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Hub Group (NASDAQ:HUBG)
Q2 2019 Earnings Call
Jul 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Hello, and welcome to Hub Group's second-quarter 2019 earnings conference call. Dave Yeager, Hub's CEO; Phil Yeager, Hub's president and chief operating officer; and Terri Pizzuto, Hub's CFO, are all joining me on the call. [Operator instructions] Any forward looking statements made during the course of the call or contained in the release represent the company's best good-faith judgment as to what may happen in the future. Statements that are forward-looking can be identified by the use of words such as expect, believe, anticipate and project, and variations of these words.

Please review the cautionary statements in the release. In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward looking statements. As a reminder, the conference is being recorded. It is now my pleasure to turn the call over to your host, Dave Yeager.

You may now begin.

Dave Yeager -- Chief Executive Officer

Good afternoon, and thank you for participating in Hub Group's second-quarter earnings call. Today, I have with me Phil Yeager, Hub's president and chief operating officer; and Terri Pizzuto, chief financial officer. At the close today, Hub Group reported a us record second quarter as revenue increased by 3%, EPS by 71%, and operating income by 60%. Our operating income increased double digits in our business lines, except for truck brokerage, which was flat.

This increase in profitability is the result of higher prices and also our intense focus on reducing costs while improving service. Rail service has improved dramatically. The Union Pacific's on-time performance has improved by about 1,400 basis points, while the Norfolk Southern's on-time position is on record levels. As the rails continue to enhance their operations, we believe we'll continue to see improved service, making intermodal more competitive versus truck.

The CaseStack acquisition is also moving along extremely well. We're continuing to identify operating synergies with CaseStack as it exceeded the profit forecast for the second quarter. The one disappointing area is that of intermodal volume, which was down 7% for the quarter. There are numerous reasons for this that Phil will elaborate upon.

The good news is that the volume declines have flattened, and we expect to continue to see sequential improvements through the second half of the year. And with that, I'll turn the call over to Phil to review our business lines.

Phil Yeager -- President and Chief Operating Officer

Thanks, Dave. As Dave said, we are pleased with the second-quarter results and the progress we are making in improving our profitability and efficiency while driving continuous improvement and great service to our customers. We're also proud that we were recently recognized as a top five 3PL, and as one of the country's best places to work. I will now discuss our service line performance.

Intermodal volumes was down 7% and revenue was up 1% for the quarter. The volume decline was primarily due to a softening demand environment versus last year, as well as, increased truckload in intermodal competition. In addition, we saw 2% volume impact from lane cancellations and weather disruption. However, our team executed extremely well and improve margins as we enhanced our efficiency to 110-basis point improvement in loaded miles, and approved third-party purchasing while maintaining our pricing discipline.

We are excited about the improvements we are seeing in rail service, which helped drive a 310-basis point improvement in our on-time performance to our customers. We believe that with continued economic strength and greater tightness in the truckload market, we will be positioned for a solid peak season. Brokerage generated an increase in load count of 18%, a 380-basis point improvement in gross margin as a percentage of sales, and a 240-basis point improvement in on-time performance. This was the result of us onboarding CaseStack and implementing our new operating model, yield management strategy, and new technology platform.

We are pleased with our progress in transforming the business and see great opportunity to continue to grow and invest in this service line. Our logistics business posted strong results in profitability and revenue growth. Onboarding CaseStack benefited logistics and we are seeing the results for improve yield management and continuous improvement efforts, which led to a of 540-basis point improvement in gross margin as a percentage of sales. We are able to win several new customer engagement during the quarter in both CaseStack and our legacy logistics business that will drive growth in the back half of this year and into next year.

With our enhanced talent and operating model, we believe we can continue to grow, bring significant value to our clients and improve profitability. Dedicated increased revenues and profitability with a 710-basis point improvement in gross margin as a percentage of sales. We achieve this through our improved operational discipline, winning new business, providing great service, and executing on our yield management and continuous improvement strategy. We have an extremely strong pipeline and believe we can continue to grow the business while improving returns.

Overall, we had a great quarter and are performing well. As I mentioned before, we still see opportunity to improve our efficiency and profitability, while continuing to provide best-in-class service to our customers. We know these results are not possible without out great team members, and we want to thank them for all the passion and effort. I will now turn it over to Terri to discuss our financial performance.

Terri Pizzuto -- Chief Financial Officer

Thanks, Phil, and hello everyone. I'd like to highlight three points for the second quarter. First, operating income increased an impressive 60%, resulting in operating margin of 4.4%, bringing us closer to our stated 5% goal. Second, gross margin grew $31.7 million or 31% due to growth in all four service lines.

And third, EBITDA was $69.4 million or an increase of 55% over 2018's $44.8 million. Now let's take a more in-depth look at our performance in the second quarter. Hub Group's revenue increased 3% to $921 million, driven primarily by logistics. Gross margin as a percentage of sales was 14.4%, the highest that it's been since 2007.

Gross margin as a percentage of sales increased 310 basis points, and every service line was up compared to last year. Operating margin, adjusted to exclude acquisition-related expenses totaling $4 million, with 4.9%. Hub Group's diluted earnings per share was a record at $0.87. This is compared to a 2018 diluted earnings per share from continuing operations of $0.51, an increase of 71%.

Cash provided by operating activities for the first six months of 2019 was a $135 million. Free cash flow totaled $114 million in the first half of this year. That's compared to free cash flow in the first six months of 2018, totaling $30 million. Turning now to our guidance.

We believe that our 2019 diluted earnings per share will range from $3.30 to $3.40. Earnings per share in the second half of the year is projected to be very similar to what we projected back in April. We estimate that the third-quarter earnings per share will be slightly higher than last year, and lower than the second quarter of 2019 earnings per share. We project mid-single digit revenue growth for the full year.

We expect gross margin as a percentage of sales to range from 13.9% to 14.3% in the second half of the year. We believe that our quarterly cost and expenses will range between $96 million and $98 million. We project that our effective tax rate will be about 25% in the back half of the year. We plan to spend between $100 million and $110 million on capital expenditures in 2019, and to fund these purchases with a combination of cash and debt.

Through today, we purchased 626,000 shares of stock at an aggregate cost of about $25 million, $75 million remains on the current authorization. That wraps up our financial performance. Over to you Dave for closing remarks.

Dave Yeager -- Chief Executive Officer

Great Terri, thank you. We're very pleased with the strong second quarter, and believe we'll continue continue to have positive financial results for the remainder of 2019. We continue to focus on improving our efficiency and productivity, while delivering best-in-class service to our clients. With that, we'll open up the line to any questions.[Operator instructions] And the first question comes from Scott Group from Wolfe Research.

Your line is open.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Afternoon, guys.

Dave Yeager -- Chief Executive Officer

Afternoon.

Scott Group -- Wolfe Research -- Analyst

Can you talk about the monthly volume in intermodal and maybe maybe your expectations in second half? And then I know you talked about a more competitive intermodal market, is this manifesting for you? And you think in the second half were weaker volumes or less pricing?

Terri Pizzuto -- Chief Financial Officer

I can give you the monthly volumes Scott, it was down 2% in April, down 8% in May, and down 11% in June. And then so far in July, through yesterday, we're down 4%.

Phil Yeager -- President and Chief Operating Officer

Yeah. And I would just add that our customers, you know, are optimistic on the back half. We're currently in the process of finalizing peak planning. Work compliance is well right now in the 70% range.

Typically, we see that around 80%, now that we're past the weather disruptions and see some sustained improvement in rail service, you know, we're starting to see confidence build up. I think it's continue to see the consumer economy perform well, truckload will tighten our kind and that award compliance will come up as well. And that should result in similar to what 2017 type peak, which was strong.

Scott Group -- Wolfe Research -- Analyst

What do you make of that goal from minus 11% to minus 4%, that uptick from June into July, is that -- what's driving that? And then maybe to ask more directly on pricing, what pricing trends are you seeing right now on contracts?

Terri Pizzuto -- Chief Financial Officer

Yeah, if you look that on a per business day basis, Scott, June was down about 6.7%. So that was some of it, there was one less day in June than last year. And so actually if you look at on a per business day basis, we were up in June, sequentially from April and May. So we think things did get a little better although bogged down by the flooding that happened on the rails.

And we think -- we picked up off the West Coast. So we think that's a plus right now. And we've seen that in the month of July, so we think that'll continue. And as Phil mentioned, you know, we're anticipating pretty good peak assuming that the truck market tightens up a little bit, and that we still see the economic strength in that we're continuing to see.

Dave Yeager -- Chief Executive Officer

If for pricing perspective, Scott, which was one your questions, we are -- we did see a little more aggressive in intermodal market, but that was very targeted. And we anticipated that we would be toward the middle part of this year at more the mid-single-digit increases. It certainly has not gone negative. And as we have forecast originally, the first quarter, we we're able to get the highest pricing at that point because in 2018 they paid the least.

And so you have to look at it over a two-year basis. So 80% of our bids are now completed, and I would imagine that those will be probably in the low mid-single digits for those clients.

Phil Yeager -- President and Chief Operating Officer

And I would just add I think we're -- our transcon volumes are continuing to perform best within our network. It's really in the shorter haul lanes, where we're seeing some increased truck competition. So we anticipate with some tightness in that, that we would see a lot of that volume come back over any way.

Scott Group -- Wolfe Research -- Analyst

OK. Terri, can I ask you the gross margin guidance is a lot higher than what you gave us last quarter. Can you just walk us through the pieces of what's causing that upward revision?

Terri Pizzuto -- Chief Financial Officer

Yeah. There were a couple of big drivers of that, Scott. Intermodal gross margin as a percentage of sales came in at about 100 basis points higher than projected because of our focus on yield management, continued improvement, and cost efficiencies similar to the modal mile improvement, for example, that Phil talked about in this prepared remarks. And then secondly, truck brokerage come in at about 300 basis points higher than we had forecast due to more efficient operations, better procurement, and better benefits from our technology platform.

So those were the two biggest drivers.

Scott Group -- Wolfe Research -- Analyst

OK. Thank you for the time, guys.

Questions & Answers:


Operator

And our next question comes from Benjamin Hartford Robert Baird. Your line is open.

Unknown speaker

Hi, thanks for taking the question. This is Andy on for Ben. Wanted to get some additional perspective on lowered capex guidance for the full year. And what exactly is driving that? Thanks.

Terri Pizzuto -- Chief Financial Officer

Sure. It's less tractors and trailers for Hub group dedicated and Hub group trucking.

Unknown speaker

Thanks. And then just to follow-up on that. Should we expect 2020 capex to be similar to 2019? Should we -- or what are you seeing there? Thanks.

Terri Pizzuto -- Chief Financial Officer

It will probably be a bit higher because on the high end, we're at $110 million for this year, and we think next year we've got the -- we've got a higher truck spend. And so with replacement of some trucks, and then we got the remaining pieces of building. So probably closer to maybe $140 million, $150 million next year.

Unknown speaker

Perfect. Thank you very much.

Operator

And the next question comes from Justin Long of Stephens. Your line is open.

Justin Long -- Stephens Inc. -- Analyst

Thanks, good afternoon. So may be circling back into intermodal volumes, i'm sorry if I missed it, but could you give the trend in intermodal volumes by geography? And then also along those lines, Phil, you mentioned a little bit more price competition in the East, but could you give us a sense for what that spread looks like if we look at pricing in the East versus pricing in the West in intermodal right now?

Terri Pizzuto -- Chief Financial Officer

Sure. I'll give you the numbers and then let Phil elaborate on the pricing. Local East was down 9%, local West was down 7%, transcon was down 2%, and other which is Mexico and Canada, it was down 11%.

Phil Yeager -- President and Chief Operating Officer

Sure. And from a pricing perspective, I would say the spread in the East is certainly tightening somewhat. We still think from a market in total, the gap is somewhere around 20%. But when you get into those shorter haul lanes, it can get down to around 10%.

But we've also heard with some of the more recent bids, and aggressive truckload pricing that is around intermodal price, right? So, you know we think that's short lives though. We don't see that continuing for the long term, especially if we continue to see the economy perform well.

Dave Yeager -- Chief Executive Officer

All right. That's kind of aberrational. And historically, we've seen that type of competition when there's an excess in truck capacity in Chicago Harrisburg, Chicago Atlanta type lanes, L.A., Dallas, you do see during those periods of a lot of capacity out there. You do see some price competitions from the truckers, but it can [Inaudible], but at this point it doesn't last long.

Justin Long -- Stephens Inc. -- Analyst

OK. That's helpful. And I know it's still a little early to talk about 2020, but I did want to ask about your high-level thoughts regarding intermodal margins since we progress in the next year. If we did see a continuation of the intermodal pricing environment that we're currently seeing today, is that an environment where you still think you can improve intermodal margins just as you start to implement some of the changes you're making in your drayage operations, rail service gets better etc., any thoughts around that?

Phil Yeager -- President and Chief Operating Officer

Sure, I think we have good visibility to our rail cost increase and have room to continue to improve margins. You know, there's a few big levers, buying better in the open market, utilizing our assets more effectively in particular on the operations excellent side. You know, I think from a yield-to-continuous-improvement perspective, we still have a lot of opportunity there to provide great service and save our customers money. And so you know that's another great opportunity that will help us continue to grow.

I think we can still be more efficient in our organization, we're really focusing on streamlining the organization in both the front line and back office, and focusing on scaling the organization. And then, you know, our technology is really starting to take hold as well, which is allowing us to make better front-line decisions. We're integrating our platform and I think, you know, the other piece we'd be they were automating a lot of our process close to RPA. So I still think there's opportunities in all of those.

And if the pricing environment continues, I would anticipate we could continue to grow on margins.

Dave Yeager -- Chief Executive Officer

Although I would suggest that we do think a lot of what 2020 would look like from a pricing perspective is, it's going to rerelate directly to peak season. And from discussions we've had with we both our rail partners, as well as, our customers, we're forecasting right now that were going to have a 2017 type of a peak, which was very strong, but not like 2018, which was kind of aberrational.

Justin Long -- Stephens Inc. -- Analyst

OK. And one last follow-up on that point. So second half intermodal volumes, could you share what you're assuming for the year-over-year change, what's getting baked into the guidance?

Terri Pizzuto -- Chief Financial Officer

Flat to down slightly.

Justin Long -- Stephens Inc. -- Analyst

OK. Perfect. I appreciate the time.

Phil Yeager -- President and Chief Operating Officer

Thank you.

Operator

And your next question comes from David Ross from Stifel. Your line is open.

David Ross -- Stifel Financial Corp. -- Analyst

Yes. Thank you very much. Talking about the container fleet for intermodal has there been any changes there with the weak volumes? Is that one of the other things that impacted the capex decisions? And where do you expect to be on the container side going into next year?

Terri Pizzuto -- Chief Financial Officer

Yeah. We are purchasing about 1,500 containers this year. So our net adds are only about 300 containers. So we'll end the year with about 38,500 containers.

So not much growth there at all.

David Ross -- Stifel Financial Corp. -- Analyst

And then you talked about the 310-basis point improvement in Hub Group's on-time performance for your customers, where is that versus, I guess, where it's been in the past, and where you want it to be? Is there still good amount of room to run there? Or you are getting pretty close?

Phil Yeager -- President and Chief Operating Officer

Yeah. I think we've improved dramatically. Our team has done a great job focusing on service. This is really the score is related to how our customers actually grade us.

So you know it is a legitimate score. And you know, I think we can always be better. You know, we're certainly pleased to where rail service is at, which is really helping to improve that. And I still think there's significant room to improve.

And with the more fluid and a stable rail network, the opportunity for us to keep improving on that at a planning level is still there. So there's a lot of opportunity left.

David Ross -- Stifel Financial Corp. -- Analyst

And then lastly, just on the dedicated side of things, what's the outlook for that business? Has demand slowed? What the pipeline look like?

Terri Pizzuto -- Chief Financial Officer

Pipeline is really good. We still got about $100 million in the pipeline. We continue to bring on new business. We did brought some on near the end of second quarter, and got you know good pricing, mid-single-digit pricing.

So we're happy with the performance.

Phil Yeager -- President and Chief Operating Officer

Yeah, and we're continuing to improve operational discipline and our pricing discipline as well. So with the business that we're bringing on, we're very pleased with the returns were going to generate, mainly because we're also investing in systems and talent that are going to help us, you know, make that business to generate the return for the company as well. But the pipeline is really strong, we're actively out in the market, and our customers don't want to focus on the long term, and so there's an opportunity to expand this dedicated fleet.

David Ross -- Stifel Financial Corp. -- Analyst

That's helpful. Thank you.

Operator

And our next question comes from Todd Fowler from KeyBanc. Your line is open.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Great. Good evening. Dave or Phil, you know, I just want to get your thoughts on how we think about volume growth versus margin improvement in this environment. You know, when I think back, historically, maybe I spent 10-plus years at this point, but there was a time when there was some opportunity to call some low margin freight, is that kind of the environment that we're in right now? Or is this just more of a function that you've got some capabilities, where if the volume's there you participate, and you see that kind of numbers and the volumes isn't there, you can still improve margins with some of the efficiencies, just how are you balancing volume growth versus margins right now?

Phil Yeager -- President and Chief Operating Officer

Yeah, we have a much deeper understanding of our network now and are very focused on making sure that we're making optimal network decisions in our pricing. So there's certainly areas where we want to continue to compete and you know we will get aggressive, but at the same time, we are maintaining our pricing discipline. We're continuing to focus on anything that's in our bottom 10%, it's what we call it, that either needs to be up or out of our network. And so you know, we plan to continue to focus on that type of yield strategy.

And you know, continue to price to balance the network and keep a fluid operation.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

OK. And then, Dave, to your comments on pricing, I think you said the last 20% on the bids, you're expecting to be kind of in the low-to-mid-single-digit range. Do you feel that you're above the market? Or do you think that the intermodal market right now is that, that's kind of where pricing is more broadly industry wide?

Dave Yeager -- Chief Executive Officer

At this point in the bid cycle, that's kind of where the industry is right now, Todd. Again, the largest increase it's -- this is just because of the curve from 2018.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Right.

Dave Yeager -- Chief Executive Officer

Whereby, the clients that took -- in fact, increases at this point last year, took the largest increases of anybody during 2018. And so it's just natural that, in fact, that hockey stick had gone down to the right.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

OK. So it's the comps, OK. And then last one to me. Terri, on the cost side, you know, the last two quarters operating expense have come in below the guidance, you got a little bit of step up for the third and fourth quarter, but salaries and benefits was actually down a little bit sequentially, 2Q versus 1Q.

You know, there's the potential that you can still do better on the cost side in the back half of the year? And can you talk a little bit about, you know, kind of what's embedded in the expectations in the step up in costs for the third quarter and fourth quarter? Thanks.

Terri Pizzuto -- Chief Financial Officer

Yeah. Sure. You're exactly right. We beat our forecast this quarter, slightly because of salaries and benefits were lower than what we had forecast, and we've not hired as many people as forecast.

We're down 42 people from last quarter. We're down about 54 from last year at this time. And we've scaled our resources to coincide with our performance, and we've also benefited from that technology. And in terms of how we get the -- why our cost and expenses are going up, most of the increase relates to increased IT cost.

We estimate that IT cost will increase about $3 million from Q2 to Q3, and that the cost will take flat from Q3 to Q4. So the increase relates to ERP, logistics, migrations to our new OTM systems and additional planed headcount in IT. And then the bonus will also fluctuate depending on our EPS performance, and that too is factored in our guidance.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Sure. OK. Does the $3 million carry forward in to 2020? Or is that tail off at any point?

Terri Pizzuto -- Chief Financial Officer

We'll give you that guidance in 2020. I don't have that number for you, sorry.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

OK. I'll be patient. OK. Thanks for the time tonight, guys.

All right.

Operator

And our next question comes from Brian Ossenbeck from JP Morgan. Your line is open.

Brian Ossenbeck -- J.P. Morgan -- Analyst

Hey, good evening. Thanks for taking the question. You talked a little bit about yield management already, but just more generally speaking seems like there's a pretty pervasive theme across all of the business lines. So maybe you could elaborate a little bit more on what you're doing differently in this cycle versus previous ones.

And what sort of inning do you think you're in, and in which segment has the most opportunity to be more disciplined on yield, and to the stick -- to have it stick throughout this cycle and into the next one?

Phil Yeager -- President and Chief Operating Officer

Sure. So I think there were a few questions in there so I'll try to address them. But generally, I would say we've taken a philosophy where we want to be -- find mutually beneficial opportunities with our customers, we're working to provide them great service and savings, and we're going to be able to generate a strong return. And so we've really focused in intermodal on building a fluid network that is certainly balanced.

That is a big focus for us. In truck brokerage, we have gotten a much deeper understanding of the market and where we can purchase more effectively, and built out really a lot of density to do that. Within dedicated, I think we have a much better understanding of our cost structure now. And where we can compete, once again, in those areas are density that we have where we actually have a better cost structure, and can generate a strong return.

And then finally, with logistics, there's still a great deal of opportunity. But I would say once again, we know the value we're bringing to our customers and the savings we can provide, and we're pricing to ensure that we maintain strong profitability. I would just say lastly, we've inserted a lot of processes across all the service lines to manage our bottom-performing business and ensure that we are moving that business up from a return perspective very quickly.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK. Great. Thanks for that, Phil. You know and on the topic, the new truck brokerage initiatives, I think, you started them couple of quarters ago.

New operating model, again, yield management, and the tech plant platform. It sounds like you're getting some traction on that, but it -- maybe if you could give it a little bit more detail on what you're seeing kind of follow through to the bottom line, and what's the left to come?

Phil Yeager -- President and Chief Operating Officer

Sure. For me, it was -- we had to start with the foundation of service to our customers and build trust with them that we could perform. I think we've done that. Now that we're getting our better purchasing and processes and pricing in place, that's really helping us as well.

And the next pieces ensuring that we improve that purchasing, become more efficient in our headcount through the technology platform that we've rolled out, and we're really start -- we're in the early innings of that, and think there's still a lot of opportunity there. So I think we're building our customer trust. We've seen the wins come on and so we feel very good about our ability to grow this business. And we're ramping up some great pains right now that we're excited about.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK. And last quick one for me. Just to clean up on the dedicated side. Lost business I know that was something you mentioned last quarter as well, I just wanted to make sure that was the same thing kind of carrying forward? Or if you had seen any other changes in the dynamics there?

Terri Pizzuto -- Chief Financial Officer

No, that's still carrying forward. As I mentioned earlier, we did onboard some new business at the tail end here of the the third -- second quarter, that will carry over into third and fourth quarter. We've got $100 million pipeline. We're optimistic about that, but net-net, when we're done, we still expect low-to-mid-single-digit sales growth in dedicated for the full year.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK. Thank you for the time. I appreciate it.

Terri Pizzuto -- Chief Financial Officer

Sure.

Operator

And the question comes from Bascome Majors from Susquehanna. Your line is open.

Bascome Majors -- Susquehanna International Group -- Analyst

Yeah. Thanks for taking my questions here. You said earlier that bid compliance was in the 70-something percent range, more normally in the 80%. In the outlook for some improvement in the second half sequentially, are you assuming that you get back to normal big compliance range in modal awards? And if so, is that because you've rebid with lower volume commitments? Or it's because your customers are telling you that the freight is coming?

Terri Pizzuto -- Chief Financial Officer

We haven't built it all in our guidance, Bascome. We've have built in, you know, as Dave mentioned, it's about 70% right now. And you know normally, it's for like 80% bid compliance. So to get to the high end of the guidance, we have built in recovering in some of that, but not all of it.

Dave Yeager -- Chief Executive Officer

Our customers --

Bascome Majors -- Susquehanna International Group -- Analyst

Thank you.

Dave Yeager -- Chief Executive Officer

Yes. Our customers are telling us that, in fact, to expect a strong peak. Again, not 2018, but more closely aligned with 2017, which was still a very, very strong peak with a lot of demand. And --

Bascome Majors -- Susquehanna International Group -- Analyst

Thank you for that.

Dave Yeager -- Chief Executive Officer

I'm sorry. Just to elaborate a little bit further. And Terri earlier had mentioned, that we're gaining to see some tightness in L.A., and obviously, it's a little bit early for peak, but we're certainly beginning to see some pickup in the overall volumes coming off for us.

Terri Pizzuto -- Chief Financial Officer

And we think we'll really stick with our guidance.

Bascome Majors -- Susquehanna International Group -- Analyst

OK. Well, I appreciate that color. And if -- I guess a lot of the questions today have you know -- it feels like people are looking back at the last time intermodal demand and pricing surprised the downside two years ago, and it's you know happening marketwide this year, but you're having much better bottom-line outcomes. And I appreciate Phil going through to a lot of initiatives that you guys are doing at the company level to improve that.

Can -- without walking through all of those again qualitatively, maybe can you talk a little bit about, you know, what inning you are in some these processes and other improvements you're doing. I mean, is there more for us to see on structural margin improvement into 2020? Thanks.

Phil Yeager -- President and Chief Operating Officer

I think we still have room to improve, there's always going to room to improve. You do -- I believe we're middle of the game here and we've made a lot of progress, and I'm really proud of what our team has done, but we still have room to go. We haven't gone the full benefits of our technology investments, which I think will be substantial. So we have the processes now to take advantage of that.

But really becoming more efficient and intelligent through the technology, I think it's going to be a big shift for us as an organization. So I would say we're still, you know, middle of the game and feel like there's upside for the organization going forward.

Bascome Majors -- Susquehanna International Group -- Analyst

Thank you for that. And last one. Terri, just a housekeeping item, you had talked a little bit about EBITDA last quarter. I believe you said to $260 million to $275 million, you know, what's the translation -- translating EPS range, translate to your EBITDA? Thanks.

Terri Pizzuto -- Chief Financial Officer

Yeah. We're now projecting now $275 million to $285 million.

Bascome Majors -- Susquehanna International Group -- Analyst

All right. Thank you.

Terri Pizzuto -- Chief Financial Officer

Sure.

Operator

And our next question comes from Jason Seidl from Cowen and Company. Your line is open.

Jason Seidl -- Cowen and Company -- Analyst

Thanks, operator. Hi, everyone, good afternoon. You mentioned that some of the truckload pricing is sort of at intermodal pricing, but you said it doesn't last long. Historically, how long has it actually lasted?

Dave Yeager -- Chief Executive Officer

Well, it last generally the -- through the -- a lot of the economic cycle. So I think that if we begin to see demand go back to little bit more than normalized level, like 2017 level even, that you'll see that -- you'll begin to look at better freight that better fits their networks. These shorter hauls, again, you can kind of monitor how the economy is doing and how the trucking industry is doing just by seeing how aggressive they get in some of these shorter-haul [Inaudible]. So I can't really pinpoint an exact time, but again, a lot of its depending on the economic cycle, and the amount of freight that's available out there.

Jason Seidl -- Cowen and Company -- Analyst

So do you think with your commentary on peak season looking like 2017, linking these two statements together, do you think we'll start to see some of that pricing pressure ease?

Phil Yeager -- President and Chief Operating Officer

Yes.

Jason Seidl -- Cowen and Company -- Analyst

OK. Great. The other question I had was on acquisitions. You've had a few companies in the transportation space call out the fact that the multiples are getting lower, and that they're getting interested again.

You know, you guys have been acquisitive over the last few years. You generate some good free cash flow. Should we be looking at anything potentially for 2020? And if so, what are the areas that you'd be interested in?

Phil Yeager -- President and Chief Operating Officer

We are out looking -- we would agree, we think that expectations are normalizing. And so we are certainly out looking right now, mostly non-asset based types of organizations, whether it's specialty brokerage or logistics or fulfillment. We would be opportunistic on filling out our geographic footprint in dedicated and intermodal as well. But the main areas of focus are really non-asset based.

Companies that can help us drive scale and new solutions for our customers.

Terri Pizzuto -- Chief Financial Officer

Yeah and we're re -- You know, CaseStack was a great acquisition so is dedicated, we're integrating those very well. And we had $150 million cash at the end of the quarter with no borrowings on our $350 million revolver that we've got. So plenty of dry powder as well.

Jason Seidl -- Cowen and Company -- Analyst

Sounds like you're in a good position. Appreciate the time as always.

Phil Yeager -- President and Chief Operating Officer

Thank you.

Dave Yeager -- Chief Executive Officer

Thank you.

Operator

And our next question come from Tom Wadewitz from UBS. Your line is open.

Tom Wadewitz -- UBS -- Analyst

Yeah, good afternoon. Wanted to go back to the commentary on competition in intermodal, did you see -- you know, it seems like you've weathered that pretty well. Do you think that some of the decline in second quarter was a function of contracts that moved to a more competitive player in the market? Or was that just weakness in freight? And I guess in second half, it doesn't sound like you're expecting to kind of lose market share. But I guess, I wanted to see if you could offer some more comments on impact of the increased competition in intermodal on your volume?

Dave Yeager -- Chief Executive Officer

I think, you know, a lot of the decline was actually just the compliance issue with the bids, I mean, that's a huge variance mo -- we anticipated, I mean we would -- if in fact we were to build in to 80% for the second half, we certainly will grow -- would grow intermodal in the low single digits. So a lot of it is that -- you know, we did lose in a few cases, which is normal during the bid process, but we also gained in multiple instances. So I wouldn't say that we lost share. I think that just the pie is a little bit smaller, and we took a shrink like, I think, most of players did.

Terri Pizzuto -- Chief Financial Officer

Yeah, the domestic intermodal market, Tom, was down 8%, and we were only down 7%. So we didn't -- we don't think we lost share, and the competitors were down more than we were.

Tom Wadewitz -- UBS -- Analyst

Right. OK. How would you -- you know, Dave or Phil, how would you compare this cycle to the prior cycle. I mean, it seems like you've had clearly, some capacity that's coming into market on the trucking side and truckload side.

You've had, I think, some weakness in freight in first of the year, I mean, it seems fairly straightforward given the weekly rail volume and cass rate shipments index, if you want to look at that. How do think -- but it sounds like you're pretty optimistic looking forward to. How do you think this cycle is different, is it just the more narrow period of weakness in freight? Or more disciplined among intermodal players because it does seem like you're not expecting to have this kind of protracted weakness that we had in 2015 and '16?

Dave Yeager -- Chief Executive Officer

And a lot of that, Tom, I think is driven by the overall economy. That's a key. We've seen many freight recessions before. And again, we did -- 2018 was such an anomaly that it added a lot of capacity into the market that we'll see we'll filtered through with this point in time.

And as it does tighten as we see the shipments get stronger, a little bit more consistent as well because there was a fair amount pull forward from the thread of tariffs. So I think it's going to -- our feeling just by talking to our clients, again, and our rail partners that it's going to be short-lived. And this is nothing like some of the severe recessions that we've seen in the past. We do believe that it's in the process of flattening out, and as we have a strong peak like 2017, that will really set up 2020 to be a positive year as well.

Tom Wadewitz -- UBS -- Analyst

You talked a bit about the view on 2020, You know, I think you were saying that you think rates in intermodal will be up in 2020. How would you think about if, you know, kind of truck capacity is an issue and truckload contract rates are down in 2020 bid season, would you be able to -- would you expect to decouple from that, and potentially see intermodal rates up? Or is it pretty tough to see intermodal rates be resilient if truckload contract rates are down next year?

Dave Yeager -- Chief Executive Officer

Well. If in fact under the hypothetical, that trucking rates are down. We put pressure on the shorter lengths of haul. But I do think to your earlier point we've seen a lot of disciplines within the intermodal players.

Again, I think that we've all looked at our return on invested capital and it hasn't been what it should be. And so we're all working toward individually as far as enhancing profitability. So the truck -- that there's no question that there is a loose truck market. Shorter lengths of haul will be more challenging, but again, we really don't believe that that's going to be the case at this point.

Certainly, I know that I just heard the June results of consumer settlements was through the roof again, and consumers drive an awful lot in this economy.

Tom Wadewitz -- UBS -- Analyst

Right. OK. Yeah. Great.

It seems like your model's working well and the period of weakness in freight, and good performance in gross margin. So anyways, thank you for the time.

Dave Yeager -- Chief Executive Officer

Thanks, Toma.

Operator

And the next question comes from Matt Young from Morningstar. Your line is open.

Matt Young -- Morningstar -- Analyst

Thanks, good afternoon. Just quickly to clarify last question. So the 10% spread that you're seeing versus truckload on the shorter haul, I'm guessing that is meaningfully better than what you guys saw in 2016 the last time truckloads rate -- truckload rates fell, correct?

Terri Pizzuto -- Chief Financial Officer

Are you talking about the difference between truck and intermodal rate?

Matt Young -- Morningstar -- Analyst

Yeah.

Terri Pizzuto -- Chief Financial Officer

I think Phil mentioned 20%, actually.

Matt Young -- Morningstar -- Analyst

Oh, OK. I think I heard 10% on shorter haul lanes, but --

Phil Yeager -- President and Chief Operating Officer

I think it can get that low, and generally, we see you know around 20%.

Terri Pizzuto -- Chief Financial Officer

Yeah.

Matt Young -- Morningstar -- Analyst

OK. Around 20%, but I'm guessing that, that's marketly better than what you guys saw in 2016, the last time truckload rates, corrected?

Dave Yeager -- Chief Executive Officer

You are absolutely correct.

Matt Young -- Morningstar -- Analyst

OK. And it sounds like just overall demand and pricing conditions for intermodal are also better than they were last time, and you guys are in a better position to see that improvement in the second half?

Dave Yeager -- Chief Executive Officer

Absolutely. Yes. Yeah, and we are expecting that.

Matt Young -- Morningstar -- Analyst

OK. And then one quick question about on the truck brokerage gross margin. If you ignore the mix shift impact from CaseStack, wondering how the gross margins trended for legacy truck brokerage operations? Were those up year over year?

Terri Pizzuto -- Chief Financial Officer

Yes. They were up year over year, about 170 basis points.

Matt Young -- Morningstar -- Analyst

OK. Would some of that have anything to do with kind of your internal efforts with IT as opposed to the cycle? Or both of those?

Terri Pizzuto -- Chief Financial Officer

Yes, it would.

Dave Yeager -- Chief Executive Officer

I would say both.

Matt Young -- Morningstar -- Analyst

OK. All right. That's all I had. Thanks.

Dave Yeager -- Chief Executive Officer

Thanks, Matt.

Operator

[Operator instructions] And next question comes from Matt Brooklier from Buckingham Research. Your line is open.

Matt Brooklier -- Buckingham Research -- Analyst

Yeah. Thanks and good afternoon. Wanted to circle back to your dedicated business. Could you remind us what's the average length of contract on that business? I'm just curious as to how we should thinking -- be thinking about, you know, what percentage of your contracts are coming up for renewal over the next 12 months?

Phil Yeager -- President and Chief Operating Officer

Yeah. It's typically a three-year contract. We have visibility to the renewals. You know, we work through them every year, you know, next year won't be outsized versus traditional.

Matt Brooklier -- Buckingham Research -- Analyst

OK. Got it. And then you talked to achieving mid-single digit price increases. I think through the first half on your dedicated contracts on average.

Are your expectations for the second half similar? Or do you think that maybe, you know, pricing increases maybe a little bit lower than that just given some of the current state of the broader TL market?

Phil Yeager -- President and Chief Operating Officer

Sure. I think driver wage inflation has subsided at somewhat, a lot of those renewals were driver rage driven. And we need to make sure we're staying competitive in the market to service our customers in the right way. I would say the competitiveness is subsided somewhat.

So you know if we do continue to -- as we look at renewals going forward, I would say you will continue to see it balance out somewhat. But we are also focused when we are underperforming on that side and making sure that we can generate a return as well.

Matt Brooklier -- Buckingham Research -- Analyst

OK. That's all I got. Thank you.

Operator

And the next question comes from Scott Group from Wolfe Research. Your line is open.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks for the follow-up. So maybe, Terri, if we think that transcon's going to do better than sort of local East, local West because of this truck competition dynamic, what are the implications of the better transcon on gross margins and margins for you?

Terri Pizzuto -- Chief Financial Officer

It's a longer length of haul. It's our longest length of haul for transcon. So that higher margin dollars in gross margin as a percent of sales is really pretty consistent across all of our different geographies. So it's really more dollars and higher revenue because the revenue per unit is also higher on it -- on a transcon.

Scott Group -- Wolfe Research -- Analyst

And then at margin?

Terri Pizzuto -- Chief Financial Officer

Similar.

Scott Group -- Wolfe Research -- Analyst

OK. OK. And then just lastly, the guidance on gross margins at the back half, do you think they're higher, lower in third or fourth quarter?

Terri Pizzuto -- Chief Financial Officer

The gross margins, I think are higher in the fourth quarter typically that's due to seasonality, and the peak season surcharges.

Scott Group -- Wolfe Research -- Analyst

OK. All right. Thank you, guys.

Operator

And that concludes the question-and-answer session. I'll now turn the call back over to Dave Yeager for final remarks.

Dave Yeager -- Chief Executive Officer

Great. Well again, thank you for joining us for our second-quarter earnings call. As always, Terri and Phil, and I would be available if there's any additional questions that you may have. Thank you again.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Dave Yeager -- Chief Executive Officer

Phil Yeager -- President and Chief Operating Officer

Terri Pizzuto -- Chief Financial Officer

Scott Group -- Wolfe Research -- Analyst

Unknown speaker

Justin Long -- Stephens Inc. -- Analyst

David Ross -- Stifel Financial Corp. -- Analyst

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Brian Ossenbeck -- J.P. Morgan -- Analyst

Bascome Majors -- Susquehanna International Group -- Analyst

Jason Seidl -- Cowen and Company -- Analyst

Tom Wadewitz -- UBS -- Analyst

Matt Young -- Morningstar -- Analyst

Matt Brooklier -- Buckingham Research -- Analyst

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