Jul 28, 2008
Executives
Earl Congdon - Chairman David Congdon - President, CEO Wes Frye - CFO
Analysts
Ed Wolfe - Wolfe Research, LLC Jon Langenfeld - Robert W. Baird David Ross - Stifel Nicolaus & Co.
Tom Wadewitz - JP Morgan Chase & Co. Jason Seidl - Dahlman Rose & Co.
Matt Troy - Citigroup Justin Yagerman - Wachovia Securities David Campbell - Thompson Davis Tom Albrecht - Stevens, Inc.
Operator
Good morning, and welcome to the second quarter 2008 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay, beginning today and through July 31, by dialing 719-457-0820.
The confirmation number for the replay is 8004753. The replay may also be accessed through August 24 at the Company's website, which is at ODFL.com.
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 2008. 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 believe, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are 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.
At this time, for opening remarks, I would like to turn the conference over to the Company's executive chairman, Mr. Earl Congdon.
Please go ahead, sir.
Earl Congdon
Thank you all for being with us for our second quarter conference call. Joining me is David Congdon, OD's President and CEO and Wes Frye, our CFO.
We each have some brief remarks that will cover our second quarter results and our outlook, and then we will be glad to take your questions. Let me begin this morning by saying that we were pleased with Old Dominion's performance for the second quarter during a period of weakness and uncertainty in the national economy and rapidly increasing fuel prices that reached record levels.
To be able to produce a double-digit tonnage gain in this environment and, as a result, increase our earnings guidance, is a further indication of the strength of our business model. While each of our regional markets produced growth for the quarter relatively consistent with our expectations, our strongest results have occurred in the Pacific Northwest, the West and the upper-central regions.
This growth in today's environment truly validates our long-term strategy to increase our geographic footprint while continuing to invest in capacity to serve our growing market share in our older markets. Since the beginning of 2006, these strategies led us to add 38 new service centers in 12 states in these western regions including three states in which we had not previously operated.
Also, during the past two and a half years, we have made four acquisitions in the West, starting with UW Freight headquartered in Salt Lake City; Priority Freight in Sumner, Washington; Bullocks Express in Denver; and Bob's Pickup & Delivery in Sidney, Montana. Through these acquisitions we added 29 service centers to our network and consolidated the operations of another 18 service centers into existing centers.
We also opened, organically, nine new service centers in these states over this time period including the opening of Pocatello, Idaho during our latest quarter. Finally, all this expansion activity allowed the launch of a full-state coverage in six western states since the start of 2006.
Our plan is to open two more service centers in the Northeast during the remaining year of 2008. Our expansion efforts combined with the continued development and growth of our value-added services have strengthened our position as a single-source provider of regional, inter-regional and global transportation solutions.
It is clear that our strategies are working, and have enabled us to grow at rates significantly higher than the industry through all the economic cycles of the past 12 years. We expect to continue developing and deploying our strategies in the quarters and years ahead to expand our full-state LTL coverage to all 48 states in the continental U.S.
to reach as our global reach. During the past two years within our OD-Global services, in addition to substantial growth in North America LTL revenues, we have increased our efforts to expand ocean container drayage domestically, and we have successfully introduced LCL, CL and air freight service to and from China.
Over time, we believe our expansion of OD-Global can grow into a more meaningful component of our business while also diversifying our revenue streams. After roughly a year of planning and development and as a result of listening to the needs of our customers, we recently announced the introduction of OD-Warehousing.
This new service product is designed to provide the complete array of warehouse services and software solutions for our existing customer base, as well as, new customers whom we have not yet tapped. We have begun by contracting with five strategically located warehouses in San Francisco, Los Angeles, Dallas, Chicago, plus one in North Carolina.
As this is a new business venture for us, we are approaching it carefully. We expect our initial growth to be slow; however, we are excited about its prospects for long-term growth.
Going forward, we have numerous opportunities to continue delivering industry-leading profitable growth and gains in market share. We will continue to make long-term investments to take advantage of these opportunities.
Lastly, I have the utmost confidence in our management and team of dedicated employees to deliver long-term growth of shareholder value. Thanks again for being with us today, and now, let me ask David to discuss our second quarter in more detail.
David Congdon
Thanks, Earl, and good morning, everyone. In our last quarterly conference call I said that during this extended period, operating in a challenging environment, we would focus on maintaining and improving profitable pricing of our accounts, increasing tonnage and decreasing expenses.
We think that our second quarter results clearly demonstrate our progress toward all three of these goals. We focused intensely on maintaining discipline with our revenue quality improvement processes in order to regain ground with our operating ratio that had deteriorated over the last several quarters, primarily due to the highly competitive pricing environment.
Through these processes, we demonstrate to our customers that the value we provide, through our comprehensive services and service performance, is worth the price. We continued to drive tonnage growth with a 10.2% increase for the quarter, which represents a substantial gain over the 8.3% increase produced for the first quarter of 2008.
This double-digit growth in tonnage, in light of our continued pricing discipline and a weak economy, is the clearest demonstration that we are continuing to expand market share through the strengths of our service products and our outstanding service performance. Our strong tonnage growth for the quarter helped to drive improved operating efficiencies and was complemented by our continuing initiatives to improve productivity and lower expenses.
These efforts encompass all aspects of our line haul, dock, pickup and delivery operations and clerical expenses. We achieved a 2.3% improvement in line haul, lade and load average; a 1% increase in P&D stops per hour, a 9.3% improvement in platform pounds per hour, and a 2% improvement in clerical wages per shipment.
In addition, for the second consecutive quarter, we produced our lowest cargo claims ratio in the history of the company at 0.66% of revenue, as our insurance and claims expense, as a percent of revenue, fell for the fifth consecutive comparable quarter period. The cost of fuel rose to record levels during the quarter and was primarily responsible for a 560 basis point increase in operating supplies and expenses.
We are taking a proactive approach to increase fuel efficiency, including reducing the top speed of our trucks to 65 miles per hour. We have communicated our focus on energy conservation throughout the Company and have given our drivers specific guidance on methods to improve fuel efficiency.
We are also planning, and will soon implement, a company-wide program to drive home the importance of this goal and the steps we can and will take to achieve it. We fully realize that the cost of fuel and economic cycles are factors beyond our control.
However, we are encouraged by the responsiveness and the innovation of our team as we work everyday to make the best of the current situation. We have learned, in the weaker portions of earlier economic cycles, that by pressing hard now to improve the efficiency of our operations while we continue to provide superior service for our customers, we can differentiate Old Dominion and prepare for stronger growth in the future.
In summary, we remain a uniquely positioned leader in a consolidating industry with proven growth strategies, differentiating advantages, capital resources and management experience. We remain confident of our ability to continue outperforming the industry and to meet our long-term objectives for growth in earnings and shareholder value.
So, thank you for your interest in Old Dominion. And now, Wes will address our financial results and our outlook in more detail.
Wes Frye
Good morning. Old Dominion's revenue increased 16.2% to $418 million for the second quarter of 2008 compared to $360 million for the second quarter last year.
While our shipments for the quarter increased 2.8%, our tonnage rose 10.2% as a result of a 7.1% increase in weight per shipment, almost half of which was due to a freight mix toward heavier loads. Excluding this effect, weight per shipment was still up 4%.
This increase combined with a 3.1% decrease in length of haul act to reduce revenue for underweight, which did increase 5.4% for the second quarter, including fuel surcharge, and declined 3.1% excluding fuel surcharge. While it is difficult to measure the impact of these two metrics, we estimate pricing was relatively flat on a comparable quarter basis; however, it would still characterize the environment as highly competitive, although, somewhat more stable.
Despite this environment, tonnage growth enabled us to produce a 13% increase in revenue per shipment for the quarter, and a 3.8% increase excluding fuel surcharge. As David mentioned, we were successful in improving productivity and lowering claims expense for the second quarter, primarily as a result of volume-driven operating leverage.
Salaries, wages and benefits improved to 49.8% of revenue from 52% for the second quarter of last year, and insurance and claims fell to 1.6% from 2.5% for the second quarter of last year. Offsetting these improvements, however, operating supplies and expense rose to 21.8% from 16.2%, largely as a result of the fuel cost increase.
As a result, our operating ratio for the quarter was at 89.7% compared to an 88.7% for the second quarter, last year. The effective tax rate for the second quarter of '08 was 39% versus 39.5% for the second quarter last year.
We anticipate our effective tax rate for the remainder of '08 will also be 39%. Our net CapEx for the second quarter was $67 million.
We continue to plan net capital expenditures for the year of approximately $155 million to $165 million, down from a $190 million for 2007. The 2008 budget includes approximately $40 million to $45 million for equipment; $95 million to $100 million for real estate, a portion of which was to complete projects started earlier in the year; and $10 to $13 million for information technology.
We remain well positioned to fund these planned capital expenditures with cash flow from operations, and we expect to produce a marginal level of free cash flow for the year, excluding any additional acquisition or expansion opportunities. During the second quarter, we further reduced debt and strengthened our balance sheet from the year-end 2007.
We had cash and short-term investments of $37 million at the end of the second quarter, and our ratio of net debt to total capitalization improved to 29.5% from 32.2% at year end. We expect this ratio to be between 30% and 32% by year end.
As presented in our news release, we remain cautious in our outlook for the remainder of 2008, primarily based upon the uncertain economic environment and the competitive pricing. As you know, we increased our full year earnings guidance last week to a range of $1.90 to $1.95 per diluted share from the previous range of $1.85 to $1.90 per diluted share.
Today, we again affirmed this range. This concludes our prepared remarks this morning.
Operator, we will be happy to open the floor for any questions at this time.
Operator
Thank you. (Operator Instructions).
We will take our first question from Ed Wolfe with Wolfe Research.
Ed Wolfe - Wolfe Research, LLC
Good morning, guys.
David Congdon
Good morning.
Wes Frye
Good morning.
Ed Wolfe - Wolfe Research, LLC
You talked about raising the guidance, but, in actuality, since guidance went up $0.12 in the quarter on the strong beat, only raising the whole year $0.05 is reducing the back-end guidance. Can you talk to what your thoughts are in terms of being conservative versus what you are seeing out there in the marketplace?
Wes Frye
Well, we had a very good second quarter, but we are still cautious about the second half of the year not only in terms of pricing, but also in terms of the economic activity. And we just choose to be cautious in that venue.
Ed Wolfe - Wolfe Research, LLC
If you go through, Wes, kind of month-by-month, through even July, what were the tonnage trends like and what were the yield trends like net of fuell? And is there something there that is giving you a little bit of concern as you go out?
Wes Frye
Well, from a tonnage standpoint, each month sequentially was a little bit down. Of course, some of that was due to the fact that April started off with a bang, Ed, since it excluded a holiday.
So the tonnage was up almost 13% in April, up almost 9.5% in May and up 9% in June. We started off July, again, in double digits.
So it is starting off fairly strong from a pricing standpoint. We looked at pricing and we have had a focus on our yield, and from May to June we saw some slight improvements, especially on the contract side, but it's still very competitive out there, although, somewhat, as I mentioned in our comments, somewhat stable.
We are not saying that the remainder of the year will get better or will get worse. We have kind of held the pricing sequentially throughout the remainder of the year relatively flat.
Ed Wolfe - Wolfe Research, LLC
How do we get to things that are improving a little bit throughout the quarter in pricing when year-over-year at a 11.44%, they are down, depending on how you look at…
Wes Frye
When you have got a 7% increase in weight per shipment, and you have got a 3% decline in length of overhaul, that has a fairly significant effect on your revenue per hundredweight.
Ed Wolfe - Wolfe Research, LLC
But in the first quarter you had a similar…?
Wes Frye
No, we did not. The weight per shipment in the first quarter was only up for about 2.8%, and the length of haul was fairly flat.
The weight per shipment was only up 2.6% in the first quarter, and the length of haul was down 1.4%. So, it’s more than doubled.
Those metrics have more than doubled in the second quarter.
Ed Wolfe - Wolfe Research, LLC
Okay. But if I look at pricing, our yield net of fuel was positive 08 versus minus 3.
That is more than a double change, it feels like now?
Wes Frye
The 3.0 is a little bit skewed also because if you -- you may or may not recall last year we had a one-time cumulative rate adjustment of $2 million in the second quarter of last year.
Ed Wolfe - Wolfe Research, LLC
I have adjusted that to 2.5 is what I…
Wes Frye
Okay, Ed. 2.5 is the number without that.
Ed Wolfe - Wolfe Research, LLC
So negative 2.5 versus positive 08 still feels like, directionally, things are not getting better but maybe getting a little worse, am I looking at that wrong?
Wes Frye
We think so. We do not think they will necessarily get worse, but, also, we do not think they are necessarily getting better.
That's why we use the word stable.
Ed Wolfe - Wolfe Research, LLC
Is there a way to look at that negative 2.5 kind of month-by-month from April through July or is that not something you have?
Earl Congdon
We don't have it.
David Congdon
I think there is too many variables affecting that with the way our length of hauls changed and our weight per shipment to try to get into that discussion at this point.
Ed Wolfe - Wolfe Research, LLC
Well, that makes sense. When you think about pricing more kind of broad based, and you look at this X amount on contracts, X amount on GRI, how do you think -- how is that mix now?
And if pricing were to firm up, there is a sense of capacity is tightening. Let's say we get to a point in a couple of quarters where demand improved and things really tightened quickly.
How quickly can you get out and get that pricing or does it take a year to kind of play through? Can you talk about that directionally?
David Congdon
Working with contracts is sort of a year around thing for us. So we are always approaching our accounts as their due dates come up.
Demand increases, that doesn't necessarily mean we are going to go out to our contracts and start trying to raise prices, unless, of course, we have an issue with the profitability of that particular account. Now that could accelerate our approaching an account, but our contract business as a percentage of total has probably -- has definitely increased over the last several years.
And our freight that we move on our 559 tariffs has declined as a percent of total. We think that will probably be a continuing trend over time.
So, I do not know if that answers your question.
Ed Wolfe - Wolfe Research, LLC
Dave, roughly what percent is contractual right now versus GRI? Is it around 60 plus?
David Congdon
Yes. It -- on a revenue basis, yes, probably 60%.
Ed Wolfe - Wolfe Research, LLC
So that 60%, I am guessing you got to wait until they are priced throughout the year when they come up, but how quickly can you go out and change a GRI-priced business? Can that happen pretty quickly?
David Congdon
Well, nothing happens real quickly when you have got 70,000 customers. And at any time you go to try to re-price a business there is a delay factor where customers will put you off for a while, and you cannot press so hard, unless you want to run the business off.
And we do not want to do that.
Ed Wolfe - Wolfe Research, LLC
Okay. Just switching gears for a second, the tonnage was a really nice step-up.
And is some of the reduction in yield, as you see it, kind of a base strategy to get more tonnage or is it just you are seeing some competitive things in the marketplace where it is easier to get tonnage, and there has been no change in the way you are looking at pricing?
David Congdon
I think a lot of it is just the way the market is doing right now, for some reason. I think more and more people are trying to get spot quotes on larger shipments.
We keep hearing anecdotally that shippers are holding instead of shipping smaller shipments each week. They will hold it till the second week and move a larger shipment and try to get a spot quote.
So there are spot quote businesses up a lot, and that is part of what is driving, to some degree, our weight per shipment being higher.
Wes Frye
And even the revenue per hundredweight.
David Congdon
And the revenue per hundredweight on those spot quotes are lower than average. So…
Ed Wolfe - Wolfe Research, LLC
Is that the exports, I mean, exports are generally heavy. Do you think that's what the change is?
Wes Frye
Well, that is not necessarily reflected in spot quotes, but our container division, which is exports and imports has -- their tonnage was up 21% and revenue up 37% for the quarter. So that is doing well.
And, although we do not really track what exports and imports, just anecdotally, from talking to those centers, the export is stronger than the imports.
Ed Wolfe - Wolfe Research, LLC
Just last one and I will have someone else have it -- you said you reduced speed to 65. Where were you coming from?
Where did they come down from?
David Congdon
We were at 68 and some trucks as high as 70.
Ed Wolfe - Wolfe Research, LLC
Thanks a lot, guys, for the time. I appreciate it.
Operator
Thank you. We will take our next question from Jon Langenfeld with Robert W.
Baird.
Jon Langenfeld - Robert W. Baird
Good morning. To follow up on the spot quote commentary, how do you look at the profitability of that, generally, in terms of trying to keep the spot quote business separate from your core line haul capabilities so you do not ruin your price point?
Wes Frye
Our pricing mechanism for spot quotes, we have got a formula built in that is kind of cost-based formula. So we have got a good profit built in to spot quotes.
Jon Langenfeld - Robert W. Baird
And is there a -- does that only happen on certain lanes, because if I am a customer and I can become conditioned to having a spot quote opportunity, maybe I wait to ask for the shipment to be moved, or is it only on back haul type lanes?
Wes Frye
Well, we have a pricing method for all lanes, be they head haul or back haul. People that are shipping in back haul lanes might tend to get a better price than those shipping in the head haul lanes.
Jon Langenfeld - Robert W. Baird
Right. But am I wrong to think that if I am a shipper and if I do a spot quote, I am generally going to get a better rate than what a list price or a contractual rate would be?
Or is that not?
David Congdon
We got one last week who got a spot quote. He took it, and it turned out that his contractual rate was cheaper.
So now he is asking us for his money back. That was just one particular customer.
So our spot quotes may or may not be as good as the rate that they already have in place under their contract or their discount or whatever kind of pricing program they have. A lot of customers are -- although they have a program in place, they still call up for a spot quote to see if that is any better than how they move it under their standard deal.
Jon Langenfeld - Robert W. Baird
I got it. Okay.
And then is there something about the freight characteristics in the West or the Pacific Northwest that would contribute to this rising length of haul --?
David Congdon
Or declining length of haul?
Jon Langenfeld - Robert W. Baird
Or declining length of haul an rising weight per shipment?
David Congdon
I do not have a feel for that.
Jon Langenfeld - Robert W. Baird
You do not. Okay.
Earl Congdon
Well, our getting into Montana was an example of new regional business that tended to work toward declining out length of haul.
Jon Langenfeld - Robert W. Baird
Okay. So maybe that contributed a little bit, but…?
.
Earl Congdon
A little bit.
Jon Langenfeld - Robert W. Baird
But do you see it even in the Southeast? For instance, are you seeing similar trends in terms of declining length of haul and weight per shipment?
David Congdon
We haven't looked at, necessarily at length of haul and weight per shipment by region of the country. At least, I haven't studied those metrics yet for this quarter, and haven’t yet.
Jon Langenfeld - Robert W. Baird
Okay. And how much of this do you think is truckload business versus the example you gave, where they are holding maybe a couple LTL shipments and doing it later and less frequently?
Wes Frye
Where we separate -- even on the truckload, and I will just define that for our purposes as anything over 10,000 pounds, which is not necessarily truckloads volume -- might be a top load.
Jon Langenfeld - Robert W. Baird
Yes.
Wes Frye
The weight per shipment, just in that category is up 3.9%, and if you look at all of our shipments less than 10,000 pounds, that is up 3.9%. That is what was commented.
Overall, our shipment was up 4%, although we reported 7%, but we are saying that the difference is due to the mix because of a higher growth and the spot quotes and in the container. The container average shipments is 26,000 pounds, and on the spot quotes the average shipment is around 10,000 pounds.
Jon Langenfeld - Robert W. Baird
I see. So this is something more than just tightening truckload capacity out there?
Wes Frye
We have had significant growth in our container division - planned growth. It is not economic.
We have been paying a lot of focus on the container, and it is growing quite nicely right now.
David Congdon
It is possible that the tightening of capacity in the truckload industry is causing for more of this stop-off type freight to be finding itself in our spot quotes. And we might be moving some of the stop-off freight.
Jon Langenfeld - Robert W. Baird
And I am assuming because you can handle more product -- I am assuming you handled more product with fewer hours just because there are a fewer number of shipments, the incremental profitability you can get off this type of growth is actually very strong?
Wes Frye
That is correct. If you are going to grow volume, it is more efficient to grow it by weight per shipment than to grow it by number of shipments.
Jon Langenfeld - Robert W. Baird
Got it. Remind me where we are with the wage increases.
I think that is coming up here in the third quarter?
David Congdon
Our wage increases will be in the 3% range.
Jon Langenfeld - Robert W. Baird
And that was last year, pretty consistent, I believe?
David Congdon
Yes. It was maybe a tad bit more than that last year.
Jon Langenfeld - Robert W. Baird
Okay. Good.
And then the last thing is just on the fuel side. Can you just update us in terms of where you are getting your fuel surcharge?
Where you want them to be or where you think they can go relative to maybe some of the short falls in the first quarter.
David Congdon
Well, we made a diligent effort to look at our accounts that had any kind of special fuel surcharge arrangements. And each and every account was looked at on an individual basis because you have to.
I mean, every account has different mixes of freight. They have different base rates, different discount levels.
And whenever we established a fuel surcharge with an account, we also had to look at these other components. So, we kind of look at it as component pricing.
So we went and looked at those who had caps or lower scales and tried to approach the accounts to see what we could do to make improvements, but we had to look at the operating ratio of the accounts too. And if the fuel portion was killing us, which we found in numerous cases, we were able to renegotiate all three components of the pricing.
It was not necessarily that we got so much more on fuel, but we might have done something different on base rates or discounts as well.
Jon Langenfeld - Robert W. Baird
But you have cycled through the accounts is what you your conveying…?
David Congdon
We have made an initial cycle through, but, we call it a revenue quality improvement process. It is a never-ending thing.
You are always looking at your accounts because mix of freight always changes and conditions change. So you have got to keep a continuous eye on individual account profitability.
Jon Langenfeld - Robert W. Baird
Understood. Nice quarter.
Thank you.
David Congdon
Thank you, Jon.
Operator
We will take our next question from David Ross with Stifel Nicolaus.
David Ross - Stifel Nicolaus & Co.
Good morning, gentlemen.
David Congdon
Good morning, Dave.
David Ross - Stifel Nicolaus & Co.
Question first on, I guess, the operating ratio. If tonnage remains flat in the third quarter versus the second quarter, just absolute levels, is there any reason the operating ratio should not be similar?
Wes Frye
Well, keep in mind, and this is -- when you go back 15 years, there is an average of 200 to 300 percentage points' improvement in ratio between the first -- sequentially between the second quarter and first quarter. Much of that is due to the higher volume.
Now on a tonnage being equal --
Earl Congdon
We’d have to go and run the model over again.
David Congdon
Yes, but we are not planning on flat tonnage in those third quarter.
David Ross - Stifel Nicolaus & Co.
Okay. Can you talk a little bit about the growth in the different markets, how the next-day product is growing versus the two-day versus the longer haul business?
Earl Congdon
Right now the regional business -- mainly because of acquisitions in the last two or three years, are growing -- when I say regional, I am talking about – first and second day is growing faster than the longer haul markets.
David Ross - Stifel Nicolaus & Co.
But the longer haul market is still growing?
Wes Frye
It is still growing, but the growth rate of our longer haul -- I would say the over three-day, the four-day and more mark has slowed down this year.
Earl Congdon
And there is maybe several contributing factors. I think the economy is probably the biggest part of it.
David Ross - Stifel Nicolaus & Co.
Okay. And can you talk a little about where the labor force is now versus a year ago in terms of headcount or number of employees?
David Congdon
It is relatively -- well sequentially it is flat. We have not been growing our headcount, and year-over-year -- Wes, do you have that?
Wes Frye
We don't have those numbers before us right now, Dave. I can circle back to you later.
David Ross - Stifel Nicolaus & Co.
That's fine. And then can you talk a little bit about the consolidation that has gone on in the industry recently with Jevic shutting down and Allvan?
Are you seeing much benefit from that? Was that a significant contributor in the quarter?
David Congdon
We have not been able to ascertain whether those were significant contributors or not. I had a -- our growth in the Northeast was pretty strong in the quarter as well, and so that --based upon reports we have from our sales force up there, we have gained some Jevic business.
Now their business tended to be heavier, to my recollection, than our normal LTL shipments. So that could be part of the driver on our increase in our spot quote business and our heavier weight shipments.
David Ross - Stifel Nicolaus & Co.
Okay. That was very helpful.
Thank you very much.
David Congdon
Thank you.
Operator
We will take our next question from Tom Wadewitz with JP Morgan.
Tom Wadewitz - JP Morgan Chase & Co.
Good morning.
David Congdon
Good morning.
Wes Frye
Good morning.
Tom Wadewitz - JP Morgan Chase & Co.
I wanted to ask you a little bit more on the pricing. I know you have had quite a few questions on it, but I am not sure if you have touched on the difference in regional versus national pricing in a competitive environment between those two.
So, I wondered, if you could give us some comments on those.
Earl Congdon
I would say, historically, and probably still today, regional pricing has tended to be more competitive than long-haul pricing because you still have some very small players in some of the regional markets. And when their only game is the regional business and they do not have the wide array of services and coverage that carriers like ourselves have, they find themselves having to live off of cheap prices in order to keep maintaining their volumes.
So it is probably still -- I would say it is still that way, a little bit more competitive in regional than in long haul.
Tom Wadewitz - JP Morgan Chase & Co.
So from some of the big long-haul players you haven't really seen a change in their competitive action? You have not seen an increase in the attempts to hold onto business from certain carriers or a more aggressive approach to market share from others in long haul?
Earl Congdon
We have seen some -- over this year some increased aggressiveness in price by long-haul players. But that is as far as I could go with that.
Tom Wadewitz - JP Morgan Chase & Co.
But it is still not as competitive as regional?
Earl Congdon
I would say -- true.
Tom Wadewitz - JP Morgan Chase & Co.
Okay. Wes, on the cost side you have continued to show some pretty strong improvement on the cargo claims and then on the insurance.
How comfortable are you in extrapolating--- I know there is some noise in that line, but how comfortable are you extrapolating that to second half in terms of what we put in our assumptions?
Wes Frye
Well, both in BIPD and cargo we have had good experience, but when you are self-insured for the first $3 million on BIPD and self-insured for a good sum on cargo you -- even though we have had good experience, we still remain cautious. So we are still conservative going for the rest of the year that -- we are confident that the experience will continue, but conservative in our outlook.
Tom Wadewitz - JP Morgan Chase & Co.
Okay. All right.
And on depreciation and amortization as a percent of revenue was down somewhat year-over-year. Can you tell us what is behind that and if that trend is likely to continue as well?
Wes Frye
Well, we have had significant investment mainly in real estate, but real estate does not really affect your depreciation as much as you think. First of all, you put a residual on the real estate, and, secondly, you do not depreciate the land at all.
So, even though we have put a $100 million in real estate, that does not hit depreciation. Correspondingly, as we have grown - tonnage 10% and revenue at 16% - just that leverage of growth against the investment has reduced that expense as a percent of revenue.
Tom Wadewitz - JP Morgan Chase & Co.
Okay. So part of it would be mix of the CapEx which you are focused on?
Wes Frye
Right. And, of course, our equipment expenditure this year is lower relative to what they have in the last couple of years; our investment being $160 million in total CapEx this year relative to $190 million last year.
Tom Wadewitz - JP Morgan Chase & Co.
Okay. Last question for you, and I will pass it on to someone else.
On the wage increase, what is the impact look like in the third quarter operating ratio? How do we think about that?
Is there some offset to that or is that something where you say, well, given pricing is not particularly strong right now, it is challenging that you have got to factor that in and maybe that hurts the OR versus in a normal third quarter you might be able to offset more of it?
Wes Frye
Well, we gave you our guidance, and that is about the extent we will discuss it. We will let you figure that out.
The 3% usually hits the first of September. So it affects the third quarter somewhat and affects the full fourth quarter.
Tom Wadewitz - JP Morgan Chase & Co.
Okay. So more of a fourth quarter impact?
Okay, great. Thank you for the time.
Wes Frye
Thank you, Tom.
Operator
We will take our next question from Jason Seidl with Dahlman Rose.
Jason Seidl - Dahlman Rose & Co.
Good morning, guys.
David Congdon
Good morning, Jason.
Earl Congdon
Good morning, Jason.
Wes Frye
Good morning.
Jason Seidl - Dahlman Rose & Co.
How has this sluggish market impacted the amount of potential acquisition candidates that are coming across your desk? And are you seeing the prices that they are asking for themselves to come down?
Earl Congdon
It is constant. We will be approached by several carriers each year, and we evaluate all of them.
But I do not see a big change in the availability of carriers. There just aren't very many suitable carriers out there that might be available.
Jason Seidl - Dahlman Rose & Co.
Okay. Fair enough.
That's all I had, guys. Thank you.
Operator
We'll go next to Matt Troy with Citi.
Matt Troy - Citigroup
I was wondering if you could talk about the OD-Global initiative. I was wondering.
If you think about growing that business longer term, tactically, what is the strategy there? Are you trying to grow by specific lane?
Are you targeting geographies? Is it really customer driven?
And, also, do you have any or have you set out any longer-term objectives be it growth rate or absolute dollar and revenue on a longer-term basis? I am just trying to get a sense of the investment strategy and growth strategy in that piece of the business.
David Congdon
Well, we began offering worldwide LCL and CL services probably three or four years ago, and it was doing okay, but nothing to jump up and down about. And then we decided to focus on China as a lane and turn that with focused effort with a partner on that side, and a couple of our operations here to have a door-to-door sale or a port-to door sale or whatever sale that the customer wanted.
So we have started with China. We are going to look at additional countries and try to find asset-based partners in those countries and sail to and from the U.S.
would be where we are going with that. We still see good opportunities in North America, between the U.S.
and Canada and Mexico. So, we are still focusing on those markets as well.
I would say, in terms of an investment, it is more of an investment in people. It is more of an investment in technology for tracking.
I anticipate that we will grow more on a kind of non-asset base and not have to -- we do not have to invest in a company offshore, albeit, not to say we won't, but we see opportunities to grow these markets without making major investments.
Matt Troy - Citigroup
And then have you found the ability to attract and retain the headcount? These relationship folks -- maybe that is outside of the domestic U.S.
Have you been pleased with your ability to get good people in, or is that a fairly tight market in terms of talent and headcount, given some larger forwards and larger boats in this trying to hire away some of those relationships?
David Congdon
Well, we do not have any employees in China at this point in time. We have our candidates here in the U.S.
that are calling on our customers here. We have no problem in attracting qualified people here.
Matt Troy – Citigroup
Okay. My last question is just, on the quarter you just reported, just a broad sense looking across the network, were there any customer industries that stood out as either particularly strong relative to a broader economic environment that has been soft or any end markets that were particularly weak relative to what your plan was going into the quarter?
I am just trying to get a sense for what is moving out there by industry and what might not be? Thanks.
Wes Frye
I am not sure I can give you a sense. We just do not know that right off hand from that detail at this point, but about 50% of our business is coming through manufacturing.
So, I would assume that the manufacturing sector for us is doing better. Now, it is hard to distinguish that growth - how much is market share and how much is economic from their standpoint and how much of the weight per shipment is due to economic and how much is due to other factors.
Matt Troy -- Citigroup
All right. Thank you.
Operator
(Operator Instructions) We will take our next question from Justin Yagerman with Wachovia Securities.
Justin Yagerman - Wachovia Securities
Hey, good morning guys. How are you doing?
David Congdon
Hi, Justin.
Wes Frye
Hi, Justin.
Justin Yagerman - Wachovia Securities
On the purchased trans line, that was flat year-over-year and we have seen fuel show up in a lot of other quarters that we have looked at so far in that line. I am just curious, have you guys -- now that you have got more geographic expansion, should we see that line actually coming down a little bit as you got more of your own in house that you don't have to go out and buy some cartage?
Wes Frye
Yes. Yes, we could.
But…
Justin Yagerman - Wachovia Securities
Okay. Is that why it is flat year-over-year, or is there something kind of different going on in there?
Wes Frye
Well, as I had mentioned, that line includes our container division. Our container division is up 37%.
So while the -- on the domestic general commodity side, we are seeing a reduction of those costs. We are seeing increases in the container due to the growth there.
So, overall, that is why it is flat. It was actually down if you can break out that between what is the container division and what is the LTL.
David Congdon
And that would imply, then, that the growth we have had in the quarter has been more so within our network that is served with our company trucks.
Justin Yagerman - Wachovia Securities
Interest expense, flat year-over-year, and up a little bit quarter-to-quarter? Are you guys paying a little bit higher on your debt, or is that yielding less on your cash?
How should I think about that trending going forward?
Wes Frye
The debt is fixed. It is a fixed rate.
So, the difference is the yield on the cash. As you know, we took it out of the -- it is more in the money market, just to keep or make sure our liquidity stays there, which has a lower yield.
Justin Yagerman
Got it. Looking out in the second half, you guys do not give quarterly specific guidance anymore, but the fourth quarter stands out to me as a quarter where you usually see sequential decline not as pronounced in consensus numbers right now.
And, depending on how you look at your guidance, it is curious to see how the seasonality plays out. So I am just kind of curious, is there anything different about this fourth quarter as we look out to the second half of the year?
Are you picking up a benefit as we move into the fourth quarter from the third quarter where you should see more of a flat quarter-to-quarter transition? Or should we see that typical seasonal downtick as you lose two days in a calendar year?
Wes Frye
You might recall I made a comment earlier about our assumption in the rest of the year is that the revenue per hundredweight will remain relatively flat. That is excluding fuel surcharges.
However, when you look in comparison year-over-year, last year, our revenue per hundredweight for the third quarter through the fourth quarter was declining. So, when you go full circle on that, you get a slightly easier comparison on the fourth quarter with respect to revenue per hundredweight in the fourth quarter than you did in the third quarter and in the second quarter.
Justin Yagerman - Wachovia Securities
Got it. So maybe you'll pick up a little bit of help on that end.
When I think about the seasonality in the quarter -- when I spoke to you guys in mid-June, I think weight per shipment was up about 6%. How big were the last two weeks of June in terms of the truckload spot quote business?
I guess, if you could characterize June, because it was the first month for the industry that we have really seen this kind of ramping seasonality, and I would be curious to just to get a little more granularity, I guess, on how June progressed, what kind of conversations you were having with shippers, and how serious the demand was for freight at that point?
Wes Frye
Well we did see, sequentially, year-over-year, an increase in the weight per shipment from April to May to June and even it is higher, so far, and forecasted in July. And, as I have already mentioned, we do that -- basically half of that is the mix of just heavier freight, but we are seeing revenue per shipment increase in and around pretty much across the board.
It is all anecdotal why those things are happening within the weight categories, but as we had mentioned before anecdotally that possibly shippers are combining shipments to try to save on fuel and transportation costs.
David Congdon
There is another phenomenon that might be occurring that we haven't really -- it has just come to mind, the Olympics and the shipping that may have taken place in advance of the Olympics because of China going to be shut down for that period of time. And so that could have affected some of the metrics that have occurred in the second quarter.
Justin Yagerman - Wachovia Securities
That’s it. Actually really interesting.
Wes Frye
And we didn't know if that was only secular to ourselves, but it seems like all of the reporting carriers are showing weight per shipments that are higher year-over-year.
Justin Yagerman - Wachovia Securities
Sure. That's really interesting.
Just one last question. I asked it yesterday on the Arkansas Best call, but maybe it is more applicable here.
David and Earl, you are both pilots. If you were kind of using the analogy of flying in a storm and had to trust your instrument panel as opposed to just looking out and all the noise in the economy with the financials and housing and all that, what do the pure numbers tell you right now as you go back and look at cycles?
You are talking about truckload, spot quote business tightening up, ATA truck tonnage has been tighter. There is definitely headwinds and the fuel environment has changed from past cycles, but how does this compare to comparable periods of time as you guys go back and think about past cycles?
Earl Congdon
I think you might be asking if we can see out of the window too. I think things are looking a little better.
Justin Yagerman - Wachovia Securities
Okay.
Earl Congdon
I feel very good that business is more likely to go up than down.
Justin Yagerman - Wachovia Securities
Fair enough. All right.
I appreciate the time, gentlemen. Thanks a lot.
Earl Congdon
Thank you.
Operator
We will take our next question from David Campbell with Thompson Davis.
David Campbell - Thompson Davis
Yes. Thank you very much.
Most of my questions have been answered. But I was curious on two things.
One, you mentioned adding two more service centers in the Northeast and that your business up there is strong, possibly because of Jevic, yes. So are these new service centers all related -- are they related to that or are they general, or are they related to specific new accounts that you could service there that need these service centers?
David Congdon
They were both real estate opportunities that presented themselves in Markets that made sense for us to be into. I do not want to divulge where they are yet, but that is why.
And our business in the Northeast is up not just because of Jevic. It has been strong anyway because of our competitive position in that marketplace.
We are gaining market share there, and Jevic just helped.
David Campbell - Thompson Davis
Okay, thanks. And the last question is, you mentioned slowing the speed of your trucks; will we notice any impact on either fuel surcharge revenues or fuel costs as a result of this or is it -- we would not really see it?
David Congdon
It would not have any effect on fuel surcharge revenues, but hopefully it will have an effect on fuel costs, but reducing speed by, say, three miles an hour means three tenths of a mile per gallon improvement in the overall fuel economy, which does add up to a lot of money. But that is only on your line haul fleet.
And we may not achieve a full three tenths of a mile per gallon improvement. In fact, in May and June we are, to be honest with you, seeing negligible effect at this moment, but some of that just may be the way that our fuel and mileage accounting goes.
We might see some of it in July when we average --
Wes Frye
And we haven't governed down the whole fleet, yet.
David Congdon
And we haven't finished governing down the whole fleet. So, I think, it will take a little time to see the effects of our fuel efficiency programs take hold.
David Campbell - Thompson Davis
But is there likely to be more impact in the third than there was in the second?
David Congdon
Yes. We certainly hope so.
David Campbell - Thompson Davis
Okay. And what about the customers?
I mean, obviously, your delivery times will lengthen?
David Congdon
Not necessarily. It will not really affect it.
Our schedule run operation -- you are talking about maybe ten minutes more or no more than 30 minutes more on a 500-mile run.
David Campbell - Thompson Davis
Right.
David Congdon
We have no negative effects on our transit times.
David Campbell - Thompson Davis
Okay. Thanks for the good numbers.
David Congdon
Okay.
Operator
(Operator Instructions) We will go next to Tom Albrecht with Stevens Incorporated.
Tom Albrecht - Stevens, Inc.
Hey, guys, I know everybody wants to move on here. David, I look at your shipment count -- everybody is focused on tonnage, but it was only 2.8%, that was the lowest since 2001.
What do you read into that? I mean, it is kind of some of the weirdest sets of numbers across the board with the industry right now - up tonnage, which used to be down during downturns; but shipment counts are very modest.
What’s your thought?
David Congdon
My thought is that it is economic more so than anything. We are seeing --even though ours is low, it is still, when you compare it with our industry peers -- theirs is worse than ours.
So we are still gaining share, but I see it more as economic. And the second thing is that with the weight per shipment being higher, we have shippers that are holding freight for two weeks to make a shipment as opposed to shipping once a week.
Tom Albrecht - Stevens, Inc.
Wes, what was your cargo figure a year ago -- that 0.66 was versus what?
Wes Frye
It was about 0.9.
Tom Albrecht - Stevens, Inc.
Okay. And then July tonnage?
Did you give us a window into that?
Wes Frye
I did. I mentioned low double digits, at this point.
Tom Albrecht - Stevens, Inc.
Okay. And June was the best month in the second quarter, I guess?
Wes Frye
For the tonnage growth?
Tom Albrecht - Stevens, Inc.
Yes.
Wes Frye
Year over year it was not. Actually, April was, but April was benefited by the lack of a holiday.
Tom Albrecht - Stevens, Inc.
Oh, yes. Sure.
Okay.
Wes Frye
Smooth all that out, it was roughly consistent between the months year-over-year.
Tom Albrecht - Stevens, Inc.
Okay. And then I would be remiss not to ask a little bit about the guidance, and I appreciate that the economy is not red hot so there is some level of cautiousness, but, basically, you just had 12% earnings growth.
I don't know how to allocate the two quarters in the second half of the year? But at the high end of your range, I could take like a $0.58 and a $0.45 number.
It gets me to a $1.95 for the year, and, yet, that is only 7% earnings growth when you just had a real nice quarter. And I am taking that $0.03 revenue adjustment out, a year ago.
And I am surprised that the third quarter would not be at least closer to the second quarter, especially with your earlier comments on tonnage being probably at or a little above, sequentially. How is that for a long question?
Wes Frye
I understand what you are saying, but when you are self-insured on cost, we run into a group of lawyers. Of course, a lot of people would pay us if we did, but when you are self-insured for $3 million --and it happens.
We are running 200 million miles a year, and you have seen it happen. And we just are cautious in making sure that we have accounted for any of that eventuality.
Now we have one of the lowest accident frequency ratios in the industry, and it is improving. And, of course, we have had a tremendous focus on workman's competition on BIPD, but things do happen.
And we just look at that on a long-term average basis.
Tom Albrecht - Stevens, Inc.
Right. Is there a particular case or two either going to trial or just that you are negotiating on that might have you little bit more worried?
Wes Frye
Wouldn’t, but if they were, it would already be in our costs.
Tom Albrecht - Stevens, Inc.
Okay. All right, so maybe you will have good news for us later on then?
David Congdon
We certainly hope so.
Tom Albrecht - Stevens, Inc.
Okay. Well, that is it.
I appreciate the time, guys. Keep up the good work.
Wes Frye
Thank you, Tom.
Tom Albrecht - Stevens, Inc.
Thanks.
Operator
And it appears we have no further questions. So I would like to turn the conference back over to Earl Congdon for any additional or closing remarks.
Earl Congdon
Thanks to all for your excellent questions, as usual, and for your support of Old Dominion. If you have any further questions, just give us a call.
Bye.
Operator
Thank you, ladies and gentlemen. Once again, that does conclude today's conference.
We thank you for your participation.