Saia - Q1 2014
April 25, 2014
Transcript
Operator (participant)
Good day, and welcome to the Saia Inc. First Quarter 2014 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Doug Col. Please go ahead.
Doug Col (Head of Investor Relations)
Thank you, operator, and good morning, everyone. Welcome to Saia's First Quarter 2014 conference call. Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer, and Jim Darby, our Vice President, Finance and Chief Financial Officer. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements, and all other statements that might be made on this call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ. Now I would like to turn the call over to Rick O'Dell.
Richard O'Dell (CEO)
Well, good morning, and thank you for joining us. I'm pleased to report that Saia is announcing positive first quarter results. In the quarter, we saw favorable pricing trends and strong tonnage growth continued despite the severe winter weather that challenged our entire industry. I'm proud that the Saia team, what we accomplished, overcoming the challenging operating conditions to allow us to deliver very solid first quarter results.
Some highlights from the quarter compared to the first quarter of 2013 include: Our total revenue increased 9.5% to $300 million. LTL tonnage increased 5.7% on 4.4% more shipments. Our LTL revenue rose 8.3%, and our operating ratio of 94.9 deteriorated 20 basis points compared to a record first quarter, of 94.7, last year.
Earnings per share of $0.34 compares to reported $0.37 per share a year ago, and the first quarter of 2013, EPS benefited by $0.04 due to tax credits that related to 2012. So in spite of a difficult operating environment that persisted for much of the quarter, I'm pleased to report that we improved load average by 2.7% compared to the first quarter of last year. Our customers continue to respond to our value proposition and are willing to compensate us at a rate that's commensurate with the service that we provide. Our LTL yield rose 2.3% in the first quarter compared to last year.
With the challenges of the first quarter behind us, we're very encouraged about the prospects for the remainder of 2014, and we believe that underlying trends are positive as we move forward into the rest of the year and include the following items. Our LTL tonnage growth was 5.7%, and it improved as the quarter progressed. Our higher weighted shipments increased by 28% through targeted marketing efforts and tightness in the truckload market. Our sales force, which was expanded by 10% late last year, is showing good early results. The skill of our professional drivers, combined with the investments in technology and new equipment, continued to drive improvements in our fuel efficiency, which was 3% better than the same period last year.
Our Load Average continues to rise, and our cargo claims ratio, to a consistent improvement, is now down to 0.83% of revenue. Now I'd like to have Jim Darby review the first quarter results.
Jim Darby (CFO)
Thanks, Rick, and good morning, everyone. As Rick mentioned, the first quarter, 2014, earnings per share were $0.34, compared to $0.37 in the first quarter of 2013. Last year's first quarter had the benefit of a tax credit enacted in 2013, which was retroactive to 2012. The benefit was $0.04 per share. For the quarter, revenues were $300 million, with operating income of $15.2 million. This compares to 2013 first quarter revenue of $274 million and operating income of $14.5 million. Both periods included 63 workdays. As Rick mentioned, LTL yields for the first quarter of 2014 increased by 2.3%, which primarily reflects the favorable impact of continued pricing actions consistent with the trend of the past several quarters.
Though difficult winter weather undoubtedly added cost to the quarter, we will not try to quantify the costs associated with weather. During the quarter, we experienced higher costs in some areas as follows: Salaries, wages, and benefits rose to $150 million in the first quarter, reflecting a mid-2013 wage increase of approximately 3% and additional wages associated with the higher tonnage trends.
Additionally, the harsh weather hampered productivity. We also incurred $1.8 million in higher healthcare costs in the first quarter of 2014. Purchased transportation expense for the quarter rose $5.2 million compared to last year. This increase relates to the tonnage growth we experienced and the use of higher-cost purchased transportation to meet service needs in markets repeatedly disrupted by weather.
Depreciation and amortization of $13.8 million was $2.2 million higher than last year, reflecting our significant investment in tractors and trailers over the last twelve months to reduce the average age of our fleet. Claims and insurance expense was $9.5 million in the quarter, compared to $5.6 million last year in the same quarter. This increase in expense was entirely due to increased accident severity in the first quarter of 2014. Our cargo claims ratio improved by 5% to 0.83% from 0.87% in the first quarter last year. Our effective tax rate was 38.5% for the first quarter of 2014. For modeling purposes, we expect our 2014 effective tax rate to be approximately 38.5%.
At March 31, 2014, total debt was $79.7 million. Net debt to total capital was 20%. This compares to total debt of $58.8 million and net debt to total capital of 18.1% at the end of last year's first quarter. Net capital expenditures in the first quarter were $8.2 million, compared to $6 million spent in the first quarter last year. We are currently projecting net capital expenditures of 2014—in 2014 of approximately $110 million. This increased level of investment primarily allows for the expansion of the linehaul trailer fleet, in addition to the already planned expenditures to replace revenue equipment, as well as investments in technology and real estate projects. Now, I'd like to turn the call back to Rick.
Richard O'Dell (CEO)
Thanks, Jim. The first quarter finished with improving tonnage trends and with our network returned to an expected reliability and efficiency. We remain committed to our core strategy of delivering high-quality service and will continue to price our service at a level which delivers a fair return on the investments that we make in this business. We believe this strategy provides a strong foundation for long-term profitable growth and increased shareholder value, as well as a good value to our customers. With these comments, we're now ready to answer your questions. Operator?
Operator (participant)
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Our first question comes from Jason Seidl with Cowen and Company. Please go ahead.
Jason Seidl (Managing Director)
Morning, Rick. Morning, Jim. How are you guys?
Richard O'Dell (CEO)
Morning, Jason.
Jim Darby (CFO)
Good morning, Jason.
Jason Seidl (Managing Director)
A couple of quick things here. Now, I know you say you're not going to quantify weather, but if I just took a look at the amount of your claims and, you know, a massive increase, could you tell us what the accident expense was in the quarter, in terms of just the accidents, not just claims?
Jim Darby (CFO)
Sure. Jason, that entire increase was due to accident severity. So included in that line would be our cargo claims expense, and that actually improved. But the year-over-year impact of that change was all due to severity of accidents.
Jason Seidl (Managing Director)
So if I sort of just normalize your normal run rate, your earnings are probably somewhere north of $0.40. Is that a good way of looking at it?
Jim Darby (CFO)
Last year's first quarter was unusually favorable with severity. So while we were over by about 3.9 versus last year, I'd say we were over by about 2.6 or 2.7 versus expected.
Jason Seidl (Managing Director)
Okay, that's-
Jim Darby (CFO)
That helps.
Jason Seidl (Managing Director)
That's, that's very good. You know, very, very helpful. Thank you. And, and I, I guess you, Rick, in your comments, you mentioned that, the increased, sales force headcount from last year is really starting to, to yield some results for you guys. Could you, could you give us a little more color around that? And, and should we start to, to see that really take hold sort of in the back half of the year as, as, as they, you know, anniversary their sort of one-year mark with you guys?
Richard O'Dell (CEO)
I mean, all of our sales work, resources have been added. You know, the early results are favorable. You know, we did some benchmarking, and particularly the upper Midwest geography was, you know, we were below, the market from a representation standpoint there, and that's where we kind of concentrated some of our additions. That is our strongest geography growing so far. But, you know, as I'm obviously, I'm sure you're aware, you know, there was a merger of two carriers in that market, and a lot of that business, I think, moved elsewhere. So, you know, our timing proved fruitful for that. But, you know, we're pleased with, the early results and, you know, we would expect to continue to see favorable tonnage trends going forward.
Jason Seidl (Managing Director)
Okay, well, speaking of tonnage trends going forward, can you give us an update on how April's looking, particularly on a breakout between LTL and TL, if you have it?
Jim Darby (CFO)
Sure, I can. I'll walk you through the LTL tonnage change, Jason, and it's useful to talk about the first quarter first and then how it rolls into April, because there is an impact, because last year, March had Good Friday in it. It was actually the last day of March, last workday of March last year, and this year, Good Friday is in April. So there is an impact from that.
Jason Seidl (Managing Director)
Correct. Yes, I know.
Jim Darby (CFO)
We've talked about where our tonnage was. So if we look at, you know, we're on record as saying that we were up 6.1% in February. When I look at March as reported, it would show up 8.2% over last March. But the impact of Good Friday would take about 2% off of that. So that would mean that we'd be trending about 6.2% up, just like February was year-over-year. Then as we go to April, April with Good Friday in this year is up 5.3% versus last year. But you'd have the reverse effect. You would add 2% to that to allow for the Good Friday effect.
So April reported would be 5.3 up, actually would be running a little over 7 up.
Jason Seidl (Managing Director)
... So, sort of, your organic growth rate, excluding the holidays, looks like it has ticked up a little bit in April. Is that accurate?
Jim Darby (CFO)
Yes, that's fair.
Jason Seidl (Managing Director)
Okay, fantastic. Also, could you guys touch a little bit on, on the pricing side? You know, excluding sort of your, your, your weight per shipment and your length of haul. The other carriers that we've spoken to, and that have reported already, kind of, have, have alluded to a pretty favorable environment right now, especially given all the general rate increases that were announced.
Richard O'Dell (CEO)
Sure, yeah. You know, our analytical discipline pricing continues to pay good dividends and certainly provides a good value for our customers, based on the quality of service that we're providing. Our theoretical yield model that adjusted for length of haul, weight per shipment, and fuel surcharge, improved about 3% year-over-year. Our contract renewals during the first quarter were again in line with kind of our expectations at the 3% range. Yeah, we feel like it continues to be a pretty favorable yield market.
Jason Seidl (Managing Director)
Okay. That's, that's great color, Rick. I have one more question, I'll turn it over to somebody else here. You know, it looks like another strong year for CapEx for you guys, almost like the fourth year in a row that it's fairly strong, at least, definitely the last three years. What should we expect for 2015, all things being equal? Should the CapEx sort of trend down a little bit?
Richard O'Dell (CEO)
Yeah, I think that really depends on the growth, you know, and what kind of returns that we're seeing. You know, the fuel efficiency of the new units has, you know, warranted improving our average age from the tractor standpoint. And, you know, our increase this year was really driven by, you know, our desire to upsize our linehaul fleet, you know, with the increase in tonnage that we're seeing, as well as, you know, an opportunity moving forward for us to reoptimize suboptimal purchased transportation run on our own, on our own fleet. So, and I don't know the exact answer to that. I guess, depending on what growth rate you forecast, maybe the $100 million number is probably right.
Jason Seidl (Managing Director)
Okay, fair enough. I'll turn it over to somebody else. Gentlemen, really appreciate the time, as always.
Richard O'Dell (CEO)
Great. Thanks, Jason.
Operator (participant)
Our next question is from Scott Group with Wolfe Research. Please go ahead.
Scott Group (Managing Director and Senior Analyst)
Hey, thanks. Good morning, guys.
Richard O'Dell (CEO)
Good morning, Scott.
Scott Group (Managing Director and Senior Analyst)
So just because of the weather issues in the first quarter, but also the shift of Easter, I'm not sure the best way to think about margins in the second quarter relative to kind of normal seasonality, 1Q to 2Q. Maybe, Rick, if you've got some color or ideas there.
Richard O'Dell (CEO)
Yeah, we're not sure when the last time we saw normal seasonality was either, and certainly wasn't a normal first quarter. But, and I guess when we kind of look at the second quarter outlook, you know, we always kind of look back and see where we've been, right? And in recent years, the second quarter has been about three OR points better than the first quarter.
But what I would say is, with our tonnage growth and absent, you know, unusual self-insurance volatility, we feel like we should be able to do better than that this year. I would say, though, kind of like we've commented, I think expectations need to be a little bit tempered because, you know, Good Friday, you know, moved from March to April, and that has a negative impact on sequential margins.
You know, while the yield environment is certainly steady and in line with our expectations, you know, if you look back at the things we've been doing the last couple of years, we had some pretty significant, what I would call, corrective action pricing going on at Saia. And, you know, in early 2012, our yields were up 7% sequentially, and in 2013, they were up 5%. And, you know, those things have a positive impact on sequential margins. But obviously, you know, we certainly feel favorable with the benefits we should be able to get from the tonnage trends in a, what I would call, a real steady yield environment currently as well.
Scott Group (Managing Director and Senior Analyst)
You usually don't have the GRI in the second quarter like you do this year?
Richard O'Dell (CEO)
That's correct. So see, that's a little more favorable, but, you know, contract renewals for Saia aren't running at the rates that they were the last two years as well either. So those things may offset each other, right?
Scott Group (Managing Director and Senior Analyst)
Yep, no, that, that makes sense.
Richard O'Dell (CEO)
All right.
Scott Group (Managing Director and Senior Analyst)
What, the just tremendous growth on the, on the truckload side, I'm guessing just a lot of spillover. Is that business that... Are you keeping that business? Do you want to keep that business? How should we kind of model the, the truckload side on the, on the tonnage side going forward?
Richard O'Dell (CEO)
Yeah, I think the run rate of that tonnage has been up for us the last, you know, now a couple quarters in a row. And that's partially due to kind of a targeted marketing effort that we have to get some larger shipments in, in backhaul lanes, kind of almost a spot, you know, something that we've targeted to, to kind of some of the spot market a little bit. And like you said, it's not really truckload, it's just over 10,000-pound shipments. You know, it could be three totes, right? But we targeted that business, you know, with some pricing that makes that work for customers as well as working for us in certain lanes. And, you know, we have the ability to kind of tweak that based on capacity.
If our backhaul were to change, I would tell you about 80% of that business moves in backhaul lanes, so it kind of works for us from a, you know, from a cost standpoint and an incremental margin. So I think you'll see the comps will, once you get to the fourth quarter, the comps, you know, will level out more. But I would say that run rate is probably, you know, it's kind of carrying forward clearly kind of into April.
Scott Group (Managing Director and Senior Analyst)
Okay, that's great. And just the last question for me. It seems like the plans to start growing tonnage are showing some success. When do you think about expanding geographically, and do you think that's more likely organic or through acquisition? And maybe your views on when that would be.
Richard O'Dell (CEO)
... Yeah, I think we would selectively expand either through, opportunistic acquisition, you know, or organically. You know, pretty pleased with, our focus today on being able to grow, tonnage and improve margins in our existing geography. So I don't think it's required for us to, to drive our OR down into eighties, which is, clearly, you know, a focus of ours over a period of time.
So I, you know, selectively making an acquisition could, obviously come kind of at any time. We, tend to look at the deals that come to market. There's not a lot of LTL carriers out there that, you know, kind of make sense and non-overlap geography. And then I, would tell you, you know, organic expansion, I would say, wouldn't happen this year, but, next year, probably.
Scott Group (Managing Director and Senior Analyst)
All right, great. Thanks for the time, guys.
Richard O'Dell (CEO)
Great. Thanks, Scott.
Operator (participant)
Our next question is from Brad Delco with Stephens. Please go ahead.
Speaker 11
Hey, guys. It's actually Ben on for Brad.
Richard O'Dell (CEO)
Hi, Ben.
Jim Darby (CFO)
Morning, Ben.
Speaker 11
Good morning. So can you kind of help us understand the tonnage growth a bit more? Was this kind of pent-up volume from the bad weather, or did this come a little bit more from the sales adds, or is it really some macro improvement that you guys are seeing?
Richard O'Dell (CEO)
I would say it's, it looks a little bit like all of the above. So here, here's what I would tell you, and if I look at the growth that we have, the upper Midwest is the strongest, and that's where we added the most sales resources. And that's also where, you know, you got the merger of the former Vitran company and another carrier, you know, got put together, and I think some of that business went elsewhere. So it provided a good opportunity there. You know, feels like the market's picked up a little bit. I would say that's true as well. But, you know, we saw growth kind of across our network.
And then I also feel like, you know, we're pretty early in this incremental sales resource opportunity, and normally it takes, you know, four to six months to have, to have someone to have much impact. And so, you know, we certainly feel good about the early results, but think that could continue to provide some opportunities going forward as well.
Speaker 11
We, we've heard that some carriers were kind of giving up freight or shutting down regions because of the weather. Did you guys pick up any freight from that, and do you expect to keep it, or how, how are you thinking about that?
Richard O'Dell (CEO)
You know, I'm sure we picked up some. You know, we made, we spent a lot of money keeping our network fluid, and, you know, if it's safe to be out on the roads, when we go out and make pickups and get our network running. So, you know, I think that was probably favorable. You know, I would tell you, if you look at the business that we got, the largest growth came from 3PLs, the segment. The second largest growth came from field business, and the third was national accounts. So, you know, that field business tends to be pretty sticky when it moves. Same with the national account business.
I think that, you know, Vitran was a big player in the 3PLs, and, you know, when that transition happened, I think a fair amount of that business kind of went to others, so you can't, can't really take sales force credit for that necessarily. I think it's by value proposition, you know, and the service that we have in the marketplace, you know, proved to be favorable. And, you know, over time, we'll continue to price that 3PL business so it operates well for us. And, you know, that, those volumes also tend to switch around quite a bit based on what you're doing with your pricing from a 3PL perspective as well.
Speaker 11
Okay, great. Thanks for the color. And then on incremental margins, if we just take a guess at weather and exclude some costs associated with it, and then include the higher insurance and claims expense, incremental margins look like they would have been running closer to 30% range. How should we think about incremental margins going forward? Then maybe over the longer term, kind of how are you thinking about incremental margins as well?
Richard O'Dell (CEO)
Yeah, you know, in kind of a normal yield environment, let's call it the 3% range, you know, we should be able to offset our inflationary cost increases with yield improvements. Then we should also be gaining some density benefits as we move forward. So you know, we're very focused on the opportunities to combine growth with a normal yield environment and our execution in the marketplace to make some headway. So, you know, given the challenge we had with self-insurance and the, you know, some weather-related costs during the first quarter, and as I commented, you know, our average improvement year over year is about 300 basis points, and we expect to do better than that.
Speaker 11
Okay, great. Thanks, guys.
Richard O'Dell (CEO)
Thanks, Ben.
Operator (participant)
Our next question is from Willard Milby with BB&T Capital Markets. Please go ahead.
Willard Milby (Equity Research Analyst)
Hey, good morning, guys.
Richard O'Dell (CEO)
Good morning.
Willard Milby (Equity Research Analyst)
Just want to ask another tonnage question here. With the new sales force, I think you said the magic number is 4-6 months onboarding with them. Do you have a targeted tonnage growth with the new sales force going forward here?
Richard O'Dell (CEO)
You know, our current run rate, as Jim commented, adjusted for the Good Fridays in the 7% range. You know, the way we kind of manage the company is to manage for efficiency, kind of take a look at where your margins are, and then look at opportunities to reoptimize both your business mix and your line haul network for imbalances. So I think there's kind of that trade-off between tonnage and yield and margins.
So, our current, my current thinking is to kind of manage the business, to let the tonnage float up and kind of look and see how well we're executing and how the business is operating with some revised mix and some top-line tonnage growth, and then look to kind of, if the opportunity is there and it's working well from an efficiency standpoint, then we'll, you know, we'll continue to seek growth out.
If near-term margins aren't quite what we'd like to see them, then we'll reoptimize our business mix through yield enhancements to make sure we're being properly compensated for that. So, you know, I think there's a balance between the tonnage and the, and the yield. And, you know, you've probably heard me say this before, but, I mean, I like tonnage growth.
It's good to grow, but it's also, you know, we like to see our margins continue to improve as well. And I think that yield, the best thing about positive tonnage is it continues to encourage you to take yield risk. So you may see us return to a combination of tonnage growth and yield improvement. We kind of like that yield thing, the impact it can have on the operating ratio.
Willard Milby (Equity Research Analyst)
Okay, thanks. Great color there. And as I look at the purchased transportation line and as well as the fuel and operating expenses, supplies, I'm assuming there's a lot of fuel savings just because it shifted into purchased transportation here in Q1. Can we expect kind of a reversion back to the norm, I'll call it, of kind of a mid-6% as a percent of revenue on the PT line and kind of the low 26s, high 25% as a percent of revenue on the fuel operating expenses here going forward?
Richard O'Dell (CEO)
Yeah, I think that's right. In other words, with the growth that we saw, as well as the weather disruptions, we definitely used some suboptimal purchased transportation. That's kind of in our run rate right now. Obviously, we ordered some incremental trailers. You know, we've got over 100 line driver positions open right now that we're seeking to fill.
And, you know, after we do that, you would expect to see some optimization of suboptimal purchased transportation. That being said, you know, I like the hauls increasing a little bit, and, you know, there are some lanes where efficient use of rail makes a lot of sense as well. So, you know, as that grows, we'll do what's best for our service and for our margins there.
The return on invested capital for getting certain long-haul lanes that can run on the rail over the weekend and still meet our service requirements has a pretty good return on invested capital.
Willard Milby (Equity Research Analyst)
Okay, so we could possibly see some spillover of that higher PT into Q2?
Richard O'Dell (CEO)
Yeah. I mean, we used to run 60% of that, used to be rail, and we were kind of doing the best that we were doing from that perspective. And with some of the rail disruptions as well as the weather disruptions that we saw, we're clearly running some suboptimal PT, but it may run at a little bit higher rate as we, you know, take share in some of these longer-haul markets as well.
Willard Milby (Equity Research Analyst)
Okay. All right. Thanks for the time, guys.
Richard O'Dell (CEO)
Sure. Thanks.
Operator (participant)
Our next question is from Nicholas Bender with Wunderlich Securities. Please go ahead.
Nicholas Bender (Equity Research Analyst)
Morning.
Operator (participant)
Nicholas, your line is open.
Nicholas Bender (Equity Research Analyst)
Oops, sorry. Got that, guys? Good morning.
Richard O'Dell (CEO)
Good morning.
Nicholas Bender (Equity Research Analyst)
Quick, quick questions on the capacity outlook. Obviously, you guys are dialing up some CapEx here for some new equipment and a little bit higher replacement activity. How do you feel about door capacity and on the real estate front? Any expectation of needing to add more doors for the tonnage that you're layering on at this point?
You know, we're in pretty good shape right now. I mean, as you know, we really haven't grown for a couple of years, and, you know, we've built out some capacity, you know, kind of ahead of the downturn. Timing wasn't so good there, I guess. But, you know, so we have some excess capacity. Probably the place we are looking to add another terminal in the Chicago market, but that's a construction project that'll probably come online first of next year. You know, and we obviously look for opportunistic real estate purchases where you kind of have an opportunity to upgrade, but we don't have any significant deficiencies in our network right now. You know, our break capacity is good.
You know, our network's running fluid at today's level, and, you know, we've got some incremental capacity there. So I wouldn't look for big real estate purchases unless it's something where, you know, existing facility that we're leasing may come up for sale and things like that. With today's cost of money being pretty inexpensive, we would make opportunistic purchases, you know, in markets that make sense.
Sure. No, that makes sense, Rick. Sort of circling back, you know, last time we heard from you guys in January, we talked about, you know, sort of a $10 million-$12 million cost savings target in a couple of different buckets, especially with CapEx picking up here and maybe doing a little more replacement activity. Do you see any potential for upside to those cost savings metrics, especially as the, like I said, you pull some older equipment out of the market and maybe get some higher efficiency equipment into the fleet?
Richard O'Dell (CEO)
Yeah, I think, you know, the fuel is one of our targeted opportunities that we've obviously seen some significant improvement in that over the last couple of years. And unlike last year, where we had two big buckets of improvement in line haul and fuel efficiency, both of which we achieved, it's kind of spread around a variety of projects. And, you know, what I would tell you is some of those projects have been delayed a little bit with the weather disruption, and, you know, focus, focus had to be a little bit more near term than we would have liked. So but, but I would tell you, I think that, that, that $10 million number is probably still good.
Nicholas Bender (Equity Research Analyst)
Okay, that's helpful. Looking at heavier weight per shipment, really the last couple of quarters here, anything to read into that? Is it all entirely mix shift? Is it mix shift with, you know, more business that you're growing in the upper Midwest? Or, or is there any component of potentially stronger macro conditions?
Richard O'Dell (CEO)
I mean, it looks a little better. I would tell you, too, we've targeted some heavier-weighted shipments from 3PLs and some other different sources that that's kind of happened over a period of time as well. And then, I think, I guess, what we're seeing is certainly the economic activity certainly feels a little bit better as well.
Nicholas Bender (Equity Research Analyst)
Okay, that's great. Then my last one here, real quick. Obviously, you know, you guys delivered just excellent tonnage growth in the quarter, and you know, we see from your competitor yesterday, strong tonnage growth numbers as well. How do you feel, you know, about the pricing environment at this point in time? Certainly, the first quarter was pretty unique, but any indications or any concerns about you know, people getting more competitive or aggressive on rates in particular lanes, or anything like that?
Richard O'Dell (CEO)
No. I mean, our yield improvements, again, were kind of in line with our target around the 3% range. You know, the general rate increases kind of came out a little early. I think that's favorable, seems to be sticking well. And, I think it's a pretty good environment. And, you know, as I'd commented, I think with our tonnage up like it is, as we come to contract renewals, we're going to take a hard look at the business and how it operates.
And, you know, we've gotten, like I said, most of our corrective action pricing is behind us, but there's... It's funny how there are always opportunities for a few that you never quite get right. So when they come up again, I think there's certainly opportunities to reprice lanes.
And, you know, one thing we're seeing with the growth that we have in the upper Midwest geography, it's kind of changed our lane imbalance up there as well. So you know, when you grow and outgrow one region, outgrow the others, right? Then your lane imbalance has changed, and you got to make sure that you're being properly compensated for that. So sometimes your historical pricing may need to be repriced based on that.
So that's something that's certainly an opportunity going forward as well. And, you know, with strong tonnage growth, it encourages you to take a look at the business and how it operates. And, you know, the driver market is tighter than it's probably been in a long time.
There are certain markets where we're having to pay signing bonuses of $5,000 to get a driver to either run over the road or even in the city. So I can assure you, we're taking a hard look at customers' business in those, particularly in those markets, to see if, you know, we're gonna go through the process, the costly process to grow and bring on new people.
We got to make sure we're being compensated properly for the business we're handling. So I mean, both are an opportunity, right? And there's good incremental margins for tonnage growth. And then, you know, I think the positive thing about tonnage growth, it encourages you to take some yield risk when you need to.
Nicholas Bender (Equity Research Analyst)
Yeah. Understood. I appreciate the color, guys, and congratulations again.
Richard O'Dell (CEO)
Oh, thanks. Appreciate it.
Operator (participant)
As a reminder, that is star one for questions. Our next question is from David Ross with Stifel. Please go ahead.
David Ross (Managing Director)
Yes, good morning, gentlemen.
Richard O'Dell (CEO)
Good morning, David.
David Ross (Managing Director)
Hey, Rick, just to follow up on your comment about drivers. Some markets said you have to pay a little bit more. What markets would those specifically be? And, do you think there's going to be another just kind of broader annual wage increase, this summer?
Richard O'Dell (CEO)
Yeah, I mean, I guess it's kind of weird. Some of the markets are, some of the smaller kind of oil field markets are obviously hot right now with that fracking activity. You know, drivers have options of, you know, being in that kind of oil field sector or being, you know, with an LTL carrier. So that's, that's causing some spike in some, what you would call, you know, non-traditional markets.
And then, some of the upper Midwest market, I think, with the, you know, some business moving around up there from the merger that we discussed earlier, is causing, you know, some shortages in some of those markets that you wouldn't have, historically wouldn't expect, right? You know, Columbus, Ohio, you know, paying signing bonuses is kind of unusual, right?
David Ross (Managing Director)
Yes.
Richard O'Dell (CEO)
South Bend, Indiana, I mean, but, you know, that's kind of the market. So, and then we, you know, we do our benchmarking and obviously are committed to a market-based compensation program, and we haven't formally announced our wage increase, but we've done it the last couple of years in July. And, you know, you can assume that we'll and in a market like we are today, we'll be revisiting that at that point in time. And I would tell you, most. We have a very rich benefit plan, and with that, combine that with some probably fairly modest wage increases in most markets, with a couple of market adjustments, probably what we're looking at.
David Ross (Managing Director)
Okay. And then, you know, on those benefit plans, I guess, Jim, you mentioned, you know, healthcare costs were up $1.8 million year-over-year in the quarter. Was there anything unusual driving that higher, or was that, you know, Affordable Care Act related? You know, any more comments on that, and how it should trend the rest of the 2014?
Jim Darby (CFO)
... Yeah, Dave, it was, it is unusual, but it's what we expected. I mean, because what we're seeing this year is we're expecting it to go up about $7 million for the year, and about $2 million of that increase is specifically related to the Affordable Care Act and what's being implemented this year. So we have normal inflation in healthcare expenses, but then the Affordable Care Act adds about $2 million more.
David Ross (Managing Director)
I don't know why it's called the Affordable Care Act then. The insurance and claims in 2Q 2014, is that trending more normally? No bad accidents in the first few weeks, I take it?
Richard O'Dell (CEO)
Correct. I mean, obviously, we're subject to self-insurance volatility, but we, you know, we're very committed to our safety programs. They're very robust, supported by technology and management and training, and, you know, there's always some volatility. You know, we very much plan to get back to normal accident severity.
David Ross (Managing Director)
And then, last question, Rick. If you could comment about the logistics services business, how that's growing. You know, is that making a big impact on the numbers yet?
Richard O'Dell (CEO)
It's really pretty minimal. So we're actually kind of year-over-year, obviously, with some of the disruptions in the truckload market, it's more flattish year-over-year, compared to some growth that we experienced last year. I don't think it's necessarily representative of what the business can do over a period of time, but it didn't have much impact on a comp basis.
David Ross (Managing Director)
Excellent. Thank you very much.
Richard O'Dell (CEO)
Thanks, Dave.
Jim Darby (CFO)
Thanks, Dave.
Operator (participant)
Our next question is from Bill Greene with Morgan Stanley. Please go ahead.
Bill Greene (Executive Director)
Yeah. Hi there. Good morning. You know, I just had one quick question here. You know, Rick, you mentioned sort of hoping to get potentially into the eighties on an OR basis. Have you ever sort of described a timeframe for getting there? Or, if not, you know, are you willing to kind of venture how long that could take?
Richard O'Dell (CEO)
You know, we don't provide guidance, but there's someone that's doing it repeatedly, and I'm not very patient person. My wife would probably tell you that. So I would just tell you, we're working hard on it, you know. I feel like the return on invested capital is clearly improving, but you need to take a hard look at kind of what's going on and the market opportunity with the tonnage up. So, you know, we certainly expect to improve our margins going forward. We think there's a lot of opportunity there.
Bill Greene (Executive Director)
Yeah. Clearly, you have good incrementals on both the tonnage and the yield side. So if we're in a better tonnage environment, one would think that, as you said before, that's good for yields, and the combination of which I would think would mean that's actually not that far into the future on an annual basis, of course, not in the first quarter or whatnot, but that's how I was kind of thinking about it. So just wanted to hear your thoughts.
Richard O'Dell (CEO)
I-
Bill Greene (Executive Director)
Thanks.
Richard O'Dell (CEO)
You know,
Bill Greene (Executive Director)
Sorry.
Richard O'Dell (CEO)
I think the same way. And so we're, yeah, we're clearly focused on that opportunity. And, you know, as I said before, I mean, I like the incremental tonnage. I think it's favorable, but it also causes me to look at the margins that we're having on our existing business. And to the extent those need to be corrected in lanes, particularly imbalanced lanes, you know, we're gonna make sure we're properly compensated for the invested capital that we're making.
Bill Greene (Executive Director)
That's great. Thank you for the time.
Richard O'Dell (CEO)
All right. Sure.
Jim Darby (CFO)
Thanks, Bill.
Operator (participant)
Our next question is from Art Hatfield with Raymond James. Please go ahead.
Art Hatfield (Managing Director and Senior Analyst)
Hey, good morning, guys. Sorry, I may have missed... I probably missed a lot of this. I've been busy trying to get the pine tar off my hands. I thought Jim would appreciate that. Hey, when I look at kind of like, go for—when I think about trying to model things going forward, one of the things that kind of jumped out at me in Q1 was your truckload tonnage. And you may have mentioned this, and I apologize if I missed it, but how can we think about it in Q1, and just how really should we think about that going forward?
Richard O'Dell (CEO)
Yeah, I commented on it earlier, but basically, what happened is, in the fourth quarter of last year, we did some targeted marketing for, in the spot market for, to fill backhaul lanes.
Art Hatfield (Managing Director and Senior Analyst)
Got it.
Richard O'Dell (CEO)
And that's we made some enhancements to some efforts there. I call it targeted marketing, and it's, you know, it's produced some positive results that carried on through the first quarter. 80% of it is in backhaul lanes. You know, it has good incremental margins. And so, you know, you can kind of expect that to go forward. What I would tell you is, since it's kind of more spot transactional business, you know, we tweak that, have the ability to tweak that based on imbalance and capacity.
So, you know, it's kind of always going on, but, you know, we're seeing some good success in that. We feel like it has good incremental margins, and I don't think it's kind of a one-trick pony kind of a thing. It's something that we will probably continue to see going forward.
Art Hatfield (Managing Director and Senior Analyst)
But it's something you... From what I just heard you said, it's something, the tool you use to manage your, your capacity, it's not something that could get out of control, where you may have to spend money to add capacity in lanes just to handle this type of business. Is that fair enough?
Richard O'Dell (CEO)
That we tweak the pricing in the lanes, daily.
Art Hatfield (Managing Director and Senior Analyst)
We fill that-
Richard O'Dell (CEO)
We have the capacity. It's watched very closely. It's not, if you see the poorly priced business that's, you know, moving in headhaul lanes, it's, we tweak it, we tweak it right away. It's a spot market type thing, it can be changed every day.
Art Hatfield (Managing Director and Senior Analyst)
Got it. That's, that's very helpful. So when we think about that, because of that, I mean, I would think that unless the market changes going forward, the pricing of that business is probably gonna be somewhat where it is today?
Richard O'Dell (CEO)
Yeah, it'll tweak up a little bit, but-
Art Hatfield (Managing Director and Senior Analyst)
Okay.
Richard O'Dell (CEO)
Yeah, you know, it's heavyweight LTL shipments that we're kind of spot quoting, right?
Art Hatfield (Managing Director and Senior Analyst)
Right. Right. Right. So it's just gonna flow with the market. Yeah, I, I got you. That, that's all I got today. Thanks for the time, Rick.
Richard O'Dell (CEO)
All right, great. Thanks, Art.
Jim Darby (CFO)
Thanks, Art.
Operator (participant)
It appears there are no further questions at this time. Mr. O'Dell, I'd like to turn the call back to you for any additional or closing remarks.
Richard O'Dell (CEO)
Okay. Thank you for your interest in Saia, and we look forward to catching up with you guys again soon.
Operator (participant)
That concludes today's call. Thank you for your participation.