The J.B. Hunt Transport Services, Inc. First Quarter 2024 Earnings Call is being recorded and will feature several speakers including the CEO, CFO, and COO. The call may contain forward-looking statements and risks and uncertainties are acknowledged. The CEO will give some brief remarks before turning it over to the team for updates and questions. They are confident in the company's strength and future growth.

The company remains committed to managing for the long term and staying financially disciplined. They have faced challenges and made strategic decisions, but are confident in their direction. They have invested to prepare for the future and are ready for a turnaround. The CEO will be stepping down, but the leadership team is confident in the incoming CEO. The call will now be handed over to the incoming CEO, Shelley Simpson.

Shelley Simpson, the speaker, begins by acknowledging that the market remains challenging. However, she emphasizes the importance of focusing on what the company can control and positioning it for long-term success. The company's priorities for 2024 include delivering value to customers, investing in company foundations, and driving returns for shareholders. The market is currently out of balance, but the company is managing costs without sacrificing long-term growth opportunities. In fact, they have made investments, such as purchasing the Walmart Intermodal container fleet, to enhance their potential for growth and returns.

The company is adapting in how they approach customers and contracts, focusing on long-term growth and return on capital. They remain confident in their strategy and ability to outperform the market. They are committed to disciplined investments in people, technology, and capacity while also challenging themselves on costs. Despite facing inflationary cost pressures, they are confident in their ability to manage through this part of the cycle and continue to pursue their vision of creating the most efficient transportation network in North America. The CFO will provide a high-level review of the quarter, additional information on costs and margins, and an update on the company's capital plan for 2024.

The company is not meeting their financial goals, particularly in Intermodal and Highway Services. This is due to market dynamics and their commitment to investments for future growth. The first quarter saw a decline in revenue, operating income, and earnings per share. The increase in tax rate was due to discrete items and adjustments. The company is aware of the costs associated with their investments and is committed to controlling costs without hindering future growth potential.

The company is focused on maintaining a strong balance sheet and using capital wisely to drive long-term value for shareholders. They have remained conservatively leveraged and have retired some senior notes. The company plans to spend between $800 million to $1 billion on net capital expenditures for 2024 and will continue to be opportunistic with share repurchases. In terms of their Dedicated and Final Mile businesses, they have had a strong start to the year with 690 new truck sales and a strong sales pipeline. However, they are also experiencing fleet losses and downsizes from customers due to the challenging freight environment.

The company has seen some fleet downsizing and bankruptcies, but remains disciplined in underwriting deals and has had success in closing sales. They are confident in their model and ability to grow in the future. In their Final Mile business, they have made progress in improving revenue and service metrics, but demand for big and bulky products remains mixed. They are encouraged by their sales pipeline and continue to focus on providing high-quality service while remaining disciplined in new business. They also prioritize safety in their operations.

In an effort to prioritize the safety of both employees and the public, the company has invested in employee training and new equipment and technologies. The implementation of inward-facing cameras in trucks has resulted in a reduction in on-road collisions and DOT preventable accidents. However, the demand for Intermodal Service was weaker than expected due to a lack of significant increase in imports and balanced inventories. While there has been growth in some lanes, truck pricing in the East is causing pressure.

The company has been facing a lot of competition in bids but remains disciplined in their service offering. They recently entered into a multiyear intermodal service agreement with Walmart, which will increase their container capacity. They are also constantly working with their rail providers to launch new services and are pleased with their service levels. They believe there is a lot of potential for growth in the intermodal sector and have the resources and capacity to handle more volume.

In the first quarter, the brokerage environment for ICS and Truckload segments remained competitive, resulting in a 26% decline in segment gross revenue. This was due to a 22% decrease in volume and a 5% reduction in revenue per load. The integration of BNSF Logistics also presented challenges, but there is optimism for penetrating smaller shippers. Another obstacle faced was the increase in strategic cargo theft, which will be further discussed.

The company is making progress in adjusting its resources to match current business levels and increasing accountability. While spot rates have been under pressure, there has been some recovery in gross margins due to looser capacity. Demand for the J.B. Hunt 360box service is outperforming the market, but demand for drop trailer capacity is soft. The company has more resources and trailing capacity than needed, but the J.B. Hunt 360box model allows for flexibility and cost competitiveness. Technology is helping drive productivity and efficiency in serving customers with available capacity.

The company is facing challenges with strategic theft due to the use of technology by organized groups. To combat this, they are implementing new security measures and shifting to more manual processes. They believe their technology investments will drive long-term growth and create value for stakeholders. Analysts are only allowed to ask one question during the Q&A portion. The company has completed about 40% of their pricing cycle and has a target of $100 million in cost savings due to excess capacity.

John Kuhlow discusses the company's investments in people and equipment and provides transparency on the impact of these investments. He mentions their long-term view and commitment to their resources, and says they may consider changes in light of major economic environmental changes. Brian Ossenbeck asks about volume trends, particularly the disconnect between international intermodal volume and the company's primary rail partner in the West. He wonders if this is a precursor for more transloading and domestic volume, or if there is a shift happening and the company may be losing share to the international track. Darren Field responds that the imported volume on the West Coast has somewhat disconnected from their primary rail partner.

The speaker discusses the strong comparison for imports a year ago and how it has affected current comparisons. They also mention that while overall volumes were flat, there was double-digit growth in Southern California eastbound volume. However, there was a decline in other areas due to competitive truckload pricing. The company is focused on cutting costs and providing value to customers in preparation for potential growth in the future. When asked about intermodal pricing, the speaker acknowledges competition from both truckload and intermodal competitors and states that it is difficult to predict the future, but history suggests that pricing and volume will eventually return.

The speaker, Justin, congratulates John and Shelley on their announcement and asks about DCS. Nick responds by saying that they had a good sales quarter and have a strong pipeline, and they feel confident in the competitive market. Despite some losses, they believe they can hold flat as they previously stated. Brad adds that they had previously mentioned it would be difficult to grow due to fleet losses.

The speaker discusses the market's interpretation of their guidance and mentions that sales performance in DCS has been stronger than anticipated. They also mention a negative offset, which is an increase in bankruptcies. The next question is about the Walmart contract and the speaker is limited in what they can say about it. They congratulate John and Shelley on their achievements.

The company is excited about the opportunity to reach their 150,000 container target with the existing market capacity. The agreement includes mutual commitments and will be onboarded over the course of a year. The volume numbers related to this agreement cannot be commented on. The company is focused on growing with all of their customers and has slowed down their pace of adding containers due to the current state of the market.

The speaker discusses the success of the company's recent transaction and how it has allowed them to accelerate their pace in reaching their goal of 150,000 containers without adding additional capacity to the industry. They also mention the challenges faced in 2021 and 2022 due to the high demand for intermodal services and the joint commitment with their rail providers to expand capacity. The speaker acknowledges the potential for continued cyclical volatility and discusses how the company will manage operations and capital allocation priorities in the long term.

The company is aware that the magnitude of cycles can affect their business, but they will adapt and work with customers to improve forecasts. They will continue to invest in their Dedicated and Intermodal businesses, while also considering other options for deploying capital. Despite a decrease in EBITDA, their debt-to-EBITDA ratio has improved and their cash balance has increased in the first quarter.

The company's capital priorities will remain the same, with a focus on investing in the business, supporting the dividend, maintaining credit rating, and potentially buying back stock. The company is not actively pursuing growth through acquisitions. The analyst asks about near-term expectations for intermodal revenue and margin, and the catalyst for a potential change in the current market conditions. The company does not provide guidance, but notes that historically, Q2 has been better than Q1. The speaker acknowledges that the past 4 years have been more volatile than any other time in their career.

The company has had difficulty predicting the market due to inconsistent trends and an oversupply of capacity. They are focused on delivering great service and regaining customer confidence, but have faced challenges in the competitive bid season. However, customers have given positive feedback and the company is working to find a mutually beneficial solution.

The speaker discusses the operating leverage in Intermodal and how quickly margins could improve with an increase in volume and pricing. They also mention that while the system is built to accommodate a 20% growth, it is uncertain if this will happen. In response to a question about first quarter volumes, the speaker states that typically they are better than fourth quarter volumes, but they cannot predict the exact timing of when this will happen.

During an earnings call, the speaker, Brad Delco, is responding to a question from Amit about the company's performance in the second quarter and any potential impact from Norfolk Southern's recent announcement about intermodal changes. Brad Delco states that the company does not provide intra-quarter updates on volume and will be limited in their response. Darren Field adds that the announcement by Norfolk Southern mostly affects international intermodal and has not impacted J.B. Hunt. Brad Delco also mentions that while volumes were down 9.5% sequentially, this is worse than normal seasonality and compares it to the relatively flat volumes expected in Q3 and Q4. He also notes that the company saw a stronger peak season than expected, which could explain the decrease in volumes. Jon Chappell from Evercore ISI is the next person to ask a question.

The analysts are asking about the difference in performance between the fourth quarter and first quarter for the company. They are curious about the catalyst for the unexpected peak season in the fourth quarter and the decline in the first quarter. The company's CEO, Darren Field, does not have a clear answer but suggests it may be due to the mix of their customer base. Another analyst asks about the profitability of the brokerage business, which has been affected by intense competition.

The brokerage market has seen a slight increase in January, but has since returned to low levels. The company is focused on growing with customers that provide value and have a long-term partnership. The gross margin recovered in the quarter, but was impacted by winter storms in January. The company is taking a disciplined approach to the Intermodal segment and has seen competitive pricing during the bid season.

The company was surprised by the high truckload rates of their competitors and is looking for ways to offer shorter-term programs and collaborate with rail providers to remain competitive. They are focused on growing their franchise in the long term and are seeking opportunities one customer at a time. The trailer count for the Truckload segment was down slightly from the same period last year, but this was due to some trailers being transferred to DCS at the start of 2023. The company will provide more information on this off-line.

During the first quarter of the year, the company transferred some business from JBT to DCS and had excess capacity. The company remains committed to its 360box strategy and saw volume growth within the network it supports. There was a discussion about bad debt expense, which was significant and primarily in Dedicated. The company has been facing a difficult freight market for the past two years.

The company has faced financial struggles, but there have been positive developments such as improved safety performance and on-time service for customers. The focus is on controlling costs without sacrificing long-term opportunities and delivering value for customers. The company remains committed to being balanced between customer needs and shareholder returns. The previous leader, John Roberts, has been instrumental in the company's growth and success.

The speaker expresses gratitude for CEO John Roberts and his leadership, acknowledging his role in the company's success and growth. The CEO also thanks the team for their hard work and dedication, and expresses pride in the company's values and priorities. He also mentions that the company is currently in a strong position and will be handed over to a capable successor.

The speaker emphasizes the importance of their team and leadership in their role as CEO and expresses their gratitude for the opportunity to continue working with the company in a different capacity. They mention their long experience with the company and thank the listeners for their support. The speaker also acknowledges that the current situation may not be as enjoyable, but they are determined to work hard. The call ends with a message of gratitude and a reminder to disconnect.

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