J.B. Hunt Transport Services, Inc.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Brad Dalco, Senior Vice President of Finance. Please go ahead.

Good afternoon, and thanks for joining us. 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 risk and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to 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 the speakers on today's call. This afternoon, I am joined by our President and CEO, Ms. Shelley Simpson, our CFO, John Kulow, Spencer Fraser, EVP of Sales and Marketing, our COO and President of Highway Services and Final Mile, Nick Hobbs, Darren Field, President of Intermodal, and Brad Hicks, President of Dedicated Contract Services. I'd now like to turn the call over to our CEO, Ms. Shelley Simpson, for some opening comments. Shelley?

Thank you, Brad, and good afternoon. Members of the leadership team are here to dive into their areas, but I want to start by recognizing the entire organization. for their hard work and ability to adapt to this dynamic market. I remain highly confident that our work is building a stronger company capable of capitalizing on meaningful growth opportunities ahead. We set out to accomplish this by staying true to our values, mission, and vision, and maintaining our focus on operational excellence, scaling into our investments in our people, technology, and capacity, and continuing to repair our margins and drive stronger financial performance, which remains a top priority. Service levels across our businesses are excellent, and customers have recognized us in both internal and external surveys. Our brand is strong in the market. Our excellent service is supporting our growth with both new and existing customers that will help us scale into our investments. Investments in our people have resulted in back-to-back years of record safety performance for the company and some of the lowest turnover metrics on record for our drivers. We have invested in technology to drive efficiencies in our business, and I have challenged the organization to think differently about our workflows and processes to drive even more. Finally, we have pre-funded our trailing capacity needs in intermodal and are prepared to support our customers' future growth. These investments set us up well for our future. While we are preparing for future growth, we remain focused in the near term on repairing our margins and improving our financial performance. We expect the returns on our investments to match the strong and unique value we create for our customers. As you've heard me say, we remain focused on controlling what we can with our expenses in the near term without sacrificing our long-term opportunity. or said differently, preserving our future earnings power potential. Last quarter, we mentioned more work in the area of cost actions. Across the company, we launched an initiative to lower our cost to serve. John Kulo will have more details on this work, but at a high level, this effort is centered around doing more with less to support our future growth and get us back to our long-term margin targets. I have confidence in this team to lower our cost to serve and to leverage our brand and our scroll of services in the market. We completed intermodal bid season with positive pricing for the first time in two years and continue to gain market share with capacity to grow more. Our dedicated business remains resilient, and with the fleet losses subsiding, we're excited to return to fleet growth in this business. We have a solid model in JBT and FMS with significant growth opportunities we are going after. Our brokerage business still has work to do, but progress is being made to further right-size the cost structure while growing with the right customers and freight. Market dynamics remain uncertain, but we will stay disciplined in our actions and maintain a position of strength. We have exceptional service levels, a rock-solid balance sheet with minimal leverage, and available capacity at the ready for future growth. We will continue to focus on the long-term while taking steps in the near-term to improve the return profiles of our business, all with the same mission, to drive long-term value for our people, customers, and shareholders. With that, I'd like to turn the call over to our CFO, John Kulo. John?

Thank you, Shelly, and good afternoon, everyone. I want to review the second quarter, provide some details, on the Lowering Our Costs to Serve initiative and give an update on our capital allocation. As a general overview and consistent with recent quarters, our results for the quarter highlight the strength and resiliency of our business in the face of a challenging and unpredictable environment, generating over $225 million of free cash flow in the quarter. While we continue to focus on operational excellence, driving productivity, and managing our costs, inflationary pressures primarily in wages, insurance, both casualty and medical, and equipment costs more than offset those efforts and weighed on margins versus the prior year period. Starting with second quarter results, on a consolidated gap basis, revenue was flat, operating income decreased 4%, and diluted earnings per share was less than 1% below the prior year quarter. The declines were primarily driven by inflationary cost pressures across the business, notably in casualty and group medical claims expense and higher professional driver wages and equipment related costs. These were partially offset by productivity and cost initiatives and a 5% lower average diluted share count versus the prior year period. While the recent tax bill remains under review, we continue to expect our tax rate to be between 24 and 25% and likely towards the higher end of that range. Regarding costs, we have been managing costs aggressively since the freight downturn began over three years ago. We've managed headcounts through attrition and performance management, driven productivity in our operations, and eliminated discretionary spending that ultimately wouldn't jeopardize our future earnings power, nor our ability to capitalize on growth opportunities. Earlier this year, we challenged ourselves to do more in an effort to accelerate improvement in our financial performance, create greater operating leverage for the company when market dynamics turn, and help support our future growth. Each executive focused on one or two of a total of 14 different areas across the business to identify opportunities to lower our costs to serve. The results of this initiative resulted in 100 million of identified annual costs to eliminate. These costs fall across three main areas, efficiency and productivity, asset utilization and technology, and engineered process improvements. And we are not done. We continue to expand on these initiatives and will provide updates on our progress in the quarters to come. While some of these benefits will be realized this year, most will impact 2026 and beyond. I'll wrap up with a quick update on our capital allocation and priorities. For 2025, we are now expecting net capital expenditures to fall between $550 and $650 million, effectively tightening the range compared to our prior view of $500 to $700 million. As previously discussed, we have pre-funded much of our future growth and capacity needs, so our capital spend this year is primarily for replacement and what success-based needs we have in our dedicated segment. Our balance sheet remains strong. in line with our targeted leverage of one times trailing EBITDA, and we continue to generate strong cash flow and expect this to continue. Our primary use of cash has been managing our leverage and returning value to shareholders through our dividend and repurchasing stock. We remain focused on deploying capital to generate the highest returns for our shareholders. During the second quarter, we repurchased $319 million of stock, which is a quarterly record for the company. This concludes my remarks and I'll now turn it over to Spencer.

Thank you, John, and good afternoon. I'll provide an update on our view of the market and some feedback we are hearing from our customers. During the quarter, overall customer demand trended modestly below normal seasonality. As customers adapted to changes in global trade policy, the timing and direction of freight flows were impacted. That said, demand for our intermodal service remains strong. We continue to see customers convert more freight to intermodal from the highway as our commitment to operational excellence, keeping freight secure, and our strong safety record differentiates us from the competition. In our brokerage and truck segments, demand followed more normal seasonal patterns, including some market tightness in May around the annual road check event. However, the market tightness was relatively short-lived and truckload spot rates remained soft, suggesting the truckload market, while close to equilibrium, continues to experience some excess capacity. This leads me into some feedback we are hearing from customers around their capacity and service. Customers recognize this cycle is long and ultimately will change. Their conversations with us focus on how to dynamically optimize their supply chain and capacity plans to meet their service needs and budgetary requirements. Customizing our scroll of services in changing markets has positioned us to be their go-to transportation provider that can deliver differentiating value. Regarding service, all of our businesses, and most importantly our people, have been recognized with multiple service awards from our customers. This translates to realizing some of our highest customer retention numbers in the last five years, more strategic discussions during the bid process, and opportunities for additional freight after bid implementation. I'll close with some comments on trade policy, demand, and peak. When we meet with customers, how they are adapting to trade policy remains top of mind. However, accurately forecasting demand is their biggest challenge. Our customer base is diverse, both in terms of size and industry, and each customer continuously adjusts their supply chains to meet their unique needs. Recent examples are some customers have pulled freight forward, some continue to execute demand-driven strategies, and others are making changes to their country of origin and manufacturing plans. This added complexity, lack of accurate forecasts, and potential for volatility is why our peak season surcharge programs are starting earlier this year. Regardless of customer strategy and the shape of peak season, we will be ready to meet their demand when it occurs. I would now like to turn the call over to Nick.

Thanks Spencer and good afternoon. I'll provide an update on our areas of focus across our operations, followed by an update on our final mile, truckload, and brokerage businesses. I'll start on our safety performance. A key portion of our company's focus on operational excellence and driving out costs is our safety performance, which is core to our culture. We are coming off of two consecutive years of record performance, measured by DOT preventable accidents per million miles, and our safety results are performing in line with these record performances. We continue to focus on driving improvements in our performance through proper training and technology to improve safety for our people and the motoring public while we effort to lower our costs. There has been a lot of recent discussion in industry around some trucking regulations, such as English language proficiency the improper use of B-1 visas to haul freight in the U.S. or cabotage, and the new FMCSA biometric ID verification for trucking authorizations. While we could only guess the impact this might have on industry capacity, for J.B. Hunt, we do not expect to see material impact. Moving to the business, I'll start with Final Mile. The end markets in this business remain challenged with demand for big and bulky products, Still muted with soft demand for furniture, exercise equipment, and appliances, demand in our fulfillment network was positive again this quarter, driven by off-price retail. Going forward, our focus remains on continuing to attract new customers to grow this business. That said, we believe recent market conditions will persist through at least year-end, driving our second half performance to look similar to our first half performance prior to any consideration. for lowering our cost to serve initiatives. We remain focused on providing the highest levels of service, being safe and secure, and ensuring that the value we provide in the market is realized to drive appropriate returns. Moving to JVT. Our focus in this business hasn't changed. We are working to methodically grow this while remaining disciplined on network balance to drive the best utilization of our trailing assets. This season was competitive this year, as it always is, but we are pleased with our success retaining our business, getting modest rate increases, and winning new business with both new and existing customers, as evidenced by our highest second quarter volume in over a decade. Going forward, we like the progress and direction of this business and the improvements we continue to make. That said, Meaningful improvements in our profitability in this business will be driven by execution on lowering our cost to serve initiatives, rate improvement, and overall demand for truckload drop trailing solutions. I'll close with ICS. During the second quarter, we saw fairly stable volumes and seasonality. The truckload market tightened around road check and felt like it remained tight a little longer than usual, which compressed our margins in May. That said, spot rates did soften and we saw margins expand again in June. We are over halfway through the bid season, are pleased with awards so far with rates up low to mid single digits and winning volume with new customers. Our focus here remains on profitable growth, targeting the right customers where we can differentiate ourselves with service while also diversifying our customer base. Compared to the second quarter last year, we've seen our small to midsize customer growth up 25%, which remains a focus, and our customer retention rate is near record levels. Going forward, we will remain focused on scaling into our investments while continuing to make improvements on our cost structure and our productivity. With that, now I'd like to turn the call over to Darren.

Thank you, Nick, and thank you to everyone for joining us this afternoon. I'll review the performance of the intermodal business and give an update on the market and our areas of focus. I'll start with intermodal's performance. Overall, demand for our intermodal service was strong, and the business proved to be quite resilient in the face of a lot of uncertainties presented at the end of the first quarter. Volumes in the quarter were up 6% year over year, and by month were up 11% in April, up 3% in May, and up 4% in June. As it pertains to mix, our TransCon volumes decreased 1% during the quarter and Eastern volume grew 15%. We want to continue to highlight the strength of our Eastern network volume growth. We compete more directly with truck in this market, and yet with low truck rates and lower fuel prices, we continue to see customers convert highway freight to intermodal. This is a result of our combined strong service levels with our rail providers, and how that translates into an attractive and valuable cost-saving alternative to truck for our customers. As we wrap up our 2025 bid season, I will remind you of our three-prong strategy and provide some feedback on our performance. First, we wanted to focus on balancing our network, eliminating the cost to move empties, and more efficiently utilize our trailing capacity. I believe we were most successful in this area of our strategy. Second, we wanted to grow with both new and existing customers. This growth is not just volume on an absolute basis but share of wallet in converting customer freight from the highway to intermodal. I believe we were also quite successful on this strategy while remaining disciplined with our pricing. We needed to get rate to help repair our margins and cover our inflationary costs. To be fair, I don't know that we ever get as much as we want, but I would say we underperformed our expectations in this area. To be clear, we believe our overall book of business did reprice modestly higher year over year, as we did achieve increases in our headhaul lanes, partially offset by pressure in the backhaul lanes. We believe the results of this bid season combined with our lowering our cost to serve initiatives can stabilize our margin performance and can be supportive of modest improvements going forward. As a reminder, Q3 is typically the first full quarter that reflects the collective work of our bid season and will be with us through the first half of 2026. During the second quarter, we announced the launch of our quantum service in Mexico. We have been growing this service sensitive offering in the United States and are excited to bring this product to Mexico with our rail providers. Mexico has been the fastest growing channel at J.B. Hunt and we continue to see a long runway for growth in this market for many years to come. In closing, we remain very confident in our intermodal franchise and the value we provide for our customers. Our service levels are high. Customers trust us, and we have both the capacity and capability to grow well into the future. We believe our performance continues to lead the industry while maintaining a heavy investment in capacity to support our future growth. I'd now like to turn the call over to Brad.

Thank you, Darren, and good afternoon, everybody. I'll provide an update on our dedicated results. Starting with the quarter, at a high level, I believe our second quarter results were very strong, particularly in light of the prolonged, challenging freight environment. We believe this is a testament to the strength and diversification of our model, the value we create for our customers, and how we drive accountability at each site and customer location. As a result, we continue to see good demand for our professional outsourced private fleet solutions. During the second quarter, we sold approximately 275 trucks of new deals. As a reminder, our annual net sales target is for 800 to 1,000 new trucks per year, and through the first half of the year, we would be on pace with this target, absent the known losses we disclosed almost two years ago. Encouragingly, our sales pipeline remains strong as our value proposition in the market remains differentiated. As I just mentioned, we have had visibility to some fleet losses that we anticipated to wrap up during the second quarter. That has largely played out as expected, except the timing of the actual account closure rolled into early July. This positively impacted our 2Q25 truck count by about 85 trucks versus our expectations we shared with you last quarter. Given our strong sales pipeline, we continue to expect to see net fleet growth in the second half of the year. As is always the case, we remain disciplined on the type of deals we underwrite without sacrificing our return targets and remain pleased with the activity and recent overall momentum. We believe the performance in our dedicated business during the downturn has been a standout for our company and the industry and highlights the unique strength and resiliency of our model. We have a diverse customer base both by industry and geography with managers onsite with our customers, executing their outsourced private fleet solution. We have great visibility into the financial performance of each account, which provides a high level of accountability at each location. Going forward, we continue to expect to see some modest fleet growth in 2025, but the timing and magnitude of our net ads could impact our prior expectations for modest growth in operating income this year compared to 2024. This is a result of us typically incurring some startup costs when we onboard new business. We view this favorably and this sets us up well to continue on our growth trajectory into 2026 and beyond. Our business model and value proposition are differentiated and continues to attract new customers despite the challenging market and we are very confident in our ability to compound our growth over many years to further penetrate our large addressable market. With that, I'd like to turn Head back to the operator to open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. In the interest of time, please limit yourself to one question. At this time, we'll pause momentarily to assemble our roster. And your first question today will come from John Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon, everyone. Darren, when I tie together a lot of your comments, mostly on the last part on the bid season, underperformed expectations in this area, but still up modestly year over year, what you've done in the east and the share gain you've had there and the mix offset there, when we think about the revenue per load cadence for the next four quarters, like the cake is baked in the mid-26th, Does the rest of the year and early next year look like 2Q, or is there anything that can really change the dynamic of that driver?

Well, certainly mix can play a big role, and there's a lot happening with mix right now. You heard the result in the second quarter being negative 1% in TransCon, but positive 15% in East. I don't consider that. a seasonally normal kind of mixed result. I don't even consider that really the result in the bid cycle. It's as much of a reflection of some of the customer noise around tariffs and imports and all things affecting what's happening now. Core pricing being slightly positive. I mean, that is essentially the result of what I will call the 2025 pricing cycle. We will begin preparing for pricing discussions and plans for 2026 capacity with our customers as the remainder of the year goes on. And we will be closely watching the highway market and trying to adapt. Traditionally, intermodal has been a little bit of a laggard to the truck market. We're going to be watching closely as we get through the end of this year and into next year for signs that the highway market is changing. And Intermodal is going to want to keep up faster. We'll remain to be seen if we can do that, but that'll certainly be an effort we would want to undergo.

Hey, John, this is Brad Delco. I'll add a little bit to that. I think you and hopefully the rest of the audience heard us speak during the quarter at conferences. You know, we were talking about mixed changes and the impact that would have on yield and revenue per load. And I think for the first time, we were very transparent with our expectations on where this bid season would land, and sort of hinted we thought flat to maybe slightly up, and we landed slightly up with kind of pure price, you did see in the quarter our revenue per load or yield fall both sequentially and year over year. And on, let's call it relatively similar volumes versus first quarter, we saw 30 basis points of sequential margin improvement in intermodal. And I think the point I'm trying to make here is, You know, we have been obviously working very hard on cost initiatives and driving productivity and efficiency. But I think that there's this idea out there that revenue per load is the end-all, be-all, and that there are other drivers of margin performance. And I think we just, you know, at least put some evidence behind that in the quarter. So hopefully that helps.

Appreciate it. Thank you.

And your next question today will come from Chris Weatherby with Wells Fargo. Please go ahead.

Hey, thanks. Good afternoon. I wanted to ask about the $100 million of cost that you guys have talked about. I guess maybe first question, is that separate than the $60 million I think you guys have talked about in the past in terms of capacity, opportunities? And then as you think about the breakdown within the segments or maybe the cadence of that dropping through, can you sort of give us a little bit more detail on how you see that playing out maybe through the rest of 25 and beyond?

Sure. Hey, Chris, appreciate the question. You know, as far as what we've communicated previously, what we had talked about is the realization of what the excess equipment that we have in our segments is what that pressure is on our margins. And so the $100 million is really a continuation of that work. We are going to – some of the items that we've identified in the $100 million that we've quantified – will help address some of that issue. So there is, as we mentioned, asset utilization is a big part of that. As far as providing more detail on the segments, so we're not going to give how these numbers play out within the segments, but I think it's logical for you and the others to assume that these savings, these cost reductions, will be proportionate to the level of spend that we see within those segments. And then you would give some way to how each individual segment is progressing towards their margin targets. So dedicated is a little closer to the stated margin target, but they also have a large area of spend in the organization, and so they're going to share in a fair proportion of the $100 million that we've identified to date.

And your next question will come from Dan Moore with RW Barrett. Please go ahead.

Welcome back, Dan.

Dan, your line may be muted.

Sorry, guys. A little rusty. So good to be back. Thank you for the question. I'll be brief for a change. I was hoping we could talk a little bit about cost improvement initiatives, but specific to ICS. I know you guys don't really want to drill down at a division level with specific numbers. That being said, I think we all realize you're very focused on pulling levers that you can control. So any color around ICS and just how you're approaching your efforts there would be most appreciated. Thank you.

All right. Welcome back, Dan. Good to hear from you. I would just say we've been working to take costs out of Intermodal for the past few quarters and been successful and continue to, and ICS, sorry, ICS. Joey had to correct me there on that, but in ICS. And so when I look at it, we're doing a lot of levers, but I would say a lot of it is what we're working on is span of control and really trying to get more efficient with our people. And I think you will see that if you look at our operating expense and Q2 of last year versus Q2 of this year, you can clearly see $3 million or more that's come out of that expense. And that's a lot around span of control and people and doing things much more efficiently. But I'd also say we're focused on every penny, looking under every rock and crevice that we can get to drive that. And I think that if you just look at ICS right now, we are really close to to getting the ship turned around and excited where we're at. But that's just one example of many things that we're doing to really drive costs out on the ICS side.

Yeah, maybe just one cleanup item, Dan. I think, and for the audience, year over year, gross profit dollars were effectively similar. I think we were up $300,000, but we saw a nearly a $10 million improvement in operating income. And really, that's $10 million of OPEX that came out of the business versus the prior quarter. And as you probably remember when you were sitting in your other seat, we talked about $35 million of cost that we incurred in 2024 that wouldn't repeat in 2025. And I think at least so far through the first two quarters of this year, you've certainly seen a good step down in OPEX year over year and ICS. That doesn't mean that there's still not opportunity there, but it's probably one area we've done already the most amount of work. And I think, as you heard in Nick's prepared comments, you know, scaling and growing is a big focus while also looking at other areas to drive out cost.

Thanks for the color. Good luck, guys.

And your next question today will come from Brian Offenbeck with J.P. Morgan. Please go ahead.

Hey, everybody. Afternoon. Thanks for taking the question. So I wanted to come back to the cost savings target. Maybe, John, can you give us a little bit more description on that, you know, how much of this is volume-dependent, of any bigger buckets that you can kind of point to from a headcount perspective? And I think in the past you've even said there might be some container rentals or other utilization, so is that also considered in this program? So any other details you can provide there, including the cadence, would be helpful. Thank you.

Yeah. Hey, Brian. Appreciate the question. So, really, what we've identified and tried to go through is really looking at cost dollars and where we can find opportunities there. This was across the board, as I said, in our opening remarks. We had each executive kind of assigned to an area, and that was salaries and wages. That was benefits. That was equipment utilization. really across the board. And so some of it will be volume improvement. That will be certainly will help drive cost out. But a lot of these are structural changes to costs that we've been incurring to date that we have line of sight that we can remove from the system. And so that's kind of where our focus is and what's driving that initiative.

Yeah, maybe it's helpful too. I mean, Brad or Darren, I'll put you on the spot if you think Are there areas that you want to just highlight that you're looking into?

Yeah, I'll just mention, you know, we continue to see advancements in technology. And so as we think about artificial intelligence and the use of agents, it allows us to complete our work more efficiently and therefore lower costs. Shelly mentioned it. I think it's one of my favorite sayings, and that's just do more with less. And that's really the mantra that we've been on. And, you know, we've been on that fight for three years now. It's a grind, but – We're still not where we need to be, and so we're pushing harder and farther. And really, that's what it comes down to. There's a lot of great ideas that are in flight that will help us become more productive, leverage our equipment, investments better in the future than we have in the past through collaboration and sharing of resources, not only within dedicated example, but also across divisions with intermodal and dedicated and final miles. working closer together. So those are just some of the areas that I see.

And I might just add to something you said, Brad. As I think about artificial intelligence, if you think from our people perspective, one of the things we've really done over the last three years was to make sure that our people knew that we wouldn't be doing mass layoffs because we think our people, that is our culture. And so as we've started having these conversations and really introducing them to these concepts, our people have a level of safety that that allow them to really bring the best ideas of how we can eliminate work that is not meaningful to them. And so we want to point our people from doing work that we think we can automate and become more efficient into growing our business. And so that's a big part of our plan as well. I don't think we've identified everything there yet in the $100 million, and so that's part of what John Kula talked about. That's our first $100 million. We'll have updates from there. But I think that's an important – No, because when you have people understanding the strategy of the company, making sure that we've invested in our people, technology, and capacity, and that when we come through this, their good ideas will help us move forward and progress more quickly than had we not.

So I'll jump in here, Brian. You asked some questions about equipment utilization and how that might play a role. Certainly we've talked about having excess capacity for some time now. We're working on a host of creative ways to put that equipment to work. It can be replacing a leased trailer in the dedicated business unit, as an example, or even in JBT or even Final Mile. Can we put some of the containers to work in places where maybe in the past we had trailers leased? Have we talked to outside entities about potential leases? that's certainly a topic out there. I don't have anything to share. There isn't one of those currently going on, but it's certainly a topic. And then certainly we've been engaged with BNSF in a meaningful way to talk about the cost to store the equipment, facilities we both own, how can we minimize the cost together? And they are a partner with us in that. And we look forward to seeing the benefits of that. I'm not going to tell you that The second quarter had a lot of benefits in those kinds of areas, but as we move through the rest of the year, we think we can have a meaningful impact on some cost areas, certainly around the assets and the trailing equipment.

All right. Thanks very much, everybody. Appreciate it.

Thanks, Brian.

And your next question today will come from Scott Group with Wolf Research. Please go ahead.

Hey, thanks. Afternoon. So, Darren, you had a comment that you think we're at a point where intermodal margins will be stable to modestly improved. And I guess I just want to understand that a little bit more. Is that a sequential comment? Is that a year-over-year comment? I guess ultimately what I'm trying to understand is, you know, you're doing something with cost. Sounds like price maybe just getting a little bit better. Earlier peak surcharges. Like, do you think Are we at a point now where year-over-year intermodal margins can start improving or at least being flat, or are we not saying that yet?

Well, I think that what we're suggesting is that we've stabilized where they're at. I believe strongly in our cost initiatives and the efforts we have underway to help us moving forward. I want to highlight that, you know, we didn't get the pricing that we would have liked to have achieved given cost pressures that every entity is facing. That's driver wages. It's the cost of maintenance equipment. It's the cost of insurance. It's all the things that are factors in our results. And so pricing hasn't kept up with that necessarily. What that did do, though, in the bid cycle is it It created an environment where we're talking to customers about our challenges. And I think together we have found, not in every instance, but in some instances, we've found where customers are working with us to find new ways to flow new flexibility into our dredge operations to where we can drive better driver productivity, certainly drive out empty miles from time to time. I mean, these are all ways that we're attacking our margin. And I just want to make sure that the investor group doesn't believe that the only path to margin improvement at J.B. Hunt is from price. It is a necessary factor to fully repair our margin, but growth and cost control are also big factors that can help us. And I would probably take growth, cost control, takeouts or cost efficiencies, and then price as kind of equal parts of our mission back to at least a 10 margin. And that's an important element for our investors to watch. And we believe as we move forward, we can achieve sequential improvements in what's going on with our margin.

So just if I can, just I want to make sure I'm understanding, are you suggesting we don't need to wait until the back half of next year and another year pricing to get margin improvement. We can get there before then. Is that ultimately what you're trying to say?

Hey, Scott, I'll take a stab at this. I think we were very intentional with what we put in our prepared comments as we are each and every year. I think it is an important and also a pretty big statement for us to say, hey, we think we've seen stabilization in our margins and our modal based upon our executing on our cost-to-serve initiatives and based upon what we're able to achieve in the bid process. And I think we've been clear and transparent there, particularly with, hey, we have gotten – sorry, we have seen rate improvement in our headhaul lanes, and we've also tried to explain why there's a lot of value in balancing the network. And we've talked about, hey, seeing some improved balance can move margin tens of basis points. But we've been facing headwinds on price for two years, and I think our margins have held up well. We are finally at a point where we have just a very, very small tailwind in price, not nearly enough to compare where inflationary costs are. But if you take what we've shared on what we think we could achieve on lowering our cost to serve plus a little bit of help on rate, yeah, we've said we think we can stabilize our intermodal margins. And this can be supportive of some modest improvements. And I would say that's from where we are today.

Thank you. Again, please limit yourself to one question. And your next question today will come from Daniel Imbro with Stevens. Please go ahead.

Yeah, hey, good evening, everybody. Thanks for taking our question. I'll ask a non-intermodal one here. I guess, Brad, you mentioned in your prepared script the dedicated customer loss trickled here into July. I guess that helps fleet count in 2Q. Was there any benefit on margin in 2Q as we think about maybe you maintained that higher margin business longer than you anticipated? And then I think in the script you mentioned startup costs are going to affect your ability to maybe hit your operating income growth. Any more color you can share there? Is there anything anomalous about these startup costs or how long they should last? May it be a drag on margin before you see that recovery from this new business and fleet growth?

Thanks. Thanks, Daniel. I'll start with the back half of your question. As we get deeper in the year, the comment was really just a reminder that as we have growth in Q4, that that always is a drag for us. When we have that growth in the first half of the year, we can outrun the startup cost and investments. by getting to profitability. Typically, we talk about that being in the third or fourth operating month. And so just based on the way this year's played out and the way we see our growth getting back to the net growth in the back half, it likely will have some degree of drag on it. As it relates to the small carryover on the known losses, you know, did that have a positive or material impact on our Q2 profitability? I would say I would not be able to say that it had any material impact on our profitability. That business was in line with what our operating results were. So I guess maybe having that revenue a little bit longer than we anticipated may have contributed to some OI, but I wouldn't say that it influenced positively or negatively our operating ratio.

Hey, Daniel, this is Brad. I mean, I would say, and we tried to make this clear in the prepared comments, You know, we thought our fleet count would be relatively flat, Q1 to Q2. We outperformed it. We're effectively saying, you know, kind of like, you know, just the timing of literally a couple days is the difference of what we reported in terms of ending truck count versus maybe what it looks like today. And so literally just a couple days extra with that account on the books made that – made that number just look a little bit off from what we shared with you guys three months ago.

Great. Appreciate the detail.

And your next question today will come from Jordan Alliger with Goldman Sachs. Please go ahead.

Yeah, hi. I know customer uncertainty around forecasting demand in the second half is still a challenge, but peak season is coming pretty quickly. So given the on-again, off-again tariffs and your own relatively tough second half volume comps. Can you maybe drill down a little bit deeper on how you think peak season will develop? Can you get positive volume growth? And do you see more mixed shifts around that Transcon versus East Coast? Thanks.

Yeah. Hey, Jordan. This is Spencer. Thanks for the question. As I mentioned in my remarks, every one of our customers is unique. and specifically in how they've adjusted to changes in trade policy. Some stayed the course. Some paused certain items. Some pulled inventory forward. And really all of them, longer term, are considering their sourcing strategies. And that makes for a very dynamic forecasting challenge for them and for us. And so, you know, to your question, the size, the shape, The duration of peak, that's going to be different for every customer. And that's also really why we implemented our surcharge early this year. There are quite a few unknowns as to how that's going to manifest itself over the next couple months. Specifically, some customers have said they're going to have a similar peak in shape and size. Others have said it might be extended or also uneven. That presents a very large challenge for them and also for us as we're staring at the next couple quarters, but it's also why we wanted to be in a position to make sure that we were going to be ready with our people as well as our equipment that whenever that demand does occur over the next few months that we can serve them. And so we're very confident in that part in focusing in on our operations. And so whatever the volatility is, we're going to be ready to take care of that business when it comes in.

Thank you.

You bet. And your next question today will come from Bascom Majors with Susquehanna. Please go ahead.

Last year you repurchased $550 million worth of shares. That's the most you had done since 2007, I believe. And this year, halfway through, you're at roughly the same rate you did last year. Can you talk a little bit about the opportunism and just access to cash with CapEx falling down, the opportunism and, you know, we see long-term value in our stock where it's trading today and, you know, or, you know, is there maybe a structural rethinking about how to use cash with the buyback versus other uses longer term? Thank you.

Hey, Bascom, this is John. And, you know, there really hasn't been any change in the way we approach our capital deployment. Obviously, we want to reinvest in our core businesses, and traditionally that is through our revenue equipment purchases. As we've talked about, we have pre-funded a lot of those investments, and so we're the current environment. We do have, as I mentioned, strong free cash flow. And we have used that to repurchase our shares, mostly from an opportunistic, just looking at the value of our stock, multiple relative S&P, RSI. We look at all those factors when we think about how we repurchase. But the bottom line is we want to continue to maintain our dividend. We want to maintain our leverage. What we're targeting right now is that one times EBITDA. And so to the extent we have free cash flow, we will – again, take a look at opportunistic possibilities for repurchasing stock. The one thing I would say is we did earlier this year, we renewed some of our senior notes. We do have some coming up early next year. And so we're looking at that and really feel like we're in a healthy spot with respect to our cash flows. We don't see deterioration in cash flows from operations, and so we're going to continue to use that methodology on how we think about when we repurchase.

Thank you.

And your next question will come from Ken Huckster with Bank of America. Please go ahead.

Hey, Craig. Good afternoon. So you talked about not seeing pre-shipping, you know, the last couple quarters, and now transcon volumes are declining 1% with the pause in shipping. Eastern volumes up 15%. But now you're ending the 7% down comps from a year ago. So maybe can you describe the market backdrop now? And I guess in that vein, you noted peak season surcharge programs are starting earlier this year. So thoughts on how that flows through to yields versus normal seasonality?

Yeah, sure, Ken. This is Darren. So, look, I think that over the last several quarters when a lot of the commentary was about a pull forward of inventory, we didn't have a lot of customers telling us that's what they were doing. You know, we continued to look to our customers for as much forecasting and feedback as we could get about what to expect, what to anticipate. I think our customers did the best they could and gave us the information available. I don't think anybody was hiding anything. It just was difficult for our customers to see, and we were able to execute on their behalf. As the second quarter went on, we did see some changes in the way the TransCon volumes were flowing. And so, I mean, I would think you all can see some of that in IANA data, and you'll begin to see that, I would anticipate, in the industry. And so, there began to be a lot of dialogue about, well, there's going to be a surge coming, and maybe it will come earlier. We did have a handful of customers that said, hey, I might have extra business in July. I might We had many customers say, I'm going to have the same peak I had last year, for example. And so you began to hear a host of different thoughts about that. And we just wanted to build a plan, not be caught by surprise, and frankly, not be forced to take on cost that was essentially a peak-like event. that our shareholders don't deserve to take on that cost, and we built a program for our customers. Now, obviously, if they don't surge, they won't pay for excess capacity, and that's how we've shared that. And so we're trying to be prepared. We're trying to highlight our capabilities. We're trying to organize our own teams with our capacity and be ready. The last thing our industry can do is fail this shipping community at a time when demand upticks. And BNSF and J.B. Hunt are jointly aligned and being prepared for the next uptick in demand. And I think that that's what we're trying to highlight, that we're out there ready to do. So as we move forward, I don't know what to tell you in terms of forecasting transcon volumes. Certainly, we can all see Ocean vessels are bringing more cargo in through California today than they were several weeks ago. Traditionally, that translates into domestic intermodal at some point, and so we'll have to wait and see, but we're prepared to help our customers whenever they need it.

And your next question today will come from Brandon Oglenski with Barclays. Please go ahead.

Hey, thanks for taking the question. Maybe as a follow-up to that answer, how does growth in the east relative to flat loads or downloads in TransCon help with the lane balance strategy and the cost efficiency outlook for the intermodal segment, if you don't mind?

Well, look, eastern network growth has its own kind of balance challenges that are different than what the TransCon balance looks like. Certainly, the length of haul is much shorter. and thus the cost to reposition empty equipment is also significantly lower. You're just moving shorter distances. The mix of business that grows in the east is very similar throughout the year, and so there's not what I would call surges in the need for empty flows. And so the cost – process to consider with pricing. All of that is considered. And so as we look to grow our Eastern business just as fast as the customers want to convert that highway business, and we'll continue to do that, it certainly just doesn't put the pressure on the empty repositioning cost in the same weight as what TransCon can.

Your next question today will come from Ravi Shankar with Morgan Stanley. Please go ahead.

Maybe just to shift gears a little bit and a little bit of a bigger picture question here. Infra-model and dedicated EBITs have kind of converged a little bit and probably are the closest they've been maybe ever right now. Is this cyclical or structural in your view and kind of how do we think about the trajectory of EBIT for both segments into the upcycle. Do you think Intermodal probably has more operating leverage and torque as upcycle comes back, or do you think both of them crack pretty closely?

Hey, Ravi, this is Brad Delco. I'll take a shot at that and let Brad or Darren maybe chime in if they wanted to add more. But, you know, it is a good observation. I think the financial, let's just say operating income of those segments are as close as they've been in maybe ever. And I think it's really a function of you know, probably more the cycle and where we are. I mean, clearly, dedicated margins are, you know, they're off from the publicly stated margin target range of 12 to 14, but not that far off. Clearly, we're a little bit further off from the low end of our margin target range in JBI. So, I think there's some more cyclical dynamics there, but I think there's something very strong secular trends in dedicated. And I think you've seen consistent performance there. We've highlighted, you know, why we think our model is strong, resilient, and also unique in terms of how we think about dedicated versus how we think the broader market talks about their dedicated business. And so, good observation. Obviously, we like both of these businesses. I'll let Brad and Darren add anything more that they would like to add.

Well, I'll just start with intermodal. Certainly, we have pre-funded capacity for growth that we haven't achieved yet. It is absolutely our expectation and our plan to continue to grow into the intermodal excess capacity that we have today. Brad and I have known each other for a really long time, and I've always said the race between dedicated and intermodal is going to be fun. I don't know that I ever think that there's a winner or a loser in that. We enjoy kind of the internal competition of that, and I'm well aware that dedicated is right on our heels.

I'd just say to Darren's comment, we do have some fun with the competitive nature that we have here at J.B. Hunt, but we want to win all across the board. And so, yeah, I'm closer to my target ranges, but I'm not there yet, so I'm driven. And all the initiative work that John Kula mentioned earlier, you know, I think that we can get back in our range in the near term. We're that close. I'm really proud of the team, the results that we have, operational excellence, whether it's safety, driver retention, our entry rates. Yeah, we've touched on some inflationary costs, predominantly in the buckets of insurance that we're trying to outrun. with efficiency gains and with productivity improvements, but really proud of my team. But, no, we want to win across the board at J.B. Hunt. And so if Darren's at his target range and I'm at my target range, then, yeah, we'll arm wrestle to see who can be the biggest when the music stops.

Good luck. May the best segment win.

And your final question today will come from Tom Wadowitz with UBS. Please go ahead.

Yeah, good afternoon. So I know you've had quite a bit on the cost side, but I wanted to ask one more. I guess people think about the cost initiatives as sometimes being a gross initiative. You take that out, but you're going to have to offset inflation. I understand you have significant moving parts that drive operating income, how much price you get, where you get on volume. But at a high level, should we think about this $100 million program in 2026 as being a net cost? impact to EBIT? Should we, you know, you think you'll look back at this and say, look, you know, this really gave us another $100 million on top in terms of EBIT? Or is it more appropriate to say, hey, this is a gross thing and there are a lot of moving parts that, you know, might be tougher to kind of see that clearly in the numbers when we look back? Thank you.

Well, I mean, I think, Tom, hopefully we would like the audience to take into consideration, you know, Hunt typically doesn't step out on a limb and throw out numbers. You know, we have been very thoughtful, put a lot of work into this, and we've said over and over again this is a saving culture. I mean, we said the $100 million is the start. These are things that we've identified. Does that mean over the next 12 months we don't anticipate to see inflationary cost pressures that, you know, some of this work won't help us in overcoming inflation? those inflationary cost pressures. I mean, I actually think you see a lot of that in the results of Q2. I mean, everyone can see that our revenues were effectively flat year over year. I think, you know, we were off $500,000, and our operating expense was up $8 million year over year. And if you look at insurance and claims, and I'll go ahead and share, group medical, you know, we were up $21 million just in those two areas. And so, with good growth in JBT and good growth in intermodal. We're doing more and excluding those two items, our operating expenses are actually down year over year. So I think the organization has done a really good job managing costs. Do I have a perfect crystal ball as to what inflationary cost pressures are going to look like over the next 12 months? No, I don't. But I do know that we feel very strongly about executing on $100 million of costs that we feel like we can take out. And my hope is that it will be very noticeable to our shareholders that they'll see improved performance because of the additional efforts that we've put at identifying and going out and tackling these costs moving forward. Kulu, I don't know if you want to add anything.

Yeah, I think you said it great. You know, we, as Brad mentioned, you know, frankly, our number is actually higher than the $100 million, but we want to maintain our credibility with investors. And when we say we're going to do something, we want to have high conviction that we can have success in achieving that. And so it's not simply taking the $100 million and removing it from our OPEX and you can forecast what next year's operating expenses will be. But we have identified $100 million as we sit today and more work to come of costs that we can remove from the system. There is going to be continued inflationary pressures in probably all of our cost items. But what we are doing is working on the costs that we can control and we've identified areas where we feel highly confident that we can be on a better path to improving our margins.

This concludes our question and answer session. I would like to turn the conference back over to Mrs. Shelley Simpson for any closing remarks.

Thank you. You know, we've been in a prolonged challenging environment for the last three years. And you heard us talk about in the last earnings call that we were really being fluid, but also adapting to what we believe this environment looks like that allow us to focus on short-term things that we could work on that wouldn't jeopardize our long-term opportunity. I'm proud of our people in this environment. We've been operationally excellent, and we're set for growth. And we do really well in a growth environment. And that's because we keep focused on our customers and we keep creating more value and they keep asking us to grow. And all of our segments are set for growth. And so as you think about where we're positioning for the second half of the year and end of 2026, we have a large addressable market of $600 billion. We're at the highest level of service and customer sentiment across all five of our segments. And we have the people, technology, and capacity for the inflection occurs. Meanwhile... We've identified our first $100 million in cost to target. We are highly motivated, and we're ready to grow while we lower our cost to serve. And that puts us on the right path of repairing our margins and growing our earnings. Thank you for your interest, and we look forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.