Q1 2024 Schneider National Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome everyone to the Snyder first quarter earnings call.
At this time all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press the star followed by the number one on your telephone keypad, if you'd like to withdraw your question. Please press the star followed by the one once again.
Thank you I will now hand, the call over to Mr. Steve Snyder you may begin your conference.
Steve Snyder: Thank you operator.
Steve Bindas: Good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, Daryl Campbell Executive Vice President and Chief Financial Officer, and Jim filter Executive Vice President and group President of transportation and logistics.
Steve Bindas: Earlier today the company issued an earnings press release this release and an investor presentation are available on the Investor Relations section of our website at Schneider Dot com.
Steve Bindas: Our call will include remarks about future expectations forecasts plans and prospects for Snyder. These constitute forward looking statements for the purposes of the safe Harbor provisions under applicable Federal Securities laws.
Steve Bindas: Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.
Steve Bindas: The company urges investors to review the risks and uncertainties discussed in our SEC filings, including but not limited to our most recent annual report on Form 10-K, and those risks identified in today's earnings release.
Steve Bindas: All forward looking statements are made as of the date of this call and Schneider disclaims any duty to update such statements except as required by law.
Steve Bindas: In addition, pursuant to regulation G. A reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release and Investor presentation, which includes reconciliations to the most directly comparable GAAP measures.
Steve Bindas: Now I'd like to turn the call over to our CEO Mark Rourke.
Mark Rourke: Thank you, Steve and Hello, everyone. Thank you for joining the Schneider call. This morning.
Mark Rourke: In our opening comments will cover first quarter results in context with the current freight cycle, the positioning of our multimodal platform, including the ability to quickly pivot with the eventual market recovery as well as our updated 2020 for full year guidance.
Steve Bindas: Let's start with a recap of the themes, we highlighted on our last earnings call.
Steve Bindas: First we noted that in general customers entered 2024 with a heightened sense of uncertainty.
Steve Bindas: But they also have the mindset that it's not a matter of if the supply and demand conditions would recalibrate, but win.
Steve Bindas: Second our internal indices suggested that as we entered the year the full load freight down cycle surpassed 600 days below neutral.
Steve Bindas: Which is long by any historical standard.
Steve Bindas: Third irrespective of the market, we are focused on company specific initiatives.
Steve Bindas: Including cost reduction actions and asset efficiency improvements and.
Steve Bindas: And returning our diversified and scaled operating segments of truckload intermodal and logistics on a path toward their long term margin targets.
Steve Bindas: All of these themes continue to be relevant as we sit here today.
Steve Bindas: In the first quarter, the excess capacity condition persistent <unk>.
Steve Bindas: January was especially challenging with sluggish volumes and adverse winter weather, which negatively impacted a large portion of the network.
Steve Bindas: We are assessing signs that market conditions are beginning to moderate.
Steve Bindas: For the first time in six quarters, we experienced positive contract price renewal closures in the low single digits for the truckload network. While this is a promising sign we have not seen enough to consider the market added inflection point.
Steve Bindas: In the first quarter the outcomes of pricing renewals varied across our service offerings we.
Steve Bindas: We achieved positive pricing and volume share gains with some large strategic customers as they prepare for the next market face.
Steve Bindas: We also renewed with certain customers at reduced volumes, if retaining volume required contractual price concessions.
Steve Bindas: The short term, we are prepared to place more of our capacity and other configurations.
Steve Bindas: <unk> dedicated and the spot market if necessary.
Steve Bindas: This approach position us to quickly pivot leveraging our scale across our multimodal platform and to be at an advantage when the market improves.
Steve Bindas: Next I'd like to provide some insights specific to each of our business segments.
Steve Bindas: In truckload network revenue per truck per week in the first quarter contracted 10% year over year with most of the change due to depressed rates.
Steve Bindas: The majority of the year over year and sequential change the network truck count is centered around the owner operator community, which highlights the financial strain that small operators are enduring through this extended down cycle.
Steve Bindas: Our company truck count has been steady as we maintain flexibility to take advantage of an improved market when it materializes, even if that means a higher spot percentage in the short term.
Steve Bindas: In truckload dedicated revenue per truck per week was flat year over year and down 4% sequentially from the fourth quarter with low single digit utilization impact primarily due to the severe weather in January.
Steve Bindas: Our commercial and operational teams along with our professional drivers are executing with purpose against the dedicated portfolio and are serving as a catalyst for growth.
Steve Bindas: Dedicated will also benefit from an improving network market is improved pricing on backhaul and revenue share arrangements enhanced margin performance, while adding value back to our customer.
Steve Bindas: Average dedicated truck count grew year over year by 773 units and 80 units sequentially from the fourth quarter.
Steve Bindas: Dedicated now represents 62% of truckload tractors.
Steve Bindas: The pipeline remains strong and we have successfully closed on a series of second and third quarter, New business Award implementations and this gives us further confidence to continue to take action to address below contract threshold accounts.
Steve Bindas: Moving to the intermodal segment volumes were flat year over year growth in the West Transcon in Mexico was offset by the east which is the most competitive region with the truck alternative.
Steve Bindas: Revenue per order was down 7% compared to the first quarter a year ago.
Steve Bindas: Intermodal margins improved 40 basis points sequentially from the fourth quarter, overcoming typical seasonal declines and more severe weather impacts.
Steve Bindas: The intermodal network is showing modest signs of healing with new business awards being implemented and dray cost efficiency gains.
Steve Bindas: Intermodal first quarter contractual renewals were largely flat compared to a year ago I consider this favorable as last year's first quarter renewals were the most constructive of 2023. However.
Steve Bindas: However, the outcomes of the early renewal season for more volatile than is typical.
Steve Bindas: Pricing and volume gains and losses were higher than their amplitude depending upon customer allocation strategies.
Steve Bindas: Our fully asset based positioning with the Union Pacific and the <unk> rail partners differentiates us as we take further advantage of how well they are connected to deliver volume growth and operating efficiencies that enhance our long term intermodal returns and.
Steve Bindas: In addition, we are excited about the opportunity that will be created pending STB approval allowed two of our rail partners. The CP Casey and <unk> to provide a new service between Mexico, and Texas to the southeast.
Steve Bindas: We are also encouraged by today's announcement that the Union Pacific will reduce transit by two days on the country's largest freight lane from la to Chicago.
Steve Bindas: In our logistics segment, we have observed that customers in general are favoring asset based solutions.
Steve Bindas: We have seen the favorability for our assets and asset based brokerages play out in the first quarter as our overall brokerage order volumes contracted only 8% year over year empower only order volumes grew each month through the quarter and year over year.
Steve Bindas: <unk> other segments brokerage has maintained its pricing discipline ongoing volume to maintain accretive returns.
Steve Bindas: In the quarter January's weather impacts were not absorbed as easily and the market is carrier costing and customer spot rates surged.
Steve Bindas: However, the market moderated quickly logistics operating margins eroded over 300 basis points compared to the first quarter, a year ago, but only 10 basis points sequentially from the fourth quarter.
Steve Bindas: Our power only offering has proved its value through both extreme up and down cycles, and we expect it to play an increasingly larger role in serving our customers network truckload freight needs when the freight market rebounds.
Steve Bindas: You can grow share of wallet with our customers and earnings to the business at highly efficient capital turns.
Steve Bindas: Despite current market conditions, we are encouraged that margins improved each successive month of the quarter across truckload intermodal and logistics.
Steve Bindas: With March experiencing assembler of seasonality and slight end of quarter push.
Steve Bindas: Before I turn it over to Daryl to offer his financial summary insights for the first quarter and our updated guidance for full year 2024, I want to take this opportunity to recognize five amazing Schneider Hall of Fame driver Associates, who recently surpassed a significant an extremely rare safe driver milestone.
Steve Bindas: I offer congratulations to John Kurt Daniel Wayne and Michael for achieving 4 million safe driving miles.
Steve Bindas: Everyone have Snyder is looking forward to an event being held in their honor. This summer we will celebrate their accomplishments commitment to safety and dedication to providing outstanding service to our customers.
Steve Bindas: They are among the 92 professional driver associates, who have earned safe driver awards of 1 million miles or more this year and we are grateful for them and all of the professional drivers of Snyder, who live out our core values everyday.
Steve Bindas: Now, let me turn it over to Daryl.
Darrell Campbell: Thank you Mark and thanks to each of you for joining us this morning.
Darrell Campbell: I will provide a financial recap of our first quarter results and give perspective on our updated 2020 for guidance.
Darrell Campbell: You can find summaries on pages 21 to 26 of our Investor presentation included on our website.
Darrell Campbell: Our adjusted income from operations for the first quarter was down $85 million or 74% from the prior year.
Darrell Campbell: Adjusted diluted earnings per share for the first quarter was 11.
Darrell Campbell: Compared to <unk> 55 in the prior year.
Darrell Campbell: First quarter of 2023 included net gains on equity investments and higher gains on equipment sales versus the current period, which represented a 12% aggregate headwind to earnings per share.
Darrell Campbell: EBITDA of $131 million, which was in line with the fourth quarter of 2023 demonstrated a level of sequential stability and reflects the asset efficiency and cost actions, we continue to implement.
Darrell Campbell: In our asset based truckload segment's revenues, excluding fuel surcharge for the first quarter of 2024 or flat year over year solid dedicated organic and acquisitive growth was offset by lower revenue per truck per week on volumes in our network business.
Darrell Campbell: Truckload earnings for the first quarter were lower on a year over year basis, primarily due to network price and volume pressures lower gains on equipment sales costs related to dedicated new business startups and inflationary equipment related costs.
Darrell Campbell: Across all business segments, we continued to implement mitigating actions to improve asset efficiency and manage controllable costs, while executing from a position of strength to be advantage as the market recovery builds.
Darrell Campbell: We continue to be disciplined in our commercial actions.
Darrell Campbell: Our dedicated business continues to grow due to strong account startup activity, a robust pipeline and solid operating performance of our existing accounts.
Darrell Campbell: The year over year consistency in dedicated revenue per truck per week is indicative of the resilient nature of the dedicated portfolio.
Darrell Campbell: In our intermodal segment first quarter revenues, excluding fuel surcharge were down 7% year over year as a result of corresponding declines in revenue per order.
Darrell Campbell: Intermodal earnings were down year over year, primarily due to lower revenue per order and higher empty repositioning costs.
Darrell Campbell: We offset by improved grade performance.
Darrell Campbell: And our non asset logistics segment revenues for the first quarter declined 15% on a year over year basis, primarily due to decreased revenue per order and overall volume declines.
Darrell Campbell: In addition, since we shared our previous guidance spot rates have not approved to the degree we expected and we are experiencing very results in contract pricing throughout the allocation season to date.
Darrell Campbell: As we progressed through the year, we anticipate improving yields in our network businesses volume growth in intermodal and logistics and continued truck growth in dedicated based on visibility into our pipeline.
Darrell Campbell: <unk> taken our first quarter results and our revised market expectations into account, we have updated our adjusted diluted earnings per share guidance range from 2024 to 85 to $1, assuming a full year effective tax rate of 25%.
Speaker Change: With that we'll open the call for your questions.
Speaker Change: Thank you we will now begin the question and answer session I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue if you'd like to fulfill your question simply press Star one again.
Darrell Campbell: Want to ask a question that our listing by allow speak on your device. Please pickup your handset and ensure that your phone is not on mute when asking your questions and the interest of time, we ask that you limit yourselves to one question and one follow up to allow for as many questions as possible from our audience proposed for just a moment to compile the Q&A roster.
Darrell Campbell: Okay.
Speaker Change: Thank you.
Speaker Change: First question comes from the line of Brian <unk> from Jpmorgan. Please go ahead.
Brian: Hey, good morning, Thanks for taking the questions here.
Brian: Maybe just wanted to start off with intermodal.
Brian: Maybe mark or Jim you can talk about just the.
Brian: Allocation season, especially on the Western side I think that was an area you called out last quarter. There was a more challenging than expected to get a bit more balance there.
Brian: How did that turn out how much visibility do you have to that and will that start to help bring some more balance through the rest of the year.
Brian: Yes.
Brian: Yes, Brian Thanks for the question this is Jim.
James Filter: We're still about 40% of the way through our application season as we've gone through that.
Brian: Mark with Sam we've remained disciplined.
Brian: Alright.
Brian: Been able to sell into those areas, where we have differentiation in our network.
Brian: In the west.
Brian: We talked about in March opening really excited about the fact that we have an improvement in transit time and the largest corridor. So we're going from a position where we are 24 hours behind the competing transit to now where 24 hours faster than the competing transit. So we think we have an opportunity to continue to.
Brian: Grow there so I feel really good about that we've had terrific results in Mexico.
Brian: Now with the additional opportunity between <unk> and <unk>.
Brian: To provide that service between the south eastern.
Brian: And Texas and.
Brian: In Mexico, there is some mark great opportunities for us there and.
Brian: Came back to the west of <unk> expanded.
Brian: Their capacity in the inland Empire and so there is nothing constricting us from growing that really important corridor.
Speaker Change: Yes, Brian in the first quarter.
Brian: We did see growth in the west both transcon regionally and as Jim mentioned, just real continued traction into and out of Mexico, what helped us overcome some of the difficulty in the east just because of the truck alternative in that market being more sensitive to truck pricing. So.
Brian: Which is a little bit of a reversal a year ago. If you remember we have been growing more in the east. So we've had a little bit of.
Brian: Our Renaissance with growth in the west, which is highly encouraging and continuing to lean into that.
Brian: Okay.
Speaker Change: Okay. Thanks for that and then just maybe more broadly speaking when you look at the guidance for the rest of the year.
Brian: Level of competition, that's out there you've mentioned in the east is pretty competitive together.
Brian: One other large competitor looking at basically down mid single digit rates.
Brian: For their book of business this year.
Brian: How can you work through that and I guess, what are you seeing that gives you the confidence to be more seasonality and then sort of this back half recovery, even though it's a little bit later than they initially thought is that more on.
Brian: On the demand side do you really think capacity is going to start to get squeezed out.
Speaker Change: To your specific thoughts on that thank you.
Speaker Change: Sure sure obviously, it's been hard to predict in this market over the last.
Speaker Change: Couple of years, Brian, but as we looked at the first quarter and the continued improvement in results January through March both from a demand standpoint, and leaning in now into the allocation season, and seeing some turn in pricing not in every condition in every place, but starting to see some positive price movement. We.
Speaker Change: Think as an encouraging sign.
Speaker Change: And we would expect as a consumer to date has kind of hung in there and our industrial markets as we're highly diversified between consumer and industrial markets.
Speaker Change: And what we've seen so far in April.
Speaker Change: Is really whats embedded in our thought process going forward for the remaining quarters, so not as a.
Speaker Change: Positive as we felt as we were coming through the latter part of last year, we received in our view the replications and some of the changes in capacity that.
Speaker Change: That we felt was starting to turn more aggressively, particularly going into what we would have expected to be a hardened insurance market and.
Speaker Change: And again I think what is happening we're seeing a little bit more resiliency still in the capacity front, but we still expect moderate.
Speaker Change: And we're seeing moderate reductions there and moderate demand improvement into some seasonality and so it's not.
Speaker Change: So those are really the key factors for the remaining part of the year.
Speaker Change: And Brian This is Jim the other factors, we're looking at the east to the competing rail service.
James Filter: There is some potential for some disruption as they won't be reworking potentially better network and thats something that we experienced with the <unk> a number of years ago. It was a challenge for us.
James Filter: And so there is a potential coming up here in the remainder of the year that we could see some disruption on that that computing service filling some real momentum in intermodal in total.
Speaker Change: And sorry, just to clarify the low single digit contract you mentioned earlier was that for.
Speaker Change: Truckload or is that just for the current wave of contracts, maybe you can put more context truck truckload it was referencing truck network.
Speaker Change: Okay.
Speaker Change: Alright, Thank you very much for your time appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Ravi Shanker from Morgan Stanley. Please go ahead.
Ravi Shanker: Thanks, Good morning, everyone.
Ravi Shanker: The commentary on <unk>.
Ravi Shanker: Our recent contract rate increase was pretty encouraging can you unpack that a little bit more is that for customers, who just had the easiest comp do you feel like thats sustainable.
Ravi Shanker: One of those increase conversations is going down with customers.
Speaker Change: Yes, Ravi the comment about easy comps I think easier comps are kind of later in the year as we referenced in our opening comments, both in our intermodal and truck network.
Ravi Shanker: Most constructive allocation season, a year ago was the first quarter.
Ravi Shanker: Also on my comments I indicated strategic customers, who are anticipating where theyre going next in the in the marketplace are looking.
Ravi Shanker: I think to a value of incumbency more and also asset based solutions more and I think that's more of a consistent theme that we're hearing through the allocation season, but its not everybody and for those that want to continue to press in a different direction. Then we have to make sure that we're doing the right thing for our shareholders and our business and if necessary well.
Ravi Shanker: Also reduce volume and look for other alternatives there so but I agree with you it is.
Ravi Shanker: A good encouraging sign.
Ravi Shanker: On momentum that we intend to build on as we go through the remainder of the season.
Speaker Change: Got it and then just a follow up on what you just said about.
Speaker Change: Customers preferring.
Speaker Change: Asset based carriers.
Speaker Change: One with a pretty large logistics operation as well kind of.
Speaker Change: Is that a consistent trend youre seeing because we are starting to cure off maybe.
Speaker Change: With shippers moving more towards asset light.
Speaker Change: Our opportunity is.
Speaker Change: As potentially a reason why no rates are being suppressed for a while kind of do you see a swing back towards asset base.
Speaker Change: So I base my comments, an assessment on just customer conversations and behaviors and I do think we are advantaged when we have a multimodal platform. The way, we do and certainly power only in our brokerage business that integrates.
Speaker Change: Well with our trailer pool offering on the asset side for a customer and we work hard to make that incredibly seamless.
Speaker Change: <unk>.
Speaker Change: And so I think the combination of how we go to market in our portfolio as it relates to brokerage with a power only offering I think gives us.
Speaker Change: <unk> advantage and we're seeing it in volumes growing even year over year across that segment in <unk>.
Speaker Change: And showing its resiliency, whether the market's up although the market is down.
Speaker Change: Very good thank you.
Speaker Change: Thank you. Our next question comes from the line of Jason <unk> from TD Cowen. Please go ahead.
Jason: Thank you very much I wanted to start on intermodal I mean, clearly there is a lot going on with improved service, whether it's coming from the west or coming cross border.
Jason: Wondering as we look out into the future do you think that that could actually maybe pushed that intermodal growth rate sort of beyond what we've seen in the past.
Jason: Great. Thanks for the question Jason This is Jim absolutely.
Jason: Hi.
James Filter: I agree with you that it creates a differentiation for us that in addition to service our customers in the past worked at reliability and service as a reason why they expected.
Speaker Change: Our discount savings for using intermodal as you reduce that.
Speaker Change: Transfer difference, it's more reliable as well as sustainability. It starts to change that and there are customers that we have today, but are already looking at this and they no longer expect a discount for intermodal given the service it's already at.
Jason: <unk> and the sustainability of improvement I would expect as you go further theres more customers they'll put more weight towards sustainability.
Jason: So as we look out now if we just assume that truckload rates recover so youre going to have that spread narrow between intermodal and truckload as well as service improves. So should we just expect that theyre going to be stronger growth rates on the at least on the on the volume side for our model.
Speaker Change: Yes, so we would expect that intermodal would grow faster than over the road transportation.
Speaker Change: And depending upon what Jay says, we also have more tools in our toolbox here with the performance of Mexico again, we had some STB approval on some other lanes and.
Speaker Change: And now we're getting a chance to fully exercise after a year with our <unk> partner in the west and.
Jason: Im not going through a change this year like we were going through last year and all of those I think we're just in a more stable condition and customers like stability when it comes to intermodal.
Speaker Change: That makes sense.
Speaker Change: The follow up is just sort of trying to get a clarification on your guidance. So what do you have built in for equipment sales in the back half of the year.
Speaker Change: Yes, so for equipment sales.
Speaker Change: If you recall when we gave our guidance for the fourth quarter.
Speaker Change: We said that we expected some headwinds as it relates to gain on sale of equipment.
Speaker Change: So we are essentially <unk>.
Speaker Change: <unk> flat.
Speaker Change: Our.
Speaker Change: Zero, our gain on sale, which was a $30 million headwind. So what we saw as we progress through the first quarter is that proceeds were stronger.
Jason: Primarily based on the mix of what we're selling but also as it relates to the trailer pool, we saw unit price.
Jason: Improvements versus what we initially thought but as we go through the year on the expectation is that that's going to moderate.
Jason: So some of the gains that we saw in the first quarter.
Jason: Not be expected to continue so we are more in line with what we had initially.
Jason: Guided to a few months ago.
Jason: So pretty much flat in the back half of the year right now.
Jason: Yes.
Jason: Very little very little.
Speaker Change: Very little Okay, gentlemen, appreciate the time.
Speaker Change: Thank you. Our next question comes from the line of Ken <unk> from Bank of America. Please go ahead.
Ken: Great Good morning, Martin and canceling a little surprised by the positive backdrop, given what we've heard from from some others. So I just want to interpret that a little bit it sounds like may be seeing a little bit more of a turn in intermodal Darryl has been been pretty positive on the comments here.
Speaker Change: You answered Ravi on the contract market, which was up a little bit I guess I'm still trying to figure out if that was just because contracts Rhonda water if that's real strength.
Speaker Change: Then in your commentary you through and we've also moved more business to spot. So maybe just parse that out a little bit.
Speaker Change: Hello up with some more thoughts.
Speaker Change: Yes.
Speaker Change: Ken Thanks for the opportunity to clarify certainly were not.
Speaker Change: Calling an inflection in the market.
Speaker Change: Well, we really highlighted there is the disciplined relative to how we're looking at through allocation season, and the alignment we have with customers that.
Speaker Change: Value incumbency value, what we provide in looking in those cases to be.
Speaker Change: And be recognized for that in our commitments are reflective.
Speaker Change: If folks are not in that camp that then that's what goes more to spot or more into dedicated.
Speaker Change: Theyre looking to to extract more from a marketplace that we don't think is sustainable and so in those cases, we might lower our commitments and lower our our volume with those customers and so in the first quarter in aggregate.
Speaker Change: Net was slightly positive in the low single digits on the contractual renewal front so.
Speaker Change: That's what I would read into it I would read into it that we're suggesting that we are in a market inflection, but I do believe it's at least.
Speaker Change: A positive sign it's.
Speaker Change: And minimum it's less negative let's put it that way.
Speaker Change: Yes.
Speaker Change: And just a follow up on dedicated.
Speaker Change: Yes.
Speaker Change: Sequential decline in revenue per truck I guess, some peers have noted some competitive undercutting I know you talked about a big win maybe a quarter or two ago can you talk about the market now and on the dedicated side how is it panning out.
Speaker Change: Yes, we would consider the dedicated market fairly stable again.
Speaker Change: Highly diversified within that market can not only in the if we're talking retail we're highly diversified across virtually every segment of retail from it.
Speaker Change: Extreme value all the way up through home improvement in Big box.
Speaker Change: While we are largely an increasingly focused on our growth on the industrial side.
Speaker Change: Of the economy, which is more in the specialty equipment and what we find there is folks that have scale folks who have reference ability and folks that have a balance sheet to go ahead and play there.
Speaker Change: The competition will always there and we have good competition everywhere, we wouldn't characterize it as as any more difficult.
Speaker Change: And then we've experienced in the last couple of years. So it's a focus we have a resource dwell were performing well and the pipeline continues to.
Speaker Change: To build.
Speaker Change: And this is Jim there was no drop off in pricing and there were some weather events in Q1 that had some impact on our productivity that was primary driver.
Speaker Change: Great guys I appreciate the time thanks.
Speaker Change: Thank you. Our next question comes from the line of Tom <unk> from UBS. Please go ahead.
Speaker Change: Yes.
Tom: Yes, good morning.
Tom: I think I know you've talked a fair bit about <unk>.
Tom: Rates and it's good to see that good to hear that constructive commentary in.
Tom: In terms of the.
Tom: Modeling for kind of <unk> in.
Tom: Revenue per truck per week.
Tom: Or in intermodal revenue per load.
Tom: Would we think that stable sequentially or is it down sequentially.
Tom: Well I guess I mean, your comment on contract rates, maybe say, it's actually up a little bit sequentially, but just trying to think about how to translate that into the model for <unk>.
Speaker Change: Yes, Tom we don't give specific quarterly guidance on metrics of business, but.
Speaker Change: I draw you back to improving conditions through the quarter.
Tom: January through March and really all three of the businesses relative to its operating metrics and ultimate performance was a pretty difficult start to the quarter and start to the year.
Tom: And a little bit what we obviously can see here in the month of April so that is what's behind.
Tom: Our adjusted downward guidance, but how we build what we consider modest momentum.
Tom: From here, both on the capacity and demand standpoint, and the fact that we've been leaning into cost very very directly for the last several quarters and getting just getting to some of the benefit of our cost position and our cost actions and give the organization great credit.
Tom: And doing it in a smart fashion that it doesn't impede our ability to respond.
Tom: When the market condition starts to turn.
Tom: What I would consider smart constructive and sustainable.
Tom: Leaning into cost positions across the income statement.
Tom: Okay.
Speaker Change: How do you think about it.
Speaker Change: <unk> had a couple on this too, but just intermodal competitive dynamic does seem to have I think Carol if you use the word churn, but maybe some greater movement than normal.
Speaker Change: It seems like one of the players has gotten.
Speaker Change: A bit more aggressive on volume.
Speaker Change: And your.
Speaker Change: Your outlook seems constructive I think in terms of seeing.
Speaker Change: <unk> volume growth.
Speaker Change: How much visibility do you have to the volume growth.
Tom: And did you kind of avoid some of the greater rate pressure or.
Tom: Just how do you think about the.
Tom: Dynamic that's happening in the competitive market.
Speaker Change: Yes, Tom.
Tom: I got your question if I missed it please come back but.
Tom: I really want to start with is how we are approaching this from a strategic standpoint and that starts with how.
Tom: How we've aligned relative to our underlying rail partners, which we feel really really good about.
Tom: And we did that for the specific purpose based upon our asset base model of owning our own.
Tom: Box chassis and largely our own company dray that we wanted to have as much distinction with our key competitors as possible. So that we could bring.
Tom: A different type of solution to our customers and the underlying railroads that help support that and that's only been encourage further by the.
Tom: Newer relationship with the CP Casey a terrific operator doing extremely well for us in Mexico, and looking like us to extend the reach and capability in other parts of the network, which they have announced some intentions to do that so it's the combination of getting some maturity and.
Tom: Well, we outlined in our strategy and ultimately the market has to be there and ultimately to the intermodal business has not been immune to pricing pressures or <unk>.
Tom: Competitive pressures, but again I think we're poised and ready to.
Tom: Take advantage of what what's in front of US, we just need the market.
Tom: To go along with this event.
Speaker Change: Do you think you have good visibility to the volume growth like you kind of have the contracts in place to get that or just what about the visibility on volume side.
Speaker Change: Yes, we are.
Speaker Change: Getting close to about 40% through so we have a little better visibility.
Speaker Change: Fulfillment rate is always the key measure there what's your award and what the customers business is as always has to be.
Tom: Ultimately delivered to us but yes.
Tom: Yes, we have.
Tom: So a lot of the year left and we have a lot of the allocation season, yet to go but we have visibility to like I said roughly about 40%.
Speaker Change: Right, Okay that makes sense, thanks for the time Mark.
Tom: Thank you next question comes from line of Jordan <unk> from Goldman Sachs. Please go ahead.
Jordan: Yeah, Hi, just a quick question just on intermodal and in the margins in.
Jordan: Sort of a return to sort of the longer term targets that you guys have talked about.
Jordan: Is it safe to say that.
Jordan: At the.
Jordan: The price dynamic.
Jordan: Has to be the key driver of that at this point relative to the volumes and perhaps productivity, even that youre, saying with the rails.
Jordan: Yes. This is Jim so there is a number of actions here first of all staying disciplined on price as we go through the allocation so on price as a part of that but also we.
James Filter: We're seeking to heal our network, where we need to drive out some empty miles and driving out those empty miles helps us improve our asset utilization or productivity.
Jordan: Saw a little bit of that as we saw some improvement Andre.
Jordan: Intermodal is no different than our other segments, where we're focused on managing costs, but at the same time preserving that ability to grow and where we're growing as can be specifically growing into those areas, where we have differentiation and so on.
Jordan: Taking those actions is what puts us on the path to hitting our long term margins.
Jordan: So yes.
Jordan: Shortly it's a combination of of our revenue actions as combination of rail costing and its combination of our cost positions in general so.
Jordan: We are yes, we are on the path, but we got we got a ways to go coming out of where we are in the market.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is has a lot of basketball lasers from Susquehanna. Please go ahead.
Basketball Lasers: Yeah. Thanks for taking my questions I want to go back to the seasonality question. If you look historically, you typically see a pretty meaningful lift in the second quarter it sounds like.
Susquehanna: You've got confidence in that from your comments about sequential momentum in all your businesses through the first and that continuing into April.
Speaker Change: For the second half tends to be kind of sideways in the third quarter, depending on the market and then.
Speaker Change: You see the typical <unk> peak seasonality is that the shape of the year contemplated in your guidance just any thoughts about how seasonality might be a little different than the historical patterns would be helpful. As we think about the rest of the year. Thank you.
Speaker Change: Thanks for the question, let's call them as we kind of step back and look at core.
Jordan: Quote unquote seasonality.
Jordan: One of the things that was interesting for us that that didn't end up holding as long with in the first quarter was the weather events. When we had the weather events a year ago those were much quicker absorbed into the marketplace with really little difference between price and carrier costing and those items. It was interesting to see.
Jordan: In the weather patterns. This year that that quickly changed both spot pricing increased carrier costing increase which I think suggests that there has been a degree of tightening.
Jordan: And so thats hitting hold obviously there is.
Jordan: Yes.
Jordan: Pricing spot pricing started it to retract back but at least two of them and there was a bit of a change in the marketplace. There was a change in those metrics and those dynamics.
Jordan: As we look towards seasonality now and seeing a little bit of a return with inventories seem to be in most of our customers relatively where they should be that we got back to some end of quarter projects, we got back to some in the quarter protection for volumes.
Jordan: And people pushed out a little bit heavier at the end of the quarter.
Jordan: Again, not at an inflection being very clear about that not an inflection, but some of those changes in some of those more typical.
Jordan: Market practices started to return and so as we think for the rest of the year. That's what we're really referencing on seasonality of moderate seasonality back too.
Jordan: Some similar behaviors again, not inflect thing or not.
Jordan: Suggesting that that we're through the cycle completely.
Jordan: But that's how we're thinking about seasonality and I would characterize it fairly typical as we would normally see it.
Jordan: Sure.
Jordan: Through history, which should put you suggested in your question.
Speaker Change: Thank you for the time.
Speaker Change: Thank you. Our next question comes from the line of Daniel <unk> from Stephens. Please go ahead.
Daniel: Hey, good morning, guys. Thanks, taking the question.
Daniel: Good morning, I wanted to start on the dedicated side.
Daniel: Grow in truck count nicely on dedicated we may have missed it but what does the sales pipeline look like there and then as we think about the embedded ramp in earnings in the back half are there startup costs that youre, winning these contracts that are weighing on the first half or how should we think about the profitability of dedicated as we roll through the year.
Speaker Change: Yes, good question and certainly the best.
Speaker Change: Time for.
Speaker Change: Cost for dedicated is when Youre just farming everything that you have and you are not starting up so there is impact when you go through.
Daniel: Go through startup, but we're in a pretty consistent cadence of startup on a quarterly basis, what I outlined in my opening comments is we have site too.
Daniel: We will start ups in the second and third quarter based upon implementation schedule, we laid out at the beginning part of the year that we expected a net up several hundred dedicated trucks.
Daniel: Knowing that now that we're at 62 6300 trucks, even a modest churn of 2%, 3% creates a couple of hundred units of hub.
Daniel: New business that you have to grow to maintain yourself.
Daniel: And so those initial projections are pretty much where we see and expect the year of the year to play out so the pipeline is strong.
Daniel: We've increased our efficiency, meaning we have improved our tractor to drive our ratios in dedicated which has helped us lower costs for new implementation. We've got more efficient. So we use those tractors on some new startups, which lowers our friction costs to get things started up.
Daniel: But overall, we would still very bullish and this is.
Daniel: Across a very diversified part of the economy, we're not really concentrated in any one area. We have good distribution across both the industrial and consumer markets.
Speaker Change: No that's helpful and then as a follow.
Daniel: So maybe ill intermodal market margin you had revenue down sequentially. There was some disruption from weather and yet or improved from the fourth quarter is that just some rail cost adjustments that flowed through in the first quarter with your partners or what specifically drove that margin improvement despite the conditions.
James Filter: Yes. This is Jim.
James Filter: And thanks for the question specific way, it's some improvements that were sequentially healing our network.
James Filter: As well as utilization of our drivers. So when we were talking about going through the bid season and various specific are growing where we have differentiation, where we can take out empty miles and as we're taking out empty miles.
James Filter: Proving that.
James Filter: The asset utilization that productivity and that's enabled us to have some sequential improvement in margin.
Speaker Change: Great. Thanks, so much best of luck.
Daniel: Okay.
Daniel: Thank you. Our next question comes from line of Jon Chapelle from Evercore ISI. Please go ahead.
Jonathan B. Chappell: Thank you good morning, the ISI ports alright.
Jonathan B. Chappell: Sure.
Jonathan B. Chappell: Mark on the power only so some real positive comments there increased each month throughout the quarter. It seems like thats been.
Jonathan B. Chappell: One part of the business its held up pretty well relatively speaking relative to the rest of the portfolio yet the logistics margin now still sub 2% level. So can you help us just understand this power only just provide kind of a stickier business from a volume perspective or is it truly higher margin and I guess, maybe in the absence.
Jonathan B. Chappell: The power only you'd be kind of bouncing around around breakeven.
Speaker Change: Yes, let me see what I can kind of share here first as we generally have talked about in our brokerage business in total.
Speaker Change: And that can toggle, depending upon market into a 60 40, either direction under the power only model within there were even a higher percentage of contract business. So it's repetitive tickets.
Jonathan B. Chappell: <unk>.
Jonathan B. Chappell: Commit to through allocation events.
Jonathan B. Chappell: And because we are bringing some asset component to that the trailer we do get a higher net revenue per order in power only than we do in our traditional brokerage offering.
Jonathan B. Chappell: And it's just exasperated presently just because of the difficulty in the competitive the highly competitive nature of the lifeline brokerage margin or excuse me market.
Jonathan B. Chappell: And so.
Jonathan B. Chappell: Power only as accretive to the margin performance of the business in total.
Jonathan B. Chappell: And even more so now in this what we consider the most difficult part of the market for our lifeline brokerage offering.
Speaker Change: Okay that helps and then I apologize for how big picture. This is but I think it's pretty important it feels like the capacity is still pretty stubborn across the truckload side and just hasnt accelerated the pace necessary and then we're also seeing some really negative commentary out of some of the biggest.
Speaker Change: Consumer products companies in the country or the world.
Speaker Change: I'm just trying to understand with those two headwinds remaining seemingly Steph where do you think some of this sequential improvement has come from since January consistently and even into April.
Speaker Change: Just like things couldn't go lower and there's only one way to go from here are there green shoots outside of maybe the bigger picture things that we focus on that we just can't see yet.
Jonathan B. Chappell: Yes. It is.
Jonathan B. Chappell: Hard to have perfect vision across all of those elements, which I think has been so stubbornly difficult going through this.
Jonathan B. Chappell: Current elongated freight cycle, Jonathan but I do believe most customers are through the inventory destocking rates or whatever is kind of moving through the channel. There is something that's backing it up to replenish it in and so while it's not building necessarily we don't see a lot of that condition.
Jonathan B. Chappell: And it does seem to be quote unquote more normal relative to where inventory as sales occur.
Jonathan B. Chappell: Whether it's coming through the vendor inbound into DC or through our dedicated trucks from D C to.
Jonathan B. Chappell: To store.
Jonathan B. Chappell: It's <unk>.
Jonathan B. Chappell: Steady I would consider demand fairly steady in and certainly we saw improvements through the quarter in the first quarter and our early view here to April so again.
Jonathan B. Chappell: Always hard to predict the future.
Jonathan B. Chappell: But what.
Jonathan B. Chappell: What we're seeing with seem to be a more normalized condition yes.
Speaker Change: Yes, and I think the other key aspect here is just the importance of remaining diversified we're not tied to any one single customer that's making up a significant portion of our volume in any one of our segments and that enables us to be successful through the cycle.
Speaker Change: Yes, and I guess, the only thing I would add is some of those macro factors that you did outline.
Jonathan B. Chappell: You have led to the reduction in the guidance right, but as we look forward.
Jonathan B. Chappell: Do have some conviction based on the sequential improvement is not only on the pricing side, but the productivity actions on our cost actions that we've taken.
Jonathan B. Chappell: I have helped to improve our earnings as we've gone through.
Speaker Change: Okay. Thank you Dara thanks, Mark Thanks, Tim.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you our final question for the day comes from Brian <unk> from Jpmorgan. Please go ahead.
Speaker Change: Okay.
Brian: Thanks for taking another one here, maybe just color as possible.
Brian: Go ahead.
Brian: That's right.
Brian: I just wanted to ask real quickly on the negative cash flow for Cordero It seems like.
Speaker Change: Maybe this should be the low point, but you're still sticking with most of your Capex plans. So maybe you can just.
Speaker Change: Walk through that and then Jim would be good to hear your thoughts on the dynamics in international intermodal, if <unk> seen some pretty strong growth easy comps, but.
Speaker Change: Just wondering your thoughts on how that trickles down into domestic is that channel getting more full than us. So therefore, we should see more trans loading or do you think that.
Speaker Change: Ladies Ocean carriers are really just fine sending more and more boxes.
Speaker Change: And that might be a headwind for for growth. So thanks for the follow up.
Speaker Change: Yes, so I guess I'll start so just to clarify your question.
Speaker Change: Negative free cash flow, our operating cash flow was actually positive.
Speaker Change: Almost $100 million in the cycle, which I think is <unk>.
Speaker Change: Impressive.
Speaker Change: So the dynamic really is the capex. So as we kind of entered into the year, we talked about the improvements that we've made in our Egypt fleet targets right and that would continue some of those actions we talked about the growth that we expected in dedicated and intermodal tractors.
Speaker Change: We'll become more efficient as the quarter has come through and that's really what's allowed us to reduce our capex guidance as it relates to attractive growth.
Speaker Change: Going forward.
Speaker Change: But as Jim said, we want to make sure that as we become more and more disciplined.
Speaker Change: We're still positioning ourselves for the recovery. So we're not trying to cut capex that is necessary for our growth.
Speaker Change: So the dynamic accretive of free cash flow is the combination of lower earnings.
Speaker Change: For the first quarter and a continuation on our Capex strategy.
Speaker Change: Yes. This is Jim to answer the question about international.
James Filter: Intermodal and yes, it is up on a year over year basis, but thats really just.
James Filter: Function of to your point, how bad it was a year ago.
James Filter: It looks more stable as the distribution between east coast and West Coast, So, it's becoming a little bit normalized.
Speaker Change: And so I wouldn't really say that theres been this growth in international in terms of taking share from.
Speaker Change: Domestic intermodal.
Speaker Change: Good to see that a little bit more normalcy in terms of the ocean carriers in their position.
Speaker Change: And what's still out there is disruption there's been a lot of disruption in the world.
Speaker Change: One more disruption from the ocean carrier, saying I want to I'm going to need my boxes, because im going to be taking longer routes and that pushes even more impacted trans loading.
Speaker Change: Okay. Thank you so much.
Speaker Change: Thank you, ladies and gentlemen, as we have no further questions. At this time, we will conclude today's conference call. Thank you for participating and you may now disconnect.
Speaker Change: Yes.
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