Saia - Q2 2013
July 26, 2013
Transcript
James A. Darby (CFO)
Good day, and welcome to the Saia Inc. second quarter 2013 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Renee McKenzie . Please go ahead, ma'am.
Renee McKenzie (Chief Information Officer & SVP)
Thank you, Kayla. Good morning, and welcome to Saia's second quarter 2013 conference call. Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer, and Jim Darby, 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 O'Dell (CEO)
Well, good morning, and thank you for joining us. I'm pleased to report that Saia again delivered record earnings in the second quarter. Our success is due to the hard work and dedication of every member of the Saia team. You see improved results across the board in everything from customer service, technology, claims, and safety. It's gratifying that we continue to achieve these meaningful improvements despite a relatively sluggish economy. To keep items comparable, all per-share data in these remarks have been adjusted to reflect the company's recent 3-for-2 stock split. Let me start by reviewing some highlights from the quarter compared to the second quarter of last year. Revenue was $293 million, up 2%. Earnings per share were $0.54 versus $0.48. Our operating ratio was 92.0 versus 92.6.
Our LTL tonnage decreased by 1.6%, our LTL shipments were down 0.9%, and our LTL yield increased 3.2% due to favorable pricing actions and freight mix changes. Saia's high service quality, effective revenue management, and focus on operational excellence were the drivers of our margin improvement. While volumes during the quarter were relatively soft, in line with the general economy, we continued to advance our value proposition with investments in quality and customer service. As previously outlined, Saia has a number of initiatives underway, targeting $20 million of annual savings, and we believe that will provide a substantial offset to inflationary wage and cost pressures. Here are a few of the highlights we achieved that contributed to our results during the quarter: We delivered 98% on-time service consistently and reliably for the seventh quarter in a row.
Our industrial engineering initiatives and corresponding operational efficiencies continued to reduce purchased transportation, down another 8% in the quarter. Our fuel efficiency, supported by our electronic onboard devices, improved nearly 7%, and over 80% of all Saia drivers are now meeting their progressive shifting targets. Our training and in-cab technology continue to support our safety goals. Accident expense was 5% below last year due to improved frequency and severity. Our 20 dimensioners located in our larger facilities allow us to provide quick, reliable, and accurate density measurements of our shipments. Our sophisticated granular pricing and profit management philosophy continues to improve yields. Our targeted marketing efforts and additional inside sales resources are contributing to further revenue growth in our field business. Our increased training investments, new equipment, and dock-related technology allowed us to again improve our cargo claims ratio.
Saia's Quality Matters initiative has become a key component of the culture of our company. You can see quality demonstrated at every terminal, shop, and office facility across our network, and I believe that our continued focus on quality, customer service, revenue management, and operational excellence has set the stage for additional improvements in the second half of the year. We just completed the one-year anniversary of our new truckload and logistics service groups, now rebranded as Saia Truckload Plus and Saia Logistics Services. The acquired companies support Saia's strategic goal of diversifying our service portfolio. We just wrapped up the training of the remainder of our sales force to offer this additional suite of services to Saia's customer base. We expect to achieve additional revenue and profit growth from cross-selling initiatives moving forward.
Saia's balance sheet and cash flow are strong, which provides the financial strength to make significant investments in our people, equipment, and technology that are making the enhancement of our value proposition possible. As you've heard me say before, I believe that Saia's quality service offering, focused pricing discipline, target marketing, and consistent cost execution provide a strong foundation for long-term profitable growth and increased shareholder and customer value. Now I'd like to turn it over to Jim Darby.
James A. Darby (CFO)
Thanks, Rick, and good morning, everyone. As Rick mentioned, the second quarter 2013 earnings per share were $0.54, compared to $0.48 in the second quarter of 2012. For the quarter, revenues were $293 million, with an operating income of $23.3 million. This compares to 2012 second quarter revenue of $288 million and operating income of $21.2 million. The LTL yield for second quarter 2013 increased by 3.2%, which primarily reflects the favorable impact of continued pricing actions. Continuing our trend from the past several quarters, yield showed steady improvement as we continued to achieve price increases.... Our industrial engineering initiatives and operational effectiveness have reduced our reliance on purchased transportation, significantly enhanced our fuel utilization, and reduced our self-insurance costs.
The quarter, however, did include higher costs from wage and benefit increases necessary to compensate our workforce and meet customer requirements. While we have invested heavily in new tractors and have reduced the age of our fleet, maintenance costs were again impacted by more costly routine maintenance and higher parts costs. These factors increased maintenance expense by $3.3 million compared to the second quarter of 2012. Depreciation and amortization ran $12.4 million during the quarter, versus $12 million in the prior year quarter. As we previously announced, we implemented a 3% wage and salary increase company-wide, effective in early July. This increase will add approximately $13 million in expense on an annualized basis. We anticipate the impact of this wage increase to be partially offset by further productivity and efficiency gains.
Year-to-date revenues were $566 million, compared to $556 million in the prior year period. In the first half of 2013, operating income was $37.8 million, with net income of $22.7 million, compared to operating income of $32.2 million, with net income of $17.4 million in the prior year period. Earnings per share were $0.90, compared to $0.70 in the first half of 2012. Our effective tax rate was 37.7% for the second quarter of 2013. For modeling purposes, we expect our effective tax rate to be approximately 37.5% for the full year, 2013.
This rate excludes the impact of the tax credit recorded during the first quarter, 2013, that were retroactive to 2012. On June 28th, 2013, we entered into an amendment to Saia's revolving credit facility to increase our borrowing capacity, lower certain interest rates, and extend the duration of the facility. I'm pleased with the terms of this agreement, as it provides flexibility for Saia's future growth opportunities. At June 30, 2013, total debt was $99 million, net of the company's $2.9 million dollar cash balance. Net debt to total capital was 25.5%. This compares to total debt of $90.7 million, and net debt to total capital of 27.4% at June 30, 2012.
Net capital expenditures for the first half of 2013 were $71 million. This compares to $69 million of net capital expenditures during the same period in 2012. The company is still planning net capital expenditures in 2013 of approximately $90 million. This level reflects the purchase of replacement tractors and trailers, and the company's continued investment in technology. As Rick mentioned earlier, Saia's 3-for-2 stock split was paid in the form of a stock dividend June 13, 2013, for shareholders of record on May 31, 2013. This increased our average common shares outstanding by 50% to approximately 24.2 million shares. We believe the stock split will improve market liquidity and trading volume of our common stock, which should broaden our investor base.
Now, I'd like to turn the call back to Rick.
Richard O'Dell (CEO)
Thank you, Jim. The second quarter finished with improved margin and profit progress achieved through effective execution across our network. I believe our ongoing investments in technology and quality have set the stage for us to build on these demonstrated results. We remain committed to our core strategy of improving yield, enhancing customer satisfaction, building density, and reducing costs through engineered process improvements and continuous employee training. This strategy provides the base for long-term profitable growth and increased shareholder and customer value going forward. With these comments, we're now ready to answer your questions. Operator?
Operator (participant)
Thank you. If you'd 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, it is star one to ask a question, and we'll take our first question from William Greene with Morgan Stanley.
William Greene (Head of US Research)
Yeah, hi there. Good morning. Rick, you know, one of the things I think you've mentioned in the past is, if you're able to hit your target or sort of aspirational OR of kind of this 93 range, you'll sort of look to expand the network in various ways and go back into kind of more of a growth mode or a build mode. If you look at some of the acquisitions you've done in the past, as you've gone down and done those acquisitions, how long did it take to sort of do the integration as well as deliver synergies? What kind of turnaround was that when you started to invest that way?
Richard O'Dell (CEO)
Well, we actually, when we've made acquisitions in the past, we were really doing it for the synergy revenue of the cross sell. So we made the integrations on a very quick timeline. Generally, we did them within 60-90 days, and, you know, made the company Saia and began the cross sell essentially, immediately. So, but I think each acquisition is different, depending upon what the geography is and what you're trying to achieve with it. And I think maybe the, you know, stability or quality of the company that you acquire could have an impact on that as well. But, you know, in the past, again, immediately adjacent geographies with very little overlap, and we did those integrations very quickly.
William Greene (Head of US Research)
Yeah. So, okay, that makes sense. So then when you look at 2014 and beyond, and you think about resuming sort of a growth strategy, can you just remind us sort of the level of maintenance CapEx and kind of what you're comfortable spending for growth? What is a sort of a realistic level of growth CapEx? Thank you.
Richard O'Dell (CEO)
I mean, I think our maintenance CapEx, Jim, you want to-
James A. Darby (CFO)
Sure.
Richard O'Dell (CEO)
Handle that question first?
James A. Darby (CFO)
Well, yes, and for next year, we still would have some deferred CapEx for trailer purchases. So we would expect to have an elevated level next year in CapEx, somewhat similar to what we are having this year. That would be absent growth. And then if you looked out beyond that, maintenance levels would probably run $65 million or so, and then you'd have to layer in on top of that growth.
Richard O'Dell (CEO)
I guess, you know, from a capital standpoint, I think we have some additional capacity, both in, you know, some in our fleet, as well as a significant amount, you know, in our real estate to grow within our existing geography. And then obviously, you know, whether you acquired a company or expanded organically, would require some, potentially some incremental investment, you know, depending upon the scope of the geography you expanded into potentially, right?
William Greene (Head of US Research)
Okay, that's great. Thanks for the time.
Richard O'Dell (CEO)
All right. Thanks.
James A. Darby (CFO)
Thanks.
Operator (participant)
We'll take our next question from Jason Seidl with Cowen.
Jason H. Seidl (Analyst)
Hey, guys. Good morning. How are you?
Richard O'Dell (CEO)
Good morning, Jason. How are you?
Jason H. Seidl (Analyst)
Hanging in there. A couple quick questions. You know, listen, Old Dominion, on their conference call the other day, basically was saying that they felt the LTL pricing environment improved during 2Q. Just wanted to get a sense of, you know, how Saia viewed it.
Richard O'Dell (CEO)
Yeah, I mean, I think it's stayed pretty stable. I mean, our contract renewals continue to be in the 3%-4% range, and that's kind of with what we had anticipated and what we've been seeing. And then, you know, our theoretical yield model shows adjusted for, you know, length of haul, weight per shipment, that our yields actually increased in that range as well. So, you know, I think the yield environment has been pretty good and stayed rational.
Jason H. Seidl (Analyst)
Okay. And when I look at some of your new services that you guys have been rolling out, how should we view that going forward in terms of sort of the margins on that and the flow-through towards the P&L?
Richard O'Dell (CEO)
Yeah, I mean, you know, the margins are good on that business. It's just small, you know, and I think we would say, we said initially, we thought $0.04-$0.06 accretive, you know, on a, on a performance basis for this year, and it's performing in in alignment with that. So far it's, it's grown, you know, nicely, but I think there's certainly, clearly a lot of upside there as well. And then, you know, as we've kind of set the business up to be scalable, and handle some incremental volume, there's been some near-term investments in that, but the incremental margins are still good. I would expect them to improve going forward. So, you know, again, I think $0.04-$0.06 accretive this year is still in, in line with what we've...
How we're performing and what we expect, and we would expect it to, you know, should be able to at least grow that by 50% a year, I would think going forward. That's probably should be a low number, but that's something I'd be comfortable with at this point in time.
Jason H. Seidl (Analyst)
That's just with what you have now, you should be able to grow at 50%?
Richard O'Dell (CEO)
Yeah, as I said, without, you know, making additional acquisitions or something that would, you know, improve that segment of the business.
Jason H. Seidl (Analyst)
Okay. Getting back to sort of Bill's question, building around the CapEx, you know, as you look past 2014, you know, when you're sort of starting your catch up on the trailer purchases are done, you know, you guys have been generating some pretty decent cash flow. Is this what you guys are going to try to use to help sort of, you know, grow the rest of the asset-based business, or are there other plans for the uses of cash?
Richard O'Dell (CEO)
Well, I mean, you know, obviously, as returns get better in the business, we'd like to to continue to see some growth there. I think there's plenty of opportunities to grow within our existing geography, and, you know, that would require some incremental equipment. You know, we have some facilities that we lease that we could potentially, you know, acquire over a period of time to get stability in the facility. You know, make some incremental investments for infrastructure and things like that, that would provide some good returns for us going forward as well. So, I mean, I think there's clearly some opportunities. And, you know, obviously, you talk about, you know, the cash flow as the, as the, you know, catch up CapEx come behind, should get better.
And then we also clearly believe there's further room for margin improvement in our business, you know, through growing density, improving our value proposition, and continuing to seek some cost savings moving forward, right? So, yeah, I mean, I think there's a lot of obviously opportunities to both improve cash flow and then, you know, evaluate how that should be spent.
Jason H. Seidl (Analyst)
These are all good decisions to make, right?
Richard O'Dell (CEO)
Yeah, right.
Jason H. Seidl (Analyst)
Last question, and I'll turn it over to somebody else. If I heard you guys correctly, maintenance expense up $3.3 million over the prior year. Should we expect those levels to sort of continue going forward, or should they sort of trend back down to more normalized levels?
Richard O'Dell (CEO)
You know, some of our capital expenditures that we'd anticipated coming in in the first quarter have got pushed back a little bit, so I think that had an impact. We've actually changed some of our maintenance infrastructure, so we're probably maintaining our equipment at a better level than we ever have before. And in doing that, you know, I think there's probably some catch-up maintenance expense that you know that goes as we kind of reevaluate and went through that process. So I would expect it to level off and or decline over a period of time. And you know, we continue to look at that. You know, quite frankly, you know, the fuel economy and the new equipment is surprisingly good.
And, you know, we're also evaluating, you know, whether over time, we may want to take the age of our tractor fleet down, and have a good payback in terms of the maintenance and the fuel equipment and fuel savings as well. So, you know, over time, that could impact our CapEx look as well. But as long as there's returns in it, clearly, it's something we need to look at.
David G. Ross (Analyst)
All right. Thanks, guys. Listen, I appreciate the time, as always.
Charles Jones (Analyst)
Thank you.
Richard O'Dell (CEO)
Thanks, Jason.
Operator (participant)
We'll take our next question from Brad Delco with Stephens.
Brad Delco (Analyst)
Yeah, good morning, Jim, Rick, and Renee. How are you all?
Richard O'Dell (CEO)
Good morning, Brad.
Brad Delco (Analyst)
Jim, I think this is your favorite question, but, you know, we're seeing, I guess, on a year-over-year basis, some LTL tonnage improvements. Did we see that through the quarter? Maybe can you provide the year-over-year, and then maybe what you're seeing so far in July?
James A. Darby (CFO)
Sure, Brad. You're right, it was improving as we went through the quarter. We reported the LTL tonnage being down 1.6% for the quarter, but it did improve each month. April was down 2.5% versus the prior year, April. May was down 2% versus the prior year, May, and June was essentially flat with the prior year. So far, what we're seeing in the month of July is, including a fairly weak July fifth that fell as a day by itself after the holiday, we're showing down 0.8%. If we take out that one unusually light day, the rest of the days are showing that we're actually trending up 0.7% with LTL tonnage over last year's July.
Brad Delco (Analyst)
Got you. So do you think we're at a point now, and I think we were... You know, we talked about this in prior calls, where we're going to see positive tonnage growth in potentially third and fourth quarter?
Richard O'Dell (CEO)
I think that would be our objective, clearly. And, you know, I think if you look at, again, absent kind of the weird comp day, because you had that July fifth, as I call it, a dangling work day, you know, a one day week there. Not a lot of people worked, apparently, but, so that was really light. But again, absent that, you know, we're trending up almost 1%, you know, compared to the negative comps we saw previously. So if we see normal seasonality from that going forward, plus some of our marketing efforts, you know, we would expect to see positive tonnage. And obviously, you know, that can contribute to our margin improvement going forward.
I think as we are generating some much better margins, clearly, you know, it's worth reinvesting in the business at these types of returns, and obviously, seeking some stronger returns from those density benefits going forward.
Brad Delco (Analyst)
Got you. And then maybe, maybe a final question. Just to look at the year-over-year change in the operating ratio, it decelerated just a little bit in the second quarter. I was wondering, you know, is the delay of getting some of that equipment, did that have, you know, can you kind of quantify what impact that had on the margins? And would you expect, you know, year-over-year margin improvement to kind of accelerate or re-accelerate in the back half of the year? Any color you could provide on that would be helpful.
Richard O'Dell (CEO)
Yeah, I think a lot... I mean, the quarter was in line with kind of our expectations for the quarter. I thought it was actually pretty good. Last year's second quarter was very strong. We had some favorable dynamics, particularly with respect to some self-insurance and stuff. And this year, we actually had a pretty good self-insurance quarter as well, with obviously, our claims ratio improved, and we talked about our accident expense being a little bit better again. So, you know, but I thought the absolute results were pretty good. The second half of last year, you know, last year, our tonnage kind of decelerated, you know, through 2Q and into the third quarter, and then we had some cost challenges in the third quarter.
And so, I mean, I think as we kind of indicated on our last call, we would expect some stronger year-over-year comps in the second half of this year with our current run rate, plus some of the initiatives we have and the fact that our, you know, last year wasn't. Actually, I was disappointed in the second half of last year, so we don't want to. We're not planning on repeating a disappointing performance that we had last year. So I think we would expect it to be better.
Brad Delco (Analyst)
Great. Well, I appreciate the time.
Charles Jones (Analyst)
Thank you.
Operator (participant)
We'll take our next question from David Ross with Stifel.
David G. Ross (Analyst)
Yes, good morning, gentlemen and lady.
Richard O'Dell (CEO)
Morning, David.
Charles Jones (Analyst)
Hello.
David G. Ross (Analyst)
Can you talk a little bit more about the yields? Fuel surcharge, did that have a negative impact on the yield year-over-year? And then also, you know, given that length of haul was up and weight per shipment was down, those are both kind of positive tailwinds for yield. It seemed to me that, you know, core pricing might be below 3%, if that were the case, given the yields are only up 3.2%, inclusive of the mix change.
Richard O'Dell (CEO)
Yeah, the difference—the main difference there is that the fuel surcharge year-over-year was actually lower on a percentage basis because fuel prices are down a little bit.
David G. Ross (Analyst)
But you're just saying core pricing, 3%-4%, still kind of the norm, not, you know, going up much, not going down much, it's pretty stable?
Richard O'Dell (CEO)
Correct.
David G. Ross (Analyst)
And then I think, Jim, you made a comment about higher costs from wage and benefit increases negatively impacting the second quarter. Was that anything out of the normal wage and benefit increases you took last year?
James A. Darby (CFO)
...No, you're exactly right. You know, we did a wage increase, July of last year, and so you're going to have some of that affect second quarter compared to second quarter a year ago. So that was pretty much as expected.
David G. Ross (Analyst)
Okay,
Richard O'Dell (CEO)
But again, first to second quarter of last year, we had the same timing of the wage increase, and then our general rate increase is effective on July the first. Essentially, the increase from the general rate increases will essentially offset the wage increase for the quarter.
David G. Ross (Analyst)
Then, I don't, I don't know if I missed it, but did you talk about the linehaul load average? Is that still improving?
Richard O'Dell (CEO)
It is. Our load average is actually up over 4%. We talked about purchase transportation being down, but I think we actually set an objective, you know, as part of our $20 million savings, had some linehaul optimization that included load average, and our load average is up a little over 4%. It's been a nice contributor to our margin improvement.
David G. Ross (Analyst)
Yeah, that's great. Then last question is just on the new, you know, revolver that you guys negotiated. What's the impact on borrowing costs or interest expense going forward? Is there kind of an annual savings number you can give us, Jim?
James A. Darby (CFO)
Well, Dave, what, what I can tell you is, you know, that would be dependent, of course, on our level of borrowing. What I would tell you is that if you looked at our level of borrowing in the second quarter, we would have improved. It would have been about $75,000 lower for the quarter.
David G. Ross (Analyst)
Okay, excellent. Thank you very much.
Operator (participant)
We'll take our next question from Art Hatfield with Raymond James.
Arthur W. Hatfield (Analyst)
Hey, morning, Renee, and young men.
James A. Darby (CFO)
Good morning.
Richard O'Dell (CEO)
Good morning.
Arthur W. Hatfield (Analyst)
Just real quick, a lot of my questions have been answered, but Rick, as we think about things going forward, you know, the last couple of years, you've done such a good job on the cost side and in a fairly tough, you know, freight environment. I think in the quarter, I think my calculation was your incremental margin on the revenue growth was about 40%, and I think it's been higher than that recently. Where are you at in this kind of, I don't want to call it a restructuring, but kind of reengineering of the company and the network? And what needs to happen for you to kind of be able to maintain those types of incremental margins, if it's even feasible to do so?
Richard O'Dell (CEO)
I mean, I think there's still, obviously, a lot of opportunity that's, you know, we, we go through them all the time with quarterly reviews and try to identify, you know, where there are opportunities for further optimization. And I think, too, you know, we talk about in our conference call, you know, we had, we've had seven quarters of our 98% on-time service in a row. And, you know, that's in terms of a history of a company, that's not really very long, right?
Arthur W. Hatfield (Analyst)
Right.
Richard O'Dell (CEO)
We've upped our service standard and performed at a much higher level. You know, I think this, you know, I call it a rethinking of kind of our pricing mechanism to be more sophisticated and targeted in what we're trying to do and willing to do, which is clearly required as your customer base gets more sophisticated. You know, we've cycled through basically our existing customer base with that. And I think, you know, the big opportunity is to continue to market and brand the company as a high-quality, value-oriented organization that's performing at a high level and market that to customers so that we can really generate some growth. And so, you know, we continue to find opportunities on the cost side.
Then I think, you know, again, we're seeing some obviously less negative comparisons from a tonnage basis. You hate to talk about it that way, right? But that's kind of where we've been. And, you know, we would expect to, as we get in a more normal targeted range for yield improvements, that we would expect to see some positive tonnage and then some benefits from that. Because, you know, we have excess capacity in our network. You know, for instance, our linehaul operation has never performed at a more efficient level. And, you know, one of the things we're gonna look at is, you know, targeting some more intermediate and longer haul business that we have not done so much in the past.
You know, part of the reason you can do that and be and operate more profitably at that, because, you know, we're performing better from a linehaul basis in the way that you load the trailers in some of those longer haul lanes. It allows you to handle that business on a profitable basis. So, I think there are plenty of opportunities for us to improve. And while these are good margins for us on a historical basis, you know, there's plenty of opportunities in the marketplace to do better. So, you know, I would expect our incremental margins to still be good going forward.
Arthur W. Hatfield (Analyst)
Okay, and that's very helpful. In that point where you make about your 98% service levels, and like you said, I mean, 7 quarters is great, but it's you want to continue to do that. Have you actually been able to see any customer wins yet, based on the recent success of your on time?
Richard O'Dell (CEO)
Yeah, clearly, we have, and, you know, we've gone back to customers that we haven't done business with for five years and, you know, kind of represented the company the way we are today and the way we're performing, you know, from on-time service and a claim-free perspective and some of the technology that we have that we didn't have five years ago. You know, it's being well received, as you know, particularly with the national account side, that takes longer than it does through smaller customers-
Arthur W. Hatfield (Analyst)
Right
Richard O'Dell (CEO)
... because you kind of have to wait till it comes up for bid. You know, you go through that process, and you know what, what happens? You know, people have a long memory for, you know-
Arthur W. Hatfield (Analyst)
Yeah
Richard O'Dell (CEO)
-defects or a problem that you had or when you parted ways at some prior period of time. And, you know, but I think you, if you look at the way the company's performing, you know, on an absolute basis, and the recognition, I mean, our existing customers are scoring us very high in terms of our performance. And so, you know, there's an opportunity to expand to that beyond. And, you know, I don't, I don't know if we've talked to you about it. I know we've done some things in some of our one-on-ones and stuff to talk about some of the leads we're buying now. And, you know, our market research shows that our image is improving. But I think it's, you know, your image improving trails your actual performance.
And so, you know, we're putting some additional efforts into being out there and being in front of customers to, to make sure they recognize the opportunity, the value proposition that we offer today in the marketplace. I mean, we have a really good cost structure, and we have a really good product offering, so, you know, we should be winning out there, right?
Arthur W. Hatfield (Analyst)
Yeah. No, that's great color. And finally, look, I'm throwing a line into the water on this. I don't know that you can even answer this, but it's very early, but have you seen any business come your way or had any conversations with customers, existing customers or potential customers about their need for help based on experience that they're having due to hours of service implementation?
Richard O'Dell (CEO)
No, I don't.
Arthur W. Hatfield (Analyst)
Okay.
Richard O'Dell (CEO)
Not specifically, no, I don't think so.
Arthur W. Hatfield (Analyst)
I didn't think so, but I thought I'd ask anyways.
Richard O'Dell (CEO)
I mean, I think over time, you may see that, you know, happen, and it should impact the truckload market, and you see-
Arthur W. Hatfield (Analyst)
Right, and it would go to LTL, I was thinking.
Richard O'Dell (CEO)
Yeah, the truck, you know, truckload stop-offs, you know, you would think become more difficult to do and less, less attractive. And we would see that. But obviously, I mean, our weight per shipment actually was down, so you know, I can't, I can't say we've had any success with that. You know, one of the things we've actually seen, this is kind of interesting, is, you know, as we've worked on kind of our, our more granular lane-based pricing, and that's caused us to kind of rebalance the network in some cases, where you take out unprofitable business in a headhaul lane. So as we rebalance our linehaul network to some extent, we have less obvious backhaul that we used to market, you know, on truckload spot quotes.
So some of that business has actually kind of gone away and impacted our tonnage on our weight per shipment a little bit.
Arthur W. Hatfield (Analyst)
Okay.
Richard O'Dell (CEO)
You know, 'cause I don't... I balance the network by not, by not handling, the LTL business that wasn't contributing well. Well, now I don't need the cheap backhaul to fill that lane, so
Arthur W. Hatfield (Analyst)
Right.
Richard O'Dell (CEO)
It's had some impact on our volume, but it's been good for our profit, so.
Arthur W. Hatfield (Analyst)
Got it. Great. Hey, thanks for the time today. Have a good day and weekend.
Richard O'Dell (CEO)
Thanks. You, too.
Operator (participant)
We'll take our next question from Tom Albrecht with BB&T.
Thomas S. Albrecht (Analyst)
Hey, everybody. Good morning.
Richard O'Dell (CEO)
Hi, Tom.
Thomas S. Albrecht (Analyst)
Rick, I know you mentioned the load average was up about 4%. Do you have a number you can share?
Richard O'Dell (CEO)
Oh, the absolute number?
Thomas S. Albrecht (Analyst)
Yeah, yeah.
Richard O'Dell (CEO)
I mean, it's in the mid-28s.
Thomas S. Albrecht (Analyst)
Okay. And then, you know, you mentioned fuel surcharge. I, I know in the 10-K report, you do give what that is as a percentage of revenues. Last year, it was 17.3%. When you mentioned that it was a little bit lower on a year-over-year average, was it above or below that 17.3 figure?
Arthur W. Hatfield (Analyst)
It's running about 0.7% less, I believe, Tom. It was less in the second quarter this year than it was a year ago.
Thomas S. Albrecht (Analyst)
All right. Would that be also below that 17.3 or just 0.7?
Arthur W. Hatfield (Analyst)
Yeah
Thomas S. Albrecht (Analyst)
... year-over-year? I'm sorry.
Arthur W. Hatfield (Analyst)
Compared... Yeah, compared to the 17.3, it would be about 0.7 below.
Thomas S. Albrecht (Analyst)
Okay. And then, where do you stand, Rick, with the logistics trailers? How many have you taken between new and retrofitted? I know that's gonna be a big part of your productivity going forward, and it got underway some in the second quarter, but bring us up to speed.
Richard O'Dell (CEO)
Yeah, sure. Just last week, we ran 93% of our linehaul schedules were run on logistics post trailers. And previously, like, we had 75% of our trailers were all logistics post trailers previously, but we actually ran about 80%-82% on logistics post because, you know, we have a methodology that usually you can't load a flat-sided trailer when you have a logistics post trailer there, so.
Thomas S. Albrecht (Analyst)
Okay.
Richard O'Dell (CEO)
So they had—we had a higher utilization of our logistics post equipment. But again, that's moved up from in the low 80% range to 93% last week. So that improved through the quarter. And we have some additional trailers are still being delivered, but we're probably 80% of this year's orders have been delivered. We're not retrofitting. We're really replacing all of our smooth-sided trailers. And what, you know, I think the retrofit thing you're thinking of is, we're putting the skirts on for a fuel economy on the other pups that we have.
Thomas S. Albrecht (Analyst)
Right. So, let's say your load factor was 28.6, with a high compliance with these types of trailers, where do you think that load, linehaul load average could go?
Richard O'Dell (CEO)
All right. We've done over 29 before for a week, you know, we can do it. I mean, part of it's dependent upon growth and density, right? And our execution. But, you know, I would... I mean, our internal goal is clearly to exceed 29, which would be another-... What, a couple percent almost?
Thomas S. Albrecht (Analyst)
Yeah. And on the PT, I know there's a lot that goes into PT, you know, 6.6% of revenues. You know, you're trying to balance solo one-ways and a whole variety of things. But have you brought that down about as low as it can? Or do you think that that could be eventually something that's more consistently 5.5%-6% of revenues instead of 6.5%?
Richard O'Dell (CEO)
I think where it is, is probably, it's probably right. I mean, obviously, you're always looking for opportunities to optimize it. But a number of things that we've done have kind of taken it down pretty dramatically, and obviously, we don't willingly operate at a suboptimal level. It actually wouldn't. I wouldn't even complain if it had to go up for a while, right? I mean, if we were growing and we had to, on a near-term basis, service something with PT and then reoptimize it going forward, I mean, those are opportunities that wouldn't necessarily be a bad thing either. And then a lot of what we're doing in that PT line is on the rail, too, and, you know, that's very cost-effective utilization, you know, two, three days a week.
You know, as I think there's a good opportunity for us to grow kind of intermediate haul and longer haul business in a couple of our markets, in particular, that we're gonna focus on and target going forward. So, you know, that, you know, it could be an area. If we're growing that segment, it could be a positive, too, right?
Thomas S. Albrecht (Analyst)
Oh, yeah. Yeah, no. Last question for Jim, kind of twofold. Are you still expecting depreciation at $52 million this year? And will healthcare costs still end up about $6 million higher, or are you having different experiences than that?
James A. Darby (CFO)
Those are both good questions, Tom. The first one, the depreciation, because our equipment came in a little bit slower than what we had expected, I'm now looking at depreciation for the year to be closer to $51 million.
Thomas S. Albrecht (Analyst)
Okay.
James A. Darby (CFO)
You got, you know, you can see second quarter only went up from basically 12 to 12.4. So it was a little bit less than we'd anticipated, and it's because of the slowness of getting the new units in and in service.
We're projecting the year to be about 51 now. As far as the increase in the health plan, it's pretty much tracking, and we're still expecting the type of increases that we've quoted before, which I believe are in the range of about $5 million for the year.
Thomas S. Albrecht (Analyst)
Okay.
James A. Darby (CFO)
That's pretty much in line with what we've talked about before, being the legislative impacts, higher excess carrier costs, and just general inflation have taken that up again this year.
Thomas S. Albrecht (Analyst)
Okay, that's helpful. Thanks very much, everyone.
James A. Darby (CFO)
Thanks, Tom.
Richard O'Dell (CEO)
Sure.
Charles Jones (Analyst)
Thank you.
Operator (participant)
We'll take our next question from Scott Group with Wolfe Research.
Scott Group (Analyst)
Hey, thanks. Morning, everyone.
Richard O'Dell (CEO)
Morning, Scott.
James A. Darby (CFO)
Morning.
Scott Group (Analyst)
So I wanted to ask the kind of that third quarter margin question in a bit of a different way. It's a tricky quarter, and there's no clear trend of third quarter being better or worse than second quarter sequentially on a margin standpoint. Maybe if you can just help us think about some of the moving parts. I think maybe there's an extra operating day. Some of the maintenance costs were high in second quarter, but not sure how to think about margins sequentially from second to third, and maybe you can provide a little bit of color.
Richard O'Dell (CEO)
Sure. As you said, it's been a long variance, particularly if you look back over the last five years. You know, third quarter versus second quarter of last year, the OR was actually deteriorated by 1.5 operating points. And again, I was, as I commented earlier, I was clearly, you know, disappointed in our second half last year, and we did have some what we would hope to be non-recurring self-insurance adjustments and work comp, you know, that impacted kind of the second half of last year. Actually, there were some in both quarters. And if you look at our history, the average is a deterioration of about 0.7 OR points.
And I guess I would say, given some of the company-focused initiatives and, you know, our tonnage turning positive, that, you know, we would, at this point, expect to do a little better than that, you know, absent some potential self-insurance and some other volatility that we clearly could have. But we would expect our core performance to do a little better than that.
Scott Group (Analyst)
Okay, that's great. Appreciate that. And then longer term, as we think about the margins, so 92% is obviously a really good quarter. You had OD put up 83.5%, yesterday.
Richard O'Dell (CEO)
They did.
Scott Group (Analyst)
As you think about where you can take this thing in four or five years from now, should we think that there's chunks of $20 million a year of more cost to come out? Or is it really just about, at this point, starting next year, to start growing again and really build intensity? How do we think about the multiyear margin progression or the drivers of it, I guess?
Richard O'Dell (CEO)
Yeah, I mean, obviously, there's drivers on the top line, both through, you know, yield, opportunities created by your value proposition in the marketplace. You know, we believe there's clearly opportunities for us to grow and take share. Obviously, the economy has been kind of weak, hasn't given us much help over the last couple of years in LTL, but, you know, the industry appears to be rational. Most of the players aren't performing all that well, and, you know, we think that gives clearly some opportunities for us to continue to make improvements both on the top line and the bottom line. And I would tell you,
Every year, we target, you know, savings and improvement opportunities that would help us offset some inflationary costs, and, you know, we would, we would clearly be in a position to do that, again, next year. We'll, we'll have our set of initiatives that we're actually getting, getting started outlining those at this point in time, so we can get a good jump start on them. And, you know, I, you know, the company historically has grown and taken share and performed well, and I think as we've kind of gone through this, this transition and more emphasis from us on, some pricing discipline and things that are a key, driver of, of margin success over time, you know, has been institutionalized in our, in our company. I think there are still some opportunities there, but the big portion of that is kind of behind us.
So, you know, that caused a lot of customer churn or turnover. So, you know, we've replaced those customers with customers that, you know, understand, you know, the, our pricing philosophy and see the value of our service and the coverage that we offer at Saia. And, you know, I would expect us to continue to take some share and get some strength through our brand, you know, as we move forward, too. Because, again, I think I wouldn't necessarily call it a transformation, but there's been a big improvement in the company's performance on behalf of our customers over the last two years. And I think it's. We're still in the process of, you know, demonstrating that brand and capitalizing on that brand improvement in the marketplace, and I would think that would be a multiyear opportunity.
So I think you said it first, but I don't disagree that, you know, someone else is defining the opportunity in the marketplace in LTL, and at this point in time, you know, we're chasing that. But I think that Saia is in a good position to narrow that gap over a period of time with some of the execution capabilities that we have and the way that we're performing for our customers and our cost structure.
Scott Group (Analyst)
Yeah, that's, that's really helpful. Okay, appreciate it, guys. Thanks.
Richard O'Dell (CEO)
Thank you.
Operator (participant)
We'll take our next question from Chaz Jones with Wunderlich.
Charles Jones (Analyst)
Yeah, good morning. Thanks for taking my question. I just had one quick one on the $20 million of cost savings. Should we be thinking of that as kind of proportionally across the year, or is that something that accelerates in the back half?
Richard O'Dell (CEO)
I would say there's some of it left, let's say, from a cost savings opportunity, but, you know, a lot of it we actually achieved kind of earlier in the year. I would tell you that, you know, the load average has improved dramatically, you know, early in the year. As you know, we talked to Tom a little bit about what we think some of those future opportunities are. I think it could still be a couple % better. So that, that's, you know, that would be some improvement opportunity we have in the back half. Obviously, if we, you know, if we can achieve some growth and see a normal seasonality, I mean, we should be able to improve their load average and get the density benefits there. You know, our
The other big opportunity there is in fuel economy. You know, some of the new equipment came in a little later than we'd anticipated. Some of the trailer skirts, again, we're—I think all of our—we have most of our new trailers are in at the end of this quarter, and we're 86% complete retrofitting our existing fleet of linehaul equipment. So we would expect some second half benefit in fuel economy. We also continue to work with our drivers on, you know, progressive shifting and fuel-efficient driving techniques, and we're seeing some improvement in that. We actually achieved record miles per gallon in the month of June, and we have some more equipment, new equipment coming in that's getting better than our average miles per gallon.
The fuel efficiency is probably the biggest opportunity in the second half.
Charles Jones (Analyst)
Okay, great. That's, that's helpful.
Operator (participant)
We'll take our final question from Tom Albrecht with BB&T.
Thomas S. Albrecht (Analyst)
Just a couple of items here. What level of compliance are you at for weighing and dimensioning? And are you at 20 dimensioners, and if so, do you plan to add any more?
Richard O'Dell (CEO)
I actually just ordered five more that are coming in in August.
Thomas S. Albrecht (Analyst)
Okay. And then, how about the weighing and research compliance? I think you're shooting for north of 95% this year, but just wanted to get an update.
Richard O'Dell (CEO)
We are at a very high level of reweighs, and we don't see much incremental opportunity there, so that's probably already optimized.
Thomas S. Albrecht (Analyst)
Okay, thank you.
Richard O'Dell (CEO)
But I mean, on the weight and inspection side, inspection side is probably the biggest opportunity that we have, more than on the scale utilization and deployment.
Thomas S. Albrecht (Analyst)
Okay, thank you.
Richard O'Dell (CEO)
All right. Thanks.
Operator (participant)
There are no further questions at this time.
Richard O'Dell (CEO)
All right. Thank you for your interest and your participation, and we'll talk to you soon.