Saia - Q2 2015

Transcript

Operator (participant)

Good day, and welcome to the Saia Incorporated Second Quarter 2015 Results Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Doug Col. Please go ahead, sir.

Douglas Col (Head of Investor Relations)

Thanks, Derek. Good morning, everyone. Welcome to Saia's Second Quarter 2015 conference call. Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer, and Fritz Holzgrefe, 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 would like to turn the call over to Rick O'Dell.

Richard O'Dell (CEO)

Well, good morning, and thank you for joining us today. I'm pleased to report record second quarter earnings for Saia, our fourth consecutive quarter of record earnings. Our positive year-over-year improvement in profitability is very satisfying in that it was achieved by maintaining our approach, combining effective revenue mix management and strong yield improvement, supported by our quality service. Our second quarter financial results reflect our 20th consecutive quarter of year-over-year improvement in yield. A few highlights from this year's second quarter compared to the second quarter of 2014 are: our LTL yield rose 3.9%, despite significantly lower contribution from fuel surcharge. Our operating income was $31.3 million, compared to $22.7 million.

Our operating ratio improved by 280 basis points to 90.3, and our diluted earnings per share of $0.75 compares to $0.53 last year. Similar to the first quarter results, we executed particularly well in the pricing, network optimization, safety, and claims prevention areas, which contributed materially to the results. In particular, it's nice to see clear returns from the ongoing investment in quality as we lowered our cargo claims ratio to a record 0.77% in the quarter, further strengthening our value proposition in the marketplace. Obviously, the year-over-year operating income comparison benefits from what I would call a more normal experience in terms of accident severity. As with the cargo claims improvement, it's encouraging to see improved results from our safety initiatives and our use of in-cab technology.

Finally, our reported LTL tonnage decline of 6% is a bit misleading, as our industry is no longer experiencing truckload tonnage spillover volumes that were prevalent most all of last year, which helped drive LTL tonnage growth a year ago. Note that the shipment decline is approximately half of the 6% tonnage decline and was also materially impacted by softness in the oil patch, where Saia has a significant market share. Now I'd like to have Fritz Holzgrefe review our second quarter results in more detail. Fritz?

Willard Milby (Analyst)

Thanks, Rick, and good morning to everyone. As Rick mentioned, the second quarter of 2015 diluted earnings per share were $0.75, with total revenue of $323 million compares to $330 million in the second quarter last year. Operating income of $31.3 million compares favorably with operating income of $22.7 million in last year's second quarter. Both periods included 64 work days. As Rick mentioned, second quarter LTL yield rose 3.9%, reflecting the positive impact of our continued pricing actions, partially offset by lower fuel surcharge contribution. I'd like to mention a few key expense items and how they impacted second quarter results.

Salaries, wages, and benefits rose 6.4% to $170 million in the second quarter, reflecting last year's general wage increase, which averaged 3% across our employee base, as well as headcount increases we have made to support safety, claims prevention, employee relations, and field sales resources. Purchased transportation declined 28% to $20.2 million or 6.2% of revenue versus 8.5% of revenue last year. This comparison benefited from network improvements, lower volumes, and lower fuel surcharge on purchased transportation. Depreciation and amortization of $16.6 million compares to $15.1 million last year due to continued investment in tractors and trailers. Our fleet age continues to drop. We benefit from enhanced fuel efficiency.

Fuel mileage improved by 0.9% to 6.76 miles per gallon in the second quarter. Claims and insurance expense was $6.4 million in the quarter, compared to $14.2 million in the second quarter last year, a quarter which saw unusual accident severity. As Rick mentioned, our cargo claims ratio of 0.77% compares to 1% last year and was a company record for the quarter. Our effective tax rate was 36.3% for the second quarter of 2015, and we believe that 37.8% is a reasonable run rate for us to use for the remainder of the year. At June 30, 2015, total debt was $108.6 million. Net debt to total capital was 20.8%.

This compares to total debt of $83 million and net debt to total capital of 17.7% at December 31, 2014. The year-to-date increase in debt is primarily related to our acquisition of LinkEx in February and ongoing real estate projects. Net capital expenditures in the first half of the year were $73.3 million, including equipment acquired with capital leases. This compares to $66.7 million of net capital expenditures in the first half of 2014. Full year 2015 net capital expenditures are forecast to be approximately $125 million, including some additional equipment replacement and ongoing real estate projects during the remainder of the year. Now I'd like to turn the call back to Rick.

Richard O'Dell (CEO)

Well, before we open it up for questions, I'd like to add a little bit of detail. Our LTL tonnage was down 6% in the quarter compared to last year. The decline is comprised of a 2.9% decrease in the number of LTL shipments, along with the average weight per shipment decreasing by 3.2%. We believe the decline in shipment count and the weight per shipment are primarily due to our disciplined pricing actions, the previously mentioned lack of truckload spillover freight, and lower volumes from the energy sector. The sequential drop in our weight per shipment from the first quarter to the second quarter was only 0.5% and feels like normal seasonality.

Despite negative tonnage and increasing driver wages, we supported investments in quality and were able to grow our operating income by 38% over last year, illustrating the importance of yield, revenue mix management, and network optimization to operating profitability. With a more balanced network, our need for expensive purchased transportation lessened, and consequently, our purchased transportation miles as a percent of total line haul miles fell to 11.5% from 15% of our miles in the second quarter a year ago. As I've said before on these calls, it does not make sense to add equipment, personnel, and all the associated costs of these additions in a tight, high-cost driver market while handling freight with poor profitability profiles.

While I would prefer to have both tonnage and yield in the current increasing industry backdrop, I believe it's most important to keep our eyes squarely on revenue mix management and the yield opportunity with customers who truly value Saia, outstanding service quality. We face challenging tonnage comparisons again in the third quarter, but the LTL landscape remains conducive to continuing our strategy of pricing for improved profitability on an account-by-account, lane-by-lane basis. So with these comments, we're now ready to answer your questions. Operator?

Operator (participant)

Thank you. If you would like to ask a question over the phone lines on today's call, you may do so by pressing star one on your telephone keypad. If you're using a speakerphone, please be sure that your mute function is turned off to allow your signal through to our equipment. Once again, that is star one at this time for questions, and we'll pause for just a moment. We'll take our first question from Jason Seidl with Cowen and Company.

Jason H. Seidl (Analyst)

Hey, good morning, guys.

Richard O'Dell (CEO)

Morning, Jason.

Jason H. Seidl (Analyst)

Couple quick questions. You know, Rick, I think you mentioned that the environment remains conducive to continuing to make progress and finding the shippers willing to pay for that progress, and it's definitely showed up in your claims ratio. Can you talk a little bit about your ability to reprice contractual business? Has that changed much sequentially, and do you expect that to improve, sort of stay the same as we look to the back half of the year?

Richard O'Dell (CEO)

Sure. So our theoretical yield model shows that true yield, adjusted for length of haul, weight per shipment, and fuel surcharge, improved by about 8% in the quarter. Our contract renewals actually accelerated from about 5% last quarter, and we're in excess of 7% this quarter. So, you know, the market seems conducive, and I think, you know, we just are increasingly focused on the discipline to really not handle freight or even a percentage of the customer shipments that, quite frankly, aren't paying their way in this type of a high-cost market.

And we're still paying signing bonuses to drivers in 20 markets, and, you know, I know the public stuff says, "Hey, you know, the capacity has loosened up," but if you guys have some drivers for me in Chicago or Denver or Southern California or Northern California or Washington, and you guys could please refer them to us 'cause we've got openings.

Jason H. Seidl (Analyst)

I mean, that's a very impressive result in terms of the pricing side. Geez, just think if actually volumes start flowing on in. And getting onto the volume side, Rick, how much do you think of your decline is based on the fact that you guys are just being absolutely aggressive in making sure that the pricing is compensatory out there? And how much do you think is just maybe a little bit of a slowdown on the industrial side?

Richard O'Dell (CEO)

You know, I think the energy sector is one that's having a pretty big impact on us. It probably, we now showed that sector down about 15%. Obviously, the TL spillover from last year had some impact as well. You know, I would say, you know, half of our shipment count decline is really due to the segment of the energy sector that was particularly strong last year. And the other half, you know, some of that's kind of truckload spillover, and some of it's our own pricing actions. I would tell you, if you just kind of look across our regions, we've made some investments in sales, and if you exclude fuel surcharge, nine of our 11 regions actually grew revenue.

The L.A. region was the strongest during the quarter, and I would also comment that if you exclude the impact of fuel surcharge, 8 of our 11 regions actually grew field revenue, which is where we made our investment in an incremental sales resources. You know, our 3PL business, you know, we flipped some of our major repricing actions last year. We've looped those that have kind of taken place. So our 3PL business is now up, our field business is actually up, and our national account business is down. So, you know, I think if you really look at it, kind of excluding the truckload spillover and, you know, the impact from the energy sector. You know, I think our, our tonnage is probably flat, and when you consider we probably-- I think we'll probably report industry-leading yield improvement.

You can probably assume the rest of it was really due to our pricing actions.

Jason H. Seidl (Analyst)

Okay, that's fantastic color. And one more before I go here. Just can you talk about the ability to maybe potentially throw on some more tuck-in acquisitions on the logistics side, in the back half of the year and into 2016?

Richard O'Dell (CEO)

Yeah, yeah, we would be interested in doing that. We're actually seeing some pretty good deal flow, I think, since our LinkEx acquisition. You know, we've got some people reaching out to us that think it might be a good fit. So we're looking at some of those, and it's certainly a possibility. And I would tell you, also, as we continue to improve our operating ratio, which I, you know, see some clear opportunities to continue the efforts that we have going on, on, you know, both the revenue mix management, the yield, and, you know, we overlap some of these tough comps. You know, we would expect to see some positive tonnage over a period of time.

You know, we would also look at some organic expansion into some adjacent states as well, you know, in the next 18 months to two years as well.

Jason H. Seidl (Analyst)

Okay, fantastic. Rick, thanks for the time, as always.

Richard O'Dell (CEO)

Sure.

Operator (participant)

We'll take our next question from Brad Delco with Stephens.

Brad Delco (Analyst)

Good morning, Rick. How's it going?

Richard O'Dell (CEO)

Good. How are you, Brad?

Brad Delco (Analyst)

Doing well. I don't know, I may have jumped on late. Can you provide monthly tonnage, LTL tonnage trends, through the second quarter? And can you give us an update on July thus far?

Richard O'Dell (CEO)

Sure. I'll quick step through that, but we'd like to do both the tonnage and the shipments. I think it sort of tells the story, too.

Brad Delco (Analyst)

Sure.

Willard Milby (Analyst)

Brad, if you look at the shipments for the quarter, April, May and June in order, down 2.4%, down 3.1%, down 3% in June. For the full quarter, shipments were down 2.9%. If you look at tonnage, April, May, June, it's down 5.4%, down 6.3%, down 6.2%, cumulative 6% for the quarter. If you look at kind of where we are in July, you're starting to see a little bit of, I think, the return from our investment in sales. Shipments are actually down through sort of mid part of July. It's only 2.1%-2.2%, and tonnage would be 5.3%-5.4%.

Brad Delco (Analyst)

Gotcha. And Rick, as you sort of look out, I know you have tough comps in the third quarter, but at what point do you think we return back to positive tonnage with, you know, network balance and kind of the revenue mix improving with your customers? Do you think it's fair to say you can return to tonnage growth in 2016?

Richard O'Dell (CEO)

We've targeted tonnage, modest tonnage growth in 2016, and we could possibly turn positive in the fourth quarter, kind of just depending on, you know, what we're able to achieve there.

Brad Delco (Analyst)

Yeah. So you're seeing enough with your investment in the sales force that, you know, you're winning the business you want, which I guess, based on the last question, is that field and 3PL business?

Richard O'Dell (CEO)

Those two segments generally operate better than our national account business. So if you kind of look at where the majority of the repricing has been done, it's on the national account side. I would comment, too, you know, I think I said this on an earlier call, that we've really gone through and repriced materially with some new thresholds for some of our hazmat customers. Obviously, there's some incremental cost and complexity with handling those types of shipments and pretty disciplined on how those segments operate. So that's had some impact as well. You know, obviously, you know, we operate at 90.3. I have way less business that operates poorly than I used to, but it's still a material opportunity to continue to price on a granular level.

You know, I think I've also said this before. You know, we reprice the customer, whether it be a 3PL or a national account customer, and then they reoptimize over us, and then you... You know, it's a constant effort to continue to get where you need to be. And at the same time, you know, our costs are changing. So, you know, we're cost-based, profit-oriented, to make sure that we're being properly compensated. And, you know, I think it was particularly pleasing when you look at, you know, historically, our South Central business was some of the best operating business that we have, and with the softness in the oil patch, you know, we had material declines in revenue there, but we were able to hold our operating income flat there.

And then throughout some of the rest of our geography, where we're growing yield business, we saw material increases in our, you know, operating ratio through our execution. So, you know, we're demonstrating that it's working and the market is, you know, knows where there's tight driver markets and the capacity's tight, and they know they need us in those markets. And so we're sort of making sure that, you know, I don't need any incremental business out of Chicago, operating at 93. I think it should operate at 88. And, you know, we see this as a clear path for us to drive the operating ratio down into the mid-80s over time.

Brad Delco (Analyst)

No, and I, and I think we see that in these results. And one thing I want to point out and maybe get your comments on how maybe this trends for the third quarter. You know, the, the five-year sequential change in your OR from first to second quarter is usually about 250 basis points. You did 240, but the one unique thing is that we didn't have a GRI this quarter, so I think that caught people by surprise, that performance. What would you expect? Is there anything unusual with the, you know, I think your wages typically come in July, but anything unusual to look at in the third quarter to suggest not normal sequential margin improvement or change?

Richard O'Dell (CEO)

Yeah, there's yeah, the wage increase is bigger than normal. I think we announced our driver wage increases are in the 5%-6% range, you know, depending upon driver type, location, versus the kind of recent historical average of 3%-4%. So you know, there's some incremental cost headwinds there. You know, we're committed to our market-based compensation philosophy, and, you know, our study showed that, you know, there is some wage pressure out there in the marketplace, and we're responding appropriately to that. So the wage increase is probably another half point headwind than we'd usually see. While we have that, you know, we would clearly expect our yield increases to overcome this by the time we enter the fourth quarter. So might be some impact on this quarter, but I don't think it's a multi-quarter thing.

We would expect to get it back with what we've been able to achieve from a rate increase perspective, right? I mean, my contract renewals are running way higher than historical average.

Brad Delco (Analyst)

No, no, absolutely. All right, guys, well, I've taken up a lot of time. Thanks so much, and congrats on the quarter.

Richard O'Dell (CEO)

Thanks.

Operator (participant)

We'll take our next question from David Ross with Stifel.

David Ross (Analyst)

Yes, good morning, gentlemen.

Richard O'Dell (CEO)

Good morning, David.

David Ross (Analyst)

You mentioned the true yield, you know, as being up 8%, but you just had... Do you have a revenue per hundredweight number ex-fuel? And so the 3.9 reported, you know, ex-fuel, what that was in the quarter?

Richard O'Dell (CEO)

We don't really report it ex-fuel.

David Ross (Analyst)

Okay. Then if we, you know, shift over and talk about service, because you talked about cargo claims ratio, you know, being at a record level. I know you guys got that Xtreme Guarantee where you measure a lot of different service, you know, points for customers. You know, is that improving on all service levels? Is there anything that still, you know, needs to be fixed there?

Richard O'Dell (CEO)

We're always looking for opportunities to improve in the tight capacity market. You know, our goal is 98% on time service. We didn't quite round to that, so, you know, I didn't want to quote that we were 98 when we weren't quite there. So, you know, we're performing well from a service standpoint. There's a few of these driver markets where, you know, we've got some challenges, but, you know, we're very proud of kind of the quality that we have in a difficult market. And obviously, the cargo claims ratio improvement is, you know, a very important factor for customers as well. And on all of our metrics, I think we're performing very well.

David Ross (Analyst)

And then there's some, you know, legislation in the works about allowing twin 33-foot trailers. Have you looked at that as a potential impact in your business and whether or not you think that that might be a benefit over the next couple of years?

Richard O'Dell (CEO)

We have analyzed it. We think it's a benefit. Obviously, there's some capital costs, but on a run rate basis, we believe our line haul costs would improve somewhere in the neighborhood of $15 million. So it's probably worth an operating point to us. You know, once you put some incremental depreciation in there for what you'd want to move the fleet over a period of time.

David Ross (Analyst)

Excellent. Thank you very much.

Richard O'Dell (CEO)

All right. Thanks.

Operator (participant)

We'll take our next question from Art Hatfield with Raymond James.

Art Hatfield (Analyst)

Hey, hey, morning, everyone. Hey, Rick, did you mention what the normal progression in OR is from Q2 to Q3?

Richard O'Dell (CEO)

Normally, it gets about a point worse because of the wage increase.

Art Hatfield (Analyst)

Okay, and, and you're saying that you've got a little bit of a headwind this year because of the, the higher than historical driver pay increases?

Richard O'Dell (CEO)

Right.

Art Hatfield (Analyst)

Okay.

Richard O'Dell (CEO)

What I would say... Well, the other comment, I don't want to lose sight of this, but I'm also saying that with our anticipated rate increases through the quarter, we would expect to get that back in the fourth quarter.

Art Hatfield (Analyst)

Got it. Okay, okay, fair enough. So when we look at the business today, and you've done such a phenomenal job on the cost side, you know, at some point, you know, to continue to improve the OR, theoretically, you have to grow. If price goes on forever, yes, it can grow, but kind of where are you at in extracting costs out of the business or efficiencies? Do you still have a lot there, or are we getting close to the point where you need incremental growth to kind of start to move, to see the continuation in the OR down?

Richard O'Dell (CEO)

Yeah, I mean, I think there's always opportunities to optimize in anything from, you know, ongoing efforts to have fuel efficiency. We're putting in, actually an enhanced line haul system, an enhanced maintenance system that should help us reduce costs in those areas. So, you know, I think there's plenty of opportunities for us to continue to improve and get better. I would also tell you, you know, while we've made a lot of progress on the yield sophistication, I think there's ongoing opportunities to price better and, you know, have less opportunity for customers with sophisticated systems to optimize over you and make sure you're being properly compensated in areas. So I think that's another incremental opportunity for us.

You know, while we've materially priced a significant amount of our business, there's still a significant amount of our business that, let's just say, operates above a 95 OR, which isn't giving us our return on invested capital. So, you know, we think we can reprice that and retain a large portion of that. I mean, we're seeing, you know, we're getting better at it, and I think our customers are accepting that, all right, you know, costs are going up, so I need whatever the number is, 4% or 5% kind of across the board.

But this 20% of my business, you know, needs to be materially repriced because it's all head haul out of Chicago, and, you know, or I'm going to Denver, Colorado, or the Pacific Northwest, and, you know, those lanes, we just, you know, they're not paying their way. It needs to be repriced, and, you know, we're seeing good retention in those areas. And I can tell you, of all the repricing we've done, we haven't really lost a major customer. We've lost some portions of business and segments, but we've been successful getting some material increases and retaining the business.

Art Hatfield (Analyst)

Have you had the experience yet where some of that business has gone away for whatever reason, 'cause of your efforts on pricing, that has come back because they've suffered from poor service with the new-

Richard O'Dell (CEO)

Well, you know-

Art Hatfield (Analyst)

-provider?

Richard O'Dell (CEO)

I would tell you, you know, the 3PL business, where we went, we repriced 3PL business three times last year. And, you know, as we were in the middle of last year, and we were not seeing the transactional 3PL business I'm referring to, you know, we weren't seeing the types of returns we were looking for on the business levels we were seeing, and, you know, we repriced that last year. At this point in time, that revenue is now up 10% year-over-year, right? So the business comes back over a period of time because other people go through their repricing initiatives as well, right? And, and you have, you know, a flight to quality of service over a period of time, too. So yeah, yeah, I mean, it, it happens all the time, Art.

Art Hatfield (Analyst)

Great. No, that's very helpful. Hey, thanks for your time this morning.

Richard O'Dell (CEO)

All right, great. Thanks.

Operator (participant)

We'll take our next question from Scott Group with Wolfe Research.

Scott Group (Analyst)

Hey, thanks. Morning, guys.

Richard O'Dell (CEO)

Morning, Scott. Hey, Scott.

Scott Group (Analyst)

So, a couple of things. On when you gave the tonnage commentary around July, Fritz, I think you said that some of the sales initiatives are starting to pay off. Just curious, what tells you that it's internal sales initiatives paying off and not just the market and underlying demand starting to get a little bit better?

Willard Milby (Analyst)

Well, I think we... I mean, I'm just looking at the trend, kind of quarter two, to what we're seeing through this quarter, and I know where the emphasis is internally. And we're below the trend that we saw most recently, so that's positive. I think it's also in some of the data that Rick alluded to earlier, talking about different successes we had across our different regions. So I think it's, you're seeing some of that benefit now.

Richard O'Dell (CEO)

And if you look at it, 8 of our 11 regions grew field revenue in the quarter, and obviously, 2, 2 of the regions are heavily impacted by the energy sector. So you can see the places where we're applying resources, you know, we're having success, and that's in the—that's in that yield sector there, right?

Scott Group (Analyst)

Okay. With the acceleration in pricing renewals that you talked about, do you think we can, should we start thinking about yield growth better than that 3.8%-3.9% we saw in the second quarter, or better than the 8% true yield that you talked about? Do you think overall yield growth accelerates in the second half?

Richard O'Dell (CEO)

You know, our kind of refocused efforts started in June of last year, and we've made some material headway, so, you know, our comps on yields get tougher on a year-over-year basis. But we also kind of overlapped the decline in fuel surcharge. I guess I, I would tell you, you know, I think our yield expectation is in the neighborhood of kind of where we're currently running, so, you know, mid-single digits. I really don't expect it to step down with what we see going on in the marketplace, and our own internal analytics show that there's still a material opportunity.

Scott Group (Analyst)

Yep, that makes sense. And last thing, so your commentary on margins that may be a little bit worse than normal in the third quarter, but then better than normal in fourth quarter, are you contemplating a GRI in either of those quarters? And do you think that... I guess, would you expect one from the market in either of the quarters?

Richard O'Dell (CEO)

Yeah, I don't know. We tend to follow the market with the general rate increases, so I guess my commentary wasn't really anticipating that. But if that were to happen, we tend to follow the market on probably a little bit of a lag basis, just to make sure, you know, you don't run off a profitable segment, right?

Scott Group (Analyst)

So, meaning, if we get a GRI, let's say, around peak season in October, the fourth quarter could be a lot better than normal relative to the third quarter.

Richard O'Dell (CEO)

That would be true.

Scott Group (Analyst)

Yeah.

Richard O'Dell (CEO)

But I also, compared to our historical norm, I would expect to increase rates materially more than I have in the past, just with my ongoing yield initiatives. Right?

Scott Group (Analyst)

Gotcha.

Richard O'Dell (CEO)

So part of my point was, while this quarter has a little bit stronger headwinds, then you would also say the fourth quarter seasonality would probably be better than normal off of 3Q.

Scott Group (Analyst)

Yep, yep.

Richard O'Dell (CEO)

Because of the yield that I expect to get in the quarter, right? My run rate's going to be at a different place. I'll cover the incremental cost by the time I hit 4Q.

Scott Group (Analyst)

Yeah. And actually, just-

Richard O'Dell (CEO)

The cost.

Scott Group (Analyst)

Yeah. Just, just with that in mind, do you think—Is, is 2016 in your mind, the year where you can break through sub 90? Or is that more of a 2017 in your mind?

Richard O'Dell (CEO)

You want the year or quarters, or what are you looking for?

Scott Group (Analyst)

The specific month actually would be great. No, if you have a view on the year, would be great.

Richard O'Dell (CEO)

Look, look, I was disappointed that we didn't break it 90 this quarter, okay?

April and June were very good. You know, May wasn't really a very good month for us, just the way the workdays fell and things. So it was kind of interesting. I was pleased with kind of where we ended up, but we had two very good quarters that were well into the eighties and-

Scott Group (Analyst)

Two months.

Richard O'Dell (CEO)

I'm sorry, 2, 2 months that were well into the 80s that got the result that we did. So it's, you know, it's very achievable. And from a yield standpoint, I mean, I would be disappointed if we don't get there next year, for the year.

Scott Group (Analyst)

Okay, great. Thank you, guys.

Richard O'Dell (CEO)

All right.

Operator (participant)

As a reminder to our audience, that is star one on your telephone keypad for questions. We'll take our next question from Willard Milby, with BB&T Capital Markets.

Willard Milby (Analyst)

Hey, good morning, guys. Thanks for taking my question. If I could jump back to tonnage real quick. If I look at the monthlies from Q3 2014, July 5 being the toughest with the, I guess, the weird way July 5 worked out at 9.4%. And it seems like tonnage could accelerate, you know, in these remaining months in Q3, especially with the changes to the sales force and other initiatives that you've got going on. Is that kind of the feel you're getting for the quarter? And could we see tonnage accelerate sequentially, even in Q3 here?

Richard O'Dell (CEO)

I mean, it could. You know, we're kind of encouraged by some of the things that we're seeing, obviously as going into July and, you know, I think the opportunity is there to, for tonnage to turn positive, you know, some months, at least in 4Q and certainly by 1Q. So I mean, I think we're getting some momentum, and particularly when you consider kind of the toughness that we're seeing from an oil patch standpoint, you know, that's a pretty big negative for us to overcome.

Willard Milby (Analyst)

Right. Right. And just based on your commentary on, I guess, overall sequential ORs, about a point, is the historical norm anyway. And, you know, with the higher driver wages at 5%-6%, adding another half point, you know, that would imply flat OR year-over-year. But I'm getting the sense that you expect to do, you know, better than that. I just wanted to confirm that, year-over-year, better than flat, for Q3.

Richard O'Dell (CEO)

Yeah. I mean, I think the issue is whether we can get enough yield to overcome that and/or volume to overcome that. So I think somewhere in that range is probably the most likely, 1-1.5 points worse.

Willard Milby (Analyst)

All right.

Richard O'Dell (CEO)

But I don't also don't disagree with you. I'll be disappointed if we don't do better than last year.

Willard Milby (Analyst)

Right. All right, well, that's all I had. Thanks for the time.

Richard O'Dell (CEO)

Okay.

Operator (participant)

We have no further questions. At this time, I'd like to turn things back over to Mr. Rick O'Dell for any further or closing remarks.

Richard O'Dell (CEO)

All right. Thanks for your interest in Saia. We appreciate it.