Q4 2021 J B Hunt Transport Services Inc Earnings Call
Good day and thank you for standing by welcome to the fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the 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 I would now like to hand, the conference over to your Speaker today, Vice President of Finance and Investor Relations. Mr. Brad Delco. Please go ahead.
Afternoon 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 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 in the forward looking statements for more information regarding risk factors. Please refer to J B Hunt's annual report on Form 10-K , and other reports and <unk>.
Fillings with the Securities and Exchange Commission.
Now I would 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, Chief commercial officer, and EVP of human people and human resources.
Nick Hobbs, Chief operating officer, and President of contract services.
Darren field, President of intermodal and Brad Hicks President of Highway services.
This time I'd like to turn the call to our CEO , Mr. John Roberts for some opening comments John .
Thank you Brad and good afternoon. Thank you for joining our call today. We all saw in 2020 was a remarkable year in our history, but al considered 2021 as a good contender for being equally challenging.
And in the midst of perpetual challenged we've continued to see our collective resiliency and strength carriers. During these unique times.
Our teams have adjusted and adapted to multiple scenario changes impacting our customers' ability to thrive.
In 2021, our leader, who made bold calls to increase investments in our people our technologies and in expanding our fleets across our asset base.
We have long been committed to following a disciplined approach for all capital allocations and believe these investments are good for our customers in the long term.
I can't say enough about the way every one of our team members has risen to the opportunities presented in this current environment.
Accordingly, we have done exhaustive research on where we stand regarding being competitive in total compensation for our people as we move into 2022.
Our team leaders have unilaterally approved comprehensive changes to our base wages incentive compensation and benefits.
Leasing our awareness for how we approach to attracting and retaining the best talent is critical to our mission of creating the most efficient transportation network in North America.
The overall growth we experienced in 2020 wanted to unprecedented once again, revealing the necessity of our services and confirming the approach our people take on solving our customers' challenges.
We added seven 778 tractors to Dcs 6394 containers in the intermodal with 531 net tractor ads and 2600 trailers for our 360 box program in highway we.
We continue to work strategically with our corporate providers on build and delivery planned as we head into 2022.
With the growth coming out of 'twenty, one we anticipate ongoing demand for all types of power and trailing equipment.
We also look forward to working with our rail service providers to find improvements across all aspects of intermodal service capacity management and utilization.
Lastly, I will comment on our efforts relating to sustainability over the past several years, we have worked to better understand communicate and advance our positioning in this important area. While we have seen good progress and have been recognized by many third parties for our efforts. We also believe we have important work to do where can.
<unk> to our mission to create the most efficient transportation network in North America, and we're also committed to being transparent on the progress of our sustainability journey.
This concludes my remarks, our executives will provide more specific information so I would like to turn the call over to our CFO John cooler.
Thank you John and good afternoon, everyone. My comments today, we will follow a similar pattern as our previous calls.
Ill review, our recent performance on a consolidated level I'll then provide some commentary on our Capex plans for 2022.
And as well as our approach to capital allocation and then I'll close with some thoughts on our financial priorities for the coming year.
Overall, we were pleased with our fourth quarter performance highlighted by growing revenues, 28% and operating income 55% over the prior year period.
We saw positive year over year revenue performance across all segments.
And positive operating income performance in all segments, except for Dcs, which Nick will cover in greater detail in his remarks.
As I look across our business the common denominator in terms of our pain points continues to be labor related and wages salaries benefits and recruiting fronts in both driver and non driver.
We continue to elevate investment center people as was evidenced by our decision to provide a special bonus in December of nearly $11 million to our frontline workers for their efforts in working through the supply chain challenges facing our customers and the industry.
Below the line interest expense was slightly lower than the tax rate slightly higher than the prior period, resulting in GAAP EPS of $2 28 a share.
For the quarter or of 58% increase versus the prior year period.
As has been stated in previous calls the impacts of network congestion labor shortages in general supply chain challenges are well known and have continued to have a meaningful impact on our business and are likely to persist, particularly given the heightened challenges evolving around COVID-19 infections across our country.
We ended the quarter with $356 million of cash, which was slightly higher than plan last quarter. I provided you with updated thoughts on our 2021 net capex.
And that would fall within the $1 billion range, which we missed by approximately $130 million.
The Smiths was almost entirely due to supply chain delays continue to impact our ability to take timely delivery of our equipment.
We remain committed to these investments in capacity to help serve our customers and we anticipate that capex for 2022 to approximate $1 5 billion.
We continue to prioritize our capital to invest in our business support our dividend repurchase shares and Opportunistically execute on our M&A strategy, all while maintaining a modest net leverage ratio of around one times EBITDA and.
And importantly, continuing to maintain our investment grade status.
Before I close out my comments and in light of expecting some questions around your 2022 outlook.
Like to provide you some context not guidance, but context for our financial priorities in 2022.
These priorities include continuing investments in our people maintaining a strong balance sheet to support all of our planned investments.
And focusing on generating appropriate returns on the capital we are investing to grow our businesses and serve our customers.
This disciplined focus on the priorities enables us to manage the business for long term growth and success.
That concludes my remarks, I'll turn it over to Shelly.
Thank you John and good afternoon.
Today I want my commercial update to focus first on a quick review of 2021, and how we were able to deliver for our customers. I will then focus my comments on the market and how we're going to approach the oncoming supply chain challenges for and on behalf of our customers.
Finally, I'll finish up with some updates on our priorities for J B Hunt 360, multimodal digital freight platform as we move forward.
As we've discussed over the past year, the freight environment has been extremely volatile and unpredictable and not just for capacity providers, but also for those that we are providing capacity for to meet their needs.
In this environment, we as an organization like our customers have had to adapt to this disruption and are firmly believes that our moat ignostic comprehensive supply chain solutions approach has been a key to help our customers over the last year, where we were able to honor our commitments and particularly during peak season.
Another key element of our success with a significant commitment and investment in physical assets across all of our business segments from containers and chassis to trucks and trailers that said I would be remiss to leave at the most critical element of our success and that is our people our drivers mechanic.
<unk> lead cleaners, and all of that is behind the scenes, helping our frontline workers 16.
Tying it altogether of course with our technology platform J P. M 360, which I believe gives us a distinct advantage and sourcing efficient capacity for our customers simply put rins.
Our investments people and technology put us in a position to say, yes in 2021 and has me excited for our future growth as more and more customers are leaning in.
As we look at the market today and try to prepare for the year ahead. Many components of our business plan and go to market strategy are similar to those exercise here in our recent past.
The market remains challenging capacity constrained and unpredictable and we will need to remain agile in our approach to securing capacity for our customers.
The niche areas I see impacting capacity is the ability to source new equipment, which is likely to keep used truck prices elevated and as a result small carrier rates as well.
I see customers wanting to lock up more capacity and dedicated arrangements and lean into technologies that drive efficiency in their supply chain and how they procure capacity.
As an organization, we see tremendous pent up demand to convert highway freight to intermodal with elevated truck rates, the tight labor market higher fuel prices and a 60% improvement in carbon efficiency intermodal offers versus truck.
Let's just say 2022 will present us with many opportunities to grow and we will approach the market similar to how we always have serving our customers as our top priority, while maintaining sound financial discipline.
Finally, as I look at the investments we've made building out and scaling J P. M 360, I continue to be encouraged where we are relative to our long term plan as we have discussed user activity and engagement continue to accelerate and break records across both carrier and shipper platforms solidifying the value of optimize.
And transacting in real time in a frictionless process as we look ahead to this year, we see opportunities to further acceleration as we continue the rollout of our new automated tools and to drive even greater efficiency in our organization and higher service quality for our customers.
These tools will enable enhance and leverage our people and core technologies to drive more efficiencies in the marketplace, which gets us even closer to our mission to create the most efficient transportation network in North America.
To wrap up we continue to uncover innovative ways to accomplish that mission, including the collaborative work with Google and the recently announced strategic alliance with way, Mel where I see tremendous opportunity for us to explore solutions that merge two of the most innovative companies in the transportation and.
History of autonomous driving and our multimodal digital freight platform J B Hunt 360 that concludes my comments and I'd now like to turn it over to Nick.
Thank you Shelly and good afternoon.
Today I'm going to review the performance of both final mile and dedicated segments as well as provide some thoughts on the priorities for these businesses as we move forward.
I will also provide some update.
<unk> <unk> from an operational perspective on our ability to source equipment and some updated views on the driver market I'll start with final mile as well.
We have discussed over the last several quarters, we have been focused on making the right investments in our people and processes to ensure a high level of service quality and execution for the safe and timely delivery of our customers' products into their customers' homes that trend continued in Q4 as service quality and safety will be a cornerstone to the long.
Term growth and success of our business.
These investments labor challenges as well as supply chain disruptions for some key markets that we serve have continued to weigh on margin performance in the most recent quarter. In addition to some startup costs for some newer accounts as we set out to differentiate our service product. We are also set out to demonstrate differentiated value.
We bring to our customers and the market. We believe some of that differentiation is being recognized as we are coming off our largest sales year for new business in 2021.
That said in the coming months, we do expect to put some business at risk as we focus and put even greater emphasis on generating the appropriate financial returns on these investments going forward. We continue to see a solid pipeline of organic growth opportunities with potential to supplement some of that growth with small tuck in acquisition.
As a way to build out our service capabilities and customer list.
Shifting to dedicated our dedicated business continues to have a lot of momentum as our backlog and pipeline for new business startups continue to build to record levels. Despite the onboarding of nearly 800, new trucks in 2021 in terms of truck sales, we sold over 2500 trucks of new business in.
For the year, a new record for us for an incremental 663 units specifically in the fourth quarter. Historically, we have shared a target to sell 800 to 1000 trucks per year and at this point, we feel it's appropriate to update that long term target to 1000 to 12 months based on our team's ability to execute.
As planned or expected. These startups do put near term pressure on margin performance at those elevated driver pay and recruiting costs and specific to the quarter. The special bonus we provided our frontline employees, but we remain confident in our ability to price and manage each of our accounts to the appropriate levels.
Our profitability and returns, which should reveal itself in the coming quarters in terms of priorities going forward. We will remain focused on the execution of our growth plan as well as maintaining our culture for operational excellence high service and safety, while maintaining through some challenges around a modestly less experienced.
[noise] team as our pace of growth has been robust.
Closing out with some operational updates as you could tell by my dedicated comments Theres a lot of momentum which has.
Put additional pressure on our organization to source, both drivers and equipment.
I would say that both the truck and trailer market as well as the driver market remain extremely talk and does give me some concern for our ability to execute execute on our growth plan to meet the demands of the business that said, we are working closely with our Oems to get delivery of product and continue to recruit tirelessly to meet the driver demands.
Across our organization that concludes my remarks, so I'll turn it over to Darren.
Thank you Nick and good afternoon, everyone.
Today, My comments will recap the performance of our intermodal business in 'twenty, one and specifically the fourth quarter I will also provide an update on our significant investment to expand our capacity with our equipment orders and finish up with some thoughts about the outlook for the business in 2022 as we anticipate.
Strong demand for our services as a result of our investments and the value of intermodal and the truck to rail conversion equation.
I'd like to start by reviewing our recent performance demand for intermodal service remains strong in the fourth quarter, but similar to recent trends wasn't reflected in the volume performance for the business as network congestion and restrictions hindered a large amount of our potential capacity that said I am proud of our team and its ability to <unk>.
Onboard the equipment available to us to ensure that we met the commitments to our customers during their peak period of demand.
On a positive note we did see improvements in the quarter in parts of the network specifically the speed in which customers were.
I will to turn our equipment. However, those improvements were effectively offset by further deterioration in other parts of the network, namely rail velocity.
For the quarter box turns achieved minimal improvement from the third quarter Needless to say lots of work remains to be done as a result volumes for the quarter were down 3% year over year and by month volumes were down 4% in October down 3% in November and down 1% in December .
The onboarding of new equipment was slower than we anticipated taking delivery of only 2700 units in the quarter and approximately half of our 12000 orders for the year naturally this will push more units into our delivery plan for the first half of 2022.
This investment in additional capacity and the corresponding investment in additional trucks and chassis and most importantly, our people puts us in a good position to serve our customers and focus on growth in 'twenty. Two in addition to these investments we continue to work closely with our customers and rail service.
As providers to improve velocity in the system to unlock the latent capacity in the network predicting the exact timing of improvement in the network fluidity is difficult, particularly in light of some of the more recent disruption caused by new Covid cases impacting our own and our customers'.
<unk>.
As we look forward to the year ahead and similar to what you've heard earlier, we are optimistic about our opportunities to grow the business. We have executed a plan that puts us on a solid growth trajectory based on items within our control consistent with our strategy historically, we will focus on striking the <unk>.
Right balance between volume and price, while maintaining our financial discipline on targeting appropriate returns on our business.
Of course returns and margins are impacted by items like velocity and asset utilization, which will also be a key component in terms of how we manage the business as we progress through the year.
In anticipation of questions on both volume and margin expectations for the year. My answer is it depends but know that the business will be managed to protect our investment and our returns on that investment.
In closing intermodal volume value proposition remains strong supporting our view of long term sustainable growth.
We continue to see ample.
Ample opportunities to convert highway freight as well as trans loading freight into our domestic containers. We believe our service backed by our people and the ownership of our equipment is differentiated in the market and even more so when combined with the power of the J B Hunt 360 platform that allows us to source.
Capacity efficiently when needed.
That concludes my remarks, so I'll turn it over to Brad Hicks.
Thank you Darrin and good afternoon, everyone.
I'm going to cover the performance of highway services, which includes both integrated capacity solutions.
Okay.
Before I do I would just like to stop for a second and thank all the members in Ics and JBT for how they continue to rise to the occasion to deliver on behalf of our customers.
Particularly particularly during what was another tight in capacity constrained peak season.
You've heard US talk now for quite some time about how we plan on leveraging our investment in our people and our technology to support rapid growth in this area of our business and as I look back on the past year I couldn't be more pleased with how this team has responded to deliver on that statement.
I'd like to first cover Ics or our integrated capacity solutions segment, we delivered $739 million of revenue in the quarter with year over year growth of 26%.
This growth was driven primarily by an increase in revenue per load as total loads were down 1% year over year in the quarter.
Load volume was up 3% versus the prior year period.
Going into peak, we felt like our volume comps with decelerate based on our rapid growth a year ago from third to fourth quarter. In addition to some of the discipline, we instilled in our bid strategy earlier in the year, which combined with scaling and productivity benefits.
As reflected in our profitability improvement.
As we look forward I know our teams are excited about the rollout of two technology enhancements. This year that will enable greater productivity of our people and greater service for our customers and carriers, which will support our growth and scaling of the business even further.
To close out my comments on Ics I would like to establish some priorities for the year, which include continuing to invest in and leverage our people and technology.
Focus on operational excellence, so customers and carriers have a world class experience utilizing the J B Hunt 360 platform.
And create value for customers and carriers that would support further market share gains.
Shifting gears now to truck or JBT Rev.
Revenue grew 85% year over year to $259 million.
While operating income improved to $26 million in the quarter and delivering results. This segment has achieved since 2005.
I think it's important to highlight that our go to market strategy has evolved as the makeup of our truck service offering has continued to gravitate to a more asset light model I remain encouraged by our ability to disrupt the traditional way of serving customers in this segment to discover new and innovative ways to scale into the large addressable addressable drop trailer market.
That has normally been served by the large asset based carriers.
By leveraging the power and the investments we've made in our J B Hunt 360 platform, our people and building out our 360 box network and capacity, we are positioned for growth as financial return support our strategy and further investment.
Similar to Ics. These investments will focus on building out further capabilities with our technology.
Best thing more in our people and investment and our physical assets, which in this case as additional trailing capacity.
We will continue to maintain our discipline on our capital allocation in this area of investment, but I am encouraged by our progress and the opportunity for long term sustainable growth in the segment.
In closing, we continue to see a lot of opportunities in our highway service businesses to provide an efficient source of capacity for our customers by leveraging our investments in our people and J B Hunt 360, our multimodal digital freight platform.
As I said last quarter much work has been done but much more remains and we will stay focused on delivering on our mission to create the most efficient transportation network in North America.
That concludes my comments, so I'll turn it back over to the operator to open the call for Q&A.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Any request please limit your questions to just one question per person no follow up questions again. Please limit your questions to just one question per person no follow up questions.
First question will come from Scott Group with Wolfe Research.
Hey, Thanks, Good morning, let me so I can squeeze a few into one.
Darren just on the container count it sounds like 6000 containers getting pushed into.
First half of the year are you, adding additional containers beyond that in the second half of the year, where do you expect to end and then just from a.
Pricing and margin standpoint, any directional color on how much of the yield is.
As accessorial and as long as this environment stays tight like that's now that youre above 12% from a margin standpoint, you think you'll stay above 12.
Well my goodness, Scott you managed multiple questions there and good morning to Scott I don't know, where you are with US. This morning, there probably wont be hanging out with us.
So listen.
Yes, we were.
We're not satisfied with the flow of the new equipment in the fourth quarter, certainly delays in the transportation of that equipment.
Impacted us and that is pushed out.
<unk> 6000 into 2022.
We are going to add capacity in 2022 beyond those are we're not prepared to release a number like that today.
As it relates to accessorial and whatnot.
Whatnot.
I anticipated. This question of course, and it really only want to answer it one time today.
We're not going to tell you how much was asked sorial and how much was core pricing.
We set out I think every time ive been on an earnings call I've talked about our focus on pricing too.
Our return profile that continues to be the case certainly in 2021, we experienced some unusual characteristics and the equipment utilization was was hampered and we took action and certainly that had has as part of our results in in the fourth.
Quarter, but.
But we also had meaningful cost to recover in the pricing cycle last year 2020 saw really significant cost increases that we experienced and we were able to commuting.
Communicate that with customers and certainly recovered some of those costs. We certainly have additional pressure on driver wages and we're constantly talking to both our customers and rail providers about the need for velocity improvements in our in our assets. So as we have always done we will price for a return profile.
While there are probably times if utilization of our equipment is is difficult. It may require a slightly higher margin because utilization is hurt, but certainly as we as we.
It can get benefits are better velocity on the equipment may be the same margin requirement doesn't isn't there.
We issued a long term margin guidance of 10 to 12 and for the calendar year 2021, we hit an 89 or an 11% margin. So we're right in the middle of our long term guidance and I certainly would anticipate in 2022, we're able to continue growing while also.
Pricing in an effort to recover cost exposure that we have.
Your next question comes from Allison <unk> with Wells Fargo.
Hi, good morning, or evening I guess.
J B Hunt 316 is certainly unique environment and the business has grown the technology has expanded.
Environment at all altered any you're talking you're in that path of its long term goals, but has this environment Altair kind of where you want to take that that offering as you go forward or anything new opportunities or needs that are out there that you think you could pursue with that.
Hey, good morning, and good afternoon.
Sally I'm trying to take that.
Certainly the more that we're working with our customers and transportation providers and more opportunity that we are seeing hence the announcement. We just made recently with Wayne now I think that there is a great opportunity to eliminate the inefficiency that's happening in the market our customers are helping us drive that strategy, our carriers or <unk>.
The thing that's driving that strategy as we said in our opening remarks, we are pleased with the progress. We are ahead of schedule, but we do have new ideas on the roadmap and continue to want to explore they said there isn't anything that's logically adjacent our customers are asking us and that we can give a proper return to its something were going to investigate and <unk>.
To move forward with our mission.
Your next question comes from Justin long with Stephens.
Thanks, I wanted to ask about the $11 million special bonus could you give us some additional color on how that was spread out across the different segments, and then and dedicated as we look at margins and how they've progressed sequentially that bonus maybe part of the <unk>.
For Q decline, but I'm guessing a lot of it is coming from the significant amount of fleet additions you've made sequentially. The last couple of quarters.
As we think about the growth in dedicated going forward at what point do you think we can get back to that targeted margin range of 12% to 14%.
Hey, Justin this spread I'll give you the numbers and then kick it over to Nick to give you.
Response to the second part of your question.
Intermodal J D I B impact was $3 4 million.
Dcs the impact was $5 9 million ICU.
Ics was 100000.
Fms was 900000.
JBT was 400000 for a total of $10 7 million.
Yeah, Justin this is Nick.
I'll just tell you that we feel very good about our ability to operate in that range.
When I look at just our base business, we're clearly operating in that range.
I can't predict the future I can just tell you that our pipeline is much larger today than it was last January .
So if I could tell you when the demand will back off on the amount of ads that we have coming I can tell you when our margins will get back down there.
On the base business there was a slight impact just from driver wages that we're seeing just from a timing of 80% of our business has indexes in it. So the timing of when we might have to give a driver wage as opposed to whom we implement.
That rate increase in the index could be off just a little bit that impacts us, but our view is we take care of the customer for the long term and not put business at risk just for two or three months of rate increase so we feel very solid about our base business and how it's performing we're excited about the new business that is coming out and doing well.
So we just barely got outside the range for the year. So I think that's pretty good if I look at that with.
Adding over <unk> thousand 800 trucks and selling over 2500.
Your next question comes from Jon Chappell with Evercore ISI.
Thank you good evening everyone.
Darren in the last call you said that you implemented some programs to better encourage equipment turns and then you noted earlier in your prepared remarks that youre seeing some of the benefits there, but it's effectively being offset by some of the rail velocity, where do you think you are on these initiatives. So that if rail service does and we all hope it does gets back to quote unquote.
Normal in the next month or so you can really see an inflection in those boxer about box turns, especially as you're onboarding. The rest of those 12000 that you didn't get in 'twenty one.
Well I mean, certainly we.
We did see some minor improvement in the fourth quarter from the third quarter, but minor I mean, very very minor effectively flat.
And then we highlighted that rail velocity took a little bit of a step back in the fourth quarter. Like you said, we would anticipate rail velocity to have some improvements I know that all of our rail providers want nothing more than for velocity to improve so I'm confident that are there.
The efforts underway.
As that takes hold.
There is really significant capacity available in the market from intermodal to move more loads. The good news is demand remains extremely strong.
We have customer business that we could could have on boarded in the fourth quarter that we werent able to because of a slowdown in velocity and capacity. So we remain.
Bullish on our opportunity to fill up that capacity in.
The combination of new containers coming on board and a return to maybe pre pandemic.
Philosophy statistics, we really feel strongly that we have a lot of demand and we see that in other parts of our business. There is business operating inside the J B Hunt up enterprise today than intermodal is the correct solution for but in 2021 truckload remainder.
Solution, maybe it was a transit time requirement for that customer or a lack of capacity in the market from intermodal, but both of those factors play a role in a lot of confidence we have is the ability to grow as our velocity improves.
Your next question comes from Amit Malhotra with Deutsche Bank.
Hey, Thanks Darin just.
Intermodal volume.
Is there a better opportunity to access real capacity.
On the B M. This year because of maybe some of the market share shifts that have occurred if you could just talk about what impact that has if any on your ability to grow volumes and then I just wanted to follow up on the on the on the pricing questions earlier.
You talk about cost and pricing for cost, but obviously, it's a very tight market fuel costs were up I'm just trying to understand what you think the market based pricing opportunity is this year and do you think that that market opportunity allows for double digit pricing growth.
For contracts that come up in 2022. Thank you.
Okay, well you know the market is going to answer that question for US. We're certainly always out there competing we're aware of.
You know.
Prices that are winning business and we are aware of prices that are losing business in the competition and so certainly if the market presents an opportunity for double digit increases.
I would tell you my experience always says that without cost increases.
It's not likely that double digit.
Rate increases present themselves without significant cost pressure it would be I would consider it highly unusual for our rates to climb in the double digit range without corresponding cost challenges coming coming at the market those are going to dominate with driver wage predominantly but.
Certainly the the asset utilization is is also.
Playing a role.
What was the second part of your question I'm sorry.
Did we address both both of them capacity Oh capacity on BNS staff, Let me just.
We're up another channel that certainly left BNS us.
And went to Union Pacific and certainly that presents an opportunity I mean, those lifts were occurring on BNS, Jeff we're aligned with be NSF and a growth strategy we have discussions.
With BNS daily about our efforts to grow together and we have a lot of focus in that area in 'twenty two.
Your next question will come from Jason Seidl with Cowen.
Hey, Thank you operator, good evening, everybody wanted to look a little bit at the volume growth on the intermodal side clearly you were impacted by some of the congestion on the rails and the supply chain.
If you would have to put it into numbers context, what percentage impact would you think it would have on the volumes in 2021, I'm just trying to frame. It. So how we can think about it this clears up what kind of opportunity presents itself in 'twenty two and beyond.
Hey, Jason this is Brad.
Take a crack at that but we.
We don't give specific.
Targets or guidance or Havent set.
An expectation on what.
Realistic intermodal turns are but if you.
Assume we've been running.
Mid one six to low one six on monthly box turns and assume.
I don't know 108, 185, which is probably where we were running pre pandemic.
That's probably an approximate way to them.
To get to a number that says what the opportunity is if we got back to those pre pandemic velocity levels at <unk>.
Supply chain was.
Moving from both a customer and rail capacity service perspective.
Your next question comes from Ravi Shanker with Morgan Stanley .
Thanks, everyone.
This is not a 2022 guidance question I promise.
But just just on Ics.
Now structurally a 3% to 4% op margin business kind of irrespective of what the cycle does or kind of if spot rates do roll over next year or could that margin would be under pressure and also there's a follow up on the accessorial can you confirm it that soils again, I know you won't quantify it but was it higher.
Here or lower sequentially in the fourth quarter relative to third quarter. Thank you.
Okay Rob.
I'll start and maybe.
Let there to speak to the accessorial component there at the end this is Brad Hicks.
No.
We don't give guidance I do think that if you go back in the last.
Two full years, we made substantial investments in the business both in people and technology that will allow for scale and leveraging of the platform.
We continue on that journey.
We are.
Satisfied with the progress that we've made.
But we still have work to do so I would anticipate that we would stay on a positive trajectory as we go forward because we are seeing the benefits of the tech investments both through through leverage through efficiency gains and I think you can see that from our overall growth in results over the last several quarters.
So we're.
We're certainly encouraged but we as I said in my prepared comments.
We're not satisfied yet and we have work to do but I do think that we've.
Continued to show progress and we will continue to show progress towards our long term objectives.
On the AST Sorial question, sorry, Ravi, we're just not going to answer that question.
Your next question will come from Brian Austin back with J P. Morgan.
Hey, good evening, thanks for taking the question.
Wanted to see if you can just give us a broader perspective of the challenges.
And labor hiring retention I think it was mentioned you made some pretty significant changes across multiple areas. So maybe helpful. If you can run through some of the availability and wage pressures and challenges that youre seeing across the warehouses terminals drayage and then specifically it sounds like dedicated might be more of a short term impact with some of the unseated truck.
Challenges you have right now which seems to be.
Somewhat unique for a business that's been growing pretty well the last couple of years.
The color. Thank you.
Hey, Brian This is Brad and I'll, let Nick address the drivers side of that and then Shelly kind of address the broader organization side of that question. So.
Yes.
Rob our wages are significantly pretty much in every division again, we don't do anything across the board its buy side by location, but our cost per hires.
We've seen higher sign on bonuses.
And the market is very very difficult.
With the drivers being out there facing COVID-19 .
We have a higher percent of our fleet.
With Covid right now than we've had at any other time theyre not as severe but more off so we're seeing an impact on that we're seeing impacts on our orientation because of COVID-19 homes scheduled versus what actually shows. So we're seeing some short term impacts there, but we think we've addressed the driver market pretty well, but it's still tight.
A little bit longer to fill up trucks.
And our startups when we startup.
Even if they're priced appropriately and with as many as we have starting up that's continued to be a challenge so are the.
The other thing is just on the tech side, we're facing a lot of pressure on the maintenance Tech side.
In the shops, as well and that affects some of our turn times and getting equipment turn so there's just constant new challenges that we're facing all the time around wages and we're facing some wage pressure in the shop as well that we're addressing so I'll talk that that'll do it for me I'll, let Shelly talk about the office side of things.
Yeah, when we look just comprehensively around all of our labor challenges, we really moved from a defensive mode with what's happened with Covid to an offensive mode, and it's really allowing us to move forward and think about the investments we need to make for growth for our customers. So we've looked across all our compensation.
And starting with our benefits package and there were specific changes that we made to our benefit as well as our total rewards whether that was in benefits or also what happened from a short term cash incentives to also long term incentives as well.
A more comprehensive approach really probably for our first having quite some time across the entire organization from drivers to our maintenance technicians and our office employees. We are leaning in we're on the offensive side of that really preparing for growth are inside all of our segments and in all of our support groups. So it's something that.
We see happening here at the first of this year, we've been investing into our labor all of last year, but as Darren talked about our cost and really trying to line out our price to what's happening in costs. We've tried to be offensive in that to make sure. We have drivers make sure we have our maintenance technicians and make sure that we have our office employees ready equipped and.
<unk> to help our customers.
Your next question will come from Chris Wetherbee with Citigroup.
Hey, thanks.
For Darren can we talk a little bit about the fleet again in intermodal just wanted to get a sense of based on what Youre seeing on the ocean today, how many boxes do you think you might expect in <unk> at 6000, and then I know Theres a lot of variables out there about 2022, and that's fine I guess, given how strong the demand environment sounds for intermodal services.
Assuming you get the boxes that you have some greater fluidity in the market. How many boxes would you want to grow beyond the 6000 in 2022, what would be sort of what you see like the market opportunity for you that you could grow into.
Man, Chris that's the Magic question isn't it so we have we certainly.
We have a meaningful percentage of those 6000 that are literally on vessels either at anchor waiting to unload or in some form of transportation I don't know that we've decided yet to break out how many I think it's a fair.
Sumption to just spread those.
6000, more or less evenly over the first half of the year. If we can move them in faster than that we will.
I'm aware that I've given a direction on this call for the last two calls of of equipment count expectations, and we haven't met either of those so I don't want to give.
Too much.
Out there, but certainly we're trying to get all of that equipment here just as as soon as as we can.
I think that.
With all of the talk of velocity challenges in 2021.
Going to be a little bit careful watching what comes from a velocity improvements I mean, there is really a lot of growth capacity in the system. We have today plus the 6000 boxes yet to be received we can really grow a lot we have a lot of confidence in our rail provide.
In our rail network and our ability to grow business. There in the event that velocity can't improve then certainly we have to go buy more equipment in an effort to to grow at the same pace, but that will come with sort of new challenges. So.
I don't have an answer for you on how many we would like to have we'd like to have as many as we can fill up to be honest and there's no great answer to that question, but certainly we have tremendous.
Growth opportunities with our customers, we're confident in the demand equation out there and we know that if we can improve velocity, we can grow in a hurry and in the event that we can't improve velocity than we will have to go secure more containers and grow that way.
Chris can I take up one level just for our customers' overall I would say demand is very strong across all of our services and so whether it's an container add $3 60 back at box ads or ads and dedicated or final mile. Our customers are asking us to grow we're really walking through.
Neither bid season or communication in those conversations and dedicated in final mile to help us determine what we should do and then we want to have a balanced approach, making sure that we do.
Do what we say with our customers honor, our commitments and grow as much as possible with proper financial return. So bid season. So far has gone well and we will continue to get through bid season to help us refine what that can look like our cross all of our segments.
Your next question will come from Jordan <unk> with Goldman Sachs.
Hi.
I'm curious from a very high level standpoint relative to lets say I don't know early December are you would you say youre more or less optimistic on the whole supply chain congestion issue easing, let's say over the first half or does it just keep pushing later than just the just a clarification on dedicated fleet given what you said on.
Purchases themselves are we looking at a dedicated fleet down in 2022 versus the fourth quarter of 2021.
Yeah.
Yeah.
Yeah, Hey, Jordan this spread out all.
As Shelly to address the first part of your question about our view on just to rehash. Your question our outlook on the supply chain today versus maybe where is early or where it was early December and then to the second part of your question about dedicated and.
Our fleet addition to OLED.
Nick address that so I would say throughout all of 2020 and 2021, when we would make a prediction typically we were wrong and so although I would like to be optimistic I think this latest round of Covid has caught everyone by surprise him. So I can't say that I feel.
<unk>.
Optimistic about the supply chain challenges going away in the near term.
We're focused on making sure that we help our customers be right to help them smooth out their supply chain challenges and that we're there for them I would say anytime theres more crisis in the supply chain are mode agnostic solutions really come to the forefront because we're fairly indifferent as to how we solve for our customers we wrap around our customers.
Sulfur, yes, and then continue to move business. So for US we're going to be there for them I can't really say for optimistic or not because I'm not certain.
Lies ahead, but we are planning for that we are.
On the offensive side as I said earlier on equipment on people and on technology. We think we can serve our customers that even more so this year than last year.
I will just say that we sold.
2500 trucks, and we started about 800 of them and so that means we've got a significant amount to start already in the hopper before we sell anything this year, we are waiting on some trailing equipment to start some stuff, but we're holding trades and doing various other things on the power side. So I would say Q1 is going.
Just like the last two or three quarters for us.
Right in that ballpark is where we think it's going to be from a number standpoint.
Your next question comes from Ken <unk> with Bank of America.
Hey, good afternoon.
John You mentioned Capex, but I think it was about 1 billion and a half. If you were at what 877, you said 150 million rolls over can you kind of walk us through how you get to the 1 billion and a half where.
How you see that step up and then Brad just real quick is it clean up I think you mentioned, some new tech and Ics should we expect cost to step up there and see margin pressure or is that just blended into the costs.
Hey, Ken This is John I'll give a little bit of color on the Capex, we're not really in a position to give too much detail, but of the one five I would say around 10% is for general corporate purposes building enhancements and things like that.
The rest is probably split evenly between.
Trucks, and trailing equipment and by trailing equipment, I mean containers I mean dedicated trailers and also 360 box. So that's probably around $700 million and then the rest is on.
Tractors, and that's another $700 million and.
Again, not going to give too much color on that but that includes both replacement and growth for 'twenty two.
I would just like to add we did comment.
We gave some guidance for the last couple of quarters on what we thought capex would be.
We are also giving for full year 2022, that's based on both what we want to order, but also what we think we can get and so there's certainly a lot of.
Noise and uncertainty as the Oems are trying to meet their plans and get us the equipment. We need we will continue to update on our progress there, but just know that there is risk in that number based on what we can get in and placed in service.
Then Ken on part two there you know the technology enhancements, it's really on the tail of the investment that we have been making and what I'm referencing there is that we will be deploying some internal tools that will allow and should allow for our people's productivity to be improved which we would expect.
<unk> will allow us to advair.
To advance our strategy as we move forward and so I'm just really excited about finally getting done with some of those tools that we're going to be able to utilize.
To make better decisions to make decisions faster and to enhance overall productivity of our workforce.
Our next question will come from Tom <unk> with UBS.
Yeah.
Yes, good afternoon. So.
Wanted to ask I think you know it seems to me like there's a pretty consensus view out there that there'll be some supply chain improvement through the year I share that view.
I wanted to get your sense of what if that's wrong and we don't see supply chain improvement and you kind of have a repeat of 2021, where things are pretty congested through the year, what does that look like for J B Hunt.
And then just maybe short a second question.
What's your best read on gross margin percent for ICF in 2022 should we kind of think of it as stable as maybe the base case or any any thoughts on that thank you.
I feel like I've answered some of this before I think we're in a great position for our customers. We did make the call early in 2021 to add more equipment to lean in and you're seeing that equipment now starting to come online. So I think we're in a great position with our <unk>.
Customers were going to continue to be very close with them and make sure that we can answer whatever our customers' needs are and 2021 more than any other year I saw us be able to move freight for our customers.
This daily had moved in that node or that type of shipment in the past when a customer had a shipment. We can say, yes, JV at $3 60 allowed for a lot of that but also the interconnectivity of all of our segments working very closely together understanding where capacity was that and how we could help our customers I don't see.
A lot of negative impacts for our organization if it wouldn't say congested add is we're already set up for the AD is and we're continuing to.
To talk closely with our customers.
When you say that there is consensus that it's going to get a lot better I'm not sure.
How much that consensus is optimism versus reality and I think that that's really a key questions that we're asking our customers certainly we want to help our customers get better when you help them be more plan and help them reduce cost and their supply chain in total, but if nothing changes from today, we'll continue to lean into our.
<unk> will continue to ask them, how we can help them more and we will make a more bets on how we can help them through our people technology and our equipment.
And then you know.
As we've stated we're not interested in giving guidance around our return expectations are for the year I.
I think that we're early in bid season, we're going to need to see what the market does and how it continues to respond to the work that we have been doing.
If you look back over the last several years going back to 18 or at least encouraged that we've returned.
Closely to our profitability level, we saw before the heavy lift tech investments, but we're not inside of our desired.
Long term range yet at this point. So we're working every day the technology that I just referenced is hopeful to aid us in that and we would anticipate and expect to continue on our journey towards the 4% to 6% range that we stated previously.
And we have time for one more question, which will come from Brandon <unk> with Barclays.
Hey, good evening, everyone. Thanks for putting me in here at the end.
I guess, if I could just follow up on that or maybe for Brad you know it looks like head count was actually down in Ics and you know core truckload growth maybe 3% can you just talk about the market dynamics. There and has this reached more of a level of maturity that we were contemplating you know maybe a year and a half ago or is there still a lot more to go on that platform.
You know.
Really what it comes down to is that the.
The head count that you see there is direct to the business and because of how we've managed and restructured over time are there are some head counts that support the business.
Or not inside of the Bu.
And so I would say that obviously, we're leveraging technology in an effort to grow head count at a disproportionate level to the growth of the business and that's really what our focus is and we're satisfied with the progression we've seen there.
Perhaps the numbers that are published arent entirely revealing of the total.
Head count inside the organization that supports the business.
And this will conclude our Q&A session I would now like to turn the call over to CEO , John Roberts for closing remarks at this time.
Thank you and I'd like to per Se.
Appreciate a much more balanced discussion here today.
Though we still have work to do.
Kept a little school here on the questions that were asked for our different leaders and I am encouraged and will continue in that vein.
You know I would say the two big takeaways are that the businesses are all lined up well positioned.
Look to grow look to continue the momentum that we had and then collectively because of debt individuals' strength, we have a compounded strain that I like the question, what if it doesn't get better and when Chile was answering that question I was thinking to myself okay.
So that means we keep doing what we're doing here, we've learned how to do that.
But if you look at the strength that we're demonstrating through this pandemic through this supply chain disruption.
Really a fairly simple focus on invest for customers serve customers.
Generate the right amount of return and then invest for our customers again.
Don't really have a predisposition to one element or another as we continue to move down this road of being agnostic. We just want to answer that question and I think our momentum with the customer base is continuing to gain strength that.
They are appreciated that we will invest for them and equipment. They appreciate that we will pivot away from an equipment investment. It has a better answer presents itself. So.
Closing out the year, we were thrilled with the year, we were thrilled to get to pay our people a special bonus.
And I'll, just close by saying that.
People focus is really where it's at for US I've never seen the kind of exhaustive work that we've done this year to understand our position and balance that against risks of not taking action versus taking action and then thinking about how we need to make those investments return for us.
Where do we think about our assets you know, but we have great Tech, we have great assets and equipment, but our people are the difference they they and I know, that's a little bit cliche, because some of us, but I'm, telling you that when it gets down to push and shove our folks are going to be there and they're going to get the job done.
What will this year bring we'll see we thank you for your call and your attention today.
Yes.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Yes.
Yes.
[music].