number of things that we’ve done has kind of taken it down pretty dramatically now so we don’t willingly operate it sub optimal level. We actually wouldn’t even complain if they had to go up for a while right? I mean we were growing and we had on a this near term basis service with PT and then optimize going forward. I mean those are opportunities that wouldn’t necessarily be a bad thing either. And then a lot of what we’re doing in that PT lines is on the rail too and that’s very cost effective utilization two three days a week. And as I think there is a good opportunity for us to grow kind of intermediate haul and longer haul business in a couple of our markets in particular that we’re going to focus on going forward. So it could be an area for growing that segment it could be a positive too right?

[Thom Albrecht:]

Yeah, yeah. Last question for Jim kind of twofold are you still expecting deprecation in 52million this year? And will healthcare cost still end up about $6 million higher or you’re having different experiences in that?

[James Darby:]

Those are both good questions Thom. The first one the deprecation because we are equipment came in a little bit slower than what we had expected, I’m now looking at deprecation for the year to be closer to 51 million.

[Thom Albrecht:]

Okay

[James Darby:]

You can see second quarter only went up from basically 12 million to 12.4 million. So I mean it was a little bit less than we had anticipated because of the slowness of getting the new units in service. So I’m projecting the year to be about 51 now. As far as the increase in the health plan it’s pretty much tracking and we’re still expecting increases that we quoted before that we believe were in the range of 5 million for the year. And that’s pretty much in line with what we’ve talked about before legislative impact the excess carrier cost and just general inflation have taken up that against this year.

[Thom Albrecht:]

Okay that’s helpful. Thanks very much everyone

[James Darby:]

Thanks, Thom

[Renée McKenzie:]

Thank you.

[Operator:]

And we’ll take our next question from Scott Group with Wolfe Research

[Scott Group:]

Hey thanks. Morning everyone.

[James Darby:]

Good morning Scott

[Richard O’Dell:]

Good morning.

[Scott Group:]

I wanted to ask kind of a third quarter margin question in a bit of a different way. It’s a tricky quarter and then there is no clear trend of third quarter being better or worse than second quarter sequentially on a margin standpoint. May be if you can just help us think about the moving parts I think maybe there is an extra operating day some of the maintenance costs were high in the second quarter but not sure how to think about margin sequentially from second and third and may be you can provide a little bit of color

[Richard O’Dell:]

Sure as you said it’s been a long variance particularly if you look back over the last five years, third quarter versus second quarter of last year though that was actually deteriorated by 1.5 operating points. Again as I commented earlier I was clearly disappointed on second half last year and we did have some what we would be hope to non-recurring self-insurance adjustment and work comp that impacted kind of the second half actually there was some bulk quarter. And if you look at our history the average is deterioration of about 0.7 OR points and I guess I would say given some of the company focused initiatives and our tonnage turning positive that we would this point expect to deal a little bit better than absent some potential self-insurance and some other volatility that we clearly could have. But we would expect our core performance to deliver better than that.

[Scott Group:]

Okay, that’s great. Appreciate that. And then longer term and as we think about the margins and 92 is obviously a really good quarter you had a OD put up 83.5 yesterday

[Richard O’Dell:]

We did?

[Scott Group:]

And as you think about where you can they did do you think the way you can think four five years from now, should we think that there is chunks of 20 million a year of more cost to come out or is it really just about at this point starting next year to start growing again and really built intensity? How do we think about the multiyear margin progression or the drivers of it I guess?

[Richard O’Dell:]

Yeah I mean obviously there are drivers on the top line both through yield opportunities created by value proposition in the marketplace. We believe there is clearly opportunities for us to grow and take share obviously the economy has been kind of weak hasn’t given much help over the last couple of years in LTL. But the industry appears to be rational, most of the players are performing all that well and we think that gives clearly some opportunities for us to continue to make improvements both on the top line and the bottom line. And I would tell you every year we target savings and improvement opportunities that would help us offset some inflationary cost and we would clearly be in a position to do that again next year. We’ll have our set of initiatives we’re actually going to start outlining those at this point in time so we can get a good jump start on. And the company historically has grown and taken share and performed well and I think as we’ve kind of gone through this transition and more emphasis from us on some pricing discipline and things that are key driver of margin success over time has been institutionalized in our company. I think there are still some opportunities there but the big portion of that is kind of behind us. So that caused a lot of customer churn or turnover. So we’ve replaced those customers with customers that understand our pricing philosophy and see the value of service and the coverage that we offer at Saia. And I would expect us to continue to take some share and get some strength through our brand and as we move forward too because again I think I wouldn’t necessarily call it transformation but there has been a big improvement in the company’s performance on the behalf of our customers over the last two years. And I think we’re still in the process of demonstrating that brand and capitalizing on that brand improvement in the marketplace and I would think that would be multiyear opportunity. So I think you said it first but I don’t disagree that someone else is defining the opportunity in the marketplace in LTL and at this point in time we’re chasing that but I think the Saia is in a good position to narrow that gap over a period of time with some of the executions that capabilities that we have and the way that we’re performing for our customers and our cost structure.

[Scott Group:]

That’s really helpful. Okay appreciate it, guys. Thanks

[Richard O’Dell:]

Thanks Scott.

[Renée McKenzie:]

Thank you.

[Operator:]

And we will take our next question from Chaz Jones with Wunderlich Securities

[Chaz Jones:]

Good morning. Thanks for taking my question. I just had one quick one on the 20 million of cost savings, should we be thinking of that as kind of proportionally across a year or is that something that accelerate in the back half?

[Richard O’Dell:]

I would say there are some of it left but say from our cost savings opportunity but a lot of it we actually achieved kind of earlier in the year. I would tell you that the load average has improved dramatically early in the year and as we talked to Thom a little bit about what we think some of those futures opportunities are I think it could be still a couple of percent better. So that would be some improvement opportunity we have in the back half and obviously if we could achieve some growth and see a normal seasonality I mean we should be able to improve the load average and get the density benefits there. And the other big opportunity there is then in fuel economy. And some of the new equipment came in little later than we had anticipated but some of the trailers again we think all – We have most of our new trailers are in at the end of this quarter and we’re 86% complete retrofitting our existing fleet of line haul equipment. And so we would expect some second half benefit in fuel economy. We also continue to work with our drivers on (inaudible) shifting and fuel efficient driving techniques and we’re seeing some improvement in that. We actually achieved record miles per gallon in the month of June and we have some more equipment new equipment coming in that’s getting better than our average miles per gallon. So the fuel efficiency is probably the biggest opportunity in the second half.

[Chaz Jones:]

Okay, great. That’s helpful.

[Operator:]

And we will take our final question from Thom Albrecht with BB&T.

[Thom Albrecht:]

Just a couple of items here, what level of compliance are you at for weighing in research? And are you at 20 dimensioners and if so do you plan to add any more?

[Richard O’Dell:]

Actually just five more that are coming in August.

[Thom Albrecht:]

Okay. And then how about the weighing in research compliance? I think you’re shooting for north to 95% this year but just wanted to get an update

[Richard O’Dell:]

We are at a very high level of reweighs and we don’t see much incremental opportunity there. So that’s probably already optimized.

[Thom Albrecht:]

Okay. Thank you

[Richard O’Dell:]

But I mean on the late inspection side, inspection side is probably the biggest opportunity that we have more than on the scale utilization and deployment.

[Thom Albrecht:]

Okay. Thank you.

[Richard O’Dell:]

Alright. Thanks.

[Operator:]

And there are no further questions at this time.

[Richard O’Dell:]

Alright. Thank you for your interest and your participation. We’ll talk to you soon.

[Operator:]

And this concludes today’s conference. Thank you for participation.