Yahoo Finance Schneider National, Inc. (NYSE:SNDR) Q1 2024 Earnings Call Transcript
Schneider National, Inc. (NYSE:SNDR) Q1 2024 Earnings Call Transcript May 2, 2024
Schneider National, Inc. misses on earnings expectations. Reported EPS is $0.11 EPS, expectations were $0.15. Schneider National, 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: Ladies and gentlemen, thank you for standing by. Welcome, everyone, to the Schneider First Quarter Earnings Call. [Operator Instructions]. I will now hand the call over to Mr. Steve Bindas of Schneider. You may begin your conference.
Steve Bindas: Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; Darrell Campbell, Executive Vice President and Chief Financial Officer and Jim Filter Executive Vice President and Group President of Transportation and Logistics. Earlier today, the company issued an earnings press release. This release and an investor presentation are available on the Investor Relations section of our website at schneider.com. Our call will include remarks about future expectations, forecasts, plans and prospects for Schneider. These constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.
The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent annual report on Form 10-K and those risks identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Schneider disclaims any duty to update such statements, except as required by law. In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release and investor presentation, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mark Rourke.
Mark Rourke: Thank you, Steve, and hello, everyone. Thank you for joining the Schneider call this morning. In our opening comments, we will cover first quarter results in context with the current freight cycle, the positioning of our multi-mobile platform, including the ability to quickly pivot with the eventual market recovery as well as our updated 2024 full-year guidance. Let's start with the recap of the fees we highlighted on our last earnings call. First, we noted that in general, customers entered 2024 with a heightened sense of uncertainty, but they also have a mindset that it's not a matter of if the supply and demand conditions would recalibrate but when. Second, our internal indices suggested that as we enter the year, the full load freight down cycle surpassed 600 days below neutral, which is long by any historical standard.
Third, irrespective of the market, we are focused on company-specific initiatives, including cost reduction actions and asset efficiency improvements, and returning our diversified and scaled operating segments of Truckload, Intermodal and Logistics on a path toward their long-term margin targets. All of these themes continue to be relevant as we sit here today. In the first quarter, the excess capacity condition persisted. January was especially challenging with sluggish volumes and adverse winter weather, which negatively impacted a large portion of the network. We are assessing signs that market conditions are beginning to moderate. For the first time in six quarters, we experienced positive contract price renewal closures in the low single digits for the truckload network.
While this is a promising sign, we have not seen enough to consider the market at an inflection point. In the first quarter, the outcomes of pricing renewals varied across our service offerings. We achieved positive pricing and volume share gains with some large strategic customers as they prepare for the next market phase. We also renewed with certain customers at reduced volumes if retaining volume required contractual price concessions. The short term, we are prepared to place more of our capacity and other configurations, including dedicated and the spot market, if necessary. This approach positions us to quickly pivot, leveraging our scale across our multimodal platform and to be at an advantage when the market improves. Next, I'd like to provide some insights specific to each of our business segments.
In Truckload network, revenue per truck per week in the first quarter contracted 10% year-over-year, with most of the change due to depressed rates. The majority of the year-over-year in sequential change in network truck count is centered around the owner-operator community, which highlights the financial strain that small operators are enduring through this extended down cycle. Our company truck count has been steady as we maintain flexibility to take advantage of an improved market when it materializes, even if that means a higher spot percentage in the short term. In truckload, Dedicated revenue per truck per week was flat year-over-year and down 4% sequentially from the fourth quarter with low single-digit utilization impact primarily due to the severe weather in January.
Our commercial and operational teams, along with our professional drivers are executing with purpose against the dedicated portfolio and our survey as a catalyst for growth. Dedicated will also benefit from an improving network market has improved pricing on backhaul and revenue share arrangements, enhanced margin performance while adding value back to our customer. Average Dedicated truck count grew year-over-year by 773 units and 80 units sequentially from the fourth quarter. Dedicated now represents 62% of truckload tractors. The pipeline remains strong, and we have successfully closed on a series of second and third quarter new business award implementations, and this gives us further confidence to continue to take action to address below-contract threshold accounts.
Moving to the Intermodal segment. Volumes were flat year-over-year. Growth in the West, Transcon in Mexico was offset by the East, which is the most competitive region with the truck alternative. Revenue per order was down 7% compared to the first quarter a year ago. Intermodal margins improved 40 basis points sequentially from the fourth quarter, overcoming typical seasonal declines and more severe weather impacts. The intermodal network is showing modest signs of healing with new business awards being implemented in dray cost efficiency gains. Intermodal first quarter contract renewals were largely flat compared to a year ago. I consider this favorable as last year's first quarter renewals were the most constructive of 2023. However, the outcomes of the early renewal season were more volatile than is typical.
Pricing and volume gains and losses were higher in their amplitude depending upon customer allocation strategies. Our fully asset-based positioning with the Union Pacific and the CSX rail partners differentiates us as we take further advantage of how well they are connected to deliver volume growth and operating efficiencies that enhance our long-term intermodal returns. In addition, we are excited about the opportunity that will be created pending STV approval to allow two of our rail partners, the CPK C and CSX to provide a new service between Mexico and Texas to the Southeast. We are also encouraged by today's announcement that the Union Pacific will reduce transit by two days on the country's largest freight lane from LA to Chicago. In our Logistics segment, we have observed that customers, in general, are favoring asset-based solutions.
We have seen the favorability for our assets and asset-based brokerages play out in the first quarter as our overall brokerage order volumes contracted only 8% year-over-year and power-only order volumes grew each month through the quarter and year-over-year. Similar to other segments, brokerage has maintained its pricing discipline or going volume to maintain accretive returns. In the quarter, January's weather impacts were not absorbed as easily in the market as carrier costing and customer spot rates surged. However, the market moderated quickly. Logistics operating margins eroded over 300 basis points compared to the first quarter a year ago, but only 10 basis points sequentially from the fourth quarter. Our power-owning offering has proved its value through both extreme up and down cycles, and we expect it to play an increasingly larger role in serving our customers' network truckload freight gains when the freight market rebounds.
We can grow share of wallet with our customers and earnings to the business at highly efficient capital turns. Despite current market conditions, we are encouraged that margins improved each successive month of the quarter across Truckload, Intermodal and Logistics with March experiencing as semblance of seasonality and slight end-of-quarter push. Before I turn it over to Darrell to offer his financial summary insights for the first quarter and our updated guidance for full year 2024, I want to take this opportunity to recognize five amazing Schneider Hall of Fame Driver associates who recently surpassed a significant and extremely rare safe driver milestone. I offer congratulations to John, Kurt, Daniel, Wayne and Michael for achieving 4 million safe driving miles.
Everyone at Schneider is looking forward to an event being held in their honor this summer, where we will celebrate their accomplishments, commitment to safety and dedication to providing outstanding service to our customers. They are among the 92 professional driver associates who have earned safe driver awards of 1 million miles or more this year, and we are grateful for them and all the professional drivers at Schneider, who live out our core values every day. Now let me turn it over to Darrell.
Darrell Campbell : Thank you, Mark, and thanks to each of you for joining us this morning. I'll provide a financial recap of our first quarter results and give perspective on our updated 2024 guidance. You can find summaries on Pages 21 to Pages 26 of our investor presentation included on our website. Our adjusted income from operations for the first quarter was down $85 million or 74% from the prior year. Adjusted diluted earnings per share for the first quarter was $0.11 compared to $0.55 in the prior year. The first quarter of 2023 included net gains on equity investments and higher gains on equipment sales versus the current period, which represented a $0.12 aggregate headwind to earnings per share. EBITDA of $131 million, which was in line with the fourth quarter of 2023 demonstrated a level of sequential stability and reflects the asset efficiency and cost actions we continue to implement.
In our Asset-Based truckload segment, revenues excluding fuel surcharge for the first quarter of 2024 or flat year-over-year. Solid dedicated organic and acquisitive growth was offset by lower revenue per truck per week on volumes in our network business. Truckload earnings for the first quarter were lower on a year-over-year basis, primarily due to network price and volume pressures. Lower gains on equipment sales costs related to dedicated new business start-ups and inflationary equipment-related costs. Across all business segments, we can implement mitigating actions to improve asset efficiency and manage controllable costs while executing from a position of strength to be advantaged as the market recovery builds. We continue to be disciplined in our commercial actions.
Our dedicated business continues to grow due to strong account start-up activity, a robust pipeline and solid operating performance of existing accounts. The year-over-year consistency in Dedicated revenue per truck per week is indicative of the resilient nature of the dedicated portfolio. In our Intermodal segment, first quarter revenues, excluding fuel surcharge, were down 7% year-over-year as a result of corresponding declines in revenue per quarter. Intermodal, earnings were down year-over-year, primarily due to lower revenue per order and higher MT repositioning costs, partially offset by improved grade performance. In our non-asset logistics segment, revenues for the first quarter declined 15% on a year-over-year basis, primarily due to decreased revenue per order and overall volume declines.
We're encouraged by the earnings improvement we have seen across all segments as the first quarter progressed, with a return of more seasonality, and we believe this is a positive indicator as we continue to navigate the current freight cycle. We expect to build on this momentum through the remainder of the year as we work to restore our long-term margin targets. We're also encouraged by the strength of our balance sheet, which allows us to remain committed to our capital allocation strategy regardless of cycle. As reflected in the $112 million of net CapEx spend for the quarter, we continue to execute on our age of fleet objectives while taking appropriate actions to improve asset efficiency. We executed opportunistic share repurchases and paid nearly $17 million in dividends during the quarter, which was 5% above the same period in 2023.
We continue to generate strong operating cash flow of $98 million during the quarter, and our net debt leverage stood at 0.4 times. Moving now to our forward-looking comments. Remain intensive focused on executing all areas of the business, leaning heavily on those factors within our control, including commercial and revenue management discipline, managing asset efficiency and delivering our cost containment initiatives. These efforts are ongoing, and we've been successful in delivering meaningful improvements. However, these efforts only partially offset the impact due to the persistent supply and demand challenges. We're seeing signs that inventory destocking has largely concluded, although shippers are cautious and reluctant to begin meaningful restocking partly based on the impact of inflation and interest rates on consumer confidence including uncertainty around the timing and extent of interest rate cuts by the Federal Reserve.
In addition, since we shared our previous guidance, spot rates have not improved to the degree expected and we're experiencing varying results in contract pricing throughout the allocation season to date. We're seeing positive signs across our business with dedicated on power order resiliency and improvements in earnings within our network businesses. While we do anticipate capacity attrition, modest demand growth in a market that moves towards balance as the year progresses, the timing of market recovery differs from what was contemplated in our previous guidance. Our current guidance reflects a return to some degree of seasonality in anticipation of modest sequential improvement in market conditions for the remainder of the year. As in all market conditions, we remain focused on controllable costs and asset efficiency actions.
As we progress through the year, we anticipate improving yields in our network businesses, volume growth in intermodal and logistics and continued truck growth in dedicated based on visibility to our pipeline. Taking our first quarter results and our revised market expectations into account, we have updated our adjusted diluted earnings per share guidance range for 2024 to $0.85 to $1, assuming a full-year effective tax rate of 25%. We're also adjusting our net CapEx expectations to be in the range of $350 million to $400 million for the full year 2024. With that, we'll open the call for your questions.
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