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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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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

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to J. B. Hunt's 4th Quarter 2024 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. And I would now like to turn the conference over to Brad Delco, Senior Vice President of Finance. You may begin.

Good afternoon. 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 Jamie Hunt's Annual Report on Form 10 ks and other reports and filings with the Securities and Exchange Commission. Now, I'd like to introduce the speakers on today's call. This afternoon, I'm joined by our President and CEO, Shelley Simpson our CFO, John Kullow Spencer Fraser, Executive Vice President of Sales and Marketing our COO and President of Highway Services and Final Mile, Nick Hobbs Brad Hicks, President of Dedicated Contract Services and Darren Field, President of Intermodal.

I'd now like to turn the call over to our CEO, Ms. Shelley Simpson for some opening comments. Shelley?

Thank you, Brad, and good afternoon. While 2024 was a continuation of the challenging freight environment, I am proud of the work of our team and how we position the company for our future. We focus on providing excellent service to our customers, improving on our record setting safety performance and remaining cost discipline, all while leveraging our strategic investments in our people, technology and capacity. We have been in a period of heavy investment to better prepare ourselves to expand all aspects of our business in the future. Our commitment to our people and providing quality differentiated service and capacity for our customers, particularly during another strong peak season, sets us up extremely well to scale into these investments ahead.

Looking forward, the overall strategy and focus of our organization is on operational excellence and scaling into our investments. We are positioning the business for long term growth to generate appropriate returns on capital that delivers long term value for our shareholders. The decisions we make to strategically hold on to our people and capacity through the freight recession and make some bold investments like acquiring the intermodal assets from Walmart were made through that lens and has only enhanced our future earnings potential. That said, while our performance has held up relatively well in this difficult environment, we aren't satisfied with the current results of our business, particularly around margins and returns on capital. A focus and a top priority for our leaders in the company is to get us on a path to repair and improve our financial performance.

My confidence in this team and our ability to leverage our brand and our Sproless services coming off of another strong year of service execution and safety is extremely high. We've executed on 2 consecutive quarters of record intermodal volumes with capacity to grow more while we focus on repricing our larger book of business. Our dedicated business has been remarkably resilient and has solid visibility to future growth. We still have work to do in our brokerage business and progress is being made, but I see lots of opportunity to scale that business ahead and I'll let Nick provide some color on the plan there. And our JBT and Final Mile businesses have a good model, and we see plenty of opportunities for growth ahead.

While market dynamics remain uncertain around the timing and magnitude of a potential inflection, our focus in 2025 is to grow and begin to repair our margins. We will be coming out of the freight recession from a position of strength. We believe the value we create for our customers with our capacity and our exceptional service levels are unique in the market and that our return should mirror this value. We and our customers know this. We stand ready to continue to expand with our customers and to add new customers under the J.

B. Hunt scroll. The team will have more commentary on each area of business, but in closing, we have proven our service levels and our safety culture are unmatched and have available capacity 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.

Thank you, Shelly, and good afternoon. My comments will cover a high level review of the quarter year, some additional color on our cost control efforts, as well as provide an update on our capital plan for 2025. As a general overview, we saw signs of seasonality across the business and experienced a strong intermodal peak season. That said, the deflationary rate environment coupled with an inflationary cost environment weighed on margins versus the prior year. Starting with 4th quarter results.

On a consolidated GAAP basis compared to last year, revenue declined 5%, operating income increased 2%, and diluted earnings per share increased 4%. We did have insurance related charges totaling $53,400,000 in Q4 of 'twenty three and intangible asset impairment charges totaling $16,000,000 in Q4 of 'twenty four. The asset impairment charges this year are related to early termination of leased facilities and intangible assets recorded from the BNSF Logistics acquisition. After consideration of these charges, operating income and diluted earnings per share declined year over year, largely driven by the deflationary pricing environment. For the full year 2024, on a consolidated GAAP basis, revenue declined 6%, operating income declined 16% and diluted EPS decreased 20%.

These results include the impact of the previously mentioned charges. Looking to 2025, we expect inflationary cost pressure to continue in the areas of insurance premiums and people costs. Despite 2 consecutive years of record safety performance, our insurance premiums have more than doubled over that period due to the higher cost to resolve claims. This is an industry challenge and these inflationary costs will need to be passed on to shippers and eventually consumers. Now speaking specifically to the Q1 of 2025, given normal seasonality on a sequential basis, we expect operating income to decline at a similar rate as what we saw in 2024 after consideration for the charges we disclosed, or more specifically somewhere around 20% to 25%.

On the subject of cost, we have made progress across the business to right size our cost structure. In April 2024, we outlined $100,000,000 of aggregate costs we were carrying across the company related to investments and resources in both our people and capacity. We also noted that we have visibility to these costs and where they lived within the organization. Since this time, our headcount has been reduced through attrition and performance management and now sits approximately 12% below our peak levels. On the capacity side, we commented that we had about 20% excess capacity in both JBI and JBT.

Since we made those comments in April, we did invest further in our capacity in JBI with the purchase of Walmart's intermodal assets. And while our business activity levels have increased, so too has our capacity. That said, we feel confident in our ability to generate a solid return on those investments over the useful life of those assets. As it stands today on a consolidated basis, the aggregate cost of that additional capacity is around 60,000,000 dollars While progress has been made, we remain focused on controlling costs in the near term without reducing the long term earnings power of our business. I'll wrap up with an initial look at our capital plan.

For 2025, we expect our capital expenditures to be between $700,000,000 $900,000,000 which is up from the $674,000,000 in 2024. Our first use of capital is always to invest in our business for growth. Through strategic decisions and opportunities in the market, we have pre funded a large portion of our future growth in JBI and as has historically been the case, our capital needs in DCS are success driven. Our other businesses require very little capital investment. We plan to continue to support our dividend in 2025, which has increased at this point for 20 consecutive years.

Finally, we will continue to opportunistically repurchase stock as a means of returning value to shareholders. In 2024, we repurchased $514,000,000 of stock at an average price of $169 per share. 2024 marks the 2nd largest year for share repurchases in our company's history. With our modest leverage, limited near term capital needs and view on where we are in the cycle, we think repurchases are a prudent use of capital at this time. 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 the market, our sales objectives and some feedback we are hearing from our customers. In the Q4, we saw a strong peak season materialize, particularly across our intermodal business as well as in our highway businesses. In intermodal, customer demand came in strong and we were able to execute this higher volume while maintaining high levels of service for our customers. In JBT and ICS, we experienced seasonal volume trends and some margin pressure in December as the market tightened, which is normal around the holiday period.

Throughout peak season, we were in constant communication with our customers around their changing capacity needs. Given our strong value proposition around capacity and service, we were considered the go to for our customers. While we see capacity exit the industry every day, overall, there is still some excess capacity available on the market. That said, some customers are securing capacity a little earlier than normal, which has historically been a good indication that supply and demand dynamics are shifting. Regardless of market changes, our focus is on providing the best possible experience and service for our customers.

Having a full suite of services to deliver optimal solutions for our customers is a strong and differentiated value proposition in the market. In 2025, we will continue to pursue operational excellence while providing exceptional customer service. We believe that providing high quality service and creating unique value for our customers is the right thing to do every time and foundational to growing our business. We create value for our customers and that will continue to be our focus, but we also plan to have conversations with each customer to make sure we are getting paid appropriately for our investments and efforts. Coming off another peak season with solid execution and service, we are in the best position to have conversations with customers about the value we create for their business.

I'll close with some feedback we're hearing from customers. First, we received very positive feedback on how we executed peak season and we are already working on our plans for next fall. Secondly, each customer is unique in terms of size, industry and supply chain needs, which demand different strategies to execute their supply chains and mitigate potential disruptions. For example, we believe most of our customers are taking more of a wait and see approach to see how potential tariffs might influence future purchasing and business decisions. Regardless of their strategies, we believe we are in a strong position with our suite of services and the investments we've already made to support their work, take share in the market and make appropriate long term returns.

We remain focused on the long term, while taking steps in the near term to improve the return profiles of our business, all with the same vision to create the most efficient transportation network in North America. I'd now like to turn the call over to Nick.

Thanks, Spencer, and good afternoon. I'll provide an update on our areas of focus across our operations. Before I begin my comments, I'd like to say I'm excited to be taking on the role as President of Highway Services and Final Mile. And so I will provide a quick update on those specific business. I'll start with some comments on safety and customer value delivery or CVD.

Our Company is rooted in a foundation of safety and is at the core of what we do every day. I'm proud to say that 2024 was another record performance for us measured as DOT preventable accidents per 1,000,000 miles. This is the 2nd consecutive year of record performance and a testament to our focus on continuously improving in this area. Our safety performance is just one example of our focus on customer value delivery or CBD that we continue to roll out across the organization. As Shelly mentioned in her remarks, we have been very focused on operational excellence across the organization, improving the value we create for our customers through our CBD process.

We believe this puts us in the best position to retain and grow our business, while ensuring our customers see and appreciate the value we are creating for them. Shifting more specifically to the businesses, I'll start with JBT. Our focus remains on attracting the right freight for our drop trailer network, while ensuring capacity is correctly positioned across the network to serve this freight efficiently. Our service level remains strong and we continue to look to methodically grow this business while maintaining network balance, which will support future growth while driving efficiency and greater profitability. On Final Mile, demand for big and bulky products remain muted with soft demand in furniture and modestly soft trends in exercise equipment and appliances.

We continue to focus on providing high levels of service, differentiating ourselves in the market and ensuring we are appropriately paid for the great work we do. I'll close with some comments on our strategy in ICS. The past couple of years have been challenging in ICS, but I believe we are in a more solid base to build off of going forward. In 2024, we incurred quite a bit of expense related to the integration of BNSF Logistics acquisition this year that will not repeat in 2025 to the tune of $35,000,000 This includes the impairment charge John referenced earlier. Going forward, with our base business on a more solid footing and the integration behind us, our focus turns to growth and more specifically, growth with the right customers.

We need to further diversify our customer base in terms of size, as well as industry, really targeting businesses that we can differentiate ourselves with our service, people and technology. We are implementing some of the playbook we utilize and dedicated to help us generate better leads and customers that we believe will see the value in what service we offer. We have better alignment with our sales resources and a strategy we are confident that sets us up to scale the investments we've made in the business overall. We are already seeing some momentum as volumes and customer counts have been growing the past 2 quarters. Finally, we are continuing our focus on controlling cost.

The team has made significant progress in rightsizing our cost structure, but there are still opportunities for additional improvement. As we come out of this recessionary freight environment, we will focus on leveraging our investments to drive greater productivity. I'm excited about the work we're doing within ICS and believe we have a long runway of growth and the ability to scale quickly in this business. With that, I'd like to now turn the call over to Brett.

Thanks, Nick, and good afternoon, everybody. Before I get into my prepared comments on our dedicated business, I'd just like to say how excited I am to be leading us in this area. I recently celebrated my 29th anniversary at the company and having spent 25 of those years in our dedicated business, in some ways it feels like a homecoming. While we have had a lot of success in the business, I feel a strong sense of responsibility to continue to expand on our performance and accelerate our growth. As we have talked about in the past and Nick has been on previously, we focused our dedicated business on providing professional outsourced private fleet solutions for our customers.

We believe our performance during the downturn has been a standout in the market and highlights the strength and resiliency of our model. We have a diverse set of customers by both industry and geography with the average size of our deals remaining relatively small. With this diversification and also having a decentralized model, we have great visibility into our performance, which drives strong accountability, both for the benefit of our customers and financial management. We continue to see considerable opportunity for future growth with a qualified addressable market of approximately $90,000,000,000 We are pleased with our pipeline and the opportunities we see across a diverse set of customers and industries. We've maintained our disciplined underwriting standards on new business and I am pleased to report on another strong quarter of new truck sales.

We sold just shy of 4.40 trucks of new business in the quarter. 2024 marks one of our best truck sales years in our history, a strong statistic considering the environment. This only reinforces our belief in our value proposition to our customers, further supported by our customer value delivery process that Nick just touched on. I'd like to take a second to review our performance in 2024 and maybe set the stage for 2025 and our view of our future opportunity. A little over a year ago, we spoke about having visibility to some fleet losses and we certainly combated that challenge throughout the year.

We also saw some pressure with customer bankruptcies and to a lesser extent some competition on a small portion of our portfolio. We sit here today with visibility to some of the fleet loss pressure continuing through the early part of the second quarter. That said, with our sales momentum and strong pipeline, we feel fairly good about our ability to return to net fleet growth in 2025. As we discussed before, we do typically incur some start up expense with newly launched businesses, but given the average life of our contracts remain around 5 years, we recover that investment over the life of the deal. This is all embedded in our underwriting process.

Excluding some of the noise around fleet losses in 2024, our base business, though excluding the startup drag from the new adds, did operate within our stated margin target range of 12% to 14%. As we progress through 2025, we look forward to the fleet losses abating and returning to our long term growth trajectory, which we target to be about 800 to 1,000 trucks per year on a net basis. With this as the backdrop for 2025, we expect top line and operating income growth this year will likely be modest. In closing and looking forward, the playbook and play calls remain the same, execute with operational excellence, drive additional value for our customers through our CED process and continue to invest in our people to help support and accelerate our growth. With that, I would like to turn it over to Dave.

Thank you, Brad, and thank you to everyone for joining us this afternoon on the call. I'll review the performance of the Intermodal business during the quarter and give an update on the market and service performance. I'll start with Intermodal's performance. Overall, we saw the momentum from the Q3 continue into the 4th quarter with total volume up 5% year over year. Sequentially, we outperformed normal seasonality as the 4th quarter set a new quarterly record for intermodal volume.

In fact, in the quarter, we had the largest intermodal volume month ever surpassing 200,000 loads in October, our largest volume week and our largest volume outbound Southern California. 5 month intermodal volumes were up 4% in October, 7% in November and 3% in December. As it pertains to mix, our TransCon volumes increased 4% during the quarter and Eastern volume grew 6%. I remain encouraged by volume growth in the East despite depressed truck rates, which is a testament to the strong service levels of the rails and how that translates into attractive and valuable alternative to truck for our customers. Going forward, we continue to see a lot of opportunities for future volume growth given the attractive economics and environmental benefits of intermodal versus a truck alternative.

During the quarter, we experienced a strong peak season where we were able to meet the elevated demand of our customers while maintaining high service levels, highlighting the strength and flexibility of our network. For a few weeks early in the quarter, rail service in the West honestly deteriorated as the railroad experienced record intermodal demand. In order to fulfill our service promise to customers during this time, we had to do some unnatural activities to help keep the rail network fluid. While rail service was restored to normal after a few weeks, the additional costs we incurred more than offset the benefit of incremental volume in our network and put pressure on our margins. Going forward, as a reminder of our pricing cadence, we will be living with the vast majority of our current pricing through the first half of twenty twenty five.

We are in the early innings of our bid season and it is too early to comment on the outlook of bid results. That said, due to inflationary cost pressure across our business and the deflationary pricing experienced over the last 2 years, we will need to correct our pricing while remaining focused on our cost to return our business to reinvestable levels. We are entering this bid season from a position of strength having just successfully executed our 2nd peak season with high service levels and our available capacity was able to handle strong customer surge demand. The improvement in customer bid compliance also gives us greater visibility for opportunities to fill in lane imbalances across our network to drive greater efficiency. In closing, we sit here today at or near the end of the worst spread recession we have ever experienced, having just reported 2 consecutive quarters of record intermodal volume.

As we look forward, we see more opportunities for volume growth, coupled with opportunities to improve our margin performance. While our margin performance has been under pressure and is not at acceptable reinvestable levels for us, we continue to lead the industry in both margins and returns. Our focus in 2025 is on growing into our available capacity and beginning to repair our margins by ensuring that the value we create for our customers is realized and captured. We strongly believe in the strength and value of our intermodal franchise. We have the people, technology and capacity in the network for growth and remain excited to work with our customers to meet their growing demand with an efficient, cost competitive and more environmentally friendly solution.

That concludes my prepared remarks. So I'll turn it over to the operator to give instructions for the Q and A portion of the call.

Thank you. And we will now begin the question and answer session. And your first question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open.

Yes. Hey, thanks. Good afternoon, guys. I guess maybe if we could start on the Q1 commentary that you gave, which I thought was helpful. I guess maybe first a point of clarification, just want to make sure that you're talking about the sequential decline in operating profit for the entire business, not just one of the segments.

And then assuming that's the case, just maybe if you could give us a little bit more color about some of the moving parts that go into that. Is it lingering costs from peak season, some of the headcount or people sort of cost pressures that you're noting? Just want to get a little bit of a breakdown of what's driving that sequential decline of that magnitude.

Hey, Chris. It's Brad Delco. How are you?

So just to clarify, so yes, we rarely give guidance. And including that in our script really, we thought it would be helpful to analysts and investors. We talked about seeing normal seasonality from Q4 to Q1 given consideration to the impairment charge. So I would say take our GAAP number, you can add the impairment charge back and then the 20% to 25% sequential decline in operating income is what we intended to say. And that would be in line with really what we've seen over the last call it 10 years excluding maybe the 2 unique years during the pandemic.

So I just want to reiterate that is in line with normal seasonality and I sense from comments and notes there's concern about pull forward. And I just think there's a little bit of a disconnect if investors and analysts are very concerned about this pull forward and this record volume performance we're seeing. They're not really reflecting that in their expectations going forward. And so we sit here today, I think Spencer did a great job of giving you a review of the market. And our expectations are normal seasonality from Q4 to Q1 and it's just not reflected right now in current expectations that we just wanted to clean that up for everyone.

I don't think we will continue to give guidance and we probably will not go into any further detail on this call on guidance. And so I just wanted to go ahead and clean that up here at the start.

And your next question comes from the line of Jason Seidl with TD Cowen. Your line is open.

Thanks, operator. Shelly and team afternoon here. Wanted to touch on the CapEx commentary. If I heard that right, that was $700,000,000 to $900,000,000 That implies either 4% growth or over 30% growth. I guess I was wondering, maybe you can talk to me about the underlying assumptions for both the top and bottom part of the range?

Yes. So with respect to the CapEx numbers, keep in mind that what we've kind of put Matt to, we feel like there's anywhere from $600,000,000 to $700,000,000 of replacements on any given year. And so a big bulk of what we're guiding in our CapEx plan for 'twenty five has to do with power replacement specifically. We do have some we have made some property investments over the years. We have a little bit more in 2025 that we're planning on and forecasting.

But really the range that we're providing there is dependent upon the success of dedicated sales going into 2025. And so we've got growth in our numbers and that's part of the CapEx plan, but we typically provide at the beginning of the year

until we get more visibility into the successes of dedicated.

And your next question comes from the line of Jon Chappell with Evercore ISI. Your line is open.

Thank you. Good afternoon. Shelly, you mentioned a couple of times in your prepared remarks focusing on improving returns on capital and improving margins. Obviously, the cycle would play a big role in that, but I assume you're not counting on the cycle recovery anytime soon. Given some of the inflationary pressures that John talked about and even Darren talked about, what steps can you take that are in your own control that you can start improving both of those metrics without getting more help from the broader market?

Yes. Good question. Thank you for that, John. So I would say there's a few things inside our businesses and I'll speak specifically for Intermodal. If you think about the challenges that we had through 2024, a big part of that was around balance.

And so our ability to move the network, actually loaded versus empty, that is a core strategy for us in this bid season to really focus on making sure that we're loading our equipment and minimizing the and minimizing the amount of empties that we're moving the network set of balance for a couple of reasons. 1, our customers have shifted West Coast from East Coast and that's caused more to happen out of the West Coast and then also some of the things that are happening in Mexico. So that would be one thing. We'll continue to focus on, And so we do And so we do have good growth, as we look at this year across our segments and we'll start to scale into the revenue. But I will say, our customers understand, I think Spencer covered this well, our customers understand where we're at across our businesses and also the commitment that we've made to them.

We are in the best position that I have seen our company across all five services with the level of value and service that we have given to our customers. And we're going to continue to maintain that. And we think that those conversations that we'll have with customers, we'll be able to have conversation around what makes the most sense for us and what makes most sense for them on a customer by customer basis. So I think it's really twofold for us. Keep controlling cost and work on minimizing some of the incremental cost that we had in the last half of the year, focus on our growth and then also talking with customers around the value that we create.

And your next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is open.

Hey, thanks. Good evening. Appreciate taking the question. Maybe let's ask a question on dedicated, because you did give a little bit of guidance there, but clearly there's been some challenging, some churn that you've highlighted here. It does take a while to start up these contracts, but I believe you mentioned modest year over year growth in both op income and revenue.

So I know you don't want to give any more specific guidance, but I think maybe that's another area where expectations are a little bit too high just based on how that business typically operates even if you are going back to growth. So any further details there would be appreciated.

Yes. Thanks, Brian. Just trying to convey that we have known losses that we're not completely out of the woods yet that we do feel largely will be behind us in the Q2. And so really just trying to help everyone understand when they can expect our net tractor growth to get back on plan and back on our historical model. We feel very good about that.

We're coming off of a great performance year. Certainly, didn't meet all of our expectations, but we are remarkably proud of where we did finish the year, both from a performance standpoint, whether it's talking about safety, as was mentioned earlier, our driver management retention. We see our retention rates on overall customers rebounding from earlier inside of 2024 versus where we sit today. And we feel like we have good line of sight to get back to our historical expectations of 98%, 98.5% retention in the not too distant future. So can't really offer you any more specifics than that, but do feel great about our pipeline and believe that we'll continue to deliver new sales that will offset known reductions or losses and then we'll get back on plan.

Yes. And Brian, I'll add a little bit in terms of what was included in some of the prepared remarks. Brandon mentioned we do expect to see net fleet growth this year. But just thinking about the cadence of onboarding new accounts, we talked about the investment. We typically start these things up and it does put margin pressure on the business for startups.

Usually it's about 3 months of losses. Then the next 3 months of that startup will recoup the losses that were incurred in the 1st 3 months of that startup. And so life to date of new deals is effectively breakeven through the 1st 6 months. So we would really need to see significant fleet growth early in the year in order to contribute operating income or EBIT dollars, if you will, to that business in the second half of the year. And so if we think about a normal cadence of how these fleets will be sold and onboarded across the year, you're really talking about growing the fleet this year and seeing the benefit of that at a future period, which probably be next year.

And your next question comes from the line of Jordan Alger with Goldman Sachs. Your line is open.

Yes. Hi. I'm just sort of curious a little bit on the Q1, if I could. Just to see if I understand, I'm assuming the bulk of the dollar drop off sequentially 4Q to 1Q is going to come in intermodal. And so I'm just sort of curious, how much of that is driven by, let's say, the revenue fall off versus like a margin degradation to something low less than 7%?

Yes. Hey, Jordan, this is Brad again. Again, we don't want to get into the specifics of guiding by segment nor just guiding in general. We saw an opportunity where the street or the market seem to be a little bit off from what our expectations are. And keep in mind, we're now on our 3rd earnings call talking about our visibility to our pricing for the first half twenty twenty five being said.

I think the term we've used historically is the cake is somewhat baked. We said at the end of our Q2 call. We said it on our Q3 call. And so there's really not tremendous opportunities to move intermodal with price. And the work we're doing right now will be reflected in kind of how we look at Q3 and certainly the exit rate out of 25 into 26.

We'll see more reflection of what this look like. In dedicated, I think there's normal seasonality. And in our SEC filings, we talked about Q1 weather and all other reasons. It's just a more difficult environment for businesses that run trucking assets. And that's so we just we're talking about normal seasonality Q4 and Q1 and that's where I want to sort of land this plane on any other guidance questions.

And your next question comes from the line of Scott Group with Wolfe Research. Your line is open.

Hey, thanks. Afternoon, guys. So just to follow-up there on your about like what's happening in bid season now is what's going to drive Q3 and the exit into 'twenty six. Darren, I think you said like it's a little too early to tell about bid season, but can we at least are we at least confident we're getting some degree of pricing increases? Maybe just talk give a little bit more color about what's happening with bid season?

And then is there enough to give us some confidence that if we're getting some price increases in the back half of this year, we'll start to see that margin inflection in intermodal?

Okay. Hey, thanks for the question, Scott. Certainly, we're on 2 consecutive years of this crazy long freight recession that's frustrating to all of us. I think that I want to be really clear with the whole audience. I'm so proud of the team for the way we have executed and really earned back confidence from our customers.

We are the clear leader in service and capacity. Our customers buy on service, cost and capacity. So certainly, you have to be the leader in at least 2 of those 3, if you can't be in all 3. There will be markets where capacity demand certainly justifies price increases. You also heard Shelly comment on our need to fill up and rebalance the network and do some repair work on volumes to support head of all markets.

In those particular lanes, we're looking for cost takeout there. And so the pricing conversation may behave a little differently. The reason I'm kind of trying to talk about how we think about this pricing cycle, it's a conversation one customer at a time. I'm very confident that the service product we've offered over the last 2 years has really earned us the right to have really strong confidence in what we're providing value for our customers. And we're going to share that with the customers and work on our price.

When we said it's too early, we really haven't completed very much the bid cycle. There are a lot of ongoing conversations. Everybody is under cost inflation challenges. Our customers are not into that. So it's an ongoing conversation.

But certainly, we feel confident that as truck rates climb, as new capacity demand hits us, we can certainly begin to repair our margins and improvements in price will have to be part of that.

And your next question comes from the line of Ken Hoexter with Bank of America. Your line is open.

Great. Good afternoon. Interesting about your discussion on the end of the worst freight recession. Hopefully, we keep hearing about that, but then the dip in 1Q is a little concerning, I guess, on the progression of that. But last quarter, Darren, I think you mentioned you didn't think you'd get back to 1.8 to 2 turns per month.

But it looked like utilization of boxes improved in the quarter. Now turns are up to about over 1.5 it looks like and utilization up into maybe the 90s. How should we think about the scalability of that? Maybe talk about what is still parked, what is still left to come out of the sidelines and how utilization is going?

I want to take something first. If I can. I want to take the first comment, which was coming out of Q4 going into Q1 was somewhat surprising. If you think about just the seasonality of our business, we've been talking about that our bid season that we've already all of our pricing has already been established. Everything we're working on today is to be implemented in the Q3 of 2025 and beyond.

So we're coming into Q1 with intermodal pricing that has already been set. Demand volume for our services have been at record levels for the entire back half of twenty twenty four. Our operational service and excellence that we have provided for our customers is the best we've ever done from an Intermodal perspective in I'm not sure how long Darren, but many, many, many years. So I think we are setting ourselves up for great success for the future. Q1 is a result of the 20 23, 2024 bid season.

Moving into this period now, we're focused on what that looks like for the back half of 'twenty five and into 'twenty six. And so, Darren, I'll turn it to you to answer the question around trends.

Sure. So clearly record volumes without onboarding more equipment improved utilization for us. That's clearly a big part of our story moving forward as we have to scale into those capacity investments we've made. We're very aware that we have excess capacity and we're proud of the fact that we were able to grow. I think when I said on the last call that the years of 2 loads per container per month are probably behind us.

That has a lot more to do with the railroad schedules and the way that the rail networks flow. Everything today flows a little bit slower than it did when we last turned at 2 times per month. And I would even say our customers have a role in their ability to unload the equipment and create maximum utilization and we have seen that be a challenge for some of our questions or for some of our customers. As we move forward, do I think that we can turn the entire fleet at 1.8 for a whole calendar year? That's probably also not in the cards.

But certainly in the heaviest months and I would anticipate October is always going to be your biggest month of the year. And so if we're turning the fleet at 1.8 times in October, I think that certainly would be a challenge for us, but it's not an out of sight goal that we can certainly look to achieve. But as we move forward, we'd like to see our turns continue to improve as we grow volumes. I'm going to duck your question and not answer specifically, but we have more room for improvement than what you even saw in 4Q.

And your next question comes from the line of Brandon Oglenski with Barclays. Your line is open.

Good afternoon and thank you for taking the question. Darren, maybe following up with that then, I think in the prepared remarks, it was discussed like spare capacity in intermodal was close to 20%, then you guys did the Walmart deal. And maybe that's what Ken was also getting at in his question, but where do you see spare capacity maybe in your network and maybe more broadly across the system? And is that a hurdle that we still have to get over as we look in 2025?

Well, certainly, we still have really significant capacity that's underutilized. And the cost to store that equipment is a significant headwind for us. And so as we continue to scale and grow our volumes, while also improving pricing, that's going to be our focus and our effort. The Walmart equipment, we reported I think we reported just over 122,000 containers at the end of 4Q. When we onboarded the Walmart equipment, all of that equipment requires a modification and we haven't completed that work.

Clearly, we just did the acquisition in I think, the Q2 of or end of Q1, Q2 last year. And that equipment is tucked away in storage right now because frankly, we're still trying to grow into the 122,000 containers that you can see we own today. That will the Walmart equipment will become more visible as demand for it helps us grow into it and we complete that conversion and bring it active into our system.

And your next question comes from the line of Daniel Imbro with Stephens. Your line is open.

Yes, thanks. Good evening, everybody. Thanks for taking our questions. Maybe I'll ask one on the ICS side. We saw stronger gross margins, particularly given the move in truck rates during the quarter.

I guess, can you just talk about how the pricing strategy has changed here? I think in the prepared remarks, you mentioned you expect to return to growth this year. So maybe we're past kind of the peak pressure there. But if normalized margins used to be mid teens, could they be higher for ICS here? Just how should we think about that profitability?

I'll try not to give any guidance here. I'll just talk about our philosophy. We think we're in a really good spot right now. We've got through the integration. We think we've got through our customer losses that really, that come on board for the most part back there in peak of COVID and some of that.

J.B. Hunt Transport Services (JBHT) Q4 2024 Earnings Call Transcript

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