Good morning, and welcome to the Q1 2015 Conference Call for Old Dominion Freight Line. Today's call will be recorded and will be available for replay beginning today and through May 15 by dialing 719-457-0820. The replay passcode is 8 2,657. The replay may also be accessed through May 15, 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. Thanks for joining us for our Q1 conference call. With me this morning are David Congdon, Old Dominion's President and CEO and Wes Fry, our CFO. After some brief remarks, we'll be glad to take your questions. Port Opinion had a great start to 2015 with strong first quarter results despite severe weather in many regions during the quarter and a somewhat stagnant economy.
Although our revenue growth for the quarter reflected the expected decline in fuel surcharge, we continued to produce double digit growth in tons per day with a strong yield improvement. As a result, we achieved a company record for 1st quarter revenue, earnings and operating ratio highlighted by a 200 basis point improvement in OR for the quarter and a 37.7 percent growth in earnings per diluted share. We continue to credit our substantial and consistent long term growth to our ability to deliver on time claims free service throughout our expansive network at a fair price. The success of this value proposition reflects the high level of commitment by our outstanding team of dedicated employees. We will continue to provide our employees with the tools and technology, the training and education and the infrastructure and equipment capacity that is necessary for us to continue to exceed our customers' expectations.
We expect that our continued successful execution of our business model will drive further growth in market share, earnings and shareholder value. Thanks for being with us today. And now here is David Thompson. Good morning. We continue to be pleased with Old Dominion's outstanding performance as evidenced by our strong profitable growth for the Q1 of 2015.
Growth in tons per day of 11.4% in a quarter in which our revenue per 100weight excluding fuel surcharge increased 6.2% is a compelling indication of the demand for our truly differentiated value proposition. We continue to deliver on our promise to provide superior customer service during the Q1 with on time service of over 99% and a cargo claim ratio of just 0.36%. We have been able to sustain this performance over the long term through our focus on execution, discipline and investment. Our success in executing our business model is evidenced by the long term consistency of our industry leading service performance. The sustainability of our model has been tested by economic downturns, severe winter weather, strong volume and market recoveries and even by the 17% increase in employees over the past year.
Yet throughout, we have maintained our commitment to best in class customer service. Our discipline is also evident in the decisions we make every day. We operate a proven, flexible and innovative business model, but it requires constant discipline in yield management and investments in our network, people and technology to make it work well. These steady investments in our network infrastructure and equipment have created strong long term gains in productivity and efficiency as well as giving us the flexibility to take advantage of industry consolidation and strong volume growth. We have also created and continued to enhance a cutting edge technology based operation that offers our customers tremendous transparency into the services we provide them.
Leverage this investment in capacity and technology, we also invest in our employees. Our focus is not only to give our entire team the education and training they need to exceed our customers' expectations, but also to sustain a company wide service oriented culture that rewards the innovation and flexibility with which our employees approach their jobs. Whole Dominion's long term performance validates our business model with a consistent focus on execution, discipline and investment in creating a strong unique and competitive market position that increases our ability to drive long term growth in earnings and shareholder value, we think we have also redefined what it takes to be competitive in our industry. Thanks for joining us today and for your interest in Old Dominion. Now, Wes will review our financial results for the Q1 in greater detail.
And thank you, David, and good morning.
Old Dominion's revenue was $696,200,000 for the Q1, which was up 12.2% from $620,300,000 for the Q1 of 2014. With a 200 basis point improvement in our operating ratio to an 85.1% for the last quarter latest quarter, earnings per diluted share grew 37.7 percent, $0.73 from $0.53 for the Q1 of last year. Our financial results were driven by 11.4% increase in LTL tonnage for the quarter, which was comprised of a 13 point 5% increase in LTL shipments and a 1.8% decrease in LTL weight per shipment. LTL revenue per hundredweight increased 0.4%
for the
quarter. And excluding the revenue per hundredweight of fuel surcharge, it increased 6.2%. Revenue per hundredweight was favorably affected by the decrease in weight per shipment, while length of haul was relatively flat. Holding the weight per shipment constant, we believe our increase in yield was just under 5% for the Q1, at the midpoint of our guidance of between 4.5% 5.5%, which was based upon that assumption. On a monthly basis, LTL tonnage per day increased sequentially by 1.3% for January from December, decreased 0.3% for February and increased 8.3% for March.
This performance compares with our 10 year average sequential month trend that shows an increase of 1.9% for January, an increase of 3% for February and an increase of 5% for March. On a comparable quarter basis, LTL tonnage per day increased 15.3% for January, 9.4% for February and 9.2% for March. We expect April 2015 LTL tonnage per day to increase approximately 9.5% versus April of 2014. The Q2 of 2015 assuming normalized sequential trends, we expect LTL tonnage per day to increase in a range of 9% to 10% compared with the Q2 of 2014. Monthly year over year tonnage increased during the Q2 of 2014 compared to 2013 were 14.1% in April, 15.5% in May, 14.8% in June.
Q2 of 2015 has the same number of work days as the Q2 of 2014. We expect revenue per underweight excluding fuel surcharge to be in a
range of 5.5% to
6.5% for the Q2 compared to the Q2 of last year. This expectation assumes a year over year LTL weight per shipment to be down 3% to 3.5% with a flat leap of haul. In April, our LTL weight per shipment is expected to be down 3.4%. Strong improvement in Old Dominion's operating ratio primarily reflected our increased density and strong yield. Significant decline in fuel prices resulted in a 4 50 basis point reduction in operating supplies and expense.
However, the decline in fuel prices also decreased our fuel surcharge revenue. Revenue is the denominator in the operating equation. Other expenses expressed as a percent of revenue increased during the quarter as a direct result of the decline in fuel surcharge revenue, for example. Salaries, wages and benefits expense increased 2 70 basis points despite only a slight reduction in productivity and an improvement in our group health and workers' compensation cost. Capital expenditures for the Q1 of 2015 were $72,200,000 Continue to estimate CapEx for the entire 2015 will be approximately $463,300,000 including land expenditures of $164,700,000 dollars for real estate, dollars 271,800,000 for tractors, trailers and other equipment, $26,800,000 for technology and other assets.
After anticipated asset sales, we expect total net CapEx of approximately $458,000,000 which we plan to fund primarily through operating cash flow as well as our available borrowing capacity if necessary. Our effective tax rate for the Q1 of 2015 was 38.6% compared with 40.6% for the Q1 of 2014. We expect an effective tax rate of 38.6 percent also for the Q2 of 2015. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for any questions at this time.
Yes, sir. Thank Take our first question from Chris Wetherbee with Citi.
Great. Thanks. Good morning, guys.
Maybe starting with
a question on the cost side, you mentioned the headcount up 17%. And as we're still seeing very robust volume growth but maybe at a slightly slower pace than what we've seen in the last several quarters, how should we think about that going forward? Do you feel like you're staffed appropriately for the growth you expect this year or should that continue to ramp up? And maybe how do you think about that in terms of the incremental margins you're able to put up knowing that you don't give guidance on that topic?
Chris, this is Wes. It's not it's kind of usual that we will add in the Q1 we'll add employee counts faster than our revenue growth in anticipation of the seasonal uptick in the second quarter because one reason just because of our training timeline. So that it's not unusual. It happens pretty much every 1st quarter should as we anticipate further tonnage growth.
Okay. So this is typical seasonality is the way
to think about it. And when you think thinking about sort of the Q2 and maybe the rest of the year, I guess, are you seeing any sort of pockets of softness within the customer base that you're looking at? And sort of how are you guys thinking about maybe sort of the rest of this year as it might play out? Are you a little bit more concerned about the pace of tonnage growth? I know it's still very robust you're taking share, but just kind of get a sense of how you're thinking about the world?
I think we can address that by just talking a little bit about some of the details of the of what we saw in the Q1. As we mentioned, our weight per shipment in the Q1 was down 1.8%. When you look underneath that, it was clear to us that the biggest sector industry sector of that decline was in the retail sector. And I think 2 things going on there. Number 1, as you obviously know, the GDP overall and even in the retail sector was fairly stagnant.
I think it was like 0.2%. And so we expect that to be slow. And the second thing is the truckload spillover as you recall last year, I think maybe it's our opinion that the retail sector was diverting a lot of it what would normally be truckload over to LTL to get goods to the market. And that's one reason why we saw and are still seeing a pretty robust velocity in number of shipments, albeit that they are just lower weights is that we're having to get those to the market. We're still seeing in April, which I've mentioned our weight per shipment is down 3.4% And that we still think that's still a combination of macro and still a combination of the change in the truckload or spillover.
So hopefully that helps. Just a little the retail is probably the most. We actually saw industrial weight per shipment in velocity fairly strong in the Q1 and is still seeing that. So I guess the bottom line is you've got to produce it before you sell it.
All right. That's very fair. Thanks for the time guys. I appreciate it.
Our next question comes from Allison Landry with Credit Suisse.
Thanks. Good morning. So just following up on that last point. Expectations for waste per shipment continue to be down in the second quarter. What is that sort of telling you about sort of the macro environment going forward?
Are your customers concerned about inventory levels? Do you think at some point the consumer will actually start buying some goods? What's your overall view there?
Allison, let me this is David. Let me throw in just one more element that Wes didn't mention and it has to do with the port strikes and all the backlog of container ships and so forth that when the product finally hit the shore to where it could be shipped, shippers were shipping what they had or they've been shipping what they had to ship, what they had available to ship in waiting for the product to hit the shore. And I think that had an impact on the overall weight per shipment in our industry in the Q1. Will we all see a decline in weight per shipment in the second quarter and is it a macro? I really it's really, really hard to say because if retail shipments were slow in the first slower in the Q1 and that's what West was saying and their shipment sizes were slower, I think a lot of that did have to do with that port congestion and the issues on the West Coast.
So another thing that might be affecting our weight per shipment is that it's obvious that we are winning some market share and it's basically coming across the board, across the country. Our industry peer group has a lower weight per shipment than we have. And so it stands to reason that if we're winning market share that that might be pulling our weight per shipment down a little bit.
Okay. That's actually good color. And then just following up and thinking about headcounts, just sort of if you know, tonnage and sort of demand does fall off, what are you what's your sort of contingency plan for headcount for the balance of the year?
Well, keep in mind that we still guided the 2nd quarter to be in a range of 9% tonnage growth. So I don't call that a falling off. But to David's point that tonnage is based on the fact that we're seeing a reduced weight per shipment. And as he also pointed out, we don't really know If we do get some traction on retail and GDP in the Q2, it could be that that weight per shipment does start to go up again.
And the other point I'll add is that you've seen our history of managing through downturns, upturns or whatever. We have a very good control over how our tonnage is going and our headcounts that we need to serve our customers and keep our cost in control.
Absolutely. All right. Thank you guys so much for the time.
All right.
Next question comes from Brad Delco with Stephens.
Good morning, gentlemen. Thanks for taking my question. Wes, the first one for you. Is there any way to sort of quantify on a year over year basis what the weather comp looked like for you? I know weather was an issue this quarter, but was it and we could put dollars to what it was this year versus last year?
Well, keep in mind Brad that there is a way to do it. We just haven't really spent a lot of time doing it. And the reason is neither the Q1 of 2014 or 2015 had any spring like characteristics to it. They were both kind of bad. So to try to get the differential, you can't get the differential this year without going back and seeing what the effect was last year.
And to tell the truth, we think that that was kind of neutral. January 2014 was the really tough month of weather in 2014 and it turns out that it looks like February was a really tough month regarding weather this year. So it's kind of an offset between those 2 months. But overall, they both had very similar and negative effects. So to get the differential may not be that much and we didn't take time to look at that.
We still improved our operating ratio 200 basis points.
No, no, no. The results were clearly good. I was just trying to get a sense in terms of a comparison. Was it a better weather quarter year over year or roughly the same? It sounds like it was roughly the same
for you. Roughly the same with the And we have like terrible. Yes, but terrible in the description, correct.
And then Wes on your commentary about revenue per 100 weight, 5.5% to 6.5% year over year. I mean that's an acceleration from what you guided Q1. Obviously weight per shipment will adjust that number. Is it fair to say that roughly if you adjusted weight per shipment and kind of that core pricing excluding mix is around the 4% range? Or what's kind of
the Maybe you were late, but I did comment on that in my script. If you hold the weight per shipment constant in both quarters, then the revenue per hundredweight yield would have been up around 5%. So looking at it that way and keeping in mind that the guidance that we gave in the first quarter of 5.5% to 6.5% was based upon that assumption that we're really right at the midpoint of that assumption. And it wasn't you're talking about I'm sorry, you're talking about this quarter. Yes.
Yes, I'm sorry. This quarter if you did to hold that constant, we would still be in that 5% range.
Okay, perfect. That's just a point
of clarification.
No worries. Well, thanks for the time guys and congrats on the good quarter.
Next question comes from Bill Green with Morgan Stanley.
Hey there, good morning. You know, Wes, I just want to ask for a little bit of clarification on the some of the second quarter guide. So we've got a little bit of slowing tonnage growth, but not so bad, but you've hired in advance. So I assume we'll see some productivity as those new employees get up and become more productive. We typically think of the 2nd quarter seasonality being a 400 basis point improvement in margins, but second quarter is often a really strong quarter.
So how do you weigh those pieces, tonnage growth slowing a little bit, yields holding, but productivity getting better? My sense is it could end up being quite a good quarter even though I know you don't give guidance, but I'm just trying to think through the puts and takes
Do you want me to answer all those questions?
Well, the basic question is can seasonality is that a reasonable basis for thinking about Q2 because there's a lot of moving parts?
I think overall the Q2 was a little bit tough tougher comparison as evidenced by our tonnage growth in the Q2 of 2014 over 2013. So the comparison is maybe a little bit tougher. But still I think the 9% 10% guidance was based upon what we're seeing in April and the big and we're still getting tremendous velocity on number of shipments, 4%. And that's kind of what I based our guidance on. If that should change then we could be a little more optimistic.
But right now we don't see that transparency
at this point. Hopefully we will. But we had some slippage over the last 5 or 6 months or maybe even longer on the dock because we had hired so many people and we had so much ongoing training expense with them. And to be honest, I think it takes a dockworker at least 6 months to get up to speed and get to where he can produce at the level that the more seasoned dock with some incremental improvement in our dock productivity during the Q2 because we are fairly stabilized with our quantity of people handling our current shipment levels. Yes.
The other thing Bill, our increase in our 5.59% was effective this year on January 1, 2015. So we got the benefit in terms of yield on that for the entire quarter. Whereas in the Q2 when you look at kind of the lower the yield guidance, it's based upon the fact that last year we had a May 1 implementation. And I know that the yield guidance is actually stronger in the 2nd quarter than what our actual was in the Q1, but that's because the weight per shipment is down 3% as opposed to 1.8% in the first.
Okay. That's very helpful color. David, I would like to sort of run one question by you and I know we don't know if this will happen yet. But insofar as we got 33 foot trailers approved here, Old Dominion has always been out and ahead on productivity. How big a deal is that for you from a productivity standpoint?
I think it will be take a little bit longer firm to gain the productivity on this because if we get 33 foot trailers, we will obviously shift the production of 28s to 33s and start gradually putting them into our network and determining which traffic lanes we will be running these 33s in. So I see us implementing this thing on some of our longest haul lanes that had the highest amount of freight density freight lane density first. So it will be something that we will be putting them in as we're buying new trailers. We have not made any decisions yet on retrofitting or extending our current 28. The cost of that has turned out to be a little bit higher than we originally thought.
But I just see it as not a major transformational thing. Now if we were able to haul triple trailers all of a sudden across the country, then you'd see a transformational change.
Okay. Very helpful. I appreciate the time. Thanks so much.
Next question comes from Tom Kim with Goldman Sachs.
Thanks. Good morning. I had a question on labor productivity. Your shipments per employee or tonnage per employee has been sort of trending down since 2013. And I know you said that you're adding headcount to head to growth, which makes a lot of sense.
But I'm wondering like can you get back to 2011, 2012 levels of productivity? And how long does that take?
Well, obviously you're dividing that by total employees. And total employees all of them doesn't move freight. And so we've been into monetization and we've had to add IT resources and others as we grow. But I think we can still get back as we of course getting back to that productivity somewhat implies that maybe we're not aren't as strong and we don't think that that'll be the case. We'll always have a certain amount of new employees that are in the training mode as David mentioned earlier.
But I certainly think that we can get back to the 12, 13 levels. But the dynamics of freight movement continues to change. More and more requests for spotted for appointment freight and certain characteristics that just takes more labor as well. The only question is if that happens can you get that into price? Apparently, we've been very successful in doing that.
That's definitely absolutely right. And I guess just also with regard to utilization levels, I'm trying to understand like your incremental costs associated with additional volume you're bringing on. I'm wondering are your service utilization rates at presently? And can you continue to push more shipments or more tonnage through per station?
That's an ongoing process when it comes to service centers and capacity and how much more you can push through stations. As evidenced by our CapEx for service centers, we're continually having to expand and or build new centers for our largest cities where we grow the fastest. Whereas some of the smaller cities that we may have 50 doors in the city that only needs 20 or 25. And heck you could more than you could handle a heck of a lot more freight through some of our service centers. But yes, so it's just a kind of ongoing evolutionary thing.
Understood. Thank you.
Next question comes from Jason Seidl with Cowen and Company.
Hey, Errol. Hey, David. Hey, West guys. Thanks for the time this morning. West, going back to the weight per shipment trends, obviously, the West Coast port is probably thrown a little monkey wrench in the comparison.
Are you seeing now in 2Q now with the port stuff moving and the cleanup going through, are you seeing more retail shipments here in it's fairly in 2Q?
I'll say that the weight per retail shipment starting off in April is not down as much as what it was in the Q1. So that's an indication that perhaps it has improved. It's still not positive. It's still down, but that would indicate some improvement
there. So it's the weight per shipment
on the industrial side that's dragging down more in 2Q then for you?
Well, the weight per shipment on the industrial side in the Q1 was roughly flat. At least in April at this point, we're seeing it down slightly. So they produced them in the Q1. Now they're moving them and now they got to start producing some more. But we still see the macro at this point.
I don't know how else to characterize it other than fairly sluggish at this point. And I know the economists are talking about 3% GDP for the year and it was only 0.2% for the Q1 is that there should be a pickup. And so we'll be interested as everyone to see if our weight per shipment and demand increases. And to tell the truth, we expect it to.
You know how estimates are, Wes, you make estimates and you make them often. On the 3PL side, business that you're doing with the 3PL, are you seeing a change in the shipments that you're getting from them either up or down?
About the same. In the second quarter, our weight per shipment for our 3PLs and logistics partners were maybe down slightly, but okay and it's still down. But keep in mind that that's a pretty good mix of retail industrial then we don't necessarily have transparency on that across the board. But we still are growing favorably and developing very good relationships with our 3PL partners.
Okay. I think, Wes, that about does it for me. So I appreciate the time as always.
Thank you, Jason.
We move next to Rob Salmon with Deutsche Bank.
Hey, thanks. Good morning, guys. As a quick follow-up to Jason's last question, Wes, with your comments about the 3PL shipments, were you speaking as a percentage of your total shipments or just the absolute numbers in terms of it being flattish to slightly down?
Speaking of the weight per shipment Rob on our 3PL in the Q1.
Okay. I guess, Wes, then if you're thinking about just the overall shipments, did that remain pretty constant as a percentage
of the book or kind
of tail off?
It remains fairly constant, but growing. It's right now, it's around 34% to 35% of our total shipments.
Okay. That's really helpful. Wes, if I could switch gears a little bit to some of the ancillary services that you're offering, look like that growth accelerated a little bit last quarter. How are you guys thinking about the growth there? Are there any new verticals that you're adding to the suite of services like kind of the home delivery well not home delivery, but home movement services that you're already offering in the drayage business?
Of course, in the Q1, our drayage business was significantly impacted by the West Coast ports as you might imagine. And we're seeing some resurgence there as we speak. And as far as the home moving, of course right now that's a seasonal business. And while it's growing very nicely, we expect that to continue to grow at least from a revenue standpoint. So we expect still continued growth in all those services freight forwarding, drayage and our specialized LPL services like home moving and expedited.
So we do expect in truckload brokerage, we do expect continued growth in all those segments of our business.
Okay. So it sounds like it
was just more execution as opposed to adding in any new services in terms of last quarter?
I think so. Yes. Yes.
Thanks so
much for the time.
Next question is Todd Fowler with KeyBanc Capital Markets.
Great. Thanks. Good morning. I just wanted to ask on the balance between share repurchases and CapEx. It's going to be a heavy CapEx year and it feels like it's going to be building in the next couple of quarters.
You're buying back some stock here in the Q1. How do you think about share repurchases? Do you look at that opportunistically? And if CapEx is going to go up, do the share repurchases slow then?
No. No, not at all. I think we have a strong organizational structure that we can do both. And keep in mind, we are in fact doing both. We have repurchased about just under $28,000,000 of shares since its effective date in December currently.
And that's on the even though we've indicated $460,000,000 of CapEx. So we will still do both executing and investing in growth in terms of our network etcetera and while also looking at returning some proceeds to shareholders in terms of a repurchase. So I think our balance sheet, our structure, our profitability and margins allow us to do both and we'll continue to look at that.
Okay. That helps. And then Wes just maybe a follow-up for you. The insurance and claims here in the quarter, do you view that as kind of a normal rate for the Q1? Was there anything that was elevated?
And how do we think about that going forward? It's a good number. I was curious if you view that as being normal for the Q1.
Yes. We've seen that that's fairly normal. That includes our DIPD coverage in that line as well as our cargo claims. And we've been very active in managing both of those expenses and we continue to see that as being a positive number whether it goes down or up as a percent of revenue. As you as we pointed out in our script, the optics of that isn't as much as you think since our
We showed it going from 1.3% to 1.4%, yes, but the revenue is down because of the fuel surcharge. So So that the number is actually better as a percent of pre fuel surcharge revenue.
And that's a good point. I would say probably it's more flattish. But I think that's a range we expect to maintain this year.
Yes. And that's why I framed up the question the way I did because I think it's optically a little bit confusing. So I just wanted to get your thoughts on how insurance felt during the quarter. So I think I got what I need with that. Thanks for the time this morning.
And next we move to David Ross with Stifel.
Yes. Good morning, gentlemen.
Good morning, David. There's been a
lot of M and A activity in
the 3PL landscape and you talked about having a good amount of your business moving through the 3PL network. Could you talk about any impact you've seen from consolidation of the larger brokers on the business or how you see that playing out in the marketplace?
I don't David, I don't think as far as we're concerned, we've not seen any effect on our relationships with the 3PLs that we do business with. And our stance on how we work with 3PLs will remain the same and we've had a successful relationship with our 3PLs.
And then just on the equipment side, you guys spending over $270,000,000 this year. Anything different in what you're buying versus prior years in terms of new specs for the tractors, different brands or OEMs, different engine types, anything there that's changing?
Our mix of brands is the same this year as it has been in the last couple of years. And from the tractor standpoint trailers are about the same. There's nothing in particular different in any major way. And mix of engines and the whole thing it's all about the same. We're testing some automatic transmissions or what they call it, semiautomatic transmissions.
But we're not haven't moved ahead with anything in a big way on that.
Have you guys looked into your nat gas trucks at all for any of the P and D routes? What's your current thinking there?
We've been watching the whole natural gas evolution for the last several years and we're definitely on a wait and see approach. We don't think that that is that we're ready for that or that's ready for us. Keep in mind, David,
that our tractors that are used in the P and D routes were previously line haul tractors as we get the 10 year economic life. So it's not if we do not buy a separate pickup and delivery fleet. So that makes it a little more cumbersome to try. And in line haul, clearly, natural gas just isn't even close to being practical for us as I assume for the industry.
Excellent. Thank you very much.
Next question comes from Scott Group with Wolfe Research.
Hey, thanks. Good morning, guys. Good morning. So wanted to ask about the impact of fuel and from a couple of sides here. Do you have a kind of an estimate on how it may have hurt the operating income or not in the quarter and how you think it might impact Q2?
And then just separately on fuel, since you guys didn't change the fuel surcharge, I don't think you changed the fuel surcharge, have you heard from customers that that's been an impact in terms of incremental market share gains for you?
On your first question, yes, we did realize a little bit of tailwind in the Q1, maybe 20 to 40 basis points on the fuel. We expect that to reverse to a slight headwind as the year progresses and as fuel cost starts to go up and fuel surcharge perhaps lags that a little bit. That was our occurrence. And what was your other question again Scott?
About the fuel surcharge and the customers. We've not had honestly not a lot of direct feedback nor any way to really measure whether our stance of not taking increases on our fuel surcharge tables, whether that has contributed to market share gains, we really had it's impossible to measure that.
I would just say that our 559 which is where that would affected saw pretty nice growth in the Q1. So and not necessarily above what would be the overall. It's hard to make a conclusion that we got additional, but we still think that that was the fair thing for us and the right thing for us to do. No, that makes sense.
And then I know there were a bunch of questions already on headcount, but I don't think I heard. Did you give an estimate of what headcount is going to be up in the Q2?
We have not given that guidance.
Okay. And that's not something you want to share with us?
Correct.
Okay. And then one last thing, just how does lower weight per shipment impact incremental margin? We understand the impact on revenue per 100weight, but I'm not sure I'm clear on how it impacts incremental margins.
Well, we had a lower weight per shipment in the Q1 and I think our incremental margin was 30%.
Okay.
All right. Thank you, Fred. So, we'll
assume it's driven by that versus overall yield density across the network. I think yield and density across the network were more influential to our 200 basis point improvement in OR.
But it would have maybe a slight negative effect on incremental margin in that we do haul shipments. So we're hauling more shipments, which means that you've got more movement on that. But the impact that would be minimal As David points out, the real question is, are you getting appropriately compensated in terms of yield and certainly we have and expect to.
Okay. Helpful guys. Thank you.
And we next move to Tom Albrecht with BB and T.
Hey, guys. Good morning. Just with how weird this economy is in that, I'm just kind of wondering if you've had any major shifts in kind of the breakdown between your overnight, 2nd day and 3rd day deliveries. I kind of look at it as about 30% overnight, 42nd day and 30 3rd day or later, but it's been a while since I've asked you about that.
It's been relatively constant, although our overnight and second day is growing perhaps slightly more than our longer haul and that's kind of been the trend. But other than that, we haven't seen any sudden or significant shifts in that. Okay.
And then David on the issue of the 33 foot trailers, do you have some thoughts on either age or mileage where you would use a trailer kit to expand the length of the trailer versus buying brand new 33 footers?
We are keeping our trailers our PUP trailers out in the range of I think it's 18 or 20 years. Is that about right, Wes? Somewhere in that neighborhood. And so I think you would probably only make a conversion if they were less than 10 years old would be my that's just my educated guess right now.
Okay. Obviously, if it gets passed, you'll study it a little bit more. But the other thing kind of back to the headcount, would it be fair to sort of extrapolate that there's a good chance your headcount will actually lag your tonnage growth in the Q2 just because you already did so much advance hiring?
It could go either way.
Okay. So you're still actively hiring quite a bit it sounds like then at least at the beginning of the quarter?
Yes. Even at a tonneage sequentially our tonnage will be obviously higher in the Q2 than the first. So and year over year we've already discussed 9% to 10% tons growth and even more shipments growth. Keep in mind that probably the more comparable metric is number of shipments growth when we expect to employees not tonnage growth because we actually move shipments not necessarily tonnage. So it takes so we anticipate with that tonnage growth that the shipment growth will be higher.
And that means you got to have the people in place
to move it. Yes. We will definitely be adding people during the Q2 because June will be another peak month just like March is the peak month to the Q1. June is the peak month to the Q2. And so we've got to be getting geared up to be able to handle the volumes in June.
And we hope everybody takes a little bit of a vacation in July and then here we go again for the second quarter and the peak in September.
Last question. Just on a typical week or month, however you might look at it, approximately what percentage of your shipments are being run through a freight dimensioner?
Keep in mind you don't the percentage isn't necessarily relevant. I mean if you've got a customer and you want to you'd only need to run and say it's a new customer, you only need to get a sampling of that shipment to see if the cube and the weight per cube is what was agreed on from a pricing standpoint. If I had to guess, I would say 30% to 40% of our shipments go through a dimensioner on
a daily basis.
Okay. That's helpful. Thank you. Appreciate it.
Next question comes from David Campbell with Thompson Davis and Company.
Wes, thanks for taking my question. You said earlier that your next day business is up a little more than the long haul business. Does that mean expedited your expedited shipments are growing faster than your overall business?
Well, keep in mind expedited doesn't necessarily mean next day. Expedited is expedited whether regardless of the length of haul. If we have a customer that needs a shipment going from East Coast to West Coast that's expedited, but that's not necessarily has anything to do with the transient time. It's with the immediacy of the shipment. So that wouldn't necessarily be the reason why our next day shipments as a percent of overall is increasing.
It's just one of the things it is in growth, continued growth in our regional obviously business, but it's not necessarily expedited.
Right. So is expedited increasing about the same as your overall business or faster?
Faster.
Faster. And is that any change? Or that seems like in the past it hadn't grown faster, but maybe it has.
Yes, it has. All of that has and
I'm not sure how you know that number because we don't disclose that amount of detail.
Just guessing.
It's coming off a lower base of revenue too. So that's why the percentage growth might be faster.
All right. Thanks a lot.
Our next question comes from Ben Hartford with Robert W. Baird.
Hey, good morning guys. Wes, can you remind us what type of sensitivity do you have to the 15% to 20% long term incremental margins that you've guided to specifically on the bottom end? What is the bottom end of that incremental margin target assume from a core pricing standpoint? And is the bigger risk to falling below that long term incremental margin target range? Is it core price or is it continued productivity gains?
I think as long as the macro is as we see continued discipline from a pricing standpoint and assuming that we still have the density improvements all of which we think is the case is no reason why we are our incremental margin wouldn't be definitely at the high end range. And of course, it's been above that with those ingredients in place. For it to get to the low range, I think we would have to see all of those things having a negative effect and therefore just not doing well. And that's for you and the economists to decide if that ever happens. But that would be the reason why it would ever get down to the low end of that range would be because of those factors being not positive.
Okay. That's really helpful. Thanks.
And ladies and gentlemen, with no further questions in queue at this time, I'd like to turn the conference over to Mr. Condon for closing remarks.
Guys, as always, thank you all for your participation today. We appreciate your questions and your support of aluminum. Feel free to call us if you have any further questions. Thank you and good day.