J.B. Hunt Transport Services - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 was broadly in line: revenue $2.93B (flat y/y) and EPS $1.31 (flat y/y), with slight beats vs S&P Global consensus on revenue and EPS, offset by a minor EBITDA miss; operating margin dipped 30 bps y/y to 6.7% on elevated casualty/medical and wage/equipment inflation (consensus in Estimates Context below, S&P Global).
• Intermodal volumes rose 6% y/y with strong Eastern network growth (+15%) but pricing/yield remained a headwind; management said Intermodal margins have “stabilized” with potential for modest improvement as cost actions take hold and bid gains flow through starting Q3.
• Company tightened 2025 capex guidance to $550–$650M (from $500–$700M) and identified $100M in annual cost reductions (efficiency, utilization, engineered processes), with most benefits in 2026+; free cash flow exceeded $225M in the quarter and buybacks were a quarterly record at $319M.
• Dedicated is poised to resume fleet growth in H2 after anticipated losses rolled into early July; peak surcharges are starting earlier given demand uncertainty tied to trade policy shifts—both are near‑term narrative movers.

What Went Well and What Went Wrong

• What Went Well

  • Intermodal execution: volumes +6% y/y; Eastern network +15% y/y with continued truck-to-rail conversions; management completed bid season with modest positive pricing after two years of pressure. “We completed Intermodal bid season with positive pricing for the first time in two years” (CEO).
  • Cost discipline and capital returns: identified $100M annualized cost reductions; >$225M FCF; record $319M buybacks in Q2; leverage ~1x trailing EBITDA targeted.
  • Brokerage (ICS) operating improvement: operating loss narrowed to $(3.6)M from $(13.3)M y/y as OpEx fell and GP margin improved to 15.5% from 14.8%. “We’re really close to getting this ship turned around” (COO on ICS).

• What Went Wrong

  • Margin pressure persisted: operating margin 6.7% vs 7.0% y/y, driven by higher casualty/group medical claims, driver wages, and maintenance/equipment costs.
  • Yield headwinds: Intermodal revenue per load fell 3% (ex‑fuel -2%); Truckload revenue per load fell 4% ex‑fuel despite 13% load growth.
  • Final Mile softness: revenue -10% y/y and operating income -60% y/y amid weak big-and-bulky end markets and some revenue-quality pruning; bad debt rose; prior-year had a $1.1M claims benefit.

Transcript

Operator (participant)

Good afternoon, and welcome to the J.B. Hunt Transport second quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Brad Delco, Senior Vice President of Finance. Please go ahead.

Brad Delco (Senior VP of Finance)

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, Shelley Simpson, our CFO, John Kuhlow, Spencer Frazier, 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, Shelley Simpson, for some opening comments. Shelley.

Shelley Simpson (President and CEO)

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 service. 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. Some of the lowest turnover metrics on record for our drivers. We have invested in technology to drive efficiencies in our business. 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 Kuhlow 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 Kuhlow. John.

John Kuhlow (EVP and CFO)

Thank you, Shelley. And good afternoon, everyone. I want to review the second quarter, provide some details on the lowering our cost 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 GAAP 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 24-25%, 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 would not 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 cost 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. 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 million and $650 million, effectively tightening the range compared to our prior view of $500 million 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-time 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.

Spencer Frazier (EVP of Sales and Marketing)

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. 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.

Nick Hobbs (COO and President of President of Highway and Final Mile Services)

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 JBT. 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. Bid 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 mid-size customer growth of 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.

Darren Field (EVP and President of Intermodal)

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-pronged 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. Finally, we needed a get rate to help repair our margins and cover our inflationary costs. To be fair, I do not 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 head haul lanes, partially offset by pressure in the back haul 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.

Brad Hicks (EVP and President of Dedicated Contract Services)

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 800-1,000 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 2Q 2025 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 on site 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 adds 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 continue 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 it back to the operator to open the call for questions.

Operator (participant)

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 will pause momentarily to assemble our roster. Your first question today will come from Jon Chappell with Evercore ISI. Please go ahead.

Jon Chappell (Senior Managing Director)

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 then 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-26, 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?

Darren Field (EVP and President of Intermodal)

Sure. Certainly mix can play a big role, and there's a lot happening with mix right now when 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 mix 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. It will remain to be seen if we can do that, but that will certainly be an effort we would want to undergo.

Brad Delco (Senior VP of Finance)

Hey, Jon, 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. We were talking about mixed changes and the impact that would have on yield and revenue per load. 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. On, let's call it, relatively similar volumes versus first quarter, we saw 30 basis points of sequential margin improvement in Intermodal. I think the point I'm trying to make here is.

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. I think we just at least put some evidence behind that in the quarter. Hopefully that helps.

Jon Chappell (Senior Managing Director)

Appreciate it. Thank you.

Operator (participant)

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

Chris Wetherbee (Senior Analyst)

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? 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 2025 and beyond?

John Kuhlow (EVP and CFO)

Yes, sir. Hey, Chris, appreciate the question. As far as what we've communicated previously, what we had talked about is that the realization of what the excess equipment that we have in our segments is what that pressure is on our margins. 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. There is, as we mentioned, asset utilization is a big part of that. As far as providing more detail on the segments, 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.

You would give some weight to how each individual segment is progressing towards their margin targets. 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 today.

Operator (participant)

Your next question will come from Dan Moore with RW Baird. Please go ahead.

Brad Delco (Senior VP of Finance)

Welcome back, Dan.

Operator (participant)

Dan, your line may be muted.

Dan Moore (Senior Research Analyst)

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 do not really want to drill down at a division level with specific numbers. That being said, I think we all realize you are very focused on pulling levers that you can control. So any color around ICS and just how you are approaching your efforts there would be most appreciated. Thank you.

Nick Hobbs (COO and President of President of Highway and Final Mile Services)

All right. Again, welcome back, Dan. Good to hear from you. I would just say we have been working to take cost out of Intermodal for the past few quarters and been successful and continue to. In ICS, sorry, ICS. Joey had to correct me there. All that, but in ICS. When I look at it, we are doing a lot of levers, but I would say a lot of it is what we are working on is span of control and really trying to get more efficient with our people. I think you will see that if you look at our operating expense in Q2 of last year versus Q2 of this year, you can clearly see $3 million or more that has come out of that expense. That is a lot around span of control and people and doing things much more efficiently. It also says.

We're focused on every penny, looking under every rock and crevice that we can get to drive that. I think that if you just look at ICS right now, we are really close to getting this ship turned around and excited where we're at. That's just one example of many things that we're doing to really drive cost out on the ICS side.

John Kuhlow (EVP and CFO)

Yeah, maybe just one cleanup item, Dan. I think for the audience, year over year, gross profit dollars were effectively similar. I think we were up $300,000, but we saw nearly a $10 million improvement in operating income. Really, that's $10 million of OpEx that came out of the business versus the prior quarter. 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 would not repeat in 2025.

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 in 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. I think, as you heard in Nick's prepared comments, scaling and growing is a big focus while also looking at other areas to drive out cost.

Dan Moore (Senior Research Analyst)

Thanks for the color. Good luck, guys.

Operator (participant)

Your next question today will come from Brian Ossenbeck with JPMorgan. Please go ahead.

Brian Ossenbeck (Managing Director and Senior Analyst)

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

John Kuhlow (EVP and CFO)

Yeah. Hey, Brian. Appreciate the question. 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. Some of it will be volume improvement. That will certainly help drive cost out. 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. That's kind of where our focus is and what's driving that initiative.

Brad Delco (Senior VP of Finance)

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

Darren Field (EVP and President of Intermodal)

Yeah. I'll just mention 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 cost. Shelley mentioned it. I think it's one of my favorite sayings, and that's just do more with less. That's really the mantra that we've been on. We've been on that fight for three years now. It's a grind, but we're still not where we need to be. We're pushing harder and farther. 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, as an example, but also.

Across divisions with Intermodal and Dedicated Contract Services and Final Mile working closer together. Those are just some of the areas that I see.

Shelley Simpson (President and CEO)

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. As we've started having these conversations and really introducing them to these concepts, our people have a level of safety that allows them to really bring the best ideas of how we can eliminate work that is not meaningful to them. We want to point our people from doing work that we think we can automate and become more efficient into growing our business. That's a big part of our plan as well. I don't think we've identified everything there yet in the $100 million.

That is part of what John Kuhlow talked about. That is our first $100 million. We will have updates from there. I think that is an important note because when you have people understanding the strategy of the company, making sure that we have 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.

Darren Field (EVP and President of Intermodal)

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 at least 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. 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? They are a partner with us in that. 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.

Jon Chappell (Senior Managing Director)

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

Brad Delco (Senior VP of Finance)

Thanks, Brian.

Operator (participant)

Your next question today will come from Scott Group with Wolfe Research. Please go ahead.

Scott Group (Managing Director and Senior Analyst)

Hey, thanks. Afternoon. Darren, you had a comment that you think we're at a point where Intermodal margins will be stable to modestly improved. 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're doing something with cost. Sounds like price may be just getting a little bit better. Earlier peak surcharges. 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?

Darren Field (EVP and President of Intermodal)

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. 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. Pricing hasn't kept up with that necessarily. What that did do, though, in the bid cycle is it created an environment where we're talking to customers about our challenges. 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 drayage 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. 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. I would probably take growth, cost takeouts, or cost efficiencies, and then price as kind of equal parts of our mission back to at least a 10% margin. That is an important element for our investors to watch.

We believe, as we move forward, we can achieve sequential improvements in what's going on with our margin.

Scott Group (Managing Director and Senior Analyst)

Just if I can, because 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 of pricing to get margin improvement? We can get there before then. Is that ultimately what you're trying to say?

Brad Delco (Senior VP of Finance)

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 in Intermodal based upon our executing on our cost-to-serve initiatives and based upon what we're able to achieve in the bid process." I think we've been clear and transparent there, particularly with, "Hey, we have seen rate improvement in our head haul lanes." We have also tried to explain why there's a lot of value in balancing the network.

We talked about, "Hey, seeing some improved balance can move margin tens of basis points." We have 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 to price, not nearly enough to compare where inflationary costs are. If you take what we have shared on what we think we could achieve on lowering our cost to serve, plus a little bit of help on rate, yeah, we have said we think we can stabilize our Intermodal margins, and this can be supportive of some modest improvements. I would say that is from where we are today.

Scott Group (Managing Director and Senior Analyst)

Thank you.

Operator (participant)

Again, please limit yourself to one question. Your next question today will come from Daniel Imbro with Stephens. Please go ahead.

Daniel Imbro (Managing Director)

Yeah. Hey, good evening, everybody. Thanks for taking our question. Oh, let's go 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 if we 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, or is there anything anomalous about these startup costs or how long they should maybe be a drag on margin before you see that recovery from this new business and fleet growth? Thanks.

Darren Field (EVP and President of Intermodal)

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 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 investment 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, 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. I guess maybe having that revenue a little bit longer than we anticipated may have contributed to some OI, but I would not say that it influenced positively or negatively our operating ratio.

Brad Delco (Senior VP of Finance)

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

Daniel Imbro (Managing Director)

Great. Appreciate the detail.

Operator (participant)

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

Jordan Alliger (VP and Equity Research Analyst)

Yeah. Hi. I know customer uncertainty around forecasting demand in the second half is still a challenge, but peak season's coming pretty quickly. 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? Do you see more mixed shifts around that Transcon versus East Coast? Thanks.

Spencer Frazier (EVP of Sales and Marketing)

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. That makes for a very dynamic forecasting challenge for them and for us. To your question, the size, the shape, the duration of peak. That's going to be different for every customer. 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 of 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 of quarters. It is 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, we can serve them. We are very confident in that part and focusing in on our operation. Whatever the volatility is, we are going to be ready to take care of that business when it comes in.

Jordan Alliger (VP and Equity Research Analyst)

Thank you.

Spencer Frazier (EVP of Sales and Marketing)

You bet.

Operator (participant)

Your next question today will come from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors (Senior Equity Research Analyst)

Last year, you repurchased $550 million worth of shares. That's the most you had done since 2007, I believe. 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 we see long-term value in a stock where it's trading today? Is there maybe a structural rethinking about how to use cash with the buyback versus other uses longer term? Thank you.

John Kuhlow (EVP and CFO)

Hey, Bascom. This is John. There really hasn't been any change in the way we approach our capital deployment. Obviously, we want to reinvest in our core businesses. Traditionally, that is through our revenue equipment purchases. As we've talked about, we have pre-funded a lot of those investments. In the current environment, we do have, as I mentioned, strong free cash flow. We have used that to repurchase our shares, mostly from an opportunistic just looking at the value of our stock, multiple relative to S&P, RSI. I mean, we look at all those factors when we think about how we repurchase. 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-time seeded DAW. 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. We are looking at that and really feel like we are in a healthy spot with respect to our cash flows. We do not see deterioration in cash flows from operations. We are going to continue to use that methodology in how we think about when we repurchase.

Bascome Majors (Senior Equity Research Analyst)

Thank you.

Operator (participant)

Your next question will come from Ken Hoexter with Bank of America. Please go ahead.

Ken Hoexter (Senior Research Analyst)

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

Darren Field (EVP and President of Intermodal)

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 did not have a lot of customers telling us that's what they were doing. 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 do not think anybody was hiding anything. It was difficult for our customers to see. 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.

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, 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." We had many customers say, "I'm going to have the same peak I had last year," for example. You began to hear a host of different thoughts about that. 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. Our shareholders do not deserve to take on that cost. We built a program for our customers.

Now, obviously, if they do not surge, they will not pay for excess capacity. That is how we have shared that. We are trying to be prepared. We are trying to highlight our capabilities. We are 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. BNSF and J.B. Hunt are jointly aligned at being prepared for the next uptick in demand. I think that is what we are trying to highlight, that we are out there ready to do. As we move forward, I do not 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.

We will have to wait and see, but we're prepared to help our customers whenever they need it.

Operator (participant)

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

Brandon Oglenski (Director and Senior Equity Analyst)

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 and Transcon help with the lane balance strategy and the cost efficiency outlook for the intermodal segment, if you do not mind?

Darren Field (EVP and President of Intermodal)

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. The cost process to consider with pricing, all of that is considered. 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.

Operator (participant)

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

Ravi Shankar (Executive Director and Head of India Equity Sales)

Good afternoon, everyone. Maybe just to shift gears a little bit and a little bit of a bigger picture question here. Intermodal 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 track pretty closely?

Brad Delco (Senior VP of Finance)

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. 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 and maybe ever. I think it's really a function of probably more the cycle and where we are. I mean, clearly, dedicated margins are off from the publicly stated margin target range of 12-14%, but not that far off. Clearly, we're a little bit further off from the low end of our margin target range in JBI. I think there's some more cyclical dynamics there. I think there's some very strong secular trends in dedicated. I think you've seen consistent performance there. We've highlighted.

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. Good observation. Obviously, we like both of these businesses. I'll let Brad and Darren add anything more that they would like to add.

Darren Field (EVP and President of Intermodal)

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. 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.

I'm well aware that dedicated is right on our heels.

Brad Hicks (EVP and President of Dedicated Contract Services)

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. Yeah, I'm closer to my target ranges, but I'm not there yet. I'm driven. All the initiative work that John Kuhlow mentioned earlier, 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. No, we want to win across the board at J.B. Hunt.

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.

Ken Hoexter (Senior Research Analyst)

Good luck. May the best segment win.

Operator (participant)

Your final question today will come from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz (Senior Equity Research Analyst)

Yeah, good afternoon. 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, what you get on volume. At a high level, should we think about this $100 million program in 2026 as being a net impact to EBIT? You think you'll look back at this and say, "Look, this really gave us another $100 million on top in terms of EBIT"?

Is it more appropriate to say, "Hey, this is a gross thing, and there are a lot of moving parts that might be tougher to kind of see that clearly in the numbers when we look back"? Thank you.

Brad Delco (Senior VP of Finance)

I mean, I think, Tom, hopefully. I would like the audience to take into consideration. Hunt typically does not step out on a limb and throw out numbers. We have been very thoughtful, put a lot of work into this, and we have said over and over again, this is a safety culture. I mean, we said the $100 million is a start. These are things that we have identified. Does that mean over the next 12 months, we do not anticipate to see inflationary cost pressures that some of this work will not help us in overcoming 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 we were off $500,000. And our operating expense was up $8 million year over year.

If you look at insurance and claims, and I'll go ahead and share, group medical, we're up $21 million just in those two areas. With good growth in JBT and good growth in intermodal, we're doing more. Excluding those two items, our operating expenses are actually down year over year. I think the organization has done a really good job managing cost. 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. I do know that we feel very strongly about executing on $100 million of cost that we feel like we can take out. 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. Kuhlow, I don't know if you want to add anything more.

John Kuhlow (EVP and CFO)

Yeah, I think you said it great. As Brad mentioned. Frankly, our number is actually higher than the $100 million. We want to maintain our credibility with investors. When we say we're going to do something, we want to have high conviction that we can have success in achieving that. It is not simply taking the $100 million and removing it from our OpEx, and you can forecast what next year's operating expenses will be. 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. 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.

Operator (participant)

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

Shelley Simpson (President and CEO)

Thank you. We've been in a prolonged, challenging environment for the last three years. 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 would not 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. We do really well in a growth environment. That is because we keep focused on our customers, and we keep creating more value, and they keep asking us to grow. All of our segments are set for growth. 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. 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. 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.

Operator (participant)

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