J B Hunt Transport Services Inc (JBHT) 2024 Q2 法說會逐字稿

I would like to welcome everyone to the J B Hunt Transport Services second-quarter 2024 earnings call.(Operator Instructions)

And I would now like to turn the conference over to Brad Delco, Senior Vice President of Finance.

You may begin.

Good afternoon.

Before I introduce the speakers, I would like to provide some disclosures regarding forward-looking statements, this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 in the forward-looking statements.

For more information regarding key 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.

Now I'd like to introduce the speakers on today's call.

This afternoon, I'm joined by our President and CEO, Shelley Simpson; our, CFO John Kuhlow; Spencer Frazier, Executive Vice President of Sales and Marketing; our COO and President of Contract Services, Nick Hobbs; Darren Field, President of Intermodal; and Brad Hicks, President of Highway Services and Executive Vice President of People.

I'd now like to turn the call over to our CEO, Ms. Shelley Simpson, for some opening comments.

Shelley?

Thank you, Brad, and good afternoon to everyone on the call.

I'd like to start by saying I'm humbled and honored to have recently assumed the role as CEO.

And I lead our great company on the next phase of our growth journey.

While recognizing this is a big moment, has only the best organization later in our company 60 year history.

Let me be clear.

Our vision, our mission and our focus has not changed.

We have large addressable market.

We provide excellent service for customers, we have talented people across of Organization, we are prime and we are ready to execute on our opportunities for growth.

My message to the team on day one was quite simple, ready, set, go.

You've heard us say consistently.

We remain committed to our investments and managing the business with a long-term mindset.

These investments, they address our company foundations, which include our people, our technology and our capacity through investments in these key areas, we have a significant number of opportunities to provide value to and on behalf of our customers across our suite of complementary service offerings.

Our focus remains on deploying capital in areas of the transportation industry where we see a long-term opportunity to generate compounding returns.

We operate in an industry that is cyclical, but we have focused on businesses in areas that we feel confident we can compete effectively take care and with free do this by remaining financially disciplined, keeping our focus on the long term, while managing costs in the near term and relying on our vast experience, we will be prepared to meet the growing needs of our customers while driving long-term growth for the company and our shareholders.

Earlier this year, we introduced our priorities for 2024, and we, as a management team and as an organization continued to execute on these priorities, which, as a reminder, our one to deliver exceptional value to our customers through operational excellence, two, sell a long-term investment in our company, foundations, which are people, technology and capacity entry, drive long-term value and returns for our shareholders.

While the first half of this year has been challenging.

In terms of our financial performance, we remain focused on delivering exceptional value to our customers.

In 2024.

We've continued our record performance in safety and our service levels to customers has been exceptional.

We have received multiple awards this year for our high service level from our customers.

Our joint intermodal service are fine with BNSF, Quantum is running well above our initial expectation from an on-time service performance.

In dedicated, we continue to prove our value to customers as we've been able to balance the need to be disciplined with underwriting new business while providing customers some flexibility with meeting.

Final Mile continues to make progress on its profit improvement plan, and we continue to work on areas around cost integration and growth in ICS and see some progress in the business.

Finally, we remain encouraged about the value proposition for customers and our drop trailing business and JBT and future potential of that business.

While admittedly the market has been challenging, we have invested throughout this downturn to set us up for future growth and success across the business.

We continue to focus on controlling expenses in the near term without jeopardizing our long term potential, managing our headcount through attrition, while at the same time continuing to deploy and enhance our technology to increase the productivity of our people, we took advantage of a strategic opportunity to acquire the intermodal assets from Walmart earlier this year.

Which added capacity to our network, but also increased the long term growth potential of our company, which we believe will drive long-term returns for both the company and our shareholders.

The team will provide more details with their prepared comments.

But in summary, we will stay the course focus on the long term with the same vision to create the most efficient transportation network in North America.

With that, I'd like to turn the call over to our CFO John Kuhlow, John.

Thank you, Shelley.

Good afternoon, everyone.

Similar to recent quarters, my comments will cover a high level review of the quarter and provide an update on our cost control efforts while also balancing our investments to support future growth.

I'll close with an update on our capital allocation plan for the remainder of 2024.

As a general overview flow, we have seen some moderation in inflationary cost pressures.

The deflationary rate environment continues to pressure our margin performance.

Let me start with a quick review of the second quarter.

On a consolidated GAAP basis compared to the prior year period, revenue declined 7%, operating income declined 24% and diluted earnings per share decreased 27%.

A combination of either lower volumes and our yields, but most notably lower rates were the main drivers of the lower revenue, primarily in our intermodal and highway services businesses, which includes our brokerage business and ICS and our drop trailer business at JBT.

Our tax rate in the quarter was slightly elevated at 26.8%.

However, we continue to expect our full-year tax rate to fall within the range of 24% to 25%.

While we have seen improvements across many of our cost categories, the lower revenue continued to put pressure on margins across our business segments.

With the exception of FMS and JBT, which improved our operating margins year over year, we have been thoughtful and thorough in our approach to managing our costs.

Last quarter, we quantified lender commitments to investing in our business through this downturn represented, which was an aggregate $100 million on an annual basis.

We continue to focus our cost efforts in areas that would not prohibit or ability to support our future growth or our future earnings.

These costs are primarily related to our investments in two of our company foundations, namely our people and our capacity has to be expected.

The majority of these costs are burdened our JBI business and also but to a lesser extent, our ICS and JBT segments.

Importantly, we remain confident in our ability to grow our business to scale into these investments.

Wrapping up with an update to our 2024 capital plan, we are updating our guidance for net capital expenditure for the year to be in the range of $650 million to $700 million.

This compares to our previous expectation of $800 million to $1 billion.

Keep in mind, this does include the previously announced purchase of Walmart's intermodal assets.

This reduced planned largely reflects a moderation of both tractor and trailer fleet additions in addition to real estate projects.

Our earnings performance has been under pressure for leverage at the end of the quarter was 0.9 times EBITDA below our target of 1 times.

We also purchased just over $200 million of stock in the quarter.

With our updated and reduced net capital expenditure plan, current market dynamics and our view of where we are in the cycle.

We believe a disciplined approach to the share repurchases, prudent use of capital at this time.

This concludes my remarks.

And I'll now turn it over to Spencer.

Thank you, John, and good afternoon.

It's a pleasure to be joining the call.

My remarks will focus on our sales and marketing strategy but will also include some perspectives on the market as well as feedback we are hearing from our customers.

During the second quarter, we saw or normalized seasonal patterns across our business.

On the demand side, the second quarter felt more like what we're accustomed to seeing prior to the pandemic disruption.

April started a little slower from a demand perspective, primarily due to the timing of Easter, but we did experience what used to be a typical and a month and into quarter lift in June.

This was evidenced particularly in both JBI and JBT in the quarter where we've seen strong improvements in bid compliance levels in the mid-80s to 90s levels, which we haven't seen quite some.

We were able to meet the seasonal demand for our customers with high service levels across our businesses.

Our customers have worked through most of their excess inventory and fuel appropriately right sized with current sales activity levels.

While we cannot predict when the market will inflect, our customers know we stand ready to meet their growing transportation needs across our entire scroll services.

Regarding our scroll, our customers by capacity across our suite of services and have come to expect a consistent, high service level experience.

In fact, greater than 90% of our top 100 customers buying more than one service from us and greater than 75% by from three or more services.

Among our segments JBI and ICS have the highest overlap amongst our top 100 customers.

We see the power of the scroll in our sales efforts as customers have recently wanted to deemphasize our use of brokers in favor of assets.

We've converted some nice wins over to JBT as a result.

Being mode in different and offering customers.

The best solution will always guide or go to market strategy.

We look at the overall freight market.

We still see oversupply across all modes with shippers having options on both mode and provider to move their freight.

Now, well, capacity is not a top concern right now.

There is an awareness that this will change at some point, but the timing of which though remains un-clear, currently costs and value are the primary differentiators right now for customers.

And we continue to lean into the value we can deliver to customers with our premium service.

As we've said in previous quarters, we don't know when the cycle will shift and aren't going to make a prediction.

But we remain committed to investing in our business for the long term and being ready to grow with our customers over many years to solve their transportation needs with high service levels.

They've come to expect from J B Hunt.

I'll wrap up with some of the feedback we're getting regarding peak season.

We see the same datasets that most of you track and read the same headlines around what's happening in the ocean freight market.

The feedback we hear is an expectation for peak season this year, but the magnitude or length of paid remains to be same.

That said, some customers have pulled a portion of their peak freight forward a couple of months, given the multiple macro factors that could impact the supply chain later this year.

This pull forward has created an early peek on the water, but that hasn't translated into domestic inland moves just yet.

We are working with customers on peak season plans to ensure we have resources properly positioned to meet their transportation needs.

That concludes my remarks.

So I would now like to turn the call over to Nick.

Thanks, Spencer, and good afternoon.

I'll provide an update on dedicated Final Mile business and give an update on our areas of focus across our operations.

I'll start with dedicated.

While we are not immune to the impact of the overall market, we believe our results during the quarter, we continued to highlight the strength and resiliency of our unique dedicated business model.

We believe our differentiation is supported by our focus on providing professional outsourcing private fleet solutions to a broad and diverse group of customers.

In addition to our relentless focus on delivering value to our customers.

During the second quarter, we sold 325 trucks of new deals.

While we have visibility into some losses are downsizing throughout 2024, our sales pipeline remains solid and our team has done well to backfill some of those losses.

Despite the challenging market conditions, importantly, we have remained committed to our disappointment in the types of deals we underwrite without sacrificing our return thresholds.

With a proven track record of high service levels and our ability to create value for our customers.

We continued our success, onboarding new business and renewal business with our existing customers.

We remain confident in our ability to execute on the transportation needs of our customers and the opportunities that further compound our growth over many years.

Going forward, despite our strong new truck sales in the first half of the year, I would expect our fleet count to end the year relatively flat from our Q2 levels, with some additional start-up expenses as new trucks are brought into the fleet.

Shooting to Final Mile continues to be pleased with our progress we have made to improve the overall health of this business journey started many years ago.

We focused on a differentiated, high-quality service to them, focusing on revenue quality and remaining cost discipline throughout the process.

The market for big and bulky delivery continues to evolve and customers are looking for a high-quality, safe and secure service provider with national scale for transparency purposes.

Our second quarter results do include a net benefit of $1.1 million from two offsetting claim settlements.

Demand for big and bulky products remain mixed, with stable demand for both appliances and exercise equipment for continued softness in furniture demand.

We remain modestly encouraged by our sales pipeline and continue to see new brands engage in discussions with our team.

We continue to strive to provide a high level as we deliver products into the homes of our customers customer.

With a focus on being safe and secure.

We will remain disciplined with potential new business to ensure appropriate returns for our service.

While we work to grow the business and improved profitability, going forward, we would expect some customer churn to continue to focus on revenue quality and performance to follow fairly normal seasonal patterns, excluding the unique item called out in the quarter, similar to the West borders are closed with some comments on safety.

Our company was built on a foundation of safety for not only are people, but also the motoring public.

And we continue to invest in training and equipment to enhance our already strong safety culture.

We continued to lead the industry with our fleet that is now over 97% rolled out with inward facing cameras, and we remain on track being 100% complete by the end of the third quarter.

As you may recall, 2023 was our best safety performance on record for DOT preventable accidents per million miles.

And I'm pleased to say with the help of our inward facing cameras, along with our numerous other innovative safety initiatives, we are seeing further improve movement so far year to date.

This is a testament to the quality of our drivers in the safety culture of our company.

As the cost of claims continues to move up exponentially, we remain focused on finding new innovative ways to further enhance our safety performance and mitigate risk where possible.

This concludes my remarks where we're locking now turn it over to Darren.

Thank you, Nick, and thank you to everyone for joining us this afternoon.

On the call.

I'll review the performance of our intermodal business during the quarter, give an update on the market and service performance and highlight the continued opportunity we have to deliver value for our customers and all of our stakeholders.

I'll start with intermodals performance overall, while we saw seasonality that resembles more normalized pre-pandemic demand trends during the quarter, the impact of a depressed truckload market and competitive bid season in general more than offset this and drove our volume down 1% year over year.

This was primarily driven in the East where we have closed, where our volumes were down 7% in the quarter was partially offset by our transcon business growing 4% in the quarter.

We continued to see strong demand out of Southern California, where volumes were up double digits versus the prior year.

By month, our consolidated volumes were down 3% in April, up 1% in May and down 1% in June during June, we did see a nice seasonal lift in volume, particularly toward the end of the month and importantly, we were able to meet our customers' capacity needs with strong service levels, highlighting the strength and flexibility of our network

As we look at the freight market, we continue to see a large amount of freight that we believe should be converted from over the road to intermodal as it is more economical and environmentally friendly, as I've said it before.

And I want to say it again, we stand ready and have the capacity and people in place to meet it, exceed our customer service needs and recapture share from the highway moving forward.

During the quarter, we did see margin pressure both year-over-year and sequentially.

This is largely related to the market pressure on our yields, but also due to our capacity investments.

While volume done more to us now than ever before given our underutilized capacity are modestly lower volume year-over-year and only slightly higher volumes sequentially was that in enough to absorb our higher cost and deflationary yield pressure.

As discussed earlier in the year, bid season was competitive and largely wrapped up during the second quarter.

We continued to see truckload pricing that we believe is unsustainable, particularly in the east and shippers took advantage.

Given the nature of our pricing cycle, we will be living with a large portion of the recently completed bid into the first half of 2025.

With regard to our rail service providers, we have been pleased with the service from each of our providers.

Their commitment to the intermodal offering and growing the overall market.

That said, we and our railroad partners know the true test of our collective service will come once freight volumes increase was higher overall demand on our networks.

We remain confident in the collaborative work and investments being made to maintain high speed service levels as the inflection occurs.

In closing, we continue to strongly believe in the strength of our intermodal franchise.

Our customers trust us, and we continue to find new and innovative ways to better serve their transportation needs.

Our service levels are exceptional, and we are confident that this level of service can continue as our customers' overall demand for our capacity increases.

While we are not pleased with our current results, our optimism on the future growth of our business hasn't changed.

We remain excited to work with our customers to meet their growing demand with an efficient cost competitive and more environmentally friendly solution.

That concludes my prepared remarks.

I'll turn it over to Brad Hicks.

Thank you, Darren, and good afternoon, everyone.

I'll review the performance of our integrated capacity solutions and truckload segments, while also providing an update on some of our work in J.B. Hunt 360.

Starting with ICS, the overall brokerage environment remains competitive with pressure on both volume and rate.

Segment gross revenue declined 21% year over year in the second quarter, driven by 25% decline in volume, partially offset by a 5% increase in revenue per load.

As you've heard, we did see some seasonality in the business with some relative tightness in the market around road check and in the later part of June.

That said, our gross margins for the quarter were 14.8%, the highest we've seen since the fourth quarter of 2022, which is noteworthy given 61% of our volumes are under contract.

We continue to focus on quality revenue and growing with the right customers as our yield performance indicates.

Admittedly, we are incurring some challenges integrating the previously announced acquisition of the BNSF Logistics but remain encouraged and optimistic about the potential of the agent model on our platform.

These challenges are masking some of the underlying progress we are sitting in our legacy ICS business.

Going forward, we will remain focused on further rightsizing our cost structure, but ultimately, we need to push more volume through our platform in order to see material improvements in our results.

Moving over to JBT or truckload segment, gross revenue was down 12% year over year, driven by a 9% decrease in volume and a 4% decrease in revenue per load.

This season was competitive, and we opted to remain disciplined on price, which resulted in some lost volume.

That said, we are focused on attracting the right freight that best fits our network with the right customers that see the value of our service and network of trailing capacity.

While we currently have excess trailing capacity in our network, we are working on ensuring discipline around our network to ensure that we have the right capacity in the right markets where our customers have needs and where they are growing.

We hear from customers that they appreciate our high service levels and the flexibility that our drug trailer offering provides to their supply chain.

Our model allows us to be more variable with other costs depending on the market, which we believe ultimately presents us with opportunities to scale this cost competitive service offering for customers while ensuring we generate an appropriate return on capital.

Going forward, our focus is on improving our trailer utilization rate while ensuring our capacity remains balanced across the network.

I'll close with some comments on J.B. Hunt 360.

Technology enables our people, helps drive productivity, and also drives efficiency and how we source and serve customers with our available capacity.

Technology is foundational to our company, but it has also created opportunities for strategic step groups to impact our operations.

We continue to deploy enhancements to our system to increase the security of our platform and have become much more stringent on carrier vetting to mitigate cargo theft risk, which continues to be very prevalent in the industry, and in particular, for our customers who are feeling the impact.

Long term, technology investments will continue to drive productivity and efficiency gains across the scroll and better position us for long-term growth with our customers.

That concludes my comments.

So I'll turn it back to the operator, who will open the call for questions.

(Operator Instructions) Jonathan Chappell, Evercore ISI.

Thank you.

Good afternoon.

Darren, you mentioned the pickup near the end of June on some of the volumes.

Just wondering, does that have to do with some of the themes that Spencer spoke about regarding moving up peak season a little bit?

Or is there something else going on, particularly, in the transcon in Southern California that gives you a little bit more optimism about the cycle?

Yeah, appreciate the question.

Certainly, Spencer's comments just on overall imports to Southern California is one of many factors resolved and just general improving trends throughout the first quarter or throughout the second quarter.

I do want to highlight, we referenced negative 1% volume comp in June.

June of '23 had two more working days than June of '24, and so that's certainly an influencer in that comparison.

But again, as the quarter went on, we experienced some improving trends from our customers.

I also highlighted in the prepared comments that we were up double digits out of Southern California for the entirety of the second quarter.

So certainly from some customers would highlight that maybe that was a result of early shipments for peak season.

Some customers highlighted that generally their business had improved, and in some cases, we had converted back highway business to intermodal.

So it's kind of a mesh of everything to see some improvements that occurred during the quarter.

Yeah.

John, this is Spencer.

I'd just like to add a little bit to that.

When I talk about normal seasonal trends, I think that's something that we really need to think about across our customer base.

Normal seasonal trends end of month end of quarter in Q2 really are related to back to school, things that are prepping for that season, for other events to take place here in July with different promotional things.

So I'm encouraged from our customer base that really normal seasonality started to show up for us.

And I think that's something that we're going to be looking forward to as we move on.

And I think that in the prior years, we struggled really.

We're seeing seasonal trends in a normal way.

There was just still so much disruption.

So appreciate the question.

Just wanted to add those comments.

Jordan Alliger, Goldman Sachs.

Yes, Hi, afternoon.

So just I know you've talked about this a bunch before the intermodal margin recovery story.

I know you have the excess capacity now, but is it mostly a function of getting sequential revenue per load to move up?

And do you feel given now that the contract season is largely done for the next several quarters, at least looking ahead, do you feel you've reached a point of stability on that revenue per load?

Thanks.

Well, certainly, we highlighted that this current, what I'll call, the 2024 bid cycle largely completed during the second quarter.

Those prices and the yields that we achieved were not strong enough to give us margin improvement that we believe our system can and should run.

We're not changing our long-term margin target.

We're not satisfied with the current returns on our business and do recognize that pricing improvement is one of a couple of areas, but the most important area in order to get margin improvement.

Certainly, volume is worth more to us today than ever before.

We've said that quite often.

And that's just a result of having as much underutilized equipment as we currently have.

And then, all things cost.

What can we do to be more efficient as an organization that can be inside the activities of our drivers and our drayage operation that can be certainly inside the activities of our people?

How do we utilize technology better?

How can we just be more efficient with our customers.

But over the long term, pricing will always be the most valuable element to improving margins more than volume or just operational efficiency.

But we will work on all three every day.

Chris Wetherbee, Wells Fargo.

Hey, thanks.

Good afternoon, guys.

I guess I wanted to touch a little bit on that margin comment.

I guess we saw volume up sequentially, and I know yields were going down, but we also saw profit down sequentially.

So I guess, from a seasonal perspective, that doesn't necessarily always show up.

So I guess I just want to make sure I understand from a cost perspective, if there was something incremental you were dealing with this quarter, if it's the kind of thing that we see improvement in volume from here, should we be able to see margin or operating profit improvement sequentially from here?

It's really -- a pricing implementation element is probably the largest driving factor behind the non-normal seasonal sequential change in profitability.

Certainly, the implementation of the bid cycle has been a headwind to seeing earnings improve.

We will say it often, volume will be our leading indicator and pricing will always lag volume.

And so as we find our way through the rest of the year and look for opportunities to grow our business, we believe, over the long term, certainly, pricing improvements will lag that volume.

Scott Group, Wolfe Research.

Hey, thanks.

Afternoon.

So I know you don't like to give too much in the way of quarterly guidance, but maybe I'd just be helpful to get expectations in a reasonable place at some point.

But so as we see the full impact of these bids, Darren, do you think we should expect one more quarter of a sequential step down in rev per load in margin?

So that's like near term.

And then just longer term, bigger picture, right, and prior downturns, we've seen you guys take share and that really sets you up for the next cycle of earnings growth going forward.

We're not seeing that this time.

And I guess I'm wondering if you have thoughts on why and if you think that if we should -- what implications you think that has for the next upcycle?

So listen, Scott, there's a lot in your question there.

Certainly, the bid cycle always implemented at the same cadence that it did this year.

We implement portions, big, big chunks, 30%, call it, but this pricing cycles throughout the second quarter.

So I guess you could expect that something after the second quarter would entail all of that fully implemented.

So over time, I mean that we did have negative pricing pressure.

I don't have any guidance for you in terms of big step down.

There's certainly -- I don't anticipate anything like that, but we're certainly getting everything fully implemented throughout the second quarter and so the third quarter is a better rate reflection of the fully implemented pricing cycle.

In terms of both share gains, I mean, we have, I think, are dominating the transcon market place.

I do believe our volume growth there has been substantial, and we've highlighted that in the east we have some significant headwinds from truckload pricing.

I think that as we get into the second half of this year, we are optimistic about the discussions we're having with our customers about the value proposition that we represent as low as concerns about highway capacity, and we will continue to look to grow.

So that's probably all I have to comment on your questions today.

Daniel Imbro, Stephens.

Yeah.

Hey, good evening, guys.

Thanks for taking our questions.

Maybe one shifting of to the dedicated side, Nick, we continue to hear anecdotes of a competitive dedicated market.

Dedicated margins were a bit softer, kind of, underperformed seasonality and you sold a few hundred more trucks.

I guess with 1,000 trucks sold in the first half, should those startup costs start to moderate as we move through the summer with their business online where we started the margin inflection as that rolls off?

Or how would you think about that business as we move through the summer?

Yeah, well, first, thanks, Daniel, for the question.

First, from start-up costs, I would say we're just starting to see some of those startup costs come in.

We had a pretty good chunk that starting this month in July.

And so you're going to see that a little bit in Q3, but that's a good thing for us.

From a competitive standpoint, I would just say from our model and what we go after, we've been very disciplined in that.

And so we've seen some competitiveness in retail in what I would call the basic retail replenishment is where we see most of our stiff competition, a little bit more aggressive pricing from some of the one-way truck models are quasi-dedicated in that segment.

But in the other, I would just tell you our pipeline, as I said, is very solid and you're seeing the numbers that we've sold.

So we think we still have a very good footing on what we're going to sell or despite a little bit of pressure in some of those retail areas.

Daniel, hey, this is Brad Delco.

I'll add a little bit more to that too, just to clarify some things that were in some of Nick’s prepared comments

He did share he expected the ending fleet count for the year to be similar to what we saw in Q2.

But how we really get there is we do have visibility simply losses for the remainder of the year.

So think of losing trucks that are sort of at their mature state, if you will, and at the same time, we have startups that are -- that occur in Q3 and Q4, and obviously, those startups have a little bit of headwind to them on the margin side.

So we wanted to get a little bit more clarity on that.

And that was are -- the comments we had in our prepared remarks were an attempt to give you guys a little bit of forward guidance on that expectation, going forward.

Ken Hoexter, Bank of America.

Hey, good afternoon.

So I want to delve into kind of some of the discussion that your transcon growth was up 5%.

You talked about double digits from the West Coast ports, but they were seeing kind of mid-teens volume growth, kind of some conflicting statements.

So you noted early peak season hitting shores, but some of that has yet to move.

So I just want to understand, are we building inventories?

Are we seeing share lost to other rails that are now being more variable on rates for some of the peers that used to be on Burlington with you?

I want to understand the market dynamics in there, if you can.

I would fully expect to outperform the domestic market on Southern California eastbound volume.

So I don't believe we're losing share to any other domestic intermodal channel now.

In terms of during the pandemic window, so if I go back to 2020 through 2023, there was an uptick in the share of transload or domestic volume as a percentage of the imported goods through the Southern California or West Coast gateways.

And that deteriorated so far in 2024.

It's hard to say what 's happened with that cargo; I don't believe it has moved domestically intermodally.

I do believe that the share of Intact international intermodal is up slightly.

Maybe that's because it converted from the East Coast to the West Coast.

And on the East Coast, it was intact and it still is today, even though it's routing through the West Coast.

We were constantly communicating with our customers trying to learn more about what's happened with the mix of transload versus intact international.

If some of that imported cargo moving into storage and will ship later?

I would -- that's a reasonable question.

I don't have a great answer for you on it other than I am confident that we're maintaining and growing our share of eastbound domestic intermodal volumes from the West Coast.

In terms of why the imports are as strong as they are and we're not necessarily keeping up with that, I don't know.

We did highlight that our Southern California volumes were up double digits.

I didn't tell you how many double digits.

I just said, double digits.

So we feel good about our pipeline for eastbound California business, and we will continue to look to grow there and all other markets.

Ravi Shanker, Morgan Stanley.

Great.

Good afternoon, everyone.

Just shifting gears a little bit to talk about ICS, can you just unpack the kind of volume shift?

Year over year, volume is down 25%, a little bit more kind of -- to give us a better understanding of what is going on there.

I think you alluded to the BNSF business that you bought kind of being not quite what you expected.

Can you elaborate on that a little bit more as well?

Thank you.

Yeah, Ravi.

Thank you for the question.

It's been incredibly difficult and competitive market but certainly benefactor.

As we stated in previous quarters, we've been focused largely on quality, and that's also weighed in on some of our volume losses.

And then the commentary in my prepared remarks, I made reference to the impact of some of the challenges that we've had on the BNSF acquisition.

And so really, what we see there is that we lost some business shortly after acquiring the brokerage assets with BNSF Logistics that were unexpected.

We've also accelerated and I'm happy to say that we have been largely successful in integrating from a technology, but that came with some incremental costs in the first half.

And so that's also weighed us down.

When we think about the bigger picture and where our focus has been, there's no doubt that we are dissatisfied with our performance in ICS.

I am, however, very encouraged at what we saw.

Spencer referenced to, kind of, on the seasonal trends.

And I think even Darren mentioned and what they saw their business.

We saw something very similar, both not only at ICS but also at JBT.

When we really think about breaking down the second quarter month by month and we saw really good step forward from our May volumes into our June volumes on a workday basis.

And so I feel like we saw a step up greater than what we historically would see.

And I do believe that in part that is our strategy starting to take form on rolling back with quality partners, quality customers, and quality carriers.

Again, can't quite see it fully in our results yet, but we took a nice step forward on our volumes.

Jason Seidl, TD Cowen.

Thank you, Operator.

I want to get back a little bit to the intermodal side on the margins.

How should we think about some of your commentary about low utilization and increased costs related to equipment.

Is that coming from the Walmart assets?

And how should I think about that sequentially?

Jason, I mean, the acquisition of Walmart equipment is -- hasn't really -- it isn't fully inside our results at this point.

So I mean, we have more J.B. Hunt equipment, whether it's Walmart or our own than what we're fully utilizing today.

And so we have significant growth capacity.

In previous quarterly call, I have said, where we were able to handle as much as 20% more than what we are and that certainly remains true today.

So on the margin front, we have significant leverage to gain by adding volume and putting that equipment to work.

But again, we also have negative pricing pressure at the current moment, which is also a headwind, obviously, to margin performance.

You know, hey, relative to our industry, I think we're doing okay in that area.

But certainly, we have an awful lot of work to do moving forward to get back to the returns we expect for our shareholders.

Tom Wadewitz, UBS.

Yeah.

Good afternoon.

So I wanted to ask you a little bit more about how we think about year-over-year volume growth in intermodal in the second half.

You did have some traction in our volumes in 3Q; I think even more so in 4Q last year.

So do you think we should be thinking about kind of worse year-over-year performance or there -- as the comps get tougher?

Or do you have some visibility, maybe just some momentum or Walmart loads coming in that would help you to stay flattish on the year over year?

Thank you.

I think as much as anything and I'm going to ask Spencer to maybe jump in here when I'm done, just our -- as we move through the second quarter, we were feeling momentum and we've kind of tried to highlight that and do feel like our customers are aware that last year, it caught us by surprise with some of that volume.

And everyone is aware that surprises are not always best when it comes to an efficient transportation network.

So we're engaged in conversations with all of our customers.

We have capacity to solve their needs, and we'll look for ways to continue to grow our business both sequentially and year over year will always be our goal.

We'll have to wait and see, but certainly, we have felt some momentum as the second quarter went on.

Yes, Darren, I'll just share with.

Tom, thanks for the question.

We appreciate every customer that we have and all the conversations we have.

One of the things as we look forward, you know, they are talking about their peak season plans.

But when we ask for customers' forecast, that's an area they still struggle with.

They struggled in the past.

They struggle today.

And we've really leaned into our team, leveraging our data, sharing our expectations, and really collaborate with our customers from here to try to understand what they need and how we can incent our ops teams up to serve them well.

You know if we look at the end of the month and the end of the quarter.

I don't think that two weeks is going to make a trend or two months.

What we need to do is get actual data from our customers and their expectations on what they anticipate their demand is going to be, and then, really set ourselves up to serve them well.

And that's really what we're focused on right now and looking forward to working with them to do that.

Bascome Majors, Susquehanna.

Following up on the comments you just made about peak season.

If we look -- the fourth quarter, you typically do see some sequential profit improvement, big holiday lift in Final Mile, someone intermodal, ICS, and truckload, and maybe a more mixed performance in dedicated.

But just high level, can you talk about the fundamental conditions that separate a normal to good peak season at Hunt from a disappointing one on the bottom line?

And just when would you have typically the customer conversations that would give you good visibility into how that peak season will actually play out?

Thank you.

Hey, Bascome.

Thanks for the question.

It's Shelly.

I think Spencer did a nice job highlighting that we are having those conversation with their customers.

I would tell you this is normally the time that we would be having those.

And I think you heard Darren highlight that we are encouraged with more seasonal demand similar to what we've seen pre-pandemic.

So I would tell you that looks and feels more like pre-2020.

This should be consistent with how we had conversations with customers in the past.

I think our customers have done a better job on their bid compliance and understanding their volume better.

I think we're all just a little bit hesitant.

We've had some false starts over the last couple of years.

And we just want to make sure that things are steady and that we can see clear line of sight.

I think our customers are even a little bit skittish about what they can expect.

So third and fourth quarter, last year, that did catch us by surprise.

We did an outstanding job, us, our railroad providers, I would say across the board, we did a great job servicing our customers.

Our customers realize that.

Now that's why we're having these conversations.

What is the plan?

How do we think about that?

And certainly, if we move back to a more seasonal pattern, we would expect those things to occur from a demand perspective and from a profitability perspective.

Brandon Oglenski, Barclays.

Hey, good afternoon and thanks for taking the question.

Shelley, maybe if we can follow up from there, and welcome to the hot seat of CEO, but this is the seventh quarter of material operating income declines for you guys.

I mean, do share owners, just at this point, need to wait for an inflection in the market?

Or is there more that you can do from your position?

I mean, I know we talk about highway conversions, but if we look back six or seven years, the intermodal volumes really haven't changed all that much in your business.

It's the sixth consecutive quarter of pretty material losses at ICS.

So what can you do in the interim to change outcomes in your business without the market, maybe, potentially inflexing better for you?

Yeah.

Thank you, Brandon.

I appreciate the comments.

Certainly, our last two years has been the most difficult time in my 30-year career.

It has been the most difficult time in predicting and understanding where our customers are headed and how we need to think about that from a quarter-to-quarter basis.

So we are very focused on long term.

One thing we did learn from the pandemic was we weren't prepared and ready for our customers, and that was to the detriment of our long-term success.

We have made strategic decisions to invest in our people, our technology, and our capacity to be prepared and ready.

I believe our customers know that and think that.

I will tell you some of the things that you've heard from the businesses.

Today and even in our past, we are preparing ourselves with best-in-class service.

That for us means we want to separate the service levels we're giving our customers that they know they can expect that from J.B. Hunt on a consistent basis, and then, creating more value for our customers.

We do look at it long term.

And we also recognize that we have to deliver long-term returns for our shareholders.

We think this is the best strategy that sets us up for that long term.

I think in our conversations with customers today, we're encouraged with some of the comments that they're making towards us in the areas that we're heavily focused on.

And so I would tell you, ICS, we're not pleased with performance.

In ICS, We're not pleased with our performance, I would say, to our expectations.

But our relative performance has been pretty good.

That doesn't mean that we're happy.

But when I look at where we're at relative to the competition and how we are doing from a market share gain, our profitability perspective, our return profile, those three areas we're making progress, and that's what we're going to continue to focus on.

I will say that as we move here into second quarter and moving here into third quarter, one thing we do know is we're at least closer to calling some kind of inflection.

Not that we're calling it today, but I will say there are signs that tell us that things are moderating or getting better.

We are skittish.

I've been conditioned now over the last two years to be very cautious on the things that we say.

And I think you're hearing a tone that says, listen, we have better signals.

It doesn't mean that they're great.

And we need more information from our customers to get us better.

Today is the time for us to make sure that we're close to our customers, that we're prepared and ready.

But I will tell you, we are not changing our targets.

We have a long-term goal across all of our businesses to make sure we deliver appropriate returns to our shareholders.

That will be our focus.

We think we're taking the best strategic decision and move to make sure that we accomplish that.

Jeff Kauffman, Vertical Research Partners.

Thank you very much, and congratulations, Shelley.

I guess, I just want to think about this bigger picture because this downturn, I think, has surprised everybody in terms of the magnitude and the duration.

And here we are still seeing pricing trends coming in weaker than expected, even though volume feels a little bit more seasonal.

There's no real view of any catalyst for acceleration.

I guess, looking back on this, what do you think we got wrong about the magnitude of this turn?

And what do you think it takes to catalyze us back forward on the volume and pricing side?

Thank you, Jeff.

Good question.

I will say, I think one of the things that we didn't understand, same thing we didn't understood going through the pandemic was how much the change would occur.

And so if I look back on our experience, in 2009, we had the Great Recession.

We understood and we were prepared and ready.

One of the changes that happened then as price went downwards during that Great Recession, so did our costs.

We're in an inflationary cost perspective with price pressure coming down.

And those two things really is the first time I've seen that at least in my history inside the organization.

I don't know that anybody believes those two things would occur as they have.

You typically look at history, try to learn from what you know there, and then make sure you're prepared and ready.

That I would say was more of a disconnect than maybe what we expected.

And then just the depth, one of the things that we've used in our history is what's happened with capacity.

And so we've estimated that carriers are losing money for now greater than two years.

That is unusual from our history.

That typically would mean that capacity would come out of the market.

And we would start the recovery.

That has not happened and I think that's been the biggest miss just in the last two years of the freight recession.

We hadn't been able to predict when capacity will leave the market.

And we noticed that has to occur or demand has to pick up greater.

But I would tell you more likely that the capacity side would exit more quickly than demand would increase even more.

So I would say those are the two things -- I might ask the team if there's anything else that they see, but those would be kind of the two things I would say that we -- if we'd known better, we probably could have thought through a few things.

David Vernon, Bernstein.

Hey, good afternoon, guys, and thanks for fitting me in here.

I just wanted to ask a question about within the intermodal service, can you give us some context or color around how the quantum product is performing that you guys announced a little while ago?

And then with the shift over of the Mexican traffic from the KCS to Mexico to the FXE.

I'm just wondering if you could just give us an update on how that transition is going.

Has there been any impact on customer attrition rate or anything like that in the North-South trade?

Thank you.

So Quantum, we're absolutely thrilled with the service performance.

I think we're actually outpacing even expectations of our customers.

Now that being said, the complexity of the networks and the decision point for a shipper to convert highway business that we would call -- cannot fail that kind of highway business.

That's not just inventory replenishment.

It's a business-to-business transaction, kind of, move.

It has probably been a little more complicated and a little slower than what we have anticipated.

So while our volume benefits from the Quantum program have not yet been achieved, we are absolutely encouraged by what we're experiencing with the service, that feedback from the customers that are utilizing that service, and we're growing it every day.

It hasn't grown as fast as we probably would have been anticipated.

But we've got a very, very long runway of opportunity to grow with the Quantum product.

And we're thrilled with that.

As it relates to the announcement about the transition to Ferromex from CPKC at the beginning of the year, I think that transition was successful.

Again, customers are clearly concerned about a transition like that and maybe not everybody on day one converted with us at the pace that we would have probably liked to have seen that happen.

As the year has gone on, we have had a lot of success at going in recovering business that maybe didn't transition with us.

And hey, our volume swing on the Ferromex was a material change in their network and the BNSF's ability to serve Eagle Pass has been excellent.

So we feel good about all three parties involved in that program. and but certainly, the customer education around customs and all things related to the new terminals that we operate that with Ferromex was an education and that taken a little longer and probably didn't result in quite as much transition to our network immediately.

But again, as the year's gone on, I feel good about where we're at today and there's more work to be done to grow our presence in Mexico as the year moves on.

And that concludes our question-and-answer session.

I will now turn the conference back to Ms. Shelley Simpson for closing remarks.

Thank you, and thanks for joining our call.

You've heard us talk about our challenges in the business.

And although we're pleased with the relative performance, we're not pleased with our own expectations.

We've seen pressure from our customers on costs in all of our businesses.

Pricing has largely been reset through bid season for our transactional businesses in intermodal, ICS, and JBT.

And that pricing will largely be in place until we complete the season midway through 2025.

And during this great recession, we've invested in our foundations of our people and our technology and our capacity.

And that's really been preparing for a long-term opportunity to grow with our customers.

And we're encouraged in a few areas.

Our DCS and Final Mile businesses have fared very well in this recession.

I am pleased with the margin performance and the resiliency of our DCS business and the improvement in our Final Mile business on both profit and return.

Our customer's demand is returning back to something more seasonal that we can be better at predicting to pre-pandemic levels.

And that gives us more confidence as we're looking at bids from clients better between 80% and 90% in both intermodal and JBT.

And that means our customers are doing a better job predicting their consistent volume.

We're also encouraged with our pipeline and the conversations we're having with customers around our growth plan.

And our peak planning is finally very pleased with our people.

There's 33,000 of our people working hard every day to deliver on the expectations of our customers and our shareholders.

We're going to continue to focus on controlling our costs.

We will provide best-in-class service.

We're going to maintain our excellence in safety and will create value for customers.

And that's what sets us up for growth, that scales our investments, and it allows us to create long-term value for our people and our shareholders.

Thank you for your comments and your interest on the call.

We look forward to speaking with you next quarter.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation.

You may now disconnect.