Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- JB Hunt Transport Services Inc (JBHT, Financial) has maintained a strong focus on long-term investments in people, technology, and capacity, which are expected to drive future growth.
- The company has received multiple awards for high service levels from customers, indicating strong operational performance.
- The acquisition of intermodal assets from Walmart has added capacity to JBHT's network, enhancing long-term growth potential.
- Dedicated Contract Services (DCS) and Final Mile segments have shown resilience and strong margin performance despite market challenges.
- JBHT's intermodal service with BNSF, Quantum, is performing well above initial expectations in terms of on-time service performance.
Negative Points
- Revenue declined by 7%, operating income fell by 24%, and diluted earnings per share decreased by 27% year-over-year, indicating financial pressure.
- Lower volumes and yields, particularly in intermodal and highway services, have negatively impacted revenue.
- The deflationary rate environment continues to pressure margin performance across various business segments.
- The company is facing challenges in integrating the BNSF Logistics acquisition, which has masked some underlying progress in the ICS business.
- Despite strong new truck sales, the dedicated segment is expected to see a relatively flat fleet count by year-end, with some additional start-up expenses.
Q & A Highlights
Q: 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?
A: Darren Field, Executive Vice President, President of Intermodal: Certainly, Spencer's comments on overall imports to Southern California is one of many factors. We experienced improving trends throughout the second quarter. June of '23 had two more working days than June of '24, influencing the comparison. We saw double-digit growth out of Southern California, driven by early shipments for peak season and general business improvements.
Q: 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?
A: Darren Field, Executive Vice President, President of Intermodal: Pricing improvement is crucial for margin recovery. Volume is worth more to us today due to underutilized capacity. We are focusing on operational efficiency and cost management, but pricing will always be the most valuable element for improving margins.
Q: 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?
A: Darren Field, Executive Vice President, President of Intermodal: Pricing implementation is the largest factor behind the non-normal seasonal sequential change in profitability. Volume will be our leading indicator, and pricing will always lag volume. We believe pricing improvements will follow volume growth over the long term.
Q: 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?
A: Nicholas Hobbs, Executive Vice President, President of Contract Services, and Chief Operating Officer: We are just starting to see some of those startup costs come in. We had a pretty good chunk starting in July, so you'll see that in Q3. From a competitive standpoint, we've been disciplined in our model, and our pipeline remains solid despite some pressure in retail areas.
Q: 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.
A: Darren Field, Executive Vice President, President of Intermodal: We are maintaining and growing our share of eastbound domestic intermodal volumes from the West Coast. The share of transload or domestic volume as a percentage of imported goods through the Southern California gateways has deteriorated in 2024. We are confident in our pipeline for eastbound California business and will continue to grow in all markets.
Q: 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.
A: Bradley Hicks, Executive Vice President - People, President of Highway Services: The competitive market and our focus on quality have weighed on our volume. We lost some business shortly after acquiring the BNSF Logistics brokerage assets, which was unexpected. We have been integrating the technology, which came with incremental costs in the first half. We are dissatisfied with our performance but encouraged by recent trends.
Q: 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?
A: Darren Field, Executive Vice President, President of Intermodal: The acquisition of Walmart equipment isn't fully inside our results yet. We have more J.B. Hunt equipment than we are fully utilizing today, with significant growth capacity. We have leverage to gain by adding volume and putting that equipment to work, but negative pricing pressure is a headwind to margin performance.
Q: 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.
A: Darren Field, Executive Vice President, President of Intermodal: We felt momentum as the second quarter went on and are engaged in conversations with customers about their peak season plans. We are focused on getting actual data from our customers to understand their demand and set ourselves up to serve them well.
Q: 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.
A: John Kuhlow, Chief Financial Officer, Executive Vice President,
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
