Hello r/Superstonk, Jellyfish with you this afternoon to dig into J.B. Hunt's statement from their earnings call
Transcript Source (Is Motley Fool, please don't hate me!)
First, I am sure many of you are wondering what the heck intermodal means! Intermodal: involving two or more different modes of transportation in conveying goods.
Intermodal freight transport: involves the transportation of freight in an intermodal container or vehicle, using multiple modes of transportation, without any handling of the freight itself when changing modes.
Ok, with that out of the way, let's dive into this earnings call!
J.B. Hunt’s intermodal revenue was up 21% for the quarter, while intermodal operating income grew 26%. The company handled 499,682 loads for the quarter.
Demand for domestic intermodal service exceeds J.B. Hunt’s capacity. On the call, Darren Field, president of J.B. Hunt’s Intermodal division noted this is because of slow customer turn times and the reduced velocity of the railroad network.
“Demand for our intermodal capacity remains robust. In fact, demand continues to significantly outpace our available capacity, which remains constrained by rail performance and restrictions in addition to customer detention of our trailing equipment,”
As we have been discussing, it is a shortage of labor and equipment for moving goods within the transportation network acting as a major contributor to record high turnaround times. To encourage customers to unload and load more quickly, J.B. Hunt has made it known accessorial charges are on the table:
One of our biggest challenges this year, which got even worse during the second quarter, was the detention of our trailing equipment by customers across both our Intermodal and Truck segments. We are addressing these issues with our customers through direct conversations and accessorial charges and in some instances, we are restricting capacity to certain customer locations.
J.B. Hunt’s intermodal was up 6% for the quarter, was up 9% in the east, and 3% for transcontinental loads that originate on partner BNSF Railway.
J.B. Hunt relies primarily on Norfolk Southern in the east but also uses CSX Transportation to reach some locations.
Network velocity continues to be well below our expectations as evidenced by our box turns which were approximately 1.65 turns per month during the quarter. We are working very closely with our rail providers and customers to improve our capacity across the network by focusing on reducing the detention of equipment and helping our rail providers reduce congestion across their terminal infrastructure.
Inflationary cost pressures continue to present themselves in the way of driver wages and recruitment costs in addition to the cost of equipment ownership, particularly as utilization levels remain challenged by both the rail and customer activity previously discussed.The analyst back and forth on questions was interesting as well:
Ken Hoexter -- Bank of America: maybe step back and give a little bit of your thoughts on labor and when you think about hearing impacts of embargoes on some of the networks, are there any concern that the network starts to meltdown like we've seen on some of the rail networks when it starts spreading and spreading out wider from just one area, especially when you're adding capacity when the rail network is not fluid? Is there a concern that it gets gummed up and they're not able to take advantage of their persistence [Phonetic] to schedule railroading overhauls?
Darren Field -- President, Intermodal, Executive Vice President: So is there a concern of a meltdown, I think that the railroads have all shown a fairly quick step in to slow volume down if heading toward that kind of a challenge. 2021 has been certainly an unusual year. So -- but, no, I don't expect any kind of meltdown from the railroads. I do think that when we talk about labor challenges with the rail system, I mean I really do think it's -- we're talking about locations that need to find 4% or 5% more employees in order to be fully staffed and overcome kind of a challenge that they're in now. These aren't just massive, massive amounts of people that they need to hire. So it feels like that would be highly unusual. And I think all of the railroads are very focused on these challenges and they are out addressing them. And I don't feel like we're -- that some sort of a significant meltdown is a very significant risk at this point.
Hmm, Google says in 2020 approximately 135,000 people were employed by Class I railroads in the United States. If the 5% number was needed everywhere, Mr. Field estimates everything can get back on track with ~6,750 new employees?
I am sure it is not all just laborers needed, but let's play with the numbers for a second:
Yes, wages aren't the same everywhere, but I picked Chicago since we talked about it being shut down for a week.
6,750 * 4,050 = $27,337,500 to bring on the capacity to get things smoothed out (supposedly).
We ended the quarter with approximately $570 million in cash. On our first-quarter call, we communicated our increase in equipment orders and guided our CAPEX to be approximately $1.25 billion for 2021. While all orders are still in place, we anticipate some of these to push to 2022 because of the congestion on the waterways and also at the ports. We are committed to obtaining the capacity to serve our customers, but our view today is that net capital expenditures for 2021 will be closer to $1.15 billion because of these delays and other challenges to equipment needs.
We resumed stock buybacks on a more regular basis in the second quarter and have acquired approximately $80 million, rounding out close to $85 million year-to-date. We will continue to balance our cash spend on equipment, dividends, and buybacks through the remainder of the year as opportunities unfold and trend closer to our targeted 1 times EBITDA leverage metric on a net basis when the environment begins to normalize.
Hmm, they have the cash on hand, it would be a 'drop in the bucket for net expenditures', they could bring on the labor to solve this issue if they want to! Instead, they'll put that money to better use, stock buybacks...
Not once in the presentation was extreme weather (climate change) discussed as an enterprise risk like the time spent going into the labor shortage. I am sure behind closed doors they must be aware of this but are saving it as a 'surprise' for next quarter if things do not improve?
The entire transportation network is facing spikes in costs and supply/labor shortages, and you can bet the costs will get passed down the line. More fun to look forward to over the coming months. The CPI number from last week is a lie and a joke and inflation is not transitory--as Covid-19, Suez Canal, and Mother Nature all have continued roles to play in seeing it stick around.
TL:DR: The Dollar losing purchasing power + Inflation = Permanent Loss of purchasing power.
Unless one of the many other catalysts triggers the MOASS, I believe inflation is the match that has been lit that will light the fuse of the rocket.