Good morning, and welcome to the fourth quarter 2016 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 11th by dialing 719-457-0820. The replay passcode is 6904652. The replay may also be accessed through March 2nd at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.
You're hereby cautioned, these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. As a final note, before we begin, we welcome your questions today, but ask in fairness to all that you limit yourself to just a couple of questions at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I'd like to turn the conference over to the company's Executive Chairman, Mr. Earl Congdon. Please go ahead, sir.
Good morning. Thank you for joining us today for our fourth quarter conference call. With me this morning are David Congdon, Old Dominion's Vice Chairman and CEO, and Adam Satterfield, our CFO. After some brief remarks, we'll be glad to take your questions. For the fourth quarter, Old Dominion continued to produce sound financial results. Our earnings per diluted share decreased by $0.02 as compared with the fourth quarter of 2015. These results reflect the impact of having one less business day than the same period of 2015. In addition, we had another quarter with higher depreciation and amortization expense, along with an increase in fringe benefit costs that were largely tied to the 25% increase in our share price during the fourth quarter of 2016. On a positive note, our revenue trends improved as the fourth quarter progressed.
Net revenue per day increased by 3.2%, which is the strongest growth we have seen in the last five quarters. We also returned to year-over-year growth in LTL tons per day after a two quarters of decline. Our LTL rate, weight per shipment increased 2.5% and LTL revenue per hundredweight increased 2.6%. With momentum continuing into January, we believe Old Dominion is well-positioned to benefit from a potentially stronger economic environment in 2017. One reason is that consistent with our long-term strategy, we continued substantial investments in infrastructure and technology in 2016, while also investing in our employees by providing ongoing education and training as well as a 3% pay raise in September.
Our cash flow provided by operations allowed us to make these investments, while we also returned $130 million of capital to our shareholders in the form of share repurchases. To further improve shareholder return, the company announced today that our board of directors has declared a quarterly dividend of $0.10 per share to be paid in the first quarter. Given the long-term strength of our financial position and our cash flow generation, we are confident in our ability to return additional capital to our shareholders, even as we continue to fund significant investments in our business to leverage our near and long-term growth opportunities. Thank you for joining us this morning, and now here is David Congdon to give you more details on the quarter.
Thanks, Earl, and good morning, everyone. Stepping back from the specific quarterly numbers for a moment, I'll begin by saying that the overall fourth quarter operating environment was similar to what we experienced throughout 2016. We had a slow start to the quarter, but our revenue and tonnage marginally improved on a year-over-year basis as the quarter progressed. Our LTL tons per day essentially trended in line or slightly above normal sequential trends for November and December. This continued into January, LTL tons per day were also in line with normal seasonality. These trends, combined with the increase in LTL weight per shipment and other improving macroeconomic indicators for the fourth quarter, provided us with a sense of cautious optimism for an improved economy in 2017, which also concurs with economic forecasts for improved GDP.
As I mentioned more than once in 2016, and regardless of the economic environment, we remain focused on the things that we can control by continuing to deliver superior service at a fair price while also remaining diligent with regards to costs. Our on-time delivery and cargo claim ratio each improved for the fourth quarter and the full year compared with respective periods of 2015. Providing the superior service that our customers expect can create cost inefficiencies within operations in periods when our volumes are not as strong. We operated very efficiently throughout 2016, however, as evidenced by an improvement in our variable operating costs as a percent of revenue for both the quarter and the year.
I think this is a real testament to the value of our team, who effectively managed productivity and costs in the face of lower volumes throughout the year. As you've heard me say before, to improve our operating margin over the long term, we need improvements in density and yield, both of which require the support of a positive economic environment. Our yield suffered a bit in 2016 with the decrease in fuel surcharges, but it remains positive in what was a generally stable, albeit competitive pricing environment. The pricing environment continued to be stable in the first quarter and our LTL revenue per hundredweight increased 2.6% or 1.6% when excluding fuel surcharges.
While this rate of growth was lower than the first three quarters of the year, the fourth quarter included a 2.5% increase in rate per shipment and a 50 basis point decline in average length of haul. These changes generally have a negative impact on the LTL revenue per hundredweight, but as I just mentioned, we are encouraged by the increase in LTL rate per shipment, which is typically an indicator of an improving economy. We obviously didn't have the benefit of a strong economy in 2016, and the reduction in volumes didn't help with density. As a result, we were unable to leverage our fixed costs to improve our operating margin in the fourth quarter and the year. Our OR increased 30 basis points for the fourth quarter and 60 basis points for the year.
Even so, we are only 40 basis points from our record fourth quarter operating ratio and 60 basis points above our best annual operating ratio performance. We remain confident that we can increase our margins in the future with improved density and yield supported by a positive economic environment, and therefore are encouraged by the potential for stronger growth in 2017. Thanks for joining us today, and now Adam will review our financial results for the fourth quarter in greater detail.
Thank you, David, and good morning. Old Dominion's revenue was $745.7 million for the fourth quarter of 2016, which was a 1.5% increase from last year. Our revenue on a per-day basis increased 3.2% as the fourth quarter of 2016 had one less operating day than last year. The operating ratio was 84.8% and earnings per diluted share were $0.83, which was a 2.4% decrease from the $0.85 of earnings per diluted share in the prior year. The increase in revenue for the fourth quarter reflects a slight increase in LTL tons per day as well as an increase in yield. LTL revenue per hundredweight increased 2.6% for the quarter and increased 1.6% when excluding fuel surcharges.
I'll repeat what David just said and note that these metrics were impacted by changes in our mix and do not reflect any change in our pricing philosophy. LTL tons per day increased 0.3% as compared to the fourth quarter of 2015 as our LTL weight per shipment increased 2.5% to offset the 2.2% decrease in LTL shipments per day. On a sequential basis, our LTL tons per day in the fourth quarter decreased 2.6% as compared with the third quarter of 2016. This change was in line with our 10-year average sequential trend. For January, our revenue per day increased approximately 5% on a year-over-year basis as we continue to see good yield performance and our LTL tons per day increased 2.2%.
Our operating ratio for the fourth quarter of 2016 increased 30 basis points as compared to the fourth quarter of 2015. This change reflects a 60 basis point increase in depreciation costs as a percent of revenue, as well as a 50 basis point increase in salaries, wages, and benefits. The increase in salaries and benefits was primarily the result of a $7.7 million increase in our fringe benefit costs as compared to the fourth quarter of 2015 as retirement plan expenses were impacted by the increase in our share price. It is important to note that a portion of the increase in both depreciation and employee-related costs resulted from our reduced reliance on purchased transportation during the year. As a result, purchased transportation costs as a percent of revenue improved 70 basis points.
Old Dominion's cash flow from operations totaled $155.5 million for the fourth quarter and $565.6 million for the year. Capital expenditures were $66.8 million for the quarter and $417.9 million for 2016. The company currently expects capital expenditures for 2017 to total approximately $385 million, including planned expenditures of $185 million for real estate and service center expansion projects, $155 million for tractors and trailers and $45 million for technology and other assets. We repurchased $11.3 million of common stock during the fourth quarter and $130.3 million for 2016.
These purchases left us with $200 million available for purchase under our current $250 million repurchase program. We intend for our share repurchase program to be our primary form of returning capital to shareholders. Although repurchases in the fourth quarter were lower than previous quarters this year due to the increase in our share price. We are excited about today's announcement of the quarterly dividend, which provides us with another means to consistently return capital to shareholders while also leaving dry powder for other investment opportunities that can drive long-term growth. Our effective tax rate was 38.5% as compared to 35.5% for the fourth quarter of 2015, which included certain discrete tax adjustments. We are hopeful for corporate tax reform in 2017.
However, we currently expect our effective tax rate to be 38.6% in the first quarter of 2017. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.
Are we still on?
Yes. At this time, if you'd like to ask a question, you can press star one.
Okay.
We'll go first to Amit Mehrotra from Deutsche Bank.
Hey, thanks for taking my question. Appreciate it. just going back, to, the, just a question on basically trying to ask about tonnage growth and, you know, if you have a tightening environment, do you expect to see, you know, where market share essentially will go relative to geographic expansion? I think last quarter you talked about potentially increasing up to 35 to 40 service centers. Is that the case, given maybe a little bit better macro backdrop? Then just following up on that, in a sort of stronger economic environment, where do you expect, you know, market share to trend, or where did it go in the quarter, given some of the, you know, expansion and better service levels of some of the competitors? Thanks.
Yeah. Morning, this is Adam. We still have our list of, you know, 35-40 service centers that we want to add to the network over time. Certainly, we continue to look and evaluate if there are opportunities to purchase land. If, you know, those opportunities present themselves, we certainly would look at taking advantage of that. From a market share standpoint, you know, typically when periods are slower, like the economic environment that we were in in 2016, and perhaps price becomes more of an issue for shippers versus looking along the spectrum towards the service side of things, then, you know, our market share gains were not as strong as they have been in, you know, better periods.
You know, certainly our trends turned positive. We felt good in the third quarter. You know, we started out a little slow. October, from a sequential standpoint, was a little bit below what our normal sequential trend is. November came back, was better than our normal sequentials. December was right in line, and January of 17 was pretty much right in line with those normals as well. You know, we look to get some sustained improvement in economy, and we feel like when that happens, we certainly can get back to growing market share like we have over the longer term.
Thanks for that. On the weight per shipment trends, there was some, you know, nice sequential uptick, at least. Can you just talk about the sequential change in January and do you know, is there anything in particular to throw that, or was that kind of broad based, and you'd expect that to continue into 2017? Thanks.
Yeah. You know, the weight per shipment sort of trended about the same all year long, you know, around 1,550 pounds, kind of ± 10 pounds. We saw definitely an increase moving into November. It increased above 1,600 pounds there in November and December. You know, it was a nice increase on a year-over-year and a sequential basis. It dropped a little bit in January to about 1,570 pounds, that's pretty normal. You normally will see a little bit of in history, your weight per shipment decline. We still feel good. You know, it's been consistent.
We're seeing it across the board and, you know, like we mentioned in our comments, we feel like that, you know, that's just one more data point that we look at that's indicating that maybe we're turning the corner with the economy and, can see some sustained, you know, improvement there.
Just last one on the dividend. Just wanted to get an understanding on sort of the thought process there. I mean, have you been hearing from your investors that dividend would be appreciated, looking to maybe expand out the share capital base? You know, it's a pretty obviously nominal amount on a yield basis. Would you sort of look to slowly improve that over the next quarters or so and essentially make this more of a dividend growth story? Just to understand, one, the reason for the initiation of the dividend and then how you see that evolving over time. Thank you.
Yeah. I mean, we felt like that, you know, with the quality of our cash provided by operations, the strength of the balance sheet that we certainly had the room to be able to initiate. As we mentioned, we continue to want the share buyback program to have the priority in terms of returning capital to shareholders. We have heard, you know, in over the course of years, when we first put our buyback program in place that shareholders would have appreciated a dividend. It's something that we evaluated back in 14 and we've continued to evaluate it. We felt like we were in a good position to do so.
It is a nominal amount, but you know, as we've said that we still feel like we're a growth company and we've got plenty of dry powder to continue to invest in our business. That's where our best return on invested capital comes from. That's what we're gonna continue to focus on. This is just, you know, one of another complementary means of improving overall shareholder return.
Great. Okay. Thanks for taking my questions. Appreciate it.
Thank you. We'll go next to Allison Landry from Credit Suisse.
Hi. Good morning. This is Daniel Schuster on for Allison. Thank you for taking our question. We were just wondering if you could clarify what the normal, I guess, historical sequential trends are for October, November and December. I know you mentioned that they were fairly in line with normal sequential trends in November and December 2016. We're also wondering if you could share the same details for January, February, March.
The normal sequential trend for weight per day, October would be down 3.5% as compared to September. November would be up 3.2%. December would be down 9.2%. In the first quarter, January would be an increase of 1.9%. February would be an increase of 1.9%, and March would be an increase of 5%.
Okay, great. That's very helpful. Thank you. Shifting to the capital allocation, it looks like you're stepping up the capital you're putting towards real estate and technology this year and holding back a little bit on tractor and trailer investments in 2017. Just wondering if you could give us a little bit of color into what projects you're working on the real estate and tech areas this year.
The real estate projects are, I think it was somewhere in the neighborhood of 70 different projects that involve expansion of service centers. We've got, you know, repaving roads and reroofing facilities. We've got land in there for future building projects. Just a wide variety of real estate projects. I think, I don't think we've given a count on how many new service centers we anticipate opening, but there's a handful out in there. There's about four or five new facilities we think will open this year. Yeah. And on the equipment side of the equation, you know, we're as we said, we are approaching this year as cautiously optimistic.
I would say that back in the fall, in October, when we first did our equipment projections and our growth projections for next year, we were less optimistic about the economy. When the election results came out, we have become more optimistic about the economy for next year. Frankly, our equipment numbers are basically our replacement program, and we don't have much equipment in there. There is a little bit, but not much equipment in there for growth.
Should we see the economy actually pick up and as we watch, you know, our equipment and just volumes going into next year, there could be a possibility of increasing the equipment spend as we get into the year and seeing, you know, how things are actually trending.
Okay, great. Thank you for the color.
Thank you. We'll go next to Todd Fowler from KeyBanc Capital Markets.
Great, thanks. Good morning. Adam, I know you probably don't want to get into you giving specific guidance on the OR for the first quarter, but given some of the moving parts in the fourth quarter with the variable compensation, can you just help us maybe think about the basis point impact from some of those things in the fourth quarter and then what we should think about for, you know, the progression into 1 Q?
Well, it's I was gonna give you the detail on the first quarter, but since you gave me the out.
One of these days I'm gonna learn just to ask the question.
You know, one of the biggest things that really hurt us this whole year was this, you know, increase in our fringe benefit cost, and it, you know, fluctuated. This past quarter, it was a little over 36% of our salaries and wages, where it had been 34% of that number for, you know, basically, earlier in the year. That started back in the fourth quarter of last year. I mean, that's something that we've got some opportunity on, but we don't necessarily see, you know, that there's a short-term fix or silver bullet. It's a, you know, with that. We're kind of looking at that probably continuing more in a 34% of salaries and wages range.
You know, again, a lot of the increase that we saw just in this fourth quarter, and overall, it was a net $7.7 million increase, but a lot of that was coming from the impact of the increase in the share price on our retirement plans.
There's a link to that. Yeah, obviously, we've got wage inflation in those numbers. We've still got, if you remember last year, you know, we were still seeing a little bit of year-over-year growth in January and February. It was really March where we started rolling off. We had our top 10 customer we spent a lot of time talking about last year, but we had a few large customers that rolled off the books. You know, we still were seeing tonnage and shipment growth in January and February. You know, we've got that to deal with. You know, overall, I think for next year, we're probably looking at cost inflation, excluding the fuel, of around 4%, just with some other things that we've got going on.
Then, you know, obviously from a fuel standpoint, where we are today with just shy of $2.60 a gallon. you know, I think the average in the first quarter of last year was $2.08. We've got, you know, definitely a fuel cost headwind that we'll be looking at.
You gave me the answer, but I've got to do some work to get to the specifics, I guess. no, I appreciate the color there. then just my follow-up, I wanted to ask, I got the comments on the January tonnage trends and the revenue per day, but just the thought on the revenue per hundredweight here in January, where are you seeing that trend at, and how is that versus where you were in the fourth quarter?
We don't really talk about the revenue per hundredweight on a month-to-month basis because it can, there's more impact of mix when you look at it on the month. We still feel good about the performance of our pricing. I think that our contract renewals, those that renewed in the fourth quarter were consistent. It was a pretty good sized increase in weight per shipment, and we had the decrease in the weight of hauls.
You know, on an absolute basis, our revenue per hundredweight, excluding fuel, was $16.78 in the fourth quarter, and that was down a little bit sequentially from the third, but it was still above where we were in the second quarter, despite our weight per shipment being up, you know, between those two periods compared as well. I mean, we still feel good about the environment overall. All the reasons are still that we felt good about the pricing environment in the industry last year, are all still in place. You've got, you know, an economy that may be improving.
We still feel good about pricing overall for the industry and we certainly will continue to look and execute on our pricing philosophy of trying to get an increase that will offset our own cost inflation. You know, from a reported yield standpoint, with an increase in weight per shipment, just like we saw in the fourth quarter, it's likely that rate of growth on a year-over-year basis could be lower than the, you know, 3%-4% true price increases that we target.
Okay. Thanks for all the thoughts this morning and the time. Nice quarter.
Thank you.
Thank you. We'll go next to David Ross from Stifel.
Yes. Good morning, everyone.
Good morning, David.
Hello, David.
Any more optimism on Twin 33s with the new administration, David?
I think there's a decent chance that that may go through. You know, Fred Smith is the one that's really leading the charge on the Twin 33s. We've, you know, we've been studying our lanes and load averages and so forth, and we're honestly finding that, you know, our long-haul lanes where we could get the most bang for the buck, are being loaded very, very full, and we don't have as much potential benefit from them as we once thought. We're leaving it up to Fred to lead the charge on that.
Should the law pass, we anticipate trying to figure out the best places and ways that we can use them in our fleet.
On the CapEx side, because you got about $155 million budgeted for the year for tractors and trailers, are you doing anything different, you know, on the replacement front in terms of either equipment vendors or types of equipment that you're buying?
The vendors are basically the same. You know, our, you know, Freightliner are predominant vendor. We are equipping all of the trucks this year with the collision mitigation systems that, you know, that have the automatic braking. We believe that that's a very good feature to put on the trucks, a worthwhile safety feature. That's probably the predominant difference in what we're doing this year.
Excellent. Thank you very much.
Thank you. I'll go next to Christian Wetherbee from Citi.
Hey, great. Thanks. Good morning. I don't know if I missed it, but did you guys give the December year-over-year tonnage?
December's year-over-year tonnage was +2.6%.
Okay, got it. When you think about the growth in January as well, seems like a little bit of a pickup, at least on a two-year stack basis. I mean, you talked about the sequential trends and kinda how that's playing out. You know, generally speaking, when you're talking to customers or at least just sort of seeing activity in the market, you know, are there certain areas where we're seeing sort of pickup is a little bit more broad-based? Just wanna get a rough sense of maybe how you guys are looking at the freight environment. Seems like it's a touch better than it was certainly, you know, at some point in the middle of last year.
Yeah, I mean, it generally feels better. There's no one, you know, particular area that is growing. You know, we've got some that are in pockets growing faster than others. You know, it's pretty balanced across the system, which is good and what we would want. No, we're just getting it sort of across the board, I guess. You know, we are getting positive feedback from customers. We're starting to see, you know, some pickup and some customer wins, and that's already reflected in some of the numbers. You know, even some of the customers that, you know, we lost some business with last year, some of that is coming back.
It may not be all of it. We may not want all of it back, but we are getting some pockets of that. We feel like we've got a, you know, some positive momentum going with us from a revenue standpoint.
Okay. Got it. That's helpful. When you think about the outlook for sort of, you know, you talked a little bit about pricing for 2017, or at least sort of the environment, and it sounds like you feel good about how things are playing out. You know, I guess I just wanted to get a sense of sort of what you think it takes to maybe accelerate pricing. You know, I think some of us might argue that 2016 probably outperformed the tonnage environment. Pricing outperformed tonnage environment was a bit sluggish on the tonnage side, but we saw decent pricing. You know, do you need a big step forward, do you think, in tonnage to be able to see a re-acceleration of pricing?
I'm just trying to get a sense of maybe how you guys are approaching the market and what you need to see.
Chris, this is David. You know, the forecast we hear for GDP next year is like 2.5% compared to 1.6% this year, which is not a huge increase. I guess it's, you know, it's close to 50% more growth than we had this year, so maybe that is a huge increase. You know, I think you'll see some acceleration in yield that would come with that. Perhaps the biggest potential acceleration in tonnage and yield could be with this electronic logging device mandate that's scheduled for the end of 2017.
You know, the predictions that we hear is that, you know, sometime in the latter half of the year, we're likely to see some capacity come out of the truckload arena. With the for-hire truckload market being roughly 10x the size of the LTL market, you know, if you had a 1% fall off in tonnage from the truckload arena, it could equate to 10% increase in the LTL arena with larger LTL shipments. That could be, you know, a significant increase in our business in the latter half of the year or a surge.
If we have a surge, I would expect pricing will surge along with that increase, in tonnage and reduction in trucking capacity.
That's really helpful. One just very quick follow-up on that point. I think it's an interesting one. When you think about, you know, or when you talk to customers as we're entering sort of the early part of 2017, you know, are they engaging with you at all in terms of conversations about contingencies for that potential implementation? I just wanna get a sense of maybe if it's in the customer conversation on the LTL side yet, or maybe just something that could come later in the year.
We're not hearing much about it yet. I guess I hear more about it, just, you know, at conferences and different things and people, you know, speculating. We're certainly not betting on anything in particular happening. We'll keep our ear to the ground and stand ready to increase our truck buying if we need to in the latter half of the year as it comes along.
One thing to add to that as well is that, you know, we do know that we probably lost a little business that's managed by the third-party logistics companies with the weakness in truckload pricing. You know, I think they were able to leverage their relationships and maybe find some trucks that were available to move some heavier weighted shipments that otherwise would have moved through a 3PL. If you get that general tightening and maybe rate inflection up in truckload, that certainly could be a benefit to the LTL industry.
Let me add one more thing, is that we believe, and I believe very strongly personally, that we are in the best position in the LTL industry with capacity across our network because of the continued investments we have made in our real estate over time to stay ahead of the power curve and to, you know, build out and expand our centers in the markets where our growth is the strongest and where we see the potential for future growth. Should there be a sudden surge in the latter part of the year or first part of 2018, we are ready to handle it.
That's great. Well, thanks very much for the time, guys. Very helpful.
Thank you. We'll go next to Benjamin Hartford from Baird.
Hey, good morning, guys. Adam, a few balance sheet related questions. Did you provide a debt reduction or a debt pay down target at all for 2017? How do you think about carrying debt levels as you kinda reconsider or consider dividends as an option to return cash to shareholders, plus the reduction in CapEx for 2017? Any changes to how you think about carrying debt going forward?
We don't have any scheduled maturities with our debt in the coming years or next year. We've got one in January of 2018 that's coming due. You know, we had about $105 million of debt. There was a little bit outstanding on the revolver at the end of the year, but not a lot. Frankly, you know, our debt to cap was 5.4%. That's one of the things that, you know, we were looking at as we were going into next year and making the decision on implementing the dividend.
You know, we feel like we've definitely got some opportunities and, we can afford to put a little debt on the balance sheet, but we just wanna make sure that, you know, we're prudent with our decisions and that we're doing it in the right ways and for the right reasons.
I guess to that point, and I imagine there's more to come on that front, but you can look back to where you carried debt levels during the previous cycle. It was obviously materially higher. I mean, we think about one time the debt to EBITDA as a, as a reasonable target. Without pinning you down on a specific number.
Yeah, I'd rather not say 'cause we don't just have a stated target. You know, again, I think that we wanna look at ways that enhance shareholder returns. I think we've done that through the implementation of the repurchase program. You know, we increased our repurchases in the early part of 2016 and ended up buying $139 last year on that. Now we've added this other component, you know, we're still looking at ways that we can expand and grow the business.
You know, if that's available real estate that we can take advantage of above and beyond what's already planned, you know, we will look at those opportunities or other opportunities to invest in some of our non-LTL business and try to generate some growth there. Certainly we know we've got an opportunity with the balance sheet. We just wanna make sure that, you know, we're using it in a smart way.
Okay. Just to finalize that point, you talked about expanding kind of into complementary and potentially non-LTL businesses. Does the fact that you're introducing a dividend reduce the likelihood or does it suggest that you are less inclined to do acquisitions to expand above and beyond LTL? How do you think about acquisitions in the context of organic growth opportunities outside of LTL specifically?
Yeah. Our priority for allocating capital really hasn't changed. I mean, it starts with reinvesting in the LTL business. That's where our best returns have been, and that's what we're gonna continue to stay focused on. You know, we continue to say that acquisitions are in second place. Granted, we haven't had one since 2008. We've looked at plenty of them and, you know, the pricing, the valuation, whatever, just didn't make sense, or just, you know, strategically, we didn't think it made sense. We haven't executed. And that's why we, you know, implemented the Shareholder Return Program.
You know, to answer your question directly, in no way is the dividend gonna take away from that focus, and we're gonna continue to look at investing first in LTL. If we can do that at a higher level this year or in the next coming years, we will. You know, we'll continue to evaluate acquisition opportunities as well.
Okay. Last one, if I could. The $7.7 million that you called out this quarter in fringe benefit costs that you kinda tied to incentive comp, if you will, tied to the stock price. Is that all of that $7.7 that you highlighted or was there some other element to that fringe cost above and beyond the share price appreciation related inflation?
That was a lot of it. It wasn't all of it. You know, that's something that we wanted to give as information, and definitely not something that needs to be adjusted out or anything of that nature. It was just trying to disclose more information about something that changed. You know, I guess our retirement plan expenses have been or was kind of choppy this whole year. You know, there was a lot of volatility with our stock price up and down movements. Most of the annual expense came in the fourth quarter, but in the third and the fourth quarters as we saw a big surge in our share price.
You can look and we disclosed in our 10-K the number of, you know, vested shares that we have in the phantom stock programs and make some calculations on the dollar movement in our share price and do sort of a back of the envelope calculation with those. You know, the other cost that we've seen, as I mentioned earlier, we've just had inflated group health and dental costs this entire year. That's a trend that really is something we can manage too, and something we're looking at.
We're continuing to evaluate work with our partners and trying to put other wellness programs in place, other types of preventative programs that we can try to get a good control, on the health and well-being of our employees and their families.
Okay. That's great. Thank you.
Thank you. We'll go next to Ravi Shanker from Morgan Stanley.
Morning, everyone. Just to follow up to your responses for a few questions earlier in this call. When you said that you're seeing the shift from in your customers to from service to price. What gets them to focus back on service? Is it just gonna be ELDs and the potential shortage on that? Or do you think that the market sort of close enough to being in a balance that even an improvement in demand with seasonality should get them there?
I think some of it, Ravi, will come from just the general uptick in the economy. The other part is, you know, we've seen this time and time again through previous down cycles where customers, you know, they will leave us because a competitor offers a lower price than ours. When they get a taste of someone else's service compared to the service levels they had with OD, they come back to us. We're seeing that happen now. We believe as the market and capacity might tighten up going into next year and as orders are picking up and customers are trying to make their customers happy, that they will see our, you know, premium service.
Got it. Just thinking of pricing, you altered your pricing strategy a little bit last year, at least the timing of it, in terms of when you announced your GRI. Can you give us an update on what your experience has been with that? What's your customers' reaction been? What can we expect for 2017 in terms of timing?
Are you saying we altered our pricing strategy?
The timing of your GRI announcement.
Yeah. I mean, the only thing we did was, I mean, we pretty much announced for the most part in line with the industry. It was on a 10-month cycle. We came out at the end of September. In 2015, it was at the end of November. You know, pretty much came out in line with the rest of the group, really. I think there was only one large carrier that pretty much didn't go out in that same timeframe. You know, really nothing's changed in that regard.
You know, I think that the GRI went through, you know, there wasn't a lot of pushback because most of the other carriers, you know, were out seeking rate increases as well, which we think they need to continue to push for if the industry's gonna get healthier from a margin standpoint to be able to support any reinvestment in capacity. We, you know, frankly, haven't seen it, you know, on a total basis other than us. We believe that the industry has got to continue to push price up.
Got it. Lastly, you spoke about focus on technology. Can you talk about what are you hearing in terms of platooning? Are you running any platooning trials out there? Do you have a potential timeline for implementation?
Ravi Shanker, we have not joined in on platooning at this point and do not have any plans to do so in the near future. We're watching, you know, how things are transpiring on that front and the autonomous front and so forth.
Great. Thank you.
Thank you. We'll go next to Scott Group from Wolfe.
Hey, thanks. Morning, guys. Adam, did you say that weight per shipment was up in January?
I didn't say what it was up, but, let's see. It is about 1,570 pounds versus about 1,540 last year, give or take.
We can do that. I want to go back to the question on margins. If we think about the environment of low single-digit tonnage and low single-digit revenue per hundredweight net of fuel and fuel higher and some of the cost inflation. Just directionally, is this an environment where we should be expecting year-over-year margin improvement?
You know, we always expect margin improvement, and we're always focused on it. You know, this year, obviously, we talked about, or I mentioned earlier some of the cost inflation and, you know, I think as in David's prepared comments, you know, certainly we think that the ingredients for margin improvement are certainly there. You know, if these trends continue, if we continue to have a strengthening economy, that will be supportive of a positive yield environment. Certainly, you know, we think that, you know, we're already seeing year-over-year tonnage growth. You know, as I mentioned, those numbers can look a little bit better once we get through March. Certainly we've got a density opportunity.
We've got the yield opportunity that's in front of us. We just need the economy to really continue to, you know, to be sustained. I mean, as we went through last year, we'd see a couple of good months, and then you'd take a step back, and it just felt, you know, really rocky and sort of bumping along the bottom. You know, I think the ISM number that was released yesterday is one of the strongest numbers in a couple of years. You know, there's a lot of things that we feel like are turning. I can tell you, we're certainly focused on managing our costs, managing productivity. And, you know, all these things are certainly looking better than, you know, they looked when we entered 2016.
Another thing is that our fixed cost structure this year includes a lot of investments we've made in IT and also our human resources functions, and those costs should be relatively level going into 2017 and beyond. You know, as the growth improves a little bit, we should be able to get some leverage against those fixed costs.
Okay. That's helpful. Maybe I'll try and ask it a little bit differently. Is there historically a tonnage level that you think you need to see to see margin improvement? When I just think about the mix of weight per shipment going higher and revenue per hundredweight net of fuel a little less, does that generally help or hurt incremental margin?
If you look at revenue per shipment, you know, certainly this year, that can be higher. I mean, if you look at our revenue per shipment and then compare that with what our cost per shipment and how those are trending, you know, that's the more relevant comparison, I guess. You know, there's so many variables that go into it, Scott. It depends. You know, we get asked that question a lot. Well, what tonnage do you need? It depends on what other actions are we taking. You know, I think that we've had margin improvement in periods with lower tonnage and with higher tonnage. You know, what level of CapEx do we have?
I mean, there's so many other variables that go into it, that it's hard to say what the specific number of tonnage growth we need because you'd have to have, you know, that Y variable of what is the yield increase offsetting. You know, obviously, we'd like to have more yield, you know, that increasing versus the volume. You know, we always used to say that a 1% change in yield or decrease, you would need 5%-6% increase in tons to offset.
Okay. Just lastly, I think you guys in the past have talked about your goal is to grow tonnage five or six or 700 basis points faster than the market. Is that still your goal? Is that still a realistic goal once the environment gets a bit better?
You know, it's a little bit harder to get that much tonnage, I mean, that much spread on our growth rate today than it used to be back when we were expanding geography. Also when you look back at some of the disruption in the marketplace with, you know, the fallout of business from YRC. We touched on that, I think, last fall in a conference call.
Also when the market is soft and the freight environment is soft, you know, our spread in tonnage growth has gotten down to, you know, if you take aside one of the carriers who was using price to get tonnage recently or this past year, our spread in growth is down in the 200-300 basis point maybe difference between the rest of us and the rest of the LTL industry. You know, as we, as the, as the environment's changing and the overall economy is getting a little bit better, you know, maybe 300-500 sounds is maybe more realistic than, 500 basis points -700 basis points of difference.
Okay. I appreciate the time, guys. Thank you.
Thank you. We'll go next to Ariel Rosa from Bank of America Merrill Lynch.
Good morning, guys. Wanting to touch on the competitive landscape, just if you could talk about how competitors maybe expanding their geographic footprint has impacted your business, if at all? What competitors are doing broadly on kind of the pricing front and what you're seeing out there.
I think that, on the pricing front, you know, we continue to feel like it's been stable. You know, no signs of, you know, increasing competitiveness or anything along that front. You know, I would say too that, you know, we mentioned we're getting some business back from that we lost last year. Generally, when we lose business, it's on price, and I think some of that freight is being rebid. Some of the carriers that maybe took it at a little bit cheaper price last year figured out it didn't operate as well, and they're trying to push prices up a little bit more. That may be contributing, again to, you know, to some of our, you know, marginal improvement.
You know, it takes service, price, and capacity to grow. As David mentioned before, we feel like we're, you know, definitely in the best shape in the industry in terms of service. We continue to have award-winning service, 99% on time and a low claims ratio each year. We've certainly got the capacity and the network, and price is, you know, now becoming maybe more normalized. We certainly think that if price is not a factor that we're gonna win on service and capacity. We feel, you know, really good from that standpoint.
Okay. That's helpful. Thank you. Just switching topics to the dividend capital allocation. You mentioned that the decision to start paying the dividend was a little bit driven by the fact that the share price had risen so much. I mean, if you could provide a little bit of visibility into what the criteria is that you're using internally as you look at the share price. You decide what would be a reasonable level to buy back shares, how do you allocate to shareholder returns and why you may have decided that this quarter wasn't such a good time for that?
Yeah, I got you. You're breaking up a little bit, Ariel, so I'm gonna answer what I think you asked. Yeah, we did.
Sorry about that. I can ask it again. I don't know if you heard. Are you saying just what level is or what the criteria is that you're using to decide when's a good time for share buybacks and what was behind the decision to pay a dividend instead of increasing the buyback?
I got you. You know, we have a grid, and we don't disclose the details of that for which, you know, buying our shares, and obviously, we wanna buy when the price is lower. I think when you look at the average price, you know, as we put this program in place, we bought shares at about an average price of $65. That doesn't mean that that's our ceiling. We certainly have bought when the price is higher. You know, we continue to execute on that grid. We changed it a little bit at the beginning of 2016. If you go back into 2015, we had not bought more than $35 million in a quarter.
We stepped that up in the first half of 2016 when our share price was lower, you know, bought about $90 million in the first half of the year. As the price increased, you know, we started buying fewer shares. That's the way our grid is designed. You know, we've been out of the market of late. We'll continue to evaluate the changing landscape and perhaps make changes to our grid this year. You know, we'd rather buy it when the price is cheaper.
That didn't impact You know, the decision on the dividend is not to replace, but anything, you know, with the buybacks, and as I mentioned, we continue to think that the buyback is a better form of returning capital. That's our intention, and that would be the primary means of doing so. You know, the dividend just is one complementary means of returning capital. It's consistent. You know, that was some of the decision-making in adding that cash dividend.
Great. That makes sense. With the administration, you know, talk about deregulation, I was hoping you guys could touch on, you know, think the impact of that might be across the industry and if there are any regulation in particular you guys are targeting as going away and what impact that might have on your, on your cost structure.
You broke up a lot, and I think you're asking about regulatory reform.
Yes, exactly.
You know, I don't think any of us know exactly what that regulatory reform might look like. You know, I know one thing in particular that there was a proposed rulemaking last year for speed limiter devices, you know, for the trucking industry, and that is highly contested by different, you know, parties within the American Trucking Associations. It was, and we'd like to see that thing rolled back right now. Most all the fleets out there today have speed limiting devices already on our fleets. Due to the wide variance in speed limits across the nation, you know, there is no perfect speed that could be uniformly applied across this United States.
So anyway, that's one that needs some attention. You know, other regulatory reform, who knows what's gonna come down the pipe.
Yeah. Okay, great. Just one real quick housekeeping. Could you just give the number of working days by quarter in 2017? Also, just say the number again of what LTL tonnage per day was up in January?
Sure. The tonnage per day in January was up 2.2% on a year-over-year basis. Let's see, workdays, if we get to it. By quarter for 2017, 64 in the first quarter, 64 in the second quarter, 63 in the third quarter, and 62 in the fourth quarter.
Okay, great. Thank you very much.
Thank you.
Thank you. We'll go next to Matt Brooklier from Longbow Research.
Hey, thanks. Good morning. Is 3%-4% price growth, is That still a good bogey to think about for this year?
Well, you know, as I mentioned before, that's what we target with our contractual renewals. You know, our pricing philosophy is that we look at our own cost inflation, and that's what we ask for in the form of a price increase to offset. Now from a revenue per hundredweight standpoint, that yield metric, as it was in the fourth quarter, is likely to be lower than 3% to 4% because of mix changes. When you've got, you know, an increase in weight per shipment like we had in the fourth quarter, you know, that's certainly gonna have a negative effect on that reported metric. It doesn't mean that underlying core pricing is weaker at all or, you know, in any way.
We still feel good about, you know, being able to get, you know, those, you know, sort of 3%-4% targeted increases next year or this year.
Okay. Okay. Can you just remind us when the weight per shipment comps, when those get easier this year?
Easier in terms of, like when it will comp with where we were in the fourth quarter?
Yeah. When do we lap? I mean, I can look back at my model, but when do we lap the increases in weight per shipment that we saw last year, the beginning of that?
Well, it trended, again, you know, sort of ballpark about 1,550 pounds in each of the first three quarters. We've been, you know, closer to 1,600 pounds in the fourth quarter. If, depending on if we stay at around 1,600 in the first, you know, three quarters of the year, making that assumption, then obviously we'd have an increase there and an impact on, you know, that impact on yield for those first three quarters.
Then, just a question on headcount. I think headcount was down in fourth quarter. You guys did a good job of managing headcount in into kind of a less robust growth environment. Now that tonnage is picking up, how should we think about headcount going into first quarter? I think traditionally headcount's grown sequentially, but are you at a point with tonnage starting to pick up again here needing to add heads in first quarter? Then maybe just some color on, you know, the progression of potential headcount growth through the rest of the year.
Yeah. You know, I think we're in pretty good shape with the with the workforce where we are and the and the volumes we have. You know, certainly at the local levels, it's up to each terminal manager to make decisions on what their volumes are and and what their headcount needs should be. You know, we always, to protect service, we like to to add our employees before the volumes are picking up because we want to make sure that they've had suitable time to to train and and to be able to to protect our own service. Certainly if we continue to see volumes picking up, there could be an increase in headcount, you know, for that reason.
Okay. You're not getting pinched right now, just given the fact we're kind of in the initial stages of tonnage re-accelerating potentially.
No. I think we're in pretty good shape, and our headcount overall was, you know, was down slightly in December compared to September. You know, which a lot of times could be normal. I think we're in good shape across the network with where we are today. You know, it certainly, you know, we're finally starting to see some year-over-year growth and we'll continue to be mindful of what those labor needs should be in each particular area.
Okay. Last question. Where did the service center count end the year?
It was 254. 220. I mean, I'm sorry.
I thought.
220. Wrong number.
2025. You're already a couple of years out there, Adam. Okay. Thank you for the time.
Yes. Thank you.
Thank you. We'll go next to David Campbell from Thompson, Davis & Company.
Yes, thank you very much. My questions have been answered. I think that you may have reported in your press release, because I haven't seen the number of employees at the end of the year.
Yeah, the number of employees, the actual number at the end of the year was 17,543 full-time employees.
Okay, great. Well, thank you very much. All my other questions have been answered. Thank you.
All right. Thank you, David.
There are no further questions in the queue at this time.
All right. Okay. As always, thank you all for your participation today. We appreciate your questions and support of Old Dominion. Please feel free to give us a call if you have any further questions. Thanks, and good day.
That does conclude today's conference. Thank you for your participation.