Saia - Q1 2016
April 27, 2016
Transcript
Operator (participant)
Good day, and welcome to the Saia Incorporated First Quarter 2016 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Doug Col. Please go ahead.
Douglas Col (Head of Investor Relations)
Thank you, Lindy. Good morning, everyone. Welcome to Saia's First Quarter 2016 conference call. Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer, and Fritz Holzgrafe, our Vice President of 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'd like to turn the call over to Rick O'Dell.
Richard D. O'Dell (CEO)
Well, good morning, and thank you for joining us. This morning, we announced our first quarter of 2016 results, with earnings per share of $0.42, compared to record first quarter earnings per share of $0.49 in the first quarter of last year. I'm pleased that despite a freight environment generally deemed to be soft, we were able to increase our LTL yield for the 23rd consecutive quarter. Our customers seem to increasingly view our relationship as a partnership, and we're committed to providing best-in-class service to support the value proposition that we offer in the marketplace. Along with the continued focus on pricing and mix management, we're working hard to find opportunities to offset the impacts of an inflationary cost environment with productivity improvements, and other efficiencies.
We've continued to invest heavily in our business, and year-to-date, we've taken delivery of over 300 new tractors, 800 new trailers, and nearly 200 forklifts. A younger fleet across our network is expected to yield maintenance savings and provide for higher network reliability and, ultimately, customer satisfaction. A few comparisons to the first quarter results this year versus last year's first quarter are as follows: LTL yield increased by 2.1% overall, with contractual price renewals up an average of 5.3%. LTL yield, excluding fuel surcharges, was up almost 6.6%. LTL weight per shipment fell 2.6% to 1,118 pounds, but was down just 0.6% sequentially from weight per shipment in the fourth quarter.
Overall weight per shipment trends continue to be negatively impacted by less activity across our energy-related customers and industrial customers, whose shipments tend to be heavier weight by nature. LTL shipments per workday were down 0.8%, and adjusted for Good Friday, shipments per workday were down just 0.2%. As I mentioned earlier, productivity initiatives yielded some encouraging first quarter results, as pickup and delivery productivity improved each month through the quarter, and it marked the first time in four years that we saw a good improvement in the first quarter versus prior year's result. Dock productivity improved 3.9% sequentially from fourth quarter and was the best first quarter result in three years. Finally, on the operations side, cargo claims filings were down 19% per day versus last year, resulting in a 14% decrease in claims paid.
I'd like to have Fritz Holzgrafe review our first quarter financial results in more detail.
Fritz Holzgrefe (CFO)
Thanks, Rick, and good morning, everyone. First quarter total revenue of $290 million compares to $293 million in the first quarter of last year, a decrease of 1.1%. This decrease resulted primarily from decreased tonnage and fuel surcharges, offset by yield management. Operating income of $17.6 million compares to $21.2 million for the first quarter of 2015. This year's first quarter included 64 workdays, compared to 63 workdays in the first quarter of 2015. Also, Good Friday fell in March this year, and shipment count on Good Friday usually represents about one half of a normal Friday. Good Friday fell in April during 2015.
As Rick mentioned, first quarter LTL yield rose 2.1%, reflecting the positive impact of our continued pricing actions, offset by markedly lower fuel surcharge contribution. I'd like to mention a few key expense items and how they impacted the first quarter results. Salary, wages, and benefits rose 8% or $12.5 million to $170.3 million in the first quarter, reflecting the impact of one additional workday, a 4% average wage increase last July, increased internal driver utilization, as well as increased benefit costs, particularly in the area of healthcare benefits. Purchased transportation in the quarter dropped by $5.2 million to $12.5 million and was 4.3% of revenue versus 6% last year.
This comparison benefited from increased utilization of internal assets, favorable truckload carrier rates, and lower fuel costs charged by carriers. Purchased transportation miles as a percentage of our total line haul miles were 6.6%, compared to 10.5% in the first quarter of 2015. Depreciation and amortization of $17.2 million compares to $15.2 million in the prior year quarter, and reflects our continued investments in tractors, trailers, and forklifts, resulting in a newer fleet. Fuel efficiency improved by 1.9% to 6.51 miles per gallon in the quarter, benefiting from the lower average tractor age compared to the prior year. Claims and insurance expense increased by $3.2 million in the quarter to $8.1 million.
The increase is a result of higher insurance premiums and accident expense, partially offset by lower cargo claims expense.... Our effective tax rate was 36.4% for the first quarter of 2016, essentially in line with our estimate for the full year of 36.5%. At March 31, 2016, total debt was $116.4 million. Net debt to total capital was 20.9%. This compares to the total debt of $107.6 million, and net debt to total capital of 22.1% at March 31, 2015. Net capital expenditures in the first quarter were $63.7 million, including equipment acquired with capital leases. This compares to $33.2 million of net capital expenditures in the first quarter of 2015.
Full year, 2016, net capital expenditures are forecast to be approximately $140 million. Now I'd like to return the call back to Rick.
Richard D. O'Dell (CEO)
Well, thanks, Fritz. As some of you may have seen, we opened our second Chicago area terminal in the first quarter in Grayslake, Illinois. The state-of-the-art facility positions us to service customers in the large and growing northern Chicago suburbs. Also, in the first quarter, we completed an expansion of our Kansas City terminal, which included 58 new doors and added yard space as well. In April, we completed the rollout of our new equipment maintenance software system. We expect to benefit from improved maintenance technician productivity, as well as more accurate and accelerated warranty recovery capabilities. We've also completed our integration of a new data management software and are beginning to customize dashboards to maximize this data mining tool across a number of functions.
As you can tell, we've had a busy first quarter and are excited about the opportunities we continue to find in our organization and in the marketplace. With these comments, we're now ready to answer your questions. Operator?
Operator (participant)
At this time, if you would like to ask a question, please press the star and one on your touchtone phone. You may remove your question from the queue at any time by pressing the pound key. Again, if you'd like to ask a question, please press the star and one keys now. Our first question comes from Scott Group with Wolfe Research. Please go ahead. Your line is open.
Scott Group (Analyst)
Hey, thanks. Morning, guys.
Richard D. O'Dell (CEO)
Morning, Scott.
Fritz Holzgrefe (CFO)
Scott.
Scott Group (Analyst)
I apologize if I missed it. Did you guys give the monthly tonnage in April?
Fritz Holzgrefe (CFO)
I can. We haven't yet.
Scott Group (Analyst)
Okay, that'd be great. Thank you.
Fritz Holzgrefe (CFO)
All right. So, LTL tonnage year-over-year, and these are by month, January, -5%; February, -1.4%; March, -4%. Now, if you adjust for Good Friday, the March number would be -2.2%. Shipments for January, Feb, March, -0.9%, +1% in February, -2.6% in March. Adjusting for Good Friday, -0.8%.
Richard D. O'Dell (CEO)
I would just comment, too, I think we benefited in January and February, probably volume-wise, from a more mild winter weather than normal. So, you know, we just, when you look through those trends, I think that kind of needs to be taken into consideration.
Scott Group (Analyst)
Yep. And do you have numbers for April yet?
Fritz Holzgrefe (CFO)
Sure. So April, month-to-date, tonnage, actual is 3.4%. Now, adjusting for Good Friday, excuse me, -3.4%. Adjusting for Good Friday, -5.9%. And then, shipments for April month to date, -2%, and then adjusting for Good Friday, -4.3%.
Scott Group (Analyst)
So what are you guys seeing out there that's driving that weakness in April? I mean, I guess we've heard it from a lot of the transport so far, but any end markets that's driving that?
Richard D. O'Dell (CEO)
It just seems, obviously, I think the industrial economy is pretty soft. You know, if you geographically, you know, we're having success in growing kind of in the West and in the East and the South Central. You know, obviously, the oil patch is a big impact. Those segments are not nearly as strong as the rest of our geography.
Scott Group (Analyst)
Rick, you usually share some perspective on, on how you think about margins, from one quarter to the next. There's some moving parts, obviously, with extra operating day, mild weather. How do you think about margins in 2Q?
Richard D. O'Dell (CEO)
Yeah, so if you look, 1Q to 2Q, trends have been better, generally, obviously by 1.4 operating points to as much as 3.3 operating points. Kinda like you said, depending on holidays, timing of general rate increases. We look back over the five-year period, successful contract renewals, accident volatility, and like you said, first quarter winter weather. So I think given the current weakness in the industrial economy and the mild first quarter winter weather that we had, as well as the timing of this year's general rate increase being basically the same as last year, you know, we believe probably the bottom of this range is most likely.
Scott Group (Analyst)
Okay, that makes sense. And just last question, you know, it feels like the past couple of quarters, we've heard kind of mixed things about the competitive environment. One quarter was worse, one quarter better. Broadly, how are you thinking about the competitive environment and LTL pricing for the year?
Richard D. O'Dell (CEO)
Yeah, you know, we were pleased with the pricing for the quarter, you know, up 5.3 on the contract renewals with similar to last year. You know, we are seeing some procurement-type people go out with some out-of-cycle bids. But thus far, you know, those have come in at a pretty reasonable levels. Again, I think we're obviously very granular and detailed in our pricing analysis and work to target business that works within our network. But I mean, it's competitive, but I would still describe it as being rational, particularly considering some of the softness that we're seeing in some sectors.
Scott Group (Analyst)
... are you still seeing that 5%+ renewal rate in April?
Richard D. O'Dell (CEO)
I haven't even looked at it yet, to be honest with you.
Scott Group (Analyst)
Okay, fair enough. All right. Thank you guys for the time.
Richard D. O'Dell (CEO)
All right.
Operator (participant)
We'll go next to Brad Delco with Stephens. Please go ahead. Your line is open.
Brad Delco (Analyst)
Good morning, Rick. Morning, gentlemen.
Richard D. O'Dell (CEO)
Good morning, Brad.
Brad Delco (Analyst)
Maybe, Fritz, can you talk a little bit about the sustainability of purchas transportation at these levels? I mean, 4.3% of revenue is a pretty good number relative to expectations. Just curious how we should be thinking about that looking throughout the year.
Fritz Holzgrefe (CFO)
Yeah, I think that, you know, we continue to look for ways to optimize internal utilization. You know, at this sort of trajectory, I would say that, you know, that, the Q1 numbers are, we can continue those at those sorts of rates. But that, you know, if things uptick, different parts of the, our, footprint change, your customer set changes, that sort of thing, you could see that change. But I think at the current sort of model rate, I think it's probably reasonable expectation.
Brad Delco (Analyst)
Great. And then in terms of this question we're getting, salaries, wages, and benefits up about, call it, 8% on slightly down tonnage. Is that a function of you shifting some of that purchase transportation to company trucks, and that's kind of why there's a little abnormal relationship between tonnage and increased salaries, wages, and benefits? Or how do we think about those, maybe second question, those two line items together moving forward?
Fritz Holzgrefe (CFO)
Yeah, I mean, I think that there are a couple pieces inside that salary, wages, and benefits number you need to think about. One, obviously, we had a, as we mentioned, a roughly 4% increase, salary increase, across the workforce on average, at July 1 last year. So that, you're seeing that impact. You're also seeing the impact of 10%-12% sort of impact, inflationary rates around, benefit costs. And then I think we're utilizing, as you point out, a larger part of our own work, line haul network to take on that what was purchased transportation. So you really have the utilization of, our internal assets more, a greater part, and that's part of the savings from PT, that is invested there.
We're leveraging those employee assets, and then you're seeing the inflationary costs that we're having to deal with. The one last point, although it is a little bit more minor in the total change, is if you recall, last year, we talked a lot about investing in our network around putting the appropriate human resources, assets, safety, and claims folks in the field. And that was done kind of in Q1 into Q2. So now you're seeing the, you know, sort of the ongoing sort of step up of those folks being on staff, you know, full-time now.
Brad Delco (Analyst)
Gotcha. And then, I guess, expected benefit in some other areas of-
Fritz Holzgrefe (CFO)
Oh, sure
Brad Delco (Analyst)
-the structure.
Fritz Holzgrefe (CFO)
Yeah, I mean, it. We've talked about our emphasis on quality claims, so our claims, reducing our claims ratio, those people, those investments are key to that, to that value proposition. And I think we operate or manage the workforce better with those additional HR assets in place and safety assets.
Brad Delco (Analyst)
Gotcha. And then maybe, Rick, just a question for you. The April tonnage weakness, or I think relative maybe to March, any impact from weather or flooding in some of the areas in which you operate?
Richard D. O'Dell (CEO)
Just a little bit. Obviously, the Houston flooding, you know, caused us to be shut down for a day, plus, obviously, some customers had some ongoing impact thereafter, but that's probably the only one. And would we say that would be minimal impact?
Fritz Holzgrefe (CFO)
Minimal impact.
Richard D. O'Dell (CEO)
2% or something like that.
Fritz Holzgrefe (CFO)
Something like that, because it was only a day.
Richard D. O'Dell (CEO)
Yeah.
Brad Delco (Analyst)
Okay. All right. Well, thanks, guys, for the time. Appreciate it.
Fritz Holzgrefe (CFO)
No problem.
Operator (participant)
Our next question comes from David Ross with Stifel. Please go ahead. Your line is open.
David Ross (Analyst)
Yes. Good morning, gentlemen.
Fritz Holzgrefe (CFO)
Morning, David.
Richard D. O'Dell (CEO)
Good.
David Ross (Analyst)
Can you talk, I guess, you know, you mentioned cargo claims being strong. What was the cargo claims ratio in the quarter versus a year ago?
Richard D. O'Dell (CEO)
It was 0.81 versus 0.89.
David Ross (Analyst)
And then, you know, on the insurance and expense line item, you mentioned higher premiums and accident expense. How much, I guess, of that, you know, higher than expected expense was due to the premiums versus the accident? You know, just because I, I'm trying to think going forward, what are we looking at in terms of a premium increase and how that might play out into the quarterly insurance line.
Fritz Holzgrefe (CFO)
Yeah. So we looked at year-on-year, we had about a 25% increase in premiums. And that is a -- that's a part of that increase, the claims and insurance increase. I think the more significant thing to think about in claims and insurance is that, you know, last year we had Q1 was a particularly good quarter. This quarter, we had the number of accidents was actually down, but severity was up a little bit. So the development of those, the expenses related to those accidents was a little bit higher. So I think as you think about that line, over time, you really should think about sort of a trend over time. That, that's, it's all... You know, this wasn't a great quarter. It wasn't bad. Last year was very, very good.
David Ross (Analyst)
And then, you know, are you expecting to change any of your self-insurance levels given the rise in premium?
Fritz Holzgrefe (CFO)
We have studied that pretty closely, and we think our retention is appropriate, you know, as you look at sort of the trade-offs, so we will not change that. It's just we'd just have to deal with the higher premiums.
David Ross (Analyst)
Last question on the CapEx side. Sounds like you raised CapEx for 2016 from $130 to $140. I just wanted to see kind of where that's mainly going. And then also, does that $140 include capital leases? Because you talked in the release about, you know, capital leases, but then the cash flow statement number is a little bit different.
Fritz Holzgrefe (CFO)
Yeah, so one of the things that we will do periodically is if we see opportunistic real estate investments, we like to move on those. We saw one came up this quarter, and that was the genesis of that increase. So it's an investment we'll make, I think, into the second quarter, you'll that we'll take that on. The total cap number, capital expenditure number includes capital leases.
Richard D. O'Dell (CEO)
We just had an opportunistic purchase in the Bay Area of a facility we were leasing.
Fritz Holzgrefe (CFO)
Yeah.
David Ross (Analyst)
Excellent. Thank you.
Richard D. O'Dell (CEO)
Sure.
Operator (participant)
Our next question comes from Ravi Shanker with Morgan Stanley. Please go ahead. Your line is open.
Ravi Shanker (Analyst)
Thanks. Good morning, everyone. If I can just follow up on the insurance questions. Can you just talk about, you know, the role of technology there? You know, what percentage of your fleet today has driver assistance systems, and what kind of impact that could have on the insurance line over time?
Fritz Holzgrefe (CFO)
That's like that.
Richard D. O'Dell (CEO)
Yeah. Okay, so in today's environment, kind of depending on which tractors have this lane deviation system, really determines whether you have a forward-facing camera or not. And I'd have to get an update on that, but probably 70% of our fleet has that at this point in time. Obviously, you know, you get essentially a kind of virtual ride-along associated with that, meaning that if there's a hard braking incident or a lane deviation or somebody swerves or something, then you know, we get a video sent back to us, and it gives us an opportunity to obviously either recognize whether the driver was doing good defensive driving and made an appropriate evasive maneuver, or whether perhaps was being inattentive.
All of our line haul units and, you know, a lesser percentage of our city units have that technology in them. And as you might imagine, you know, kind of the over-the-road highway line haul tends to be where you have your more severe accidents. So it's a great opportunity, you know, for us to have an opportunity to either counsel, you know, drivers who may have been inattentive or made a bad decision, and likewise to, you know, reward people that are using appropriate defensive driving techniques and avoiding accidents.
Ravi Shanker (Analyst)
Got it. And have you done any kind of early assessment of what that could do to your insurance line over time?
Fritz Holzgrefe (CFO)
I mean, we haven't studied that specifically. I mean, in terms of... Obviously, the more we can do to put technology that limits our, potential for an accident, I think over time, you'd like to see some benefit. You know, these tend to be, you want to reduce frequency. If you reduce frequency, then in turn, you know, when you do, hopefully, you don't have those, severe accidents as well. So, you know, we haven't studied that, but we study it in the sense that we want to look for investments that we think will have an impact, but we haven't, tied that to forward sort of analysis.
Richard D. O'Dell (CEO)
Yeah, and clearly, one challenge in the marketplace also just continues to be that some of these settlements tend to be increasing in value, and, you know, that's being reflected in our, not only our insurance, primarily in the insurance layer, but also through that self-insurance aspect that we have. So again, as Fritz had commented, our efforts really are focused on avoiding accidents and ensuring that, you know, our drivers are properly trained and having as many opportunities and touches as we can to, you know, reinforce positive behavior in the cab.
Ravi Shanker (Analyst)
Great. Thank you.
Richard D. O'Dell (CEO)
Sure.
Operator (participant)
Our next question comes from Todd Fowler with KeyBanc Capital Markets. Please go ahead. Your line is open.
Todd Fowler (Analyst)
Great, thanks. Good morning.
Richard D. O'Dell (CEO)
Good morning.
Todd Fowler (Analyst)
Nice quarter here. Good morning. I guess, Rick, can you talk a little bit about the comments around weight per shipment? And I understand that it's still, you know, some pressure on a year-over-year basis, but it sounds like maybe a little bit of stabilization on a sequential basis. Do you think that some of the pressure in your energy-dependent, you know, markets is starting to stabilize? Or, you know, what do you read into the weight per shipment trends?
Richard D. O'Dell (CEO)
Yeah, I mean, obviously, some of those industrial sectors have heavier weight per shipments than than some others. You know, I think it's probably partially a trend, you know, associated with, you know, e-commerce. You tend to have some more residential deliveries and people going, you know, tends to be an increasing segment that we have. And then obviously, that kind of decline in the industrial economy. Yeah, I don't know on the oil patch, you know, whether that's a bottom or not. You know, obviously, the year-over-year numbers are severely negative for us. And if you just sort of, you know, look at the volume environment, Los Angeles was our strongest growth region during the quarter and is now the largest of our eleven regions, which, you know, used to be in Texas.
Excluding the impact of fuel surcharge, 6 of our 11 regions grew, and the 4 regions that did not grow revenue, you know, are kind of in that mid-lower Midwest or South Central kind of geography, which is obviously-
Todd Fowler (Analyst)
Mm-hmm
Richard D. O'Dell (CEO)
... impacted by the oil segment. So I don't really know what to read too much into the change in weight per shipment. It seems to be that it's happening across most of the LTL segment, so.
Todd Fowler (Analyst)
Okay. I mean, those comments are helpful, and it sounds like that maybe there's even some geographic mix if, you know, the West Coast is growing faster and the heavier weighted shipment parts of the market are shrinking a little bit, that that's gonna have some impact as well on what you're reporting. You know, can you share any comments around the impact of fuel here in the quarter? And as we've seen fuel prices, you know, move up at the end of March and now into the second quarter, you know, how that impacts either, you know, the profitability and the margins, or how you think about the impact of fuel on the OR into the second quarter?
Richard D. O'Dell (CEO)
... Yep. Fuel margins, year-over-year, were pretty negative. It was about three quarters of an operating point.
Todd Fowler (Analyst)
Yeah.
Richard D. O'Dell (CEO)
You know, while fuel, obviously, our surcharges don't correlate 100%. You know, as the fuel step down, you know, the cost versus where the fuel surcharges trended was a negative impact in the neighborhood of $2 million.
Todd Fowler (Analyst)
Okay. And then just on the wage side, I know it's still early in the year, but would the expectation be that there would be another wage increase at some point in the middle of the year? And if you can give a sense maybe around the magnitude that we should think about, if that's going to be the case.
Richard D. O'Dell (CEO)
Yeah, it's July the 1st, and just order of magnitude, company-wide, something in the neighborhood of 3%.
Todd Fowler (Analyst)
Okay. And then just the last one I had, maybe for Fritz, with the increase in the CapEx, do you have an expected run rate for depreciation, either on a quarterly basis or for the full year?
Fritz Holzgrefe (CFO)
Yeah, we don't project that or provide that guidance. But essentially, if you take our capital number, you would, you know, we're bringing on new equipment, and it's primarily what we've invested in so far, so I would adjust basis that. I think what's important to note about that is those capital investments are part of the savings initiatives that we've talked about, you know, both reducing our maintenance costs as well as the fuel economy kind of going forward. So those are we looked at those investments, they provided a pretty, a pretty close and immediate return.
Richard D. O'Dell (CEO)
Yeah, and as you might expect, the step up in the CapEx of $10 million in the San Francisco area is primarily land value.
Todd Fowler (Analyst)
Yeah. Okay.
Richard D. O'Dell (CEO)
You know, so there's not much impact on depreciation.
Todd Fowler (Analyst)
Okay. Then the comment would be, though, that if depreciation does go up for the new equipment, that there's some offsetting impact on the maintenance or operating lines?
Fritz Holzgrefe (CFO)
Yeah, so exactly.
Todd Fowler (Analyst)
Okay. Thanks a lot for the time this morning.
Fritz Holzgrefe (CFO)
Sure.
Richard D. O'Dell (CEO)
Thanks.
Operator (participant)
Our next question comes from Art Hatfield with Raymond James. Please go ahead, your line is open.
Arthur Hatfield (Analyst)
Hey, thanks. Hey, morning, everyone.
Richard D. O'Dell (CEO)
Hi, Art.
Arthur Hatfield (Analyst)
Most of my questions have been answered, but one thing I missed, Rick, when you mentioned the OR change that you look at Q1 to Q2, I missed what the low end of that range was that you said?
Richard D. O'Dell (CEO)
Okay, it was 1.4-3.3, I believe. Yep.
Arthur Hatfield (Analyst)
Okay, I got the, yep. Okay, that, that's helpful.
Richard D. O'Dell (CEO)
We like the upper end better, but given the current environment-
Arthur Hatfield (Analyst)
Oh, no, I understand. No, I understand. I just didn't... I wanted to get the right lower end, 'cause you had kind of indicated that, where I didn't want my lower end to be $250 when you really said $140. But I don't know how to ask this, but thinking about the CapEx cycle and how you spend on equipment, clearly, when you do that, you mentioned today, you get benefit on the maintenance side, on the fuel side. And I would assume that's initially somewhat of a net benefit to the income statement. But over time, as maintenance dollars pick up and fuel degrades on the equipment a little bit, it becomes, I don't know, it balances out where it's a net neutral, and then it gets worse at end of life.
How do we think about you with regards to an equipment cycle, with regards to that benefit playing out this go around? Do we think about it from the terms that you have, like maybe a year or two, where you get benefit financially, and then it kind of goes away? Or is that something that you're able to just kind of cycle equipment out of the fleet, bring new in on a regular basis, where those, that effect on the income statement is basically stable going forward?
Richard D. O'Dell (CEO)
Yeah, I think obviously, you know, you make an incremental investment to lower the average age, and then, you know, once you get to the optimal average age, then the maintenance, you get back to a maintenance CapEx as opposed to an investment CapEx, and we'll be able to still, you know, accomplish the same benefits net-net, right? But you, you know, your CapEx, you know, should go down. And I think the other comment I would just make is, you know, I think historically, we've probably underinvested at times, you know, in the real estate, from a, from a. And part of that's because we kind of put our network together through acquisitions, and we got some facilities that we either leased or that were too small.
And so over time, you know, being able to kind of correct those, has some-
Arthur Hatfield (Analyst)
Sure
Richard D. O'Dell (CEO)
...payback and benefit, not only in less freight handling, you know, your door capacity, you know, helps you in a number of ways from a production standpoint, et cetera.
Arthur Hatfield (Analyst)
Well, and that's helpful. And I get the real estate side can be lumpy based on how growth is and whatnot. But I guess, is it fair to say at some point that the equipment side should be much more of just maintenance CapEx? Not, let's assume very modest growth, you know, that obviously changes the equation. But are you close to getting to that point where you're pretty much on a CapEx maintenance CapEx cycle with the equipment?
Richard D. O'Dell (CEO)
Yeah, actually, we prioritized this year to get our tractors at the age that we think they need to be, so we should get back to a normal cycle after this.
Arthur Hatfield (Analyst)
Okay, perfect. No, that's helpful. Thanks for the time today.
Richard D. O'Dell (CEO)
Sure.
Operator (participant)
We'll go next to Jason Seidel with Cowen. Please go ahead, your line is open.
Matthew Elkott (Analyst)
Good morning, this is Matt Elkott, actually, for Jason. Thanks for taking our question. Most of our questions have been answered, but you know, Rick, with one key player in the industry still under you know, fairly new management, and still undergoing some changes, are you guys seeing some customer switches in the market, either customers coming to you from competitors or vice versa? And is that mostly price driven?
Richard D. O'Dell (CEO)
... I think we're seeing some opportunities created by, you know, some of the changes that are going on at the major competitor that you're speaking of, but I wouldn't call it like a overwhelming. We've seen a lot, you know, we're not getting feedback that there's a big deterioration in service or a major change in their pricing philosophy. I think you just have some people that, you know, have had a long-term relationship there, and some of the players have changed, and, you know, we're seeing some opportunities from that, but I wouldn't call it a groundswell or anything.
Matthew Elkott (Analyst)
I see. And your sense of the pricing discipline in the industry as a whole, do you get the sense that, you know, people are maintaining that discipline in the face of a prolonged, you know, sluggishness in the market?
Richard D. O'Dell (CEO)
I mean, thus far, I believe that's been the case. I mean, like I said, we've seen some people go out of... You know, we've had some accounts that don't operate within our targeted margins, and they've gone out for an out-of-cycle bid, and we've obviously continued to get our, you know, 5, 5-plus type of increases. And in a couple cases, we've actually won incremental business associated with that. So it's been kind of an interesting dynamic in a soft environment that we haven't really seen before. I mean, I think you have the issues, you have to look at the industry, and I, again, we don't have a good history of maintaining pricing discipline in a soft environment, but thus far, it's taken place. And you sort of look at, you know, last year with wages was an inflationary item.
You continue to have healthcare costs going up. You've got regulatory issues, equipment, tractor costs more than it ever cost before. So I mean, I just, I don't, I don't think, you know, we have too much choice, and, and most of us in the marketplace aren't generating the type of targeted returns that, that we'd like to see. So thus far, it's been positive, right?
Matthew Elkott (Analyst)
Yep. It's very helpful. And you know, lastly, I know it's not a big deal for you guys as it is for the truckload carriers, but have you been getting any questions or having any conversations with your customers about the ELDs?
Richard D. O'Dell (CEO)
Some, but I mean, you know, we're fully compliant, and I think where it would have an impact with us is perhaps on some of the smaller players that, you know, are already struggling in the marketplace and don't have the type of finances it takes to put that technology in. But yeah, I don't, I don't think it's as big of a factor in LTL, but, I mean-
Matthew Elkott (Analyst)
Mm-hmm.
Richard D. O'Dell (CEO)
It could still be a factor, right?
Matthew Elkott (Analyst)
Yep. All right, great. That's very helpful. Thank you, Rick.
Richard D. O'Dell (CEO)
Sure.
Operator (participant)
Our next question comes from Thom Albrecht with BB&T. Please go ahead, your line is open.
Thomas Albrecht (Analyst)
Hey, guys, good morning.
Richard D. O'Dell (CEO)
Good morning, Tom.
Thomas Albrecht (Analyst)
Really nice job in a less than stellar freight market, I guess we can say. I wanted to follow up, Rick, on your OR conversation and just maybe come at it from a little different angle. So first of all, kind of housekeeping. When you talked about that 75 basis point hurt from fuel, was that, this first quarter, or was that, referenced to 2015?
Richard D. O'Dell (CEO)
That's Q1 to Q1.
Thomas Albrecht (Analyst)
Okay. All right. And then, you know, when you talk about the OR improvement sequentially based upon seasonal patterns and all that, I guess I was thinking that given that fuel off its bottom is now up about $0.22 a gallon over the last 5 or 6 weeks, probably gonna go a bit higher. I'm a little surprised. Well, should we think that if that were to continue, that that would begin to be a help for LTL ORs in general? Maybe not commenting so much on Saia specifically.
Richard D. O'Dell (CEO)
Yeah, it should be.
Thomas Albrecht (Analyst)
Okay. And so we're starting in a good way in April versus the quarter, so the fact that your OR improvement might be at the lower end of the five-year average improvement, would the bulk of the explanation then be just because of the sloppy freight environment?
Richard D. O'Dell (CEO)
I mean, I think that's what's causing our caution, right? I mean, and then, to be honest with you, I mean, month to month or through the quarter, I mean, we don't project the fuel, margin impact in that much detail, so we're kind of trending one Q forward. So while that could be a modest benefit, you know, there's other challenging, potential challenging items.
Thomas Albrecht (Analyst)
Sure, sure. I, I understand, and I know we in the analyst community get a little anal on one month to the next, but just trying to think holistically.
Richard D. O'Dell (CEO)
Sure.
Thomas Albrecht (Analyst)
You know, Fritz, given where the depreciation was in the quarter, what's your latest thoughts on the annual D&A number?
Richard D. O'Dell (CEO)
I, I-
Thomas Albrecht (Analyst)
'Cause I think we're a little... Yeah, go ahead.
Richard D. O'Dell (CEO)
Yeah, I think, you know, we've brought in most all of the equipment that we're gonna bring in this year, so I think you take that capital spending forward, you know, the depreciation impact of that forward from here, right? So you might have, you know, earlier on, you might have spread that out over a full year, but that would become closer to the, you know, kind of the full year or quarterly impact of that full investment would be, you know, sooner rather than later, right?
Thomas Albrecht (Analyst)
Yeah.
Richard D. O'Dell (CEO)
'Cause we brought most of it on board.
Thomas Albrecht (Analyst)
So $69-$70 million, I mean, $70 million might be high, but $69-$70 million kind of is a ballpark range is what we're using then?
Richard D. O'Dell (CEO)
Yeah. That seems reasonable.
Thomas Albrecht (Analyst)
Okay. And then, Rick, I had one other question. I know about a year ago, maybe a little less, you know, for years you've thought about the possibility of Pennsylvania and New Jersey. It didn't make sense given where the economy was, and then you kind of reopened that thought process... maybe early last year, then the market went soft in the second half. What's your latest thoughts on those two states?
Richard D. O'Dell (CEO)
It's on our radar, and we're kind of doing some more detailed planning of some alternatives associated with that. So I guess our thoughts are, you know, we feel like over time, it's an attractive market. It can contribute to our margin and yield initiatives as well as growth. And so, you know, we're gonna get there, and I think when we have a more detailed plan with some timeline, you know, we can talk to you about, you know, we're gonna open 4 terminals in 12 months or whatever our timeline is, but that's basically, you know, what we're looking at.
Thomas Albrecht (Analyst)
Okay. All right. Thank you. I'll jump back in the queue.
Richard D. O'Dell (CEO)
All right, great.
Operator (participant)
We'll go next to Scott Group with Wolfe Research. Please go ahead. Your line is open.
Scott Group (Analyst)
Hey, guys. Thanks for the quick follow-up. So I want to go back, just if I can, just to the tonnage numbers you gave, just because I think you said for it, that March was 4% reported, but -2.2, adjusting for Easter, and then April was down 3.4, but would have been down 5.9.
Richard D. O'Dell (CEO)
Right.
Scott Group (Analyst)
Just, just curious, why is there a 180 basis point impact in March from Easter, but a 250 basis point impact in April from Easter?
Richard D. O'Dell (CEO)
Yeah, one thing is, we're giving you month-to-date numbers, so it doesn't-
Scott Group (Analyst)
Yeah
Richard D. O'Dell (CEO)
... have the whole, you know, March was a 23 work day a month, right? So you have that, and then today, we're just giving you an update on where we're running month to date, and, and the month's not over. So there's probably some impact from that just in trueing up month-to-date numbers.
Scott Group (Analyst)
Oh, okay. That makes sense. Okay.
Richard D. O'Dell (CEO)
Yeah.
Scott Group (Analyst)
Rick, last quarter, you had talked about even though there would probably be some margin pressure in the first quarter, you still thought you could see flat to improve margins for the full year. Are you still thinking along those lines for 2016?
Richard D. O'Dell (CEO)
Well, obviously, 2Q, we have very difficult comps. 3Q was clearly not a good quarter for us, so I think it really just depends on what happens in the volume and the yield environment. That's probably the two biggest triggers there. You know, I feel confident. You know, we've targeted our $20 million of savings. You know, we're tracking to achieve that. It's in our run rate. So, I mean, our key internal initiatives from an execution standpoint, I have confidence in. I guess, you know, the external environment, probably less so. And, you know, we've had a few soft days here in April. So maybe a little cautious with that, but we would still target to achieve that.
Scott Group (Analyst)
Okay, makes sense. Thanks a lot, guys.
Richard D. O'Dell (CEO)
Sure.
Operator (participant)
It appears we have no further questions at this time.
Richard D. O'Dell (CEO)
All right, great. Thanks for your interest in Saia. We appreciate it, and look forward to catching up with you guys.
Operator (participant)
This does conclude today's program. You may disconnect at this time. Thank you, and have a great day.