J.B. Hunt Transport Services, Inc. (JBHT) Earnings Call Transcript & Summary

All right. Let's go ahead and get started with the next presentation. So thank you all for joining us right after lunch here. For those of you that don't know me, I'm Tyler Brown, the senior analyst here at Ray Jay. I cover both the transportation sector as well as the environmental services sector as well. So -- but presenting this afternoon is J.B. Hunt. Very excited to have them. I think joining us is extensively half of Lowell, Arkansas. But starting kind of from my left on down, Shelley Simpson, obviously, the company's Chief Commercial Officer, EVP of Human Resources and People. We have John Kuhlow, the company's CFO; John Roberts, company's CEO; Brad Delco, down at the end, Senior Vice President of Finance and heads up the Investor Relations effort. So I'm very excited to have you guys. You guys have been coming down for a long time, John. Very grateful for that. I appreciate that very much. It's nice to see you back in person. But J.B. Hunt, I think we all know a little bit about J.B. Hunt. There's a really broad offering that they have. We're going to talk about that a little bit. But I'm just pretty excited about what's going on in the intermodal markets and the opportunity that we see in front of us there. So I think we have a little bit of a slide show. We're going to go through a few things. Then we're going to kind of come back up, maybe open it up to a fireside chat. If anybody has questions, don't be shy. John?

Tyler, thank you. I guess I unmuted now. And I do want to thank, Tyler, this is I think a conference that we attend with the exception of the last couple of years, every year because we find it to be a very good investment of our time. We -- I would say we brought our A team, but that would offend all the folks that are at home. So I wouldn't say we brought our A team, we brought part of the A team anyway. And I have to say it's pretty nice to be back in person. I've done this for a long time, and I've been on the road for a long time, and when COVID hit, it was kind of interesting to move to virtual conferences, but now we're back, and I forgot how much fun it can be to sit and talk about the business. We're going to give you a brief overview. All 3 of us are going to talk with you, and then Brad will help us with some Q&A. Do definitely encourage questions. We are at a very interesting time. And I think the company has moved itself nicely as it has intended to over many years of the obligatory disclosure. Is that up there long enough, Brad? Okay. I'm good there. I want to start with our new mission statement. This has taken us -- my gosh, if you were there, a fly on the wall with different discussions that we had with all of our leadership teams, even our customers to get to a place where we could change our 25-year-old mission statement. That was created at a time when I don't think very many people were involved. It was a fine statement. But what I love about this statement is it's very straightforward. It's very comprehensive, and it's very bold. And lying as a foundation underneath this statement of purpose that we have are a number of different ways to attack getting to this mission. The use of intermodal is more efficient than highway One Tractor One trailer. The use of engineered fleets and dedicated that are routinely evaluated for waste and are recommended to customers on ways to take that kind of waste out with very, very precise analytics on our largest carbon footprint is a way for us to continue to work towards this mission. The use of our digital platform 360, which can identify where we have gaps and weaknesses in how to utilize equipment hours and maybe more importantly, the industry that is looking towards the future and technology. There's 30% waste in the transportation system today. And with our digital platforms, we can help take that down. Our focus on Final Mile and the connectivity that we can have in and across our supply chain services makes this very real and very motivating for us. And I'm so thrilled that we have a really thoughtful statement about our mission and so much radiates off of this. But we're landed here. It did take a while. And you can't make this up either. I'd just say don't -- you don't want marketing people to come in and tell you what your mission statement is. You have to dig down into your core, and we've landed in a really good spot. So I'm really proud of that. A few key stats go across the top here. It's really cool. It's got -- our locations, which actually that 400 doesn't include our DCS fleet locations. I don't think because it's 650 by itself. But we are very, very well placed across the country. We have a very large power fleet. It's continuing to adjust towards needs that are very sustainable in economics and long-term relationships with our customers. We've actually lightened our tractor load in areas that we think it's harder for us to generate ongoing long-term returns. And that's part of where that platform comes in. We can actually use other sources of power. We have a very large trailing fleet. We just surpassed 100,000 intermodal containers with a meaningful order was announced recently, and we continue to evolve here and try to understand and appreciate it. I'm hoping and sure there will be some questions about what we've got looking at intermodal. But our trailing fleet is also growing. Our box program is really looking like it's got a nice presence, which is a lot of history and knowledge and experience in managing trailing fleets with other people's power. We call that intermodal. We think we can bring a lot of that value proposition to our customers in much the same way. Many of the same customer experience, people can manage a highway load through the paces of alternative power much like they deal with Intermodal and have for over 30 years, okay? A ton of productivity on bringing carriers to our platform there. We have well over 30,000 employees. I think we had our biggest hiring year in '21 in non-driver, which kind of identifies for you the continued focus we have on serving our customers, not necessarily buying equipment and putting it in place. But what's the right answer? Shelley will talk to us more about that. And then a good year in '21. We set a goal in 2010. When I took over as CEO to be a $10 billion company by 2020, we were about $3.5 billion. We didn't get it in 2020. We got to $9.4 billion. And Shelley, who is our Chief Commercial Officer said, "Don't worry, wait, just give me about 6 months, and we'll get you there." So proud of that. And I'll tell you the culture is really where it's at. The majority of this picture, this slide, you see, these are our million mile drivers. Actually, there are 2 plus, right? There's a 5 million-mile driver in there, if I can find. There's me, there is Nick, there's Stuart, there's Brad, there Shelley, there is John, there's Craig, there's Darren. That leadership team that completely understands it's about that 33,000 people that make the difference. And people can talk about that in many different ways. I've been with J.B. Hunt for 33 years. And in fact, I can tell you that there's just a really good history. I'll talk a little bit more about our experience in a minute. But that idea of the people-centric culture that we have. Recently, I heard conversations internally, we hire and take care of the best people and they take care of our customers. And that is such a critical component. Here's our history. It's really kind of a walk-through of our founding, our going public intermodal begins in '89, very, very disruptive through introducing dedicated contracts. What you can kind of see in these steps is how the company identifies, recognizes that need driven entirely by what a customer is asking us for and our willingness to move towards that service. We have a lot of things we talk about as to when we qualify a new idea, but these are the big ones. ICS launched in '07, big commitment on digital transformation, Final Miles gets broken out in 2020. That helps identify what's going on in DCS, which is founded in 1993. I suspect this chart will look like this for many years to come. We are an entrepreneurial growth-focused company. We serve a $1 trillion market. And then our tenured management team, 276 years of experience. That's not in the industry. That's at J.B. Hunt. And what I'll say about this group of people right here is that we have succeeded together. We have failed together. We have really authentic trusting relationships. We know how to challenge each other. We know how to respect each other, and we know how to get things done. And I'm a real proud member of that leadership team right there. So let me turn it over to Shelley.

Yes. Thanks, John. And we've also fought together because we've grown up together. Yes, and advantage of understanding each other and how quickly we can move on behalf of our customers in total. For us, it all starts with our foundation. John talked about our people being first, the safety is at the forefront when we take care of our people, making sure that safety is embedded in everything that we do. We also have 4 other core values that we really lead the company on. You heard about innovation that starts with our founder and the roots of our founder, making sure that we are innovative on behalf of our customers, but we want to be sustainable as an organization. So not just sustainability from a green perspective but also sustainability making sure that we maintain margin discipline and growth on behalf of our customers equally balancing those as they're asking us to grow on their behalf. We also want to continue to create value on behalf of our customers. So for us, that's a challenge every single day. We'll never be the cheapest in a line haul or total price, but we will create the most value for our customers. And finally, you heard John talk about our investment that's happening in technology. We're continuing that investment. That's allowing us to accelerate as an organization. If you think about our investment highlights really in our 3 key areas are people that really is at the center of what we do. John showed you the picture of our million-mile drivers of our 33,000 plus employees, about 2/3 of that would be in drivers. And so that is the heartbeat of our organization, everyone else is here to support the work that they do on behalf of our customers. Think about 10,000 or so of office employees. A lot housed in Lowell, but also about 55% housed either on location with our customers or on location with our drivers in total, and then we have about 1,600 in our maintenance facilities because we do the majority of our own work there as well. We also are investing in equipment. In that equipment, we've been fairly public about very large CapEx spend this year at $1.5 billion. Last year, we committed to adding 12% more capacity in our largest segment and the most efficient way to move goods on behalf of our customers in intermodal. We also are adding chassis. We added 1,800 tractors on behalf of our drivers as well as we were onboarding more drivers, and we are also adding more trailers. So you saw John's note that we had about 145,000 trailing units. That's continuing to grow in both containers and trailing fleets across our segments. And then finally, in technology, and I'll talk about that here shortly, but that's allowing us to think with our customers over the last decade in a complete mode agnostic approach. So for us, we really think about how can we solve for our mission statement with our customers to create the most efficient transportation network in North America. That means that we'll take all 5 of our segments that you see here represented with Intermodal being the largest but we'll bring those solutions to customers because we can serve the entire supply chain in North America outside of maybe a small letter in total. So if you have 1 pallet all the way to being able to manage all of your transportation spend, that's how we approach our customers and how we have approached our customers really for the last decade. It's one of the reasons that we're growing so quickly and gaining market share, almost everything you see here is organic. And so we've had a few tuck-in acquisitions in our Final Mile space are really in areas that we saw deep expertise that would allow us to really move into that market more and create more value for our customers. But we did just in at $12.2 billion, looking back at only $4.5 billion, but you can see the size of each one of those segments in total as we're solving for them. And then even more importantly, how much cash or operating income that we generate as a result. We didn't just clear over $12 billion in revenue, we also cleared over $1 billion in operating income. That was a milestone for our organization. I remember when I started in the company 27 years ago, I had just heard Mr. Hunt was downstairs in our small auditorium, celebrating $1 billion revenue. So to generate $1 billion in operating income, was a milestone for our organization. Again, we want to make sure we have proper returns so we can continue to invest on behalf of our customers. And one of the ways that we do that is in J.B. Hunt 360. In April of 2017, we not only rolled out our new mission statement, but we also rolled out our technology and technology strategy on behalf of our customers. And so for us, our customers are really asking for 3 key things. They really want capacity cost and service and through J.B. Hunt 360, we allow them access to not only our 22,000 drivers and pieces of equipment, so nearly 1 million trucks, which is nearly 30% of the entire driving market in the U.S. So they are allowed access. To that, we also create transparency at a level they've not seen before and then certainly visibility in total. And that's one of the reasons that you saw from 2011 to 2021, we've grown substantially. But you can see our growth has started to pick up. And you see in 2021, our growth upticked. We also have started the year-end bid season in a good position with our customers, that is to be expected, and that's what we had been hearing from our customers. But I would say, all 5 of our segments are growing nicely, and our customers have a strong appetite to continue what the growth looks like on their behalf. And finally, when we think about our priorities, we did state publicly for our people that the health and safety of our people were -- that was our #1 priority in 2020, and that has not changed for us, except that people are our priority because if we take care of our people, they will take care of each other and take care of our customers. And so we're going to take care of our people. We're always going to honor our commitment. We have a long view with our customers. They understand that we will stay disciplined, and that we do have margins that we have to make. We're public companies. So they're fairly familiar with that. But we will take the long view with our customers. So regardless of what's happening in the market, we will honor the commitments we've made to customers, and we will make sure that we get paid an appropriate margin as a result. And finally, we will continue to invest heavily on behalf of our customers as they're asking us to lean more into them. And with that, I'll turn it over to John Kuhlow for more segment information.

Thank you. All right. Tyler, I know you want to get to some questions. And so I'll try to get through this, but Brad spent a lot of time on this presentation. We want to make sure that everybody gets -- there's copies in the back. So go ahead and grab one. Intermodal. I'm going to just hit some of the highlights on the individual segments. The one thing I want to point out that both John and Shelley have mentioned, but it's worth reiterating 104,000 containers and growing as the largest container fleet, 53-foot container fleet in North America. Dedicated, one of the -- I believe is misunderstood within this segment is that these are not just traditional dedicated lanes that we're serving. This is really private fleet outsourcing, where we take on the customer either partial or in total and take on their noncore competencies and deliver their transportation for them. This has been a huge growth year in 2021 and the pipeline still looks strong. So we're excited about this segment. Our ICS is the traditional brokerage. You'll notice on the graph that we did make some intentional investments in '19 and '20 to grow our technology platform and to grow scale in that. And so we returned to profitability in '21, and we're excited to see how this segment develops. Truckload, JBT, this is the traditional legacy company, but it's evolved recently into more of an asset light, and you'll hear us talk about the 360box program. You've seen the power capacity in this segment go down, focusing more on trailers at the request of our customers and trying to serve their needs. And then finally, Final Mile. This is our newest segment, but it's lived in the company for a while. It was tucked into our Dedicated segment. We broke that out a couple of years ago. This is delivery into the home, primarily furniture appliances, sporting equipment. This is the area where Shelley mentioned, we had some tuck-in acquisitions and excited to see how this segment develops as well. Last thing I'd like to say with respect to our segments, we break these out to help you digest, understand the company a little bit better, all of our service offering. But really, we look at this company as one consolidated cohesive set of service offerings to provide to our customers so we can serve their needs. Capital allocation. We can get into this in more detail. This just shows capital spend over the years. We're obviously heavily focused on investing in equipment to serve our customer needs. We also stay true to our dividend and our buyback policies on an opportunistic level and one heck of a pretty balance sheet. So we're going to leave it at that. And Tyler, I'll turn it over to you.

Yes. Thank you so much. Tons of great stuff in there. So I'm excited for this next 10 minutes. I'm going to pivot and I want to start with Shelley. So I would really like to just talk about J.B. Hunt 360. Because I think a lot of people still wonder exactly what it is. Is this just a brokerage? But it feels like it's way more than that. It makes it easier for customers to interface with you, for capacity, to be drawn into the system, maybe even model optimization, maybe even access to your own capacity. So can you just kind of set the stage and talk a little bit more about what exactly J.B. Hunt 360 is?

Yes. Thank you. So when you think about our mission statement to create the most efficient transportation network in North America, for us to do that, we really have to have all capacity and all shipments living in one location. You heard John speak earlier that there is a 30% waste in the capacity part of the equation that's getting embedded in cost to our customers and into carriers alike. And that we believe really with technology, the level of visibility, gaining access and connecting in a more frictionless way allows both parties to benefit if we were just to eliminate 1 hour of the wasted time that they have. Remember, 1/3 of all hours, they have 11 hours to drive is -- at 3.4 million drivers in the U.S. So they have 11 hours to drive. They waste 1/3 of all hours. If we were able to give them back 1 more hour, you'd have a double-digit increase in capacity and also double digits in wages. So there aren't a lot of businesses that if you imagine going into a manufacturer and every third hour, we would say, hey, let's shut down the machines and everybody standing around looked at each other and then you start a back up after an hour and you do that all day long. I think you would see that very well. This has been a very hidden part of our industry because you've now had technology to be able to connect those 2. So it doesn't just connect that kind of capacity. But then once you have that -- those levels of shipments under management, you can start to look for the most efficient way to move goods. For example, we know in J.B. Hunt 360 in 2021, there were 150,000 shipments that should have moved into intermodal that found a less efficient way to move goods because of constraints on capacity. That's a really great conversation to have with the customer because we don't want those moving on the highway. We want those moving under our mission, the most efficient way to move goods. And so I think if you think about it in a comprehensive way, across the organization, you start to understand with our mission statement in mind how we get to market with our customers and also go to market on behalf of 3.4 million drivers.

So guys like me are the worst. Maybe not Brad when you're on the sell side, I may have not said that. But like we all live in a few hundred lines of excel. So when I think about it from a financial perspective, it feels like it's more than just ICS. It feels like it drives potential modal conversion opportunities in Intermodal, it drives waste out of truck. I mean, I could go on, but we talk about that just a little bit.

Yes. Let me just add this. If you look at the $1 trillion market that John Roberts talked about. The largest segment of the market is actually on the highway side, so that's $300 billion. And although we are very large in the intermodal space, we want to continue to create the intermodal market. The intermodal market is created primarily out of the highway space in total. And so when you think about having more shipments to review, one of our ideas that came as a result of J.B. Hunt 360 is what we call 360box. That came from our customer advisory form, our customers saying, we love this concept but we want you to put a gray box, if you will, they can go anywhere between any of us and use the power of your platform to really make that happen. And so that's changed our legacy routes, our legacy trucking part of our business from being a very asset-intensive business to now pretty light asset-intensive business. So we just have the trailing fleet for the most part. And then we allow access to those 1 million trucks to be powered with the platform. So if you think about those trailers that we have inside JBT, it's starting to grow. And then as we get access to that information, particularly when it comes to JBT or ICS, we can then mode convert into intermodal. So it's a much more comprehensive answer. And then maybe last thing I would say is we have the largest fleets in both dedicated and intermodal in both of their spaces. Our ability to create a more efficient network in those segments really is going to be largely dependent on how many empty miles we can fill and when they gain access to the largest multimodal digital freight platform, J.B. Hunt 360, they're also able to serve customers in a less expensive way. And so it really helps complete the picture for our customers, to understand the more that we see in J.B. Hunt 360, then when we find the right optimization in the right mode in which it should move and also the lower cost that it will take for us to serve you.

Extremely helpful. I love that. I do want to turn over to Intermodal real quickly. It's still about 60% of your EBIT. So obviously, it matters quite a bit. So I want to talk a little bit about it. So obviously, we started in '89. And a lot of -- I think in the beginning, especially as we got to the turn of the century, there was a lot of low-hanging fruit, easy modal conversion, maybe the box car fleet demise caused a lot of low-hanging fruit. And Intermodal had a lot of growth call it, in that 2000s time frame. But if I look back over the last few years, you've been hanging around this 2 million load type of basis. So can you just talk a little bit about what has stymied the growth? Has it been service? I mean, can you just talk a little bit about that? And then I want to talk a little bit more about the future.

I'd love to talk about that because I think Shelley, we made a great point at dinner last night. When we think about 360. And your observation is right, Tyler. It seems to land in that brokerage space. But to us, it's very comprehensive backhaul for dedicated, right, motor conversion, the use of equipment and downtime. And we're rounding first if we're even too first maybe, we think. And because we've created this in such a comprehensive way, there's really nothing off limits, it's all about efficiency. The reason that we've been stymieing in intermodal is because railroad systems put theirselves through something called PSR and they cut out a bunch of the service we will provide. That took years. In doing so, they slowed down and their service levels decline. This is a business of creating value for shippers. Slower, fewer does not create value. It's just that simple. There's nothing wrong with intermodal. And if we can find our way to realizing that the customer really needs, wants, we'll buy intermodal with reliable service, of course, proper economics. But we can't dismiss this whole activity set of PSR and not tie it directly to the downturn in growth of intermodal. I think it was in '20, Darren told me, I'm going to lose 60,000 loads in the first quarter, like, what does that mean? I mean that's a big number. We're closing lanes because we want to be more efficient. We need to get to a 50 LR in the railroad business. Well, that's wonderful in the near term, but that's no way to run a transportation network in our opinion, because we're on the front end of serving the customers that buy intermodal services. So I mean we think we're substantially moving past that. We're very excited about the new leadership we have at both BN and Norfolk Southern. We known Alan and Katie well. I'm very excited that they both have a commercial background because I think that is an easier conversation to have with a commercial executive than maybe an operational executive or even a financial executive. And not to say we haven't had good conversations, but the results are clear, right? We stuck it to -- we're probably inclined to think our customers need this, it's a good trade on oil, it's a good trade on ESG. It's a good trade on driver shortage, it's a good trade on highway congestion, it's got a lot of the stuff that it had back in 1989 when Mr. Hunt stuck his hand out into my cabin and said, "Yes, we'll put some freight on your train," that led to our BN relationship. And I think that we're really hopeful, and we're really focused with our rail providers to make sure we're on a good track.

So this is a little bit of a tricky question admittedly. But there have been some IMCs that have left the BN for another railroad. I guess you can look at it glass half empty, you we've got a glass half full. And I'll tell you a look at the glass half full. In a way, is it kind of a data point that confirms that you're a really tough competitor? And number two, wouldn't it debottleneck a railroad that's maybe been a bottleneck for you that you alluded to?

So let's say, first, on being a tough competitor, our purpose is to serve our customers, and we do that humbly and carefully with our full energy and focus on how we create value for the people that we serve, and doing so ensuring that we make a proper return on our investments. If that makes us tough to deal with, I would probably think we are a little bit tough to deal with. But I don't think it's because of anything special. I think it's because we've been bold. We've been forward. We've been first-mover. We're we're very, very good at this. I mean -- and that is meant to be a humble statement more about the people that run this business. But we do know what we're doing, know what we're doing in dedicated. So then if we look at these changes, well, we have to think about the potential, the glass is certainly half full and by no means half empty. I can't imagine a scenario where it is. But for the needed investments that we have in front of us, we had to shore up the service question. We have to shore up this investment question. It's not right for us to go and lean all the way in, if we're not clearly convinced that we're going to see the service improvements that we need. Is it likely that fewer providers in that mix create some efficiency? It should be. If it isn't, there something has gone wrong. And we also are very efficient in the use of terminal properties and ramps, and our chassis system is very unique. So yes, I think we'd see it as a glass half full, and we're spending a good bit of energy thinking about what that means going forward.

So the problem is, we had too much fun. We're out of time. I appreciate it. Thank you all for coming. Thank you guys so much.

Thank you.

Thank you, Tyler. Good job.