Good morning, and welcome to the Q4 2015 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through 3,775. The replay may also be accessed through March 4 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 that 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. And consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. The company undertakes no obligation to update publicly any forward looking statements whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today, but I 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 and thanks for joining us today for our Q4 conference call. Joining me on the line 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. We are pleased to report that Old Dominion produced solid financial results for the Q4 of 2015. Despite a soft economic environment and a significant decline in fuel surcharges, we achieved company records for 4th quarter revenue, operating income and earnings per diluted share.
In addition, our operating ratio was only 10 basis points higher than the Q4 of 2014, which was our best Q4 ever. We won additional market share during the Q4 due to increased demand for our superior on time claims free service that we provide at a fair price. This value proposition continues to be critical to both our financial success and our ability to consistently outperform the growth and profitability of our industry. As we look forward into 2016, we are well positioned to continue to execute on the fundamental aspects of our business plan and produce further profitable growth. Although the potential for a soft economic environment could present a headwind in 2016, the pricing environment is relatively stable and we expect to win additional market share.
To support our company's expected growth, we are continuing to invest in our business with a substantial capital expenditure program in 2016. We also expect to employ excess cash flow to repurchase company stock. Thank you for your time this morning. And now, I'd like to turn the comments portion of our conference over to David Congdon.
Good morning. We were encouraged by our 4th quarter results despite the headwinds that were mentioned by Earl. Our team continued to execute our business plan and win market share by providing on time service of 99% and maintaining a low claim ratio, which was only 0.3 percent of revenue for the 4th quarter. Our 4th quarter results also reflect our continued commitment to yield management. Revenue per 100weight, excluding fuel surcharges, increased 6.1%, driven by our pricing discipline as well as the positive impact on this metric from decreased weight per shipment.
In addition, we improved our dock and pickup and delivery productivity during the 4th quarter. Profitable growth for the quarter. We've long maintained that we can produce long term profitable growth and margin improvement by focusing on density and yield, assuming a steady macroeconomic environment and rational pricing within our industry. Although the macro has not been as robust as we would like, pricing within our industry has remained relatively stable. We are confident in our ability to continue winning market share and we continue to be very confident about our long term growth opportunities.
Looking forward, we are focused on delivering our proven value proposition, which we expect will continue to fuel 3 key elements of our business model: yield management, freight density and productivity. Old Dominion has outpaced the rest of our industry and we will continue to strengthen this differentiation through our ongoing significant investments in capacity, technology employee training and education. These investments have given our employees the tools and knowledge they need to continue to exceed our customers' expectations and help the world keep promises. As a result, we believe we can continue to drive long term growth in earnings and shareholder value. And thanks for joining us today.
And now Adam will review our financial results for the Q4 in greater detail.
Thank you, David, and good morning. Old Dominion's revenue was a company record $734,600,000 for the 4th quarter, a 1.9% increase from last year. Earnings per diluted share increased to a company 4th quarter record of $0.85 which was a 4.9% increase from $0.81 earned in the Q4 of last year. Our operating ratio was 84.5%, a 10 basis point increase over the Q4 of 'fourteen. Revenue growth for the Q4 reflected a 3% increase in LTL tonnage, which included an 8.2% increase in LTL shipments, offset by a 4.8% decrease in LTL weight per shipment.
In addition, LTL revenue per 100weight decreased 0.2% for the quarter, primarily due to the significant reduction in fuel surcharges. Pricing environment was relatively stable during the quarter as evidenced by our 6.1% increase in revenue per hundredweight excluding fuel surcharges. On a sequential basis, our LTL tonnage per day for the 4th quarter decreased 4.1% as compared to the Q3 of 2015. This was lower than our 10 year average sequential trend, which is a 2.6% decrease. Largest contributor to this variance was December being below its 10 year average.
Tonnage trends were also impacted in the 4th quarter by the continued decrease in weight per shipment, which we expect will continue to be a headwind on a comparative year over year basis throughout the first half of twenty sixteen. LTL shipments per day in the 4th quarter decreased 5% sequentially as compared to the 3rd quarter. This was below our 10 year average sequential decrease of 3.9 percent due primarily to December being below its 10 year average. We are pleased with our trends for January, however, which were back above our 10 year average sequential trend. Our LTL tons per day for January 2016 increased 2.2% as compared to December of 2015.
This change compares favorably to the 10 year average sequential increase of 1.9%.
On a
year over year basis, LTL tons per day in January 2016 increased 2% as compared with January of 2015. Our LTL shipments in January versus December increased 4.8%. This compares favorably to the 10 year average sequential increase of 3.8%.
On a
year over year basis, LTL shipments per day in January of 2016 increased 6.4% as compared to January of 2015. Revenue per day excluding fuel surcharges increased approximately 5% year over year for January of 2016 due to both the LTL tonnage increase and the improved LTL revenue per hundredweight offset by a reduction in revenue for our non LTL services. Total revenue continues to also be impacted by reduced fuel surcharges, however, as the DOE's price per gallon was approximately 29% less January of 2015. The operating side, we had a 10 basis point increase in our operating ratio as compared to the 4th quarter. This increase was due primarily to an increase in our fringe benefit cost as a percent of payroll and increased depreciation associated with our long term investments in real estate, equipment and information technology.
In addition, the significant decline in fuel surcharges had a deleveraging impact on our expense items, although it also primarily accounted the 310 basis point reduction in operating supplies and expenses. In addition to the increase in benefits, the increase in our salaries, wages and benefits expense also reflects the impact of the 9% increase in full time employees for the year and 3.5% increase in wages that were effective at the beginning of September. We Lamingium's cash flow from operations for 2015 totaled $554,000,000 a 41.4% increase over 2014. Capital expenditures were $100,000,000 $462,000,000 for the Q4 and full year respectively. In addition, we repurchased $35,000,000 of common stock during the Q4 and a total of $114,000,000 for 2015.
Completed 2015 with $11,500,000 in cash, dollars 134,000,000 in total debt and a ratio of debt to total capitalization of 7.4%. $1,000,000 of our shares, which leaves approximately $58,000,000 available for purchase under our previously authorized $200,000,000 repurchase program, which is scheduled to expire in November of this year. We currently expect to finish this program before the end of the second quarter. We estimate that CapEx for 2016 will total approximately $440,000,000 including planned expenditures of $180,000,000 for real estate and service center expansion projects, dollars 220,000,000 for tractors and trailers and $40,000,000 for technology and other assets. Effective tax rate for the Q4 of 2015 was 35.5% compared with 36.7% for the Q4 of 20 14.
This was lower than originally anticipated due to additional tax credits approved by Congress in December as well as other favorable discrete tax adjustments. Currently expect an annual effective tax rate of 38.4 percent for 2016. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for any questions at this time.
And our first question will come from Scott Group with Wolfe Research.
Hey, thanks. Good morning, guys. So wanted to first ask about incremental margins, call it 12% in the quarter, so a pretty meaningful step down from what we've seen. Is this the kind of environment where we need to reset our incremental margin expectations lower for now? Or is there anything kind of unusual in this quarter and we can get back to that 20% plus range going forward?
Scott, we're anticipating incremental margins in the 20% range next year, plus or minus, given the environment. In the Q4, as I mentioned, we did have a higher fringe benefit expense rate. That impacted our OR by about 70 basis points if you compare the rate that we had rate of fringes as a percent of payroll and salaries and wages. And so that definitely had an impact on the quarter. If we'd used the year to date rate, it definitely would have been better.
Although with that said, it was a cost that we incurred in the period and we don't do adjusted numbers.
Okay. And then in terms of just the tonnage trend, so I think you said worse than normal in December, but maybe just slightly better than normal in January. What's your take on the underlying kind of demand environment out there? Are you starting to see some signs of stabilization or improvement in industrial activity or, hey, it's just 1 month and really tough to know?
Scott, this is David. As we all have tracked and watched, the ISM PMI index has been under 50 for about 4 months. My personal gut feel is that we're kind of in just we've been in a slump, we're in a bottom and I'm more optimistic that we'll see some improvement next year. It is encouraging to see the sequential trend from December into January pick back up again. But December was definitely a headwind for us.
It was an unusually soft month on a sequential basis as Adam pointed out in his comments. But we're the latest that I read is we're looking at say 2.5% GDP growth for next year.
In this year. Okay.
All right. Thank you, guys.
Moving on, we'll go to Alex Vecchio with Morgan Stanley.
Thanks for taking the questions. Adam, I just wanted to clarify, if I get my math right here, if rev per day ex fuel is up 5% in January and tonnage is up 2% that implies that rev per 100 weight ex fuel is up about 3% and that's a pretty big deceleration versus the 6% you had in the Q4. So I just want to make sure I got that math right. And if I did, kind of what's contributing to that deceleration in the yields ex fuel?
Well, the revenue per hundredweight excluding fuel was up about 4.5% in January. If you think about the step down, if you're comparing to November December, we are now lapping the GRI that went into effect in January of 2015.
Okay. Are you seeing any you guys noted that pricing remains relatively stable. I assume you're not seeing any kind of irrational behavior out there from any competitors. Can you maybe elaborate a little bit on that to the extent because we obviously heard from RFP that they took a little bit of pricing actions on some part of their book of business. So maybe you can comment a little bit about what you're seeing out there from the competitive pricing standpoint?
The comment I read on what Art B said was that they it sounded to me like they took it on their spot quote type business that they were being more aggressive on that type business. Maybe I misunderstood it, but nonetheless, we still believe the environment continues to be relatively stable. I mean, over time, we've always had spotty irrationalization here and there that occurs. But our pricing policies and practices remain unchanged. We feel confident and good about the pricing environment right now.
Okay. That's helpful.
And then just lastly, are you guys still getting the 3.5% to 4% core rate increases on contracts kind of consistent with what you saw in the 3rd quarter?
We're anticipating 3% to 4% increases as we move through 2016.
Great. Thanks for the time.
And moving on, we'll go to Chris Wetherbee with Citi. Hey, thanks. Good morning.
I wanted to touch a little bit
on sort of the resource side of
the business. So in the environment where we have a
little bit of a slower tonnage dynamic, how
do we think about sort of some
of the resources like headcount and infrastructure of the
business. We were count last fall due to the volumes of business we had and we held the line on any growth in headcount through the holiday and we've had some attrition, but we will gear our headcount to the volumes that we see as they're building in the Q1. So but we're what is it year over year right now, Adam? The headcount
was up 9%. Keep in mind, we're still anticipating growth this year. In January, our shipments per day are trending up over 6%. So we're still positive on our long term opportunities. We're anticipating growth and we're continuing to invest in our people and making investments in capacity as well that we think are necessary for our long term success.
That's helpful. And you mentioned sort of
a 2.5% GDP type of environment was your is what you're sort of looking at. When you think about the potential for continued market share gains, I mean, any way
we can kind of tie that back to
how you might think sort of volumes could play out? Do we get a little bit better from here, the 2% -ish range? Or how do you think about that? Just sort of directionally would be helpful.
We think that we've got market share opportunities and we've long outperformed when you just look at GDP or industrial production type numbers and it gets back to the quality of service that we provide at a fair price and we still think that's a win in formula and that's what we continue to execute on. So with that and assuming a rational pricing within the industry, We think that's a winning formula for us and what we're going to stick to.
Okay. That makes sense. Thanks for the time, guys. Appreciate it.
Moving on, we'll go to Allison Landry with Credit Suisse.
Good morning. Thanks. In terms of the CapEx guidance, down modestly year over year in 2016, but if we do see macro conditions deteriorate further, how much and where do you think you could scale back spending this year?
The real estate is fairly well fixed because it relates to projects that are pretty much underway and things that we need to do for the future as well as the IT and other spend. We have some flexibility in the equipment side of the equation. We buy a certain amount of that is for our replacement cycle that we would not change, but the equipment that's in there for growth could be adjusted. We have cancellation provisions roughly 90 days.
Okay, great. And then as a just my follow-up question, thinking about your comments on weight per shipment and expecting it to still be a headwind in the first half of the year, how should we think about it for the back half? Would you expect it to be sort of flattish year over year?
Yes. Where we're trending right now is it was pretty consistent. It seems like it stabilized in the Q4 compared to where we were in the Q3 of 2015. And it seems like this weight per shipment now is trending somewhere around that $15.40 to $15.50 range. And so once you get back into the back half of 2015 on a comparative basis, then it will be a little
more normalized. Allison, while you're on that subject, I want to just throw some color on weight per shipment and a little bit more about the headwind that it has been for us and perhaps even affecting the industry as we haven't really talked about it much. But when you think about it, a lower weight per shipment means a lower revenue per shipment against a cost per shipment that is a bit harder to reduce. And furthermore, fuel surcharges are calculated as a percentage of revenue. So you actually lose a little bit on fuel surcharge per shipment too because of a lower weight.
It's really similar to the oil industry at the drilling level. This very low revenue per barrel is against a cost per barrel to extract that has not really dropped. I mean, it's a similar correlation. We handle shipments across the dock and shipments in P and D. You think about putting your forklift under a 1,000 pound skid and carrying it across the dock versus say a skid that only weighs £800 because the shipper shipped a smaller shipment, our time to handle that shipment does not change at all to speak of.
So we have seen pressure in our pounds per hour in both dock and pickup and delivery. On the other hand, our shipments per hour, this is where we're seeing the improvements in productivity. We're handling the shipments more efficiently, but again your cost of going across that dock with a lower revenue shipment is about the same. And we've also seen some pressure in our line haul load averages. We load trailers Most of our freight is skidded these days.
So you put a skid on the floor, you bring a rack down from the ceiling, you put a skid on top of a rack. And if these skids weigh £100 less or £200 less, you've got a little bit more air in between those skids and we've seen pressure or downward pressure or headwind in line haul load averages. But the good news is that we have overcome this pressure this year and we delivered a 100 basis point reduction in our operating ratio for the entire year of 2015. And as Adam pointed out, sequentially, we think we've bottomed out on the weight per shipment. And as we lap the lower weight per shipment later in the year, it won't appear as big of an issue for us.
But I thought I would add that color. Does that help?
That helps immensely. Thank you. And especially thinking about the incremental margins. Appreciate it.
And next we'll go to Brad Delco with Stephens.
Can you maybe rationalize for us what you think played out in December? And Adam, I don't know if you gave us what December tonnage was on a year over year basis. Can you provide that as well? And then maybe what you think sort of played out into January and why you've seen these trends?
On a year over year basis, December was up the tonnage per day was only up 1.1%. And it just it felt a little softer. And I think when you look through some of the ISL numbers and things like that, it's definitely a tough economy and so forth. But again, it gets back to we think that we've got good opportunities for this coming year. We see new account wins every day that are presented by our sales team.
We're getting additional business from many of our 3PL customers every day and a lot of it comes back to the quality of service that we're providing. And there are many times where we might lose an account on price and then not long after, we'll get reports about that whoever the competitor X was, was just not providing the level of service, whether it be the on time service from a pickup standpoint, meeting appointment delivery times or just the damages issue, in many cases, we'll get that back. So I think that we're going to continue to execute on what we've done and we think we've got good trends ahead if we can continue to deliver this premium level of service at a fair price.
Okay. And maybe just a follow-up there, Adam, I guess there's been this debate as to how LTLs will play a role in sort of this e commerce trend. Can you talk a little bit about how you think you're prepared or set up for that?
In the e commerce trend, there continues to be a demand for LTL service moving freight into the distribution centers where the e commerce freight goes back out by parcel. And with the just in time type inventory trends that we've seen and everyone wants everything faster and quicker. I think the premium service LTL providers can continue to bring freight into these distribution centers to fill the e commerce demand.
Okay. Thanks guys for the time.
And next we'll go to Matt Brooklier with Longbow Research.
I think you talked to it earlier in the call, but your purchased transportation cost dropped a little bit more than we had thought, which is good to see. But I'm trying to figure out how much of that was just a function of fuel as fuel also passes through that line and how much of that was a function of you guys doing things a little bit different in the network and maybe taking more of your moves in house and then trying to think about that if was a benefit in 4Q, thinking about that as we move into 2016?
There are 2 major factors on that. Last fall before the Q4 even ended, we had shifted from a rail operation to an over the road operation across from Chicago up to the Pacific Northwest. And so we reduced a lot of purchase transportation that we had in that lane and put it on company trucks. And that also contribute and the second piece was has been a shift in strategy with our ocean container division to move toward a company truck model. And so we don't have that purchase transportation line haul.
And I guess there is a third one. We had the purchase transportation that had to do with our Ocean Forwarding operations that we have chosen to take a different path on that.
A lot of that decrease though as David mentioned is shifted into salary, wages and benefits where we're using our own employees, particularly on the Drainage side.
And operating supplies and expenses. That's right.
Okay. But I guess the question is the net benefit is potentially advantageous as you're not going out into the market and you're using your own equipment to move, I guess, more of some of the solution stuff that you do?
Correct. It's all has to do with and maintaining and improving our best in class position as best in class LTL service provider.
Okay. And then you talked
to the amount of stock you repurchased in Q1 and there some remaining. Just to clarify, you expect to be through the current repurchase authorization by the end of this year or by
the end of 2Q? By the end of Q2 of this year. It will be about 6 months early on the program.
Okay. And then when does the Board mean again to discuss potential uses of capital moving forward?
We'll continue to evaluate those and discuss with our Board at the appropriate time. But we feel like shareholder returns are have been a good way and will continue to be a good way to improve total shareholder returns. So but that is in 3rd place on our capital allocation strategy. We're going to continue to invest in the business, number 1, which you continue to see. We've got a healthy CapEx program.
We'll continue to look at any type of acquisition opportunities that may present themselves and then some type of shareholder return to again support shares and stockholders.
Okay. Appreciate the time.
And next we'll go to David Ross with Stifel.
Yes. Good morning, gentlemen.
Good morning.
Adam, you talked about the fringe benefit expense coming in, in the quarter, because I noticed the salary, wages and benefits line was at the highest level, least as a percentage of revenue in about 6 years.
Can you
just talk a little bit more about that? I think that was $5,000,000 in the quarter. And then anything else that's going on there besides just the wage increase and headcount increase with the absence of revenue increase? Right. Yes.
So obviously, that was
a big driver, the 3.5% wage increase and just the general increase in number of employees. And then part of that was again this flip of where we're doing some of this business with our own employees and equipment now particularly on the drayage side. With the fringes, we just had some unfavorable experience within group health and with our workers' comp in the 4th quarter. And so as a percent of salary and wages, the fringe rate was at 33.8%. It's been trending more in the 32% to 32.5% earlier in the year.
So that's not something that we necessarily see and think will be a trend going forward. It's something obviously that we pay close attention to, but it was somewhat out of line with what we had seen earlier in the year.
And you talked about you're seeing lower revenue to start the year from your non LTL services. Can you, I guess, comment a little bit about the non LTL services and how you see them growing organically or via acquisition over the next year or 2?
I think that again as David just talked about on the drayage side, we closed a few locations where business levels just weren't up to our expectations. We're continuing to focus on the existing locations that we're serving. We're trying to improve the level of service that we're giving in that market and trying to differentiate ourselves against others that they're serving. And so we're going to continue to look at that. We think that our value added services are good for our business.
They add value to our customer base and we think we can do well with them. So we'll continue to support them. And on a same store basis, we're continuing to see growth, but we'll have a little headwind there. And then the international freight forwarding, we're just not doing that business direct anymore and starting in the Q4 of last year. But we think overall we're going to continue to support the services that remain and look to continue to enhance those.
Excellent. Thank you.
And next from Deutsche Bank, we'll go to Rob Salmon.
Hey, good morning. I guess, David, going back to the question related to e commerce, if I'm thinking about the composition of those shipments, are those at all different from what you see with your traditional retail shipments in terms of the size and weight profile?
We don't really segment that out to give you a definite answer, but the gut feel is the answer is no. They're roughly the same.
Okay. That's helpful. If I go back to the discussion, I think in the prepared remarks, you talked a little bit to productivity. Can you walk us through some of the year over year changes in pounds per hour, line haul load average, etcetera?
Yes. From a pounds per hour standpoint, it's continued to be pressured just by the decrease in the weight per shipment. On the dock, our shipments per hour were actually up 5% in the 4th quarter on a quarter over quarter basis. The pounds per hour though was actually up 0.6%. Looking in P and D, our P and D shipments per hour were up about 0.5%.
Our load average in line haul was down about 2.5%. And again that gets into the detail that David was speaking of with the weight per shipment being down and how that can impact your line haul operations.
Got it. And then with the basically the expectation for weight per shipment to flatten out in the back half of the year, it will remain a headwind first half and we should see underlying improved productivity in the back half assuming the shipment growth continues.
Yes. There's one other factor about this about productivity is if you turn the clock back a year ago, we had some fairly strong growth in the latter half of twenty fourteen and we were adding a lot of people. And for a dockworker to get into our company and get up to speed and learn our systems and learn the way that we load freight to minimize damage and maximize load average, etcetera, etcetera, it takes at least 6 months to 9 months for somebody to get up to speed. And so we've now that we're kind of in, I'd say, call it a soft spot in the economy, a good thing about that is that our that we're not having to add more new people right now and the people that we have are reaching that they're getting in a stride now where their productivity is improving. So if there is a benefit of a slower growth economy that might be one of them.
Got it. Appreciate the time.
Next we'll go to Ari Rosa with Bank of America.
Hey, good morning, David, Earl, Adam. I just wanted to ask first about the competitive landscape. Obviously, there have been some competitive changes kind of over the last few months. Wanted to see what you're hearing in terms of customer turnover. Do you think that there have kind of been created some additional opportunities to build share more aggressively, particularly in
the slow growth environment? Or have you
guys not really noticed anything along that front?
Frankly, we've seen some opportunities with some of the competitive changes in the marketplace. We do business with about a third of our business, roughly maybe 30% with 3PLs. And one of the really we're in a really unique position as an asset based LTL service provider with no conflicts of interest at all with our 3PL customers. And that does offer us an opportunity to serve that segment of the market and serve it well and build levels of trust with 3PLs to grow our business for those 3PLs. So we've had a
few opportunities in that arena.
Okay. That's helpful. Thank you. And then just my second question. Looking to 2016 and obviously you guys are dealing with slightly slower volume growth here.
Does that change at all your ability to focus on service? Or does that change kind of what your productivity initiatives are for 2016? How are you guys thinking about operations in the year ahead given kind of the slower volume growth?
Just embedded in the culture of this business and the way that we run our business is continuous improvement. So I don't see us changing our focus on continuously looking for better ways of doing things and improving efficiency. There's really no change there. Does that answer the question or? That's helpful.
I don't know if
you can be like more specific in terms of kind of what you're looking at. Obviously, the margins seeing the margins not maybe moving at the same rate, can you continue to drive margins in the slower growth environment? I guess that's kind of what I'm asking.
It's a little harder and a lot of that will depend on the to some degree, the competitive landscape out there and what the competitors do with pricing. I want to point something out that and turn the clock back on something that we pointed out going back into 'six, 'seven, 'eight, 'nine. We had done an analysis and we said that for every 1 percentage point price reduction, it required 4% to 5% increase in volume to offset that price reduction from an EPS standpoint, that's earnings per share or earnings after tax. So with that said, you're doing more volume at a lower price, so therefore your margin suffers. It might take twice that much more volume to keep the margin where your margins are.
And that's just for a mere 1% reduction. I remember distinctly some competitors back in the days chopping prices 15% to as much as 30%. And if you go back and look at the history, remember what happened to the operating ratios of some of the players in our industry and look at where they are today and frankly, they haven't gotten it back. It requires a tremendous investment in this business and strong margins to afford to play and to afford to provide the best service. And into some kind of a bad pricing environment.
But as
we have stated
here today, we still believe the market is relatively stable and things are good in the pricing environment.
And so, so far you haven't seen competitors really trying to undercut you in price so far, it sounds like?
No, it's that happened has always happened from time to time, from place to place, especially so where a competitor is not doing business with a particular account and they don't understand the cost of that account. They don't understand what the freight is all about and they just go in and put in a price to try to get the business and then they later discover, whoops, the price was too low and now we need to raise the price up and that's when the customers turn around and come back to us for our strong service product. Okay. That's helpful explanation. Thank you.
And next from BB and T, we'll go to Tom Albrecht.
Hey, guys. I was wondering
a couple of different things. I was when
you try to manage labor, I was wondering if part of the challenge in the Q4 was the natural inclination is to expect the last 4 or 5 weeks before Christmas to be a bit busier. I'm sure some of your customers probably insinuated that. So you're probably staffed a little bit higher in anticipation of that. Was that also a factor besides what you've already described?
We pretty much reached peak staffing by the end of September. And historically, you see a little fall off in October per day and it comes back up a little bit in November and then it falls off a certain amount in December. And we held the line on hiring any more people during this fall season and actually had a little bit of attrition going in all the way into December maybe from the level we were at in September, not much. But we manage our labor day in and day out and by the hour. So I'm not and our productivity in the 4th quarter in terms of shipments per hour, we're still very strong.
So I don't think we were squeezed too bad on the labor because we had too many people. Okay. That's fair. And then when you
talk about spot quotes and transactional business and that and I know overwhelmingly that's not what you do, but I was curious what percentage of your business when it gets softer
kind
tight? Probably less than 5%. I mean, we try to be more strategic and have it on a relationship basis. And the business that we do with our 3rd party logistic partners is more strategic in nature and we try to avoid the transactional type of business that we're forming long term relationships with people that we can continue to drive growth with.
Okay. And then my last question would be, it seems like in September, October, maybe early November, there had started to be some pretty aggressive pricing within the 3PL community, but it maybe feels like that has steadied out a little bit. What's your read maybe back then versus right now and whether it has steadied out?
Honestly, I'm not sure we saw that trend that you're referring to. Our relationships with 3PLs are on an individual account by account basis within 3PLs, stable of customers. And we price each account accordingly and we just didn't see any I don't think we've seen any trend anywhere, any resuming what you just referred to.
Okay. That's helpful. All right. Thank you very much, guys.
Moving on, we'll go to David Campbell with Thompson Davis and Company. David Congdon,
I think you talked a lot about the weight per shipment and the trends there. But I didn't hear maybe I missed it, but did you say anything about differences between industries or mix of business? Is the mix of business contributing to the decrease in weight per shipment? Or is it just that every shipment, every customer is doing less?
Good question. And the feedback we get and from the data we have, we think it's a general trend across all the customers. But another point that I'm not sure we as a company or industry even have talked much about it is this whole energy industry. That is probably affecting our economy all across the board with what's going on with the price of oil. You would think that the price of oil being down would stimulate more consumer demand than it has.
And there are some economists who believe that the consumer is going to pull us out of this slump next year and perhaps that will be the case. But the industrial economy that supports the energy industry has a lot of pinnacles and we hold what's our percentage of industrial? 40%. About 40% of our freight is industrial. And embedded in that piece are industrial customers that are tied with the energy industry.
And so we're that's probably where we're seeing some of the business softness.
But it's not just industrial that you're down weight per shipment, you're down in other types of business as well? Correct. And second question would be the trends in the 4th quarter in tonnage. I don't think I heard I heard December was up 2%, but I didn't hear October, November. Do you have those numbers?
The year over year trends in weight per day were it was plus 4.4% in October, plus 3.1% in November and plus 1.1% in December and those are all year over year.
Okay, great. Thank you for answering the question.
And we'll go to Todd And we'll
go to Todd Fowler with KeyBanc Capital Markets. Adam, I just wanted to clarify, I mean, the comment on the expectations for 20 percent incremental margins, I think in the past, it had been 15% to 20% and maybe you've been speaking more recently to 20%, I just haven't picked up on it. But are 20% incrementals what we should be thinking about? And if so, is there structurally something different that gives you more confidence with that number versus the 15% to 20% prior? No.
I mean that's just what we're thinking about that we think we can achieve this year and obviously that can go up or down depending on all the variables that go into it. But I think we're just trying to be a little bit more targeted with what we think and we've achieved rates greater than 20% in the past. And we feel good about what our opportunities are for this coming year.
Okay. That helps. And then maybe just one last follow-up. David, I know there's been a lot of comments or a lot of questions on the weight per shipment, and you've obviously surprised some very helpful color. But is your view primarily that the decline in weight per shipment is something that's been cyclical versus something that's secular.
And once we kind of move through, to your point, the softer patch, we will see that weight per shipment start to trend up and then you start to get back some of the margin benefits of the higher weight per shipment versus the what you're seeing in the network right now?
Historically, when LTL weight per shipment goes down, it has been tied to an economic the economy is slowing down. The economy picks back up, the weight per shipment, the orders that people order get larger. So I do believe part of the weight per shipment decline is due to the soft patch we're in, in the economy. Therefore, if we get some economic improvement, you would think the weight per shipment would come back up and those headwinds that we that I mentioned would turn around and be a positive benefit for us.
Okay. All that makes sense and congratulations on
the results for the year.
I know it was a challenging year kind of from where we started at this point last year.
And next from Baird, we'll go to Ben Hartford.
Adam, quick follow-up up or just a small item here. The number of working days per quarter in 2016 2017, could you provide those?
2016 is 64 in the 1st quarter, which is one extra $4,000,000 in the 2nd quarter, dollars 64,000,000 in the 3rd quarter, dollars 62,000,000 in the 4th quarter and that compares to $63,000,000 Q4 of 2015. I'll have 17 in front of me by quarter. Okay. That's great. Thank you.
And next we'll go to Darren Hicks with Evercore ISI.
Hi, good morning. Just was curious in what ways do you believe that your market share gains could benefit any kind of pricing advantage? Like is that going to give you more intelligence? I'm not sure if you can kind of muscle your way into better pricing, but just curious if you expect that your market share gains to help pricing in addition to obviously volume?
That's a I'm not sure we've ever seen a correlation between market share gains and what kind of pricing we can get. We're winning market share by winning new customers on board and by winning additional lanes and states and shipping locations and so forth from existing customers. And the pricing or program that we have is individual to each customer. And kind of when you look at revenue per 100weight, it's all the result of looking at the whole operating ratio of an account. And it's hard to say.
You
could gain new short haul
lanes from a customer and the revenue per 100weight be less than your average and you can drag down your revenue per 100weight and it looks bad from a pricing standpoint the way that the industry tends to the way you all look at pricing and hell we might be operating the account at a 75 or 80 on that lower revenue per 100 weights. So it's all about pricing to the operating ratio of each individual account and the revenue per 100weight is merely a result of that type of approach to pricing.
I'm not sure if I understood your question correctly, but we don't try to go into a new account by means of pricing, whereas we try to put a lowball offer in and then anticipate we can get our pricing up later. So we try to treat any new account just like an existing count and go through our costing process to ensure that each account is contributing to the overall operating ratio. Okay. And we're driving a
fair and equitable price for us and for the customer.
Okay. I guess I was just thinking that maybe as you take on more volume that you could have better intelligence on what the best pricing is for any particular account, but you answered it quite clearly. The other question has to do with your employee count. It seems like the market is pretty healthy. I mean, you're expected to grow your employee number 9% or that's what you did in the 4th quarter with wages up 3.5%.
Just trying to look forward, the economy is kind of flat or in a flat year, what would you expect kind of the wages to be? You don't have to give a particular number, but is there a certain baked in inflation that you expect for your employees or is that mostly contingent upon productivity results
that are within the company? We just gave the 3.5% wage increase the 1st September. So obviously that will be an inflationary Our employees are what drives the results of the company. Our employees are what drives the results of the company. This given us best in class service, 99% on time, cargo claims at 0.3%.
So that is something that is near and dear to our hearts and we believe strongly in. So we've always looked at and historically have said so goes the success of the company, so goes our employees' success as well. So that's something we look at and evaluate every year. Typically, it's 1st September.
Okay. Thank you very much.
And gentlemen, there are no further questions. I'll turn it back to you for any additional or closing comments.
Well, guys, as always, thank you very much for your participation today. We continue to appreciate your questions and your support of Old Dominion. So please feel free to give us a call if you have any further questions. Thank you and good day.
And that does conclude today's conference. We'd like to thank