Q1 2025 Knight-Swift Transportation Holdings Inc Earnings Call
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Adam Miller: Speakers from today's call will be Adam Miller.
Speakers from today's call will be Adam Miller.
Unknown Executive: Chief Executive Officer, Andrew Hess, Chief Financial Officer, Brad Stewart, Treasurer and Senior VP of Investor Relations.
Chief Executive Officer and.
Andrew Hess Chief Financial Officer.
Brad Stuart.
Treasurer, and senior VP of Investor Relations.
Mr. Stewart the meeting is now yours.
Unknown Executive: The meeting is now � Thank you, everyone.
Mr. Stewart: Thank you Erin.
Unknown Executive: Good afternoon, everyone, and thank you for joining our first quarter 2025 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions, and our earnings guidance. We have slides to accompany this call, which are posted on our investor website.
Mr. Stewart: Good afternoon, everyone and thank you for joining our first quarter 2025 earnings call today, we plan to discuss topics related to the results of the quarter current market conditions and our earnings guidance, we have slides to accompany this call which are posted on our investor website.
Unknown Executive: Our call is scheduled to last one hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows.
Mr. Stewart: Our call is scheduled to last one hour following our commentary we will answer your questions related to these topics in order to get to as many participants as possible we limit the questions to one per participant.
Mr. Stewart: If you have a second question please feel free to get back into queue. We will answer as many questions as time allows.
Unknown Executive: If we are not able to get to your question due to time restrictions, you may call 602-606-6349.
Mr. Stewart: If we're not able to get to your question due to time restrictions you may call six zero to 6066349.
Mr. Stewart: To begin I'll first refer you to the disclosures on slide two of the presentation and note the following.
Unknown Executive: To begin, I will first refer you to the disclosures on slide two of the presentation and note the following.
Unknown Executive: This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in item 1a risk factors or part one of the company's annual report on Form 10-K, followed with the United States Securities and Exchange For a discussion of the risks that may affect the company's future operating results. Actual results may differ.
Mr. Stewart: This conference call and presentation may contain forward looking statements made by the company that involve risks assumptions and uncertainties that are difficult to predict.
Mr. Stewart: Investors are directed to the information contained in item one a risk factors or part one of the company's annual report on Form 10-K filed with the United States Securities and Exchange Commission for a discussion of the risks that may affect the company's future operating results actual results may differ.
Adam Miller: Before we get into the slides, I'll hand the call over to Adam for some opening remarks. Thanks, Brad, and good afternoon, everyone. You know, with all the uncertainty in the market, I thought it would make sense to maybe open up the call with some high-level remarks regarding the first quarter as well as the current market.
Mr. Stewart: Before we get into the slides I will hand, the call over to Adam for some opening remarks.
Thanks, Brad and good afternoon, everyone.
Speaker Change: All the uncertainty in the market I thought would be if it makes sense to maybe open up the call with some high level remarks regarding the first quarter as well as the current market and then I'll turn it over to Brad and Andrew to cover the remaining slides I'm going to kick it off.
Adam Miller: And then I'll turn it over to Brad and Andrew to cover the remaining slides. Here to kick it off, you know, early in the first quarter, several indicators, both internal and external, were pointing to positive momentum in the truckload market. Early bid season results were positive and volumes remained healthy following the fourth quarter. In February, severe weather in areas of the country not well positioned to handle snow and ice contributed to a slowdown in volume. We were expecting a nice seasonal volume rebound in March. However, talks of tariffs and the fluid trade policy spurred more cautious tone among shippers that brought a pause to the momentum in the market.
Mr. Stewart: Early in the first quarter.
Mr. Stewart: Several indicators, both internal and external we're pointing to positive momentum in the truckload market.
Mr. Stewart: Early bid season results were positive and volumes remained healthy following the fourth quarter in.
Mr. Stewart: In February of severe weather in areas of the country, not well positioned to handle snow and ice contributed to a slowdown in volumes, we are expecting a nice seasonal volume rebound in March however.
Mr. Stewart: Cost of tariffs and trade policy spurred more cautious tone amongst shippers that brought a pause to the momentum in the market.
Adam Miller: The increased uncertainty among shippers and growing concern among consumers resulted in lower volumes and an absence of the typical seasonal build in March. This has also impacted current rate negotiations in the truckload bid season. We are still achieving increases in the low- to mid-single-digit percentage range. However, we are not seeing the increases build like we had originally anticipated the bid environment would play out. Further, the progress we are making on contractual rates may not be as visible in our second quarter overall realized revenue per mile if the market experiences a low in volumes and the spot market remains weak.
Mr. Stewart: The increased uncertainty among shippers and growing concern among consumers resulted in lower volumes and an absence of the typical seasonal build in March.
Mr. Stewart: This is also impact at current rate negotiations in the truckload bid season.
Mr. Stewart: We are still achieving increases in the low to mid single digit percentage range. However, we are not seeing the increases bill likely as originally anticipated debate environment would play out.
Mr. Stewart: Further the progress we're making on contractual rates may not be as visible in our second quarter overall realized revenue per mile. If the market experiences a lull in volumes in the spot market remains weak.
Mr. Stewart: We are staying close with our customers as the situation unfolds and Theyre generally expressed in a few different approaches at this point.
Adam Miller: We are staying close with our customers as the situation unfolds, and they are generally expressing a few different approaches at this point. Some are pressing forward with little change, needing product as they see strength in their underlying sales. Some have already cut back or in the process of cutting back on purchases, mostly centered around China, while still others are in wait-and-see mode, where they're drawing down inventory to support sales in the near term. At this point, our customers are expressing more concern around cost impacts of tariffs and less concern regarding demand from their customers. These strategies can create negative disruptions in volume in the near term.
Mr. Stewart: Some are pressing forward with little change medium product as they see strength in their underlying sales.
Mr. Stewart: Some have already cut back or in the process of cutting back on purchases, mostly centered around China.
Mr. Stewart: While still others are in wait and see mode, where they're drawing down inventory to support sales in the near term.
Mr. Stewart: At this point, our customers are expressing more concern around cost impacts of tariffs and less concern regarding demand from their customers.
Mr. Stewart: These strategies can create negative disruptions in volume in the near term however, if consumer spending remains steady.
Adam Miller: However, if consumer spending remains steady, goods will have to move at some point. And that may create opportunities for carriers that are proven to be nimble with scale, like many of our Knight-Swift truckload brands. We recognize our customers' plans can change as clarity develops, so we are focused on controlling what we can control. For example, we are tightening our equipment fleet by selling underutilized tractors and trailers that will lead to lower depreciation and greater utilization of our remaining assets. We're also investing in new technology and raising the intensity around our safety and claims and reducing overhead costs.
Mr. Stewart: We will have to move at some point and that may create opportunities for carriers that are proven to be nimble with scale like many of our Knight Swift truckload brands.
Mr. Stewart: We recognize our customers plans can change as clarity develops. So we are focused on controlling what we can control. For example, we are tightening our equipment fleet by selling underutilized tractors and trailers that will lead to lower depreciation and greater utilization of our remaining assets. We're also investing in.
Mr. Stewart: New technology, and raising the intensity around our safety and claims and reducing overhead costs, we need to have the most efficient cost structure possible in order to be prepared for what could be a volatile environment in the near term.
Adam Miller: We need to have the most efficient cost structure possible in order to be prepared for what could be a volatile environment in the near term. With all that being said, during the first half of April, market conditions have largely been stable with where we exited the first quarter, but there is a wide range of possible paths forward from here. There could be a lull in volumes as shippers work to adjust supply chains, or there could be a pull forward anticipation of a return of reciprocal tariffs. Changes in trade policy could create the need for shippers to react quickly in managing inventory levels, which could benefit the fast, flexible nature of truckload service.
With all that being said during the first half of April market conditions have largely been stable with where we exited the first quarter, but there is a wide range of possible path forward from here.
Mr. Stewart: There could be a lull in volumes as shippers worked to adjust supply chains.
Mr. Stewart: Or there could be a pull forward in anticipation of a return of reciprocal tariffs.
Mr. Stewart: <unk> and trade policy could create the need for shippers to react quickly and managing inventory levels, which could benefit the fast flexible nature of truckload service on.
Adam Miller: On the other hand, concerns of recessed risk could cause shippers to trim inventories and to aggressively prioritize the lowest short-term costs over all other factors. In light of the unusual uncertainty, we feel we must adjust our approach to providing near-term earnings guidance.
Mr. Stewart: On the other hand concerns of recession, Chris could cause shippers to trim inventories and to aggressively prioritize the lowest short term cost over all other factors.
Mr. Stewart: In light of the unusual uncertainty, we feel we must adjust our approach to providing near term earnings guidance.
Adam Miller: Starting with this report, we are updating our guidance for the second quarter and will hold off on introducing guidance for the third quarter until enough clarity develops to support a return to two quarters of forward guidance. Business conditions for the second quarter are also uncertain enough that we are providing a wider range than our normal practice, and with risk appearing skewed to the downside in the near term, we are taking a somewhat more conservative approach as well. Even in an uncertain environment, we continue to improve on costs and collaboration across our truckload segment and grow our volumes and network in our LTL segment, opening seven more locations during the quarter and building to 30% growth in daily shipments year-over-year in March.
Mr. Stewart: With this report.
Mr. Stewart: We're updating our guidance for the second quarter and will hold off on introducing guidance for the third quarter. So enough clarity develops to support a return to two quarters of forward guidance.
Mr. Stewart: Business conditions for the second quarter are also uncertain enough and we are providing a wider range than our normal practice and with risk appearing skew to the downside in the near term we are taking a somewhat more conservative approach as well.
Mr. Stewart: Even in an uncertain environment, we continue to improve on costs and collaboration across truck, our truckload segment and grow our volumes and network in our <unk> segment opening seven more locations during the quarter and building to 30% growth in daily shipments year over year in March.
Adam Miller: The LTL industry is not immune to the wait-and-see attitude dampening freight demand, but we are not expecting the same potential for volatility in LTL demand in the second quarter as we do for truckload. Also, our significant LTL network expansion over the past year positions us for differentiated growth. We are confident that our experienced team, leadership alignment across our businesses, strong balance sheet, and our unique skill, diversified offerings, and value proposition will serve us well as we navigate the unfolding land.
Mr. Stewart: The hotel industry is not immune to the wait and see attitude dampening freight demand, but we are not expecting the same potential for volatility in <unk> demand in the second quarter as we do for truckload.
Mr. Stewart: So our significant LCL network expansion over the past year positions us for differentiated growth.
Mr. Stewart: We are confident that our experienced team leadership alignment across our businesses strong balance sheet and our unique scale diversified offerings and value proposition will serve us well as we navigate the unfolding landscape.
Brad Stewart: With that, I will turn it over to Brad for our overview on slide The charts on slide three compare our consolidated first quarter revenue and earnings results on a year-over-year basis. Revenue excluding fuel surcharge increased by 1.2% and our adjusted operating income improved by 68.2% for $35.1 million year-over-year. Gap earnings per diluted share for the first quarter of 2025 were $0.19 and our adjusted EPS was $0.28. Our Consolidated Adjusted Operating Ratio was 94.7%, which was 210 basis points better prior to year. Slide four illustrates the revenue and adjusted operating income for each of our segments for the quarter.
And with that I will turn it over to Brad for our overview on slide three.
Mr. Stewart: Okay.
Mr. Stewart: The charts on slide three compare our consolidated first quarter revenue and earnings results on a year over year basis.
Mr. Stewart: Revenue, excluding fuel surcharge increased by one 2% and our adjusted operating income improved by 68, 2% or $35 $1 million year over year.
Mr. Stewart: GAAP earnings per diluted share for the first quarter of 2025 were 19 at.
Mr. Stewart: And our adjusted EPS was <unk> 28.
Mr. Stewart: Our consolidated adjusted operating ratio was 94, 7%, which was 210 basis points better prior year.
Mr. Stewart: Slide four illustrates the revenue and adjusted operating income for each of our segments for the quarter.
Brad Stewart: Overall, our truckload, logistics and intermodal segments all improved adjusted operating income and adjusted operating ratio year over year. While our ongoing growth in our LTL business is driving a growing portion of our consolidated revenue. reaching its highest share since our entry into this segment in 2021.
Mr. Stewart: Overall, our truckload logistics and intermodal segments, all improved adjusted operating income and adjusted operating ratio year over year.
Mr. Stewart: While our ongoing growth in our LTC business is driving a growing portion of our consolidated revenue mix.
Mr. Stewart: Using its highest share since our entry into this segment in 2021.
Mr. Stewart: The first quarter continued to show the benefits of our diversified business model as the seasonal pickup in our warehousing business helped to partially offset the early weather challenges and lack of seasonality late in the quarter and our truckload business.
Brad Stewart: The first quarter continued to show the benefits of our diversified business model as the seasonal pickup in our warehousing business helped to partially offset the early weather challenges and lack of seasonality late in the quarter in our truckload.
Brad Stewart: Now we will discuss our truckload segment on slide five. On a year-over-year basis, our truckload revenue excluding fuel surcharge for the first quarter decreased 4.2%, driven by a 5.4% decline in loaded miles, partially offset by a 1.5% increase in revenue per loaded mile excluding fuel surcharge. This was the first year-over-year increase in revenue per loaded mile in 10 quarters, which was achieved despite the spot market softening through the back half of the quarter. The improvement in realized rate, combined with a slight improvement in miles per tractor, drove a 1.9% year-over-year improvement in revenue excluding fuel surcharge per tractor.
Mr. Stewart: Now we will discuss our truckload segment on slide five.
Mr. Stewart: On a year over year basis, our truckload revenue excluding fuel surcharge for the first quarter decreased four 2% driven by a five 4% decline in loaded miles, partially offset by a one 5% increase in revenue per loaded mile excluding fuel surcharge.
Mr. Stewart: This was the first year over year increase in revenue per loaded mile in 10 quarters, which was achieved despite the spot market softening through the back half of the quarter.
The improvement in realized rate combined with a slight improvement in miles per tractor drove a one 9% year over year improvement in revenue excluding fuel surcharge protector.
Brad Stewart: The improvement in utilization marks seven consecutive quarters of year-over-year gains in this metric as we push to improve productivity and sell underutilized assets.
Mr. Stewart: The improvement in utilization March seven consecutive quarters of year over year gains in this metric as we've put improve productivity and sell underutilized assets.
Brad Stewart: As noted earlier. In March, we decided to tighten up our tractor fleet a little further, alongside ongoing trailer ratio reductions, in order to reduce operating costs over the next few quarters, but without going so far as to sacrifice our ability to respond to opportunities in the market. Our cost per mile for the first quarter improved year-over-year for the third quarter in a row, despite the decline in miles. Modest improvements in asset utilization, cost per mile, and revenue per mile led to a 170 basis point year-over-year improvement in adjusted operating ratio and a 59.7% increase in adjusted operating income, even while revenue decreased.
As noted earlier.
Mr. Stewart: March we decided to tighten up our tractor fleet a little further alongside ongoing trailer ratio reductions in order to reduce operating cost over the next few quarters, but without going so far at the sacrifice our ability to respond to opportunities in the marketplace.
Mr. Stewart: Our cost per mile for the first quarter improved year over year for the third quarter in a row. Despite the decline in miles.
Mr. Stewart: Modest improvements in asset utilization cost per mile and revenue per mile led to a 170 basis point year over year improvement in adjusted operating ratio and a 59, 7% increase in adjusted operating income even while revenue declined.
Mr. Stewart: We are pleased with the progress in the U S Express truckload business, which even in a difficult environment reached a quarterly operating profit for the first time since our July 2023 acquisition.
Brad Stewart: We are pleased with the progress in the U.S.
Brad Stewart: Express truckload business, which even in a difficult environment, reached a quarterly operating profit for the first time since our July 2023 acquisition.
Mr. Stewart: We are committed to disciplined pricing intense cost control and quality service as we position our business for the current volatility and for potential opportunities that may arise.
Brad Stewart: We are committed to disciplined pricing, intense cost control, and quality service as we position our business for the current volatility and for potential opportunities that may arise.
Andrew Hess: Now I'll turn it over to Andrew for a discussion of our LTL business on slide six. Thanks, Brad. Good afternoon, everyone. Our LTL business group revenue excluding fuel surcharge 26.7% year over year. Our shipments per day increased 24.2%. which includes our acquisition of DHS. Revenue per hundredweight excluding fuel surcharge increased 9.3% year-over-year, while weight per shipment declined 2.5%. The Adjusted Operating Ratio was 94.2%, and Adjusted Operating Income declined 26.8% year-over-year.
Now I'll turn it over to Andrew for a discussion of our <unk> business on slide six.
Andrew Hess: Thanks, Brad good afternoon, everyone.
Andrew Hess: Our <unk> business grew revenue, excluding fuel surcharge 26, 7% year over year as shipments per day increased 24, 2%.
Andrew Hess: Which includes our acquisition of <unk>.
Andrew Hess: Revenue per hundredweight, excluding fuel surcharge increased nine 3% year over year, while weight per shipment declined two 5% year over year.
Andrew Hess: The adjusted operating ratio was 94, 2% and adjusted operation.
Andrew Hess: Adjusted operating income declined 26, 8% year over year.
Andrew Hess: Due to weather challenges, which pressured volumes and costs early in the quarter, startup costs and early-stage operations at our recently opened facilities, as well as cost headwinds from inefficiencies in the DHE region, given our strategic commitment to maintaining service, while rapidly growing shipment following a recent system integration. Operating margins and year-over-year volume growth improved each month of the quarter, reaching 30% growth in daily average shipments and an adjusted operating ratio of 90.6%. Growth in shipment count was higher than our projections, which, coupled with our recent system integration, was a headwind to operational efficiency and costs as we leaned into outside maintenance, purchased transportation, and temporary labor to augment our own resources.
Andrew Hess: Due to weather challenges, which pressured volumes and costs early in the quarter startup costs and early stage operations at our recently opened facilities as well as cost headwinds from inefficiencies in the region, given our strategic commitment to maintaining service.
Definitely growing shipment accounts following assist recent system integration.
Andrew Hess: Operating margins and year over year volume growth improved each month of the quarter.
Andrew Hess: <unk>, 30% growth in daily average shipments and an adjusted operating ratio of 96% in March.
Andrew Hess: Growth in shipment count was higher than our projections, which coupled with our recent system integration was a headwind to operational efficiency and costs as we leaned into outside maintenance purchase transportation and temporary labor to augment our own resources in the short term until we <unk> services.
Andrew Hess: in the short term until we end source. The rampant volume through the quarter and progress in bid awards are encouraging signs as we move forward. and work to maintain high levels of service while optimizing operations. We are still experiencing steady rate increases. And as our expanded network allows us to offer services on more lanes to an existing customer.
Andrew Hess: The ramp in volumes through the quarter and progress and bid awards are encouraging signs as we move forward.
Andrew Hess: And work to maintain high levels of service, while optimizing operational efficiency, we are still experiencing steady rate increases in our business and as our expanded network allows us to offer services on more lanes to and existing customers.
Andrew Hess: We opened 70 facilities and acquired or assumed leases on four more for our pipeline during Our pace of facility additions in 2025 should slow compared to 2024, but we will continue to look for both organic and inorganic opportunities to expand our footprint within the LTL market. We are focused on growing revenue and margins in 2025, and we're excited about the runway.
Andrew Hess: We opened seven new facilities in acquirers or assumed the leases on four more for our pipeline during the quarter.
Andrew Hess: Our pace of facility additions in 2025 should slow compared to 24, but we will continue to look for both organic and inorganic opportunities to expand our footprint within the LTE market.
Andrew Hess: We are focused on growing revenue and margins in 2025, and we're excited about the runway ahead of us.
Andrew Hess: Slide seven covers our logistics segments logistics revenue increased 11, 8% year over year as revenue per load increased 11, 7% with load count flat.
Andrew Hess: Slide 7 covers our logistics segment. Logistics revenue increased 11.8% year-over-year as revenue per load increased 11.7% with load count flat. Congested operating ratio of 95.5% improved 160 basis points year-over-year.
Andrew Hess: Adjusted operating ratio of 95, 5% improved 160 basis points year over year.
Andrew Hess: Our investments in a common platform across our logistics brands allowed us to be more efficient and procuring capacity and winning freight opportunities direct from our customers. Our power only offering continues to build momentum and differentiate us from non asset brokerages and we remain focused on being nimble in order to remain.
Andrew Hess: Our investments in a common platform across our logistics brands have allowed us to be more efficient. Carrying Capacity, and Winnie Freight Opportunities, direct from our customers. Our power only offering continues to build momentum and differentiate us from non-asset brokerages and we remain focused on being nimble in order to remain profitable regardless of market conditions. complementing our Trucklo brands and bringing value to our customers as an asset-based logistics provider.
Andrew Hess: Profitable regardless of market conditions.
Andrew Hess: <unk>.
Andrew Hess: Complementing, our truckload brands and bringing value to our customers as an asset based logistics provider.
Andrew Hess: Now onto slide eight.
Andrew Hess: Now on to slide 8. Our intermodal business posted a year-over-year increase in revenue for the third quarter in a row. Revenue increased 3.5%. driven by a 4.6% increase in load count, partially offset by a 1.1% decrease in revenue per load per year. Improvement in volume and progress in operating costs and network balance overcame the decrease in revenue per load to improve the operating ratio by 360 basis points year-over-year.
Andrew Hess: Our intermodal business posted a year over year increase in revenue for the third quarter in a row.
Andrew Hess: Revenue increased three 5%.
Andrew Hess: Driven by a four 6% increase in load count, partially offset by a one 1% decrease in revenue per load every year.
Andrew Hess: Improvement in volume and progress in operating costs and network balance overcame the decrease in revenue per load to improve the operating ratio by 360 basis points year over year.
Andrew Hess: As tariff discussions began during the quarter, we saw the intermodal market begin. which has led to a more competitive bid. We remain disciplined on pricing and focused on improving our network efficiency, reducing empty moves, enforcing a greater percentage of our trade moves, and investing in private chassis.
Andrew Hess: As tariff discussions began during the quarter, we saw the intermodal market began to soften which has led to a more competitive bid season.
Andrew Hess: We remain disciplined on pricing and focus on improving our network efficiency, reducing empty moves.
And sourcing at a greater percentage of our tray moves and investing in private chassis and certain markets in order to position this business profitability.
Unknown Executive: certain markets in order to position its business.
Andrew Hess: On slide 10, we have outlined our.
Unknown Executive: On slide 10, we have outlined our On slide nine illustrates all other segments. This category includes support services, provided to our customers, independent contractors, and third-party carriers, such as equipment sales and rentals, equipment leasing, warehousing activities, insurance. For the quarter, revenue declined 15.9% year-over-year, largely as a result of winding down our third-party insurance business from the first quarter of last year.
Andrew Hess: On slide nine illustrates our all other segment. This category includes support services provide.
Andrew Hess: Provided to our customers independent contractors and third party carriers, such as equipment sales and rentals equipment leasing.
Housing activities insurance and maintenance.
Andrew Hess: For the quarter revenue declined 15, 9% year over year over year, largely as a result of winding down our third party insurance business in the first quarter of last year.
Andrew Hess: The $6 million of operating income within our other all other segments is primarily driven by our warehousing and trailer leasing businesses, which saw some incremental activity beyond typical seasonality.
Unknown Executive: The $6 million operating income within all other segments is primarily driven by our warehousing and trailer leasing businesses, which saw some incremental activity beyond typical season-out. Operating income was also improved year-over-year because the prior year period included a $19.5 million operating loss for the third-party insurance business.
Andrew Hess: Operating income was also improved every year because the prior year period included a $19 $5 million operating loss for the third party insurance business now.
Unknown Executive: Now on slide 10, we've outlined our guidance and the key assumptions which are also stated in the earnings Actual results may differ from our expectations.
Andrew Hess: Now on to slide 10, we have outlined our guidance and the key assumptions, which are also stated in the earnings release.
Andrew Hess: Actual results may differ from our expectations.
Andrew Hess: As Adam noted earlier, because of the significant uncertainty created by the current fluid trade policy situation and its implications for inflation, consumer demand and demand from our We are only updating our guidance for the second quarter, and we will not introduce guidance for the third quarter at this time. We plan to provide guidance for the third quarter when we report results for the second quarter, and we'll evaluate at that time whether enough clarity has developed to allow us to return to providing two forward quarters of earnings guidance.
Andrew Hess: <unk> noted earlier because of the significant uncertainty created by the current fluid trade policy situation and its implications for inflation consumer demand and demand from our customers. We are only updating our guidance for the second quarter and we will now introduce guidance for the third quarter at this time.
Andrew Hess: We plan to provide guidance for the third quarter. When we report results for the second quarter and we'll evaluate at that time, whether enough clarity has developed to allow us to return to providing two forward quarters of earnings guidance.
Andrew Hess: Based on our assumptions.
Andrew Hess: Based on our assumptions, we project our adjusted DPS for the second quarter of 2025 will be in the range of 30 to 38%. which is an update from our original range of 46. The key assumptions underpinning this guidance are listed on this slide, though I won't cover them in detail. In general, though, the guidance for the second quarter reflects the following outlook. At the top of the range, we assume volumes remain fairly steady and we experience limited seasonality. The bottom of the range assumes a reduction in imports occurs in May and June and causes some deterioration in demand and an absence of seasonality.
Project, our adjusted EPS for the second quarter of 2025 will be in the range of 30 to 38.
Andrew Hess: Which is an update from our original range of <unk> 46 to 50.
Andrew Hess: The key assumptions underpinning our guidance are listed on this slide so I won't cover them in detail in general, though the guidance for the second quarter reflects the following outlook at the top of the range.
Andrew Hess: We assume volumes remained fairly steady and we experienced limited.
Andrew Hess: Seasonality the bottom of the range assumes a reduction in imports occurs in May and June it causes some deterioration in demand and an absence of seasonality.
Andrew Hess: Stated assumptions generally reflect the middle of the range and are only applicable to the We project truckload operating income to improve sequentially, largely driven by modest improvement in revenue with a comparable margin profile to the first. This assumes modest improvement in miles and utilization while ongoing spot market serves to offset contractual rate progress made through bid activity. For LTL, we project seasonal improvement in volumes and ongoing progress growing our customer base. and Marketshare will support sequential improvement in revenue and operating margins. We also project relatively comparable contributions from our logistics and intermodal segments with their respective first quarter levels.
Andrew Hess: The stated assumptions general generally reflect the middle of the range and are only applicable to the second quarter.
Andrew Hess: We project truckload operating income to improve sequentially, largely driven by modest improvement in revenue with a comparable margin profile to the first quarter.
Andrew Hess: This assumes modest improvement in miles and utilization, while ongoing spot market softness serves to offset contractual rate progress made through bid activity.
Andrew Hess: For LCL, we project seasonal improvement in volumes and ongoing progress growing our customer base.
Andrew Hess: And market share will support sequential improvement in revenue and operating margins.
Andrew Hess: We also project relatively comparable contributions from our logistics and intermodal segments with their respective first quarter levels on a sequential.
Andrew Hess: This concludes our prepared remarks, and before I turn it over for questions I want to remind everyone to keep it to one question.
Unknown Executive: This concludes our prepared remarks. And before I turn it over for questions, I will I want to remind everyone to keep it to one question.
Andrew Hess: For participants.
Unknown Executive: Thank you, Aaron.
Speaker Change: Thank you Erin we will now open the line for questions.
Unknown Executive: We will now open the line for questions. Thank you.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Jonathan Shop Chapelle.
Jonathan Chappell: Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Jonathan Chappell. Evercore ISI. Go ahead, please. And Adam, thanks for laying out the different scenarios that could transpire from here. If we add the gains of $15.5 million from 1Q and looks like call 20 for 2Q for the second quarter of equipment sales, is that a point where you think that you've right-sized the fleet for the kind of downside scenario?
Speaker Change: Evercore ISI.
Speaker Change: Go ahead please.
Speaker Change: And.
Speaker Change: Adam Thanks for laying out the different scenarios that could transpire from here.
Speaker Change: If we had the gains of $15 5 million from <unk> and it looks like call it $20 for <unk>.
Speaker Change: <unk>.
Speaker Change: For the second quarter of equipment sales.
Speaker Change: Is that a point, where do you think that you have right size the fleet for the kind of.
Speaker Change: Downside scenario.
Adam Miller: I guess what I'm getting at here is, I know Brad said you're being very cognizant of not selling maybe to the bone, my terms, but how are you managing the kind of the very different paths and then the different cost levers that you can pull as you think about moving forward the next three months? I think when we look at our cost structure, I mean, we're going to we're going to look at every opportunity to be as tight as possible. And when you look at your your tractors and trailers, we have maybe a targeted trailer to tractor ratio that we would have unique to each business.
Speaker Change: I guess, what I'm getting at here is I know, Brad said youre being very cognizant of not selling maybe to the bone My my terms, but.
Speaker Change: But how are you managing the kind of the very different paths and then the different cost levers that you can pull.
Speaker Change: As you think about moving forward the next three months.
Speaker Change: Yes, I think when we look at our cost structure I think we're going to we're going to look at every opportunity to be as tight as possible and when you look at your your tractors and trailers.
Speaker Change: Maybe a targeted trailer to tractor ratio that we would have unique to each business and I think today. It would tell us that we still have opportunity to pull out trailers to kind of match up to the number of seated trucks we have.
Adam Miller: And I think today it would tell us that we still have opportunity to pull out trailers to kind of match up to the number of seated trucks we have versus the number of trailers we're operating. And then when we look at our tractor count, there's always some degree of tractors that you just have unseated where you don't have drivers operating the tractors. And that's that's been a number that's been a bit elevated from our target. And so we've taken we've made the choice to tighten that up and pull a few hundred tractors out of the network to just clean up any excess capital that we have that we're not utilizing today.
Speaker Change: Versus the number of trailers, we're operating and then when we look at our tractor count. There's always some degree of tractors that you just have unseeded, where you don't have drivers operating the tractors and that's been a number that's been a bit elevated from our target.
Speaker Change: And so we've taken we've made the choice to tighten that up and pull a few hundred tractors out of the network to just clean up any excess capital that we have that we're not utilizing today and that should drive better productivity. When you look at miles per tractor in the total.
Adam Miller: And and that should drive better productivity when you look at miles per tractor in the total. It doesn't change our ability to respond to opportunities, to be flexible, to have capacity available. We if we if we see a surge in drivers in a market that returns, we have flexibility to slow down what we pull out as we have new tractors that come in or could order more tractors if we really needed to. I mean, we have flexibility with that, you know, with with with the tractor count. And so in the meantime, with all the uncertainty, we felt like let's just be a little bit tighter here.
Speaker Change: It doesn't change our ability to respond to opportunities to be flexible to have capacity available.
Speaker Change: If we if we see a surge in drivers in a market that returns we have flexibility.
Speaker Change: Slow down what we pull out as we have new tractors that come in or can order more tractors. If we really needed to I think we have flexibility with that.
Speaker Change: With the tractor count and so in the meantime, with all the uncertainty we felt like let's just be a little bit tighter here. It still gets you a reasonable percentage, where we're not limiting ourselves.
Adam Miller: Let's still get to a reasonable percentage where we're not limiting ourselves, a reasonable percentage of unseated trucks where we're not living ourselves to be able to hire drivers and market markets where it makes sense. But let's not carry any excess costs in the meantime.
Speaker Change: Percentage of unseated trucks, where we're not limiting ourselves to be able to hire drivers and market markets, where it makes sense, but let's not carry any excess costs and in the meantime.
Speaker Change: Got it thanks Adam.
Jonathan Chappell: Jonathan. Thanks, Adam.
Speaker Change: Yes.
Speaker Change: The next question comes from the line of Brian Allison back JP Morgan Chase.
Brian Ossenbeck: The next question comes from the line of Brian Ossenbeck, JPMorgan Chase. You may now ask your... Alright, thanks very much. I have a question on LTO and filling in the density, you know, when do you think you'll get? Visibility to filling in some of those areas that you were trying to fill and maybe get rid of some of those additional costs that you're carrying right now to meet the service where you're not quite able to do so right now.
Speaker Change: You may now.
Speaker Change: Ask your question.
Speaker Change: Alright, thanks very much.
Speaker Change: Maybe a question on <unk> and filling in the <unk>.
Speaker Change: Density when do you think youll get a little bit more visibility.
Speaker Change: Visibility to filling in some of those areas that you are trying to fill in maybe get rid of some of those additional costs that you're carrying right now to meet the service where youre not.
Speaker Change: Able to do so right.
Andrew Hess: And then you can add a few thoughts. M&A, and if there's anything that kind of fits the bill. Right now we're I expect this to be a little bit more gradual of a process to fill in the rest of the coverage. Yeah, thanks for the question, Brian. You know, the volume has been building nicely, and it's been relatively consistent. You know, like we've said before, as we've opened up these territories, we've been aggressive in doing so, because it gives us the ability to participate in the bids that are now ongoing in the LTL industry. And so we're seeing the volumes build really on a weekly basis now that we've got out of some of the disruption from weather, and we feel very encouraged about building that density and helping us with the cost absorption, and really kind of taking advantage of the operating leverage that we really have in this business.
Speaker Change: Right now and then you can add a few thoughts on M&A and if there's anything that kind of fits the bill right now or if we just should expect us to be a little bit more gradual of a process to fill in the rest of the coverage gap.
Speaker Change: Thank you.
Speaker Change: Yeah no. Thanks for the question Brian.
Speaker Change: The volume is has been building nicely and it's been relatively consistent.
Speaker Change: We've said before as we've opened up these territories, we've been aggressive in doing so because it gives us the ability to participate in the bids that are now ongoing in the <unk>.
Speaker Change: Industry and so we're seeing the volumes build really on on a weekly basis now that we've got out of some of the disruption from weather and we feel very encouraged about building add density and helping us with the cost absorption and really.
Speaker Change: Kind of taking advantage of the operating leverage that we really have in this business and so we're able to take market share with with maintaining price discipline. We are still seeing contractual renewals in the mid single digit range and we're seeing volume growth at the at the same time.
Andrew Hess: And so we're able to take market share with maintaining price discipline. We're still seeing contractual renewals in the mid-single-digit range, and we're seeing volume growth at the same time. And so it'll just take time to do that in each market, and there's still a few locations to add this year. We added seven, you know, in the first quarter. We probably have maybe nine or ten net ads. I think it's closer to nine in the back half of the year already planned, and hey, we could have, you know, more if there's some opportunities that come our way, and we feel good about the volumes building.
Speaker Change: And so it'll just take time to do that in each market and there's still a few locations to add this year. We added seven eight <unk> in the first quarter, we probably have maybe nine or 10 net adds I think its close to nine in the back half of the year already planned and hey, we could have.
Speaker Change: More if there is some opportunities that come our way and we feel good about the volumes building.
Andrew Hess: And so, you know, I think first quarter just got off to a slower start than we had hoped, and you had some cost headwinds that we've been dealing with, but feel much better about where we ended in March, and felt that trend continue into April. And so we're feeling really good about LTL and and they're looking to see that volume continue to build. And to be able to do that, you have to give great service. And so we've done that at maybe the expense of marching in the near term because we believe that gives us an opportunity to build volume.
Speaker Change: And so I think first quarter, just got off to a slower start than we had hoped and you had some cost headwinds that we've been dealing with but.
Speaker Change: Feel much better about where we ended in March and felt that trend continue into April and so we're feeling really good about <unk>.
Speaker Change: And Theyre looking to see that volume continued to build and to be able to do that you have to give great service and so we've done that at the at the Navy. The extensive margin in the near term because we believe that gives us an opportunity to build volume and the reaction from our customers has been very positive they like having another option in some.
Andrew Hess: And the reaction from our customers has been very positive. They like having another option in some of the markets that we now serve. And we feel good about building that out.
Speaker Change: The markets that we now serve.
Speaker Change: And we feel good about building that out.
Andrew Hess: You asked about M&A. I think I've said on previous calls, we're always open to organic and inorganic opportunities to grow the business. I think it's more likely if M&A were to play a role in building out, particularly in the Northeast, that's probably a 2026 event, if anything.
Speaker Change: You asked about M&A I think I've said on previous calls.
Speaker Change: We're always open to organic and inorganic opportunities to grow the business I think it's more likely if M&A were to play a role in building out, particularly in the northeast that's probably.
Speaker Change: By 2026 event, if anything I don't expect that to happen in 2025. This is the year, where we kind of grow into this 37 locations that we grew organically last year.
Andrew Hess: I don't expect that to happen in 2025. This is a year where we kind of grow into the 37 locations that we grew organically last year. We continue to integrate the DHE business that we acquired last year. So this is a year of growing into what we have, improving our top line, as well as improving our margin profile in the business. We remain committed to being a national carrier in this space. But we're going to do that very deliberately with some discipline. And we think we have a lot of runway to grow top line and bottom line in 2025 without an acquisition.
Speaker Change: <unk> to integrate the <unk> business.
Speaker Change: Business that we acquired last year. So this is a year of a growing into what we have improving our topline as well as improving our margin profile in the business, we remain committed to get into a to a national.
Speaker Change: A national carrier here in this space.
Speaker Change: But we're going to do that very deliberately with some discipline and we think we have a lot of runway to grow topline and bottom line in 2025 without an acquisition.
Speaker Change: Brian I'll, just maybe add a little more color to what I've said is we can square for continuing to be in a phase of investment I think we're mostly a lot of that has now absorbed into Q1. So if you look at the cost that we brought into the business in Q1 compared to Q4.
Brad Stewart: Brian, I'll just maybe add a little more color to what Adam said is, you know, we can work, we're continuing to be in a phase of investment, I think we're mostly a lot of that's now absorbed into Q1. So if you look at the cost that we brought into the business, In Q1 compared to, you know, Q4, we brought a lot of fixed costs still into the business as we stood up those facilities. So costs on equipment, appreciation, rent, Those are now largely. In our baseline now, and we'll see some of that continuing, but we mentioned we participated in some additional leases that we've assumed from the yellow bid in Q1.
Speaker Change: We brought a lot of fixed costs still out of the business as we stood up those facilities so cost on equipment depreciation rents.
Speaker Change: Those are now largely.
Speaker Change: In our baseline now and we will see some of that continuing but we mentioned we've participated in some additional leases that we've assumed from the yellow bid in Q1 those costs are incurred.
Brad Stewart: Those costs are Included in our financials, but those are locations that are open yet, so there's still a lot of opportunity.
Speaker Change: Included in our financials, but those are locations that are opened yet so were theres still a lot of opportunity I guess, what's encouraging is.
Brad Stewart: I guess what's encouraging is... Our volume, both revenue and shipment count, is absorbing that cost. And helping us drive productivity, leveraging that business. And as we practice, the things we're focused on are, first of all, driving improvement in our variable wage efficiency. And we're seeing that as we look at where we were at in Q4 versus Q1, we're seeing that in our line haul, in our P&D, in our dock efficiency. And certainly, as we've moved our DHE business onto the same system as the rest of our business last quarter, there's been some time for them to develop that efficiency.
Speaker Change: Our volume both revenue and shipment count is absorbing that cost and helping us drive.
Speaker Change: Productivity leveraging that business and as we practice.
Speaker Change: Things we're focused on are first of all driving improvement in our variable wage efficiency and we're seeing that as we look at where we were at in Q4 versus Q1, we're seeing that in our line haul or <unk> in our dock efficiency and.
Speaker Change: Certainly.
Speaker Change: We've moved our DHA business onto the onto the same system as the rest of our business last quarter. There has been some time for them to develop that efficiency, referring for starting to start to see those results second we are managing our maintenance as we move into new locations, we have to use a lot of <unk>.
Brad Stewart: We feel like we're starting to start to see those results. Second, we're managing our maintenance. So we move into new locations. We have to use a lot of outside maintenance. And so that will get better as we build density and can insource a lot of that maintenance. And the third is managing these fixed costs that the leverage of the business will provide. So I think those are kind of some of the dynamics that you're seeing in the financials here.
Speaker Change: Outsize outside maintenance and so that will get better as we build density and can in source a lot of that maintenance in the third it's managing fixed costs that are the leverages of business will will provide so.
Speaker Change: So I think those are kind of some of the dynamics that youre seeing in the financials here and as we look at Q2, you can see we're guiding to a low <unk> I think it's our progress in each of these areas that are going to help get us there as long as well as the density that that looks good as even here in April we feel good about the track.
Brad Stewart: And as we look at Q2, you can see we're guiding to a low 90s OR. I think it's our progress in each of these areas that are going to help get us there as long as well as the density that looks good. As even here in April, we feel good about the track we're on. They gave us confidence to increase the revenue guidance here in the second quarter from what we provided previously based on the encouraging signs we're seeing in the market.
Speaker Change: We are on that.
Speaker Change: That gave us confidence to increase.
Speaker Change: The revenue guidance here in the second quarter from what we provided previously.
Speaker Change: Based on encouraging signs, we're seeing in the market.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, very much very helpful.
Unknown Executive: Okay, thanks very much for your help.
Speaker Change: Thanks, Brian.
Unknown Executive: Thanks, Brian.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: The next question comes from the line of Kenn Hoekstra Bank of America.
Ken Hoexter: The next question comes from the line of Ken Hoexter, Bank of America. You may now ask your question. Hey, great, good afternoon. If I can just jump back to the truckload sector, I guess, you know, you mentioned UX Express kind of getting to profitability, maybe talk about some of the things you've done on the cost side. And I guess, Adam, if we look at utilization, I think you were kind of addressing this before, but, you know, it used to be what, about 22,000-24,000 miles per tractor. Is that part of what you were talking about before, getting rid of more assets to increase that utilization?
Speaker Change: You May now ask your question.
Kenn Hoekstra: Hey, great. Good afternoon, if I could just jump back to the truckload sector I guess.
Kenn Hoekstra: You mentioned U S express kind of getting to profitability, maybe talk about some of the things you've done on the cost side and I guess.
Kenn Hoekstra: If we look at utilization I think you were kind of addressing this before but it used to be what about 20 to 24000 miles per tractor.
Kenn Hoekstra: Is that part of what you were talking about before getting rid of more assets to increase that utilization or are there things you can still do.
Adam Miller: Or are there things you can still do in this uncertain market to increase asset utilization? Is it getting rid of assets faster? What do you think has to be done to improve that profitability?
Kenn Hoekstra: In this uncertain market to increase asset utilization.
Kenn Hoekstra: Is it getting rid of assets faster what would what do you think has to be done to improve that profitability.
Speaker Change: Yes, I think when you look at I'll, just touch on the productivity side, and maybe I'll turn it over to Andrew He can talk about some of the things on the cost side with Usx.
Adam Miller: Yeah, I think when you look at, I'll just touch on the the productivity side, and maybe I'll turn over to Andrew, he could talk about some of the things on the cost side with with USX. Yeah, I think, you know, part of the the dynamic is just not carrying tractors that that aren't producing revenue and aren't producing miles, right, because we didn't have the drivers that are seated in there. And, and so we might as well not carry that cost, we can now turn that to capital and sell it in what's been a relatively good used equipment market for tractors, at least, maybe not trailers.
Kenn Hoekstra: Yes, I think part of.
Speaker Change: The dynamic is just not carrying tractors that arent producing revenue in our producing miles right. Because we didn't have the drivers that are seeded in there and and so we might as well not carry that cost. We can now turn that into capital and sell it in what's been a relatively good used equipment market.
Speaker Change: For tractors at least maybe not trailers and I think thats driven more from just scarcity of trucks in the market because of how many.
Adam Miller: And I think that's driven more from just scarcity of trucks in the market, because of how many weren't built four or five years ago, because of the supply chain challenges. And so we wanted to take advantage of that, and just tighten up our our depreciation costs. And that'll lead to, you know, now having similar number of miles over a reduced tractor count, which will drive obviously, your miles per tractor up. So I think that's, that's one of the things that's just one of the levers can that that we think we can pull, that doesn't impact top line, it doesn't impact, you know, the ability to respond to customer needs.
Speaker Change: <unk> built four or five years ago, because of the supply chain challenges and so we wanted to take advantage of that and just tighten up our our depreciation costs and that will lead to now having similar number of miles over a reduced tractor count which will drive obviously your miles per tractor up. So I think that's that's one of the thing.
Speaker Change: Things such as one of the levers Ken that was that that we think we can pool that doesn't impact top line it doesn't impact.
Speaker Change: The ability to respond to customer needs and again, if we see the market turnaround quickly and there are greater needs and we can hire the drivers then we can slow down on what we pull out and we can order more trucks, if we need to we can be pretty nimble and we can get new trucks pretty quickly or we can hold onto some of our trucks without trading them. When we have replacement trucks coming in.
Adam Miller: And again, if we see the market turn around quickly, and there are greater needs, and we can hire the drivers, then we can slow down on what we pull out, and we can order more trucks if we need to, we can be pretty nimble. And we can get new trucks pretty quickly, or we can hold on to some of our trucks without trading them when we have replacement trucks coming in if we need to be. So we felt like that was a lever that we can pull that doesn't necessarily impact our business in a negative way.
Speaker Change: We need to be so we felt like that was a lever that we can pull that doesn't.
Speaker Change: Impact our business in a negative way it just gives us the ability to be more efficient with existing.
Ken Hoexter: It just gives us the ability to be more efficient with existing, you know, tractors. That make sense? It does, it does.
Speaker Change: Factors that makes sense.
Speaker Change: It does it does.
Ken Hoexter: I guess I was trying to lead into the asset utilization. Sorry, I stopped midway through my question. But asset utilization into bid season, right? What does that?
Speaker Change: I guess I was trying to lead into the the asset utilization side I stop midway through my question, but asset utilization into bid season, right what does that.
Ken Hoexter: I guess I don't want to ask two questions. But I don't know if you could just throw one quick thought on to how bid season is progressing, just given what where spot rates are. All right, we'll let you slide that one in, Ken.
Speaker Change: I don't want to ask two questions, but I don't know if you could just throw in one quick thought onto onto outbid season is progressing just given what where spot rates are.
Speaker Change: Alright, well, let you say that one again.
Speaker Change: So I think I mentioned this on our prepared.
Adam Miller: Yeah, so I think I mentioned this on our prepared remarks. You know, the bid season started off, I think, just like we had thought. And I think many customers kind of understood that, you know, contract rates were just not, didn't have any room to go down and that you're just trying to manage what that increase is going to look like. We thought it would start low to mid single digits and build some momentum as it progressed. And it started off that way. But I think as we got into March, when we were in kind of in the heart of the bid season, the slowdown because of just the uncertainty around tariffs, maybe took away some of the momentum there for that to really build.
Speaker Change: Our prepared remarks.
Speaker Change: The bid season started off I think just like we had thought and I think many customers.
Speaker Change: Understood that contract rates, we're just not didn't have any room to go down and that you are just trying to manage what that increase is going to look like we thought it would start low to mid single digits and build some momentum as it progressed and it started out that way, but I think as we got into March when we're in kind of in the heart of the bid season.
Speaker Change: Slowdown because of just the uncertainty around tariffs.
Speaker Change: Maybe took away some of the momentum there for that to really build and so.
Adam Miller: And so, you know, the renewals that we have are still, you know, increases and they range in that low to mid single digit range, depending on the customer and the lane. There are some puts and takes. We've seen growth with who've seen the value that we bring. We have other customers who maybe are focused more on getting the lowest cost possible for the time being. And we've seen some volume that we've lost. But I think overall, we're faring pretty well. And I think it's going to put us into position where we can improve productivity on our seated trucks and see our contract rates, you know, take a step in the right direction.
Speaker Change: The renewals that we have are still increases and they range in that low to mid single digit range, depending on the customer and the lane.
Speaker Change: There are some puts and takes there as we've seen growth with customers who have seen the value that we bring we have.
Speaker Change: Are there customers who.
Speaker Change: Maybe our focus more on getting the lowest cost possible for the time being and we've seen some some volume that we've lost but I think overall were.
Speaker Change: We're faring pretty well.
Speaker Change: And I think it's going to put us in a position, where we can improve productivity on our seated trucks and see our contract rates.
Speaker Change: Take a step in the right direction now like I mentioned, having a.
Adam Miller: Now, like I mentioned, having a weaker spot market potentially here in the second quarter could weigh on our overall rate. But I believe that's temporary. And I think when we if we see the market come back, whether that be because of just, you know, continued consumer demand, or we finally get to figure out our tariff policy, and we have our customers with more conviction to move forward with their plans, you know, we could see the spot market then improve and we'll be in a good position to be able to react to that and bring bring value to our customers.
Speaker Change: While weaker spot market potentially here in the second quarter could weigh on our overall rate, but I believe that's temporary and I think when we if we see the market come back whether that be because it just <unk>.
Speaker Change: Continued consumer demand or are we finally get it you figure out our tariff policy and we have our customers have more conviction to move forward with their plans, we could see the spot market then improve and we'll be in a good position to to be able to react to that and bring value to our customers. So.
Adam Miller: So it's, you know, there's there's a lot of moving pieces to it now. But I think ultimately, can we do fill the business in playing out to where it's going to help improve productivity at rates that are higher on a year over year basis.
Speaker Change: It's there's a lot of moving pieces to it now, but I think ultimately can we do feel the bid season, playing out to where it's going to help improve productivity at rates that are higher on a year over year basis.
And maybe I'll, let Andrew hit the U S Express question here, Yes, yes, and a little bit about what cost levers, we have and here's what I would say.
Andrew Hess: Maybe I'll let Andrew hit the U.S.
Andrew Hess: Express question here. Yeah, yes. And a little bit about what what cost levers we have.
Andrew Hess: Here's what I would say. When we establish our path to parity of U.S. Express to our truckload business, We thought about it in these three buckets, and we still have the same conviction we always did on these points. So first of all, we knew there was a lot of initial costs that we would take out of the business. We've communicated that on that point, we've taken out more than $180 million in costs on annualized... We continue, we're going to continue to find opportunities there, but those, those are costs around procurement and other areas where there is sufficiency to be So we've kind of done those in this difficult market.
Speaker Change: When we establish our our path to parity.
Speaker Change: Ws express to our truckload businesses.
Speaker Change: We thought about it in these three buckets and we still have the same conviction. We always did on these points. So first of all we knew there was a lot of the initial cost of the Canada business. We've communicated that on that on that point, we've taken out more than a $180 million of cost on an annualized basis. We continue we're going to continue to find out.
Speaker Change: <unk>, Sir but those those are costs around procurement and other areas, where there is a sufficiency to be gained so we've kind of done those.
Speaker Change: <unk> market. The second thing we're focusing on is.
Andrew Hess: The second thing we're focusing on is operational cost efficiency. So think of hiring costs, safety costs, fuel. We're well into that. We had to. establish the decentralized network of terminals that enables that model we know works at Knight-Swift into the U.S. Express business. We are starting to see that. So just as an example, safety takes a while to really build the safety culture that you need. And we're starting to see that. So just as an example, our CSA crash rating is 20% better for that business than it was when we acquired them. And we feel like there's a lot more to go.
Speaker Change: Operational cost efficiencies, so think of hiring costs safety cost fuel.
Speaker Change: Well into that we had to establish the decentralized network of terminals that enables that model. We know works at night and Swift into the U S Express business, we are starting to see that so just as an example safety.
It takes a while to really.
Speaker Change: Build the safety culture that you need we're starting to see that so just as an example, our CSA crash railing is 20% better for that business than it was when we acquired them and we feel like there is a lot more to go we're nowhere near kind of the potential of that business, but that starts to to triumph.
Andrew Hess: We're nowhere near kind of the potential of that business, but that starts to drive cost efficiency to the business.
Speaker Change: Cost efficiencies into the business and then the third area, Adam focused on which is which.
Andrew Hess: And then the third area Adam focused on, which is which is on the market side. And we are we are seeing so far in bids like he talked about, you know, wins, well, you know, rates that would exceed what we're seeing in the truckload business because of how much more opportunity they are to have there. So we have the same conviction. We're something like five points apart now on OR between our legacy businesses and U.S. Express. We expect both of them to continue to progress from this point forward, but we're encouraged because we're seeing the kind of systemic operational efficiencies that we knew that business could generate come to Thank you so much.
Which is on the market side. We are we are seeing so far in bids like you talked about.
Speaker Change: <unk> well.
Speaker Change: Rates that would exceed what we're seeing in the truckload business because of how much more opportunity there too.
Speaker Change: To have there. So we have the same conviction, we're something like five points apart now on or between our legacy businesses and use express we expect both of them to continue to progress from this point forward, but we're encouraged because we're seeing the kind of systemic operational efficiencies that we knew that business could generate.
Speaker Change: Come to fruition.
Speaker Change: Thank you so much appreciate the time.
Unknown Executive: Appreciate the time.
Speaker Change: The next question comes from the line of Tom Waterworks.
Tom Wadewitz: The next question comes from the line of Tom Wadewitz. from UBS. You may now ask... Yeah, great. Good afternoon. Adam, I think, you know, makes a lot of sense the way you laid out the guidance. Appreciate the perspective on it.
Speaker Change: From UBS.
Speaker Change: You May now ask your question.
Speaker Change: Yes, great good afternoon.
Adam Miller: Adam I think.
Speaker Change: Makes a lot of sense of where you laid out the guidance appreciate the.
Speaker Change: As a perspective on it I wanted to see if you could maybe comment a little bit further on how you think.
Adam Miller: I wanted to see if you could maybe comment a little bit further on how you think a step down in container imports into the West Coast in particular would potentially flow into your business. I mean, I think the numbers that seem to be out there, you could see, you know, at the low end of your range and kind of how it affects June, is that what you're assuming? And I guess, you know, it's tough to have intuition. with how that affects the truckload market, right? Because you've already seen weakness in truckload without a decline in imports in March.
Speaker Change: Step down in container imports into the west coast in particular.
Speaker Change: Potentially flow into your into your business.
Speaker Change: I mean, I think the number.
Speaker Change: <unk> did seem to be out there you could see 25%, 30% decline in west coast container import so at the low end of your range and kind of how it effect June is that what youre, assuming and how I guess, it's tough to have intuition.
Speaker Change: With how that affects the truckload market right because you've already seen weakness in truckload without a decline in imports in March. So I guess, if you saw that then I don't know how do we think about what that does to truckload. Thank.
Adam Miller: So I guess if you saw that, then I don't know, how do we think about what that does to truckload? Thank you. Yeah, appreciate that, Tom. And yeah, I think there's still some uncertainty about how that's going to impact the truckload industry. You know, I think what we're looking at is we're already assuming that May is going to be weaker as a result of the West Coast imports dropping off like everyone's expecting to. You know, we're pretty, we have a lot of diversity when you look at our different brands. You know, you look at, you know, U.S.
Speaker Change: Thank you.
Speaker Change: Yes, I appreciate that.
Speaker Change: And yes, I think theres still some uncertainty about how that's going to impact the truckload industry.
Speaker Change: I think what we're looking at is we're already assuming that may is going to be weaker as a result of the west coast imports dropping off like like everyone's expecting too.
Speaker Change: We're pretty we have a lot of diversity when you look at our different brands.
Speaker Change: You look at U S Express, they're largely in east coast.
Adam Miller: Express, they're largely an East Coast, you know, player. We've got Barnum, Abilene, they're largely in the East Coast in terms of their presence. You know, Knight and Swift, they would be nationwide and they'd be pretty balanced between the East and West Coast, but would have some exposure to the West Coast. So, I think we could see an impact to those brands. And right now, we're working on plans to try to limit capacity in the markets we feel could be affected. And we may need to be a bit more nimble on the spot market to position ourselves to where we're not as exposed to the drop in freight, but that's, you know, easier said than done.
Speaker Change: <unk>.
Speaker Change: Player, we've got Barr Nunn Abilene, they're largely in the in the east coast in terms of their presence.
Speaker Change: Right and Swift would they would be nationwide and they'd be pretty balanced between the east and west coast, but would have some exposure to the west coast. So I think we could see an impact.
Speaker Change: To those brands and right now we're working on plans to try to limit.
Speaker Change: Capacity in the markets, we feel could be affected and we may need to be a bit more nimble on the spot market to position.
Speaker Change: Ourselves to where we're not as exposed to to the drop in freight, but that's easier said than done.
Adam Miller: I think there's an impact to the intermodal market. I think a lot of that freight could land on the rail. And I think there's international boxes that I think you're not going to move, but then there's going to be, I think, an impact to our intermodal business, which is why I think we, you know, our updated guidance have come down where we think the load count will be for that business as intermodal has become, you know, pretty competitive on the price front. And we've been, I think, made some progress in the bid, but in some cases, I've had to turn away from some business because the pricing just didn't make sense, you know, based on what our competitors were willing to run it on.
Speaker Change: There is an impact to the intermodal market I think a lot of that freight could land on the rail and I think there is international boxes, I think youre not going to move but then there is there is going to be I think an impact to our intermodal business, which is why I think we.
Speaker Change: Other updated guidance have come down where we think the load count will be for that business is intermodal has become.
Speaker Change: Pretty competitive on the price front and we've been I.
Speaker Change: And he made some progress in the bid but in some cases has had to have had to turn away from some some business because the pricing just didn't make sense.
Speaker Change: Based on what our competitors were willing to run it on so I think there's just there's going to be impacted in really the Knight Swift truckload. This brand's mostly and then.
Adam Miller: So, I think there's going to be impact in really the night and swift truck load biz brands mostly and then in our intermodal business. But again, we're, we can kind of see that coming and we're trying to react the best we can do it and not let it catch us by surprise. And I think the, really the question when you look at the guidance, Tom, is, is you see, you know, a reaction in June that where there's a rebound, if we're able to get some clarity on trade policy and, you know, our customers that are kind of, you know, living off inventory now have to replenish and you see some seasonality in June that helps offset maybe some of the weakness, you know, the kind of the unseasonable weakness you would see in May.
Speaker Change: Our intermodal business, but again, where we can kind of see that coming and were trying to react to the best we can do it and not let it catches by surprise and I think they're really the question. When you look at the guidance. Tom is is do you see.
Speaker Change: Reaction in June net where theres a rebound if we were able to get some clarity on trade policy and.
Speaker Change: Our customers that are kind of living off the inventory now have to replenish and do you see some seasonality in June that helps offset maybe some of the weakness.
Speaker Change: Kind of the unseasonable weakness you would see in May So I think thats really the question how the things play out in June we're already expecting Nader to be abnormal in terms of the volume you would expect to see and then hey, how strong is beverage and produce which is usually helps carry.
Adam Miller: So, I think that's really the question, how do things play out in June? We're already expecting May to be, you know, abnormal in terms of the volume you'd expect to see. And then, hey, how strong is beverage and produce, which is usually helps carry a second quarter. So, still a lot to, again, that's why we've had a wider range, because there's a lot of ways that this could play out. But we're watching it really closely and trying to position ourselves to navigate it as well as we can. Okay, great. Makes sense. Thank you.
Speaker Change: Our second quarter, so still a lot to again, that's why we've had a wider range because there's a lot of ways that this could play out.
Speaker Change: But we're watching it really closely and trying to position ourselves to navigate as well as we can.
Okay, Great makes sense. Thank you.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: The next question.
Scott Grew: The next question comes from the line of Scott Grew from Wolf. You may now ask your question. Hey, thanks afternoon. I just want to clarify, does the high end of the guide assume the normal May-June seasonal improvement we typically see or not? I just wasn't clear when you when you laid it out. And then just bigger picture, Adam, you guys are right-sizing the tractor fleet makes sense. At some point, do you consider shrinking. The Power Only offering, the broader brokerage offering, maybe to potentially try to help catalyze a tighter market.
Speaker Change: That comes from the line of Scott Group from Wolfe Research you May now ask your question.
Speaker Change: Hey, Thanks afternoon, I just wanted to clarify does it does.
Speaker Change: High end of the guide assume the normal May June seasonal improvement, we typically see or not I just wasn't clear.
Speaker Change: When you laid it out and then just bigger picture you guys are right sizing the.
Speaker Change: Tractor fleet makes sense.
Speaker Change: At some point do you consider.
Speaker Change: Shrinking.
The power only offering the broader brokerage or offering maybe to potentially try to help catalyze a tighter market.
Scott: Okay, well, let me hit both of those questions there Scott so on the.
Adam Miller: Okay, well, let me hit both those questions there, Scott. So on the guidance, I think what we've said is that the top end is really June with limited seasonality. So again, we normally don't say this, but I think when we were looking at our guidance, we were trying to have a degree of conservatism, just given the risk that's out there, the potential for risk. So it really, we would assume just limited seasonality, not your normal strength that you would see in June. Does that make sense? Yes.
Speaker Change: On the guidance I think what we've said is that the top end is really June with limited seasonality.
Speaker Change: So again, we don't really don't say this but I think when we were looking at our guidance. We were trying to to have a degree of conservatism just given the risk that's out there the potential for it. So it really we would assume just limited seasonality not not your normal strength that you would see in June.
Speaker Change: That makes sense.
Speaker Change: Yes.
Adam Miller: And then your question on power only. I mean, we look at power only as a way to really complement our truckload business. So even when you have some softer markets, there's always going to be markets where we don't have trucks available where our customers have demand. And in some cases, those are customers that have drop and hook requirements when it comes to their freight. And so if we don't have power only, we really can't participate in those freight opportunities. There's also times when our logistics business is better suited for a certain business because it's maybe not as, you know, it's not as consistent.
Speaker Change: And then your question on power only I mean, when you look at power only as a way to really complement our truckload business. So they're even when you have some softer market, there's always going to be markets, where we don't have trucks available where our customers have demand.
Speaker Change: And in some cases those are customers that have drop and hook requirements when it when it comes to their freight and so we don't have power only.
Speaker Change: We really can't participate in those trade opportunities. There's also times when our logistics business is better suited for for certain business, because it's maybe not as.
Speaker Change: That is consistent it doesn't create balancing your network and you can you can still do that.
Adam Miller: It doesn't create balance in your network. And you can still do that on the logistics front. We're managing trailers tightly and we have to just manage that better even when we have power only. And so we're really focused on that. But I look at power only as a way to help support truckload, keep revenue in-house, support service, support our dedicated operation when they need a surge. So we're not having to pull those trucks from line haul if they're needed elsewhere. And so I think it gives us a lot of flexibility in our network. And we would look at that as an advantage that we would have and it brings value to our customers and allows us to get better returns with the assets that we have.
Speaker Change: On the logistics front.
Speaker Change: We're managing trailers tightly and we have to just manage that better even when we have power romy and so we're really focused on that but I look at power only as a way to help support truckload keep revenue in house support service support our dedicated operation when they need a surge so without having a pool both.
Speaker Change: Trucks from line haul if they're needed elsewhere, and so I think it gives us a lot a lot of flexibility in our network.
Speaker Change: And we would look at that as an advantage that we have and it brings value to our customers and allows us to get better returns with the assets that we have.
Speaker Change: Okay. Thank you for the perspective, thanks, guys.
Scott Grew: Okay, thank you for the perspective. Thanks, guys.
Yeah.
Speaker Change: The next question comes from the line of Daniel Enbrel.
Daniel Imbro: The next question comes from the line of Daniel Imbro from. You may now ask your questions. Yeah, hey, good evening, guys. Thanks for taking the questions.
Speaker Change: Stephens.
Speaker Change: You May now ask your question.
Speaker Change: Yeah, Hey, good evening guys. Thanks for taking the questions.
Daniel Imbro: And I'm wanting to follow up on the cost per mile discussion within truckload, but maybe within the core business, not US Express. You know, the cost per mile declined again, here in 1Q. I guess, how do you feel about your ability to keep that flat to down for the full year, just given the softer demand backdrop can make utilization, maybe harder to achieve? And I know your 2Q guidance, I think, assumed relatively stable volumes here into April. But is there an opportunity to accelerate the cost takeout if volumes do deteriorate? through the year, just trying to get a sense of how variable that could be?
Speaker Change: And I'm wondering follow up on the cost per mile discussion within truckload, but maybe within the core business not U S Express.
Speaker Change: Cost per mile declined again here in <unk> I guess, how do you feel about your ability to keep that flat to down for the full year, just given the softer demand backdrop could make utilization.
Speaker Change: Be harder to achieve and I know your <unk> guidance I think assumed relatively stable volumes here into April but is there an opportunity to accelerate cost takeout if volumes do deteriorate through the year, just trying to get a sense for how variable that could be.
Speaker Change: Yeah, Hey, Danielle I'll, maybe make a few comments there so.
Daniel Imbro: Yeah, hey, Daniel, I'll maybe make a few comments there. So, yeah, so that's, like you mentioned, this is the third quarter, we've reduced cost per mile, and this has been without the tailwind of miles, right? So when you really look at where we're seeing that progress. That gives us the conviction it's sustainable. Let me just kind of break it down for you. So probably two-thirds of the improvement we're making from a cost-per-mile perspective comes because of operational improvements we've made in our business. Now, that comes to how we manage fuel and maintenance and safety. So safety, let's talk about safety.
Speaker Change: Like you mentioned this is the third quarter, we reduced cost per mile and this has been without the tailwind of miles right. So when you really look at where we are where we're seeing that progress.
Speaker Change: That gives us the conviction it's sustainable it's let me just kind of break it down for you. So probably two thirds of the improvement we're making from a cost per mile perspective comes because of operational improvements. We've made in our business that comes to how we manage fuel and maintenance and safety.
Speaker Change: <unk> safety, let's talk about safety safety has been and we're seeing the same pressure everyone as an industry about nuclear verdicts and the cost of a claims but overall, our leading metrics around safety are very encouraging and that's.
Adam Miller: Safety has been, we're seeing the same pressure, everyone in the industry about nuclear verdicts and the cost of claims. But overall, our leading metrics around safety are very encouraging. And that's in the case of the first quarters, our insurance costs are not inflationary due. We're managing those costs in a way that it's probably, you know, better than an industry on average. On maintenance of fuel, we're doing that as well. And what we're seeing, though, is we're making a lot of progress on fixed costs. And so I'll maybe focus on some of the improvements we're making there.
Speaker Change: In the case of the first quarters are our insurance costs are not inflationary there as well.
Speaker Change: Managing those costs in a way that it's.
Speaker Change: It's probably.
Speaker Change: Better than the industry on average on maintenance or fuel, we're doing that as well and well what we're seeing though is where we're making a lot of progress on fixed costs and so on maybe focus on some of the improvements we're making there now it's hard to show that on a cost per mile basis, because of the miles your denominator changing but.
Adam Miller: Now, it's hard to show that on a cost per mile basis because of the miles, your denominator changing, but. The cost that we've reset down in our overhead costs in G&A and equipment are significant. And so we're focusing on our facility footprint and how we manage our costs with our facilities. We, in some cases, are consolidating drop yards or facilities. We've implemented process efficiencies in our back office labor that's allowed us to use attrition to manage down our non-driver headcount. We've effectively negotiated with vendors on costs that allowed us in areas like benefits to see what we believe are some savings coming up in our business.
Speaker Change: The constant we've reset down in our overhead costs and G&A and equipment are significant and so we're focusing on.
Speaker Change: Our facility footprint.
Speaker Change: And how we manage our costs with our facilities.
Speaker Change: In some cases, our consolidated drop yards.
Speaker Change: Or facilities.
Speaker Change: We've implemented process efficiencies in our back office flavor, that's allowed us to use attrition to manage down our non driver head count.
Speaker Change: We've effectively.
Speaker Change: Effectively negotiated with vendors on costs that allowed us in areas like benefits just to see what we believe are some savings coming up in our business.
Adam Miller: Our discretionary costs, we're managing those much more effectively than I think we have in the past. And then we're, we're reducing costs or finding better ways, more efficient ways to manage. IT costs, professional services, consulting, things like that, that we think we are a better, tighter organization. So when we We'll continue to do this. We're not done. We've seen results from this. But what this is going to do, it's really going to work to our benefit going forward. As we've introduced even more operating leverage into our business by reducing not just equipment, but our G&A and overhead costs in the business.
Our discretionary costs, we're managing those much more effectively than I think we have in the past and then where we are.
Speaker Change: Reducing cost or finding better ways more efficient ways to manage.
Speaker Change: It costs professional services consulting and things like that that that.
Speaker Change: We think.
Speaker Change: We are a better tighter organization and so.
Speaker Change: So when we.
Speaker Change: We will continue to do this we're not done.
Speaker Change: We've seen results from this but what this is going to do it it's really going to work to our benefit going forward.
Speaker Change: As we introduce even more operating leverage into our business by reducing not just equipment, but our G&A and overhead costs in the business. So we.
Adam Miller: So we'll continue to pivot as we watch how this market unfolds. And we have a different playbook depending on kind of where the economy goes. And We're thinking of scenarios and how we adjust costs to continue to drive cost per mile down, even in an environment where miles aren't helping us.
Speaker Change: We will continue to pivot as we watch how this market unfolds and we have a different playbook, depending on kind of where the economy goes and.
Speaker Change: We're thinking of scenarios and how we adjust costs to continue to drive cost per mile down even in an environment, where miles arent, helping us I think there's also opportunity I don't know if he touched.
Adam Miller: I think there's also opportunity, and I don't know if you've touched on this Andrew, on the safety and claims standpoint. I mean, we've seen our safety performance continue to improve. Now, clearly, the environment with nuclear verdicts is a challenge, so you could have great performance and one or two claims can really impact the results. But I think we've done a great job navigating that the last few quarters, and we had some challenging claims to deal with over the last couple of years. And we feel like we've got a lot of these more challenging claims behind us, and now we just have to execute better on not having incidents.
Speaker Change: It's Andrew on the safety and claims standpoint, I mean, we've seen our safety performance continued to improve.
Speaker Change: Now clearly the environment with nuclear verdicts is a challenge that you can get great performance in one or two claims can can really impact the results, but I think we've done a great job.
Speaker Change: Navigating that the last few quarters and we had.
Speaker Change: Some challenging claims to deal with.
Speaker Change: Over the last couple of years and we feel like we've got allowed these were challenging claims behind us and now we just have to execute better on that having incidents and when you do have those being able to manage them and get to a favorable outcome as quick as possible. So I do think safety and claims is an area that we have some opportunities to improve just on X.
Daniel Imbro: And when you do have those, being able to manage them and get to a favorable outcome as quick as possible. So I do think safety and claims is an area that we have some opportunities to improve, just on execution and how we manage the claims. Great.
Speaker Change: Houston and then how we manage the claims.
Speaker Change: Great. Thanks, so much guys.
Unknown Executive: Thanks so much, guys.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Chris.
Chris Wetherbee: The next question comes from the line of Chris Wetherbee from Wells Fargo. You may now ask your question. Hey, thanks. Good afternoon. Adam, I was curious to get your perspective on capacity in the truckload market, I guess, as you think about the next quarter, the next several months with potential weakness in May, and maybe there's a rebound in June, maybe there's not. Is that enough to sort of bring down capacity to the point where we are in a more balanced or more favorable truckload environment? Kind of just curious how you're seeing capacity react real time to these potential risks coming up from a demand perspective.
Chris Wetherbee from Wells Fargo, you May now ask your question.
Speaker Change: Hey, Thanks, good afternoon.
Speaker Change: Adam I was curious to get your perspective on capacity in the truckload market I guess as you think about the next quarter or next several months with potential weakness in may and maybe there is a rebound in June maybe theres not is that enough to sort of bring down capacity to the point, where we are in a more balanced or more favorable truckload environment and can I just.
Speaker Change: How youre seeing capacity react real time to these potential risks coming up from a demand perspective.
Speaker Change: Yes, I think certainly when you see activities that drive the spot market down I mean that that's a catalyst for capacity to exit the market now is it going to be depending on the duration is it enough for us to be back in balance as a part of the balance is going to be if demand improves.
Adam Miller: Yeah, I think certainly when you see activities that drive the spot market down, I mean, that's a catalyst for capacity to exit the market. Now, is it going to be, you know, depending on the duration, is it enough for us to be, you know, back in balance? I think part of the balance is going to be if demand improves, then I think we would feel like we'd be in pretty good shape, given what momentum we saw early in the first quarter and where we were in the fourth quarter. But I think we've got to see how both supply and demand play out here in the near term.
Speaker Change: Then that I think we would feel like we'd be in pretty good shape, given what momentum we saw early in.
Speaker Change: In the first quarter, where we were in the fourth quarter.
Speaker Change: I think we've got to see how both supply and demand play out here in the near term.
Brad Stewart: You know, there's, you know, we look at, you know, different components of capacity and different ways to measure that on a regular basis. One of the data points we look at is there's a large, you know, load board company that, you know, provides detail of how many trucks are being posted on their load boards. And that's, I think in March, down 20, it's down 28% on a year-over-year basis in March. And so, yeah, it tells us supply or capacity continues to exit. But I think it's still kind of hard to know what needs to happen for us to be back in balance.
Speaker Change: As we look at different components of capacity in different ways to measure that on a regular basis one of the data points. We look at is there is a large.
Speaker Change: Load Board company that that.
Speaker Change: Provide detail how many trucks are being posted on their load boards and Thats I think in March down 20, it's down 28% on a year over year basis in March and so it tells us supply or capacity continues to exit.
Speaker Change: But but I think it's still kind of hard to know what needs to happen for us to be back in balance, but but certainly the the slowdown we're expecting the CMA is not going to help the small trucker.
Brad Stewart: But certainly the slowdown we're expecting to see in May is not going to help the small truckers.
Brad Stewart: And hey, Chris, this is Brad. I would just add a little color to that that, you know, prior to this recent shift in the marketplace, you know, in the in the first quarter, with all the tariff uncertainty and everything. Prior to that, especially in the fourth quarter and the beginning of this year, the market was already behaving largely like a fairly balanced marketplace. And so it's not that we were still well out of balance. And now we've got further to go. The market had largely gotten into a healthier, balanced place before we had this little adjustment here recently.
Speaker Change: Hey, Chris This is Brad I would just add little color to that prior to this recent shift in the marketplace.
Speaker Change: But in the first quarter with all the tariff uncertainty and everything prior to that.
Speaker Change: Especially in the fourth quarter and then beginning of this year the market was already behaving largely like a fairly balanced marketplace and so it's not that we were still well out of balance and now we've got further to go to the market had largely gotten into a healthier balanced place.
Speaker Change: Where we have this little adjustment here recently so soon.
Chris Wetherbee: So certainly, if there's a leg down in demand, maybe we need more capacity rationalization to find a new level of balance. But it's not like we were far off the mark just prior to this latest uncertainty. Got it. Very helpful. Thank you.
Speaker Change: Certainly if theres a leg down in demand, maybe we need more capacity rationalization to find a new level of balance, but it's not like we were far off the mark just prior to this latest uncertainty here.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: Okay.
The next question comes from the line of Ravi Shanker from Morgan Stanley You May now ask your question.
Ravi Shanker: The next question comes from the line of Ravi Shanker from Morgan Stanley. You may now ask your question. Hey, thanks. Good afternoon, guys. So, just to confirm the overall message here, so you said that the risk goes to the downside, which is what made you change your approach to guidance, but you're also getting low-to-mid single-digit price increases. Are you hearing from your customers that they are, like, pulling back or, you know, going into their shell a little bit? Or is this just a reaction to some of the short-term data we're seeing out there? The message on transport calls so far is that we haven't seen too much change in actual behaviors.
Ravi Shanker: Hey, Thanks, good afternoon guys.
Just to confirm the overall message here. So you said that the risk is to the downside, which is what made you change your approach to guidance.
Ravi Shanker: Also getting low to mid single digit price increases.
Speaker Change: Are you hearing from your customers that they are pulling back or going into the shed a little bit or is this just a reaction to some of the short term data we're seeing out there I can I'm, obviously the message on transports call. So far is that we haven't seen too much change in actual behaviors. So I'm trying to see if you guys are.
Adam Miller: So, I'm trying to see if you guys are seeing or hearing something different. Yeah, so I mean, we've had dialogue with, I don't know, 40 or 50 of our, you know, larger customers. And, and, you know, they've been, you know, for the most part, fairly open with what their strategy has been, but hey, it can change daily depending on, you know, what they're seeing in the market. But you know, I think probably about, there's three buckets, Ravi, they fall into, and maybe a third are around, hey, we're just not making any changes because of tariffs, and it's just, we're just going to continue on our path forward, and those are maybe some of our customers that don't have maybe as much exposure to China.
Ravi Shanker: Seeing or hearing something different.
Ravi Shanker: Yeah.
Ravi Shanker: Yes.
Ravi Shanker: We've had dialogue with I don't know 40 or 50.
Ravi Shanker: Of our larger customers and they have been.
Ravi Shanker: For the most part.
Ravi Shanker: Fairly open with what their strategy is Ben but hey, it can it can change daily depending on what they're seeing in the market but.
Ravi Shanker: I think probably about the street three buckets Ravi they fall into and maybe a third or around hey, we're just not making any changes because of tariffs and it's just we're just going to continue on our path forward and those are maybe some of our customers that don't have maybe as much exposure to China.
Ravi Shanker: And then there's those that are more in a wait and see a wait and see bucket and I think those are the customers that are may be drawing down inventory more and living off that so that would impact the volume that we would be seen or it could be seen in may and then there are some that have told us that yes. They have.
Adam Miller: Then there's those that are more in a wait-and-see bucket, and I think those are the customers that are maybe drawing down inventory more and living off that, so that would impact the volume that we would be seeing or could be seeing in May. And then there are some that have told us that, yeah, they have, they've canceled orders or they've stopped ordering, particularly from China, and we'll figure out how to adjust their supply chain to avoid the cost. So I think our... Our conservativeness is really based on the feedback we're hearing from customers, as well as just some early trends we've seen with, you know, how they've maybe shifted or maybe have forecasted what their volumes are going to be in the coming weeks.
Ravi Shanker: They've canceled orders or they've stopped ordering particularly from China, and we will figure out how to adjust their supply chains for a boy to avoid the costs. So I think our.
Ravi Shanker: Our conservative this is really based on the feedback we're hearing from customers as well as well as just some early trends we've seen with with how they may be shifted or maybe have forecasted what their volumes are going to be in the coming weeks.
Adam Miller: So it's not so much what we're seeing today, it's what we're expecting to see based on customer sentiment as well as forecasts that we're seeing in our business.
Ravi Shanker: So it's not so much what we're seeing today, it's what we're expecting to see based on customer sentiment as well as forecast.
Ravi Shanker: We are seeing in our business.
Ravi Shanker: And I would just clarify as we talk to our customers on their view of consumer sentiment.
Adam Miller: I would just clarify, as we talk to our customers on their view of consumer sentiment, you know, very few seem to be changing behavior to a point, Ravi, because of their view of a weakened consumer at Hunter, so thank you. are strong. So So it seems to be a reaction to tariff costs as opposed Kind of a changing view on consumer sentiment right now.
Ravi Shanker: Very few.
Ravi Shanker: Seem to be changing behavior to your point Robbie because of their view of a weakened consumer at this point.
Ravi Shanker: Okay.
Ravi Shanker: Understood. Thank you.
Ravi Shanker: Our strong so.
Ravi Shanker: <unk>.
So it seems to be a reaction to tariff cost as opposed to.
Ravi Shanker: Kind of a changing view on consumer sentiment.
Right now.
Ravi Shanker: Understood. Thank you.
Ravi Shanker: Thank you.
Ravi Shanker: Okay. Thanks Robert.
Speaker Change: The next question comes from the line of basketball majors.
Bascome Majors: The next question comes from the line of Bascome Majors. from Saskatchewan. you may now ask. Thanks for taking my questions. When will your bid discussions with your largest three or four retail industry customers be completed? When will those bid pricing updates be implemented? And ultimately, is the decision to withdraw the two-quarter forward guidance strategy, is that more about pricing and margin risk and forecasting that from those bids that are being discussed? Or is it really more about what the macro and demand picture looks like two, three months from now? Thank you.
Speaker Change: From Susquehanna.
You May now ask your question. Thanks.
Speaker Change: Thanks for taking my questions.
Speaker Change: When will your bid discussions with your largest three or four retail industry customers be completed when will those bid pricing updates be implemented and ultimately is the decision to.
Speaker Change: Withdraw the two quarter four guidance strategy is that more about pricing and margin risk in forecasting that from those bids that are being discussed or is it really more about what the macro and demand picture looks like two or three months from now thank you.
Speaker Change: Yeah.
Adam Miller: Okay, Bascom, so I'll hit that. You know... Bids are kind of ongoing. Okay, and so we've, I think we implemented some in the first quarter. I think there's the majority of them will hit sometime in the second quarter, and then you'll have some of our larger customers that do some, you know, early third quarter. So it's, you know, it's something that you just, you're always doing on a regular basis, but your largest impact is typically going to be in the second quarter, and we expect the, our contract rates to improve to that, you know, low to mid-single digit as we begin to implement these awards.
Speaker Change: Okay vascular so I'll hit that.
Speaker Change: No.
Speaker Change: These are kind of ongoing.
Speaker Change: And so we've.
Speaker Change: I think we implemented some in the first quarter I think there is the majority of them will hit sometime in the second quarter and then you'll have.
Speaker Change: Some of our larger customers that do so.
Speaker Change: Early third quarter. So it's.
Speaker Change: It's something that you're just you're always doing on a regular basis, but to your largest impact is typically going to be in the second quarter, and we expect that our contract rates to improve to that low to mid single digit as we began to implement these these awards. There's also the many bid process that a lot of our customers go through on sometimes.
Adam Miller: There's also the mini-bid process that a lot of our customers go through on, sometimes it's every two weeks, sometimes it's weekly, where they have a set of lanes that they need help with for whatever reason, and we're able to bid on those lanes, and sometimes you can get some sizable awards through the mini-bid. So it's an ongoing process, and that's why your network is always, it's never in a static position. It's always adjusting and moving based on new awards that you're able to pick up through these processes. I think we look at the guidance, it's more about the volume that you're going to receive from these awards, because awards are paper commitments, right?
Speaker Change: It's every two weeks, sometimes it's weekly where they have a set of lanes that they need help with for whatever reason and we're able to bid on those lanes and sometimes you can get some sizable awards through the many days. So it's an ongoing process and Thats why your network is always it's never been a static position, it's always adjusting and moving.
Speaker Change: Based on New awards that Youre able to pick up through these processes.
Speaker Change: When we look at the guidance, it's more about the volume that you are going to receive from these awards because awards are paper commitments right. There's no legal requirement for them to tender us those number of loads that we've that we've won through the bid process. So it's the concern is.
Adam Miller: There's no legal requirement for them to tender us those number of loads that we've won through the bid process, so it's, the concern is, if they see a major change in their supply chain, do we not see the volume that we are expecting to see, and what potential disruption could that have on your network? And so I think that gives us the biggest, you know, that's the biggest challenge, to forecast third quarter, not knowing if we're going to see some major disruption in whether it be volume or just the balance in our network, and so that's why we've decided to take the approach that we have.
Speaker Change: If they see a major change in their supply chain do we do we not see the volume that we're expecting to see and what potential disruption could that have on on your network and so I think that that gives us the biggest that's the biggest challenge the forecast third quarter not knowing if we're going to see.
Speaker Change: Some.
Speaker Change: Major disruption in whether it'd be volume or just the balance in our network and so that's why we've decided to take the approach that we have.
Adam Miller: Okay, Adam to that point, whereas bid compliance trending now versus what would be normal for this type of year and has that loose.
Adam Miller: Adam, to that point, where is bid compliance trending now versus what would be normal for this type of year and has that loosened or deteriorated since, you know, that more normal seasonal environment you saw in January or February. Again, we don't necessarily disclose that number, but it hasn't changed dramatically from where we've been. Again, we're more concerned about where that's going based on what we're seeing from the forecast from our customers and then external data. So, April's been relatively stable, but, you know, we're just, you know, where our conservative comes into is, you know, this may not play out like a normal May where you see strength, particularly in the back half as beverage and produce picks up.
Adam Miller: Loosened or deteriorated since that more normal seasonal environment you saw in January and February.
Adam Miller: Again.
Adam Miller: We don't necessarily disclose that number but it hasnt changed dramatically from where from where we've been.
Adam Miller: Again, we're more concerned about where that's going based on what we're we're seeing from the forecast from our customers and then external data. So can April has been relatively stable but.
We're just.
We're a conservative comes into us.
Adam Miller: Does may not play out like a normal may where you see strengths.
Adam Miller: Taking into back half is beverage and produce picks up is that just going to be offset with some of the supply chain pauses from from our customers.
Adam Miller: Is that just going to be offset with some of the supply chain pauses from our customers?
Adam Miller: Thank you very much.
Bascome Majors: Thank you very much.
Adam Miller: Okay.
Speaker Change: The next question comes from the line of Brandon <unk> from Barclays. You May now ask your question.
Brandon Ogulanski: The next question comes from the line of Brandon Ogulanski from Barclays. You may now ask... Hey, good afternoon, everyone, and thanks for taking my question. You know, Adam, I feel like you guys have been positioning the business here for a while for, you know, the inevitable upturn. Feels like maybe tariffs just push that out even more.
Brandon: Hey, good afternoon, everyone and thanks for taking my question.
Speaker Change: Adam I feel like you guys have been positioning the business here for a while for the inevitable upturn.
Brandon: It looks like maybe tariffs just push that out even more I.
Adam Miller: I guess with this prolonged, you know, downturn and kind of trough earnings environment, is there anything strategically you've been thinking about, like through the portfolio approach on the TL side? You know, are there further cost efficiencies that you could look at there, maybe with all the brands or even thinking things about like intermodal and lack of, you know, like long-term profitability in that business? Appreciate the feedback. Yeah, I mean, look, Andrew laid out all the different costs that we're focused on and we continue to be focused on. Again, we're all about controlling what we can control.
Brandon: I guess with this prolonged downturn and kind of trough earnings environment is there anything strategically you've been thinking about like through the portfolio approach on the TL side.
Are there further cost efficiencies that you could look at there maybe with all the brands or even thinking things about like intermodal and lack of like long term profitability in that business.
Brandon: I appreciate the feedback.
Brandon: Yeah, I mean look and you laid out all the different costs that we're focused on and we continue to be focused on again, we're all about controlling what we can control.
Adam Miller: When I look at our different brands, through this process, we've made adjustments on size of certain brands, what we focus on with those brands, what makes them unique to each other. And hey, you have to make adjustments in the market, and we have been doing so. We also don't want to make some decisions around businesses in the trough of troughs, right? This has been the most challenging cycle that we've seen maybe ever. And so we want to see how some of these businesses navigate through that. And I know you mentioned Intermodal. And hey, we have a very good team at Intermodal.
Brandon: When I look at our different brands.
Brandon: Through this process, we've made adjustments on size of certain brands, what we focus on with those brands what makes them unique to each other and hey, you have to make adjustments in the market and we have been doing so we also don't want to make.
Brandon: Some decisions around business is in kind of the trough of troughs right. This has been the most challenging cycle that we've seen maybe ever and so.
Brandon: We want to see how these some of these businesses navigate through that and I know you mentioned intermodal and hey, we have a very good team in intermodal and we liked the partnerships we have with the rails, we've made year over year progress in many of the metrics over the last several quarters and expect to continue to make progress in that business and believe it is.
Adam Miller: We like the partnerships we have with the rails. We've made year-over-year progress in many of the metrics over the last several quarters and expect to make progress in that business. And I believe it's a service our customers value. It's a lower-cost service that they would value at times. And we want to be there to provide it. But yeah, it has to generate returns. And we want to see that business and how it performs when we get to a more balanced environment rather than making decisions in a trough environment. I don't think that would be advisable and not something that we would be considering at this point.
Ed: It's Ed.
Ed: Our service our customers value, it's a lower cost service that they that they would value at times and we want to be there to provide it but yes. It has to generate returns.
Ed: And we want to see that business and how it performs when we get to more <unk>.
Ed: Balanced environment, rather than making decisions in an a trough environments I don't I don't think that would be advisable and thats something that we would be considering at this point no.
Adam Miller: Now, hey, if you get into a better environment and you have businesses that still can't perform in a better environment, then yeah, you look at that a bit differently. But at this point, we like what brands we have. We're making the adjustments on the cost side as Andrew laid out. And I think we'll be able to navigate the market that we'll be faced with and come out with these businesses returning to more normalized earnings when we get to a more balanced market. And so we still have tremendous confidence. A7.
Ed: Hey, if you get into a better environment and you have businesses that still can't perform in a better environment. Then, yes, you look at that a bit differently, but.
Ed: And at this point, where we like what brands, we have we're making the adjustments on the cost side as Andrew laid out and I think we will be able to navigate.
Ed: The market that will be faced with and come out with these businesses returning to more normalized.
Ed: Earnings when we get to a more balanced market.
Ed: So we still have tremendous confidence in that.
Adam: Thanks, Adam.
Adam: Okay, well I think that concludes our call. We appreciate all the questions and again I know we have <unk>.
Unknown Executive: Okay, well, I think that concludes our call. We appreciate all the questions. And again, I know we have some folks in the queue. And if we're able, if we haven't been able to get to your question, you can go ahead and reach out to us. It's 602-606-6349. Thank you, everyone.
Adam: Some folks in the queue and if we're able to if we have been able to get to your question.
Adam: Go ahead and reach out to US it's 600 to 600 66349, alright. Thank you everyone.
Adam: And ladies and gentlemen, this concludes today's conference call.
Unknown Executive: And ladies and gentlemen, this concludes today's conference call and. Thank you so much for your participation. You have agreed.
Adam: And.
Speaker Change: Thank you so much for your participation.
Adam: You have a great day.