Saia - Q4 2015
February 5, 2016
Transcript
Operator (participant)
Please stand by. We're about to begin. Good day, and welcome to the Saia Incorporated fourth quarter 2015 results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Doug Col. Please go ahead, sir.
Doug Col (Head of Investor Relations)
Thank you, Dee Dee. Good morning, everyone. Welcome to Saia's fourth quarter 2015 conference call. Hosting today's call are Rick O'Dell, our President and Chief Executive Officer, and Fritz Holzgrefe, our VP of Finance and our Chief Financial Officer. Before we begin, you should know that during the 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 could cause actual results to differ. Now, I'd like to turn the call over to Rick O'Dell.
Rick O'Dell (CEO)
Well, good morning, and thank you for joining us. This morning, we released our 2015 fourth quarter and full year results. The full year's earnings per share of $2.16 represents our fourth consecutive year of record earnings per share by Saia. We believe our long-term strategy of improving our value proposition to our customers continues to resonate in the marketplace, as the fourth quarter represented our 22nd quarter in a row that we successfully increased our yield. The yield improvement, coupled with belt-tightening and process improvements throughout the organization, allowed us to post a 93.9% operating ratio in the fourth quarter. This is 20 basis points better than the third quarter and represents a nice rebound after a disappointing third quarter performance.
For the full year, our operating ratio of 92.6 was 70 basis points better than the prior year and represented our sixth consecutive year of operating ratio improvement. A few comparisons of the fourth quarter of 2015 results to last year's fourth quarter include: Revenue decreased 7.1% to $288 million, as LTL tonnage fell 8.9%. LTL revenue per hundredweight increased by 2.1%, despite the negative impact of lower year-over-year fuel surcharges. Productivity and cost metrics rebounded in the fourth quarter, and our operating ratio of 93.9 compares to 93.4 in the fourth quarter of last year. Diluted earnings per share of $0.45 compares to $0.53 in the fourth quarter of last year.
LTL tonnage trends throughout the quarter showed very little change from what we experienced in the third quarter. I'm pleased to report that the pricing environment remained rational throughout the fourth quarter, and Saia achieved another nice sequential gain. In the fourth quarter, contract renewals included average rate increases of 5.3%, so another nice increase there with our contractually priced customers. Just a couple of comments now on the full-year results before I turn it over to Fritz. LTL yield improved by 3.2%, and revenue per shipment fell only 0.1%, despite materially lower fuel surcharges and a lower average weight per shipment. The investment in dimensioners continued to support our yield initiative. At year-end, we're utilizing 30 dimensioners across our network, and we'll add three more early this year.
Purchase transportation spend fell by 34% in 2015, and purchase transportation miles were 10.1% of total miles, compared to 13.7% in 2014. We continue to manage our line haul network effectively and to ensure that we are being properly compensated for lane imbalances. Depreciation, depreciation expense as a percent of revenue increased to 5.3% versus 4.6% in 2014, a reflection of our continued investment in tractors and trailers. The increased depreciation expense is offset by maintenance savings and better fuel economy. Cargo claims expense was down 14% in 2015, demonstrating that investments in training and equipment to reduce claims and are generating a nice return for shareholders and supporting our yield initiatives.
In 2015, we achieved our 98% on-time delivery goal and combined with the previously mentioned cargo claims improvement, raised our service reputation with our customers. I'm going to turn the call over to Fritz to review our financial results in more detail.
Fritz Holzgrefe (VP of Finance and CFO)
Thanks, Rick, and good morning, everyone. As Rick mentioned, the fourth quarter diluted earnings per share were $0.45. Earnings per share in the fourth quarter included a $0.04 per share benefit from alternative fuel tax credits enacted in the fourth quarter, but earned for the full year. The credit relates to our use of propane for our forklifts. Total revenue of $288 million compares to $310 million in the fourth quarter last year. Operating income of $17.6 million compares to operating income of $20.6 million in last year's fourth quarter. Both periods included 62 workdays. Fourth quarter LTL yield rose 2.1%, reflecting the positive impact of our continued pricing actions, partially offset by lower fuel surcharge contribution. Next, I'll mention a few key expense items and how they impacted the fourth quarter.
Salary, wages, and benefits rose less than 1% to $164.4 million in the fourth quarter. This figure includes a general wage increase implemented July 1st, which averaged 4% across our employee base, offset by a reduction in force that took place in the fourth quarter. Purchase transportation expenses declined 40% to $13.4 million, or 4.7% of revenue, versus 7.2% of revenue in the fourth quarter last year. Purchase transportation miles as a percentage of total line haul miles were 7.4% in the quarter, compared to 12.5% in the fourth quarter last year. This comparison results from lower volumes in the quarter and better management of our own capacity.
Depreciation and amortization of $16.5 million compares to $14.8 million in the fourth quarter last year, due to continued investments in tractors and trailers. As our tractor fleet age continues to drop, we benefit from enhanced fuel efficiency. Fuel mileage improved by 3.1% to 6.7 m per gallon in the fourth quarter. Claims and insurance expense was $6.5 million in the quarter, compared to $6.9 million in the fourth quarter last year, a 5.8% reduction. Our cargo claims ratio of 0.99% represents an improvement over the 1.03% level of the fourth quarter last year. For the full year, revenue declined by 4% to $1.2 billion, while operating income improved by 5% to $90 million.
In 2015, net income rose 5.8% to $55 million, compared to $52 million in 2014. Diluted earnings per share were a record $2.16 for the full year, up from $2.04 a year ago. Our effective tax rate was 31.9% for the fourth quarter of 2015, and 36% for the full year, the same as last year. At December 31, 2015, total debt was $69 million. Net debt to total capital was 13.9%. This compares to total debt of $83 million and net debt to total capital of 17.7% at December 31, 2014.
Net capital for 2015 were $113 million, including equipment acquired with capital leases and excluding the February 2015 purchase of LinkEx. This compares to $112 million of net capital expenditures in 2014. In 2016, net capital is forecast to be approximately $130 million, including investments in terminal infrastructure improvements, as well as continued investments made to lower the age of our tractor, trailer, and forklift fleets. Now I'd like to turn the call back to Rick.
Rick O'Dell (CEO)
Thank you, Fritz. Whether measured by earnings per share, improved service levels, better cargo claims experience, or improved accident experience, 2015 was a successful year. In trucking, though, experience dictates that our time is best spent on looking forward and planning for an ever-changing landscape rather than reflecting on the past. In 2016, it looks like we will continue to operate in an environment marked by modest GDP growth, a tentative consumer base, and soft industrial activity. At Saia, we'll focus on opportunities to improve our business through a variety of initiatives, which include equipment purchase programs that are expected to yield fuel and maintenance savings in both the tractor fleet and our forklift fleet.
With these investments, the average age of our tractor will approach five years from the current 5.7 average years, and we'll also plan to cycle out some 30% of our forklift fleet, lowering the average age to three years from six. The 500+ tractors to be replaced this year will continue to include the latest available technology to support improved fuel economy and assist our ongoing efforts to train, reward, and counsel our driver workforce on safe in-cab habits and defensive driving. Terminal maintenance investments in 2016 will target properties where we can relieve door or yard pressure and enhance our ability to support future growth and gain efficiencies over time.
Along with the continued positive effect of dimensioners on our yield improvements, we also implemented a general rate increase of 4.9% on December seventh, and this increase is holding up well in the market. We look forward to the planned opening of our Grayslake terminal, which is north of Chicago, later this month. This state-of-the-art facility positions us to be closer to customers in this key market. So in spite of some concerns about the macro trends, we are optimistic that 2016 will be a year of continuous improvement in our operations and will serve as a building block for growth and profitability in the years to come. 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 are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Our first question will come from David Ross with Stifel.
David Ross (Group Head and Managing Director)
Yes, good morning, gentlemen.
Rick O'Dell (CEO)
Morning, David.
Fritz Holzgrefe (VP of Finance and CFO)
Morning.
David Ross (Group Head and Managing Director)
Rick, the revenues are always tough to predict in the meantime, what you're seeing on the labor front, equipment front, in terms of what do you think you'll need in terms of pricing this year just to cover those cost increases?
Rick O'Dell (CEO)
Fritz, you want to kind of step through some of those?
Fritz Holzgrefe (VP of Finance and CFO)
Yeah, I mean, if David, if you look through our, kind of as we look forward in our expense structure in the next year, I think we're going to be challenged, you know, gonna have to continue to remain competitive in our healthcare and salary and benefit costs. So salary costs, I don't think will increase or wage costs won't increase at the same rate as last year. We mentioned that last year, we kind of we had a roughly 4% increase on average across the workforce. This year, I think that number is going to be under 3, probably 2.5 to three. You're gonna see probably, pick a number on healthcare. I mean, we model sort of a 10% healthcare cost increase over time. We'll see that.
I think you'll see, you know, some of our initiatives around maintenance, fuel economy, are really driven by our capital investment around new equipment. So we had continued to have pretty high levels of investment, you know, we've projected about $130 million next year, and a big chunk of that is gonna be continue to modernize the fleet, which drives, you know, sort of maintenance cost reductions and further fuel economy. But if, you know, if you kind of carve out those, those big areas of inflation, wage, healthcare, and I think the balance of it, you're gonna look at, you know, sort of normal macro inflation rates. So, you know, we've got to continue to look for opportunities to drive our yield to be able to cover those kinds of increases.
David Ross (Group Head and Managing Director)
And, Rick, as you have discussions with customers, are they still understanding that this is the general, you know, environment, that costs continue to go up, so they're gonna continue to have to pay more? Or is there a sense that, you know, hey, tonnage is dropping, let's try to, you know, get a lower price, even if it doesn't make sense from a carrier perspective?
Rick O'Dell (CEO)
Yeah, I mean, you know, we were successful with contract renewals at 5.3% in 4Q, and we've continued to advance our yield, not only through the quarter, but into January. So, you know, I'm not dissatisfied with what we've been able to achieve in terms of revenue mix management and our contract renewals with existing customers. And, you know, people read the analyst reports and obviously see what's going on in the industry. So you have some people that are looking to test the market, but thus far, our conversations have been constructive, and you know, we just... You know, there's no reason to handle business in lanes, you know, that are at an operating loss.
So, you know, we go through that on a detailed basis, and I think what we're obviously worked diligently on is to make sure that, you know, the business that we're handling makes sense for us. So thus far, it's been constructive in a rational environment.
David Ross (Group Head and Managing Director)
Excellent. Thank you.
Rick O'Dell (CEO)
Sure.
Operator (participant)
Next, we'll take a question from Brad Delco with Stephens.
Brad Delco (Managing Director and Research Analyst)
Hey, good morning, Rick. Good morning, guys.
Rick O'Dell (CEO)
Morning, Brad.
Fritz Holzgrefe (VP of Finance and CFO)
Morning, Brad.
Brad Delco (Managing Director and Research Analyst)
Rick, when we look at the tonnage down 10%, I know there's been a lot of iterations in terms of what you guys are doing with yield and pricing, but is there any way for you to give us color as to, you know, where you think the majority of that tonnage is coming from? Or is it purely based on price? Is it based on maybe some of your energy exposure? Can you just try to quantify it for us?
Rick O'Dell (CEO)
Yeah, the energy exposure is a pretty big factor for us. So if you look at the quarter, what was it, shipment decline was, 6%?
Fritz Holzgrefe (VP of Finance and CFO)
Yeah, 6.2%.
Rick O'Dell (CEO)
6.2%. I would say 2% of that's probably oil field sector for us. And then, you know, of the remainder, you know, probably half of that is pricing and mode shift. And, you know, I think most everyone's seen some declines in weight per shipment. I'm not sure I totally know where that came from, right? But it seems to be kind of across the board from a market perspective. So, you know, you just have to fight through those things from an operating efficiency standpoint, as well as from a yield perspective. And, you know, we were able to, you know, hold our yield or hold our revenue per shipment flattish with a declining weight per shipment.
So, you know, we've been able to overcome it from a yield perspective and a business mix perspective. So, I don't know, we might talk a little bit about, you know, what we're seeing in January. Our shipment trend was much less negative than what we saw in 4Q. So, you know, I'm not displeased with what we're seeing sequentially into January. You want to run through that, Fritz?
Fritz Holzgrefe (VP of Finance and CFO)
Sure, sure. So Brad, if you look at the LTL shipments, just broken out by month in the fourth quarter, October was -7.5%, November was -5.3%, December was -5.4%, so full quarter, -6.2%. And then you compare that to January, our full month of January, shipments are down 1% year-over-year.
Brad Delco (Managing Director and Research Analyst)
Fritz, do you mind giving us tonnage for a month?
Fritz Holzgrefe (VP of Finance and CFO)
Absolutely. Here we go. So October, November, December, for the fourth quarter, LTL tonnage was down -8.7%, -8.5%, -9.6%, and then, but through the end of January, -5.1%.
Brad Delco (Managing Director and Research Analyst)
Okay. I guess, maybe, Rick, just going back to the first question. So when you look out into 2016, I guess we shouldn't be thinking about that there's this... I know you guys are always gonna be focused on price, but it's not like any of these customers, you know, will be getting massive rate increases for the first time, and, you know, there's still kind of intentional culling of freight. I mean, this is, you're kind of more to the point of fine-tuning. Is that the right way to thinking about it?
Rick O'Dell (CEO)
Yeah, I think it's right. And, you know, this year, you know, I think we'll have a little less wage inflation than we saw in the past. Our productivity execution has been improved through the fourth quarter and into the first quarter. You know, we have these cost savings that we've targeted, which are more material than what we had last year. So, you know, we're kind of targeting increases in the 4%-4% type range for contract renewals. So, you know, I think we're in the current environment, I don't think we're-- not only do we not need as much from a corrective action pricing standpoint, you know, we've got to balance. I think we-- there's an opportunity for us to better balance between volume and yield. And so we have some good results.
Brad Delco (Managing Director and Research Analyst)
Yeah, that makes sense. And you, and you think with 4%-type yields that in this weaker industrial economy, is that enough to keep margins flattish?
Rick O'Dell (CEO)
Sure.
Tom Albrecht (Managing Director)
Okay. All right, well, thanks guys, for the time.
Rick O'Dell (CEO)
Okay. Thanks, Fred.
Operator (participant)
Next, we have a question from Scott Group with Wolfe Research.
Scott Group (Senior Analyst)
Hey, morning, guys. So just to follow up on that, Rick, you think you can have flat operating ratio in full year 2016 versus 2015 or improved?
Rick O'Dell (CEO)
That's our target, right? I mean, the first-
Scott Group (Senior Analyst)
Okay.
Rick O'Dell (CEO)
The first half comps are challenging, right? We had such good results in the first half of last year, and then, obviously, 3Q was disappointing. There was a big investment in wages, et cetera. But you know, our target is certainly wouldn't be to go backwards.
Scott Group (Senior Analyst)
Okay. And so that improvement in tonnage from the fourth quarter to the first quarter and improvement in shipments, what do you, what do you attribute that to? Can you - where do you see the improvement coming?
Rick O'Dell (CEO)
It's pretty... I mean, it's fairly broad, I guess. You know, the West Coast is a little stronger than some of the rest of the markets. You know, the oil patch obviously isn't getting any better. You know, I don't know, but it's pretty broad, and the comps are obviously easier as well.
Scott Group (Senior Analyst)
Okay. Then just last thing, can you share with us kind of where revenue per hundredweight is tracking up in January and where contractual renewals are tracking in January?
Rick O'Dell (CEO)
Yeah, I mean, it's only one month, but they've been in that 4% range for the first month. You know, I would tell you, too, I mean, obviously, it depends. You know, you go through a customer, and one customer, you know, might still operate poorly or have a segment of his business that needs to be materially repriced, and another one operates well. You know, we don't, we don't ask the same increase across those customers. It depends on how the business operates. But, you know, I think our January renewals were constructive. Yield stepped up, you know, nicely from December into January. And, you know, we're, we're not displeased with what we're seeing from a great increase perspective.
Scott Group (Senior Analyst)
Okay. All right. Thank you, guys.
Rick O'Dell (CEO)
Bye.
Operator (participant)
Next, we'll take a question from Alex Vecchio from Morgan Stanley.
Alex Vecchio (VP)
Good morning, and thanks for taking the questions. Rick, I wanted to touch on weight per shipment. It sounds like that the declines may have actually accelerated a bit there in January, but based on tonnage being down kind of five and shipments down one. Do you have a sense for what's kind of driving that and maybe the expectation for the weight per shipment going forward?
Rick O'Dell (CEO)
I don't know. To be honest, I mean, we have such a diverse customer base. I really don't know.
Alex Vecchio (VP)
Okay. Do you worry that might hurt density a little bit?
Rick O'Dell (CEO)
It does a little. But, I mean, you know, don't I mean, our revenue per shipment with our yield increases has been flattish, right? So it hurts you.
Alex Vecchio (VP)
Okay, all right.
Rick O'Dell (CEO)
Operationally, but as long as you're getting paid for it, I mean.
Alex Vecchio (VP)
Yeah, sure. No, that, that makes sense.
Rick O'Dell (CEO)
Shipment. So, I mean, that's what we're working on. It's, it's a mix, right?
Alex Vecchio (VP)
Okay, that makes sense. You know, I think last quarter, you had suggested that a kind of normal seasonality implied your tonnage for 2016 might be down kind of 2-ish%, if I remember correctly. Is that kind of still the bogey you're looking for at this point, or is that... Have your thoughts changed there?
Rick O'Dell (CEO)
Yeah, something in that range. I mean, I mean, shipment-wise, we're down 1% in January, so it's kind of-
Alex Vecchio (VP)
Okay.
Rick O'Dell (CEO)
I mean, I think that seems reasonable, right? And at some point, we're going to overlap the decline in weight per shipment because it's been pretty consistent. Weight per shipment's been down in the 4% range most of the months in the last six months or so, right?
Alex Vecchio (VP)
Right. Yep. No, that makes sense. Okay, and then just lastly, a housekeeping question. Can you provide the quarterly workdays through 2016?
Rick O'Dell (CEO)
Through 2016?
Alex Vecchio (VP)
Yeah, just by quarter.
Rick O'Dell (CEO)
Can we circle back with you on that? I don't have that one right in front of me.
Alex Vecchio (VP)
Yep. Yeah, sure. No, no, no problem. We can follow up offline. Appreciate the time. Thank you.
Rick O'Dell (CEO)
All right. Good.
Operator (participant)
Next, we have Tom Albrecht with BB&T.
Tom Albrecht (Managing Director)
Hey, guys. Really nice rebound from the third quarter there. You may have given this, but I don't know that I heard it. That is, what was your average yield increase, excluding fuel surcharges in the fourth quarter?
Rick O'Dell (CEO)
Well, contract renewals were 5.3%. And then if you, if you adjust for mix in our theoretical model, adjusting for weight per shipment and length of haul.
Tom Albrecht (Managing Director)
Yep.
Rick O'Dell (CEO)
shows our actual yield was up a little over 6%.
Tom Albrecht (Managing Director)
Okay. Yeah, I was thinking it might have even been a little bit higher than that, because you're the only-
Rick O'Dell (CEO)
It was.
Tom Albrecht (Managing Director)
Go ahead.
Rick O'Dell (CEO)
It was 6.3%. The real number was 6.3%.
Tom Albrecht (Managing Director)
Okay.
Rick O'Dell (CEO)
About 6.3%. I mean, it was a nice increase for the quarter in a difficult, you know, environment and economically. Again, the trends have been pretty positive into January as well.
Tom Albrecht (Managing Director)
Yeah, yeah, you were the only public carrier whose yield, inclusive of fuel, was up in the quarter. So it, you know, suggested that the base increase was pretty strong. You know, you talked about-
Rick O'Dell (CEO)
I would say a lot of the other carriers took a little bit earlier general rate increase than we did as well. Ours was the second week in December.
Tom Albrecht (Managing Director)
Okay. Yeah, and yours was 4.7 or 4.9? I forgot.
Rick O'Dell (CEO)
4.9.
Tom Albrecht (Managing Director)
Okay. I know you talked a little bit about energy in that. Can you be a little more descriptive, maybe in the energy states, Louisiana, Texas, Oklahoma? Not so much energy shipments, but just what you're seeing in those economies because they're so tied to energy. And, you know, I've been looking at housing starts in Houston, and they're down double digit now. And just kind of wondering what the freight flows are like in general in those three states.
Rick O'Dell (CEO)
Okay. So we have regions that are kind of, so South Texas, we call our Houston region, which also would have some, few Louisiana locations there, right?
Tom Albrecht (Managing Director)
Yep.
Rick O'Dell (CEO)
It's down, excluding fuel surcharge. Revenue is down 20%.
Tom Albrecht (Managing Director)
Wow!
Rick O'Dell (CEO)
In most of the other, like, Oklahoma, would be down in the same range, 20%. Dallas isn't, you know, has a little bit more diversified economy. Its region is down about 10%. I, I would comment, and, you know, from a cost management standpoint, our Houston region's operating ratio was actually flat with last year in spite of a 20% decline in business. So, you know, we've done a good job of, like, kind of mitigating the... I mean, it still had- still we made way less operating income. We had 20% less operating income, right?
Tom Albrecht (Managing Director)
Yep.
Rick O'Dell (CEO)
At least we held it flat. You know, the cost execution has been good, considering what we're dealing with on the environment.
Tom Albrecht (Managing Director)
Have you made additional adjustments to your headcount beyond what you described in the October conference call?
Rick O'Dell (CEO)
You know, it drifts down seasonally, just with, you know, turnover and not replacing. We kind of start our staffing for peak periods in February, March time period. So it's continued to drift down from the 4% reduction that we did.
Tom Albrecht (Managing Director)
Okay. Yeah, so, so I guess I was really asking a very proactive step as opposed to normal seasonal adjustments. You know, that 4% was very, very proactive to get on top of your cost structure.
Rick O'Dell (CEO)
It was effective, and we haven't done anything in addition to that.
Tom Albrecht (Managing Director)
Then last question, are you going to be growing your sales force this year, or is that just not something that makes sense in the current climate?
Rick O'Dell (CEO)
We've added a couple of national account resources from some competitor turmoil that we saw, just from an opportunistic standpoint. And then we're, our other focus is, quite frankly, on inside sales from a lead management perspective, to help our field and national account sales force be more effective, right?
Tom Albrecht (Managing Director)
Yep.
Rick O'Dell (CEO)
From a new customer perspective, and that, that's been it. So other than that, we're not looking to add.
Tom Albrecht (Managing Director)
Okay, great. That's, that's all I had. Thank you.
Rick O'Dell (CEO)
All right, great. Thanks, Tom.
Matthew Frankel (Analyst)
Thanks, Tom.
Tom Albrecht (Managing Director)
Sure. Sure.
Operator (participant)
Our next question will come from Art Hatfield from Raymond James.
Art Hatfield (Senior Equity Analyst)
Hey, morning, everybody. Hey, Rick.
Rick O'Dell (CEO)
Morning, Art.
Art Hatfield (Senior Equity Analyst)
In those three regions you mentioned, did you see a gradual downdraft in volumes, or was it a cliff that you, you experienced last year?
Rick O'Dell (CEO)
It was kind of a cliff, and then a gradual downdraft.
Art Hatfield (Senior Equity Analyst)
So when do you start to lap that cliff?
Rick O'Dell (CEO)
I guess the biggest portion of that is going to probably come in 2Q.
Art Hatfield (Senior Equity Analyst)
Okay.
Rick O'Dell (CEO)
And then three, it stepped down again pretty significantly. Three is probably the biggest comp. Yeah.
Art Hatfield (Senior Equity Analyst)
Okay. If I look at the numbers I have for first quarter last year in your shipment counts, it looks like your easiest comp was January, and it looks like it was down 0.6%, and February, it dropped to 4.4, and then down 3.8% in March. That stepped down. I remember that you guys were very firm on 3PL pricing last year, and we had some weather in February. But can you talk about what happened in February with the step down and how we can think about that from a comparative standpoint this year?
Rick O'Dell (CEO)
Yeah, I don't, I don't know. We haven't adjusted our 3PL pricing yet this year, which we did in January of last year, as you commented. I guess from this year's perspective, obviously very early in February, but you know, thus far, it, it feels a little bit where we had the, the negative 1% in January. Thus far, it's been a little better than that in February.
Art Hatfield (Senior Equity Analyst)
Okay.
Rick O'Dell (CEO)
I don't know what other color are you kind of looking for. I mean, in terms of the first.
Art Hatfield (Senior Equity Analyst)
No, that's, that's helpful. I'm just, I'm just trying to remember if there was anything else significant other than, you know, kind of what you were doing on the, the pricing side. And, you know, as I look at comps for a lot of carriers, it looks like there was a step down in February, and if that was kind of the beginning of, of what we saw throughout the year. And just wanted to get... See if you could recollect anything specific about last year's first quarter.
Rick O'Dell (CEO)
Seems like the weather was a challenge in February of last year, too. Just if you look at some of the days, you know, we're looking at days now comp to last year, and there were some pretty, pretty low days just associated with weather, it looked like to me.
Art Hatfield (Senior Equity Analyst)
Okay. Fair enough. That's helpful. Hey, thanks for the time this morning.
Rick O'Dell (CEO)
Sure. Thanks, Art.
Operator (participant)
As a reminder, that's star one on your telephone keypad to ask a question. Next, we'll take Matthew Frankel from Cowen and Company.
Matthew Frankel (Analyst)
Hi, good morning, guys. I'm just on for Jason Seidl this morning. Thank you for taking the question. First thing I wanted to hit on was, if you could break down your consumer and industrial exposure, you know, in terms of your client base, but more specifically, if you can go a step further and talk about, you know, let's say within the consumer section, what percentage is apparel, specifically? And the reason I ask is because we've heard from several very large apparel companies over the last few days about inventories remaining bloated, and I'm just trying to get a sense for what your exposure is there.
Rick O'Dell (CEO)
Ours would be pretty small from an apparel standpoint, but obviously, we do business with Walmart, folks who would have some of that, you know, in what I would consider to be our consumer or retail. We generally kind of look at our businesses, you know, from a big picture perspective, about 40% is industrial, about 40% is, you know, more retail consumer, and, you know, 20% is like distribution-type business. I don't know which category you would put that in, but that's kind of how we look at it. It's pretty spread out, and there's not a big concentration in any one segment. You know, our biggest customer is Lowe's, and we all know what they do, right?
Matthew Frankel (Analyst)
Sure. All right. Well, thank you. Second thing is, if you could just remind us what the 1Q 2015 monthly tonnage trends were? Appreciate it.
Rick O'Dell (CEO)
Q, Q 2015? You want last, yeah, last year's tonnage trends?
Matthew Frankel (Analyst)
Yeah. Yeah, if you don't mind.
Rick O'Dell (CEO)
I think I've got it one more. We'll have to get them back to you offline.
Matthew Frankel (Analyst)
Yeah.
Rick O'Dell (CEO)
We didn't put that in our sheet. Sorry about that.
Matthew Frankel (Analyst)
Okay. No, no, no worries. And finally, on the purchase transportation, for the quarter, big step down year-over-year. Just curious what, what drove that, what you're seeing? Will that remain? Any kind of color you can give on that, we'd appreciate.
Rick O'Dell (CEO)
Yeah, well, I mean, last year, you know, with the tonnage increase and some truckload spillover, you know, I think we had some suboptimal purchase transportation in our network, and, you know, we've... You know, you put that in, you take care of your customers, and then you reoptimize that over a period of time. So, you know, that's really what has driven that. And, you know, it's a constant process that we put into place through managing our line haul network effectively. So, I guess, from a looking forward basis, right, unless we see a big spike in tonnage or something, I would, you know, you could probably assume more of the current trends going forward as opposed to, you know, where we were in 2014.
Matthew Frankel (Analyst)
Okay. Thanks, guys. Appreciate the time.
Rick O'Dell (CEO)
We do use some purchase transportation. I mean, obviously, seasonality-wise, you'd have to look at that because we use some purchase transportation, you know, in the summertime to cover some vacations and whatnot, particularly for team drivers.
Operator (participant)
Now we have a follow-up from Scott Group with Wolfe Research.
Scott Group (Senior Analyst)
Hey, thanks, guys.
Rick O'Dell (CEO)
Sure.
Scott Group (Senior Analyst)
So Rick, you usually share some perspective on what you think the margins can do sequentially. Any thoughts on first quarter operating ratio versus fourth quarter?
Rick O'Dell (CEO)
Sure. Well, I'm sure as you, you look back, as we did, you know, fourth quarter to first quarter trends have been all over the board, and so it kind of depends on where the holidays fall, timing of general rate increases in different years, you know, success with contract renewals, not only in the current quarter, but where you came out of the prior quarter. You got accident, volatility and winter weather. So, you know, this year is going to be really interesting, maybe even more so than normal, just because, it'll largely be determined, like it often is, with a 23-workday month of March. But, you know, if we look at all these factors and current trends and assume a normal safety quarter, be probably something around a flattish type operating ratio from 4Q to 1Q.
Scott Group (Senior Analyst)
Okay. And then maybe just last thing, big picture. So, I mean, a quarter ago, the world was ending, right? And tonnage kept getting worse and kind of wasn't clear if we could grow earnings next year. And just the tone from you is just so, so much more positive this quarter. And obviously, you had a better quarter relative to expectations. But big picture, what's changed over the past three months, why it sounds much more positive? Is it just that you've gotten a grip on some of the costs or pricing is holding up better? But I don't know. But certainly, there's a big shift in tone, and just want to understand kind of what's driving that.
Rick O'Dell (CEO)
Yeah, well, obviously, we had a much better quarter, and, you know, if you look at it, it was driven by yield and our core cost execution. And, you know, we have a confidence that our core cost execution will continue to perform clearly better than we did in the third quarter of last year as we move forward. And, you know, the yield has held up maybe better than I would have thought, you know, coming into 1Q. You know, we're running at a higher rate than I would have thought 60 days ago. You know, that's positive, and, you know, we're seeing positive trends from a contract renewal perspective. You know, volumes are holding up okay sequentially from that perspective, so it gives you confidence that we can continue on this type of execution, both from a yield and a cost perspective.
Scott Group (Senior Analyst)
Okay. And the competitive pressures you talked about in third quarter pricing, have those kind of gone away?
Rick O'Dell (CEO)
Yeah, I mean, I think I made some comments on some people pricing with 3PLs for volumes, and, you know, some people still do that, right? There's people that give discounts for the weak seasonal period from December to February or whatever. We don't do that. I don't know that it's gone away, but it hasn't accelerated. And, you know, our contract renewals have been constructive thus far. You know, we haven't seen a lot of crazy activity out there. I think people recognize, you know, you've got a partner, and there's still gonna be issues with drivers moving forward and as we head into next year. And overall, you know, the volumes have held up pretty well. We're working diligently with, you know, our pipeline management for new customers.
So, you know, if we do come to an impasse from a rate negotiation perspective, we're looking to replace that customer with somebody who better values our you know, execution in the marketplace from an operational and service standpoint.
Scott Group (Senior Analyst)
Okay. Appreciate the time, guys. Thank you.
Rick O'Dell (CEO)
Sure.
Fritz Holzgrefe (VP of Finance and CFO)
Thanks, Scott.
Operator (participant)
Now we'll take a follow-up from Tom Albrecht with BB&T.
Tom Albrecht (Managing Director)
Yeah, Rick, two things. One, on the tax credit, is that propane or is that just some accelerated depreciation, Fritz, I guess?
Rick O'Dell (CEO)
Propane. That's propane.
Tom Albrecht (Managing Director)
Okay. All right. And then I just want to make sure.
Rick O'Dell (CEO)
And you know, that got.
Tom Albrecht (Managing Director)
Oh, go ahead. I'm sorry.
Rick O'Dell (CEO)
That also got renewed into this year as well, so you'll see that set of $0.04 in the fourth quarter when it got enacted retroactively, you know, our rate will come down $0.01 a quarter.
Fritz Holzgrefe (VP of Finance and CFO)
Yeah.
Tom Albrecht (Managing Director)
Right.
Rick O'Dell (CEO)
Right.
Fritz Holzgrefe (VP of Finance and CFO)
You probably think about an effective rate around 36.5.
Tom Albrecht (Managing Director)
Okay. That was another question then. All right. And then, do you have an EBITDA target for this year, Fritz?
Fritz Holzgrefe (VP of Finance and CFO)
We don't separately break that out, but, you know, I think if you, you know, with $130 million sort of capital spend, sort of ratably during the year, you kind of run that out compared to what we had last year.
Tom Albrecht (Managing Director)
Right. Okay. And then I just want to make sure I heard you correctly, Rick, on the sequential change in the OR from Q4 to Q1. Historically, you're not flat, although it's been all over the ballpark, from very modest declines. Are you saying you think that will happen, or you were just kind of talking out loud?
Rick O'Dell (CEO)
No, I think flattish is a reasonable expectation at this point.
Tom Albrecht (Managing Director)
Okay.
Rick O'Dell (CEO)
I guess if you look at, you know, comparison to just, let's say, last year, for instance, right, we had a nice improvement, but we were getting much higher contract renewals, last year, both in fourth quarter and first quarter. Right?
Tom Albrecht (Managing Director)
Yeah.
Rick O'Dell (CEO)
It was a much bigger yield step up.
Tom Albrecht (Managing Director)
Okay, that makes sense. All right. I just wanted to make sure I heard that. Okay. Thanks again. I'll see you guys next week.
Rick O'Dell (CEO)
All right. Thanks, Tom.
Fritz Holzgrefe (VP of Finance and CFO)
See you, Tom.
Tom Albrecht (Managing Director)
Yeah, sure.
Operator (participant)
We have no further questions.
Rick O'Dell (CEO)
All right. Thank you for your interest in Saia. Look forward to catching up with you guys over the next month or two.
Operator (participant)
That concludes today's conference call. We appreciate-