Q2 2022 Saia Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the second.
That could be quite different.
Earnings call today's call is being recorded.
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<unk> Financial Officer. Please go ahead Sir.
Thank you Kyle.
Morning, everyone welcome to <unk> second quarter 2022 conference call with me for today's call are sized president and Chief Executive Officer Fritz holds great.
Before we begin you should know that during this call. We may make some forward looking statements within the meaning of the private Securities Litigation Reform Act 1995.
These forward looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially we refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ.
I'll now turn the call over to Fritz for some opening comments.
Good morning, and thank you for joining us to discuss our second quarter results. Our second quarter revenue of 746 million surfers surpass last year's second quarter revenue by 35% is it is a record for any quarter in our company's history shipments per workday grew by one 8% and pricing and business mix manage.
But efforts drove an increase in yield excluding fuel surcharge of nearly 15% our LTM revenue per shipment, excluding fuel surcharge was 16% higher year over year.
Business trends remained good through the quarter and our daily shipment activity across the quarter was roughly 32000 shipments per day service levels continue to improve across all kpis year over year, and we posted another solid cargo claims ratio of <unk> five 7% for the quarter.
Keeping the customers first is a core value for society and in doing so we're able to build upon our strong service reputation and enhance the value proposition, we offer our customers getting closer to our customers to provide higher levels of service is an important part of this value proposition in the quarter. We opened four new terminals in new markets and we've open.
A total of five year to date, our customers appreciate our commitment to meeting their supply chain needs and as a result, we realized an average increase in our contractual renewals in the second quarter of 11, 7%.
It's good to see what our customers win we win.
I'll touch on our outlook for the rest of the year and our play of terminal openings. After Doug review second quarter financial performance.
Thanks, Brett second quarter revenue increased by $174 2 million to $745 6 million.
Components of revenue growth in the quarter were as follows tonnage grew two 8% combination of one 8% shipment growth and a one 1% increase in our average weight per shipment.
Length of haul was essentially flat at 910 miles.
Yield excluding fuel surcharge improved by 14, 9% and yield increased by 26, 3%, including fuel surcharge.
Fuel surcharge revenue increased by 97, 4% and was 21, 7% of total revenue compared to 14, 4% a year ago.
Now, let's discuss a few key expense items in the quarter.
Salaries wages and benefits increased nine 8% driven by wage increases across our driver and dock workforce, our head count is up approximately 14% year over year. Additionally.
Additionally, our August 2021 wage increase of approximately four 7% contributed to this increase on a year over year basis.
Purchased transportation.
Costs increased by 47% compared to the second quarter last year and were 12, 3% of total revenue compared to 10, 9% a year ago.
Trucking rail PT miles combined were 19, 3% of total line haul miles in the quarter compared to 18, 4% in the second quarter of 2021.
Fuel expense increased by 82, 9% in the quarter, while company miles increased six 8% year over year.
The increase in fuel expense was primarily the result of national average diesel prices rising by over 70% on a year over year basis.
Claims and insurance expense decreased by 18% in the quarter compared to the second quarter last year, reflecting decreased frequency in accident severity in that expense line.
Claims and insurance expense was up 32, 4% or $3 5 million sequentially from the first quarter.
Depreciation expense of $36 9 million in the quarter was $6, 6% higher year over year, driven by our investments in real estate equipment and technology.
Total operating expenses increased by 22, 8% in the quarter and with year over year revenue increase of 35% our operating ratio improved by 510 basis points from a year ago to 84%.
Our tax rate for the second quarter was 24, 4% compared to 24, 3% in the second quarter last year and our diluted earnings per share of $4 10.
Compared to $2 34 in the second quarter a year ago.
We continue to anticipate capital expense expenditures for 2022 will be in excess of 500 million. We also anticipate an effective tax rate for the full year of approximately 24% 25%.
I will now turn the call back over to Fritz for some closing comments. Thanks, Doug.
As I stated earlier business levels remained steady through the quarter and our plan for terminal openings. This year is on track along with the five new openings. We completed already this year ROE opened a new facility Monday and bring it to New York at our new facility in the Chicago Land area. Later in August beyond these facilities, we expect to open additional five to seven through the end of the.
Year. These openings are critical to our strategy of enhancing our service offerings are.
Our pipeline for terminal openings carries well into 2025, we will update you more detailed opening and relocation plans for 2023 is part of our Q3 conference call one of the benefits of our organic expansion process over the last several years as the weekend throttled up or back depending on market conditions. However, our growth through.
We ended the year and beyond is that dependent exclusively applaud new market openings openings within existing markets are especially attractive because they can increase the efficiency of our operations. We continue to build a successful openings over the course of several years as we open these facilities, we're seeing strong customer acceptance and opportunities to.
To focus our efforts on customers that find value in our service offerings in Atlanta for example, we've seen higher growth and improved profitability in the market because of our new App New terminal in the northeast side of town. We opened the facility just last December and we're already seeing significantly improved service for our customers and synergies for sales.
In operations, we expect Atlanta market to benefit further from the June openings of terminals and making at Valdosta to the south of Atlanta, along with additional Metro Atlanta.
Terminal opening plan for 2023 the success seen in these recent openings is only in the early stages, each new opening confirms our strategy of getting closer to the customer and adding value to their supply chain. We continue to see great response from existing customers, who asked us to handle their freight needs in the new markets and then as <unk>.
Our brands grow in the market new customers are on boarded.
Charlie we track customer satisfaction on a daily basis, and Kpis are focused on customer satisfaction. Our net promoter scores have improved for five consecutive quarters further validating our customer first strategy Testament to the exceptional service provided by our team members across our growing back in.
In total as Doug mentioned, we expect to invest over a half of $1 billion. This year in real estate equipment and technology equipment deliveries continue while I wouldn't say that supply chain is back to normal it does seem that the disruption has slowed.
So before moving onto questions I will just say that our view of the current environment remains constructive and our customers' overall appear to be positive for the second half of the year you see in our results and recent contract renewals. So we're able to price to meet the inflationary cost in our business and will continue to focus on providing the best customer experience.
And provide differentiated service with that said, we're now ready to open the line for questions operator.
Thank you, Sir ladies and gentlemen, if you would like.
I'll ask a question. Please keep me on by pressing Star one on your 31 key pad.
Paul Please make sure your mute function and also allow us to reach our equipment again press star one to ask the question.
Jason.
Scott Group.
Your line is open.
Hey, Thanks. Good morning, guys can you just start with the the monthly tonnage trends in July and then maybe the the typical question you get on the sequential trend for Q3.
Sure about it.
So the April and May numbers were out in our release in early June but for.
But for the full month of June shipments were up 1% and tonnage was up 1% as well.
So far in July we would report that shipments are down about one 5%.
And for US tonnage is up about two 5%.
And then in terms of the normal kind of guidance on sequential LR from Q to Q2 to Q3.
Yes, we think it's going to be in line with our historical trend of around 100 basis points, that's usually driven by our.
Our July wage increase and this year's increase was again, it's right around four 7% in the numbers on the number side its a record increase so.
We you know early end of the quarter, but we would try to hold our historical 100 basis points would be our hope.
Okay and that weight per shipment I guess widening is that comp or is that actual weight per shipment trends are trending higher.
Yes, the weight per shipment trends.
And at a little bit higher out of Q2 end of July and on a year over year basis, it's up nicely and that's primarily our efforts around pricing.
Pricing on.
Controlling the mix of business, we bring in.
Alright.
Thank you.
It may just.
Our view is it may point to to a little bit.
Dynamic.
At work for industrial customers versus some of the things we hear on retail right. So <unk> carriers are exposed to.
You know in the industrial economy and it seems a.
A little better maybe than what we see on some of the retail reports so that that would help way too for all of US if that was the case.
Okay that makes sense and then maybe just last thing so it sounds like the contractual renewals accelerated.
Do you think you can maintain sort of double digit yield growth ex fuel into the back half of the year given the renewal trend that youre seeing.
Well I mean, it's it's.
It's been positive and.
We continue to be surprised at how well our customers are able to accept it and I guess pass it along right. I mean, you know the inflation is not is not good across the economy, but the.
The contractual renewals as you know always kind of signaled to US you know what the customer expects and they agree to it because they feel like they absorbed but I think so.
We don't give a lot of guidance on the yield outlook, but.
We're seeing enough cost inflation in the business that we think it's the right path now.
It'll be interesting to see is some of the larger carriers come out in the fall with their expectations or guidance on <unk>, you know where that goes I mean last year was a record <unk> for most of US. So you know.
That'll be the next kind of big sign on pricing I think when we start to see with some of the largest carriers come out with.
<unk> guidance.
Right makes sense. Okay. Thank you guys appreciate it.
Thanks Scott.
We take our next question from Ravi Shanker with Morgan Stanley .
Thanks, Good morning, everyone.
How do you think about capacity growth.
The back half of this year and into next year, especially if there's a recession.
Do you feel like it's.
It's time to pull back and kind of tightened the balanced or do you think that's an opportunity to actually push forward one dish.
Yes, good question.
I commented in the earlier notes that we're marching ahead with our second half.
With the openings that I think.
We're very focused on providing service to customers and that those openings are an important part of that I would also add that the openings that we have on the docket for the balance of the year.
Frankly, many of the next year are ones that we're thinking about as sort of long term sort of 10 to 15, you're sort of facilities. So growth for us is it dependent on that but when we look at these facilities.
And markets that we're already in these are interesting opportunities for us because not only they provide incremental service to the customer, but theres efficiency for us as well so.
I think that many of these we actually get a benefit from so.
You know I think the environment is right now I would say that we continue to March on we will remain disciplined around this.
And then.
Maybe asset prices come down to the future I don't know, but.
We continue to see opportunities and we will execute our plan because we can control that.
Got it and maybe a related follow up I mean, you guys can afford to do that because youre doing 20% op margins, but a lot of your smaller peers don't have the bandwidth to do that and so how do you think this plays out.
And in the next few quarters are you hearing signs that maybe there's some pressure.
Pressure on some of the smaller players and they maybe have to exit the industry because of new regulations and inflation costs and such and kind of what's the opportunity for you guys to pick up some some of that share.
Well we.
We don't necessarily.
Pete and that sort of the super regional markets like that or the close end markets, but there may be assets that become available there've been as you've seen a few smaller operators that have exited in the last few months. We know this is a capital intensive business that requires ongoing investment in <unk>.
Customers have an expectation that if youre going to provide you have got to provide great service and because you got to get paid for the great service.
You have to do that and if you're in a position you can't do that.
That you probably aren't going to do very well in this market.
That creates an opportunity for us around real estate or locations and such.
Our focus really is to focus on what we can control deliver great product and service to our customers.
See what that leads to I think it's got a pretty good result, and I think you've seen the results.
And I think for somebody it's under capitalized not able to make the investments are have that commitment to the customer it's going to be a little bit more challenging.
Very helpful. Thank you.
We'll take our next question from.
Keybanc capital markets.
Hey, great. Thanks, and good morning, So I guess sticking with the network expansion commentary I guess, maybe kind of two questions on that to start.
Number one I guess as we think about kind of the start up cost it seems like with the size of the business. When we think about the expansion in the second half of the year you are not really signaling any drag on the margins as you open these new facilities.
Want to make sure I got that piece right and then number two when we think about kind of the volume opportunity or the tonnage opportunity would you expect as you are opening these new facilities to be able to outgrow the market or is there some trade off within the network, where you're pruning. Some freight are doing some things differently I'm just trying to think about the growth at these facilities can contribute.
Yeah, So Todd good questions the types of facilities.
So these were opening are.
There are two different types of some that we are getting into a new market maybe coverage providing coverage in a remote area. Maybe it's an area that we have a cartage carrier that we're using to provide service and we're going to replace that with <unk> service. So that's an upgrade for the customer probably a little bit of a cost reduction for us and we've taken the.
<unk> in the market ourselves and not using cartage carriers. So that's positive in other markets I pointed out on the call that the Chicago market, We've got a great presence in Chicago today.
What this does for US is adding the facilities that we can provide a heightened level of service to customers in the area of which this new terminal operate and you look at the other facilities that we've added we've added three now in Chicago and in <unk>.
Area that we only had two before so although there are incremental costs associated with that Theres also a savings in the synergy around that one you can build density in the legacy Charles you can eliminate or reduce stem times in some cases into new facilities and when you're doing that you are providing a benefit to the <unk>.
Customers. So there's an opportunity to grow essentially grow some incremental share with the customer because you can provide that service. So the reason we don't not note that dragged us because we think they're either small or as I just laid out there are opportunities for us to actually enhance our sort of or over time.
And any thoughts on kind of the volume or the tonnage ramp with our facilities.
It depends in the early stages for some of these are interim market. It may simply be that we have will replace the.
So trying to service from the existing or legacy Chicago terminals, we're not going to do it to have a new terminal. So that's not a incremental volume necessarily but we'll build some efficiency and they'll create some growth down the road. So I don't have a callout for that but.
At the start there's a cost savings for sure.
Okay got it that makes sense and then just a follow up and I know you've been asked this several times, but I just wanted to kind of go through it again, just given the big step function that you've seen in the older over the last let's call it three or four years at this point.
Can you just speak to your thoughts around sustaining the or at these levels I mean youre right at the cusp of a sub ADR, which is which is commendable.
Very notable improvement from where the business has been historically so can you help share or can you share your thoughts and help us think about keeping the business at these levels in a different economic environment to our pricing pools offer you know things change a little bit.
Sure.
We look at this and we say we are first and foremost we are focused on the customer. So we take care of the customer we provide great service great coverage low claims ratio. That's a differentiator, we look around and see what market pricing is at a quite honestly, although we've had great improvement in the second quarter.
At our contractual renewals are it looks good the reality of it is is that we're not where we want to be from a market perspective, so although the pace of improvement may slow over time.
I think we're here to stay because our team is delivering that repeatable servers and.
And the market regardless of the market, we need to get paid for the increases over time may not be at the same rate, but the reality is there's still an opportunity for us.
You know, we're thrilled with that 84 or in.
In the quarter, but frankly, the capital required in this business requires us to continue to drive this lower.
Right now I mean, if the pace may slow, but I don't see an opportunity that.
That that this is somehow gone away I think we still grow through this.
Yes, Okay I really appreciate all the thoughts this morning, thanks for the time.
Yeah.
Next question from Amit Mehrotra with Deutsche Bank.
Thanks, Operator, hi, guys.
Im trying to reconcile the decline in shipments with.
The footprint expansion I would have just stopped there maybe was opportunity to.
It was a little bit of a cyclicality on shipments given the expansion maybe it's just a little bit too early.
Also I know that you guys are kind.
Kind of proactively managing the mix afraid until maybe that has something to do with it but but fritz.
Give us a peek under the hood a little bit.
What's happening and why our ship finding in the band.
<unk>.
You know what.
We're very focused on growing profitability in this business.
Youll see that we spend.
A lot of time internally driving mix of business and mix of business, our identified customers that would say yes.
<unk> <unk> is doing a great job at.
It's appropriate to pay for this outstanding service.
That.
That's our focus so there may be times, where we exit.
Businesses, even in legacy terminals or not accept business at new terminals, because the pricing is not appropriate for the service levels. We have provided so we don't.
I'll spend a tremendous amount of time concerned about shipments we spoke tremendous restaurants I am focused on <unk>.
Driving profitability. So we can continue to invest in the business and maintain the service levels.
So as I look at what's just happened in July it's.
The trend in July .
Really worried about that I focus more on what are we doing to drive incremental value in the business and finding those customers that really embraced what they get from site.
I'd say, it's okay.
Remember in terms of the terminal openings.
Well theres terminals out there like Atlanta, and North West are maybe northeast when it comes onboard next year.
Provide opportunities.
Open up and really good freight market, we are adding a lot of terminals to fill out our map. There are good freight markets, because our customers and our existing system say, hey, I'd use side, if they weren't here I'd use sai if they weren't there not necessarily because that market initially as a big market to pick up outbound.
Shipments, which is how we measure our shipment growth, but it's a service pointing to fred's comments.
We're there and can provide really good service, we know we can charge for it and we know when we open those types of terminals that our customers do except us.
Handling all of this business for them and we go in and the salesperson can say Hey did you know we can now go to a b and C for you as well Oh, yeah that makes it easy for the customer you take those shipments for me too and then we can charge a nice premium price going into that new market and as the brand develops whatever outbound shipments are on that market will get our share.
Those two but not all of these terminals are moving the needle because theyre in great Big freight markets.
Yeah, Okay that makes sense and then just one for me so.
Surely you've talked about this 100 to 202 hundred basis points of margin improvement.
It seems like.
Margin expansion opportunity even in freight freight environment that was less accommodated a positive as it has been over the last couple of years or so as we think about this potential market that we're in right. Now are entering do you still see opportunity to expand margins. After this.
Pretty impressive.
Run the size had or do we take a little bit of a pause relative to 100 or 200 basis point margin improvement target.
Yes, we're not intending to take a pause.
We look at this and we say.
There is still there are.
Best in class is into this below 70 now right. So we look at that and we say we can provide great service and we need to be at market or around pricing at around because we're above market around service and quality. So in that case, we can drive that I think on the other piece of it.
Part of the story that is.
<unk> not seen is that we have really focused the last two or three or four years on core execution and being able to manage cost efficiencies productivity through.
Pretty challenging environment around during the pandemic time and all the disruption that came along with that we like those the capabilities that we've developed and I think as you go through a more challenging macro environment potentially.
We have the capabilities to manage through that pretty well and I think when you are maintaining very high levels of service you ought to be able to expect continued or improvement overtime.
Yeah.
And one last one I know I'm over my allotment, but I just wanted to ask just quick follow up question one of the questions I get a lot is the fuel impact on the operating ratio on the bottom line on the EBIT dollars.
We've tried to attack. This I think you guys do provide some good disclosures around fuel surcharge revenue and then being able to isolate and isolate to fuel expense.
It just seems like for the industry as a whole.
Anywhere from 20% to 80% of the profit improvement over the last three years, because that's really come from a net fuel benefit I think for Sy, it's actually been pretty low call. It 20% I don't know if you agree with that or not and then if fuel prices moderate over the next couple of years is that inherently give you a headwind on profit.
Dollars and margins because of how the field mechanism works as a percentage of the base rates.
Yeah, I mean, I think your word your term moderate moderate as the right way to look at it yes. It's gone up quickly there's a bit of a short term headwind when prices at the pump are going up week. After week, there's a little bit of a headwind, but but the net effect of diesel prices being a lot higher.
Does allow us to.
And our fuel margin on that on that investment, we'll make around refueling infrastructure, but.
Unless you think theres, some kind of supply shock thats going to drive diesel prices back to $4 or something.
<unk> kind of decline in overall national average diesel prices.
Have an impact on those operating income dollars, but the LR.
We think the impact is very less because we've continuously been raising base rates and focusing on making sure. The customers account earns the proper return for us excluding what's going on with the fuel bucket. So as we've raised those base rates whatever this surcharge percentages if it comes down from.
The tables are at 50% and they come down to 40% that's being offset by our work on the base rates.
Right, Okay, great I appreciate the answers thanks, so much.
Sure.
We take our next question from basketball majors Susquehanna.
Yes, good morning can.
Can you talk a little bit about the capex guidance, you've given a directional look above 500 million since the beginning of the year.
With the terminals that you plan to open coming a little more of a focus can.
Is that coming into greater focus and any thoughts on what that could look like in 2023 with them immediately wide range. Thanks.
Yes, thanks for the question Bascom.
Yes, I mean year to date sitting around 150 $556 million.
It's new.
No secret that is behind what would've been our internal plan on the real estate, we always knew it would be a wildcard in terms of exact timing for that but we still see a path to the half a billion dollars. Our equipment is really our equipment deliveries have picked up especially on <unk>.
<unk> side here recently so.
We expect to get to our number this year that was in the plan. So if I thought about it.
$5 billion plus in span.
250, or so of that was around equipment. So we expect to get to that number we've got a lot of real estate deals in the pipeline we've done some land buys already in.
In the year and those are relatively small investments, but we've got a couple of terminal deals that we hope to close this year.
Not only for openings that will occur this year, but stuff that we have teed up for next year and the pipeline. So we still see a path for the half a billion plus and again, it's been nice to see some of the deliveries pick up. We're finally on a portion of our trailer buys. We're finally caught up on what was ordered and it's supposed to be delivered last year. We finally caught up on that.
At recently and got that completed so yes.
We still see a path there I think you can continue to see us.
Think about an elevated level here as long as the economy.
Yes.
The landscape is attractive to us I think you could see us spend it.
This 15% to 17% of revenue over the next two years or three years.
Eventually probably tapering down to kind of a longer term run rate in the low.
So that's the outlook as we said today.
Thank you.
Sure. Thanks for the question.
We move to the next question from Ken <unk>.
<unk> Bank of America.
Hey, great good morning, Fritz and Doug Congrats on a solid quarter and hitting the 80% operating ratio really impressive stat.
Just last year it seemed like the comps decelerated through the quarter on a tonnes per day right. So yes June slowed to 1%. So obviously, maybe just your thoughts on the economic backdrop here and the potential impact of pricing as we go through this.
Yes.
Like we said that the customer has been surprisingly resilient and accepting of the increases that we've had.
To go seek.
The comps on a tonnage basis get a little easier not much on August and September but.
In terms of feedback from our leaders and the sales group and all.
The customer seems to still have a pretty positive outlook on the remainder of the year.
In terms of rates of 11, 7%.
It was very good in the quarter on the contractual side now and going into Q3, I mean, there is a tougher comp there and if you think about how the <unk>.
Contracts.
<unk> of the contract renewals throughout the year, it's kind of ratably throughout the year, there's not a bid season, where we do them all in September and October or anything like that so if we think about our contractual renewals in Q3, there is a little tougher comp there that kind of book of renewals last year in the third quarter got a 14, 2% to 3% increase.
So.
That's a little tougher comp for us coming out at those counts got the right.
Adjustments made last year and this year, we might not have to seek as much in rate because we account hopefully is operating better since we put through those increases.
Those are kind of the variables at play, but so far our view of it is that the landscape for the industrial customer is still pretty good in terms of demand and the <unk>.
Inventory levels, there seem a little bit more appropriate versus some of the bloated inventories we've seen at retail.
Thanks, Doug.
So one of your peers noted a 0.1 claims ratio. This morning, you talked about a <unk> $5 seven maybe just talk about one the cost what is the differential to get their capital investment or.
Newer equipment and maybe talk about what's needed and then secondly is it does it matter at this 0.5 is that way above industry averages. It is it still something you want to work on maybe talk about just give us perspective of what that relatively means.
Well, we've got a lot of good stuff to talk about around our initiatives on claims and all but just to be clear on the math of it.
We always and we do the math regularly is.
As Ken.
If I had if I had better pricing.
I had the highest prices in the industry my claims ratio would be quite a bit better than its report it as well right at.
And that denominator gets bigger the ratio looks improve so.
We can pick some of that just by pricing better, but making a lot of investments around.
Claims experience the whole company is focused on our customer first initiative then you better have it right on the claims side, so investing a lot of their in training and having the appropriate tools on the docs and the right equipment to be handling the freight with so.
There is opportunity there for sure.
We feel like we're making progress in making good investments there to lead to further improvement.
I would add that at that point $5 seven that were not static pad at that that's a.
As Doug pointed out the math, but the underlying that it's about driving that number even lower because that further differentiates that.
Our competition that may not disclose that number at all and our customers will tell us that is a significant.
Benefit for good business for <unk>. So if we have an opportunity to drive that even lower that's a further differentiation to Ed.
I think that supports our whole operating thesis.
Great. Thanks, guys. Thanks, Doug appreciate the time.
Thank you we take our next question from Jon Chappell.
Evercore.
Thank you and good morning.
Doug I know you guys look at P. T in salaries wages and benefits Holistically lot of focus on the ability to improve or are still in a slowing shipment count I mean P. T is.
So pretty high as a percentage of revenue so how quickly could you flex that down.
As the <unk>.
Pace of tonnage or shipment count.
Decelerates, but still goes up is this something where you could see an immediate relief on the PT side as soon as the third quarter or does it take a couple of a couple of quarter lag time.
Well I mean in general.
Able to use the required PT I mean on a daily and weekly basis, you can make adjustments you know overall I would say with our good work in.
On the HR side, this year and with our efforts on the staffing side I mean, our driver pool is up.
We're able to handle more of those line haul runs internally and I do think there's an opportunity over the next quarter or two to start.
Reducing some of the PT miles and bringing those in house just based on staffing. So that's an opportunity and we are certainly.
Looking forward to having our own drivers on some of that was wrong and our view is there's always going to be some of it just based on balance in the network and in.
Head haul versus backhaul theres always going to be a good good use of PT in the network.
But I'd say staffing is going to help us take some miles out over the next couple of quarters.
Okay.
Chris.
Adjusted around it.
Right.
Chris My follow up to you. The same question I just asked on the last call, but the perception of the narrative can be pretty powerful until proven otherwise I think there's this view that L. T. L was this direct beneficiary of capacity shortfalls in other silos of transportation and that is capacity eases, especially in T. L theres going to be this fleet.
Freight off of the LTE networks that have kind of grown into maybe a growth rate that wasn't sustainable can you just speak to your book of business and how much you would consider to be non traditional <unk> business and what the risk may be two to losing some share if the market continues to loosen.
I think if we study the results.
There was a time at the depths of the pandemic as people were supply chains were reorganizing and coming back that yes, we probably benefited from a little bit of spill.
Spillover freight we would call it.
But tell you for the last several quarters, we're in a position where I think we're handling traditional LCL freight.
And I don't think that it's.
To the extent that we actually.
Carry heavier weighted.
Shipments by choice, maybe it's at a little bit of a backhaul lane or something like that but the reality of it is is that we.
We are set up we're focused as we generate returns that are handling LPL for it so.
<unk>.
Entering that space is not appealing to us and frankly, we haven't seen any of that to speak of in.
It's been several quarters as I mentioned so.
I don't think its going to have a material impact on us going forward I think that.
Our focus has got to be on our core LCL and that's where we'll be.
Sounds great Thanks, Brad and thanks, Doug.
Thank you and look forward to create the weatherby.
<unk>.
Hey, Thanks, good morning, guys.
I wanted to get your take on the relative pricing opportunity for you, particularly if we do go into a bit of a slower volume environment for the industry and maybe there is.
Some potential capacity opportunities out there for other folks I just wanted to get a sense of if you think that that sort of gauge your ability to sort of work into this pricing gap between yourself and sort of the highest priced peers, particularly given where your services today.
And I think that if you look studied the landscape and if we can differentiate on service and you can just assess the public data that's available around.
Average revenue per bill.
Say that you know the size performing providing that great service to customer that's a differentiated point, we need to be at market. So I think.
As I mentioned earlier, maybe the rate of improvement maybe it's not the same but I still think that there is a path for us and we've just got to continue to focus on our core execution. That's we focus on what we can control.
Okay, Okay that certainly makes sense and then.
Yes.
Can you help us a little bit specifically in terms of the back half.
Terminal opening do you have a sense of maybe what that is going to look like for <unk> versus <unk>.
Yes, we I think we've mentioned, we'll open five to seven the rest of the year that includes two and.
More in August .
Don't know the exact timing of the <unk>.
Others, when theyre going to open, but I would say broadly that the ones that were opening in the sort of end of Q3 into Q4 are not going to have a material impact on results.
On the top line or on the cost structure.
Okay, great. Thanks, very much appreciate it.
Thank you next question from Tom.
UBS.
Yeah.
Yes, good morning.
Wanted to ask you.
Little bit about the mix of shipments I think you referred to it in July that you thought maybe.
Maybe retail was a little bit weaker than your shipments industrial a little stronger.
Have you seen a meaningful falloff in your shipments with the kind of consumer retail bucket.
Yet or is that something you think might be occurring I know, that's not as big a leverage point as industrial but is that something you've already seen with retail or is that something that kind of could develop as a headwind. If you look out the next couple of months.
Well in terms of the.
B to C kind of consumer I mean, our residential deliveries are still running in the high single digit range you know.
Most weeks.
Sure.
You know I don't know if the consumer patterns change or something and they are still buying I don't think it impacts us.
The consumer goes to the.
The big box retailer and picks up their product or whatever I mean that doesn't it doesn't change to us overall.
I guess consumer.
Yeah.
I'm, saying more with like retailer customers not to the home, but just so it could be to the to the D C to the store or whatever so not so much the home, but just the mix of.
Retail customers versus industrial customers.
No I don't we.
We don't have any big trends to report there are large retail customers are still active with us and we're still.
On bids and contract renewals for next year, and we haven't seen any.
<unk>.
We don't have any callouts there for young in terms of a vertical.
Acting differently than our overall mix.
Just recall that we don't have anything in our book of business Thats over 3% of the total so maybe it's on the margin somewhere but we wouldnt, we wouldnt have a call out.
Okay.
That's something that's really been noticeable.
If we do end up in an environment, that's maybe like kind of 15 16 or.
2019, when you had a bit of a dip in industry tonnage. So, let's say you're down mid single digits tonnage.
Do you think that you'd be able to keep the al.
Operating ratio flat in that environment.
How I know that hypothetical, but you know what.
What's your best sense of how the <unk> might respond if you did.
See the market evolve to like a kind of mid single digit decline in tonnage.
Well I mean, I don't know what time period, you're talking about the decline occurring over I mean, you can go back to second quarter of 2020, and you've got a real life example, right I mean in that sudden shock to the macro environment.
Margins didn't remain flat, but you know it was a pretty good quarter I mean.
Tonnage was down I think in that particular quarter or eight or 9%.
We were still able to raise prices so.
There is more kind of gradual declines I mean, if you go back to 2019 tonnage was down most of the year than it ended up flattish for us because we opened a bunch of terminals, but even in that year, we pushed about 8% across on the yield side.
In a flat to down tonnage environment. So you know, there's an opportunity certainly to hold margins flat and that kind of scenario and potentially improve them.
Yeah, I was thinking more of a kind of typical freight cycle not you know not at <unk> 'twenty shock to the system, but more of a hey, the market's weaker and you see down.
Four 5% tonnage for a couple of quarters. So even in that backdrop do you think you can can get yields up pretty well.
And March in response to that favorably is that is that what you're saying.
Well I definitely think we will.
We'll be able to get yield I mean, the industries the new in a really good job of pricing to cover inflation.
The leader that when the largest carriers in our industry are so focused on it that helps the rest of us so.
Last two or three freight cycles that where we saw a down trends on the tonnage side, we raised prices. So.
We react pretty well on the cost side of the business model I mean, we do that weekend and week out across 181 terminals, where we're managing our daily labor costs and things like that across every terminal. So.
We are building and managing a business for the long haul here and we're in the business Thats tied to industrial cyclicality. So you know to think Youre never going to have a different tonnage at some point our shipments as we'd be naive on all of our parks. So we will manage the business through it like we have past XI.
<unk> and again, we're building the business for the next $20 50 years to tack onto the nearly 100 year history, we've already built so.
<unk> will operate as best we can and we think with the current pricing environment set up the way. It is we'll be able to maintain.
Maintain and hopefully expand margins.
Well you guys have certainly done a strong job.
Building thing so.
Congratulations on a good two key result, I appreciate the insights as well.
Thanks.
Our next question from Tyler Brown with Raymond James.
Hey, good morning.
Hey, Todd.
Hey, I know lease expense is buried in the P&L, but what kind of inflation are you seeing when you reach the end of the life on the leaf and Youre, having to renegotiate those leases.
It varies by market of course, Tyler I mean, obviously you see significant.
Lease.
Market costs going up in places like southern California, or larger urban areas. The good news is for US is a lot of that is pretty staggered.
Terms of one the maturities of these are but in some cases we.
We will see.
Upper single digit increases other cases, frankly, we've had a couple of renewals recently that were sort of at inflation sort of a 3% thing. So they can vary quite a bit.
Interesting, okay, but I can't it kind of feels like the fundamental cost of door ownership either through company owned either through build costs or through lease costs. Just continues to rise it doesn't that just fundamentally support industry wide pricing efforts.
Tyler there is nothing that we do that is not inflationary right. So it would be a technology real estate.
Maintaining facilities, you know if you're going to make an improvement.
Equipment cost technology, all of that sort of thing.
It absolutely remains and.
I think that heightens, I think even in a slowing environment.
You have to you have to be able to get a return on those investments because there are things really in this business certainly maybe you can use technology to drive a little bit of productivity or maybe you can do a better job handling freight reduce your claims but those things are on the margin.
Fundamentally as inflationary business and the real estate costs are a big part of that and that's something we have to continue to be mindful of.
Okay. That's helpful. And then I know you and I've talked a lot about the attributes of desaturation terminals, you actually talked about the profitability increase in Atlanta.
But I'm just curious can you give any call it quantitative detail.
Around what kind of PND uplift youre seeing say in Atlanta I'm, assuming this is really attacking windshield time, that's probably where a manifest the most and then secondly does it still feel that we're in the early innings of this PND productivity story.
Yes, Tyler I think the PND cost is certainly that is a real one right.
Driver was trying to service northwest Atlanta from our southeast terminal that was an hour of windshield time, both sides and traffic.
You also have a job retention and recruiting cost that I don't recall those soft costs. Those are real we're now recruiting drivers in the <unk>.
Markets that we operate where our customers are that's really really critical.
I think we're in the early <unk> across the board I think Atlanta has got the opportunity to continue to improve we're trying to service Macon, Georgia for that same Atlanta terminal and that that was cost effective either as well we couldnt provide service so.
Both things are an improvement there or an opportunity I think we're early innings there for sure.
Okay. Good stuff I appreciate the time.
We take our next question from Jack Atkins with Stephens.
Okay, great. Thanks for the time guys just I kind of wanted to go back to the pricing opportunity front for a moment, Brad Doug maybe you want to take this as well, but I know you guys have made.
Some changes kind of go maybe going back to the beginning of last year to your incentive compensation plans.
The sales force.
Attack pricing anymore.
You know beneficial way for the overall consolidated entity I would just be curious to get your take on you know what inning, we're in in terms of that.
That being rolled out are there some additional tweaks that you all would consider making as we look forward to make that more effective if you feel like theres an opportunity for that.
I think it's been a great plan I think it's rewarded.
Folks that have embraced the great quality and service that we've provided and making sure that we get.
We're compensated for it and we share that with our team that's important.
I think the most recent enhancement we've made.
This year is around putting incentives in place that.
Tie our operating folks to servicing the customer and you can see how they've embraced that.
The service attributes of what we've been able to provide the customers for now the fifth consecutive quarter of sort of net promoter score improvement that's important those things all kind of go together that syncs operations and sales together within our focus clearly on the customer and I think we drive.
That I think that is something that we can continue in an environment that may be more challenging.
Yeah, we may make some tweaks on the on the edges here, but what's most important is we're getting the entire organization focused on taking care of the customer and that that seems to be working.
Okay no. It absolutely is working you can see it clearly in the results I guess maybe.
A quick follow up going back to I think Tom's question on the consumer retail side of the business versus industrial I guess, maybe taking a step back and thinking sort of when you look at your revenue and break that down could you maybe update us on sort of where industrial.
Real customers or is it maybe a percentage of the mix versus retail and consumer levered customers just wanted to kind of get a breakdown on that if you if you have that handy.
Hey, Jack Yes, we wouldn't have any update really on that I mean 65, 70% of the mis mix when we look at it as industrial customers who've been on our docks and then when you.
When you walk our Doctor is certainly an industrial feel for the freight we're moving whether it's.
Dips in valves in building products and fasteners in chemicals, whatever it may be but we've got some good large.
Large big box retail customers.
If you think of the home improvement vertical and building supplies and things like that there is some good business in there.
I guess you could call some of that might be retail mix, but if its business into those locations, maybe it's coming from a manufacturer. So we don't spend a lot of time parsing it out but again the customer concentration is just not there where we're exposed to kind of big box for trends likes some of the T. L customers, who have a lot of concentration in.
The big box.
Retailer so are our input there is probably not not real helpful.
No. It's just helpful to get that that mix of 65% to 70%. So thanks, a lot Doug I appreciate the time guys take care.
Thanks Jack.
We took over next question from Bruce Chan with Stifel.
Hey, Thanks, good morning, guys.
Fritz just going back to that net promoter score increase which is great by the way I'm wondering how that absolute score compares with the rest of the industry, assuming you get that data from <unk> and then maybe just a follow up I hope I didn't miss it but any updates on where you think you are in terms of.
How much ground you need to make up on pricing versus the market given your level of service.
So the net promoter score I quoted is that is our internal measurement.
So those are against our customers. So we haven't gone through a mass exercise yet that'll be kind of more of a later this year. So what I would tell you is that our as we pull our own customers. The feedback we're getting is getting becoming increasingly positive and.
I think that's that's a great sign for performance now what it looks like relative to the others I don't have that yet but.
Relative to what or I should say market sort of studies, but we are versus our own measure it from customers that is critical and that's what they're telling us. So that's a good that's good feedback for us.
I think the other part of your question.
Elisa.
I think the simplest way to look at that as I think you measure and consider the other national <unk> carriers. So you look at their revenue per bill metric and you compare that to ours.
I think we stack up really well from a service perspective.
If not better than most.
And some would argue better than all but the reality is is that regardless of what the references if our average revenue per bill is less than the other national competitors that speaks to the opportunity.
Okay fair enough. Thank you.
Okay.
Question from James Good morning, guys.
Wells Fargo.
Hi, guys just wanted to follow up on the comments you made around retail and industrial and just wanted to understand if there is any difference in sort of profitability among the type of.
Each sort of vertical freight how should we think of it one is more profitable or having certain characteristics that are more profitable than any other.
No. We don't we don't really look at it this way I mean, we need to we need to make money and earn a decent return on all of the business. So look I mean.
In general I mean higher value freight if you think of it that way if you think of some of our industrial customers. If we're moving.
Critical parts, if you think about maybe an oil services customer.
Moving to some sort of drilling component for customer and it's time sensitive in.
If you if you are late with it.
You could impact production and therefore revenue.
Sometimes those are shipments that are easier to.
Charge higher prices for and you better deliver the service because you impact on the customers' business in a big way there versus something that might be more commoditize, a pallet of goods words, a restocking move or something like that that's not as critical so I mean.
That's the only call out I would have but in terms of retail versus industrial.
We want to do a good job for all of those customers and then we need to get paid for it. So we don't.
We don't look at it any differently.
Got it and then also.
Keeping in mind that you are focused on continuous improvement, but you've also mentioned that sort of tough pricing comp and you've done it.
And you put up some very impressive numbers in terms of year over year over or improvement.
How should we think about that given the.
Pricing comp across the back half should we see slower or improvement just moving forward or do you think you can actually keep pace with some of the impressive results you've put up.
We're going to try to keep pace with it we've had tough pricing comps for years and Thats a good thing.
So yeah, we don't we don't give a whole lot more guidance on that but our hope again would be to continue to have.
Good progress on the yield and pricing front.
You'll get some volatility quarter to quarter based on the comp, but overall, we've got to drive it higher.
Thank you.
Thank you we take our last question from Ari Rosa with credit Suisse.
Hey.
Fritz Doug.
Thank you for taking the question. So one of the things we've talked about in the past has been just the difficulty of securing real estate just given.
How tight that market has been.
For industrial real estate.
Wondering as maybe the economy starts to slow down a little bit.
Are you starting to see maybe more compelling opportunities to add to add real estate and does it perhaps actually even accelerate the pace at which you might.
Look to add to your service center footprint.
We see a little bit of a downturn or how youre thinking about that.
We're focused on expanding our footprint. So we're attuned to the market and I think it's still.
I don't know that its quite as frenzied, maybe as it was a year or two ago, but it's certainly one that.
We will continue to focus on the opportunities are there.
You have seen.
Some of the regional players have elected to exit so there certainly that creates opportunities.
To the extent that some of.
The larger players are baby recasting their networks or reconsidering their footprint that creates opportunities for us.
The best part about this for size. If you look at our current sort of balance sheet financial position we're in.
A position, we could execute and we're an attractive buyer so to speak in the sense that were.
We're moving now we may not always open up facilities right away, we could theoretically buy them and call limited inventory them for a further date for an opening but.
I think that opportunity, maybe it's a little bit easier than it was.
But we're pretty footwear remained focused and we've got a pretty good pipeline for the next two or three years around it.
Got it.
And the pipeline that you have it's like you've already secured contracts for those facilities. It sounds like it's not like that.
So all of the market with them.
Some of them may be you get an LOI or you're doing some intel due diligence on it you find out gosh, you've got a zoning problem here, we're going to exit that you move something else in there. So it's.
Theyre not all secured but they're all ones our close rate is pretty good.
We'll hit our sort of growth plans.
But you know these things take time and it certainly when youre dealing with real estate that can always be challenging.
Got it that's helpful. And then just my last question I wanted to understand.
One of your competitors and kind of the best in class.
Peter has.
I've talked about how maybe in a slower environment.
Growing market share becomes a little bit more challenging for them because they try to hold the line on pricing I wanted to hear about how you guys are thinking about ability to take share in a slower environment.
Kind of given the demands around.
Your aspirations around kind of holding the line on pricing and maybe how that plays out in terms of the puts and takes.
Yes, I mean listen the way, we think about this pretty simply we're going to take care of the customer we're going to keep them first.
That requires.
Ongoing investment in the business to provide very high levels of service.
We will expect to get.
Get the pricing will be commensurate with that perhaps it slows I don't know but.
At the end of it <unk>.
Chase the strategy to get share for share sake, I think if you follow us closely we're pretty focused on driving returns of this business. So the a.
A strategy that was simply about.
Chasing volume probably doesn't make much sense for us or not probably it doesn't make sense for us. So we will continue to stay pretty disciplined around that that would be our approach.
Got it okay understood nice quarter. Thank you for the questions great. Thank you.
Thank you everybody for participating in today's call and your interest in the continuing side a growth story.
And this concludes today's call. Thank you for your participation you may now disconnect.
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Yes.
Okay.
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