Q2 2023 Schneider National Inc Earnings Call

Good day and welcome to the Schneider second quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star Key then zero on your telephone keypad.

The logistics segment reported nearly a 4% margin for the quarter and a highly challenged freight condition.

Our next question comes from Brian Let me step back with Jpmorgan. Please go ahead.

Maybe just to circle back I think Mark on your comments you mentioned.

Not really wanting to chase some of the pricing in intermodal. So maybe I didn't hear that right, but if you can just expand more broadly on competition.

In that segment as you know are you still stacking your containers do you feel like others are doing are doing the same and you have some visibility to getting some truckload conversion you know where the spread is getting to the point, where you can actually pull some of that stuff off the highway.

Yes, you have a lot of questions there I'll try to put all of those.

And together make sure I hit all of these so we do have boxes stacked.

Right now at this point, it's less than 15% of our boxes as mark shared where we're not adding to that fleet.

So we think that it leaves a lot of opportunity for us to continue to grow in terms of market and some of our competitors. We see some competitors that are going in with pricing that would be at extremely low contribution or no contribution.

It might be a accretive in the short term, but those really are not sustainable levels and in the past when we've gone through these cycles we've seen.

Different carriers have to go and make adjustments very soon after those big simple math and that leads to a really strong visceral reaction from our customers that often last for years in many of our large customer relationships that were born out of those types of interactions and we've been able to build them on top of.

Those.

Terms of competition relative to truck.

We're within the range of one week.

See that we're able to do over the road to intermodal conversions.

Discounts, ranging or 10% to 15%.

But on the low edge of that and all the.

The other impact there is fuel cost fuel.

It was down a dollar a gallon year over year, but over the last couple of weeks. It has been picking up so we'd expect that will be another opportunity for interval to gain share.

Thank you Jim just a quick follow up in terms of.

Seen some of the international where the Ipi pick up for some of the rails, who maybe that's off of a low base, but wanted to get your thoughts. If that's maybe the first sign of a little bit of resurgence of a little bit of recovery that might trickle down into more trans loading and then might be more of a factor for schneider in the future.

Yes, there is absolutely some more international traffic, that's starting to pick up in a similar to what Mark was talking about with restocking that customers have now at that level, but they've gone through that and these are all of them, especially in international some very low.

Year over year comps, that's starting to see some improvement there.

Potentially start to trickle in to more of a normal seasonality as we get into the fourth quarter.

Okay. Thanks, very much I appreciate it.

Our next question comes from Tom <unk> with UBS. Please go ahead.

Yes, good morning.

Wanted to ask you.

Yeah, let's see wanted to see.

I'll ask you a non cycle question you had the nice a dedicated acquisition.

With Midwest and then you've got this one that you just announced which seems like you know you're characterizing it as very similar how do you think about the maybe kind of.

Don't know if its multi year kind of medium term frame on dedicated acquisitions is that something that theres, a big enough pool out there of similar companies that you can keep doing this for a while that you you know you kind of say well you know maybe maybe we do one of these deals a year.

And is that something that's strategically you'd like to say Hey, we'll you know we'll spend a couple of hundred million dollars of your on acquisitions as a kind of a regular part of our growth strategy.

As we think about thank you for the question Tom as we think about our allocation of capital approach, we still believe and most of our businesses that organic growth is still our most attractive play.

Play and are focused intently on that.

And the dedicated truck space, we do believe and continue to believe into the future that.

Buying a well run dedicated contract carriers, particularly who have long term and deep relationships with customers, which is the hallmark of the two that we just.

Our last two that we've acquired.

Makes sense for us and I.

I do think you have a cadre of these well run companies that have been around at least 25% to 30 years, who may not have as solid a succession plan.

That would be necessary to continue the business in its current form and I think we're at a very attractive suitor for those type of individuals.

And we've developed a approach and a process I believe that makes us a very viable acquirer and doing it in the right way, that's consistent with what someone who founded the company and it puts her life passion into.

Wants to be aligned with so.

It wouldn't surprise me at all that we continue on this space I wouldn't expect us to do anything again, yet this year, but.

And I Wouldnt also rule out something more transformative if we felt that that was in the best interest of our shareholders and that we could advance our strategy, but that's certainly the.

Programmatic acquisition in dedicated is something that our.

Interested in continuing.

Okay great.

And then one on the freight cycle.

Cycle question Oh.

Oh, Yeah, yeah yeah.

[laughter] I do have one on the cycle I'm sorry.

Uh huh.

It's just I need to I need to get your insight on it mark.

We heard from two of the.

Big intermodal competitor is a bad about I think you know Jamie I was like well June was a little better on intermodal.

Intermodal volume year over year, and then I think I'll be saying well.

Sequentially. You know you were I think two points better than normal seasonality July versus June . So I think they expressed a you know a little bit of optimism that at least from an intermodal perspective, there was some improvement.

Maybe some of Thats due to what your you know the approach you take on price right. I know you talked about the competitive environment on price, but are you seeing that in intermodal or in truck that that there is a little some.

Some reason for optimism sequential improvement or is it are you seeing it maybe not quite the same as the comment from those two.

Okay, Yeah, great. Thank you I appreciate it.

Thanks, Tom.

Our next question comes from Jack Atkins with Stephens. Please go ahead.

Great. Thanks for taking my questions.

I guess, maybe going back to the the the dedicated M&A a discussion for a moment I mean as you sort of think about the.

The decision to allocate capital towards building the fleet organically versus versus buying it I mean could you maybe give us a little more color on you know why why.

Why you would decide to maybe buy a fleet versus versus.

Yeah.

Building it out because it would seem like there's such a large addressable market there.

Yeah.

You could.

500 trucks organically, maybe cheaper than it would be to buy it. So maybe talk about post deal the opportunity to maybe you know.

ROE faster than you would have otherwise.

Yes, Jack Thanks for the question and certainly with our balance.

Balance sheet, and our health financially, we don't see that as an either or do we just see that is in hand.

And that.

As I mentioned, we expect.

Couple of hundred units at least of implementation here in the second half organically.

And that will continue to be our focus and so we don't feel constrained at that we have to do acquisitions in lieu of growing organically I think it's a healthy approach to do both and particularly when you get access to perhaps some deep relationships with new customers that you have not.

And the opportunity either because of its regional nature or because it's just a different a vertical or a different segment of the.

The market that you have you don't have a large presence in it and so that's the attractiveness to us.

And just like we find in our dedicated business. As these are long term deep relationships that are.

Very deeply intertwined within the customer supply chain and theirs.

A real commitment and a real value that's exchange between the two companies and so.

And thats consistent with our strategy and well, how we like to position ourselves with customers and so.

So Jack I wouldn't have it as you know our first priority will always be organic for the reasons that you described but I think we can augment.

In a way that adds great value to the business and to our shareholders organically.

And yet with acquisitions, Okay. No that makes it makes complete sense just to.

I appreciate that additional color and then within the intermodal operations for a moment and Jim I'd Love to get you to chime in on this if if you're interested in addressing it but when we think about you know box turns there just continue to see pressure on this so for the last few years.

I guess at what point do you feel like we can begin to see some improved asset efficiency I know the cycle at least at this point has not been your friend, but you know do.

Do you feel like we've kind of reached a bottom here in the last couple of quarters and how should we be thinking about that in the back half of the year.

Yeah. Thanks, Jack So youre right, we have everything that we need to be able to improve our our box philosophy with the exception of customer demand because we have to.

Train performance the rail performance is.

All time high levels customers are unloading at levels that were similar to pre pandemic.

As we spend time with them they've made some changes to the warehouse operation structural changes to prevent the type of backlogs that we experienced previously.

We have the.

Great perfect.

A company dray and dray providers in place as well as a chassis so normalized as well. So we have everything we need to at least get back to 2018 levels.

It's it's really a matter of when do we start to see the normal restocking begins to occur and we bet.

There will be a moderate peak season that will experience here later in the year and as we go through next year opportunity too.

Over the road conversions as we go through that next bid cycle.

Okay that makes sense. Thank you so another way Jack that we don't believe there's any structural impediments to getting too.

A more efficient box turn it and that's.

What we're really focused on here is asset productivity across.

Both our truck business and certainly our intermodal container fleet.

And just to follow up on that because I would imagine that the incremental margins.

Box turn.

And just overall productivity improves would be pretty pretty meaningful is that the right way to think about it.

Absolutely, it's a powerful flywheel okay. Thank you.

Okay.

Our next question comes from.

Jon Chappell with Evercore ISI. Please go ahead.

Thank you good morning.

Jim I hate to keep harping on intermodal, but I just wanted to understand kind of the strategy backward looking so to speak like your revenue per order actually held in a little bit better I think on a year over year basis on a sequential basis in most of your peers, but the 14% year over year decline.

And orders this was quite high.

Are you kind of being very price disciplined and pushing away business, even given some of the macro challenges because you'd want to keep the base hire when that cyclical recovery does start.

Yeah. So.

What I would characterize our volume decline is primarily being pressured due to the west coast import volume.

Driving the majority of that but also you know what.

We're remaining disciplined as we can.

Go through this bid events I wouldn't say that we're pushing volume away, but we're also not willing to go to the very bottom of the market that would put us in a unsustainable level and.

That gives us better opportunities to grow long term in a sustainable way.

Okay that makes sense and then a quick follow up Mark you mentioned again the power only has been resilient through the cycle you've seen an entire cycle now through your build out of power only from from peak to trough is there any way to quantify what the margin difference has been or maybe the stability of the margins in the power only offering versus the traditional brokerage.

Logistics is fully cycled.

Yeah.

Yeah, well sleep.

I understand your question Jonathan It's certainly we believe we're getting a return on the asset that we're providing the trailer asset in this case and power only.

<unk>, what we would normally.

Extract on a <unk>.

Third party complete move in brokerage if you will and so the return profile. We believe is durable.

We still have the same pressures.

On pricing that occur in any other parts of the business or the same opportunities that get created on any other part of the business to take advantage of it so.

So we would consider the customer acceptance to carrier acceptance, our ability to integrate now more efficiently and effectively both within our dedicated offering has.

A supplemental capacity tight but also within our network configuration and how we go to market with customers and we just continue to get better and better at that and see.

So we think this is a long term solution and a long term contributor to our network offering within our trucking operations, even though it's third party and it sits in our logistics business, we're much more integrated.

We go to market.

Mhm alright. Thank you thanks, Mark Thanks, Tim.

Yes.

Our next question comes from Jason Seidl with Cowen. Please go ahead.

Thank you operator, good morning, gentlemen, I wanted to focus a little bit on the intermodal side.

You said a lot of good things about some of those new transit times are coming cross border I wanted to sort of dive into that and see how much you think that could become a percent of your total business those cross border moves and how we should think about the yields on those going forward.

You mentioned the transit time.

No. Chris This is Oh, we are our approach to this is buying very healthy companies that can contribute in a consistent way to what we're trying to do here so that it.

Two our current experience to perhaps slightly ahead based upon some of the geographies that they participate in so it'll be a positive contributor.

Okay. Thanks for the time I appreciate it.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Mike Burke for any closing remarks.

Great well, thanks to everyone for joining us today and I'll just close by referring you to page 14, and 15 of our updated investor presentation.

And our strategy is to be disciplined in how we deploy our capital focused on shareholder returns and to do that we have outlined our strategic growth drivers.

Dedicated truck intermodal and logistics and we are pleased that we had a chance to talk about those things today.

In the quarter, we did leverage our strong balance sheet to complement our complement our dedicated organic truck growth efforts with Eminem transport and we look forward to not only what they bring to us, but our opportunity to drive synergies.

As we get.

Get them implemented we will continue to pursue those right acquisitive opportunities that advance our strategic priorities.

Had a chance to talk about our share repurchase program today, which is almost one 4 million shares in the quarter and we will keep a nice steady drumbeat for the remainder of the year, perhaps not at the same extent, but a nice steady drumbeat.

And we're going to continue to invest in our strengths across our highly diversified portfolio and again several of those which we got a chance to highlight on the call today. So I appreciate your time and attention and look forward to our.

A discussion next time thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.