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

Let's go ahead and get started with the next presentation. So for those of you that do not know me, I am Tyler Brown. I'm the senior analyst here at Ray Jay. I cover transportation, garbage industry. I do some heavy construction materials. I do quite a few things. But I'm very excited, it's still morning, still morning, to have J.B. Hunt with us. So actually, you guys are my first transports. So I'm kind of excited to kind of get going on transports. But presenting today the company's CEO, Shelley Simpson; COO, President of also Highway and Final Mile, Nick Hobbs; Senior Director of Finance, Mr. Andrew Hall. So I think, Shelley, this is a generalist conference. So I think that you've got a couple of slides. I think, we've got a couple of slides. But maybe I was hoping that you could kind of just give us a little bit about who you are, what you do because at the end of the day, you're a whole lot more than a one-way truckload company. You guys have a lot of -- there's a huge offering here. So Shelley, I'm going to go ahead and turn it over to you, and then we'll just jump into Q&A. Will that work?

Sounds great. Yes. Thank you, Tyler. Thanks for having us. Excited to be here. We'll see if we've got slides that we can make work and -- maybe not. So I thought I'd just give you a 5-minute overview, and then we can dig into any questions that you have from there. For us, we want to create the most efficient transportation network. And one of the ways that we do that is really in our company foundation. This is where we invest and where our brand really comes to life. For us, we really think about our people and the differentiation our people have within the organization. And they really are the team that creates that change for our customers' mindset and how they could think about buying across multiple services. We then connect to our technology and where we've invested in technology through our J.B. Hunt 360 platform that really helps empower our people, but it also helps connect what's happening from a capacity perspective. And certainly, we're known as one of the largest capacity providers in North America. Our mission is to drive long-term value for our people, our customers and shareholders, and we do that through our 5 core values: integrity, respect, innovation, safety and always focused around excellence. We'll be celebrating our 65th year this August, excited to do that. We're located all through North America with 400 different locations. And you see about 31,000 of our people that are performing that work on behalf of our customers every day. About 2/3 of those are professional drivers, about 2,000 is in our maintenance team, and the remainder will be in our office team helping support on about $12 billion in revenue. We are a growth company, and we're really excited about the opportunity that presents itself in front of us because although we are large in our space, it is a $600 billion addressable market and all 5 of our business units have a great opportunity for growth on behalf of our customers. If you think about what our segments really look like in total. For Intermodal, we are the largest inside that segment with about 31% market share. However, the market overall, we do about 2 million shipments. We estimate 7 million to 11 million shipments around the nation's highways that can be converted into Intermodal. In Dedicated Contract Services, that part of our business also is in the #1 leading position in the market. However, that's a very large addressable market at about $90 billion that we've really identified. And then our trucking-based solutions, really in both truckload and brokerage, that business really leverages our technology that we've invested into and helps procure capacity on behalf of our customers in either a pure brokerage model or brokered power with company assets. And finally, in the supply chain, we have our Final Mile services, and that's going to do business inside our home. We think about that through our senior management team with over 350 years of experience, average tenure at J.B. Hunt at 27 years. That's very common inside our organization. Our VPs and senior VPs have 20 and 21 years. Our directors at 14. Our managers -- senior managers at 9 years. So we are a growth company, but also people tend to come in the company and stay a really long time. We think that's a differentiator for the organization as well. And when we think about our priorities this year, we do think about them in kind of 3 key areas. But if we take care of #1, it really helps solidify our #2 and #3 priority. So we're focused on disciplined growth this year through operational excellence, making sure that we perform with the highest expectation of our customer. We want to be best-in-class across all 5 of our business segments. And then we want to have that rigor and discipline that we've executed on over this last year around our costs and make sure that our growth is accretive for both our customers, our people and our shareholders. And then finally, on lowering our cost to serve, how we think about the company, really positioning the organization in any environment. It's been a long, long 4 years of a freight recession, but really set the company to think about how do we reposition the company to take out $100 million in structural costs that doesn't limit our potential upside really in a much improved market overall. Very pleased, in the fourth quarter, we reached greater than $25 million, reaching a $100 million target that we've set out in midyear. We've not announced any further targets past that, but we have talked a lot about the transformation work that we're doing, particularly around technology and how we're going to use that to transform our work and how we serve our customers. And then finally, we're not just disciplined in how we grow. We're also disciplined in our capital allocation. Our #1 area that we always want to deploy capital is growth on behalf of our customers. We have prefunded a lot of our growth, so not as much is needed in our capital planning for this year. Last year, we -- part of our strategy is to be opportunistic in the stock buyback and dividend, and we did a nice job in 2025, buying a record $923 million of our stock, retiring 6% of our stock overall, good use of cash in total for us. So with that, Tyler, I think I'll turn it back over to you.

Yes, perfect. That was very, very helpful. Okay. So actually, it segues -- I think it segues pretty well. But maybe we can start with culture. So I actually have the opportunity. I live in Northwest Arkansas. So I know a lot about J.B. Hunt. I met a lot of J.B. Hunt people over the years. So can we start with culture because I think this is something that time to time gets missed. I think it's super important for you. And maybe just talk a little bit more about your culture, how it sets you apart and quite frankly, your willingness to invest despite the fact that the market has been very, very tough over the last few years.

Yes. I think it started with our founders, Mr. and Mrs. Hunt, 64 years ago. Mr. Hunt was a driver, founded the organization. Mr. Hunt and Mrs. Hunt is kind of the backbone of making sure that we execute flawlessly and at that operational excellence that we expect today. But the one big foundation they have is taking great care of people, so much that Mrs. Hunt used to have drivers and technicians over to her home for Thanksgiving meals. And so it was just thinking about our people from a family-oriented perspective. And Nick and I have both been with the company for a long time. I have been with the company for 31 years. Nick, you're at 42 now?

42.

42 years. And we've seen the company over the last 15 years or so, really doubled down on our commitment to our people. And the greatest time that you see that, you hear a lot of people talk about our people are everything, our people are our culture, and we think our people do create the culture that our customers know us for, which is our say-do culture, making sure that we uphold the values and integrity of the organization. And so during this downturn, Tyler, this is really important. We did it in 2009. We did it during COVID. But in this case, we said we're not going to have any mass layoffs. But we still have to have -- we have a fiduciary responsibility to our shareholders to really focus on cost. And so we're very proud of the fact that we didn't do any mass layoffs during this 4-year turn -- downturn, but our people became creative and thought of different ways. And especially when we did the $100 million cost takeout, that was without doing mass layoffs again. And so we believe our people, they really are what bring it to the forefront on behalf of our customers. I think that's why our tenure is so long, why our turnover has been so good. You have to think about that people have choice. And even in this downturn, our turnover has been really great across the organization. But I don't think it just shows up with our people. I think it shows up in our financial results as well. And I think that's why our performance here at the back half of last year, being able to execute on that, I think a large result of that is our people.

Yes. We're all nonunion. I'll just add to that and say that we have a great relationship with our drivers. We've got 1 million mile drivers. We've got 4 million, 5 million mile drivers. It takes 35, 36, 37 years to get to that without accidents. So our culture, you see that in our safety results. It's just permeated throughout our technicians. And so for us to take care of our customers, it's really easy. Our people want to take care of our customers. And when we do that, we take care of our people, they take care of our customers. That's just been a culture in there since '84. That's a culture from day 1, and it continues to be there. And our customers really lean into us a lot and trust us a lot.

Perfect. So a very idiosyncratic story at J.B. Hunt. There's a lot going on. We're going to get into some of that. But we've got to start with the market because there's, quite frankly, a lot going on in the market, non-domiciled CDLs. We've got trucking school crackdowns, ELD crack down. So can you just talk a little bit about what you're seeing in the market? There's a lot of talk about tightness in the market, just what you're seeing day-to-day, and talk a little bit about some of those supply constraints and if they're really having a real impact on supply.

So Tyler, let me kick it off, and I want to turn it to Nick to talk more about what we're seeing from a capacity perspective. But after our fourth quarter earnings call, I talked about the market feels fragile, specifically from what's happening from a supply side perspective. I would tell you, from a demand side, it's been slightly better than what we expected from a customer perspective. I don't think any customers are expecting a real boom in business. And so we're not expecting a big pickup from a demand side, but we're very focused on just making sure that we take market share and what we can control from a growth perspective overall. But a lot of things are changing from a supply side of what we talked about. Nick, I'll let you...

Yes, I would just say, you've read about this, a lot of this, but there's real capacity exiting now. We've really not had a supply market shrinkage since probably '17 or '18 with ELDs. And so there's just numerous factors that's going in to that. Probably, the most talked about is non-dom. That's legit. We've had some non-domiciled drivers. We're working through some issues, very small amount. But we know that, that's real serious and being enforced a couple of hundred thousand drivers out of over-the-road market. So that's pretty significant. It's a matter of how much time that will be, whether it's law or just enforcement, that's happening. We're also seeing driver schools shut down. But also, we're seeing a lot of enforcement around [ chameleon ] carriers and multiple operating authorities and moving around, a lot of enforcement on that. We're also seeing -- I think one of the bigger things is cabotage and there's no real good way to measure that. But where we're seeing that is in the Texas market before it started being enforced, there was lots of trucks there. Now that it's been enforced, we saw our rates intra-Mexico drop dramatically because a lot of the carriers went back to Mexico to run that's not up here running legally. Same thing in Canada, and we saw it in the Rust Belt. So we're seeing cabotage be a really legit source of capacity leaving. So we're seeing a lot of things. We're also seeing on our bids. I would just say, in our bids coming back, we're seeing that when some carriers get award from their bid that they priced 6 weeks ago, some carriers are saying those rates are no longer good. So we're getting an opportunity to reprice on some of that. So that activity is moving up. Many bids were routing guides are falling down, carriers falling out. We're seeing more mini bids. So we're seeing all the different signs that capacity is really tightening up in many different areas. Not just 1 or 2 things, it's really 6 or 7 different areas that's all kind of coming in at the same town.

Interesting. So if we go back a week ago, it was the State of the Union address. I think you -- maybe did you go?

I did go.

I saw that on LinkedIn.

I did.

So that's interesting. So unfortunately, there was the story about Dalilah Coleman, a very tragic event. But the President effectively implored Congress to move on what's being called the Dalilah Law. And this is going to have a lot more, it seems like, teeth around who can ultimately receive a CDL. So can you talk a little bit about that? Because I believe last week, it was also introduced by a Senator from Indiana, if I'm not mistaken. And just talk about what's different between what you just talked about, which is driven a lot by, call it, FMCSA or DOT guidance, whereas this would actually be a piece of legislation.

Yes. So I think it's going to happen. They're going to enforce it through regulation or through legislation. And so to me, it's just the timing of how fast rest of that capacity comes out. I think a good chunk of non-dom, which this is just talking about, has come out, but it might speed it up if this legislation passes. It will just speed it up instead of being 2 years or 3 years to win their EAD, their visa and their CDL expires, that would pull it all forward and say, "You're not legal today," whatever day that is of that law. That's our speculation on the law. We got to see what actually comes through when they pass the law. But to me, it's just the timing is all that's talking about. It's still the same amount of drivers. It's just -- is it over a few weeks or a couple of years.

Okay. So that's a million dollar question, number of drivers. So you guys actually have a really interesting white paper, highly recommend you take a look, on the J.B. Hunt website. I think there is a lot of talk about the 200,000 non-domiciled. But then I think, Noel Perry, you guys did -- he is a consultant in the industry, there was as much talk about as much as 600,000. So do you think that this pushes that number up? Or how should we think about that?

Well, I think there's a number of things that could put that number up. And that's English language proficiency would be there. It's also cabotage of drivers. It's visa violations of just operating in the border as opposed to coming on up further in the states. So there's numerous things that can get up to potentially 600,000. So that's really talking about a lot of those different things coming in. And it's also talking about more strict enforcement of new entrants entering truck driving schools and certifications. It's also talking about certifying ELDs because today, in the United States, there's 300-something different suppliers, ELDs, they're all self-certified. So that means you can manipulate them, run extra hours. In Canada, there's like 30-something or 40-something that's certified by the government. That's getting ready to change here in a few months so that it will be government certified. So there's just all these different initiatives that's all kind of coming in to really taking some capacity.

Yes. So to put it in perspective, because I think perspective is key here, there's probably, what, 3.5 million, 4 million drivers across the space, let's say. So I mean, we could be talking about a material amount of capacity that could be exiting. Would that be fair to say?

Potentially, yes.

So this is where it gets interesting in J.B. Hunt. So maybe the industry gets into a bit of a capacity crunch. You have multiple solutions. And one of the things -- and Shelley, you talked about it, you've prefunded some of that growth. So you guys invested during the downturn. So could J.B. Hunt be an outsized winner? If that market got really tight, you have some other solutions that may be just maybe you might be a winner in.

Well, I mean, we certainly think so. It's the reason we really thought about when we started the downturn, we said, how do we use the strength of our balance sheet to really push forward during this downturn. So on the other end, we could come out a much bigger winner and really reap the benefit of all of that. And so Tyler, we didn't realize it'd be 4 years. But that was definitely our strategy. And so if you think about the difficulty our customers had during COVID to get capacity that was so difficult, really when they come out of this with a position of strength. I think if you think about the whole organization in total, we now -- we didn't do mass layoffs. So we don't have to teach any new people, our culture, how we take care of our customers, how to take care of each other. So we're ready to go from a people perspective. Our technology is on a modern platform. We're really leaning in, thinking about transforming our work, and can also be an accelerator for us in the upturn. Technology could really push us forward there. And then certainly, the amount of capacity that we have is significant. But I think one thing that we've done that's been really important that we should just share more of is our focus on operational excellence. And so we've really called for that over the last 3 years. Nick really helped lead this. The most resilient part of our business is our Dedicated Contract Services business. And if you look at that business, it's within about 130 basis points of its margin target. Really, throughout this recession, it's been very resilient, not just for the company, but I would say even in this industry overall. So we've taken that concept through the organization. And if you look across all 5 of our business units, it is the strongest position from a brand perspective with our customers we've ever had. And I could say that internally, we've been measuring it internally, but there's an external data source. We issued a press release on it. Journal of Commerce does an external survey about intermodal service. And inside that intermodal service, they ask for who's the best intermodal provider, and they rate you on technology and pickup and delivery and in customer servicing capacity. And for the sixth time, we rated first. But I think what's more important was our Net Promoter Score was at 58. That's comparable to like a Chick-fil-A or Google. Our next closest asset-based providers were both negative on their Net Promoter Score. And that's the differentiation we've really tried to focus on during this downturn is making sure our customers. So that's reflective. We get that external source that tells us that. But I would tell you, if we were to do that across the company, we could get an outside source to do that for us. I think you would see our scores across the board be reflective very much as to how the Journal of Commerce really -- how that came through from our customers.

So I guess going back to intermodal. I think you showed a slide of 125,000-ish containers, but the goal had been to get to around 150,000. Maybe there's some that are kind of not in the account. But could you give us a sense of how much slack capacity you have in that? You do 2 million loads, again, squiggle squiggle, 2 million loads a year. I mean, could you have as much as 30%, maybe even 50% capacity -- slack capacity in that segment?

Yes, I would say a couple of things. First, what our box turns do, which will be very important. If you look at our box turns right now, we're historically low. And so that really shares how much can we have. So if we're 1.4 turns a month today, can we get back to 1.8? Can we stretch it more than that? So that would be slacking capacity. And on top of that, we do have some containers that we've purchased. In 2023, we entered into a long-term agreement to purchase 100% of Walmart's private intermodal fleet. And so that long-term agreement and those boxes, not all of those are actually counted in our capacity yet because we still need to retrofit all of those. So certainly, we think there's plenty of room for growth inside our intermodal business. That's very exciting for us. As we think about this upturn in our business, we think, great opportunity for us to seize.

Right. So forget the rates, which potentially have upside potential. And when we think about incremental margins, at the EBIT line, it will be good. But Andrew, maybe this is for you, but at the free cash flow line, so if you think about it like an incremental return on free cash, that should be, I would think, very incremental because a lot of this investment has frankly already been made. You guys have already invested in that to the downturn.

No, I think that's a thing that's a fair way to characterize it. Yes, we have prefunded that growth. We don't need to go out and secure additional capacity. We are paying some expense to store some of that capacity today. So to the extent those boxes get in service, that is cost that we're able to take out, plus you're able to generate revenue on those boxes, which would lead to higher incrementals and more free cash flow.

Okay. I do want to talk a little bit because Shelley, you brought it up about technology. So again, you guys have been very technology forward. There's no doubt. If you look at J.B. Hunt 360, et cetera, et cetera. So can you talk about how -- I mean there's a lot of talk about AI and how it's going to impact the transportation markets. Good, bad and the ugly, I suppose. But could you talk about your strategy there? And just talk about how you see AI playing out for you at least over the next few years?

You want me to take that?

You're the new tech guy.

I'm the new tech guy. All right. The old operator is the new tech guy. Well, we have a very modern platform. And so that really makes it easy for us to really attach things. And so we've done a lot. If you think about our process, we're really engineer oriented. We've done a lot of design for efficiency. That's how we did 360 platform. So that's really set us up. Now as we kind of come in and think about automation, we've been doing bots and automations and all that for a few years. And now you kind of layer in AI, the new buzzword. We're excited about that. We're using a lot of AI and a lot of areas around our customer experience area and also on our payment side. And just to kind of put an emphasis in it, we really -- we've made a public announcement that we've partnered with UP.Partners and UP.Labs to really invest in AI. And so we've launched 2 new companies that's just getting started. And the first is really tracking and tracing in automation, also appointment setting. And so really doing some neat things. And this is across our entire organization, not just brokerage, but it's across all sides of the company. And then on the back end, we have another company called GroundTruth, that is AI-based that will help us on our billing and receivables and really going to help us drive efficiency through that process. As we grow, we may not have to grow people at the same amount. So that's just a couple of areas. But outside of that, there's a lot of other areas that we're looking at on some automation with some outside AI companies that's helping us maybe negotiate brokerage rates with carriers and certain things. And so we're looking at all those areas, and we've got a list of things we're doing, and we're just being very methodical about that and really going to put a lot of emphasis on that. But the one thing I want to say is we're fully supportive of technology. We did the digital platform early. AI fully supporting of that. But the key is we still have to maintain contact with our customers and our carriers and our drivers, and it's how efficiently we do that and then how do we drive efficiency in other places. But we still have to maintain those relationships. People buy from people, but it's how efficient you do that. So that's kind of our philosophy of how we kind of drive that. So we're all about efficiency, really leaning into it. I think we're in a really good spot.

And Tyler, I might add, too. If you think about the organization, we're taking the biggest opportunities and really leading that from a corporate view kind of coming across the organization. But we also have efficiency that we're working on at an individual view. So really trying to fuel the organization, giving them tools around the AI that allows them to think about how can I use AI in my day to day. And I really believe when you have a culture that people know that we're going to take great care of them, and we haven't done mass layoffs when we financially could have really talked through that, it's starting to bring the best ideas forward from our people. And so that's one of the things we went through during budget season this year. We had people come in with two things: one, how do you create more value for customers; and two, how we use technology to transform your business. We saw some of the coolest ideas from that coming directly out of our frontline people saying, "Here's how we're going to do that," because they know we're going to reskill and redeploy them into a new role and not necessarily be worried about the role that they have today.

And Tyler, that business transformation we talked about, remember, we announced the $100 million cost plan, right? We, at the same time, ran a separate cost track focused on transformation. We have a value that we think we can achieve through that. So our engineers went into the business, looked at the way we execute a load, the different steps take -- required to go from point A to point B and thought about how can we use technology to automate some of this, make our people more efficient, remove those mundane tasks. That work will require some investment on our part. And so we're at the point right now where we're scoping those costs and making sure that we know how much it's going to cost. Is it something we can develop internally? Do we need to partner with someone like UP.Labs to achieve it? Or is it an off-the-shelf product we can buy. So that will be kind of the next phase of our cost work is and that will probably be later this year and the next year kind of we execute on some of that.

Perfect. It's interesting. I actually had the exact same thing. One of my garbage companies actually said similar, some of the best ideas come out of the field on the AI implementation. So that's interesting. So let's talk about the cost program. We've got a couple of minutes here. So I think you announced the $100 million, no mass layoffs. So what is it? What are a couple of the things that we're talking about there? Is it really about network efficiency? Maybe just talk a little bit about that. And I know you've kind of alluded to it, but does it feel like maybe there's some more and maybe AI is part of that story.

Yes. Great question. So one of the things that Darren did in Intermodal was really implemented new technology as we started thinking about what our customers need from an operational excellence perspective, what's their expectation, we really went from having a mass program around service to being very dynamic by customer, by type of work. And so that technology implemented for us in the third quarter, really allowing us to take costs out of our system over the long term. And so a great example would be if a customer has business and let's say, the pickup is 200 miles away from the origin ramp, we know that business doesn't actually have to go in that moment. We actually can hold that, not deadhead for it and actually tour the driver from that perspective, removing hundreds of dollars of costs from that perspective. So that was a really great win overall. We've also looked at things from a maintenance perspective. How do we think about efficiency in total? How should we be doing things differently? It took the executive team to really engage because we'd already worked on all the cost side. So it really was thinking about it's okay if we've done it for 20 years this way, what's a new way that we can do that. And that's just one of the big examples that we had, and I think we had really great success as a result.

Perfect. Okay. We've got 30 seconds. We've got to talk about capital allocation because at the end of the day, you guys should be a very cash-generative business. It's a very good place to be. The leverage on the balance sheet is very manageable. So what -- how should we think about capital allocation over the next couple of years? And just a few comments.

I think our first priority is always to invest in the business. As Shelley alluded to, we prefunded a lot of our growth on the Intermodal side. Dedicated is our most capital-intensive business. Those are 5-year contracts we'll sign with a customer, ECI, CPI-linked price escalators, fixed and variable components, all underwritten to margin and return targets. So we feel very good about deploying capital for that business for growth. We'll maintain our leverage around 1x. And then outside of that, we'll be opportunistic with how we think about share repurchases and taking advantage where we see value.

Okay. Perfect. Thank you. Right at time. Thank you so much.

Thank you, Tyler.

Thank you.