Morning and thanks for joining us today for our Q3 conference call. With me this morning are David Confort, Old Dominion's Vice Chairman and CEO Wes Fry, our CFO and Adam Satterfield, our Vice President and Treasurer. After some brief remarks, we'll be glad to take your questions. I am pleased to report that Old Dominion produced very solid financial performance for the Q3 of 2015, including a 90 basis point improvement in our operating ratio to a 3rd quarter company record of 82.1%. That contributed to a 10% increase in our earnings per diluted share.
Although our tonnage slowed this quarter from its double digit pace for the first half of the year, reflecting an uncertain economic environment that has affected the entire industry. This quarter is being compared against the Q3 of last year when tons increased 18.7%, a tough year over year comparison. Despite these headwinds, Old Dominion continued to win market share for the quarter and we experienced double digit growth in shipments for the 7th consecutive quarter. The strength of these results is further evidence that our promise of on time, claims free delivery strongly differentiates Old Dominion from our competitors and continues to resonate favorably in the market. Even with our strong 11.7% growth in shipments during the 3rd quarter, our on time service was 99% and our cargo claims ratio was 0.35%.
Because our customers value and depend on their superior service, we continue to achieve our yield objectives with revenues per hundredweight, excluding fuel surcharge for the 3rd quarter increasing 5.2%. As always, our successful long term execution of our value proposition depends on the tremendous commitment and hard work of our dedicated employees. We will continue to invest in the equipment, infrastructure and technology, as well as the training and continuing education that supports our industry leading team in their efforts to consistently produce superior performance. Thanks for your support of Old the millions. And now here is David Conger.
Good morning. Let me begin by saying that I too am pleased about the company's performance for the Q3. Our business model, which we have been refining for nearly 2 decades now, is built around an innovative and flexible team of people providing superior service at a fair price. We continue to invest significantly in the company to execute with discipline and to strengthen our customer focused culture. We are fully committed to further strengthen our market differentiation through consistent and sizable investments in the resources, training and education that our employees need to exceed our customers' expectations.
By doing this, we can also continue to focus on yield management to ensure every account has an appropriate return on that investment. While we are actively returning capital to our shareholders through stock repurchases, we are also committed to maintaining the balance sheet strength required to support the investments in the equipment, real estate and technology that is necessary to provide our customers with the superior service they expect and depend on. With ongoing execution, we expect this commitment to enable us to continue to deliver on our unique value proposition and continue to outperform the industry. We remain confident in our ability to produce further long term gains in market share, earnings and shareholder value. Thanks for joining us today.
And now, Wes will review our financial results for the Q3 in greater detail. Thank you, David, and good morning. For the Q3 of 2015, Old Dominion's revenue was $779,500,000 That's an increase of 4.8% from $743,600,000 for the Q3 of 2014. Our operating ratio improved to an 82.1% for the 3rd quarter from an 83.0% last year. And earnings per diluted share increased 10% to $0.99 from $0.90 for the Q3 of last year.
Revenues for the Q3 reflect a 6.6% increase in LTL tonnage, which was comprised primarily of an 11 point 7% increase in LTL shipments and a 4.6% decrease in LTL weight per ship. LTL revenue per hundredweight decreased 1.6% for the quarter, primarily due to a reduction in the fuel surcharge. Revenue per hundredweight excluding fuel surcharge increased 5.2%. The decline in weight per shipment for the quarter had a positive impact on the revenue per hundredweight somewhat offset by a small decline in length of haul. On a monthly basis, LTL tons per day decreased sequentially by 1.2% for July from June, increased slightly by 0.1% for August and increased 3.4% for September.
This performance compares to our 10 year average sequential month trends that show a decrease of 2.4% for July, an increase of 0.6% for August, that's 0.6% and an increase of 3.2% for September. So, on average, sequential trends were slightly higher during the quarter when compared to our 10 year average. On a comparable quarter to quarter basis, LTL tons per day increased 7.7% for July, 5.8% for August as previously announced and 6.4% for September. Comparable quarter growth in shipments for July, August September were 12.9%, 11.7% and 10.7%, respectively, while our weight per shipment declined 1.6%, 5.3% and 3.9% for the same month. We've now had 3 sequential quarters of a declining weight per shipment, which we believe is driven by several factors, including the truckload capacity challenge during the Q3 of 2014 that resulted in additional tonnage migrating to LTL carriers that was not repeated in 2015.
Also customers modifying their LTL shipment patterns to smaller, more frequent shipments and also as well by the softness in the economy. Looking to the 4th quarter, we expect LTL tons per day for October to increase approximately 4.1% versus 2014. Equentially, this represents a 4.4% decrease in tons per day compared to September versus a 2.8% decrease for the 10 year average. The increased tons include The increased tons include approximately a 10% increase in the number of shipments, offset by a 5% decrease in the weight per shipment. Sequential 10 year average in tons per day for November December is 3% increase and an 8.7% decrease respectively.
We all expect also expect revenue per For the Q4, we will again face tough comparisons versus last year. Monthly year over year LTL tonnage per day increased during the Q4 of 2014 compared to 2013 by 20.8 percent for October, 20.6% for November and 18.5% for December. Q4 of 2015 has the same number of work days as the Q4 of 2014. As David discussed, the 90 basis point improvement in Old Dominion's operating ratio primarily reflected our increased freight density, longer yield, as well as some improvements in productivity. While the significant decline in fuel prices affected our revenues to a reduced fuel surcharge, it also resulted in a 360 point reduction in operating supplies and expense.
Some other expenses expressed as a percent of revenue were higher during the quarter, which was partially attributable to a lower denominator due to the decline in fuel surcharge revenue. Salary and wages and benefits expense also reflected the partial quarter impact of a 3.5% increase in wages beginning in September, as well as an increased use of company owned equipment and employees in lieu of rail service. Capital expenditures for the Q3 of 2015 were $130,800,000 We now estimate CapEx for the entire year of 2015 will total approximately $451,000,000 including brand extended tours of $139,000,000 for real estate, dollars 278,000,000 for tractors, trailers and other equipment and $34,000,000 for technology and other assets. After anticipated asset sales, we expect total net CapEx of approximately $431,000,000 Our preliminary CapEx investment for 2016 should be in the range of $430,000,000 to $460,000,000 Our effective tax rate for the Q3 of 2015 was 38.4% compared with 37.1% for the Q3 of 2014. We expect an effective tax rate of 38.6% for the Q4 of 2015.
This concludes our prepared remarks this morning. And operator, we'll be happy to open the floor for any questions at this
time. We'll go first to the line of Rob Salmon with Deutsche Bank. Your line is open.
Hey, good morning guys and thanks for taking the question. I guess there's been a lot of talk with investors about the LTL pricing environment given some concerns from some competitor statements. It looks like the yield net of fuel was pretty solid in the month of October as well. Can you give us a sense of what your contractual renewals trended last quarter as well as your thoughts about a general rate increase? I don't think I've seen one kind of hit the wires yet, but just kind of curious how you're thinking about that?
Rod, it looks like it's about 3.5% to 4% is what we're seeing on the contractual.
And how does that compare to what you guys saw in Q3?
Yes, very comparable.
Okay, great. If I can shift over to the weight per shipment, it looks like that declined sequentially in the Q3. I'm curious, David, what you think the the drivers for that? Because typically the wafer shipment decline, I would expect to see an acceleration of the shipment growth because people are moving down to smaller shipments. It look like that played out.
Is this just kind of the business mix shifting more toward retail and a little bit away from some of the traditional manufacturing LTL shipments or any color whether that's just economic related or kind of business mix that you think is driving that?
Well, we've made comments made some comments about that. But the comparison to last year, we were there was some fall off from the truckload carriers last year that we're not experiencing this year that has affected the weight per shipment. And then the general macro trends of the economy being little soft, shippers are their orders are smaller and they're shipping smaller orders more frequently. That's what we're hearing from our sales force. And the third point is, we're obviously winning some market share.
And when you look at our overall weight per shipment compared with our industry competitors, ours is heavier. So if we are winning market share, we're winning smaller shipments, which would also impact our weight per shipment slightly. And Rob, also it's not unusual that the weight per shipment drops in the Q3 compared to the second. It did the same last year and it did the same year before. And I think maybe that's because as the seasonal moves start to tick up, as you had already mentioned, the retail starts to kind of hasten a little bit as well, which typically is a lower weight per shipment.
That makes sense. I think we're also seeing some shift to LTL just given the elevated inventories that we saw show up in the Q3 report as well. But I'll leave it there. Thanks so much.
Thank you, Robert.
And we'll go next to the line of Alex Bechtel with Morgan Stanley. Your line is open.
Hey David, can I ask for you to maybe talk a little bit more about the pricing environment for the industry as a whole? It sounds like you're still kind of getting some solid rate increases here. But naturally, we've heard from other carriers that there's been a little bit of a chinks in the armor, if you will, from other carriers trying to get a little bit more aggressive on price. Can you comment on what you're kind of seeing from a competitive standpoint? Or do you concur that there are some other carriers out there maybe getting a bit more aggressive?
Or is that just something you're not seeing at this point?
No. Overall, we continue to feel that the pricing environment is stable. This is based on the feedback from our pricing department as well as our sales force. You will always have a pocket here or there of where one carrier or another may do something irrational or in our opinion perhaps stupid, which is nothing new. So the way we see it is still somewhat stable.
We've specifically tried to ask if what we heard this week from another carrier was true in our case and we just don't see it that way yet.
Okay. That's helpful commentary there. Switching gears to the operating ratio, another good quarter here. Typically, I think in the Q4, we see the OR erode by about 150 basis points if we look historically on average. Can we kind of how should we think about that this 4th quarter, I know you don't give explicit guidance, but maybe can you talk to some of the puts and takes that might be a little bit unusual this 4th quarter to the extent there are any and how we should think about that?
You're right, Alex. We don't give any guidance on the 4th quarter. So you'll just have to take our historic variance and make your own conclusions on that.
Okay. All right. And then just one last one here, if I could. Your load factor was down about 5% in the 3rd quarter. And I realize that's partially a function of the weight per shipment declines.
But is this something that kind of we should be concerned about at all with respect to kind of the density in your network? And it doesn't seem to have had a significant impact on your margins. You still have very solid margins. But how should we just kind of interpret that data point specifically?
I just want to reiterate the fact that our tonnage is launching, which affects our late load average. But keep in mind that we're still in double digit growth on shipments. So in an area in a time when you wait for shipment drops, you kind of expect your late load average to drop as well. Super because you just have lighter shipments. But on the other hand, if you look at our productivity in terms of shipments per hour, shipments per stop, all those measures on shipments, it's still a positive factor and resulted in part of our positive results for the quarter.
So we still get positive results on if you look at it in units instead of pounds.
Okay, got it. Great. Thanks very much for the time, gentlemen.
Thank you.
And we will go next to the site of Allison Landry with Credit Suisse. Your line is open. Thanks. Good morning.
Good morning. So
I wanted to ask how does your market share strategy play out when the industry does get competitive? Thinking about your lower cost profile, particularly relative to where you guys were heading into the last downturn, does that afford you additional flexibility to balance volumes versus price? Or should we take your earlier comments about irrational pricing behavior in the industry as a clear indication that you won't deviate from your strategy of price discipline?
Allison, I can assure you we are not going to deviate from our pricing discipline strategy. And the notion of trading off price for volume or volume for price is not in our vocabulary.
Got it. Okay. And then as a follow-up question, on the salaries and wages line, thinking about that as a percent of sales sequentially, it looks like it increased more than the historical average. I know that there is a wage increase that was implemented, but Q3 is typically when you do that. So I was just wondering if there was anything unusual there or maybe if your headcount is a little bit elevated relative to the demand growth that you were expecting for the quarter?
Yes, Allison. I mentioned in my comments that a couple of reasons. One is mathematically, when you have less fuel surcharge, you would expect those costs outside supplies expense to increase as a percent of revenue. And that's just mathematically one factor. Another thing is, when we were having in 20 14, we saw we were using a lot of rail up around the Midwest to Pacific Northwest.
With the service problems from the rail carriers at that time, we converted all that rail to company owned equipment. And so, part of that is converting and we've had tremendous growth in that area also. Converting that has put an increase in salary and wages converting that to rail. And you will notice that an offset of purchase transportation is down as well, which reflects that offset. Secondly, we have a grayage operation that we're converting from lease operator model to a company owned driver model and so that has an effect as well.
Okay, excellent. Thank you so much. And next we will go to the site of Jason Seidl with Cowen. Your line is open.
Quick question here. Wes, you went over a lot of numbers. And when you were talking about the sequential shifts in tonnage, you kind of lost me. Could you repeat that for us?
I can't because I was lost too. All right. Let's go through that. So July, let me get to the numbers and get to the right ones. So July, our tonnage per day decreased by 1.2% from June.
The 10 year average said that decrease for July from June is 2.4%. So that was less than the sequential. For August, we increased 0.1%, that's 0.1% from July and the 10 year average is 0.6%. So that was a little less. For September, we increased the tonnage from August 3.4% and the 10 year average is 3.2%.
So that was above. So if you look at all that averages together, on average, our sequential trend was even maybe on par to slightly higher than what would be the 10 year average.
Okay. That's good. Sorry, I just couldn't keep up with you as you're rattle them
off all those numbers. I guess not still not slowing up.
The weight per shipment, not the hard part, when are you guys going to lap a clean comparison in weight per shipment? In other words, when is it not going to be impacted by the
truckload business? Is it going to be 1Q?
Yes. We were faced with this truckload spillover most of 2014. So we won't really lap it until we get into 2016 most likely.
2016, okay. Also in the quarter, did your mix shift any more towards 3rd party logistics guys or has it been sort of pretty stable?
Yes. I mean, our percentage of revenue to 3rd party has been growing slightly and it did in the 3rd quarter, but not by leaps and downs, but our ratio indicates that we're still getting good results and we have a very good relationship with our 3PLs.
Have you seen the 3PLs try to get more aggressive with you guys on bringing on board business?
Well, of course. But then that's where price discipline falls in, our added value. Really, just to make a comment there, the 3PLs need to provide their customers with best in class service because they wanted to obviously to prevent turnover of their own customer base. So they realize that assets are important. And then the other thing is high levels of service are important and they are willing to make sure that we are getting compensated sufficiently for that investment and the service that we provide.
Okay. Thanks for the time as always.
Thanks, Jason.
And next, we will go to the site of Chris Wetherbee with Citi. Your line is open.
Hey, thanks. Good morning, guys. I wanted to touch back on pricing for a second and just get a sense. Can you give us any sense of sort of the benefit that weight per shipment adds to sort of core pricing ex fuel surcharge?
I don't know if it's
any different, but is it a little bit lower with that? I guess I just want to try to make sure I understand some of the dynamics going on within that pricing.
Was there a question that the 5.2% is influenced by the reduction in weight per shipment, but as David already pointed out, we are getting contractual business 3.5% to 4% of increases. So it's the net of that.
Okay. So it's a reasonable proxy to use for sort of X weight per shipment?
Right. It's a reasonable if you neutralize that difference in weight per shipment, we would still be showing some improvement.
Okay. That's helpful. I appreciate it. Typically, when you think about sort of economic or freight cycles, weight per shipment relative to tonnage, I guess, how do you think about it sort of leading that dynamic? I guess I just want to get a sense if there's anything, how the weight per shipment trends might be sort of foretelling tonnage trends going forward.
I guess I don't know if you've been able to sort of glean a real strong relationship in the past.
Yes. Over the last couple of decades, I think whenever we have seen weight per shipment fall off, it's a precursor to a softer economy. And when the weight per shipment gets larger, orders are getting bigger and the economy is improving. That's a general correlation that I think has existed as long as I can remember. Yes, there's been 2 one thing that we're kind of contrary to that when we had the slowdown in 'eight and 'nine, we actually did not see a drop in our weight per shipment.
We saw an increase in our weight per shipment. And what was happening because of the sluggish of the economy, our shippers were instead of shipping weekly, we're holding the shipments and shipping every 2 weeks. So we saw a decrease in the number of shipments and an increase in the weight per shipment. In this cycle, this environment, we're seeing the opposite. We're seeing an increase in the number of shipments, which is a positive sign, but a decrease in the wafer shipment.
So what's going on is more frequent shipments. One of the reasons is we're seeing smaller, but more frequent shipments. I think back in 2008, 2009, it was just such a drastic change in the economy that caused that phenomenon that Wes just said. But now since we've been coming out of the recession, we've just been in a steadily increasing but slowly increasing economy since it was pronounced, I guess, in July of 'nine that we came out of a recession. We've just never seen any kind of a strong rebound of the economy.
But now it's just kind of gradually gotten soft and having a gradual shift of the economy. I think you do see the correlation between weight per shipment and the economy. But that drastic time period was different. Right. And just make sure there is no question that wafer shipment drop this year is definitely related to the greatest degree to the spillover of the truckload last year.
The second thing is the macro is causing fewer widgets are being demanded. So that's causing it also. And as I mentioned, some customers are just shipping more frequently with smaller shipments. But if you look at our weight per shipment this year, it actually compares quite favorably to 2013 and years before. So, it was just that last year was an outlier.
Now, what will happen next year with the I mean, right now, there's a lot of capacity in the truckload market because of the call it the economy softness. Now, if that heats up a little bit, is there going to be enough driver availability? Is there going to be enough capacity that can't happen again? We'll know. We just have to wait and see.
But our weight per share is really quite comparable to 2013.
That's really helpful color. I appreciate it. One final quick one. Just when I think about CapEx for 2016, you gave a range of how you're thinking about it. Any detail you can provide behind that, particularly how you think you want to address capacity additions in the current environment?
Just how do you think about that within that 2016 CapEx target?
Well, we are Chris, we are anticipating growth for next year. I mean, this is we're bullish on ourselves, more certainly the economy. We think we continue to have opportunities in this marketplace to continue to win market share with our superior service levels. So within that CapEx range, there is definitely some CapEx for growth.
Okay. That's great. Thanks for the time guys. Appreciate it.
Next, we will go to the site of Tom Kim with Goldman Sachs. Your line is open.
With regard to your comment on market share gain opportunities, are you seeing any rationalization or talks at least amongst your competitors that might be leaning toward that path? We obviously know that you've been mostly focused on yields over the last several years. But I'm curious, just given the environment and what you're saying about the pricing environment being stable, I'm wondering if you're hearing anything that competitors might be looking to maybe get a bit more sort of rationalize the existing capacity to keep the pricing environment firm? Thanks.
Sure. I quite understood the question. I'm sorry.
Sure. Just with regard to your share opportunity, obviously, we appreciate that your service levels continue to improve as you reinvest in the business. I'm wondering to what extent your ability to gain share could also be bolstered by possibly competitors maybe rationalizing in this more softer environment or do we just need to wait and see demand maybe retrace more before that might happen?
Are you saying, Tom, that the possibility that some of the LTL competitors will not invest in additional capacity. And therefore, it has to find a resource and that could be us that are is that what you're asking?
Correct.
Okay. We don't know.
All right. Fair enough. I mean, obviously, it's still a very fluid market. I mean, I think a lot of us are just concerned that, obviously, demand trends have been slowing, particularly in the industrial space, and then we all get that. And okay, I mean, you guys are clearly the gold standard for the LTL industry.
You've made amazing progress on your OR and your cost structure. To what extent can you comment on the stickiness of that? And do you need volumes to increase next year to keep your OR down keep going down? Thanks.
I've addressed this in the past that as we continue if we continue to win market share and put density across the network with a reasonably decent pricing environment, which we believe we still are in and we are continuing to improve efficiencies in little ways across the entire company that our operating margins can continue to improve. So we still see it that way. If those variables change, I. E, the pricing environment got worse because of and usually that's because of a worsening economy. And by the way, we don't see a worsening economy.
We don't get any feedback from our sales force that customers are worried about a worsening economy. So I think we're going to keep seeing a steady economy, which should mean a decent pricing environment. I think all the factors are still good for continued margin improvement at least as far as we're concerned.
Okay. That's really helpful. Can I squeeze in just one last one? Obviously, you've got this strong balance sheet and given that your stock has pulled back pretty significantly, would you be inclined to let your leverage ratios move up and then buy back stock while still sustaining your CapEx plans?
Yes, we continue to buy stock This year we bought throughout the Q3, we had bought up to $85,000,000 and so far in the Q4, we bought another $20,000,000 So in total, we bought up to $105,000,000 on the current $200,000,000 facility now. So we think we can continue to invest heavily in the LTL network, which we intend to based on our CapEx guidance for next year, but we can also execute buybacks as well.
Thanks very much.
Next, we will go to the site of David Roth with Stifel. Your line is open.
Yes. Good morning, gentlemen.
Good morning. These questions have not been quite
as tough as the moderators from last evening's debate.
But if I can just ask on the cost pressures you guys are seeing in the business heading into 2016, you just put in a wage increase. I assume there'll be another wage increase next year because that's how it goes, especially in a driver market that's difficult. Besides that, what are you worried about? Or what are you kind of telling customers about is it justified the rate increase? The equipment cost going up, maintenance cost going up, trailer cost going up, etcetera?
All of the above. I mean, we're generally facing increases in all costs, capital equipment, real estate continues to rise, the price of property continues to rise. For real estate, for example, we were able to take advantage of some real good real estate deals years ago. But as we're looking at real estate today and the size of facilities that we need, there is no deal in real estate now. I mean, everything is expensive from the land to the construction cost and even if occasionally we'll run across a large service center that suits our needs and they're not cheap like they had been in the past.
So, you just generally have cost increase pressures across the board including your wage increases that justify the need for pricing and modest price increases each year.
Excellent. Thank you.
Next, we will go to the site of John Barnes with RBC Capital Markets. Your line is open.
Hey, guys. Thanks for taking my question.
In terms of all the conversation around maybe about weaker macro environment kind of playing out and recognizing that you're doing incredibly well on the margin performance. Can you talk a little bit about when and if you start putting contingency plans in place from a cost reduction perspective? Is it that you actually feel like you need to make cuts in the event of a weaker macro? Or is it just that maybe you slowed down the pace of hiring or something like that in the event that you're still taking some market share even in that kind of environment? Thanks.
John, we keep an eye on our largest cost area obviously is labor, labor costs to move shipments to come delivery and dock and so forth. And we're watching that on a daily basis, hourly basis down at the supervisor level actually. And historically, when you're looking at any given year, September is usually your peak in shipments and tonnage per day. And then as Wes pointed out on the sequential trends, what you've gotten and what you see in September usually kind of carries out to the end of the year and we've built up to handle that peak volume and we're not hiring through the rest of the year. It's pretty much except for replacements of people that we might lose or just anywhere that we might see that we need to add someone.
But we just keep we keep our finger on the pulse and if we were to see a slowdown, we can take action if we need to reduce headcount, but we don't see the need for that at this point in time. You still there? Yes. Thanks. I appreciate you taking the question.
Next, we will go to the line of Todd Fowler with KeyBanc Capital. Your line is open.
Great. Thanks. Good morning, everyone. I guess just to start, David, what percent of your freight do you think at this point is retail versus industrial manufacturing end markets?
Retail is in the 10% to 15% range and industrial manufacturing somewhere in the 40%, 45%.
And then what would be the other, I guess, 40% or
so? Well, a good measure of that is would be the 3PLs and we don't have the transparency underneath that to see what the mix is.
Okay. That helps, Wes. And then just to make sure I understand kind of how you're thinking about the Q3. Obviously, you gave us the sequential trends, but it sounds like that there was normal seasonality during the Q3. But then the October decline versus September is a little bit greater.
So are you seeing more now as you move into the Q4 versus what you saw in the Q3?
The tonnage comparisons are even tougher. Tougher. Or even tougher year over year in the Q4 than they were in the Q3, approaching 20% for the Q4 of last year. So it's a very tough comparison.
Well, I guess what I'm referencing, Wes, as you gave it, October was down, I think, 4.4% versus September versus a normal decline of 2.8%. So I was just trying to get a sense of was September stronger and that's why October is taking a step down? Or is it just that it's kind of within the range of what you would normally see maybe a little bit weaker, but nothing too concerning?
We think the macro is definitely has some softness in October. I can put a little color on this on October. I was doing a little study this morning. We have a report by our non operating regions and kind of looking at which regions are stronger than others. And it's interesting that our strongest regions happen to be up against easy comparisons last year, weakest regions for October are up against harder comparisons for last year.
And so overall to me it looks like our growth is pretty well balanced. But if there is some weakness, it would be in what we might call the oil and gas related states and regions of the Pacific Northwest, the Gulf Coast region and our Central States regions. And that would be it's not terribly weak at all for us in those regions. They're still relatively good. But if there's any weakness, that's where it is.
Okay. That helps. And David, you just made me feel bad for looking at espn.com this morning. That's where I spent my time. So just one last one, Wes.
It sounds like that you're saying that fuel didn't have a significant impact on the OR in the Q3. Did I catch that right? Or do you care to quantify maybe the impact of fuel on the OR just as we think about it sequentially going into the Q4? Thanks.
The impact, it was relatively neutral. Very little headwind on the reduction in fuel surcharge relative to that. I would say, if that moves, it would maybe be 10 basis points.
Okay. Thanks for the time this morning.
Thanks. We will go to the line of Ari Rosa with Bank of America.
Hey, good morning, guys. Nice quarter. Just wanted to ask first, so in terms of the market share gains, I wanted to get a better understanding of, first, where that's coming from? And second, as you look forward over the next few quarters, where you're kind of targeting your efforts for additional market share gains?
Our market share gains are really kind of across the board. There's no particular company or region of the country where they're stronger than another. It's we have a very balanced service product with multiple regional operations, multiple interregional connecting regions with adjacent regions and national service. So, we're competing with the small regional players, the multi regional companies and the national players and we get we just get a little bit here and there. It's just a matter of working with a customer and getting your foot in the door and improving yourself and then building your business and it's happening all over the company.
Okay, great. And recently, I guess, we've seen some challenges from some of your peers. I'm wondering, in the opportunity to gain share, how quickly could you guys ramp up scale if that were
necessary and what would that really what would that entail?
Well, the thing that the unique thing that we have going for us is that we have continually invested in our company. We've invested in real estate significantly and have continued to build service centers with excess capacity to handle future growth. So, if something drastic were to happen in the marketplace with a competitor failing, for example, We could ramp the hardest thing to ramp up is labor. And that would be the hardest thing, but we have excess excess capacity in our real estate and excess capacity in trailers to handle a surge and obviously you can rent tractors and trailers. The hardest thing to ramp up in short order would be drivers and dock people.
But we certainly don't anticipate anything drastic in the competitive marketplace happening in the near term.
Okay. That's helpful. And then just the final question I had was, it seems like the CapEx plans to confirm, Wes mentioned it was 430 to 460 anticipated for 2016. Is that right? Correct.
And it seems like that's a little bit elevated relative to what it's been in the past. Is that a new shift for you guys or is there something structurally different that you're seeing that is allowing you to put more money to work?
It's pretty much on plane for the most part for what our CapEx was this year or will be this year. But in terms of look at it as we get larger, as a percent of revenue, the CapEx that we're looking at next year is actually smaller as a percent of revenue. And much of that CapEx is still going into expanding network and expanding real estate.
Yes. I guess that's kind
of what I'm asking is that, is there a kind of a ramp up period that we see and then it comes down as a percent of revenue as you kind of get to a point where you feel comfortable with where your service center network is and maybe kind of the number of tractors you have, etcetera?
Yes. We do expect we expect to maintain obviously maintain our fleet on the replacement cycle. And then as David mentioned, we expect growth. And so it's all including that. But on the real estate, we'll spend what we need to spend to take opportunities.
But certainly as a percent of revenue going forward, we do expect our CapEx as a percent of revenue to start to drop.
Okay, great. Very helpful. Thank you.
Next, we will go to the line of Brad Delco with Stephens. Your line is open.
Hi, thanks. Good morning. I guess, Wes, I don't know if this is accurate or not. Is this your last earnings call?
It is.
Well, I do want to take the opportunity just to thank you and congratulate you on a long career. And then my I guess my follow-up question for you would be, how much have you guys accrued at this point for your retirement bonus?
It's $3.99
Per share? In total.
To get
to the real question, I wanted to ask about your exposure to specifically XPO and what the acquisition might mean to you from a 3PL perspective? Are you at risk of losing that business now that they have a sort of internal source to move that LTL freight? Or is that somehow offset with other opportunities that may come about? Just to give some perspective on that would be great.
Directly, we do very little business XPO Logistics directly. So we don't see really very much risk there. However, we do do a lot of business with other 3PLs. And so we think that we will probably gain market share on that front.
Got you. So we kind of heard that yesterday that potentially some 3PLs may just sort of be challenged to provide some of the information to a carrier now that is effectively owned by a non asset based logistics provider. So you do think that's an area of opportunity for further market share gains?
Yes.
Okay. But Wes, thank you very much. If you wanted to go out with the Q4 2015 EPS guidance range, I'd welcome that as well.
But then they may take away my $3.99 on.
Well, congratulations and best of luck to you.
Thank you, Brad. And Brad, thank you for bringing this up. We're going to miss West. He has been with Old Dominion for 30 years and has meant just the world to our company in adding value to what we do internally with his expertise in financial management and analytical skills and the whole thing, it's going to be we're going to miss it.
Well, I'm sure fortunate for Adam. He's got really big shoes to fill or unfortunately, I should say.
If you've ever seen Adam's feet, he has a CRV of his mind.
Next, we'll go to the line of Scott Grub with Wolfe Research.
So I know there's been a lot of questions on pricing. I don't know if anyone asked about just your pricing expectations for next year. Do you think that 3% to 4% range that you're seeing on Scott. We think as David already mentioned, there's no reason why if the macro is halfway decent, we still think that the LTL competitors have got to maintain price in order to improve the return on invested capital and even to provide funds to invest in capital. We would be surprised, but we expect pricing to be stable for most of next year.
Okay. When you look at the sequential tonnage drop in October, can you see what was the 3PL business any better or worse within that trend? No. I had to tell the truth. Well, I haven't done any detailed analysis to see where that is, Scott.
Okay.
When do you think you start to see some of that market share come over from Conway? That's hard to say. Well, I think it's yes. Oh, yes. It's still uncertain exactly what they will do at Conway and how they would execute on that.
So, it's hard to say. When they put the time sheet together and if they don't do it properly and it's going to be very difficult, it could cause business to come over. Okay. And then just last question. Have you is there in your mind a difference in the margins that
you
get on organic tonnage growth versus market share tonnage growth? By definition, there should not be. I mean, we price whether it's organic or whether it's additional. We still price it to earn the margins that we need relative to investment. So, I guess, the point of the question, I guess, is if in a slower economy, if more of the growth is going to come from market share and less from organic growth, in your mind that doesn't have any implications for the margins or margin improvement?
Improvement? How are you defining organic growth as just general growth in the economy?
Yes.
Okay. Because yes, it was okay. Yes, it's hard to say. If market share is from deeper penetration of existing customers taken away, then we do get some leverage because now we're getting multiple pickups that we're going to competitors that are coming on our truck. So there's some leverage there.
Yes. But we could be getting market share and just starting fresh with a brand new customer who's only giving us single shipments to begin with and the margin on that's worse than one where you get additional shipments to the existing side. Yes. Yes. It's just hard to answer your question, Scott.
Okay. Understood. All right. Thank you for the time. And again, Wes, best of luck.
Congrats. Thank you, Scott.
Next, we'll go to the line of Tom Albrecht with BB and T. Your line is open.
Hey, guys. Most of my questions have been answered, but a couple of things. Let's say the economy stays in this soft patch for a while. Does it what's your preferred course of action to continue to grow? Would it be to expand your sales force and bring in more brand new shippers or to rely maybe disproportionately on the relationships 3PLs can bring you?
Well, we've been in a soft patch since recession ended almost. It's a fresh soft patch more recently. We have not added that many sales people to our ranks or to our sales force over the last couple of years. We've been pretty stable with the size and we're just successful winning market share that way even in a soft patch. So, if it got worse, would we increase the number of salespeople?
I don't necessarily think so. Would we try to increase our focus on 3PLs? I don't really think so. We're just kind of steady as she goes with our strategies and they seem to be working regardless of the economic cycle we're in. So I just see us staying focused on doing what's working for us now.
Okay. And then lastly, maybe just a little clarification. David, at the Analyst Day, you said that the feedback you're getting from the sales force is not necessarily indicating a decelerating economy and yet some of the October data suggests maybe it has. I mean, how do I kind of package all that together?
Keep in mind, Tom, that the comparison of October is against a 20%, almost 21% increase in tonnage last year. Sure. So, yes, it feels a little bit soft, but soft doesn't mean down and that's what the indications are. I mean soft is the 2% to 3% is still in our view on the GDP is still soft And that's how we're defining that. Well, Wes, you were looking at shipments and shipments sequentially in the 4th quarter is right on target with 10 year sequential trends.
And so we're not seeing a softness on our shipment. The number of shipments. On the number of shipments per day. They're just smaller because of the softness from the economy primarily. And Les,
did you give the November December 10 year average for shipments? I know you gave it 4 tonnage.
10 year average for shipments?
Yes, just for November December.
I'll provide it. When you say average, are you talking about the 10 year average sequentially?
Yes. Yes. On shipments, not tons.
Yes. For October, the sequential in shipments is down 3.3%. That's what it is. That's what it was in October this year from September. The 10 year average is 3.5%.
You can see it was actually better sequentially.
Okay. And then do you have November, December? Because you gave the
We expect it to be up 1.7% from October and then down 9.6% in December compared to November. Those are the 10 year average. That's the 10 year averages. Right, right. That's exactly what I was looking for.
Okay, guys. Thank you.
And next we'll go to the line of Ben Hartford with Baird. Your line is open.
Thanks. Quick question on tonnage growth relative to salary, wages and benefit growth. If look over the past 5 years, salary, wage and benefit growth, the growth rate has outpaced tonnage growth by about 200 basis points. And so I'm interested in whether that relationship should hold or even widen over the next couple of years given this trend that you've talked about with regard to smaller more frequent shipments? Any perspective on that as we think about 2016 and beyond?
Part of that increase is a couple of components there. Number 1 is fringe benefits, which is medical group health workers' comp, which as you know has always been inflationary for the most part. And secondly, some of that increase in wages and especially wages is, as I mentioned, is substitution for lower purchase transportation. In fact, it's hardly for the for our LTL division, we are not hardly using any purchase transportation whatsoever. It's all on green old Dominion trucks with company drivers.
So that's just an offset to that.
Okay. So I mean, is it fair to think about that relationship holding? You've got some offsets. Maybe you could help us understand what the offsets would be? Or is it just we should think about that 200 basis point spread as being constant even with this trend toward more frequent shipments?
Well, I guess, as we'd already also talked about, some of that mathematically is due to the fact that the fuel surcharge is so much lower. So, whether it goes in the future, some I hate to say it, will depend on what the fuel cost is and how that affects fuel surcharge. So, that will have a relationship going forward. So, I'm not sure what to expect the relationship will be because of the top line and then that and how quickly we continue to substitute purchase transportation for company owned equipment, especially in our container grades division.
Okay. D and A took a sizable step up sequentially. This $42,500,000 level, is that a clean base and we should build from that as we go through 2016?
Well, we don't give guidance on that. We've given you a we'll give you some more details on our CapEx breakdown on the January conference call into what is equipment real estate and then maybe you will have a better basis to make your own calculation on that then.
Okay. Thanks, Wes.
Next, we'll go to the line of David Campbell with Thompson, Davis and Company.
Yes. Thank you. Thank you for taking my question. How would you describe your expedited business in the Q3? Was it up as much as the overall LTL tonnage?
And were the shipments same relationship as a View General business?
Expedited revenue was better than overall revenue for the quarter, yes.
It was up better than?
Yes, higher than.
Is that anything you would consider an indicator of future business activity? Because I would think Exelaria would be weaker than the general business.
Well, except for just growth, whether you call it through market share or our own focus on that, which offsets it. Now, when you say expedited, we talk about expedited more domestically, not globally.
Right. Okay. Thank you very much and congratulations, Wes, on your retirement. We're going to I'm going to miss you too.
Thank you. Thank you, David.
And we have a follow-up from Alex Specto with Morgan Stanley. Your line is open.
Hey, there. Hey, thanks for taking the follow-up. Hey, Wes, can I ask you to just repeat the 10 year historical sequential trends in tonnage for November December?
Yes. For in tonnage, sequentially, we'll get to it. I'll do it another way. Okay. The sequential trends in tonnage for November, the 10 year average is 3% up from October and a reduction of 8.7% in Cottage for December.
Got it. Okay. Thanks for that. And then, I guess just one more. Wes, do you have a rough estimate for how much core how much you would need core pricing to increase in order to sustain margin expansion?
Or said another way, if your pricing if the market wasn't able to give you pricing, so let's say, pricing was X, it would be difficult for Old Dominion to expand margins?
Well, our margin improvement is based upon three things. We need to see a macro that's behaving halfway that's at least positive. We have to see discipline from pricing in the LPL sector. And of course, the last thing, both of which are not necessarily within our control there. But thirdly is the own leverage that we all have from density growth.
And I guess there really is a 4th thing and that's that we remain disciplined on pricing because we are providing best in class service. And so, how much we think we can still and the last two things, which is density or margin improvement and the fact that we still providing best in class service, I think still allows us to be able to increase margins through the combination of those 2. But if those are affected by a macro or by a price aggressiveness out in the market, which is not in our control, then we'll have to see how that goes. But as far as a specific number on I think he's asking if yield went from 3% positive to 0 or what would the number be for us not to be able to improve margins? How much And I answered that question very, very, very vaguely.
We don't know that. We're fit.
Okay.
Yes. We haven't really run that calculation, to be honest with you.
Okay. I mean, another way to ask it is just how much do you need to just offset basic inflation? Are you able to kind of roughly estimate that or also a little bit tough?
Well, I'll just say that obviously, we impose our own inflationary factor in wages by giving a 3 point 5 percent increase. And of course, that doesn't apply across the board. So and we think we are in fact getting some of that back through improved productivity and we'll get some of that back through this density. So to make up for that, it has to be a pretty positive number. It wouldn't be 3.5%.
It would be something less than that. Yes. Those wages are what? 60%. 50% of our 20% of our total total.
2% almost to all the way. That, yes.
Okay. That's actually really helpful. Appreciate the time. And then I'll just echo my sentiments, Wes. Congrats on a great career and wishing you the best of luck.
Thanks, Alex. I appreciate it.
We have no more questions in queue. I'd like to turn the conference back over to Earl Cogdon for closing comments.
Well, guys, as always, we thank you all for your participation today. We appreciate your questions and your support of Oil Division Solutions. Please feel free to give us a call if you have any further questions. And thank you again and good day.