I also think what’s happening from our customers’ feedback and what feedback they’re giving us on confidence for us to be able to grow even in the middle of a freight recession, so how can we think about that differently. That’s why we are so focused on delivering great service and more value for our customers and also, the confidence our customers build over time and our ability, J.B. Hunt and the railroads, to deliver really great service for a longer period of time. I think our customers, over the last several years, have struggled with gaining the right level of consistency and service from intermodal collectively, from the railroads and J.B Hunt and that’s something that’s going to take us time to win back their confidence. So I would say those are all the things that we’re watching and talking to our customers about.
I will say this and we also said this in our opening comments, that our customers are giving us good feedback. It has been a difficult, more competitive bid season than what we expected but we’re managing through that, we’re working with our customers and we’re really trying to think about what’s best long term for both them and us.
Operator: We’ll take our next question from Jordan Alliger from Goldman Sachs.
Brad Delco: We’re having some really bad static.
Jordan Alliger: Can you hear me now? Is that better?
Brad Delco: Go ahead. It sounds better.
Jordan Alliger: Can you help me understand a little bit how the operating leverage is going to work in Intermodal? I think you mentioned about 20% over resourced. So when the cycle does turn up and we get that inflection in volume and price, how quickly can that get absorbed? How quickly do you think margins could get back to the targeted range you guys have talked about?
Darren Field: Well, certainly, pricing is always the fastest cure for a margin challenge. That’s going to contribute quicker than just raw volume. But volume today, with 20% excess capacity, has never been more valuable to our system in terms of the role it can play on expanding the margin. So it feels like how quickly can we grow into 20%, well, it’s been certainly more than a decade since we grew 20% 1 year. We’re still very confident in the overall market of truckload business where intermodal can and should be the right answer for. But I don’t want to tell you that we’re going to grow 20% in a year’s time. I don’t know that that’s in the card. We’ll have to wait and see. Our system is built for it and could accommodate it but that’s not necessarily what we’ll see.
So from a timing perspective, to get back into the margin target, I mean, certainly, we need to see when does that inflection happen and what is the pace of sort of pricing opportunity, how fast is capacity exit, what’s the sort of the sharpness in the curve of the demand environment. And if I gave you a prediction on that, I’m sure I would be wrong.
Operator: We’ll take our next question from Amit Mehrotra with Deutsche Bank.
Amit Mehrotra: Darren, I just want to go back to maybe a couple of questions ago when you talked about volumes being typically better than 1Q. I mean are we seeing any evidence of that? Did you see any of it at the end of March? Are you seeing any of it in April? Because 4Q to 1Q, obviously, it’s down typically 5% to 6% and you guys were down 9% to 10%. And so I’m just trying to understand if you’re actually seeing it on the ground. And then obviously, Norfolk Southern, there’s a lot going on at Norfolk. They announced that they’re basically removing service on 15% of their intermodal lanes. Does that have an impact? And usually, you guys have weighed in on dynamics happening in the rail space. And obviously, there’s a lot going on at Norfolk and would love to get your opinion on it given the strong partnership you have there out East.
Brad Delco: Amit, I’ll start, just first on your question about Q2 and forward guidance. I mean, we just, in the history, don’t provide intra-quarter updates on volume and we’re not going to do that here. So I’ll turn it over to Darren if he wants to comment on the second part of your question but we’ll be limited on what we’ll say there, too.
Darren Field: Well, the announcement by Norfolk Southern on the intermodal changes was almost completely international intermodal related, so it hasn’t been an impact at J.B. Hunt in any way whatsoever. In terms of what’s going on there, we’re not involved in that and I don’t think it’s appropriate for me to comment on that.
Brad Delco: And then the final thing I’d make and again, just to sort of point, Amit, you did mention volumes down sequentially by around 9.5%. That certainly is worse than normal seasonality. I would point out, though, if you wanted to look at that same analysis, historically, we’ve seen Q3 and Q4 volumes relatively at parity and we saw and we talked about seeing a stronger peak season than what was expected and I think what was sort of experienced by the overall market. And so if you compare where our Q1 volumes came in relative to Q3, again, assuming that normally Q3 and Q4 are relatively flat, volumes were down 7% which is a little bit closer to normal seasonality.
Operator: We’ll take our next question from Jon Chappell with Evercore ISI.
Jonathan Chappell: Darren, I was going to ask you basically what Brad just talked about. The fourth quarter, you said a peak season that no one was expecting. Your volumes are better than typically in the third quarter. Pricing was even up sequentially, if we look at just revenue per load and then the first quarter, a pretty substantial step back. So I’m just trying to understand, what changed in that 6-month period? Why was 4Q better, 1Q worse? The trucking market seemed to stink all the way through. So is that front-end loading by customers? Was that something indicative of the economy of rail service? How can we had kind of like the green shoot period in 4Q and then another step back from 1Q?
Darren Field: Jon, I think you’re asking the same questions that we ask to our customers throughout both events. I mean, the fourth quarter uptick in demand for us was a surprise and our system was able to accommodate capacity to execute on it. Equally, coming out of the fourth quarter, we were surprised by the magnitude of the decline in the first quarter. And certainly, I don’t have a great answer in terms of what the catalyst was, I think the mix of our particular customer base certainly drove the opportunity in the fourth quarter and it may certainly be returning. Kind of as Brad highlighted, maybe what we experienced in the first quarter was actually a little bit of a return back to normal off of a higher fourth quarter and we’ve got to wait and see where the year takes us at this point.
Operator: We’ll take our next question from Brandon Oglenski with Barclays.
Brandon Oglenski: Congrats to John and Shelley as well. Can you guys talk to maybe ICS profitability? Because I think sequentially, it did worsen in the first quarter, just being disciplined around customers and focused on returning to profitability for the brokerage business.
Brad Hicks: Yes. Thanks, Brandon. It’s Brad Hicks. It’s certainly been extremely competitive for several quarters now. As we think about the brokerage market, in particular the spot market and what we’ve seen there, we see a modest tick-up in January, only to see that kind of level back down to the trough that it’s been really for probably the last 4-plus quarters in terms of what rate and quality of revenue has done. We’re certainly focused on trying to grow where we can grow and grow with customers that we believe that we can create value for, such that that’s stickier in the forward view. As I’ve mentioned in previous quarters, those that we supported at their time of greatest need have seemingly gone the way of finding the lowest-cost solution that they can possibly find and that certainly harmed our business, our volumes.
But I do feel like our gross margin recovered throughout the quarter. We saw it hit severely during the winter storms in January which is abnormal for us. But we were able to recover and deliver a gross margin of a little over 14%, I think it was 14.3%, so we were encouraged by that and we’re certainly focused on volume.
Operator: We’ll take our next question from David Vernon with Bernstein.
David Vernon: So you mentioned in the press release the disciplined approach to the market for the value of services in the Intermodal segment. I’m just wondering if you can give us some expectations around kind of how you’re approaching the market the rest of the year, anything you’ve learned out a bid season that would speak to kind of what the volume outlook might be for full year Intermodal growth, in the segment.
Darren Field: Yes. So I think that the pricing that we issued early in the bid season, we had some surprises with the results and it was really competitive. And we were surprised by the magnitude of some of the truckload rates from truckload competitors out there and that’s certainly has helped us to identify can we offer shorter-term programs to our customers as we move forward, are there opportunities with the rail providers to participate with us in a way that we can be more competitive. And we’re seeking all of those opportunities one opportunity at a time, one customer at a time and we’ll continue to do that and see where we land as we move throughout the year.
Operator: We’ll take our next question from Jeff Kauffman with Vertical Research Partners.
Jeff Kauffman: John, congratulations. And Shelley, big fan, congratulations as well to you. My one question is the following, you mentioned growing out the franchise, the focus on the longer term. I was a little surprised to see trailer count down so much sequentially from fourth quarter. Are we basically saying the trailer pool experiment is done and we’re going back to something more normal? Or is there anything driving that, that would be something worth noting.
Shelley Simpson: So Jeff, I think you’re talking about the end of period versus the average. Is that right?
Jeff Kauffman: Well, it’s down about 1,700 units. So I was just kind of curious why it was down so much given the trailer pool growth that we’ve seen in that division for the last number of quarters.
Brad Hicks: Yes. I’m showing what we reported in the period for Q1 for our Truckload segment at a little over 13,000 trailers which is just down 100 from same period in 2023.
Jeff Kauffman: Apologies, I was looking versus fourth quarter but I can come back to you off-line. I was just a little bit surprised.
Brad Delco: Yes, Jeff, let’s cover that off-line. I think we did have some trailers that were transferred over to DCS. So if you noticed, the DCS trailer count is higher and that’s a lot related to some of the business that was transferred at the start of 2023. If you recall, we moved some business out of JBT into DCS and some of the ownership of that trailer stayed in JBT for the year. We transferred those over.
