Q2 2022 J B Hunt Transport Services Inc Earnings Call
Speaker 1: It.
Speaker 2: Good afternoon. Thank you for attending today's JB Hunt second quarter 2022 earnings conference call. My name is Amber and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad.
Speaker 2: I now have the pleasure of handing the conference over to our host, Brad Delco, Senior Vice President of Finance with JD Hunt. Brad, please proceed.
Speaker 3: Good afternoon. Before it reduces speakers, I would like to take some time to provide and disquages regarding forward-looking statements.
Speaker 3: This call may contain forward looking statements within the meaning of the private security litigation reform act of 1955. Words such as expects and dissipates, intends, estimates, or similar expressions are intended to identify these forward looking statements.
Speaker 3: These statements are based on JB 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.
Speaker 3: For more information regarding risk factors, please refer to JB Hunt's annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission.
Speaker 3: Now I would like to introduce the speakers on today's call.
Speaker 3: This afternoon, I'm joined by our CEO , John Roberts.
Speaker 3: Arceo Po, John Culo.
Speaker 3: Shelley Simpson, Chief Commercial Officer in EVP at People and Human Resources.
Speaker 3: Nick Hobbs, Chief Operating Officer and President of Contract Services.
Speaker 3: Dairy Field, president of Intermodal.
Speaker 3: and Brad Hicks, President of Highway Services.
Speaker 3: At this time, I would like to turn the call to our CEO , Mr. John Roberts, for some opening remarks. John ?
Speaker 3: Thanks Brad and good afternoon. Thank you for joining our call today. We are pleased with our performance in the second quarter despite challenges around key factors of our business.
Speaker 4: including labor, equipment availability, and rail service.
Speaker 4: The quarter did present evidence of a cyclical shift in market balance in certain areas of our business. And we see macro data that informs us about our current position such as spot rates and use truck values.
Speaker 4: That said, and most importantly, our results.
Speaker 4: for the quarter continue to reveal the changes we have worked to implement to enhance our position in each segment of the company based on lessons learned and experiences gained over many, many years and cycles.
Speaker 4: There are different characteristics of our business segments that should be complementary to the needs of our customers in all economic conditions. In all economic conditions.
Speaker 4: These include a flexible, much lighter asset position and our highway services offerings, compelling solutions for private-sleep conversions, aiding in the nuances of managing advanced transportation networks. No roofing settings. A net Google crisi car propertyuk Le Car le k le k le malicious act?ld? estiver ga le k le l g s Temple every works.
Speaker 4: a more economical and carbon-friendly full load services offering an intermodal, and a final model delivery position that addresses a secularly growing demand channel.
Speaker 4: We remain in a leadership position across our many businesses.
Speaker 4: and from a position of strength, financially, and on the team's experience and ability to navigate through an ever-changing, constantly evolving local supply chain. The local supply chain. The local supply chain.
Speaker 4: I am encouraged to be in healthy, cash-generating businesses across the company.
Speaker 4: Let me address the clear service challenges we are experiencing with our rail providers.
Speaker 4: We are in active discussions with the highest levels of our primary rail providers to continue our work on improving service reliability and velocity. We are in active discussions with the highest levels of our primary rail providers We are in active discussions with the highest levels of our primary rail providers
Speaker 4: We remain confident that the right decisions and investments will be made to bring us back to where we need to be. We will be made to bring us back to where we need to be.
Speaker 4: We remain committed to the path we are on with Intermodal and have made no changes to our plans.
Speaker 4: with the expectations for the noted improvements to show through in the second half of this year.
Speaker 4: In fact, at this point, we have made no alterations to our plans for the year in our equipment and capital expenditure allocations.
Speaker 4: While we acknowledge there are timing and delivery challenges, we take a long view and know that we have extended needs in all categories for replacement and growth assets.
Speaker 4: This position recognizes
Speaker 4: so-called crosswind we are experiencing as noted and will be covered more during this call. Our direction is fully informed using real-time data on all key aspects of each business and input from our customers.
Speaker 4: Our leadership team is here and will cover each business more specifically for you. But before that I will turn the call over to our CFO John Kulov for his thoughts on the quarter.
Speaker 4: each business more specifically for you. But before that, I will turn the call over to our CSO, John Coulomb, for his thoughts on the court. Thank you.
Speaker 3: Thank you John and good afternoon everyone. My comments today will review our recent performance in the quarter on a consolidated basis. I'll also provide a quick update on our CapEx plans and our priorities for capital.
Speaker 3: Overall, we are pleased with the strong results the team was able to deliver in the quarter, highlighted with revenue growth of 32%, operating income growth of 46%, and gap earnings per share growth of 50%.
Speaker 3: We did incur two large, but partially offsetting income statement items in the quarter. First, we incurred a $30 million increase in casualty claims, which is recorded in the insurance and claims line of our income statement.
Speaker 3: And second, we recorded an 11.6 million workers compensation insurance benefit in the salaries, wages and benefits line.
Speaker 3: We've discussed the net impact of 18.4 million in our release and provided the net impact by segment in those respective sections. We can those respective sections. We can those respective sections.
Speaker 3: We're equally pleased with our efforts and continuing to maintain a strong balance sheet with leverage below or nap-dap target of one time Zibita and a trailing 12-month spaces.
Speaker 3: We ended the quarter with 124 million of cash and zero drawn on a revolving credit facility.
Speaker 3: They'll note our 350 million 2022 notes mature in the coming quarter. And we are reviewing our plans to retire these notes, but are not concerned on liquidity matters given our options.
Speaker 3: On CapEx, we continue to be slightly behind our plan of $1.5 billion that we forecasted for the year, but as John alluded to, we remain committed to that target for both replacement and growth needs to service and grow with customers.
Speaker 3: The LagonCapX versus Plan is almost entirely due to challenges in obtaining equipment.
Speaker 3: As a reminder, our priorities for our capital remain focused on building long-term, sustainable value for our shareholders, customers, and our people. For our shareholders, customers, and our people.
Speaker 3: We're able to accomplish this by remaining disciplined and allocating our capital to generate fair and reasonable returns to support reinvestment and our business. We're able to achieve this by remaining disciplined and allocating our business. We're able to achieve this by remaining disciplined and allocating our business. We're able to achieve this by remaining disciplined and allocating our business. We're able to achieve this by remaining disciplined and allocating our business. We're able to achieve this by remaining disciplined and allocating our business.
Speaker 3: which remains priority number one.
Speaker 3: We bought back on less 1 million shares of stock in the quarter as opportunities were presented and remain committed to buybacks and dividends as a capital management tool as supported by our board.
Speaker 3: This concludes my remarks and I'll now turn it over to Shelley.
Speaker 2: Thanks, John , and good afternoon. My commercial estate will cover current marking conditions and how we continue to have confidence in our position across our scroll of services to provide value for our customers.
Speaker 2: I'll also provide an update on our priorities across the key areas of our business, which are our people, technology, and capacity, and how the combination of all three allow us to differentiate ourselves into delivering exceptional value to our customers.
Speaker 2: The freight market remains dynamic and continues to be presented with unique and evolving challenges at different cross sections of the broader supply chain.
Speaker 2: Labor availability, network velocity and fluidity, and addition of varying inventory dynamics around product mix, continue to put strain on the effective utilization of available capacity.
Speaker 2: Some trends we identified last quarter, like a softer transactional spot market remain, but what also remains is a healthy demand for our intermodal capacity.
Speaker 2: and are professionally outsourced and DTS.
Speaker 2: and the frictionless way we connect customers with capacity in our highway services businesses by leveraging our JB Hunt 360 platform.
Speaker 2: The businesses we are in today across our entire school.
Speaker 5: We're not built or created overnight.
Speaker 5: Careful thought, planning, and execution with durability, strength of financial discipline, power and remain top of mind.
Speaker 5: We do recognize that broader demand trends are a concern, and we continue to have frequent and open dialogue with our customers regarding their capacity needs.
Speaker 5: We remain optimistic on our ability to compete to deliver the best value to our customers by offering a full suite of services across the scroll that can help eliminate waste, create efficiencies, and drive up costs from the system.
Speaker 5: Last quarter, I said our opportunity to provide and create efficiencies for our customers is greater this year than at any point of the last two. And that remains true today.
Speaker 5: Freight has been moving inefficiently, creating additional costs, and we continue to see tremendous opportunity to eliminate waste in the system.
Speaker 5: Enhanced visibility, powered by the largest multimodal digital freight platform, JBN 360, remains a tremendous opportunity for customers to effectively source the capacity needs.
Speaker 5: During the quarter we launched new foundational principles that helps define who we are as a company, what we strive for on behalf of our customers and what our employees should expect as a member of our organization.
Speaker 5: In fact, our innovative, entrepreneurial, and seidou culture is founded on these principles.
Speaker 5: People you trust.
Speaker 5: Technology that empowers and capacity to deliver.
Speaker 5: That is J.B. Hunt.
Speaker 5: It is by the accident that people comes first as it is. And remains our top priority to take care of our people, who take care of and deliver value for our customers.
Speaker 5: We empower our people, our organization, and our customers with investments in technology to help provide productivity and efficiencies in our collective processes.
Speaker 5: And finally, we continue to invest in our capacity to deliver on meeting the growing needs of our customers.
Speaker 5: I'll close in a similar fashion as I did last quarter. We believe our mode in different approach allows us to provide flexible solutions to dynamically meet and respond to the need of our customers. To dynamically meet and respond to the need of our customers.
Speaker 5: Our investments in our people, technology and physical capacity have us in the best position to provide the right solutions for our customers in the three key areas of cost, capacity and service. Sam Francisco
Speaker 5: That concludes my comments, and I now like to turn it over to Nick.
Speaker 3: Thank you, Shelley, and good afternoon. I'll review the performance of our dedicated and final mile segments and provide an update on our professional drivers and equipment and the impact it is having on our operations.
Speaker 3: I'll start with dedicated. Demand for our professional outsourced private fleet solutions remained strong as evidence by our continued growth in our fleet during the quarter. Our backlog in pipeline also remains strong.
Speaker 3: After selling 600 trucks in Q1, we sold slightly over 800 trucks in the second quarter. We talked last quarter about seeing solid momentum in the business, and that remains the case today as we continue to onboard new business.
Speaker 3: We've added nearly 2,200 trucks to our business in the last 12 months, which continues to stand out versus the competition. We've added nearly 2,200 trucks to our business in the last 12 months, which continues to stand out versus the competition.
Speaker 3: This unprecedented demand and growth for our highly engineered fleet service has put a strain on the organization and the team has responded extremely well to the challenge.
Speaker 3: Going forward, we will remain focused on operational excellence, attracting and retaining the best talent, and executing our growth plan, which all supports the value we deliver to our customers. Which all supports the value we deliver to our customers.
Speaker 3: Shifting to final mile. As we discussed earlier this year, our focus for 22 has been on revenue quality and making sure our investments and our differentiated service product is properly valued in the marketplace. Shifting to final mile.
Speaker 3: I am pleased with our efforts and the success we have had so far to improve our profitability, but more work remains and remains a priority moving forward. We continue to see strong demand for our service with new customer opportunities in the pipeline.
Speaker 3: But we also have seen some self-ning demand in some end markets, mainly in the value furniture category. Our recent acquisition, Zenith Freight Lines, is performing well and is presenting good opportunities for future growth. Our future growth. Our future growth.
Speaker 3: CENUS contributed about $28 million of revenue in the quarter. Going forward, we will remain committed to providing an unmatched service in the industry, and we continue to make investments to support that effort. We believe this will support our long-term performance in this secularly growing piece of the supply chain. We hope you enjoyed the talk.
Speaker 3: Closing with some general comments on operations.
Speaker 3: The driver market remains competitive and challenging, but it feels more stable than it has in a while, but at considerably higher cost.
Speaker 3: That said, the equipment market remains extremely challenging, and we are having to manage intensely around the impact on our operations.
Speaker 3: To support our replacement needs and the growth we've seen across our organization, we will be holding trades on roughly 4,000 tractors this year. This year.
Speaker 3: Additionally, inflationary cost pressures on tires, ports, maintenance technicians are meaningful. And the higher frequency of repairs that result of an aging fleet is also impacting the utilization of our tractor equipment.
Speaker 3: We continue to work closely with our OEM providers to secure the safest and most fuel efficient equipment we can in the most expeditious way possible. We can in the most expeditious way possible.
Speaker 3: That concludes my remarks, so I'll turn it over to there.
Speaker 3: Thank you, Nick, and good afternoon, everyone. I'll review performance of our intermodal segment. I will also give you an update on current network dynamics.
Speaker 6: customer demand and capacity.
Speaker 6: I'll start by reviewing the performance of the intermole segment in the quarter. Demand for our capacity continues to be greater than our ability to serve that demand. After seeing modest improvements in both relevality and customer activity in the first quarter, we saw performance deteriorate throughout the second quarter. Box turns in the quarter were essentially flat versus the first quarter and underperformed our expectations.
Speaker 6: That said, volumes by month for the quarter were up 4% in April , up 9% in May and up 10% in June on a year-over-year basis. 5% in June is up 9% in May and up 10% in June on a year-over-year basis.
Speaker 6: We took delivery of an additional 1,300 containers in the quarter and expect to take delivery of more in the second half of the year as we continue to invest in capacity to meet the needs of our customers.
Speaker 6: While our network velocity and resulting volume performance were disappointing in the quarter, the system and programs we have in place continue to protect the significant investments we've made on behalf of our customers.
Speaker 6: As we sit here today, we remain optimistic that rail performance and velocity will improve as the rails are not incentivized to move slower. Near and long-term growth opportunities for intermodal business continue to be in front of us and our rail channel partners are well aware of those opportunities.
Speaker 6: As John mentioned, we are working closely with all levels of our rail channel partners to address the velocity challenges.
Speaker 6: Starting early next year as new capacity becomes available to us on BNSF, we fully anticipate filling that available capacity, which is supported by feedback from our customers.
Speaker 6: When Railvel Oste does improve, we fully expect to improve available capacity but also demand for that available capacity as service levels improve. As inefficiencies are removed from the network, we fully expect that to be reflected in our cost to serve customers and rightfully so in the cost to our customers. And rightfully so in the cost to our customers.
Speaker 6: In closing, our Intermodal product continues to present a strong value proposition to customers with significant capacity to serve their needs in a more sustainable, efficient, and carbon-friendly way. We will continue to prioritize investments needed to support our long-term growth and to better serve our customer needs. We believe our service backed by our people and the ownership of our equipment is differentiated in the market.
Speaker 6: and even more so when combined with the power of the JB HUNT 360 platform that allows us to source capacity efficiently when needed.
Speaker 6: That concludes my remarks while turning over to Brad Hicks.
Speaker 6: Thank you, Darren, and good afternoon, everyone. I'll review the performance of our integrated capacity solutions in truckload segments, what we collectively call highway services. We're going to review the performance of our integrated capacity with the entire system. We're going to review the performance of our integrated capacity with the entire system.
Speaker 3: While we did see a market shift in the quarter, specifically related to spot opportunities, we believe our investments in our people, technology and assets helped us deliver a great and demanded service from our customers, which I'll touch on at the end of my comments.
Speaker 7: But first let's dive into ICF.
Speaker 7: ICF Topline Revenue Growth was 3% comprised of a 3% decline in volume, more than offset by a 5% increase in revenue per load. ICF Topline Revenue Growth was 3% comprised of a 3% decline in volume, more than offset by a 5% increase in revenue per load.
Speaker 7: unpacking that a little more, our truck load volumes were also down about 3%, but this was largely a function of the shift I referenced earlier.
Speaker 7: Our contractual truckload business increased an upper teens percent year over year while our spot business was down mid-teens on a year over year basis.
Speaker 7: We made a call earlier this year to focus on the publish side of our business, which we believe was the right strategic move.
Speaker 7: That said, we did adjust the dials mid-quarter of some of our platform parameters and saw improvement in smart rated freight trains as the quarter progressed.
Speaker 7: We will continue to target the right and appropriate balance between volume growth and profitability and our goal remains to outperform industry trends over the long-term on growth. Our goal remains to outperform industry trends over the long-term on growth.
Speaker 7: but more importantly on delivering value to customers.
Speaker 7: I am confident with the power of our people and the technology investments in our JB Hunt 360 platform to drive increased efficiency and value in our service offering to help us deliver on our mission to create the most efficient transportation network in North America.
Speaker 7: Shifting over to truckload, we continue to see evidence of our customers valuing our drop trailer, network service offering.
Speaker 7: Volume growth of 14% in the quarter supports that view.
Speaker 7: We see tremendous opportunity as customers begin to think differently about the blending of their live network and drop trailer network capacity needs. And drop trailer network capacity needs.
Speaker 7: We believe that we have the right experience managing trailing assets in a complex network business. We've gained that experience in our intermodal business, but in this instance leveraging all the capacity and capability of our JB Hunt 360 platform to source the most efficient capacity for our customers versus the rail network.
Speaker 7: This shift from an asset intensive to an asset light model supports our goal of scaling a large business with fair and acceptable rates of return on our capital.
Speaker 7: In closing, I would just like to reiterate our strong belief that the blending of what has historically been separate networks, live load and unload freight versus drop trailer, freight remains in strong demand and is valued by our customers. Trusted at 1 PDF, 5,000 sec. without a machine and without long-distance flare rockets or transmission, direct self-image records of the flow of bize mounting and off- capita over? our customers.
Speaker 7: We remain committed to investment in our people, technology and assets to support this growth. That concludes my comment, so I'll turn it back to Brad to give some instructions before the out-barger opens the call for Q&A. Thank you. Thank you.
Speaker 3: Thanks Brad and I just want to remind the audience if you don't mind, please ask one question and get back in queue. We have a lot of folks on the call this afternoon. So with that, I'll turn it back to the operator, Amber. Thank you.
Speaker 2: Of course, thank you. We will now begin the Q&A session. If you would like to submit for a question, please press star followed by one on your telephone keypad. For any reason you would like to remove that question, please press star followed by two. Again, to submit for a question that's star one. As a reminder, if you are using the speaker phone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Speaker 2: Our first question comes from Todd Flower with KeyBank.
Speaker 2: Todd your line is now open.
Speaker 6: Hey, great. Thanks and good afternoon. So I guess maybe to start, I don't know if this is for Shelley or maybe John Roberts if you wanted to take a stab at this, but maybe to help level set kind of some of the commentary that you have around the demand environment. Certainly we appreciate that there's a lot of crosscurrents that are out there, but as you think about the progression into the second half of this year, I'm just curious are the indications that you're expecting a weaker environment in the second half relative to where we were in the first half based on customer feedback.
Speaker 5: We are having really good conversation with our customers, but I think not unlike what's happened in the pandemic the last two years, there is continuing to be challenges in the supply chain that are creating uncertainty in the market, in particular with our customers around inventory, which is really generated from consumer behavior, but just also the bottlenecks that are occurring from port activity to, we talked in our last call what was happening.
Speaker 5: coming out of China and then certainly what's happening still with labor at each part of the supply chain in general. So I would tell you, I think we're having a seasonally normal July that might be the first July that we've seen in a seasonality perspective since COVID has started. We do think that there will be a peak. To what extent we're still not sure we feel confident in the different areas of our businesses and how we're having conversation with our customers if we think about some pricing perspective world.
Speaker 5: So I think we haven't even started bit season in what's coming in the next couple of months, but I would say I think our customers are prepared to have a good second half. I haven't had a lot of feedback on a significant downturn. I will say inventory has had some short-term challenges and changes for our customers going all the way upstream in the supply chain, but there's are supposed to.
Speaker 3: be more short term than they are long term. And Nick, did you have something? Yeah, I was just gonna say, in our dedicated business, as we watch our load count in the day, which is basically from the warehouse to the store, our volume is up and trending up, so.
Speaker 3: It's looking good from that standpoint. So we're still seeing consumer demand strong and we're closest to that.
Speaker 6: Great. Thanks for the color.
Speaker 1: You.
Speaker 8: Thank you.
Speaker 2: Our next question comes from...
Speaker 9: Ken Halekster with
Speaker 2: Think of America.
Speaker 2: Ken, your line is still open.
Speaker 6: Hey, great. Good afternoon. So, Darren, I guess great job on intermodal. Maybe can you talk a bit about more about the rail service and if loads are up 8% while their service levels, I think you said were flattish, how we should think about that? Are you starting to see an improvement? You know, your thoughts on outlook into the second half as you go into peak and then same thing on price, right? Can you delineate maybe the excess pricing from that poor rail service? Because you mentioned as the service gets better, you could see that you're at a low cost or downward price. CBD says forecasts in the
Speaker 10: pricing then come down for customers, maybe talk about how we should think about that in terms of the price impact. Thanks.
Speaker 11: Well, let me start on service. You know, we talked about the lofty actually deteriorated some during the second quarter. We know that none of our rail providers are satisfied with their operations today. I think the intensity at all of our rail providers is extraordinarily high today in all efforts to onboard new crews.
Speaker 11: and find a pathway to a better service product. I think that collectively us and our rail providers all understand.
Speaker 11: that there's additional demand, additional revenue, additional volume waiting on us to improve our service. And I think that that's universally understood, and I do anticipate that we're going to see some improvements during the second half of the year. The key question is when, and I don't have a great answer for that. I mean, I really think the railroads will have to answer that question, but we're confident in the programs they're initiating, and we are.
Speaker 11: confident that they will see improvements as the year continues. I think all we tried to highlight on the pricing front is
Speaker 11: You know, um,
Speaker 11: There's apsosorial programs out there for delays at customers. Those certainly are areas where that cost to remove from the customers as velocity improves.
Speaker 11: But in addition to that, equipment ownership is not cheaper today. It's more expensive than ever to buy equipment. And so when the rail velocity improves, really our industry, I would think J.B. Hunt and all intermodal channels will have a slight pick up and equipment cost there. And certainly we would anticipate at least some of those would be passed along to the customers.
Speaker 12: Great. Appreciate the time. Thank you.
Speaker 8: Thank you.
Speaker 2: Our next question comes from
Speaker 9: Allison Poliniak with Wells Fargo. Allison, your line is now open.
Speaker 9: Hi, good evening. So can you touch on, you know, with JB Hunt 360, can you touch on where you think we are in the growth and evolution of that product offering, particularly as we think through that downside scenario, and then somewhat associated with that within ICF, you know, kind of similarly, how we should think about that gross margin range through cycles. Just any thoughts there? Yeah, well, this is Brad Hicks. Thank you for the question. And, you know, when I think about 360,
Speaker 7: We're very public about the investments we made in 18 and 19, really leading into 20. We do continue to invest in 360 to expand its capabilities and the value that it can create on behalf of both our customers as well as our carriers. But by and large, I guess the foundation of that platform, I would say, is behind us. But that's not to say that we won't continue to make investments and find ways to improve upon it.
Speaker 7: And then remind me again, part two of your question? Just within ICS, is there a gross margin range that we should be thinking through, you know, particularly as we think about that downside scenario? Just for that segment, Aram. Yeah, certainly. Thank you for the reminder. You know, we certainly saw margins expand dramatically in the second quarter with the pressure that had been placed predominantly in the spot and where we were at relative.
Speaker 7: to the bid cycle with published rates. You know, is that the peak? Hard to say, and I think it's still too early to tell. Certainly PTE has come down, but it is still well north of historical or pre-COVID levels. Obviously, Shelley mentioned there are some structural costs that probably remain, but you know, we'll just have to see what the second half holds around capacity versus supply, but certainly we were able to take advantage.
Speaker 7: of the expanded margins as you can see in our results. For the second quarter, we were pleased by that and feel like we managed through that pivot within an appropriate way.
Speaker 9: Great, thank you.
Speaker 8: Thank you.
Speaker 2: Our next question comes from...
Speaker 2: Robby Shanker with Morgan Stanley .
Speaker 2: Robby, your line is now open.
Speaker 7: Thank you. Good afternoon, everyone. Thanks for the time. The insurance claim that you had is $30 million in the quarter. Can you elaborate on that a little bit more and help us understand if this was a one-time thing related to quarter or loan or some kind of incident or is it an ongoing item? Thank you.
Speaker 7: Hey Robbie, this is John Cullo. I'll address the one-time charge.
Speaker 7: We tend to try to avoid calling, referring things as one time, but this one was a charge that we had incurred in the quarter for claims that result or were part of a prior year. There were two or three claims that are going to settle or have settled outside of our coverage limits in one of the towers. And so, again, everything is part of the business, but these related to prior periods.
Speaker 12: Thank you.
Speaker 8: Thank you.
Speaker 2: Our next question comes from Scott Group with Wolf Research.
Speaker 9: Scott, your line is now open.
Speaker 11: Hey, thanks afternoon. So as you start planning for the upcoming bid season, would you expect to see a divergence in intermodal and truckload pricing or would you think that they would sort of trend directionally together and then maybe just separately for Nick on the dedicated side. So the growth really kicked in in second quarter last year. I'm just wondering a year later, all those trucks that you added, how are those performing?
Speaker 11: as highway capacity is still not typically the largest competitor to to Intermodal out west typically we're competing against all water costs or certainly other Intermodal channels or intact channels and those those costs will drive the Intermodal market and then the underlying rail cost are going to be the biggest influencers far more than what is going on with truck load pricing. Now in the east
Speaker 11: Certainly highway rates can play in a real influence on our ability to convert business off the highway to Intermodal. All that being said with fuel prices where they are and with velocity being challenged to this point, I think we feel like preparing for the next round. We should see velocity improvements which can translate to value for customers that Intermodal can provide when compared against the highway.
Speaker 11: I think there will be some convergence, meaning if trends in highway published prices are to trend flat or certainly slow or even take a tick down, certainly the intermodal market will have to respond. But I think the underlying cost structure of intermodal, really for all the channels, is a little bit different than what it is on the highway.
Speaker 7: Yes, got this Brad. I was just mentioning maybe from a highway standpoint. I think it would be safe to anticipate that there would be flat to downward pressure, at least in the shorter term. You know, what does that mean going into all of 2023? I think it's entirely too early to really tell. I think that we'll know a lot more as we get deeper into fall in terms of understanding what demand looks like relative to supply.
Speaker 3: but certainly would anticipate maybe some flat to down pressure from a pure highway standpoint. All right, Scott. This is Nick. To your question, I'm looking at the entire book of 21 ads for us, and it's operating within 20 basis points of our base business that's been around for a long time. So it is doing very well. That's including deals that started up in November and December . So we're very pleased with that, and it's hitting our target.
Speaker 13: Thank you guys.
Speaker 13: Thank you guys. Thank you.
Speaker 2: Our next question comes from Chris Weatherby with Citi. Chris, your line is now open.
Speaker 10: Hey, thanks. Maybe a question for Darren. One big hit of sense of intermodal container additions through the rest of the year is two cubes are a good proxy to use for quarterly growth going forward. And then maybe bigger picture.
Speaker 10: Are there challenges to continuing to add to the fleet if rail service doesn't get better? So obviously you've been pretty successful adding to the fleet. We haven't seen really much improvement in rail service. So maybe that's the answer, but kind of curious about how you think about continuing to grow the fleet. And if we're not going to get a pickup here over the course of the next several months or into the back half of the year, there are other challenges or costs dynamics that start to crop up as a result of that. Thanks.
Speaker 11: So, what we ended the quarter just above 110,000 containers and we're often marching on our announced plan to expand our capacity up to 150,000 over the next three to five years.
Speaker 11: So with only 1,300 ads in Q2 of this year, I think we would fall well short of that plan if that is what we do.
Speaker 11: As velocity changes come about and there's opportunities for us to gain capacity with the equipment we already own, we will adapt our pace of onboarding that equipment based on customer demand and what's going on in the market. I don't want to say that it's just going to be steady flow and will always be exactly the same. I don't think it will be, but you know.
Speaker 11: It would be certainly our opportunity to try to grow into new capacity that came from from...
Speaker 11: velocity improvements. But at this point, probably announcements related to our equipment will continue to just land on that march towards 150,000. And obviously, each quarter you'll be able to see what we added. We would prefer to it to be...
Speaker 11: steady, but at the same time we have to adapt and we know that. ROIC will always be our North Star and will guide us through that process and we'll continue with the flexibility that we need to be prudent with as stewards of those investments. Hey Chris, it's Shelly. Just one thing to note there is we do have a unique opportunity.
Speaker 5: in January where we will have more capacity on our Western railroad provider. So I think we're trying to equally balance the challenges of getting more intermodal containers to move in the system and the opportunity that will be present here in short order. So our conversations with customers are going well around the Western network and so for us, we'll be more surgical as to where we can grow. But think about our performance in the second quarter, we did a really great job.
Speaker 5: even through the challenges growing with our customers on lanes that made sense for the railroad for our customer and ourselves. And we'll continue to do that. So I think it's going to be important that we continue to onboard equipment as we see room for growth for ourselves.
Speaker 10: Okay, got it. Thanks so much.
Speaker 8: Thank you.
Speaker 2: Our next question comes from...
Speaker 2: Amit Mehrotra with Deutsche Bank. Amit, your line is now open.
Speaker 6: Thanks operator. Hi everyone. I guess I just had a couple quick questions. One is, one is to understand the implications from AB5, potentially being implemented. My feeling is as a relates to the intermodal business, it could be a pretty decent market share opportunity, given you know, you in-source of vast majority of your, of the drainage drivers, I think your competitors do not. So if you can just talk about. So if you can just talk about. So if you can just talk about.
Speaker 14: If AB5 is implemented or executed, what the implications are for the industry overall and specifically how JB hunts position in that. And then I was hoping you could update us on, the joint initiative with the NSF. I saw the intermode, the Transload Facility. I think you guys put up a few days ago in the press release. We just love to get an update on what the NSF. We just love to get an update on what the NSF.
Speaker 14: the progress that they've made in terms of giving you a little bit more clear access to capacity. If that's being implemented now, or is that sort of more to come, they can maybe drive a step function improvement in the turns and the volumes. The
Speaker 3: Yeah, I'll take the first on AB5. We've been watching that since basically 2018 and we feel like we're in a really good spot with that. We don't expect the new law to have an immediate or material effect on our California operations. We discontinued a few years ago our use of independent contractors operating under our authority. And so out there we provide either JB Hunt employees, or JB Hunt employees.
Speaker 3: or we use brokerage to other motor carriers. So we feel very constant that it's not gonna interrupt our business and probably play into our strength, particularly out in the intermodal side.
Speaker 11: Yeah, and I think I heard you say that you thought that we outsource more of our drayage activity Than the in-source. I'm sorry. I didn't hear that right. Just gonna clean that up if If I didn't hear that right, appreciate it. So what yeah, we don't we don't feel like AB5 is Going to be an influencer of our operation in in any way. So as it relates to all things
Speaker 11: joint efforts with BNSF. I think that our mission today continues to be probably more focused on elements beginning next year. I mean, frankly, there's not new capacity announcements that have come from BNSF yet. As soon as something like that is available, I'm sure you'll read it. We still feel...
Speaker 11: very confident in the way that we are communicating with BNSF on all things capacity, but I think that you should all anticipate and expect it right now. We're very focused on seeing velocity improvements and just service improvements in our system, and that's dominating our conversations today.
Speaker 14: Got it. Okay. Thank you very much. Appreciate the time.
Speaker 8: Thank you.
Speaker 2: Our next question comes from...
Speaker 2: John Chapel with Evercore.
Speaker 5: John , your line is now open.
Speaker 6: Nick, I think this question's for you, but others can chime in as they see fit. I mean, you have a pretty unique look at two massive parts of the transportation chain with rail and truck. And on the one hand, you still have this elevated contract rate and this very high fuel. On the other hand, you've had spot turning over and these rail service issues. And I know we're hopeful for velocity improvements. I think we were very hopeful of that in April as well. As you look at your mode and different way of servicing customers.
Speaker 4: Is there a point where maybe you're concerned that the intermodal, you know, kind of permanent modal shift has missed this opportunity, missed this window? And if so, how do you kind of position all the different segments of JB Hunt, whether that's with capital dollars or labor, etc., to kind of, you know, shift gears pretty quickly if intermodal is never going to really dream the dream?
Speaker 5: Well, John , this is Shelley. I have a higher voice than Nick, but I would say, our opportunity with our customers, we are mode indifferent. And so understanding their needs specifically is important in how we develop what our strategy is and how we deploy capital as a result, much like what John Kula talked about in his opening remarks. For us, we think that Intermodal will continue.
Speaker 5: to deliver great value for our customers, and we're bullish on our growth plan in our intermodal segment, but we're bullish in our growth plan across all of our segments over the long term. So, you know, for us, we think that there are some short-term pains that have felt longer term, but we do think that there is, you know, a window of opportunity here where the rails will get better, our customers will get better, inventory will get to right locations, and the supply chain will start to find a better balance, if you will.
Speaker 5: great growth across off-five channels and intermodal being one of our strongest growth vehicles over the next several years.
Speaker 12: Okay, thank you, Charlotte.
Speaker 8: Thank you.
Speaker 9: Our next question comes from Justin Long with Stephen.
Speaker 2: Just in your line is now open.
Speaker 6: Thanks. With the significant run-up in fuel prices we've seen recently, I was curious if you could share how much of a sequential headwind that was to margins. And then, Nick, the number of dedicated truck sales remains extremely strong despite what's going on with spot rates right now. So as you reflect on the last couple of years and the strengths that we've seen in dedicated sales, how much of that strength would you say is...
Speaker 3: Ciclical versus Secular coming from private fleets that are outsourcing. I'll jump in on the dedicated side first.
Speaker 3: And thinking about that, I would just say that when I look back through our pipeline, it is still at an elevated level a touch higher than it was this time last year. And so I think our demand is there, and when I look through the detail and we reviewed it the other day, it's a lot of private fleet conversions. So, I think it's just a long term. We got a lot of density going on right now. And a lot of density kind of helps us give good solutions to customers. And with intermodal growing, we have a lot of synergies there.
Speaker 7: at least 100 basis point headwind to margin percent on a year-over-year basis. We also looked at it on a sequential basis and you would have seen a decent amount of margin improvement sequentially if you excluded the impact of fuel. As you're aware we don't report OR or margin net of fuel surcharge like some others in the industry but it was a headwind to margin.
Speaker 7: But as a general statement, I did want to say, fuel is a pass-through for us, and it really shouldn't impact our EBIT dollars. And so I just want to be consistent with how we've talked about in the past and how we're talking about here, albeit we did provide a little bit more color on DCS recently, and I thought I'd just reiterate that.
Speaker 12: That's helpful. Thanks.
Speaker 8: Thank you.
Speaker 2: Our next question comes from...
Speaker 15: Jordan Aliger with Goldman Sachs.
Speaker 4: Jordan, your line is open. Yeah, hi. Yeah, hi. Curious on the final mile business.
Speaker 4: sort of X, the revenue quality initiatives that you guys have been working on. Can you maybe talk to what demand or volume sort of look like in that business? And obviously it's working a bit because the profit sort of bumped up from the first quarter, so maybe help think through the profitability and that segment looking ahead. Thanks.
Speaker 3: Yeah, so the band is still strong. It's spotty in some, as we said, in our press release in the value, furniture side of things, that the band is there, one of the CEOs of one of those companies told me that a year ago, fish were jumping in, customers were jumping into it, both six months ago, he had to fish with nobody on it, and now he's having to work it really hard to get sales. So that was the analogy there.
Speaker 3: of the film, but we feel good about the locations we lost. So it's setting up good and we got some more room to go. So it's setting up good and we got some more room to go.
Speaker 4: The profit thoughts though, given the 13 million I think you did in the second quarter.
Speaker 3: Yeah, I think we're gonna see, we're not gonna give guidance, but we're happy with where we're at right now. Okay, so
Speaker 8: Thank you. Thank you. Our next question comes from...
Speaker 8: Jason Zaddell with Cohen.
Speaker 2: Jason, your line is not open.
Speaker 11: Thank you, operator, afternoon all. Wanna focus a little bit on ICS. I think you mentioned you made some tweaks interquarter and then you gave sort of a number, I think down 3% for volume growth on the truckload side. Could you give us maybe an idea of if the volume improved any after you made those tweaks interquarter?
Speaker 7: Yeah Jason, you know, I think what I wanted to help understand is that we saw a really sharp decline in spot activity throughout the month of April .
And finishing up March, as we talked about our volumes, we're pretty positive in Q1, but really kind of hit a wall, those first 15 to 18 days of April . Then we were, that's when we were able to change some of our parameters of the algorithm that we use in some of our artificial intelligence around price points and wind rates. And so we did see it improve from that April timeframe.
Historically, we've not provided that for this business segment, so I'm not going to share that today, but know that April was where the majority of the decline occurred, and we were able to step up from that position at the balance of the quarter. So, we're going to be able to step up from that position at the balance of the quarter.
Okay, that's very helpful. Also, when you look at your carrier base, you know, have you seen any movement in terms of the smaller, micro-sized carrier given the drop-off and spot in the rise and fuel if you've seen those people maybe hang up the keys? Have you seen those people maybe hang up the keys?
You know, I think that we are seeing a little bit of that. One of the areas that I think we've seen it more pronounced is the growth of our independent contractors in our JVT segment, which I do think is a relative element of people that were out operating on their own that are looking to attach into a larger system that has better freight consistency for their benefit. And so I think that that's certainly an element that we've paid close attention to. In terms of...
the volume of people that are just purely hanging it up. Obviously, every day in the news, there's some carriers that we're seeing, and we would probably anticipate, given the rate levels in the spot environment, that there is likelihood of more of that in the balance of the year, but not great data thus far. I do know that if we highlighted in prior years in 21, in particular, just how many people sought their operating authority, those numbers are certainly well down from those historical highs. Thank you.
that we saw last year. So certainly less people are going that way. And I do feel like we've seen elements, and Nick maybe even relative to some of our driver hiring improvement that we've experienced that could be representative of people looking for a safer place.
Hey Jason, I might add to that.
Jason, this is Shelly, I might add to that, just overall in the platform. We do see trends inside the platform, but for us, because the market is so large, you know, we are hitting new records inside Carry360, that would not be unusual, and in this environment, you know, it does allow us to move more quickly. Some of what Brad just talked about came out of the platform, allowing us to make those tweaks readily. Sometimes when we say, you know, we are saying, okay, well what erases me, but sometimes when
The flip happens suddenly. It's difficult for our platform to recognize the sudden shift or movement on price. And what price it will take to do that. So we have to do some manual intervention there. But we have seen faster platform activity. We do have a high retention rate as to how many carriers that are signed up. We have more carriers signed up, higher retention rates, more logged in. There are several records that happen in the second quarter. So I think from that perspective, we've seen it. But.
from carriers just going out of business I think that'd be difficult for us to see. Thanks for the extra color, Sally. Thanks for the extra color, Sally.
Thank you.
Our next question comes from Palm Widowitz with UBS.
Come your line is not open.
Yeah, great, thank you. So I wanted to see if you could offer a quick thought on how we should think about sequential intermodal margin, whether it might be kind of improving in 3Q versus 2Q or similar. And then, Shelley, you added some comments at the beginning of the call or provided some commentary on freight.
I'm just wondering, it seems like there's been a lot of concern about pre-rele falling off, a lot of concern about the consumer, but it doesn't really seem like break out that much weaker in second quarter. Do you think that it's...
likely that we see a significant fall off and freight looking forward just you know given the pressure on the consumer or you think maybe it's just that the concerns about a fall off and freight activity have been overdone a bit and maybe the consumer hangs in better than than you know people are expecting
Real quick, I'll just say long-term margin target in intermodal is 10 to 12 percent, and I'm sorry Tom, that's all you get.
So Tom, I would say a lot of our we've spent the last hour talking about is the different signals we're seeing in different parts of the market. I think part of what you've heard from Brad and how we services is a result of a successful bid season happening and less dislocation from our shippers from their routing guide perspective. I think you're starting to see stabilization there.
I will say I think we are well positioned in any environment, whether the market turns south or stays as is. We think that we're going to have a successful and good second half of the year. Certainly way too early for us to talk about anything beyond that. We haven't had any customers specifically tell us that we should be concerned about volume. Certainly we are all listening and reading the news as to what's happening out there. And if the self-fulfilling prophecy does happen, then we'll adjust and make movement according to that.
containers that will be onboarded and ready to start moving in January along with the platform with Brad and are dedicated to the fleet. I think we're well positioned to have a great 2023 in any environment.
Okay, but you haven't seen signs of a sharp falloff yet, right? It's amazing, but you just haven't seen customer input pointing to a sharp falloff at this point. Yeah, good point.
We have seen a more seasonal July .
The last two years have been, it's been difficult to predict what would happen in the supply chain. I would say July is typical and normally heard Nick earlier say that we are seeing good demand happen in the dedicated side which would be going to the store. We have had concern from customers on inventory, have in the wrong inventory and where it is located but I've not heard any customers tell us that there is a downturn coming or anything to plan from a large percentage.
Great, thank you. Thank you. That concludes today's Q&A session. I will now pass the conference back over to John Roberts, CEO for any additional or closing remarks. Okay, thank you. And we appreciate the time you spent with us here today. I hope we've been able to give you some color on a quarter-wirt proud of. on a quarter-wirt proud of.
And I think importantly, maybe even more importantly, is the looking towards the second half and into next year. The first thing I want to remind everybody on this call is that this table has a lot of experience. This table has a lot of experience.
And we're all data driven managers. We pay a lot of attention to what's going on around us. And all the things we've talked about here today, from bids to used truck values, any element that would inform us is being taken into consideration. And we talk very regularly about what does that.
change in direction in whatever element we're focused on mean to our business.
And that experience that we have helps us remember what we thought the last time we might have seen something like that. So I really feel like it's important.
that we remember we are 25 and 30 year senior members here. We've been through a number of these.
economical, whatever we're looking at, your changes.
We hear really clearly from our customers. They talk to us very candidly. We talk very candidly with our rail providers.
I know there's a good amount of appropriately placed concern on rail service, but I am confident as we all are, that this will resolve itself. I'm seeing evidence of that. We're in good conversation. And I think that the overwhelming reason is that, you know, better service on the rail is a better answer for everybody involved. And so there's not anything really in our way there.
I think the comprehensive nature of our businesses as described here today is a great balance. We give our customers just about everything they need and they sort of balance each other. When one is moving one direction, another one might be assisting or helping or leading too. I think that's been covered with DCS not being a trucking company. As Nick just said, it doesn't necessarily...
follow the same patterns, but I fear that can still be misunderstood. Even today, that that business is viewed as some kind of a trucking company, and we just really need to keep working on getting through that. But Final Mile showing us some recovery, I think the blend that's happening in highway is really productive. Really puts us in a great place with our customers, as Shelley pointed out, to be mode agnostic or indifferent. We have an answer, we blend it.
about what we need to know about. We pay attention to our data, and I think that we're looking forward to the second half. And we'll look forward to seeing you all again on our next call. Thanks for being here.
That concludes today's JB Hunt's second quarter 2022 earnings call. Thank you for your participation. You may now disconnect your line.
Hey Amber, do they have that? Do they hang up from? they hang up for?