Old Dominion Freight Line Inc (ODFL) — Q4 2015 Transcript

Good morning, and thanks for joining us today for our fourth quarter conference call. Joining me on the line this morning are David Congdon, Old Dominion's Vice Chairman and CEO; and Adam Satterfield, our CFO. After some brief remarks, we'll be glad to take your questions. We are pleased to report that Old Dominion produced solid financial results for the fourth quarter of 2015. Despite a soft economic environment and a significant decline in fuel surcharges, we achieved company records for fourth quarter revenue, operating income, and earnings per diluted share. In addition, our operating ratio was only 10 basis points higher than the fourth quarter of 2014, which was our best fourth quarter ever. We won additional market share during the fourth quarter due to increased demand for our superior on-time, claims-free service that we provide at a fair price. This value proposition continues to be critical to both our financial success and our ability to consistently outperform the growth and profitability of our industry. As we look forward into 2016, we are well-positioned to continue to execute on the fundamental aspects of our business plan and produce further profitable growth. Although the potential for a soft economic environment could present a headwind in 2016, the pricing environment is relatively stable and we expect to win additional market share. To support our company's expected growth, we are continuing to invest in our business with a substantial capital expenditure program in 2016. We also expect to employ excess cash flow to repurchase company stock. Thank you for your time this morning. And now, I'd like to turn the comments portion of our conference over to David Congdon.

Good morning. We were encouraged by our fourth quarter results, despite the headwinds that were mentioned by Earl. Our team continued to execute our business plan and win market share by providing on-time service of 99% and maintaining a low claim ratio, which was only three-tenths of 1% of revenue for the fourth quarter. Our fourth quarter results also reflect our continued commitment to yield management. Revenue per hundredweight, excluding fuel surcharges, increased 6.1%, driven by our pricing discipline as well as the positive impact on this metric from decreased weight per shipment. In addition, we improved our dock and pickup and delivery productivity during the fourth quarter. The combination of these factors and our continued focus on controlling costs contributed to our profitable growth for the quarter. We have long maintained that we could produce long-term profitable growth and margin improvement by focusing on density and yield, assuming a steady macroeconomic environment and rational pricing within our industry. Although the macro has not been as robust as we would like, pricing within our industry has remained relatively stable. We are confident in our ability to continue winning market share and we continue to be very confident about our long-term growth opportunities. Looking forward, we are focused on delivering our proven value proposition, which we expect will continue to fuel three key elements of our business model: fuel management, freight density, and productivity. Old Dominion has outpaced the rest of our industry, and we will continue to strengthen this differentiation through our ongoing significant investments in capacity, technology, and employee training and education. These investments have given our employees the tools and knowledge they need to continue to exceed our customers' expectations and help the world keep promises. As a result, we believe we can continue to drive long-term growth, earnings, and shareholder value. And thanks for joining us today. And now, Adam will review our financial results for the fourth quarter in greater detail.

Thank you, David, and good morning. Old Dominion's revenue was a company record $734.6 million for the fourth quarter, a 1.9% increase from last year. Earnings per diluted share increased to a company fourth-quarter record of $0.85, which was a 4.9% increase from $0.81 earned in the fourth quarter of last year. Our operating ratio was 84.5%, a 10 basis point increase over the fourth quarter of '14. Revenue growth for the fourth quarter reflected a 3% increase in LTL tonnage, which included an 8.2% increase in LTL shipments, offset by a 4.8% decrease in LTL weight per shipment. In addition, LTL revenue per hundredweight decreased 0.2% for the quarter, primarily due to the significant reduction in fuel surcharges. The pricing environment was relatively stable during the quarter, as evidenced by our 6.1% increase in revenue per hundredweight, excluding fuel surcharges. On a sequential basis, our LTL tonnage per day for the fourth quarter decreased 4.1% as compared to the third quarter of 2015. This was lower than our 10-year average sequential trend, which is a 2.6% decrease. The largest contributor to this variance was December being below its 10-year average. Tonnage trends were also impacted in the fourth quarter by the continued decrease in weight per shipment, which we expect will continue to be a headwind on a comparative year-over-year basis throughout the first half of 2016. LTL shipments per day in the fourth quarter decreased 5% sequentially as compared to the third quarter. This was below our 10-year average sequential decrease of 3.9%, due primarily to December being below its 10-year average. We are pleased with our trends for January, however, which were back above our 10-year average sequential trends. Our LTL tons per day for January 2016 increased 2.2%, as compared to December of 2015. This change compares favorably to the 10-year average sequential increase of 1.9%. On a year-over-year basis, LTL tons per day in January of 2016 increased 2% as compared with January of 2015. Our LTL shipments in January versus December increased 4.8%. This compares favorably to the 10-year average sequential increase of 3.8%. On a year-over-year basis, LTL shipments per day in January of 2016 increased 6.4% as compared to January of 2015. Revenue per day, excluding the fuel surcharges, increased approximately 5% year-over-year for January of 2016, due to both the LTL tonnage increase and the improved LTL revenue per hundredweight, offset by a reduction in revenue for our non-LTL services. Total revenue continues to also be impacted by reduced fuel surcharges, however, as the DoE's price per gallon was approximately 29% less in January of 2015. On the operating side, we had a 10 basis point increase in our operating ratio as compared to the fourth quarter. This increase was due primarily to an increase in our fringe benefit costs as a percent of payroll and increased depreciation associated with our long-term investment in real estate, equipment, and information technology. In addition, the significant decline in fuel surcharges had a deleveraging impact on our expense items, although it also primarily accounted for the 310 basis point reduction in operating supplies and expenses. In addition to the increase in benefits, the increase in our salaries, wages, and benefits expense also reflects the impact of the 9% increase in full-time employees for the year and 3.5% increase in wages that were effective at the beginning of September. We also increased the use of company-owned equipment and employees to support both our LTL and non-LTL services. Old Dominion's cash flow from operations for 2015 totaled $554 million, a 41.4% increase over 2014. Capital expenditures were $100 million and $462 million for the fourth quarter and full year, respectively. In addition, we repurchased $35 million of common stock during the fourth quarter and a total of $114 million for 2015. We completed 2015 with $11.5 million in cash, $134 million in total debt, and a ratio of debt to total capitalization of 7.4%. In 2016, we have already repurchased an additional $22 million of our shares, which leaves approximately $58 million available for purchase under our previously-authorized $200 million repurchase program, which is scheduled to expire in November of this year. We currently expect to finish this program before the end of the second quarter. We estimate that CapEx for 2016 will total approximately $440 million, including planned expenditures of $180 million for real estate and service center expansion projects, $220 million for tractors and trailers, and $40 million for technology and other assets. The effective tax rate for the fourth quarter of 2015 was 35.5% compared with 36.7% for the fourth quarter of 2014. This was lower than originally anticipated due to additional tax credits approved by Congress in December as well as other favorable discrete tax adjustments. We currently expect an annual effective tax rate of 38.4% for 2016. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for any questions at this time.

So I wanted to first ask about incremental margins, call it, 12% in the quarter, so a pretty meaningful step down from what we've seen. Is this the kind of environment where we need to reset our incremental margin expectations lower for now or is there anything kind of unusual on this quarter and we can get back to that 20%-plus range going forward?

Scott, we're anticipating incremental margins in the 20% range next year, plus or minus, given the environment. In the fourth quarter, as I mentioned, we did have a higher fringe benefit expense rate. That impacted our operating ratio by about 70 basis points, if you compare the rate of fringes as a percent of payroll and salaries and wages. And so that definitely had an impact on the quarter. If we had used the year-to-date rate, it definitely would have been better. Although, with that said, it was a cost that we incurred in the period and we don't do adjusted numbers.

And then, in terms of just the tonnage trends, so I think you said worse than normal in December, but maybe just slightly better than normal in January. What's your take on the underlying demand environment out there? Are you starting to see some signs of stabilization or improvement in industrial activity or, hey, it's just one month and really tough to know?

As we all have tracked and watched the ISM, PMI index has been under 50 for about four months. My personal gut feeling is that we've been in a slump, we're in a bottom, and I'm more optimistic that we'll see some improvement next year. It is encouraging to see the sequential trend from December into January pick back up again, but December was definitely a headwind for us. It was an unusually soft month on a sequential basis, as Adam pointed out in his comments. But the latest that I read is we are looking at say 2.5% GDP growth for next year.

Adam, I just wanted to clarify if I got my math right here, if revenue per day excluding fuel was up 5% in January and tonnage is up 2%, that implies that revenue per hundredweight excluding fuel is up about 3%, and that's a pretty big deceleration versus the 6% you had in the fourth quarter. So I just want to make sure I got that math right, and if I did, kind of what's contributing to that deceleration in the yields excluding fuel?

The revenue per hundredweight, excluding fuel, was up about 4.5% in January. If you think about the step down, if you are comparing to November and December, we are now lapping the GRI that went into effect in January of 2015.

Are you observing any irrational behavior from competitors regarding pricing? I understand that your pricing has remained relatively stable, but could you provide more insight on this, especially considering RFB's recent pricing adjustments in certain areas of their business? What are you noticing from a competitive pricing perspective?

The comment I read regarding what RFB said indicated that they seemed to be adopting a more aggressive approach in their spot quote type business. I may have misunderstood that, but we still believe the environment remains relatively stable. Over time, there have always been occasional rationalizations. However, our pricing policies and practices stay the same, and we feel confident about the current pricing environment.

And then just lastly, are you still getting the 3.5% to 4% core rate increases on contracts, kind of consistent with what you saw in the third quarter?

We're anticipating 3% to 4% increases as we move through 2016.

I wanted to touch a little bit on some of the resources side of the business. So in the environment, where we have a little bit of a slower tonnage dynamic, how do we think about sort of some of the resources like headcount and infrastructure of the business? I guess, maybe starting with headcount, how should we think about that for 2016?

We've built up our headcount last fall due to the volumes of the business we had. And we've held the line on any growth in headcount through the holiday, and we've had some attrition. But we will gear our headcount to the volumes that we see, as they're building in the first quarter. But what is it year-over-year right now, Adam?

The headcount was up 9%. Keep in mind, we're still anticipating growth this year. In January, our shipments per day are trending up over 6%. So we're still positive on our long-term opportunities. We're anticipating growth and we're continuing to invest in our people and making investments in capacity as well that we think are necessary for our long-term success.

And you mentioned sort of a 2.5% GDP type of environment is what you're sort of looking at, when you think about the potential for continued market share gains. Any way we can kind of tie that back to how you might think sort of volumes could play out? Do we get a little bit better from here, the 2% range or how do you think about that just sort of directionally, would be helpful?

We think that we've got market share opportunities and we've long outperformed when you just look at GDP or industrial production-type numbers, and it gets back to the quality of service that we provide at a fair price, and we still think that's a winning formula and that's what we're continuing to execute on. So with that, and assuming rational pricing within the industry, we think that's a winning formula for us and what we're going to stick to.

In terms of the CapEx guidance down modestly year-over-year in 2016, but if we do see macro conditions deteriorate further, how much and where do you think you could scale back spending this year?

The real estate is fairly well fixed, because it relates to projects that are pretty much underway and things that we need to do for the future as well as the IT and other spend. We have some flexibility in the equipment side of the equation. We buy a certain amount of that as for our replacement cycle that we would not change. But the equipment that's in there for growth could be adjusted. We have cancellation provisions at roughly 90 days.

And then just my follow-up question. Thinking about your comments on weight per shipment and expecting it to still be a headwind in the first half of the year. How should we think about it for the back half, would you expect it to be sort of flattish year-over-year?

Where we're trending right now is pretty consistent. It seems like it stabilized in the fourth quarter compared to where we were in the third quarter of '15. And it seems like this weight per shipment now is trending somewhere around that 15.40 to 15.50 range. And so once you get back into the back half of 2015 on a comparative basis, then it will be a little more normalized.

Allison, while you're on that subject, I want to provide some insight on weight per shipment and how it has impacted us and possibly the industry, which we haven't discussed much. A lower weight per shipment leads to lower revenue per shipment against fixed costs that are difficult to reduce. Additionally, fuel surcharges are based on revenue, so a lower weight also means a loss in fuel surcharge per shipment. This situation resembles the oil industry at the drilling level, where low revenue per barrel contrasts with steady extraction costs. We manage shipments both across the dock and in pickup and delivery. For example, lifting a 1,000-pound skid versus an 800-pound skid doesn’t significantly change our handling time. Therefore, we are seeing pressure on our pounds per hour in both dock and pickup and delivery. Conversely, we have experienced improvements in shipments per hour, reflecting enhanced productivity. However, the cost to move a lower-revenue shipment across the dock remains largely unchanged. We've also noticed pressure in our line haul load averages. We typically load trailers with skidded freight, so if skids weigh 100 pounds or 200 pounds less, that creates more space between them, resulting in pressure on line haul load averages. The positive news is that we have managed to counter this pressure this year, achieving a 100 basis point reduction in our operating ratio for all of 2015. As Adam mentioned, we believe we've reached the lowest point regarding weight per shipment. As we progress through the year and compare with the lower weight, it should be less of an issue for us, and I wanted to share that perspective. Does that help?

Can you maybe rationalize for us what you think played out in December? And Adam I don't know if you gave us what December tonnage was on a year-over-year basis, can you provide that as well? And then maybe, what do you think sort of played out in January and why you've seen these trends?

On a year-over-year basis, December was up. The tonnage per day was only up 1.1% and it felt a little softer. And I think when you look through some of the ISM numbers and things like that, that's definitely a tough economy and so forth. But again, it gets back to, we think that we've got a good opportunity for this coming year. We see new account wins every day that are presented by our sales team. We're getting additional business from many of our 3PL customers every day, and a lot of it comes back to the quality of service that we're providing. Now, there are many times where we might lose an account on price. And then not long after, we'll get reports about whoever the competitor X was, was just not providing the level of service, whether it be the on-time service from a pickup standpoint, meeting appointment delivery times or just the damages issue, in many cases we'll get that back. So I think that we're going to continue to execute on what we've done and we think we've got good trends ahead, if we can continue to deliver this premium level of service at a fair price.

And maybe just a follow-up there. Adam, I guess there has been this debate as to how LTLs will play a role in sort of this e-commerce trend. Can you talk a little bit about how you think you're prepared or set up for that?

In the e-commerce trend, there continues to be a demand for LTL service moving freight into the distribution centers, where the e-commerce freight goes back out by parcel. And with the just-in-time type inventory trends that we've seen and everyone wants everything faster and quicker, I think the premium service LTL providers can continue to bring freight into these distribution centers to fill the e-commerce demand.

I think you talked to it earlier in the call, but your purchase transportation costs dropped. It was a little bit more than we had thought, which is good to see. But I'm trying to figure out how much of that was just a function of fuel, as fuel also passes through that line? And how much of that was a function of you guys doing things a little bit different in a network and maybe taking more of your moves in house? So then trying to think about that, if that was a benefit in 4Q, thinking about that as we move into 2016?

Well, there are two major factors on that. Last fall, before the fourth quarter even ended, we had shifted from a rail operation to an over-the-road operation from Chicago up to the Pacific Northwest. And so we reduced a lot of purchase transportation that we had in that lane and put it on company trucks. And the second piece has been a shift in strategy with our ocean container division to move toward a company truck model, and so we don't have that purchased transportation line haul. And I guess, there is a third one, we had the purchased transportation that had to do with our ocean forwarding operations that we have chosen to take a different path on that.

On a lot of that decrease though, as David mentioned, has shifted into salaries, wages, and benefits, where we're using our own employees, particularly on the drayage side.

But I guess, the question is the net benefit is potentially advantageous, as you're not going out into the market, and you're using your own equipment to move, I guess, more of this ocean stuff that you do?

Correct. It all has to do with improving, maintaining and improving our best-in-class position as a best-in-class LTL service provider.

And then you talked to the amount of stock you've repurchased in the first quarter, and there are some remaining. Just to clarify, you expect to be through the current repurchase authorization by the end of this year or by the end of 2Q?

The end of the second quarter of this year, it would be about six months early on the program.

And then when does the Board meet again to discuss potential uses of capital moving forward?

We'll continue to evaluate those and discuss with our Board at the appropriate time, but we feel like shareholder returns have been a good way and will continue to be a good way to improve total shareholder returns. But that is in third place in our capital allocation strategy. We're going to continue to invest in the business, number one, which you continue to see. We've got a healthy CapEx program. We'll continue to look at any type of acquisition opportunities that may present themselves, and then some type of shareholder return to again support shares and stockholders.

Adam, you talked about the fringe benefit expense coming in, in the quarter, because I noticed the salary, wage and benefits line was at the highest level, at least as a percentage of revenue, in about six years. Can you just talk a little bit more about that? I think that was $5 million in the quarter. And then, anything else that's going on there besides just the wage increase and headcount increase, with the absence of revenue increase?

Yes. Obviously, that was a big driver, the 3.5% wage increase and just the general increase in number of employees. And then part of that was again this flip of where we're doing some of this business with our own employees and equipment, now particularly on the drayage side. With the fringes, we just had some unfavorable experience within group health and with our workers comp in the fourth quarter. And so as a percent of salary and wages, the fringe rate was at 33.8%. It's been trending more in the 32% to 32.5% earlier in the year. So that's not something that we necessarily see, and think will be a trend going forward. It's something obviously that we pay close attention to, but it was somewhat out of line with what we had seen earlier in the year.

And you talked about seeing lower revenue to start the year from your non-LTL services. Can you, I guess, comment a little bit about the non-LTL services and how you see them growing organically or via acquisition over the next year or two?

I think that again, as David just talked about, on the drayage side, we closed a few locations where business levels just were not up to our expectations. We're continuing to focus on the existing locations that we're serving. We're trying to improve the level of service that we're giving in that market, and trying to differentiate ourselves against others that are serving. And so we're going to continue to look at that. We think that our value-added services are good for our business. They add value to our customer base, and we think we can do well with them, so we'll continue to support them. And on a same-store basis, we're continuing to see growth, but we'll have a little headwind there. And then the international freight forwarding, we're just not doing that business direct anymore, and starting in the fourth quarter of last year. But we think overall, we're going to continue to support the services that remain and look to continue to enhance those.

I guess, David, going back to the question related to e-commerce, if I'm thinking about the composition of those shipments, are those at all different from what you see with your traditional retail shipments, in terms of the size and weight profile?

We don't really segment that out to give you a definite answer, but the gut feel is the answer is no. They're roughly the same.

I guess if I go back to the discussion, I think in the prepared remarks, you talked a little bit to productivity. Could you walk us through some of the year-over-year changes in pounds per hour, line haul load average, et cetera?

From a pounds per hour standpoint, it's continued to be pressured, just by the decrease in the weight per shipment. On the dock, our shipments per hour were actually up 5% in the fourth quarter on a quarter-over-quarter basis. The pounds per hour though was actually up 0.6%. Looking in pickup and delivery, our pickup and delivery shipments per hour were up about 0.5%. Our load average in line haul was down about 2.5%, and again, that gets into the detail that David was speaking of, with the weight per shipment being down and how that can impact your line haul operations.

Got it. And then, basically with the expectation for weight per shipment to flatten out in the back half of year, it will remain a headwind first half and then we should see underlying improved productivity in the back half, assuming the shipment growth continues?

Yes, there's one other factor about productivity is if you turn the clock back a year ago, we had some fairly strong growth in the latter half of 2014, and we were adding a lot of people. And for a dock worker to get into our company and get up to speed, and learn our systems, and learn the way that we load freight to minimize damage and maximize load average, et cetera, et cetera, it takes at least six months to nine months for somebody to get up to speed. And so now that we're kind of in a, I would say, I'll call it a soft spot in the economy, a good thing about that is that we're not having to add more new people right now, and the people that we have are reaching that, they're getting in a stride now, of where their productivity is improving. So if there is a benefit of a slower growth economy that might be one of them.

I just wanted to ask first about the competitive landscape. Obviously, there been some competitive changes over the last few months. I wanted to see what you're hearing in terms of customer turnover? Do you think that there have been created some additional opportunities to build share more aggressively, particularly in the slow growth environment or have you guys not really noticed anything along that front?

We've identified several opportunities arising from the competitive shifts in the marketplace. Approximately a third of our business, or around 30%, comes from third-party logistics providers. Our position as an asset-based LTL service provider allows us to operate without any conflicts of interest with our 3PL customers, which enables us to effectively serve that segment of the market. This unique situation helps us build trust with 3PLs and expand our business within that area. We've encountered a few prospects in this space.

And then just my second question. Looking to 2016, and obviously you are dealing with slightly slower volume growth here. Does that change at all your ability to focus on service or does that change kind of what your productivity initiatives are for 2016? How are you guys thinking about operations in the year ahead given kind of the slower volume growth?

It's just embedded in the culture of this business and the way that we run our business is continuous improvement. So I don't see us changing our focus on continuously looking for better ways of doing things and improving efficiencies, there's really no change there. Does that answer the question?

Could you provide more specifics about what you're examining? Clearly, the margins are not moving at the same pace. Can you maintain margin growth in a slower growth environment? That's my question.

It's a little harder. And a lot of that will depend on, to some degree, the competitive landscape out there, and what the competitors do with pricing. I want to point something out, and turn the clock back on something that we have pointed out going back into '06, '07, '08, '09. We had done an analysis, and we said that for every 1 percentage point price reduction, it required 4% to 5% increase in volume to offset that price reduction, from an EPS standpoint, that's earnings per share or earnings after-tax. So with that said, you're doing more volume at a lower price, so therefore your margin suffers. It might take twice that much more volume to keep the margin where your margins are, and that's just for a mere 1% reduction. I remember distinctly some competitors back in the days chopping prices 15% to as much as 30%. If you go back and look the history, remember what happened to the operating ratios of some of the players in our industry, and look at where they are today, and frankly they haven't got it back. It requires a tremendous investment in this business, and strong margins to afford to play, and to afford to provide the best service. And I just hope that we don't get into some kind of bad pricing environment, but as we have stated here today, we still believe the market is relatively stable and things are good in the pricing environment.

And so far you haven't seen competitors really trying to undercut you in price, so far, it sounds like?

No, that happens from time to time, from place to place, especially so where a competitor is not doing business with a particular account, and they don't understand the cost of that account, they don't understand what the freight is all about, and they just go in and put in a price to try to get the business, and then they later discover, whoops, the price was too low, and now we need to raise the price up, and that's when the customers turn around and come back to us for our strong service product.

I was wondering a couple of different things. When you try to manage labor, I was wondering if part of the challenge in the fourth quarter was the natural inclination is to expect the last four or five weeks before Christmas to be a bit busier. I'm sure some of your customers probably insinuated that, so you're probably staffed a little bit higher in anticipation of that. Was that also a factor, besides what you've already described?

We pretty much reached peak staffing by the end of September. And historically, you see a little fall-off in October per day, and it comes back up a little bit in November, and then it falls off a certain amount in December. And we held the line on hiring any more people during this fall season, and actually had a little bit of attrition going into December, maybe from the level we were at in September. Not much, but we manage our labor day-in and day-out and by the hour. And our productivity in the fourth quarter, in terms of shipments per hour, we're still very strong. So I don't think we were squeezed too bad on the labor because we had too many people.

And then when you talk about spot quotes and transactional business, and that, and I know overwhelmingly that's not what you do, but I'm just curious what percentage of your business, when it gets softer, kind of is oriented towards that end of the market versus maybe a year or so ago, when it was really tight?

Probably less than 5%. We try to be more strategic and have it on a relationship basis and the business that we do with our third-party logistics partners is more strategic in nature, and we try to avoid the transactional type of business, so we're forming long-term relationships with people that we can continue to drive growth with.

And then my last question would be, it seems like in September, October, maybe early November, there had started to be some pretty aggressive pricing within the 3PL community, but it maybe feels like that has steadied out a little bit. What's your read of maybe back then versus right now, and whether it has steadied out?

Honestly, I'm not sure we saw that trend that you're referring to. Our relationships with 3PLs are on an individual, account by account basis, within 3PLs the stable of customers. And we price each account accordingly, and we just didn't see and I don't think we've seen any trend anywhere resembling what you just referred to.

David Congdon, I think you talked a lot about the weight per shipment and the trends there. But I didn't hear, maybe I missed it, but did you say anything about differences between industries or mix of business? Is the mix of business contributing to the decrease in weight per shipment or is it just that every shipment, every customer is doing less?

It's a good question and the feedback we get, and from the data that we have, we think it's a general trend across all the customers. But another point that, I'm not sure we as a company or industry even have talked much about, is this whole energy industry. That is probably affecting our economy all across the board with what's going on with the price of oil. You think that the price of oil being down would stimulate more consumer demand than it has. And there are some economists who believe that the consumer is going to pull us out of this slump next year and perhaps that will be the case. But the industrial economy that supports the energy industry has a lot of tentacles, and we haul, what's our percentage of industrial?

About 40%.

About 40% of our freight is industrial, and embedded in that piece are industrial customers that are tied with the energy industry. So that's probably where we're seeing some of the business softness.

But it's not just industrial that you're down weight per shipment, you're down in other types of business as well?

Correct.

And my second question would be, were the trends in the fourth quarter in tonnage. I don't think I heard, I heard December was up 2%, but I didn't hear October November. Do you have those numbers?

The year-over-year trends in weight per day were, it was plus 4.4% in October, plus 3.1% in November, and plus 1.1% in December. And those are all year-over-year.

Adam, I just wanted to clarify, I mean the comment on the expectations for 20% incremental margins, I think in the past has been 15% to 20%, and maybe even speaking more recently to 20%, and I just haven't picked up on it, but are 20% incrementals what we should be thinking about? And if so, is there structurally something different that gives you more confidence with that number versus the 15% to 20% prior?

No. That's just what we're thinking about that we think we can achieve this year, and obviously that can go up or down depending on all the variables that go into it. But I think we're just trying to be a little bit more targeted, with what we think, and we've achieved rates greater than 20% in the past. And we feel good about what our opportunities are for this coming year.

And maybe just one last follow-up, David, I know there has been a lot of comments or a lot of questions on the weight per shipment, and you have obviously provided some very helpful color, but is your view primarily that the decline in weight per shipment is something that's been cyclical versus something that's secular? And once we move through, to your point, the softer patch, we will see that weight per shipment start to trend up and then we start to get back some of the margin benefits of the higher weight per shipment versus what you're seeing in the network right now?

Historically, a decrease in LTL weight per shipment has been associated with a slowing economy. When the economy improves, the weight per shipment tends to increase as orders become larger. I believe part of the decline in weight per shipment is linked to the current economic soft patch. Consequently, if the economy shows signs of improvement, we can expect the weight per shipment to rise again, leading to a turnaround in the headwinds I've previously mentioned, which would benefit us.

All of that makes sense. And congratulations on the results for the year, I know it was a challenging year kind of from where we started at this point last year.

Adam, quick follow-up, just a small item here, the number of working days per quarter in 2016 and 2017, could you provide those?

2016 is 64 the first quarter, which is one extra day compared to 63 in the first quarter of '15. For the second quarter, 64 in the third quarter, 62 in the fourth quarter. And that compares to 63 in the fourth quarter of '15. I don't have 17 in front of me by quarter.

Just was curious, in what ways do you believe that your market share gains could benefit any kind of pricing advantage? Is that going to give you more intelligence? I'm not sure if you can kind of muscle your way into better pricing, but just curious if you expect that your market share gains to help pricing, in addition to obviously volume?

I'm not sure we've ever seen a correlation between market share gains and what kind of pricing we can get. We're winning market share by winning new customers on board, and by winning additional lanes, and states, and shipping locations, and so forth, from existing customers. And the pricing or program that we have is individual to each customer. And kind of when you look at revenue per hundredweight, it's all the result of looking at the whole operating ratio of an account. And it's hard to say, you could gain new short-haul lanes from a customer, and the revenue per hundredweight be less than your average, and you can drag down your revenue per hundredweight. And it looks bad from a pricing standpoint, the way that the industry, the way you all look at pricing, and hell, we might be operating the count at a 75 or 80, on that lower revenue per hundredweight. So it's all about pricing to the operating ratio of each individual account. And the revenue per hundredweight is merely a result of that type of approach to pricing.

I'm not sure if I understood your question correctly, but we don't try to go into a new account by means of pricing, whereas we try to put a lowball offer in, and then anticipate we can get our pricing up later. So we try to treat any new account just like an existing account, and go through our costing process to ensure that each account is contributing to the overall operating ratio.

And we arrive at a fair and equitable price for us and for the customer.

I guess I was just thinking that maybe as you think take on more volume, that you could have better intelligence on what the best pricing is for any particular account, but you answered it quite clearly. The other question has to do with your employee count. It seems like the market is pretty healthy, I mean you're expected to grow your employee number 9% or that's what you did in the fourth quarter, with the wages up 3.5%. I'm just trying to look forward, the economy is kind of flat, or in a flat year, what would you expect kind of the wages to be? You don't have to give a particular number, but is there a certain baked-in inflation that you expect for your employees or is that mostly contingent upon productivity results that are within the company?

We just gave the 3.5% wage increase September 1. So obviously that will be an inflationary factor as we go through next year. But we've long maintained that a key to our success has been taking care of our employees. Our employees are what drives the results of the company, that's given this best-in-class service 99% on time, cargo claims at 0.3%. So that is something that is near and dear to our hearts, and we believe strongly in. So we will always look at, and historically have said, so goes the success of the company, so goes our employees' success as well. So that's something we look at and evaluate every year. Typically it's something that goes into effect on September 1.

Well, guys, as always, thank you very much for your participation today. We continue to appreciate your questions and your support of Old Dominion. So please feel free to give us a call if you have any further questions. Thank you, and good day.