Good day, ladies and gentlemen, and welcome to the Saia, Inc's second quarter 2022 earnings call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Doug Col, Saia, Inc Executive Vice President and Chief Financial Officer. Please go ahead, sir.
Thank you, Kyle. Good morning, everyone. Welcome to Saia's second quarter 2022 conference call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and all other statements that might be made on this call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some opening comments.
Good morning, and thank you for joining us to discuss Saia's second quarter results. Our second quarter revenue of $746 million surpassed last year's second quarter revenue by 30.5%. It is a record for any quarter in our company's history. Shipments per workday grew by 1.8%, and pricing and business mix management efforts drove an increase in yield excluding fuel surcharge of nearly 15%. Our LTL revenue per shipment excluding fuel surcharge was 16% higher year-over-year. Business trends remained good through the quarter, and our daily shipment activity across the quarter was roughly 32,000 shipments per day. Service levels continued to improve across all KPIs year-over-year, and we posted another solid cargo claims ratio of 0.57% for the quarter.
Keeping the customers first is a core value for Saia, and in doing so, we're able to build upon our strong service reputation and enhance the value proposition we offer our customers. Getting closer to our customers to provide higher levels of service is an important part of this value proposition. In the quarter, we opened four new terminals in new markets, and we've opened a total of five year to date. Our customers appreciate our commitment to meeting their supply chain needs, and as a result, we realized an average increase in our contractual renewals in the second quarter of 11.7%. It's good to see when our customers win, we win. I'll touch on our outlook for the rest of the year and our planned terminal openings after Doug reviews second quarter financial performance.
Thanks, Fritz. Second quarter revenue increased by $174.2 million- $745.6 million. The components of revenue growth in the quarter were as follows: tonnage grew 2.8%, combination of 1.8% shipment growth, and a 1.1% increase in our average weight per shipment. Length of haul was essentially flat at 910 mi. Yield, excluding fuel surcharge, improved by 14.9%, and yield increased by 26.3%, including fuel surcharge. Fuel surcharge revenue increased by 97.4% and was 21.7% of total revenue, compared to 14.4% a year ago. Now, let's discuss a few key expense items in the quarter. Salaries, wages, and benefits increased 9.8%, driven by wage increases across our driver and dock workforce.
Our headcount is up approximately 14% year- over- year. Additionally, our August 2021 wage increase of approximately 4.7% contributed to this increase on a year-over-year basis. Purchase transportation costs increased by 47% compared to the second quarter last year and were 12.3% of total revenue compared to 10.9% a year ago. Truck and rail PT miles combined were 19.3% of total line haul miles in the quarter, compared to 18.4% in the second quarter of 2021. Fuel expense increased by 82.9% in the quarter, while company miles increased 6.8% year- over- year. The increase in fuel expense was primarily the result of national average diesel prices rising by over 70% on a year-over-year basis.
Claims and insurance expense decreased by 18% in the quarter compared to the second quarter last year, reflecting decreased frequency and accident severity in that expense line. Claims and insurance expense was up 32.4% or $3.5 million sequentially from the first quarter. Depreciation expense of $36.9 million in the quarter was 6.6% higher year-over-year, driven by our investments in real estate, equipment, and technology. Total operating expenses increased by 22.8% in the quarter. With the year-over-year revenue increase of 30.5%, our operating ratio improved by 510 basis points from a year ago to 80.4%. Our tax rate for the second quarter was 24.4% compared to 24.3% in the second quarter last year.
Our diluted earnings per share were $4.10 compared to $2.34 in the second quarter a year ago. We continue to anticipate capital expenditures for 2022 will be in excess of $500 million. We also anticipate an effective tax rate for the full year of approximately 24%-25%. I will now turn the call back over to Fritz for some closing comments.
Thanks, Doug. Well, as I stated earlier, business levels remained steady through the quarter, and our plan for terminal openings this year is on track. Along with the five new openings we completed already this year, we'll open a new facility Monday in Binghamton, New York, and a new facility in the Chicagoland area later in August. Beyond these facilities, we expect to open additional five to seven through the end of the year. These openings are critical to our strategy of enhancing our service offering. Our pipeline for terminal openings carries well into 2025. We'll update you more on detailed opening and relocation plans for 2023 as part of our Q3 conference call.
One of the benefits of our organic expansion process over the last s everal years is that we can throttle it up or back depending on market conditions. However, our growth through the end of the year and beyond is not dependent exclusively upon new market openings. Openings within existing markets are especially attractive because they can increase the efficiency of our operations. We continue to build on successful openings over the course of several years. As we open these facilities, we're seeing strong customer acceptance and opportunities to continue to focus our efforts on customers that find value in our service offerings. In Atlanta, for example, we've seen higher growth and improved profitability in the market because of our new terminal on the northeast side of town. We opened the facility just last December, and we're already seeing significantly improved service for our customers and synergies for sales and operations.
We expect the Atlanta market to benefit further from the June openings of terminals in Macon and Valdosta to the south of Atlanta, along with an additional metro Atlanta terminal opening we plan for 2023. The success seen in these recent openings is only in the early stages. Each new opening confirms our strategy of getting closer to the customer and adding value to their supply chain. We continue to see great response from existing customers who ask us to handle their freight needs in the new markets, and then as our brands grow in the market, new customers are onboarded. Internally, we track customer satisfaction on a daily basis, and KPIs are focused on customer satisfaction. Our Net Promoter Scores have improved for five consecutive quarters, further validating our customer-first strategy, testament to the exceptional service provided by our team members across our growing map.
In total, as Doug mentioned, we expect to invest over half a billion dollars this year in real estate, equipment, and technology. Equipment deliveries continue, and while I wouldn't say the supply chain is back to normal, it does seem that the disruption has slowed. Before moving on to questions, I'll just say that our view of the current environment remains constructive, and our customers overall appear to be positive for the second half of the year. You see in our results and recent contract renewals that we're able to price to meet the inflationary costs in our business, and we'll continue to focus on providing the best customer experience and provide differentiated service. With that said, we're now ready to open the line for questions, operator.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We take our first question from Scott Group with Wolfe Research. Your line is open.
Hey, thanks. Good morning, guys. Can you just start with the monthly tonnage trends in July and then maybe the typical question you get on the sequential OR trend for Q3?
Sure, buddy. The April and May numbers were out in a release in early June, but for the full month of June, shipments were up 1%, and tonnage was up 1% as well. You know, so far in July, we'd report that shipments are down about 1.5%, and for us, tonnage is up about 2.5%. Then in terms of the normal, you know, kind of guidance on sequential OR from Q2 to Q3, you know, we think it's gonna be in line kind of with our historical trend of around 100 basis points. That's usually driven by our July wage increase.
You know, this year's increase was, again, it's right around 4.7%, and the numbers on the numbers side, it's a record increase. You know, we'd, you know, early into the quarter, but we'd try to hold our historical 100 basis points would be our hope.
Weight per shipment, I guess, widening. Is that comp, or is that actual weight per shipment trends trending higher?
Yeah, the weight per shipment trends, you know, trended a little bit higher out of Q2 into July. On a year-over-year basis, it's up nicely, and that's, you know, primarily our efforts around, you know, pricing and kind of controlling the mix of business we bring in.
Right. Maybe just to that point.
You know, just our view is it may point to a little bit different dynamic at work for industrial customers versus some of the things we hear on retail, right? Us LTL carriers are exposed to you know the industrial economy, and it seems to be doing a little better maybe than what we've seen on some of the retail reports. That would help with it too for all of us if that was the case.
Right. That makes sense. Then maybe just last thing. Sounds like the contractual renewals accelerated. Do you think you can maintain sort of double-digit yield growth ex-fuel into the back half of the year given the renewal trend that you're seeing?
Well, I mean, it's been positive and, you know, we continue to be surprised at how well our customers are able to accept it and I guess pass it along, right? I mean, you know, the inflation is not good across the economy. You know, the contractual renewals, as you know, have always kind of signaled to us, you know, what the customer expects and they agree to it because they feel like they absorb it, I think. You know, we don't give a lot of guidance on the yield outlook, but, you know, we're seeing enough cost inflation in the business that, you know, we think it's the right path.
Now, you know, it'll be interesting to see as some of the larger carriers come out in the fall with their expectations or guidance on a GRI, you know, where that goes. I mean, last year was a record GRI for most of us, so
You know, that'll be the next kind of big sign on pricing, I think, when we start to see what some of the largest carriers come out with, you know, with GRI guidance.
Right. Makes sense. Okay. Thank you, guys. Appreciate it.
Thanks, Scott.
We take our next question from Ravi Shanker with Morgan Stanley.
Thanks. Morning, everyone. How do you think about capacity growth into the back half of this year and into next year, especially if there's a recession? Kind of do you feel like it's time to pull back and kind of tighten the belt? Or do you think that's an opportunity to actually push for where your advantage?
Yeah. Good question. I mean, I commented in the earlier notes that, you know, we're marching ahead with our second half plan with openings. I think, you know, as we're very focused on providing service to customers, and that those openings are an important part of that. I would also add that the openings that we have on the docket for the balance of the year, and frankly, many of them next year are ones that we're thinking about as sort of long-term, sort of 10-15-year sort of facilities. You know, growth for us isn't dependent on that.
When we look at these facilities, you know, in markets that we're already in, these are interesting opportunities for us because they not only provide incremental service to the customer, but there's an efficiency for us as well. I think that many of these, we actually are gonna benefit from. You know, I think the environment as is right now would say that we continue to march on. We'll remain disciplined around this. Then, you know, maybe asset prices come down in the future. I don't know. We continue to see opportunities, and we'll execute our plan because we can control that.
Got it. Maybe a related follow-up. I mean, you guys can afford to do that because you're doing 20% op margins, but a lot of your smaller peers, you know, don't have the bandwidth to do that. How do you think this plays out in the next few quarters? Are you hearing signs that maybe there's some, you know, pressure on some of the smaller players and they maybe have to exit the industry because of new regulations and inflation costs and such? Kinda what's the opportunity for you guys to pick up some of that share?
Well, I mean, we don't necessarily compete in that sort of the super regional markets like that or the close-in markets, but, you know, there may be assets that become available. There have been, as you've seen, a few smaller operators that have exited in the last few months. We know that this is a capital-intensive business that requires ongoing investment. Customers have an expectation that if you're gonna provide, you've got to provide great service and because you got to get paid for the great service, you have to do that. If you're in a position you can't do that, you know, that you probably aren't gonna do very well in this market. You know, maybe that creates an opportunity for us around real estate or locations and such.
You know, our focus really is to focus on what we can control, deliver great product and service to our customers and, you know, see what that leads to. I think it's a pretty good result, and I think that you've seen the results. I think for somebody that's undercapitalized, not able to make the investments or have that commitment to the customer, it's gonna be a little bit more challenging.
Very helpful. Thank you.
We take our next question from Todd Fowler with KeyBanc Capital Markets.
Hey, great. Thanks, and good morning. I guess, Fritz, sticking with the network expansion commentary, I guess maybe two questions on that to start. You know, number one, I guess, as we think about the startup cost, it seems like with the size of the business, when we think about the expansion in the second half of the year, you're not really signaling any drag on the margins as you open these new facilities. I wanna make sure I got that piece right. Then number two, when we think about the volume opportunity or the tonnage opportunity, you know, would you expect, as you're opening these new facilities, to be able to outgrow the market? Or is there some trade-off within the network where you're pruning some freight or doing some things differently?
I'm just trying to think about the growth that these facilities can contribute.
Yeah. Todd, good questions. You know, the types of facilities we're opening are, they're two different types. There's some that we're getting into a new market, providing coverage in a remote area. Maybe it's an area that, you know, we have a cartage carrier that we're using to provide service, and we're gonna replace that with Saia service. That's an upgrade for the customer. Probably a little bit of a cost reduction for us, and we've taken the, you know, moved in the market ourselves and not using a cartage carrier, that's positive. In other markets, I pointed out on the call that the Chicago market, we've got a great presence in Chicago today.
What this does for us is adding the facilities that we can provide a heightened level of service to customers in the area in which this new terminal will operate. You look at the other facilities that we've added, we've added three now in Chicago in an area that we only had two before. Although there are incremental costs associated with that, there's also a savings and a synergy around it. When you can build density in the legacy terminals, you can eliminate or reduce sometimes in some cases in the new facilities. When you're doing that, you're providing a benefit to the customer. There's an opportunity to grow, potentially grow some incremental share with a customer because you can provide that service.
The reason we don't not note the drag is because we think they're either small or, as I just laid out, there are opportunities for us to actually enhance our sort of OR over time.
Any thoughts on kind of the volume or the tonnage ramp with the facilities?
It depends. In the early stages for some of these that are intra-market, it may simply be that we have, you know, we replace instead of trying to service from the existing or legacy Chicago terminals, we're now gonna do it out of a new terminal, so that's not an incremental volume necessarily, but we'll build some efficiency, and it'll create some growth down the road. I don't have a call-out for that. At the start, there's a cost savings for sure.
Yeah. Okay. Got it. That makes sense. Then just to follow up, I know you've been asked this several times, but I just wanna, you know, kind of go through it again. You know, just given the big step function that you've seen in the OR over the last, you know, let's call it three or four years at this point, can you just speak to your thoughts around sustaining the OR at these levels? I mean, you're right at the cusp of a sub-80 OR, which is commendable. It's a very notable improvement from where the business has been historically.
Can you share your thoughts and help us think about, you know, keeping the business at these levels in a different economic environment or if, you know, pricing cools off or, you know, things change a little bit?
Sure. Fair. You know, we look at this and we say, we're first and foremost, we're focused on the customer. So we take care of the customer, we provide great service, great coverage, low claims ratio. That's a differentiator. We look around and see what market pricing is, and quite honestly, although we've had great improvement in the second quarter, and our contractual renewals are, you know, looks good, the reality of it is that we're not where we wanna be from a market perspective. So although the pace of improvement may slow over time, I think we're here to stay because our team is delivering that repeatable service. You know what? In the market, regardless of the market, we need to get paid for it.
The increases over time may not be at the same rate, but the reality of it is there's still an opportunity for us. You know, we're thrilled with an 80.4 OR in the quarter. Frankly, the capital required in this business requires us to continue to drive this lower. Right now, I mean, the pace may slow, but I don't see an opportunity that this has somehow gone away. I think we still grow through this.
Yeah. Okay. I really appreciate all the thoughts this morning. Thanks for the time.
Next question from Amit Mehrotra with Deutsche Bank.
Thanks, operator. Hi, guys. I'm trying to reconcile the decline in shipments with the footprint expansion. I would've just thought there maybe was opportunity to show a little bit of a cyclicality on shipments given the expansion. Maybe it's just a little bit too early. Also, I know that you guys are kind of proactively managing the mix of freight, and so maybe that has something to do with it. Fritz, can you just give us a peek under the hood a little bit in terms of what's happening and why are shipments declining when the footprint is expanding?
You know, we're very focused on growing profitability in this business. You'll see that we spend a lot of time internally on driving mix of business or identifying customers that say, you know, Saia is doing a great job, and, you know, it's appropriate to pay for this outstanding service, and that that's our focus. There may be times where we exit businesses even in legacy terminals or not accept business in new terminals because the pricing is not appropriate for the service levels being provided. You know, I don't spend a tremendous amount of time concerned about shipments. We spend a tremendous amount of time focused on driving profitability so we can continue to invest in the business and maintain the service levels.
As I, you know, look at what just happened in July, it's, you know, the trend in July, I don't necessarily worry about that. I focus more on what are we doing to drive incremental value in the business and finding those customers that really embrace what they get from Saia.
I'd say.
Okay.
Hey, Amit. Remember, in terms of, you know, the terminal openings, you know, while there's terminals out there like Atlanta, you know, Northwest or maybe Northeast when it comes on board next year, you know, that provide opportunities and to, you know, open up in really good freight markets. We are adding a lot of terminals, you know, to fill out our map that are good freight markets because our customers and our existing, you know, systems say, "Hey, I'd use Saia if they went here. I'd use Saia if they went there." Not necessarily because that market initially is a big market to pick up outbound shipments which is how we measure our shipment growth. It's a service point. To Fritz's comments, you know, if we're there and can provide really good service, we know we can charge for it.
We know when we open those types of terminals that our customers do accept us. You know, we're handling all this business for them, and we go in and the salesperson can say, "Hey, did you know we can now go to A, B, and C for you as well?" Oh, yeah, that makes it easy for the customer. You take those shipments for me too, and then we can charge a nice, you know, premium price going into that new market. As the brand develops, whatever outbound shipments that are on that market, we'll get our share of those too. Not all these, you know, terminals are moving the needle because they're in great big freight markets.
Yeah. Okay, that makes sense. Just a quick one for me. Fritz, historically, you've talked about this 100-200, and then 100-200 basis points on margin improvement. It seemed like margin expansion opportunity even in a freight environment that was less accommodative or positive as it has been over the last couple years. As we think about this potential market that we're in right now or entering, do you still see opportunity to expand margins after this. You know, pretty impressive run that Saia's had or do we take a little bit of a pause relative to a 100-200 basis point margin improvement target?
Yeah. We're not intending to take a pause. I mean, we look at this, and we say, you know, there are, you know, best in class is, you know, in the 70s now, right? So we look at that, and we say we can provide great service, and we need to be at market around pricing and around 'cause we're above market around service and quality. So in that case, we can drive that. I think on the other piece of it, part of the story that is not seen is that we have focused the last two to three, four years on core execution and being able to manage cost efficiencies, productivity through, you know, a pretty challenging environment during the pandemic time and all the disruption that came along with that.
We like those, the capabilities that we've developed, and I think as you go through a more challenging and macro environment, potentially, we have the capabilities to manage through that pretty well. I think when you're maintaining very high levels of service, you ought to be able to expect continued OR improvement over time.
Yeah. That makes sense. One last one. I know I'm over my allotment, but I just wanna ask this quick follow-up question. One of the questions I get a lot is, you know, the fuel impact on the operating ratio, on the bottom line, on the EBIT dollars. We've tried to attack this. I think you guys do provide some good disclosures around fuel surcharge revenue and then being able to isolate the fuel expense. It just seems like for the industry as a whole, you know, anywhere from 20%-80% of the profit improvement over the last three years has actually come from a net fuel benefit. I think for Saia, it's actually been pretty low, call it 20%. I don't know if you agree with that or not.
If fuel prices moderate over the next couple of years, does that inherently give you a headwind on profit dollars and margins because of how the fuel mechanism works as a percentage of the base rate?
Yeah. I mean, I think your word, you know, your term moderate is the right way to look at it. You know? Yes, it's gone up quickly. There's a bit of a short-term headwind when prices at the pump are going up, you know, week after week. There's a little bit of a headwind. You know, the net effect of diesel prices, you know, being a lot higher does, you know, allow us to, you know, earn a fuel margin on that investment we make around, you know, refueling infrastructure. You know, unless you think there's some kind of supply shock that's gonna drive diesel prices back to $4 or something, you know, a gradual kind of decline in overall national average diesel prices, you know, would have an impact on those operating income dollars.
The OR, you know, we think, you know, the impact is very less because we've continuously been raising base rates and focusing on making sure the customer's account earns the proper return for us, excluding what's going on with the fuel bucket. As we've raised those base rates, whatever the surcharge percentage is, if it comes down from, you know, our tables are at 50%, and they come down to 40%, you know, that's being offset by our work on the base rates.
Right. Okay. Great. Appreciate the answers. Thanks so much.
Sure.
We take our next question from Bascome Majors with Susquehanna.
Yeah, good morning. Can you talk a little bit about the CapEx guidance? You've given a directional look above $500 million since the beginning of the year. With the terminals that you plan to open coming a little more into focus, you know, is that coming into greater focus? Any thoughts on what that could look like in 2023, within, you know, admittedly wide range? Thanks.
Yeah, thanks for the question, Bascome. Yeah, I mean, year to date, it's sitting around $155 million-$156 million. I mean, it's no secret that it's behind what would've been our internal plan. The real estate we always knew, you know, would be a wild card in terms of exact timing for that. We still see a path, you know, to the half a billion dollars. Our equipment deliveries have picked up, especially on the tractor side here recently. You know, we expect to get to our number this year that was in the plan. If I thought about, you know, a half a billion plus in spend, you know, $250 or so of that was around equipment.
We expect to get to that number. We've got a lot of real estate deals in the pipeline. We've done some land buys already in the year, and those are relatively small investments. We've got a couple terminal deals that we hope to close this year, you know, not only for openings that'll occur this year, but stuff that we have teed up, you know, for next year in the pipeline. You know, we still see a path to the half a billion plus. Again, it's been nice to see some of the deliveries pick up. We're finally on a portion of our trailer buys, we're finally caught up on what was ordered and supposed to be delivered last year. We finally caught up on that recently and got that completed.
Yeah, you know, we still see a path there. I think you can continue to see us, you know, think about an elevated level here. As long as, you know, the economy you know, the landscape's attractive to us, I think you could see us spend it, you know, this 15%-17% of revenue over the next two to three years, eventually probably tapering down to kind of a longer term run rate in the low, you know, teens. You know, that's the outlook as we sit today.
Thank you.
Sure. Thanks for the question.
We move to the next question from Ken Hoexter with Bank of America.
Hey, great. Good morning, Fritz and Doug. Congrats on a solid quarter and hitting the 80% operating ratio, really, an impressive step. Just last year, it seemed like the comps decelerated through the quarter, on a tons per day, right? Obviously, maybe just your thoughts on the economic backdrop here and the potential impact to pricing as we go through this.
Yeah, I mean, you know, like we said, the customer has been surprisingly resilient in accepting of the increases that we've had to you know to go seek. You know, the comps on a tonnage basis get a little easier, not much, you know, in August and September. In terms of feedback from our you know our leaders in the sales group and all, you know, the customer seems to you know still have a pretty positive outlook on the remainder of the year. You know, in terms of rates, 11.7% you know was very good in the quarter on the contractual side. Now going into Q3, I mean, there is a tougher comp there.
If you think about how the contracts, the timing of the contract renewals throughout the year, it's kind of ratably throughout the year. There's not a bid season where we do them all in September and October or anything like that. If we think about our contractual renewals in Q3, you know, there is a little tougher comp there. That kind of book of renewals last year in the third quarter got a 14.2% or 3% increase. You know, that's a little tougher comp for us coming up. I mean, if those accounts, you know, got the right, you know, adjustments made last year, you know, this year, we might not have to seek as much in rate because the account hopefully is operating better since we put through those increases.
You know, those are kind of the variables at play. So far, you know, our view of it is that, you know, the landscape for the industrial customer is still pretty good in terms of demand and, you know, the inventory levels there seem a little bit more, you know, appropriate versus some of the bloated inventories we've seen at retail.
Thanks, Doug. One of your peers noted a 0.1% claims ratio this morning, and you talk about a 0.57%. Maybe just talk about one, the cost. What is the differential to get there, capital investment or you know, newer equipment? Maybe talk about what's needed. Secondly, does it matter? Is 0.5%, is that way above industry average? Is it still something you wanna work on? Just give us perspective of what that relatively means.
Well, we've got a lot of good stuff to talk about around our initiatives on claims and all. Just to be clear on the math of it, and we always do the math regularly as you know, as Ken. You know, if I had better pricing, if I had the highest prices in the industry, my claims ratio would be quite a bit better than it's reported as well, right? That denominator gets bigger, the ratio looks improved. We can fix some of that just by pricing better. Making a lot of investments around you know the claims experience. If you know the whole company is focused on a customer first kind of initiative, then you better have it right on the claims side.
Investing a lot over there and training and having the appropriate tools on the docks and the right equipment to be handling the freight with. There's opportunity there for sure, and we feel like we're making progress and making good investments there to lead to further improvement.
I would add that at that 0.57%, that we're not standing pat at that. That's as Doug pointed out the math, but then underlying that, it's about driving that number even lower, because that further differentiates that from our competition that may not disclose that number at all. Our customers will tell us that is a significant benefit for doing business for Saia. If we have an opportunity to drive that even lower, that's a further differentiation, and I think that supports our whole operating thesis.
Great. Thanks, Fritz. Thanks, Doug. Appreciate the time.
Thank you. We take our next question from Jon Chappell with Evercore.
Thank you. Good morning. Doug, I know you guys look at PT and salaries, wages, and benefits holistically. A lot of focus on the ability to improve OR still in a slowing shipment count. I mean, this PT is still pretty high as a percentage of revenue. How quickly could you flex that down, you know, the pace of tonnage or shipment count decelerates but still goes up? Is this something where you could see an immediate relief on the PT side as soon as the third quarter? Does it take a couple quarter lag time?
Well, I mean, in general, you know, we're able to use the required PT. I mean, on a daily and weekly basis, you can make adjustments. You know, overall, I'd say with our good work on the HR side this year and with our efforts on the staffing side, I mean, our driver pool is up. You know, we're able to handle more of those line haul runs internally. I do think there's an opportunity, you know, over the next quarter or two to start, you know, reducing some of the PT miles and bringing those in-house just based on staffing. That's an opportunity, and we are certainly, you know, looking forward to having our own drivers on some of those runs.
You know, our view is there's always gonna be some of it, you know, just based on balance in the network and, you know, head haul versus, you know, backhaul. There's always gonna be a good use of PT in the network. But I'd say staffing is gonna help us take some miles out over the next couple quarters.
Okay. Fritz-
As we grow, we have the opportunity to build density around it.
Right, Fritz, my follow-up to you is the same question I just asked on the last call, but the perception of the narrative can be pretty powerful until proven otherwise. I think there's this view that LTL was this direct beneficiary of capacity shortfalls and other silos of transportation, and that as capacity eases, especially in TL, there's gonna be this flee of freight off of LTL networks that have kind of grown into maybe a growth rate that wasn't sustainable. Can you just speak to your book of business and how much you would consider to be non-traditional LTL business and what the risk may be to losing some share if the TL market continues to loosen?
You know, I think if we study the results, you know, there was a time at the depths of the pandemic as people were, you know, supply chains were reorganizing and coming back that, yeah, we probably benefited from a little bit of spillover freight, we would call it. I tell you, for the last several quarters, we're in a position where I think we're handling traditional LTL freight. I don't think that it's to the extent that we actually carry heavier weighted shipments. It's by choice. Maybe it's in a little bit of a backhaul lane or something like that. The reality of it is that, you know, we're set up, we're focused, and we generate returns out of handling LTL freight.
You know, the concept of entering that space is not appealing to us. Frankly, we haven't seen any of that to speak of, and it's been several quarters, as I mentioned. You know, I don't think it's gonna have a material impact on us going forward. I think, you know, our focus has got to be on our core LTL, and that's where we'll be.
Sounds great. Thanks, Fritz. Thanks, Doug.
Thank you. We move forward to Chris Wetherbee with Citi.
Yeah. Hey, thanks. Good morning, guys. You know, I wanted to get your take on the relative pricing opportunity for you, particularly if we do go into a bit of a slower volume environment for the industry, and maybe there is, you know, some potential capacity opportunities out there for other folks. I just want to get a sense of if you think that sort of aids your ability to sort of, you know, work into this pricing gap between yourself and sort of the highest priced peers, particularly given where your service is today.
Yeah, I think that if, as you look, study the landscape, and if we can differentiate on service, you can just assess the public data that's available around, you know, average revenue per bill. I think you'd say that, you know, Saia performing, providing that great service to customer, that's a differentiated point, and we need to be at market. I think, you know, as I mentioned earlier, maybe the rate of improvement, maybe it's not the same, but I still think that there is a path for us, and we've just got to continue to focus on our core execution. That we focus on what we can control.
Okay. No, that certainly makes sense. Just if you can help us a little bit specifically in terms of the back half with the terminal opening. Do you have a sense of maybe what that's gonna look like 3Q versus 4Q?
Yeah. I think we mentioned we'll open five to seven the rest of the year. That includes two more in August. I don't know the exact timing of the others when they're gonna open, but I would say broadly that the ones that we're opening in the sort of end of Q3 into Q4 are not gonna have a material impact on results, either, you know, on the top line or on the cost structure.
Okay. Great. Thanks very much. Appreciate it.
Thank you. We go next question from Tom Wadewitz with UBS.
Yeah, good morning. Wanted to ask you a little bit about the mix of shipments. I think you referred to it in July that you thought maybe retail was a little bit weaker in your shipments, industrial a little stronger. Have you seen a meaningful fall off in your shipments with the kind of consumer retail bucket yet, or is that something you think might be occurring? I know that's not as big a leverage point as industrial, but is that something you've already seen with retail, or is that something that, you know, kind of could develop as a headwind if you look out the next couple of months?
Well, in terms of, you know, a B2C kind of consumer, I mean, our residential deliveries are still running in the high single digit range, you know, most weeks. You know, I don't know if the consumer patterns change or something and they're still buying. I don't think it impacts us if they, you know, the consumer goes to the, you know, the big box retailer and picks up their product or whatever. I mean, that doesn't change to us. Overall, you know, I guess the consumer spending flow.
I'm saying more with, like, retail customers, not to the home, but just to, you know, so it could be to the DC, to the store or whatever. Not so much the home, but just the mix of, you know, retail customers versus industrial customers.
No, I don't. We don't have any big trends to report. There are large retail customers are still active with us, and we're still, you know, working on, you know, bids and, contract renewals for next year. We haven't seen any, significant, you know, we don't have any call-outs there for you in terms of a vertical that's acting differently than our overall mix.
Yeah. Just recall that we don't have anything in our book of business that's over 3% of the total. So, you know, maybe it's on the margin somewhere, but we wouldn't have a call out.
Okay. Not something that's really been noticeable. If we do end up in an environment that's you know, maybe like kind of 2015, 2016 or 2019 when you had a bit of a dip in industry tonnage. Let's say you're down mid-single digits tonnage. Do you think that you'd be able to keep the operating ratio flat in that environment? You know, I know that's hypothetical, but you know, what's your best sense of how the OR might respond if you did see the market evolve to like a you know, kind of mid-single digit decline in tonnage?
Well, I mean, I don't know what time period you're talking about the decline occurring over. I mean, you can go back to second quarter of 2020, and you've got a real life example, right? I mean, in that, you know, sudden shock to the macro environment, you know, margins didn't remain flat, but, you know, it was a pretty good quarter. I mean, you know, tonnage was down, you know, I think in that particular quarter, 8% or 9%. You know, we were still able to raise prices. You know, there's more kind of gradual declines. I mean, if you go back to 2019, tonnage was down most of the year. It ended up flattish for us because we opened a bunch of terminals.
Even in that year, we pushed about 8% across on the yield side in a flat to down tonnage environment. You know, there's an opportunity certainly to hold margins flat in that kind of scenario and potentially improve them.
Yeah, I was thinking more of a kind of typical freight cycle, not a, you know, not a 2Q 2020 shock to the system, but more of a, you know, hey, the market's weaker and you see down, you know, 4% or 5% tonnage for a couple quarters. Even in that backdrop, you think you can get yields up pretty well and margin response to that favorably. Is that what you're saying?
Well, I definitely think we'll be able to get yield. I mean, the industry's been doing a really good job of pricing to cover inflation. You know, when the largest carriers in our industry are so focused on it, you know, that helps the rest of us. You know, with the last two or three freight cycles that where we saw downtrends on the tonnage side, we raised prices. You know, we react pretty well on the cost side of the business model. I mean, we do that week in and week out across 181 terminals. We're managing our daily labor costs and things like that across every terminal.
You know, we're building and managing a business for the long haul here, and we're in a business that's tied to industrial cyclicality. You know, to think you're never gonna have a dip in tonnage at some point or shipments would be naive on all of our parts. You know, we'll manage the business through it like we have past cycles. Again, we're building a business for the next 20 and 50 years to tack onto the nearly 100-year history we've already built. You know, yeah, we'll operate as best we can, and we think with the current pricing environment set up the way it is, we'll be able to, you know, maintain and hopefully expand margins.
Well, you guys have certainly done a strong job at building things. Yeah, congratulations on the good Q2 results. Appreciate the insights as well.
Thanks.
We take our next question from Tyler Brown with Raymond James.
Hey, good morning.
Hey, Tyler.
Hey, I know lease expense is buried in the P&L, but what kind of inflation are you seeing when you reach the end of the life on a lease and you're having to renegotiate those leases?
You know, it varies by market, of course, Tyler. I mean, obviously, you see significant lease market costs going up in, you know, places like Southern California or, you know, larger urban areas. The good news is for us is a lot of that is pretty staggered, in terms of when the maturities of these are. In some cases, you know, we'll see, you know, upper single digit increases. Other cases, you know, frankly, we've had a couple renewals recently that were, you know, sort of at inflation, sort of a 3% thing. They can vary quite a bit.
Interesting. Okay. It kind of feels like the fundamental cost of door ownership, either through company-owned, either through build costs or through lease costs, just continues to rise. I mean, doesn't that just fundamentally support industry-wide pricing efforts?
Tyler, there's nothing that we do that is not inflationary, right? It'd be a technology, real estate, maintaining facilities. You know, if you're gonna make an improvement, equipment costs, technology, all that sort of thing, it absolutely remains. I think that heightens. I think even in a slowing environment, you have to be able to get a return on those investments because there aren't things really in this business. Certainly, maybe you can use technology to drive a little bit of productivity, or maybe you can do a better job handling freight, reduce your claims, but those things are on the margin. Fundamentally, it's inflationary business, and the real estate costs are a big part of that. That's something we have to continue to be mindful of.
Okay, that's helpful. I know, you know, you and I have talked a lot about the attributes of these saturation terminals.
Mm-hmm.
You actually talked about the profitability increase in Atlanta. I'm just curious, can you give any, call it quantitative detail around what kind of P&D uplift you're seeing, say, in Atlanta? I'm assuming this is really attacking windshield time. That's probably where it manifests the most. Then secondly, does it still feel that we're in the early innings of this P&D productivity story?
Yeah, Tyler, I think the P&D cost is certainly that's a real one, right? If a driver was trying to service Northwest Atlanta from our southeast terminal, that was an hour of windshield time, both sides in traffic. You know, you also have job retention and recruiting costs. That's. I don't wanna call those soft costs, those are real. We're now recruiting drivers in the markets that we operate, where our customers are. That's really, really critical. I think we're in the early innings across the board. I think Atlanta has got the opportunity to continue to improve. We're trying to service Macon, Georgia from that same Atlanta terminal, and that was cost ineffective either as well, and we couldn't provide service. Both things are an improvement there or an opportunity.
I think we're early innings there for sure.
Okay, good stuff. Appreciate the time.
We take our next question from Jack Atkins with Stephens.
Okay, great. Thanks for the time, guys. Just, I kind of wanted to go back to the pricing opportunity front for a moment, Fritz, or Doug, maybe you wanna take this as well. But I know you guys have made some changes, kind of maybe going back to the beginning of last year to your incentive compensation plans to get the sales force to attack pricing in a more, you know, beneficial way for the overall consolidated entity. I would just sort of be curious to get your take on, you know, what inning we're in terms of, you know, that being rolled out. Are there some additional tweaks that you all would consider making as we look forward to make that more effective if you feel like there's an opportunity for that?
I think it's been a great plan. I think it's rewarded folks that have embraced the great quality and service that we've provided, and they're making sure that we're compensated for it, and we share that with our team. That's important. I think the most recent enhancement we've made this year is around putting incentives in place that tie our operating folks to servicing the customer. You can see how they've embraced that with the service attributes and what we've been able to provide to customers for now the fifth consecutive quarter of sort of Net Promoter Score improvement. That's important. Those things all kind of go together, and that syncs operations and sales together within a focus clearly on the customer. I think we drive that.
I think that is something that we can continue in an environment that may be more challenging. You know, we may make some tweaks on the, on the edges here, but what's most important is we're getting the entire organization focused on taking care of the customer, and that seems to be working.
Okay. No, it absolutely is working. You can see it clearly in the results. I guess maybe for a quick follow-up, going back to, I think, Tom's question, you know, on the consumer retail side of the business versus industrial. I guess maybe taking a step back and thinking sort of, when you look at your revenue and break that down, could you maybe update us on sort of where industrial customers are as a maybe percentage of the mix versus retail and consumer-levered customers? Just wanna kind of get a breakdown on that if you have that handy.
Hey, Jack. Yeah, I mean, we wouldn't have any update really on that. I mean, 65%-70% of the mix when we look at it is, you know, industrial customers. You've been on our docks. You know, when you walk our dock, there's certainly an industrial feel for the freight we're moving, whether it's, you know, pipes and valves and building products and fasteners and chemicals, whatever it may be. But, you know, we've got some good large, you know, big box retail customers. If you think of the home improvement vertical and building supplies and things like that, there's some good business in there. You know, I guess you could call it. I mean, some of that might be retail mix, but if it's business into those locations, maybe it's coming from a manufacturer.
We don't spend a lot of time parsing it out. Again, the customer concentration is just not there, where we're exposed to kind of big box, you know, trends like you know, some of the TL customers who have a lot of concentration in the big box, you know, retailers. Our input there is probably not real helpful.
No, it's just helpful to get that mix of 65%-70%. Thanks a lot, Doug. Appreciate the time, guys. Take care.
Okay, thanks, Jack.
Thanks, Jack.
We take our next question from Bruce Chan with Stifel.
Hey, thanks, and morning, guys. Fritz, just going back to that Net Promoter Score increase, which is, you know, great, by the way. I'm wondering how that absolute score compares with the rest of the industry, assuming you get that data from Mastio. You know, maybe just to follow up, I hope I didn't miss it, but any updates on where you think you are in terms of, you know, how much ground you need to make up on pricing versus the market, given your level of service?
The Net Promoter Score I quoted is that is our internal measurement. Those are against our customers. We haven't gone through a Mastio exercise yet. That'll be kind of more of a later this year. What I would tell you is that as we poll our own customers, the feedback we're getting is becoming increasingly positive. I think that's a great sign for performance. Now, what it looks like relative to the others, I don't have that yet, but relative to what, or I should say market sort of studies, but we're versus our own measurement from customers, that is critical, and that's what they're telling us. That's good feedback for us. I think the other element, the other part of your question.
Listen, I think the simplest way to look at that is, I think you measure and consider the other national LTL carriers, and you look at their revenue per bill metric, and you compare that to ours. You know, I think we stack up really well from a service perspective, if not better than most.
Some would argue better than all. You know, the reality is that regardless of what the reference is, if our average revenue per bill is less than the other national competitors, that speaks to the opportunity.
Okay. Fair enough. Thank you.
We take our next question from James Monaghan with Wells Fargo.
Hi, guys. Wanted to follow up on the comments you made around retail and industrial, and just wanted to understand if there is any difference in sort of profitability among the type of each sort of vertical freight. Should we think of one as more profitable or having certain characteristics that are more profitable than the other?
No, we don't really look at it this way. I mean, we need to make money and earn a decent return on all the business. Look, I mean, you know, if in general, I mean, you know, higher value freight, if you think of it that way, if you think of some of our industrial customers, if we're moving, you know, critical parts, if you think about maybe an oil services customer, if you're, you know, moving some sort of drilling component for a customer and it's time sensitive and, you know, if you're late with it, you know, you could impact production and therefore revenue, you know?
Sometimes those are shipments that are easier to, you know, charge higher prices for, and you better deliver the service because, you know, you're impacting the customer's business in a big way there, versus something that might be more commoditized, you know, a pallet of goods where it's a restocking move or something like that that's not as critical. I mean, you know, that's the only call-out I would have. In terms of retail versus industrial, we wanna do a good job for all those customers, and then we need to get paid for it. We don't look at it any differently.
Got it. Then also keeping in mind that you're focused on continuous OR improvement, but you've also mentioned that sort of tough pricing comp, and you've done it, and you've put up some very impressive numbers in terms of year-over-year OR improvement. How should we think about that, given the pricing comp across the back half? Should we see slower OR improvement just moving forward, or do you think you can actually keep pace with some of the impressive results you've put up?
Well, we're gonna try to keep pace with it. We've had tough pricing comps, you know, for years, and that's a good thing. We don't give a whole lot more guidance on that. But our hope, you know, again, would be to continue to have, you know, good progress on the yield and pricing front. You'll get some volatility quarter to quarter based on the comp. But overall, we've got to drive it higher.
Thank you. That's it.
Thank you. We take our last question from Ari Rosa with Credit Suisse.
Hey, Fritz, Doug. Thank you for taking the question. So one of the things we've talked about in the past has been just the difficulty of securing real estate, just given how tight that market has been for industrial real estate. I'm wondering as maybe the economy starts to slow down a little bit, have you started to see maybe more compelling opportunities to add real estate? And does it perhaps actually even accelerate the pace at which you might look to add to your service center footprint if we see a little bit of a downturn, or how you're thinking about that?
Listen, we're focused on expanding our footprint. We're attuned to the market, and I think it's still, you know, I don't know that it's quite as frenzied maybe as it was a year or two ago, but it's certainly one that, you know, we'll continue to focus on the opportunities that are there. That, you know, that you have seen, you know, some of the regional players have elected to exit, so that certainly creates opportunities. You know, to the extent that some of the larger players are maybe recasting their networks or reconsidering their footprint, that creates opportunities for us.
The best part about this for Saia is if you look at our current sort of balance sheet financial position, we're in a position we can execute and we're an attractive buyer, so to speak, in the sense that we're moving. Now, we may not always open up facilities right away. We could theoretically buy them and call them and inventory them for a further date for an opening. You know, I think that opportunity, maybe it's a little bit easier than it was. We remain focused, and we've got a pretty good pipeline for the next two or three years around it.
Got it. The pipeline that you have, it's like you've already secured contracts for those facilities, it sounds like. It's not like, you know, shifts in the market would-
Some of them, maybe you get an LOI, you're doing some initial due diligence on it. You find out, gosh, you know, you got a zoning problem here, we're gonna exit that. You move something else in there. It's, they're not all secured, but they're all ones. Our close rate's pretty good. I, you know, we'll hit our sort of growth plans. You know, these things take time, and certainly when you're dealing with real estate, that can always be challenging.
Got it. That's helpful. Just my last question. I wanted to understand, you know, one of your competitors and kind of the best-in-class leader has talked about how maybe in a slower environment, growing market share becomes a little bit more challenging for them, because they try to hold the line on pricing. I wanted to hear about how you guys are thinking about ability to take share in a slower environment, kind of given the demands around, or your aspirations around kind of holding the line on pricing and maybe how that plays out in terms of puts and takes.
Yeah, I mean, listen, the way we think about this pretty simply, we're gonna take care of the customer, we're gonna keep them first. That requires an ongoing investment in the business to provide very high levels of service. We'll expect to get paid, the pricing will be commensurate with that. Perhaps it slows. I don't know. At the end of it, Saia won't chase the strategy to get share for share's sake. I think if you follow us closely, we're pretty focused on driving returns in this business. A strategy that was simply about chasing volume probably doesn't make much sense for us, it doesn't make sense for us. We'll continue to stay pretty disciplined around that. That would be our approach.
Got it. Okay. Understood. Nice quarter. Thank you for the questions.
Great. Thank you. Thank you, everybody, for participating in today's call and your interest in the continuing Saia growth story.
This concludes today's call. Thank you for your participation. You may now disconnect.