J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) Q1 2024 Earnings Call Transcript

J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) Q1 2024 Earnings Call Transcript April 16, 2024

J.B. Hunt Transport Services, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the J.B. Hunt Transport Services, Inc. First Quarter 2024 Earnings Call. Today’s call is being recorded. I would now like to turn the call over to Brad Delco, Senior Vice President of Finance. Please go ahead.

Brad Delco: 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 these forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt’s annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission.

Now, I would like to introduce speakers on today’s call. This afternoon, I’m joined by our CEO, John Roberts; our President, Shelley Simpson; our CFO, John Kuhlow; Nick Hobbs, COO and President of Contract Services; Darren Field, President of Intermodal; and Brad Hicks, President of Highway Services and EVP of People. I’d now like to turn the call over to our CEO, Mr. John Roberts, for some owing comments. John?

John Roberts: Thank you, Brad and good afternoon. I will be brief with my comments but I want to hit on a few topics before I turn it over to our team to give you their updates and to address your questions. Last quarter, we said goodbye and good riddance to 2023 and welcomed the new year with some reservations and concerns but nonetheless confident in the strength of our organization and the journey we are on to build an even bigger and better company. Over the last several years, you have heard us talk about how we manage the business for the long term, remain focused on being financially disciplined and being for our people who have the knowledge and talent to help us execute for and on behalf of our customers. From that perspective, nothing has changed and we remain committed to staying the course.

Over that same time, we have faced challenges, have taken some calculated risks and made some strategic decisions that I remain confident will positively impact our company and our future growth. To be fair and somewhat critical, the current environment we’re in has remained persistently challenging and for longer than we had predicted. But what I remain confident in is the strategic decisions and the direction and course we are on is well charted. Our conservative nature, financial discipline and coming from a position of strength has afforded us the opportunity to invest throughout this period to better prepare us for the eventual turn. We stand ready. Our company and our teams are working hard. To use a sports analogy, we are putting in the work, exercising the muscles, becoming more lean, challenging the playbooks we know and better preparing ourselves for our future state.

While it’s hard to see that in light of what I would characterize as a disappointing financial performance against our standards, I remain appropriately metered with optimism. Elements that support that view should and will be revealed in the following discussion from our leaders. Finally, as recently announced, this will be my last earnings call as Chief Executive Officer. It has been a tremendous honor to serve in this capacity for the last 13 years. Our Board of Directors has taken a very thoughtful approach to succession planning and has tremendous confidence in my successor and our entire leadership team. So now I’d like to turn the call over to our President and incoming Chief Executive, Ms. Shelley Simpson.

Shelley Simpson: Thank you, John and good afternoon. As John made pretty clear, the market continues to be challenging. We remain focused on what we can control and how we position our business to deliver exceptional value for our customers and shareholders over the long term. The challenge we face today as an organization is managing the business to best prepare us for future growth while balancing the need to manage and control costs in the near term. To be clear, the strategic opportunities we have across our business segments gives us great confidence in our future success. Last quarter, we introduced our priorities for 2024. Our focus as a management team and an organization is to execute on these priorities which, as a reminder, are: one, to deliver exceptional value to our customers through operational excellence; two, scale our long-term investments in our company foundations which are people, technology and capacity; and three, drive long-term compounding returns for our shareholders.

Markets are always hard to predict, even more so over the last several years given the wild swings we have seen on both the supply and demand side of the equation. One thing we know for sure, markets ultimately return to some balance after overcorrecting on one side or the other. We continue to view the market as out of balance and customers have been and are taking advantage. We’ve been surprised by the competitiveness in the bid season thus far. We can’t predict when the current rate environment will change and as a result, we remain committed to our efforts to control our costs. Importantly, though, we are doing this without sacrificing the long-term opportunities for our company to grow and generate greater returns for our shareholders.

In fact, I would argue, we’ve only enhanced it during the first quarter with some of the investments we’ve made, most notably our purchase of the Walmart Intermodal container fleet. We are also adapting in how we approach our customers and contracts in terms of our commitments. We will always be long-term focused and strategic. That said, we will have to be thoughtful in how we work with our customers. Our management team and business leaders are intensely focused on our cost efforts while maintaining discipline on our long-term growth and return on capital thresholds. In closing, I remain confident in our strategy and approach to manage through this part of the cycle. We continue to make thoughtful and disciplined investments that will only enhance the future performance of our company.

While the magnitude of this part of the cycle has certainly been more severe, both in terms of depth and duration, we strongly believe in our ability to outperform the market on service quality, value and growth. We have and will continue to prove our ability to deliver outperformance for our people, our customers and our shareholders. Our confidence is in our people, our experience our complementary businesses, our scale and our financial strength which uniquely positions us for our future. As we’ve said in the past, we remain committed to disciplined investments in our people, technology and capacity but we will continue to challenge ourselves on our costs. I am confident that we will be better positioned as a result, coming out of this part of the cycle, as we continue to pursue our vision to create the most efficient transportation network in North America.

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

John Kuhlow: Thank you, Shelley and good afternoon, everyone. My comments will cover a high-level review of the quarter, provide some additional color on our costs and the impact on margins as well as provide an update on our capital plan for 2024. As a general overview, we continue to face inflationary cost pressures despite also facing deflationary pricing pressure. Our financial performance is not where we want it to be, particularly in Intermodal and our Highway Services. We recognize that some of this is driven by market dynamics, while some is related to our decision to remain committed to our investments to drive future growth. As Shelley alluded to, we remain committed to our efforts to control our costs while trying to maintain the right balance of resources to support our future growth.

I’ll start with a high-level review of the first quarter. On a consolidated GAAP basis compared to last year, revenue declined 9%, operating income declined 30% and diluted earnings per share decreased 35%. The declines were primarily driven by a combination of lower yields and freight volume combined with inflationary cost pressures. Our tax rate in the quarter was 28.7% versus 24.7% in the prior year. The increase was related to discrete items and other adjustments and we continue to expect our annual effective rate to be between 24% and 25%. As previously mentioned, in addition to the market dynamics, our commitment to our investments in our people, technology and capacity are putting additional pressure on our cost structure and, as a result, our margin performance.

We have visibility to these costs and their impact on the performance of each business segment. On a consolidated basis, these costs aggregate to approximately $100 million related primarily to having too many resources with our people and capacity for our current business levels that we plan on scaling into overtime. That said, we remain committed to our cost initiatives and have identified additional areas of opportunity to address which should not impede our ability to support meaningful growth of our business. We are confident in our ability to scale and leverage our investments. But right now, our focus is on how we best control our costs in the near term without diminishing the long-term earnings potential we have built in the business.

Switching gears to our capital plan, we are focused on maintaining a strong balance sheet to provide us with ample liquidity to deploy capital as needed to drive long-term value for our shareholders. We have navigated this challenging freight environment while remaining conservatively leveraged at or below our target of 1x debt to trailing 12 months EBITDA. We did retire $250 million of our senior notes that matured in the quarter with availability under our credit facility. For net capital expenditures, we previously stated an expectation to spend between $800 million to $1 billion for 2024 and we have no change to that range despite some recent announcements to further expand our capacity in our Intermodal segment. And finally, we will remain opportunistic with share repurchases.

This concludes my remarks and I’ll now turn it over to Nick.

Nick Hobbs: Thanks, John and good afternoon. I’ll provide an update on our Dedicated and Final Mile businesses and give an update of our area of focus across our operations. I’ll start with Dedicated. During the first quarter, I’m pleased with the strength and resiliency of our results. Despite the challenging freight environment, demand for professional outsourced private fleet solutions has held up well despite the feeling we are swimming against the current. We sold approximately 690 new trucks during the quarter, very strong start towards our annual gross sales target of 1,000 to 1,200 new trucks for the year. While our sales pipeline remains strong, as we said last quarter, we do have some visibility into fleet losses or downsizes throughout 2024.

The strong start in sales gives us some confidence in backfilling these losses over the course of the year. We are seeing some signs of stabilization in terms of our fleet sizes across our accounts, although our customers continue to feel pressure in their businesses. While moderating, we continue to see some fleet downsizing due to business activity but also some bankruptcies here recently. We continue to remain disciplined on the types of deals we underwrite without sacrificing our return targets. I’m pleased with the activity and recent sales we’ve been able to close in our pipeline. We remain focused on delivering value to our customers in this environment and maintaining the business, knowing it will support our future growth. Going forward, we remain confident in our differentiated model that has proven its resiliency in this tough market and our ability to compound our growth over many years and further penetrate our large addressable market.

Moving to Final Mile. We have made good progress improving our business from revenue, quality, strong service metrics and more stabilized profitability levels, all while continuing to create value for and on behalf of our customers. We continue to see the market evolve and customers want high-quality service on a national scale to meet their big and bulky final mile delivery needs. Our first quarter results did include a benefit of $3.1 million from a favorable settlement of a prior year claim. Overall, demand for big and bulky products remains mixed with soft demand in the furniture industry and stable demand in both appliances and exercise equipment. Overall, we are modestly encouraged by our sales pipeline and we continue to see new brands engage in discussions with our team.

Our focus in this business continues to be providing the highest service level with a strong focus on being safe and secure as we deliver products into the homes of our customers’ customers. We will remain disciplined with new business to ensure appropriate returns for our service while staying focused on growing the business and improving profitability. Similar to last quarters, I’ll close with some comments on safety. Aligning with our company foundation of taking care of our people but also the motoring public, we continue to invest in employee training and new equipment and technologies to enhance our safety performance. We are over 85% complete with rolling out inward-facing cameras to our trucks, with the goal of being 100% complete by the end of the third quarter.

We have seen a meaningful reduction in on-road collisions per million miles in trucks that have cameras installed. Additionally, we have reduced DOT preventable accidents per million miles approximately 25% in the quarter as compared to the prior year period. As our focus on safety remains at the forefront of our operation, as the cost of claims continue to move up exponentially, we continue our efforts to find new innovative ways to enhance our safety performance and further mitigate risk, where possible. This concludes my remarks. So I would like to now turn it over to Darren.

Darren Field: Thank you, Nick 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, give an update on the market and service performance and highlight the continued opportunity we have to deliver value for our customers and all of our stakeholders. I’ll start with Intermodal’s performance. Overall, demand for our Intermodal Service was weaker than our expectations, while imports into the West Coast have improved and inventories per our customers are in a more balanced position. We have yet to see that translate into any meaningful pickup in demand for our valued service product. Volumes in the quarter were flat year-over-year and by month, we’re down 2% in January, up 3% in February and down 1% in March.

While we are seeing growth in business in some lanes, particularly outbound Southern California, we are seeing pressure from truck pricing in the East. We have been surprised by how much competition we are seeing in bids but are remaining disciplined with our valued service offering. In February, we announced, we entered into a multiyear intermodal service agreement with Walmart in an arrangement that includes the purchase of Walmart’s intermodal assets. This will increase our available container capacity as we execute toward our stated target of 150,000 containers. While this capacity is not needed at the moment, we saw this as a unique opportunity to make an investment that we feel confident will be beneficial to the organization over time.

After not having enough capacity to meet our customers’ demand in 2021 and ’22, we have consistently been growing our capacity to ensure we are out in front to meet our customers’ growth needs while also providing a high-quality service product that is reliable. We are pleased with our rail provider service levels and their approach and commitment to growing Intermodal. We are in constant communication with the railroads on ways we can work together to drive growth. While we believe that weak truckload pricing due to overcapacity is influencing customer decision-making, we continue to see a large amount of freight that should be converted from over-the-road to Intermodal and we have the capacity and people in place to grow with our customers and recapture share from the highway.

As we have previously discussed, we continue to work with our rail providers to launch new services based on feedback from our customers. Our announcements last year, launching Quantum with BNSF and our new Mexico service in collaboration with BNSF and Ferromex, are two examples. Both service products are performing well but we are still early and see opportunities to grow with both services moving forward. Finally, on costs. As we have said previously, we have the resources and capacity to handle significantly more volume than what we are currently handling, to the tune of at least 20%. This has been a drag on our margin performance and more than anticipated given both the depth and duration of the current market dynamics. We continue to challenge ourselves on our costs while trying to balance the future needs of the business to support meaningful growth.

In closing, we continue to strongly believe in the strength of our Intermodal franchise. Our customers trust us and we continue to find new and innovative ways to better serve their transportation needs. We are pleased with current results and have the people, technology and capacity in place that will allow us to scale into these investments. We 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 and I’ll turn it over to Brad Hicks.

Brad Hicks: Thank you, Darren and good afternoon, everyone. I’ll review the performance of our Integrated Capacity Solutions and Truckload segments. I will also provide an update on some of our work in J.B. Hunt 360. Starting with ICS and similar to the past few quarters, the overall brokerage environment remains competitive from both a volume and rate perspective. Segment gross revenue declined 26% year-over-year in the first quarter driven by a 22% decrease in volume and a 5% reduction in revenue per load. These figures include the contribution from BNSF Logistics which contributed a little over $70 million of revenue to our results in the quarter. As we expected, we’ve had some challenges with the integration of the business but are encouraged and remain optimistic about our opportunity to penetrate the small and medium-sized shippers through this channel.

One additional challenge we faced in the quarter is the proliferation of strategic cargo theft that we have discussed previously which I’ll touch on later in my comments. We continue to make progress on adjusting our resources to our current business levels while driving greater accountability in the business. As everyone is aware, spot rates have and continue to be under a lot of pressure. While some of the weather-driven tightness in January pressured gross margins, looser capacity in February and March helped recover, to some degree. Closing out on ICS, we aren’t pleased with the current results but we continue to make adjustments to improve profitability while focusing on ways to enhance productivity to allow us to scale disproportionately to our costs when the market turns.

Moving over to Truckload. Segment gross revenue was down 13% year-over-year driven by a 9% decline in revenue per load and a 5% decrease in volumes. Overall, demand for our J.B. Hunt 360box service offering is outperforming the overall market as volumes in the quarter were up once again versus the prior year. That said, we would characterize demand for drop trailing capacity as soft as a reflection of our current trailer utilization and what we are seeing in bids. Similar to what you heard in Intermodal, we have greater resources and trailing capacity than what the current demand environment requires. We view our trailing capacity specifically as being greater than 20% underutilized. We have been encouraged by how well demand has held up for our drop trailer solutions, J.B. Hunt 360box but we have certainly seen pressure on rates.

Thankfully, this model allows us to be more variable with our costs and we think ultimately will present opportunities for us to scale a cost-competitive solution for our customers while generating an appropriate return on our capital. I’ll close with some comments on 360. Technology enables our people and helps drive productivity and also drive efficiency and how we source and serve customers with our available capacity. While technology is a foundational pillar for us, it has opened new avenues for bad actors to engage in sophisticated strategic theft given these organized groups’ access to thousands of loads through our platform. To combat the increase in strategic theft, we are making some adjustments to harden the security of our system and have new initiatives that will deliver in the future to further enhance the security of our platform.

As you have and are likely to notice, we are shifting some processes to be more manual in nature until these new security features are implemented. Long term, we continue to believe our technology investments will drive productivity and efficiency gains and remain confident that these investments better position us for long-term growth with our customers and allow us to create greater value for our stakeholders. That concludes my comments, so I’ll now turn it over to Brad Delco to provide instructions before the operator opens the call for Q&A.

Brad Delco: Lisa, in light of the time, could we have the analysts ask one question and one question only?

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Q&A Session

Operator: Yes, absolutely. [Operator Instructions] We will now take our first question from Jason Seidl with TD Cowen.

Jason Seidl: I wanted to talk a little bit about the pricing market. You mentioned how it was a bit challenged on the Intermodal side. What percent of the book is already done now? And then what percent reprices in 2Q?

Darren Field: Yes. So Jason, this is Darren. We’ve said before, we price about 30% in each of the first 3 quarters and about 10% in the fourth quarter. And so the pricing cycle that began in October of ’23 is something less than half complete but around 40%.

Operator: We’ll take our next question from Ken Hoexter with Bank of America.

Ken Hoexter: John, best of luck in your next steps. Shelley, congrats. So I just want to talk about, I guess, cost. If I think about the 20% excess capacity here, John, you mentioned kind of the $100 million target. Maybe talk about your thoughts on do you get rid of capacity at this point to work with the industry to shrink that. Maybe walk us through the process of getting that $100 million of cost out, if the down cycle is lasting longer.

John Kuhlow: Yes. So Ken, as we kind of said in the opening remarks, we’ve been talking for a while now about our investments in our people and our equipment and we thought it would be helpful to provide some additional transparency on the impact of these investments and so we’ve quantified as best we can for that for you. We do have good insight into our productivity and utilization metrics and that’s informed us of this cost measure. And so if we were focused on the short term, there could be a different play to call here. But we have a very long-term view on the company and our investments and we believe in our strategic decisions and around our valuable resources. So if there was a major economic environmental change, we may consider but right now, we’re focused on growing into this capacity and holding on to our commitments to our people for the long term.

Operator: We’ll take our next question from Brian Ossenbeck with JPMorgan.

Brian Ossenbeck: Darren, just thoughts on the volume trends, seeing a lot of international intermodal volume going inland and intact [ph] — and clearly, a big disconnect with your volume and your primary rail partner in the West when you look at transcon versus their total volume. So I wanted to get your thought on that. Is that a precursor for more transloading, more domestic coming, imports that have been pretty strong now? Or do you think there’s some sort of shift and this is going to be a bit of an overhang for a while and perhaps losing some share to the international track?

Darren Field: Yes. So on, certainly, the West Coast, imported volume that we’ve seen has, to some degree, disconnected. But of course, a year ago, the comparison for imports was so poor that I don’t think it was very difficult for those comparisons to look so strong. The other thing I just want to highlight, while our volumes were flat for the quarter for the entire network, our Southern California eastbound volume did grow in the quarter by double digits. And so we did experience some volume growth in segments of our business. Now obviously, that means we didn’t grow and actually lost volume in other areas. I think in our earnings release, we talked about being negative 7% in the Eastern network. That’s been a dogfight, with truckload capacity pricing being really, really competitive. And as we move further into the year, we continue to look for ways to drive cost out, present value to our customers and be prepared for growth in the future.

Operator: We’ll take our next question from Ravi Shanker with Morgan Stanley.

Ravi Shanker: Just on the intermodal pricing, to follow up here. I know you guys pointed to the truck market obviously being loose here. But is it just truck? Or are you also seeing price competition from some of your IMC peers? And also, are you confident that this is just a function of the cycle, where it is right now? Or do you feel like because of that excess capacity, it may be kind of a little more sustained even if volumes start to come back?

Darren Field: We’ve said that we’re probably out of the business of trying to predict the future because it’s been really, really difficult for over 4 years now. Certainly, pricing in intermodal, whether it be from truckload capacity or other intermodal competitors, it has been competitive. And history would tell us that it is where we are in the cycle right now and that there will come a time when pricing and volume will return. I think that Shelly’s prepared comments really highlighted that we’re in a spot where it’s out of balance and certainly, customers have taken advantage of that and the future really gives us an opportunity to seek both growth and pricing improvements.

Operator: And we’ll take our next question from Justin Long with Stephens.

Justin Long: John and Shelley, congrats to you both on the announcement. Maybe to pivot for a moment to DCS, Nick, I wanted to ask you about the commentary from the prior call that it could be hard to grow Dedicated revenue and profitability this year. But when I look at the truck sales in the first quarter, they were pretty strong and it sounds like you’re a bit more confident that you can backfill some of the attrition you see ahead. So when you put it all together, do you feel like Dedicated can hold relatively flat in 2024? And maybe you could just comment more broadly on the competitive environment in Dedicated as well.

Nick Hobbs: Sure. So we had a very good sales quarter, 690 trucks is a good quarter for us, so we’re off to a good start. Our pipeline is looking good. From a competitive standpoint, I would say who we see that we’re competing with is a lot of the private fleets, it’s not a lot of our publicly traded companies and so we feel good in that competitive market. And so we feel good about where that’s going. And I would say, if you just look at this quarter, we’ve had some losses from bankruptcies. We lost our tenth largest customer to that. And so with all that said, with our sales pipeline, we think we’ll be able to hold flat as we’ve kind of given guidance that we did, I think, towards the year. So we feel good about that, of where we’re at and the sales pipeline continues to be strong.

Brad Delco: Justin, this is Brad. I mean, consistent with what Nick said, I think our direct comments last time were, say, in light of our visibility to some fleet losses, it would be difficult to grow. But I think most of the market has interpreted that as relatively flat. I don’t know that we want to be on record providing guidance for that. But I would say the pluses or minuses, since we’ve previously stated that, I think clearly, the sales performance in DCS coming out of Q1 is a lot stronger than we anticipated. We talked last year about the pipeline being very strong and some bigger deals begin there, obviously, some of those landed. But I would also say that’s the positive side. On the negative side and this was in Nick’s comments, we have seen a pickup in some bankruptcies and so that’s maybe a little bit of a negative that offset some of the positive on the new sales performance that we’ve seen to start the year. So, I just want to add that in.

Operator: And we’ll take our next question from Tom Wadewitz with UBS.

Tom Wadewitz: I wanted to ask you a little bit more about the Walmart contract. I think the way you talked about it in the prepared remarks was along the lines of adding containers. My understanding was that you were also adding new freight along with those containers. So I wonder if you could just give us a thought on kind of how well utilized were the containers that you’re bringing on? And how should we think about the pace of that? Is that something that kind of ramps across a couple of quarters? And I would think that would be big enough to see in your volume numbers but just really wanted to see if you could give us a bit more perspective to understand that. And also, I’d be remiss if I didn’t say something. Just congratulations, John. And Shelley, congratulations to you as well.

John Roberts: Thanks, Thomas.

Shelley Simpson: Thank you.

Darren Field: So on the Walmart agreement, it’s a confidential agreement between us and Walmart, so I’m going to be pretty limited in what I would say there. Certainly, the opportunity to grow towards our 150,000 container target with capacity that existed in the market was a unique opportunity for us that has been in a dialogue for some time. Certainly, that didn’t get created in the first quarter. That’s certainly when it got announced and we’re really encouraged by what it will mean for the long-term future value we can build from that program. There are mutual commitments, obviously, of capacity and volumes inside that agreement. Beyond that, I’m probably not going to be able to comment on the volume. What I would say from a timing perspective, I think we’ve shared that it will onboard to our fleet over the course of a year.

That doesn’t mean much of it will be in storage and will go potentially unutilized until we can grow into the capacity. What was the last question. I’ve drawn a blank here?

Brad Delco: Tom, can you repeat the last part of your question?

Tom Wadewitz: Yes. I think just trying to figure out, is this something that we would see affect the volume numbers as it builds through the year? I think that’s been our expectation, that you would be big enough to actually see it in the volume numbers but I wanted to see if you could offer a thought on that, too.

Darren Field: Yes. I probably really can’t comment on the volume related to it. Certainly, we’re looking to grow with all of our customers.

Brad Delco: Yes. And then while we’re on this tough topic, I do want to link maybe, Tom, that question with an earlier question to John Kuhlow about how we’re approaching capacity and our investments. As an example, you’ve seen us really temper down the pace at which we are adding containers. We recognize that the market wasn’t developing or evolving as quickly. Obviously, we’ve mentioned that the depth and duration of this current part of the cycle has lasted longer than we anticipated. And I think some of that recognition was you seeing us pull back on the pace at which we are taking those deliveries of additional containers. And so, what I thought was a good attribute of this transaction which was opportunistic — was we certainly have accelerated our pace at getting to 150,000 containers which we announced back in 2022 but without adding additional capacity to the industry.

And so I think it’s a good highlight here and I just wanted to reiterate that for the audience.

Operator: We’ll take our next question from Bascome Majors with Susquehanna.

Bascome Majors: So if you look back to 2017, in the big picture context, that was a challenging year for Intermodal. But if you compare that to the current trailing 4Q, volumes compounded at 0.5% or so, yield has driven high single-digit revenue growth and profit compounded for intermodal about 4% and that’s after adding back the insurance cards last quarter. And I realize, just we all look at the numbers, a lot of this is due to the railroad-driven circumstances outside of Hunt’s control. But if this backdrop of less structural growth and more cyclical volatility continues to be the norm into next year and beyond, how do you manage your operations and capital allocation priorities differently over the long term?

Darren Field: Well, I’ll jump in from an Intermodal perspective and then we may have others that want to comment. But going through 2021 and ’22 when we really could not provide enough capacity for our customers, I think, really did teach us an important lesson, as well as commitments between us and our rail providers to grow with each other. I mean those are our genuine commitments. The announcement back in ’22, jointly with BNSF to grow the fleet, was a joint commitment to expand capacity for the intermodal market and both companies are honoring that commitment and making sure that our customers are aware that we’re there and ready to support them when they need to grow. Now clearly, if the magnitude of the cycles really inflects much greater, that can mean that the down cycle can be a little more painful and then it’s hard to be out in front enough to cover the up cycle.

And so we will certainly adapt as best we can. We’ll continue to work with our customers to ask for better forecasts and how can we get better identification of the opportunity. But we know this, when we’re there to support our customers’ growth demand, it certainly bears fruit for our shareholders over the long term as those customers just gain more and more confidence in our ability to serve their needs.

Brad Delco: I might just add, in terms of the capital allocation, John Kuhlow, you can add to this as well. Think about our different businesses, Dedicated is a success-based capital pull-down, if you will. So when we sell new Dedicated deals, it requires us to invest capital. And we will continue to do that because of the discipline and how each of those deals are underwritten to specified return targets. If you think about Intermodal, primarily most of those assets, at least on the trailing side or the containers, they’re 20-plus-year assets. We obviously are way out in front of what investments are needed to support our growth there. And so then it’s a matter of what’s the right replacement cycle for a sector equipment, what’s the right balance of what we’re utilizing maybe the 360 platform for, insourcing third-party capacity whether it’s in intermodal dray or other parts of our network.

And then finally, where we would see capital is growing 360box in the trailing equipment. So I think there’s a lot of flexibility in terms of how we deploy capital. And this is an example of a year, if we look in the first quarter EBITDA certainly down year-over-year but the debt-to-EBITDA on a trailing 12-month basis is actually down from where we were at the end of Q4 and our cash balance is up slightly. So we generated very strong cash flow in the first quarter. And so our capital priorities won’t change: number one will be to invest in our business; number two, support our dividend; maintain investment-grade credit rating; and number four would be to opportunistically buy back stock. And every once in a while, we do see inorganic growth opportunities but that’s not really at the core of who we are.

And so that will kind of continue to be our discipline going forward.

Operator: We’ll take our next question from Scott Group with Wolfe Research.

Scott Group: Best of luck to you, John. Congrats, Shelley. I had a near term and then a bigger picture question. So just to help set near-term expectations, should we expect Intermodal rev per load and intermodal margin to improve sequentially from Q1 to Q2? And then just bigger picture, you guys just keep talking about the depth and duration of the cycle longer or worse than you thought. I guess, what’s the catalyst for this to change? The overall economy is fine. It’s not like we’re in a recession and there’s some demand recovery coming. So what actually, in your mind, is going to change? Is it possible, I guess? It feels terrible versus ’21 and ’22 but maybe those were just unprecedented years that we just need to ignore, I don’t know.

Darren Field: Scott, I’ll quickly jump in on your first question around Q2 versus Q1. We’re a non-guidance organization and we’re trying hard not to be predictive. Certainly, history would tell us that volumes in Q2 on average are better than Q1. That doesn’t mean I’m telling you that Q2 would be better but history would suggest that’s been the case. And so beyond that, we don’t have a visibility into pricing at this stage to make any prediction as to what would happen with that.

Shelley Simpson: Scott, I’ll take the second part of the question. If you think about the last 4 years and I said this in my opening comments, the highs and lows have been more dramatic than any time period in my 30-year career. And so our ability to predict has been very difficult. We have seen periods of positives that then quickly fall off. And so I think you see a management team here knowing what our customers are asking us for in our future but being cautious about any positive signs that we could be seeing as we’ve seen some of those retreat several times over the last couple of years. If you think about what’s happening in the market, there’s an oversupply of capacity and that’s not exiting quick enough. That’s an important component for all of our businesses, across all 5 of our segments.