Saia - Q2 2016
July 29, 2016
Transcript
Operator (participant)
Good day, everyone, and welcome to the Saia Incorporated Second Quarter 2016 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Doug Col. Please go ahead, sir.
Doug Col (Treasurer)
Thank you, April. Good morning. Welcome to Saia's Second Quarter 2016 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. But 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. I would now like to turn the call over to Rick O'Dell.
Rick O'Dell (President and CEO)
Well, good morning, and thank you for joining us to discuss Saia's results. This morning, we announced our second quarter 2016 earnings, with diluted earnings per share of $0.52 compared to $0.75 in the second quarter of 2015. Financial results in the second quarter this year are disappointing when compared to last year's record second-quarter earnings. The freight environment throughout the quarter was consistent with the lackluster activity we discussed on our first-quarter conference call in April. With that as the backdrop, I'm pleased with our performance from a service and quality standpoint, as well as our productivity gains. Our strong effort in these areas helped to support our long-standing goal of improving our yield. We were able to increase our LTL yield for the 24th consecutive quarter, and our average contractual price increases were 5.4% for the quarter.
A few comparisons of the second quarter results this year versus last year's second quarter are as follows: Our LTL yield increased 2%, and as I mentioned earlier, contractual renewals were up an average of 5.4%. LTL yield, excluding fuel surcharges, was up 5.2%. LTL shipments per workday were down 2.6%. Our LTL weight per shipment fell 1.7% to 1,121 pounds, but was up fractionally from the first quarter. Dock productivity improved 2%, and the second quarter marked the third consecutive quarter of sequential improvement in spite of a soft volume environment. Similarly, P&D productivity improved 1% and showed sequential improvement for the past 2 quarters. Our purchased transportation miles per day were down 34% in the second quarter as our focus on line haul optimization yielded savings.
Now I'd like to have Fritz review our Second Quarter financial results in a little more detail.
Fritz J. Holzgrefe (VP of Finance and CFO)
Thanks, Rick, and good morning, everyone. Second quarter total revenue of $312 million compares to $323 million in the second quarter last year, a decrease of 3.6%. The decrease resulted primarily from decreased tonnage and fuel surcharges, partially offset by yield management. Operating income fell by 30.6% to $21.7 million, compared to $31.3 million for the second quarter of 2015. Both periods included 64 workdays. As Rick mentioned, second quarter LTL yield rose 2%, reflecting the positive impact of our continuing pricing actions, offset by lower fuel surcharge contribution. Fuel surcharge revenue was down 24% from last year's second quarter. I'd like to mention a few key expense items and how they impacted second quarter results on a year-over-year basis.
Salaries, wages, and benefits rose 3.2% or $5.5 million to $175.9 million in the second quarter, reflecting the impact of a 4% general wage increase last July, as well as increased benefit costs, particularly in the area of self-insured healthcare costs, which rose by 13% in the quarter. Purchased transportation expense in the second quarter dropped by $5.9 million to $14.3 million and was 4.6% of revenue versus 6.2% of revenue last year. Similar to the first quarter results, 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 7.9%, compared to 11.5% in the second quarter of 2015. As a result of our continued investment in new equipment, we experienced favorable cost trends around fleet maintenance. Outside maintenance and parts expenses were down 22% in the second quarter. Fuel efficiency continued to benefit from having a younger fleet of tractors, and that measure improved by 1.6% to 6.87 MPG in the quarter. Unfortunately, yield, productivity, and cost-saving goals that were reached in the second quarter were more than offset by accident expenses and our self-insured healthcare costs reflected in the salary, wages, and benefits line I mentioned earlier. Volatility around accident expenses drove the $4.5 million year-over-year increase in claims and insurance expense.
While our premium costs are up year-over-year, the large delta versus last year's second quarter is primarily explained by an increase in frequency and severity in the current period and negative development on older claims. Depreciation and amortization of $19.7 million compares to sixteen point six million in the prior year quarter and reflects our continued investment in tractors, trailers, and forklifts. Our effective tax rate was 35.2% for the second quarter of 2016, though we still expect full-year tax rate will be 36.5%. At June thirtieth, 2016, total debt was $139.4 million, and net debt to total capital was 23.4%. This compares to total debt of $108 million and net debt to total capital, 20.7% at June 30th, 2015.
Net capital expenditures in the first half of 2016 were $136.2 million, including equipment acquired with capital leases. This compares to $73.3 million of net capital expenditures in the first half of 2015. Full year 2016 net capital expenditures are forecast to be approximately $140 million. Now, I'd like to turn the call back to Rick.
Rick O'Dell (President and CEO)
Thanks, Fritz. To continue on the capital expenditure topic for a moment, I'm very pleased with the effect our younger fleet of tractors, trailers, and forklifts is having on our results. The return is seen in the maintenance savings, increased reliability, and in fuel savings. The newest tractors in our fleet average 7.5 miles per gallon in June, and this should get better as the tractors are broken in. We'll continue to invest heavily in our business to maintain fleet age and terminal efficiency. To summarize on the first half of the year, I would say that while the environment remains challenging, we continue to have success with our core strategy of creating a value proposition in the marketplace that supports our desire to improve yields.
In an inflationary cost environment, we believe it's critical to execute on our efficiency efforts and stand firm on pricing to support the ultimate goal of improving margins, earnings, and returns for shareholders. With these comments, we're now ready to answer your questions. Operator?
Operator (participant)
Thank you. If you would like to ask a question, simply press the star key followed by the digit one on your telephone keypad. Also, if you are using the speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one at this time. We'll pause for a moment. We'll first hear from David Ross of Stifel.
David Ross (Equity Research Analyst)
Yes, good morning, gentlemen.
Rick O'Dell (President and CEO)
Morning, David.
David Ross (Equity Research Analyst)
I, you know, Rick or Fritz, could you just, I guess, first take us through the tonnage trends in the quarter and what you were seeing as we progressed through April, May, June, and where you are in July?
Fritz J. Holzgrefe (VP of Finance and CFO)
Sure. So, April, May, June, actual was minus 3.8%, April. May was minus 4.9%, June was minus 4.4%, full quarter was 4.3 down. Adjusting for Good Friday, that April number would have been minus 5.8%, full quarter minus 5%. Month to date during July or through July so far, down 3.8% year-over-year.
David Ross (Equity Research Analyst)
Then, you know, given the rig count appears to be bottoming or coming up a little bit off the bottom, do you see any signs of life in your oilfield services energy business?
Rick O'Dell (President and CEO)
Not much, to be honest with you.
David Ross (Equity Research Analyst)
Then, you know, you talked about CapEx for the year being $140, but year to date, it's about $136. Does that mean that there's not gonna be a lot of new equipment coming on board in the second half of the year? Yeah, can you talk a little bit more about why, you know, that's, it's getting cut off so much?
Fritz J. Holzgrefe (VP of Finance and CFO)
Sure. I think as we look at our, you know, as we entered the year with our plan, we took the revenue equipment primarily in the first six months of the year. So I don't anticipate any, maybe one or two, the balance, but nothing there. We've taken the-- made our opportunistic sort of real estate investments that we had planned. You know, that if something were to change between now and the end of the year, like, you know, it might happen in the real estate area. But, you know, it, it's just more about how we've executed against our operating plan so far this year. And it's not a reflection of, you know, any change in our sort of business mode.
David Ross (Equity Research Analyst)
If you look at use of cash, you know, and I'm gonna, kind of come back to that CapEx, you know, where do you see the biggest returns in investing your cash right now? Is it in the new trucks because of the maintenance and fuel economy savings? Is it in, you know, some kind of terminal capacity expansion? Is it in safety investments, to help with insurance and claims, technology to improve productivity, you know, buying back stock? You know, where do you, you know, see kind of the biggest bang for your buck in terms of investing the cash?
Fritz J. Holzgrefe (VP of Finance and CFO)
I mean, the way, the way we look at it, I mean, I think there are opportunities. You know, Rick pointed out in his notes, and, you know, we've seen the returns on the investment in new equipment. You know, the equipment that we bring on and invest in, we typically are trying to buy the latest and most current, safety technology. So, that is, we see that as an always, an opportunity for a capital return, a return on, reasonable return on capital. I think you'll, as we have done in the last couple of years, and I think you'll see this going forward, is that we'll invest in, locations that are strategic. We like to own those, and as those opportunities come up, we'll, advance that investment.
And then, you know, we added a terminal this year in northern suburbs of Chicago. That was a, you know, we viewed that as a positive investment for us, just to provide better service in a second terminal in the Chicago market. So, you know, we tend to be focused on where the, you know, technology areas, that those are always opportunities for us to enhance our back office, so we make those investments. So I think broadly, you know, we don't see areas that are not attractive to invest around revenue, real opportunistic real estate, and technology. Those are all positives for us, and I think you'll continue to see us going forward, doing, making those sorts of investments.
David Ross (Equity Research Analyst)
So with the free cash flow expected in the back half of the year, yeah, I guess, what's your, I guess, leverage ratio or kind of target, you know, balance sheet comfort in terms of, you know, adding debt to the business? Is it, you know, you want to get it back below 20% net debt to cap first, or, you know, could we see maybe a further reduction in average fleet age, 2017 purchases in the back half, and maybe take that number up?
Fritz J. Holzgrefe (VP of Finance and CFO)
I think what you'll see us do is to continue to kind of move along the strategy that we've had, which is, you know, continue to keep our financial flexibility, pay down debt, be in a position that we can make the real estate investments into 2017, equipment investments in 2017 that we, you know, we feel drive value in the business. So I think that that will continue to manage the balance sheet conservatively and be in a position that we can execute on those sorts of investments in 2017. I think that, you know, the kind of the runway rate numbers that you see this year, I mean, I would expect to spend at least that next year.
David Ross (Equity Research Analyst)
Excellent. Thank you very much.
Rick O'Dell (President and CEO)
Yeah, hey, David, I would just comment further. You know, the strategy we have of kind of taking the equipment early in the year really allows us to kind of flex our fleet size up, you know, through the seasonal peak period, and then we do our trade-outs kind of on the back end. So, you know, net-net, it's an effective deployment of capital because you're not permanently upsizing your fleet for a peak, a seasonal peak. Hopefully, we'll see some more seasonal peaks, right?
David Ross (Equity Research Analyst)
That'd be good.
Rick O'Dell (President and CEO)
Yeah.
Operator (participant)
Next, we'll hear from Ravi Shanker of Morgan Stanley.
Alex Vecchio (VP)
Good morning. It's actually Alex Vecchio here in for Ravi. Rick, so the last few years, you've been getting some, you know, pretty solid contractual rate increases, well ahead of the broader industry, and I think that's been largely a function of the fact that, it, you know, you believed a lot of your lanes were basically underpriced versus peers. Can you kind of help us think about what inning are we in in that process, and how much more do you have left to go? Any type of quantification as to, you know, what percentage of your lanes do you still think are underpriced versus the market that still need to be addressed there?
Rick O'Dell (President and CEO)
It's probably 10%.
Alex Vecchio (VP)
You're 10% of the way through, or you got 10% left?
Rick O'Dell (President and CEO)
No, about 10% of our revenue still needs to be repriced.
Alex Vecchio (VP)
Okay, gotcha.
Rick O'Dell (President and CEO)
You know, obviously, you know, the pace at which that can move is kind of, you have to balance price and volume in a network business, and we're very disciplined with it, but, you know, you have to be prudent with respect to that. So, you know, we continue to step that through, and, you know, it's kind of a perpetual thing, too. I mean, you're not, you know, if you're growing business, you know, outbound from the upper Midwest, let's just call it Chicagoland, and your, you know, your business from your lower Midwest, Texas, you know, is down because of the oil field, for instance, then you've actually created a larger imbalance that you need to be compensated for because you're running more empty.
So, you know, there are kind of more than the normal amount of changes in lane imbalances that are kind of going on in today's environment, but that's always something that you have to deal with.
Alex Vecchio (VP)
Okay, that makes sense. Then, you know, you typically provide some color on how to think about the OR in the third quarter. Naturally, the insurance line was a bit higher than, than normal, this quarter. How should we think about 3Q OR from a sequential basis?
Rick O'Dell (President and CEO)
Yeah, well, 2Q to 3Q has been volatile, but it's kind of averaged about a 1-point decline, you know, due to kind of seasonality, plus our July 1st wage increase. So should we be able to achieve a more normal accident expense, I think a flattish type OR from 2Q to 3Q would look reasonable at this point.
Alex Vecchio (VP)
Okay, got it. All right, that's all I had. Thanks for the time.
Rick O'Dell (President and CEO)
Sure.
Operator (participant)
Next, we'll hear from Brad Delco of Stephens.
Brad Delco (Managing Director and Research Analyst)
Good morning, Rick. Morning, Fritz and Doug.
Rick O'Dell (President and CEO)
Morning.
Fritz J. Holzgrefe (VP of Finance and CFO)
Morning, Brad.
Brad Delco (Managing Director and Research Analyst)
Maybe going on that free cash flow question again. Rick, can you comment at all about what the M&A environment is like? Is there any interest in looking at expanding your geography through M&A, or is that sort of on the back burner, given the kind of environment we're in today?
Rick O'Dell (President and CEO)
You know, and I think we would consider the right opportunity. You know, I think you know, we believe there's value inside its current network, but we think that our customers would... and they come to us and ask us to kind of expand our network to accommodate some of their requirements. So we continue to evaluate that. I would say probably the most likely scenario is maybe some combination of organic expansion and maybe some smaller tuck-in acquisitions.
Brad Delco (Managing Director and Research Analyst)
So, that's still possible in this type of environment?
Rick O'Dell (President and CEO)
Yeah, I think so.
Brad Delco (Managing Director and Research Analyst)
And then kind of focusing on a similar yield question. I know there's been so much focus on improving price. I feel like a while ago, you kind of discussed the profitability dynamics between your 3PL contractual and tariff customers. Is there any way you can provide just a high-level comparison of what that was, say, three or four years ago versus where it is today, to kind of see how that pricing focus has changed that dynamic?
Rick O'Dell (President and CEO)
Yeah, I mean, with some of our continuous efforts on, you know, this more detailed lane-based pricing, both the national accounts and 3PLs have improved pretty materially from where we were three years ago. And I guess I would say on the other side of that is, you know, the small customers, on average, has probably deteriorated a little bit. It would be our most profitable segment, but the overall yields on that probably haven't, you know, you can't maintain those kind of like you used to because of variety of things in the market dynamics.
Brad Delco (Managing Director and Research Analyst)
Effectively, you force them into the 3PL channel anyway, right?
Rick O'Dell (President and CEO)
That's what can happen if you keep trying to keep a lot of margin in there, it gets taken away, right?
Brad Delco (Managing Director and Research Analyst)
That's right. And then what percentage of the freight is 3PL today versus maybe a year ago? Do you have that number?
Rick O'Dell (President and CEO)
I mean, the blanket 3PL, which is just a basic, you know, resell of some rates that we provide, has gone from a little over 10% to, I think it's up year-over-year, about 5%. So, you know, it's gone from 10% to 10.5%. And then the kind of customer-specific pricing that's managed through a 3PL is about another 10% of our business, and that's probably fairly consistent.
Brad Delco (Managing Director and Research Analyst)
Okay.
Rick O'Dell (President and CEO)
We're in the neighborhood of 21%.
Brad Delco (Managing Director and Research Analyst)
Fritz, just a quick point of clarification. Did you, did you say that fuel surcharge revenue was down 24% year-over-year?
Fritz J. Holzgrefe (VP of Finance and CFO)
Yes.
Brad Delco (Managing Director and Research Analyst)
Okay. All right, guys, that's it for me. Thank you for the time.
Rick O'Dell (President and CEO)
Sure.
Operator (participant)
Next, we'll hear from Jason Seidl of Cowen.
Jason H. Seidl (Managing Director)
Thank you, operator. Hey, guys, good morning.
Rick O'Dell (President and CEO)
Morning, Jason.
Jason H. Seidl (Managing Director)
I want to talk a little bit about the accident numbers in the quarter and when you think that might hit some actuarial adjustments. Should we be thinking maybe that it's in quarter two, if they adjust for you guys? In other words, could that, could that increase some of your going forward costs if there's an adjustment?
Fritz J. Holzgrefe (VP of Finance and CFO)
Hey, Jason, could you repeat your question? I think you're breaking up a little bit, and I didn't quite get all the elements of it.
Jason H. Seidl (Managing Director)
Oh, sorry, guys. Can you hear me now better?
Fritz J. Holzgrefe (VP of Finance and CFO)
A little bit. You're, you're kind of breaking in and out, but let's give it a shot.
Jason H. Seidl (Managing Director)
Okay. I was asking if the accident costs in the quarter, because they were both severity and frequency increases, is going to impact any actuarial adjustments before the end of the year, so that might increase your go-forward costs?
Fritz J. Holzgrefe (VP of Finance and CFO)
No, that, that is a. We, the process we go through for our BIPD expenses, we essentially review each and every claim and establish a reserve at any development basis, the, each claim. So it's not an actuarial, the calculated number, say, is like a workers' comp number might be.
Jason H. Seidl (Managing Director)
Okay.
Rick O'Dell (President and CEO)
I would say this, though, Jason. I mean, I think it's an increasingly litigious society, and, you know, we keep seeing these lawsuits. They'll drag out and come out of the woodwork from an accident that happened three years ago that would appear to have some minor injuries. And so, you know, a fairly large portion was from unfavorable development of older cases, which is probably gonna cause us to, you know, reserve at a higher rate in anticipation of that being kind of an ongoing, you know, challenge. So.
Fritz J. Holzgrefe (VP of Finance and CFO)
Yeah.
Rick O'Dell (President and CEO)
You know, what we would hope to see, what we'd not hope to see, what we'll probably see is kind of higher ongoing, but hopefully less volatility by, you know, trying to do a better job anticipating that.
Jason H. Seidl (Managing Director)
Okay, perfect. No, that's good, good clarity. You also said that about 10% of the business is left to be repriced, and you said sort of, you know, you're going to try to balance on when that gets repriced based on your, I guess, your need for volume and how the market is. But is it fair to say that over the course of the next year or so, that stuff will get repriced to market value?
Rick O'Dell (President and CEO)
Yes. I think that's true.
Jason H. Seidl (Managing Director)
Okay. That's, that's fair enough. That's all I have, guys. I appreciate it.
Rick O'Dell (President and CEO)
What I'd tell you is sometimes we, you know, sometimes we concede and get halfway there and come back to at a later date. You know what I'm saying?
Jason H. Seidl (Managing Director)
Right. Right. Okay.
Rick O'Dell (President and CEO)
So if I had a lane that needed 14, I mean, I might have to concede and take eight and say, "Well, see you in 12 months," right?
Jason H. Seidl (Managing Director)
Right. Some of the way there is better than none of the way there.
Rick O'Dell (President and CEO)
Yeah, right.
Jason H. Seidl (Managing Director)
Exactly. All right, guys, appreciate it.
Rick O'Dell (President and CEO)
All right, thanks.
Operator (participant)
Next, we'll hear from Todd Fowler of KeyBanc Capital Markets.
Todd Fowler (Equity Research Analyst)
Great, thanks. Good morning. Thanks for taking the question. I jumped on a little bit late, and I apologize if we talked about this, but just on the wage inflation side, where do you think your core wage inflation is running? And is there any expectation for wage increases, for the rest of the year, in the second half at this point?
Fritz J. Holzgrefe (VP of Finance and CFO)
So, Todd, we typically, our plan is, or each year, we give our wage increases in July. We're - we have that, we've executed on that this year. And that was roughly a 3% increase. And, you know, that's driven by market. It's, you know, some categories of employees or, or locations, maybe drivers in certain markets might get a little bit higher. Our admin folks are, are, you know, 2.5. So we kind of, we're very transparent with our employees in that process, so we kind of keep that on a schedule of, you know, first of July every year.
Todd Fowler (Equity Research Analyst)
Got it. Okay. And then, so Fritz, in your expectation for the flat OR sequentially, that obviously has that incorporated in there, and, you know, that wouldn't be anything that would vary from what you've seen historically.
Fritz J. Holzgrefe (VP of Finance and CFO)
Right. I mean, that, that's part of the sequential costs that we're challenged with, but, you know, we plan for that.
Todd Fowler (Equity Research Analyst)
Got it. Okay. And then just how do we think about depreciation with the pull forward of the CapEx? I mean, should depreciation step up a little bit more still into the third quarter, just on the timing of when you put the rolling stock into service, but then it levels off in the fourth quarter and then into 2017? Is that, is that the right way to think about the run rate for depreciation?
Fritz J. Holzgrefe (VP of Finance and CFO)
Yeah, it's probably reasonable.
Todd Fowler (Equity Research Analyst)
Okay, okay. And then just one last big picture question. You know, Brad earlier was talking about or asking about, you know, the amount of freight that's coming through the 3PL channel. A lot of the brokers that have been reporting over the last several quarters have really been increasing, you know, their volumes on the LTL side. I, Rick, maybe this is for you. I mean, I know that you have a good relationship with the 3PLs, but can you talk a little bit about longer term, maybe how you see that playing out and how that either helps or hurts, you know, your business relative to some of your competitors and the margins? You know, just the dynamic where it seems like that the brokers really are focused on taking some share, and just wanna make sure we're thinking about it the right way.
Rick O'Dell (President and CEO)
Yeah, I mean, obviously, there's two segments of business. You know, one is that, you know, customer specific, that they manage for the customer. I mean, they're taking some margin on that, right? So, you know, net net, we have to make sure that that margin doesn't come out of us necessarily, but that's a continued challenge. And then, you know, on some of their business, obviously, they're rolling up small customers into a book of business and presenting it to us and, you know, causing us to kind of bid on it as if it were a national account. And, you know, net net, that doesn't have as good a margin. So, you know, it's a challenge for us. We just have to be disciplined with respect to mining that data for business that works for us within our network.
What we're kind of doing is work with them from a partnership perspective to say... I mean, they're transparent in showing us their book of business, and, you know, we, we mine it in a very sophisticated manner to, to, find the segments of that, that work best for us in our network. And we're increasingly doing that kind of more frequently. So instead of looking at their book of business one time per year, we might look at it three times per year. Because their book of business kind of changes, and other carriers adjust their price more frequently. So, you know, it's kind of becoming a, those are kind of the dynamics with which we work with them. And, you know, that I don't disagree that it's probably- it probably will continue to be a, a dynamic from that perspective.
I think what that really says to us, right, is we just have to have all of our business has to pay its way for us to be able to get the kind of margins that we've targeted. And so, you know, your bigger accounts that may be fully allocated, you know, used to operate at 102 or something, and you need them at 92 if you want to operate in the 80s or at least 95, right? You can't rationalize handling an account at 98 or 100. So, I mean, that's kind of how we're working, not only with them, but with our other major, you know, national accounts, to make sure that we're being compensated for the service that we provide. Because I don't have this big group of accumulated small customers that operate well, that can carry the operating ratio to the types of levels we've targeted.
Todd Fowler (Equity Research Analyst)
Rick, that was, that was actually, that was very helpful, and I appreciate that. That, that makes sense. And so basically, it's maybe if there's, you know, some pressure or working more closely with the brokers at one level, it's also addressing your other national accounts where you maybe have some opportunity on the margin side as well to, kind of get the balance that you need from a, from a return perspective.
Rick O'Dell (President and CEO)
Absolutely.
Todd Fowler (Equity Research Analyst)
Good. Okay. Hey, thanks for the help this morning, and have a good weekend, guys.
Rick O'Dell (President and CEO)
Thanks.
Operator (participant)
As a reminder, if you'd like to ask a question, simply press the star key followed by the digit one on your telephone keypad. Next, we'll hear from Scott Group of Wolfe Research.
Scott Group (Analyst)
Hey, guys, morning. Just a few quick things. Can you share revenue per hundredweight year-over-year in July, month-to-date?
Rick O'Dell (President and CEO)
It's kind of up in the neighborhood of where we were for the quarter.
Scott Group (Analyst)
Yeah.
Rick O'Dell (President and CEO)
It's five, kind of ex fuel, two, two-ish with fuel.
Scott Group (Analyst)
Okay. And then, given the pace of renewals, you think that five ex fuel is a sustainable number?
Rick O'Dell (President and CEO)
Yeah, I think so.
Scott Group (Analyst)
Okay, good.
Rick O'Dell (President and CEO)
You know, we didn't, I don't know if you remember, about, and I think we reported last quarter, we were at 5.3 on renewals, and that was down from 6. So we had a little bit of a step down, and then we were basically flat-ish, right at 5.4% on contract renewals this quarter. So, I mean, the market appears to be remained pretty rational, and again, you know, we've been pretty diligent in, you know, mining our data for, you know, for the things that, that make sense for us. And, you know, if you look at our, our tonnage trends are kind of in line with what most other people have kind of reported.
You know, I do think that about 1% of our declines are probably due to the oil field, based on some analysis that we've done, the oil field and surrounding geography associated with that. So, you know, I think we're from a, we're holding our own. I think both from a volume and, again, I think probably leading from a pricing standpoint, as we continue to be dedicated to that.
Scott Group (Analyst)
Yeah, makes sense. I had in my model one fewer operating day in third quarter. I don't know if that's right, but if it is, you're factoring that in as you think about your comments on margins sequentially, 2Q to 3Q?
Rick O'Dell (President and CEO)
Correct.
Scott Group (Analyst)
Okay, good.
Rick O'Dell (President and CEO)
Yeah, usually, a day would be about a half an operating point, right? Or not, probably not that much, maybe a third, it's about $1 million of profit for a workday difference.
Scott Group (Analyst)
But you're saying even with that half point of OR, you still think you can be flat sequentially?
Rick O'Dell (President and CEO)
Yes.
Scott Group (Analyst)
Okay, good. What's a good tax rate to use going forward?
Fritz J. Holzgrefe (VP of Finance and CFO)
I'd continue to use the 36.5.
Scott Group (Analyst)
Okay. And just lastly, kind of big picture. So if you kind of take the margin, the guidance for 3Q, it implies we're getting back to year-over-year margin improvement. Is the idea here that kind of we've weathered the storm and, you know, assuming tonnage doesn't get any worse from where it is, we're gonna be back to an improving margin environment going forward? Is that how you're thinking about it?
Rick O'Dell (President and CEO)
I think so. I mean, if we could get to even a flattish to positive, you know, tonnages as we head into 2017, you know, with our yield initiatives and executing pretty well on the cost side, I mean, that would be our plan. We're not—while it would be an improvement over last year, last year's Q3 was disappointing, and, you know, we obviously, you know, have some targets to improve our margins and, you know, aren't looking to... It's not a strategy to shrink the company. At the same time, like I said, we're gonna be disciplined. If someone has a 108 OR or a 100 OR, and it's in a head haul, and I'm generating empties coming back, I'm, you know, I'm not gonna do that. It just doesn't make sense, right?
Scott Group (Analyst)
Yep. Okay. Makes sense. Thank you, guys.
Rick O'Dell (President and CEO)
Sure.
Operator (participant)
Next, we'll hear from Tyler Brown of Raymond James.
Patrick Brown (Research Analyst)
Hey, good morning, guys.
Fritz J. Holzgrefe (VP of Finance and CFO)
Morning.
Rick O'Dell (President and CEO)
Morning.
Patrick Brown (Research Analyst)
Hey, Fritz, just a couple quick housekeeping items here, but, do you by chance have ending headcount for Q2 and Q1, if you have it, even just roughly? And then what was the facility count?
Fritz J. Holzgrefe (VP of Finance and CFO)
Okay, so facility count at the end of the, it was what? 148. 148.
Patrick Brown (Research Analyst)
Okay.
Fritz J. Holzgrefe (VP of Finance and CFO)
And headcount numbers, see if I got them handy. You know, can I get back to you on that one? Let's
Patrick Brown (Research Analyst)
Sure.
Fritz J. Holzgrefe (VP of Finance and CFO)
I don't have that one with me.
Patrick Brown (Research Analyst)
Sure, no problem. And then, Rick, you mentioned productivity on the dock and in the P&D network. Can you talk a little bit about the drivers there despite the tonnage? And two, were you able to improve load average as you internalized more?
Rick O'Dell (President and CEO)
Yeah. I mean, our load average in our head haul lanes continues to improve, which is kind of what our focus has been. So we're making some headway there. But actually, our actual load average is actually down a little bit just because the weight per shipment's down. So we've been able to be consistent with the number of shipments, you know, on an average trailer, but because of the weight being down, we've actually lost a little bit from a load average perspective.
Patrick Brown (Research Analyst)
Okay, can you talk a little-
Rick O'Dell (President and CEO)
And then just from a-
Patrick Brown (Research Analyst)
Yeah, sorry.
Rick O'Dell (President and CEO)
From production, we've been very disciplined with some of our manpower planning and seeking out some efficiency efforts, both on the dock as well as from a city perspective, which you just kind of obviously have to do that, I mean, all the time, but particularly when you're dealing with a challenging volume environment.
Patrick Brown (Research Analyst)
Yep. Okay. No, that makes sense. You guys have had a pretty healthy CapEx spend over the last few years, including this one, but I'm just curious if you can talk about the age of the tractors, the trailers, even the forklift fleet. I mean, at this point, do you feel pretty good about the age? And can you maybe give us an update on where those are?
Fritz J. Holzgrefe (VP of Finance and CFO)
So I think we continue to push the drive down that fleet age. The average age of a tractor is roughly, by the end of this year, will be roughly around five years. And, you know, we pointed out earlier that, you know, we see continued nice returns on those sort of investments around fuel economy and around maintenance savings. The forklift, we've continued to invest in the forklift fleet, driving that average age down. I don't have that age handy, but it's a similar math, right? I mean, your The maintenance cost of maintaining a, you know, 5- or 7-year forklift is substantial. So, you know that, those returns on that kind of investment are good, so we'll continue to push that average age down.
So, you know, we feel pretty good about it, but, you know, going forward, to keep maintaining that sort of average age, maybe creep it a little bit lower, it's gonna require to have continued investment in that area.
Patrick Brown (Research Analyst)
Right. So as we, I think I heard you mention that 2017 CapEx might be flat year on year?
Fritz J. Holzgrefe (VP of Finance and CFO)
Somewhere, yeah.
Patrick Brown (Research Analyst)
So is this kind of the right maintenance type CapEx level, or given the-
Fritz J. Holzgrefe (VP of Finance and CFO)
Yeah
Patrick Brown (Research Analyst)
age is seven, okay. And then is 17 a little more real estate focused, or no? Is it more bent towards tractors and trailers?
Fritz J. Holzgrefe (VP of Finance and CFO)
It's gonna—there are gonna be real estate, strategic real estate projects in there, which we're still kind of scoping. But yeah, it's, those will... You know, I think that's kind of an appropriate, sort of spending at this stage.
Patrick Brown (Research Analyst)
Okay. That's great. Thanks, guys.
Fritz J. Holzgrefe (VP of Finance and CFO)
So Tyler, while I did drag out the headcount-
Patrick Brown (Research Analyst)
Okay.
Fritz J. Holzgrefe (VP of Finance and CFO)
So sequentially, Q1 to Q2 is up 2%, and that's pretty typical around, you know, sort of seasonal trend and so forth.
Patrick Brown (Research Analyst)
Okay, great. Thanks.
Operator (participant)
That does conclude today's question and answer session. I would like to turn the conference back over to Mr. Col for any additional or closing comments.
Rick O'Dell (President and CEO)
This is Rick. Thank you for joining us today. We appreciate your interest in Saia.
Operator (participant)
That does conclude today's conference. Thank you all for your participation. You may now disconnect.