Saia, Inc.
Q3 2013 Earnings Call Transcript
Published:
- Operator:
- Good day, ladies and gentlemen. And welcome to the Saia Incorporated Third Quarter 2013 Earnings Results Conference Call. Just a reminder, today’s conference is being recorded. For opening remarks and introductions, I will turn the conference over to Mr. Jim Darby. Please go ahead, sir.
- Jim Darby:
- Thank you, Debbie. Good morning. Welcome to Saia’s third quarter 2013 conference call. Hosting today’s call are Rick O’Dell, Saia’s President and Chief Executive Officer and me, Jim Darby, I’m 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 would like to turn the call over to Rick O’Dell.
- Rick O’Dell:
- Good morning. And thank you for joining us to discuss Saia’s third quarter results. I am pleased to report that Saia delivered a significant increase in earnings this quarter. Our success is a result of the hard work, talent and dedication of every member of the Saia team. This strength is particularly evident when you consider that our improvement has been across the Board and not in any just -- not just in any one area. Our metrics say that we are continuing to find ways to meet and exceed our customers’ expectations and everything from customer service to technology from claims to safety and beyond. Let me start by reviewing some highlights from the quarter compared to the third quarter of last year. The wall on the same page all per share data has been adjusted to reflect the company's three for two stock split that took place in June of this year. Revenue was $293 million, up 5.4%. Earnings per share were $0.51 versus $0.37. Our operating ratio was 92.5, down 1.2 points from 94.1. LTL tonnage per day decreased by 0.1% and our LTL yield increased 3.8%. Saia continues to advance its value proposition in the marketplace, under the banner of quality matters, our signature quality initiative has led us to large investments in the quality of our products, but the customers have experienced and even more consistent superior customer service. This efforts have fueled another quarter of meaningfully yield increase through strong value selling which combined with efficiency initiative has led us to 37% increase in earnings per share. As we previously discussed, in 2013 Saia announced a number of cost-saving initiatives that targeted $20 million of annual savings. Three quarters end of the year we see that the results from these initiatives are providing a substantial offset to inflationary wage and cost pressures. Here are just a few highlights that contribute to the results of this quarter. We achieved 98% on-time service consistently and reliably for the eighth quarter in a row. Our defects and pickup performance were decreased 32% making this one of the strongest metric supported in our customer service index. Fuel efficiency supported by electronic onboard devices improved by almost 7% over 81% of Saia drivers are now meeting their progressive shifting targets which is contributing to the success. Our load average rose 4.4% in the third quarter compared to the same quarter of last year, which led directly to record revenue per linehaul mile. This is example on flat tonnage our linehaul miles were actually reduced by 3.9% compared to the same quarter last year. Saia was awarded first place for city drivers and third place for line drivers by the American Trucking Association making this the third year in a row that we have earned high honors from ATA. This does not mean that we are resting on our laurel as safety remains our number one priority. We are continuing our strong training program and utilizing in-cap technology to support safe driving techniques. The dimensioners purchased over the last two years continue to pay dividend. This technology allows us to provide quick, reliable and accurate density measurements for individual shipments, which aids an accurate pricing and costing as of the freight that we are handling. We recently purchased an additional five dimensioners that we will continue to enhance our capabilities in this area. Our training does not stop with our drivers during the quarter, we've enhanced our operational management and doc training as well and these increased training investments coupled with the infusion of new equipment in our system and doc-related technology has resulted in further improvement in our cargo claims ratio. As we move into the fourth quarter, we are increasing our capital expenditures to invest some additional monies in new equipment that supports our quality matters initiative and further improve our fuel economy. Quality matters initiative remained the key building blocks for the culture of our company. It permeates the actions that you see everyday at Saia at every terminal, every shop and every office facility across our network. With our improved operating results, Saia’s balance sheet grows stronger. This provides us with the financial ability to make significant investments in our people, equipment and technology that are making the enhancement of our value proposition possible. Now that we’ve achieved the couple of quarters below our interim target of sub-93 OR we are making an incremental investment in our sales and marketing resources to spur growth in our existing geography. By the most meaningful investment is a 10% increase in our sales resources, both management and field sales which has already started and will be completed prior to the end of this year. These incremental resources will support our growth objectives in the future which will come from our quality service offering, consistent cost execution, increased target marketing and focused pricing discipline, as well as some further enhancements to our business mix management. Now I’d like to turn the call over to Jim Darby.
- Jim Darby:
- Thanks, Rick, and good morning again everyone. As Rick mentioned, the third quarter 2013 earnings per share were $0.51, compared to $0.37 in the third quarter of 2012. For the quarter revenues were $293 million, with an operating income of $21.9 million. This compares to 2012 third quarter revenue of $278 million and operating income of $16.4 million. Third quarter 2013 did have one more work day than third quarter 2012. The LTL yield for third quarter 2013 increased by 3.8%, which primarily reflects the favorable impact of continued pricing action. Continuing our trends from the past several quarters, yield showed steady improvement as we continue to achieve price increases. Our industrial engineering initiatives and operational effectiveness have maintained our high quality service, while significantly enhancing our fuel utilization and reducing our reliance on purchase transportation. The quarter however did include higher cost from wage and benefit increases, necessary to compensate our workforce and meet customer requirement as we implemented a 3% wage and salary increase companywide effective on July 1st. This increase will add approximately $13 million of expense on an annualized basis. We anticipate the impact of this wage increase to be partially offset by further productivity and efficiency gain. 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 product cost. These factors increased maintenance expense by $1.3 million compared to the third quarter of 2012. Depreciation and amortization ran $13.7 million during the quarter versus $12.3 million in the prior year quarter due to our significant capital expenditures for tractors and trailers which are now in service. Year-to-date, revenues were $859 million compared to $834 million in the prior year period. In the first nine months of 2013, operating income was $59.7 million with net income of $35.6 million, compared to operating income of $48.7 million with net income of $26.6 million in the prior year period. Earnings per share were $1.41 compared to $1.07 in the first nine months of 2012. Our effective tax rate was 36.3% for the third quarter of 2013. For modeling purposes, we expect our effective tax rate to be approximately 37.5% for the full year of 2013. This rate excludes the impact of the tax credits recorded during the first quarter of 2013 that were retroactive to 2012. At September 30, 2013, total debt was $91.5 million, net of the company’s $4.1 million cash balance. Net debt to total capital was 22.9%. This compares to total debt of $81.2 million and net debt to total capital of 24.5% at September 30, 2012. Net capital expenditures for the first nine months of 2013 were $97.7 million. This compares to $79.3 million of net capital expenditures during the same period in 2012. The company is now planning net capital expenditures in 2013 of approximately $115 million. This level reflects the purchase of replacement tractors and trailers and the company’s continued investment in technology. The increased spending in 2013 is primarily for purchase of replacement tractors, which will reduce the age of fleet and allow us to take advantage of pricing and tax benefit, while gaining the operational efficiencies of the newer units. Now, I would like to turn the call back to Rick.
- Rick O’Dell:
- Thank you, Jim. The third quarter finished with improved margins and profit progress, achieved through solid execution across Saia’s network. I believe that our ongoing investments in technology and quality have set the stage for us to build on these demonstrated results. We remain committed to our core strategy of improving yields, enhancing customer satisfaction, building density and reducing costs through engineered process improvements and continuous employee training. The strategy provides the base for long-term profitable growth and increased their shareholder and customer value going forward. With these comments, we are now ready to answer your questions. Operator?
- Operator:
- (Operator Instructions) We’ll go first to Brad Delco with Stephens.
- Brad Delco:
- Good morning, Rick. Good morning, Jim. How are you guys?
- Rick O’Dell:
- Good morning, Brad.
- James Darby:
- Good morning, Brad.
- Brad Delco:
- Rick, I want to talk a little bit about the investment you discussed on the sales resources. Can you give us some color as to, is that in any specific geography and how long do you think it will take for this investment to help to drive some topline or some tonnage growth in the network?
- Rick O’Dell:
- Sure. Well, normally, your sales kind of lead time if you add resources that’s probably in the 90-day to a six month time period. So we would expect it to have certainly a positive impact as we go into 2014 and our process for looking that was really benchmarking what our current staffing looks like in certain regions compared to what the market potential is, as well as the number of sales resources that our competitors have in those markets to make sure we kind of aren’t being outgunned. And it’s fairly spread across our network, although it’s probably wouldn’t surprise you, Brad, in some of the areas where we have less market penetration, which should be some of our more recently expanded geographies if you can call 2006 recent I guess, right.
- Brad Delco:
- Yeah.
- Rick O’Dell:
- In some of those areas, we were probably outgunned a little bit more than we are in, say Texas where we have been as long and where we have such a significant share. So it’s probably more in some of the expanded geographies than others. And then, I think we are also adding to our management to kind of support those incremental sales resources so that we can make sure we get the benefit out of that.
- Brad Delco:
- Got you. And then, Jim, this question may be for you. It may pertain to kind of Rick's comments, but looking at the SG&A line or salary, wages and benefits, we expected some increases because of the wage increases you put forth. How much in terms of dollars was that year-over-year and what kind of costs were there in the current quarter related to this additional management and/or sales resource investment?
- Jim Darby:
- In the third quarter, really not much of anything related to the new sales resource. That’s really going to come on in fourth quarter. In terms of the wage increase that we gave which was right at the beginning of the quarter. We said that it will have about a 12-month run rate of about $13 million. So, I would suspect that we saw about $3 million worth impact in the third quarter year-over-year for that. We would have also had higher health plan costs because healthcare costs just continue to go up and it was in line with what we expected. But in that line I think our health plan year-over-year went up about $2 million -- $2.3 million.
- Brad Delco:
- Okay. That’s a good color. And then finally, I know you guys don't give guidance. I hate leading a question with that but the investments in the fleet, it sounds like it's mostly for replacement that should continue to drive some productivity on fuel economy. When you look out, the ’14, you guys identified $20 million of productivity savings this year. Is it out of the question to be thinking about you guys targeting something similar next year? And if so, what areas in addition to what you targeted this year are there for you guys to get more productivity?
- Rick O’Dell:
- Yeah. Obviously, there is always opportunities to improve and you as you guys are aware, every year, we set some specific goals and some plans in place and work on those things specifically. I guess I would tell you, obviously, we go through our planning process fairly early. We've been through the targets. We had significant improvement in a couple buckets, specifically on the fuel efficiency and the linehaul expense this year which had material contributions to allow us to kind of hit those $20 million number. I guess, what I would tell you is, the initiatives will be a little bit more spread out next year across some different areas. And I don't have as many large buckets like that. So it probably would be less than that. But it wouldn’t be less than $10 million, probably more in the $10 million to $15 million range for improvement opportunities. And what I would tell you I think, as we approach this sub-93 operating ratio, to be honest with you, I didn’t want to grow business at a 95 OR as a return on investment, return on capital, it makes sense right. But you start getting down around where we are operating today and we have double-digit after-tax return on capital and we are interested in growing the business for the right opportunities. And I think you'll see going forward, our earnings growth will come from a combination of margin improvement and topline revenue growth and that’s kind of what we are focused on as we head into next year.
- Brad Delco:
- Rick, that's great color. Appreciate the time, guys and I will get back in queue.
- Rick O’Dell:
- Thanks, Brad.
- Operator:
- We’ll go next to Jason Seidl with Cowen and Company.
- Jason Seidl:
- Hey, Rick. Hey, Jim. How are you guys doing this morning?
- Jim Darby:
- Good.
- Rick O’Dell:
- Good morning, Jason.
- Jason Seidl:
- Just quick question for you. I guess, a bigger picture one stepping back, the LTL industry has maintained some terrific pricing discipline and what I would consider sort of a lackluster economic environment. Do you see anything changing that as more people start improving their margins like you do and trying to grow their business, trying to grow their fleet. I guess, what I’m asking is, what gives you the confidence that the industry can maintain its discipline heading into 2014 and beyond?
- Rick O'Dell:
- I mean, while the returns have improved, I mean they are not fantastic or anything right. I think you have to look at how much new equipment and technology and some of their requirements we have in our industry often, just doesn’t make sense to buy business. I think that we’ve seen that. That’s been experienced and we -- I had -- as I said on the last call, I expected our tonnage to turn positive this quarter. And we had one positive months and two negative months to be basically flat or slightly negative for the quarter, right. So I think the market didn’t quite -- didn't develop quite as favorably as we would have thought. But we’re maintaining our pricing discipline in some of the most -- I would tell you some of the most price sensitive accounts that are very immediate in terms of price and volume, for instance, the transactional 3PL. I mean, we are down with them because we took modest price increases and that business is transactional and we didn’t -- we lost some share in the market where those guys have taken some share right. So it is…
- Jason Seidl:
- Right.
- Rick O'Dell:
- …to me it is the right thing to do. You just have to be disciplined and be confident in your ability to manage cost and manage as you go forward at the same time. I mean, I’m confident there are opportunities for us to gain share with our value proposition, particularly in some of the markets where we don’t have higher market penetration.
- Jason Seidl:
- Okay. Now, in terms of the business as you do with some of the third-party brokers. What percent of that business is it, of yours right now and sort of, how do you view that going into the future?
- Rick O'Dell:
- I mean, obviously it’s a growing trend in the industry it has been. It’s here to stay. You just sort of have to view it as the group of people. They are rolling out small accounts and to kind of more national account pricing and you just have to maintain your pricing discipline with it, so that the business that you get, it works and so you do a lot of analysis, do granular analysis on the business that you’re getting and how it operates and what you’re doing. It’s kind of how you have to manage that segment of your business today for us, probably about 20% of our business and some of that is probably as much as 25%, if you consider some of the 3PLs that do more customer specific pricing. So they maybe negotiating and paying the best of bill but they are not -- they are not reselling your price. They are putting the bid to your business out for bid, right, facilitating the payment process.
- Jason Seidl:
- Do you see that expanding Rick or you think that’s going to hover around at 20% level?
- Rick O'Dell:
- Depends how rational the pricing is with that, right.
- Jason Seidl:
- Okay. And talk to me…
- Rick O'Dell:
- I mean, the pricing is…
- Jason Seidl:
- Talk to me a little bit about…
- Rick O'Dell:
- I mean, if the business operates well then we’re certainly interested in growing that segment. If cutting my rates or requirement to grow 3PL business, I don’t have. There is not enough margin in that for me to be able to do that, right. So if the 3PLs can grow that business at rates that produce well for me, then I’m interested in partnering with them and growing that business. If they require me to lose my eye for them to make money on and grow then I’m not interested in participating.
- Jason Seidl:
- All right. That makes sense. Talk to me about your own base pricing for your accounts, what do you guys sign in contractual business here as we do in 4Q?
- Rick O'Dell:
- It’s in the 3% to 4% range, probably little bit close to the 3. We were up 3.8% in the quarter. Fuel is actually down a little bit on a competitive percentage basis, right. So we’re up a little over 4% in yield and with those increase in length of haul and a little bit of a decline in weight per shipment, our yield kind of adjusted for mix is up a little over 3%. And that’s pretty similar to what we’re seeing from a contract renewal standpoint. So it’s -- it seems to be -- it continue to be a reasonable market, and obviously I think that's one reason to us. I think we have the -- we have a good opportunity with a lot of our business mix management, revenue management, adjusting accounts to where they operate fairly well. Now, there is opportunity for us to fare in a fairly static environment with our existing customer base which should minimize churn and the investments and sales resources, sales and marketing resources that we’re working on, should allow us to generate some positive tonnage comps.
- Jason Seidl:
- Okay. Great. One quick question for Jim and I’ll turn it over to the next guy here. Jim, obviously your net capital spending, it’s the most you had in your company's history. What does that tell us for 2014, I'm assuming at least directionally probably down?
- Jim Darby:
- That’s correct, Jason. We’re really pulling forward some of our tractor purchases from ‘14 into the fourth quarter of ‘13. So as we float that up by about $20 million, you would expect it overall. And we haven’t announced 2014 CapEx yet where you would expect it to go down because we’re front loading at the end of ‘13.
- Jason Seidl:
- So thank you.
- Rick O'Dell:
- I was just going to say the way we look at that, I mean, the units are going to come in December instead of January and February really. That’s what our production slots are coming into the organization. So it’s not going to have a big impact on the fourth quarter from a depreciation standpoint, have some impact in the first quarter and then obviously we get off to a good jump start from fuel efficiency perspective as well. It should have some contribution in the maintenance savings in 2014, right.
- Jason Seidl:
- That makes…
- Rick O'Dell:
- Really, it’s just an acceleration by a month to make sure we get the tax benefit as well as to get some of the other savings and efficiency opportunity we’ve seen from the new units.
- Jason Seidl:
- Okay. Makes sense to me. Gentlemen, thank you so much for the time, I really appreciate it.
- Jim Darby:
- Thanks Jason.
- Operator:
- We’ll take our next question from William Greene with Morgan Stanley.
- William Greene:
- Hi there. Good morning guys.
- Rick O'Dell:
- Good morning.
- William Greene:
- Rick and Jim, we've had some pretty big improvements, given all of the efficiency gains you’ve been able to get. Can you talk about some of the puts and takes in fourth quarter as we look at the normal sequential change that we have to keep in mind for modeling purposes. I just don't know how to think about some of the sequential change in margin going into the fourth quarter?
- Rick O'Dell:
- This is Rick. So third to fourth historically has about two operating points worse particularly because workdays is all holidays and then December is not a very good month from a volume perspective. What I would say is given the investment in incremental sales resources that we’re making as well as some self-insurance unfavorable volatility that we've experienced. It probably is a little bit worse than that this year.
- William Greene:
- Okay. Fair enough. As a second question, I'm curious if you can talk a little bit longer term about where you kind of go. Obviously you mentioned when you get to the 93 OR, you will look at potential kind of, expansionary plans whether that's building new terminals or maybe even an acquisition but is that required for you to continue to improve the margin or do you feel like the plan you're on right now is enough that this just kind of keeps going along until you see the right opportunity. How do you think about kind of measuring those two and pulling of another?
- Rick O'Dell:
- Yes. I mean, that is the way we look at. In other words, we don’t think we have to expand our footprint necessarily to continue to drive margin improvement. We continue to see opportunities, what’s in our existing geography. And again, the investment sales resources is one way to focus that as well some of the continued engineered process improvements that we’ve targeted. But it’s not mutually exclusive for us to look at opportunities. We looked at a couple of opportunities this past quarter and decided to pass on both of those. Again we’re not going to reach to something that doesn’t make sense. I think you have to have the right opportunity and I would also comment that the timing can be important on that to, right in terms of -- we’ll do that right head of a downturn. And when the market is really sluggish, you get some rising tide in the economy than those things tend to go better based on my historical experience. So we are not in a rush to do that. We’ll do careful analysis and make the right decisions. And I think we have that both in our LTL segment and as I think I have commented in the past, I mean, some of these non-assets related business. If you buy small, pay reasonable multiple and are able to bring some sales and branding and structure of those to facilitate some growth. It can provide some good margins over a period of time as well. So both of those things are on -- certainly on the table for the future.
- William Greene:
- Yes. Just as a quick follow up when you do some benchmarking against some of the other carriers, do you feel like you can’t get to industry leading without a much bigger footprint or do you feel like that’s not really a constraint?
- Rick O'Dell:
- I think it’s necessarily a constraint. I mean -- what they have, just from LTL network management, as you always have at the end of your network and generally just because the middle has more flows in both ways et cetera. If your footprint is little bit bigger, you have more [middle inferior] end. So from that perspective, it can potentially have some difference but my analysis to the benchmark performer out there shows that we have opportunities that are necessarily related to that constraint, right. In other words, there is 8 OR point differential -- the network is in 8 OR points. So there’s still plenty of opportunities for us to execute better from our market share operations and business mix management, revenue management objective as well.
- William Greene:
- That’s great. Very helpful. Thanks for the time.
- Rick O'Dell:
- All right. Thanks Bill.
- Operator:
- We’ll take our next question from Scott Group with Wolfe Research. Scott Group - Wolfe Research Hey, thanks. Good morning guys.
- Rick O'Dell:
- Good morning Scott. Scott Group - Wolfe Research Rick, I missed the number. What percent are you growing the sales force?
- Rick O'Dell:
- 10%. Scott Group - Wolfe Research And should we think about volume or tonnage on a linear basis with that? Is that a fair way to think about in terms of what you’re targeting?
- Rick O'Dell:
- Yes. I think so. Some territories are split et cetera. So I mean, I think we should generate some growth from it but I don’t think -- I don’t necessarily think it will be linear. Scott Group - Wolfe Research Okay. And how do you think about the incremental margin going forward as we have a bit more of a balance between tonnage and yield and productivity now?
- Rick O'Dell:
- Sure. The operation is executing very well but I think there is some access capacity in our network. And I think that there is some further improvements in our operational execution that would benefit from some incremental tonnage. So I think margins on incremental business could be in 25% range with the fixed cost network, somewhere between 20% and 30%. So let’s just say 25% for those purposes so. And if you could grow tonnage 4%, we could improve on our OR points there. And then you got -- you have that as well as what happens with yield and your cost savings offset inflationary pressures. So as you know, in the network management business that we are in and business mix management, there’s a lot of moving parts. But I think that’s one way to kind of look at the tonnage growth opportunities. Scott Group - Wolfe Research Right. So if we add up the pieces, you can grow tonnage 4% and get a point of OR there and get, still get a little bit of keep that 3% pricing and get some productivity. It’s reasonable to be thinking about 150 plus basis points of margin next year?
- Rick O'Dell:
- Yes. I want to put a number on the table at this point that way. I would say, I don’t think we’re going to grow from our current flattish type tonnage to 4% and between now and January, right, its going to be a gradual concurrent step-up. But I believe there are opportunities that we can identify and achieve over time that are greater than one operating point, right. To say that, I mean, if you look at us versus the benchmark, there is eight OR points target. So I don’t -- we don’t necessarily want to do it at 0.8 OR points at the time that would be unfulfilling in my view anyway. Scott Group - Wolfe Research I’m hearing you. That’s great. Just last thing, how much growth do you think you can handle before we need to start thinking about our growth CapEx, excluding acquisitions or regional expansion?
- Rick O'Dell:
- Probably 3% or so? Scott Group - Wolfe Research Okay.
- Rick O'Dell:
- Somewhere between 3% to 5%. Then we’d have -- when you say -- when I say growth gap, I am talking about revenue equipment. We’ve got plenty of capacity in our network, right. Scott Group - Wolfe Research Right.
- Rick O'Dell:
- Yes. And we would expect if we were growing at 4% to have some pretty significant production improvements in both our linehaul and our P&D network that wouldn’t require one to one anyway, right. Scott Group - Wolfe Research Yeah.
- Rick O’Dell:
- So you are right, just to say it’s our mistake. We are growing at 5% you might need to somewhere in the 2% to 3% more equipment and get 3% productivity improvement let say, right. Scott Group - Wolfe Research Yeah. That makes sense. All right. Thanks a lot, guys. Appreciate it.
- Rick O’Dell:
- All right.
- Jim Darby:
- Thanks, Scott.
- Operator:
- We’ll take our next question from David Ross with Stifel.
- David Ross:
- Good morning, gentlemen.
- Rick O’Dell:
- Good morning, David.
- Jim Darby:
- Good morning.
- David Ross:
- Rick, looking at the length of haul, hasn’t changed much sequentially essentially flat from 2Q, but certainly a step-up over last year? Can you talk about kind of what’s going on with the customer mix that might have driven that length of haul up from the 720 to 740?
- Rick O’Dell:
- Yeah. I mean some of it is I would call it kind of strategic in our part, right. I mean, you have some very good, in some of our regions we have some very good regional players that are focus on that regional business with a lot of density and a good cost structure and they tend to want to handle that business at rates that don’t appear to be compensatory to us with our cost structure and network. So we’ve elected in some cases market outside of that more regional business and its laid to some to leverage our network and handle business that operates well and we’ve seen some migration overtime of our length of haul going up and I don’t think there is anything wrong with that, I think its, well, it operates well, it’s fine.
- David Ross:
- Yeah. The operating ratio is going in the right direction.
- Rick O’Dell:
- Right. I mean, right, you mean, you like to have both, right, I mean, I don’t really care what the length of haul, as well as the business operates well, revenue per bill is compensatory and we are kind of overtime building some tonnage and contributing to our fixed cost network with good reasonable compensation then it make sense for us.
- David Ross:
- Exactly. But it wasn’t a conscious effort to grow the kind of synergy business or inter-regional lanes that you talked about a few years ago.
- Rick O’Dell:
- Probably it was little bit, actually that’s one of the ways we are building density in those geographies. So, I mean, it is a conscious thing. We are showing our sales organization, here is where lines operate well for us and this we can price aggressively, provide a good value proportion in these lines and if you are coming up against XYZ regional carrier who is doing dirty pricing and sell outside of their coverage area, right. So I mean, I don’t know, we call that strategic enough but smart…
- David Ross:
- Yeah. No need to compete on the power rates certainly.
- Rick O’Dell:
- Yeah. All right.
- David Ross:
- On the tonnage trend side, Jim, can you just talk about how we progress through the quarter in July, August, September and then where we are at October here to date?
- Jim Darby:
- Sure, Dave. And this is LTL tonnage and this is through the quarter and on per day basis for the quarter, we were down one-tenth of 1% versus third quarter of last year. As we went through the quarter, in July, we were down four tenth of 1%. In August, we were up 1.1% and in September we were disappointed when we’re actually down 1.2% on LTL tonnage versus September a year ago, so far month to date in October we’re up three tenth of 1%.
- David Ross:
- Are we back in positive territory?
- Jim Darby:
- Yes.
- David Ross:
- And then any comment on regional strength or industry strengths throughout your network in the quarter?
- Jim Darby:
- On the kind of -- upper Midwest was our strongest revenue in tonnage comparison, so that was kind of a strongest area we had. Industry wide, we have such a diverse customer base, wouldn’t necessarily comment on anyone industry rather than I would tell you we’re actually down a little bit as I comment with some of the blanket details
- David Ross:
- And then on customer inventory levels, did they seem to be running in line or any of them getting too linear from your discussions?
- Jim Darby:
- We probably don’t have any commentary that that would be that meaningful for that.
- David Ross:
- Excellent. Thank you very much.
- Jim Darby:
- All right.
- Rick O’Dell:
- Thanks, Dave.
- Operator:
- We’ll take our next question from Thom Albrecht with BB&T.
- Thom Albrecht:
- Hey, guys. Good morning.
- Rick O’Dell:
- Good morning, Thom.
- Thom Albrecht:
- Wanted to get a couple of numerical figures first and then ask a question beyond that, so Rick, what was your load factor in the quarter and what was that approximately a year ago?
- Rick O’Dell:
- We committed it that was up 4.4%. It was in the mid-28s over a thousands pounds.
- Thom Albrecht:
- All right. Yeah, I missed the first 10 minutes. I had a call run over from 10 o'clock. And cargo claims, did you disclosed that?
- Rick O’Dell:
- We didn’t, we said it was improved. We’ve been sub-1% for quite sometime now, probably five, six quarters in a row and we are at 0.85.
- Thom Albrecht:
- Okay. So that’s clearly probably another opportunity over two to three years to get down, maybe 30 plus basis points I would think.
- Rick O’Dell:
- Here would be my comment with that, there is a -- as you get a higher link to haul and a higher revenue for shipment, you basically handle a shipment almost the same number of times, whether it goes 750 miles or a 1000 miles. The revenue per shipment is substantially higher. So if you can have the same damage right, but if your revenue per bill is lower, your cargo claims ratio is going to be a little bit higher. A part of that, some of the people that report the lowest cargo claims ratios, tend to have some of the higher linked average link to haul. So, what I would tell you is while I certainly believe there are opportunities for that, unless our linked the haul materially goes up and it seems like it would be hard for us to get to 0.4-0.5, right. We think there are clearly reasons, opportunities for improvement that I would say given, if you compare our cargo claims ratio to other companies that have a 740 miles linked to haul I would think we might be the benchmark.
- Thom Albrecht:
- I think that’s a fair statement, yeah. And then on the sales growth, that’s all outside sales and if so, 10% would be what, 25 people. Are those correct assumptions?
- Rick O’Dell:
- That’s about right.
- Thom Albrecht:
- Right. And you’ll continue to grow the inside sales effort, or is that staffed at level where you don't need to add to it right now?
- Rick O’Dell:
- We’re growing it a little bit. The combination of DSO, if you look at the total headcount growth it’s probably in the 30 range and again there is some management sales, field source reps as well some inside sales that we have in there.
- Thom Albrecht:
- Okay. And then maybe this was in the opening remarks but you alluded to, on the change from Q3 to Q4 in the OR, one of the negatives this year is the unfavorable development of insurance claims. So, was that new accidents or just over claims adversely developing primarily?
- Rick O’Dell:
- Are you talking about 3Q to 4Q comment?.
- Thom Albrecht:
- Yes. It seems like you are enquiring that some of the insurance was going to continue to be a drag on in the Q4?
- Rick O’Dell:
- Yes. What we said as we have axed on the unfavorable side, we had a little bit of accident severity.
- Thom Albrecht:
- Okay. So more recently, are you talking about?
- Rick O’Dell:
- Correct. In other words, in the first month of the quarter.
- Thom Albrecht:
- Yes.
- Rick O’Dell:
- We -- actually year-to-date, we’re very favorable. We expect to have a good year overall but we’ve already had a little bit of severity, not a catastrophic-type case, but some severity in the quarter that will have some impact on our self insurance so.
- Thom Albrecht:
- Okay. I mean that’s helpful.
- Rick O’Dell:
- The other things are normal so I’d be a little bit worst.
- Thom Albrecht:
- And then two last questions, Jim, depreciation will it grow from the third quarter level?
- Jim Darby:
- Yes, it will and overall we’ve been kind of all over the place with our projection for the year because initially our unit, our tractors came in a little bit slower in the second and third quarter. And now with the additional units, were buying in fourth quarter. Tom, I think we’re going to get the year at about a total close to $52 million for depreciation.
- Thom Albrecht:
- Okay. That’s helpful. And then lastly, Rick, back to you. Always funny what you forget the middle of our earnings season but with EOBRs in that, a lot of truckload guys are advanced. I know you’ve talked about that. Can you refresh my memory? Are you fully installed and if you are, how much of a productivity tools has that become, especially for things like driver behavior?
- Rick O'Dell:
- Yes. Two things, yes, we’re fully installed with the electronic onboard devices. It's been very effective in assisting us with fuel management as we have miles per gallon by drive -- by unit and even within the unit by driver like -- while they’re in there, right. We’re measuring progressive shifting and then there's a lot of recording technology in there in terms of -- examples would be heart breaking incidents and fast acceleration and things like that -- which would indicate behavior that would not really support defensive driving. You’re also seeing things are following to close. We actually have piloted some technology that records the other heartbreaking incident. It takes the video of the activity that took place in front of you. And it will e-mail that to us so we can review it and see whether our driver was doing inappropriate driving techniques or if obviously someone pulled in front of you and you had to make an invasive maneuver and back off quickly, right and that’s kind of not your fault type scenario. So we review that and actually we’re installing -- we're going to install those units on retrofits, some of our older units that are capable of that and install those on all the new units that we’re using. And actually, interesting thing is that our drivers have been very supportive of that because they feel in many scenarios, obviously they are doing defensive driving and you can actually get a recording of the inappropriate behavior of the other driver. So the tools like that have been very, very good for us.
- Thom Albrecht:
- That’s good, great to hear. Thank you again for all of that.
- Rick O’Dell:
- Sure.
- Operator:
- We will take our next question from Art Hatfield with Raymond James.
- Derek Rabe:
- Good morning. This is Derek Rabe in for Art.
- Rick O'Dell:
- Good morning, Derek.
- Derek Rabe:
- Good morning. I came on to the call little bit late, so I do apologize if this was asked and answered, pretty much all of my questions have been. But I wanted to look at purchase transportation. We didn’t see that come down sequentially as much as we expect and I realize some of that’s due to just growth across certain lanes? But any additional color there you could provide or maybe linehaul optimization progress there and then you know how quickly do you see getting above load average north of 29? And then finally, how much rail are you currently using?
- Rick O'Dell:
- Well, the purchase transportation, Derek, if you go back and look at what we were accomplishing a year ago. We were showing year-over-year improvement reducing it by about 22% quarter-over-quarter. So we think we’ve hit kind of a run rate which is reasonable but that’s why when you look at it third versus third it’s very close. And as far as managing it well, we have actually reduced our purchase transportation miles slightly in the third quarter of this year and the reason is it ends up balancing at as we are little bit of increasing in the cost per mile in purchase transportation.
- Derek Rabe:
- Okay. And any color on the rail?
- Rick O'Dell:
- Yeah. So just a brief comment, right, is to reinforce that. We actually ran between purchase transportation internal miles, we ran 3.96% less miles on basically flat tonnage, right. So we had some good efficiency in our linehaul network. The PT that we are using is primarily rail, as well as effective what we call one-way go-aways and head haul lines which would save the empty miles. So, again, we have made a lot of optimization in that. We always continue to look for opportunities and re-optimize your network, but given a kind of flat tonnage environment, I think we did a good job of managing the linehaul expense. The PT spend that we have more than 50% of our PT spend is rail. So, again, that’s effect, cost effective, utilization that we have, probably the spend on rail is between $20 million and $30 million, I don’t have an exact number, I’ll give that to you offline.
- Derek Rabe:
- No. That’s perfect color. I am sorry?
- Rick O'Dell:
- And then just, the other comment, the other question you had, I believe was, when we kind of expect to get over 29 and I guess, what I would tell you is being part of that, obviously it depends on where you go -- grow, right, because in other words, out of breakbulk operations as you would expect, we are way north of 30,000 pounds out of breakbulks. But in some of our smaller terminals, we have obviously much lower load average. So, if we grow tonnage in the small terminals and that kind of rides for free that the breaks and then break will come at a higher average as we re-handle it and shipped it on less 100% back haul. So, again, it’s a moving dynamic, I guess what I would tell you is, if we can grow tonnage in the 3% to 4% range, we would expect to see some -- further increase in our load average and linehaul efficiency, and we wouldn’t grow line miles at the same, correlate with the tonnage. So, that’s kind of our big opportunity is to grow 3% to 4% more tonnage and put another 500, 600 pounds average on the trailer, right.
- Derek Rabe:
- Yeah. That’s great color. I appreciate the time guys.
- Rick O'Dell:
- Okay. Thanks.
- Jim Darby:
- Thanks.
- Operator:
- We will take our next question from Robert Dunn with Sidoti.
- Robert Dunn:
- Good morning.
- Rick O'Dell:
- Good morning.
- Jim Darby:
- Good morning.
- Robert Dunn:
- I was wondering, did you mention what the revenue of Robart was for the quarter?
- Jim Darby:
- We did that $1.3 million or so, I think not much significant. We book a net of the purchase transportation for them.
- Robert Dunn:
- And was that up for about a $1 million last year?
- Jim Darby:
- I think it’s up slightly, it’s in line with what we have thought for the year.
- Rick O'Dell:
- It’s up about 30%.
- Robert Dunn:
- Yeah.
- Rick O’Dell:
- What I would tell you is we think there are opportunities to grow that further and you know as we look at next year the margins are good on that business, as we approach next year, we would target some incremental growth from that business segment as well. They have contributed kind of in line with our expectations from earnings standpoint. I would -- I think we would have targeted some higher growth objectives in that segment as well.
- Robert Dunn:
- Okay. On the equipment side, what’s the average age of the tractors now and is there a target age that you are going to try to get to with the CapEx programs?
- Jim Darby:
- Our tractor fleet is currently at 4.6 years and again, what we look at, is to we’d like to run our my haul miles with units that are less than five years old and we are pretty much there at this point. And the additional units we are buying in the fourth quarter really as we talk a little bit is that’s really front ending the spend that we would have in 2014 to take advantage of the efficiencies, the fuel and then also get some tax benefits from that.
- Robert Dunn:
- Okay. Great. And lastly, there was an article in a journal about natural gas engines and some increased testing amongst some of the truckers? Do you have any thoughts on the attractiveness and/or the pace of adoption of that kind of technology?
- Rick O'Dell:
- We are kind of at the early stages. Obviously we are following what’s going on in the industry. We have not made any acquisitions at this point in time. It’s kind of at current spreads. The technology looks fairly attractive but it’s a long payback and a huge upfront capital. So, you are not sure the spreads will stay where they are today. So, today, for a variety of reasons, it doesn’t appear all that attractive and if they can kind of get the cost down from -- which comes from the fueling systems themselves then it would become increasingly attractive. But it’s certainly something that we are watching and we would expect in 2014 to get some experience with the group of those tractors as well. But not a big conversion but for us to kind of get in the game we have some experience.
- Robert Dunn:
- Yeah. So, I, maybe five or 10-year type of time horizon, not a one or three-year time horizon?
- Rick O'Dell:
- Yeah. That will, well, I will just give you an example, one thing that kind of makes sense right, if you know your fuel savings are significant and at today’s spread, we could buy unit and put them in a lion -- we call it a lion share opportunity where it was run 500 miles and one 12-hour period and 600 miles in the other 12-hour period, right, and you run 1,100 miles a day. So then you could get a bit, you get your payback faster, right. Whereas our average unit might only run 500 miles a day and then it puts you at a long time payback for the fuel savings on the capital cost. So, there are some opportunities that especially for us, may work in certain situations and we are going to evaluate that and get some experience with the technology this year.
- Robert Dunn:
- Very interesting. Thanks a lot.
- Rick O'Dell:
- All right. Thanks Robert.
- Operator:
- Our next question is a follow-up from Jason Seidl with Cowen and Company.
- Jason Seidl:
- Hey guys. Pretty quickly about the fourth quarter, working days in the quarter? How was the comp to last year?
- Jim Darby:
- Working days this year is 62, I don’t recall the number from last year.
- Jason Seidl:
- Okay. And Jim, if I, just another nitpicky modeling question, you said $37.5 for the full year for your tax rate, excluding some of the benefits that you guys saw in 1Q and dollar amount, what was the tax benefit in 1Q?
- Jim Darby:
- The tax benefit of the retroactive piece that was, as you recall we had to book it in first quarter this year but the retroactive piece for last year was about a $1 million and so the…
- Jason Seidl:
- About $1 million.
- Jim Darby:
- … by exclude that million but the alternative fuel tax credit are also effective for this year and that is factored in the $37.5, but the rent…
- Jason Seidl:
- Okay. So just $30 million, I am calculating it. Okay. Fantastic. I appreciate it guys. Thank you.
- Jim Darby:
- Thanks.
- Rick O'Dell:
- Thanks.
- Operator:
- Mr. O’Dell, with no other questions in queue, at this time, I will turn it back to you for closing remarks.
- Rick O'Dell:
- Sure. Thank you for your continued interest in Saia. We appreciate it.
- Operator:
- Ladies and gentlemen, thank you for your participation. This does conclude today’s conference. Have a great rest of your day.
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