The J.B. Hunt Transport, Inc. 2Q '23 Earnings Conference Call began with Brad Delco, Senior Vice President of Finance, providing disclosures regarding forward-looking statements. Following this, John Roberts, the CEO, was introduced and gave some opening comments. Various members of the leadership team were also present to discuss specific areas of each segment.

John Roberts, CEO of J.B. Hunt, noted the shift in the industry and the product of that shift in the company's second quarter results. He highlighted the resiliency in certain areas of the business, such as DCS, and the growth opportunities in Intermodal, Final Mile, and Highway Services. Roberts is confident in the company's investments in people, technology, and capacity and their ability to provide unparalleled service to customers. He then passed the call to Shelley Simpson, the President, to continue the discussion.

The organization is committed to long-term investments in their people, technology, and capacity in order to provide exceptional value to their customers and long-term returns for their shareholders. They are focused on creating a work environment that is welcoming, safe, and respectful for their employees, and they are investing in technology and capacity to increase efficiency, productivity, and safety. They are also managing their costs and resources to remain competitive and serve their customers.

In the second quarter, revenue, operating income, and diluted earnings per share all declined year-over-year due to lower freight and pricing trends and inflationary cost pressures. The company is managing and investing in the business with a long-term mindset, while also being prudent on costs and expenditures. The capital plan for the year is expected to be between $1.5 billion and $1.8 billion. At the end of the quarter, there was $296 million of cash on the balance sheet.

John discussed the decision to draw funds from the new credit facility put in place last September, which resulted in a higher debt balance but a lower net debt level. Nick then discussed the performance of the Dedicated business in the quarter, which saw the sale of 370 trucks worth of new deals and remains cautiously optimistic on hitting the gross sales target of 1,000 to 1,200 trucks for the year. The contracts typically have a five-year average with annual price escalators linked to inflation-based indices.

Final Mile is seeing pressure in the demand for big and bulky products, but the company is committed to providing a differentiated premium service product with evidence of market share gains. Safety is a priority, with inward-facing cameras being rolled out to 60% of the fleet by year-end. The company is also making faster progress than expected on renewing the fleet, with all tractor replacements expected to be finished by the end of the third quarter.

Nick has concluded his remarks and Darren has taken over to review the performance of the Intermodal business. Demand for Intermodal capacity was lower due to inventory destocking and volumes declined 7% year-over-year. Margins were also impacted by the lack of volume and inability to leverage the cost structure. Pricing for domestic Intermodal service fell within expectations, but trended towards the lower end. Intermodal still presents a strong value proposition with improved service at a discount compared to trucking and with lower carbon emissions.

Darren discussed the opportunities to capitalize on the opportunity of converting freight from Highway to Intermodal, and the positive trends in velocity and on-time service quality. He expressed confidence in the rail provider's ability to handle more volume with the investments made in people, technology and capacity. Brad Hicks then reviewed the performance of Integrated Capacity Solutions and Truckload segments, as well as an update on J.B. Hunt 360. Demand in truckload brokerage was lower than expected for the period.

The segment's top-line revenue was down 43%, with volume down 26% and revenue per load down 24%. Contractual business was up double digits year-over-year, highlighting the competitive market and decline in spot business. Towards the end of the quarter, spot rates seemed to be bottoming out, resulting in increased gross margin. The Truckload segment now relies on third-party carriers to source drop trailer loads on the J.B. Hunt 360 platform, which provides value and flexibility to customers. JBT is still relatively young in developing the 360box service offering and is investing to strengthen the product and drive greater efficiencies.

Darren Field commented that Intermodal has the potential to be the correct solution for a large number of loads, and that this is something that has been seen for many years. He does not believe that the current environment has made this potential shift any more pronounced than it has been in the past decade.

Darren Field, CEO of Canadian National Railway, discussed the company's focus on improving service and customer experience for greater predictability. He noted that the last five years of rail service have been difficult, but there have been significant improvements and investments from rail providers. Field stated that while they are still cautious about customer forecasts, they have the capacity to meet customer demands when they return.

Brad Hicks discussed the Dedicated business, which was resilient and strong in the second quarter despite freight market weakness. He mentioned that the company's pipeline is still full and their hit rate has ticked up slightly. He is confident that the truck count will remain consistent and that there is still room for sequential margin improvement.

Darren Field has stated that Intermodal must provide a balance of value and service quality in order to succeed. In conversations with customers, the focus has been on how to reduce costs and find advantages in pricing. Intermodal prices will always be lower than Truckload market prices.

John Roberts addressed the question related to Yellow, stating that they do not wish to comment on it. Darren Field then discussed the idea of cutting rates to increase volume, asking if it would be beneficial.

Darren Field explains that while price can improve margins faster than volume, he does not anticipate any pricing market in the near term that will help with the margin. He believes that volume is the most likely influencer of margin improvement in the near term. Scott Group then asked John if they are thinking about dialing back investments in their brokerage business, which is currently losing money.

John Roberts is confident in J.B. Hunt's ability to execute their investment strategy in spite of the turbulent market. Brad Hicks adds that they are committed to investing in the platform technology to add value for customers and carriers.

Shelley Simpson discussed how the company leverages technology investments to serve customers and drive the company's growth. She also discussed the company's strategy of evaluating investment ideas from employees and allowing customers to provide feedback to shape the company's technology strategy. Darren then asked about the details of the company's Intermodal contracting in the second quarter.

Darren Field states that they typically reprice 30% of their business in each quarter, and this year was no different. They had some customers move faster than usual this year, so there isn't much new price left to implement in the third quarter. They are still seeing an opportunity to grow their business, but they are being prudent with their capital and expenses. They are not hesitating to bring on equipment, but they will be taking a more cautious approach.

Darren Field comments on the resolution of the West Coast labor agreement and its potential impact on their customers. He mentions that customers are considering moving back some of their East Coast imports through the West Coast, but they have not seen a visible change yet. He is confident that the West Coast import opportunity for their customers is the fastest and lowest cost answer. He also mentions Brad's view on the health of small carriers in the truckload capacity market, noting that spot rates are bouncing around the bottom and small carriers may face a cash crunch in the second half of the year.

Brad Hicks commented that the bottom of the market has been reached, but it is difficult to know what volume will be like in the second half of the year. He noted that carriers had benefited from elevated revenues during the peak of the pandemic, but there are signs of closures and losses in the marketplace. He also noted that Dedicated has been adding gross trucks, but has been losing some on a same fleet basis due to cyclical pressures in the market.

Brad Hicks discusses the pressure on customers due to the economic downturn, which has resulted in a mismatch of resources in the business. He explains that they are continuing to drive out cost and optimize fleets, but are not seeing much pressure from competition. He is unable to predict when the economy will turn around, but is preparing for the eventual upturn by managing resources.

The company has reduced headcount and is focusing on how to successfully grow back with the remaining resources. They are also tightening up where they can in order to be prepared for when the market turns around. In response to a question about inventory, the company suggested that customers had made significant orders and had a lot of inventory as sales began to decline, and they are now trying to match inventory with their sales. They also discussed power-only demand, suggesting that it may be a long-term growth story for the industry.

Brad Hicks discussed the future of power-only with 360box, which has seen double-digit growth in the network in the second quarter despite the environment. He also noted the volatility in the market over the last 36 months and the value of flexibility that box provides to customers. Jason Seidl then asked about the Intermodal side, and Hicks mentioned that the comps will get easier in September.

Darren Field and John Roberts discussed the potential for growth on the West Coast due to improved imports, as well as the impact of the mix on the first quarter. They also discussed the monthly year-over-year volume change, but were unable to provide further guidance.

Darren Field of Union Pacific states that the eastern network volumes in the first quarter were encouraging, and that the Highway price is more competitive in the East than in the West. He also states that the decrease in Eastern Intermodal market growth rate from positive 1% last quarter to down 6% was not significantly impacted by any accidents in Ohio.

Darren Field clarified that June was their most difficult comparison month from '22, but there were still positive signs. John Roberts then provided the monthly numbers showing that the quarter had improved as it progressed. They are still in a wait-and-see mode for the rest of the year.

Shelley Simpson discussed the pricing pressures due to higher costs to operate and inflation. She noted the strength and resiliency of the company's complementary business model, with Dedicated having a record for operating income in the quarter and Final Mile continuing to improve profitability. She also highlighted growth opportunities in brokerage, power-only 360box, Highway Services, and Intermodal, which is outperforming the industry.

This paragraph discusses the company's focus on growth opportunities and their commitment to investing in their people, technology and capacity. It emphasizes the importance of managing and running the segments with an intense focus on detail and making short-term focused decisions to yield short-term results. It concludes by mentioning that the company is in a position to capitalize on growth opportunities.

The speaker emphasizes the importance of focusing on the future opportunity while also dealing with the current freight recession. They have maintained composure and are working hard to serve their customers. They view themselves as a "coiled spring" and are looking forward to giving updates in the future. The conference call concluded with the operator thanking everyone for joining.

This summary was generated with AI and may contain some inaccuracies.