Forward Air Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 10 speakers on the call.

Operator

You for joining Forward Air Corporation's 2nd Quarter 2023 Earnings Release Conference Call. Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air's website to call at www.forwardaircorp.com. With us this morning are CFO, Tom Schmidt and to I'm sorry, CEO, Tom Schmidt and CFO, Rebecca Garberg. By now, you should have received the press release announcing our Q2 2023 results, which was furnished to the SEC on Form 8 ks and on the wire yesterday after the market closed. Please be aware that certain statements in the company's earnings press release announcement and on this conference call are forward looking statements within the meaning of the Private Securities to inform Act of 1995, including statements which are based on expectations, intentions and projections regarding the company's future performance, anticipate events or trends and other matters that are not historical facts, including regarding our expected Q3 2023 fiscal year 2023.

Operator

To these statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that it could cause actual results to differ materially from those expressed or implied by such forward looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call. The company undertakes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise. To during the call, there may also be a discussion of financial metrics that do not conform to U. S.

Operator

Generally Accepted Accounting Principles or GAAP. Definitions and reconciliations of these non GAAP measures to their most directly comparable GAAP measures are included in the press release issued, which is available in the Investors tab of our website. And now I'll turn the call over to Tom Schmidt, CEO, Forward Air.

Speaker 1

To Thank you, John, and good morning to all of you on the call. Let me lead off with 5 points before opening it up for questions to present comments. The first point, we just finished the 3rd disappointing quarter in a row. It's been a very tricky freight recession for our team and our customers, and it came in phases. We have seen the worst in our main show, the LTL business, to turn the call over to Steve.

Speaker 1

And as we started coming out of the low for the LTL business to turn the call over to Mark. Thank you, Mark. Thank you, Mark. Thank you, Mark. Thank you, Mark.

Speaker 1

Thank you, Mark. Thank you, Mark. Thank you, Mark. Thank you, Mark. Thank you, Mark.

Speaker 1

Thank you, Mark. Thank you, Mark.

Operator

Thank you, Mark.

Speaker 1

Thank you, Mark. Thank you, Mark. Thank you, Mark. Thank you, Mark. To especially the storage fees.

Speaker 1

The second point I want to make upfront is, go forward is working. That's our initiative to focus on high value freight, priced appropriately in a very, very clean best in industry operating environment to make sure that we are well positioned to

Speaker 2

make sure that we are

Speaker 1

well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well positioned to make sure that we are well informed to make sure that we are in 2020 3 yet. Our industry leading pest service from best on time performance, 99% to lowest damages, to provide a clear statement of our financial results. We are pleased with the results of our financial results. We are pleased with the to customers do trade down. We saw that with our year over year tonnage.

Speaker 1

If you go back all the way to the last quarter of last year to In the very beginning of this year, our tonnage per day was down 15%. For the full Q1, it was down by 12%. To 2nd quarter, we just finished 7% down. Most recently, we've seen a lot of kind of close to flat to And very, very positive trend. This week, so far, we are seeing plus 7% year over year tonnage.

Speaker 1

The freight mix also keeps getting better as well with the weight per piece and the weight per shipment going up. To The 3rd point I want to make upfront, the yellow impact will accelerate the momentum. And at to At this point, I do have to start with just a personal note, as I know quite a few people who actually worked at this iconic company, Yellow. To I do feel for the 1,000 who gave their all for so many years, 99 years, I think, in total, to add this iconic company, and I truly hope and wish that many of those great professionals will find another great professional home soon. To On a pure business front, capacity leaving the market will further cement pricing discipline in our industry, to And we clearly will be part of a very disciplined pricing group.

Speaker 1

We also should see some volume benefits to in the more dense lanes and for shipments that benefit from our industry leading precision execution. To This week's plus 7 percent year over year tonnage is a good observation of that. 4th point I want to make upfront, and this is more to take a look at

Speaker 2

the results of the Q3. I do

Speaker 1

need to get better in forecasting in dynamic challenging times like we're in. To And we need to get back to be more conservative and then beat expectations. In that spirit, we are still cautious to conclude the Q3. Intermodal and truckload will still have ways to go to get back into full swing. There is LTL momentum.

Speaker 1

It's building, but we still want to be cautious about the size of that momentum. Import volumes for many of our best business partners and customers to And then finally, before we open it up, point number 5. I want to just give you a little bit of a perspective. To Sometimes it's important and right to be self critical. At the same time, it's also important to have some perspective.

Speaker 1

Let's put this year, 2023, arguably the worst freight year in 15 years into a bit of a context. To 2021, just 2 years ago, was the first of 2 unprecedented trade boom years. And at the time when we finished 2021, we actually finished with by far our best earnings per share in the history of our company at the time. To That was just 2 years ago. In an absolute freight bust year 2023, we still easily expect to beat that 2021 boom year EPS number.

Speaker 1

That means we're not where we will be yet, but it just means a bit of perspective sometimes helps too. And with that, back over to you, John, and we're going to open it up for thoughts, comments and questions.

Operator

To thank you, ladies and gentlemen, for the best audio quality. If you are using a speakerphone, a headset or a Bluetooth connected device, we do ask that you switch to your

Speaker 2

to

Operator

to to and we will go first to Jack Atkins. Go ahead, please.

Speaker 3

Okay. Thanks. Good morning, Tom. Good morning, Rebecca. Thanks for taking my questions.

Speaker 1

To Good morning, Jack.

Speaker 3

So I guess, Tom, I'd like to maybe start with what you've been seeing over the last few weeks. To It sounds like it's obviously a pretty dynamic situation right now. So when you think about to The tonnage trends you're seeing, the shipment trends you're seeing in the expedited LTL business, could you maybe give us a little bit more granularity on the last few weeks? To What's sort of going on there in terms of the progression? And where is that freight coming from?

Speaker 3

Is it coming from direct shippers? Is it coming from 3PLs? To If you could maybe provide some context around that.

Speaker 1

Yes, Jack, absolutely. So and I'll go into July and then we're obviously going to go into the 1st few days of August. First of all, the numbers and then a little bit of color behind the numbers. To Put the 1st week of July aside for a second. That was a goofy week.

Speaker 1

When July 4th is a Tuesday, to By all practical means, you're actually losing 2 business days that week. Now when you go into the 2nd week of July, What we've seen is, in the Q2 of all was minus 7% year over year. The remainder after the to 1st week of July, I think averaged out roughly at minus 3. So that trend already was going upward. To And then again, the last several days was a whole another step up, which we haven't fully built into our forecast.

Speaker 1

To This is the plus 7% year over year tonnage, which is unusual. Also, week over week, we see sequentially kind of plus 4%, plus 5 present the last few weeks. So there's a lot of kind of momentum building. The second question is like, where is it coming from? To Some of it is truly our sales team doing a phenomenal job with our core business partners, helping them and helping us grow again, giving them

Speaker 2

to take a look

Speaker 1

at the future.

Speaker 2

Just great ammunition in the toolkits. Some of

Speaker 1

our longest standing business partners and customers have been growing with us, even predating some of the yellow to But very clearly, over the last several days, going into the last week of July, we do see some of our to provide some more color business partners and customers who also were yellow customers for long lanes for some of the more sensitive freight, to switch that business over to us. So, yes, the yellow leaving the market will, I think, further to accentuate pricing discipline. It probably will help some of the class freight companies that are 1st class to in volume directly more than it helps us, but we have seen 3PLs to your point, Jack. We also have seen some of the domestic forwarders that are more focused to On the type of freight that Yellow actually was a good carrier for, we see some of them growing with us in the most recent days, to And that clearly is them handing over business that they so far gave to Yellow to us. So we are a to provide a direct beneficiary volume wise, less so than some of the class freight companies, but we are a direct beneficiary.

Speaker 1

And certainly on the pricing front, to we expect, as I said, the pricing discipline to accentuate July second half kind of minus 3, August so far plus 7 year over year tonnage.

Speaker 3

To Okay. And then maybe just following up on July briefly, but I mean for July in total, what was tonnage in July in total to

Speaker 1

I think it was down minus 5% and I think the problem again was the 1st week, which was very goofy to rest it's better.

Speaker 3

Okay. July was minus 5% and then it's obviously gotten better over the last few weeks. Correct. And then I guess maybe shifting gears to the to take a look at the pricing side,

Speaker 2

I mean, we've looked

Speaker 3

at revenue per hundredweight excluding fuel. There's been some downward pressure on that over the last couple of quarters. To How do you think that is impacted by what we're seeing from like the broader dislocation of the LTL market? Do to You feel like you've got some pricing leverage back here? Would you expect to see some sequential improvement in revenue per underweight excluding fuel?

Speaker 1

To I do believe that the last quarter and the last two quarters that you're looking at were probably the most to challenge from a pricing environment and we should see improvement there in Q3.

Speaker 3

Do Do you think there's the opportunity for GRI later this year?

Speaker 1

Well, so Let me say it in two ways. The answer is that we do GRIs once a year. We do it the 1st week of February. And I think our customers and business partners should rely on that. They don't like it when it comes, but there should be predictability that they can build into their budgets and forecasts for the following year.

Speaker 1

Now here is what we to I did do, as we talked about, I mean, times got really, really tough over the last 6, 9 months. We worked with many of our customers. And when they to step forward with real initiatives to grow together with us. We gave them temporary GRI relief, where they to We always talked about, Jack, about capture rates. Capture rates were never 100%.

Speaker 1

This year, it was lower than in the previous couple of years. So what I do expect us to do is this, have conversations with some of those customers about, yes, we worked together over the last to take 6 to 9 months giving you temporary relief on the GRI that needs to kind of come back to a more fulsome level. So it is more the enforcement of the existing GRI at to full level versus getting out of sequence or out of cycle, our customers that do deserve some reliability and planning predictability, And we don't do 2 or 3 GRIs a year.

Speaker 3

No, that makes sense, Tom. And so I guess, other opportunities would be to take a look at the details and then the degree to which you're going through negotiations with customers is on normal course of business in the back half of the to So I mean, do you feel like that when you put all that together that could have a positive impact on pricing sequentially in the Q3?

Speaker 1

To Absolutely. And again, I think, the point that I made in my opening remarks about guidance for Q3, to Some of the what we just saw in the last few days is not fully built in. Some of that pricing discipline to Positive outcome may not be fully baked in. I do want to get us back on track to a point where we are and you've been fairly vocal about this, rightfully so, to say, where we are more consistent in terms of making forecasts and beating forecasts. And so that's why I to believe we're appropriately cautious at this point, but we like what we see.

Speaker 3

Okay, got it. To Maybe last question and I'll hand it over. Could you maybe talk about peak season? What are your customers to tell you about their plans for the back half of the year. Maybe are you beginning to see if you kind of strip away the impact from yellow, it may be hard to do that.

Speaker 3

Are you beginning to see to some signs that there's a little bit of improvement in underlying demand or is it just too early to make that call?

Speaker 1

It's probably too early to make that call. There's quite a few of our customers who said like, yes, they've seen their order books getting fuller. To Yes, they've seen their order books getting fuller, but there's also some customers to be very blunt about it where they say, We don't see a peak this year. There's no indication of that coming. In my mind, we need to focus on what many people call to Self help, let's control what we control, which is working with our customers to earn more of their business.

Speaker 1

I oftentimes talk about a to slice of pie game and the size of the pie is not growing. If there is more of an uplift in the 3rd Q4, that will be additional benefit on top to What we're looking for and what we're guiding towards.

Speaker 3

Okay. Thank you, Tom. Appreciate the time.

Speaker 1

Thanks, Jack.

Speaker 4

Thank you.

Operator

To next we'll go to Scott Group with Wolfe Research. Please go ahead.

Speaker 2

Hey, thanks. Good morning, guys.

Speaker 1

Good morning, Scott.

Speaker 2

Can you share what is the tonnage you're to assume in the Q3 guide, you said a few times you're not assuming everything you've gotten in the last week. So what is the actual tonnage you're assuming in the guide?

Speaker 5

To Yes, Scott. So we are assuming that tonnage would be positive in the Q3. So we're expecting that to be year over year north of to Somewhere north of 5% for Q3.

Speaker 2

Okay. So it sounds like you are assuming that you keep it the rest of the way because tonnage was downsized in July?

Speaker 5

To Yes. We expect August September to be a bit better as we look at it from a to Sequential kind of July, August, September standpoint. So that's right.

Speaker 2

Okay. To And then maybe just, there's been a lot of mix changes. Can you just as the tonnage has spiked, maybe just talk about to What's going on with the weight per shipment? What's going on with length of hobs? That's had an impact on some of the revenue numbers.

Speaker 2

So any color on what's to What's happening as the tons levels are spiking?

Speaker 1

Yes. So, Scott, weight per shipment has been going up again. We always like it when the number start with an 8. So, £800 is what we have seen most recently. It typically tends to be what has been the traditional kind of to airfreight that goes from one airport to another airport tends to be lower wage than door to door shipments.

Speaker 1

And we have had quite a bit of success over the last several to come with our 3PL shippers and those tend to be door to door shipments. So door to door shipments going up tends to actually help the weight per shipment and that's what we've been seeing. The second thing that's also important is, as we are getting again more and more high value freight, less of the lower weight e commerce, to We also tend to get a typical weight per piece and weight per shipment benefit. So it is to a factor of 2 levers. The first lever is more door to door shipments and the second lever is continued improvement of our freight mix.

Speaker 2

How about length of haul?

Speaker 1

Length of haul, to We're getting longer again, and that's what we ultimately, based on our operating model with to Team drivers oftentimes going on the long distances, we tend to be extremely competitive when it comes to speed, but also to load damages with the Drivers taking turn driving and sleeping and only being one loading process, one unloading process at the end. So we want to actually compete and win on the longer to haul business, our sales team and our pricing team are very focused on that.

Speaker 2

Right. And ultimately, what I think I'm trying to get at is, to What's the margin differential between like the legacy airport to airport and maybe some of this

Speaker 1

It's actually mostly differentiated, Scott, by customer group. So the but you're right, airport to airport on average is still more to We do have some customer groups though where we like events is a great example to From events divisions of some of our customers, airlines are a great example where some of it actually goes to an ultimate destination And we actually benefit from that too, but airport to airport still is the jewel in terms of profitability, but we are walking up the door to door business also. Okay.

Speaker 2

I mean, so do you think that because I assume what you're winning right now is sort of the door to door LTL type freight. Is that So there could be some degree of a margin mix headwind as we take some of this on. Is that right?

Speaker 1

To That's from a mix perspective, that's fair. But again, we always said, with go forward in our high value freight focused, to With the pricing, that's appropriate that we expect when you put fuel aside positively or negatively that we see margin expansion in our LTL business. You're correct from a mix perspective, door to door makes it harder and still we expect to see margin expansion once you put fuel aside. So yes, That number should be going on an OR perspective towards 80% or on a margin perspective towards 20%.

Speaker 2

Makes sense. Okay. To Thank you for the time guys. Appreciate it.

Speaker 1

Okay. Thanks Scott.

Operator

And we'll go next to Massumi Majors to start with Sasquana. Please go ahead.

Speaker 6

Tom, you're certainly not alone in having this year turnout to make sure that we're in the range of the year. And I think it's easier for us to to understand some of those drivers and some of the businesses that have a lot more public comps and be able to compare your businesses to provide you with a very strong balance sheet. You know, unique in the mix and the airport to airport focus in your largest business. So I'm just curious if you could back up to kind of how you felt about the year in January or February and how you feel about it now, the 1 or 2 most meaningful to provide some drivers of that change in outlook and maybe just let us know how confident you are that those levers are to close to a bottom or even getting a little better and if there are any pieces of that, that may actually have some risk of getting worse or just more uncertain as we look forward 2, 3, 4 quarters. Thank you.

Speaker 1

Yes. Bascome, good morning. And to Let me just kind of walk you through over time what we saw and how some of that remained consistent and how some of it changed. The first thing I would say is, as we were planning for 2023, we clearly were off the school to That I think a lot of people were on, some were skeptics though, which said, somehow inventory will be depleted to turn the call back to the Q2 to levels where normal shipment sizes and shipment volumes should start happening again in the second half of twenty twenty three. That was the kind of a predominant school of thought going into 2023.

Speaker 1

If you ask me kind of as we went into the second quarter And now, certainly, where we're sitting today, I think that was too optimistic. I think those voices that said early on, I think Bascome, I think you were one of them, That this freight recession could be lingering on longer, I think turned out to be more right. To So that's one, I think, expectation, to some extent, hope that we shared that second half would kind of start seeing this uptick. And at this point, we are looking at 2023 as a year where, again, we have to win a slice of pie game with our customers Because we're not banking on the size of the pie growing in the second half. The second thing is that we probably were to Expecting what we saw on the LTL side with the Q4 last year being difficult, the Q1 this year being difficult to End the Q2 starting kind of to see some uptick with our direct small, medium sized business to welcome customer selling in addition to working with our core business partners.

Speaker 1

What we were somewhat unpleasantly surprised by, I also mentioned in the opening comments, to The Intermold Drayage business, which really, really has been a rock solid double digit margin performer, seeing a similar but slightly to The time delayed absolute bottom in the second quarter, specifically in the months of May April May, to We didn't expect it to come down that hard. The accessorial fees we talked about, the new storage fees at some point with the supply chains being unclogged to We'd be normalizing, but the basic core revenue came down harder than what we expected. So There was another lesson learned for us. We knew truckload and brokerage would be a challenge in a freight recession. We knew LTL.

Speaker 1

Down trading would be happening temporarily. In the mortgage business, we probably saw more consistent in our forecast than it ended up being specifically in the Q2. So now looking forward, I do believe the bottom is behind us. I do believe on the LTL side, to Not only because of the yellow impact, but certainly also bolstered by the yellow impact. On the LTL side, there is momentum building, to Quantity and quality of the freight, that go forward program is working.

Speaker 1

On the intermodal trade side, I do believe to We also, with a slight time delay, are working our way out of that bottom. Truckload and brokerage, I think, is going to be still sluggish to over the next several months. So that's why I'm saying this year probably will go into the books as kind of a tough freight recession year. To But I do believe in every single one of our business lines, we have seen the bottom and the momentum on the LTL side is perhaps the most pronounced of all of to We don't talk as much about the Final Mile business, but it's worthwhile noting the deliberate installation of high value appliances. That team actually has held up extremely well by winning additional markets with our customers and also by winning additional logos, Meaning serving customers that we didn't use to serve a year or 2 ago.

Speaker 1

So each business in Align, I think we have seen the bottom. The momentum in the LTL business to probably the strongest final mile is pretty solid coming along. Truckload brokerage may be the one that's most challenged. And I think in the mortgage, to The Q3 will be better than the Q2.

Speaker 6

I really appreciate that comprehensive response, Tom. Thank you.

Speaker 1

To Okay. Thanks, Bascome.

Operator

To and we have now Stephanie Moore from Jefferies. Go ahead please.

Speaker 7

Hi, good morning. Thank you.

Speaker 1

Good morning, Stephanie.

Speaker 2

To Good

Speaker 7

morning. Maybe just as a follow-up to a prior question, just so I have everything clear. So just to For your 3Q guidance and I appreciate all the color and the puts and takes. So does your guidance assume to Just to be clear, normal seasonality, but it does not assume kind of an uptick you have seen thus far from some of the yellow diversion volume?

Speaker 5

To Yes. So Stephanie, it does assume, yes, the seasonality, and it assumes, not necessarily the benefit of the yellow, but it assumes what, to As Tom mentioned, what's in our control and some of the pipelines that we have that we've won and we're seeing. So we're doing things in our to What's in our own control? And so that's what we're baking in. At the time that we prepared the forecast, to Yellow really hadn't been settled at that point in time.

Speaker 5

So it's really seasonality plus within our control and what we see in our pipeline.

Speaker 7

Got it. No, that's helpful. And then maybe just on that kind of what you're seeing in to Pipeline or what's in your control. Can you talk a little bit about your customer mix or verticals and where you are seeing some of that good demand or in other areas that might still be a little weak?

Speaker 1

To Yes. So a lot of the consumer goods import businesses, so think of international forwarders, to It's still significantly down. I mean, when we are down with them, like go back to the Q1 in some cases, for us to be down in year over year tonnage in January February to turn the call back to the call back to the call back to the call back to the

Speaker 2

call back to the call back to the

Speaker 1

call back to the call back to the call back to the call back to the call back to the call back to the call back to the call back to the call back to the call back to the call back to the call back

Speaker 2

to the call back to the call back

Speaker 1

to the call back to the call back to the call back to to They still see very, very sluggish imports and also very depressed rate levels coming specifically from Asia when it comes to consumer goods. So we noticed that, we see that. And again, while we are focusing on more high value, more sensitive freight, call it shipments of consequence, to We do have high end consumer goods as part of it, and that's still depressed. When you talk about more of the industrial goods space, automotive, to Events, medical, we see very strong demand. We see our customers being kind of to focus on initiatives in those spaces that's working.

Speaker 1

So I would say high end consumer goods, more sluggish, to More kind of robust resilient industrial goods. To We see a very, very good demand pattern and frankly also demand increase.

Speaker 7

To Okay. No, that's helpful. And then maybe more on a housekeeping question and I apologize if I missed it and you said it, but I think in the last quarter you kind of gave some color on to Revenue per ton per mile ex fuel, airport to airport and then door to door. Could you give those numbers for this quarter?

Speaker 1

So we actually did not give those numbers, but revenue per ton mile is a metric we follow closely. Actually, we did not to publish it. What we most likely, Stephanie, will be doing is because we are only 4 weeks away from being 2 months into this quarter. To In the mid quarter update, we'll give you the same metrics that we gave last time. We're very focused on them.

Speaker 5

Yes. Stephanie, I don't have it in front of me by month, but I can say revenue per ton per line haul mile ex fuel For the quarter is up 1.5%. Got it.

Speaker 2

To be a big fan

Speaker 1

of that metric because that's what we get paid for moving a ship and the same amount of distance. Fuel is not part of that. And if that number goes up, that tells us that either the freight mix or our ability to price it appropriately or both is moving in the right direction.

Speaker 2

To

Speaker 7

Right, right. No, that makes sense. And then maybe lastly for me, just talk a little bit about your appetite to For M and A, maybe in this environment, there might be an opportunity to maybe be opportunistic with some deals, but what are your thoughts regarding ongoing M and A? Thank you.

Speaker 1

To Yes. M and A is always part of our capital allocation and part of our strategy. We always talk about we want to grow in double digits. It's a combination of organic and M and A. To Good example is our Intermodal Age business, where we always build out geographically and kind of and to Industry wise, our footprint.

Speaker 1

We haven't had a Intermodal Edge acquisition this year. The year is not over yet, And we always focus on finding out finding spaces where we get stronger. So I would expect us to have a good chance of seeing something there. On the LTL side, with Landair Express, we already had a great addition to our team earlier this year. But M and A is a big part of who we are and what we do, to And we continue pursuing that.

Speaker 7

Appreciate it. Thank you for all the color.

Speaker 1

Thanks, Stephanie.

Operator

To now go back to Jack Atkins with Stephens Inc. Go ahead please.

Speaker 3

To from the call so far, but when we go back to the comment, Tom, that you made on the GRI capture rate, to This year being lower than what you've seen in the past, is there a way to kind of maybe put some framework around that? What portion of the DRI was captured this year? And to What's a reasonable expectation as we kind of look forward over the next maybe quarter or so?

Speaker 1

To Yes. So typically, our expectation would be that GRI capture rates to would be in the 70% or higher space. And by the way, to be very clear, the only way we tend to mitigate is when we have to take some specific initiatives in place for specific customers to grow with us where in exchange for that growth, and that's profitable growth, we mitigate to percentage points of that GRI. That's what we've done historically. We've done less of that in 2021 2022, and we've done much more of that this year.

Speaker 1

So, If you take 75% as kind of a good middle ground and the other 25% being mitigated for growth purposes, to This year, we definitely were way below that 75%. In a 2021 or 2022 boom scenario, we were higher than that. Now over the next several weeks months, to We do expect Nancy Ronning, our Chief Commercial Officer Melissa Hafeezur, our Senior VP of Sales and their teams to work with our customers on looking back at the mitigation that we gave them over the last 6 months to And to some extent, playing catch up. So I'd like to get closer, perhaps not for the average of the year, but closer to that typical expectation that 75% is captured and the rest is mitigated for the right reasons.

Speaker 3

Okay, okay. Got it. And then I guess maybe just going back to the tonnage comment to Because I think that it's a little bit confusing for folks in terms of if you think about the expectation for the to turn the call back to the Q3. July was down 5%, but you had the challenging sort of 1st week just with the calendar. If you kind of think about to The back half of the quarter, back 2 months of the quarter, I guess, help us square the revenue to guidance, which is I have to go back and look, it's down pretty significantly with the idea to that tonnage in your largest business is going to be up 5%.

Speaker 3

I mean, how to it would seem like if tonnage is up 5%, your revenue wouldn't be down as much as what you're guiding to.

Speaker 1

To Yes, let me start and then Rebecca can correct me. But the one thing that we have not talked much about and I frankly prefer to look at things like apples to apples and not letting fuel drive the discussion. In fuel, we always go with industry forecasts, and we always tend to take the kind of the 1 or 2 most respected to Energy Institute kind of forecast and then that's what we built in. The forecast for the Q3 is tremendously low. So it's actually, I think, around $350,000,000 or so is where it's built.

Speaker 1

That level of fuel right now is higher than that. If you looked at even to take the gas pump over the last few days. Personally, that number has been going up again. So part of what you see on the revenue front for Q3 to discuss building in what the Energy Institute said, which is a very low fuel number.

Speaker 3

Okay. Okay. Got it. And then I guess maybe thinking about the margin impact from the incremental tonnage that you're seeing, I get the mix shift to take a look at the next question from the line of Brett. I'd like to take a look at the dynamics between core expedited business versus door to door business.

Speaker 3

But as you're thinking about layering on to take a look at the incremental tonnage that's heavier weight per shipment, on an existing cost structure, to The incremental margins to your point should be higher than the existing airport the existing expedited LTL margins that you saw in the to quarter, right? So in theory, as you're capturing the incremental timing, that should drive margin expansion sequentially if it to continue. Is that fair?

Speaker 1

Absolutely correct. Capacity utilization is a big deal, and to take that number going up definitely should help us with margin expansion.

Speaker 3

Okay. Okay, that's all I had. Thanks again for the time.

Speaker 2

Okay. Thanks, Jack.

Operator

And next we'll go to Andrew Cox with Stifel. Go ahead, please.

Speaker 4

To Hey, good morning, Tom and Rebecca. Andrew on for Bruce.

Speaker 1

Good morning, Andrew.

Speaker 4

Good morning. Hey, I just wanted to kind of check-in on 3 service levels. We've been hearing reports that missed pickups are starting to accelerate across the industry given the kind of flood of tonnage that has hit the market. To just kind of wanted to know if you guys are seeing that? And if so, what are the things that you guys are focused on to balance the opportunity And maintaining network fluidity at the same time and making sure that you keep the progress you've made over the last few

Speaker 2

years. To

Speaker 1

Yes. Andrew, actually, very topical question and one that we in every single QBR, a quarterly business we do with our customers to Our focus on the first thing I should say is, and this is a big testament to Justin Lindsay, Tim Osborne, Chris Ruval, our operations leadership and their entire to And that's industry data I'm using here, not our own scorecards. We had and I think we put this in the release, we had the 99% to take a look at the numbers on time level. And we have very, very few kind of exceptions and exemptions. So these are real numbers.

Speaker 1

To We are not perfect and we strive to get closer to perfection every single day and we'll never get there. But we have operating principles that we built over 4 decades to be honed and sharpened that are really built around handling very, very sensitive freight and basically to having airline type schedules in mind. So we barely miss pickups and we again, we have a claim ratio of 0.0 sorry, of 0.1%. So, but we do hear, Andrew, a lot what you're talking about. And frankly, this is a great conversation for us to have with our customers.

Speaker 1

When they rely on other carriers and they do see some of the symptoms that you're mentioning, to We actually love helping our customers when they need for those types of shipments absolute certainty or closest to absolute certainty. To take a look at the next question. They have the best place to go to and that's us. So it is something that's more and more of a topic. It will probably intensify.

Speaker 1

And frankly, we are on the right side of that topic by being a great choice.

Speaker 4

If I'm hearing correctly, over time, to You expect kind of some that freight will eventually find a home, some will end up finding the best service home and that it tends to be you?

Speaker 1

To That's our aspiration and that's what we're competing for every single day.

Speaker 4

Great. That makes sense. If I can follow-up, I do want to have I know kind of briefly touch on Final Mile earlier, but I just wanted to talk about pricing in the Final Mile business. We've heard one of the larger peers kind of have successfully to take some pricing actions over the last 6 to 9 months. I just wanted to see your opinion of the trends in pricing at that final mile.

Speaker 1

To Yes, always going to be competitive, lots of rebids going on. We have to re earn markets with our existing customers, and price is always a key topic. Having said that, we tend to do and this is what unites us across all of our forward business units. We tend to focus on service excellence. We tend to focus on, again, as we said, shipments of consequence.

Speaker 1

That's true for to This is delivering insulation in most cases of high value appliances. So we do to try to be extremely cost competitive, but we tend to win on service. And the reason why our Final Mile margins to Our expectation is in the high single digits and not in the low single digits. It's exactly that value creation and that ability to capture a good part and earn part of that value by being the best in service. As a reminder, again, in 2021, one of the most to be encouraged by the exceptional service that our Final Mile team is providing.

Speaker 4

Okay. To Great, Tom. Rebecca, thanks so much for the time.

Speaker 1

Thanks, Andrew.

Operator

And next we'll go to Christopher to coon with The Benchmark Company. Go ahead please.

Speaker 2

Yes. Hi, Tom. Hi, Rebecca. Good morning.

Speaker 1

Hi, Chris.

Speaker 2

Sorry to go back on

Speaker 8

the volume. I just wanted to clarify, Rebecca, the volume guidance, does that include to Some yellow in there, I just wanted to be clear on that.

Speaker 5

Yes. So it doesn't. What it includes, right, to Just to kind of go back, right, to think about where we are at the beginning of this year, we acquired Landair, so we got to provide 5 new terminals. We opened up our Chicago terminal in Q1 of this year. And so we've been winning new business to take a look at the numbers and so kind of getting into new markets.

Speaker 5

And so I think that's an important point that I want to make as we're thinking through our pipeline and some of the customer wins and reiterate what Tom has said about kind of winning that bigger slice to And so when we think about our guidance, we think about Q3, right, we're seeing some of this momentum to come in through. And so we built our forecast based on these new terminals and what we're seeing there, new slices of to The pie that we're winning. And so that plus seasonality, it's helped to drive how we think about the forecast for Q3.

Speaker 9

To Okay, great. And then just on

Speaker 8

the intermodal, Tom, I mean, I think you mentioned that you feel like that's the bottom in 2Q to thank you

Speaker 2

and just the reasons why that might be, are you expecting import activity to pick up or asset sales charges to be less of a drag?

Speaker 1

To Yes. So again, if you look at the first half, the in the motor age business still in the first half to take a look at the numbers that we have in our guidance, we'll be at all order for this year for the full year to be at double digit margin just based on the Trend that we saw in the Q2. But we do again, and back to Rebecca's point about pipeline, we do see an increasing pipeline in the multi hedge business. So Imports are still sluggish, but that team is winning more against slice of pie, perhaps more than the size of pie Business where we've been bigger share of wallet. But what I see in the activity, the pipeline and using typical close rates to make sure that it makes me more excited about it in the mold drayage business in Q3 compared to Q2.

Speaker 1

So it is to Commercial activity by our team, Mike Pinedado and his colleagues specifically, driving more to review the revenue upside in Q3 than we saw in Q2. I do believe we have seen the bottom and the bottom is behind us.

Speaker 2

Okay. Okay, perfect. Thanks guys.

Speaker 1

Thanks, Chris.

Operator

To and we have no additional questions in queue at this time.

Speaker 1

To Okay. Well, thank you, John, and thank you to all of you dialing in for the call.

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Earnings Conference Call
Forward Air Q2 2023
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