Q4 2023 Old Dominion Freight Line Inc Earnings Call
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I would now like to hand, the call over to drew Anderson. Please go ahead.
Thank you good morning, and welcome to the fourth quarter and full year 2023 conference call for old Dominion freight line.
Today's call is being recorded and will be available for replay beginning today and through February seven 2024 by dialing one 870 734 475 to nine access code 2607922 <unk>.
Hello, and welcome to the old Dominion fourth quarter earnings conference call and webcast, all participants will be in listen only mode.
A replay of the webcast may also be accessed for 30 days at the company's website.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding old dominions expected financial and operating performance for this purpose any statements made during this call that are not statements of historical fact.
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It may be deemed to be forward looking statements without limiting the foregoing. The words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
I would now like to hand, the call over to drew Anderson. Please go ahead.
Drew Anderson: Thank you good morning, and welcome to the fourth quarter and full year 2023 conference call for old Dominion freight line.
Drew Anderson: Today's call is being recorded and will be available for replay beginning today and through February seven 2024 by dialing 187734475 to nine access code 2607922.
You are hereby cautioned that these statements may be affected by the important factors among others set forth in old Dominion's filings with the Securities and Exchange Commission and in this morning's news release and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements the cause.
Speaker Change: The replay of the webcast may also be accessed for 30 days at the company's website.
<unk> undertakes no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise.
Speaker Change: This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding old dominions expected financial and operating performance for this purpose any statements made during this call that are not statements of historical fact.
As a final note before we begin we welcome your questions today, but we ask in fairness to all that you limit yourself to just one question at a time before returning to the queue.
You for your cooperation.
Speaker Change: May be deemed to be forward looking statements.
At this time for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Marty Friedman. Please go ahead Sir.
Speaker Change: Without limiting the foregoing the words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
Good morning, and welcome to our fourth quarter Conference call with me today is Adam Satterfield, our CFO.
Speaker Change: You are hereby cautioned that these statements may be affected by the important factors among others set forth in old Dominion's filings with the Securities and Exchange Commission and in this morning's news release and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements the cause.
After some brief remarks, we will be glad to take your questions.
Dominions fourth quarter financial results reflect continued softness in the domestic economy, which is similar to how the economic environment sale throughout most of 2023.
Speaker Change: <unk> undertakes no obligation to publicly update any forward looking statements, whether as a result of new information future events or otherwise.
As a result, the rebound in volumes that we had anticipated back in the spring never fully materialized.
Despite the softness in the economy and weaker than expected volumes. The ODT faithfully execute it on the same long term strategic plan that has guided us through the ups and downs of the economic cycle Many times before.
Speaker Change: As a final note before we begin we welcome your questions today, but we ask in fairness to all that you limit yourself to just one question at a time before returning to the queue.
Speaker Change: You for your cooperation.
During the fourth quarter, our <unk> tons per day decreased 2% as compared to the fourth quarter of 2022.
Speaker Change: At this time for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Marty Friedman. Please go ahead Sir.
Although our LPL shipments per day, and overall market share improved we also improved the quality of our revenue during the quarter as well, which contributed to an increase in both our quarterly revenue and earnings per diluted share for the first time in 2023.
Marty Friedman: Good morning, and welcome to our fourth quarter Conference call with me today is Adam Satterfield, our CFO.
Speaker Change: After some brief remarks, we will be glad to take your questions.
Speaker Change: Old Dominion's fourth quarter financial results reflect continued softness in the domestic economy, which is similar to how the economic environment sale throughout much of 2023.
We believe that underlying demand for our <unk> service remained consistent in the quarter, which corresponds to the consistency.
Our volume trends the stability of our volumes also reflects our ongoing ability to deliver best in class a value proposition. We were pleased to provide an on time service performance of 99% and our cargo claims ratio of zero to 1% during the quarter, which also supported the ongoing execution of our yield management.
Speaker Change: As a result, the rebound in volumes that we had anticipated back in the spring never fully materialize.
Right the softness in the economy and weaker than expected volumes. The ODT faithfully execute it on the same long term strategic plan that has guided us through the ups and downs of the economic cycle Many times before.
Initiatives.
We have said many times before that long term improvement in our operating ratio is dependent upon a consistent improvement in density and yield both of which generally require the supportive of positive macro environment.
Speaker Change: During the fourth quarter, our L. P O tons per day decreased 2% as compared to the fourth quarter of 2022, although our L. P. L shipments per day and overall market share improve we also improved the quality of our revenue during the quarter as well, which contributed to an increase in both our quarterly revenue and earn.
While our network density was challenged this year, we improved our yield by maintaining our consistent cost based approach to our pricing.
Speaker Change: <unk>.
This approach focuses on improving the profitability of each customer through yield increases that are designed to offset our cost inflation and superb support further investments in capacity and technology.
We continue to invest significantly during the 2023 as we remain confident in our ability to win market share over the long term our capital expenditures totaled $757 3 million for the year of which $291 1 million was spent for the ongoing expansion of our service Center network.
We opened two new service centers in 2023 and have several others under construction and nearly complete that could be opened quickly once the demand environment improves.
Our team knows firsthand how to quickly the demand environment can change in the <unk> industry and we are very experienced at growing our company without sacrificing the quality of our service to do so however requires us to maintain a certain amount of excess capacity in our service Center network.
We are pleased to currently have approximately 30% excess capacity in our network and.
And we have the ability to expand it further as needed to help ensure our network has never limiting factor to our growth while the investments in our service Center network, our equipment and our technology further improve the overall quality of our service in 2023, the best investment. We made was in the OD family of employees.
We improve the capabilities of our team and strengthened our unique company culture, which is defined o'dea for many years, our long term strategic plan may sound simple on the surface, but no one in our industry has been able to replicate our success because they do not have our people or our culture.
Our team is fully committed to our proven business model and as a result, we believe we are strongly positioned to respond to a positive inflection in demand once the domestic economy again begins to improve we are confident in the opportunities that lie ahead. It is our belief our team's focus on delivering superior service at a fair price.
We will support our ability to produce further profitable growth, while increasing shareholder value.
I want to thank you today for joining us this morning, and now Adam will discuss our fourth quarter financial results in greater detail.
Thank you Marty and good morning.
Dominion's revenue for the fourth quarter of 2023 was $1 5 billion, which was a zero to 3% increase from the prior year.
This slight increase in revenue was primarily due to a 3.0% of the increase in <unk> revenue per hundredweight.
More than offset the 2.0% decrease in <unk> tons per day.
Our quarterly operating ratio was 71, 8% and earnings per diluted share were $2 94.
Which was a 0.7% increase from last year.
As Marty previously mentioned this was the first quarter with an increase in both revenue and earnings per diluted share since the fourth quarter of last year.
While it certainly is not felt like one of our record years for the past $2.94 also represents a new company record for fourth quarter earnings per diluted share.
On a sequential basis, our revenue per day for the fourth quarter increased one 9% when compared to the third quarter of 2023 with <unk> tons per day, increasing 0.6% and <unk> shipments per day decreasing zero to 3%.
For comparison, the 10 year average sequential change for these metrics includes a decrease of zero, 8% and revenue per day.
The decrease of one 6% in tons per day.
A decrease of three 4% and shipments per day.
The monthly sequential changes in the oilfield tons per day during the fourth quarter were as follows.
October decreased 0.7% as compared to September.
November decreased 0.6% from October and December decreased four 8% as compared to November.
The 10 year average change for these guys.
With months, a decrease of three 5% in October.
And an increase of three 5% in November and a decrease of 8.0% in December.
Yeah.
For January we expect our revenue per day will decrease approximately three 1% as compared to January of 2023, with a decrease of approximately five 1% and our <unk> tons per day.
These numbers could be plus or minus 10, or 20 basis points, depending upon today's revenue performance.
We expect our revenue per hundredweight, excluding fuel surcharges will increase approximately six 4%, which is generally in line with normal seasonality for this metric.
We will file the actual revenue related details for January in our Form 10-K.
December decreased four 8% as compared to November.
Our operating ratio increased 60 basis points to 71, 8% for the fourth quarter.
The 10 year average change for these effective months a decrease of three 5% in October.
We continued to operate efficiently during the quarter. Despite the lack of network density, but our direct operating cost increased as a percent of revenue.
An increase of three 5% in November and a decrease of 8.0% in December.
The increase in these costs was primarily due to an increase in our insurance and claims expense as a percent of revenue, which was attributable to changes in the annual adjustment we recorded in our fourth quarter each year relating to our third party actuarial reviews.
For January we expect our revenue per day will decrease approximately three 1% as compared to January of 2023, with a decrease of approximately five 1% and our <unk> tons per day.
We were otherwise pleased with our control over direct operating costs during the quarter as our team did a nice job of matching labor to current revenue trends.
These numbers could be plus or minus 10, or 20 basis points, depending upon today's revenue performance.
While our <unk> shipments per day increased our average head count was down four 1% when compared to the fourth quarter 2022.
We expect our revenue per hundredweight, excluding fuel surcharges will increase approximately six 4%, which is generally in line with normal seasonality for this metric.
Currently believes our workforce is appropriately sized for our current shipment trends, but we will likely need to add to our workforce. This year as volumes begin to improve.
We will file the actual revenue related details for January in our Form 10-K.
Our operating ratio increased 60 basis points to 71, 8% for the fourth quarter.
Our overhead cost also increased as a percent of revenue despite our best efforts to control discretionary spending.
We continued to operate efficiently during the quarter. Despite the lack of network density, but our direct operating cost increased as a percent of revenue.
Depreciation expense as a percent of revenue increased 80 basis points when compared to the fourth quarter 2020 to.
The increase in these costs was primarily due to an increase in our insurance and claims expense as a percent of revenue, which is attributable to changes in the annual adjustment we recorded in our fourth quarter each year relating to our third party actuarial reviews.
Due primarily to the execution of our 2023 capital expenditure plan.
The increases in depreciation and other overhead costs were partially offset by a 90 basis point improvement in our miscellaneous expenses as a percent of revenue, which included $15 1 million of gains on the disposal of property and equipment.
We were otherwise pleased with our control over direct operating costs during the quarter as our team did a nice job of matching labor to current revenue trends.
<unk> cash flow from operations totaled $436 7 million for the fourth quarter and $1 6 billion for the year.
While our <unk> shipments per day increased our average head count was down four 1% when compared to the fourth quarter 2022.
While capital expenditures were $105 $9 million and $757 3 million for the same respective periods.
We currently believe that our workforce is appropriately sized for our current shipment trends, but we will likely need to add to our workforce. This year as volumes begin to improve.
We utilized $85 $5 million and $453 6 million of cash for our share repurchase program during the fourth quarter and 2023, respectively.
Our overhead cost also increased as a percent of revenue despite our best efforts to control discretionary spending.
Depreciation expense as a percent of revenue increased 80 basis points when compared to the fourth quarter of 2022.
Cash dividends totaled $43 6 million.
And the $175 1 million for the same periods.
Due primarily to the execution of our 2023 capital expenditure plan.
We were pleased that our board of directors approved a 30% increase for the quarterly dividend to <unk> 52 per share for the first quarter of 2024.
The increases in depreciation and other overhead costs were partially offset by a 90 basis point improvement in our miscellaneous expenses as a percent of revenue, which included $15 $1 million of gains on the disposal of property and equipment.
Our effective tax rate for the fourth quarter of 2023 was 24, 1% as compared to 25 zero percent in the fourth quarter of 2022.
All dominion's cash flow from operations totaled $436 7 million for the fourth quarter and $1 6 billion for the year, while capital expenditures were $105 $9 million and $757 3 million for the same respective periods.
We currently anticipate our annual effective tax rate to be 25, 6% for 2024.
This concludes our prepared remarks, this morning, and operator, we'll be happy to open the floor for questions at this time.
That's great. Thank you.
We utilized $85 $5 million and $453 6 million of cash for our share repurchase program during the fourth quarter and 2023, respectively, while cash dividends totaled $43 $6 million and $175 1 million for the same periods.
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Today's first question comes from Bruce Chan with Stifel. Please go ahead.
We're pleased that our board of directors approved a 30% increase for the quarterly dividend to <unk> 52 per share for the first quarter of 2024.
Good morning team. This is Matt on for Bruce Chad Thanks for taking our question.
You've highlighted some market share gains in the past couple of quarters here post yellow.
Our effective tax rate for the fourth quarter of 2023 was 24, 1% as compared to 25 zero percent in the fourth quarter of 2022.
Wanted to get your sense of.
What extent do you expect these to continue as more competitors, bringing on new capacity.
We currently anticipate our annual effective tax rate to be 25, 6% for 2024.
Sure.
Certainly our long terms dori has been.
Gaining market share over time.
This concludes our prepared remarks, this morning, and operator, we'll be happy to open the floor for questions at this time.
I believe we will continue to win market share into the future as well primarily based on the value proposition that we offer a superior service at a fair price.
That's great. Thank you.
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As we mentioned earlier on time service continued to be 99% during the quarter and our claims ratio was at <unk>, 1%.
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That is what's driven our market share over time typically.
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Today's first question comes from Bruce Chan with Stifel. Please go ahead.
When we're in a slower macro environment like we've been in our market share tends to be flatter.
But once we start seeing a recovery in the economy. That's when we think our model shines. The brightest if you look back in periods.
Good morning team. This is Matt on for Bruce Chan, Thanks for taking our question.
You've highlighted some market share gains in the past couple of quarters here post yellow.
When the up cycle begins.
Matt: Wanted to get your sense as.
That's when we've got plenty of network capacity.
Matt: To what extent do you expect these to continue as more competitors, bringing on new capacity.
And the job that we've done with managing our people capacity and equipment capacity as well <unk>.
Matt: Sure.
Drew Anderson: Certainly our long terms dori has been winning market share over time.
Combining with the real estate positions us to capitalize on those upswings in.
Drew Anderson: I believe we will continue to win market share into the future as well primarily based on the value proposition that we offer a superior service at a fair price.
That's why in the past, we've been able to outgrow the other publicly traded peers anywhere from 600 to 1000 basis points. So we're still waiting on that positive inflection in the economy, but I feel like we're better positioned than we've ever been to capitalize on it when the upswing begins.
Drew Anderson: As we mentioned earlier, our on time service continued to be 99% during the quarter and our claims ratio is at 1%.
Great. Thanks for that and as a quick follow up how do you see industry capacity this year.
Speaker Change: That is what's driven our market share over time typically.
Speaker Change: When we're in a slower macro environment like we've been in our market share tends to be flatter.
Versus last year and do you have a quick view of what percentage of laden offline capacity might return as we progress throughout this year. Thanks a lot.
But once we start seeing a recovery in the economy. That's when we think our model shines. The brightest if you look back in periods.
Well I think that.
There's a lot of settling that still needs to occur post the.
Speaker Change: Past when the up cycle begins.
Yellow closing their doors, but.
Speaker Change: That's when we've got plenty of network capacity.
You go back a year or more we were capacity constrained industry.
Speaker Change: <unk> that we've done with managing our people capacity and equipment capacity as well.
Feel like once all the dust settles.
Capacity is shifting around a bit, but we will continue to be a capacity constrained industry.
Speaker Change: Combining with the real estate positions us to capitalize on those upswings.
That's why in the past, we've been able to outgrow the other publicly traded peers anywhere from 600 to 1000 basis points. So we're still waiting on that positive inflection in the economy, but I feel like we're better positioned than we've ever been to capitalize on it when the upswing begins.
All of those service centers will not end up in the market yet all of those freight shipments will be and will have to be handled by someone so.
I feel like especially once the economy recovers.
We will most likely be viewed as a capacity constrained industry once again.
Great. Thanks for that and as a quick follow up how do you see industry capacity this year.
Thanks for the time.
Thank you. The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Speaker Change: Versus last year and do you have a quick view of what percentage of late and offline capacity might return as we progress throughout this year. Thanks a lot.
Thanks, Good morning, gentlemen, maybe as a follow up on that and I would just love to get your thoughts on how the yellow asset auction spend out versus your expectations and.
Speaker Change: Well I think that.
There is a lot of settling that still needs to occur post the.
Maybe a broader.
Speaker Change: Yellow closing their doors, but.
Good question. There is based on that do you think the next up cycle is going to play out differently with the redistribution of capacity from one entity like yellow that was constantly ceding share over several years do a handful of entities now trying to gain share and do you think that changes the competitive dynamics at all.
Speaker Change: You go back a year or more we were a capacity constrained industry.
Marty Friedman: And I feel like once all the dust settles a.
Marty Friedman: Capacity is shifting around a bit, but we will continue to be a capacity constrained industry.
Marty Friedman: All of those service centers will not end up in the market yet all of those freight shipments will be and we will have to be handled by someone so.
I don't think so I was just like I mentioned before.
Been able to win market share over the long term based on the quality of our service first and foremost.
Speaker Change: I feel like especially once the economy recovers.
Speaker Change: We will most likely be viewed as a capacity constrained industry once again.
The value proposition that we're offering.
Our customers and we believe that that same formula will continue to win share for us.
Speaker Change: Thanks for the time.
Speaker Change: Thank you. The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
As we go forward it takes seven capacity to be able to continue to grow.
And that's why we've always invested ahead of the growth curve and tried to target having about 25%.
Ravi Shanker: Hi, Thanks, Good morning, gentlemen, maybe as a follow up on that kind of would just love to get your thoughts on how the yellow asset options spend out versus your expectations and maybe a broader scope.
Excess capacity in the service Center network at all times and so.
Right now we mentioned that we are at about 30% excess capacity. So we're a little north of.
Speaker Change: Good question. There is based on that do you think the next up cycle is going to play out differently with the redistribution of capacity from one entity like yellow that was constantly ceding share over several years do a handful of entities now trying to gain share. There do you think that changes the competitive dynamics at all.
Of where we've historically been but we believe it's always important to consistently invest and keep that focus on the long term opportunities and that certainly play to our benefit.
The past them.
It's hard to say.
With the yellow process with their service centers, but.
Speaker Change: I don't think so I was just like I mentioned before.
Net net we believed that there would be some exit of capacity and I think thats generally what we'll end up seeing.
Speaker Change: <unk> been able to win market share over the long term based on the quality of our service first and foremost.
Speaker Change: The value proposition that we're offering our customers and we believe that that same formula will continue to win share for us.
Once all the dust has settled on things.
We obviously took a look at that.
Service centers early on.
As we go forward it takes seven capacity to be able to continue to grow.
We ended up with anything and that's fine given the state of where our network is today.
Speaker Change: And that's why we've always invested ahead of the growth curve and tried to target having about 25%.
The opportunities that we continue to have to expand it and we felt like just given the cost at.
Speaker Change: Excess capacity in the service Center network at all times and so.
Speaker Change: Right now we mentioned that we are at about 30% excess capacity. So we're a little north of.
You can see now in hindsight that it was better for us to just maintain control our network is in a.
Speaker Change: Where we've historically been but we believe it's always important to consistently invest and keep that focus on the long term opportunities and that certainly play to our benefit.
Great spot over the years, but.
We continue to have the ability to control when we add to the network and con.
Where are we decided to add the facilities and how exactly we want to build them. So.
Speaker Change: In the past.
Speaker Change: It's hard to say.
We felt like continuing with the same formula that's worked for so many years for us.
Speaker Change: With the yellow process with their service centers, but.
We want to keep executing the same business plan as we go forward.
Speaker Change: Net net we believed that there would be some exit of capacity and I think thats generally what we'll end up seeing.
Very helpful. Thank you.
Thank you. The next question is from Chris Wetherbee with Citigroup. Please go ahead.
Speaker Change: Once all the dust has settled on things.
Speaker Change: We obviously took a look at that.
Hey, Thanks, good morning I.
Speaker Change: Service centers early on.
I guess I wanted to talk a little bit sort of nearer term, we can get a sense of how things are progressing I guess first quarter, we've seen some weather here in January.
Speaker Change: And ended up with anything and that's fine given the state of where our network is today.
Typically or gets a little bit worse as we go from <unk>, but maybe you can put some help us a little bit I think there were some moving parts in particular in the fourth quarter with the gain as well as some of the insurance actuarial stuff that was going on there. So just kind of get a sense of how youre thinking about the first quarter, both from an operational perspective, but also from an or standpoint.
Speaker Change: The opportunities that we continue to have to expand it and we felt like just given the cost that you.
Speaker Change: You can see now in hindsight that it was better for us to just maintain control our network is.
Speaker Change: In a great spot as it is but.
Speaker Change: We continue to have the ability to control when we add to the network in time.
Yes.
Winter weather comes every year and it's something that we continue with us.
Speaker Change: Where are we decided to add the facilities and how exactly we want to build them. So.
Generally in our averages so.
Speaker Change: We felt like continue with the same formula that's worked for so many years for us.
We don't view that as a onetime event, but a couple of weeks ago.
US and everyone else has had to deal with weather issues and made up for a little bit of loss ground.
Speaker Change: We want to keep keep executing the same business plan as we go forward.
Speaker Change: Very helpful. Thank you.
With that last week.
And then we've got a short week finished the month of the year, So, we'll see where the final numbers land, but.
Speaker Change: Thank you. The next question is from Chris Wetherbee with Citigroup. Please go ahead.
Chris Wetherbee: Hey, Thanks, Good morning, I guess.
As of right now our.
Our shipments per day are trending pretty much in line with where we thought they would be.
Chris Wetherbee: I wanted to talk a little bit sort of nearer term, we can get a sense of how things are progressing I guess first quarter. We've seen some weather here in January I think typically a large it's a little bit worse as we go from <unk> to <unk>, but maybe you can put some help us a little bit I think there were some moving parts in particular in the fourth quarter with the gain as well as some of the insurance actuarial stuff that was going on there. So just kind of get a sense.
I gave the 10 year average earlier.
With respect to potential changes from a shipments per day standpoint.
December was five 9% below November.
That's better than the 10 year average, but over the last five years, we've kind of changed we'd give them one extra day of paid time off.
Chris Wetherbee: How youre thinking about the first quarter, both from an operational perspective, but also from an or standpoint.
Around the holidays and so our five year average in December is actually a decrease of six 5%. So we were a little bit better than that revised average that changes the math a little bit not so much the quarter.
Yes.
Chris Wetherbee: Yes.
Chris Wetherbee: Winter weather comes every year and it's something that we continue with us.
Chris Wetherbee: Generally in our averages so.
Chris Wetherbee: We don't view that as a onetime event, but a couple of weeks ago.
Chris Wetherbee: US and everyone else has had to deal with weather issues and made up for a little bit of lost ground.
But looking at January the five year average sequential change is a plus.
<unk>, 3% increase in.
Chris Wetherbee: With that last week.
Chris Wetherbee: And then we've got a short week to finish out the months of the year. So, we'll see where the final numbers land, but.
And so we'll see where where we end up but but feel like the certainly that number's been impacted a little bit.
Chris Wetherbee: Right now.
Chris Wetherbee: Our shipments per day are trending pretty much in line with where we thought they would be.
It looks like it's going to come in below that.
Overall sequential <unk>.
Chris Wetherbee: I gave the 10 year average earlier.
Number that we would go up a bit but how much will we get back in February where we see kind of a traditional bump them in March we will continue to be the important months.
Chris Wetherbee: With respect to potential changes from a shipments per day standpoint.
Chris Wetherbee: December was five 9% below November.
A month, where we're typically up about 5% sequentially.
That's better than the 10 year average, but over the last five years, we've kind of changed we'd give them one extra day of paid time off.
Over February and if you remember we anticipated in 2023 that we would see a recovery in the spring and unfortunately, it didn't materialize like we thought it would but we'll that will kind of be the key point for for this quarter is will we start seeing that reacceleration.
Chris Wetherbee: Around the holidays and so our five year average in December.
Chris Wetherbee: Is actually a decrease of six 5%. So we were a little bit better than that revised average that changes the math a little bit not so much the quarter.
Chris Wetherbee: But looking at January the five year average sequential change is a plus <unk> three.
And our business levels and that obviously would dictate a lot in terms of the operating ratio in general performance for the first quarter.
Chris Wetherbee: <unk>, 3% increase.
Chris Wetherbee: <unk>.
Chris Wetherbee: And so we'll see where we end up but.
And just one point of clarification. So for <unk> do you think that with those two big moving parts that sort of the number that we have is the right jump off number as we think about that normal sequential progression of Omar.
Feel like that certainly that number has been impacted a little bit.
Chris Wetherbee: It looks like it's going to come in below.
Chris Wetherbee: That overall sequential number that we would go up a bit but how much will we get back in February where we see kind of a traditional bump and then March will continue to be the important months. That's a month, where we're typically up about 5% sequentially over February and if you remember we.
Well.
The normal change in ore from the fourth to the first quarter is about 100 basis point increase.
Maybe 110 basis points.
Those two particular items that we called out in the press release, we would expect some.
Normalized <unk>, if you will to.
To start with the insurance and claims that was one 9%.
Anticipated in 2023 that we would see a recovery in the spring and unfortunately, it didn't materialize like we thought it would but.
Revenue in the fourth quarter.
That number has averaged 121, 3% each quarter in the first three quarters of the year and.
Chris Wetherbee: But that will kind of be the key point for for this quarter is will we start seeing that reacceleration in our business levels and that will obviously dictate a lot.
So we'd expect that to somewhat normalize in our expense be more consistent in the first second and third quarters of 2024.
Chris Wetherbee: Terms of the operating ratio in general performance for the first quarter.
Now it may be a little bit higher.
Chris Wetherbee: And just one point of clarification. So for <unk> do you think that with those two big moving parts that sort of the number that we have is the right jump off number as we think about that normal sequential progression of Omar.
We've had four or five straight years of double digit premium increases and continued to contend with with higher costs in that line item, but I still expect.
Chris Wetherbee: Well.
But that would be maybe 131, 4% of revenue in the first quarter. So yes.
Chris Wetherbee: The normal change in ore from the fourth to the first quarter is about 100 basis point increase.
Yet maybe 50 basis points of benefit if you will.
Chris Wetherbee: Maybe 110 basis points.
Chris Wetherbee: Those two particular items that we called out in the press release, we would expect some normalization if you will.
As we transition into the first quarter on that line item and then the miscellaneous expenses, we would expect for <unk>.
Chris Wetherbee: With the insurance and claims that was one 9%.
Those gains to be that significant that was pretty unusual typically that miscellaneous expense line item is 40 or 50 basis points and.
Chris Wetherbee: Revenue in the fourth quarter.
Chris Wetherbee: That number has averaged 121, 3% each quarter in the first three quarters of the year and so we'd expect that to somewhat normalize in our expense be more consistent in the first second and third quarters of 2024.
So we would expect that somewhat go back to normal as well so that could be kind of a 100 110 basis point headwind. So I think does net net thinking about 71 eight that we did in the fourth quarter as we transition into the first.
170 to 220 basis points deterioration 170 would be kind of normalizing for those.
Chris Wetherbee: Now it may be a little bit higher.
Chris Wetherbee: We've had four or five straight years of double digit premium increases and continued to contend with with higher costs in that line item, but I still expect that.
Items that I just mentioned.
And then just maybe on the high side of that with just the uncertainty of where we really get the economic recovery in volume performance through the quarter that acceleration.
That would be maybe 131, 4% of revenue in the first quarter. So.
Chris Wetherbee: Get maybe 50 basis points of benefit if you will.
We normally would if we get that acceleration, we're certainly managing all of our cost and it could be on the low end of the scale or better but.
Chris Wetherbee: As we transition into the first quarter on that line item and then the miscellaneous expenses, we would expect for for those gains to be that significant that was.
As of right now.
Probably better to sustaining capital.
Chris Wetherbee: Pretty unusual typically that miscellaneous expense line item is 40 or 50 basis points.
Higher side of that normalized average.
Okay. That's very helpful. Thanks for the time I appreciate it.
Chris Wetherbee: So we would expect that somewhat go back to normal as well so that could be.
Thank you. The next question is from Ken <unk> with Bank of America. Please go ahead.
100, 110 basis point headwind. So I think does net net thinking about the 71 eight that we did in the fourth quarter as we transition into the first.
Great.
Just to clarify that that insurance and claims that was that was an annual adjustment right. So when you're talking about normalizing that I just want to understand that actuarial change, but my question would be on <unk>.
170 to 220 basis points deterioration and 170 would be kind of normalizing for those items that I just mentioned.
You didn't bid for the I guess, maybe you didnt win the centers maybe your thoughts on in the industry. If you think there was I presume. You think then there was overpayment like giving you were trying to be the stalking horse bid. So what does that mean for the environment do you think those peers need to get a return quickly on that investment you see increased.
Chris Wetherbee: And then just maybe it would be on the high side of that with just the uncertainty of where we really get the economic recovery in volume performance through the quarter that acceleration that we normally would if we get that acceleration, we're certainly managing all of our cost in.
Chris Wetherbee: It could be on the low end of the scale or better but.
Pricing competition I, just want to understand your thoughts or view on.
Chris Wetherbee: Right now.
On what the impact of <unk>.
Chris Wetherbee: Better to just handicap it on the <unk>.
Overpaying from your peers competitive perspective.
Chris Wetherbee: Higher side of that normalized average.
Well.
Speaker Change: Okay. That's very helpful. Thanks for the time I appreciate it.
I won't say antibody overpaid, we looked at the whole thing.
Speaker Change: Thank you. The next question is from Ken <unk> with Bank of America. Please go ahead.
Obviously with that initial bid and felt like if we could get everything.
Speaker Change: Great.
Is it somewhat of a discounted pricing than we were willing to take that risk and obviously it would have come with increased cost if we had absorbed.
Ken: Just to clarify that that insurance and claims that was that was an annual adjustment right. So when you're talking about normalizing that I just want to understand that actuarial change.
All of that property, but I think each carrier is different.
But my question would be on.
Ken: You didn't bid for the I guess, maybe you didnt win the centers maybe your thoughts on in the industry. If you think there was I presume. You think then there was overpayment right. Given you were trying to be the stalking horse bid. So what does that mean for the environment do you think those peers need to get a return quickly on that investment you see increased.
They looked at those opportunities.
I guess that fit in with what their long term strategic plan.
I think if anything its increase in the cost basis and like we've said for many years.
As we've invested in real estate, you've got to build that into your overall cost structure and appropriately capture that.
Ken: Pricing competition I, just want to understand your thoughts or view on.
With with rates and that's been our strategy over time, and it's certainly play to our advantage. So if our competitors cost.
On what the impact of <unk>.
Ken: Overpaying from your peers competitive perspective.
Ken: Well.
Speaker Change: I won't say anybody overpaid, we looked at the whole thing obviously with that initial bid and felt like if we could get everything.
The structures are increasing I wouldn't expect that they would change their approach to pricing.
But I think if anything they've got to build it.
There and try to capture for it but.
Speaker Change: Get it somewhat of a discounted price thing than we were willing to take that risk and obviously it would have come with increased cost if we had absorbed.
Fortunately, that's something that we're not having to contend with like I mentioned earlier.
We're good with our strategy.
We feel like it's worked for us over time, we believe that same formula and strategy.
Speaker Change: All of that property, but I think each carrier is different.
Speaker Change: They looked at those opportunities.
Can continue to work for us in the future. So that's what we're going to keep executing under.
Speaker Change: I guess that fit in with what their long term strategic plan.
Okay, and Im sorry, just thanks for that great answer, but do you mind clarifying on the insurance.
Speaker Change: I think if anything it's increasing the cost basis and like we've said for many years as we've invested in real estate, you've got to build that into your overall cost structure and appropriately capture that.
Oh sure yeah. So the.
Youre right. It was we do an annual actuarial assessment in the fourth quarter each year.
Our reserves in.
Speaker Change: With with rates and that's been our strategy over time, and it's certainly play to our advantage. So if our competitors cost.
And so we unfortunately had an unfavourable adjustment this year.
Those go either way in the last few years, they've been favorable adjustments.
Speaker Change: The structures are increasing I wouldn't expect that they would change their approach to pricing.
We've got.
The expense rate.
Speaker Change: But I think if anything they've got to build it in there and try to capture for it but.
Used through the first three quarters of the year and Thats why you see.
That number that's more consistent if you will but and then we just had.
Speaker Change: Fortunately, that's something that we're not having to contend with like I mentioned earlier.
Have that third party review done make adjustments and then just kind of move on but.
Speaker Change: We're good with our strategy and.
Just looking at that activity, that's why I think that our expense rate will be a little bit higher in 2024 through the first three quarters versus where we were last year, but maybe only 10 20 basis points or so and then we will.
We feel like it's worked for us over time, and we believe that same formula and strategy.
Speaker Change: Can continue to work for us in the future. So that's what we're going to keep executing under.
Speaker Change: Okay, and I'm, sorry, I, just thanks for that great answer, but do you mind clarifying on the insurance.
<unk> another actuarial assessment in the fourth quarter of 'twenty four.
Speaker Change: Oh sure, yes, so youre.
Whatever adjustments are necessary, then and just move on but I think it has been since 2019 was last year, we had an unfavourable one so best case scenarios when we get to the end of the year. They conduct the study.
Speaker Change: Youre right. It was we do an annual actuarial.
Speaker Change: Assessment in the fourth quarter each year of our reserves.
Speaker Change: And so we unfortunately had an unfavourable adjustment this year.
Speaker Change: Those go either way in the last few years, they've been favorable adjustments.
We don't have an adjustment either way.
But but unfortunately this year it was an unfavorable one.
Speaker Change: We've got a.
Speaker Change: The expense rate.
Great. Thanks for that I appreciate the time.
Used through the first three quarters of the year and Thats why you see.
Thank you. The next question is from Amit Mehrotra with Deutsche Bank. Please go ahead.
Speaker Change: That number that's more consistent if you will but and then we just had.
Speaker Change: I have that third party review done make adjustments and then just kind of move on but.
Hey, Thanks, Adam.
In your prepared remarks, you mentioned that maybe there is a need.
Speaker Change: Just looking at that activity, that's why I think that our expense rate will be a little bit higher in 2024 through the first three quarters versus where we were last year, but maybe only 10 20 basis points or so and then we will.
Add head count.
In anticipation of <unk> can you just put a little bit more color around that.
So far ahead of this inflection of volume when could we expect the head count to go and how quickly and then.
The industry is always another follow up to that the industry has obviously been disrupted over the last six months.
Speaker Change: <unk> another actuarial assessment in the fourth quarter of 'twenty four.
Speaker Change: Whatever adjustments are necessary and just move on but I think it has been since 2019 was last year, we had an unfavourable one so best case scenarios when we get to the end of the year. They conduct the study.
The dust is settling I'm curious to get your view on like how you think the competitive dynamic has evolved from both a service quality perspective, and a pricing perspective.
Have you have you seen service disruptions I know theres, maybe early signs of that in the third quarter, but have those fixed yourself are you continuing to see service disruptions to create market share opportunities for you and what are you seeing on the competitive pricing side that makes you feel better or worse or neutral about kind of where the discipline in the industry.
Speaker Change: We don't have an adjustment either way.
Speaker Change: But but unfortunately this year it was an unfavorable one.
Speaker Change: Great. Thanks for that I appreciate the time.
Speaker Change: Thank you. The next question is from Amit Mehrotra with Deutsche Bank. Please go ahead.
Amit Mehrotra: Hey, Thanks, Adam.
Yes.
Amit Mehrotra: In your prepared remarks, you mentioned that maybe there is a need.
That's a lot in one question I'll see if I can keep it all straight but.
Amit Mehrotra: Add head count.
Amit Mehrotra: In anticipation of <unk> can you just put a little bit more color around that.
We have.
Heard about some service issues.
Amit Mehrotra: How far ahead of this inflection of volume when could we expect the head count to go and how quickly and then.
We obviously stay very engaged with with our customer base are large national accounts and <unk>.
Amit Mehrotra: The industry is always another follow up to that the industry has obviously been disrupted over the last six months.
Customer accounts, as well and meet with them often and so we have heard.
About some service issues.
Amit Mehrotra: The dust is settling I'm curious.
I believe that that's something that May continue.
Amit Mehrotra: To get your view on like how you think the competitive dynamic has evolved from both the service quality perspective, and a pricing perspective.
It's very typical in an up cycle, especially.
So I think some of the carriers that maybe took on some of that extra yellow business may cause some issues for them.
Amit Mehrotra: Have you have you seen service disruptions I know theres, maybe early signs of that in the third quarter, but have those fixed yourself are you continuing to see service disruptions to create market share are produced for you and what are you seeing on the competitive pricing side that makes you feel better or worse or neutral about kind of where the discipline in the industry.
Throughout.
The system or their system.
That's usually.
Source of market share for us.
Especially when the economy starts to pick up but.
From a pricing standpoint.
Amit Mehrotra: Yeah.
It's continued to be a very.
Amit Mehrotra: Yes.
Speaker Change: That's a lot in one question I'll see if I can keep it all straight but.
Favorable pricing environment, I would say we've seen.
Speaker Change: We have.
Obviously, we've continued on with our consistent and cost based increases and that will be our strategy.
Speaker Change: Heard about some service issues.
Speaker Change: We obviously stay very engaged with with our customer base are large national accounts in <unk>.
Going forward as well, but just looking at some of the <unk> and some of the feedback that we've had.
Speaker Change: Customer accounts, as well and meet with them often and so we have heard.
Had from bids as well it seems like the other carriers.
Speaker Change: About some service issues.
It continued to push for increases so that's generally a good thing for us.
Speaker Change: I believe that that's something that May continue.
Speaker Change: It's very typical in an up cycle, especially in.
As well as the.
Competitors are increasing their rates.
So I think some of the carriers that maybe took on some of that extra yellow business may cause some issues for them.
Again.
Increasing demand environments.
Generally we see competitors that are increasing rates faster than us.
Speaker Change: Throughout the system or their system.
If we're at a price premium to the market and that gap closes that.
Speaker Change: So that's usually.
And that too creates market share opportunity for us.
Speaker Change: The source of market share for us.
Speaker Change: Especially when the economy starts to pick up but.
Yes.
Thats why we feel good about where we're positioned.
Speaker Change: From a pricing standpoint.
The opportunities that we have.
Speaker Change: <unk> continued to be a very.
Going forward, it's been a long slow cycle that we've been in.
Speaker Change: Favorable pricing environment, I would say we've seen.
I assume has been below 50 for 2014 months now and you compare that to <unk> nine I think was below 50 for 12 months.
Speaker Change: Obviously, we've continued on with our consistent and cost based increases and that will be our strategy.
Speaker Change: Going forward as well, but just looking at some of the <unk> and some of the feedback that we've had from bids as well it seems like the other carriers.
Been a very long slow cycle that we're ready to get back to growing again, but.
Going through these cycles requires patience and I think we've managed well managed cost efficiencies managed our discretionary spending.
Speaker Change: It continued to push for increases so that's generally a good thing for us.
Speaker Change: As well.
To go through a year, where tonnage was down 9% in our operating ratio was at seven two.
Speaker Change: Competitors are increasing their rates.
Speaker Change: Again.
Speaker Change: Increasing demand environments.
To me it was pretty remarkable and so I'm really proud of what our team accomplished this year and what we've done to position ourselves for opportunities that are ahead.
Speaker Change: Generally we see competitors that are increasing rates faster than us.
Speaker Change: If we're at a price premium to the market and that gap closes.
Speaker Change: That to create market share opportunity for us.
Yes, great. Okay. Thank you very much.
Speaker Change: Yes.
That's why we feel good about where we're positioned in the.
Thank you. The next question is from Jon Chapell with Evercore ISI. Please go ahead.
The opportunities that we have.
Speaker Change: Going forward, it's been a long slow cycle that we've been in.
Thank you and good morning.
Speaker Change: I assume has been below 50 for 2014 months now and you compare that to <unk> nine I think was below 50 for 12 months.
Adam Thanks for the commentary around the <unk> move in the EUR given some of the noise in the fourth quarter as we think about the rest of the year and I know, it's difficult to predict the volume landscape. So let me frame. It if you will.
Been a very long slow cycle that we're ready to get back to growing again, but.
Speaker Change: Going through these cycles requires patience and I think we've managed well managed cost efficiencies managed our discretionary spending to go through a year, where tonnage was down 9% in our operating ratio was seven two.
It sounds like Youre in a good position in 30% capacity, maybe you can see the weight to the eyes on adding head count maybe bulk TT lever if necessary if things kind of accelerate quicker than expected, but should we expect a return to kind of normal seasonal trends in the or this year or can we see even better in the first maybe nine.
Speaker Change: To me it was pretty remarkable and so I'm really proud of what our team accomplished this year and what we've done to position ourselves for opportunities that are ahead.
If you get some of the volume back on a stickier basis more of an industrial recovery.
And then maybe lag a little bit some of the resources that you need to handle that just given your spare capacity today.
Speaker Change: Yes, great. Okay. Thank you very much.
Yes.
Speaker Change: Thank you. The next question is from Jon Chapell with Evercore ISI. Please go ahead.
Obviously, a lot of it is going to be volume dependent and will really get the.
Some type of economic recovery and when does that begin.
Jonathan Chappell: Thank you and good morning.
Jonathan Chappell: Adam Thanks for the commentary around the <unk> move in the or.
It'd be great to see it start early.
But.
Jonathan Chappell: Given some of the noise in the fourth quarter as we think about the rest of the year and I know, it's difficult to predict the volume landscape. So let me frame. It if you will.
Sure.
General.
Economic forecasters are predicting.
Things are going to start so early in the year, but.
Speaker Change: It sounds like Youre in a good position, 30% capacity, maybe you can see the weight to the eyes on adding head count maybe bulk TT lever if necessary if things kind of accelerate quicker than expected, but should we expect a return to kind of normal seasonal trends in the or this year or can we see even better when the first maybe nine months.
We're ready.
We actually hired and increased our head count during the fourth quarter.
Much of which was on the platform, where we were hiring.
Folks to backfill some of the jobs, where a combo of employees.
The freight volumes that were higher in the second half of the year, we pulled people off the dock and put them right back into it.
Speaker Change: If you get some of the volume back in a stickier basis more of an industrial recovery.
Truck and we're driving again, so we backfield.
Speaker Change: And then maybe lag a little bit some of the resources that you need to handle that just given your spare capacity today.
Some of those positions in particular, but.
We're cautiously optimistic about things and we're not going to get ahead of it by any means.
Speaker Change: Yeah, I mean, obviously a lot of it is going to be volume dependent and will really get.
Once we start seeing line of sight into.
Some volume recovery.
Speaker Change: Some type of economic recovery and when does that begin.
Increased demand and we'll make sure that we're adding for the workforce as appropriate to.
Speaker Change: It'd be great to see it start early.
To keep up with it to make sure that we are.
Speaker Change: But I'm not sure that general.
Efficiently handling any growth that comes without any sacrifice to the quality of our service so.
Speaker Change: Economic forecasters are predicting.
Speaker Change: But things are going to start so early in the year, but we're ready.
But I would say that from a big picture standpoint, when you look back in time.
Speaker Change: We actually hired and increased our head count during the fourth quarter.
And then just thinking about with fiscal year overall.
Speaker Change: Each of which was on the platform, where we were hiring.
Generally when we've gone through a slow period, even going back to 2009.
Speaker Change: Folks to backfill some of the jobs, where our combo employees.
2016, 2019, we've gone through periods that have been really slow if we've lost anything.
Speaker Change: The freight volumes that were higher in the second half of the year, we pulled people off the dock and put them right back into a truck and we're driving again, so we backfield.
From an operating ratio standpoint.
When the volumes and revenue come back into the system, we have been able to more than recover that or loss back to our cost structure and really pleased with the performance as I said, but we we generated improvement in our direct operating costs for the year.
Speaker Change: Some of those positions in particular, but.
Speaker Change: We're cautiously optimistic about things and we're not going to get ahead of it by any means.
Speaker Change: Once we start seeing minus side into.
Speaker Change: Some volume recovery.
Speaker Change: Increased demand and we'll make sure that we're adding for the workforce as appropriate to keep up with it to make sure that we're efficiently.
This year, even despite the lack of density that we had with the volume weakness and really the overall loss.
Speaker Change: Efficiently handling any growth that comes without any sacrifice to the quality of our service.
Which is limited to our overhead expenses, increasing in most of that was depreciation as we.
But I would say that from a big picture standpoint, when you look back in time.
Continued to expand the network as we.
Brought in new equipment into our fleet to replace some of the older stuff that we've been hanging on to the last couple of years with OEM challenges. So as we incurred a lot of expense on our own selectively.
Speaker Change: And just thinking about the fiscal year overall.
Speaker Change: Generally when we've gone through a slow period.
Going back to 2009.
Speaker Change: <unk> 2016, 2019, we've gone through periods that had been really slow if we've lost anything.
We're positioning ourselves to capitalize on future growth opportunities. So that will be the power of leverage in the model is once we get that top line growth going again, we will continue to be able to.
Speaker Change: From an operating ratio standpoint.
Speaker Change: When the volumes and revenue come back into the system, we have been able to more than recover that or loss back to our cost structure and really pleased with the performance as I said, but we generated improvement in our direct operating costs for the year.
Improved further those direct operating cost as a percent of revenue, but we regain lost ground on the overhead side.
Get right back to operating ratio improvement.
And have that same formula work and where we're growing the top line improving.
Speaker Change: This year, even despite the lack of density that we had with the volume weakness and really the overall loss.
The operating ratio in and having the income growing faster than the revenues.
Speaker Change: Let's just limited to our overhead expenses, increasing in most of that was depreciation as we.
Producing profitable growth has been our long term story and it's led to a big increase in shareholder value over time as well.
Speaker Change: Continued to expand the network as we brought in new equipment into our fleet to replace some of the older stuff that we've been hanging on to the last couple of years with OEM challenges.
Yeah, Okay. Thank you.
Thank you. The next question comes from Tom <unk> with UBS. Please go ahead.
Speaker Change: As we incurred a lot of expense on our own selectively.
Speaker Change: We're positioning ourselves to capitalize on future growth opportunities, so that will be the power of leverage in the model.
Yes, good morning.
Wanted to ask you just on pricing and I guess, if we look at the January. Thank you since January is up like six 4% and <unk> was seven 5% I believe for revenue per hundredweight X fuel.
Speaker Change: Once we get that top line growth going again will continue to be able to improve.
Speaker Change: Improved further those direct operating cost as a percent of revenue that we regain lost ground on the overhead side.
Do you think there's kind of a further deceleration in the pace of year over year pricing.
Speaker Change: Get right back to operating ratio improvement.
That you would expect looking forward and where do you think things settle out is at four five.
Speaker Change: And have that same formula work and where we're growing the top line improving.
Speaker Change: The operating ratio in and having the income growing faster than the revenues.
And then I guess.
Just one other kind of related question. How do you think we ought to think about cost inflation this year compared to what it was last year. Thank you.
Producing profitable growth has been our long term story and it's led to a big increase in shareholder value over time as well.
Yeah from a.
The revenue per hundredweight, excluding fuel surcharge.
Mhm yeah, Okay. Thank you.
Apply normal seasonality.
Quarter by quarter, then the yields.
Speaker Change: Thank you. The next question comes from Tom <unk> with UBS. Please go ahead.
Would compress to around six 5% growth.
And the first and second quarters, and then that would start to moderate to be closer to five 5% by.
Tom: Yeah. Good morning wanted to ask you just on pricing and I guess, if we look at the January I think you said that January is up like six 4% and <unk> was seven 5% I believe for revenue per hundredweight X fuel.
By the fourth quarter, which as you know if you look long term our revenue per shipment has been more in the 555% range over time. So we would expect absent any mix changes for that too.
Tom: Do you think there is kind of a further deceleration in the pace of year over year pricing.
For us to be able to get consistent increases as we go through the year.
Tom: That you would expect looking forward and where do you think things settle out is at four five.
Bids are coming to you and that's why you see that absolute number increase quarter by quarter.
Tom: And then I guess.
Tom: Just one other kind of related question. How do you think we ought to think about cost inflation this year compared to what it was last year. Thank you.
But that rate of growth may start to compress granted I had anticipated that it would compress a little bit last year.
Speaker Change: Yes from a just a revenue per hundredweight, excluding fuel surcharge.
We had the decrease in weight per shipment and so that supported some of that on a reported yield metric now the reverse could happen this year, especially as we get into the back half of the year. If the economy is improving we would expect weight per shipment can be higher than that generally results in a lower revenue per hundredweight. So.
Speaker Change: If you apply normal seasonality.
Speaker Change: Quarter by quarter, then the yields.
Compressed to around six 5% growth.
Speaker Change: Kind of in the first and second quarters, and then that would start to moderate to be closer to five 5% by.
But higher revenue per shipment. So it all kind of balance out we believe this year that will be the more important factor though.
Speaker Change: By the fourth quarter, which as you know if you look long term our revenue per shipment.
Speaker Change: Been more in the 555% range over time, so we would expect absent any mix changes for that.
Feel like as will we start seeing some real growth.
Net revenue, earning weight per shipment metric rather.
That would mean that orders for our customers' products are starting to increase theres more widgets for every shipment.
Speaker Change: For us to be able to get consistent increases as we go through the year.
Speaker Change: Bids are coming to you and Thats why you see that absolute number increase quarter by quarter.
And that's what we hope that we will start seeing sometime soon here.
Early this year.
Speaker Change: But that rate of growth may start to compress granted I had anticipated that it would compress a little bit last year.
Our cost per shipment standpoint, we.
We saw moderation in our cost per shipment.
Throughout this year and that's what we'd anticipated.
Speaker Change: It.
Originally we had expected core inflation this year of five to five 5% and that's pretty much where we finished it.
Speaker Change: We had the decrease in weight per shipment and so that supported some of that on a reported yield metric now the reverse could happen this year, especially as we get into the back half of the year. If the economy is improving we would expect weight per shipment to be higher than that generally results in a lower revenue per hundredweight. So.
It was higher than that in the first half of the year better than the average in the second so I feel like our cost per shipment will likely get back into more of our more consistent with our longer term average probably be somewhere around the 4%.
But higher revenue per shipment. So it all kind of balance out we believe this year that will be the more important factor that we feel like is will we start seeing some real growth.
Mark or so.
That 4% plus or minus.
We land.
Speaker Change: That revenue, earning weight per shipment metric rather.
Obviously, you can do little bit better than that if you get volume growth and youre getting density and so forth that drives a lot of operating efficiency.
Speaker Change: That would mean that orders for our customers' products are starting to increase theres more widgets for every shipment.
Dealt with the opposite over the last year year, and a half but.
Speaker Change: That's what we hope that we will start seeing sometime soon here early this year from a cost per shipment standpoint.
But that number when you think about it a lot of our line items I mentioned, the insurance premiums, but we've dealt with significant.
Speaker Change: We saw moderation in our cost per shipment.
Cost inflation in many of the income statement line items that we have over time and Fortunately, we've been able to.
Speaker Change: Throughout this year and that's what we'd anticipated. We originally had expected core inflation. This year of five to five 5% and that's pretty much where we finished.
Improve operating efficiencies and do other things to mitigate that such that our longer term.
Speaker Change: It was higher than that in the first half of the year better than the average in the second so I feel like our cost per shipment will likely.
Inflation on our cost per shipment basis has been in that three 5% to 4% range.
Speaker Change: Get back into more of our more consistent with our longer term average probably be somewhere around the 4%.
Right. Okay. Yeah, that's all very helpful. Thanks, Adam.
Speaker Change: Mark or so.
Thank you. The next question is from Bascom majors Susquehanna go ahead.
Speaker Change: That 4% plus or minus.
We land.
Thanks for taking my questions just to follow up on that last question.
Obviously, you can do little bit better than that if you get volume growth and you're getting density and so forth that drives a lot of operating efficiency.
Based on the recent contract conversations you said certainly your peers continue to raise price do you feel fairly confident you can maintain your historic one to one five point spread above that cost inflation this year.
Speaker Change: Dealt with the opposite over the last year year, and a half but.
Speaker Change: That number when you think about it a lot of our line items I mentioned, the insurance premiums, but we've dealt with significant.
Yes, that's always the focus for us.
Speaker Change: Cost inflation in many of the income statement line items that we have over time. Unfortunately, we have been able to.
Again, thats, why especially when we get into stronger demand environments.
Historically seen competitors raising rates faster.
Speaker Change: Improve operating efficiencies and do other things to mitigate that such that our longer term.
Than us.
A lot of that in the past I think has been driven by competitors that that generally run their networks closer to full utilization and so if they have not been able to grow volumes in those large upswings.
Speaker Change: Inflation on our cost per shipment basis has been in that three 5% to 4% range.
Speaker Change: Right. Okay. Yeah, that's all very helpful. Thanks, Adam.
They take advantage of the strength in the market and get more by way of rate.
Speaker Change: Thank you. The next question is from Bascom majors Susquehanna go ahead.
We like to do both.
Bascom: Thanks for taking my questions just to follow up on that last question.
Get back to reference 2018 and 2021.
Bascom: Based on the recent contract conversations you said certainly your peers continue to raise price do you feel fairly confident you can maintain your historic one to one five point spread above that cost inflation this year.
We outgrew the market.
In those years.
The 200 basis points, meaning.
<unk> tons per day basis, and we were able to get good.
Consistent yield increases in those years as well, but to us we feel like it's better it's worked over time to be able to sit across the table from a customer and talk about our cost inflation and <unk>.
Speaker Change: Yes, that's always the focus for us and again, Thats, why I, especially when we get into stronger demand environments.
Speaker Change: Historically seen competitors raising rates faster.
Hey, we need cost plus the plus.
Homes into supporting the long term consistent investments that we've made in our service Center network.
Speaker Change: And us.
Speaker Change: A lot of that in the past I think has been driven by competitors that that generally run their networks closer to full utilization and so if they have not been able to grow volumes in those large upswings.
Invested $2 billion in our network over the past 10 years to consistently grow it.
And we've increased our door count by about 50% over that last 10 year basis.
They take advantage of the strength in the market and get more by way of rate.
Right now, but there is still some some dust to settle but.
10 years that ended 2022 the industries.
Speaker Change: We like to do both.
Number of service centers Youre down about 10% at least for the public carrier. So thats something thats created an advantage for us in the marketplace. It's something that we always want to invest in and capacity invest in technology.
Speaker Change: Get back to reference 2018 and 2021.
Outgrew the market.
Speaker Change: In those years.
Speaker Change: <unk> thousand to 200 basis points, meaning.
Speaker Change: <unk> tons per day basis, and we were able to get good.
Designed to improve our customer service to connect with our customers.
Speaker Change: Consistent yield increases in those years as well but.
Or to be able to drive operating efficiencies for us to keep our cost inflation mode. So we're always investing in capacity and technology on behalf of our customers generally and that's why we've got to build those calls.
Speaker Change: We feel like it's better it's worked over time.
Speaker Change: Be able to sit across the table from a customer and talk about our cost inflation and say, we need cost plus the plus <unk>.
Speaker Change: Comes into supporting the long term consistent investments that we've made in our service Center network.
And through our price model.
But to us it's a lot easier to sit and say we want a consistent.
Speaker Change: We've invested $2 billion in our network over the past 10 years to consistently grow it.
Approach, if you will versus just something that's more market driven.
Speaker Change: And we've increased our door count by about 50% over that last 10 year basis right.
Trying to get big increases and when the markets in our favor and not as much at the markets and the shippers favor.
Right now Theres still some some dust to settle but the.
It's a formula that's worked over time and that's what we continue to.
Speaker Change: 10 years that ended 2022 the industries.
Focus on as we go forward.
Speaker Change: Number of service centers Youre down about 10% at least for the public carrier. So thats something thats created an advantage for us in the marketplace. It's something that we always want to invest in and capacity invest in technology.
Thank you.
Thank you. Our next question is from Jason Seidl with TD Cowen. Please go ahead.
Thank you operator, good morning, gentlemen.
Should we think about.
Resigned to improve our customer service to connect with our customers.
Normal seasonal patterns as we move throughout the year in your year over year comparisons with tonnage in terms of when you first started seeing the freight come over from yellow.
Speaker Change: Or to be able to drive operating efficiencies for us to keep our cost inflation low. So we're always investing in capacity and technology on behalf of our customers generally and that's why we've got to build those costs.
Yes, obviously.
It was mid year in the third quarter.
Speaker Change: So our price model.
They closed and we got that that bump we were at 47000 shipments per day.
But to us it's a lot easier to sit and say we want a consistent.
For the longest time.
Speaker Change: Broach, if you will versus just something that's more market driven.
Alright.
You didn't see it earlier and as they started to bleed a little bit in June.
Speaker Change: Turning to get big increases and when the markets in our favor and not as much at the markets and the shippers favor.
Not really I mean, our monthly average was 47000 from.
Speaker Change: It's a formula that's worked over time and this is what we continue to.
December.
Of 22 through July.
Speaker Change: Focus on as we go forward.
23, so it was flat there and then we got an initial bump of about 3000 shipments per day, and we stayed pretty consistent there from around 50000 or a little bit north of that.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Jason Seidl with TV Cowen. Please go ahead.
From August through November and then just had.
Jason H. Seidl: Thank you operator, good morning, gentlemen.
The seasonal drop.
Should we think about.
Jason H. Seidl: Sort of a normal seasonal patterns as we move throughout the year and your year over year comparisons with tonnage in terms of when you first started seeing the freight come over from yellow.
Through December so as we're starting now.
Right now we're a little below January of last year, which is just mentioned is that 47000, if we we get.
Jason H. Seidl: Yes, obviously.
Jason H. Seidl: It was mid year and the <unk>.
The bulk but.
The normal seasonal bump if you will that would sort of put as flattish with February and March.
Jason H. Seidl: Third quarter.
Jason H. Seidl: They closed and we got that that bump we were at 47000 shipments per day.
Then the question will be are we getting.
Jason H. Seidl: The longest time.
Some type of normal seasonality.
Jason H. Seidl: Right.
Jason H. Seidl: Do you think you didn't see it earlier and as they started to bleed a little bit in June.
So that would put the second quarter.
Above the.
Jason H. Seidl: Not really I mean, our monthly average was 47000 from December.
Second quarter of last year, and then we can kind of go from there if you will.
'twenty two through July.
Okay. It makes sense I wanted to clarify also is something that you guys said you mentioned you expect an exit of capacity once the dust settles and you were talking about the terminals are you talking and exit of capacity from where we are now or are you talking a total exit of capacity from wind yellow as an operator.
Jason H. Seidl: 93, so it was flat there and then we got an initial bump of about 3000 shipments per day.
Jason H. Seidl: And we stayed pretty consistent there from around 50000 or a little bit north of that.
Jason H. Seidl: From August through November and then just had.
Jason H. Seidl: The seasonal drop.
Yes, when yellow was operations I mean, obviously.
Jason H. Seidl: Through December so as we're starting out.
At what 45 50000 shipments per day, and they had how many ever service centers that they did in <unk>.
Jason H. Seidl: Right now we're a little below January of last year, which is just mentioned is that 47000, if we we get.
Net net theres going to be a reduction in those number of service centers that were in operation, There's still quite a few that have not settled.
Jason H. Seidl: The bulk but.
Jason H. Seidl: The normal seasonal bump if you will that would sort of put as flattish with February and March.
In any way and that's what we believe we thought that they would be.
Then the question will be are we getting.
Jason H. Seidl: Some type of normal seasonality.
Some percent of their capacity, if you will but at that same.
Jason H. Seidl: So that would put the second quarter.
Jason H. Seidl: Above the.
Level of afraid there's got to be moved and I continue to believe that some of it is currently in the truckload world and so I think that there likely would be a second wave of freight that comes into <unk>. Once the overall market is improving the truckload world is getting back to normal.
Jason H. Seidl: Second quarter of last year, and then we can kind of go from there if you will.
Okay. It makes sense I wanted to clarify also something that you guys said you mentioned you expect an exit of capacity once the dust settles and you were talking about the terminals are you talking and exit of capacity from where we are now or are you talking a total exit of capacity from win yellow as an operator.
<unk> got truckload carriers that are looking for any payload and may be willing to handle a five to 10000 pounds.
Jason H. Seidl: Yes, when yellow was in operations I mean, obviously.
<unk> and try and put multiple large shipments on.
Jason H. Seidl: At what 45 50000 shipments per day, and they had how many ever service centers that they did in <unk>.
One trailer together and do multiple stops.
Type of freight that they will shy away from once the market improves and will spill right back into the the.
Jason H. Seidl: Net net theres going to be a reduction in those number of service centers that were in operation, There's still quite a few that have not settled.
The market and become normalized <unk> freight again, so I think that.
That's another unique opportunity probably for 2024 that should provide a little bit of tailwind to everyone.
Jason H. Seidl: In any way and that's what we believe we thought that they would be in <unk>.
Yes.
I'm, hoping it comes back in 24 for a normalized market, we all been waiting for it for quite some time, so fingers crossed I appreciate the time.
Jason H. Seidl: Some percent of their capacity, if you will but that that same.
Jason H. Seidl: Level of freight is got to be moved and I continue to believe that some of it is currently in the truckload world and so I think that there likely would be a second wave of freight that comes into <unk>. Once the overall market is improving the truckload world is getting back to normal.
Okay.
Thank you. The next question is from Jack Atkins with Stephens. Please go ahead.
Okay, great. Good morning, guys. Thanks for taking my question.
So I guess going back to the weight per shipment and just broader demand comment you were making earlier, Adam I mean, we saw weight per shipment.
Jason H. Seidl: <unk> got truckload carriers that are looking for any payload and may be willing to handle a five to 10000 pounds.
Pick up a bit sequentially in the fourth quarter I know some of that was probably seasonality, but are you starting to see anything whether its conversations with customers that would lead you to be a little more optimistic about.
Jason H. Seidl: <unk> and tried to put multiple large shipments on one.
Jason H. Seidl: One trailer together and do multiple stops.
That's the type of freight that they will shy away from once the market improves and will spill right back into the.
How underlying demand may be trending as we kind of get into the spring and I guess kind of within that are you seeing anything different whether it's consumer versus your industrial customer base just would be curious about that.
Jason H. Seidl: The market and become normalized Delta you're afraid again, so I think that.
Jason H. Seidl: That's another unique opportunity probably for 2024 that should provide a little bit of tailwind to everyone.
Yes sure.
Yes.
The weight per shipment in the fourth quarter was a little bit stronger than it was in the third.
Jason H. Seidl: Yes.
Speaker Change: I'm, hoping it comes back in 24 for a normalized market, we all been waiting for it for quite some time, so fingers crossed I appreciate the time.
Which is fairly typical.
And we've seen so far in January normally we would have a drop in weight per shipment of about 2% to 3%.
Speaker Change: Thank you. The next question is from Jack Atkins with Stephens. Please go ahead.
Our weight per shipment is right now it's about 515 pounds in January.
Jack Atkins: Okay, great. Good morning, guys. Thanks for taking my question.
So I guess going back to the weight per shipment and just broader demand comment you were making earlier, Adam I mean, we saw weight per shipment.
So it's dropped a little bit better than what the normal.
Seasonal trends.
Otherwise be.
Jack Atkins: Pick up a bit sequentially in the fourth quarter I know some of that was probably seasonality, but are you starting to see anything whether its conversations with customers that would lead you to be a little bit more optimistic about.
From December so I think that's that's usually an early indicator on the economy is going to start turning.
We tried to read all the economic tea leaves and look at things like the inventory to sales ratio in half.
Jack Atkins: How underlying demand may be trending as we kind of get into the spring and I guess kind of within that are you seeing anything different whether it's consumer versus your industrial customer base just would be curious about that.
I have conversations with customers that would indicate that inventories are.
Normalized lower than than maybe where they should be.
Speaker Change: Yes sure.
And so that.
Speaker Change: Yes.
Speaker Change: The weight per shipment in the fourth quarter was a little bit stronger than it was in the third.
Causes us to be cautiously optimistic about.
What may end up coming at us this year, but we feel.
Speaker Change: Which is fairly typical.
Speaker Change: And we've seen so far in January normally we would have a drop in weight per shipment.
Want to be careful about not getting ahead of it after missing if in the spring of 'twenty three.
Speaker Change: There are about 2% to 3%.
Speaker Change: Our weight per shipment is right now it's about 515 pounds in January.
Certainly feel like there is there is some opportunity there to see some real recovery in volumes this year and we'll be prepared.
Speaker Change: So it's dropped a little bit better than what the normal.
For that if it happens I mentioned that.
Speaker Change: Seasonal trends would otherwise be.
<unk> has been below 50 for 14 months.
Speaker Change: December so I think that's that's usually an early indicator on the economy is going to start turning.
Good news such as Ben.
Been such a long slow period, the slow cycles getting absorbed as methuselah.
Speaker Change: We tried to read all the economic tea leaves and look at things like the inventory to sales ratio and half.
We're ready for it to recover but but.
We've seen that impact in our business levels.
Speaker Change: I have conversations with customers that would indicate that inventories are.
Our revenue in the fourth quarter on the industrial side was a little bit slower than the company average.
Speaker Change: Normalized lower than than maybe where they should be.
So that too will be an area of opportunity once we can start seeing some some improvement there.
Speaker Change: And so that causes us to be cautiously optimistic about.
Okay. That's helpful. Thanks again.
Speaker Change: What may end up coming at us this year, but we feel.
Yeah.
Thank you. The next question is from Eric Morgan with Barclays. Please go ahead.
Speaker Change: We want to be careful about not getting ahead of it after missing it.
Speaker Change: Spring of 'twenty three.
Hey, good morning, Thanks for taking my question.
Speaker Change: Certainly feel like there is there is some opportunity there to see some real recovery in volumes this year and we'll be prepared for.
I wanted to ask one on service <unk> been kind of been up against the ceiling on claims ratio and on time performance for some time now so.
Speaker Change: For that if it happens I mentioned that I assume has been below 50 for 14 months and my goodness. That's just been it's been.
I guess I'm just wondering what else you can do to improve the customer experience and stay differentiated, particularly as you're looking to maintain your pricing strategy and keep taking share I'm not sure. If there are opportunities with technology or speed in certain lands or.
Speaker Change: Such a long slow period, the slow cycles getting absorbed as methuselah.
Speaker Change: We're ready for it to recover but but.
Anything else just trying to get a sense for where you are focused outside of those typical metrics we track.
Speaker Change: Seen that impact in our business levels.
Speaker Change: Our revenue in the fourth quarter on the industrial side was a little bit slower than the company average.
Yes, I mean, obviously the.
The two metrics that we talk about the most or on time performance and claims ratio.
Speaker Change: That too will be an area of opportunity once we can start seeing some some improvement there.
One is we got to stay focused to make sure that we keep those where they are and make sure as we <unk>.
Speaker Change: Okay. That's helpful. Thanks again.
Speaker Change: Yeah.
Hire new people.
Speaker Change: Thank you. The next question is from Eric Morgan with Barclays. Please go ahead.
We start growing and things like that that we don't see that.
These numbers change in any way so we're always striving for perfection, but.
Eric Morgan: Hey, good morning, Thanks for taking my question.
I wanted to ask one on service <unk> been kind of been up against the ceiling on claims ratio and on time performance for some time now so.
Because every every shipment we pick up it's we're helping the world keep promises right.
Shipment that.
That is going through our customer's customer and we want to make sure that it's delivered on time and without damage, but when we study the last year.
Eric Morgan: I guess I'm just wondering what else you can do to improve the customer experience and stay differentiated, particularly as youre looking to maintain your pricing strategy and keep taking share I'm not sure. If there are opportunities with technology or speed in certain lands or.
<unk> data that we get every year, there's 28 attributes related to service and value that they measure.
So obviously there is much more than just being on time and claims free.
Eric Morgan: Anything else just trying to get a sense for where you are focused outside of those typical metrics we track.
So we study that data very intently and.
Speaker Change: Yes, I mean, obviously the.
Look at any feedback in areas, where we can continue to improve and we've done that over time and we're proud that we $1 25 of the 28, we were number one in $25 28.
Speaker Change: Two metrics that we talk about the most or on time performance and claims ratio.
Speaker Change: One is we got to stay focused to make sure that we can.
Keep those where they are and make sure as we.
<unk> categories in this most recent year so.
Speaker Change: Hire new people.
Speaker Change: We start growing and things like that that we don't see that.
We're always striving to get better Thats part of our foundation for success is continuous improvement.
Speaker Change: Those numbers change in any way so we're always striving for perfection.
So we always look for ways and stay engaged with our customers to figure out the things that we can do.
Speaker Change: Because every every shipment we pick up it's we're helping the world keep promises right.
For them to drive value to create win win scenarios and.
Speaker Change: A shipment that.
Speaker Change: That does go into our customer's customer and we want to make sure that delivered on time and without damage, but when we study the last year.
And so it's just a never ending battle to try to stay ahead of the curve, particularly with respect to technology.
Speaker Change: Quality data that we get every year, there's 28 attributes related to service and value that they measure.
So much is changing there.
Things that we can do to try to connect more with our customers.
Drive some odd.
Speaker Change: So obviously there is much more than just being on time and claims free.
Automation on the corporate office.
Speaker Change: So we study that data very intently and.
The backend processing and so forth so a lot of opportunities there to keep improving the customer service experience.
Look at any feedback in areas, where we can continue to improve.
And also mitigating cost when it comes to our technology investments.
Speaker Change: We've done that over time, and we're proud that we won 25 of the 28, we were number one in 25 of the 28.
Thank you.
Thank you. The next question comes from Stephanie more with Jefferies. Please go ahead.
Speaker Change: Masstige categories in this most recent year so.
Speaker Change: We're always striving to get better Thats part of our foundation for success is continuous improvement.
Hi, good morning.
I wanted to maybe double double click a little bit on your commentary on the labor.
Speaker Change: So we always look for ways and stay engaged with our customers to figure out the things that we can do.
Adding to head count this year.
For them to drive value to create win win scenarios.
I just wanted to maybe compare your view on head Count addition.
Speaker Change: And so it's just a never ending battle to try to stay ahead of the curve, particularly with respect to technology.
Our 2024 versus 2023, I think I was under the assumption that in 2023 that you were able to hold onto some labor kind of protect as many drivers and physician with possible kind of waiting for the demand does pick up in 2024. So just trying to compare I think that commentary.
Speaker Change: Much is changing there the things that we can do to try to connect more with our customers.
Speaker Change: Drive some <unk>.
Automation on the corporate office.
Prior quarters that your outlook for this year.
<unk> and processing and so forth.
Speaker Change: A lot of opportunities there to keep improving the customer service experience.
Sure.
We did have some attrition as we work through 2023, so the overall.
Speaker Change: And also mitigating cost when it comes to our technology investments.
Head count has been lower on a quarter over quarter basis.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Stephanie more with Jefferies. Please go ahead.
As we went through the year.
Like I mentioned in the fourth quarter in particular, the average head count was down 4%.
Stephanie: Hi, good morning.
Impaired to the fourth quarter of last year, but it was up compared to the third quarter of this year.
Stephanie: I wanted to maybe double double click a little bit on your commentary on the labor and adding to head count this year.
So we were adding some positions were.
Stephanie: I just wanted to maybe compare your view on head count additions for 2024 versus 2023, I think I was under the assumption that in 2023 that you were able to hold onto some labor.
Just under 23000 employees was our average for the fourth quarter and that compares back to.
We were $24 25000 average fulltime employees back in parts of 2022 so.
Protect as many drivers and physician with possible kind of waiting for the demand does pick up in 2024. So just trying to compare I think that commentary.
It'll it'll be shipment driven.
Typically when you look at it long term changes in our shipments per day and long term changes in our head count.
Stephanie: Higher quarters to your outlook for this year.
Sure.
Those two numbers are very closely aligned team. So youre exactly right. We were trying to hang on to as many people as we could particularly our drivers that we've invested so much in.
Speaker Change: We did have some attrition as we work through 2023, so the overall.
Speaker Change: Head count has been been lower on a quarter over quarter basis.
As we progressed through this last year and a half.
As we went through the year and like I mentioned in the fourth quarter in particular, the average head count was down 4% compared to the fourth quarter of last year, but it was up compared to the third quarter of this year and so we were adding some physicians were.
Slower economic times and that gave US an advantage mentioned this earlier, but we had.
Employees that had <unk> and they will work and primarily on the dock.
When we saw that but.
Positive inflection in volumes.
Speaker Change: Just under 23000 employees was our average for the fourth quarter and that compares back to.
Back in the third quarter that was something that we were easily able to tap into.
We were $24 25000 average fulltime employees back in parts of 2022 so.
And put those folks right back into a truck so that worked to our advantage. We are running our truck driving schools right now to continue to produce more employees that have their CDL and will be available to drive.
Speaker Change: It'll it'll be shipment driven.
Speaker Change: Typically when you look at it long term changes in our shipments per day and long term changes in our head count.
Demand continues to improve so that's why we're always trying to keep our focus on the long term and be prepared.
Speaker Change: Those two numbers are very closely aligned and so youre exactly right. We were trying to hang on to as many people as we could particularly our drivers that we've invested so much in.
For when that when the demand is strong and we start seeing.
The levels of shipment growth like we have been able to experience in the past back in 2021, we grew shipments per day at 19, 5% that year.
As we progressed through this last year and a half of.
Slower economic times and that gave US an advantage I mentioned this earlier, but we had it.
Compensation was up 4%.
We were able to accommodate that 19%.
Speaker Change: Ploys that Henry <unk>, and they were working primarily on the dock and <unk>.
Shipment growth.
And be able to keep our service metrics best in class.
Speaker Change: When we saw that.
Speaker Change: Positive inflection in volumes.
And so forth on its debt investment and trying to stay ahead of the curve with all the things that we do.
Speaker Change: Back in the third quarter that was something that we were easily able to tap into and.
All three elements of capacity that allows us to put on significant levels of growth like that when the demand environment dictates.
Speaker Change: And put those folks right back into a truck so that worked to our advantage we're running our truck driving schools right now to continue to produce more.
Got it and just as a quick follow up and seeing any.
Speaker Change: <unk> that had their <unk> and will be available to drive.
Difficulties meeting some of those hiring of head count additions so far.
Speaker Change: As demand continues to improve so.
This year trying to get a sense of the strength in the labor environment.
Speaker Change: While we're always trying to keep our focus on the long term and be prepared.
Not not at this point and again, we're trying to get ahead of it a little bit in the sense of.
Speaker Change: For when that when the demand is strong and we start seeing.
Creating creating some of our own drivers.
Speaker Change: The levels of shipment growth like we've been able to experience in the past back in 2021, we grew shipments per day at 19, 5% that year.
But.
Right now just the state of the market overall.
It's a totally different thing.
In contrast, 2021.
Speaker Change: Competition was up 4%.
Speaker Change: We were able to accommodate that 19%.
When things were so tight everywhere.
And it was more of a challenge to get drivers. That's why we've focused so much on keeping everyone that we could.
Speaker Change: Shipment growth.
Speaker Change: And be able to keep our service metrics best in class.
Speaker Change: And so forth and its debt investment and trying to stay ahead of the curve with all the things that we do.
Through the slow period, but but go ahead and starting our school's back up.
Speaker Change: All three elements of capacity that allows us to put on significant levels of growth like that when the demand environment dictates.
Well ahead of the.
The growth.
Coming at US, we want to make sure that particularly with respect to drivers that we'd get ahead of it as best we can.
Speaker Change: Got it and just as a quick follow up and seeing any.
Oh.
Great. Thank you so much.
Speaker Change: Difficulties meeting some of those hiring of head count additions. So that's why this year trying to get a sense of the strength of the labor environment.
Thank you. The next question comes from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Not at this point and again, we're trying to get ahead of it a little bit in the sense of <unk>.
Hey, Thanks, good morning.
Just maybe a bigger picture question.
Speaker Change: Creating creating some of our own drivers.
Someone asked about pricing earlier, and you answered well based on normal seasonality, here's what yields would look like.
Speaker Change: But I think right now just the state of the market overall.
Speaker Change: It's a totally different thing compare and contrast 2021.
And I would have thought maybe with this big yellow event that maybe we'd be better than normal seasonality on pricing same thing yellow is gone and tonnage is still down and so I guess ultimately. The question is is we are treated yellow is this really really big event in the industry.
Speaker Change: When things were so tight everywhere.
And it was more of a challenge to get drivers. That's why we've focused so much on keeping everyone that we could.
Speaker Change: Through the slow period, but but go ahead and starting our school's back up.
Is it not really a big event or is it that it's a really big deal, but it's all being masked by a slow macro and ultimately whenever the macro gets better.
Speaker Change: Well ahead of the.
Speaker Change: <unk>.
Speaker Change: Coming at US, we want to make sure that particularly with respect to drivers that we'd get ahead of it as best we can.
We'll really feel the impact of yellow and it's all still sort of on the come.
Speaker Change: Oh.
Yes, I certainly think it's.
Speaker Change: Great. Thank you so much.
The macro being in the state that it is.
Speaker Change: Thank you. The next question comes from Scott Group with Wolfe Research. Please go ahead.
That helped.
Carriers.
<unk> the freight that they were hauling before.
Hey, Thanks, good morning.
Scott H. Group: Just maybe a bigger picture question.
Pretty effectively.
But like I mentioned I think some of that freight has gone into some different modes.
Scott H. Group: Someone asked about pricing earlier, and you answered well based on normal seasonality, here's what yields would look like.
I believe that that will be short lived until really demand improves overall for transportation in general but.
Scott H. Group: And I would've thought maybe with this big yellow event that maybe we'd be better than normal seasonality on pricing and same thing right yellow is gone and tonnage is still down and so I guess ultimately the question is is we all treated yellow is this really really big event in the industry.
When it comes to pricing and just the yield improvement that we've had we had incredibly strong yield performance in 'twenty, one followed that up with 22 and then.
Rev per hundredweight X fuel was up eight.
Eight 1% this year. So some of that like I mentioned has been mixed driven but but we've had really strong yield performance really over the last three years.
Scott H. Group: Is it not really a big event or is it that it's a really big deal, but it is all being masked by a slow macro and ultimately whenever the macro gets better.
Scott H. Group: We'll really feel the impact of yellow and it's all still sort of on the come.
But we've said even during that time that our strategy is what it is and we think that is.
Speaker Change: Yes, I certainly think it's.
Worked for us.
Speaker Change: The macro being in the state that it is.
When we operated 72 for the year.
That helped.
I don't know that anyone else will be anywhere close to that.
Speaker Change: Carriers.
Speaker Change: The freight that they were hauling before and.
And so but it's just a disciplined focus of keeping our cost as low as we can and then pricing understanding our cost on a per customer basis, and then <unk>.
Speaker Change: Pretty effectively and.
Speaker Change: But like I mentioned I think some of that freight has gone into some different modes.
Speaker Change: I believe that that will be short lived until really demand improves overall for transportation in general, but when it comes to pricing and just the yield improvement that we've had we had incredibly strong yield performance in 'twenty, one and followed that up with 22 and then.
Having a yield that makes sense.
They're constantly improve the profitability on each customer account, but.
We've never said that that was the right long term rate.
I just wanted to be consistent and be fair.
Rev per hundredweight X fuel was up eight.
With our customers.
Speaker Change: Eight 1% this year. So some of that like I mentioned has been mixed driven but but we've had really strong yield performance really over the last three years.
And that 100 to 150 basis points positive spread.
Yield above cost has worked for us but.
We were we were in a much different position than a lot of other carriers I think.
Speaker Change: But we've said even during that time that our strategy is what it is and we think that has worked for us.
In terms of that long term consistency that we've had in our pricing. We didn't have the same need to go out and try to take advantage of that market change.
Speaker Change: When we operated at a 72 for the year.
Speaker Change: I don't know that anyone else will be anywhere close to that.
And really increase rates in any way we kept the same measured.
Speaker Change: And so but it's just a disciplined focus of keeping our cost as low as we can and then pricing understanding our cost on a per customer basis, and then <unk>.
Fair approach.
I think that pays dividends I think it is a reason why we've had good volume stability as well.
When we've gone through this last slow period.
Speaker Change: Having a yield that makes sense to try to constantly improve the profitability on each customer account, but.
We've got good customer relationships right at the end of the day is a relationship business and so we want to continue to strengthen relationships and we've got an understanding with our customer base in.
Speaker Change: We've never said that that was the right long term rate.
Speaker Change: Just wanted to be consistent and be fair.
Speaker Change: With our customers.
In terms of what we're trying to achieve and you work through a slow year, we really didn't.
Speaker Change: And that 100 to 150 basis points positive spread.
Speaker Change: The yield above cost has worked for us but.
Having a major customer losses, we didn't lose lanes from customers.
Speaker Change: But we were we were in a much different position than a lot of other carriers I think.
Kept most of our large national accounts as we progress through the year just the volume weakness was a result of reduced orders for our customers' products. So I'm pleased with the customer retention that we had last year and look forward to as demand improves for our customers' products were in place and we will.
In terms of the long term consistency that we've had in our pricing. We didn't have the same need to go out and try to take advantage of that market change and really increase rates in any way we kept the same measured fair.
Speaker Change: Fair approach.
Be able to bring on that freight until the truck line.
Speaker Change: That pays dividends I think it is a reason why we've had good volume stability as well.
And get back into doing what we do best which is growth.
Speaker Change: When we've gone through this last slow period is that.
That's helpful and I know, we're past Sir if I can just sneak in one more I'm just looking at this.
Speaker Change: We've got good customer relationships right at the end of the day is a relationship business and so we want to continue to strengthen relationships and we've got an understanding with our customer base.
2022, you guys bought back a lot of stock.
No at the lows.
Your pace of buybacks have really slowed the last couple of quarters sort of with.
With the stock at the high so you've had a pretty good feel for your stock Howard how are you thinking about your buyback this year.
Speaker Change: In terms of what we're trying to achieve.
Speaker Change: You worked through a slow year, we really didn't.
Speaker Change: Have any major customer losses, we didn't lose lanes from customers.
Well.
We have the same approach that we always do.
We start with looking at what we think our cash from operations will be and then what we're going to spin with capital expenditures.
Speaker Change: Kept most of our large national accounts as we progress through the year just the volume weakness was.
Speaker Change: Results there were reduced orders for our customers' products. So I'm pleased with the customer retention that we had last year and look forward to as demand improves for our customers' products were in place and we'll be able to bring on that freight until the truck line.
Then we have the fixed dividend component.
And the net cash balance.
We target trying to return to shareholders through the buyback program, but we generally have a grid based approach where we're buying more.
When the stock is lower and less when it's higher but consistently in the market.
Speaker Change: And get back into doing what we do best which is growth.
Speaker Change: That's helpful and I know, we're past Sir if I can just sneak in one more I'm just looking at this.
And I think that's what you've seen but that $1 billion. Three was was double what we spent about $600 million the year prior.
Speaker Change: 2022, you guys bought back a lot of stock.
Speaker Change: At the Lowes.
Speaker Change: Your pace of buybacks have really slowed the last couple of quarters sort of with.
So it was reduced this year in the back half in particular.
With the stock at the high so you've had a pretty good feel for your stock Howard how are you thinking about your buyback this year.
But as we go into 2024.
We'll just continue to look at.
How much free cash, we think that will have and how much we.
Howard: Well, we have the same approach that we always too.
Try to return to shareholders and in what ways as we go through the year such that we don't obviously want too much cash building up on the balance sheet, but.
We start with looking at what we think our cash from operations will be and then what we're going to spin with capital expenditures and then we have the fixed dividend component.
It's all about driving returns on invested capital and we've done a pretty good job over time with improving that metric.
Howard: And the net cash balance.
Howard: Target trying to return to shareholders through the buyback program, but we generally have a grid based approach where we're buying more.
Thank you Adam.
Thanks Scott.
Thank you.
Howard: When the stock is lower.
Today's last question comes from James <unk> with Wells Fargo. Please go ahead.
Howard: Less when it's higher but consistently in the market.
Hey, guys. Thanks for squeezing me actually.
Howard: That's what you've seen but that billion three was.
Follow up on Scott's question.
Howard: Double what we spent about 600 million the year prior.
Alright.
Sort of the yields versus seasonality in pricing seasonality, just you've mentioned that the market sort of move pricing up and your competitors have.
Howard: So it was reduced this year in the back half in particular.
Howard: But as we go into 2024.
On that you have improved perhaps strong service and so how does that sort of fair price moved away from where it is now.
Howard: We'll just continue to look at.
Howard: How much free cash, we think that will have and how much we.
And is there a bit of a catch up trade on price across the remainder of the year relative to service.
Howard: Try to return to shareholders and in what ways as we go through the year such that we don't obviously want too much cash building up on the balance sheet, but.
Based on where everybody else's in the market.
I'm not sure that fully understand your question, but.
Howard: But it's all about driving returns on invested capital and we've done a pretty good job over time with improving that metric.
But.
<unk> mentioned before.
We anticipated that that metric.
What eventually compress back to longer term averages.
Speaker Change: Thank you Adam.
Adam N. Satterfield: Thanks Scott.
For us, it's a 100 to 150 basis points positive spread which.
Speaker Change: Thank you.
Speaker Change: Today's last question comes from James <unk> with Wells Fargo. Please go ahead.
By the way reconciles to the average operating ratio improvement, we've been able to generate over time as well and so.
James: Hey, guys. Thanks for squeezing me actually willing to follow up on Scott's question.
We'll continue to do our best to manage our cost and.
James: About sort of the yields versus seasonality in pricing seasonality, just you've mentioned that the market sort of move pricing up and your competitors have.
And to continue to.
Ask for.
Necessary increases on our customer accounts to <unk>.
Speaker Change: <unk> on that.
James: You have improved perhaps strong service and so how does that sort of fair price moved away from where it is now.
<unk> offset the cost inflation that we'll have in the business and to support the wage increases that we give to our employees to allow us to.
James: Is there a bit of a catch up trade on price.
James: Across the remainder of the year relative to service.
Retain the employees that we have but continued to attract.
James: Based on where everybody else's in the market.
New employees to our business as well, which we've been able to do over time to support the consistent growth that we've been able to produce.
Speaker Change: I'm not sure that I fully understand your question, but.
Speaker Change: But like I mentioned before.
It takes a lot to keep growing the company year in and year out.
Speaker Change: That we anticipated that that metric.
And to be able to keep our cost inflation as revealing as well so.
Speaker Change: What eventually compress back to longer term averages.
Speaker Change: For us, it's a 100 to 150 basis points positive spread which.
Try to keep that cost under control and keep asking for that same positive spread.
Speaker Change: By the way reconciles to the average operating ratio improvement, we've been able to generate over time as well and so.
The time is.
That's what our focus is going to be.
Speaker Change: We'll continue to do our best to manage our cost and to continue to.
And just real quick on a percentage basis, how much do you expect to grow doors, this coming year or any other measure of capacity.
Speaker Change: As for.
Well, we've probably got line of sight into <unk>.
Speaker Change: Necessary increases on our customer accounts to <unk>.
Speaker Change: <unk> offset the cost inflation that we'll have in the business and to support the wage increases that we give to our employees to allow us to.
Adding four or five service centers.
Marty mentioned, we've got several that had been under construction, but a lot of that will really depend on the volume environment as well.
Speaker Change: Retain the employees that we have but continued to attract.
Speaker Change: New employees to our business as well, which we've been able to do over time to support the consistent growth that we've been able to produce.
In the past we've finished service centers and May complete the construction would have to start depreciating them and incurring other overhead type cost with them, but if the volumes don't dictate. The opening then we might sort of keep them in ready reserve. If you will and wait until volumes are stronger to start incurring the.
Speaker Change: It takes a lot to keep growing the company year in and year out.
Speaker Change: And to be able to keep our cost inflation as revealing as well so.
<unk>.
With growth.
Speaker Change: Try to keep that cost under control and keep asking for that same positive spread overtime.
That's another incremental cost every new service center that we opened.
You've got incremental line haul cost.
Speaker Change: That's what our focus is going to be.
And.
Speaker Change: And then just real quick.
Other expenses that we're going to incur.
Speaker Change: On a percentage basis, how much do you expect to grow doors coming here or any other measure of capacity.
As a result of that open in addition to just the general depreciation and overheads.
Speaker Change: Well, we've probably got line of sight into <unk>.
That'll be something that we'll be mindful of as we go through the year and hopefully the volume environment will be such that that.
Speaker Change: Adding four or five service centers.
Speaker Change: As Marty mentioned, we've got several that had been under construction.
That.
We're ready to open them and turn them on day, one as soon as were finished.
Speaker Change: But a lot of that will really depend on the volume environment as well.
Okay. Thank you.
Speaker Change: Yes.
Speaker Change: In the past we've finished service centers and May complete the construction would have to start depreciating them incurring other overhead type cost with them, but.
Thank you. This concludes our question and answer session I would now like to turn the call back to Marty Friedman for closing remarks.
Thank you all for your participation today, we appreciate your questions and please feel free to give us a call. If you have anything further thanks and have a great day.
Speaker Change: The volumes don't dictate the opening then we might sort of keep them in ready reserve. If you will and wait until volumes are stronger to start incurring the cost because.
The.
Speaker Change: With growth.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Speaker Change: That's another incremental cost every new service center that we opened.
Speaker Change: You've got incremental wine all cost.
Speaker Change: And other expenses that we're going to incur.
Speaker Change: As a result of that open in addition to just the general depreciation and overhead so.
Speaker Change: That'll be something that we'll be mindful of as we go through the year and hopefully the volume environment will be such that that.
Speaker Change: We're ready to open them and turn them on day, one as soon as were finished.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. This concludes our question and answer session I would now like to turn the call back to Marty Friedman for closing remarks.
Marty Friedman: Thank you all for your participation today, we appreciate your questions and please feel free to give us a call. If you have anything further thanks and have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].