The operator welcomes participants to the C.H. Robinson Second Quarter 2024 Conference Call and introduces the company's speakers. The speakers remind listeners that the call is being recorded and may contain forward-looking statements. They also provide information on where to find the presentation slides and mention non-GAAP measures. The CEO discusses the progress the company has made in evolving their strategy, improving execution, and evaluating and enhancing their four P's.

The company has implemented new leadership and tools to improve their profitable growth strategies. They are focusing on delivering innovative products, streamlining processes, and leveraging AI to optimize costs. These changes are aimed at generating incremental operating income and delivering better results throughout freight market cycles. The company's second quarter results reflect a higher quality of execution and performance due to the implementation of the new Robinson operating model. This model is rooted in lean methodology and aims to improve operational execution. The model starts with an enterprise strategy map that outlines key strategies for driving profitable growth and improving operating income.

The company's growth and operating income will come from improving their cost structure and gaining market share in targeted segments. This is achieved through a balanced scorecard approach and regular operating reviews to track key metrics. The company encourages a proactive approach to addressing any issues that arise and has seen improvements in execution since implementing this model. They have also been able to identify and address errors more quickly.

The company is still early in implementing their new operating model, but it is already helping them execute their strategy better. The team is confident in their ability to improve and drive discipline in operational execution. They remain focused on controlling what they can, including deploying the new operating model, providing excellent service, gaining profitable market share, and increasing productivity. They are also taking steps to optimize structural costs and have announced the sale of their European Surface Transportation business to focus on profitable growth in their four core modes.

The company's Global Forwarding and managed services businesses in Europe will continue to provide global services to customers while focusing on improving the customer experience and reducing costs. The company has made changes to its senior leadership team, including hiring a new CFO and transitioning the COO to a new role as Chief Strategy and Innovation Officer. This change will allow for a stronger focus on digital and operational capabilities and accelerate efforts to bring innovative products and solutions to the global logistics marketplace. The new Chief Strategy and Innovation Officer will oversee the company's strategy and innovation process and measure performance against strategic goals.

The speaker, Michael Castagnetto, expresses his excitement for leading the NAST organization and working with the dedicated team members. He mentions the positive impact of the new Robinson operating model on their discipline, execution, and accountability, which is reflected in their results. He also highlights the role of their product and tech teams in delivering innovative tools and solutions to customers and carriers. As a result, their Q2 NAST truckload volume increased, outpacing market indices for the fourth consecutive quarter.

In the second quarter, there was a slight increase in freight volume due to produce season, but overall seasonality was not as strong as previous years. Looking ahead to the third quarter, there is typically a decline in freight volume. The market is still experiencing an oversupply of capacity, but there has been some improvement in pricing and revenue management. This has led to an increase in adjusted gross profit per truckload. In the LTL business, there was an increase in shipments due to strength in the retail consolidation service offering.

The company's LTL team is experiencing growth due to their access to capacity, range of services, and high level of service. They have invested in their sales organization and streamlined their sales process to better engage with customers. The company is actively growing their sales team and prioritizing their people as their greatest differentiator. They are also focusing on innovation to improve the customer and carrier experience, increase yield, and improve operating leverage. The speaker, Arun Rajan, has recently transitioned into the role of Chief Strategy and Innovation Officer.

The team has made significant progress in implementing a data-driven digital strategy, resulting in the integration of digital structures into core operations. The focus now shifts to accelerating actions in support of the broader enterprise strategy and driving profitable growth through innovation. An example of this is the launch of Digital Dispatch, an advanced load matching platform for carriers that increases efficiency and saves time.

In February, Digital Dispatch became available to carriers with 1-10 trucks and will expand to larger carriers in the future. This tool is expected to help with acquiring, retaining, and growing the carrier base, providing greater capacity for customers. The company is also using GenAI to respond quickly to market conditions and improve the employee experience and productivity. Rigor and discipline in pricing and procurement efforts have resulted in improved yield and the company is investing in contract management systems and revenue management to respond quickly to market conditions. The company believes they have a good balance between people and technology.

In the second quarter, the company saw a 3% increase in total revenues and a 5% increase in NAST, driven by revenue management initiatives. The Global Forwarding business also saw growth and profitability, despite challenges in the Red Sea that caused transit interruptions and impacted ocean capacity and rates. The team has been actively engaged with customers to navigate these challenges.

In May and June, ocean rates increased and the impact of these changes on the company's profit per shipment takes one to two months to show. This means that the company saw a positive impact on their profit per shipment in the second half of June and into July. Despite the ongoing Red Sea disruption, the company's ocean forwarding business saw an increase in shipments and AGP in the second quarter. There are indications that customers may be pulling forward peak season ocean freight due to various concerns. Personnel expenses in the second quarter were down compared to the same period last year, due to productivity efforts and higher incentive compensation.

In the second quarter, our headcount was down 10% compared to the same time last year, and we anticipate a slower pace of reductions in the second half of 2024. Our SG&A expenses were $148.1 million, with a reduction of $12.2 million compared to last year. We expect our full year SG&A expenses to be between $575 million to $625 million, with depreciation and amortization expenses of $90 million to $100 million in 2024. Our effective tax rate was 19.4% in Q2 and we anticipate it to be between 17% to 19% for the full year. Our capital expenditures were $19.3 million in Q2 and we now expect them to be towards the lower end of the previously provided range of $85 million to $95 million for 2024. We ended Q2 with $925 million of liquidity, which we believe will help us emerge stronger during this freight recession.

The company's debt balance decreased in Q2 due to improved business performance, resulting in a lower net debt to EBITDA leverage. The departing executive expresses pride in the company's accomplishments and confidence in its future direction. The new executive, Damon Lee, is excited to join the team and plans to focus on operational excellence to drive better results for shareholders. The outgoing executive, Mike Zechmeister, thanks the team and expresses his confidence in the company's future success.

The company's changes are aimed at generating higher operating income and delivering consistent performance. This will be achieved by focusing on growing market share and expanding operating income margins through leveraging capabilities, reclaiming market share, and expanding addressable market. The go-to-market strategy will be optimized and lean practices will be embedded to improve productivity and efficiency. Gross profit will be optimized through monitoring key metrics and responding quickly to market changes. The company is working to reinvigorate its winning culture and instill discipline in order to seize opportunities and solve problems to be successful in the current market and prepare for future growth.

The company has a plan to share their strategy and financial targets at an upcoming Investor Day. They are focused on improving their value proposition, increasing market share, and reducing costs to create more shareholder value. The transportation AGP margin has seen significant improvement in the past two quarters due to the company's initiatives and digital processes. The market remains volatile, but the company expects to continue driving discipline and improving profitability.

The speaker acknowledges that there is more work to be done, but the company has made progress in leveraging their tools and implementing their disciplined pricing strategy. They are now able to respond more effectively to market conditions and make informed decisions about the freight they pursue and the carriers they use. The speaker credits this success to a combination of technological advancements and operational discipline. Despite a prolonged freight recession, the company has seen improvements in their results.

The speaker addresses comments about capacity in the brokerage space and whether customer questions have changed due to financial strain on smaller competitors. They have seen some acceleration of carrier exits but not enough to impact the market. Customers are either focused on long-term solutions or being aggressive in short-term deals.

The speaker discusses the profitability of NAST business and mentions that in the second quarter, there was a nice step forward in terms of operating margins. They believe that in the long-term, NAST can achieve 40% operating margins and GF can achieve 30%. However, the current freight market is tough and they are continuing to make changes and prepare for when the market improves. The speaker also mentions that June had stronger net revenue growth, but it is uncertain if this will continue in July and beyond.

In response to a question about the company's performance in June, Mike Zechmeister discusses three factors that contributed to the increase in AGP per day for the enterprise. He mentions improvements in their operating model, seasonal elements, and easier year-over-year comparisons. He also notes that there may be some differences in performance between NAST and GF on the ocean side of the business, with some pull forward demand and lower pricing due to issues in the Red Sea. However, he does not see any significant changes in the market and cannot predict any definitive inflection. When asked about July, he says it looks similar to June.

The speaker discusses the company's quarterly results and mentions that they have tried to avoid commenting on specific months due to the need to see the full quarter's results. They also mention that NAST saw a more even quarter compared to Global Forwarding. The speaker also addresses the company's headcount, stating that it is down 10% year-over-year and 3.5% sequentially. They mention the team's success in managing through events such as road checks and holidays, and the benefits of investments in technology.

The speaker is confident in their company's efficiency metrics and believes there is still room for improvement. They mention a slower pace of headcount reduction in the back half of the year, with stabilization in personnel. They also address recent sales layoffs and potential changes in how they sell and organize the business. The speaker also mentions a slight increase in truckload tonnage and a decrease in pricing, but it is unclear if this trend will continue.

The company is actively growing its sales team and changing its methodology and process to ensure success. Despite a prolonged freight recession, there has been some spot market movement, but not enough to indicate a market inflection. The company is also seeing shippers preferring to lock in asset-based capacity, and routing depth fell in July. The overall state of the market is uncertain, but the company is pursuing growth opportunities and monitoring spot activity and demand.

During a conference call, Michael Castagnetto and other executives from a transportation company discussed the current state of the market and their business strategy. Castagnetto mentioned that they are not seeing a lot of freight move from route guides into the transactional space. He also stated that customers are being aggressive in planning their route guides and the market is oversupplied. The company is focusing on the long-term health of their route guides and will rely on their operating model and revenue management when the market changes. Another executive, Brian Ossenbeck, asked about the company's headcount and if it has been decoupled from volume growth. The executives also discussed the recent sale of their European surface transportation division and future plans for their portfolio.

The company is confident in their tech investments and has seen significant improvements in productivity. They will continue to invest in this area in the future. The company has also focused on their portfolio and sold off a business that was not consistently profitable and had a minor impact on their overall results. The company is now focused on their four core modes of truckload, LTL, ocean, and air.

The company's incentive compensation structure has been modified under the new operating model, and the organization feels confident that they are aligned for success when the market improves. They will continue to make tweaks as needed, but this is part of their disciplined approach to the new model.

Stephanie Moore asks about the performance of NAST AGP in the second and third quarters, and the possibility of further strategic sales of businesses within the enterprise after the sale of EST. Michael Castagnetto responds and hands it over to Dave to provide more information.

The speaker from NAST believes that there is a slight decline in seasonality from Q2 to Q3, but it is uncertain how far this will continue into Q3. They also mention that the first month of the quarter is not a good predictor. The speaker from Europe discusses their portfolio and the decision to focus on four core modes. They feel good about these modes and the direction they are heading in. The call concludes with a closing statement from Chuck Ives.

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