Q4 2024 J B Hunt Transport Services Inc Earnings Call
We will be coming out of the Fravor Session from a position of strength.
We believe the value we create for our customers, with our capacity and our exceptional service levels, are unique in the market, and that our return should mirror this value.
We, and our customers, know this. We stand ready to continue to expand with our customers and to add new customers under the J.B. Hunt Scroll.
The team will have more commentary on each area's business, but in closing, we have proven our service levels and our safety culture are unmatched and have available capacity ready for future growth.
We will continue to focus on the long-term, while taking steps in the near-term to improve the return profiles of our business, all with the same mission to drive long-term value for our people, customers, and shareholders.
With that, I'd like to turn the call over to our CFO, John Kuhlow. John.
John Kuhlow: Thank you, Shelley, and good afternoon. My comments will cover a high-level review of the quarter and year, some additional color on our cost control efforts, as well as provide an update on our capital plan for 2025.
John Kuhlow: As a general overview, we sought signs of seasonality across the business and experienced a strong intermodal peak season.
John Kuhlow: That said, the deflationary rate environment, coupled with an inflationary cost environment, weighed on margins versus prior year.
John Kuhlow: Starting with fourth order results, on a consolidated gap basis compared to last year, revenue declined 5%.
Operating income increased 2%.
and diluted earnings per share increased 4%.
John Kuhlow: We did have insurance-related charges totaling $53.4 million in Q4 of 23, and intangible asset impairment charges totaling $16 million in Q4 of 24.
John Kuhlow: The asset impairment charges this year are related to early termination of leased facilities and intangible assets recorded from the BNSF logistics acquisition.
John Kuhlow: After consideration of these charges, operating income and diluted earnings per share declined year over year, largely driven by the deflationary pricing environment.
John Kuhlow: For the full year 2024, on a consolidated gap basis, revenue declined 6%.
Operating income declined 16% and diluted EPS decreased 20%.
These results include the impact of the previously mentioned charges.
John Kuhlow: Looking to 2025, we expect inflationary cost pressure to continue in the areas of insurance premiums and people costs.
John Kuhlow: Despite two consecutive years of record safety performance, our insurance premiums have more than doubled over that period due to the higher cost to resolve claims.
John Kuhlow: This is an industry challenge, and these inflationary costs will need to be passed on to shippers and eventually consumers.
Now, speaking specifically to the first quarter of 2025.
John Kuhlow: Given normal seasonality on a sequential basis, we expect operating income to decline at a similar rate as what we saw in 2024, after consideration for the charges we disclosed, or more specifically, somewhere around 20-25%.
John Kuhlow: On the subject of cost, we have made progress across the business to right-size our cost structure.
John Kuhlow: In April 2024, we outlined $100 million of aggregate costs we were carrying across the company related to investments and resources in both for people and capacity.
John Kuhlow: We also noted that we had visibility to these costs and where they lived within the organization.
John Kuhlow: Since this time, our headcount has been reduced through attrition and performance management and now sits approximately 12% below our peak levels.
John Kuhlow: On the capacity side, we commented that we had about 20% excess capacity in both JBI and JBT.
John Kuhlow: Since we made those comments in April, we did invest further in our capacity in JBI with the purchase of Walmart's intermodal assets. And while our business activity levels have increased, so too has our capacity.
John Kuhlow: That said, we feel confident in our ability to generate a solid return on those investments over the useful life of those assets. As it stands today, on a consolidated basis, the aggregate cost of that additional capacity is around $60 million.
John Kuhlow: While progress has been made, we remain focused on controlling costs in the near term without reducing the long-term earnings power of our business.
John Kuhlow: I'll wrap up with an initial look at our capital plan.
John Kuhlow: For 2025, we expect our capital expenditures to be between $700 and $900 million, which is up from the $674 million in 2024.
John Kuhlow: Our first use of capital is always to invest in our business for growth.
John Kuhlow: Through strategic decisions and opportunities in the market, we have pre-funded a large portion of our future growth in JBI, and as has historically been the case, our capital needs in DCS are success-driven.
Our other businesses require very little capital investment.
John Kuhlow: We plan to continue to support our dividend in 2025, which has increased at this point for 20 consecutive years.
John Kuhlow: Finally, we will continue to opportunistically repurchase stock as a means of returning value to shareholders.
John Kuhlow: In 2024, we repurchased $514 million of stock at an average price of $169 per share.
John Kuhlow: With our modest leverage, limited near-term capital needs, and view on where we are in the cycle, we think repurchases are a prudent use of capital at this time.
John Kuhlow: This concludes my remarks and I'll now turn it over to Spencer.
Spencer: Hey, thank you John and good afternoon. I'll provide an update on the market, our sales objectives, and some feedback we are hearing from our customers.
Spencer: In the fourth quarter, we saw a strong peak season materialize, particularly across our intermodal business as well as in our highway businesses.
Spencer: In intermodal, customer demand came in strong, and we were able to execute this higher volume while maintaining high levels of service for our customers.
Spencer: In JBT and ICS, we experienced seasonal volume trends and some margin pressure in December as the market tightened, which is normal around the holiday period.
Spencer: Throughout peak season, we were in constant communication with our customers around their changing capacity needs.
Spencer: Given our strong value proposition around capacity and service, we were considered the go-to for our customers.
Spencer: While we see capacity exit the industry every day, overall there is still some excess capacity available on the market.
Spencer: That said, some customers are securing capacity a little earlier than normal, which has historically been a good indication that supply and demand dynamics are shifting.
Spencer: Regardless of market changes, our focus is on providing the best possible experience and service for our customers.
Spencer: Having a full suite of services to deliver optimal solutions for our customers is a strong and differentiated value proposition in the market.
Spencer: In 2025, we will continue to pursue operational excellence while providing exceptional customer service.
Spencer: We believe that providing high quality service and creating unique value for our customers is the right thing to do every time and foundational to growing our business.
Spencer: We create value for our customers and that will continue to be our focus, but we also plan to have conversations with each customer to make sure we are getting paid appropriately for our investments and efforts.
Spencer: Coming off another peak season with solid execution and service, we are in the best position to have conversations with customers about the value we create for their business.
I'll close with some feedback we're hearing from customers.
Spencer: First, we received very positive feedback on how we executed peak season and we are already working on our plans for next fall.
Spencer: Secondly, each customer is unique in terms of size, industry, and supply chain needs, which demand different strategies to execute their supply chains and mitigate potential disruptions.
Spencer: For example, we believe most of our customers are taking more of a wait-and-see approach to see how potential tariffs might influence future purchasing and business decisions.
Spencer: Regardless of their strategies, we believe we are in a strong position with our suite of services and the investments we've already made to support their work, take share in the market, and make appropriate long-term returns.
Spencer: We remain focused on the long term while taking steps in the near term to improve the return profiles of our business, all with the same vision to create the most efficient transportation network in North America. I'd now like to turn the call over to Nick.
Nick: Thanks, Spencer, and good afternoon. I'll provide an update on our areas of focus across our operations.
Speaker Change: Before I begin my comments, I'd like to say I'm excited to be taking on the role as President of Highway Services and Final Mile, and so I will provide a quick update on those specific businesses.
Speaker Change: I'll start with some comments on safety and customer value delivery, or CVD.
Speaker Change: Our company is rooted in a foundation of safety and is at the core of what we do every day.
Speaker Change: I'm proud to say that 2024 was another record performance for us measured at DOT preventable accidents per million miles.
Speaker Change: This is the second consecutive year of record performance and a testament to our focus on continuously improving in this area.
Speaker Change: Our safety performance is just one example of our focus on customer value delivery or CBD that we continue to roll out across the organization.
Speaker Change: As Shelley mentioned in her remarks, we have been very focused on operational excellence across the organization, improving the value we create for our customers through our CBD process.
Speaker Change: We believe this puts us in the best position to retain and grow our business while ensuring our customers see and appreciate the value we are creating for them.
Speaker Change: Shifting more specifically to the businesses, I'll start with JVT. Our focus remains on attracting the right freight for our drop trailer network, while ensuring capacity is correctly positioned across the network to serve this freight efficiently.
Speaker Change: Our service level remains strong, and we continue to look to methodically grow this business while maintaining network balance.
Speaker Change: which will support future growth while driving efficiency and greater profitability.
Speaker Change: On final mile, demand for big and bulky products remain muted with soft demand in furniture.
Speaker Change: and Modestly Soft Trends in Exercise Equipment and Appliances. We continue to focus on providing high levels of service, differentiating ourselves in the market and ensuring we are appropriately paid for the great work we do.
I'll close with some comments on our strategy and ICS.
Speaker Change: The past couple of years have been challenging in ICS, but I believe we are in a more solid base to build off of going forward.
Speaker Change: In 2024, we incurred quite a bit of expense related to the integration of BNSF logistics acquisition this year that will not repeat in 2025 to the tune of $35 million.
This includes the impairment charge John referenced earlier.
Speaker Change: Going forward with our base business on a more solid footing and the integration behind this, our focus turns to growth and more specifically growth with the right customers.
Speaker Change: We need to further diversify our customer base in terms of size, as well as industry, really targeting businesses that we can differentiate ourselves with our service people and technology.
Speaker Change: We are implementing some of the playbook we utilize and dedicated to help us generate better leads and customers that we believe will see the value in what service we offer.
Speaker Change: We have better alignment with our sales resources and a strategy we are confident that sets us up to scale the investments we've made in the business overall. We are already seeing some momentum as volumes and customer counts have been growing the past two quarters.
Finally, we are continuing our focus on control and cost.
Speaker Change: The team has made significant progress in rightsizing our cost structure, but there are still opportunities for additional improvement.
Speaker Change: As we come out of this recessionary freight environment, we will focus on leveraging our investments to drive greater productivity. I'm excited about the work we are doing within ICS and believe we have a long runway of growth and the ability to scale quickly in this business.
Brad: With that, I'd like to now turn the call over to Brad.
Thanks, Nick, and good afternoon, everybody.
Brad: Before I get into my prepared comments on our dedicated business, I'd just like to say how excited I am to be leading us in this area.
Brad: I recently celebrated my 29th anniversary at the company and having spent 25 of those years in our dedicated business.
In some ways, it feels like a homecoming.
Brad: While we have had a lot of success in the business, I feel a strong sense of responsibility to continue to expand on our performance and accelerate our growth.
Brad: As we have talked about in the past and Nick has hit on previously, we focus our dedicated business on providing professional, outsourced, private suite solutions for our customers.
Brad: We believe our performance during the downturn has been a standout in the market and highlights the strength and resiliency of our model.
Brad: We have a diverse set of customers by both industry and geography, with the average size of our deals remaining relatively small.
Brad: With this diversification and also having a decentralized model, we have great visibility into our performance, which drives strong accountability, both for the benefit of our customers and financial management.
Brad: We continue to see considerable opportunity for future growth with a qualified addressable market of approximately $90 billion.
Brad: We are pleased with our pipeline and the opportunities we see across a diverse set of customers and industries.
Brad: We've maintained our disciplined underwriting standards on new business, and I am pleased to report on another strong quarter of new truck sales.
Brad: We sold just shy of 440 trucks of new business in the quarter.
Brad: 2024 marks one of our best truck sales years in our history.
A strong statistic considering the environment.
Brad: This only reinforces our belief in our value proposition to our customers.
Brad: further supported by our customer value delivery process that Nick just touched on.
Speaker Change: I'd like to take a second to review our performance in 2024 and maybe set the stage for 2025 in our view of our future opportunities.
Brad: A little over a year ago we spoke about having visibility to some fleet losses and we certainly combated that challenge throughout the year.
Brad: We also saw some pressure with customer bankruptcies, and to a lesser extent, some competition on a small portion of our portfolio.
Brad: We sit here today with visibility to some of the fleet loss pressure continuing through the early part of the second quarter.
Brad: That said, with our sales momentum and strong pipeline, we feel fairly good about our ability to return to net fleet growth in 2025.
Brad: As we discussed before, we do typically incur some startup expense with newly launched businesses.
Brad: But given the average life of our contracts remain around five years, we recover that investment over the life of the deal.
This is all embedded in our underwriting process.
Brad: excluding some of the noise around fleet losses in 2024, our base business.
Brad: So excluding the startup drag from the new ads did operate within our stated margin target range of 12 to 14 percent.
Brad: As we progress through 2025, we look forward to the fleet losses abating and returning to our long-term growth trajectory.
Brad: which we target to be about 800 to 1,000 trucks per year on a net basis.
Brad: With this as the backdrop for 2025, we expect top line and operating income growth this year will likely be modest.
Brad: In closing, and looking forward, the playbook and play calls remain the same. Execute with operational excellence.
Brad: and continue to invest in our people to help support and accelerate our growth.
With that, I'd like to turn it over to them.
Speaker Change: Thank You Brad and thank you to everyone for joining us this afternoon on the call. I'll review the performance of the intermodal business during the quarter and give an update on the market and service performance.
Speaker Change: I'll start with Intermodal's performance. Overall, we saw the momentum from the third quarter continue into the fourth quarter with total volume of 5% year-over-year. Sequentially, we outperformed normal seasonality as the fourth quarter set a new quarterly record for Intermodal volume.
Speaker Change: In fact, in the quarter, we had the largest intermodal volume month ever, surpassing 200,000 loads in October, our largest volume week, and our largest volume outbound Southern California.
Speaker Change: By month, intermodal volumes were up 4% in October, 7% in November, and 3% in December. As it pertains to mix, our transcon volumes increased 4% during the quarter, and eastern volume grew 6%.
Speaker Change: I remain encouraged by volume growth in the East despite depressed truck rates, which is a testament to the strong service levels of the rails and how that translates into attractive and valuable alternatives to truck for our customers.
Speaker Change: Going forward, we continue to see a lot of opportunities for future volume growth given the attractive economics and environmental benefits of intermobile versus a truck alternative.
Speaker Change: During the quarter, we experienced a strong peak season where we were able to meet the elevated demand of our customers while maintaining high service levels, highlighting the strength and flexibility of our network.
Speaker Change: For a few weeks early in the quarter, rail service in the West oddously deteriorated as the railroad experienced record intermodal demand.
Speaker Change: In order to fulfill our service promise to customers during this time, we had to do some unnatural activities to help keep the RHEL network fluid.
Speaker Change: While rail service was restored to normal after a few weeks, the additional costs we incurred more than offset the benefit of incremental volume in our network and put pressure on our margins.
Speaker Change: Going forward, as a reminder of our pricing cadence, we will be living with the vast majority of our current pricing through the first half of 2025. We are in the early innings of our bid season, and it is too early to comment on the outlook of bid results.
Speaker Change: That said, due to inflationary cost pressure across our business and the deflationary pricing experienced over the last two years, we will need to correct our pricing while remaining focused on our cost to return our business to reinvestable levels.
Speaker Change: We are entering this bid season from a position of strength having just successfully executed our second peak season with high service levels and our available capacity was able to handle strong customer surge demand.
Speaker Change: The improvement in customer bid compliance also gives us greater visibility for opportunities to fill in lane imbalances across our network to drive greater efficiency.
Speaker Change: In closing, we sit here today, at or near the end of the worst spray recession we have ever experienced, having just reported two consecutive quarters of record intermodal volume.
Speaker Change: As we look forward, we see more opportunities for volume growth, coupled with opportunities to improve our margin performance.
Speaker Change: While our margin performance has been under pressure and is not at acceptable, reinvestable levels for us, we continue to lead the industry in both margins and returns.
Speaker Change: Our focus in 2025 is on growing into our available capacity and beginning to repair our margins by ensuring that the value we create for our customers is realized and captured.
Speaker Change: We strongly believe in the strength and value of our intermodal franchise.
Speaker Change: We have the people, technology, and capacity in the network for growth and remain excited to work with our customers to meet their growing demand with an efficient, cost-competitive, and more environmentally-friendly solution.
Speaker Change: That concludes my prepared remarks, so I'll turn it over to the operator to give instructions for the Q&A portion of the call.
Speaker Change: Thank you and we will now begin the question and answer session.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time.
Speaker Change: If you are called upon to ask your question and are listening via speakerphone on your device, please take up your handset and ensure that your phone is not on mute when asking your question.
Thank you, everyone. Thank you.
Speaker Change: To be able to take as many questions as possible, we do ask that you please limit yourself to one question.
Speaker Change: Again, it is star one if you would like to join the queue.
Speaker Change: And your first question comes from the line of Chris Weatherby with Wells Fargo. Your line is open.
Yeah, hey, thanks. Good afternoon, guys.
Speaker Change: I guess maybe if we could start on the first quarter commentary that you gave, which I thought was helpful. I guess maybe first a point of clarification. Just want to make sure that you're talking about the sequential decline in operating profit for the entire business, not just one of the segments.
Speaker Change: And then, assuming that's the case, just maybe if you could give us a little bit more color about some of the moving parts that go into that. Is it, you know, lingering costs from peak season, some of the headcount, or people's sort of cost pressures that you're noting? Just want to get a little bit of a breakdown of what's driving that sequential line of that magnitude.
Hey Chris, it's Brad Yelko. How are you?
and good thanks.
So, just to clarify, so, yeah, when we.
Speaker Change: You know, we rarely give guidance, and including that in our script, really, we thought it would be helpful to analysts and investors.
Speaker Change: We talked about seeing normal seasonality from Q4 to Q1, given consideration to the impairment charge, so I would say
Speaker Change: take our gap number, you can add the impairment charge back, and then the 20 to 25 percent sequential decline in operating income is what we intended to say, and that would be in line with really what we've seen over the last
Speaker Change: call it 10 years, excluding maybe the two unique years during the pandemic. So I, you know, I just want to reiterate that is in line with normal seasonality, and I sense from comments
In notes, there's concern about pull forward.
Speaker Change: and I just think there's a little bit of a disconnect if investors and analysts are very concerned about this cohort and this record volume performance we're seeing
Speaker Change: They're not really reflecting that in their expectations going forward. And so we sit here today I think Spencer did a great job of giving a review of the market
Speaker Change: And our expectations are normal seasonality from Q4 to Q1, and that's just not reflected right now in current expectations, and we just wanted to clean that up for everyone.
Speaker Change: I don't think we will continue to give guidance and we probably will not go into any further detail on this call on guidance.
Speaker Change: And so I just wanted to go ahead and clean that up here at the start.
Speaker Change: And your next question comes from the line of Jason Seidel with TD Cowan. Your line is open.
Jason Seidel: Thanks operator. Shelley and team, afternoon here. Wanted to touch on the CapEx commentary. If I heard that right, that was 700 million to 900 million.
Jason Seidel: That implies either 4% growth or over 30% growth. I guess I was wondering, maybe you can talk to me about the underlying assumptions for both the top and bottom part of the range.
Jason Seidel: Yeah, so with respect to the CapEx numbers, you know, keep in mind that what we've kind of put Matt to, we feel like there's...
Jason Seidel: anywhere from six to seven hundred million of replacements on any given year and so a big bulk of what we're guiding in our CAPEX plan for 25 has to do with
Jason Seidel: Our replacement, specifically, we do have some, we have made some property investments over the years. We have a little bit more in 25 that we're planning on and forecasting. But really the range that we're providing there is dependent upon
Jason Seidel: the success of dedicated sales going into 25. And so we've got growth in in our numbers and that's part of the CapEx plan, but we typically provide at the beginning of the year a little bit wider range until we get more visibility of those successes and dedicated.
Speaker Change: And your next question comes from the line of John Chappell with Evercore ISI. Your line is open.
John Chappell: Thank you. Good afternoon. Shelley, you mentioned a couple times in your prepared remarks focusing on improving returns on capital and improving margins. Obviously, the cycle would play a big role in that, but I assume you're not counting on the cycle recovery anytime soon.
John Chappell: Given some of the inflationary pressures that John talked about and even Darren talked about, what steps can you take that are in your own control that you can start improving both of those metrics without getting more help from the broader market?
John Chappell: Yeah, good question. Thank you for that, John. So, you know, I would say there's a few things inside our businesses, and I'll speak specifically for Intermobile. If you think about the challenges that we had through 2024, a big part of that was around balance.
John Chappell: and so our ability to move the network actually loaded versus empty that is a core strategy for us in this bid season to really focus on
John Chappell: Making sure that we're loading our equipment and minimizing the amount of empties that we're moving. The network's out of balance for a couple of reasons. One, our customers have shifted.
Hi everybody.
John Chappell: West Coast from East Coast and that's caused more to happen out of the West Coast and then also some of the things that are Happening in Mexico. So that would be one thing. We'll continue to focus on Our cost control efforts that we've been working on really since the last one to two years And so we see that and we'll also be scaling into our costs with revenue. And so we do have good growth
John Chappell: As we look at this year across our segments and we'll start to scale into the revenue, but I will say
John Chappell: Our customers understand, I think Spencer covered this well, our customers understand where we're at.
John Chappell: across our businesses and also the commitment that we've made to them.
Speaker Change: We are in the best position that I have seen our company across all five services with the level of value and service that we have given to our customers.
Speaker Change: And we're going to continue to maintain that. And we think that those conversations that we'll have with customers, we'll be able to have a conversation around what makes the most sense for us and what makes the most sense for them on a customer-by-customer basis. So I think it's really twofold for us.
Speaker Change: Keep controlling cost and work on minimizing some of the incremental cost that we had in the last half of the year.
Speaker Change: focus on our growth and then also talking with customers around the value that we create.
Speaker Change: And your next question comes from the line of Brian Offsenbeck with J.P. Morgan. Your line is open.
Brian Offsenbeck: Hey, thanks. Good evening. Appreciate taking my question. Maybe let's ask a question on...
Speaker Change: dedicated because you did give a little bit of guidance there but clearly there's some there's been some challenging some some churn that you've highlighted here just take a while to start up these contracts but I believe you mentioned modest year-over-year growth in both op income and revenue so I don't want to give any more specific guidance but I think maybe that's another area where expectations are a little bit too high just based on how that business
Brian Offsenbeck: typically operates, even if you are going back to growth. So any further details there would be appreciated. Thank you.
Brian Offsenbeck: Yeah, thanks Brian. You know, just trying to convey that we have known losses.
Brian Offsenbeck: that we're not completely out of the woods yet, that we do feel largely will be behind us in the second quarter.
Brian Offsenbeck: And so really just trying to help everyone understand when they can expect our net tractor growth.
Brian Offsenbeck: to get back on plan and back on our historical model.
Brian Offsenbeck: We feel very good about that. We're coming off of a great performance year.
certainly didn't meet.
All of our expectations, but we are remarkably proud.
Brian Offsenbeck: of where we did finish the year, both from a performance standpoint, whether it's talking about safety, as was mentioned earlier, or driver management and retention. We see our retention rates on overall customers rebounding.
Brian Offsenbeck: from earlier inside of 24 versus where we sit today and we feel like we have good line of sight to get back to our historical expectations of 98, 98 and a half percent.
Brian Offsenbeck: retention in the not-too-distant future. So can't really offer you any more specifics than that, but do feel great about our pipeline and believe that we'll continue to deliver new sales that will offset known
Reductions or Losses and then we'll get back on plan.
Brian Offsenbeck: Yeah, and Brian, I'll add a little bit in terms of what was included in some of the prepared remarks.
Brian Offsenbeck: Brandon mentioned we do expect to see net fleet growth this year, but just thinking about the cadence of onboarding new accounts. We talked about the investment. We typically start these things up and it does put margin pressure on the business for startups.
Brian Offsenbeck: usually it's about three months of losses, then the next three months of that startup will recoup the losses that were incurred in the first three months of that startup, and so life to date of New Deals is effectively breakeven through the first six months.
Brian Offsenbeck: So, we would really need to see significant fleet growth, you know, early in the year in order to contribute operating income or EBIT dollars, if you will, to that business.
Brian Offsenbeck: in the second half of the year, and so if we think about a normal cadence of how these fleets will be sold and onboarded across the year, you know, you're really talking about growing the fleet this year and seeing the benefit of that at a future period, which will probably be next year.
[inaudible]
Speaker Change: And your next question comes from the line of Jordan Alger with Goldman Sachs. Your line is open.
Thank you.
Jordan Alger: Yeah, hi. I'm sort of curious a little bit on the first quarter, if I could.
Jordan Alger: Just to see if I understand, I'm assuming the bulk of the dollar drop-off sequentially 4Q to 1Q is going to come in intramodal, and so I'm just sort of curious how much of that is driven by, let's say, the revenue fall-off versus like a margin degradation to something well less than 7%. Thanks.
Thank you.
Jordan Alger: Yeah, hey Jordan, this is Brad again. Again, we don't want to get into the specifics of guiding by segment, nor just guiding in general. We saw an opportunity where the street or the market seemed to be
Jordan Alger: a little bit off from what our expectations are. And keep in mind, you know, we're now on our third earnings call talking about
Jordan Alger: our visibility to our pricing for the first half of 2025 being said. I think the term we've used historically is
Jordan Alger: The cake is somewhat baked, we said that at the end of our second quarter call, we said it on our third quarter call. And so there's really not tremendous opportunities to move Intermodal with.
Jordan Alger: with Price, and the work we're doing right now will be reflected in, you know, kind of how we look at Q3 and certainly the exit rate out of 25 into 26. We'll see more of a reflection of what bids look like. In dedicated, I think, you know, there's...
Jordan Alger: normal seasonality and in our SEC filings we talked about Q1 weather and all other reasons. It's just a more difficult environment for
businesses that run trucking assets and that's so we just
Jordan Alger: We're talking about normal seasonality Q4 and Q1, and that's where I want to sort of land this plane on any other guidance questions.
and John O'Reilly. Thank you. Thank you.
Speaker Change: And your next question comes from the line of Scott Group with Wolf Research. Your line is open.
Speaker Change: Hey, thanks afternoon guys. So just to follow up there on your about like what's happening in bid season now is what's going to drive Q3 and the exit into 26.
Speaker Change: Darren I think you said like it's a little too early to tell about bid season but
Speaker Change: Can we at least, are we at least confident we're getting some degree of pricing increases? Maybe just talk, give a little bit more color about what's happening with bid season and then is there enough to give us some confidence that.
Speaker Change: If we're getting some price increases in the back half of this year, we'll start to see that margin inflection in Intermodal.
Speaker Change: Okay, hey, thanks for the question, Scott. Certainly, we're on two consecutive years.
Speaker Change: of this crazy, long, great recession that's frustrating to all of us.
Speaker Change: I think that I want to be really clear with the whole audience, I'm so proud of the team for the way we have executed and really earned back confidence from our customers. We are the clear leader in service and capacity. Our customers buy
Speaker Change: on service, cost, and capacity. So certainly you have to be the leader in at least two of those three if you can't be in all three. There will be markets where capacity demand certainly justifies price increases.
Speaker Change: You also heard Shelley comment on our need to fill up and rebalance the network and do some repair work.
on volumes to support headhall markets.
Speaker Change: I'm kind of trying to talk about how we think about this pricing cycle. It's a conversation one customer at a time. I'm very confident that the service product we've offered over the last two years has really earned us the right to have
Speaker Change: really strong confidence in what we're providing value for our customers, and we're going to share that with the customers and work on our price. When we said it's too early, we really haven't completed very much the bid cycle. There are a lot of ongoing conversations.
Speaker Change: everybody is under cost inflation challenges. Our customers are not into that so it's an ongoing conversation but certainly we feel confident that as truck rates climb
Speaker Change: As new capacity demand hits us, we can certainly begin to repair our margins and improvements in price will have to be part of that.
Ken Hexter: And your next question comes from the line of Ken Hexter with Bank of America. Your line is open.
and John McAvoy. Thank you. Thank you.
Hey, great. Good afternoon.
Speaker Change: interesting about your discussion on the end of the worst freight recession. Hopefully we keep hearing about that, but then the dip in 1Q is a little concerning, I guess, on the progression of that. But last quarter, Darren, I think you mentioned you didn't think you'd get back to 1.8 to 2 turns per month.
But it looked like utilization of boxes improved.
Speaker Change: And the quarter now turns are up to about over one and a half, it looks like, and utilization up into maybe the 90s. How should we think about the scalability of that? Maybe talk about what is still parked, what is still left to come out of the sidelines and how utilization is going.
Thank you.
Speaker Change: I want to take something first. I want to take the first comment, which was coming out of fourth quarter going into Q1 was somewhat surprising. If you think about just the seasonality of our business, we've been talking about that our bid season that we've already
Speaker Change: All of our pricing has already been established. Everything we're working on today is to be implemented in the third quarter of 2025 and beyond. So we're coming into Q1 with intermodal pricing that has already been set.
Speaker Change: Demand volumes for our services have been at record levels for the entire back half of 2024. Our operational service and excellence that we have provided for our customers is the best we've ever done from an Intermode perspective.
Speaker Change: I'm not sure how long, Darren, but many, many, many years.
Speaker Change: So I think we are setting ourselves up for great success for the future. She won as a result of the 2023-24 bid season
Speaker Change: Moving into this period now, we'll focus on what that looks like for the back half of 25 and into 26, and so Darren, I'll turn it to you to answer the question around turn.
Darren: Sure, so clearly record volumes without onboarding more equipment, improved utilization for us, that's clearly a big part of our story moving forward is we have to scale into those
Darren: capacity investments we've made. We're very aware that we have excess capacity and we're proud of the fact that we were able to grow.
Darren: I think when I said on the last call that the years of two loads per container per month are probably behind us, that has a lot more to do with the railroad schedules and the way that the rail networks flow, everything today.
Darren: flows a little bit slower than it did when we last turned at two times per month. And I would even say our customers have a role in their ability to unload the equipment and create maximum utilization, and we have seen that be a challenge for some of our questions.
are for some of our customers.
as we move forward.
Darren: You know, do I think that we can turn the entire fleet at 1.8 for a whole calendar year? That's probably also not in the cards, but certainly in the heaviest months...
Darren: And I would anticipate October is always going to be your biggest month of the year. And so if we're turning the fleet at 1.8 times in October, I think that certainly would be a challenge for us. But it's not an out-of-sight goal that we can certainly
Darren: look to achieve. But as we move forward, we'd like to see our terms continue to improve as we as we grow volumes. I'm going to duck your question and not answer specifically, but we have more room for improvement than what you even saw in 4Q.
Thank you.
Speaker Change: And your next question comes from the line of Brandon Oglenski with Barclays. Your line is open. Hey, good afternoon and thank you for taking the question. Darren, maybe following up with that then, I think in the prepared remarks...
Speaker Change: It was discussed, you know, like spare capacity and intermodal was close to 20%, then you guys did the Walmart deal.
Speaker Change: And maybe that's what Ken was also getting at in his question, but where do you see spare capacity maybe in your network and maybe more broadly across the system? And is that a hurdle that we still have to get over as we look in 25?
Speaker Change: Well, certainly, we still have really significant capacity that's underutilized. And the cost to store that equipment is a significant headwind for us. And so, as we continue to scale and grow our volumes...
Speaker Change: while also improving pricing, you know, that's going to be our focus and our effort. The Walmart equipment.
Speaker Change: You know, we reported, I think we reported just over 122,000 containers at the end of 4Q.
Speaker Change: When we onboarded the Walmart equipment, all of that equipment requires a modification.
Speaker Change: and we haven't completed that work. Clearly, we just did the acquisition in the...
Speaker Change: I think the end of first quarter, second quarter last year, and that equipment is tucked away in storage right now because, frankly, we're still trying to grow into the 122,000 containers that you can see we own today.
Speaker Change: That will, the Walmart equipment will become more visible as demand for it helps us grow into it and we complete that conversion and bring it active into our system.
Speaker Change: And your next question comes from the line of Daniel Imbrough with Stevens. Your line is open.
Speaker Change: Yeah, thanks. Good evening, everybody. Thanks for taking our questions. Maybe I'll ask one on the ICS side. We saw stronger gross margins, particularly given the move in truck rates during the quarter. I guess, can you talk about how the pricing strategy has changed here? I think in the preparator marks, you mentioned you expect a return to growth this year. So maybe we're past kind of the peak pressure there. But if normalized margins used to be mid-teens, could they be higher for ICS here? How should we think about that profitability? Thanks.
Speaker Change: I'll try not to give any guidance here. I'll just talk about our philosophy. We think we're in a really good spot right now. We got through the integration.
Speaker Change: We think we've got through our customer losses that really That come on board for the most part back there in peak of COVID and some of that We think we're in the right spot. Our sweet spot is going to be focusing on
the customers that have hard-to-do business, multi-stop, other specialty things.
And so we're really focused on kids, small size,
Speaker Change: And so, we feel good. We had a really good first part.
Um
Speaker Change: Because of the project work we were doing, it's solid anyway, but we had some extra project work in there, a huge order, but we're proud of our gross margin, and we want to continue to have some of the best gross margins in the industry, and grow our business. So our strategy is to find the right customers that appreciate the service we do. We do great service there, got a great reputation.
and we're here to connect with our customers.
Speaker Change: and expanding with some of our existing customers as we speak. So, we're excited. We think we've got a lot of the noise behind us really ready to launch and scale. And that's what we need. We need to scale on our investments in our sales team and in our technology that is really good. It sets us up to scale really well. So, we're excited about that and got a lot of good conversations going on.
on request to speak.
Speaker Change: And your next question comes from the line of Tom Wadowitz with UBS. Your line is open.
Speaker Change: Yeah, good afternoon. So I wanted to ask you on intermodal volumes. You've had a lot of strength in intermodal volumes in 2024. It does set you up for a more difficult comparison.
Speaker Change: It sounds like you don't think there's a lot of pull forward, but I just want to get a sense of, do you think against that tougher comp we should be considering flattest intermodal volume, or do you think that it's appropriate to say, hey, we're still going to get some volume growth?
Speaker Change: I guess if you think there is some growth, are there any verticals that you say, hey, this area can really drive it, if it's housing or auto or consumer. So I appreciate your thoughts on that, just broader how to think about intermodal volume. Thank you.
Sure.
Speaker Change: Sure, well, you know, for years we've highlighted that we believe there's at least 9 to 11 million loads of highway business where Intermodal can and should be the correct answer.
Speaker Change: We continue to see opportunities for volume growth in the eastern network, particularly as the truck market swings, we're really uniquely positioned with really a good bit of available capacity, both of our eastern rail providers are
And we're in a great spot to convert that business
Speaker Change: market begins to change and customers are faced with higher costs.
Speaker Change: and higher rates out of the truckload market, intermodal can be a great answer to that. And so we believe for the long term, for many years.
Speaker Change: We have growth opportunities in the East. Out West, certainly, it has been traditionally a little bit more dependent upon the imports, but there are so many intact international moves today. As we think about the...
Speaker Change: the most efficient way for customers to plan their supply chains, converting out-of-the-forty and transloading on the West Coast into our equipment.
Speaker Change: can provide them really strong, efficient answers. And then certainly we've talked a little bit about growth in Mexico, and as that market continues to expand, we're excited about our opportunity there. So our
Speaker Change: expectations and the way that we approach every year will always be to find methods of growth. The last two quarters being record volume quarters.
Speaker Change: continue to give us really strong confidence that the value we're providing to customers with service can continue and expand from here.
Bruce Chan: And your next question comes from the line of Bruce Chan with Stiefel. Your line is open.
Bruce Chan: Thanks, Operator, and good evening everyone. Darren, you know, maybe one for you, certainly.
Bruce Chan: Good to see the demand levels in JBI, but just maybe to dig into the service issues at your rail partner a little bit. I think, you know, there's maybe a temptation to see shades of, you know, 2021 or 2022 with the fluidity, you know, getting affected by higher volumes.
Bruce Chan: and then, you know, causing some higher costs as you support your service standards. Is that, you know, not a fair characterization? And if not, you know, what kind of gives you confidence that, you know, maybe this is just more of an episodic or one-time disruption?
Bruce Chan: Sure, okay, thanks for that question and I'm glad I get an opportunity to comment on this.
Bruce Chan: There are infrastructure challenges at railroads, and that's not what this is.
Bruce Chan: And that's the good news, because infrastructure challenges are years to solve.
Bruce Chan: certainly a headwind. But that is not the case in this circumstance. Certainly
Bruce Chan: Record intermodal volumes, the terminals, and the capacity that BNSF has expanded and added really showed up for us throughout the second half of the year. But as those record volumes in both international and our domestic business hit them in October, I think it became a little bit more of a people challenge.
Bruce Chan: They went through a new union agreement in 2023, and that meant some changes in the way their employees' work hours showed up. And I think the planning of their resources and the way the employees
Bruce Chan: took time off, or had sick time, or had, for whatever reason, a difference in how they reported to work. And that sent...
Bruce Chan: set us through some challenges, and there were also some imbalances in their own railcar fleet. So these are planning issues. They're people issues that can be solved in a matter of months, and we're very confident in our ability to
to exercise growth.
on the West Coast.
Bruce Chan: next peak season and execute even more volume than we did this year. And as usual, we have great dialogue with VNSF about that. They are equally as unhappy about that element that hit us this year as we are, and we're working together to come up with better ways to think about that. But I don't want...
Bruce Chan: the group to believe that that was a 2021-like event. That's not it at all. It was really just a change in the way their employees behaved about time off.
Bascom Majors: And your next question comes from the line of Bascom Majors with Susquehanna.
Bascom Majors: Can you talk a little bit about the typical notice your dedicated customers need to give before exiting a contract?
Speaker Change: You know, just how much visibility and conviction you have into the churn really giving way after the second quarter and the ability to really net grow the fleet and kind of seeing that gross growth you've been delivering in the second half and for the full year. Thank you.
Speaker Change: Yeah, Bascom, you know, each agreement is unique and specific to each customer, so there's not really a formal standard in terms of how we work closely.
Speaker Change: with each customer. There's really three types of losses that we incurred. I'll just re-highlight that.
Speaker Change: First and foremost, our customers, some of them have been pressured in their own industries and their businesses.
Speaker Change: And so, we see fleet sizes that reduce as a result of that, and that's one type of conversation. And quite frankly,
Speaker Change: Our CVD process helps us be proactive with our customers when we see their demand shift upward or downward. In the environment we've been living in the last two years, as Darren mentioned, there's been more of those downward revisions.
Speaker Change: But that's part of how we offer flexibility for our customers. There are also points and times when we recover out of recessionary times or where we go net positive on all the ads that we have. So if we do the right thing by our customer in the most difficult of times, we're going to be able to do it.
Speaker Change: We believe that they're going to continue to partner with us and we will be rewarded for that when there are more appropriate times for growth in their industries.
Speaker Change: So that's one thing. Then we also had, and we mentioned in the prepared remarks and even our earnings release, we did have some bankruptcies this year. These are some of our customers that their businesses struggled vitally, and so we lose business in that fashion.
Speaker Change: And then the third is typically through a competitive bid. In many cases, it's a renewal of a term where we're nearing the end of that contractual period.
commitment.
Given the current
Speaker Change: economic pressures that our customers are facing, they look to bid that out. And so we've had all three of those working against us over the past 12 to 18 months.
Speaker Change: We do see it and it did slow. The combination of all three of those slowed throughout 2024 and I think that's really what gives us the optimism as long as we can deliver on our sales plan, which we are very optimistic about that based on our pipeline and our more recent performance.
Speaker Change: We feel like we will get back to that net positive later this year.
Ari Rosa: And your final question comes from Ari Rosa with Citigroup. Your line is open.
Ari Rosa: Great. Good evening. Thanks for squeezing me in here at the end. So I wanted to ask about the first quarter outlook. So Brad hopefully won't kill me, but I'm a little confused because you mentioned that there were some, I think you called them unnatural costs in fourth quarter, but you're saying you expect kind of normal seasonality into first quarter. I would have thought given the unnatural costs that maybe we would expect slightly better than normal seasonality in first quarter. So I'm just trying to understand, is this kind of a reflection of...
Ari Rosa: of either particularly weak trends in terms of seasonality, in terms of the kind of give back into first quarter. And then maybe you could talk about what the prospect is for improvement as we kind of move through the year into second quarter and beyond. Thanks.
and John McClure. Thank you. Thank you.
John McClure: Well, I mean, we very rarely give guidance. There's reasons why we don't give guidance. We feel like we have.
John McClure: a great business, a great business made up of five different segments. And we really like a lot of the time in these, these sort of environments or opportunities to speak to investors to talk about our great businesses and not talk about what's embedded or implied in our guidance, which is
John McClure: Big reason why we're just not fans of issuing it. We saw there being a disconnect. We think that there
Speaker Change: his concerns, like I said, about full forward and I'm just really calling out if there's that much concern about full forward and
Speaker Change: plus benefiting in Q4 or Q3 as Q3 was written about.
Speaker Change: related to pull forth and why wouldn't that be reflected in forward expectations? Where are we pulling this demand from?
Speaker Change: And so we sit here today, and we just saw a disconnect in Q1 relative to normal seasonality.
Speaker Change: We executed a very strong fourth quarter peak season in our modal.
Speaker Change: We have double-digit EBIT margins and returns on capital in our dedicated business that has proven to be the most
Speaker Change: resilient trucking business through the last two and a half years. We have a lot of momentum. We sit here after two consecutive orders of record intermodal volume. As Darren said, at or near
Speaker Change: the end of this great recession with opportunities ahead to grow both volume and make sure we're getting the appropriate value out of the great service we're providing customers. So I think there is a lot of optimism and excitement, at least in this room, about the future prospects.
because we just tried to level set.
Speaker Change: expectations for Q1 on what normal seasonality should be. You know that's what that's what we want to set and obviously our goal will go out to try to execute and outperform normal seasonality, but no I'm not going to provide more details on color as to the puts and takes of 4Q versus 1Q.
Speaker Change: And that concludes our question and answer session. I will now turn the conference back to Ms. Shelley Simpson for closing remarks.
Thank you and thank you for joining the call.
Shelley Simpson: You know, we try to be more transparent on this call and help you understand where we believe we are in the cycle, but also as I think about the past few years, we've been in a time of investing.
Shelley Simpson: really looking at our position of strength as a company, how can we invest in our people, our technology and capacity to set us up for really great future success.
Shelley Simpson: We focus on controlling our costs and we strategically focus specifically this year on being exceptional in our safety and delivering the highest levels of value and service to our customers. We've done that.
It was our prove-it year, that's what Darren called it.
through most of the year.
and we proved it. We've done that.
Shelley Simpson: Our customers and their satisfaction with us is at the highest level that we've recorded. So standing on the bedrock of our operational excellence, this is our year to grow, and it's our year to build on the successes that we've had.
We're going to be focused on growth.
Shelley Simpson: Improving our financial performance and we're going to take really great care of our people and that allows us to deliver on our brand promise and make sure that we have success for our future.
Shelley Simpson: Thank you for joining the call, look forward to speaking with you next time.
Thank you.
Shelley Simpson: And ladies and gentlemen, that concludes today's call and we thank you for your participation. You may now disconnect.