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Saia Inc (SAIA) Q4 2018 Earnings Conference Call Transcript

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Saia Inc (NASDAQ: SAIA)

Q4 2018 Earnings Conference Call

Feb. 04, 2019 , 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Saia, Incorporated. Fourth Quarter 2018 Earnings Conference. Today's conference is being recorded.

And at this time, I'd like to turn the conference over to Mr. Doug Col. Please go ahead.

Douglas Col -- Treasurer

Thank you. Savannah. Good morning, everyone. Welcome to our fourth quarter 2018 conference call. Hosting today's call are Rick O'Dell, Saia's , Chief Executive Officer; and Fritz Holzgrefe, our President and Chief Operating 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 the call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ.

Now, I'd like to turn the call over to Rick O'Dell, Saia's Chief Executive Officer.

Richard D. O'Dell -- Chief Executive Officer

Well, good morning and thank you for joining us to discuss Saia's results. I'm pleased to report that we closed out 2018 with record results across the board. Fourth quarter revenue grew by 12.9% to a record $407 million pushing full year 2018 revenue to an all-time high of $1.7 billion. Fourth quarter diluted earnings per share were $0.97 and it compares favorably to adjusted diluted earnings per share of $0.53 earned by Saia in the fourth quarter of 2017.

For the full year 2018, diluted earnings per share were $3.99 compared to adjusted diluted earnings per share of $2.19 in 2017. The forth quarter represented our 34th consecutive quarter of year-over-year improvement in our reported LTL yield. Rate renewals where contractual customers resulted in an average increase of 8.9% in the fourth quarter and our overall LTL revenue per hundredweight increased 12%.

Our yield improvement, not only reflects the positive actions taken on pricing, but also is due in part to our efforts to improve the mix of business that we handle. Yield in the fourth quarter benefited from a slightly longer length of haul and a small drop in our weight per shipment. Some comparisons from the fourth quarter compared to the fourth quarter of 2017 are as follows; LTL shipments per work day decreased by 0.2%; LTL tonnage per workday decreased by 0.6%, reflecting a 0.4% decrease in weight per shipment. As I mentioned, length of haul increased by 1.1% to 837 miles, the increase being related to continued expansion of our coverage map into the Northeast. LTL revenue per shipment rose 11.6% to $234.33. Purchase transportation miles were 9.7% of total linehaul miles compared to 11% in 2017. Our cargo claims ratio of 0.75% was slightly higher than the 0.72% level achieved in the fourth quarter of 2017.

I'd like to highlight a couple of metrics from our full year results before I turn the call over to Fritz for more details.

In 2018, we grew LTL shipments per workday by 4.4%, while LTL tonnage grew by 6.6%. Average weight per shipment was up 2.1% for the full year, in part due to heavier weighted shipments we handled as truckload markets were tightened -- were tight in early 2018 and that did moderate through the year. LTL yield improved by 10.2% and revenue per shipment increased by 12.5%. Length of haul grew by 3.2% and benefits are reported yield.

Purchase transportation miles were 10.6% of total linehaul miles essentially flat from the prior year. The opportunity to optimize our own linehaul fleet into and out of the Northeast increases as density across the region build. In 2018, our average fuel economy improved to 6.91 miles per gallon from 6.89 miles per gallon, as we continue to add new tractors with more efficient engines.

In 2018, we put more than 900 new tractors in service and more than 1,750 trailers. These investments are helping us expand our service, improve our reliability, and fuel mileage and lower maintenance costs.

With that, I'm going to turn the call over to Fritz Holzgrefe to review our financial results in more detail, Fritz?

Frederick Holzgrefe -- President and Chief Operating Officer

Thanks, Rick. Good morning, everyone. We generated total revenue of $406.8 million in the fourth quarter compared to $360.2 million in the fourth quarter 2017, a 12.9% increase. Revenue benefited from positive shipment tonnage and pricing trends as well as from the addition of new terminals during the year and growth in terminals opened in the prior year. A 28% increase in fuel surcharge revenue also contributed to the record quarter.

As Rick mentioned, fourth quarter LTL yield rose 12% result of continued focus on pricing for profitability and effective mix management. A few key expense items, which impacted the fourth quarter results on a year-over-year basis. Salaries and wages rose 11.3% to $216.6 million in the fourth quarter, reflecting the impact of an average wage increase of 3% in July and most significantly the increase in our employee count were approximately 5% of year that's driven largely by our Northeast expansion.

Salaries, wages and benefits were 53.2% of revenue in the quarter compared to 54% last year. Purchase transportation expense rose 1.7% to $28.7 million or 7.1% of revenue. This compares to PT expense of $28.2 million or 7.8% of revenue in the fourth quarter of 2017. Fuel expense rose 17.8% in the quarter and was offset by the previously mentioned increase in fuel surcharge revenue.

Claims and insurance expense in the fourth quarter decreased by 8.9% to $8.3 million, primarily due to more moderate levels of accident severity versus the prior year. Depreciation and amortization of $27.2 million rose by 20.9% from the prior quarter and reflects our continued investment in real estate, equipment and technology. As a percentage of revenue, depreciation and amortization was 6.7% of revenue compared to 6.2% last year.

Operating income rose 45.4% to a record $33.3 million from $22.9 million earned in the fourth quarter of 2017. The fourth quarter operating ratio of 91.8% was 180 basis points better than the prior year.

Moving onto the financial highlights of our full year 2018 results. As Rick mentioned, revenue of $1.7 billion was a record for Saia and up 17.7% from revenues of $1.4 billion in 2017. Our operating ratio improved by 180 basis points to 91.5% compared to 93.3% in 2017. Record operating income of $141.2 million was 49% higher than the 2017 operating income of $94.7 million.

Diluted earnings per share for the fourth quarter and full year were as follows; fourth quarter diluted earnings per share of $0.97 compared to $1.82 in the fourth quarter of 2017. For the full year 2018, our diluted earnings per share was $3.99 versus $3.49 in 2017.

As a reminder, in the fourth quarter of 2017, the Company recorded a reduction in deferred tax, income tax liability that was required as a result of the passage of the Tax Cut and Jobs Act. Excluding this reduction, diluted earnings per share were $0.53 for the fourth quarter of 2017 and $2.19 per share for the full year of 2017.

I refer you to the reconciliation table to GAAP earnings provided in our earnings release for an explanation of the difference between our actual reported earnings and our adjusted earnings discussed on this call. At December 31, 2018, total debt was $122.9 million, net debt to total capital was 14.8%. This compares the total debt of $132.9 million and net debt to total capital of 18% at December 31, 2017.

Net capital expenditures for 2018 were $251.7 million, including equipment acquired with capital leases. This compares to $217 million of debt capital expenditures in 2017. In 2019, net capital expenditures are forecast to be approximately $275 million, including investments in real estate, terminal, infrastructure, improvement projects, our fleet and continued investments in technology, that was $275 million, in capital expenditures.

Now I'd like to return the call to Rick.

Richard D. O'Dell -- Chief Executive Officer

Thanks, Fritz. In closing, I'd just like to thank all of our dedicated employees for the effort given by all that produced a record 2018 results. It's an exciting time of growth at Saia and it's gratifying to see the brand taking hold in new markets and even more satisfying to have the support of our loyal customers who are trusting us to provide great service in these expanded regions.

Looking out to 2019, we're excited about continuing our push-in to the Northeast. We've opened 10 terminals in the region since our May of 2017 launch and planned to open four to six new terminals this year. Our ability to serve our customers in more markets is a key tenant of our value proposition and we're excited to become an even more important part of our customers supply chain.

Outside of our growth in the Northeast, we continue to look for opportunities to improve our coverage and reach within our own legacy service areas, just as we opened new terminals in 2018 in Dallas, our third terminal there, and Seattle to come, our second terminal in that market. We have a number of markets under review, where an additional terminal may be added to enable us to serve new customers or serve existing customers with better service and coverage. Sometimes these new centers even allow us to offer employees a better schedule or better community transfer to this new location.

And finally, with regard to the current freight environment, I'd say that January was looking like a pretty typical month in terms of what the first month of the year feels like. We have some pretty good trends through early in the month, but the winter blast over the last several days of the month slowed activity. And our January tonnage per day was down 2.9% compared to January of last year. January of last year, our tonnage was actually up 13% year-over-year, so we had some tough comparisons as well. I would just say that with the weather ahead and the tough comparison it's really hard to draw further conclusions about the underlying environment at this point.

With that said, I'd like to go ahead and open up the call for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we will take our first question from Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Great, thanks. Good morning, everyone. Rick, I was just wondering, if you could talk a little bit about your expectations in the pricing of...

Richard D. O'Dell -- Chief Executive Officer

Good morning, Todd.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Hey, good morning, everyone. Can you hear me OK?

Operator

Todd, you may be on mute.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Can you guys hear me OK? Can you guys hear me?

Operator

And we will move on to our next question. Our next question comes from Jason Seidl from Cowen and Company. Please go ahead.

Jason Seidl -- Cowen Securities -- Analyst

Good Morning, guys. Can you hear me? Hello. Anyone? I think there is a problem on the conference call.

Richard D. O'Dell -- Chief Executive Officer

Are you sure the lines are open, seem that we...

Jason Seidl -- Cowen Securities -- Analyst

They are not open.

Richard D. O'Dell -- Chief Executive Officer

Some problems there.

Jason Seidl -- Cowen Securities -- Analyst

They're not open.

Operator

Just one moment, let me check on something.

Jason Seidl -- Cowen Securities -- Analyst

Can you guys hear me up? Rick and team, can you hear me?

Richard D. O'Dell -- Chief Executive Officer

Savannah.

Operator

Yes, Jason, if you could try repeating your question.

Jason Seidl -- Cowen Securities -- Analyst

Yes, can you guys hear me now?

Richard D. O'Dell -- Chief Executive Officer

Savannah, are you able to hear the questions, if you're able to, you could repeat them to us.

Operator

I'm unable to hear the questions, but I'm being informed my answer line stuck, so they can't hear them through the main conference. I'm -- just one moment. And Jason, try repeating your question now. I apologize.

Jason Seidl -- Cowen Securities -- Analyst

Not a problem, can everyone hear me now?

Richard D. O'Dell -- Chief Executive Officer

We can, we got it. Good morning.

Jason Seidl -- Cowen Securities -- Analyst

Good morning. It's interesting because I had a couple of clients emailing me that, hey, we can hear you.

Richard D. O'Dell -- Chief Executive Officer

No, pressure, Jason. But now better...

Jason Seidl -- Cowen Securities -- Analyst

No pressure at all, no, not at all. Well, again, gentleman, couple of quick questions. When you look at the tonnage in January, Rick, you mentioned that obviously, some weather had some impacts. If you could parse that out, you think you guys will be close to flat on a tough comp basis?

Richard D. O'Dell -- Chief Executive Officer

Probably, we were actually trending up earlier in the month, up modestly, so flattish is probably fair.

Jason Seidl -- Cowen Securities -- Analyst

Okay, that's good. And I wanted to get a clarification because I heard expect net CapEx at $275 million in '19, but your release says net CapEx of $300 million.

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, so it's -- I probably should have stated it more as a range of $275 million to $300 million. So the issue -- thank you for pointing that out, Jason. The comment around that is, the difference in that, in the low and the upper end of that is the different real estate opportunities we're looking at. So there is a -- those things tend to be pretty choppy. So if we can get a couple opportunities close, we will be at the upper end of that range and a couple on the lower end. If they didn't close it'll be at the lower end.

Jason Seidl -- Cowen Securities -- Analyst

Okay. Is this more for the Northeast expansion or you guys still renting on that side?

Richard D. O'Dell -- Chief Executive Officer

These particular projects in question would be sort of enhancements to our legacy markets. One incremental term loan that we're looking at, but then the Northeast will continue to make some -- the items -- the locations that we have in the pipeline for next year are ones that likely would require a lease and there's some smaller capital projects in the Northeast.

Jason Seidl -- Cowen Securities -- Analyst

Okay, fair enough. And I -- one more question and then maybe you guys can try to find Todd again here. Talking a little bit about on the pricing side. Obviously, last year was an incredible year for pricing on the truck side. And we are seeing a little bit of a slowdown, I think, in the rate of growth, if you will, especially, on the truckload side. Talk to us a little bit about where you see pricing in 2019 on the contractual side?

Richard D. O'Dell -- Chief Executive Officer

Yes, I mean, I would expect probably mid-single digits. I think you're probably right. I mean, for us, it's probably stepping down modestly, and part of that's because we have been taken corrective action pricing to some extent, that's behind us at least with a certain number of our account base. So as they come up for renewal again, we look at the opportunities and things that we need to be compensated correctly for the service that we're providing. So it's more lane adjustments that would really drive those larger increases, so -- but I think you're right. I mean, I think the market's probably more mid-single digits and we've been in the high single digits.

Jason Seidl -- Cowen Securities -- Analyst

Okay, fair enough. Gentlemen, thank you for the time.

Operator

And our next question will come from Stephanie Benjamin with SunTrust. Please go ahead.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Hi, good morning. Thank you for the question. I was hoping you could maybe walk through your just overall tonnage growth throughout the quarter, kind of, bimonthly, and then so that would be helpful there? And then just kind of going forward in terms of, I think, you said on prior calls, this inability to continue to see margin improvement in 2019. Again, with a positive pricing environment and just increasing service levels, so has there anything changed that would cause you to not be able to see that positive margin improvement in 2019? Thanks.

Richard D. O'Dell -- Chief Executive Officer

Thanks for the question. Let me start with the tonnage breakout. So the tonnage changes year-over-year, by month, for the fourth quarter. October was plus 1.5%, November was minus 0.1%, December was minus 3.7%. Shipments for the same months were October plus 1%, November plus 1%, December minus 3%. Only thing I would, Todd or I would offer around that year-over-year, the holiday period's typically where they fall year-to-year has an impact, and as we pointed out in previous conversations that the hurricane impacts of the prior year rebuilt certainly gave us a positive quarter last year in terms of shipments and tonnage. We've talked about on an OR basis, if you look at for the full year, we think that we can feel comfortable with a sort of 150, 200 basis point sort of change year-over-year, somewhere in there. And I think that as we continue to execute on our plan, we think that's achievable certainly for the full year.

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Very helpful. Thanks again for your time.

Operator

And we will take our next question from Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Hey, can you guys hear me OK now?

Richard D. O'Dell -- Chief Executive Officer

We can.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

All of my questions have been asked. Thanks. No, I'm kidding. Hey, I guess, just maybe where I'd like to start is, on the incremental margins, you guys have shown nice improvement here throughout 2018. Can you talk about -- and Fritz, I know you just gave some kind of high-level margin commentary for '19 and what you'd expect for kind of a normalized environment. But I know that the headcount's been ramping up. You had some stronger tonnage growth earlier in the year. How do you think about incremental margins, as we shift to may be a slower tonnage growth environment into '19, but you can still get some decent yield improvement?

Frederick Holzgrefe -- President and Chief Operating Officer

So I think for the full year, as I mentioned, I think that those incrementals for 150 to 200 makes sense. I think the first quarter, which is traditionally a investment quarter for us as we do training or invest in some incremental sales resources or staffing. I don't think we'll have the same -- likely have the same trend line in that just in the first quarter. But I think for the full year, I feel pretty good about that range. As you know, we continued our initiatives in the Northeast, in particular, and in other markets. So first quarter -- it's going to be pressured for us. It's an investment quarter. If you look back in history it always kind of has been. It's kind of what prepare ourselves for the kind of seasonality of the business. So -- but full year, we feel pretty good about that.

Richard D. O'Dell -- Chief Executive Officer

Okay. First quarter also has one less workday this year. So that has an impact on us as well.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

And Rick is that the calendar shift with Easter or is that just the calendar count?

Richard D. O'Dell -- Chief Executive Officer

Just 63 workdays in Q1 versus 64 last year.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Okay. Okay. And then just with the tonnage trends and I understand that in January there's some weather issues and there's the difficult comparisons. But can you give us a sense, I mean, I think that there's some specific pricing actions, I think, that there's some probably heavier weighted truckload shipments that are moving out. Do you have any sort of idea or can you kind of give us an idea of, are you seeing underlying growth with your existing customers? And then, is some of the reported tonnage impacted more by company-specific actions? And then as you think, about '19, is that a year where you can grow tonnage on a full year basis going into the Northeast or that the comps in the first half of the year too difficult to overcome?

Richard D. O'Dell -- Chief Executive Officer

No, we would expect modest growth in future months and quarters. And I think with our expanded coverage and history which show that we continue to take share in a lot of particularly larger contractual customers. They'll wait till their -- your opportunities come up for bid, and we have an opportunity to bid on new lanes in our expanded coverage. So we would expect some modest growth for the year.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Okay, good. That makes sense. And then just lastly, thinking about the CapEx and the growth into the Northeast. What would be some of the things that you would factor into, maybe, things that you would look at, if you continue to see negative tonnage trends? Or something more specific in the economy that might cause you to slow down the growth? And how much flexibility do you have in both the growth plans and the CapEx to kind of either step it up or step it pay down based on any changes in the economic environment?

Richard D. O'Dell -- Chief Executive Officer

So, Todd, I think just break that into a couple of pieces. A big slug of our investment CapEx this year is going to be around equipment, so we'll take deliveries on that equipment at the -- into this quarter and into the next quarter. And then the real estate opportunities, so we'll have a commitment there, but if we -- if the economy slowed likely what you do, we would retire older equipment more aggressively. So in that situation, you actually get a maintenance favorable trade up, right. You're taking out the older equipment that is a maintenance drag. On this capital required for the Northeast, I would characterize what we're looking at for our opportunities this year. It almost continue with this sort of capital-light philosophy around or at least some of these facilities and to the extent that we buy them. They're pretty strategic, but they're sort of lower-cost investments. The biggest facility that we have put in the Northeast is the Harrisburg terminal, which we just opened in January. And we don't have anything like a Harrisburg in the pipeline. Everything that we have is substantially smaller than that. So I think we have a fair amount of flexibility around that and on the larger projects in the legacy markets -- if we -- in a slowdown period, we certainly can delay or defer those. But we feel pretty strong with -- strongly about where our balance sheet is positioned to be able to handle this level of CapEx right now and, particularly, what we see in the sort of operating profile 2019.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

That's helpful. And Fritz, did you say how much of the CapEx was for rolling stock, this year?

Frederick Holzgrefe -- President and Chief Operating Officer

It's roughly in the $184 million is for all revenue equipments, such as tractors, trailers, forklifts.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Okay, perfect. Thanks for the help this morning.

Operator

And we will take our next question from Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker -- Morgan Stanley -- Analyst

Thanks. Good morning, guys. Just a follow-up again on the macro environment, kind of, implications on that. I think if you go back to the last 2 like recessions, if you will, '08 and '09, I think the industry went through a pretty big price war, may be based on the health of one of the big players in the space, and that hur t earnings for everyone. But in '15 and '16, I think it was a much more stable environment, and you didn't see a price war. Can I -- obviously, a little bit of crystal ball gazing here, but as you look at the current setup, what do you think the next recession when -- if it's going to be end of this year, early next year or whenever, do you think the environment is set up more similar to '15 and '16 than '08 and, '09, the competitive environment?

Richard D. O'Dell -- Chief Executive Officer

Yes, we think so. Obviously, that -- the price war that took place wasn't very good for anyone in our industry, and you go to think we've learned from that. And there is a -- in the LTL business, you have a pretty high fixed cost network. And just putting more volume through at a lower price doesn't tend to work very well. So you would think that the industry itself would have better discipline. And again, like you said, it was demonstrated in the last slowdown.

Ravi Shanker -- Morgan Stanley -- Analyst

Okay, got it. And just on the new terminals, I think you said in the release that 75% of the volumes that are coming with existing customers in other regions who have got know your value prop, is that consistent with what you expected during the roll-out or is that number kind of higher or lower?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, I would say when we originally -- our thesis at the beginning, we knew that we could leverage our existing customer base because they -- in many cases, they're already doing business in the Northeast and they knew we were. I think that it's -- we've been very pleased with that level of support because it speaks to our value proposition. So I would say that the way I would interpret that, Ravi, is in two ways. One, I think it's a validation of what we do with our legacy customers and what they've come to expect. I think it also says that, frankly, we have an opportunity to continue to grow in that market and find new opportunities or new customers that we currently do -- don't do business with. So I think compared to the original expectation, we knew we had it. Did we forecast that we'd have 75% of it at this stage? I can't say we forecasted that specificity, but we knew that we had that opportunity. So I think it's positive, supports kind of our -- what we do well and what customers have experienced, but it also says we can continue to grow in that market.

Richard D. O'Dell -- Chief Executive Officer

Yes, I think the other interesting point is that, again, it's not really surprising is that 90% of the shipments we have to and from the Northeast are from -- are either originated or destined to our legacy network. So again -- so it's not surprising that you have, obviously, the customer overlap, but also we're not playing in the regional market up there to a large extent at this point in time, and part of that's because we're just starting to get our coverage up there. And then, secondarily, part of that strategy that we have to not compete in a low cost, lower price regional markets that's little more competitive than the intermediate haul type market.

Ravi Shanker -- Morgan Stanley -- Analyst

Great. Thanks, guys.

Operator

And our next question will come from Scott Group with Wolfe Research. Please go ahead.

Robert Salmon -- Wolfe Trahan -- Analyst

Hey, good morning, guys it's Rob on for Scott.

Richard D. O'Dell -- Chief Executive Officer

Good morning.

Robert Salmon -- Wolfe Trahan -- Analyst

Could you talk a little bit about the impact of the Northeast expansion on the profitability in 2018 and what impact you're facing in your 150 to 200 basis points of improvement as we look out into '19 ?

Richard D. O'Dell -- Chief Executive Officer

Yes, I guess, it's hard to say exact because as we commented 90% of the business goes to and from our legacy network. So in terms of, just say, hey, that's what's the profitability of the Northeast business, I don't -- I'll have to look back through that. If you look at just the operating ratio has improved materially since we've originally opened, and then, obviously, you also have the growth, with the growth you have your fixed cost. Some of our fixed cost network has been -- some of our fixed cost network has also been leveraged there. You want to make some any other comments, Fritz?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, I think, I would -- what I would add to that is, we're -- one of the things that -- when we targeted this expansion, one of the things that we focused on was that this will benefit our continuous network, so areas/places like Charlotte or Cinncinati. And we've seen that over the course of the year where leveraging those -- the infrastructure, those sales force, those operating costs. So it's tough to carve out just specifically what the impact of Northeast is because it has a broader more permanent impact to the network, sort of, business. So I think that it's been a positive contributor. It's certainly into the second half of the year, but it surfaced and benefited other elements of the business as well.

Richard D. O'Dell -- Chief Executive Officer

Again I think the other thing you look at right is, as we -- when you first open and do the expansion up there, we put all our regional leadership in, our sales leadership, our safety, human resource, claim prevention resources for a region. And then, as you -- obviously, as we opened incremental terminals, you already have some of that. Overhead is within your costs upfront, so the incremental margins do improve over a period of time and, obviously, you've seen that reflected in the company's results.

Robert Salmon -- Wolfe Trahan -- Analyst

No, that's fair, that was basically what we're trying to get at is, just thinking about how much of the fixed cost investments already in as we're looking to model out for next year.

Richard D. O'Dell -- Chief Executive Officer

Yes, sure.

Robert Salmon -- Wolfe Trahan -- Analyst

I guess as a follow-up and just so what kind of thinking about the Saia network today relative to where it's been in the past. Can you give us a sense of what your daily cost to kind of run -- what your daily fixed cost is, so we're properly configuring that model for to reflect the ones you're working to?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, I think what I would do is that, if I was sitting in your chair, I will look at the cost. You can figure out the, sort of, workdays over time and what the costs have been by quarter. And if you look at the lines into the public P&L, you can see the things that would likely be the fixed or variable I'd model on that basis. I think that's probably the best, sort of, help I can give you.

Richard D. O'Dell -- Chief Executive Officer

Yes, and I would also say, I think, we worked at 1 workday change, assuming it's a full business day generally is somewhere around $1 million to $1.5 million probably

Robert Salmon -- Wolfe Trahan -- Analyst

Perfect. Appreciate the time guys.

Operator

And we will take our next question from David Ross with Stifel. Please go ahead.

David Ross -- Stifel Nicolaus and Co -- Analyst

Good morning, gentlemen.

Richard D. O'Dell -- Chief Executive Officer

Good morning.

David Ross -- Stifel Nicolaus and Co -- Analyst

All right. Real quick, tax rate guidance for '19 any color there Fritz?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, I think, it's somewhere between 23% and 23.5%. So some comments around that. You won't have -- currently we don't have an old fuel tax out there, so that could have a impact into the year, so it's part of the range there, that's around that. We also had a credit in 2018 related to hurricane tax credit that's not repeating. We hope not anyway. And then, the other element that's probably the biggest wild card was I think, this is the kind of how the accounting treatment for sort of equity compensation and how that changes over time. So that -- we're comfortable with that kind of a range.

David Ross -- Stifel Nicolaus and Co -- Analyst

And can you -- I guess going back to the margin questions on the ORR improvement. Given the strong yields, I would have expected maybe even a little bit better OR this quarter. So I guess, how do you think about why you're not getting more leverage from the yield improvements and what could change there?

Frederick Holzgrefe -- President and Chief Operating Officer

Are you talking about first quarter?

David Ross -- Stifel Nicolaus and Co -- Analyst

No, I'm talking about in the fourth quarter, if yields are up 12%, I know it's not price specifically and there's like the haul helped it out and fuel surcharge helped it out, but labor cost inflation was only a few percent into Northeast drag and the tailwind, but I would've thought it still would have been maybe a little bit better or are we missing something?

Frederick Holzgrefe -- President and Chief Operating Officer

No. I mean, I think, the -- what I comment is, there's some positive trends in there for sure. But then you've got every fourth quarter there's the, kind of the, where the calendar falls and how you operate around and through the holidays. So I think that there's probably -- we probably weren't as efficient as we'd like to have been. If you look at the volume and tonnage trends in the quarter, you're going to see October was a pretty positive and then December was a little choppy. And I think that makes it difficult to operate at the same level as you'd like to. We're pleased, though, generally over time with our productivity in the quarter but it's challenged in that sort of the December period. We also opened two terminals in December, and I will just comment that, while I think the Northeast -- our Northeast expansion has gone well, I would tell you even with where we are now, we've run a lot of routes up there for service and coverage, and our miles per stop is higher in the Northeast than it is in the rest of our network just do. We don't have a lot of density there, yet. All right? So we're going to keep the quality of our service up. We open a terminal and sometimes we don't have very many bills when we start, but we have to cover the whole geography, right? So our production in the Northeast isn't what it is in the rest of our network.

David Ross -- Stifel Nicolaus and Co -- Analyst

And then I guess back to Fritz's comment around the volatility of the fourth quarter and I think most of it's around matching labor with the demand levels. Is there anything you guys are looking at either on the IT side process wise to improve that labor management, dynamic matching, if you will?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, I think, David, as we've talked about before, the big thing in this business is about how you capture data sooner, faster, and analyze, make better decisions with it. So those are things that -- as we look at our investments in '19 and beyond, we're very focused on investments that allow us to drive our optimization software -- optimize our decision-making around everything from pricing, but more discreetly, in this case, around how we manage our labor force. I think that's an opportunity that we continue to invest in. I think, we've had a pretty -- we made some pretty good investment so far. But I think that's something that we continue to refine in our additional tools that we will invest in both this year and years ahead.

Richard D. O'Dell -- Chief Executive Officer

I would just comment. Two of our major systems being our inbound planning and that's rolled under your dispatch system, we have a major investment going on in that project there as well as some enhancements to our linehaul planning system, which should benefit us as well.

David Ross -- Stifel Nicolaus and Co -- Analyst

Sounds good. Thank you, guys.

Richard D. O'Dell -- Chief Executive Officer

All right. Thanks.

Operator

And we will take our next question from Amit Mehrotra from Deutsche Bank. Please go ahead.

Amit Mehrotra -- Deutsche Bank -- Analyst

Thanks, operator. Hi, guys. Just wondering if you could help us do a little bit of the work here and actually provide the sequential progression in OR in the first quarter. I think that's something obviously you provided in the past? And then related to that, a question, just a follow-up question on incremental margins and margins. I mean, you're basically guiding to a sub 90 OR in 2019, which is a pretty great milestone for the company. If you can just talk about what your confidence is in being able to achieve that in various tonnage in volume or shipment growth scenarios, just given maybe some of the costs that you've incurred in the Northeast expansion that maybe better absorbed as you progress through 2019?

Richard D. O'Dell -- Chief Executive Officer

Okay. So first just to two-point question, kind of, right? Fourth -- first quarter results. So our current outlook would be a little bit worse than normal, partially because of the 1 less workday as well as the weather impact that we had in -- late in January. So fourth quarter to first quarter is usually flattish, and we currently expect very modest deterioration in the operating ratio from the fourth quarter. And then we feel good about some of the things that we're doing within the organization to be able to generate positive tonnage, particularly, with the expanding coverage that we have. So I mean, I don't know I have a high confidence level. I guess, I would say, if the environment is -- gets more difficult, we would be may be at the bottom end of our 150 to 200 basis point range. And if the environment's good from a pricing and volumes are better, we'd be probably at the higher end of that. And then, obviously, if it gets a little bit worse, maybe, we don't quite get a 150 for the year. But with some top line growth, it would still show some meaningful operating income improvement, obviously.

Amit Mehrotra -- Deutsche Bank -- Analyst

Yes, maybe I can ask it, I'm sorry about the background noise. Maybe I can ask it little bit different way in terms of where do you think some of the, I guess, non-volume driven operating leverage is in the business? And so, as you guys expand to the Northeast, I would imagine you could leverage purchase transportation cost a little bit more. Maybe there's some leverage on the workforce side. Maybe if you can help us there as the business gets bigger and enterprise gets more scale, where can you see some of that density base leveraging the cost structure?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, I mean, I think, it's kind of across the P&L, right? So we've always said that if you think about our sort of corporate cost, the leveraging the sort of Atlantic -- at corporate office as we grow, certainly, as we continue to expand in the Northeast, we're not adding the corporate overheads. So that's 8% to 10% of the total, and that's a new -- that's a leverage point there. I think over time, Rick described simply the leverage that we would get in the Northeast around filling out the schedules, right? So that -- getting that -- getting those terminals in and around the Northeast to operate more closely, what the center of our network looks like. So that -- those are kind of leverage opportunities for us. I think there's also can be continued focus on pricing around that and how do you effectively price finding that mix of business that makes sense in the network. Because if you do a good job of matching that volume for the network, then you can also have an opportunity to optimize the network behind it, right? So how do you better utilize assets with effectively priced or effectively identified customers. So I think there are multiple elements to that. We continue in that kind of, sort of, trend. I think that's how we leverage and get those -- that range of OR improvement year-over-year.

Richard D. O'Dell -- Chief Executive Officer

Yes. I would also comment, with the growth and the increase in length of haul, at times we use purchased transportation to move the customer's freight, obviously, and get the service that you need. And then, you look back we do have some suboptimal purchased transportation. So we're looking to, obviously, staff that with a group of drivers and move it more optimally with our own resources over time as well. So that's kind of a constant process as well.

Amit Mehrotra -- Deutsche Bank -- Analyst

And was there any benefit in the quarter from -- last question, I'm sneaking one in here, but was there any benefit in the quarter, I guess from the disruptions that UPS Freight and kind of what they want to for a short period of time. Any way you can quantify that in the quarter?

Frederick Holzgrefe -- President and Chief Operating Officer

I don't know that we can quantify it, but we did see some of that experience come and go, right? So ideally, one of the good things about it is that customers got to see what opportunity do business with Saia. That's a positive. They see what our value proposition looks like. So we did get some pickup help from that, but I think it's largely kind of back to where it historically -- where the mode or the -- with the customer set.

Amit Mehrotra -- Deutsche Bank -- Analyst

Got it. Thanks for taking my questions. Appreciate that.

Frederick Holzgrefe -- President and Chief Operating Officer

Sure.

Operator

(Operator Instructions) And we will take our next question from Matt Brooklier with Buckingham Research. Please go ahead.

Matthew Brooklier -- Buckingham Research -- Analyst

Hey, thanks. Good morning. So I had a cost -- kind of broader cost question for you, but can you talk about your expectations for cost inflation in '19 and maybe specifically talk a little bit about -- a little bit about driver pay expectations?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes, sure. So if you look at just the salary wages line, I mean, if you just look at drivers and mechanics, you'll probably look in -- and we do this by market every year, kind of, do an assessment of where we -- how we stack up in markets. And I would expect to see that number to be 4% to 5% potentially for drivers. The rest of our workforce, I think, we're looking at 3%. The other big factor you have is healthcare cost. That's probably low teens increase year-over-year. I think the -- as you're modeling this, we've had pretty high levels of capital investment. So you're going to see the increases in depreciation and amortization expense year-over-year associated with that. So those are -- this sort of an emphasis around where we're making investments. You're going to have that sort of inflationary costs that comes along with those investments, but I think the big drivers of those, I think the other markets that -- or other expense line items, things like insurance or not what we've seen in years past so that's good. But those are kind of the big ones, I think, would be on that salary wages line that I highlighted for you.

Matthew Brooklier -- Buckingham Research -- Analyst

Okay, that's helpful. And then has the driver market -- and I realize you guys are in the process of growing, so it's a little bit of a different game for you guys, but the driver market and relative availability, has that gotten a little bit better over the past, let's say, six months or so? And obviously realizing that more of the tightness is in TL versus LTL, but just curious to hear your commentary on the overall driver market from -- maybe from a recruitment perspective?

Richard D. O'Dell -- Chief Executive Officer

Yes, it's still pretty tight and pretty difficult in our experience. And obviously, it varies somewhat by market, but yes, still pretty tight.

Matthew Brooklier -- Buckingham Research -- Analyst

And just one last one if I may. I mean your earlier comment seems like you're pretty positive in terms of the pricing environment. Over the next 12 months you did a GRI last year, I think it was effective in May, I think it was 5.9%. But just curious to hear your thoughts on if given the current environment, it's a general rate increase could be in the cards for Saia this year? Thank you.

Richard D. O'Dell -- Chief Executive Officer

Yes. I mean, we tend to follow the market. And as I'm sure, you're aware, several people have announced general rate increase. So you could assume that we tend to be kind of a fast follower with the general rate increase. Especially, the smaller customer you need to sell on a discount, so you need to keep your tariffs market competitive. So you could assume that we'll follow the market.

Matthew Brooklier -- Buckingham Research -- Analyst

Okay. Great. Appreciate the time.

Operator

And we will take our next question from Willard Milby from Seaport Global. Please go ahead.

Willard Milby -- Seaport Global Securities -- Analyst

Hey, morning, everybody. I was just hoping to ask the -- I guess the Northeast profitability question again, maybe in a little bit different way. Can you remind us where you all are from that region from an efficiency or a density standpoint compared to the network as a whole?

Frederick Holzgrefe -- President and Chief Operating Officer

No, we haven't broken out those kind of statistics in terms of density by market or anything like that. But I can tell you that it's still in the growth phase. It is -- OR was below 100 for the quarter, so that's good. We're happy with that. But compared to, like, Dallas or Houston, those kinds of places, we have ways to go. But I think it's on tracking where we'd like to see it ultimately, but those are continuing to be opportunities for us around building density around routes or -- and frankly just getting tonnage through terminals. So that's still an opportunity, but it's -- we kind of expect it to be in this sort of state.

Willard Milby -- Seaport Global Securities -- Analyst

Okay, and I guess and you talked it would being sub 100 in the region, I guess it'll vary by marketer or terminal location. But how long from opening day one opening of a terminal two that sub 100 OR what's kind of been the average timeframe to get the profitability once you open a terminal?

Frederick Holzgrefe -- President and Chief Operating Officer

It -- they vary pretty widely, right. So if in the case of Laurel, Maryland, that one ramped up pretty quickly. New York was pretty similar. But I think if you look at it, generally speaking, they are around sort of nine to 12 months in general. But there are -- there is a wide variation. The terminal that we opened in Harrisburg just recently, I mean, that's a 150-some door terminal. It's gonna break -- it's a break operation. And you compare that to say Scranton, Pennsylvania, those were 2 totally different animals. So they can be -- it's tough to generalize them.

Willard Milby -- Seaport Global Securities -- Analyst

Okay. If I get to jump back to the cost inflation question, you cannot split out the drivers from the rest of the workforce, but as a whole collectively should we think of wage increases similar to what we saw in 2018?

Richard D. O'Dell -- Chief Executive Officer

I think that's probably fair.

Willard Milby -- Seaport Global Securities -- Analyst

Okay, that's all from me. Thanks for the time guys.

Richard D. O'Dell -- Chief Executive Officer

Thanks.

Operator

And we will take a follow-up from Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Great. Thanks for taking a follow-up. Just two quick ones. First on the insurance and claims this quarter, I think you had made the comment that something along the lines of like moderate levels of accident severity. I know you were just talking about the insurance maybe being less of a headwind or at least the rate of increases relative to a couple of years ago. And I know it's a tough line item to model, but just any thoughts on how we should think about insurance? In the quarter, was there anything unusual from a true-up standpoint? And then, thoughts into '19 on the insurance line item?

Frederick Holzgrefe -- President and Chief Operating Officer

No, There's nothing unusual in the quarter. I think as we've disclosed, severity was down. I think what you're seeing, at least in the fourth quarter, you see the returns on all the investments we've made in safety, around all the equipment safety. And so that was a positive impact. Could I discretely call out? This particular incident, in the past, would have been ex-liability compared to where we are now. Obviously, I can't do that. But I think, I would probably trend that over time based on what you see sort of our tonnage trends to be. That's probably about as reasonable a proxy.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Okay. And then, just my last one, do you have a or can you share a range for depreciation expense in '19, dollar amount?

Frederick Holzgrefe -- President and Chief Operating Officer

No, I don't break that out. But I think if you generally -- and part of the reason we don't is because of the nature of what we're investing in. So, the revenue equipment, I mean you've got a range there of tractors and trailers, roughly $114 million of tractors, and that's sort of over a sort of number and we'll take that in the first half of the year. Trailers is $60 million number, that's a much longer depreciation schedule. And then the big wildcard there is how we deal with real estate, right? So if a large real estate transaction happens, that's going to have a different impact on depreciation. So as a result, I don't necessarily give guidance around that, but we don't give any guidance around it.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Okay. Fair enough. We can actually do some work ourselves, I guess. Thanks for the time today.

Richard D. O'Dell -- Chief Executive Officer

No problem, Todd.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

All right, guys. Thanks.

Operator

And we'll take another follow-up from Amit Mehrotra from Deutsche Bank. Please go ahead.

Amit Mehrotra -- Deutsche Bank -- Analyst

Thanks a lot. Thanks for the follow-up again. So I'm just wondering if you can talk about the confidence level or the outlook for double-digit or maybe low-double-digit revenue growth in 2019 given the strength in the yields and the pricing? And then, more broadly, you've obviously seen the ISM data points take a big dip down in December and then bounce in January. Any anecdotes, I think would be helpful with respect to your customer discussions, commercial discussions, what your customers are seeing the mood, the tone, the body language, anything just would be helpful given the macro uncertainty that seems to be dominating conversations?

Frederick Holzgrefe -- President and Chief Operating Officer

Yes. I don't know that we have any real extra color to add around that. I mean, as I look at 2019, if I look at what I know right now, I know what our contractual renewals have been for the last couple of quarters. Those are going to materialize into 2019. So I think that's a positive trend for our yield sort of top line and then you add in some modest tonnage growth and the expansion in Northeast. I mean, I think that get you to kind of a double-digit number. The world is in balance. I can't predict what's going to happen the macroenvironment. But I would say that if things were tempered compared to what they were in 2018, but I don't necessarily think that portends to a bad environment. It's just one where going to have to continue to execute where we are, right. Customers, I think, if there is a theme, maybe it's similar to that, but it's not a -- my gosh, the world is coming to an end or things like that. I don't see that at all.

Amit Mehrotra -- Deutsche Bank -- Analyst

Okay. All right. Thanks for the color. I appreciate it.

Operator

And with no further questions, I'd like to turn the call back to Rick O'Dell for any further or additional closing remarks.

Richard D. O'Dell -- Chief Executive Officer

Well, great. Thanks for your interest in Saia. We appreciate it.

Operator

And this concludes today's conference. Thank you for your participation, and you may now disconnect.

Duration: 55 minutes

Call participants:

Douglas Col -- Treasurer

Richard D. O'Dell -- Chief Executive Officer

Frederick Holzgrefe -- President and Chief Operating Officer

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Jason Seidl -- Cowen Securities -- Analyst

Stephanie Benjamin -- SunTrust Robinson Humphrey -- Analyst

Ravi Shanker -- Morgan Stanley -- Analyst

Robert Salmon -- Wolfe Trahan -- Analyst

David Ross -- Stifel Nicolaus and Co -- Analyst

Amit Mehrotra -- Deutsche Bank -- Analyst

Matthew Brooklier -- Buckingham Research -- Analyst

Willard Milby -- Seaport Global Securities -- Analyst

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