Q3 2022 J B Hunt Transport Services Inc Earnings Call
Around the market dynamics referenced further evidence has presented itself over the course of the quarter that requires an increased level of caution and awareness on broader demand trends and economic activity data experience and frequent dialogue with our customers will continue to guide us in this area.
The complementary nature and diversification of our businesses will continue to serve us well in this changing market.
As mentioned earlier rail service has shown real signs of improvement in both velocity and reliability during the quarter with positive momentum building. The most notable increase coming from our friends at the BNS F.
We are encouraged by the trends in Darren will expand on this area in his remarks I remain in active and regular dialogue with the senior leaders of our primary rail channels on opportunities and investments required to fully restore service levels needed to capture the opportunities presented with intermodal.
We are optimistic about the path forward with intermodal and with all aspects of our collective services.
Members of our leadership team are here and will cover areas of our business more specifically for you, but at this point I would like to turn the call over for the first time to our new President Ms. Shelley Simpson Shelley.
Thank you John and good afternoon first off I'd like to start off by saying, how humbled and excited I am to be stepping into this new role at J B Hunt.
Over the years, you've heard me talk about various areas of the business that I've had the honor to lead.
I approach this new position with the same passion for our people.
All nearly 38000 employees at J, B hunt and for delivering exceptional service and value to our customers.
As John spoke about some of the current indicators that are present in our industry I want to remind everyone of our safety culture and with that let me share with you what our go dos or priorities are right now for us as an organization.
Over my 28 years at the company I've been fortunate to have worked with some great leaders as I sit here today I'm reminded of saying, our chairman would say and that is don't starve their opportunities as.
As an organization, we recognize unique and significant opportunities in the marketplace that have been and are being presented to us as a result, we will remain committed to disciplined investments in our company foundations, which I spoke to last quarter that is are people you trust.
Technology that empowers and capacity to deliver.
When we make the right investments in the right people give them the proper tools to equip and empower them to deliver value and exceptional service to our customers.
All of our stakeholders should reap the benefit so priority one remain committed to disciplined long term investments in and for our future growth and that starts first and foremost with our people.
Over the last two months or so I've traveled and met with our people in the field and across the organization and I asked each of them. The same question. How can you in your role drive more value for our customers I am encouraged by the feedback I received the energy of our people and the rallying around just that simple question.
As an organization, we need to deliver the greatest value to our customers by providing unmatched service at a fair and equitable return.
So much across your organization goes into that equation from being cost competitive being quick to adapt making the customer experience exceptional and making sure. We're in a position to say, yes to our customers' growing needs. So priority number two deliver exceptional value for our customers across the into.
Tire organization.
Finally, I believe in something John has always shared with us and that is growth as oxygen.
It provides opportunities for our people in the organization to also grow develop and build meaningful and lasting careers.
We have a deep and tenured bench of talent across our organization, who are leading and developing our future leaders.
Having a disciplined approach to our capital allocation process supports and fund the investments we make in our people technology and capacity to better serve our customers. This recipe should continue to support our future growth.
And value we create for our shareholders. So I'll leave you with one last priority to deliver strong value for our shareholders.
As John alluded to in his comments, we see further evidence of a shift in marketplace dynamics that will require us to remain fluid in our approach to managing our business we.
We often reference that word throughout the pandemic challenges and uncertainties were present, which feels appropriate at this time as well.
Our business leaders will cover our plans with you in more detail and that concludes my comments. So I'd now like to turn the call over to our CFO John cooler. Thank you Shirley and good afternoon, everyone. My comments today will be brief and will cover our recent performance in the quarter on a consolidated basis.
Also provide a quick update on our Capex plans.
Overall, we are pleased with the results of the quarter on a consolidated basis as John remarked, we have targets in areas of our business and fell short and others, but that highlights the benefits of our diversified and complementary model.
On a consolidated basis revenue grew 22% year over year operating income grew 32%.
And GAAP earnings per share grew 37%.
From a cost perspective, we continue to experience inflationary pressures across most areas of our business, but primarily around labor equipment, including both parts and labor and in the area of claims.
We are keeping a close eye on receivables credit and bad debt as economic conditions change and we will continue to monitor the environment and manage accordingly.
We purchased just shy of 350000 shares in the quarter, bringing our year to date spend on repurchases to approximately $300 million.
We will continue to explore share repurchases going forward as opportunities are presented and we remain committed to buybacks as a capital management tool with support from our board.
Our balance sheet remains strong with net leverage moderately below our target of one times trailing 12 months EBITDA.
During the quarter, we paid off $350 million of senior notes and entered into a new $1 5 billion credit facility, increasing our flexibility and overall liquidity.
Future needs.
Net capex, we spent just over $1 billion year to date and expect to fall short of our $1 5 billion plan for the year, our capital expenditures in the future will largely be dependent upon business needs, but levels may remain elevated as a replacement needs are high given equipment delivery delays and supply chain constraints experienced over.
The last two years.
This concludes my remarks, and I'll now turn it over to Nick.
Thank you John good afternoon.
I'll review the performance of our dedicated and final mile segments and update you on other areas of focus across our operations.
I'll start with dedicated demand for our professional outsourced private fleet solutions remained strong as we added more than 450 trucks to the fleet during the quarter.
Our backlog remains strong we have some moderation to more normalized levels. After two years of significantly above normal trends, we sold approximately 280 trucks worth of new business. During the course of the quarter, bringing our year to date totaled just 700 trucks.
As a reminder, this is well above our long term guidance of 1200 trucks per year through just the first three quarters of the year. The performance of the business continues to meet expectations as mature accounts are managed diligently and startup accounts are progressing as expected we continue to see pressure on.
<unk> equipment and maintenance related expenses and that remains an area of focus overall I am pleased with the performance and remain excited about executing our plan to grow the business as we deliver exceptional value to our customers shifting to final mile. As we've discussed for the last several quarters. Our focus has been on.
<unk> exceptional service, but ensuring the quality revenue aligned with the value we deliver to customers. While much work has been done I am pleased with the progress much work remains though overall, we saw good demand for final mile services in the quarter and our off price retail channel with fulfillment as well as the appliance in.
Furniture delivery market.
<unk> Dcs sales activity is moderating some and we will manage accordingly going forward, we remain focused on our profit improvement initiatives, while investing in a differentiated service experience for our customers to deliver value to each of them.
Closing with some general comments on operations, we have seen improvements in the areas around professional driver recruiting and retention, although at elevated cost that said, we have not seen much improvement in equipment availability, which continues to put pressure on our maintenance cost we are still holding trades on several thousand trucks, which will re.
Wired to support our growth over the last two years, we will make progress in this area over the next year, but will be dependent upon how much equipment is needed to support our growth that concludes my remarks, So I'll turn it over to Darren.
Thank you, Nick and Hello to everyone on the call I'll review performance of our intermodal business, including an update on network fluidity and the opportunities we have to deliver exceptional capacity and value to our customers.
I'll start by reviewing the performance from the quarter demand for intermodal capacity continued to support growth in our business. Despite challenges related to rail velocity customer on loading activity and overall supply chain uncertainties facing our customers.
Volumes for the quarter were up 4% year over year and by month were plus 4% in July plus 6% in August and down 2% in September today. So far in October volumes have rebounded from weaker demand in September .
Last quarter, we discussed the challenges we were facing from a rail network velocity perspective, and I expressed confidence in a bit of optimism that it would get better while we are not back to where we need to be I am pleased to say that we saw meaningful improvement in velocity and performance from BNS F is the key.
Order progressed, but in particular in.
In mid August and throughout the remainder of the quarter. We continue to work with our primary channel providers at the most senior levels to improve our service quality and reliability, which presents our organization significant opportunities that I won't address next rec.
Recognizing John's comments about the shift in market balance we remain confident in our ability to deliver value to our customers with our intermodal service offering.
With greater velocity in our network, we are presented with an opportunity to remove meaningful cost in our business due to lack of productivity as I've said before our customers will participate in those savings while also benefiting from faster and more reliable service. We think this puts us in a.
Positioned to be able to deliver meaningful value for our customers as they look for cheaper more efficient and the most sustainable way of moving their freight as we stand here today I am confident that customers have greater demand for our capacity and speed and reliability improve and I believe we have a greater line of sight.
To that now than at any other point over the last two years.
In closing I would like to drive home the point that our business and our rail channel providers all benefit from service quality improvement and we remain motivated and incentivized to deliver it we have significant productivity and cost saving opportunities that will present themselves in our dray operations as ray.
Service quality mix further improvements I'll look forward to discussing our progress in this area in the quarters ahead that concludes my prepared remarks, so I'll turn it over to Brad Hicks.
Thank you Darren and good afternoon, everyone I'll review the performance of our integrated capacity solutions and truckload segments. What we collectively call Highway services I'll also provide an update on J B Hunt 360.
Starting off with Ics topline revenue was down 11% comprised of an 8% decline in volume and a 4% decline in revenue per load.
Diving into those numbers, a little deeper truckload volume in the quarter was down only 1%.
Similar to last quarter, we continue to see pressure in the spot where transactional market and volume, but also in rate and margin.
Similar to last quarter, our published or contractual volume was up double digits on a percentage basis year over year in the quarter, offset our spot or transactional business down double digits.
We continue to manage the business to outperform the market and we accomplished that against our benchmarks during the quarter.
As John discussed we are seeing a shift in balance in the market or a pivot as I like to say and we're navigating through that but remain focused on our long term goals and targets.
<unk> confident in our people and our platform J B Hunt 360 to deliver an efficient and valued service offering to our customers.
Shifting over to truckload similar to last quarter, we continue to see steady and solid demand for our drop trailer network service offering we call J B Hunt 360, Bucks volume grew 13% versus the prior year quarter.
We continue to believe customers are finding value in the blending of their live network and drop trailer network capacity needs.
Essentially offering customers the flexibility and ease of use of a drop trailer for use in less dense freight lanes, while also offering access to the vast amount of capacity available on our J B Hunt 360 platform for freight that would typically be handled by large asset based carriers.
One simple and seamless solution provided by experienced managers are trailing assets and powered by one of the largest capacity sourcing platforms J B Hunt 360, which I will touch on next.
We continue to see the strong usage and activity on our multimodal digital freight platform J B Hunt 360.
As we've entered this new market paradigm, we are seeing the expected shifts in usage, including increased offers per load, but also carrier stickiness and measurable data on our ability to buy capacity against the market.
Being a little more transparent over the last two years, our customers rely on our platform to find capacity when it was extremely difficult and challenging to source.
We were the Goto and in this market pivot admittedly, we may have had too much exposure to spot and project related business, we will make adjustments and pivot ourselves where needed but remain confident to investments in our people technology and assets to support our long term growth.
That concludes my comments, so I'll turn it back to Brad Delco to give instructions before the operator opens the call for Q&A.
Thanks, Brad I'd, just like to remind all the participants on the call that we're going to do one question and then move on to the next since we have such a long list of folks so with that we're ready to open it up for questions.
Absolutely we will now begin the Q&A session. If you would like to ask a question. Please press star followed by one or you touched on key pad.
If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.
We will pause here briefly to allow questions to generate in Q.
The first question is from the line of Scott Group with Wolfe Research you May proceed.
Hey, Thanks afternoon guys.
Just wanted to talk on the on the intermodal side do you think was September impacted by by rail strike noise or where demand and then maybe any color on how you think about fourth quarter volume and then just a big picture question. It does feel like intermodal pricing for now is holding up a lot better than truckload.
But maybe that's impacting having some negative impact on demand. So I guess my real question is how are you approaching bid season are you more focused on market share.
And if volumes are up in fluid ends up but rates are down next year. Do you think you can grow intermodal EBIT next year I know, there's a bunch but.
You could take thank you.
Scott This is Brian I think I counted five questions, there and I'll, just turn it over to Darren and let them start talking.
Yes.
Okay.
First of all and I don't want to spend all afternoon talking about potential rail labor situations look September was obviously impacted by rail labor or the threat of that.
Every year, we have network challenges that we don't always call out in these these sorts of calls.
In some ways. The results in September was similar to a bad weather event. It was short term in nature.
Volumes were improving coming out of August .
Rail labor situation.
It was probably one of the couple of several things that might have influenced customers and that came and went and volumes recovered back to where they were prior to that so.
I do think that customer.
Demand right now is.
Okay.
Was showing improvement in August and continues to today as far as pricing goes I think we're just way too early.
In the bid cycle to kind of know what to predict there. Obviously the bid cycle is important to us we continue to dialogue with our customers about ways that we can take cost out of our system together.
And as we have that dialogue, we fully anticipate the customer to get a benefit when we work together to do that.
I've said that for the better part of a year now and still believe that strongly.
I don't know where to even go next I'm just going to stop their balances.
Thanks Scott.
Trying to get I bet, you will get some of those other questions from some next next callers.
Next question please.
Thank you.
The next question is from the line of Chris Wetherbee with Citi.
May proceed.
Hey, great. Thanks, good afternoon, so maybe sticking on intermodal.
Maybe you want to sort of understand the comments around the cost sharing and savings that could happen.
And sort of a more fluid rail environment. So I guess, maybe the specific question is do you think about this more on a profit per load basis, where it may be you can maintain profit per load.
Your cost come down some of that shared or is it more on a margin basis I guess I just want to make sure I'm sort of understanding how you guys are thinking about that.
And certainly probably growth comes into effect to some extent next year as well leading into that to some extent. So I know, it's a little bit sort of a loose question, but I'm kind of curious how you guys are thinking about profit.
Per load relative to margin growth next year.
Well certainly we we contemplate the productivity we can generate on a container in a months that certainly drives some of our thought process. So as we can move.
Move more loads on a container in a month is velocity improves there is some benefit there that we would anticipate sharing with our customers. We're very focused on ROIC only margin is an output.
And as we layer on more volume and look for ways to grow.
We'd anticipate that there is a benefit in our underlying costs from that and I would just highlight and try to in some of the prepared comments our drayage activity.
Can also get a productivity benefit out of improved rail service, we would anticipate.
An improvement in the productivity of our drivers and our tractor resources as well as rail service improves and that too is something that we would anticipate our customers can benefit from.
Okay. Thank you.
Thank you.
The next question is from the lineup Amit Mcdarrah with Deutsche Bank You May proceed.
Thanks, Operator, hi, everyone.
Darren can you just talk about how.
Bid compliance maybe has trended.
Over the course of this year I mean, obviously truck spot rates have declined significantly, but the spread between intermodal contract in truckload contract is still pretty wide.
But the spot market is a lot looser, but rail service has gotten better I'm just trying to understand if there's anything that you can observe in terms of bid compliance. It maybe gives us a sense of the psychology of of kind of what the customers shippers who were thinking and then just related piggybacking on Chris's question, a little bit around.
To understand what the cyclicality of intermodal profits or on your view I mean, I would say that there are a lot of investors out there that look at.
Intermodal profits.
Up $65, 70% versus 2019, I think I think what you guys did this quarter was an all time record.
How do you answer some of the Investor concerns that Hey, you know a lot of this is attributable to a pricing cycle and when that is over we're going back to a profit per load in the two hundreds instead of the four hundreds where you are today. If you can just answer those couple questions that'd be great.
Well I'll start on the big compliance.
That somewhere in 2020 and 21, we've highlighted that.
Bid compliance deteriorated from our previous marks and somewhere in the 60% to 70% range of an award and maybe in prior terms it would hover between 70 and 80.
I think that your question around spot capacity influencing that.
We've been in the 60% to 70% range for the better part of two years and I would not say that anything this summer or more recent with truckloads spot prices falling.
Impacting customer big compliance.
In our intermodal business I don't believe we're actually seeing that so I don't know how much of an influence or that is certainly.
Truckload pricing will always be an influencer.
To some degree at intermodal, but it's not the only influencer of it.
Two investors concerned about or that to your second question I would just say.
Historically.
Intermodal prices Havent havent fallen and haven't moved.
To the magnitude that that truckload rates may be have it at times.
The the ability whats different this cycle is that ability for us to shed cost that I've highlighted I mean, I think that.
The pricing strength.
<unk> last year.
Year, and a half of pricing activity.
Is because all of our costs are up so much and I mean, that's J b Hunt's costs, that's our rail providers cost and it certainly is drayage activity in the industry equipment costs more.
Everywhere you look there were really significant cost increases and so to me. That's one of the biggest differences moving forward how does the industry shed some of that cost and productivity is big part of that so some of our ability to move in that area really depends on how much.
Additional productivity, we can get out of our resources, both our assets and our people.
Okay.
Okay. Thank you very much.
Okay.
Thank you.
The next question comes from the line of Justin Long with Stephens You May proceed.
Thanks, Good afternoon, so it sounds like rail service Scott.
Significantly better over the course of the quarter. So I was curious if you could share where box turns are running today just to put some numbers around that comment and then Darren you said things have snapped back from an intermodal volume perspective in October can you quantify where volumes are running quarter to date.
Well.
<unk>.
Hi, I don't know that I can clarify where volumes are running quarter to date, what I would just tell you is we saw that maybe ill say it like this.
September ran minus 2% you heard that in my prepared comments.
I think that had we not had a disruption from.
The potential of a rail strike volumes in September would have been more between three and 4% positive and I think that we're back in line with where we were running throughout the quarter without that disruption. So I'll just answer that question that way in terms of box turns.
For the for the quarter box turns were.
Hang on.
One five so.
Nowhere near where we would anticipate or expect a box turns.
To improve too we called out the velocity really began to improve in the second half of August and continued to improve throughout September .
And I just.
There will be somewhat of a lag as volume as velocity improves to the onboarding of new volume that our customers want to see and want to gain confidence in our ability to sustain that velocity and service performance. So.
We didn't experience any real benefits from that service and velocity improvements during those six weeks in Q3 in terms of volume and you had a lot of noise there.
Just mentioned related to volume in September so as we go through December and as we continue to highlight benefits from faster velocity to our customers and as we go through the bid season, we absolutely do and anticipate an improvement in the box terms.
Yeah.
Got it thanks.
Thank you.
The next question comes from the line of Jon Chappell with Evercore ISI you May proceed.
Thank you good afternoon.
Nick I wanted to ask you about Dcs, you've had like fixed three quarters now pretty breakneck growth on the truck count.
And you've been Onboarding a lot in their startup costs associated with your comments about seeing some signs of slowing in demand does this give you the opportunity now to kind of let some of the recent startup business reached the maturation stage and maybe you can see a little bit of a slowdown on the top line growth. We can now start to see the margin expansion in that business through 2023.
Yes.
That's a good question I would say typically if our sales volume slows down our startups diminish you would see our margins improve.
But we are facing a couple of headwinds one fuel cost is up and that dilutes, our margin a little bit but additionally, our maintenance cost is sky high because of all the growth we've added.
We've kept trucks longer and.
So that's increased our maintenance.
So that we could get that fix next year.
I would say, yes, but in talking with the manufacturers.
Even adding a third OEM to our mix to try to help us we're not going to have it solved as they see demand going forward. So we're going to be carrying used trucks all through next year not to the level. This year. So.
Normal times, yes, but this is still abnormal just because of purion trucks in the field.
Okay understood. Thanks, Nick.
Yes.
Thank you.
The next line comes from.
Next question comes from the line of Jordan <unk> with Goldman Sachs. You May proceed.
Yes, hi.
Question on just overall thoughts on supply chain congestion.
Obviously, the rails have certainly been part of it perhaps things are improving there, but where do you see the remaining roadblocks to maybe normalizing in.
Hopefully improving box turns as we go from here. Thanks.
So I.
I'd say something I haven't really highlighted yet today is just customer inventory levels are or how.
Higher.
And that's certainly influencing.
Some of the demand and the ability to process and speed up asset utilization. So that's certainly a factor I would also highlight that I think throughout the third quarter International import volumes continued to.
Be somewhat of a logjam at the at the ports, but as the quarter progressed I think a lot of that business has cleaned up but there is there are there.
There still is a lot of noise in the system related to getting cargo out of containers into warehouses on shelves to your home all of the all of those aspects, but they are.
The biggest the biggest factor to me right. Now is just inventories are elevated and so customers are working hard to find a place to put inventory.
Thank you.
Thank you.
The next question comes from the line Allison.
Wells Fargo you May proceed.
Hi, Good evening, just wanted to go back to the comments around and disciplined investment coupled with not starving opportunities here.
Maybe a little more color expansion on how you view investing through the cycle here.
Specific area of focus that you want to focus on here for that capital allocation I'm, just any color as they sort of are working through this potential downturn.
Thank you Bethany.
Hi, Allison.
We've been using it a keyword here really since the pandemic started not where it has been in fluid.
And that has been as our customers have been uncertain as to what the future has.
<unk> been held for them or will be held for them in and moving forward. They really struggled to find out what was going to happen from a labor perspective, what would happen certainly with the rail congestion that you heard Dan talk about but also just overall from a consumer perspective, what people would be buying and how to put inventory in the right place.
I think we've done a great job over the last nearly three years of making sure that we stayed fluid we stay fluid in our conversations with our customers and that's going to continue as you heard John mentioned in prepared remarks, and then you've heard that throughout each of the segment presidents.
Going to continue to stay focused on creating value for our customers that we're going I've stated several times that I believe that the supply chain is the most inefficient.
At least that I can remember in several years, a big part of that has been from the pandemic. So we're going to be focused on taking costs out of the equation for our customers across all five of our segments, where we can do that and sharing back with our customers and that cost while continuing to maintain our margin targets.
In each of the five different segments. So that fluid response to our customers, we're having to adapt quickly be more agile to process. Our capital allocation process will continue to follow the exact same way that we have done over the last five years, but it will be with.
What I would tell you from a people and overall capacity perspective, we've been very offensive over the last year or two making sure that we are prepared and ready for our customers. This is going to give us a chance to take a little bit more of a breath and be a little more structured disciplined staying in tune and in line with like the market is doing.
Great. Thank you.
Thank you.
The next question is from the line of David <unk>.
Barclays You May proceed.
Hey, Thanks for taking my question.
Maybe for Brad.
The second straight quarter of sequential declines at J B Hunt 360.
Revenues I know you talked about good activity I guess is that aside.
Maturity of the program or customers being a little more selective.
They go looking for that type of activity or does it speak to that.
Project.
Paul you talked about just if you could touch a little more on that.
Yes, David good afternoon.
You know.
Shelley just spoke about being fluid and really what we saw at the very end of Q2, then we spoke of it in our second quarter and we saw more of that in Q3 is really just the downward pressure and reduction in overall spot volumes that we see inside of the marketplace.
There's no secret to the downward pressure that that's had on rates in particular, they're more pronounced than we historically see.
In my prepared comments.
Referenced the term several times pivot.
There is call it the flip, but we're going from this tight capacity market. So a much looser capacity market and that's being driven somewhat by a softening in volumes that we see first and foremost inside of brokerage.
But from a fundamental standpoint, we do feel like our investments inside of J B Hunt 360, and I would say that many times that often gets linked.
Specifically to Ics, it's important that everybody on the call understands that it is a product and a value for our entire organization and we see several data points that it spins off that value inside of intermodal inside of dedicated and even inside of JBT with 360 box and so those are the areas.
Where we do feel like.
It's a longer play for us, it's not a one month or one quarter play in and we're just navigate in this current environment. The best we can it's a fight out there for volume in the brokerage space and I don't think that's any secret.
And but we know that that will course correct at some point in time, we will see some exits in the marketplace theres already data points that reveal that capacity is leaving.
And likely more of it to come depending on how.
Significant.
The the downward trends are and so.
We continue to feel confident we continue to make investment.
Both in the technology of $3 60, and also our people.
Thank you.
The next question comes from the line of Ken <unk> with Bank of America. Please go ahead.
Hey, great good afternoon.
I guess just to clarify I did turn down the Yankees game for this so excited to be here Mike.
Great job of dedicated but sorry, Brad Delco, just a quick one for Darren also.
You took on a lot of boxes that you ordered a while ago into a peak season that that didn't exist. It seems like can you remind us your thoughts on taking on capacity now versus the ability to get fluidity or increased turnover what the impact is on margins and your thoughts then into 'twenty three on on margins I'm, just trying to contrast that with <unk>.
John's comments earlier about the increased caution.
Well.
Certainly.
We on boarded a lot we announced an expansion of our equipment as we move into.
The next three to five years, we made that big announcement back in March.
On boarded.
Equipment as the years gone on and certainly peak season volumes arent.
Or where we would have anticipated them to be just a.
I don't know four or five months ago, certainly would have anticipated stronger volumes peak season. This year just doesn't appear to be.
Much of an event I will just say it like that while we are still experiencing growth.
As we as we go into next year.
Onboarding equipment.
We will continue to.
Run at a pace, where where our growth is supporting now as we get velocity improvements that's unlocking capacity in our existing fleet and we will have us really studying how quickly to onboard that equipment as we move into next year now at the same time.
If it if there is an opportunity to onboard equipment.
For whatever reason at a cost benefit to us and when we may choose to do that so that we can be a little more agile with with our customer demand to be responsive as we would anticipate some customers to experience challenges related to service that their risk.
<unk> from other carriers, all trying to find a slot on our competing western rail carrier. So we do absolutely anticipate an opportunity to grow from that scenario.
And having equipment available and ready for that opportunity is one of the core important strategies for our or the next year I'm not going to answer margin questions on that can I I'm sorry, it's just not something we're going to do Ken It sounds like it was worth of traveling to add.
Hey, Ken It's Shelly, let me add one thing to that.
I think you heard Darren earlier.
Earlier.
You heard guarantee earlier that ROIC is a.
Our focus and we made sure through 2021 and 2022 that for our customers that they can have and in different answer.
If they were to hold our boxes and so for us from a return perspective as bringing that equipment. If you think about the progress we had from our railroad congestion and also from our customers not being able to unload our equipment I think I would suggest that our volumes could be negative at this point based on those two factors so as spring.
That equipment.
<unk> ready and prepared from an ROIC perspective, we are in.
Then different position and said that allows us to lean forward, knowing that our customers inventory issues and the rail congestion would be shorter term in nature, and we prepare us better for our long term knowing that we have such a great target and converting freight off the highway into the most efficient land transportation in North America.
Ken I'm, just going to add also to give there.
A breather so you can catch a drag in between questions.
He said it best.
Just keep in mind, where we got these boxes currently and the difficulty in getting them here and so we have to plan accordingly to be able to be nimble. The other thing is these are 20 year assets theyre priced and modeled.
From an ROIC perspective to include downturns throughout those 20 years and so.
All of that has kind of taken into consideration that informs us of our ability to go out and buy in at those units.
Great. Thanks, guys I appreciate the time, thanks a lot.
Thank you.
Next question is from the line of Brian <unk> with Jpmorgan. Please proceed.
Hey, good evening, Thanks for taking the question just.
Just a quick one for Brad.
Brad Hicks can you can you just clarify if there is anything else.
This quarter that impacted margins and you talked about spot.
The pivot, but I think Theres also mentioned.
Higher claims and bad debt expense, so anything incremental on that would be helpful. And then just looking longer term as you think about.
Intermodal.
And being able to get volume and price at the same time, it's difficult to do that so the secular growth has been a little harder to come by from our perspective do you think the investments that Ian is doing expanding San Bernardino Barstow those are coming out multiple years from now, but we're doing more on trans loading or these sorts of things that can make.
Volume growth in the.
Earnings growth behind that a little more durable with a more secular than what we've been seeing primarily driven by the truck market.
Yes, so I'll start thank you.
We just call attention to a couple of categories and we have.
Some bad debt claims at points in times.
Usually they are pretty lumpy for us so over time, there wasn't anything that stood out if we look at the business in terms of years, but when we do have.
Bankruptcies through customers that we do business with and when that happens all at once and so I think we did see some of that in the third quarter.
Not over concerned as we look at a broader window of time and where we're at not seeing any.
Negative trends there per se.
It does it is a little bit more pronounced in a particular month or particular quarter.
As it relates to the second part of your question on kind of what we're seeing in spots.
We saw those continue to decline.
Can't really say and I don't want to predict what the future is so I don't know that we've officially reached bottom yet I would say that it's some.
Somewhat stabilized in the more recent periods of weeks.
But we also see other indices for example, the OTV I would suggest that volume trends have continued to decelerate.
In October versus what we saw in September and so that's where our.
Paying attention to every data point, we can to try and get a read the best thing that we can do is just stay as close to our customers to try and promote and grow on the contractual business.
So that we're not.
As a volatile per se in the spot market and that's what our focus is going into bid season.
Okay I'll try to dive off into your your question there Brian on intermodal.
I mean clearly.
In those years 2015, maybe to 2020, the you seem to have a lot of focus on whether or not we can grow both volume and price.
Prior to that time, I would say I think we had some success with that.
And during that time window, there was a lot of choppiness related to.
Our relationship with BNS after there was <unk> implementation, which.
In some ways shifted some challenges from the railroads out to us. So it's just a lot of challenges related there and as we move into the future I think our relationship with BNS F.
<unk> has never been stronger and we feel very confident about the work that they are doing and we are doing together to grow our intermodal product, we would anticipate that the value proposition, we deliver to our customers.
Is also driving enough value to warrant.
Quality returns that both BNS F and J B Hunt would would expect all of that being said does that mean, we get a rate increase I don't know.
No the expansion of their footprint is good for our intermodal business and so we're very excited about all the projects that they have underway and certainly trans load opportunities are big for us and we will continue to be.
<unk> strategies that we worked on together with the railroad.
Yeah.
Alright. Thank you guys appreciate it.
Okay.
Thank you.
The next question comes from the line of Ravi Shanker with Morgan Stanley You May proceed.
Hi, Thanks, good afternoon one.
On a short term question for Jonathan you said at the top of the call that.
Some areas of the business, maybe opportunely correction can you just expand on that a little bit more what exactly you meant by that and also Shelley congrats on the new position, maybe I'll ask you a longer term question, where do you think are the biggest opportunities and risks ahead for Jay behind over the next five to 10 years. Thanks.
Hey, Thanks, Ravi I might try to take both of those and let me just talk a little bit about and the opportunities that we have I think is the market is moving in our fluid approach, we recognize it and some of the areas that we've invested in heavily theres. Some right sizing that we have to do Brad talked a little bit about that.
And being more offensive with our customers and I'm trying to make sure. We're set up from a sales perspective, but then also looking at what is the five year plan around that business and making sure that were more in tune with what the model would suggest there are other areas of opportunity like what's happening in our maintenance and and.
That number for us amount of trucks that we actually have that we're holding is.
Becoming more and more.
Impactful to our bottom line, but it is allowing us to serve customers and we're staying in line with our customers from a price perspective.
Thank each one of our five segments have recognized where their opportunities are Nick I know talked about final mile also in the beginning with our cost recovery efforts and I was just making sure that the great value we create for our customers that we are in alignment from a return perspective, and thats going to take us more than a quarter or even more than that.
Few quarters, that's a longer term strategy for us with our customers walking each one independently through that so I feel like that is really our greatest opportunity at my add to what I'm. Most excited about our biggest opportunity is really to get the entire organization to understand the level of value. We can create for our customers with our <unk>.
Note agnostic approach, we have the best opportunity.
If anyone to give a customer an answer that is best for them and cost service and capacity because we serve the entire supply chain in North America, and with five fairly healthy segments now with the growth trajectory.
That really has a market for each one of them in a totally different number are totally different size and what it is today. We think we're just getting started so I think I'm excited about our long term opportunity for growth, while maintaining our margin and being disciplined in the way that we conduct our business.
Got it if I can just address the correction comment kind of what that was about.
You say that one more time Ravi.
Hi.
The comment on the top of the call about the area that are opportune for correction kind of was that something specific or was that.
Just a broad yes, I would say.
Well I would say we've tried to highlight those final mile is one of the areas that we're focused in on I think for Ics staying long term structured and disciplined in our long term plan and just making sure our cost stay in line, but that's a long term planning those are probably the two areas I would focus.
Very helpful. Thank you.
You're welcome.
Thank you.
The next question comes from the line of Ari Rosa with Credit Suisse. You May proceed.
Great.
Good evening and good afternoon.
So I wanted to ask about Retrans on dedicated obviously, we've seen spot rates come down quite a bit dedicated seems like it's been more resilient.
Wanted to see if you guys could address to what extent do you think those two can remain decoupled as we think about 2023 and bid season coming up.
Yes.
Thank you.
I'll take that most of our business I believe the exact numbers about 78% of our business and dedicated.
To some index or some contractual annual increase and we've been very successful in getting those and in addition to the ones that do.
Do not have indexes, we were able to get rates this year as needed for driver pay and various things so.
What the spot market goes up and down doesn't really affect us.
It may change why we sell because there's a lot of capacity.
<unk> that we see but we sign up long term deals.
And so when we sell those.
The way, we sell those it for the long term not quarter to quarter or anything like that so.
We view it as having very little impact on us.
From the spot market.
Yeah.
Got it okay. Thank you.
Thank you.
There are no additional questions at this time I will pass it back to the management team for closing remarks.
Thank you and thank you for spending time with US on this quarterly call I think you heard us talk a lot about that caution that we have but I want to make sure that I talk about why we mentioned caution for US caution is just a readiness to pivot it's a readiness to be available.
For our customers and understanding what's happening in the market and how we can best prepare ourselves and be ready with the executive management team, having over 25 years' experience at J B Hunt I think we've seen this before we've seen signs similar and we wanted to make sure that we can pivot with our customers and make sure that we continue to create.
Shareholder value, but not I would say that this was our best quarter in our history.
It is.
Maybe more muted because we think about that readiness that we're attempting to really solve for it was the best quarter for J B I. It's the first time Dcs hit over $100 million in operating income and so we're proud of the work that we've done and I think that you see the results.
Overall and I also think that you see our diversified portfolio and making sure that we are mode agnostic with our customers, but speaking of our customers sharing improvements with our customers is good it's good for them. It's good for our business.
And I think that's going to be important for us as we continue to move forward. The supply chain is inefficient and we want to help it become a more efficient supply chain. We're a growth company and we have a complete and total understanding of the importance of <unk> that will be our focus we're going to create more value for our customers.
But really trusting that people that take care of them every day and so I'll close by saying. Thank you to that nearly 38000 people that work hard every single day on behalf of our customers and we're going to continue to remain disciplined in our approach, but make sure that we are taking advantage of opportunities that are present with our customers.
And serving them with more value with that looking forward to speaking with you on the next earnings call.
That concludes today's conference call. Thank you you may now disconnect your line.
Okay.