Q3 2019 Earnings Call
Good day and welcome to the South <unk> third quarter 2019 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Mr., Doug Coal Science Treasurer. Please go ahead Sir.
Thanks.
Good morning, and welcome to size third quarter 2019 conference call.
We began our prepared remarks I'd like to make a few comments with regard to forward looking statements. This conference call I'm contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements and all other statements that might be might on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.
Please refer todays press release, our most recent I see filings for more information on the exact risk factors that could cause actual results to differ but that said I'll now turn the conference call over to the company's Chief Executive Officer, Rick O'dell. Thank you Doug.
Joining me on the call today are Fritz Holzgrefe, our president and Chief operating Officer.
Excuse me this the operator I pulled your line from conference can you hear me.
Mr. Brown. This is the operator can you hear me.
Excuse me Mr. Brown. This is the conference operator can you hear me.
Sure. If your line is on mute please on mute.
Mr. Brown. This is the conference operator can you hear me.
That being the case, we're encouraged with our continued success on the yield from an EUR, 5.3% improvement and revenue per hundredweight. This quarter was our 37th consecutive quarter of year over year yield improvement.
Our industry has unique cost challenges on the labor fraud.
No liability insurance from we must can change we must continue our yield improvement to meet these and other inflationary cost items.
Our 90.3 operating ratio in the quarter was achieved despite the unexpected spike we saw in so sure self insure health care costs in the second half of the corridor and ER and continues to decline in weight per shipment both contributed to the negative variance to prior expectations, Rob will cover those impacts and a little more detail.
In his prepared remarks.
I'll turn it over to Rob for discussion of financial result.
I'd say, how pleased I am with the pace and execution of our expansion into the northeast since May of 2017, we've opened 18 terminals and new markets and are providing a seamless service offering to both existing and new customers.
These new markets provide long term growth opportunity for side in the form a share gains and greater geographic coverage enhances our value proposition with all customers and obviously, a supporting our above market growth right.
Not going to turn it over the call dropped for a closer look at the third quarter.
Thanks, Rick.
As Rick mentioned at the outset other called third quarter revenue grew by 10.2% to a record.
468.9 million.
Nomination of the effects of positive shipments tonnage and yield.
Fuel surcharge revenue rose, 2% year over year.
Size operating ratio improved by 60 basis points year over year.
90.3, and operating income grew 17.2% to a record 45.4 million.
A few of the key expense items, which impacted the quarter are as follows.
Salaries wages and benefits rose, 11.4% to 250.2 million in a third quarter.
Reflecting an approximate 7.5% increase.
As of our workforce versus the prior year.
Also we implemented a wage increase in July .
Averaged approximately 3.5% across the company.
Within this expense item.
With care cost rose, 25% year over year.
I'd like to point out that the unfavorable self insurance health care costs in the second half of the quarter in particular resulted in an approximate 1.2 million negative expense variances from our prior expectations.
Fuel expense in the third quarter fell by 4.7% from last years level.
National average diesel prices were down nearly 7% from the average price paid in the third quarter last year.
Somewhat offsetting the increased fuel cost associated with a 5.2% increase in line haul miles year over year.
[noise] purchased transportation expense rose by 14.8% to 35.8 million.
It was 7.6% revenue versus 7.3% last year.
This increase was the result of purchase transportation miles, which grew by 12.7%.
And the third quarter, we used a higher percentage of purchase truck miles this year versus lower cost rail miles as a result of optimizing the P.T. usage over imbalance segments.
Claims in insurance expense in the third quarter compares favorably to last year down 21.4%.
Primarily benefiting from more moderate accident severity across the period.
Depreciation and amortization expense.
I was 17.4% to 31.3 million compared to 26.7 million in the prior year quarter.
The increase reflects our continued investment in properties and equipment.
Our effective tax rate was 24.2% in a third quarter of 2019 compared to 24.7% in the third quarter of 2018.
Third quarter net income.
Rose, 16.9% to 33 million from 28.2 million last year.
At September Thirtyth 2019.
Total debt was 165.3 million.
Inclusive of cash on hand.
Net debt to total capital was 17.3%.
This compares to total debt of 121.3 million.
Net debt to total capital is 15.3% [laughter] December Thirtyth 2018.
[noise] net capital expenditures in the year to date period through September .
250.7 million.
Including equipment acquired with capital leases.
This compares to 182.5 million.
Net capital expenditures through the first nine months of 2018.
For the full year 2019, we expect net capital expenditures will total approximately 275 to 300 million.
Now I'd like to turn the call ever to frets for some closing comments [noise]. Thanks, Rob.
We opened the thing the things up for questions I'll like to take a minute to summarize year to date accomplishments your insight.
The 18 terminals that Rick mentioned have been opened a new markets in the northeast over the past two and half years eight of those have opened this year.
Outside of.
Excuse me Mr. Brown. This is the conference operator I pulled your line can you hear me.
Mr Brown.
The operator I pulled your line can you hear me.
Along with all the new terminals opened this year. We've also real relocated three existing terminals, including major break facilities in Harrisburg, Pennsylvania, and Indianapolis. We also relocated our Philadelphia terminal first opened in 2017, which we quickly outgrown.
Book before the end of the year, we will relocate to more existing terminals in the new facilities in Phoenix, and new burden New York.
Our strong financial performance and resulting cash flows are along as to fund much of this growth internally, while investing nearly a quarter $1 billion is your our long term debt is up by less than 45 million this year.
Oh, just a couple of brief comments in the current environment before we open it up for questions.
Shipments per workday remain positive and negative weight per shipment is ongoing challenge lower weight per shipment has a negative impact on revenue per ship. It yet a lot of the same costs remain for moving that shipment across the network the final destination.
[noise] once the dated October shipments per workday are up 7.2% weight per shipment is down 3.3% and tonnage per workday is up 3.7%.
With these comments were now ready to answer your questions operator.
[noise]. Thank you very much ladies and gentlemen at this time, we went back to open the floor for questions. If you would like to ask a question. Please press star one on your telephone keypad now.
Again that is still our one on your telephone keypad to ask a question.
We will pause for just a moment, while we wait for the questions to Q.
[noise].
I first question will come from Todd Fowler Keybanc capital markets.
[noise], maybe just to start with a few on the cost side recur Rob I don't.
No I just would really before but you can you give a couple of thoughts I know he's a terminal openings you know late in the quarter or what sort of impact that might have had on the or this quarter and then how do you think about the or progression into the fourth quarter, given the terminal openings that you're expecting as opposed to relocations.
He's asking about Threeq you just for clarity you're looking for the third quarter impact.
Yeah, Rob I was hoping you could talk about maybe what the impact was on the third quarter and then if you have any thoughts on how we should think about the potential impact sequentially into the fourth quarter.
Yeah. So I think it's a it's a double double question for you.
No problem I appreciate it Todd so and in the third quarter away. We would we would be thinking about that is that it impacted our results bought by about 30 basis points.
You know for US opening those those terminals and and the back half of the third quarter ended the third quarter, we ended up and incurring bad the hiring costs and training costs and others that all you know impact of productivity and other things and then as we go into Q4.
Well the way, we're thinking about it is it and it's likely going to impact our results in a $3 million range.
So that's the 3 million would be if we thought about normal sequential progression third quarter fourth quarter versus third quarter, and then maybe add another 3 million of costs on top of the I just at the right way to think about the or progression.
It's actually going to do.
The duration historically is about 100 basis points I.
I think if you look at what's the meaningful investments in the terminal openings in the northeast bus relocations for incremental capacity. The fourth quarter is gonna be clearly have an operating expense impact.
It's an investment quarter for us to to support our hot are targeted market share gains and 2020 m. beyond. So we currently expect the fourth quarter Oh are to deteriorate approximately 230 basis points from third quarter.
And.
The biggest portion of that's probably the northeast but were also impacted by some of these other relocations that we have for capacity and obviously if you look at.
Benchmark performers that we've looked at I mean, one other key strategies has been to invest ahead of their growth.
And so we've been kind of executing that and then we also obviously accelerated the.
Our expansion in the northeast due to our success plus the market opportunities and there's probably some higher operating costs, maybe than we even would've anticipated because a lot of the terminals only came available to us as lease facilities. So it's more on the operating expense line up front.
So so Todd I I would add add to that the terminals that we opened in the northeast.
Erie, Buffalo, Buffalo, and all but anywhere in the last two weeks of the quarter.
Those are new openings. So there essentially there's no real productivity gain a they start out essentially for all practical purposes are opened for business for the first time in the first <unk> the fourth quarter, which is seasonally as you know kind of a challenging quarters. It is and we've got to more openings. There. So the yeah. The.
Inefficiency, if you will have the new terminals that would have that has an impact but we look at it into next year.
The great <unk> the great thing with this is that wouldn't get these incremental facilities in place this quarter. So.
Spring is the you know seasonally we change we're well positioned to optimize and take advantage of this new new assets.
So all that's helpful. Fritz to that point you may be just outside of a couple ones I had but just thinking about 2020 any investment that you made this year into 19 into ricks comments about pulling some of that investment forward [noise], yeah, what sort of framework can you give us for you know you're kind of general expectations not from a guidance Tam.
Point, but but maybe how we could think about margin progression into 2020, given the investment this year and just maybe assuming kind of like that you know the economy hold steady, but doesn't have any sort of significant acceleration or deceleration.
Yeah. So I mean, I guess I would just comment that we fully expect improved incremental margins and all our improvements in 2020, you know in spite of our anticipation of a stable, but fairly soft volume environment. So.
For the year, our current kind of targeted expectations would probably be somewhere in the hundred 250 basis points and you know mostly dependent upon you know the external environment.
Okay, and maybe just the last one I'll ask you know there's been a couple of comments about the the weight per shipment. It looks like it was stable sequentially, but do you just have any general thoughts on on what's going on with weight per shipment just at a macro function is there something specific with with the mix I'm just kind of maybe your thoughts on how the environment feels right.
Right now from up from a volume perspective going into the fourth quarter. Thanks.
Yeah, I mean, I think it's if you look at it across the board couple of competitors have.
Announced already I think it's you know, it's a theme anyway right that the industrial economy, a softening and that tends to be a higher weight per shipment.
Yeah, I'm not sure how from a mix standpoint, our northeast expansion would play into that but.
You know, obviously energy sector soft that tends to be higher weight per shipment.
So I mean are kind of based planning assumption is that it's kind of stable from here going forward. So we don't.
We're not anticipating you know from a modeling in a cost standpoint, and it deteriorating, but we're not anticipating a rebound so.
Well, that's kind of I guess from our perspective.
That's a.
It's a risk on the downside is potentially kind of an opportunity right on the upside should just things had an improved.
Okay makes sense I'll turn it over to somebody else. Thanks for the time.
Thank you My next question will come from Scott Group Wolfe Research.
Hey, Thanks, good morning, guys. So.
You're talking about sort of two headwinds to margins one is sort of the terminal costs and the other maybe it's not just weight per shipment continuing to be a headwind longer than you thought so.
Maybe the terminal costs, maybe or or or somewhat temporary but.
If we don't see a rebound in in weight per shipment do we is what we're hearing that sort of that sub 90 award is now tougher to get to for next year does that sort of the message we should be taken away.
Oh, yeah, not I wouldn't disagree with that right makes that.
It has some margin it clearly has some margin impact on us.
You know that being said you know we would anticipate that are.
Volume would be our volumes would be above the market and even if you look at where we ended up for the third quarter.
Our kind of legacy.
Volumes were flattish.
And on the tough from a time standpoint, but the the volumes to and from the northeast were up 83% year over year.
Apart you know supported by some maturity of our the terminals that we're open to and a half years ago plus all the terminals. We've opened a this year. So we would anticipate that you know we would continue to have above.
Market.
Tonnage.
Due to our share gains.
And you know, we're seeing that not only in the northeast, but still in our legacy networks right because.
Flats pretty good compared to.
Some of the negative tonnage we've seen from some other.
Right do you think we're seeing the full benefit of.
Whatever you guys opened in September and do you think we're seeing the full benefit of that in the October .
Plus 3.7 on tonnage you can just gave us.
No those are <unk>, what do you think about those Scott I mean, the one of them was on a opened on the Thirtyth Albany open another 30 or so it's so early I don't think it does it does not have an impact.
Immaterial if it if it is yeah and then just so that it continues to be a headwind right. When you look at all of the investments that we made the terminal openings, but again that.
Once that gets into your run rate and then we apply you know revenue to the new facilities and overtime the productivity improves materially as well.
Oh, excuse me card and the terminal year over year on the terminals that have been opened more than a year.
Production is up about 20%.
Because you know you're running routes for.
Coverage as you applied density those there's not much incremental costs.
Right.
Can you tell are you seeing much of an impact from GM.
We don't play into auto and it's very much at all.
Okay.
I'm sorry.
But.
Okay, and then just on the road per shipment and up 1%, that's a pretty meaningful deceleration from where we've been and I get the impact of weight per shipment that we've we've been dealing with that.
Earlier in the air as well so.
Is this a sign that pricing is slowing it or are we.
Going after tonnage and given up a little bit of price or mix and how should we think about this T cell in.
Ready for shipment.
Well I'd tell you this right. So so if you look at it I mean, our contract renewals have decelerated a fair amount right.
And so even if you look at historically wall.
In the when the when we were getting bigger contract renewals, even though the weight per shipment was coming down there was a partial offset due to our yield efforts right.
And as your as your contract renewal rates have come down a little bit then you actually have a higher impact from your impact on your weight per shipment.
Did you give us the contract renewals I missed it if you did.
We know it's five point the third quarter.
I was 5.5%.
If you wanted to skip let's go to your <unk> through the year, though right. Yeah. So if you look at a Q1 9.86 0.75 0.5 in the the quarters today.
Alright. Thank you for the time, they just general comment I mean, the yield environment, you know I think it's rational person, particularly considering the volume environment right, but it's not as it's not high single digits anymore right.
No I get it I see that okay. Thank you guys.
Thanks Scott.
Thank you.
Next question will come from.
No Red Huh.
Bank.
Thanks, Operator, hi, guys. Thanks for taking the question or Rick I, just wanted to I just wanted to circle back if I could on the hundreds of 200 basis point improvement common and 2020 with respect to the O I know.
You know maybe that's more concept.
Just I wonder if I said 100 250.
Okay. Okay that makes my question, we said, we'd even said before 150 to 200, but I mean that was you know in a different volume environment, right and yield and yeah. So yeah. I think as you know we've kind of step cars down more more reflective of the external environment, but go ahead.
No no that's fine I guess, I guess 100 250 kind of makes the question maybe more relevant because you know historically youve talked about that I think more conceptually in terms of just how the the revenue and cost levers working in the business in the industry and it's not necessarily guidance I could be wrong and that's correct me if I'm wrong.
But why you know why shouldn't it be much better than that and 2020, given you know the costs you had in the third quarter, the greater than seasonal deterioration in the fourth quarter <unk>. There's just a lot of unabsorbed costs. This year for explainable and write reasons, but it shouldn't make the the year on your kind of or progression next year.
However, I would think then that hundred 150 basis point framework that you've talked about so if you can just talk about that in terms of how should we think about that it is their ability to do much better than that because that's really just conceptually think about the business or is that really kind of how you think see things shaping out for 2020.
I think where and you know what within our comments on that first of all its not guidance right. It's an indication of what we see as an opportunity and I think.
The the comments on that is obviously, we've made some material investments.
This year, we've gotten it got to have some depreciation headwinds that are you know kind of fixed costs that are gonna come into those numbers and then a you know we're anticipating a somewhat soft volume environment and you know and then I think.
Depends on you know what yield opportunities.
You know what the yield opportunities look like what we would still anticipate us being able to get above average yields but.
I can't I cant tell you necessarily what the market's going to be like and Oh, yeah to add on cost side I mean underlying cost in this business remained inflationary. So did the macro backdrop that Rick just described a you flip that over the cost side that doesn't line up next year. So that I think those things the combination of those.
Things kind of get the right kind of get to the numbers that we're talking about.
That being said I mean, we feel like we have good synergy opportunities to apply density to our current run rates and have you know good solid incremental margins over a period of time and I mean Fritz may make a couple of comments, but we continue to.
It makes some investments in technology and see some opportunities for synergies there to manage our business better yeah.
Yeah, it's pretty critical right in this business, we generate an enormous amount of data.
The opportunity for us to capture that data.
And then monetize it either through how we schedule our network or how we dispatch or network and terminals, how we schedule or labor labor. Those are all things that we're investing in that we see will help offset some of those inflationary costs I described but those are some we're making some pretty substantial investments in sort of.
Optimization network optimization software.
Better decision banking.
You know things that make the.
Tools for our drivers everything from handhelds to all those things drive productivity and efficiency. So I think that you know I think there's opportunities for us to kind of offset some of that.
Right and and just related to that also you know one of the things you've talked about fits in the past and Rick even talked about the kind of the overall network density effect that the northeast expansion gives you and I think kind of thinking about your network moving excuse me from east to West and there's some density and you've talked about kind of you know the density.
Benefits. There you know maybe first just help us think about you know what what the further opportunity. There is like when you think about some of the best in class you know all our regions.
How much more is there to go there and is the uplift in the total or the company you're gonna come predominately from northeast now or are you gonna see some of the other regions. There's just a lot more for the room to build further done well get the or no. I mean, I think the benefits of the network effect benefits will continue right. I mean, if you look at the best in class.
Operators are out there, they're benefiting from having 48 state coverage they can reach their customers.
They can leverage all elements of their.
Network I mean, we look at internally I mean, the regions that we're right directly contiguous to the northeast for us to we've seen their operating performance improve overtime simply because we're leveraging those locations, but that's not to say that some of our best operating regions. The country in the center of the country can't get back.
Her from where they are now simply because you're leveraging that helps working with these growth, but I'd call. Your attention do you know weve.
Highlighted you know some additional legacy terminals that we've added long beach, we mentioned that.
Relocated Indy and in Phoenix later this year those are all ones that you know create greater efficiencies and better opportunity for us to service our customers. So it's you know as we as we scale this business.
The 48 states, you'll see us be able to better service customers that also that the related affected that is that we actually leverage the assets as well.
Right and just last question last question for me if I could.
I just want to understand how the the customer perception of the service is evolving as you guys grow volume I mean, Oh do you talked about earlier this week they use mascio to kind of do deep survey work and showing their <unk>. Their their perception is actually the quality perception is actually widening relative to competitors and I'm just kind of interested in how.
You look at that and how that how the customers perceiving your service and how your service is as you guys grow volume and grow shipment pretty significantly.
Well, we see that you have the Mascio data, we did we saw improvements in our scores as well we're pleased with that I I would add that I think was we would point to a lot of our success or growth that we've seen is directly related to what customers are experiencing when they do business with side. So.
So if you look we mentioned earlier our growth you know were flattish sort of in our legacy markets and the growth in the northeast has been significant but that's driven by customer acceptance customers understand what they get from us they understand the quality new services I think that is ultimately a the real measure of what.
What a customers thanks.
Right. Okay. Thanks, a lot guys for taking my questions appreciate it.
Thank you next question will come from Stephanie Benjamin Suntrust.
Hi, good morning.
Hi, good morning.
I just wanted to touch back on that the terminal expansion plans, maybe you can provide an update on where you stand in terms of additional terminal looking to open in northeast.
It doesn't acceleration of opening this year, so what that means in terms of new terminals to open in 2020 I'm not only in the northeast that also kind of maybe.
Update on how you view expanding your at locations in existing markets as well. Thanks.
So the way what I'd point to is it from our original watches the northeast we have done this organically in the idea was is that we could.
Accelerate opportunistically or slow down if we saw changing environment or in this indicates that this year, we saw an opportunity to take advantage of available real estate and move a little bit more quickly than we originally planned. So we did that so I think as you look into next year, specifically in the northeast you know there's.
Probably one maybe two on the pipeline, there's really a focus now on optimizing the use of the five in the northeast that we're we've added here from the middle of September to the end of.
October .
Those will be that'll be kind of our focus into the next year now that that's not to say that if there's something opportunistically that came up we wouldn't take advantage of that but that's kind of our plan right now in the most of the in the legacy markets typically what we've seen the opportunity they tend to be more opportunistic way.
Like somebody may exit the facility and it gives us an opportunity to pursue one we've got some pretty big investments in expanding some existing terminals that we have a relocating terminals next year as well, but that would be facilities. We currently have that were just improving our operation and.
Building Memphis is the probably the biggest one.
That's a significant opportunity for us.
Great. That's really helpful and just more of a housekeeping item is there a chance you could walk through this sequential <expletive> tonnage trends during the quarter and that's it for me. Thank you.
No problem, Stephanie so I.
We will go back and we started in July shipments.
Were up 4.9%.
And tonnage was up 1.6%.
In August shipments were up 8.6% tonnage up 3.6% and in September shipments were up 8.6%.
Tonnage was up 3.9% and so again for them for the full quarter shipments up 7.3% tonnage up 3%.
[noise] [noise]. Thank you. Thank so much.
Next question will come found that Jason Seidl Cowen and company.
Thank you operator, hi, gentlemen, good morning, or just a circle back to your your weight per shipment you spent a lot of time talking about it. However, it's it's down about the same as it wasn't in Twoq and actually sequentially ticked up a bit where are you expecting it to improve is that while we have a little bit more focus on this call or is there something else you're seeing.
In the numbers.
[noise].
Well I mean, it actually has deteriorated a little bit through the quarter right. So in July we were 13 21, and then [noise].
[noise]. Yeah, 30, 21, then we dropped down to 12 89 or [noise].
Yep Yeah.
So we did 12 89 and now it's 12 83, yeah. So it's kinda D deteriorated through the quarter.
So that's what got you, okay, that's a bit more of a headwind than we would've anticipated when we were looking at July right.
No. Okay fair enough and you do you see it continuing to deteriorate as we move throughout the fourth quarter.
[noise] not necessarily I mean, I tend to them, we tend to model it flat but.
[noise], it's kind of an odd because it's kind of an odd phenomena and then that you know 30 to 40 pounds.
Even hard that kinda ascertain exactly where it came from or how it happened and it doesn't sound like very much but.
When you look at the.
The revenue per shipment you know has a pretty big in fact, right and basically it's the same costa move something whether waste 30, or 40 pounds more just happens to be how we get paid.
Right.
Fair enough. That's that's good color and I want to switch back to your contractual renewals.
Obviously, they've they've stepped down but you know those those prior high single digit numbers are I think youve acknowledged on another call were really sustainable so where are you expecting that step down to that contractual increase in the quarter because even the numbers that you gave us or there's still pretty good contractual rate increases.
Yeah, and I don't I don't disagree with that right I would just say like it but if you just look at it compared to how we'd been performing over the last even several quarters. You know we were seeing higher contract renewals that was giving us a partial offset to our weight per shipment decline right. So it's providing a little bit less covered there.
[noise] about it but let me ask a different way I guess in terms of what you were able to achieving the quarter.
Knowing what you know before that.
9% to 10% rate increases aren't sustainable.
<unk> is the number that you got about what you thought you run again towards the rate increase for Threeq.
Yeah Yeah.
Okay Fair enough also for its probably a little bit of a a nit picky on but I want to make sure I understand that you mentioned there was a $1.2 million more in health care costs at the end the call for is that something that's onetime in nature that we shouldn't expect to reoccur in Fourq you.
Yeah <unk> the way I would think about that that's I'm kinda. We saw just the expense run rate in health care cost increase through the core you know that would probably deck tends to be a little bit volatile up and down so probably we know that under underlying health care cost to our inflationary that's kind of.
The cost of the cost of doing business for us so.
No. It was an impact for us in the quarter, we try to plan for higher cost. It just was higher than we expected in the sense for self insured, it's somewhat volatile, particularly for the more expensive claims and.
We we can't really quantify the impact to this but we are doing some wellness initiatives that may have had some impact on near term visits that youd anticipate may pay dividends over time, but.
Should obviously right but.
That's the only way I think you can combat there inflation that we're seeing in health care, and we're probably making some investments to do that but until we see that paying back over time in a self insured environment.
All this staff would tell you should do that so we're doing it but.
I'm not necessarily signing up to that that a this was a onetime thing because we've seen this volatility before yet its underlying costs are going up we know that and we're pretty underlying goes the earlier comment or underlying inflationary business.
Okay.
Rick Fritz chain appreciate the time as always.
Thank you.
Thank you and I next question comes on Jack Atkins Stephens, Inc.
Good morning, guys. Thanks, very much for taking my questions.
So I guess just to start off with into kind of a bigger picture question, but you know when when we kind of think about technology and that's playing within the transportation sector more broadly it seems like there are a lot of opportunities to do use technology used today versus you know 12 to 36 months ago in an effort to sort of drive out.
And I know your point on inflationary costs.
Our our well taken so are there some opportunities for maybe some technology investments.
But you guys can sort of realize over the next 12 to 24 months to maybe find ways to drive down expenses, whether its line all costs or other expenses.
In an effort to sort of keep keep your cost per shipment to check.
Yeah. Thanks, Thanks for the question Jack we actually have projects and just about every area the operation focused on driving productivity and efficiency, starting with our line haul network optimization plans.
Figuring out ways to better schedules would move from being a 34 state operator, do a 48 state operator, clearly whitehall's gotta changes support that.
Clearly, we also have to be in a position, where we can better schedule that did you think about the labor cost equipment costs that go into that so we've invested pretty heavily in that those projects. We're starting to see early benefits from that but we would expect that to be a big focus in next year, we also or.
Implemented this year, new dispense dispatch technology, you know terminal operations, the you know better or allow our folks to schedule and deploy our P.D. assets.
So it's a this business generates a tremendous amount of data as you know as you point out the better we can capture that data and then make a decision when it more quickly we have the opportunity to the free or offset some of those inflationary cost at the same time with better service our customers. So the projects.
Our that's a big focus for us into 2000 and a 20.
Yeah, I just had one what other just brief comment on the line haul side as you know we do have a specific project there to re optimize our network and you know in a more longer haul nationwide coverage and we would expect or ascertain some benefits from that and one thing I would tell you is just.
You know, it's the same people that obviously do the Whitehall planning for the terminal expansions that would also be doing.
Our constant kinda optimization over our current tenants flows. So you know actually quite frankly, you know are slowing of the expansion should allow us to reallocate resources to at optimization that are currently basically spent on expansion right.
Okay that makes that makes it so you know Rick I guess as you think about that hundreds 150 basis point, you know sort of.
Goalpost for next year in terms of thinking about improvement I mean does that really include much of a benefit from those.
Tivity items that you you know that you just outlined or is that something that could could be a.
Good Guy next year relative to those margin numbers, you're talking about earlier.
Good day.
I don't disagree with you that it could be but I think there's a fair amount of uncertainty about what a volume and yield underlying volume in yield environment looks that looks like from.
You know in the industry so.
<unk>.
Do those two things offset each other and if they all come if they both come together then obviously there's upside.
No that definitely makes sense and then just I guess I've a follow up question around the network expansion strategy I, just kind of wonder what kind of a little bit different way instead of thinking about the number of terminal that you've added. This year relocated give me we think about the number of doors.
Is that you've added it sort of what's the growth rate there this year.
Maybe x. I guess you for yearend 19 versus year end 18, just trying to get a sense for the capacity that's been add to this network and then more broadly how do you think about you know capacity utilization.
Relative to.
It could be.
You know as as we play this thing out over the next 12 months.
Okay. So just to give you a perspective of the capacity enhancements we made in the northeast along so in 2017, we had 296 doors at 12 30, 112, 30 118, we had 457 doors.
So obviously on a low base, that's a 54% increase and then as we commented on the acceleration that we've had and be quite frankly, we've exceeded our own expectations in terms of share gains up there at the end of this year rigs, we're going to be at 970 doors. So it's a 112%.
Increase over 12 30 118.
Okay, that's great and then and then within the within the broader network, though I know you've been wrote.
Relocating terminals.
I mean.
Have you been expanding your door count outside of the northeast just curious sort of where things stand on it on a consolidated basis.
We clearly have man and if you look at that on flattish type of.
Tonnage right, we've we've expanded our excess capacity and again, that's a strategy that has paid off for others as they've gone through organic expansion. Because then as you build the densities out right, you're not having capacity constraints, which by definition or cause you to do inefficient things both on the dock and.
You know in your line haul operation.
Okay. Thank you guys for the time really appreciate it.
Sure.
Thank you Sir our next question comes from David Ross Stifel.
Yes, good morning, gentlemen.
He talked about and want to talk about cargo claims I don't know if I missed it Ah where were they in a quarter versus a year ago.
[noise] [noise], it's up it was it was 0.83 in this quarter David Yeah, they've got its up slightly from it was you are going and you know you would expect a little bit of that as you bring in a lot of new people in a lot of new locations.
It's also a tends to be a little bit of a trailing indicator the day, the underlying operating metrics around deliveries before without exception or with exceptions and such as all those trends.
I have been improving so we'd expect to see that getting better from Q3 into the Q4 and into next year.
And then as you grow and become a bigger organization.
Rick in Fritz how do you guys divide up the CEO and president responsibilities.
[laughter], So oh, we do a so I I tend to focus more on operations and kind of the our execution and Rick.
Lets you comment on your part.
Yeah, I mean, I'm I guess I would just comment that you know where team we work closely together not only for its and I bet. The rest of the leadership team.
We see it isn't an approach and I'm not a team approach as opposed to carved out responsibility and I can comment that I work on culture and strategy right, but I don't.
So as everybody else no.
Again for Fritz has picked up some incremental responsibility provides a good leadership in other operations group since he's.
Fixed specifically that function up but that's no different than a you know as in prior periods. As these picked up technology in pricing and some other things as well.
Again.
Rob came in and picked up the car finance functions, but you, obviously participating and our strategy sessions.
[noise] gauge then return on investments, whether it be headcount or or process improvements. So again I I mean, we view it as a team approach.
And then for the last say eight or nine years, there's been a strong yield management focus at CYA and we've seen revenue per hundredweight outperform your peers lot of that was due to just repricing you know from business it was under priced.
Some was a freight mix change, where you were able to trade out.
Lower performing business for better performing business.
What inning do you think we're in a the overall.
You know yield management strategy and getting the type of freight you won in the network at the right price.
I mean, it's a constant process day, when you and I've talked about this before as well, but you know I would just comment that we do a lot of benchmarking and.
But the biggest gap that we continue to have versus the competition or you know as he is a yield gap. So you know we don't control the external environment, but you know we we control you know, how we price business and who we do business with but I mean, obviously you know it's the there's a balance between.
And I think you've seen anyone who's tried to.
Materially changed there, including including US anytime we've tried to materially changed your pricing position in the marketplace. You know on an immediate basis. It clearly has an impact on volume. So you know I think it's a it's part science impart art and I would comment that I think with our experience we're getting better.
But you know we continue to make technology investments and analytical investments and enhancements to our go to market strategies and some of our marketing initiatives and is paying dividends, but I think as.
As I think you're well aware of is people have tried to push levers too much too fast so.
And it and it's had generally an unfavorable in fact on them because we have a fairly high fixed cost network business and so I would just tell you I think we're clearly moving in the right direction, but we're probably doing at a what I would call a slow to reasonable pace. So that we don't upset.
Apple cart.
Excellent. Thank you very much.
Yeah.
Thank you Kim next question will come from Matt Brooklier Buckingham Research.
Hey, Thanks, and good morning.
Morning.
Just thinking ahead to 2020.
You gave us.
Some thoughts on the terminal expansion.
Progression it sounds like maybe.
At this.
Could be.
At a lesser rate versus this year, just because you guys.
How much success in terms of.
I'm finding.
Terminals, but.
Maybe the terminal expansion is down a little bit, but I think for its you also talked maybe the technology investment it's going to be up so just kind of along with it.
Way of asking.
Preliminary thoughts on 2020 Capex.
Yeah Im for us where when we when we think about Capex in total the when we experienced this year it may be down slightly to similar next year, but the buckets may shift around in terms of.
Spend between real estate revenue equipment I D capital I did you know I've I would say the relative absolute dollar will will likely be.
No relatively consistent with where were at where our guidance was this year, which as you know the 275 to 300, but the the buckets just shift a little bit and you know even the the investments that we've made it as it relates to the expansion a lot of them have then leased facilities and those types of.
Thing so.
Yeah, there, we don't expect a significant drop off next year.
Got it.
And then.
Uh huh.
Yeah.
It's a tougher tonnage number.
Can kinda back into it but.
There's a number yeah tonnage growth.
Yeah tonnage growth in September was 3.9%.
Okay, and then last question.
You talked about positioning yourself in the marketplace.
Expanding.
<unk>.
Markets legacy facilities could you take your guess is that how much excess capacity.
Habit that work.
Yeah.
Matt just to clarify the question is how much excess capacity, we have in the entire network or just in the legacy network. Yeah. So in the entire work you know basket is how much excess capacity.
Yeah, I mean, if I were to look at the legacy I would say probably 15, 20% you know obviously, there's plenty of capacity in the northeast right. Now I mean that are our strategy. There has to get the assets and so we can grow into a bit so plenty capacity there 15 to.
20 in the in the legacy.
Got it.
That's all I got thanks.
Thank you I next question will come found that Ravi Shankar Morgan Stanley .
Thanks, Mike Gentleman, just couple of follow up here.
I think you mentioned something earlier and why I feel responses about makes in the northeast affecting the ER the weight per shipment.
Can you just had been that little bit more a is that like an actual function of business in the northeast says that I expected or unexpected.
And is that indeed, a driver if somebody a the headwinds and <unk>.
I don't think it's a big drivers.
It's close to our average weight per shipment.
But I think obviously the further you go to the northeast is more of a inbound marketing less of industrial market and that was just a general comment.
Oh, you guys. It sounds like this was like it is just part of the nature of the northeast and not something unexpected.
Correct.
Got it and also you spoke about the network effect of being a a 40, instead operation, which oh. It just doesn't make a lot of sense in terms of economies of scale.
Given the that got us somewhat fixed cost nature of the business, but we've also seen some of the large players improved their margin meaningfully a and then one of their.
Well the steps if they can actually is too.
Give up a bunch of freight and maybe reduce their foot friend, because being a a large network and a 40 year stayed there again actually.
<unk>.
A drag on mix a in some cases, if you're just going off and national accounts. So again, just talking about how you're trying to find the balance between that and I try to find that sweet spot of scale, where do you get the benefits of a being a scale operation in the network effect without the drag of being forced to be everywhere.
Yeah, I don't know about being forced to be everywhere I mean, obviously, if you look at our terminal count you know, we're clearly below the not below the most of the you know call next year more national player.
And then I would say you know we're constantly working on our business mix to make sure that.
Correct and contributory and improving so you know I would just tell you. We're having good success with that if you look at the third quarter in our field business, which tends to be your best operating business was up 17.2% or national account business was up 8.3% and are more transactional.
All Threepl segment of our business was up 2.7% and obviously that's across our network and.
And.
<unk> portion of that is obviously to and from the northeast.
Okay understood. Thank you.
Thank you Jim I.
Our next question will come from Tyler Brown Raymond James.
Hey, good morning, guys.
Hey, just a conceptual question, Rick, but when you open on it and I'm going to call. It a saturation terminal like long Beach, what does that typically due to your average PND sometimes in those markets does it materially improves your P.D. efficiency is freight kinda finds its natural terminal just any color there.
Yes, part part of the long beach opportunity was to improve stem time. It also does give us a better coverage in that market be able to access some parts elements that have the basin that we didnt couldn't do very efficiently. So it's it's kind of across the board really.
And that right Scott.
It was actually pretty close to our Orange terminal opening long beach, so there's not as big of a benefit there, but we've seen before as you get closer to the customer.
Yeah, you can be more responsive and there are some cost savings overtime. This was more of a capacity.
Resolving a or a capacity challenge in that particular market plus you know we've done Oh, we always do benchmarking on you know not only where we have a tight capacity.
The where we are with market share in <unk> and an area and to make sure that you have that capacity cut to cover your.
As.
Anticipated growth rates and so that that particular was one was where we really benchmarked our coverage and our door capacity in the base income compared to.
Competitors that are at our revenue tier or a little bit or larger even and said hey, we lead to secure these doors for probably two reasons right.
Okay. So each one the little bit idiosyncratic, but he's de saturation terminals not only add capacity, but they're also PND cost savers and ultimately their surface improvers.
Absolutely absolutely correct.
Okay, and then can you give the knicks onto the old national and transactional just broadly.
[noise] yeah. So it in terms of the increases year over year, just your mix in terms of your total book.
We didn't bring that in here with us with us about what would be happy different <unk>. Yeah. Yeah. No problem and then just say my last one so thank you talked about a little bit, but it seems to be on a characteristic adjusted basis your pricing.
Phil discount the peers, but if I look out of your claims has improved over the past few years. Your service footprint is obviously getting closer to that kind of cool brought 40 gig coverage you're on time percentages improves your math scores are showing improvement. So there's really no structural reasons or impediment you couldn't at least partially.
It was that pricing gap would you agree with that.
We totally agree with that.
Okay. Okay.
Okay I appreciate it thank you.
Hey, guys. Thanks for that follow up so can you give us the work where yields are trending in October .
Yeah.
Okay.
It.
We don't do we don't usually give that by month, but I would tell you it's similar to what.
Similar there's not a deceleration necessarily to where we were trending.
Right so.
In the third quarter, you're saying yeah. So.
It's actually slightly improved but.
Okay.
Okay. So I guess Directionally, we can tell you it's not deteriorating right.
Okay. Okay.
Okay.
And then sort of big picture right you had this sort of break out an incremental margins in the second quarter.
In a step back this quarter, so it sounds like step back fourth quarter and other than that maybe less terminal new terminal cost.
Anything else, it's in under your control that.
Good so that should give us confidence in getting back to sort of better Incrementals next year.
I mean, what what's in our control is you know we opened between the open to reload from the middle of September to the end of the year will moved in either 10 new facilities.
So next year was absolutely within our control is how we optimize and sell into those facilities a better utilize those assets. So that's that's our game plan right. So our our view. This was gosh. This deal this is an opportunistic.
Time for us to accelerate our northeast opportunity, we know from long history of getting the assets and placed ahead of the growth allows you to grow more efficiently into that into those assets an i. I think that you know as we look at our plans for next year, it's really about optimizing the business.
Total discreetly these operations that we've opened in the northeast.
And places like long Beach, how do you take advantage of those in an optimized the business around it. So I think the that's what's within our control now certainly you know what happens in the marketplace and you know that maybe a little less than our control, but how we take or how we operate run.
And create those incremental margins that I think in some partners within our control Yeah, I guess I would add to that just the obviously so we every year, we target certain efficiency opportunities and.
We started our planning process earlier this year you Dart technology investments are underway and you know I think the.
The technology deliverables and combined with a you know if you slow to halt the expansion and some of the investments that are associated with that meeting resources that could be used to optimize your line haul network for example, or something else are now you know working on across all across our network.
Making sure we're operating at the most efficient levels and using the new tools that we've rolled out and you know I think that's clearly within our control regardless of the external environment. So I mean that that's a plus control type issue. So again as we commented assuming we get kind of a stable to.
Worried to get an improved environment than we think we.
Could be able to do better right.
Okay, all right. Thank you guys.
<unk>.
Thank you speakers at this time, we have no further questions in the Q.
Great. Thanks for your time, we appreciate it.
Thank you ladies and gentlemen.
This concludes today's conference you may disconnect your sound ninth and have a great rest a week. Thank you.
[noise].