Q2 2023 Mullen Group Ltd Earnings Call
Which is by the way a key supplier to be cease mining industry in other words diversification matters in times like this.
Now we also did a couple of nice tuck in acquisitions, where we saw good fit the price was right and where there were lots of synergies to be had in fact acquisitions added 22.6 million to our consolidated revenues and that mitigated the loss of business and most of the.
Loss of business in fuel surcharge revenue.
And in terms of operating profitability.
Often referred to as old I B D. A by the accounting profession, we adjusted and we did a great job of managing operating costs, especially.
You know generating a very healthy 83.4 million in the quarter and that represents a margin of about 16.9%.
It's down about 1%, but I think we can make this up once we get these new acquisitions fully integrated or a network, which I expect to occur.
By year end 2023, and that will set us up I think pretty good for 'twenty 'twenty four so four more on the quarter I'm going to I'm going to turn it over to Carson Carson, It's your turn Europe , but.
Alright.
Thank you Mary Anne and welcome everyone.
Today I'll provide the highlights from our second quarter. The details of which are fully explained in our second quarter interim report.
Consolidated revenues declined by $27 $2 million to just shy of $500 million and was due to the net impact of four factors first revenue, excluding acquisitions and fuel surcharge declined by approximately $25 5 million due to lower freight volumes, particularly in eastern Canada and from the more normalized.
<unk> environment compared to the elevated levels of last year.
Second fuel surcharge revenue declined by $28 million as diesel fuel prices decreased by 35% year over year.
Thirdly, we disposed of our hydro vac assets and business in 2022, which contributed to a $3 5 million.
Million dollar reduction in revenue.
And lastly, somewhat offsetting these revenue declines was $22 6 million of incremental revenue from acquisitions.
Oh IBD a decreased by $10 5 million to $83 4 million largely due to a decline in the <unk> segment.
<unk> and our other three seconds remained relatively flat year over year operating margin decreased by 1.1% to 16, 9% now let's take a closer look at how we performed by segment.
Starting with our largest segment revenues in the <unk> segment were down $17 3 million to $193 4 million due to lower fuel surcharge revenue.
Our freight volumes in eastern Canada, and from a more normalized pricing environment.
As a result, <unk> was down $7 9 million to $34 5 million.
Operating margin decreased by two 3% to 17, 8%, primarily due to lower margins experienced by DNR. Our most recent acquisition.
The financial result of being on air contributed to almost a one four percentage point decline in segment operating margins.
Our second largest segment is our <unk> segment revenues in the Al and Dublin, Ireland W segment were down $13 8 million to $142 9 million due to the continuation of the inventory rebalancing cycle and softer freight demand.
Factors contributing to the decrease in revenue consisted of lower fuel surcharge revenue and a reduction in revenue from the sale of our hydro vac business or.
<unk> remained relatively flat year over year at $30 million, while operating margins improved by one 5% to 21% operating.
Operating margins improved due to the strong results at placement group and from the ability.
Abbas to use owner operators and sub contractors more efficiently.
Moving to the F&I segment revenues were up by $6 8 million to $107 3 million on $13 3 million of incremental revenue from acquisitions, which was somewhat offset by lower demand for some of our services due to extreme wildfires curtailing activity levels and from the timing of certain turnaround and maintenance work.
<unk>.
Lower fuel surcharge revenue and the sale of our hydro Vac assets also contributed to a reduction in revenue.
IBD in absolute dollar terms it was relatively flat year over year at $20 6 million.
Operating margins declined slightly to 19, 2% due to higher ethylene costs as a percentage of revenue.
In our non asset based U S. Three PL segment revenues declined to $58 million due to lower freight demand in the U S for full truckload shipments or IBD, a decrease to 0.9 million, which was mainly due to higher estimate costs. As we added staff to continue the development of our proprietary software known as <unk>.
<unk> Express.
Operating margins declined to one 8% on higher SG&A costs.
Operating margin on a net revenue basis was 18, 8% compared to 43, 1% in 2022.
Net income decreased by $6 2 million to $36 5 million or <unk> 41 per common share. This decrease was mainly attributable to lower OID and from a reduction in earnings from equity investments, which were somewhat offset by lower income tax expense and a positive variance in net foreign exchange.
The number of common shares outstanding decreased in the quarter as we repurchased and canceled approximately $22 1 million common shares for $31 5 million or an average price of $15 $15 11.
We continued to generate strong cash flows in excess of our operating needs as net cash from operating activities in the second quarter was $88 million, an 80% increase compared to $48 8 million in 2022.
This increase was mainly due to the changes in noncash working capital items.
Our balance sheet remains very strong our debt to operating cash flow covenant under our private debt agreement is at $1 95 to one we have a total of $250 million of bank credit facilities available to us of which we had $115 $7 million drawn at the end of the second quarter.
So with that Murray I will pass the conference back to you.
Thanks, Carson and as we get close to wrapping up this mornings official commentary on.
Now I'll provide some thoughts on how we're looking at the market the economy and our business and in this quarter.
I'm, a I'm going to keep the keep it quite simple because our outlook really hasn't changed from Q1 presentation back on April 27, and 23, so I invite any interested listener to check out the transcript of my comments last quarter and you'll see are the really the outlook really hasn't changed much.
We still view the macro picture is stable.
But risks become more elevated each hike in interest rate, we continually ask ourselves when will the consumer break, but I can tell you from what we've seen.
Thus far in 2020 three are they haven't done so yet as such it's reasonable to assume the economy will continue to grow perhaps slowly but it still looks like there's some growth under this scenario of freight demand will remain under pressure.
And probably until manufacturer shippers and retailers begin to restock inventories.
And how's that.
Commented earlier about what happened last quarter. It was a lot of the freight loss of freight demand was not.
And consumer demand it was really about businesses adjusting inventories well I can tell you. The warehouses are emptying pretty fast. These days. So they eventually they're going to have to restock inventories.
The consumer is going to keep spending as they are so this suggests that our L. T L and Ellen W. Segments will continue to perform I think at levels consistent with this past quarter.
And truthfully I think our number one challenge will be in finding productivity gains to alleviate cost pressures that are built up over the last couple of years. So we're 100% focused on that are both at the corporate offices and in our business units.
The U S through P. L segment, and what I'm, referring to here is holistic they're going to continue to be impacted by the most by the freight recession I think the good news is is that this non existant on as a business and the senior team a holistic are they they focus simply on one thing that's managing the spread and that's the difference between the what the Mark.
It offers and the price to sub contractors are willing to work for and thus far there is more capacity than there is freight which means the contractors are very price competitive.
However, our margin will suffer a little bit because we were focused on the long run and we've added new I T talent to the team to help build out silver expressed viewpoint, all and that increases your SNA expenses in the short term.
This is so unlike our competitors that are downsizing and that's really for one reason, we believe the future of the three P. L business lies in the technology offering.
Turning now to mining and energy that we see these as growth areas are which is why we are optimistic that our S. And ice segment will continue to exceed last year's performance at least that's our expectation today and on the corporate front well, we're going to continue to balance the balance sheet is Carson says with a high degree of respect that tomorrow.
It could be vulnerable to a slowdown.
If this were to occur having a strong balance sheet would be very very strategic we will however continue to pursue acquisitions that meet our three criteria that is fit the right price and we must find synergies we have a great book of business and excellent team throat, and we're well positioned to be very apo.
Tunis stick because I can tell you from the calls we're getting there's a some people are getting stretched. So thank you I'll now turn the call over the operator, and we'll go straight to the Q&A session.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Our first question comes from Connor Cooped up of Scotiabank. Please go ahead.
Thanks, operator, good morning, everyone.
Good morning, Walter Good morning, good quarter for Sir what I wanted to understand was the.
The L. N W segment had a pretty good margin and as Carsten pointed out.
Leasing groups that had a pretty good performance in the quarter.
But just not surprising the transport business seems pretty good I'm just wondering how how sustainable is this margin performance at least in our Oh. The entire segment do you see any sign. So you know I don't know, maybe the cost or pricing pressure or deadlines on either.
Right and how should we think about the segment in the next 12 months yeah. It looks you know it looks like that segment, we've got some competitive of.
Our advantage in that our number one is Cleveland group as we talked about they're there they've got a very strong book of business involved in trans load and those are assets that just.
Not subject to the same market pressures that are because there's not a lot of competition very very few strategic trans loads operation. So we've got it. So we're not subject to the same pricing pressures that you might have and then in the general consumer General business. So that's you.
That's good.
A good sign for us the other one is the Bachelor group is included in that so our two biggest businesses there are banned stroke.
Which is tied to the mining business in British Columbia, which is going through a bit of a growth spur right now.
Because.
You know if you're going to move towards if youre going to look at it energy.
You have to think mining and energy are correlated because if you're going to move towards cleaner forms of energy where you have to.
Find the minerals and the metals, which is through mining it's not through.
Just asking for it you got to go find it. So mining has got a bit of has got some good tailwind with it for the next pit and Bachelor is very well positioned.
In British Columbia, So that was a very good acquisition. Those two were doing very well are the rest of our businesses cornered wheat, we kind of manage the spread we have a lot of owner operators and there are lot to use a lot of subcontractors. So are our our business units just manage that spread you've heard me talk about that we if you have all company trucks and theirs.
Price pressure, well youre going to take it on the chin.
But.
Right now it's the one that owns the truck that's taking it on the chin because there's too much supply for how much demand. There is so but we can still maintain margins. So revenues are going to be down a little bit because of fuel.
They're not you know that's not really load count that's just a that's a flow through so.
All in all not too bad from that I think it's going to be pretty stable on there that at least that's my projection for today.
That's good color Mike. Thank you so much and then just to follow up on on the trucking market in general so.
Your segments kind of give us an indication.
As to how the Canadian market is little bit different than the U S market clearly and it seems like the U S market went up a little bit higher last year, and it's coming down from that cliffs, perhaps.
What I wanted to understand on the U S side was this a situation right now in that market with some very large player yellow is going through a major labor and business uncertainty at this point. So has there been any change that you hadn't noticed in New York.
U S C P I would think that.
Because of the yellow situation at this point and what are your thoughts on that whole situation.
Yeah. So you you're right that's a headline news item and yellow has.
You know that they're a big company and.
But they've always been on on the edge of.
Of not doing well and so there's reasons I don't know what they are but there they're having some real challenges right now.
Because of the market and because of their labor issue.
What we are seeing right now is there.
They're having some customers are shifting.
And they're shifting some of that business not that.
That is not if I'm yellow that's not a very good situation, that's not new demand. That's just a shift in demand. So there'll be some winners and some losers of that now we don't do any business with yellow in our in our network and our LTE network, we do business with some of the other L. T O carriers and we serve we provide.
We are like yesterday's group, we have a we deliver their freight in Canada for them and stds their load count is going up.
Even though the market's not going up and that's most likely a shift of freight from.
From yellow so there's a shift going on.
And that's just that's a specific market issue there in Canada.
You know our biggest issue that we've got up here has probably got a deal with.
Now with the disruptions on the ports and stuff like that that's backing up.
You know you know inventories coming in there's too many ships waiting to come in.
And I can tell you that the side effect of that is our warehouses are emptying up pretty fast so.
You know that that could resolve the Canadian.
All of a freight recession awfully quickly as from my perspective, because our inventory levels are being drawn down pretty fast.
But in consumer demand.
Has not changed dramatically.
And the consumer still should be pretty good.
That's what we're seeing.
No that's.
That's very helpful. Thanks for the color I appreciate it.
You bet.
Our next question comes from Kevin Chiang of CIBC. Please go ahead.
Thanks for taking my question and I'll Echo <unk> comments, a good second quarter here.
And then maybe if I.
I extend out the questions related to your comments around yellow.
Obviously <unk> has been a focus area for you here in Canada, and you do a little bit of it through a brokerage arm in the U S. You know on the.
Three PL side, yes.
Do you think with the potential bankruptcy of yellow that that opens up the door for you potentially taking up.
Stepping to the U S. <unk> market is that a market you'd be interested in you know, it's it's much more consolidated much more rational.
You had great success here in Canada, and consolidated the market north of the border does.
Does this accelerate and maybe a timeline to enter into the U S or is that is that something that doesn't interest you.
No if you're going to get into the L. T L business, Kevin Youre going to have to go Big you can't fart around.
And.
Uh huh.
I don't that that would be such a big step out. So I don't we won't enter that phrase that that doesn't make any sense to us where we are going to move freight in L. T. L is through a realistic group, we don't move the freight we help customers drive the best value, that's what our technologies about because the little customer.
I was going to get squeezed here.
And you know holistic is just up there a bulk buyer and they manage the spread on that sort of holistic whole benefit they're being awfully careful about using yellow right now as a contractor and.
With that Kevin I'll be honest with you that that business will be gobbled up in a heartbeat.
Right yeah. It it won't it won't take a it won't be as disruptive.
That's what people think I don't think you know right that's my personal opinion.
And those other those facilities if they do go into those facilities will be.
Will be gobbled up by somebody else on.
It'll be disruptive for a few quarters, but.
But you know that that's even as big as they are it's not.
It's not huge compared to the total size of the market.
Hum.
But that's that's that's great color there.
The one thing I did notice and you you you mentioned this in your opening remarks, how we're in a freight recession and I appreciate Canada might be a little bit different in the U S. But one thing that gets stand out to me as if if I look at your L. T. L margins in 2019 I appreciate there's M&A in here and you know fuel surcharges will kind of whipsaw your.
<unk> margin, but if my if my if my numbers are correct. It looks like you did something like 15, 5% just a tick over 15, 5% in margin in 2019.
If I look at the last three quarters here in L. T L youre kind of in the 16% to 17% range. Despite despite the fact that we're in a freight recession.
How do you think about your margins in L. T O here through the cycle is is it.
Do you think you'll kind of at all it seems like you're at a higher high it may be a or high ha and a higher low here through the cycle. Just just wonder if you you'd agree with that that you've kind of taken a step function, maybe 200 basis points step function increase in your overall margins.
Through the cycle.
Yeah, we're going to increase margin in L. T. All over time.
You got to remember I think.
You know really our investments and L. T L have really only been over.
Maybe the last 10 years or something like that so I think we're in the early early stages of building up what you need in L. T O, which is you need lane density and critical mass and you got to have the right.
The right business units I think we've done a really good job of getting some great businesses in our organization and we're just I think we're in the early stages of finding our stride and and in doing that for example, I know in mountain Goellner right in Kamloops, right now and in a brand new L. T. L facility. That's the future and we are we are building for the future.
And you know, we don't build facilities to make no margin.
We're very optimistic that we will build the lane density and.
And get the critical mass that's required and you know our business units.
They're running a good job and.
So our margin will improve in L. T. L overtime, we will continue to do tuck in acquisitions, which when.
When you do those tuck in acquisitions, the smaller a little one theres a consolidation trend going on guaranteed.
Is that we'll be able to build the density within our group, but number two is you get rid of in a disciplined competitor.
And when I say on discipline I mean.
They're very very price competitive, but in this new day and age.
You you got to have the technology platform to be able to integrate in with the big shippers.
Whether that big shippers or is it another carrier in the U S like yesterday's where were totally.
Synergize between the companies and the data flow and then to their customers. So little companies just cannot get that so they're boxed out being our is a perfect example of that they are in the L. T L business they've been.
You know they the whole lot of LDL freight in northern Alberta, They don't make any money at it.
I guarantee you within our network, we will make money with that so yeah. We we have a long term game plan and L. T L. That's.
Really good strategic facilities and build lane density and critical mass and.
I think we're in the early stages I mean, if you go if you give me 10 years, another 10 years and the LTE business.
We're gonna be a lot, it's not gonna be 16, 17% margins, but I can tell you that.
That's helpful. And then maybe just one more for me just just because you're you're you're you're in do you see there and what the opening them in new apps facility just.
Maybe how youre looking at the V C port strike and maybe how apps is managing that given they have an intermodal agreement with.
C N and maybe how quickly you think you can recover from from from this disruption here.
Well, thus far I think the biggest disruption kept that I've seen.
Is theres not any inbound freight coming into our facilities.
Yeah.
Most of that's why I say to you most of the freight that we're hauling now is emptying out the warehouses. So nothing the problem with you have with the port the Port issue and this is a this is a regional issue. This was not like Covid, which was a worldwide issue. This is a regional spat and.
And it's going to impact our western Canada, the most and ER and that including exports. So it's there's there's bottlenecks I'm sure that will be resolved, but right now what it is they've there's lots of inventory and there was lots of inventory in the system will get.
What in Western Canada, that's cleaned up now.
Because there's nothing coming in it's all sitting on the on the on the on the ships and I think they can only offload.
Maybe one.
Maybe two at best ships a day.
Okay, that's great and so it's you know you've got quite a few ships are backed up there right now so this could take.
From the port from the flow of traffic you could take quarters not not weeks once it gets resolved and and the port workers go back and become productive again, they're the worst case scenario is they go back to work, they're mad and they're not productive and things just get extended out in and that's just going to.
Increase the cost and hurt a whole bunch of people down the line.
Well that's that makes sense, that's great color. Thanks for taking my questions Mary and team you got it thanks guys appreciate it.
Our next question comes from David Ocampo of Cormack Securities. Please go ahead.
Hi, Thanks for taking my questions Mary and team I guess, the first one I have for you guys.
When we look at the seasonality of I get quarters Q3 is typically stronger than Q2, and just based on the commentary that you guys made about inventory levels normalizing and probably the progress that you've seen in July should we expect those normal seasonal patterns to persist this year.
Yeah.
You know it's.
You know, it's it's it's it's complicated to.
You know my my instincts say, it's going to normalize.
But theres always.
You know things that can happen in the market, but let me let me tell you I I drove out to Kamloops last night I don't want anybody telling me there's no freight moving there's a lot of freight moving.
So I still think the consumer is doing well I think so long as job.
You know that we don't have a deterioration of job losses I think this market is finding a new equilibrium I think that we're gonna be back in balance it's going to be a more competitive market than twenty-three then.
And then 'twenty two okay drive your synergy being the right business model are being the right lanes and I think Youll do just fine and you know I I think we're in pretty good shape.
From that perspective, the way that we built our business and that diversification model. The other is we're going to be very very opportunistic. Some parts of this supply chain are getting whipsawed here and those people will get into trouble and we will take the long term view and say okay are those good long term returns on investment and we will.
We will look at putting capital to work in those markets.
No that's helpful color and maybe I can ask the question another way I mean, if I take a look at your page one performance you guys did $160 million of EBITDA.
I kind of reach that $300 million target that you guys have been alluding to it kind of suggest the H two it'd be down 12%. So are you looking at that 300 million dollar number is more low hanging fruit then.
Well as I said in my commentary I mean in the press release has gone well and you know if it keeps going the way it's going.
Yes, my 300 might be a little low.
So.
We always said look we don't know if it's going to be 300, what we're running our business on in our balance sheet.
Is if it's going to be 300.
Thus far we are ahead of that curve.
And you know so.
We feel pretty good and pretty positive so.
You know, we're running it as if it might happen, but that consumer is keeps defying the odds and the economy keeps defying so I might have been too cautious.
That's the 300.
Thus far I'm wrong, I'm I'm I'm wrong, but you know if you took.
Q1 times, two that's three 'twenty I'm, not 300 and so.
It's a.
We got a great business, we just we're running it as if it is if it was going to go down to 300. So what we did is we pivoted to focus on cost and we didn't and we watch the balance sheet that clearly was the right move.
Which is why we maintained our the way we did as we're looking at now now we're saying okay. It appears that the market's adjusting to 5% interest rate I don't know, how the consumer's doing it but they're doing it.
And cause businesses.
You know you see from our numbers is still pretty robust teco fuel.
You know our revenues went down that much.
No. That's helpful color I'll hop back in the queue. Thanks, a lot Barry.
Alright.
Carson you got anything to add to that.
No no I think that was.
Spot on Mary.
Oh no no.
Okay.
Our next question comes from Cameron Jackson of National Bank. Please go ahead.
Yeah. Thanks, good morning.
I guess in the MD&A you you sort of highlighted in the specialized <unk> industrial services segment that there was maybe some impact from the AR from the Alberta Wild Wild fires.
There's probably no way to quantify that but just maybe you could describe what what impact that had and is there any kind of lingering impact from that that that might affect Q3.
I don't I don't think so Cameron to be honestly I think there was.
You know theres always a some type of a of an event or something that slows things down for a little bit.
But you know those were for what a few a few weeks you know may be a month, where it was disrupted in certain pockets, but it wasn't.
It just slowed things down a little bit and all you do when you slow things down or is it just backs it up and puts it into the future quarters. So I think the market's fully recovered from that now.
Some of the communities have not they're still struggling with some of the residual effects of that but I think business I didn't see any real damage to infrastructure and it certainly wasn't onto our infrastructure. So.
I don't I don't I think it was kind of a.
You know the situation that happened just last quarter I think it will.
It won't it won't impact us this quarter.
Okay.
This quarter this quarter youre going to be impacted by the strike.
On the West Coast ports, because you can't get exports out either.
So we're having some of our transport business be impacted by that because you can't ship the product that's going out you know we.
He put it onto rail that goes to rail under shipping out to Asia or other parts of the world and so that's being disrupted so theres always something and I'm just hopeful that some common sense prevails here and the and the you know the workers there understand is it Europe .
You know don't be too greedy here, because you're going to impact a lot of other people and a lot of other businesses.
If you get a we need them back to work that's in and hopefully they will.
Yeah, certainly suddenly it sounds like it's moving in that direction. So that's that's good news and maybe my second question is just around around M&A. I mean, you commented a little bit on it in your prepared remarks, but if you can just talk about about the outlook I mean, if you kind of indicated there's quite a few businesses.
Business is giving you a call just just where are the.
The opportunities now what's what's most interesting your valuations coming down further given maybe some of the disruptions for other businesses in the in the free space.
Yeah. So.
Let's look at it from each of the different perspective each of the segments.
Ellen in our L. T L business will continue to do tuck in acquisitions like we did with B and our we've got some other ones that we're looking at that will add density and lane lane capacity and get rid of and on disciplined competitor ins and some of our other business units. So we've got some of them.
Those files that we're working through those right now that's my preferred way of doing just layer them in I don't increase cost I get business and I get rid of costs and I drive margin and get rid of or you know I just get rid of the undisciplined competitor.
So we'll continue that Neil N. W are probably no big home runners and that one unless you know somebody gets a really good opportunity comes up and then we'll we'll we'll make a big step out in that to expand our coverage across Canada.
But we got a great footprint from.
Great.
G T. A all the way out to the West coast. So we will continue to add in there in L. A W will be opportunistic I really like.
Trans load assets, if we find them I'm on them because that's that's your path to the futures are really good business U.
U S repeal.
We're not gonna by anybody in that where we're going to focus 100% of building up the technology because as I said, that's your competitive advantage of the future is in the U S. Repeal it's all on the technology platform. That's why I kind of referred to U S. P. L. A holistic as our.
As our technology group not not our logistics group because if you don't have the technology, yeah, not doing the logistics so.
We're focused 100% on that and on doing acquisition there.
Acquisitions will come after we get silver express to point out.
And then in F&I those are your best opportunities right now because it's still.
In our energy business is still not reflected by investors as being a good business and there is those are your best opportunity could be.
<unk> got good cash flow and you don't have to pay a lot for the.
Market is not pricing those assets.
As if they're generating cash or that they will generate cash I guess and which is why we bought <unk> I mean that you know where you know you're talking it.
Maybe two to three times, EBITDA and not six or eight or 10.
Right Okay.
Very good yeah. Each one of them has a different there's a there's a different denominator that works with them in in the freight business junk general trucking business, it's difficult to peg that number right now because I can't tell you when does that market when does pricing leverage come back on that if you don't get pricing leverage.
Or just trucking, you're just you're just generating revenue you're not generating bottom line.
And that business is ultra competitive which is why we're not in that business as a whole bunch Cameron where we're in.
We're in different verticals.
Where it's not quite as competitive.
That I think that's the power of our business model, we built it up over 30 40 years and.
And just not just it's not by chance that's why the diversification is pretty good.
Yeah, absolutely know it certainly shows in your results are outperforming pretty much shell their trucking company. So so appreciate it appreciate the color. Thanks very much. Thanks again bye bye.
Yeah.
Our next question comes from Walter Spratlin of RBC capital markets. Please go ahead.
Thanks, very much Ah Ah Hi, Marion team, so I wanted to kind of simplify your outlook that.
It was provided as it was provided when you first first gave your guidance to two what's changed so far and I guess when you're when you're looking at your outlook you are probably looking at three factors the inventory destock destocking trend.
The consumer.
Trend toward more services versus goods and the potential recession is kind of drivers of your lower kind of $300 million target.
Now that were E training more toward a 320 as you mentioned what would you say would be the biggest change of those three buckets.
Is it that you built in a recession that youre seeing youre not seeing manifest is it consumer.
Consumer patterns shifting back to goods, a little quicker or inventory Destocking I know you mentioned that youre seeing the warehouses start to come down as it is that the factor that is the biggest differentiator.
Versus the versus the assumptions you had at the beginning of the year just curious.
I think Walter if we go back when we look at it.
And we said look we thought that the biggest factor that was going to change in 2023 was in pricing.
Because if you if you go back in and we said look we're still gonna do 2 billion in revenue.
Well guess what.
Ah we're on target for 2 billion of revenue because that's what we did last year. So it's not the revenue. It's the competitiveness that we thought endo and some of our some of the.
You know some of the surge pricing that was happening when you had this massive bought these big bottlenecks that were happening in customers, who are just get it done well that that's over we're now back to.
A competitive marketplace.
And that's where we thought the biggest challenge was wood would come would come from is from that side and.
You know for the most part we were right on that and it's in the pricing side that you are getting hurt I didn't know what was going to happen with fuel, but we projected it was going to be at best flat, but the biggest that's the biggest surprises fuel is down.
The economy has held in pretty good the consumers.
Got there they're resilient.
Well I'll tell you the biggest thing is business readjusting to the inventory levels. They totally screwed up the last cycle. During Covid I think there are overshooting again, but this time to the downside and that might get you might find that.
They're going to have to go back and retailers are going to have to go in and start restocking the shelves pretty quick I because the consumers were still moving freight.
And it's actually coming in as fast as fast as it's going out.
So just to clarify you thought pricing would come down and it just hasnt come down as much which is why the price no pricing has come down you can see that on our L. T. L side, you can see that in general trucking, where it where we did fine as we said our S and I was going to do fine and.
Our Ellen Diet L. N W did fine with our trans load in that so but you can see in our L. T outside it came down.
So I'm trying to figure out what what what made your numbers go up what was the difference between what you are assuming it okay, Okay, F&I and L. N W. Yeah Uh huh.
Our mining and energy business is doing better than.
Then what we had originally thought.
Okay.
Overachieving on that side, so really when you look at L. T L than you.
You haven't seen yet the way, it's playing out as you expected and and really the upside here is if that inventory destocking trend as you flagged in your opening remarks, if if that continues and if if even so as you just mentioned if they overshot on the on the other side.
We could see perhaps in the fourth quarter early or early 2024.
A normalization and normalization versus what you've been assuming in that three of them I think I think that is a reasonable assumption for so long as the consumer.
Stays healthy and we know that what keeps the consumer healthy is a job if they have a job. They are still going to consume what are they going to consume on I don't know, but it's all on the job numbers and thus far it's it's pretty healthy.
Okay.
And since it's in balance right now Walter I think what you if that's what you're seeing in our numbers is pretty healthy.
<unk> balance.
And as I say, that's why I say compared to our five year average not to just to the surge of last year, which was a one time event take a look at it and you're seeing man you're outperforming your historical numbers pretty nicely there.
Mullen group so.
Absolutely no I appreciate the time as always Mary. Thank you. Thanks, a lot Jacob Chetan.
Once again, if you have a question. Please press Star then one.
Our next question comes from Tim James of T. Securities. Please go ahead.
Thanks, Good morning, everyone and congratulations on a good quarter here.
I'm just wondering if I could return to.
I guess I'm thinking about M&A when I asked this question but.
Are you seeing Murray any signs in Canada of competitors that are struggling I mean, you mentioned some opportunities that you've got one that's being disruptive in the market, but are you seeing any it players in the industry that are struggling and maybe you will get off.
<unk> from that eventually.
Yes.
If you.
If you overextended yourself.
In 'twenty, one 'twenty, two and thought that that was the sustainable market.
You you over extended you're now in trouble.
And those are the ones that are will pay a hefty price in this market because the market has now normalized and if you thought last year was what's it going to be the new trend, you're probably in a lot of trouble.
And so yes, and that does that mean the whole industry is in trouble not a chance.
But it's a it's a bifurcated market if you position yourself, while you can ride through it.
If you didn't.
The banks, you know cost a lot more money to borrow today and.
You're getting squeezed.
And bar.
What we look at is we we don't want business that Genesis just generates revenue, we want business that layers into our network. So we can drive margin.
Those that's our that's our that's our number one target.
Is companies that will fit into our network with our teams that will drive our bottom line not not just start revenue I, we don't chase revenue Tim.
That's a fool's game we.
We chase margin.
Okay. That's helpful. My second question.
Looking to the U S <unk> business.
The work Youre doing there investing in silver express.
Is there kind of a timeframe that you have in mind with those investments when your margin.
I don't want to say matures, but kind of normalizes or maybe those investments start to slow down and you get what again would be more of a normalized level of profit margin in that business.
Yeah.
Well, if you're a senior team a holistic Pat Malone and his team down there they.
They here for me I want to normalize next quarter.
However.
They say well Marie where we're still fighting a few headwinds here.
So.
But they're working on a long term game plan, Tim not the next quarter and I I can't when you think of technology can't think of quarter, you think of the long game and I can just tell you.
I am very pleased with the initiatives that they are.
Our undertaking their business was not down as much as the U S freight business, which you look at all of the other.
Although for riders are.
That are going to be coming out.
I bet, you any money theyre down 15% to 20%.
Our holistic group is not down 15% to 20% because they added new station agents.
So we are.
Gaining market share.
But we're building for the future. So we can gain more market share and a b and b. The b one of our number one players in the U S repeal business and so I encourage them to keep keep driving hard and as as I tell them you got to beat you Gotta beat the competition to the Buck.
And.
We got the team down there that can do it so I'm pretty pleased there.
Great, but I don't think of it in terms of the quarter.
I think of it in terms of them. That's the long term that's our long term game plan are down in the U S market is to build out a critical milestone there.
Absolutely. Okay. Let me just sneak in one last one maybe I would be curious to get your thoughts today on sort of the inflation environment and clearly we're seeing headline inflation slowing in them and I'm not thinking so much about trucking rates and that is because we know what's going on there I'm thinking about other parts, maybe the cost side of your business, whether it's labor technology.
And then there are you seeing sort of easing inflation in your cost structure as you sort of sit here today and look forward.
Yeah.
We.
Richard We Oh I'll have Richard chime in here, Richard and Lee Hell Your work with the Oems on the equipment side are the Oems rich they they've come to us and tried to push pricing and we're pushing back on them because our customers are pushing back on us So I think that.
We see that stabilizing Richard am I right on that.
Absolutely Tim.
Tim with respect to Oems trucks trailers and things like that if you come in at the beginning of the last year. They were telling US where you have to wait a long long long time like just about a full year to get some stuff now we're actually they are coming back to hey, we might have some.
Some equipment, that's coming available in some of that is related to other operators throughout Canada cannot take the order, but for whatever reason, whether it's trailers or trucks and we're yes, we merge absolutely correct and they were pushing back with some of these Oems the trucks guys in particular and we're seeing some timber.
Some break in the in the.
The commentary you hear from the Oems talking about obviously I would take 12 months to get a truck that we're starting to see those orders, becoming available and maybe getting a little more aggressive with the pricing side of this from our perspective, where we're saying you know what we need to Oh, we need better pricing because customers are coming back at us but oh.
And in certain regards as well so.
I guess, it's more telling of the of the Oems that they are calling now looking say I may have another 150 <unk> available that was not even in the works in January and February because again, we're seeing that.
Some of these orders are not going to the customers that they wanted them their costs have gone up the cost of borrowing has gone up their capacity to borrow have come down. So it will be it will be timely on that and we're not acting on that at this moment, but we will at the right point in terms of buying this equipment.
I think it's important to point out as well.
Some of the costs have gone up with labor.
They're not coming down and these are sticky cost rate as well so when mark talks about and we talk about margins I mean, that's our focus because as we move forward, there's not going to be any major reduction in the actual how much we have to pay our people because that those are those are sticky as part of this inflationary environment here as well. So I know these are all part of the you know the.
World, We live in and then we just adjust our pricing accordingly.
Business model on the size of it may be and where we're going to be doing that work.
Yeah.
There's Tim Theres theres going to be pockets in this economy, where.
Youre going to have still labors got got some some advantage they're going to drive.
Nice increases I'm thinking in airlines I'm thinking railways I'm thinking Unfortunately, they've got those are kind of.
Mono list of model holistic kind of market. So they can they're going to get higher wage.
<unk> than the general population.
Overall, though we see it moderating.
There's a little bit of catch up and you're in and you're hearing that from some of the some of the contracts that are coming out well that's because in the last market. If you had a labor contract what they didn't benefit.
When prices went up because they they were locked into a contract that they negotiated the last time, well, they're playing catch up well most of ours are non union. What we we went to the market. We pay people more money I don't think we have to pay our people more money now, but I think there's catch up in some of the Union Union agreements that have to play.
Get caught up there and that's going to catch a lot of the headlines so I think over the next bit.
Okay. Thank you those are those are helpful insights.
Thank you.
Yeah.
This concludes the question and answer session I would like to turn the conference back over to Mr. Mullen for any closing remarks.
Ah Thanks folks hope you enjoy the rest of your summer and we look forward to chatting with you and.
Our in our Q3 and.
Hope everybody has a safe and really happy summer take care.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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