Q2 2021 J B Hunt Transport Services Inc Earnings Call
Good day, and thank you for standing by and welcome to J B Hunt 'twenty 'twenty, 1 second quarter earnings Conference 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 Jeremy the session you will need the press star 1 on the telephone attached to them from.
Please be advised that today's conference is being recorded if you require any forget assistance. Please press star zero.
I would now like to hand, the conference over to your first and speaker today, Mr. Brad Delco. Thank you. Please go ahead Sir.
Good afternoon.
For noon.
Before I introduce the speakers I would like to take some time to provide some disclosures regarding forward looking statements.
This call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Words, such as expects anticipates intends estimates or similar expressions are intended to identify these forward looking statements. These statements are based on the J B Hunt's current plans and expectations and 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 more information regarding risk factors. Please refer to J B Hunt <unk> annual report on form 10-K, and other reports and filings with the Securities and Exchange Commission.
Now I would like to introduce the speakers on today's call. This afternoon, I am joined by our CEO and President John Roberts.
Our CFO executive Vice President of Finance, John Kuo share.
Shelley Simpson, Chief commercial officer, and executive Vice President of people and human resources and.
Nick Hobbs, our CLO and president of contract services.
Brad Hicks President of highway services, and Darren field, the president of intermodal.
At this time I would like to turn the call to our CEO and President and Mr. John Roberts for some opening comments John.
Thanks, Brad and.
We opened our earnings call for the second quarter of 'twenty 'twenty, 1 and it makes sense to consider our comparison data with recognition for where we all were of this time last year with the onset of the Covid virus.
That said, we will continue our discussion on our views of our progress across the enterprise and general term, we believe fits our current position is momentum.
We noted and for you during the last call that we have meaningfully increased our equipment orders for containers and intermodal and trailers for the J B Hunt and 360 box program through.
Through the quarter regained confidence and these decisions and are working with our vendors to accommodate delivery of this equipment throughout the balance of the year with a keen focus on being able to meet the needs of our customers as we approach the traditional peak season.
This is a fluid situation and we are deploying some new and creative ideas for ongoing equipment delivery.
Shelly will add color for us on how we plan to work with our customers heading into the second half of 2021 and 2022.
A high level overview provides visibility for us to see that the company increased revenues operating income and earnings per share and total and in all segments compared to the unusual second quarter of 2020.
Further review shows and intermodal dedicated and truckload all increased both revenue and operating income over Q1 of this year.
Ics and the final mile increased revenue, but failed to increase operating income and looking sequentially and adjusting final mile services for the game, we called out and I release.
And in our segment leaders will discuss for you. The segments are all performing well and presents solid evidence that support both of our strategy to this point and what I believe to be strong momentum as we move forward from here.
Given the work we have completed with our customers' current demand trends order flows and sales pipelines of coupled with the data revealing some of the lowest inventory levels, we have seen give us confidence and this momentum continuing.
1 last point I'd like to highlight is the progress of the company has made and increasing our transparency and focus on our overall sustainability efforts under the leadership of our Chief Sustainability Officer, Greg Harper and we have recently published our first sustainability report in accordance with the G O Ray says B and T C.
T F. The framework, which is easily accessed via our website.
And I think it's also worth noting that over the last year, our broader sustainability disclosure efforts have been recognized by Smartway CDP, formerly the carbon disclosure project sustain of Linux and eco bottles with meaningful improvements and our scoring across these platforms.
Craig called out 25 unique people internally and many more who have helped with this improvement and as noted this is the journey and not just for a few but for our entire organization and.
I will now turn the call over to our CFO John Kuo for his comments John.
Thank you John and good afternoon, everyone.
Like to start with providing a couple of comments on our second quarter.
Just from a consolidated perspective, the John noted we were pleased with our revenue operating income and EPS growth for the quarter with notable achievements and our highway services revenue as both Ics and JBT.
Certainly over prior year quarter, but more importantly, they are carrying the momentum from their first quarter results into the second half.
Current quarter was significantly impacted by labor shortages and putting a strain on our ability to serve the service demand and effectively use our assets.
The cost pressures and the quarter were primarily related to higher purchased transportation costs salaries and wages and other costs across our networks and operations.
Well, we're hopeful for and improvement there still remains an area of concern.
We ended the quarter with approximately $570 million and cash are.
And our first quarter call, we communicated our increase and equipment orders and guided our capex to be approximately 1.25 billion for 2020.1.
Well all orders are still in place we anticipate some of these the pushed to 2020.2 because of the congestion on the waterways and also at the ports.
And we're committed to obtaining capacity to serve our customers, but our view today is the net capital expenditures for 'twenty 'twenty, 1 we'll be closer to 1.15 billion because of these delays and other challenges to our equipment needs.
We resumed stock buybacks and a more regular basis and the second quarter and have acquired approximately $80 million.
Rounding out close to $85 million year to date, we will continue to balance our cash spend on equipment dividends and buybacks through the remainder of the year as opportunities unfold.
And trend closer to our target of 1 times EBITDA leverage metric on the net basis when the environment begins to normalize.
As John noted segment comparisons to prior year of difficult because of the pandemic, but I would like to point out and item for consideration on the year over year comparisons for salaries and wages.
Covid costs and the second quarter decreased nearly $10 million from the prior year quarter, which was primarily due to a reduction and PTO for employees and needing to quarantine.
As we called out and the release this reduction was meaningfully offset by increases across all pay items for both drivers and non driver of employees.
The impact of the reopening on salaries and wages as widespread and we see challenges in this area of continuing because of the importance of attracting and retaining our people.
This concludes my remarks, and I'll now turn it over to Shelly.
Thank you John and good afternoon, My commercial update will focus on general market conditions, our expectations and plans for our customers' peach tea and capacity needs as well for an update on the progress we are making as an organization with R. J B Hunt and 360 multimodal digital freight platform.
As we discussed last quarter, we entered 2021 with cautious optimism about the opportunity the market could present to us during the year.
Now that the year and just halfway of clearly the opportunity of each of bounding fault, but so too are the challenges.
Demand for our capacity solutions across the sprawl of services remain at elevated levels.
Capacity across the supply chain for remains tight and challenges around velocity and fluidity are still very present and likely to persist at least through the end of the year.
As an organization, we are committed to working with our customers to address these challenges together and have plans in place to provide even greater assistance and as we approach peak and that I'll speak to next.
The result of the current market conditions is that demand for our trucks and containers and trailers for out C exceeds our capacity to serve.
Thankfully our ability to provide value to our customers and is no longer limited by our physical assets as the power of our people and our platform allows us the source of my sufficient capacity for and on behalf of our customers the.
And as dynamic as evidenced across all of our business segments that we will be discussing during our prepared remarks.
As we approach bid season and peak season, we are taking a collaborative approach for their customers to ensure that we have and actionable plan to provide the capacity solutions to meet their needs and 1 of our biggest challenges this year, which got even worse during the second quarter once the the attention of our trail.
And equipment by the customers across both our intermodal and truck segments.
We are addressing these issues with our customers through the direct conversations and accessorial charges and in some instances we of restricting capacity to certain customer locations.
To be clear, we did not implement our augment in the last of sort of programs with the intent of increasing the cost of our customers. Our intent was to provide the appropriate incentive true our customers to encourage the improvements needed to be able to turn our equipment efficiently.
This improvement will afford us to deliver more value for our customers by being able to provide additional capacity to.
And my comments on our plan for peak season, we remain very confident and our ability to execute on the plans we are developing with our customers.
Our capacity and ability to service our customers will be determined by our performance of around 3 key items.
First the onboarding of the equipment orders and we discussed last quarter, but specifically the containers for J B Hunt and trailers for 360 box.
Second improvements and rail fluidity and velocity.
And third improvements and customer detention of dwell time progress on these fronts will go a long way and meeting and exceeding customer expectations.
Shifting gears to our J B Hunt 360 platform, we continue to see solid and record breaking trends around user activity and engagement and growth across both our carrier and shipper of platforms.
This is evidenced by our organization, serving the largest number of unique customers and our history during the quarter of tall task considering the supply of limitations and restrictions of typically exists and a market like we're experiencing currently.
We believe we are continuing to build momentum and both carriers and shippers to the value and optimizing and transacting and our system and real time, and and improving frictionless digital process.
Going forward, our focus remains on improving access and visibility and transparency across the supply chain, which we believe sets us up to achieve our mission statement.
And to create the most efficient transportation network and North America, Inc.
In closing as I look across our organization and I remain extremely proud and excited for all of the opportunities we have to solve for our customers needs and.
I believe we are in a unique position to leverage our people and assets technology, and maybe most important our experience and bringing those elements together.
Like to think of that as our squirrel and the power of the J B Hunt scroll of strong as customers continue to lean into us to help them solve for their needs.
Finally, as previously disclosed I think given the responsibility of the role as EVP of people and human resources.
Last quarter I discussed how encouraged I was about the progress, we're making on enhancing our inclusive culture and our belief that our organization could lead in this area as an update and wanted to share that we have hired our first vice president of inclusion during the quarter. We are excited about our journey ahead and the incredible.
The progress we can make in this area I'd now like the turn it over to Nick.
Thank you Shelly and good afternoon, everyone.
I'm going to spend my time, giving a brief operational update focused on the current driver market and some other processes, we are reviewing and.
In addition to providing some greater detail on the performance of performance of Dcs and final mile services and the quarter I'll start with some quick thoughts from our operational perspective focused on the current state of the driver market and in addition to our current review of some of our processes.
With my comments from last quarter of the driver market remains as challenged as I've seen and my 37 year career as you will hear from Dan's comments and a few moments and we believe the availability of labor is having a meaningful impact across almost every part of the supply chain ranging from the ports.
The rail terminal operations warehouse operations, and certainly over the road driver market.
We continue to believe we are and a relatively solid position with some of the best paying and highest quality jobs and the market with over 90% of our jobs being either local or regional and our dedicated intermodal dray truck and final mile operations. The truth is we are not immune to the industry's driver challenges we continue to make.
Adjustments are experiencing inflationary cost pressures with driver wages and benefits. In addition to experiencing elevated driver hiring and recruiting cost across all businesses to close up on the operational comments I want to I want to.
Provide a brief update that I'm, leading our efforts to review each of our vendors and suppliers to make sure we are properly aligned across our operational and sustainability goals.
While also ensuring we are receiving the best value for our entire organization.
Now, let me shift my comments to focus on the performance of final mile services final mile was able to continue its streak of strong performance with revenue growth of 52% and the quarter operating income was $10.7 million, but as disclosed in our press release. It did benefit from $3.2 million net settlement of claims and the quarter.
The demand for our services across final mile remains strong, particularly across our big and bulky home delivery and fulfillment services that said availability of inventory, particularly across the appliance and furniture categories is temporary and what would otherwise be even stronger demand for our services.
Going forward, we're going to remain encouraged by the Onboarding of new business as the year progresses, and more importantly remain encouraged about our pipelines, both organic and inorganic growth opportunities over the long term as we continue to focus on the growth and scaling of the business, we will remain committed to protecting and invest.
And our service product and customer experience for and on behalf of our customers.
I'll close with some comments on our results and Dcs, our backlog and pipeline for new dedicated private fleet startups is as strong as our company has ever seen by the end of June we will of added 555 trucks to the fleet from the end of the prior quarter, which is the third highest truck adds we've had in any single quarter.
I am pleased that we are able to onboard not only a significant amount of new accounts, but also across the diverse group of industries, all while continuing to perform within our newly established long term margin target range of 12, and 14%, we saw 17% growth and revenue driven by.
The 5% growth and our average fleet count year over year, and addition to better productivity defined as revenue per truck per week, which was supported by contractual annual process gliders and the decline of idled equipment from prior year levels. Additionally, with regards to productivity and many locations across our network we are.
Been able to get additional funding to support the needed investment and driver wages and order to them and maintain performance standards and maintain our competitiveness and certain markets.
While we have strong momentum with our sales and operational efforts. We think is important to recognize the driver and equipment availability and addition to the ability of trained and experienced account managers is moderately governing our ability to grow faster operating income was down 5% year over year as tail winds and the prior year related to low.
And our driver turnover travel and entertainment expense and lack of startups have returned as anticipated and additional to higher personnel cost and the current quarter Importantly, we believe our investments to grow the business will help us carry momentum well into 2022 and beyond.
To round out my D. C. S comments, we ended the second quarter selling approximately 1165 trucks year to date, given our prior guidance to sell 802000 and for the year I believe it's safe for you to assume that we will exceed our targets for the full year that concludes my remarks, so I'll turn it over to Brad Hicks.
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Thank you Nick and good afternoon.
My comments today will focus on the performance of our highway services Highway services business during the quarter, which includes both and the crazy capacity solutions, or Ics and truck or J B T.
Let me start off by saying how excited I am to see our team respond to the opportunities our customers present us with to deliver both truck and trailer and capacity solutions to serve their needs.
These capacity solutions were enabled by our multimodal digital freight platform J B Hunt 360, <unk> and <unk>.
Complemented by our drop trailer pools with 360 Bucks.
Additionally, these capacity solutions across highway services continues to provide value for our customers as evidenced by this most recent performance being the third quarter, and a row and which both Ics and JBT delivered the strongest growth within our organization.
<unk> continues to support our decisions to focus our investments on of our people and technology, which is driving further scale across the platform and our organization.
I'll start with my comments on J, B T or a truck segment revenue grew 70% to $184 million, which is the.
The highest revenue. This segment has delivered since the second quarter of 2000 late of.
Operating income was $14 million, which was the highest second quarter level achieved by the segments since 2000 and stuff.
Our growth and performance continue to it continues to be driven by our ability to provide capacity solutions with or without our physical trucking assets, but with our trailing assets our ability to solve for the most efficient way of load should move by finding the right carrier at the right time and at the right price is what continues to draw.
The strong demand for all the 360 box product.
More importantly, our ability to access capacity quickly has allowed us to be able to tell our customers yes.
As we have discussed in prior calls we continue to see the business shifting to a more asset light model and will remain focused on investing and scaling our service offering while staying focused on generating adequate returns on our investments.
And this will require and focus on balancing our growth with network efficiencies as we scale and the future.
Next on Ics, the segment delivered $608 million of revenue, which broke our previous record set in the fourth quarter just last year.
And we grew 100% versus the prior year period.
The net volumes grew 20% within the quarter, while specifically truckload volume growth was the was up 30%.
Market dynamics remain challenged as freight demand strengthened from already elevated levels, while capacity remains constrained across the country.
The result of which put seasonal pressure on net revenue margins, which was consistent with our expectation.
We continue to see solid trends with our carrier and ship for engagement on the 360 platform and remain encouraged by the productivity. We are seeing with our people all of which is enabled by our investments and both our people and technology.
We continue to see opportunities to invest and our 3 critical areas our people, our technology and scale and the platform and remain committed to these investments.
In closing our performance this quarter, and Ics and J B T align with 1 of our objectives, which is to grow volume and gain market share by leveraging our platform and using data to help our customers make the best decisions and deliver value to their supply chains.
We do this by eliminating waste and the system and creating a frictionless way to access the past the amounts of capacity across a multimodal digital freight platform.
We remain excited about our opportunity to deliver our capacity solutions to our customers across our highway services businesses well into the future.
That concludes my comments, so I'll pass it over to Derek.
Thank you Brad and good afternoon to everyone listening to today's call. My comments. This afternoon will focus on intermodal performance during the quarter I will also provide some additional details on network operations, including the Onboarding of new containers and how how we are working to improve velocity and in <unk>.
<unk> capacity in our network for and on behalf of our customers as we approach peak season.
Demand for our intermodal capacity remains robust in fact demand continues to significantly outpace our available capacity, which remains constrained by rail performance and restrictions in addition to customer detention of our trailing equipment.
We continue to believe that the origin of these challenges center on the availability of labor for both the railroads, particularly in their terminals and our customers and their warehouse operations.
Volumes in the quarter increased 6% broken down by month, as plus 17% and April plus 8% in may and -6% in June.
And as we discussed a year ago June 2020 was it particularly strong month for us as we had equipment properly positioned for the surge in net and demand as the activity across the supply chain restarted.
Network velocity continues to be well below our expectations as evidenced by our box turns which were approximately 1.65 turns per month during the quarter.
We are working very closely with the rail providers and customers to improve our capacity across the network by focusing on reducing the detention of the equipment and helping our rail providers reduce congestion across their terminal infrastructure.
Going forward the on boarding of our new equipment will also assist us in serving our customers capacity needs, particularly as we approach peak season.
On that front, we began taking delivery of our new equipment and the last few weeks and have even more on the water as we speak we expect a steady flow of equipment into the west coast at this point moving forward, which is now likely to stretch into early 2022.
At this time, we are through the majority of repricing efforts for this latest bid season and rates came in at the higher end of our earlier expectation, which our original expectations were for high single to low double digit increases.
By the end of the quarter about 70% of the volume had current bid cycle rates and we expect the remaining 30% of the business yet to reprice to implement in Q3.
Inflationary cost pressures continue to present themselves and the way of driver wages and recruitment costs and addition to the cost of equipment ownership, particularly as utilization levels remained challenged by both the rail and customer activity previously discussed.
We believe we have put in place the right pricing structure and programs that protect our and necessity.
<unk> to generate an adequate return on our significant investment in our people and our equipment, even if box turns remain challenged due to events outside of our control.
As we approach peak season, it is clear that our customers continue to want to lean into us for more capacity and we feel very confident and our ability to execute our plan customer.
Customers value, our intermodal service offering as it continues to be a very cost effective alternative to truck and even more so now due to rapidly rising driver wages and fuel prices, but also because of the environmental benefits of intermodal as its carbon intensity of 60 per.
<unk> lower than the truck alternative.
Going forward, we will continue to prioritize delivering value to our customers generating appropriate returns and our business reinvesting to meet their future capacity needs and keeping us on a path toward long term sustainable growth.
That concludes my prepared comments.
Yes.
Hey, <unk> just if you don't mind. This is Brad a word to the to the audience and we're gonna do 1 question again like we did last quarter. So.
And so Nico will turn it over to you to open the call for questions.
Alright, and as a reminder to ask a question you will need the press star 1 on your telephone could withdraw your question press the pound of Husky.
Your first question comes from the line of Allison Landry from Credit Suisse. Your line is now open.
Thanks, and good afternoon and.
So just wanted to ask about intermodal you mentioned that the the customer attention and for our equipment is at all time highs and in the second quarter, presumably you're charging accessorial and style.
Hoping you could quantify this for us and the quarter relative to what it was in.
Q1, and are sort of a normalized run rate.
You know, Alex and I don't.
We've been talking to our customer base about.
About the impact it's had on our capacity for really several of them several months and even into 2 of the.
Fourth quarter of last year, we've really been highlighting this challenge.
Don't know that we had.
<unk> had significant changes and in the ER.
The revenue cycle during the quarter as as as we've always talked about that I think that when we what we've been doing more recently with our customer basis is trying to highlight and incentivize faster and loading but that was probably towards the end of of the second quarter. So beyond that I, probably don't know how to <unk>.
The light the impact of that during the second quarter.
Okay, and then I guess and what I'm sort of getting out of I mean, do you think that there was a positive margin benefit that the.
The experienced in Q2 as a result of the fact that we shouldn't be modeling and coming forward.
Yeah, and just I, just don't think we can break out sort of conversation as it relates to the the margin, but no I wouldn't say that there was anything material in the quarter light into that.
Okay. Thank you.
Yeah.
Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is not what I'm, saying.
Thanks, Good afternoon, everyone.
And just for the Ics can you help us understand the are the gross margin path forward. Clearly you guys have done well do kind of keep the the often given the black there, but and what percentage of your book has been repriced and.
And b kind of assuming spot rates don't collapse from here of kind of or are we looking at the car and trajectory of gross margin and for the back half of the year.
Sure just to start and I think Shelley might join with the comment or 2 but we definitely anticipated the seasonal margin pressure, we highlighted that and our Q1 call and so we were not surprised by the second quarter performance with respect to where we landed and I.
I think that historically the second quarter is always the more pressured.
Gross margin quarter that we experience. So we would anticipate seeing lift as we move into Q3 and Q4 are away from that based on historical norms Shelley on the business from a bid season and perspective are slightly behind and Ics from where we are and J b and what is implemented.
And B I E is further along I think that's because of the volatility of that's happening in the brokerage and market in general and just under 60% has been and implemented I would also say that of revenue per load changed inside Ics as a result of moving more business and in near term too.
Contract versus contract with carriers, and so that business and of higher revenue per load did yield a lower gross margin percentage, but our gross margin dollars per load was still up so it's a little bit of apples and oranges compared to what we have historically done just because of the revenue per load has changed so dramatically.
<unk>.
Thank you.
Your next question comes from the line of Justin Long from Stephens. Your line is now open.
Thanks, Good afternoon, I wanted to ask about your ability to ramp intermodal volume sequentially in the second half Shelley you mentioned a few of the key drivers and the prepared remarks, but is there any color you can give on the number of intermodal containers, you expect to be delivered and the second half and.
Any thoughts around the sequential progression of box turns as we think about your capacity to grow beyond the 500000 loads and the second quarter.
Hey, Justin.
And I think the key to this is certainly customer demand has been very very strong.
And velocity has been the the bottleneck.
You know, we we highlighted that we have new containers on the water today, we have a strong confidence and our ability to receive between 3 and 4000 during the third quarter. We also highlighted that we feel like of the 12000, we announced at the at the first quarter earnings.
Call some of those will certainly filter into the at the early stages of 'twenty 2.
The team is working every day to continue to receive more containers as we move into the fourth quarter, but for now we can highlight 3 to 4000 in Inc. In Q3.
I think that on the velocity of front you know, we're working with customers to find ways to to free up the equipment faster. That's certainly an ongoing effort and then the railroads you know the key there is is getting faster velocity out of out of the rail system and and we're aligned with all.
All of our rail providers on their mission to improve their velocity and so that that is an expectation of ours during the quarter.
If you're asking for specifics we highlighted 165 turns in the second quarter, we think that can improve somewhat to slightly in the third quarter, but not yet ready to believe it's going to be a real material impact at this stage.
Okay, great very helpful. Thank you Darrin.
Yeah.
Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is now open.
Thanks, So much hi, everyone.
Darrin the other intermodal question.
We've obviously had some updates from from the rails Union Pacific shut down.
And movements to their global for terminal I think B and has also started to meter space on its own intermodal trains at least through the end of this month.
Can you just help us think about what the volume impact is a little bit the similar to the last question in terms of of what the headwind. This maybe as you move from the second quarter to the third quarter and then you've been really helpful and the past about talking about maybe the margin progression expectations and and you been bang on in terms of sequential margin improvement as the pricing.
Further gets implemented you guys have shown good drop through and the intermodal on the incremental revenue growth of at least sequentially of some of the pricing comes through should that just be a continuation into the third quarter is that 30% gets re price whats the right expectation of on margins. If you could just answer those 2 questions. Thank you very much.
Hey, Matt This is Brad I'll I'll take the first part of that I think there and did a really good job of giving a lot of details on expectations for box turns and containers and clearly you know where demand is so I don't think we need to address anything more in terms of expectations for volume I'll, let Darren and provide comments on the the rail service and maybe the U N.
Stuff, but I just wanted to get that point of cross so darrin.
Sure. So I appreciate the question as you know the thing on the restrictions that you've heard from U M. P. As those are Ah well, we don't operate on Union Pacific, but it's largely understood to be international only so there's not a lot of impact to us on domestic volumes and and B NSF and <unk>.
J B Hunt are working really well together every day in and effort to expand our capacity and improve velocity and everything we can do to create fluidity at the terminals in order to help provide that we're doing that and working with our customers on scheduling where drain loads out of the <unk>.
Terminals, we're doing a tremendous amount of work in order to improved fluidity. So I you know when you're here and some of that restriction information, sometimes it's more international focused than it is domestic and we have.
Some energy from that is I think the international supply chain has been 1 of the more significant drags on productivity for the various rail terminals and certainly.
If if if they can be focused on.
Eliminating some of the congestion from international in order to free up capacity for domestic we would certainly stand to have some benefit from that I'm not saying, that's what they're doing but certainly the announcement from U M. P was focused on international only.
And then the margin the margin progression of the margin you know I think we said the on the last call. We we restated our long term margin target of 10% to 12%. We said we thought we would make.
And some improvement as 2021 went on and as we implemented prices and and that continues to be true, we're inside that range and and feel good moving forward that we will stay inside that range.
Got it thank you very much.
Yeah.
Your next question comes from the line of Scott Group from Wolfe Research. Your line is now open.
Hey, Thanks afternoon, guys I know it sounds like you don't want another volume question, but I have 1 because I'm not so clear.
Do you I mean, I guess I'll just ask the directly do you think you can grow volumes year over year and the third quarter, and then and I'm just a follow up on the margin side as these accessorial.
Kick in and some more and you get the full impact of pricing do you think that there's potential.
To get towards the upper end of that.
Margin guidance and towards the back half of the year.
Thanks, Scott and Theres somebody Brad again, I mean, I think Kelly and her prepared remarks talked about.
You know volume will be influenced by 3 main factors rail fluidity.
Pension and customer locations as well as the Onboarding of our new containers and we some of those are out of our control we talked to you and Darren gave you specific guidance on what we think.
Containers will do and in the quarter, so other than that and it's gonna be hard to give you anything more specific.
And what we have so I'll just respond to that part of the question and then to your second part I'll turn it over to Darren.
And the need of quick refresh on the day part and.
Scott refresh us on the second part of your question. Yes. It was just about as we get the full impact of the pricing and the accessorial and do we is there a potential to get to the upper end of that.
The margin range and then maybe just to clarify the first part of that volume question. John You mentioned June a year ago was it was a month, where you had kind of.
The boxes and the right place was that the same scenario did you have the boxes and the right place and the third quarter last year I, just don't really remember.
Okay, well I'll just hit on that real quick and then we'll hopefully move on from the volume stuff. So we depleted our storage containers in the at the during June of 'twenty, and 'twenty, which largely created a lot of very fast and fluidity for us because we had gone.
John into storage during the the really weak and part of the.
The the second quarter last year. So during the third quarter demand was so strong no. We didnt have equipment really positioned strongly so.
That was back to the need to really reposition the equipment, which drove a lot of the.
The velocity challenges the net we certainly had a year ago.
On the margin front, it's a range because of lot of factors influenced that certainly can we achieve it you know it really depends on some of the cost challenges and at this point, there's no let up on our challenges for recruiting and hiring and retaining drivers there's no let up.
Up on the cost of outsource capacity or need to secure capacity.
In order to dray loads of out of the terminals. So all of those cost challenges of real so we just got to stick within the saying that is going to be within the range and I think that's really all I can comment on the margin.
And Scott if I could.
Add to that we are working on.
And the very tactical level with our customers on a regular basis is probably the most detailed plans that I have seen and to work with our customers to try to avoid those charges and so we're doing a lot on the front and to try to identify where the bottlenecks are and our intent is to move more volume we do have to have.
The 3 things kind of in line.
And we really haven't thought about it or ask the soils are not there for us to gain incremental or even more margin dollars to our bottom line, our accessorial and are there so that if we can.
We anticipate what's happening and those containers and 360 boxes or dwelling and we can.
B properly.
Rewarded for that pocket kidding.
Makes sense. Thank you guys appreciate it.
Yeah.
Your next question comes from the line of Queens Wetherbee from Citi. Your line is now open.
And good afternoon and.
The question on Dcs, if I could.
If you could just give us a little bit of a sense of of maybe how the pace of.
You know new fleet acquisitions will go and the back half of the year and and maybe sort of contrast that with how we should expect startup costs. The kind of ramp obviously it was all due to the heavy quarter of this quarter curious of that persistent and <unk> went into <unk> and do you see of decelerate a little bit.
Alright, well based on our pipeline and we think that a well you saw Q2 was very strong and we think Q3 will be strong as well and.
And it's hard to tell on Q4, we got to make sure. We got equipment, we got to make sure. We got drivers. So there's just a lot of unknowns that far out.
I will say that the pipeline is full but theres a lot of things that go into them.
Metering, how fast we can start of the drivers of equipment and then.
And some on the management side, so, but I would say Q3 is looking very strong as well.
Your next question comes from the line of Kenn Hoekstra from Bank of America. Your line is now open.
Great. Good evening, so great great job and keeping rates out of costs and Nick talked a little bit about the the hardest hiring environment and 37 years and Nick of Brad and I think everybody highlighted the labor pressures to keep fluidity. So John maybe just step back and give a little bit of your thoughts on labor and when you think about hearing impacts of embargoes.
On some of the networks that are any concern that the network starts to melt down like we've seen on some of the rail networks when it starts spreading and and.
Spreading out wider from just 1 area.
Especially when you're adding capacity when the rail networks not fluid is there a concern that it gets gummed up and they're not able to take advantage of their precision scheduled railroading overhauls, yes, Ken Let me, let me have Darren and respond to that I think you'll have a better look at it.
And so.
You know.
Is there a concern of a meltdown and I think the the the railroads have all shown.
Fairly quick.
The step into to slow volume down is heading towards that kind of the.
The challenge now in 2021 has been and certainly an unusual year, so but no I don't expect a any kind of meltdown from from the railroads I do think that when we talk about labor challenges with the rail system I mean, I really do think it's.
We're talking about locations that need to find you know for a 5% more employees in order to be fully staffed and and overcome them and kind of a challenge that they are and now these aren't just massive massive amounts of of people that they need the higher so it feels.
Like that would be highly unusual and I think all of the railroads are are very focused on these challenges and the and they're out of addressing them in and I don't feel like were that some sort of the significant meltdown as it is a very significant risk at this point.
Okay.
Alright next question comes from the line of Bom and why the weights from UBS. Your line is now open.
Yeah good afternoon.
Well I guess related question I mean, it seems like labor is such an important topic.
Hum.
And I wanted to get your thoughts on how you look at.
Labor intensity of your model I tend to think intermodal is.
Now obviously, the less driver intensive and trucks. So you would have.
Some of advantage versus truck and a tight labor market.
But just wanted to see if you could offer some thoughts about you know does the tight labor market provide advantaged to T.
J B hunt and a certain way.
And then if you could also just say have you seen any signs of improvement I think we've got I don't know if it's 25 or 26 states that I I think it's starting to ease up on the the payment of the bonus unemployment.
So is that improving or is.
Is there kind of no light at the end of the tunnel in terms of the labor availability.
Yeah.
I would just say from a labor standpoint, I would say as I said and my comment is very very tight.
I think we do a very good job.
Responding to that our model is pretty.
Agile very site specific on how we can address individual labor concerns whether it's in some of our fulfillment warehouses.
The final mile or whether it's intermodal rail ramps specifically, so I think we have a very solid approach and then we got a very robust corporate driver personnel team that helps us and the labor market. So it's challenging and then I would just say the other side of it is for.
A very good as Shelly alluded to relationships with our customer and we're very open and we try to stay ahead of the show the metrics and those areas and try and get ahead of that with them. So I think it's an advantage to us.
Personally and the top market now does that mean, we don't have I know, we have pain, but probably not as much as others.
And then on your question about unemployment, it's too early to say we've been having some conversations about can we measure and the states with rollback of the unemployment benefits and we've been able to recruit.
More of there.
It's too early for us to tell and I think by the end of the Q3, we'll have a better feel for that and I know at the end of the September supposedly the rest of the country will rollback on that so I think it'll just kind of become very clear at that time, but it's too early right now and tell most of that's in the south and if I was going to say you're going to be.
<unk> was a little less pressured than the other it would be and the south who less pressured theyre all pressured and.
But a little less pressure there in general.
Add to that and then on your first part of your question you used the term.
We have good agility and I think that that's very well represented and the pivot that we've made and our strategy and JBT moving more towards an asset light and I think that that's <unk>.
Facilitated the the the growth that we've experienced over the last several quarters that we've been talking about records since 2007, and 2008 by going to that asset light model and tapping into the to the carrier base that we have.
<unk> had access to the Ics and so 360 platform has certainly enabled us to be more flexible for our customers and be able to do more for them and that environment is just another. Good example of that and I might just finally add you know what.
1 of the things with our customers, we certainly talk to them about where our pain points are at but it is much easier today for us to say, yes and Tim.
And make a pick up on behalf of the customer it really comes down to cost and when we take on more than 20000 drivers and extend that to our platform, reaching nearly 1 million trucks, our ability and source on behalf of our customers and significantly different than what it would've been maybe and the last cycles. So we can always say yeah.
Yes, it's just down the cost and what that means from a pressure perspective, helping us.
Meet with our customers and helping make sure the their budgets are intact.
Yes.
Yes.
Next question comes from the line of Brian Olsen back.
From Jpmorgan. Your line is now open.
Hi, good evening. Thanks for taking the question just wanted to ask 1 about Ics and $3.60 in particular, so some of the employee count was up a little bit at the end of the period from the first quarter, but the average.
Lewis for employee was still so pretty good and moving moving favorably. So I wonder if you could see if you could talk about just productivity on the platform and then here in the near term and maybe you said the rest of the year and then just give us an update in terms of the.
And the roadmap the investments going forward here.
And the different metrics, usually look at in terms of people with technology and scale. It seems like you've made progress and all of that but also it seems like you've got some more investments to be had so maybe you can give us an update on productivity and where you see the investments going next for 360. Thank you.
Thanks, Brian a lot of it.
The side of that question, Yeah, we're definitely.
And definitely satisfied with the progress that we've made I appreciate it you.
Gravitating towards our 3 critical areas of of our people our technology and scale I think that that has been demonstrated over the last several quarters and as we continue to grow and.
On the scale of we've gotten back to profitability.
And as we've talked about for the last 8 quarters that investment window investments will continue on and obviously with the work that we're doing with Google and and the co innovation that will come from that will allow us to make good decisions around how we continue to invest to enhance the 360 platform and and how we can.
Make sure the that we're providing value for our customers and for carriers.
I think it's clear the that our goals are to create the most efficient transportation network in North America, and we feel real good about where we sit with respect to that I would say that the.
The the things that are that are most important to our customers really cost service and capacity and our investments continued to focus around visibility transparency and access and that's where we'll continue to make decisions and how we move forward John.
And I don't know if you want to add anything yet and I just add that as we're looking at a 5 year modeling that we put in place and when we very first of all of that 360, we have made good improvements across the board. We still do see I've mentioned this and I believe at the end of last year that we did have some internal work happening and 360 with her.
Internal systems called match that will help us connect our people with what's happening in the marketplace, and so really allowing us to use that frictionless digital platform <unk>.
<unk> and connecting that with people when we really need to be problem solvers on behalf of our customers and our carriers until we've made improvements there we do still have improvements left and.
And that need to occur in our 5 year modeling and then certainly and the scaling piece of our growth.
The margins as a percentage of those numbers, we still believe that we will continue to find the right truck and the right time at the right price and that will allow us to continue to expand margins.
And inside of that overall.
Your next question comes from the line of Jordan Alley Chang from Goldman Sachs. Your line is now open yes, Hi, I was wondering if you could talk a little bit to final mile of profitability I think the long term target range of 48% you've kind of been and they're the first half.
Jeff.
With probably what's going to be a strong peak I mean and the <unk>.
<unk> cost pressures do you think we could stay sort of within those general the targeted range through the balance of the year. Thanks.
I'd say, where.
We're clearly moving in that direction and Theres a lot of things going on 1 there's a lot of cost pressure that you alluded to and so on.
And the warehouse and loading of our box trucks.
Second seat on and even our contractors of contractors labor rates are going up so we're facing some headwinds there.
But the other part of it is just the supply chain. We're at the very end of the supply chain and so we got to make sure that the product is there the furniture industry. If you look at that there's a lot of.
Long lead times chips are affecting a lot of the appliance folks and so there's just a lot of things going on and that but our plan is to stay in that.
Target range.
But theres a lot of headwinds towards it and so it's hard to clearly say right now.
Yeah.
Your next question comes from the line of Baby the <unk> from Barclays. Your line is now open.
Hey, Thanks for taking my question, maybe another 1 for Brian.
I know mile.
And the revenue per stop is down due to a shift between the asset based and asset light.
Some of that segment I Wonder if you could just comment on and whether that's just.
Uh huh.
Kind of.
The normal course of business or whether that's an intentional shift towards the more asset light model with him.
And final mile.
Yeah.
And we're very agnostic with our customers, we present, both pricing and.
And so it just depends on which customers buying at the time.
Right now it seems to be the non asset.
It was of what was being bought <unk>.
Recently, but I would just tell you a couple of deals of the asset side right now so it moves around a bit.
What I see and the pipeline I would say, it's more on the non asset side for the most part they're still an asset play that moves and Theyre every once in a while.
And so it moves around and it's hard to predict where pricing all of them and.
And so we just adjust all of our IC based on the amount of capital we have to put in there.
So, but the pipeline and I would say is more on the non asset side right now.
Yeah.
Your next question comes from the line of pods Fowler from Keybanc. Your line is now open.
Great. Thank you for.
Brad Delco can I ask what intermodal volumes were yesterday is that okay.
And our next question please.
I'm just kidding go ahead.
And partially kidding, I understand and I'm kidding, Yeah and factory.
The Hartford.
And I did want to ask about is you know there's a lot of anticipation of lot of hype around this peak season, So maybe partially for Shelly and maybe partially for John Kuo as we think about kind of peak planning with the expectation would be that this is more of an elongated peak and our customer is going to start the pull forward activity earlier than what we typically see.
And then how do we think about the seasonality of either EBIT or the earnings cadence and in the second half of the year should that should that follow kind of you know.
The change and customer shipping habits of words, it's just the situation, where we're going to be at this elevated level for a longer period of time just for the demand environment is thank you.
Thank you John I'll take the customer and side and then I'll turn it over to John on the last part of the question you know the disruption that occurred in 2020 has continued all the way and true.
And today and we believe we will continue through the rest of this year and into next year, our customers do you have and displacement happening and it from an inventory perspective, and we have heard our customers say they've moved from ads.
Being ordering from and need by day 2 of when can you get it to me date and stay there there is inventory.
Inventory and the supply chain today and the has already been delivered that is typically would not be there. So there has been some pull forward I think it's just been based on a lot of the disruption that's happened, particularly in the global supply chain. So.
That has caused kind of the upstream issues that are now hitting in the U S as well and and certainly we know the problems are occurring across every parts of the supply chain and delivering goods for our customers I would say our customers from a demand perspective believed that the rest of this year.
B strong into next year as well and.
And finally, I would say peak season, we are doing a ton of peak planning I talked about that on the last earnings call. We are doing that again now and we're really doing that comprehensively across all of our 5 segments and so how can we help understand the needs of our customers what that will look like and then what will we do win more disruption occurs.
And locations that are outside of what we are focusing on from the peak perspective, there's sooner we can do that the debt more success, we will have together with our customers.
And Todd I.
I apologize, but I probably have to shoot down and your second question that don't really know how I can answer that without giving you guidance on our margins for or for the.
Half of what I will say as Shelley mentioned, we're doing everything we can to talk with our customers and understand what their demands are we're trying to get as many resources as possible both people and assets with the equipment orders that we have put in place to try and B and the best positioned to address.
The address those needs and as Darren mentioned working with the rails to see what we can do to try to alleviate some of this congestion and so.
We've given margin type of those guidance ranges and that's really all of the further I can add to the.
And.
Your next question comes from the line of David Vernon from Bernstein. Your line is now open.
Hey, guys. Thanks for taking the time a question for you and longer term Capex I'm. Just wondering you know kind of as you look across.
Demand for equipment and does.
And this year and then the next year should we be expecting sort of the multi year of sort of level of elevated capex or do you feel like we should be seeing the recovery and and rail service of the box zones and will allow you to kind of deliver.
The liver with with a little bit less and we're spending in fiscal 'twenty 1.
Well I'll provide just some comments on.
Consolidated Capex and what we're looking and as we mentioned some of the orders that we of play some of those are going to push into 2020..2 we haven't changed those orders and so that will move and so I would expect that our 2022 capex is going to be elevated as well.
Still trying to understand what the replacement and growth needs are frankly, we have reduced some of our trade ins. This year on tractors just to continue to maintain.
The available capacity and so we will probably have a higher cash.
Capex in 2022 with that as well so those are.
Right now I would say that our 2022 capex is going to b.
And not as high as 21, but we'll be elevated over what we've seen historically.
Your last question comes from the line of Jeff Kauffman from vertical research. Your line is now open.
Thank you very much and thank you for taking my question.
Shelly you mentioned earlier about how customer inventories as were as tight as you've seen them and.
Is there any way, we can put that into perspective by the with anecdotes or just to give us an idea of where inventory levels are.
The customer extra customer why relative to where they should be.
Well I can't speak to specific at the customer level.
And obviously I have 7 days, the anecdotal stories, but.
And I think it's what I said earlier, which is.
And they don't have the inventory exactly where they wanted or at the timing that they wanted either I think there are concerns about the Christmas season, and will they have all of the necessary inventory on shelf or available through E. Commerce channel. So that's of concern of our cut.
<unk> inventory will take some time to catch up just to more normal levels, but there.
There are several stories from our customers, whether it's Christmas product already here in stock ahead of schedule or concern that there are peak.
Shipments that are supposed to be on the water arent on the water yet and so there's a lot of concern and coming here in the back half of this year.
Okay. Thank you. This is Brad I just wanted to thank everybody for the questions, obviously will be and.
How did you guys and in 3 months and of getting thing for.
And then feel free to reach out my email address and phone numbers on our earnings release. Thank you for your time.
This concludes today's conference call. Thank you for participating you may now disconnect.
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John.
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