Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- One-way production increased for the fifth consecutive quarter.
- Mexico volume is growing, and dedicated revenue per truck was up.
- Logistics segment returned to positive operating income after a challenging first quarter.
- Solid operating cash flow and share repurchases of more than 1.6 million shares during the quarter.
- Cost savings initiatives are expected to exceed $45 million for 2024.
Negative Points
- Revenues were 6% lower versus the prior year.
- Adjusted EPS was $0.17, reflecting a significant decline.
- Adjusted operating margin decreased by 350 basis points.
- Challenges remain with a smaller dedicated fleet and pressure on One-Way rates.
- Lower gains on the sale of used equipment impacted financial results.
Q & A Highlights
Q: Derek, you mentioned expecting normal seasonality leading up to peak. Can you expand on what you're hearing from customers and the modest sequential improvement in earnings?
A: It's early to predict peak season definitively, but signs indicate a return to normal seasonality. We've seen project opportunities and increased customer discussions about preparedness for demand. This suggests a balanced market, though not yet tight. The modest sequential improvement is due to recent bid activities reflecting flat to positive results, countering earlier negotiated rates. We'll see modest improvement from Q2 to Q3.
Q: Can you clarify the guidance for tractor count, specifically regarding dedicated and one-way business?
A: We don't plan to add tractors in one-way. Our focus is on dedicated, where the pipeline is strong. The number of bid opportunities is up significantly year-over-year. We'll maintain pricing discipline and aim for modest growth in dedicated trucks.
Q: Can you offer more color on the cost savings program and its impact?
A: We've realized $27 million in savings year-to-date and increased our 2024 target to over $45 million. This brings our two-year total to nearly $90 million. We're focusing on structural and sustainable changes, leveraging technology and M&A integration to drive these savings.
Q: What's driving the reduction in net CapEx guidance?
A: The reduction is due to a disciplined approach to pricing and fleet size. We're re-examining and justifying all capital projects, focusing on maintaining fleet age and preparing for future emission changes. We're not spending money just to spend it; we're being thoughtful with capital allocation.
Q: How do you view the path back to long-term TTS operating margin targets?
A: Achieving long-term TTS operating margins involves several levers: rate improvement in one-way, incremental growth in dedicated fleets, normalization of the used equipment market, and structural cost savings. We've seen sequential improvement in operating income, and we expect this trend to continue modestly.
Q: Do you expect logistics to remain profitable in the third quarter?
A: Yes, we expect sequential improvement in logistics operating income. We're focusing on improving revenue quality, cost savings, and leveraging technology to sustain gross margins and mitigate margin squeeze.
Q: Can you provide an update on the state of capacity exits and what you're seeing quarter-to-date?
A: We continue to see ongoing attrition of capacity, both in employment data and registration data. Lenders have been lenient, but we expect a change in behavior as market conditions improve. Conversations with customers indicate a preference for well-capitalized fleets like Werner, positioning us well for market tightening.
Q: How do you view the dedicated fleet size in the second half of the year?
A: The dedicated pipeline is strong, and we see more net wins being implemented than losses. We're focused on maintaining pricing discipline and expect modest growth in dedicated trucks in the second half.
Q: What gives you confidence in the fourth quarter, and why are you cautious about predicting it?
A: Positive signs include steady rejection rates, project opportunities, and customer inventory levels. However, uncertainties like geopolitical issues and consumer stress make it difficult to predict Q4 accurately. We're focusing on preparing for market improvements and maintaining operational readiness.
Q: How do you view the opportunities for utilization in the one-way truckload business in the second half?
A: We've made significant progress in utilization, achieving double-digit year-over-year increases. While the comps get tougher, we expect incremental improvements. Growth in Mexico and participation in near-shoring also contribute to better utilization and efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
