Forward Air Earnings Call INSIGHTS: GRI Brings Confidence, Salary and Wages Benefits

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On Friday, Forward Air Corporation (NASDAQ:FWRD) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

GRI Brings Confidence

Jason Seidl – Dahlman Rose & Co.: Bruce, last call you seemed more concerned on the pricing side, especially given some of the actions of your competitors. You seem a little more confident now that your GRI is coming in. Do you think you’d have any problems having the GRI hold throughout the quarter?

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Bruce A. Campbell – Chairman, President and CEO: You become accustomed to stupid, so you learn to just ignore it and we’re very confident that as we go into the third and fourth quarters that we’re going to be able to carry off the increase. It’s a well deserved increase, I might add. You follow the industry. We’re facing cost pressures that are in some cases, they’re unprecedented. So, it’s not like we’re asking for something we don’t deserve. So we feel good about it going into the second half of the year.

Jason Seidl – Dahlman Rose & Co.: Since, you brought up the industry cost increases, which are the ones that are most impacting you right now, in terms of – for the back half of 2012?

Rodney L. Bell – SVP, CFO and Treasurer: I think in general, let’s not make it too specific, but in general we’ve seen cost, everything from tires that have almost doubled to – equipment costs are up dramatically and maybe we went through as an industry two, three years of depressed pricing on that side and people are getting caught up. So, it’s not the end of the world, but it something that we’re watching very closely and that we’re very concerned with as we go forward.

Jason Seidl – Dahlman Rose & Co.: Rodney just real quick you said you had that $400,000 net benefit from the actuarial adjustment, you said it was offset by some increase in expenses. Were those increases in expenses one-time in nature, were they just generally increases?

Rodney L. Bell – SVP, CFO and Treasurer: I won’t say they are one-time in nature but there were an unusual cargo claims greater than what we’ve anticipated legal expenses to support litigation that were higher than normal but all-in-all from an expense standpoint, we think it’s pretty much flat with how we thought it would be.

Salary and Wages Benefits

Ed Wolfe – Wolfe Trahan & Co.: Rodney, can you talk a little bit about the salary and wages and benefits, they are down both year-over-year and sequentially. It’s not normally down sequentially. Is that more PT or as opposed to – I don’t understand the salary and wages I guess?

Rodney L. Bell – SVP, CFO and Treasurer: Some of that benefit, Ed, the actuarial adjustments that we talked about that’s offset by higher than expected health claims. Really, it’s just a positive leverage against the fixed portion of that. We did a pretty good job controlling this cost.

Ed Wolfe – Wolfe Trahan & Co.: When I look at them going forward is $32.5 million, or pretty fair run rate? I am talking $32.5 million for salary, wages and benefits.

Rodney L. Bell – SVP, CFO and Treasurer: I would say right around 22% of revenue is about where we model that, so Ed, that’s about right.

Ed Wolfe – Wolfe Trahan & Co.: Can you talk a little bit about the GRI in September, why September this year, how confident that you are going to get it and how should we think about, Bruce, that ramping up as you roll it out?

Bruce A. Campbell – Chairman, President and CEO: I think it just makes – we as a group think it just makes more sense to contemplate any increase during the second quarter of the year, and then to make it effective going into a portion of the third quarter, and for the balance of the year when we have more and more demand on our services. I don’t think we are alone in that thought process, because you’ve seen a number of the other carriers do the exact same thing, so what used to be a first quarter event, I think you will see in the future become a third quarter event.

Ed Wolfe – Wolfe Trahan & Co.: What percentage of your business does that immediately impact and how does it kind of ramp through the year?

Bruce A. Campbell – Chairman, President and CEO: It basically impacts our entire business line. We do go through based on the classification of the customer and make some adjustments there, and as Rodney said, we are expecting, let’s say, somewhere around 3% in terms of co-implementation, and that will be effective immediately in September.

Ed Wolfe – Wolfe Trahan & Co.: So, theoretically, we should see for part of the quarter 3% and part of it we are seeing on linehaul, one in change before Complete?

Bruce A. Campbell – Chairman, President and CEO: You should see that totally in effect in the first week of September, and it does apply across a Complete. It does not apply to our Logistics business.

Ed Wolfe – Wolfe Trahan & Co.: Can you give us a sense of what Complete’s revenue is there?

Bruce A. Campbell – Chairman, President and CEO: You just want the Complete segment, correct?

Ed Wolfe – Wolfe Trahan & Co.: Yes.

Bruce A. Campbell – Chairman, President and CEO: You got the numbers?

Rodney L. Bell – SVP, CFO and Treasurer: I do.

Bruce A. Campbell – Chairman, President and CEO: The exact number. Let me give you that

Rodney L. Bell – SVP, CFO and Treasurer: In the quarter it was just over $10 million.

Bruce A. Campbell – Chairman, President and CEO: Did you hear that Ed?

Ed Wolfe – Wolfe Trahan & Co.: Yeah, $2 million, thanks Rodney. I did hear that. Is it possible that – have you thought about – there’s been some news recently that the postal service contract that FedEx has been servicing for priority mailers is going up for bid and they’re going to probably bring some of that down to the ground. Is that something that makes sense for Forward or that you’ve considered?

Bruce A. Campbell – Chairman, President and CEO: Let me just say this, yes and I really don’t want to speak further to that.

Rodney L. Bell – SVP, CFO and Treasurer: Ed, real quick. I picked up the wrong number. My controller just pointed that out. The number for Complete is 14.8 million for the quarter.

Ed Wolfe – Wolfe Trahan & Co.: That’s quite a difference Rodney. When you talked about the customer in your remarks, Bruce, ramping up and Rodney in terms of using the Complete and the smaller size shipments and the higher yields and the drags on third parties and so forth. Is there any way to quantify what that cost was in the quarter?

Rodney L. Bell – SVP, CFO and Treasurer: We did not do an exact quantification. I can tell you – any time you bring in a large customer like that, that has different handling characteristics – their product does, we do a pretty thorough analysis and in the end it’s good news and bad news. The good news is, it’s profitable to us. The bad news is, it caused us to go through some implementation pains and the way you fix those pains is you have to throw money at it, in order to keep your system fluid and your network operating the way you want it to operate. Then, over a period of time, it truly becomes fluid and it’s no longer that big of a deal. So we went through some tough times with the start up. We anticipated that. We knew the costs would be higher, but I think we’re well on our way to having it be a really positive contributor to the Corporation, but in terms of second quarter, the negative impact that’s going away. Is that 1 million? Is it is insubstantial or is it smaller than that?

Rodney L. Bell – SVP, CFO and Treasurer: Look, very hard at the PT line and drop at a point.

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