Q1 2025 J B Hunt Transport Services Inc Earnings Call
Good afternoon, and welcome to the J B Hunt to transport to first quarter 2025 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star can you followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Brad Delco Senior Vice President of Finance. Please go ahead.
Brad Delco: Good afternoon.
Brad Delco: Before I introduce the speakers I would like to provide some disclosures regarding forward looking statements.
Brad Delco: This call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
Brad Delco: 1995 words, such as expects anticipates intends estimates or similar expressions are intended to identify these forward looking statements. These statements are based on J B Hunt's current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth.
Brad Delco: Fourth in the forward looking statements for more information regarding risk factors. Please refer to J B Hunt's annual report on Form 10-K, and other reports and filings with the Securities and Exchange Commission.
Brad Delco: Now I would like to introduce the speakers on today's call.
Brad Delco: Afternoon, I am joined by our President and CEO Shelley Simpson.
John Cooler: Our CFO John cooler.
John Cooler: Spencer Frazier, our EVP of sales and marketing.
Nick Hobbs: Our COO and President of highway services and final mile Nick Hobbs.
Speaker Change: Brad Hicks President of dedicated contract services, and Darren field President of intermodal.
Speaker Change: Now I'd like to turn the call over to our CEO Ms. Shelley Simpson for some opening comments Shelley.
Shelley Simpson: Thank you Brad and good afternoon.
Shelley Simpson: The team will provide more details on each of our business segments, but at a high level. Our results. During the first quarter came in largely as we expected and as we shared with you back in January.
Shelley Simpson: You can be proud of the work of our team and remain confident that we are better positioned the company for future growth and success.
Shelley Simpson: We are seeing our service performance provided benefits during this bid season.
Shelley Simpson: Safety is core to our company's culture, and we continue to improve on our key metrics. Despite following two consecutive years of record setting performance.
Shelley Simpson: We also remain focused and disciplined on our cost without sacrificing on our strategic investments in our people technology and capacity.
Shelley Simpson: We are well positioned to scale into and leverage these investments as we grow and our large addressable markets served by our portfolio of services.
Shelley Simpson: As we shared we are not pleased with our returns and efforts across the organization continue to reduce and eliminate costs refine our capital plans and drive further productivity across our businesses.
Shelley Simpson: As I said last quarter, beginning to repair margins and improve our financial performance remains a top priority for our leaders and our company.
Shelley Simpson: Looking ahead, while headlines are changing daily our overall, our strategy and focus as an organization remains the same be operationally excellent.
Shelley Simpson: Provide a valuable service for our customers that is critical to their business needs and scale into our strategic investments that set our executive team has explored various options, we might employ tomorrow aggressively eliminate costs and some of our scenario planning analysis. However, we are fortunate in that our assets to where our demand.
Shelley Simpson: First surfaces originate so we will have to stay agile and make quick decisions at the market dynamics change.
Shelley Simpson: We will stay informed by our internal data customer feedback and outlooks and make decisions as needed to maximize long term value for our shareholders.
Shelley Simpson: Before turning this over to the team I'll close with this the strength of our business supporting our investments during this challenging freight environment, while meaningfully enhancing the future earnings potential of our company, while the timing of a market inflection still remains uncertain, we will exit from a position of strength, which is unique in our industry and becoming even more.
Shelley Simpson: <unk> unique each day.
Shelley Simpson: We have proven our service levels and safety culture, our unmatched we had record first quarter intermodal volumes dedicated continues to have industry, leading margins and we're seeing signs of improvement in our highway businesses. Our brand is very strong with customers and we have the talent systems and capacity to support our future.
John Cooler: With that I'd like to turn the call over to our CFO John to it John.
John Cooler: Thank you Shelly and good afternoon, everyone.
Who will review the first quarter provide some additional details on our efforts to control cost and also give an update on capital allocation.
John Cooler: As a general overview our results for the quarter came in as expected and on the better side of the guidance range, we had provided last quarter.
John Cooler: That said seasonally lower volume and rate pressure, coupled with inflationary cost headwinds more than offset our cost control and productivity improvements and weighed on margins versus the prior year period.
John Cooler: Starting with first quarter results on a consolidated GAAP basis revenue declined 1% operating income decreased 8% and diluted EPS decreased 4% compared to the prior year quarter.
John Cooler: The declines were primarily driven by lower yields and inflationary cost pressures across the business with noticeable increases in insurance premiums for the third consecutive year.
John Cooler: For the full year, we continue to expect our tax rate to be between 24, and 25% with the cadence throughout the year similar to what we reported last year.
John Cooler: On the subject of cost we have made progress to rightsize, our cost structure across the business and this remains an area of focus over.
John Cooler: Over the past two years, we have reduced our people costs by over 200 million through head count attrition and performance management.
John Cooler: I said a portion of these savings have been offset by annual merit increases and higher benefit costs for our employees, particularly in the area of group medical costs.
John Cooler: While the economic backdrop remains unpredictable.
John Cooler: We remain focused on being cost disciplined without disrupting valuable aspects of our franchise like our strong culture experience across the field preparedness to meet future customer needs are.
John Cooler: Our leadership team has consistently reviewing the business with our customer needs and we will adapt to economic conditions as necessary.
John Cooler: In addition to managing our people cost reducing discretionary spending we have and will remain focused on improving equipment utilization network balance inefficiencies and reducing events to mitigate claims cost.
John Cooler: I'll wrap up with some thoughts on our capital allocation priorities first I want to highlight that during the quarter, we issued $750 million of new senior notes, which extended the term on some of our debt that was maturing later this year.
John Cooler: For 2025, we are now expecting net capital expenditures to fall between 500 to 700 million.
John Cooler: Hello, our prior view of $700 million to $900 million.
John Cooler: Despite the continuation of a tough operating environment across the industry. We continue to operate from a position of financial strength with our leverage target of one times trailing EBITDA.
John Cooler: Since we have pre funded much of our future capacity needs. Our capital needs are really poor replacement and success base needs. We have in our dedicated segment.
John Cooler: We expect to generate strong cash flows and put that cash to work to generate the highest returns for our shareholders.
John Cooler: During the first quarter, we repurchased 234 million of stock and have $650 million remaining under our current authorization.
Spencer Frazier: This now concludes my remarks, and I'll turn it over to Spencer.
Spencer Frazier: Thank you John and good afternoon.
Spencer Frazier: I'll provide an update on our view of the market and some feedback we are hearing from our customers.
Spencer Frazier: During the quarter overall customer demand trended in line with normal seasonality.
Spencer Frazier: Consideration for an earlier lunar new year and the weather events that occurred in January and February.
Spencer Frazier: Demand for intermodal service continued to be strong as our focus on operational excellence differentiates us from our competitors.
Spencer Frazier: This focus enabled us to safely execute and meet the expectations of our customers.
Spencer Frazier: In our brokerage and truck segments, we saw some weather induced tightness, however, the truckload market loosened as the quarter progressed.
Spencer Frazier: This suggest truckload capacity continues to exceed demand.
Spencer Frazier: Regardless of market and macro changes one thing is certain we will continue to focus on providing the best service and value for our customers.
Spencer Frazier: And this focus has benefited us during bid season of 14 us additional opportunities to grow with customers, while also getting some rate improvement.
Spencer Frazier: I'll close with some customer feedback.
Spencer Frazier: First regarding service our customer sentiment is high and we were honored with several awards during the quarter.
Spencer Frazier: Secondly, and not surprising the uncertain macro environment and trade policy are top of mind for our customers.
Spencer Frazier: We recognize there are a lot of questions right now about how tariffs may impact the market.
Spencer Frazier: We believe they have the potential to impact both supply and demand, but the magnitude and timing is difficult to predict.
Spencer Frazier: Our customers continue to plan for multiple what if scenarios.
Spencer Frazier: But most of them are waiting for the dust to settle to determine how tariffs might influence and change their short and long term business strategies.
Spencer Frazier: As part of this scenario planning process, some customers are considering ways to alter supply chain freight flows.
Spencer Frazier: And or their country of origin sourcing.
Spencer Frazier: These changes will be part of a much longer decision process.
Spencer Frazier: Regardless of the strategies. They deployed we believe we are executing from a position of strength across our suite of services. Our brand has never been stronger.
Spencer Frazier: We've made the investments to support our customers' business.
Spencer Frazier: Sure in the market and make appropriate long term returns for our shareholders.
Nick Hobbs: I'd now like to turn the call over to Nick.
Nick Hobbs: Thank you Spencer and good afternoon.
Nick Hobbs: I'll provide an update on our areas of focus across our operations followed by a quick update on our highway and final mile businesses.
Shelley Simpson: I'll start with some comments on our safety performance as Shelley mentioned safety is core to our company's culture, and we're coming off of two straight years of record performance measured by D. O T preventable accidents per million miles.
Shelley Simpson: I'm proud to say that through the first quarter, we have seen further improvement in our performance.
Shelley Simpson: During the first quarter. We also achieved another big safety accomplishment there were proud to share.
Shelley Simpson: Our maintenance team in Cedar Rapids, Iowa achieved 1 million collective work hours without any injuries. This isn't the outstanding accomplishment that represents over 19 years of dedication and attention to detail to ensure safe injury free operations.
Shelley Simpson: Shifting to the business I'll start with final mile demand for big and bulky products remains muted with relatively weak demand for furniture exercise equipment and appliances.
Shelley Simpson: That said demand in our fulfillment network was positive driven by off price retail trends.
Shelley Simpson: Going forward, our focus remains on providing the highest level of service with a strong focus on being safe and secure as we deliver products to and on behalf of our customers.
Shelley Simpson: Moving to J P T.
Shelley Simpson: Our focus is on methodically growing this business, while remaining disciplined on maintaining balance in our network to drive the best utilization of our trading assets.
Shelley Simpson: Bid season is always competitive and this year is no different.
Shelley Simpson: But we are relatively pleased with our success so far in terms of retaining business getting some modest rate increases as well as winning new customers. Our service levels remain strong and that has been noticed by our customers, which has resulted in an additional bid opportunities compared to last year.
Shelley Simpson: Going forward, we like the progress and direction of the business and the improvements we continue to make but meaningful improvement in our profitability will be driven by overall demand for truckload dropped trailing solutions and our ability to fill excess capacity.
Shelley Simpson: I'll close with some comments on Ics.
Shelley Simpson: Our focus here remains on profitable growth targeting the right customers, where we can differentiate ourselves with service while also diversifying our customer base.
Shelley Simpson: Compared to the first quarter last year, we've seen more than a 20% increase in our customer count.
Shelley Simpson: We're about a third of the way through the bid season and are pleased with the awards, so far and have confidence that we will continue this momentum.
Shelley Simpson: Our gross margin performance held up well in the quarter as we managed our purchase transportation costs.
Shelley Simpson: We will remain a focus while also continuing to drive efficiency and cost out of our operations.
Shelley Simpson: Going forward, we will remain focused on scaling into our investments with both new and existing customers, while making improvements on our cost and our productivity with.
Brett: With that I would like to turn the call over to Brett.
Brett: Thanks, Nick and good afternoon, I'll provide an update on our dedicated results review, our pipeline and how we focus on operational excellence and our business.
Brett: I'll start with the quarter at a high level. The first quarter played out as expected despite the challenging operating environment.
Brett: Weather did impact us slightly more than we consider normal, particularly in the south east.
Brett: We were able to recover some of that impact.
Brett: Additionally, we have not seen as much of a spring surge with our lawn and garden customers, which could be delayed as we experienced a sub seasonal lift from February into March across the portfolio.
Brett: At this point, we think it's too early to tell if this is a seasonal shift or less inventory being pushed out to stores.
Brett: Nonetheless, the team did a great job of managing our costs and resources to deliver value for our customers.
Brett: Overall demand for our professional outsourced private fleet solutions has held up relatively well in the market.
Brett: We sold approximately 260 trucks of new deals during the first quarter.
Brett: As a reminder, our annual net sales target is 800 to 1000, new trucks per year.
Brett: While our pipeline remains strong as we have said for several quarters, we have visibility to some fleet losses throughout the second quarter.
Brett: Our value proposition to customers remains strong as the cost and complexity of managing and running your own private fleet continues to rise.
Brett: As a reminder, we have a long contracting process that typically takes about 18 months to close.
Brett: Admittedly, we have seen some customers take a little longer to execute contracts as they are taking a more wait and see approach with some of the uncertainty in the market.
Brett: As is always the case, we remain disciplined on the type of deals we underwrite without sacrificing our return targets and we'd still say we are pleased with the activity and recent sales we've been able to close.
Brett: We believe our.
Brett: Our performance in our dedicated business during the downturn has been a standout and highlights the strength and resiliency of our model.
Brett: We have a diverse set of customers by both industry and geography with the average size of our deals remaining relatively small.
Brett: With over 25% of our business serving food related industries, we also see consistency and stability across the portfolio.
Brett: Our big focus right now aside from our customer value delivery activities is a strong focus on safety, which as Nick mentioned is core to our culture.
Speaker Change: It is important to our drivers the motoring public and also as our best risk and cost mitigate or in the current environment.
Speaker Change: Going forward, we continue to expect to return to net fleet growth in 2025, but the timing of when deals sign and close will largely drive our ability to return to modestly positive revenue and operating income growth for 2025.
Speaker Change: We believe our differentiated model and the value proposition, we offer customers as unique and are confident in our ability to compound our growth over many years to further penetrate our large addressable market.
Speaker Change: With that I'd like to turn it over to there.
Speaker Change: Thank you Brad and thank you to everyone for joining us. This afternoon I'll review the performance of the intermodal business and give an update on the market and how we are focusing on operational excellence.
Speaker Change: I'll start with intermodal performance overall demand for our intermodal service was strong as we expected in the quarter.
Speaker Change: I am pleased to share we set a first quarter volume record, which comes on the heels of two consecutive all time volume records in the second half of last year.
Speaker Change: <unk> in the quarter were up 8% year over year and by month were up 9% in January up 6% in February and up 7% in March.
Speaker Change: As it pertains to mix, our transcon volumes increased 4% during the quarter and eastern volume grew 13% our third consecutive quarter of positive Eastern network performance. We also saw very strong volumes in our Mexico business, a market in which we see significant opportunities in the future.
Speaker Change: Sure.
Speaker Change: I remain encouraged by our demand, particularly in the eastern network, where we face the greatest competition from depressed truck rates. This is a testament to the strong service levels of the rails and how that translates into an attractive and valuable alternative to truck for our customers.
Speaker Change: We came in the bid season this year with the three pronged strategy and I would say we are mildly pleased with our success. So far we know our margins need repair and rates will be a large driver of that but the degree of rate repair will be somewhat market dependent while we are still in bid season and have some large.
Speaker Change: [laughter] bids that will be awarded over the next couple of months, we have had only modest success in repairing rates, while retaining existing business.
Speaker Change: We were focused on achieving more network balance and winning the right freight for our network. This is an example of ways, we can reduce cost and drive efficiencies by eliminating the costly movement of empty containers.
Speaker Change: We have been more successful executing on this part of the strategy lastly, as in the case each year once we want to grow with new and existing customers, while remaining disciplined with our rates as a result, we have lost some business to other providers providers offering lower rates, but I believe.
Speaker Change: We have still been successful in this third prong of our strategy to grow our overall portfolio.
Speaker Change: Our focus on operational excellence continues to be on delivering value to our customers and positioning the business for future growth and acceptable returns on our investment we remain focused on driving out waste and improving asset utilization by working to eliminate empty moves of our equipment.
Speaker Change: We also are strongly committed to further improving our safety performance to mitigate risks and costs associated with safety events in.
Speaker Change: In closing, we remain confident in our intermodal franchise and the value we provide for our customers, we have the capacity and capability to grow into our investments while continuing to lead the industry in both margin performance and returns on capital.
I'll now turn the call back over to the operator to give instructions for the Q&A portion.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two in the interest of time. Please limit yourself to one question at this time, we will pause momentarily.
Speaker Change: To assemble our roster.
Speaker Change: And your first question today will come from Chris Wetherbee with Wells Fargo. Please go ahead.
Chris Wetherbee: Hey, great. Thanks, Good afternoon, guys, maybe Darren we can just pick up on where we left off I guess in terms of intermodal bid season. So we're three months later than the last time, we all talked about this I think at the time you were maybe a little less confident or maybe you didn't want to say that you'd get rate increases as we go through this year.
Chris Wetherbee: It sounds like it still is a challenging environment, but maybe youre pleased by some of the progress.
Chris Wetherbee: Do you think we get rate increases in intermodal in 2025 as you kind of complete the bid season over the next couple of months.
Chris Wetherbee: Okay I appreciate the question Chris. So you know we we commented in those prepared comments about you know mildly pleased with our success in the bid season and I think that's because we approach it really in three key areas, we want to fill some empty legs and in fill up some.
Chris Wetherbee: Some costly empty moves and I do think we've been effective at that we have achieved growth in our eastern network and we have absolutely had some wins in pricing we've taken some losses in prices. So I wanna be be clear that I don't want to sound like where we're getting.
Chris Wetherbee: Rate increases across the board I think we've been effective at communicating with our customers about the value we represent.
Chris Wetherbee: And we have achieved some rate increases we've also lost some business due to disciplined price approach, where we asked for a price increase in the customer wasn't willing to give us. It is competitive I will say that.
Chris Wetherbee: Okay.
Speaker Change: In terms of sequential just one quick follow up just to make sure I'm understanding what you're saying is you think about the environment is it going to be more dictated by sort of the mix of the business and that's what yields might be influenced by more so as we move forward I, just just to get a sense of how that plays out.
Speaker Change: Yeah, it's clearly a growth of 13% in the eastern network, while 4% in the transcon is going to change some of the revenue per load modeling that you might see out there and and let's face it eastern network loads have shorter length of haul and our smaller revenue per load that doesn't mean that there.
Speaker Change: The margin profile on those loads are worse or anything like that so certainly the mix of the business is going to be a little bit different than what we've seen recently and as we continue to grow in the east that will be an influencer on our revenue per unit that you see in the in the <unk>.
Speaker Change: Orderly results.
Speaker Change: Great. Thank you for the time I appreciate it.
Speaker Change: And your next question today will come from Daniel <unk> with Stephens, Inc. Please go ahead.
Hey, good afternoon, everybody. Thanks for taking our questions Darren maybe to follow up on the intermodal side, I guess from a profitability or what it is going well through bid season. It sounds like you are repairing the network you're successfully filling some of the M D.
Speaker Change: How should we weigh the puts and takes maybe a unfavorable mix, but but more empties being filled as you think about the profitability standpoint from here and then I guess with the uncertain macro and and who knows what happens so I'd love to hear some commentary from what your customers are saying, but how are you guys thinking about managing your cost our cost base as you move through the year, just given the uncertainty on demand.
Speaker Change: And the visibility into volume due to Q3 Q.
Speaker Change: Okay, Let me, let me start with.
Speaker Change: The ability to fill empty legs, and how you might think about that I do I want to be clear I think so far in bid season, we've been effective at that I also know that historically, we have delivered.
We've communicated that 30% of our pricing implement each of the first.
Speaker Change: Three quarters and about 10% in the fourth quarter and that's no different this year and so the impacts of the benefits of filling empty lanes, probably weren't fully visible inside the first quarter and we look forward to seeing those benefits as we move throughout the remainder of the.
Speaker Change: A year.
Speaker Change: I'm not sure I can follow what the other questions were.
Speaker Change: Yeah Darren.
Spencer Frazier: Daniel Thanks for the question this is Spencer.
Speaker Change: Regarding you know what our customers are saying.
Speaker Change: Sure earlier that each one of them are going through scenario planning and really they've been doing that likely since maybe even ahead of the election and they've been implementing various strategies.
Speaker Change: That you could.
Speaker Change: Really expect whether its pulling some stuff forward pausing some shipments.
Speaker Change: Possibly canceling a few and also changing really the origin of manufacturer, but one thing I've had the opportunity to talk to several customers in the last few days. So is our team and we support really a broad cross section of industries.
Speaker Change: And the thing that stands out in these conversations as they are resilient.
Speaker Change: They're finding ways to work through things as things change daily and they're also thinking about long term plans and what they might need to look at and you can also think about my perspective and ours here, we view these as opportunities.
Speaker Change: We've been through this before we've been through challenges before with our customers and our value proposition stands out in times like this and so there might be a few things are continuing to change until like I said that the dust settles, but when that settles it will create opportunities for us to grow with our customers and serve them.
Speaker Change: Them.
Speaker Change: With our broad suite of services and I did mentioned right now, we're executing with a position of strength and as the commercially that puts us in a great position to take care of our customers as they make changes today and over the long term. So I appreciate that question and Danielle I'll try to take the last question, which is really around cost if you think about how.
Speaker Change: We came into this year, we establish our badge. It really was an effort to grow repair margins everything we set out and we finished the first quarter with results that largely came in as expected and we're in a unique environment now because we've finished up record for a third quarter in a row record performance in intermodal with Volte.
Speaker Change: Gray, our dedicated business that pipeline stay strong and we have customers asking us to grow in highway.
But having said that we recognize things are changing and that's.
Speaker Change: That's changing.
Speaker Change: But the day or the tweet or at the moment.
Speaker Change: And so for US you know.
We want to be fluid and we need to make sure that our plans align as conditions change. So you know I've talked about this in my opening remarks, we have to be focused on growing but our scenario planning really is a three pronged approach. What next steps can we maintain cost management, depending on which different scenario plays out.
Speaker Change: Do we think about our stock and our buyback strategy, there and how can we be prudent capital spending and you heard John say that.
Speaker Change: Our results and how much we bought back in stock, we reduced our capex guidance by 200 million, but our commitment is to strike the right balance between adjusting short term.
Speaker Change: And that short term if that becomes longer term that changes our scenario planning, but we're not going to jeopardize the value we can create over the long term.
Speaker Change: I'd like to stay with US we have a seasoned executive team. Our average tenure at JP has 27 years, we've been here before we've been through ups and downs and every single one on this team our shareholders and are directly tied to our shareholders as well from a comp.
Speaker Change: Patient perspective, and so when I think about the good and the bad times that we've been through we know how to be nimble and as we see more clarity on the environment, we are going to respond appropriately.
Speaker Change: Really appreciate all the color best of luck everybody.
Speaker Change: Again as a reminder, please limit yourself to one question and your next question today will come from Jordan <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Yeah, Hi, I just wanted to circle back on tariffs and perhaps you know what you are saying in terms of pull forward theres been some thought that over.
Speaker Change: Over the next 90 days with this pause there'll be actually a step up and pull forward in and if so what could that mean for the back half of this year from a volume growth perspective, when we move into a destock mode and year over year volume pressures in the back half realized things are fluid, but if you could maybe give some thoughts on that high level stuff.
Speaker Change: Thank you.
Speaker Change: Hey, Jordan this is Spencer.
Speaker Change: Like I said earlier each customers in a unique spot and they've done different strategies up to this point and I think theyre, making changes as Shelly even talked about in a very fluid way and almost daily.
Speaker Change: One thing I didn't think as time goes on here you know whatever the outcomes of these trade negotiations or if it does go a little bit longer a lightweight seem there might be some downs, but when there are ups it creates tremendous opportunity and could create challenges across our customer supply chains that we can help them out with and really helping them to.
Speaker Change: Optimize their order shipments there modes as well as their fleets and one thing has been consistent though is in our customer conversations theyre always trying to drive towards reducing cost finding efficiencies and one of the top conversations we've had and are still having its almost I think we're happy.
Speaker Change: And then 100% of them as an example of finding efficiencies is really mode conversion from the highway to intermodal and I think that's the long term thought of our customers. They know things are still in a changing environment and that's a great way for them.
Speaker Change: To find the most efficient answer to move their supply chain. So that's.
Speaker Change: One of the things I think we will see as things go on here and until the negotiations are settled.
Speaker Change: We will just move with that.
Speaker Change: Let me jump in here. This is Darren I just wanted to say on the pull forward discussion look we've said this now this will be our third consecutive quarterly call, where we don't have a bunch of customers telling us that they have pulled forward shipments now is it.
Speaker Change: Is it possible some have and just haven't talked about it is it possible that some of them are there marketing arms made orders that may be transportation didn't know I mean that that's all certainly possible and we don't want to be.
Speaker Change: Guessing at whether or not it was pull forward or not there are are a few conversations that clearly there have been some but we're struggling to get direct customer feedback about that now we did see some pull forward.
Speaker Change: Out of Mexico for a short window of time last quarter I think that was it.
Speaker Change: It's not a big impact to our volumes, but certainly want to acknowledge that that has happened. So again, we continue to look for feedback from our customers every single month every single quarter about what's happening with their own demand and again everybody's remaining cautious.
Speaker Change: US with their feedback and they're trying to adapt their plans to in the environment that they're in.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Brandon Machlinski with Barclays. Please go ahead.
Speaker Change: Thank you for taking the question Darren I was wondering if you could follow up on the commentary about some accounts going to other intermodal carriers on pricing is that reflected in the current run rate or the run rate that you saw on volumes in March or is that incremental to the outlook and I guess more broadly just.
Speaker Change: What is it going to take to get the right pricing outcomes in this market.
Speaker Change: Well certainly we believe strongly in the the service offering that we've really invested in in and delivered on throughout last year and throughout the first quarter end and have asked our customers.
Speaker Change: To help us in in with prices and in some cases the customers felt like.
Speaker Change: Maybe prices that they saw from competitors would give them.
Speaker Change: The service and the quality of capacity that they needed and we didn't feel like the alternative to the price. We asked for was good enough for our returns and felt like we needed to be disciplined in that approach and so yes. We did have some losses I don't want to overplay the magnitude of that there is.
Speaker Change: Still a lot of the bid cycle too.
Speaker Change: To implement and there's really a lot of decisions from our customers, we're still waiting on and so I don't know what the run rate coming out of March was we wouldn't typically provide that level of detail and I don't feel like we can do that today I don't even know that I would know what exactly given challenges with volumes.
Speaker Change: It just customers were doing.
Speaker Change: A lot of different things.
Speaker Change: At the end of last quarter, and we got to wait and see kind of where that shakes out but the disciplined approach to the price we ask for it to get correct returns, particularly in the demand heavy head haul markets is an important part of our strategy and we've been successful with that in many many cases in there.
Speaker Change: Are some examples where we work.
Brad: Yes, Brian this is Brad.
Brad: Just follow up on that I think is to digest, what Darren said.
Brad: In head haul markets, where we see the greatest demand, that's probably the areas where having the greatest success getting rates I think it was important for us to share with you and other investors that there are in some instances.
Brad: Situations, where we're pushing rate.
Brad: Hard enough to where we are walking away from some business in that.
Brad: She'll.
Brad: Should be a testament to to ourselves as well as to the market that we're willing to walk away from business that we don't think makes sense in our network.
Brad: Thanks, Darren Thanks, Brad.
Brad: Yeah.
Speaker Change: And your next question today will come from Jon Chapell with Evercore ISI. Please go ahead.
Jon Chapell: Thank you and good afternoon.
Speaker Change: I think we've talked about uncertainty quite a bit at this point and no. One really knows how things are going to transpire sounds like you have three different scenarios that you're looking at as an executive team.
Speaker Change: The <unk> did come out with some pretty deep reductions on import numbers starting in May 20, plus percent for several months. So that's one of the scenarios that you are potentially considering how does J b hunt manage your assets and really kind of your price to ask if that's the type of outcome that were looking for starting in a couple of months.
Speaker Change: Well I think that.
Speaker Change: That research note that showed a pretty steep decline in demand, particularly from China, and it's something that we've obviously considered them in terms of how we would manage the asset and do we start I think if part of your question is are we going to start changing our pricing direction based on research.
Speaker Change: That I don't I don't believe that would be our strategy and we can't chase business with price because of the fear that is really unknown now of such a sharp decline in imports and the other elements there are paid.
Speaker Change: Some of these products or it might be manufactured in Asia, and maybe the consumer spends money on a product that came from somewhere else. So we just we don't even know what volumes are going to are going to produce as as as those changes really impact and so I think that it's pretty fluid.
Speaker Change: Right now when we're trying to adapt to the environment that we're in and feel like we will be effective with that yeah, Darren I might add in some of the customer conversations that we've had.
Speaker Change: Like I said people were making changes.
Speaker Change: Even pre election post election, and post March 1st or pre March one and April one that's still happening and several have been very aggressive in moving in their country of origin sourcing already.
Speaker Change: So to your point on that survey I think thats, one viewpoint of what could happen, but also as Darren mentioned, there's lots of places that people are shifting things to make sure that they can serve really ultimately the American consumer and their customer and have product on the shelves and we're going to be in a position to move that.
Speaker Change: <unk>.
Speaker Change: Thanks Spencer.
Speaker Change: Your next question today will come from Bascom majors with Susquehanna. Please go ahead.
Bascom Majors: Thanks for taking my questions some of your largest customers or value focused retailers with.
Bascom Majors: Significant China import exposure I'm, just curious you know qualitatively how have those bid conversations evolved in the last two weeks in not just specifically to pricing, though I would like to hear a fat tenor has changed but more broadly are with issues of.
Bascom Majors: You know lanes involved or or your concerns about big compliance or a number of low just understanding you know if there has been a shift in the back and forth and those large complicated bids for some of these customers. Thank you.
Bascom Majors: Yes.
Bascom Majors: Just talk about compliance through the quarter, our compliance with strong I think our customers one of the things that we've said as they return to kind of normal seasonality and trends that does allow them to forecast better and connect really their demand to their transportation needs and they've done a really nice job of that.
Bascom Majors: And so I think our compliance so far has continued to improve really across all of our businesses Highway and intermodal and then you know really what comes forward. We continue to talk with them and we're transparent about asking for forecast information.
Bascom Majors: And right now customers have not changed their forecast with us regarding their demand trends.
Speaker Change: And your next question today will come from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks afternoon, guys. So just a follow up just on the tariff piece, maybe do you have any I know, it's a it'll be an estimate but any sort of rough estimate of what percent of intermodal.
Speaker Change: At some point originates overseas and maybe what percent comes from from China.
Speaker Change: That's just first part and then just secondly.
Speaker Change: Yeah.
Speaker Change: And what's the plan in terms of what Youre doing with capacity I know, there's we have a lot of record volume, but there still are a bunch of seemingly a bunch of containers not being utilized is there any thought of cutting capacity to manage the environment to start getting some better price and margin.
Speaker Change: Just thoughts on capacity. Thank you.
Speaker Change: Well, let me let me start with your last question.
Speaker Change: First there are certainly.
Speaker Change: We don't necessarily think that reducing the amount of capacity. We have is going to change the way we price now certainly putting it in storage and being prepared to come out of this kind of cycle with ample capacity for the long term again those investments are.
Speaker Change: Our really long term in nature and so that's why that equipment exists, yes, we have excess equipment today, and we have a lot of capacity to grow with our customers. We're looking at options on what met what other ways can we use some of those assets in other parts of our business that certainly.
Speaker Change: Something that we're investigating we don't have anything to say about that today, but we're looking at other ways to utilize the equipment you know.
Speaker Change: We've probably never given this this data, but we can do that here today, I mean call. It between 20 and 30% of intermodal volume originates.
Speaker Change: On the West coast now inside that what percent of that originates in China I don't know that we've ever done that study and so I'm gonna be hesitant to actually make a guess here, but certainly the.
Speaker Change: The imports that are that originate in China and the.
Speaker Change: Ever changing environment that we're living in and we're just going to keep in close contact with our customers with our rail providers and try to understand whats headed at the West coast and make plans accordingly based on what we see.
Speaker Change: Thank you guys.
Speaker Change: And your next question today will come from Kenn Hoekstra with Bank of America. Please go ahead.
Speaker Change: Hey, great. Good afternoon, so it sounds like it's not being driven by a pull forward in terms of these strong intermodal volumes, but but you're hitting record levels of volumes.
So, but you've got mid single digit margins now so so you're talking about losing some business on price does that mean, you're not pushing hard enough on price I'm just trying to kind of contrast, the record level of volumes with the.
Speaker Change: The smallest margin levels or smaller margin levels than you historically push for.
Speaker Change: Then Brad maybe to lead into that is there any comment you'd throw it on <unk> historical seasonality on margins like you gave in the first quarter.
Brad: Well certainly can the volume that we're seeing was a lot of it is continuing on from from last year and we've highlighted that we would live with last year's pricing cycle for some time. So that's been part of the challenge on on.
Brad: Certainly on the margin front as we have really seen nice growth, particularly in the eastern network.
Brad: It's not quite you know you don't have as many days of containers consumed inside those kinds of that kind of volume. So we need we need even more growth and the good news is there's a lot of growth to go get in the Eastern network and we would anticipate growth in that market for years to come and we will continue to focus.
Brad: On that every day, but the cost of the equipment.
Brad: Continues to be a challenge for us in the imbalances inside our network have been a headwind for us and we're looking to make repairs in that area and feel like we have had success in the bid cycle so far.
Speaker Change: Hey, Canada your last question I assumes.
Speaker Change: You were asking me about Brad Hicks about dedicated guidance, but.
Speaker Change: Aside from the one slip bump we had last earnings call, where we did provide some guidance.
Speaker Change: We're going to revert back to our 64 year trend of not providing guidance about that.
Speaker Change: But we'll give you guys updates as we have on relevant and important items as we go through conference season.
Speaker Change: Is it guidance or was it just asking for what the historical trend has been I'm just looking for an average versus from your perspective.
Speaker Change: Well I'm sure everyone. On this call has an excel model, where they can do averages and come up with their normal historical trends.
Speaker Change: Understood. Thanks for the time.
Speaker Change: And your next question today will come from Brian Austin back with J P. Morgan. Please go ahead.
Brian Austin: Hey, good afternoon, thanks for taking the question.
Brian Austin: Just a quick follow up just maybe looking at the profitability on a per load basis, we've seen record volumes in last three quarters, but promote its one of the lowest on record is there anything that.
Brian Austin: Hence, we could change and how you get paid for some of those network inefficiencies.
Brian Austin: Anything in terms of how the contracting is being done differently in the next cycle that might prevent this from happening again, obviously, it's been a record so.
Brian Austin: Maybe it wont, but just wondering how you have to wait so much time to really get that pay off after delivering.
Brian Austin: Delivering so much volume and then just a quick follow up on truckload conversion it sounds like it's actually going pretty well in a pretty soft market. So wanted to hear how that was progressing.
Brian Austin: Yes.
Brian Austin: Well, obviously, our margin them and we've been pretty vocal for a number of quarters, we're not satisfied with it.
Brian Austin: We lead with really excellence.
Brian Austin: Operations and.
Brian Austin: And service provided to our customers we've had two consecutive great peak seasons and felt like we were in a in a good position to ask for for more price. The reality is the market around US is is a challenge highway capacity remains one of the biggest.
Brian Austin: <unk> if not the biggest competitor we have certainly in intermodal to generate better pricing and.
Brian Austin: The amount of equipment that we have the the the challenges from network inefficiencies. That's just empty moves as we fill those that's a cost take out two to improve margins, but it takes it takes time to get that implemented and takes the full bid cycle and we will continue to need.
Brian Austin: To work on that even further even after this bid cycle. So.
Brian Austin: Awful lot of effort goes into improving that margin, it's not a lack of willingness to talk to customers about it but certainly.
Brian Austin: There will always and forever be a balance between the price we asked for and the volume we receive from our customers and we do need both and that's how the harsh reality of it and we don't sit around and stare at the excess containers and change our price based on that where we're working hard to.
Brian Austin: Deliver great service to our customers and asking them to pay us fairly and they're asking us to be relevant with what the alternatives to our product are and at times.
Brian Austin: There are alternatives.
Brian Austin: Support the rates were asking for and so that's the balance where we're constantly fighting it.
Brian Austin: And.
Brian Austin: Brian I wanted to you had another part to that question really just talking about mode conversion trends and I want to touch on that again I think the.
Brian Austin: Opportunity there.
Brian Austin: A separate the <unk> supply chain from the domestic supply chain.
Brian Austin: Our customers coming into this year.
Brian Austin: <unk>, knowing where we've been at in this prolonged kind of freight recession, they understand that capacity in their planning and things like that from a truckload perspective.
Brian Austin: There is less elasticity everyday and so they're thinking longer term on that.
Speaker Change: That's why on the back of like Darren said, our operational excellence and the value. We've created over really the last I'm going to call. It close to 20% to 24 months of Great service, our customers have tremendous confidence in leveraging intermodal to meet their supply chain needs in transit cost and.
Brian Austin: High service levels so.
Brian Austin: With a little bit of a concern still longer term about things could change in the domestic truckload market Highway conversion is the number one topic and on the back of Great service. So they have confidence and they know that they need to have alternatives as things do change and thats still a conversation regardless of the import supply chain.
Brian Austin: Drama today.
Speaker Change: Okay. Thank you.
Brian Austin: You bet.
Speaker Change: And your next question today will come from Richard <unk> with Deutsche Bank. Please go ahead.
Speaker Change: Hey, everyone. Thanks for welcoming me on today's call. So.
Speaker Change: I wanted to ask you I know you talked about how you're trying to stay fluid and not sacrifice them against strategic investments. If you don't need to but is there a florida margins, we should be thinking about here as you go through the exercise on identifying cost out opportunities or you know maybe thoughts on how to think about a level of decremental margins if demand really.
Speaker Change: And will they be similar history of better considering some of your latent capacity that you can presumably take out at the market.
Speaker Change: Or is it.
Yeah. Great question. Thank you for that so that's part of our scenario planning.
Speaker Change: No I would say from the most dramatic and I think it was a question earlier on the call. They said hey, there might actually be a pull forward here in Q2, and then a drop off in the second half of the year you can imagine the scenario, we are trying to plan through and for what length of time that those exist. How much is this short term actually longer.
Speaker Change: Term is it is it only a three month a problem or a six month problems. So that's everything that we're working through them as we speak we're listening to our customers. We're watching internal data, we're getting information from the railroads as well so really trying to digest all of that information right now to say what steps should we take and at what.
Speaker Change: Point, and certainly margins are a part of that process.
Speaker Change: And one more maybe more for Darrin.
Speaker Change: You talked about how you are proceeding to Betsy thing this.
Speaker Change: This is not guidance, but just directionally you know consensus is baking in about 2% gains in your mind.
Speaker Change: Revenue per carload for the second half of the year is it fair to assume that could prove optimistic just given where we are in bid season and pricing trends, where they are or given the ongoing negotiations you know you still could maybe get to positive price.
Speaker Change: At some point in the near future.
Speaker Change: Yes, I don't I don't know what any kind of consensus element is we continue to work hard with every single customer to generate a more appropriate returns and begin to repair our.
Speaker Change: Our margin, we're trying to grow the mix of our business is a good bit different maybe than a as we sit here today in this current environment, it's a little bit different than what we would have anticipated you know, but the continued growth in the east gives us a great opportunity and we will continue to watch what happens.
Speaker Change: <unk>.
Speaker Change: In the in as well.
Speaker Change: West Coast demand becomes more clear to us as the summer goes on.
Speaker Change: Okay. Thank you Ross.
Speaker Change: Your next question today will come from Ravi Shanker with Morgan Stanley. Please go ahead.
Speaker Change: Great. Thanks, Good afternoon, maybe a couple of follow ups here, we've been hearing from shippers reasonably that the competitiveness of the dedicated market has kind of stepped up and.
Speaker Change: In recent weeks, which is kind of understandable given the state of the cycle, but have.
Speaker Change: Have you seen any change there.
Speaker Change: Worth calling out in particular and also just on the comment on the rate repair is a message that that rate of repair here. It takes multiple pricing cycles or do you think with appropriate condition is going to happen in a in this current bid season.
Speaker Change: Thanks, Robby brand Hicks here I'll start with the at least the first part of the question.
Speaker Change: No.
Speaker Change: I think it through our lens it.
Speaker Change: Hard for us to see that it's any more competitive than what I would say is what we've been experiencing the last couple of years.
Speaker Change: And the freight recession in the dedicated that we have you know our primary focus is private fleet conversions and so in many instances, we're just competing against.
Speaker Change: The decision to retain their private fleet or outsource their private fleet now in fleets that have already been outsourced and as we've seen renewals, we've probably seen a little bit more competitive landscape, there and in renewing business or competing against.
Speaker Change: Other dedicated providers when that business has been put out to bid I think for US. The key point is we had a pretty good sale.
Speaker Change: Sales numbers in the quarter, we always want more but $2 60 isn't to alphabet. The fundamentals of the business shine through for us whether that's a driver retention in our safety performance that we talked about in our opening comments.
Speaker Change: You know there is inflationary costs that we continue to deal with in areas like insurance, but the reality is our value proposition to customers is as strong today and in this environment and certainly with some of the uncertainty that we've talked about with with tariffs you know our value proposition is the capital management.
Speaker Change: Risk component that we removed from the shipper.
Speaker Change: Our ability to recruit drivers in any in all environments as we proven and then lastly, our operational excellence and so those are the things that we feel like differentiate us against some other dedicated providers in the form inversion to de classify dedicated in and quite frankly, we're very.
Speaker Change: Proud of the results that we have through Q1 and feel like we have a great plan for the balance of the year with high confidence to deliver on that plan robbing. The second part of your question were you talking about bid season four.
Speaker Change: Highway brokerage or intermodal can can you clarify what you were asking there.
Speaker Change: Intermodal I think there was a mention of the word all the phrase right for Behr and get a feel of how that might take a while I wasn't sure if that happens.
In the course of one bid season or did it get to the levels you need to support your long term margins does that need to take multiple cycles.
Speaker Change: Well. So so this is darrin listen when when when I sit right repair I, probably should've said margin repair and certainly they run in tandem as as price increases come our way it gets us closer towards our long term margin target, we still believe that that's achievable I don't know.
Speaker Change: That we came into 2025 expecting to fully achieve margin repair in this cycle. We do have a lot of excess capacity that probably more than one cycle is required to continue to fill that up but we wanted to get the business on a trajectory to see an.
Speaker Change: <unk> in our margins in 2025, and we still have a long way to go to know if we will be successful or not.
Understood. Thank you.
Speaker Change: And your final question today will come from Ari Rosa with Citigroup. Please go ahead.
Speaker Change: Hey, good afternoon, so just to kind of maybe beat a dead horse here I'm curious to hear what what are the prospects foreseeing intermodal margin improvement on a year over year basis through the rest of the year. Just if you could give your thoughts on that like I understand in first quarter, you still had some contracts that were kind of carrying over.
Speaker Change: From from last year, but as you get these rate renewals like should we expect.
Shelley Simpson: Margin improvement in second quarter and beyond and then Shelly maybe if you could talk about just like it has something changed in terms of the dynamics of the industry versus what maybe existed.
Shelley Simpson: Pre COVID-19 that has makes it harder to get back to that kind of pattern that you've been on a kind of seeing earnings kind of steady earnings growth through the cycle with higher highs and higher lows.
Shelley Simpson: So I'm not going to guide you on on margin repair throughout what point can you see that we just we just aren't going to provide that that information certainly every day that we get an opportunity to execute for our customers look for efficiencies finally.
Shelley Simpson: I used to take cost out grow our volumes grow in the right corridor at the right rates is the strategy.
Shelley Simpson: I know our shareholders want to know exactly when that will happen.
Shelley Simpson: There is no lack of effort at this team every single day trying to make that happen.
Shelley Simpson: And maybe I'll take what has really shifted.
Shelley Simpson: Pre COVID-19.
Shelley Simpson: If you think about the times when we've had a downtown and I'm going to go all the way back to O nine because that that's so clear in my mind.
Shelley Simpson: Not only do we have a downturn in volume.
Shelley Simpson: Ill turn in price, but we also had a downturn in costs.
Shelley Simpson: We had come into it now finishing up our third year of a freight recession.
Shelley Simpson: With a meaningful.
Shelley Simpson: Full pressure to reduce cost from our customers and you've seen that in the work that we've been doing trying to eliminate costs that the inflation, that's coming alongside that I can't think of a single cost item.
Shelley Simpson: It is actually down through this freight recession. So that's very unlike anything we've ever experienced and rehab.
Shelley Simpson: At least two years a pricing pressure downward.
Shelley Simpson: With inflation that in that same time period moving up the combination those two things we are really pushing hard to eliminate the cost in between that so if you just think about.
Shelley Simpson: Pricing coming down.
Shelley Simpson: Take whatever it is even here in the market could be double digits.
Shelley Simpson: And our margins have deteriorated, but can we get the inflation associated with that the amount of cost we have to take out is.
Shelley Simpson: It's meaningful and it becomes more meaningful scenarios get more dramatic and so I don't think that is just J B Hunt I think thats whats happening across our industry. So we haven't seen it really from a cost perspective, and that's what's creating more volatility I think from maybe what the pass the baton and last thing if I think of.
Shelley Simpson: The highest deposit let I suppose you know COVID-19 really created that and that's unusual as well. So the two year Amy seasons were extremely high and now Theyre extremely depressed you know that the problem is we're in this environment, where it's gone on for so long.
Speaker Change: Have to repair our margins and you just think about what's going to happen in the next turn I think that's gonna be challenging to try to smooth things out because we're not at a good starting to starting spot to begin with so they.
Shelley Simpson: It should be the comments that I would make around what's different.
Shelley Simpson: And then what we've seen in the past.
Speaker Change: Kelly if I could follow up quickly do you think.
Speaker Change: Carriers are more willing to take thinner margins than in the past are live with kind of thinner margins.
Speaker Change: Well from what I can see some.
Speaker Change: I don't I don't know if I'd call. It thin margins, if there isn't any margin.
Speaker Change: Hmm.
Speaker Change: It's I've.
Speaker Change: Been here almost 31 years Nikki stand here 41 years I've never seen a recession last three years I think everyones holding on and so that's been a margin. It at no margin that that's the whole lot position. So it's it is a very difficult environment that we're operating in and I think everyone's trying to adapt to it.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to MS. Shelley Simpson for closing remarks.
Shelley Simpson: Great. Thank you and thank you to everyone on the call you know it has been a difficult environment.
Shelley Simpson: For the past few years and sometimes our People's hard work just isn't reflected in the operating performance at the company and I know we've been talking on this call and looking forward and what's happening, but I just wanted to take a pause on behalf of our people we've been very focused on being operationally excellent and that's been a key priority and they.
Shelley Simpson: <unk> delivered on that this past quarter and have continued to deliver they are on track for another record year in safety, we've delivered unmatched service to our customers and that's led to increase retention, we're growing our customer count and we're producing record volumes and we will repair market and all of that has the same cap and timing we're ready to be.
Shelley Simpson: Nimble and react to any environment and that's exactly what we're gonna do thanks for joining the call and your interest in J B Hunt.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Shelley Simpson: Yeah.
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Shelley Simpson: Yeah.