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F500-2021-315-J.B. Hunt Transport Services

Working with clients in the United States, Canada, and Mexico, the company provides freight transportation services and logistics.

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F500-2020-346-JB-Hunt-Transport-Services

This long-haul truck operator has produced a 15% average annual return for shareholders over the past decade. In the first quarter of 2020, J.B. Hunt took a $12.3 million charge to pay one-time $500 bonuses to drivers and frontline personnel who have kept freight moving during the pandemic.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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J.B. Hunt Transport Services specializes in freight shipping, providing surface transportation, delivery, and logistics services. J.B. Hunt operates through five segments: intermodal (JBI), dedicated contract services (DCS), integrated capacity solutions (ICS), final mile services (FMS), and truckload (JBT). The company operates across the U.S. and has an intermodal service partnership with a rail provider in Mexico.

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J.B. Hunt Transport Services (JBHT): Company Profile, Stock Price, News, Rankings

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J.B. Hunt Transport Services

j.b. hunt transport services

Good afternoon, and welcome to the J. B. Hunt Transport Second Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions.

Please note that this event is being recorded. I would now like to turn the conference over to Brad Delco, Senior Vice President of Finance. Please go ahead.

Good afternoon and thanks for joining us. 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 risk factors, please refer to J. B. Hunt's annual report on Form 10 ks and other reports and filings with the Securities and Exchange Commission.

Now I would like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Ms. Shelley Simpson our CFO, John Kulow Spencer Fraser, EVP of Sales and Marketing our COO and President of Highway Services and Final Mile, Nick Hobbs Darren Field, President of Intermodal and Brad Hicks, President of Dedicated Contract Services. I'd now like to turn the call over to our CEO, Michele Simpson for some opening comments. Michele?

Thank you, Brad and good afternoon. Members of the leadership team are here to dive into their areas, but I want to start by recognizing the entire organization for their hard work and ability to adapt to this dynamic market. I remain highly confident that our work is building a stronger company capable of capitalizing on meaningful growth opportunities ahead. We set out to accomplish this by staying true to our values, mission and vision and maintaining our focus on operational excellence, scaling into our investments in our people, technology and capacity and continuing to repair our margins and drive stronger financial performance, which remains a top priority. Service levels across our businesses are excellent and customers have recognized us in both internal and external surveys.

Our brand is strong in the market. Our excellent service is supporting our growth with both new and existing customers that will help us scale into our investments. Investments in our people have resulted in back to back years of record safety performance for the company and some of the lowest turnover metrics on record for our drivers. We have invested in technology to drive efficiencies in our business and I have challenged the organization to think differently about our workflows and processes to drive even more. Finally, we have prefunded our trailing capacity needs in intermodal and are prepared to support our customers' future growth.

These investments set us up well for our future. While we are preparing for future growth, we remain focused in the near term on repairing our margins and improving our financial performance. We expect the returns on our investments to match the strong and unique value we create for our customers. As you've heard me say, we remain focused on controlling what we can with our expenses in the near term without sacrificing our long term opportunity or said differently, preserving our future earnings power potential. Last quarter, we mentioned more work in the area of cost actions.

Across the company, we launched an initiative to lower our cost to serve. John Kullo will have more details on this work, but at a high level, this effort is centered around doing more with less to support our future growth and get us back to our long term margin targets. I have confidence in this team to lower our cost to serve and to leverage our brand and our scroll of services in the market. We completed Intermodal bid season with positive pricing for the first time in two years and continue to gain market share with capacity to grow more. Our dedicated business remains resilient and with the fleet losses subsiding, we're excited to return to fleet growth in this business.

We have a solid model in JBT and FMS with significant growth opportunities we are going after. Our brokerage business still has work to do, but progress is being made to further right size the cost structure while growing with the right customers and freight. Market dynamics remain uncertain, but we will stay disciplined in our actions and maintain a position of strength. We have exceptional service levels, a rock solid balance sheet with minimal leverage and available capacity at the ready for future growth. We will continue to focus on the long term while taking steps in the near term to improve the return profiles of our business, all with the same mission to drive long term value for our people, customers and shareholders.

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

Thank you, Shelly, and good afternoon, everyone. I will review the second quarter, provide some details on the lowering our cost to serve initiative and give an update on our capital allocation. As a general overview and consistent with recent quarters, our results for the quarter highlight the strength and resiliency of our business in the face of a challenging and unpredictable environment, generating over $225,000,000 of free cash flow in the quarter. While we continue to focus on operational excellence, driving productivity and managing our costs, inflationary pressures primarily in wages, insurance, both casualty and medical and equipment costs more than offset those efforts and weighed on margins versus the prior year period. Starting with second quarter results.

On a consolidated GAAP basis, revenue was flat, operating income decreased 4% and diluted earnings per share was less than 1% below the prior year quarter. The declines were primarily driven by inflationary cost pressures across the business, notably in casualty and group medical claims expense and higher professional driver wages and equipment related costs. These were partially offset by productivity and cost initiatives and a 5% lower average diluted share count versus the prior year period. While the recent tax bill remains under review, we continue to expect our tax rate to be between 2425% and likely towards the higher end of that range. Regarding costs, we have been managing costs aggressively since the freight downturn began over three years ago.

We've managed headcounts through attrition and performance management, driven productivity in our operations and eliminated discretionary spending that ultimately wouldn't jeopardize our future earnings power nor our ability to capitalize on growth opportunities. Earlier this year, we challenged ourselves to do more in an effort to accelerate improvement in our financial performance, create greater operating leverage for the company when market dynamics turn and help support our future growth. Each executive focused on one or two of a total of 14 different areas across the business to identify opportunities to lower our cost to serve. The results of this initiative resulted in $100,000,000 of identified annual cost to eliminate. These costs fall across three main areas efficiency and productivity, asset utilization and technology and engineered process improvements.

And we are not done. We continue to expand on these initiatives and we'll provide updates on our progress in the quarters to come. While some of these benefits will be realized this year, most will impact 2026 and beyond. I'll wrap up with a quick update on our capital allocation and priorities. For 2025, we are now expecting net capital expenditures to fall between $550,000,000 and $650,000,000 effectively tightening the range compared to our prior view of 500,000,000 to $700,000,000 As previously discussed, we have prefunded much of our future growth and capacity needs.

So our capital spend this year is primarily for replacement and what success based needs we have in our dedicated segment. Our balance sheet remains strong in line with our targeted leverage of one times trailing EBITDA and we continue to generate strong cash flow and expect this to continue. Our primary use of cash has been managing our leverage and returning value to shareholders through our dividend and repurchasing stock. We remain focused on deploying capital to generate the highest returns for our shareholders. During the second quarter, we repurchased $319,000,000 of stock, which is a quarterly record for the company.

This concludes my remarks and I'll now turn it over to Spencer.

Thank you, John and good afternoon. I'll provide an update on our view of the market and some feedback we are hearing from our customers. During the quarter, overall customer demand trended modestly below normal seasonality. As customers adapted to changes in global trade policy, the timing and direction of freight flows were impacted. That said, demand for our intermodal service remained strong.

We continue to see customers convert more freight to intermodal from the highway as our commitment to operational excellence, keeping freight secure and our strong safety record differentiates us from the competition. In our brokerage and truck segments, demand followed more normal seasonal patterns, including some market tightness in May around the annual road check event. However, the market tightness was relatively short lived and truckload spot rates remained soft, suggesting the truckload market while close to equilibrium continues to experience some excess capacity. This leads me into some feedback we are hearing from customers around their capacity and service. Customers recognize this cycle is long and ultimately will change.

Their conversations with us focus on how to dynamically optimize their supply chain and capacity plans to meet their service needs and budgetary requirements. Customizing our school of services in changing markets has positioned us to be their go to transportation provider that can deliver differentiating value. Regarding service, all of our businesses and most importantly our people have been recognized with multiple service awards from our customers. This translates to realizing some of our highest customer retention numbers in the last five years, more strategic discussions during the bid process and opportunities for additional freight after bid implementation. I'll close with some comments on trade policy, demand and peak.

When we meet with customers, how they are adapting to trade policy remains top of mind. However, accurately forecasting demand is their biggest challenge. Our customer base is diverse, both in terms of size and industry, and each customer continuously adjusts their supply chains to meet their unique needs. Recent examples are some customers have pulled freight forward, some continue to execute demand driven strategies and others are making changes to their country of origin and manufacturing plans. This added complexity, lack of accurate forecasts and potential for volatility is why our peak season surcharge programs are starting earlier this year.

Regardless of customer strategy and the shape of peak season, we will be ready to meet their demand when it occurs. I would now like to turn the call over to Nick.

Thanks, Spencer, good afternoon. I will provide an update on our areas of focus across our operations followed by an update on our Final Mile truckload and brokerage businesses. I will start on our safety performance. A key portion of our company's focus on operational excellence and driving out cost is our safety performance, which is core to our culture. We are coming off of two consecutive years of record performance measured by DOT preventable accidents per million miles and our safety results are performing in line with these record performances.

We continue to focus on driving improvements in our performance through proper training and technology to improve safety for our people and the motoring public while we effort to lower our cost. There has been a lot of recent discussion in industry around some trucking regulations such as English language proficiency, the improper use of B1 visas to haul freight in The U. S. Or cabotage and the new FMCSA biometric ID verification for trucking authorizations. While we could only guess the impact this might have on industry capacity for J.

V. Hunt, we do not expect to see material impact. Moving to the business, I will start with Final Mile. The end markets in this business remain challenged with demand for big and bulky products still muted with soft demand for furniture, exercise equipment and appliances. Demand in our fulfillment network was positive again this quarter driven by off price retail.

Going forward, our focus remains on continuing to attract new customers to grow this business. That said, we believe recent market conditions will persist through at least year end driving our second half performance to look similar to our first half performance prior to any consideration for lowering our cost to serve initiatives. We remain focused on providing the highest levels of service, being safe and secure and ensuring that the value we provide in the market is realized to drive appropriate returns. Moving to JBT, our focus in this business hasn't changed. We are working to methodically grow this while remaining disciplined on network balance to drive the best utilization of our trailing assets.

Bid season was competitive this year as it always is, but we are pleased with our success retaining our business, getting modest rate increases and winning new business with both new and existing customers as evidenced by our highest second quarter volume in over a decade. Going forward, we like the progress and direction of this business and the improvements we continue to make. That said, meaningful improvements in our profitability in this business will be driven by execution on lowering our cost to serve initiatives, rate improvement and overall demand for truckload drop trailing solutions. I will close with ICS. During the second quarter, we saw fairly stable volumes and seasonality.

The truckload market tightened around road check and felt like it remained tight a little longer than usual, which compressed our margins in May. That said, spot rates did soften and we saw margins expand again in June. We are over halfway through the bid season and are pleased with the awards so far with rates up low to mid single digits and winning volume with new customers. Our focus here remains on profitable growth, targeting the right customers where we can differentiate ourselves with service while also diversifying our customer base. Compared to the second quarter last year, we've seen our small to mid sized customer growth up 25%, which remains a focus and our customer retention rate is near record levels.

Going forward, we will remain focused on scaling into our investments while continuing to make improvements on our cost structure and our productivity. With that, now I'd like to turn the call over to Darren.

Thank you, Nick, and thank you to everyone for joining us this afternoon. I'll review the performance of the Intermodal business and give an update on the market and our areas of focus. I'll start with Intermodal's performance. Overall demand for our intermodal service was strong and the business proved to be quite resilient in the face of a lot of uncertainties presented at the end of the first quarter. Volumes in the quarter were up 6% year over year and by month were up 11% in April, up 3% in May and up 4% in June.

As it pertains to mix, our transcon volumes decreased 1% during the quarter and Eastern volume grew 15%. We want to continue to highlight the strength of our Eastern network volume growth. We compete more directly with truck in this market and yet with low truck rates and lower fuel prices, we continue to see customers convert highway freight to intermodal. This is a result of our combined strong service levels with our rail providers and how that translates into an attractive and valuable cost saving alternative to truck for our customers. As we wrap up our 2025 bid season, I will remind you of our three pronged strategy and provide some feedback on our performance.

First, we wanted to focus on balancing our network, eliminating the cost to move empties and more efficiently utilize our trailing capacity. I believe we were most successful in this area of our strategy. Second, we wanted to grow with both new and existing customers. This growth is not just volume on an absolute basis, but share of wallet and converting customer freight from the highway to intermodal. I believe we were also quite successful on this strategy while remaining disciplined with our pricing.

Finally, we needed to get rate to help repair our margins and cover our inflationary costs. To be fair, I don't know that we ever get as much as we want, but I would say we underperformed our expectations in this area. To be clear, we believe our overall book of business did reprice modestly higher year over year as we did achieve increases in our headhaul lanes partially offset by pressure in the backhaul lanes. We believe the results of this bid season combined with our lowering our cost to serve initiatives can stabilize our margin performance and could be supportive of modest improvements going forward. As a reminder, Q3 is typically the first full quarter that reflects the collective work of our bid season and will be with us through the first half of twenty twenty six.

During the second quarter, we announced the launch of our Quantum service in Mexico. We have been growing this service sensitive offering in The United States and are excited to bring this product to Mexico with our rail providers. Mexico has been the fastest growing channel at J. V. Hunt and we continue to see a long runway for growth in this market for many years to come.

In closing, we remain very confident in our intermodal franchise and the value we provide for our customers. Our service levels are high, customers trust us and we have both the capacity and capability to grow well into the future. We believe our performance continues to lead the industry while maintaining a heavy investment in capacity to support our future growth. I'd now like to turn the call over to Brad.

Thank you, Darren, and good afternoon, everybody. I'll provide an update on our dedicated results. Starting with the quarter, at a high level, I believe our second quarter results were very strong, particularly in light of the prolonged challenging freight environment. We believe this is a testament to the strength and diversification of our model, the value we create for our customers and how we drive accountability at each site and customer location. As a result, we continue to see good demand for our professional outsourced private fleet solutions. During the second quarter, we sold approximately two seventy five trucks of new deals. As a reminder, our annual net sales target is for 800 to 1,000 new trucks per year and through the first half of the year, we would be on pace with this target absent the known losses we disclosed almost two years ago.

Encouragingly, our sales pipeline remains strong as our value proposition in the market remains differentiated. As I just mentioned, we have had visibility to some fleet losses that we anticipated to wrap up during the second quarter. That has largely played out as expected except the timing of the actual account closure rolled into early July. This positively impacted our 2Q twenty twenty five truck count by about 85 trucks versus our expectations we shared with you last quarter. Given our strong sales pipeline, we continue to expect to see net fleet growth in the second half of the year.

As is always the case, we remain disciplined on the type of deals we underwrite without sacrificing our return targets and remain pleased with the activity and recent overall momentum. We believe the performance in our dedicated business during the downturn has been a standout for our company and the industry and highlights the unique strength and resiliency of our model. We have a diverse customer base both by industry and geography with managers on-site with our customers executing their outsourced private fleet solution. We have great visibility into the financial performance of each account, which provides a high level of accountability at each location. Going forward, we continue to expect to see some modest fleet growth in 2025, but the timing and magnitude of our net adds could impact our prior expectations for modest growth in operating income this year compared to 2024.

This is a result of us typically incurring some startup costs when we onboard new business. We view this favorably and this sets us up well to continue on our growth trajectory into 2026 and beyond. Our business model and value proposition are differentiated and continues to attract new customers despite the challenging market and we are very confident in our ability to compound our growth over many years to further penetrate our large addressable market. With that, I'd like to turn it back to the operator to open the call for questions.

We will now begin the question and answer session. And your first question today will come from John Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon, everyone. Darren, when I tie together a lot of your comments, mostly on the last part on the bid season underperformed expectations in this area, but still up modestly year over year, what you've done in the East and the share gain you've had there and the mix offset there. When we think about the revenue per load cadence for the next four quarters like the cake is baked in the mid-twenty six. Does the rest of the year and early next year look like 2Q or is there anything that can really change the dynamic of that driver?

Well, certainly mix can play a big role and there's a lot happening with mix right now when you heard the result in the second quarter being negative 1% in TransCon, but positive 15% in East. I don't consider that a seasonally normal kind of mix result. I don't even consider that really the result in the bid cycle. It's as much of a reflection of some of the customer noise around tariffs and imports and all things affecting what's happening now. Core pricing being slightly positive, I mean that is essentially the result of what I will call the 2025 pricing cycle.

We will begin preparing for pricing discussions and plans for 2026 capacity with our customers as the remainder of the year goes on. And we will be closely watching the highway market and trying to adapt. Traditionally, intermodal has been a little bit of a laggard to the truck market. We're going to be watching closely as we get through the end of this year and into next year for signs that the highway market is changing. And intermodal is going to want to keep up faster.

We'll remain to be seen if we can do that, but that will certainly be an effort we would want to undergo.

Hey, John, this is Brad Delco. I'll add a little bit to that. Think you and hopefully the rest of the audience heard us speak during the quarter at conferences. We were talking about mix changes and the impact that would have on yield and revenue per load. I think for the first time we were very transparent with our expectations on where this bid season would land and sort of hinted we thought flat to maybe slightly up and we should be landed slightly up with kind of pure price. You did see in the quarter our revenue per load or yield fall both sequentially and year over year and on let's call it relatively similar volumes versus first quarter we saw 30 basis points of sequential margin improvement in intermodal.

And I think the point I'm trying to make here is, we have been obviously working very hard on cost initiatives and driving productivity and efficiency. But think that there's this idea out there that revenue per load is the end all be all and that there are other drivers of margin performance. And I think we just at least put some evidence behind that in the quarter. So hopefully that helps.

And your next question today will come from Chris Wetherbee with Wells Fargo. Please go ahead.

I wanted to ask about the $100,000,000 of cost that you guys have talked about. I guess maybe first question, is that separate than the $60,000,000 I think you guys have talked about in the past in terms of capacity opportunities? And then as you think about the breakdown within the segments or maybe the cadence of that dropping through, can you sort of give us a little bit more detail on how you see that playing out maybe through the rest of 2025 and beyond?

Yes, sure. Hey, Chris, appreciate the question. As far as what we've communicated previously, what we had talked about is that the realization of what the excess equipment that we have in our segments is what that pressure is on our margins. And so the $100,000,000 is really a continuation of that work. We are going to some of the items that we've identified in the $100,000,000 that we've quantified will help address some of that issue.

So there is, as we mentioned, asset utilization is a big part of that. As far as providing more detail on the segment, so we're not going to give how these numbers play out within the segments. But I think it'd be it's logical for you and the others to assume that these savings, these cost reductions will be proportionate to the level of spend that we see within those segments. And then you give some way to how each individual segment is progressing towards their margin targets. So dedicated is a little closer to the stated margin target, but they also have a large area of spend in the organization and so they're going to share in a fair proportion of the $100,000,000 that we've identified today.

And your next question will come from Dan Moore with R. W. Baird. Please go ahead.

Sorry guys. A little rusty. So good to be back. Thank you for the question. I'll be brief for a change. I was hoping we could talk a little bit about cost improvement initiatives, but specific to ICS. I know you guys don't really want to drill down at a division level with specific numbers.

That being said, I think we all realize you're very focused on pulling levers that you can control. So any color around ICS and just how you're approaching your efforts there would be most appreciated. Thank you.

Again, welcome back Dan. Good to hear from you. I would just say we've been working to take cost out of intermodal for the past few quarters and been successful and continue to and ICS, sorry, ICS. Joe had to correct me there on that, but in ICS. And so when I look at it, we're doing a lot of levers, but I would say a lot of it is what we're working on as Spanner Control and really trying to get more efficient with our people.

And I think you will see that if you look at our operating expense in Q2 of last year versus Q2 of this year, you can clearly see $3,000,000 or more that's come out of that expense and that's a lot around span of control and people and doing things much more efficiently. But I'd also say, we're focused on every penny, looking under every rock and crevice that we can get to drive that. And I think that if you just look at ICS right now, we are really close to getting the ship turned around and excited where we're at. But that's just one example of many things that we're doing to really drive cost out on the ICS side.

I think and for the audience, year over year gross profit dollars were effectively similar. I think we were up $300,000 but we saw nearly a $10,000,000 improvement in operating income and really that's $10,000,000 of OpEx that came out of the business versus the prior quarter. And as you probably remember when you were sitting in your other seat, we talked about $35,000,000 of cost that we incurred in 2024 that wouldn't repeat in 2025. And I think at least so far through the first February of this year, you've certainly seen a good step down in OpEx year over year in ICS. That doesn't mean that there's still not opportunity there, but it's probably one area we've done already the most amount of work.

And I think as you heard in Nick's prepared comments, scaling and growing is a big focus while also looking at other areas to drive out cost.

And your next question today will come from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, everybody. Good afternoon. Thanks for taking the question. So I want to come back to the cost savings target. Maybe John, can you give us a little bit more description on that?

How much of this is volume dependent, of any bigger buckets that you can kind of point to from a headcount perspective? And I think in the past you even said there might be some container rentals or other utilizations. So is that also considered in this program? So any other details you can provide there including the cadence would be helpful. Thank you.

Yes. Hey, Brian. Appreciate the question. So really we what we've identified and tried to go through is really looking at cost dollars and where we can find opportunities there. This was across the board as I said in our opening remarks.

We had each executive kind of assigned to an area and that was salaries and wages, that was benefits, that was equipment utilization really across the board. And so some of it will be volume improvement that will be certainly will help drive cost out. But a lot of these are structural changes to cost that we've been incurring to date that we have line of sight that we can remove from the system. And so that's kind of where our focus is and what's driving that initiative.

Yes. Maybe it's helpful too. I mean Brad or Darren, I'll put you on the spot if you think there are areas that you want to just highlight that you're looking into.

Yes, I'll just mention we continue to see advancements in technology. And so as we think about artificial intelligence and the use of agents, it allows us to complete our work more efficiently and therefore lower cost. Shelly mentioned it, I think it's one of my favorite sayings and that's just do more with less. And that's really the mantra that we've been on. And we've been on that fight for three years now.

It's a grind, but we're still not where we need to be. And so we're pushing harder and farther. And really that's what it comes down to. There's a lot of great ideas that are in flight that will help us become more productive, leverage our equipment, investments better in the future than we have in the past through collaboration and sharing of resources, not only within Dedicated, as example, but also across divisions with Intermodal and Dedicated and Final Mile working closer together. And so those are just some areas of that I see.

And I might just add to something you said, Brad, as I think about artificial intelligence, if you think from our people perspective, one of the things we've really done over the last three years was to make sure that our people knew that we wouldn't be doing mass layoffs because we think our people that is our culture. And so as we've started having these conversations, really introducing them to these concepts, our people have a level of safety that allows them to really bring the best ideas of how we can eliminate work that is not meaningful to them. And so we wanna point our people from doing work that we think we can automate and become more efficient into growing our business. And so that's a big part of our plan as well. I don't think we've identified everything there yet in the $100,000,000 and so that's part of what John Kullo talked about.

That's our first $100,000,000 We'll have updates from there. But I think that's an important note because when you have people understanding the strategy of the company, making sure that we've invested in our people, technology and capacity and that when we come through this, their good ideas will help us move forward and progress more quickly than had we not.

So I'll jump in here, Brian. You asked some questions about equipment utilization and how that might play a role. Certainly, we've talked about having excess capacity for some time now. We're working on a host of creative ways to put that equipment to work. It can be replacing a leased trailer in the dedicated business unit as an example or even in JBT or even Final Mile.

Can we put some of the containers to work in places where maybe in the past we had trailers leased? Have we talked to outside entities about potential leases? That's certainly a topic out there. I don't have anything to share. There isn't one of those currently going on, but it's certainly a topic.

And then certainly, we've been engaged with BNSF in a meaningful way to talk about the cost to store the equipment, facilities we both own, how can we minimize the cost together. And they are a partner with us in that. And we look forward to seeing the benefits of that. I'm not going to tell you that the second quarter had a lot of benefits in those kinds of areas. But as we move through the rest of the year, we think we can have a meaningful impact on some cost areas certainly around the assets and the trailing equipment.

All right. Thanks very much everybody. Appreciate it.

And your next question today will come from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Afternoon. So Darren, you had a comment that you think we're at a point where intermodal margins will be stable to modestly improved. And I guess, I just want to understand that a little bit more. Is that a sequential comment?

Is that a year over year comment? I guess ultimately what I'm trying to understand is you're doing something with cost, sounds like price maybe just getting a little bit better earlier peak surcharges like do you think are we at a point now where year over year intermodal margins can start improving or at least being flat or are we not saying that yet?

Well, I think that what we're suggesting is that we've stabilized where they're at. I would I believe strongly in our cost initiatives and the efforts we have underway to help us moving forward. I want to highlight that we didn't get the pricing that we would have liked to have achieved given cost pressures that we've that every entity is facing. That's driver wages. It's the cost of maintenance equipment.

It's the cost of insurance. It's all the things that are factors in our results. And so pricing hasn't kept up with that necessarily. What that did do though at the in the bid cycle is it created an environment where we're talking to customers about our challenges. And I think together, we have found, not in every instance, but in some instances, we found where customers are working with us to find new ways to flow new flexibility into our drayage operations to where we can drive better driver productivity, certainly drive out empty miles from time to time.

I mean these are all ways that we're attacking our margin. And I just want to make sure that the investor group doesn't believe that the only path to margin improvement at J. B. Hunt is from price. It is a necessary factor to fully repair our margin, but growth and cost control are also big factors that can help us.

And I would probably take growth, cost takeouts or cost efficiencies and then price as kind of equal parts of our mission back to at least a 10% margin. And that's an important element for our investors to watch. We believe as we move forward, we can achieve sequential improvements in what's going on with our margin.

So just if I can, just I want to make sure I'm understanding. Are you suggesting we don't need to wait until the back half of next year and another year pricing to get margin improvement, we can get there before then? Is that ultimately what you're trying to say?

Hey, Scott. I'll take a stab at this. I think we were very intentional with what we put in our prepared comments as we are each and every year. I think it is an important and also a pretty big statement for us to say, hey, we think we've seen stabilization in our margins in the model based upon our executing on our cost to serve initiatives and based upon what we're able to achieve in the bid process. And I think we've been clear and transparent there particularly with, hey, we have gotten have sorry, we have seen rate improvement in our head haul lanes and we've also tried to explain why there's a lot of value in balancing the network and we talked about, hey, seeing some improved balance can move margin tens of basis points.

But we've been facing headwinds on price for two years and I think our margins have held up well. We are finally at a point where we have just a very, very small tailwind to price, not nearly enough to compare where inflationary costs are. But if you take what we've shared on what we think we could achieve on lowering our cost to serve plus a little bit of help on rate, yes, we've said we think we can stabilize our intermodal margins and this can be supportive of some modest improvements. And I would say that's from where we are today.

And your next question today will come from Daniel Imbro with Stephens. Please go ahead.

Yes. Hey, good evening everybody. Thanks for taking our question. I'll ask a non intermodal one here. I guess Brad, you mentioned in your prepared script the dedicated customer loss trickled here to July.

I guess that helps fleet count in 2Q. Was there any benefit on margin in 2Q as we think about maybe you maintained that higher margin business longer than you anticipated? And then I think in the script you mentioned startup costs are going to affect your ability to maybe hit your operating income growth. Any more color you can share there? Is there anything anomalous about these startup costs?

Or how long they should maybe a drag on margin before you see that recovery from this new business and fleet growth? Thanks.

Thanks, Daniel. I'll start with the back half of your question. As we get deeper in the year, the comment was really just a reminder that as we have growth in Q4, that that always is a drag for us. When we have that growth in the first half of the year, we can outrun the startup cost and investment, by getting to profitability. Typically, we talk about that being in the third or fourth operating month. And so just based on the way this year has played out and the way we see our growth getting back to the net growth in the back half, it likely will have some degree of drag on it. As it relates to the smaller carryover on the known losses, did that have a positive or material impact on our Q2 profitability? I would say I would not be able to say that it had any material impact on our profitability.

That business was in line with what our operating results were. So I guess maybe having that revenue a little bit longer than we anticipated may have contributed to some OI, but I wouldn't say that it influenced positively or negatively our operating ratio.

Hey Daniel, this is Brad. I mean I would say and we tried to make this clear in prepared comments. We thought our fleet count would be relatively flat Q1 to Q2. We outperformed it. We're effectively saying kind of like just the timing of literally a couple days is the difference of what we reported in terms of ending truck count versus maybe what it looks like today.

And so literally just a couple days extra with that account on the books made that number just look a little bit off from what we shared with you guys three months ago.

And your next question today will come from Jordan Alliger with Goldman Sachs. Please go ahead.

J.B. Hunt Transport Services (JBHT) Q2 2025 Earnings Call Transcript

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