Q1 2021 Schneider National Inc Earnings Call
Greetings and welcome to Snyder's first quarter, 'twenty, 'twenty, one and earnings conference call and.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
And once you require operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Steve Dennis Director of Investor Relations. Thank you you may begin. Thank you operator, and good morning, everyone. Joining me on the call today are Mark Rourke President.
And Chief Executive Officer, and Steve Breath, and executive Vice President and Chief Financial Officer.
Earlier today, the company issued and earnings press release, which is available on the Investor Relations section of our website and Schneider Dot com.
Our call will include remarks about future expectations forecasts plans trends and prospects for Schneider. These constitute forward looking statements for the purposes of the safe Harbor provisions under applicable Federal Securities laws.
Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.
The company urges investors to review the risks and uncertainties discussed in our SEC filings, including but not limited to our most recent form 10-K and those identified in today's earnings press release.
All forward looking statements are made as of the date of this call and Schneider disclaims any duty to update such statements except as required by law.
In addition, pursuant to regulation G. A reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings press release, which includes reconciliations to the most directly comparable GAAP measures.
Now I'd like to turn the call over to our CEO Mark Rourke Mark.
Thank you, Steve Hello, everyone and thank you for joining the Schneider call today and.
And the company contacts for 'twenty, and 'twenty, one trends and expectations.
And with commentary on our segment results for the first quarter.
Before we get to your question, Steve profit will provide some additional insight on our updated full year 2021 earnings per share guidance affirmed capex range expectations and closeout on some brief overall enterprise result commentary.
First of all the freight market catalysts that were evident and the second half of 2020 and our view have only intensified and early 2021 and as a result, we expect the constrained capacity supply and excess freight demand condition to persist at least through the remainder of the year.
The freight market catalyst of supply chain bottlenecks, particularly those involving internationally sourced freight flows healthy consumer spending fresh government stimulus.
Record low sales to inventory levels, and especially our heavily constrained professional driver market provide optimism for the current up cycle continuing.
We see this market condition further accelerating our full load industry consolidation toward companies and efficiently capture and aggregate freight and capacity across multiple modes of transportation.
Our growth strategy of scaled offerings and mode mix across our truckload and intermodal and logistics segments is anchored on that trend and by addressing the varying needs of the large medium and increasingly now and micro shipper and carrier communities.
Each of our segments offers varying degrees of asset and capital intensity.
And return profiles and professional driver requirements.
Truckload being the most schneider driver and assets centric with logistics, requiring minimal Schneider driver and capital assets.
And intermodal falling and between the two ends of the asset intensity spectrum.
We believe this aggregation execution capability will demonstrate increasing value for our shareholders.
Let's start with how the strategy played out and the first quarter. The overall contracted and spot pricing environment are running slightly ahead of our original expectations on.
And on the contract front, we are solidly into the low to mid double digit percentage range territory with renewals and our truckload network business and high single digit percentages and intermodal we would expect intermodal to climb further by the end of the second quarter renewals.
We finished the first quarter was slightly less and 40% of our book renewed and both the truckload and intermodal network segments.
Also running ahead of our expectations are the cost impacts of the professional driver condition.
We grew driver counts year over year and sequentially and the company driver positions that possess the most desirable driver configuration, specifically and dedicated and intermodal dray.
Irregular route network is the most challenging due to the combination of less predictable daily schedules.
And the opportunity to transfer it to for many the more desirable dedicated and intermodal growth opportunities, which we are enthusiastic we support as a driver satisfy or and retention differentiator for Schneider.
The net impact of the strong pricing environment segment business mix implications and contrast to the heightened inflationary cost realities is reflected and our increased earnings per share guidance that Steve will cover here momentarily.
As it relates to the business mix and get in the first quarter and logistics segment delivered outstanding results.
Logistics, 49% year over year revenue growth and 279% earnings improvement were both first quarter Records.
Brokerage benefited from truckload synergies in the quarter to include strong execution and our core services complemented by the continuing maturation of our power only offering where third party carriers gain access to Schneider has nationwide trailer pools through power only movements.
After the successful launch of freight powder for carriers, and 2020, we launched brake power for shippers and the first quarter.
The initial launch was targeted to the long tailed micro shipper to digitally automate the quote book and track process functionality.
More easily serve their freight coverage needs.
We are already enjoying several hundred orders per day coming through this frictionless channel and brokerage and as the year progresses, we will be introducing freight power for shippers to other elements of our service offering portfolio.
Also during the quarter the above normal weather impacts from February where extraordinary not only and their intensity, but also and the expansive geographies impacted.
The industry wide impact of rail and intermodal spaces I've been well chronicled.
And it should be noted that our truckload segment, both network and dedicated we're highly impacted and some very non traditional areas.
Texas and the southwest region of the country.
And truckload, Texas represents the highest concentration of Schneider drivers and freight flows and the country.
Including support of freight into and out of Mexico and in fact, Texas has two and a half times more Schneider driver activity and our second highest freight activity state.
Our strategic growth drivers, a dedicated contract services and truckload and intermodal solutions were evident and our first quarter results.
Dedicated set a new first quarter company revenue record with 6% growth and average truck count, including 150 units and early stage startup and the quarter.
Our existing customer growth strong new business pipeline gives us confidence and additional full year growth of several hundred more units and various specialty dedicated configurations.
On the topic of truck counts our stated goal of returning the irregular route truckload network fleet to 6000 units by year and does not appear achievable considering the extended COVID-19.
Passenger market challenges and the other alternative opportunities for growth and.
A more appropriate target for your and now just 5500 units.
Finally, moving to our intermodal segment, we delivered first quarter Records and total orders delivered and revenue per order. Despite the mix change to a higher concentration and the east.
For the fourth time, and the last five quarters intermodal volumes and the eastern part of the network group and the mid double digit or higher percentage levels. We.
We have targeted adding several thousand intermodal containers and calendar year 2021, New business award levels confidence and additional over the road conversion opportunities as well as double digit percentage company dray driver growth support our desire to step up our container count.
I'll stop there I'll turn it over to Steve.
And we'll get to your questions.
Thanks, Mark and good morning to everyone on the call and then a reverse my typical sequence and begin with or forward looking comments.
Our initial guidance for adjusted EPS was $1 45 to $1 60, and our updated guidance is $1 60 to $1 70.
And what was the upper end of the range is now the lower and and the midpoint is increased by 8% and that represents over $30 million and pre tax earnings.
The updated guidance is based on the ongoing combination of robust demand and constrained capacity and as Mark stated. This is a condition that we expect to remain in place throughout 2020, one and likely beyond.
Our portfolio of services is functioning well and providing shareholder value by serving a broader portion of our customers' needs.
Regarding the portfolio, we expect that our asset light intermodal and logistics segments will deliver 45% to 50% of our total earnings for the year, and we feel well positioned to deliver strong results across the remainder of 2021.
We continue to expect a full year effective tax rate of approximately 25% and are updating our net capex guidance to a range of 375 million to $425 million.
The range allows for some potential delivery delays, resulting from OEM supply chain issues.
However, nothing has changed about our underlying intent to purchase the budgeted number of tractors and lower the average age of fleet.
And at the same time and continuing our ongoing funding for the development of new Tech capabilities.
I'll now shift to a recap of our enterprise results for the first quarter.
Beginning with revenue excluding fuel surcharge, our first quarter 2021 was up 12% on the strength of record revenue from our logistics segment.
Our adjusted income from operations of 76 million was the most profitable first quarter and our history and was up 42% compared to the first quarter of 2020.
Strong January and March helped compensate for a weather challenged February.
Looking at our quarterly income statement I'll note that <unk> 'twenty, one is relatively clean comparison to <unk> 'twenty as COVID-19 had only a limited impact on the first quarter of last year.
We were initially starting to see effects and mid March of 'twenty, and 'twenty and our intermodal operations, but there was not a material financial impact and as such there and not a lot of notable items on the income statement other than the higher purchase transportation costs to support the revenue growth and the logistics segment.
Moving now to the balance sheet I would just point out that we now have 100 million of debt maturities and the next 12 months $40 million in November and 60 million and March of 2020 two.
It's our current and jumped to repay both notes at maturity.
On the statement of cash flows and you'll see a limited amount of cash used in investing activities and this is due to light capex and the quarter along with strong proceeds from the sale of used equipment.
Given our full year expectations for net Capex, we obviously anticipate considerable amounts of cash being used over the final three quarters of the year.
Closing, we're well positioned and off to a solid start to the year and we look forward to crisply executing our plans over the remainder of the year and delivering shareholder value as a result.
So with that we'll open up the call for your questions.
Thank you, ladies and gentlemen at this time and will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue.
You May press star two if he would like to remove your question from the queue.
And who are participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.
Thank you good morning Ah. Thanks.
Thanks for the update and and kind of given where the new guidance says and where we are in the cycle and and and many of your peers are saying that it feels like this and fairly early and it's like Ms and continue into 'twenty two.
Hmm.
Steve and Mark and I'm wondering if you have a sense of where kind of normalized mid cycle margins and EPS can be EBIT oldest knee because a lot of debate right now about and exactly wherever you are what you know if if if we are close to peak et cetera kind of based on where you think we are just like right now what do you think is there.
Normalized EPS number is at 150 as it is at 160 is at 130, what should be there.
Well this is Steve I'll I'll jump into that Ravi are there's a lot in that question I suppose and what the definition of mid cycle is as I guess subject to interpretation and definition.
We do feel well positioned with the portfolio that we have in market and its adaptability.
To changing market conditions.
And we think that provides some resilience as we go through different market conditions.
You know, we've we've stated for a period of time now our.
Target margin ranges that vary from and truckload, there, 11% to 13% that we've stated and intermodal, 10% to 12% and logistics, 4% to 6%. So it really is kind of by segment, where it makes sense for us because they have different growth trajectories and and so on.
And I think we remain at this point and time comfortable with these ranges and as we get a little later into the year and into our strategic planning cycle, We'll review those and those are guided ranges.
Like like we do on an annual basis.
We will do that and do it.
And if anything I think the one under most scrutiny would probably be our truckload margins and what we think we can do with those over the course of time.
But.
I think that would be my response, I'd, rather not get into the normalized mid cycle EPS number because that's a tough one to answer I think.
Oh, you got it now that's a that's a helpful framework and when you say you're going to evaluating but the margins again are you talking about doing them up or down.
I don't see them going down.
Okay.
And I, just want to clarify that and maybe as a follow up can I get and can you just give us a sense of what are your conversations with customers are like right. Now obviously is very well known that we are unprecedented and tight truck market as a counter to that all your customers like willing to sign longer term contracts with more visibility on the trucking side are they.
And looking to more actively switch to our rail intermodal kind of what's what's their initial reaction when you tell them and I hate drivers and hard to find and you may not get your trucks.
Good morning, Ravi and good to hear from you.
This is mark.
And a really interesting period for a whole host of reasons, obviously and and so really what we're trying to do is provide solutions to our customers.
Across the various services that we have and I think what we're finding whether it be intermodal or there would be our logistics offering we have a lot of receptive to that because theyre looking for solutions.
To get freight moving in and getting their customers serve so I think it does play to our strength.
And customers.
And we see when you're under a little bit of.
Difficulty things are everybody's open to a little more creativity generally are to make that happen and so.
So we're seeing at times people convert from.
Trucked intermodal for capacity coverage and in other places we might see some conversion and the other way because I'm looking at increased service requirements and reliability and so that's why we're kind of agnostic to how that happens we want to make sure we're offering.
Options and and letting our customers take advantage based upon what's most important to them.
Very good thanks for that color Mark and Steve.
Our next question comes from the line of kind of upset with Bank of America. Please proceed with your question.
Hey, great good morning, and.
And great job on the results despite the storms and tough environment. So it just.
Quick clarification, Steve can you throw out the gains on sale and the quarter and then and then I just wanted to understand that getting back to 5500 trucks and over the road, adding a few hundred and dedicated so still it sounds like you're looking for for fleet growth in this environment and then your I guess contrast that with the.
With the driver commentary thanks.
I'll tackle the first part of that and and Mark can take the second part.
Gains in the quarter on a sale of equipment.
And were modest very modest gains and a couple of million I believe and compared to last year modest losses of a couple of million. So the year over year, there's a $4 million to $5 million difference in that space.
And Ken as it relates to kind of the truck segment. There what we're really looking to do is stabilize.
Our truck count to the best of our ability in this environment relative to our network business. We are seeing some recovery and the team configuration, which was a key strategic priority for us slow and steady.
But the good news is making progress there.
And there's just a tremendous amount of obviously competition for the driver community and while were.
Fairly pleased with our retention levels across the board. It's when we do have turnover is where the difficulty has been and we're competing with private fleets and L. T L providers and all kinds of folks that generally don't.
We don't see to the degree that we're seeing today. So that's why the 5500 number would be just modestly up from where we are presently and the whole focus is on.
How do we sustain those numbers because we do like that business we just.
Don't want to chase it too hard on the cost from.
And to grow it and that's why our focus on growth and truckload centers around those longer term commitments and value add services and dedicated and and we're up not only year over year were up sequentially and we had a good deal and startup activity and the first quarter. Unfortunately, the largest component of that happen to be and the state of Texas as well. So we took.
A little bit of a double hit on not only startup and then our customers struggled to stay up and and obviously we were less efficient.
Because of the unusual weather pattern, there as well so dedicated is.
We're very optimistic and feel great about where we're performing there.
Great and if I can get them.
My follow up it sounds like a phenomenal.
And so nominal pricing environment, obviously, given all the backdrop, maybe just a little bit on intermodal.
How is the rail service levels, you know meeting your your conversion growth needs and are you still seeing that that accelerate and maybe a little bit more of an outlook on on intermodal.
Yeah, certainly and good question, Ken and as it relates to intermodal.
And the east.
We are back to <unk>.
Reliability, that's pre pandemic, so performing very very well as I mentioned in my opening thoughts.
And a five quarters now where we've grown and the mid double digit range and the east and and that continues to.
Be a real area of strength across our network.
Because of our dray performance, but also we have a real partner, that's performing very very well there the west is improving still.
Still not back to I think where anybody would be satisfied but at least showing signs of improvement.
But theres just a lot of other constraints going on there relative to the port activity.
Customer delays of getting equipment turned and so it's a little more challenging and the west and it's proven to be and the east but improving.
Wonderful I appreciate the thoughts thanks, guys.
Our next question comes from the line of Todd Fowler with Keybanc capital markets. Please proceed with your question.
Great, Thanks, and good morning and.
Mark in your prepared comments, you talked about seeing some consolidation towards carriers that are able to offer multiple modes of service. Obviously you guys you know sitting at that area.
And can you expand a little bit more on that comment is that something that you feel is more anecdotal or are there things that you can point to that you're seeing within you know bid results that are that are supportive of that trend.
So I think strategically tied to and we were under <unk>.
Belief that.
That there is opportunity for multimodal providers to be a source of aggregation.
Both on the demand side and the capacity side.
Because of our.
Reach and tech investments and connection with large medium and increasingly now small customers and small carriers that offer some.
You know a form of consolidation it wouldn't be the traditional like I don't think we can get down to four or five airlines and half dozen or so LCL providers type but.
And I do think it could be our view is that's a form of consolidation that are.
The Big Mall type.
Total providers that are tech savvy and are investing heavily to make that as easy on the shipper and the carrier as possible and bring their own assets to bear to offer great value and that exchange as well as.
It really at the heart of our strategy and.
And customers I think respond to that and.
And respond to our service spec and and acceptance spec.
And at times are increasingly less concerned about how it gets done.
Yeah, Okay that makes sense and then.
A little bit of a follow up maybe along the same lines you know the the strength that you're seeing within the logistics segment and the and the substantial revenue growth. There how sticky do you view you know some of that business is that more transactional and your view that maybe once we see less capacity constrained some of that goes away or is this business that when you look at.
Once you've provided the service do you think that that revenue is going to be more consistent going forward. Thanks.
Well, there's and there's no doubt that all parts of our portfolio are benefiting a bit from.
And with it.
Demand and supply condition as exists today.
But increasingly the role of effective third parties, our three pls and the middle of our solutions I think for customers have.
Durability to them.
And it can have a bit more of a variable cost structure to adapt to the varying markets that allows I think too.
Perform perform well and really all market conditions. So.
And the fact that we're increasingly being able to bring and maturing.
And this whole trailer pool concept with third parties, particularly for.
And the mid to large shipper, who needs those efficiencies.
Again, I think that's another element that allows us to have some staying power and stickiness, but but certainly benefiting from the market no doubt about that.
Okay understood. Thanks for the time.
Our next question comes from the line of Jon Chappell with Evercore. Please proceed with your question.
Thank you good morning, everybody.
And yet.
Mark to follow up on that last question and comment. So your logistics operating margin is solidly in the long term guidance range, where you know T L and and intermodal or still kind of grinding higher is there something about the logistics business, whether it's asset light model and it's your new power only whether it's some of your technology investments that are structurally.
<unk> are the potential you know margin opportunity at that business or is it just that this is kind of a a leading edge you kind of front runner.
And based on the favorable macro and industry dynamics right now.
And John I think there's many things that play there.
Contemporary and the market, but many of them are based.
Based upon the investments that we have made have continued to make.
That segment of our business and <unk>.
Generally as our incubation for new Tech, it's where we start with our decision science.
And we're very sophisticated there relative to the buy sell arrangement.
Which again that is beneficial and all market cycles, and so that continues to be an area that I think we create differentiation and margin enhancing.
And what comes with that generally and the investments we've made and freight power relative to both the carrier and the shipper side now is to certainly drive productivity.
Into those into that segment, it's still in my view to people intensive we got great people, we've got great technology, and I think over time, we can scale that business.
Via transactions without growing the people side of the house to the same degree that.
Traditionally has been done and and so you're seeing some of that certainly play out and.
Our margin performance Youre seeing the value being created and some of our power only solutions for the large shipper play out and that so it's a multifaceted.
Kind of a strategic thrust there that's delivering the result.
Okay that makes sense and then just second on the dedicated contract renewals and I noticed and the Kpis that the revenue per truck per week was essentially flat year over year. Despite the significant increase in and and the network side is there a.
Period of time, where there's more contract renewals and others, where we can see more representative move in the ER and the dedicated revenue per truck per week.
Zvi, you kind of what you're seeing and the spot market today.
Yes, and where.
We still have.
More work to do on the dedicated contract renewal side.
What we like about that is there more stable for both parties.
But we are in the midst of a series of renewals and rate discussions there and and.
And certainly looking to keep our drivers competitively paid but also having making sure that our customers are coming along that process and those dedicated contracts at the same time and so a good deal of effort going on there that I think will certainly play out and it and its kind of and our expectations for the remaining quarters of the year. So.
Stable business renewals and retention levels are extremely high.
And we will continue to work through the driver component of that most predominantly.
On the rate increase from.
Understood. Thank you Mark.
Our next question comes from the line of Jack Atkins with Stephens. Please proceed with your question. Good morning, and thank you for taking my questions. I guess first for Steve is there a way to quantify the weather impact and the first quarter I guess, specifically to your truckload operations and then I guess more broadly and if we look back to two.
And and 18 ex the first and final mile.
Our business you know that the truckload operations, we're doing something around that 13% margin and.
And it seems like the guidance. This year is more like maybe 11 and after 12% at the <unk>.
Point is there a way to kind of think about what's preventing you and such a strong freight environment from getting back to those that upper end of that and that longer term guidance range. This year.
Okay, Hi, Jack This is Steve I'll take the first part of that for sure.
We haven't specifically quantified the weather impact and when you look across the spectrum of the quarter.
Did march benefit somewhat and a bounce back from the constraints of February and how do you quantify all of that but there's no question and the net effect was negative on the quarter.
And I guess another way of responding to that as you know we've seen some analyst reports that say, we had a miss and truck and beat and and logistics and and intermodal well I'd say the Mrs could be attributable to in true.
Truckload could be attributable to weather.
Okay. Okay got you and then and then as it relates to the well.
The ability to hit the upper end of that guidance range. This year.
Yes, Jack we are certainly leaning into that and and to US. It's really as we think for what is the inflationary impact on the capacity side that.
You know when we look back to 2018, we we're adding drivers into those into that cycle.
And this period has been much more challenging and more costly to do that.
And so that's really at the heart of where do we want to get to that right size, particularly in our network business.
And so I think that is where we have the biggest opportunity obviously and the short term when youre growing dedicated you have some startup costs associated with that and that had an effect on the first quarter, we've seen much improved.
Our revenue metrics as it relates to the dedicated arena coming out of the second half of March and now that we're into April.
As we get some of those startup elements behind us because we didn't have a big glut started and the first quarter.
Quarter.
But that's why I think Steve.
<unk> opened with the question relative to what do we see our long term margin performance and truck, we're not exactly obviously satisfied where we are presently and in.
We should expect and everyone should expect us to perform and are.
Closer to the higher end of that range over time.
That makes sense and I guess from my follow up Steve could you could you give us a sense for what your outlook is for gains on sale for.
For the rest of the year you know, we're seeing you know some some significant gains and certain carriers just sort of curious if you'd expect that to ramp it up in the back and back half of the year and then more broadly.
How's equipment availability are you able to get the equipment that you need from your OEM partners. Thank you.
And so each each company has a little bit different philosophy around.
And your underlying depreciation policies and the thus the interplay between gains and losses as you go through different used equipment cycles.
We try to.
Play and the middle of the fairway there so to the extent, we can we've tried to minimize losses or gains and and just have depreciation.
Do its job.
Obviously, when you get in conditions like this where things get heated up even more I would expect us to have.
At least modest gains across the remainder of this year compared to.
Some modest losses and the first half of the year last year, but the market begin to improve a bit as we got into the second half of 2020.
And I don't think there'll be big noise items, but generally.
Would be a favorable year over year comp as we go through the remainder of this year.
On the OEM front.
Jack we are and a bit of a delay of delivery here we would.
Assess ourselves will be about six weeks behind delivery schedule at this point.
We do think <unk>.
As we get and here in the middle of the second quarter, we will start to see the return at the pace that we expected of our new equipment to come in but that's been delayed as I mentioned on the tractor side about six weeks.
Probably a little less visibility too.
The intermodal container front, which is another area that we wanted to build by mid year.
To have.
And some increased capacity available coming through the second half and that's a little bit less.
Less visible to us right now because of vessel constraints and empty versus loaded options and so we're working through some solutions to that so.
But the tractor front, we're feeling a little bit better about and perhaps even we were several weeks ago.
Our next question comes from the line of Jordan <unk> with Goldman Sachs. Please proceed with your question.
Yeah, Hi morning, just curious.
Some more color on the dedicated side obviously.
And you alluded to things are pretty solid.
About.
The bid pipeline is it still sort of accelerating from here and I'm just sort of curious in terms of the types of contracts are you finding that right.
Requests.
In terms of and the amount of dedicated trucks involved are getting larger than they were sort of pre the pandemic or are they generally that same size space.
Sure Jordan, maybe just a step back and really where our commercial and.
And strategic focus as it relates to dedicated and.
We're very mindful that we are looking and pursuing.
Uh huh.
Durable dedicated solutions not those that are just.
Looking for opportunity to gather capacity and type one way kind of network markets and so there are certainly people, who would look to that as a solution from a customer standpoint, it's just a place that we don't place emphasis because of the lack of durability.
Through cycles and so.
Ironically that what that generally leads to that as well.
More specialty type dedicated private fleet type replacement opportunities.
And they generally are on the smaller size and the a.
10 to maybe 25 truck range versus the larger kind of network based non durable dedicated state.
May have been more prevalent back and the nineties and the two thousands and so.
Because of that.
Our average wind size.
And is generally a little smaller because of that but that's very consistent with the stickiness and the durability of that we're looking for and generally comes with some of the other value added.
Actions are processes that we're doing and supported the customer and so.
And that's what our pipeline is.
Is targeting.
Great. Thanks, so much.
Our next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question.
Thanks, Good morning.
Wanted to talk about.
And so out of all our.
Q1 was quite a bit better than normal sequential trends would imply even in spite of weather and and some of the rail service challenges. So just as we think about the progression of the LR for the balance of the year.
Yeah, and you sort of the the 92 two from the right baseline starting point and starting from there we can apply normal sequential trend.
And I run that math and you know it basically implies more than 300 bps improvement and so that's full year or so.
And just trying to get your thoughts and if that's a fair way to think about it.
Yeah, Allison and Steve here.
Obviously compared to 2020, which intermodal.
Bore the brunt of the COVID-19 impacts and art portfolio of at least.
So second quarter, especially yeah. So we definitely would expect very solid year over year improvement and margin.
Of that basis of comparison.
And <unk>.
<unk> to the other part of your.
Good question.
You know moving into a time of year weather and we expect.
Smoother fluidity, and and further enhancements and our ability to turn containers and street efficiency and ramp efficiency to improve and and all of that should contribute.
As we go through and then once we get later in the year and.
You know, what what type of opportunities would be and the market and the peak season if it.
Peak seasons evolving over the last few years and spreading out a bit but what types of premium opportunities will be available later in the year.
And ultimately determined what we were able to post force for fourth quarter margins.
But feel like we are executing well and.
Have ample opportunity for margin expansion there.
And continued top line growth at the same time.
Perfect.
And the logistics items not to see very strong performance and the quarter from.
Both revenue and operating income contribution year over year. So could you just talk about how much of the improvement here is embedded and the full year guidance range.
Versus maybe the other segment.
Without getting specific.
My comments earlier and the call suggested that we expect 45% to 50% of our enterprise earnings to come from intermodal and logistics.
And inherent in that is and.
And increasing contribution from both of those segments to the overall.
Hi, there and where we've been historically.
Okay, Alright, thank you guys.
Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, Thanks, good morning.
Maybe wanted to come back to the for hire fleet and and just wanted to kind of get a sense and maybe practically how you see that stabilizing both from a timing perspective, and maybe sort of.
What will be the drivers of of maybe getting more drivers I guess.
When you think about.
Wages going up is that sort of the primary tool that you think you can use and do you maybe need to wait for some of these extended unemployment or enhanced unemployment benefits to roll off later in the second half of the year before it becomes a little bit more more easy to get to get those folks and I'm just trying to get a sense of sort of practically how that works because evolution and the market tightened up post COVID-19 post the initial COVID-19.
And said it seems like the the tractor dynamic has been come increasingly more challenge challenging to add so I just want to get a sense of how you guys are practically thinking about addressing that.
Yes, Chris and it's.
And it's.
As you mentioned and it's been a challenge for US specifically, we have been focused on stabilizing a couple of elements of that for <unk>.
<unk> network fleet, which was the team component, which I mentioned that we've made some adoptions to some of our.
Approaches to that policies to that too.
And improve our value proposition to the team and professional team drivers.
And again as we get further along into the recovery of COVID-19 here, because what we lost was the non family teams being comfortable being together and we're starting to see some improvement and comfort.
And as folks get through the vaccination phases too.
And to get back into those type of team configurations, which is a productivity driver for us and premium freight a driver for us as well and so that's a.
A very positive development and the second area was.
This extended spot market.
Visibility that the owner operator community was moving towards and we had some shrink relative to drivers and owner operators looking for those opportunities. So.
We think we're largely through that so that gives us a stabilization effect.
Kind of where we are then it's focusing in on and then how do we increase and get some momentum.
Momentum going and the company solo drivers side and part of that like some others is that we have instituted some schools that we've had.
And I've done that and the past and we have several sites now that we are.
Helping folks get and produce their own cdl's and so.
That's a place that we haven't played and a very large way since about 2009. So it gives you a kind of a sense of.
And kind of actions necessary in this environment to do some things differently and so we have several places around the country and certain intermodal markets and and certainly and our network business that we are and.
Creating and helping people.
Brand new to the industry get their CDL.
Okay. Okay. That's helpful color I appreciate it and then I guess.
On the for hire side, just thinking about utilization and the potential step up that we might see coming out and the first quarter presumably.
Weather did disrupt that to some degree obviously the right side of that is probably been quite good just kind of curious if you think about sort of a truck utilization and miles per tractor and how that might sort of progressing as you go through the rest of the year.
Yeah, Chris and as you mentioned the price side has been very very solid, particularly in the network business, where we are.
And our issue was centering around the productivity side of that particularly because of the.
The hit we took in February the fleet is fairly tight our seated truck unseated trucks are in pretty good shape and.
And as we start to get traction of the elements that I talked about here I do think youll see and we.
Would expect to see improved utility.
Through the remainder of the year.
And it'll be a combination of both price and utility.
Okay and that starts and two Q I would assume to some step up.
Correct got.
Got it. Thank you very much for the time appreciate it.
Our next question comes from the line of Jason Seidl with Cowen and company. Please proceed with your question.
Thank you, Hey, gentlemen, good morning, I guess I'm, playing anchor me and here today, congratulations on <unk> I wanted to talk a little bit about sort of the overall market and how you see supply and demand we've heard from many carriers, both public and private that they expect sort of the strong market to continue throughout the.
And during the year.
Do you sort of view capacity as it can potentially come back to the marketplace. So sort of what are the what are the drivers there no pun intended in terms of driving schools coming back and maybe new ones opening up.
First is just still COVID-19 restrictions and then some restrictions you have on the OEM side, how do you view sort of capacity and I think you alluded to maybe your seated tractor count.
And we don't see a great deal of relief on the capacity front for the remainder of the year I think someone commented earlier.
And the incentives for people to stay on the sidelines from.
Our government stimulus standpoint is.
And upon the state that you reside and is.
Certainly a barrier and we hear that from our recruiters, we hear that from it.
Truck driving schools and.
And thats going to be with us I believe at least through September and so were not going to see any relief and the short term of that being any sort of.
Catalysts for folks perhaps to get back.
Back in the seat.
What you are seeing whether its private fleets or whether it is <unk> and what I. Just mentioned you are you seeing the constraints that are happening and accompany it.
New schools, which still is highly constrained.
Relative to availability there that people are doing a little bit of more and build their own so that trend I.
I think we will have some impact.
But it is a long cycle to get those folks, it's a long cycle to get them.
Train and it's a long cycle to get them.
Feeling the production into the into the various fleets that are pursuing that so again, that's not a short term.
Short term response and.
As we look at the overall demand picture and we're sitting in April which generally is the second.
Less robust months of the year and it's very typical.
Typical seasonally and we're <unk>.
Just now getting into.
And the month of May we will have.
The inspection week, which will take trucks off the road and and we'll get into our seasonal periods of the summer and particularly with folks looking I think to get back out.
And to get together and have the barbecues and do the things that drive.
Our consumer products and food so we would expect.
And that combination and that really just carry us through into the peak season and so.
We don't see demand or excuse me and capacity being solved any way shape or form for the remainder of this year well that was actually going to be my follow up question. So.
With that backdrop with not really a lot of capacity coming back in the near term and with the demand backdrop that we're seeing now and.
And potentially a really strong back to school season with most of the kids getting back in person and learning.
And the economy humming along as it is can the market get a lot tighter from here.
So great question and I don't.
No how it gets any tighter in some respects based upon.
Now the offers that we get daily versus what we can accept but that's why I think is worth looking at our portfolio of leveraging everything that we have to offer from the truck to the train.
And then increasingly now with our logistics capability.
I think we have an excellent opportunity to play that portfolio and that market through.
Through the remainder of the year, which is really anchor to our increase in guidance, but.
So that's why we're I think we're fairly bullish on the condition.
Well clearly the ability to provide your customers with capacity across the supply chain is king right now so.
Listen I appreciate all the time and everyone stay safe.
And customers are looking for options and and that's what we're and the business of giving.
Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks morning, guys. So I wanted to go back to truckload margins Iraqis true not pleased with.
With where they are and I look at night and were and are at low to mid eighties and waters and they're dealing with the same weather and and driver issues I guess what specific changes.
Are you guys, taking to try and close that gap.
Yeah, Scott this is Steve.
Over the course of time, there will be a series of opportunities that we are identifying that we can.
Implement and our network business and like Mark said earlier, we like the space and it's not as though.
That we're trying to.
Gradually work our way out of it we would like to.
The increase having.
Some from higher volume and revenue across the.
Portions of the <unk>.
And this network configuration that are more fixed in nature, obviously would be contributive to our margin and and.
If we reach a point, where we don't feel like we can reach the volume.
Volume and revenue levels that we need to and then we need to adjust some of that fixed cost structure over the course of time.
That's a potential lever.
And we're evaluating.
What type of footprint, we have across the country and and so on.
But.
And there's also ample opportunity for productivity enhancements.
And so we focus on those as well and.
That's a variety thing is it's like any network business is not a simple answer to that because theres a lot of moving parts and you push on one part and and it impacts and other.
So we have to be sensitive to all of that but we do.
Have a belief that.
Especially on the network side of our business that we we have and opportunities set here or two to take a step function up and our margin performance over the course of time. So that's.
And to achieve that goal.
Okay, and then you mentioned truckload rates are up more than intermodal rates to start the year can you. Just do you have any perspective on and where that spread is right now between intermodal and truckload pricing is it is it wider than normal similar with normal what what's holding intermodal price.
And back.
Do you expect the GAAP to close any thoughts there.
Yes, there is.
We would expect there still to be obviously, a GAAP between the two.
I think what we'll see coming out of the second quarter is the increase.
Year over year will be.
Loews between truck and as I mentioned, we were.
Low double digits and truck high single digits and and.
Intermodal and the renewals that we had scheduled and the book that we had a renewed and the first quarter as we projected those same renewals that are in front of us and the second quarter that we will have those I think pretty much on par and so that means there'll be some lift we would expect some lift and the intermodal.
Increases on a year to date basis, as we finish up the second quarter.
So there really isn't that and Brad has got there isn't there isn't there isn't a long term. This is more of a timing issue between what is being renewed than it is.
Change and the spread.
Okay. Thank you guys.
Our next question comes from the line of Tom and Wade, which with UBS. Please proceed with your question.
[noise].
Yeah. Good morning. So my first question is kind of a.
A little more strategic or longer term frame on the network business.
And look back and first quarter 17, you're at about 8000, and truck and network and you're running about I don't know its.
33% below that if I look at first quarter this year.
You know 40.
5400 level I know some of that strategic and and more emphasis on dedicated but how do you think about.
The level you want to be at in the network business is there kind of a critical mass where your profitability and stronger if you are five or 6000 trucks.
Or is that something just because it's a tough.
Business for drivers did you can let that get you know kind of smaller over time and put those trucks in dedicated and it can still be a.
Strong margin business.
For you in terms of the network business.
Yes, Tom.
And I.
And we certainly as it just got repeat maybe what we are recovering there is that we like the network business. We think we can add great value to customers.
We certainly, though as we think about strategic growth.
Our primary.
Strategic growth areas and remain dedicated intermodal and.
Our logistics segment and.
So.
I didn't want to come into this year get below 6000 units the market condition and the challenges. There is got is now at 5500.
And so we would like.
Get some stability there clearly and.
And as Steve mentioned.
We need to look at our overall network and infrastructure associated.
And with our network because when you are running largely are much more.
Focused dedicated network youre not using all the same locations all the same facilities.
Because of the specialty nature of what you're doing and the routes that you are running and some support and those dedicated contracts. So.
You make some long term investments.
Over time that you have to kind of look at and challenge and see what makes sense.
As you shape your organization and that's a bit of a mix where in it and right now our network business <unk>.
<unk> most of those costs and that's what we're looking at.
Okay.
My second question is just.
And I guess I'm trying to get a little bit more information on what's happening and logistics, obviously the business is performing very very well.
Can you give us a sense of.
And how much of the loads are power only.
And then perhaps also offensive.
Uh huh.
And does the head count growth relate to the volume growth I don't I don't think you mentioned the volume growth number I don't know if you want to offer what that number is but how does your head count growth and logistics compared to did the volume growth.
Yes, we're getting more productive which.
Which we measure on transactions are orders both from a buy sell on both sides of that equation through the technology investments we're making.
Power, only which on a percentage basis is growing a lot, but it's still.
Much smaller piece of our overall brokerage volume is on a daily basis.
It is more productive.
And a traditional transactional brokerage model so that also helps.
And we think over time drive additional people productivity into the business.
But what we're seeing and our results and and logistics is not simply rate and the growth. We are growing volume double digits and addition to growing.
The top line on a on a rate per order basis. So.
Both elements, so volume and radar contributing to the growth and logistics.
Do you mind, telling us how much volume was was up.
I don't think we disclose that Tom.
Okay competitor okay.
Yes.
Alright, thanks for the time Mark.
Thank you.
Our next question comes from the line of vast and majors with Susquehanna Financial Group. Please proceed with your question.
And thanks for taking my questions.
You know mark the idea that this favorable trucking environment and continue at least into early 'twenty two isn't unique to Schneider, but I'd be curious if you could earn back.
The one or two biggest items that are giving you that conviction and an industry that typically doesn't have three or four quarters and visibility.
Yes, I think it would be.
Back to kind of our kind of assessment of the marketplace.
Availability of capacity and it really solve this is which is what much different in 2018.
While the market was.
Had several quarters of very robust supply demand condition. There was this correction going on in the midst of it we just don't see that correction and capacity at this juncture. It doesn't mean it won't come at some point, obviously, but we don't.
C are presently.
We think we still have some industrial economy.
Coming back we're.
And we're seeing that and our bulk business, which basically almost exclusively serves the industrial side of the economy and we are.
That was definitely over the last several months have seen a recovery in volumes there.
Is the precursor to more.
Finished goods coming.
We look and talk to our customers about where they are and their inventory levels and what they expect to happen and what they're at and there's very few folks are summit's made some improvement but.
Many many R R.
Not where they want to be or where they need to be there. So we think that has.
A contributor to some legs and.
And.
And overall I mean, there is plenty of health and the consumer is pretty healthy and there's money being injected into the system.
More of that so it just all sets up for the condition that we have now may moderate who knows we'll see if there's some moderation too, but theres a lot of moderating to do.
Before we're not we're not busy on it.
Per load basis.
Thank you for from mapping that out and you did allude to how this could be different than 2018 at least from the capacity response side I mean, if you zoom out further does this remind you of any historical corollary or any other market just trying to think of analogs and and how you guys think of that internally would be helpful.
Yes. This is my 30 <unk> year doing this and I don't.
And I don't recall.
The demand and the capacity side, not having kind of a light at the end of the tunnel, which is would be generally.
And have seen and so to me. That's just the biggest difference is that as the overall labor condition and the country and whats kind of.
And any reasonable period, and any reasonable level correct itself to the point so to me, it's going to have to be and economic correction.
With what's going to drive.
Kind of a change and where we are.
Thank you.
Our last question comes from the line and I'm, Brian <unk> with Jpmorgan. Please proceed with your question.
Hey, guys. Good morning, Thanks for taking the question.
Just to get a little more specific.
And I'm sorry.
We're just under the wire and go ahead, sorry, Oh, okay. Thank you.
And so I'll try to keep it quick I'll keep it to one.
When do you think of screwy to be improving and the intermodal side I know you were expecting better weather, which will help and of course, but.
When you look at like the Street turns and the fluidity at at a shipper locations are you seeing any sort of improvement when you drill down into that level of detail. Realizing there's still a lot going on and it does tie back to the rail to a certain point and.
And then I guess second part would be on the on the rail capacity side.
With the constraints on teams and the priority for freight moving fast are you seeing any TFC, taking some priority or maybe taking up some capacity and as the rail network serve more of that premium L. T O and parcels.
Yeah.
And that's unpack there so the first part of that again, Brian was.
And the street turns and warehouse fluidity anything and supply chain Youre seeing improvement there and addition to what you expect on the rails great.
Great. Thank you.
And it is still a bit of a challenge and where our metrics are not back to where we would expect or need them to be from a customer fluidity standpoint.
What we are able to do however is that we.
We are driving more of that on our acceptance and what we are.
Are saying, yes to every day that has more of and influence now and what are we can get that box. When we would expect to able to get that box turns so the customers who do that.
Most effectively are getting favor on the acceptance front, so we're driving it.
Based upon those type of decisions and we have great day to that.
A ship and constantly location to kind of bend, our acceptance and bend our network to give favor there and so that's so we're kind of driving that more so than perhaps.
Some of the labor challenges and some of the demand challenges that are slow and focused out on getting getting our equipment turned.
And then certainly there is no doubt the e-commerce push and the parcel push and.
The <unk> push is having some impact relative to the fluidity of the rail, particularly and the last.
And so.
We can see that we know that.
And it's getting better.
And it's getting more fluid, but certainly as we went through the fourth quarter last year.
And certainly had more influence and we would typically see.
Got it thanks, a lot Mark appreciate it.
Right.
There are no further questions I'd like to hand, the call back to management for closing remarks.
So since we're already got everybody passed thanks for tuning in and.
And any other questions. Please follow up with the team. Thank you.
Ladies and gentlemen, and this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yes.
Yes.
Sure.
Yes.