Q3 2022 Covenant Logistics Group Inc Earnings Call
Yeah.
Welcome to today's Covenant Logistics group Q3, 'twenty two earnings release at Investor Conference call. Our hosts for todays call is Joey Hogan.
At this time, all participants will be in a listen only mode. Later, we will conduct a question and answer session.
Now I'd like to turn the call over to your host Mr. Hogan you may begin.
Thanks Ross.
Welcome everyone to the Covenant logistics groups third quarter Conference call as a reminder to everyone. This conference call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward looking statements.
Please review, our disclosures and filings with the SEC, including without limitation the risk factors section in our most recent Form 10-K, and our current form 10, Qs we undertake no obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.
A copy of our prepared comments and additional financial information is now available on our website at Www Covenant logistics Dot com in the investors section I'm joined on the call. This morning by David Parker, Paul Bond and trip Grant.
Kind of an opening for the call. Despite the challenges of a negative of negative GDP growth are overstocked inventories and industry wide overcapacity that have increased over recent months.
Combined with major inflationary pressures, we remain grateful to our teammates for producing record adjusted earnings per share for any third quarter in our history.
On a consolidated basis adjusted net income was up 31% and adjusted earnings per share was up 49% on the strength of revenue growth flat adjusted operating margin growing contribution from tail and a 12% reduction in diluted share count.
Resulting from our ongoing share repurchases.
Return on capital for the trailing four quarters was 23% compared with 12% for the trailing four quarters of 2021.
On the truck side, where we were pleased with how our utilization and rates held sequentially from the second quarter, but the impact of delayed deliveries of new equipment and escalating costs of parts maintenance and other line items compressed our margins in the quarter.
Our managed freight group did a great job in holding margin despite reductions in overflow freight from the truck side and our warehouse team Westwood cost headwinds associated with new customer business and investments in additional warehouse capacity for future growth.
Contributions of the a T acquisition, which operates in a less economically sensitive market.
Tail dedicated and stock repurchases provided most of the improved earnings per share despite a weaker market compared to the historically strong market a year ago.
In summary, the key highlights of the quarter, where our freight revenue grew six 5% to 267 million compared to the 2021 quarter.
Adjusted earnings per share increased 49% to $1 52 per share compared to the year ago quarter.
Our asset based truckload freight revenue grew 15% versus the third quarter of 'twenty, one with 53 fewer trucks.
Our asset light managed freight and warehouse segments combined freight revenue shrank by 5% compared to the third quarter of 'twenty one.
On the safety side, our D O T accident rate was the lowest third quarter on record.
11% lower than the third quarter of last year, but development of a small number of prior period claims contributed to almost three cents per mile increase in insurance expense.
Gain on sale is only 200000 compared to 900000 in the year ago quarter.
RTL leasing company investment produced another record quarter, contributing 38 cents per share or an additional 24 cents per share versus the year ago quarter.
We purchased another million shares during the quarter, bringing the total to 3 million shares through September 30 for this year.
Due to the strong cash flow in the quarter and the sale of the California terminal our net indebtedness decreased by almost 29 million after utilizing 27.5 million of cash on share repurchases.
We finished the quarter with leverage ratio of 0.23 times debt to equity ratio of seven 8% and again, our return on invested capital of 23.3%.
Now Paul or provide a little bit more color on the items affecting the business units. Thanks, Joey for the quarter, our asset light businesses, because the managed freight and warehousing were 38% of total freight revenue and 41% of consolidated adjusted operating profit.
And the managed trans side of the business. While we believe revenues are stabilized we expect margin compression into a softening environment.
Our warehouse revenue stream has accelerated due to the impact of three start ups for the year, receiving the full revenue impact in the third quarter, we expect to start ups and other we expect startup Carlson unoccupied lease cost to decline in the quarter, improving our margins, but yes. It light group remains a priority for growth focusing on.
Talent acquisition and technology enhancements.
The expedited division was 34% of consolidated freight revenue and 48% of adjusted operating profit in the quarter. It grew its revenue 26% versus the year ago quarter due to strong revenue per truck per week improvements and growth of 80 trucks with the first quarter acquisition contributing to revenue growth nicely.
Increased salaries and wages equipment and maintenance costs and insurance costs continue to be a major headwind in the year sequential operations and maintenance costs were significant in the quarter, but we feel third quarter was our peak from a cost perspective on equipment and maintenance calls you and aggressive or due to an aggressive replacement plan between now and the end.
End of 2023 driver probably remain stable at the present time.
The dedicated division was 28% of consolidated fright revenue and 11% of adjusted off already operating profit in the quarter revenue per truck growth was 14% versus the year ago quarter, while cost increases in salaries and wages equipment and maintenance eroded some of our progress on margin improvement we missed.
Sequential or improvement goal for the quarter, mainly due to the increased cost during the quarter. We continue to work diligently to improve margins through fleet reductions a reduction of approximately 60 trucks in the quarter equipment upgrades and asset allocation to more profitable accounts.
Our minority investment investment in tail continues to produce strong and positive results.
<unk> revenue in the quarter grew 45% and pre tax operating profit increased by 125% both versus the both versus the third quarter of 2021.
<unk> increased its truck fleet in the quarter versus year ago about 279 drugs.
It's a 22153 in groups trailer fleet about 492 to 6860 after receiving more than a $7 million distribution during the quarter our investment in tailwind, which is included in other assets in our consolidated balance sheet remained at $58 million as a reminder, tell focuses on.
Managing lease purchase programs for its clients leasing trucks and trailers to small fleets and shippers and aiding cons.
In the procurement and disposition of their equipment through a robust equipment by sale when management program.
<unk> contributed a total of 38 cents per share to our overall results or an additional 24 versus the year ago quarter due.
Due to the business model gains and losses on the sell equipment are a normal part of the business and can cause earnings to fluctuate.
Yes.
Turning the call back to Joey.
Regarding our outlook for the future as we said in our release.
We expect the remainder of the year to include continued moderating freight demand.
Later driver availability and continuing cost inflation.
Although we do expect our fourth quarter adjusted earnings per share to be similar to the third quarter, bringing the full year to approximately $6 per share.
For 'twenty 'twenty three we believe there will be market headwinds from a softer market during contract renewals as well as continued inflationary pressures. However, based on company specific factors. The investments we've made in our sales team the small acquisition share repurchases the.
Upgrade plan and reduce insurance casualty costs, resulting from our improved safety results.
We expect less earnings volatility than in prior years of economic weakness.
Over the last five years, our customer base has been strategically shifted to less cyclical industries through our full service logistics focus.
We predicted last quarter that 'twenty 'twenty, three will be a breakout year for covenant and we remain confident in that plan.
Even with the heavy equipment investment year, we expect our cash generation low leverage and available liquidity to provide the full range of capital allocation opportunities to benefit our shareholders.
Lastly.
I've been honored and humbled to serve covenant for 25 years and I'm excited about the leadership team that we've been able to assemble the best we've ever had.
Over the last five years the model has been retooled under David's leadership, and Paul will do an outstanding job, leading the company in his new role.
I'll still be around to assist the team in whatever I can do to help its just time to hand, the ranks to the next generation and let them go.
Ross.
We're done with our prepared comments, we'll now open it up for questions.
If you would like to ask a question. Please press star one on your telephone keypad now and you will be placed in the queue. In the order received please be prepared to ask a question when prompted once again, if you would like to ask a question. Please press star one on your phone now.
And our first question comes from Jason Seidl from Cowen. Please go ahead Jason.
Hey, everyone. Good morning, Thanks to operator, and congratulations to Paul for the promotion.
So our guys impressive quarter wanted to talk a little bit.
About some of the commentary around 23 can you you know maybe some barriers around that less volatility comments.
You're obviously you bumped six bucks. This year is less volatility you know above four or is it above five can you put that in the numbers for us.
You know, Jason as we look at it and this will be probably the.
Second or third quarter in a row, we've said it and I know some of our peers have said the same thing we think peak to trough, probably a 25% to 30% reduction.
And you know depending on where our peak is in works Ralph is and you know I guess when I look back at some point and know that but we still feel confident in that you know that range or a 25% to 30% reduction peak to trough and so you. You know you could go up and you know where the peak years, you can adjust it for that and I think that's a that's a good.
Spot okay.
Okay sounds sounds fair wanted to talk a little bit more about the dedicated segment, obviously over the last 12 to 18 months you guys have made a lot of changes there.
The business up to more traditional more profitable type business what percent is sort of left to touch here that you guys would like to either change out or improve the pricing.
Yeah, I would say of the 1400 for 300 trucks that are in there Jason there.
A couple of hundred trucks that are left in there that were we're actively working on and and so I think we've got a plan for those trucks and rule, we'll continue the steady process.
Okay. So most most of the heavy lifting done, but there's still a couple of hundred trucks, which will help you.
Offsets are just going forward.
So two things I would say and I'll give a little more color to one of the things in the comments the effect of the equipment and maintenance issues on all of our trucking operations really diluted a lot of the progress that we've made and so as we get this newer age fleet in here.
And maintenance costs start coming down and we're not having to carry a lot of excess equipment I think youll start seeing some of the some of the fruits of that.
It's a combination of that and some continued waiting fate.
Yeah and that was gonna be for my next question two guys in terms of when you look at your average age of your trackers I think it's 2.4 years now that's versus about two a year ago, where do you think youre going to be able to bring that down in 'twenty. Three two and then how should we think about capex in 'twenty three.
Hey, Jason.
We're trying to get the average age of the fleet down to about 21 mines by the end of next year. So I think starting in Q4 youre going to see that number the 29 months.
$2 4 million 2.4 years kind of start to come down.
We said this last quarter in the call, we're really being aggressive with this replacement plan they've got about 800 trucks scheduled to be replaced this year and almost 900 trucks scheduled to be replaced next year or so.
That gets you down to about 21 months, but you'll see that kind of sequentially decline each quarter next year in terms of Capex net capex I would say.
Next year, we're probably going to be in around $80 million to $90 million of net capex just on the replacement equipment.
The one thing I'll say is this year.
We're being aggressive but we're also turning in a lot of operating leased assets.
We've been doing that throughout the year, we'll continue to do that throughout this year.
And then it will tail.
Tail into 2023, a little bit, but the majority of what we're gonna be replacing is gonna be owned equipment. So we'll get a little bit better.
Little bit of a better Bang for a buck as we're turning in owned equipment and the sales proceeds on those.
So gains on sale next year, we should be modeling up.
Yes.
Okay perfect.
Grant's on the quarter and I'll turn it over the next person.
Thank you Jason.
Our next question comes from Scott Group from Wolfe Research. Please go ahead Scott.
Hey, Thanks, good morning, guys.
Well I'm just curious how are you thinking about how are you thinking about pricing.
Into next year, what's a realistic and drop in rate per mile next year.
Oh.
Yes, Scott.
I think we'll have all of these answers. The next six months aren't you, but that said I think there's going to be pressure on pricing.
I'll also tell you that I think that we have done a great job in the last year year and a half.
And being in the right buckets as it pertains to expedite and dedicated and you know because let's take dedicated first the first you know the thing that we stayed there is not necessarily so far pressure on rates.
As much as it is I don't need your 25 trucks now because I don't have the afraid I need you to reengineer right and I need 22, and you know so that's where I think the pressure on the dedicated side will come come from as is the pipeline with existing new not existed but with new beds.
That's based strong enough to take care of some reengineering that mean you both of those were the cuts who's going to come from but we have not been dedicated accounts are saying I need you to take 5% off and I don't really see that coming unless we get into near depression kind of numbers, but I'm not as concerned there.
Then on the expedited side.
You know we've only had one customer then it came to us and said, we'd like to have a rate decrease.
And that one customer is one that we did not have long term agreements the way out to keep in mind over the last couple of years, we've had with them.
60% of our business, we've entered into long term agreements with our expedited customers again it started back.
When we in 2021 we said Mister customer do you really need pains, if you'd know when we when we let that start T. Go we downsized the solo side, we took four or 500 trucks out of the expedited side of the model.
We really had blunt conversations with customers do you really need base, because they cost more to operate and we want you to enter into a long term agreement with us that we are here in 2020. One when you can't find trucks and we want you to be here for us and 22.
23, whatever that is going to be and so far that has worked out extremely well and.
So that said I think theres going to be pressure, but I don't think it's going to be the magnitude of what it possibly could have bad years ago. When we went into a recession I know I didn't give you a percentage because I don't know what that percentage is because I'm here to tell you I can say negative 2%.
As good as I could say a negative five.
Because that's how much confidence I've got and our customer base the relationship we got with our customers.
So you think maybe your expedited and I was going to hold up better than maybe the broader band market.
I do yes, I do because I think our customers really need again, I think our pressure is going to be but dedicated expedited oh, what whoever you are.
No I don't have penned load it's air freight I don't have 10 loads not afraid as down I need I need I need seven of them, but covenant youre getting all seven of them I'm not going to split it between X Y and Z and you Youre getting your seven I think that's where we're at and we'll have that pressure to replace those three extra low.
And that may come through cheaper rates right, there, but I don't think our existing business is going to be.
Hurt tremendously high Scott one thing I would add just for perspective is when you look at covenant historically.
What you see today is expedited is different than what you've seen in the past is quote covenant transport.
Or highway services, we had a chapter so we have covenant transport for years that was a mixture of team and solo and some dedicated they only had the highway services chapter, which was some pain and a lot of solos and now expedited is just team.
And so that volatility in the past, albeit very much understood and we understand the questions. What we're trying to say in and out and just David drive for the next 689 months, while I answered the question for sure. It's not an apples to apples. If you as you look at US historically, so I don't want to make sure that people try to understand.
And that is what is expedited today is different than what you've seen in the past and we feel much better about its position in its pricing.
Okay very helpful. And then just maybe similar question then when I look at like the the equity earnings from tell right.
4 million 3 million 4 million 7 million $7 4 million and now we're at like $28 million. So what is other than just the market being a lot different what what's changed about that business that earnings stream that that's going to be more durable.
Going forward I think I think it's several things.
Scott.
Hey, I think the leadership team Doug in his he's done a phenomenal job the last five or six years similar to covenant of assembling.
An outstanding leadership team are number one number two he's done a lot of work and solidifying the.
Business units with an.
Overall tail.
Number three they've done a lot of reengineering on the system side.
Which is really helping them dollar and not only cost, but pricing and collaboration across the businesses.
It's very similar to what's happened on the covenant side. The last five years is all that's coming together.
And you know producing what you are saying its system.
Just some outstanding results, let me, let me add to what Joey said, Scott I think it's two other things.
If you kind of go back to you you kind of take the Joey talked about chapters you got to where we are today than yamana cost you've got the Covid times chapter and you have rock before Covid chapter and the right before Covid chapter they were digesting a transaction that I eat up a lot of earnings and so they were making.
Good money, but they made a decision collectively we made a decision that that.
It had some some negative earnings and some tail to it to get out of it on a transaction.
And then once that transaction I'm going call. It during the Covid times gets fully out of their system.
And the way equipment I'm going to call. It has been rationed. The last few years, but they had been on just a massive growth spurt spree and buying trucks and trailers in the way all of these Oems of arc as you know basically it's an average of how many you bought the last three years two years five years and so they were able to I.
Had significant amounts of trucks and trailers.
18 months ago, 12 months ago, three weeks ago and into next year with these orders. So its allowed them to place all at its allowed them to continue to grow.
Their equipment counts keep growing when everybody else's are flat to going down and so you put all of that in the hopper. That's the that's the other part of the recipe that has just catapult in them and we all know it costs more to buy truck leaser truck bio trial or at least a trailer and them, having a supply of equipment and such a tight market has.
It really played into their hands of customer upgrades and pricing upgrades and all that kind of stuff.
So maybe just a little.
Oh go ahead sorry.
And I would just ask I mean, they do have some headwinds also I mean, obviously with rising interest rates. So how strong is the team and being able to pass through or the pricing structures to be able to pass through the increased capital costs, because they do have a lot of leverage as that moderates a leveraged model.
So are they able to do that as interest rates are rising thus far.
They're able to do that credit quality their credit quality is unbelievable and so and in a recessionary time and they've had some of these in the past that the group's done a really good job of who they pick and choose to do business with to minimize that but hey are they able to pass through you know.
Additional increased capital costs, so that I would say that's a headwind.
Depending on their their customer base and then B.
How does that what's the view of the used equipment market because there's no question. That's a very very important part of their model both for their own accounts as well as in and out of the market.
And so you know those two things are what I would call in a softening environment. You know two headwinds we're confident they can power through that but nevertheless ah.
Those are two things that they've got to work through but they have a lot of equipment coming in.
Pretty much most of it's all spoken for already for the next several quarters a lot of equipment, they're putting on the books. This year is in the second half of this year. So we won't see the full year effect of that EBITDA until our first.
First quarter.
And so EBITDA from ongoing business is going to continue to grow it's just what what the guy now sales do as they move into the market and all day on existing business are able to pass through additional interest cost.
So I guess, maybe just to wrap it up.
Relative to that comment of earnings down 25, maybe 30% peak to trough how much do you think.
These equity earnings would drop from upper $20 million. This year, where do you think that could go.
Yeah, I think it'll be less than the less than the 20% to 30% I'd I'd put them in that probably that.
You know, 10% to 20% range.
Okay.
Thank you guys appreciate the time and congrats Scott.
Our next question comes from Jack Atkins from Stephens. Please go ahead Jack.
Hey, Greg Good morning, and congrats to Paul and to Joey I, just want to say.
The fact that the company is on such a strong footing today as we head into <unk>.
Recession.
That's just a testament to your leadership and just you know all the best as you sort of you know.
Move on into the next phase of your career so congratulations.
I don't think that.
So I guess, maybe kind of picking up where.
Are you know where Scott left off I, just want to know kind of one one more question on talent as we can.
Think about that.
The mix of that book of business, how do you. How do you kind of think about large fleets versus owner operators and you know we're seeing some early signs of some exiting <unk>.
Capacity I mean, how do you kind of.
Worry that there may be a little bit of you increased bad debt there or just some some equipment that gets maybe turned back to tell given we've kind of coming off some some really really good times.
Here's what I would say too Jack no not significantly I mean, here's one thing to remember when we say owner operators in the tail model.
Their lease and a lot of captive owner operators a lot of fleets that have captive owner, operator programs and so they're not least in a bunch of mom and pops in and they as I said a minute ago. They upgraded their credit quality during this last downturn and so.
With the fleets that they do business with I mean, those are those are one off owner operators, but there's structures with those fleets that protect tail and so on that no no concerns on the smaller fleet side of things, that's where they've upgraded their credit quality I mean, yeah I'm sure they'll take a few back here and there, but they're there.
Theres ready.
So there's a list of people ready to at least that equipment, if they turn it back in and so.
I don't think we see a lot of major consortia.
That's great.
Maybe shifting gears.
Here for a minute and you know trip if I'd love to get you to chime in on this if you'd like but how are you guys thinking about some of the inflationary cost pressures as we head into next year.
Drivers on one end and then you've also got back office support staff as well and then you know.
You got it.
Issues with equipment inflation.
Service and inflation.
You know I guess, how are you weighing all of that and it feels like you've got some.
Maybe opportunity to improve some of that awesome operational cost with regard to sort of how you're managing your fleet as well so.
I'll, let you run with that question, but how are you guys thinking about cost per mile as we kind of go into 2023.
Yeah, Jack there is theres no doubt that our.
We're seeing a lot of inflationary cost headwinds.
What I think you've seen in Q2, and Q3 are kind of exaggerated in terms of.
No.
Think of two major things insurance and ops and maintenance, if you will and.
I believe.
Going back to Julie's opening comments and I think this is consistent with what we said in Q2, we've had consecutive quarters multiple consecutive quarters of <unk>.
Really good safety numbers and so from an insurance perspective.
There's this tail you know you would think insurance costs would kind of correlate with self insurance costs and.
Unfortunately, we haven't started to see that correlation as well as we'd liked in the Joey's point you know a lot of those things are related to prior period claims and so.
We look at the things that we can control and there's a lot of things in the broader macroeconomic market that we can't control, but what we're trying to do on the insurance side is position ourselves as best as we can in terms of tying up and being aggressive on mediation and doing it the right way.
But you know insurance costs have continued to be a headwind for two consecutive quarters now and I'm going into fourth we're going to the fourth quarter of this year, we're going to continue to pressure that and try to get some of those things cleaned up.
And hopefully as we turn the corner into 2023, we're going to start seeing a better correlation before it between those costs and our in our safety numbers.
The ops and maintenance side, that's another piece, that's really stuck out as a big operational headwind.
You know as we mentioned before were focusing on the things that we can control we attribute a lot large part of that to the average age of our fleet and downed equipment.
Fleets that require a 15 trucks are now.
Requiring 20 trucks, because five of those trusts are in maintenance or long term down status and so it's it's creating a really just a.
Strong headwind across all of the fleets, whether that's expedited and dedicated and so you know one of those controllable things that we've talked about as being aggressive on trying to lean in and get more tractors.
Then you know we originally planned I think when we.
Opened I can't remember, which quarter. It was but you know our goal or what we were a lot. It and we were going to get 525 to 550, new trucks will now we're above that for 2023 and you know we're gonna be you know next year looking at close to 900 new.
Tractors and so we're doing everything we can to get ahead of that and.
Focusing on the older equipment first to try to bring those costs down and doing everything that we can to start off 2023, and the best foot possible, recognizing it's going to be a softer freight environment, but focusing on the things that we can control or get their hands around and improve and said where.
Operating as efficiently as possible from an equipment standpoint.
And a very you know what we think will be a tough rate environment.
Okay, Okay, Great and then I guess, maybe last question and I'll hand, it over but you.
You know you guys are going into a.
More challenging operating environment in 'twenty three for a lot of folks with the strongest balance sheet, you've had an awfully long time.
The Atg acquisition you know what.
It has been up it's been a great success.
I guess as you sort of think about allocating capital moving forward.
The stock's trading at a pretty low level, but there could be opportunities.
Eliminating M&A so like how do you think about capital allocation between those two items and then you know what are you looking for on the M&A front.
Over the next 12 months.
I just love to get your thoughts on that.
Yeah, Jack I would tell you on the M&A front I would say I would use the word Nicky.
And so if there's anything niche eat out there it could be niche expedited or niche dedicated.
Or niche your warehousing.
I think I'll just use the word niche. He back you know non commoditized type businesses that are stable with a good long term track record Nikki and.
I think we would entertain looking at anything like that and and then I think you know with the share repurchase plan. That's out there has still got dry powder in it and so we'll just let that thing keep working and see what it does and I think that's probably not answer your question.
That makes sense.
Here Youre looking at non Commoditized business.
Great. Thanks again for the time guys really appreciate it.
I think so.
Yeah.
Our next question comes from Bert flipping from Stifel. Please go ahead Bert.
Yeah, Thanks, and good morning, everyone, Congrats to Joey and to Paul Paul I know trips not in the room, but he's nearby so I've got to say go dogs big game coming up.
While we can rather yeah, that's right that's right.
So you know I think you guys have answered a lot of the sort of the high level question. So far and I think one would just be interested to get your opinion on this is I think a lot of people were looking for sort of win freight would soften and now we've seen that and I think that focus is going to turn to how long. This lasts I don't I'm. Just curious if you have any thoughts about.
You know is this going to be more extended than what we saw in 2019 is it a scenario where inventories draw down and we're starting to see some improvement in the first half and so by second half Youre starting to see sequential.
Improvement in your EPS I'm, just curious you've put out some markers for the 25% to 30%, but how are you thinking about that.
In the context of how long this may last.
Well Bert I'd tell you you know we believe that.
Twenty-three is gonna be a slowdown in freight we believe that.
Eight nine months of some difficulties that I think that we're personally experiencing today that will continue.
And I think there's a couple of ways in which we look at it one is the economy could get worse than it is today and and I personally expect it to do to do that.
At the same time the trucking industry has got a couple of things that are some tailwind that is.
And as we all know Nobody's restocking inventory I mean, theres no restocking that is happening and so what we are sensing today.
I told the board a couple of weeks ago, and I'm you know that.
Give me for 'twenty to 'twenty three the way I feel right now and I'll take it I'll sign up for it.
We're not sitting here every day, saying, how am I going to load.
500 loads are 200 loads that we have.
We may have 50 loads and we load them by the end of the day.
And so that's the way in which we build today. So eventually whether it is in March or whether it's in September next year restocking of inventory will start back and I think that that's going to be a nice tailwind for the truckers. Another one that I think that we're sitting today is that.
None of US know, how many I personally think of it's hundreds of thousands two to 500000 trucks that came into the marketplace quote spot market over a two year period of time when they were hauling freight port $4.50 in those kind of things those trucks are leaving as fast as they came and said.
So I think some of the things that we're sensing today is that capacity has been coming out of the industry that is helping us.
With the current freight environment. So those would be the three points I think the economy can get slower than it is today about restocking will start eventually one day in the next few months and then capacity is leaving the market and so that also will help us truckers.
Thanks for that David maybe just to go a little deeper there as it pertains to your business.
You guys have provided some commentary on the expedited side and it sounds like a piece certainly helping you know at least diversified that revenue stream and it sounds like you're L. P. L line haul businesses is holding in there and so perhaps that does better.
Better than it has in the past are.
Dedicated you know it sounds like it's just it's improving you may have some volume headwinds when do you expect pretty good yield there. So that really makes managed freight probably the the odd one out you know <unk>.
<unk>, we saw sales pretty similar to <unk> with a margin in the double digit range. When when do you think that starts to break and you start to see some of the impact of the overflow issues.
Yeah, you know Barbara I'll take that I think I.
I think you'll see margins go down in Q4 from Q3, all managed freight and I think Q1 will be lower than Q4, and so there's no doubt that that is where probably the spot sitkoff goal. Following Friday economy is going to probably erode our margins the most and so I don't think.
It's gonna dropped like a rock, but I think youre going to see it youre going to see that things start trending back more towards normal over the next two to three quarters.
Thanks, Paul and just the last question from me and I'll turn it back over you guys have highlighted inflation a couple of times in this call and it's been a theme across other calls.
Do you think that that I know, it's still early in the bid season, but what were sort of the theme that I think it's showing up as people are truckers think that inflation is going to limit the.
The ability for shippers to claw back as much contract rate as they have in the past, particularly if he has 2019 as a comparison just because your costs keep going up so your ability to scale that back as challenge do you do you agree with that do you have any take on how inflation is going to continue to hit your business I know trip put some cough.
Metairie around insurance and operations costs, but just in regards to what it could do to rates.
Yeah, I think that's their own kind of lines of what David said earlier I think that's a that's another kind of buffer is that.
I mean, we've met with a lot of customers. This week between David now we've met with three or four large customers. This week and I would say their echo when that themes. There none of them are ringing. The bell, saying you know you just got it dropped dropped drop I mean, I would say a couple of them were going to get rate increases out of next year. Another you know, they're gonna be small they're gonna be small rate increases to cover what.
You just said inflation.
And what was what you always said or David said earlier, you know some of them are asking for how you helped me Ross I was my fleet, a little bit most find ways to get more efficient, but they're they're not coming in here asking for mark on the transportation side.
Mr rate decreases so I agree with you that inflation is going to it's another buffer to rates going down.
When you're in a business in and working with the customer you are providing a value.
Then I think that's a that's where you're going to be if you're a commoditized I think it could be a little dicier than that and again, that's what we've tried to do is get in businesses, where we're providing more value back to that kind of full service logistics offering.
We're trying to get out of Commoditized as fast as we can.
Thanks, Paul.
Our next question comes from Barry Haimes from Sage asset management. Please go ahead Barry.
Yeah.
Thanks, so much everyone and good quarter.
I had a question we haven't talked too much about peak season could you and.
And you know from other quarters, you know we've heard it's much more on them you decided if not non existent. So just wondering what you guys are seeing and maybe just to reminder, you know how much of your trucking business. Typically you know it was coming in from the West coast going inland and do you typically in the fourth quarters.
You know run any project business or get surcharges or anything like that that you might've gotten last year that you may not get this year. So just an update on peak. Thanks.
Yeah, So here's what I'd tell you you know I'm I'm Gonna go way back they were there you're always talking three chapters I'll have to go about 10 or 15 chapters back in the book, but if you go way back in the books I'm on tall, 11, 12, 13, especially 13 14 15.
Peak or peak was a huge portion of the business I mean fourth quarter. We we've made the year. It didn't make the ear based off peak and I think we've been very intentional starting in about fifth about 16 to really try to run the business for 52 weeks a year not not six or eight weeks a year and so we purposefully.
Outside of this our exposure to peak shippers have I've done a lot of things to help themselves for peak and then to your point the economy angle how much peak this year and so are we going to have a little bit of peak freight yes are we going to get paid well on the freight we do for the the three or four customers that were doing.
Serge Peak Friday, one, yes, we are or is it going to be similar to last year and the year before as far as the pricing we get on that yes. It's good margin business. It's just not there's just not going to be a lot of it. So that we do and I think that's right I remember years ago, Barry we would do.
$50 million of peak in about a four week period of time and that number now is less than $10 million on a $160 million quarter on $150 million a quarter.
So yes, I mean, it you know it's there it's there with some of our old peak customers, but it's down to two or three customers and you know, we're very happy with that and that's just where it's at.
Yeah.
Great. Thanks, that's great update appreciate it.
Got it.
And at this time there are no further questions.
Well Ross Thank you for hosting US thanks, everybody for joining the call look forward to updating everybody.
Body in January .
You all have a good day.
This concludes today's conference call. Thank you for attending.
The host has ended this call goodbye.