Q4 2022 Saia Inc Earnings Call
Good morning, My name is Devon, and I will be your conference operator today at this time I would like to welcome everyone to the <unk>, Inc, fourth quarter and annual meeting.
Conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
If you have a question during this time.
Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question at any time. Please press the pound key. Thank you for your patience I will now turn the call over to Doug Col. Saudi is significant executive President and Chief Financial Officer. Please go ahead.
Thanks Devin.
This is Doug coal I'm, sorry, as executive Vice President and Chief Financial Officer with me for today's call is Fritz hulls, great for our President and Chief Executive Officer before we begin you should know that during the call. We may make some forward looking statements within the meaning of the private Securities Litigation Reform Act of 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 our 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 will now turn the call over to Fred for some opening comments.
Good morning, and thank you for joining us to discuss <unk> fourth quarter and record full year results before I get into discussion of fourth quarter results I want to take a minute and express my thanks to the entire team here at <unk> for what we achieve together in 2022 the year brought an additional 11 new terminals into our network.
<unk> grew by more than 500 employees during the year. Most importantly, we kept the customer first and continue to provide leading service to our customers in doing so achieved record sales and earnings for the full year. Thanks to all of our XI Associates, who had a hand in these record results.
Moving on to our recent results December brought a continuation of the negative volume trends, we experienced across the back half of 2022 in the fourth quarter. We averaged approximately 28400 shipments per day about eight 2% fewer shipments per day than the same quarter last year and down from 30.
500 shipments per day averaged in the third quarter wafer shipment increased modestly so overall tonnage was down seven 7%.
The slowing industrial environment as evidenced by numerous reports influence these results across all of our business.
On a brighter note, though pricing remains stable and our fourth quarter yield excluding fuel surcharge group grew by six 5% and revenue per shipment excluding fuel surcharge increased by seven 1% total fourth quarter revenue rose by six 3% to 657 $655 million.
Yes.
Our continued strong service performance supported a contractual renewal increase of seven 4% in the fourth quarter. The contractual renewals reflect a deceleration from the trend of the past several quarters and should be expected given the softer volume environment, but a solid number nonetheless on.
On a full year basis in 2022 total revenue of $2 8 billion was a record for side. It was up 22% from the prior year operating income rose, 40% for the year to $475 million and our operating ratio of $83. One was 230 basis points improved from 2021.
This was the best year in our nearly 100 year operating history.
As we move into 2023, we've continued to see.
<unk> general rate increases across the market and that are in the single mid single digit range and <unk> cider, we implemented a general rate increase this past Monday, which averages approximately six 5% across impacted customers at.
At the same time, our service indicators remain very strong across the business, we're committed to providing excellent service to our customers and our invested heavily in the business to expand coverage and it's gratifying to see that our customers see the value of our service offerings of <unk> allows us to partially offset the rising cost of investment.
Investing in people equipment technology, and our growing service footprint.
Our fourth quarter operating ratio of $85 nine increased by 170 basis points compared to the operating ratio of $84. Two posted in the fourth quarter of last year I will now turn the call over to Doug for more details from our fourth quarter and full year financial results.
Thanks Fritz.
As mentioned fourth quarter revenue increased by $38 6 million to $655 7 million.
Bonus of revenue growth in the quarter versus the fourth quarter a year ago were as follows our yield excluding fuel surcharge improved by six 5% and yield increased by 14, 3%, including the fuel surcharge.
Fuel surcharge revenue increased by 46, 4% and was 21% of total revenue compared to 14, 6% in last year's fourth quarter.
Revenue per shipment, excluding fuel surcharge rose seven 1% to $288 34, and including fuel surcharge revenue per shipment rose, 15% to $364 44.
Tonnage decreased seven 7% attributable to an eight 2% shipment decline slightly offset by a 5% increase in our average weight per shipment or length of haul decreased three 5% to 892 miles.
A further breakdown of activity in the quarter is as follows in October shipments were down four 4% and tonnage was down 3% with a one 4% increase in weight per shipment.
In November shipments were down eight 1% tonnage was down seven 1% and weight per shipment rose one 1%.
December shipments were down 12, 3% and tonnage was down 13, 2% with weight per shipment turning negative down 1% in December .
In January shipments have been down were down three 9% and net.
<unk> was down three 7% with weight per shipment up slightly 2%.
Shifting to the expense side for a few key items to note in the quarter and how they moved with the acceleration of negative volume trends, we experienced in <unk>.
Salaries wages and benefits increased by five 3% from a combination of our July wage increase which average about approximately four 3% across our employee base and also the result of our employee count having grown by approximately five 7% year over year.
Purchase transportation expense expense decreased by 13, 8% compared to last year and was nine 2% of total revenue compared to 11, 3% in the fourth quarter of 2021.
Truck and rail purchase transportation miles combined or 12% of our total line haul miles in the quarter compared to 19, 5% in the fourth quarter of 2021.
Compared sequentially to Q3.
Miles of 17%.
Fuel expense increased by 41, 5% in the quarter, while company miles increased four 3% year over year. The increase in fuel expense was primarily the result of national average diesel prices rising by more.
38% on a year over year basis.
Claims and insurance expense decreased by 8% year over year in the quarter and was down 2% or <unk> 3 million sequentially from the third quarter depreciation.
<unk> expense of $39 6 million in the quarter was $10, 3% higher year over year, primarily related to investments in real estate and equipment.
Total operating expenses increased by eight 3% in the quarter and with a year over year revenue increase of six 3% our operating ratio increased by 170 basis points to $85 nine compared to $84 two a year ago.
Our fourth quarter tax rate of 24% compared to 23, 9% in the fourth quarter last year and our diluted earnings per share were $2 65 compared to $2 76.
In the fourth quarter a year ago.
Moving on financial highlights of our full year 2022 results as Fritz mentioned revenue was a record $2 8 billion and operating income of 475 million was also an annual record our operating ratio improved 230 basis points in the year to a record 83, 1%.
For the full year 2022, our diluted earnings per share were a record $13 40.
Compared to $9 48 in 2021, I'll now turn the call back over to Fritz for some closing comments, thanks, Doug while the environment, certainly feels a bit more tempered us and it did entering the past couple of years I feel pretty optimistic about the road ahead. The December volume decline was a bit more pronounced than what we would've expected from a seasonal.
Ali standpoint, but we do like feel like some of that May have been the result of vehicles, whether that moves across the country over the last week or so of December .
The extreme temperatures of result in some customers working limited schedules and we saw that reduced pickups as we turned the calendar January volumes are catching up a bit better than expected. Maybe the result of some catch up from customers. If history holds there'll be more weather effects as we move through the next months and get into warmer temperature temperature.
And our seasonal seasonally busier months of the year. However.
However, as we've learned over the past several years as the environment is disrupted by weather or other events. The carrier that has the ability to adjust and Richard restore service will continue to be a strategic partner of the customer supply chain.
In terms of expectations, we have plans to open five terminals over the next three to four months and look forward to the expanded service and presence. These terminals will give us at the same time, we continue to develop the markets around the 18 facilities that we have opened over the last two years. Although we're excited about the early success of these locations.
We see considerable runway to continue and penetrate those markets beyond that we continue to work through a pipeline of more than 30 real estate projects, which are under review and consideration as potential openings over the next several years. These terminal openings support our strategy of getting closer to the customer and adding value to the supply chain with <unk>.
That said, we're ready to open the line to questions operator.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from Todd Fowler with Keybanc capital markets.
Hey, great. Good morning, Chris Good morning, Doug Thanks for taking the question.
So.
It sounds like you just covered a little bit of the January trends and it feels like maybe there's some movement between late December and into January but I guess I'm just curious in this environment. How you think about managing the staffing levels with kind of the volatility in trade since you'd think about.
Margin progression either into the first quarter or even on a full year basis in 'twenty three what would your expectations be just given kind of where the environment is.
Yes, I think the key thing for Us Todd.
Describe the impacts that we saw with weather in December .
Just the last few days of January you actually saw the weather trends in the center of the country and as you would expect that had that influenced the results we have.
The key thing that we think about.
Was any of this is that we want to manage our labor costs to match sort of what we need to do to deliver.
<unk> or exceeding service for our customers. So as we've gone through the last few months as we've seen the trends we've reset kind of our cost model you see us in sourcing more and more of our line haul cost versus what we had been doing looking for opportunities to leverage our city drivers into our line.
<unk> network to maximize the utilization of all those important assets.
Those are the those people are key to driving success for us to as we come out of weather events or slower economic events to be able to match.
Customers' needs and expectations or frankly exceed them.
So we feel like that that we're continuing to position ourselves for that we've looked at that.
History of what we've seen sort of quarter to quarter from Q4 to Q1, we feel like we can keep that kind of in line with historic.
Sort of seasonality there keep <unk> flat, maybe gets better if things get a little bit better.
But I think we continue to manage the maintained service and we optimize and match our labor costs to what what the environment affords us so full year.
Still.
It'll be interesting to see how this develops.
You know it.
As to where this ends up but I think that we're in a position that we know that we are providing differentiated service that's going to allow us in the environment certainly is going to continue to allow us to price to that and I think that's going to be important part of how we manage the overall investment in the business.
Yeah, Okay. Thanks, Fritz it and maybe just to that last point I will turn it over after this but.
On the pricing side, and you talked about the contract renewals coming in I think seven four and Thats down from what we've seen over the last couple of quarters, which have been very strong.
Can you just speak to where you think youre at with your pricing ability based on your service improvements in the network and maybe your ability to kind of continue to close that pricing gap is you've made those investments to improve the service over the last several years. Thanks a lot.
Thanks Todd.
Frankly, I mean, it is to emphasize our focus is on keeping that customer front and center and I think in that kind of environment.
You've got and this continues to be an expensive business to operate so you've got to continue to push.
Making sure that we get paid for all of the service that we provide I think maybe the the rates of change that we've seen over the last few years. It slows, perhaps but I think the position that we're in right now around what we're doing for the customer that is differentiated and if I look across the landscape of what.
Others services being provided what that pricing looks like I mean, I think that there is an opportunity for us to continue to grow our business and develop the margin profile of this business deserves.
Sounds good thanks for all the help.
Our next question comes from Scott Group with Wolfe Research.
Hey, Thanks, good morning, guys.
A few things can you just on the January tenants you have a sense of the sequential December to January and how that was trending.
Yes, historically, we've seen.
A little bit of a step up call it 1.5% to 2% historically as you move into January .
That's always influenced by the weather Youre exiting and what you are facing but.
The step up was closer to five 5% to 6% this year, but like Fritz said that last week of December man. It was it was tough with that cold Cogs.
That went across the country.
And the pickups were really saw off so some of that could have been just catch up electric had from customers but.
It felt I felt better given first two weeks of January felt a lot better in the last two weeks in December for sure.
Okay. Good.
And then.
Doug any help with.
How do you think I know you don't give us inter quarter yield updates, but just directionally how to think about the yield trends.
Gross appealing that if youll ever you want to think about it in Q1 the year, However, you're thinking about.
Yes.
Fritz sentiment, we've seen <unk> announcements and <unk> went out this past Monday, it's like I said on an average of six 5% on a softer volume environment, you probably end up making some concessions in some lanes for example, or with some really good operating customers. Some so it.
Historically, we say we hold on to about 80% of our IRI in terms of the yield that we capture so on a softer volume environment, maybe it's a little less than that I saw a couple of <unk> I think on average the <unk>, even though they're solidly mid single digits. There's a couple that are lower than what we've seen over the last couple of years. So thats.
I think that's just in line with probably what the shippers expectations are.
But it's still a positive environment I mean, the seven 4% contractual yield.
As you know I mean, it's just kind of a forward looking indicator to us of what the shippers are expecting and that's coming off the heels of several quarters of double digit rate increases. So we're lapping some of that so I would say pricing in January was still positive and I just think the expectation should be that you won't get price at the same rate when volumes are running down.
Ron.
Alright, and then just last thing obviously based on sequential margin being flat.
Margins down a point point and a half year over year do.
Do you think you have the potential to improve margin over the course of the full year.
We go back and look at some examples so.
I guess it.
From a very high level, it's going to depend on really what where this economy goes and what volumes look like but I mean, we've got examples in the past.
Yes, it will improve the margins in a down year I mean, if we go back to.
A couple of years like 2014 into 15.
Things were down in 15 kind of energy rolled over.
Our shipments and revenue were both down about 4% that year.
Fuel expense was down a lot so fuel fuel surcharge revenue would have been down but that year over year, we actually improved our margins by 70 bps.
We look at the following year and it was still pretty sluggish environment fuel was down again I think our revenue was flattish on.
On down tonnage in that year.
Well I went backwards a little bit so there's a lot of moving pieces out there, but I think.
<unk> shipments are going to be down like they are kind of in January if we had to run that through the full year.
We really got to hang on to this rate increases of this <unk> level and then I think we could hold on to margins I think if volumes are going to run negative all year in this low to mid single digit range I think it would be hard to improve margins, but again like Fritz mentioned in his opening comments. We got 18 terminals opened in the past couple of years.
They were certainly although we're pleased with how they are doing and as they mature they do better every quarter, but those were a drag sn.
Essentially on the overall rate we reported so again, while Youre building out a network like this which is something we're going to have to manage through but I think it will be reasonable <unk> within 100 basis points, plus or minus of what we just exited would be reasonable.
Thank you guys appreciate the time.
Our next question comes from Chris Wetherbee with Citigroup.
Hey, Thanks, good morning.
So maybe picking up on the cost side, so kind of wanted to get a sense of what you think your cost inflation is running and then maybe a little bit about how you think youre going to manage head count assuming that we still see a little bit of sluggishness in tonnage at least for the first part of the year.
Well, Matt I think Fritz.
Covered it pretty well, but I mean, I can give you an idea of how how we manage it.
If I think of just sequentially Q3 into Q4, our shipments per day were down almost 7% right and it was accelerating there at the end as I stepped through the through the months, but shipments per day down about 7%. So you go to work on the things you can control out out in the network and our dock hours per day for.
<unk> Q3 into Q4 were down 10%.
Our city hours Q3 into Q4, as we're managing down costs to adjust to these declining volumes our city hours per day.
Down about 5% Q3 to Q4, so those are the levers and we will keep to work. Unlike Fritz said I think we've we're in a position given where we exited December .
Our capacity in terms of labor and all feels pretty good for we sit today and we brought a lot of it that we could in house to make sure we keep our drivers.
As busy as we can keep that valuable resource because our outlook is still.
Little bit cloudy, there's people starting to talk themselves into the idea that we are definitely going to have a soft landing now so we want to be mindful that it is very fluid and we don't want to be scrambling to find these valuable employee resources when our customers need us so.
It's a tight rope but.
We feel pretty good about how we've positioned ourselves this quarter.
And cost inflation as you think about the beginning of 'twenty.
Three is it mid single digits or so.
I mean, it's hard to give you just kind of an average number I'd if I think about it on the wage side, you're still going to have some wage inflation. There. This past year. Our average wage increase was about four 3% I think something in that range still kind of makes sense unless things really fall apart.
And the jobs economy.
You move down the line depreciation was up 10% in 2022 and it is going to be up again, I mean, we're going to invest in the business again. This year like Fritz said, we've got terminals to open where we're going to invest in the fleet work on fleet age, which helps our maintenance cost so.
Those are a couple of big buckets, but then when you when you get below that.
It's tough to say because.
It can be down a lot and that's a cost bucket, but it's down because we're moving some of those costs other buckets, but I think low to mid single digit maybe if I had to think about an average.
Cost in our industry.
That's helpful. I appreciate it guys. Thank you.
Our next question comes from Jon Chappell with Evercore ISI.
Thank you good morning.
Doug you just touched on PTO and ask you about that engine running much higher than historical levels up until this fourth quarter and you pulled it down pretty meaningfully as a percentage of revenue.
Much of that is I mean, obviously, there is a shipment component to it but do you view that as kind of structural it sounds like youre going to run head.
Head count.
Thoughtfully throughout a cycle, so PT seems to be a quicker lever.
Step down kind of more consistent than the levels. We should think about in the type of volume environment, you laid out for 'twenty three.
I mean, if I think I mean, given the expansion efforts, we have underway to grow the network the more comparable to the network some of our national peers.
We're going to continue to need.
PT as we come out of whatever slowdown where and how we're going to continue to need <unk> and we use it very effectively.
I think back to pre 2017 before we were in this expansion mode as a percentage of miles I mean, we'd run in that 12% to 14% range pretty regularly.
Yes, we take it below that in this downtime, it's because we want to use our drivers and hang onto them, but I don't think that structurally I mean, we've reaped a lot of it out but when business comes back we're going to need it we're going to use it effectively and I don't think this is kind of a run rate from here of the account economy bounces back we'll use it or not will use more.
Right I mean, if we can get it will we will use over the road truck pte, because those rates are probably going to be pretty favorable and when things come back because they are kind of resetting now so.
We brought them down quite a bit but sometimes when we do it.
We're doing it to preserve hours and miles for our drivers, but it's not all that effective in some lines, if I was running <unk> and <unk>.
Endo back.
The backhaul market.
And those miles on my own drive now and coming back less efficient because maybe I am not full but I'm doing that because I want to keep those drivers keeping busy where I can so.
You know you've followed us for a while <unk> not a negative for US is just variable and we like to use it when it's effective for US it's part of our total line haul cost investment so.
At any given point in time, we're going to make a decision around what's cost optimal around the options that we have available via rail truck are internal.
Fleet so it's.
It will flex and change over time as we meet <unk>.
Service obligations. The first step we have and that process is that whatever choice. We may make has to be about supporting with the customer requires and then we cost optimized from there.
I mean, it's good to have that flexibility in this volatile time.
Fritz Big picture, one for you quickly.
Feels like the consumer narrative is.
Pretty binary right now, but maybe getting a bit more optimistic the industrial narrative seems a lot more negative.
Carry more industrial flip freight so the last couple of months of data you provided notwithstanding what are you thinking or what are your customers, saying about the industrial outlook for this year.
I think we.
We read much the same thing that you do and I think what I would say generally across the board it's pretty it's tempered.
I think it's critical for us to.
To remain keep that flexibility and keep the our network in a position that we can flex as we need to if the consumer is a bit stronger certainly we have some elements of our business that would be more.
Consumer tied or others that may be a more industrial type. So we want to be able to handle both or be able to deal both and be in a position that we can flex, but most significantly meet those service requirements. That's why we've kind of managed the way we have we really focused our cost optimization efforts around reducing hours.
And maintaining flexibility and availability in our workforce. So far that's been successful and I think we've got to continue to focus on.
<unk> those service expectations and balancing that against.
Maximizing our Youbet best utilizing our R. R driver fleet.
Okay. Thanks.
Thanks, a lot great. Thanks, Doug.
Okay.
Our next question comes from Amit Mehrotra with Deutsche Bank.
Thanks, Operator, Hi, Fritz Hey, Doug Good morning, I, just wanted to follow up on the on the margin expectation for the first quarter.
I guess.
Just given how.
Weak November was our counter seasonal November was.
The relative snapped back in January I would just think there may be an opportunity to see some counter seasonal or improvement.
Don't know if you vehemently disagree with that or or if theres something in the cost structure that evolved that I'm missing, but it just seems like <unk> was just a lot worse because of those remember fall off and Thats counter seasonal and maybe you get some of that back in the first quarter.
I bet, we could and I can also paint a picture that we could go the other way I think the challenge you have with.
Forecasting are really considering sort of march or the.
March quarter first quarter result is that.
January and February historically, if you go back in time for us have been.
Kind of up and down it could be everything from economic too.
Weather related all those sorts of things so it's tough to draw a correlation.
To say that with this could bounce back we know that March is the most important month of the quarter.
But what I like the position that we're in right now because.
We've worked extensively.
November December end of the present time and chat a resetting of our profile to be able to.
Be in a position that were a little bit more cost optimal as compared to what we saw as tonnage declined in November and December we feel a lot better.
Where our footing is now with our productivity looks like and most significantly what our service level is and our ability to restore service as we move through even though last week.
Weather challenges, we've had thus far that's part of the game right now I think the path out outperforming Q1, as we get a favorable operating environment in terms of everything from weather and such and I think we can perform well through here.
We've kind of given our thoughts around the margin profile, that's kind of where we are.
As we look at history that feels like kind of where we would be certainly as their path to better sure.
Okay.
It's helpful and maybe one more maybe more important question.
Mike the near term stuff. So I'm just curious how much of the <unk>.
Reductive Labor Force did you guys lose through attrition as you guys cut the hours across the board and really what I'm trying to get a sense of the next kind of most important thing is how carriers are able to bounce back efficiently with fluidity.
As volumes come back in late February March hopefully and I just want to know are you properly resource with respect the dock workers and drivers.
Kind of meet that opportunity just given kind of the big cut to hours and maybe the attrition that drove.
Yes, the attrition has been.
We've seen a bit of it here in the last.
Few weeks months.
And thats been relatively small we have focused very diligently as we've reduced hours, it's important to us that we've balanced that across our workforce.
As we've seen some.
Some attrition we haven't replaced head so that allows you to better balance across the balance of the remaining head count. So we feel like we're pretty well positioned that we can flex from here flex up from here.
<unk>.
Some of the things that we have done around workforce as we've had dark part time Doc staff.
Elected to move on to other things you know we've use our supervisor ranks to work on the dock and in some cases, we've used some of our city drivers all.
All those are ways for us to.
Keep that all important connection with those critical employees. So that when time comes and I think it will come that we can flex out of this I think we'll be in a good position to restore and continue to grow.
Yeah, Okay. Thank you nice job to you and the team appreciate it.
Our next.
Question comes from Jack Atkins with Stephens.
Okay, great good morning, and thanks for taking my questions.
I guess, Doug if we go back to something you mentioned earlier sort of we're talking ourselves into this idea of a soft landing.
If that's right or not but I would just sort of be curious if you had fritz could maybe comment a bit on what your customers are telling you about.
Maybe how they are expecting their business trends to kind of progress through the year, just any sort of color or context around that.
Well I mean, it's.
Hard for us to pull in an anecdote here, there and try to draw conclusion in and we've got a very diverse customer mix, we've got 60%, 65% industrial exposure, but not any one customer makes up more than 335% of our revenue. So I'd hate to take one anecdote and try to draw a conclusion from that I mean, we sort of look at the same data you all are.
Looking at an ISN wasn't all that.
It wasn't all that favorable in January but.
Just thinking about what's going on in the jobs market and with some of the other economic data.
It doesn't it doesn't seem as bearish as it was late last year in terms of the outlook, but for US I think Fritz is keyed on I mean, I think we've gotten a pretty good position from a cost standpoint with the volumes. We're currently seeing.
We've got the rate increase we've worked on and announced the <unk> and that that's key to what we're doing because I think our service. It does put us in a position to go get pricing.
Whatever goes on from here I think we've got a pretty good relative value proposition and if things are going to be down maybe maybe we will find share opportunity maybe hours will be down a little bit less because we're in some newer markets with good service if our rates attractive even if we're all bump in rates up a little bit.
And we offset it more now a little bit less so.
I don't think we've got a great view into general customer outlook is.
I look at some of it will come.
The shipper surveys that come out of you all so analysts ranks so.
Okay Alright.
I appreciate that I appreciate just the intellectual honesty about that and it's all good. So I guess maybe for my second question I just would be curious just following up on <unk>.
And earlier, which is which a fair point.
How are you guys thinking about latent capacity in the network today, if I recall last time, you updated us it was about 20% or so I know, it's a hard number to really get too, but we are also seeing tonnage come down a bit.
Yes.
It definitely feels like youre carrying extra costs for when things begin to recover to.
And to be prepared for that but how are you thinking about where that number stands today roughly.
Yes Jack.
We're at least that we've got.
I think I'd expand that to 25% capacity, 25% kind of latent capacity I think the one callout that I would point to we've mentioned that we've opened 18 facilities in the last two years.
Our focus there is we're thrilled with the early success, we've had there, but when you're making a 10 year investment.
We move or identify these facilities, we are thinking about them for 10 years and so those are all opportunities for us and we've got our sales force geared on that as an opportunity because those are <unk>.
The capacity we can Phil.
I think in some of the we have a couple of pinch point investments in the network this year, where we're adding some brake capacity so.
We still have some of the challenges we had before in terms of we have a range. We've got facilities that have got tons of capacity in others.
We've still got to make some investments so what I really like about it is that we've as we look across our.
Network and footprint, we've got a pretty consistent service offering across the board so for us to match a customer need and grow is really exciting to us and I think.
That flexibility and the ability to repeat the service is going to be key.
Okay, great. Thanks, again for the time really appreciate it.
Our next question comes from Jordan <unk> with Goldman Sachs.
Yes, I just I guess following on.
Any color around the newer terminals that Doug had mentioned et cetera.
As being a slight drag you're sort of curious the last 12 or 18 that you opened.
When you do open them.
Is the gap between.
Existing and new narrowed versus prior experience.
And you get out to profitability in a quicker fashion just sort of curious thanks, Oh, absolutely you get back to quicker to sort of company average or for sure.
Opened the northeast.
It took a little bit of time now, we're thrilled with where it is right now but.
It took some time to scale those as simply because we had to build the infrastructure around that.
The last 18 have are more I would characterize as sort of fill in and these are ones that maybe you've taken a little bit of stem time out. So you get a cost advantage you are taking advantage of or frankly, youre, finding a new customer of better serving the customers. So these I would expect.
That we would be.
Be able to get to company averages much more quickly now I will point out that the challenge with that is it when you experienced what we did in the fourth quarter about the volume trends that Doug described that impacts the facility.
It's in its infancy so.
They become a bit of a drag in that because that you experienced set across the board those sorts of trends.
Great. Thank you.
Our next question comes from Tom <unk> with UBS.
Yes, good morning.
I wanted to see if you could.
I think offer some thoughts on pricing I mean, it seems like there is debate over the last year about <unk>.
Pricing at a hold or not and I think generally people are of the mindset that it will I think the results are pretty consistent with that but are you seeing anything in competitor behavior that causes you to be kind of more or less optimistic.
I mean, I guess the idea that you set of getting less price and a weaker tonnage environment environment totally makes sense, but anything on kind of competitive dynamic and conviction on the favorable.
Pricing dynamic for <unk>.
Yes, I don't see any changes there.
Certainly the customer customer and the environment is as Tom as you just characterize a bit softer right. So that there is not what we saw a few months ago or a year ago, but what I would tell you as I look at specifically at <unk> and I look at kind of where we stack up against the competition and I look at.
The service that we're providing.
Which is in many cases better.
I think there is an opportunity there for us and.
The investments that we've made the facilities and expansion it deserves that so.
I feel pretty good about our position in the rate of growth may not be the same but the opportunity remains and I think the environment.
Underlying everybody's still has inflationary costs, so I think that Thats a.
A critical part of the industry and kind of what we see.
Right. Okay. So it sounds like still a lot of confidence in the competitive dynamic.
I guess for the second question I think you talked a little bit about industrial earlier.
Maybe parse.
Parse it a little bit further.
Did you see a difference.
Have you seen a difference over the last several months in terms of how much weakness is.
Being realized with industrial customers versus retailer customers and I think the idea is just that.
If you have inventory reduction with retail customers, maybe that plays out through <unk> and they improve but it is just a little less clear on whether you have already seen weakness with industrial customers or whether thats still to come.
I think Tom one of the things we're challenged with is that no one customer is greater than 4% of our revenue base. So it automatically as a pretty diverse base and I would tell you what we've seen the trends that we've seen.
It's been pretty much across the board. So I don't have a really good call out around industrial.
Industrial retail there and particularly in some cases as you know in this business.
As a customer's mix of business changes or their plans change.
They may choose alternate supply chains and things that we may lose our pickup business. So it's tough to really for us to call a trend there.
I would say that the trends that we've seen in our business have been really pretty much across the board. So I don't have really good Intel for you on the retail side or component or the industrial component.
But it sounds like you I guess theres some information value I think in saying that you haven't seen a big difference between the two right.
Thanks.
That's fair, but I would caution you by saying, sometimes some of what we see is based on our own action, because we're pretty deliberate around making sure we get the pricing piece right because of our service levels are pretty critical.
Yeah right. Okay makes sense. Thank you for your time.
Yes.
Our next question comes from Ken <unk> with Bank of America.
Hey, great good morning, and thanks for the time Fritz and Doug.
Going back to the real estate last quarter, Doug I think you mentioned that you could slow things based on the flows but given your opening five terminals.
Is that in line with your target of 10 to 15 this year.
Kind of your annual growth.
Are you thinking about things slowing based on tonnage I guess, maybe just how do you. How do you think about that given your real estate projects.
Ken the way I always jump in on that one.
The five that we're opening those are in our pipeline and I would tell you they are confirmed.
In a as we look out for the balance of the year, we're going to be opportunistic we may.
<unk>.
Add additional facilities down the road based on what we see in the macro environment.
One of the great things about doing an organic expansion as you can accelerate or slow down as you need to.
I think right now with kind of a temporary environment that we're in we feel pretty good about these next five there may be few after that but I'm not in a position I can speak to those yet we have visit but we know what they will be but we may not.
Open them. This year, we could we could open them. This year. It all depends on what the environment is I think the opportunity that we have right. Now is the last 18 that we've opened let's continue to optimize those and add share in those markets and it will take advantage of these we've got a couple of big ones coming up.
This quarter and next which I think will be a nice add for us.
So it's not like you are saying Hey, we're opening five because we're seeing some opportunities that these were already in progress and that will will decelerate from here on in and maybe comment to the second half and unless we see things improve is that a better way to yes, exactly you know what if we feel better about the second half or more confident I should say.
We could add more.
After that it would come back and say Hey, Ken we're going to add $5 six more we could do that but right now we like like the next five and we like the fact that we've got a lot of opportunity in the last 18.
So I know you don't give out the fuel expense specifically in one of the things that I think a lot of investors have been worried about was the amount of profit that we're coming off of fuel surcharges and it seems pretty thin. This quarter, you know with your fuel surcharge revenues up call it $41 million year over year, and I know you don't break out the fuel.
But the whole the whole category was up 37%.
I guess your thoughts on the ability to sustain those revenues or that gap as has fuel starts rolling over I think any any thoughts you can give us the comp some of those nerves out there that that as fuel came down you lose that profitability gap.
Well I mean it.
The way I think the first thing I'd make sure we understand is that.
Fuel and fuel surcharge in particular important part of the cost structure of this business. So.
The fuel surcharge program is tied to kind of our base pricing. So that is kind of ongoing and we continue to make pretty big investments in that one thing I would call. Your make sure you think about as you study our financials is that as we switch to change.
Change our mix in Whitehall from purchase transportation too.
Internal fleet the fuel cost ends up.
Our internal.
Fuel line right, so rather than on the PT line. So that's part of what you see there where REIT optimizing our line haul network.
Perfect Alright, great. Thanks for the thoughts.
Our next question comes from Ravi Shanker with Morgan Stanley .
Okay.
Thanks morning, everyone. Just a couple of follow ups from me.
The end markets one is I know you've touched upon the.
The volume outlook, a few times, but just kind of at a high level.
I think some of your peers.
On the deal side has spoken about a potential spring inflection in the cycle do you underwrite that view or are you, saying that it's too uncertain to make that call.
Yes, I think I could understand and where that might the thoughts around that I think certainly there is some reason for optimism in the jobs number today was really good so.
There is the potential for optimism there I think as you as we reset our business we want to be in a position that as the economy gets stronger we want to be able to take advantage of that so we're positioned for that.
I think there is definitely some possibility we could see some.
Second half could be better but at the same time, if there's other sort of macro shocks that could take it a different direction, but.
It seems like increasingly we're seeing a more.
Kind of.
Little bit of more optimism in the back half of the year, so that would be good.
Got it and just on that note.
Kind of I know you spoke about the industrial end markets earlier, but I think youre a little bit unique in that you have a slightly higher energy market exposure than many of your peers.
Given how volatile that has been in 'twenty one into 'twenty two.
Is that a tougher comp for you this year or does that not really matter.
And it doesn't really matter.
As you know <unk>, followed us closely that as we've added the northeast that sort of energy exposure, probably looks more like the rest of the <unk> sort of sector right. So our our book of business is looking more and more similar to everybody else. So I don't have a call out there so its influence on our results.
Understood. Thank you very much.
Okay.
Our next question comes from Allison <unk> with Wells Fargo.
Hi, good morning.
Just keeping on that industrial side, a lot of our coverage in the industrial space is really talking about the sort of recalibration here at least made down the backlogs that have extended here with all the supply chain issues is that driving any volatility in some of the trends that youre seeing from some of your industrial customers are you expecting that this given some of that lumpiness potentially.
Alastair.
I don't have a great.
View on that but we do see.
I think this is an important part of our operating flexibility as we do see continued kind of disruption with some of our customers around this.
Order patterns.
Patterns supply chains changing.
Those are those are important parts of our ability to be flexible and matched customer expectation. So.
I don't know that Theres, a particular vertical there, but we see that and have seen that over the last.
Year, or so where you do see some disruption in sort of month to month trading and changing in all parts of the business.
Got it and then just going.
Going back to the facility is open you had talked about it being a drag to the LR does that flip now.
You start to build out leverage or is just the volume moderation in a little bit.
This year than maybe you would have expected in terms of that you can think of a drag.
More of a tailwind for you.
I think the opportunity for US is that there is a potential tailwind there.
We have we're really I think have been successful is replicating that fantastic service that we're offering the customer across these new openings.
As customers become familiar with us in those markets, we have the opportunity to.
Kind of grow in those facilities.
I think it certainly could be something that would be beneficial to us in the balance of the year.
Great. Thank you.
Yeah.
Our next question comes from Ari Rosa with credit Suisse.
Yes.
Great. Thanks.
Wanted to ask.
Fritz and Doug.
Maybe you could give it give me your thoughts on the ability to get to a sub 80 or kind of over the longer term I know you said kind of expectations for 'twenty three probably.
Within 100 basis points or sellers of what we saw for 'twenty two but.
Is the sub 80 still kind of a long term target and kind of what's your confidence level around that and then should we also have an expectation that you can kind of the top quartile among peers in terms of where our lands.
Given year.
I don't have a reason why not I ought to be honest with you. We are marching onto that this is the environment that we're in right now is a little bit more challenging than it has been but we don't see any reason why our.
Service or quality can't be it has in many cases, becoming best in class are approaching that and that deserves.
<unk> returned and I think that operating in the mid Seventy's is our expectations are perhaps lower I mean, certainly the bar has been set so.
We're going after it I don't know why we win.
That's great. So certainly very encouraging to hear and then just in terms of the five terminal expansions that youre looking at maybe you could give a little color on what geographies. Those are focused on historically, you've spoken about kind of the benefits that you see in terms of increasing density in a particular geography, maybe you could give some color on kind of what the expectations.
For the benefit that you might get from that yes.
Yes, listen one we've talked about.
Follow this closely we've talked about.
The Testament to how challenging real estate is but we've got a facility that will open in northeast Atlanta that will give us three in this market.
This is a growing metropolitan area, we have a challenge.
Being able to provide the best in class service that we would expect in the northeast part of Atlanta, We added one in northwest of Atlanta, I guess year, and a half ago and been thrilled with that we've been able to service those customers an approach that market. We expect more of the same going up to 85 corridor.
That's an important add for us I think it's going to be not only we will do a great job for the customer there will be able to recruit drivers in that market.
Will create flexibility and capacity and our legacy facility there.
We're going to say theres going be some efficiencies built into that just the fact of the matter that we can get to a customer without having to go through an hour and a half of Atlanta traffic is a big deal and I think that.
We're excited about that opening it just can't happen fast enough.
That's great well certainly good luck with that.
The opening of those terminals and we will be watching closely.
Our next question comes from Bruce Chan with Stifel.
Yes.
Hey, good morning team. This is actually Andrew <unk> on for Bruce I appreciate the time.
I just wanted to dive in a little bit yes, no problem I wanted to dive in a little bit on and I. Appreciate all the detail you guys have given on cost reduction and the natural attrition you guys are allowed to occur in response to slower volumes, but I kind of wanted to get a sense of your views on the other side of the equation that might be kind of back selling a little bit of this excess capacity.
With maybe transactional shipments you you've talked about your shift to enforcing line haul and maybe having additional backhaul opportunities there and you've now got 25% late in capacity and your costs are better aligned and we've heard from this week that some of your peers, maybe taking part in this exercise, but just wanted to know your thoughts on back filling capacity with maybe some transactional freight.
Thanks.
We're all about.
Finding customers that value our.
Our fantastic what we see as very strong service proposition.
So if there are opportunities for us to go sell and available capacity, we're on it and in fact, we have several initiatives around that.
But we're not in.
And the game of leading price set frankly, that's not that's not what is appropriate what it is.
Appropriate as defined the customer understands today, you're going to get a great product from site add they're going to pay accordingly, and that's going to fit in maybe some markets that there is an opportunity for us, but we don't.
You won't see us participating and simply.
Price working on leading with price thats not our game.
You will find the customers out of that certainly in opportunities with both capacity.
Understood. Thanks for the detail and congrats on the results.
Our final question comes from Jack Atkins with Stephens.
Okay, great. Thanks for the follow up Doug I, just wanted to circle back real quick to make sure everybody's on the same page on the operating ratio kind of thoughts for the first quarter. If I heard you guys correctly youre kind of talking about flat operating ratio.
Quarter to quarter sort of fourth quarter to first quarter, which would be in line with seasonality is that what you guys said or did I misunderstand that.
Yes, that's right that's what we've seen historically and then Fritz gave a lot of color on <unk> question about.
Could it be better than that.
Potentially but you hate to get out too far over your skis, given given the weather challenges that come up.
February a year ago.
Pretty tough comp for us I think it's mid teens kind of shipment and tonnage growth last February so we got to get a clean run through there to think that we can.
Try to forecast something better so yes flat out of Q4 into Q1 would make a lot of sense dose.
Okay. Okay. That's what I thought just wanted to clarify that thank you very much.
Thanks Jack.
There are no further questions at this time I will now turn the call back over to Fritz Hoegh Grace.
Thank you for everyone's call then you hear the latest update on this site performance. We're excited about the opportunities in front of US this coming year and look forward to providing an update next quarter. Thank you.