Q1 2021 J B Hunt Transport Services Inc Earnings Call

Greetings, Thank you for standing by and welcome to the J B Hunt first quarter 2021 earnings call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and.

And now I'd like to hand, the conference over to your speaker today.

Brad Delco, Vice President of Finance and Investor Relations. Please go ahead.

Good afternoon before I introduce the speakers I would like to take some time to provide some disclosures regarding forward looking statements.

The call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 words, such as expects anticipates intends estimates or similar expressions are intended to identify these forward looking statements b.

Statements are based on J B Hunt current plans and expectations involve risks and uncertainties that could cause future activities and results to be materially different from those set forth and the forward looking statements for information regarding risk factors. Please refer to J B Hunt's annual report on form 10-K, and other reports and filings with the securities.

And commission.

Now I'd like to introduce the speakers on today's call. This afternoon I'm joined by our CEO, John Roberts, our CFO John Kuo.

Shelley Simpson, our chief commercial officer, and EVP of people and human resources.

Nick Hobbs, our Chief operating officer, and President of contract services.

Brad Hicks President of highway services.

And Darren field President of intermodal.

At this time I'd like to turn the call to our CEO, Mr. John Roberts for some opening comments John.

Thank you Brad as we discussed during our last call. We entered 2021 with a cautious but informed positive outlook on what we could expect in terms of demand and inventory replenishment needs from our customers SaaS and the temporary disruptions presented by weather events and February most of the data supports.

Generally optimistic view of those expectations and.

And encourages our direction going forward.

As we evaluate current marketing conditions and the needs of our customers. We have determined that an increase on our capital investment plan is warranted. Accordingly, we are announcing a 40% increase and our originally stated plans to enable the procurement of incremental containers trailers and the needed supporting equipment such as.

Chassis and tractors for J B.

The new projections for our capital investments now reach $125 billion per this year and clear milestone for our company. We have secured contracts to increase our container fleet by another 6000 units and 2021 for intermodal, bringing our net addition target to approximately 12000 units for 2000.

And 21.

Little over a thousand of which our temperature controlled containers. We are also increasing our trailer fleet and Howard services about 500 units, bringing net total fleet expansion to 3000 and for 2021 all of this equates to just above and 80% increase to our original container growth plan and a 100% any.

Kris to our charter fleet expansion plans for 360 Bucks programs, John Kuo will add his comments on our capital expenditures and his remarks, let's discuss margins.

After announcing our plans to issue clarification for all segment margin targets during our last call and with the understanding that we have had these margin goals under specific review for over a year, we will reestablish our targets with you here today.

For intermodal, we lower our margins goals from 11% to 13% to 10 to 12 per cent. The fundamental reason for this structural change is that it presents the company with the ability to grow with and serve our customers, while also generating an appropriate and sustainable ROIC fee.

As a component of this adjustment, we also see offered and improve our asset utilization and warm box turns per month and to evaluate our tractor and chassis ratios all of which would be positive for the business and returns for Dcs, We increase our margin goes from 11% to 13% to 12 to 14.

Per cent, while this change appears to be a step up and margin expectation. It is actually the realization of a fundamental increase and the fleet size, which a lot of growth and startup expenses to occur without disrupting the core business and.

As it has in the past another element revealing clarity for the fleet business is the removal of the final mile activities, which require a lower margin given the lighter asset requirements and.

As discussed and margins are set to provide an appropriate return for each business and given the asset intensity of Dcs are higher margin has always been needed for.

For JBT and we are adjusting our margin range from 8% to 12% to between eight and 10%. The primary reason for this change is a recognition of a lighter asset position as we focus our investments on adding trailers and not track. This going forward. We do point out that we are and the early stages of transforming this model.

And focused on more trailers, and we will continue to evaluate the margin requirements and market support to achieve growth and the appropriate rossi levels to reinvest.

And we reaffirm our long term target margin range between 4% and 6% and for final mile services, We reaffirm our long term target margin range between four and 8%. Each segment later, we'll add comment on the main drivers for these margin targets and the resulting rossi expectations going forward.

Final comment from me on the availability of professional drivers for our asset based businesses and our carrier providers is under unusual pressure currently.

While we are safe driver hiring issues at varying degrees of difficulty Gary previous tightening cycles, we see the current pressure being meaningfully more pronounced and likely prolonged.

Shelly and Nic will add more color on our perspectives. Accordingly, we are taking some unique staffs and our efforts to address this critical challenge. These include reducing the eligibility com for new driver benefit from 90 to 30 days and expanded efforts to explore new ways to train and mentor, new entrants to the field of <unk>.

First on drivers and of course, a comprehensive overview of driver wages and compensation and.

All in we believe we are advantaged by our brand our recruiting and hiring systems, a focus on retention and the vitally important increasing efforts and improving our inclusion and awareness for the vast diversity currently in place with our amazing driver and field management teams.

I will now turn the call over to John Kuo for his comments.

Thank you Dom and good afternoon, everyone I'd like to start by providing a couple of comments on our first quarter of 2021 from a consolidated and perspective.

Given the weather and other constraints facing the industry.

We were pleased with our revenue operating income and EPS growth for this quarter with notable achievements and our highway services revenue as both Ics and JBT, we're up significantly over the prior year quarter with respect to whether we previously guided to a 15% to $20 million estimated operating and income.

Impact from the February winter storms and.

In closing the quarter, we determined this impact to be approximately $17 million, which primarily includes lost opportunities within our intermodal segment of approximately 25000 loans.

Other cost pressures and the quarter were primarily related to higher driver costs to attract and retain drivers and higher costs across our various networks and operations due to congestion and the overall labor tightness from increased freight demand and capacity constraints.

You will note we ended the quarter with approximately $550 million in cash and with this being driven in part by a review of the capital investments that John has highlighted we had previously guided capex to be between $8 50, and 900 million for 2020, one and we are now updating that 212 5 billion primarily driven by.

B intermodal container ads and the trailers for 360 Bucks program.

This investment and supported by the current environment, but also our longer term outlook, while not specifically included in the Capex plans and our cash and liquidity also allows for further consolidation and a final mile businesses as opportunities may arise.

With regards to margins as noted the conclusion of our review of our segmented margin targets was informed by the current and future state of our business segment in terms of our desired returns on capital are revenue quality capital intensity and the desired market penetration rates.

Other inputs to our ranges include underlying risks regarding the nature of our customer contracts, both in terms of reciprocating commitments and contract duration.

Finally from a capital allocation standpoint, we continued stock buybacks and the corner, but it's on less opportunity and the back half.

And then fell into our blackout period.

We have guided towards significant capital investment, we still anticipate continuing our buyback approach throughout 2021.

And final note on Covid costs, we continue to offer paid time, low or or excuse me and paid time off or PTO to employees and sort of needed to quarantine.

During the quarter, we committed to providing P. J O to employees to allow them to be vaccinated, thereby ensuring their W. Twos not impacted when needing time away from work needs to be vaccinated.

We have been working with local health care organizations to host vaccine clinics at our corporate headquarters to provide vaccinations to employees, there and don't family members and other eligible community members.

Together, we have inoculated more than 13000 members of our community and are working with our field employees to provide vaccination assistance under applicable area guidelines and procedures.

As a result of these efforts we have incurred approximately 8 million and costs and the current quarter designated as specific COVID-19 costs compared to the $15 million that we experienced in first quarter of 2020.

That concludes my remarks, and I'd like to now turn it over to Shelly.

Thank you John and good afternoon.

On the commercial update this afternoon will focus on general market conditions, and our expertise and expectations for the year as well as an update on the progress we are making as an organization with a 360 platform and.

As John alluded to earlier, we entered 2021 with cautious optimism about the opportunities presented to us.

And this opportunity to include our means to recover from the costs incurred last year as we honored our commitments to customers, but equally as important opportunities to solve capacity challenges for and on behalf of our customers.

And as capacity challenges for our customers remain very present, and the current landscape and will likely persist throughout 2021 highlighted by a tight labor market.

The weighted cost to procure capacity and overall lack of supply chain fluidity.

As an organization, we remain committed and focused on meeting the needs of our customers honestly on our commitments and doing so by striving towards our mission to create the most efficient transportation network in North America.

I remain encouraged by the level of discussion and interaction with our customers on the very important subjects, if revenue quality capacity and cost and while our view on pricing is a little more elevated today than what we discussed on our last earnings call. The reality is that our cost of services also higher.

This caused presents itself, primarily and our labor cost as well and the utilization of our assets or equipment terms.

And the industry as a whole are facing meaningful cost pressures to recruit hire train and retain qualified professional truck drivers.

And meet the capacity needs of our customers.

As our future outlook on cost remains fluid and so will our approach to price to ensure that our investments to meet the capacity needs of our customers are supported with our expectations for an appropriate rate of return.

These returns and support our ability to continue to invest and our assets, which are our people and our equipment as well as our investments and technology to serve the growing needs of our customers and as we prepare for a record equipment and this year. We are working very closely with our customers on equipment turns and forecasts.

Chip enabled better network fluidity.

Shifting gears to our J B Hunt 360 platform I could not be more excited about the progress, we're making as well as the opportunities we have ahead.

And the last quarter and I've been extremely encouraged by the level of engagement, we are seeing and the platform from our carriers and shippers as our Kpis and this area continues to break New Records weekly and monthly and we remain focused on reducing friction across the supply chain, making it easier for shippers and carriers.

And match and our system to optimize and transact in real time.

One of our big areas of focus is on improving visibility and transparency across the supply chain and we are encouraged about the opportunities we have to make progress and need areas supported by our recently announced alliance with Google and we collaborate and co innovate on solving some of the industry's biggest.

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I'm extremely proud and excited for all the opportunities presented to us and our ability to solve for our customers needs utilizing our people products and services.

Our diversified services or our squirrel powered by our technology platform continues to be valued and the marketplace and supported by our customers leaning into us.

And for their needs and finally as I've recently added the role of EVP of people and human resources I would like to share how encouraged I and about the work, we're doing and enhancing our inclusive culture.

Early in our journey I see our organization, leading in this area and with more to discuss and to share and the future I'd now like to turn it over to Nick.

Thank you Shelly and good afternoon.

And the few minutes per day, giving out on several areas and topics, including the current driver environment.

Results and performance of dedicated with some additional context would be updated margin target range that John mentioned earlier, and finally I'll review the results and performance of our final mile services segment.

I'll start with some quick thoughts and comments around the blogs and market in my opinion and the industry is facing the most challenging driver market that I've seen and my 37 years.

Career J B Hunt.

We estimate that the decrease of the driving school Atkinson graduates the drug and alcohol clearinghouse and impact presented by the pandemic combined and resulted in approximately 220000 fewer drivers available to meet industry, perhaps a day.

As a result, we are taking a comprehensive approach.

And retrain, our professional driving workforce, including adjustments to our wages and benefits while also focusing on the quality of the job. We believe we have some of the best wages professional drivers prefer.

Additional driving jobs and industry across our portfolio and services, including intermodal great dedicated truck and final mile services.

Over 90% of our driving jobs are local and regional providing consistent routes and opportunities for more hometown.

On dedicated results dedicated continues to perform and respond in an agile fashion to the challenges thrown at it.

Despite several weather related disruptions and the quarter EPS delivered its highest quarter.

Order revenues operating income and on the company's Pittsburgh.

I believe that it is the chest and that's where our operations team and professional drivers who responded and worked and worked hard for our customers all while staying focused on execution and the efficient utilization of our assets.

And as a result customers continued to see value and the quality and flexibility of our professional outsourced private fleet solution and also have to be on smaller strong topline. We ended the first quarter selling approximately 380 trucks and Dcs and we are.

We're off to a strong start in 2021, all while customer your kitchen and rates remain above 98 per cent.

Regarding everyone's favorite topic about margins, we believe and it's prudent and update the market on our targeted market margin range, which now stands at 12 and 14% for the Dcs segment from the previous range of 11% to 13% and forming the decision is the follow on art van.

<unk> proposition scale and fish.

And as well as the capital intensity of our business and more importantly.

And it's worth noting that nothing in our proxy model has changed.

Either one has revealed itself and the realization that the current scale of our operations.

And for US an opportunity to grow the business, while experiencing less drags and startup costs associated with customer growth.

On a different way.

And the same opportunity presented to us today to balance our desire to grow well into the future while maintaining discipline around our returns on capital.

I'll wrap up my comments on final mile services.

Final mile services was able to deliver a strong performance and the quarter.

And the continuation of fourth quarter peak season, like strength, and our business well into Q1, which has not been the seasonal norm.

And whether good room disrupt the business simpler and they were able to recover and get our customers get delivered and only experienced a modest impact overall performance and results.

We remain active and conversations to grow and scale with our current and new customers across our footprint and plan to capitalize on these opportunities throughout the year.

Additionally, we will continue to invest to ensure we deliver a differentiated product.

It's on the high standards of service and safety and customer satisfaction with regards to margins. We are maintaining our targeted range of four to eight per se.

Our growth trajectory of our assets and non assets final mile certain software and offerings will continue to influence where we fall within that range as we gain greater scale with our value added services.

That concludes my remarks, so I'll turn it over to Brad here.

Thank you Nick.

The organization's excitement and enthusiasm for on highway services business continues to be evidenced by the progress and our results and further supported by the opportunities our customers present us with to provide needed capacity solutions.

My comments today will briefly touch on some of the highlights of our highway services services businesses, which includes both integrated capacity solutions or Ics and truck or JBT.

In short the marketplace for J B Hunt and 360 continues to provide our customers capacity solutions utilizing a combination of our multimodal digital freight platform, while complemented with our drop trailer pools powered by J B Hunt and $3 60.

I'll start with Ics Ics was able to deliver revenue of $525 million or 56% growth over the prior year and deliver operating income of $7 million, which is now and the second consecutive quarter and profitability since our journey and while our digital transformation.

Similar to the fourth quarter of 2020, the quarter presented us with opportunities to help customers source capacity effectively and efficiently on our platform and and otherwise constrained market environment.

Volumes were down 1% year over year, driven by a decline of LPL volumes, offset however, by truckload volumes, which were up 10% and the quarter.

Higher spot market opportunities higher contractual rates and the previously mentioned mix change contributed to the 58% increase and gross revenue per loan.

Going forward, we will remain focused on balancing the right mix of volume growth opportunities presented to us as we remain committed to our investments and three key areas our people our technology and scaling the platform.

As John alluded to earlier, our margin target remains 4% to 6% and this segment, which we believe is achievable as we move beyond our heavy investment cycle achieved scale and as the business model matures.

And J D T or truck segment was able to deliver 43% year over year growth and first quarter revenue following just shy of $150 million.

Operating income was $10 million, which is the highest for a first quarter since 2007.

Growth in this segment continues to be driven by non asset and asset light services offerings powered and supported by the J B Hunt and 360 platform.

JBT has shifted to more of an asset light model, we have and ability to provide trailing capacity to customers that may be called on either J B Hunt owned equipment are independent contractors or power only capacity sourced through the platform. This is our 360 box offering.

Demand for this service is strong and supports the previously disclosed 100% increase to our prior trailer fleet investment for 2021.

Our margin targets and J P. T are now 8% to 10% from the prior eight to 12, which recognizes the shift to a more asset light model.

That said and similar to final mile services, our performance relative to those targets will be dependent on the asset intensity of the business as it evolves and as always our returns on capital remains a core focus of our investments to grow this business.

In closing I would just like to reiterate the excitement and growth opportunities, we see across our highway services portfolio to solve for our customers needs and and efficient and as Shelly alluded to earlier more frictionless way.

We remain committed to our investments and our people technology and scaling the platform, which includes our investments to expand our 360 box program.

That concludes my comments and I'll pass it over to Dan.

Thank you Brad Hello to everyone.

Today I will provide some additional details on our first quarter performance give you some thoughts about network fluidity and balance provide some perspective on the demand and pricing environment and cap it off with comments on our updated capital investment and target margin range that John highlighted earlier.

Volumes declined 3% and the quarter broken down by month is plus 3% and January a 16% decline in February and plus 4% in March.

And as we called out and the earnings release, the weather challenges and the quarter are estimated to have impacted us by 25000 and intermodal loads primarily in February but the effects did carryover into March the rail network has shown signs of improvement so far and April although we are not fully back to pre weather serve.

This levels, we have and continue to expect to see improvements as we move through the second quarter.

While rail challenges are well known another challenge we face is what we referred to as customer Street time, which has increased as our customers are falling behind on unloading inbound delivered units in a timely manner. We believe both the rail terminal congestion and the customer unloading challenges are direct.

Results of labor challenges inside our operation driver hiring continues to be a significant challenge and the industry will take on higher wages in order to attract and retain new drivers. We fully expect the same is true for the rail terminal contractors and customer warehouse labor.

Demand for intermodal service remains at incredibly strong levels. The pricing market is performing at a level to cover our cost increases from last year as we honored our commitments as well as the inflationary cost pressures we are experiencing this year related to driver hiring.

Certainly the increasing driver wage and rail costs or topics with our customers, but we are also highlighting the velocity challenges and the cost of equipment ownership as you should be able to conclude the pricing environment supports our decision to add additional capacity to our fleet as John highlighted earlier and.

As we discussed last quarter during the last call. We said, we expected pricing to come in at high single to low double digit increases and at this point, we feel more optimistic about things trending towards the higher end of that range adjusting for mix as.

As we entered the quarter just over 10% of our business had implemented 21 bid cycle rates by the end of the quarter just over 40% of the volume had current bid cycle rates, we will expect that decline to 70% by the end of Q2 and the remainder to finalize during Q3.

As John covered in his opening comments, we have adjusted the margin margin target range to 10% to 12%. We have highlighted many times that we remained focused on generating the appropriate return on our invested capital and the business and while margins are and output of achieving our targeted returns returns are all.

Also influenced by other factors, including asset turns and capital intensity and consideration of contribution per load.

We believe this new target range strikes the right balance between generating appropriate returns to support reinvestment to capitalize on what we believe is a long sustainable growth opportunity presented by the market. The future of intermodal remains bright as it provides and economically attractive alternative to some.

The challenges our industry is facing including the driver market higher fuel cost capacity, the carbon intensity of the supply chain and the need for investment and public infrastructure on.

Also as John highlighted we have expanded our container order in 2021 to approximately 12000, new containers, including both dry and temp control that will begin to arrive in Q2 and continues through the end of the year as we have moved through the current bid cycle. It is clear that our customers want more.

Capacity from Us and we are responding the commitments from our customers thus far during bid season and fully support this additional investment and capacity, we are confident that focusing and delivering value to our customers will support the appropriate returns needed to invest to meet their needs and put us on a strong path toward long.

On sustainable gross that concludes my prepared comments.

And as a reminder to ask a question you will need a price starts and the number one on your telephone and withdraw your question press the pound key.

Everyone a chance to ask their question. Please only ask one question, while we compile the Q&A roster I will turn the floor over to Brad Delco.

Yeah, Thank you and just.

We presented a lot to you guys. There we know our prepared comments went long. So we are going to cut you off with one question.

Just this one quarter. So I appreciate you guys following those instructions.

And your first question comes from the line of Allison Landry with Credit Suisse. Please go ahead.

Thanks, Good afternoon, so I just wanted to.

Let's see how we can think through the ROIC on it.

And modal I mean, obviously you know you talked about the lower margin target, which you alluded to like on Q4.

But it sounds like what you're saying is that yeah that returns on invested capital and I'm not connect Jane Hsiao and maybe if you could help us think through that and then just maybe more broadly you know you you've moved the business towards our are moving to visit starts and more asset light model and I'm just curious on your on your thoughts or expectations for longer term.

Consolidated alright, thank you.

Well, let me let me first touch on our intermodal Allison appreciate the question and at the end of the day.

And at times and the path, we know it's been a while since we ran in the 11 to 13 at times and the past.

Since that time on a revenue per load has increased substantially 2018 and and.

Again, this year prices are increasing and increasing pretty rapidly so have cost.

Leaving us and our profitability level on a per load basis that that is still similar to even better than it used to be when we were in the 11% to 13 range, which translates to returns on invested capital and intermodal even at a slightly weaker margin that are still as good as they used to be and that's that's really.

What's driving some of them some of that conversation and I will let to low probably speak to more on the enterprise side.

Yes, So I you know Allison we look at them.

Really our ROIC from from them and we manage it from a consolidated basis and so we obviously have investments and the and then.

Individuals segments different times for example, we announced the increase and the container order Thats, a huge capital investment and the current year, but when you look at that overall investment over the 20 year life with us and so.

And we manage the balance of the segments on a consolidated basis and those are going to increase and decrease.

And just depending on the level of investments and we haven't got time.

Thank you and your next question comes from the line of and Chris Wetherbee with Citi.

Yeah, Hey, thanks, good afternoon.

And I wanted to stay on intermodal if I could ask about the 12000 containers.

I guess, what I'm trying to understand is when you look at the market today I think you said that your customers want more capacity from you can.

Can you talk a little bit about these containers and sort of how well they are already spoken for and I think taking maybe into account just sort of the core demand and that's in the market, but also maybe the sort of underutilization and that's been caused by this congestion and so I guess in other words, how long do you think it takes to deploy those sort of actively and the market or do you think this actually creates a little bit more.

Supply relative to what demand is today.

So I would say our customer demand is significant and the 6000 containers, we plan to order and the when we announced that in the fourth quarter earnings call back in January and the current and velocity environment, just wasn't wasn't giving us as much capacity.

<unk> is our customers clearly clearly wanted from us and.

Not of the opinion that adding these containers puts and oversupply in any way into the market I still believe that the market will be under supported with capacity based on velocity and and some challenges. There. We we made this decision and knowing that we could.

Fully utilize those can those containers that are that we announced.

We've expanded the order on.

Thank you and your.

Next question comes from the line of John Chappell share.

And with Evercore ISI.

Thank you.

Question for Brad Hicks, and maybe Shelley you know six months ago, you guys expected Ics to turn a profit and the back half of 'twenty one and.

And then you went on and did a nice profit and <unk> said, you expected profitability and second half 'twenty, one did it even better profit and and <unk> 'twenty, one and so the question is.

Are we looking at still achieving the scale that you were hoping to attain and the second half of 'twenty, one and if that's the case is there and even greater step change in the profitability and the gross margin potential of this business, especially when you layer in this collaboration that youre, hoping to achieve with Google.

Okay.

Good afternoon, John I'll take a stab and maybe.

Send it over to Shelly to add any other further comments.

And we may have been too cautious when we when we spoke at the end of Q4 about what what the first part of this year held.

And we still are in a heavy investment window as we've clarified I think eight quarters ago.

But the market conditions really are very favorable as we think about revenue quality.

And our overall ability to get the rate at a level that accounts for the increase and pte that we have seen are the.

The the revenue per load levels are amongst the highest we've seen in on.

Our history, but also to his P T and so.

The combination of those two with where we're at and our platform development, which we feel very encouraged by and as we turn into Q2 is very favorable for us and so did that allow us to get further ahead, and we had anticipated certainly the outcome and output of Q1 would reinforce that to some degree, but we still have.

Work to do we still have heavy investments.

But we are.

And a place that we're very satisfied with on our journey Shelley.

And two we are still very focused on scaling our business. When we started our bid season and reach.

Really across all of our segments, our customer alignment on cost and capacity wasn't necessarily reflective and the feedback we were getting versus what the competitive market looks like so if you look at what happened in first quarter, we moved a disproportionate amount of spot shipments versus what we had historically and then.

And the and published volumes were lower than we expected at the beginning of the first quarter as we have progressed through that quarter and even moving here into April we have seen our customers lean into a significantly and and.

Really giving a larger bid awards across our segments and particularly inside highway. So I'd say our beat in Q1 with a more robust environment, where spot price and general and as we move into Q2, I think that there will be a seasonal margin pressure and in particular.

Having published pricing that should be more on an annual basis, but having said that and more specific to the work that we're working on with Google and our alliance. We still are very focused on our co innovation together to solve our industry challenges focused primarily right now on transparency and visibility.

You think that that will help connect to our bottomline, which is by Brad reaffirmed our margin targets in Ics. We are encouraged with our results. We are laser focused on getting to scale very critical to have a great platform to create that most efficient transportation network in North America.

Okay.

Thank you and our next question comes from the line of Ravi Shanker from Morgan.

Morgan Stanley. Please go ahead.

Thanks, Good evening everyone.

Just a clarification on the on the margin targets and it looks like you guys are obviously and I am and also a little bit in B C. I was kind of keeping your margin targets flat. It was slightly down as a trade off for higher topline growth, which seems like a very very reasonable approach, but what level of revenue growth roughly are.

Are you underwriting to get to those margin targets.

Hey, Ravi this is Brad we don't typically give.

Guidance, but in terms of other things, we've said publicly particularly around intermodal you know, we we believe we should be over a long period of time growing at.

At a faster rate than the market.

And the reason for that is because we feel like we have some advantages.

And so that's kind of what we've talked about in intermodal and then with dedicated I think.

<unk> provided comments about what we target to sell each year, but we're not going to we're not going to give you specific.

Revenue growth targets we've.

And obviously worked hard to get you guys more transparency on what we feel like is the right margin target range that generates the appropriate returns on our capital and allows us to continue to grow well into the future as the market presents us those opportunities.

Your next question comes from the line of Scott Group with free.

Research.

Hey, Thanks afternoon, guys. So you guys have been at it.

And I call it a 10% intermodal margin and the last three years.

As as the rates reset higher do you think you'll be closer to that 12% margin on an annualized basis and then.

And this 1.25 billion and Capex should we think about this as a one off or a new normal.

Well Scott this is Darren and I'll take the margin question you know we did we just don't.

We've given you a long term.

And.

Target and so to say, we expect anything we expect to land inside that target and that's certainly our goal and that's.

Well, we come into work every day and focus on.

Hey, Scott This is John from a cap out Capex standpoint, we've obviously elevated this.

There was a little bit of.

And carryover from last year that we pause just going through the pandemic and that there might be a little bit of pull forward, but I.

And I wouldn't use this as a run rate specifically.

Oliveira from a little bit from where our normal run rate will be going forward.

Thank you and your next question comes from the line of Jordan, Alabama with Goldman Sachs.

Yeah, Hi, I'm, just sort of curious on the final mile business, which.

It's pretty strong from a profit standpoint, maybe give some thoughts around that and specifically and the pace has been really strong and obviously, there's a lot of trends hitting that and just sort of curious.

Yeah.

How long do you think we can extend that outlook I mean would you say, it's going to be fairly robust this year and and beyond and the final mile channel that thanks.

Yeah I would just this is Nick.

I would say that hum.

And we saw a lot of fourth quarter pushing into Q1.

On the supply chain disruption and so that grade forward.

Well normally very slow.

And our least profitable, but really we got a big boost and it was almost like Q4 and Q1 and so we expect everything to go back to normal.

And final mile Q2, Q3, and will hit our target range is what we think will be for the year.

Thank you and your next question comes from on line and Tom.

<unk>.

And with UBS.

Good afternoon, and wanted to ask you a little bit more about the intermodal contract rates and I guess you could talk about contract rates are all if you want.

You know clearly you pointed to some strength.

Is this a it seems like a big step up after the February weather impact.

Should we be thinking about potentially 15% contract rate or are you, saying instead of kind of nine or 10, we ought to be thinking about like 11, and just trying to get a sense of how large that step up in any expectation per contract rates would be.

Well, Tom I appreciate the attempt.

We highlighted a high single to low double and we reiterated and earlier comments that we're feeling more confident about the higher end of that.

Outside of that statement I really don't think it's I don't know even know enough yet to say anything beyond that so I don't know how to guide you to anything beyond.

Double digits.

John will update you if and when you think it goes triple digits, how about that.

Thank you and.

And your next question comes from the line of ingestion.

Steven.

Thanks, and congrats on the quarter.

And on intermodal margins I know, John you called out $17 million of weather impact on a consolidated basis I was wondering if you could quantify what the impact was and intermodal.

And if you could share what intermodal margins would have looked like ex weather and then thinking about the longer term intermodal margin guidance can you go into a little bit more detail on what that assumes for the progression of rail services versus where we are today.

Yeah, sorry, Justin and I can.

Far as the the weather impacts on intermodal, we really look at it from from a load standpoint and.

What we said it was the 25000 loads.

And translate that into Mars and it takes a lot of speculation calculating a snow removal and insurance and claims and so what we what we have good insight is the impact on the loads and the volumes and I think that's the best way I don't know how to translate that into what would margins have looked like.

Had we not had the weather event and there's just too many subjective things and there.

And I apologize I forgot your second part of the question.

I'll, probably take that one I think he was asking do we you know how much does it play into our ability in the new margin range to get either and improvement or and rail service or the expectation that it will remain.

Somewhat stuck or slower challenged velocity I think more than anything we have.

Probably.

Some belief that rail velocity has slowed down.

And the days of our 11% to 13 margins and I'm not I'm not ready to tell you that I have an expectation that it's going to get back to those levels.

Do I think that rail velocity will improve in 2021 and beyond I do I mean, I think that has a lot to do with this labor supply challenge that we've highlighted many times and and I don't think the railroads are.

They are impacted by that as well, particularly at the terminal level. So I would expect some improvement which can help us, but I don't know that I can see rail velocity getting back to the levels. It was.

Two or three years ago.

Thank you and your next question comes on line.

And <unk> with Bank of America.

Hey, good afternoon, if we could just talk a little bit about the congestion and tightening and maybe your thoughts on how long. This lasts given the low inventories and the benefits of the tightness that you're seeing now versus then contrasting that with the fear of over ordering equipment. So as congestion clears and do you see in the near term then you're stuck with some excess equipment or <unk>.

Packaging rates.

Yeah, I think from.

And from intermodal perspective.

No.

There is such a strong demand for intermodal services for highway conversion in the eastern part of the country that isn't necessarily attached to congestion at ports or particularly difficult congestion along the west coast, we have a lot of confidence and our ability to continue to grow intermodal.

Will there be a blips on quarter somewhere I guess, that's possible, but I think we feel very good about the long term projection of the equipment and that's that's frankly, why we did it.

I would just add to that there and that.

We see congestion and also on the <unk>.

The way services side predominantly with our box program and not so much from a rail congestion or port congestion, but in terms of our customers' unload behavior and so those labor challenges that there and mentioned that we can see the impacts from at ports and ramps and we also see on the.

Customer behavior side, and so we're paying very close attention to that we would we would hope and expect to see a lift from where we are at today and.

And we really saw that deteriorate.

Beginning to middle of Covid last year, and so you.

You know that that equipment velocity and availability is being negatively impacted by our customers' ability to unload the equipment and we're working very closely with them to try and solve for that and.

And I would say, maybe just from a customer view as well inventory I think will continue to be an issue and will persist through the second half.

And this year I think that is newer news and particularly what's happening and on the import side really trying to replenish if you just see how consumers are spending that is continuing from 'twenty 'twenty I would say the challenges that we're experiencing whether it's at the port or the rail and in particular, the labor side for and.

Professional and drivers that is a major issue and is very different this time that will take us more time to work through and we are very focused with our customers on cross selling and coming up with better planning, we do have across all services and good line of sight as to how we'll help our customers b right and have a successful peak season.

And that's in Q2 are happening and the back half of the year I feel really confident about the work we're doing together.

Thank you and your next question comes from the line Brian.

And Brian Hoffman back on with J P. Morgan.

Okay.

Hey, good afternoon, and thanks for taking the question.

So I just wanted to see in terms of the Ics and 360, you announced and Google Alliance you announced another.

Our partnership with keep trucking, where do you feel like you are in terms of partnerships as you're trying to build out scale and the network and then clearly you're benefiting from a bit of spot.

Spot market strength as you mentioned, but how far do you think you are from really getting to scale, what sort of measures should we look for and how are you tracking against them.

And well thank you for that Brian we are and have three key areas that we're focused on and J B Hunt three six T really access transparency and visibility and that directly relate to our customer and cost service and capacity. We do have multiple as you call them partnerships across.

And each one of those as our strategy and our work continues and we don't announce every piece of that because we don't see the advantage and the market to openly discuss that but we do have and.

And specific work that is happening inside that from a scale perspective, we will continue to work on removing friction and we want to make it simple for a shipper or a carrier to be able to connect quickly and efficiently and so any of the connections that we.

We can make and leverage other people's expertise and really bring that our sulfur that through J b at $3 60, We will review and implement so I would say our scale our ability to scale, we'll be continuing to solve for our customers number one from a full scale or from a full squirrel perspective.

And also making sure that we highlight and.

Technology, so that they can get access to the right and I lead the right truck at the right time pricing, then we'll be reflective and transparency and then ultimately customers who want to be able to track their shipment. The same way, we track a dominant pizza and Italian call. It into the time it gets to our home and that's what we're focused on.

I would just add to that Shelley.

And on execution standpoint, as we establish those key partnerships, we're constantly focused on how it can improve productivity and efficiency. So that we can provide for our customers.

And that cost benefit that service benefit that visibility benefit and so we pay very close attention to the internal aspect of those capabilities as we move on down the road as well.

And.

Your next question comes from the line and.

Okay.

Deutsche Bank.

Thanks, operator.

Hey, Darren just wondering if you can.

Give us some color on on those 12000 new boxes.

Specifically and when it's coming where its going my guess is it's mostly earmarked for the east, but if you can just talk about that and and also just related to that one thing that.

I'm trying to understand is how the kpis and the business and the intermodal business kind of evolve is that new capacity comes on line. Its obviously a lot of capacity 12 per cent new capacity I assume it's.

Good for growth because of the improvement and turns and may be dilutive to length of haul and yields and maybe even slightly dilutive to margins, but non dilutive to ROIC and I'm just trying to think through that so if you can just talk about and I was probably like five questions in there but went on.

And when it's coming where its going and how does the kpis kind of evolve is that new capacity comes on line.

Sure. So you know, we announced 6000 earlier in our fourth quarter earnings call and today, we are updating that up to 12, there are some temp control equipment in there.

And roughly 1000 temp control boxes that will come in that are.

And have been in and in our plan for.

For some time and so that those will all flow into the west coast now the dry boxes.

The logistics and plan to get those boxes into our system.

It continues to evolve and in some ways, where we're securing capacity to bring that equipment predominantly to the west coast and predominantly two southern California. So that it enters our market at the right time those boxes begin to deliver during Q2 and really are spread throughout the rest of.

Of the year with and.

And and there is probably a little bit extra during Q3, where you'll be you'll be receiving a little bit heavier flow of that equipment in to help us for peak season, certainly for the longer term life of that equipment, we would expect it to be diversified into the eastern network, but in 2000.

'twenty, one it's really going to help us a lot out west for sure.

Your next question comes from the line of basket.

<unk> with Susquehanna.

Thanks for taking my question wanted to turn back to final mile can you talk a little bit about your contract structure with local carriers in terms of your visibility into cost inflation and.

And you know you talked about your long term margin target and reiterated at four to eight a couple of years ago. You you talked to kind of two to four and the early stages or we sustainably and based on how you see this business trending and that and that longer term range at this point. Thank you.

Yeah. Thank you for the question I think we are trending that way.

And what we're seeing with contract rates they are going up.

And with our contractors and the market is very tight, particularly with the amount of background checks, we do from security.

Safety protocol.

We try to hold ourselves to the highest standard and on our contract is that right. So the cost will go up and we're able to pass that along to our customers.

They're not structured yet the way dedicated contracts are.

We have very good relationships with our customers with the top performing net.

Metrics on services, all the way around.

So we think we'll be able to go back to our customers if the market demands it to get that so yes, I think we're and the right range, you're going to see us work to improve the margins and we've done some of that with the rates with existing customers and we're going to continue to do that as we move forward. So yes, we feel comfortable with the four to eight more born and there.

Okay.

Thank you and your next question comes from line of Todd Fowler with Keybanc.

Capital markets.

Great Thanks, and good evening.

Just for clarification with the margin targets.

Youre laying out and what you're updating is really is it fair to say is this the normalized range and that's how you're pricing business and should we think about that there could be cyclical factors, where you could be above or below those ranges for a period of time and.

And then secondly, it certainly feels like with Ics and dedicated you can be and those ranges, but and the other segments are there any investments or changes that you need to make to be within those margin ranges.

And then within the near term basis.

And we'll just say I'll start with dedicated first.

And and we feel very good and we're not changing our pricing model and we said and our comments.

We think we've got some good scale now.

And with the growth that we're seeing this year we've had very.

Good Q1 leaps on 380 trucks already and we're off to a really good start and just last week, we signed a 133 truck. So we think that we've got the scale that we're going to be able to absorb that without it impacting our margins and then also we just have the density of the marketplace. We got 360 markets.

Place to help us be more efficient.

Gain we saw productivity as well increased very nicely with <unk>.

Quarter and all of that is about efficiency and density that really allows us.

And to work on that margin.

Out increasing low cost to our customers.

I'll add to that Nick from a highway services perspective.

We did adjust slightly our truck.

Targets, but mostly just a pure reflection as John alluded to of a movement towards more of an asset light position, where we're growing our box program without having to make the the historical heavy investment of the tractor and and so and that really just helped us kind of shore up where we think that will be we are still.

And on that journey, our box initiative really just launched less than 18 months ago and as we've also stated the day we've increased.

The investment for incremental boxes, just this year and.

And so we're tracking along per our expectations and we see the ability to get back to that expectation switching gears over to Ics. Similarly.

At the end of our heavy investment period, but again characteristics productivity gain.

Advantages that we're seeing and capitalizing on because of the platform, where we're able to just be more efficient and.

And make better decisions.

And really eliminate waste and we see those things the reinforced the the.

Affirmation of the range that the John reiterated and so.

Those are the things that drove us, but again I think it's important for all of our B use fundamentally it's about return on invested capital for us and if things change and the model.

You know whether that'd be further moving it to asset light and our truckload model then that could influence things down the road, but at this point those are the targets that we think are extremely realistic and achievable.

I'll just quickly on intermodal certainly I would expect that and we're kind of through and noisy period of time, what related to arbitration and and underlying rail costs we have.

And what we feel like is a very good understanding of that role on our cost and felt like this margin adjustment was appropriate and as well as sustainable for growth do I think there is the opportunity to live at the high end of it.

I guess at times Thats certainly possible.

I don't know how to how to predict that but I certainly would expect to be within that zone is is is certainly a sustainable plan for us to continue to grow intermodal.

I would just add maybe to wrap up and as an organization I think the cyclicality will come when we have underestimated or missed our cost basis.

For our customers, we will continue to honor our commitments and anytime we have made a commitment to a customer and based on a fixed price and that assumption changes up or down and you could see us move and the margin a margin target range and even outside of that either direction, but over the longer term, we think that those margins.

And so are appropriate based on what we know today and based on on Greg plan with our customers.

And your next question comes from and a line of Brandon. Thanks.

Skiing with Barclays.

Yes, Thank you operator, and good afternoon, everyone and thanks for taking my question I guess Shelley and I follow up on since you're on.

Ics filings because I do think it was down about 1%. This quarter you did get a lot of price and obviously, we're profitable again, which was better than expectations, but is there anything to read through on market share and competitiveness because I think its scale and number of transactions that you really want to get towards the back half of the year. So can you talk to whether or not.

That was a step back this quarter.

Yeah, Great question. So our overall includes what's happening from an L. Channel perspective, we really have a key customer that we have been overcoming that comp and sort of LCL sector. We're starting to see growth, particularly in on 360 platform to feel confident about our plan.

Around the LTE outside and general if you just look at truckload volume, particularly in Ics those volumes were at a 10% growth plan, but it did talk about this earlier in this call that'd be very first part of bid season, Although we had been educating and talking through what we believe the cost base would be to serve our customers and.

All of our services that didnt directly aligned to the competitive pressure and we were feeling from our customers and bid season.

Say, we held our ground on price and really all of our segments overall and as our customers implemented those bids and first quarter and many of them bids were not working and they were falling apart because the price was not commensurate to the costs that are the carriers and the per.

Brokers, and we're giving to customers. So as we progressed through the first quarter. We started picking up volume again very much in line with what our strategy was as an organization and.

And total and have a lot of confidence and are scaling and gaining more market share and.

Q2, and beyond and not just and Ics, but also N J B team remember the platform is not just and Ics per.

It is across our entire enterprise and how we can leverage that for our customers to really allow them to have the right and.

Cost of service and capacity, we saw scaling inside JBT as well and the first quarter and we will continue to gain and take market share and J D T and Ics from and 360 platform and and certainly in the intermodal space and as well.

Hey, Brad we have time for one more question.

Thank you and your last question comes from the line of and David Vernon with Bernstein. Please go ahead.

Hey, guys. Thanks for fitting me in here just a question for you on the contour of the.

Intermodal volume trends and the quarter could you talk a little bit about what the exit rate was in March and how we should be thinking about to build over the COVID-19 disruption and volumes that we saw and <unk>.

Well, so certainly we highlighted earlier that.

February was just very difficult as you're all aware of weather related impacts and that that did bleed into the first part of March we did highlight that.

March overall grew at 4%, but remember last year March.

We had a little bit of Covid impact there was some disruption and intermodal at that time, so to say that.

Volumes in March and reached pre.

Weather disruption levels.

We're continuing to work hard to rebuild the network get the capacity and all the markets, where it needs to be and get back on a on a better velocity front with our container equipment.

Hey, David This is Brad the only thing and I'll follow up with you know, we did provide and Darren to provide monthly monthly.

Monthly March was up 4%, that's probably the best data point, we can give you and in terms of what the expectation should be and <unk>.

I'll add just to remind you we did start a field COVID-19 late last March and then comps do get a little easier, but we're not going to try and predict what our volumes look like and Q2, because there's a lot of different variables that will ultimately play into how we performed.

I think John you are going to close this out yeah.

And I'll close with that I'll start with.

And thanks to everybody for joining us today.

And I'll say that I am extremely proud of this team of leaders here that.

Not only navigated us through a b.

Very challenging 2020, but hit the ground as we can see running hard and the first quarter. I'm also very proud of this organization for hearing our customers need and presenting discussion that was very consumable. These are big changes force to make this early in the year, but please rest assure.

Sure that theres been a lot of modeling a lot of debating and and a lot of conviction to making investments like these to.

To better serve our customers and that's why we're here and it's what we do and I love It when we hear that and and lean in and invest.

And I'd like to reiterate this driver availability challenge again, I think it's a meaningful part of our mid term and potentially long term future and I think we'll be hearing and discussing more and more about that and then the last thing.

And just love seeing and results from years ago are prioritizing the need to invest and technology to bring.

The company forward and really I think at this point the industry forward and I think 360 and Shelley just said is a very comprehensive approach. It started out as a kind of a migration from legacy to what could it be two.

And youre seeing and hearing today and we have recently.

Good hope and that effort and investments going forward.

So I hope this call we've provided some clarity on the questions around margin and we've spent a lot of time talking about that as appropriate and I hope we brought that to close now and we can.

To give you helpful updates thanks for the tons a day and we'll look forward to talking to you next quarter.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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