Hub Group, Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Market Conditions: Soft market with excess truckload capacity, competitive bid season, but some positive signs like capacity exits and customer focus on service and cost.
• Strategic Priorities: Diversification of services, integration of Final Mile acquisition ahead of expectations, strong balance sheet for strategic acquisitions, capital allocation including dividend, stock split, and share repurchases.
• Segment Performances:
  • ICS: Impacted by industry fundamentals, but outperformed in early bid season using improved rail chassis, fleet utilization, and rail service.
  • Logistics: Successful integration of Final Mile, brokerage growth in load count, warehousing solutions with national footprint, managed transportation driving customer retention.
  • Final Mile: Expansion of capabilities and high service levels driving cross-selling and growth.
• Cost Management: Diversification and cost management led to enhanced earnings stability, focus on velocity and balance-oriented growth for cost improvement.

Segment Performance

• Intermodal and Transportation Solutions (ICS): Revenue was $552 million, down 22% year-over-year due to softer intermodal volume (down 10%), trans con volume down 6%, local east down 2%, local west down 16%. Sequential volume growth was up 3%, with local east up 6%, local west up 1%, trans-con down 2%. Monthly growth: January up 5%, February up 9%, March up 5%.
• Logistics: Revenue increased to $480 million, up 2.4% year-over-year. Driven by the new Final Mile mileage business offsetting brokerage revenue per load declines. January storm caused an estimated 1.5 day volume loss.

Guidance

• Revenue: Full year revenue expected $4.3 billion to $4.7 billion.
• EPS: Full year EPS range $1.80 to $2.25.
• ICS: Expect intermodal volume growth in high single digits, price down mid-single digits due to market conditions.
• Logistics: Low to mid double-digit growth driven by Final Mile and managed transportation growth.
• Seasonality: Anticipate Q2 improvement compared to Q1 due to seasonal factors, but conservatism due to continued market challenges.

Risks

• Industry Fundamentals: Challenging industry fundamentals impacting intermodal and brokerage services, slow capacity exit leading to prolonged competitive pricing.
• Market Volatility: Uncertainty in market recovery timing, potential impact of spot market fluctuations on contract rates.
• Claims and Costs: Short-term headwinds in dedicated trucking related to start-up costs and claims expense.

Question and Answer

• **Q: Walk through monthly year-over-year volume trends and April volumes; intermodal price for the year down mid-single digits.

A: Year-over-year: Jan down 16%, Feb down 6%, Mar down 8%; April month-to-date up 16%. Intermodal price full year mid-single digits down.**

• **Q: Timing of bid season, competitive landscape vs truck.

A: 40% of bid season in Q1, winning bids in sync with pricing strategy; competing well with truck, especially in short haul with service and economics.**

• **Q: Capacity in network, Final Mile acquisition.

A: Reduced staff by 15%, improved box turns, Final Mile acquisition ahead of schedule with cross-sell and organic growth.**

• **Q: Margins in intermodal, growth in Logistics.

A: Intermodal margins stable with cost takeout; Logistics growth from brokerage organic cross-selling, brokerage margin dragging down but anticipating trough.**

• **Q: Final Mile organic growth, M&A.

A: Final Mile organic growth high single digits, cross-sell ahead of schedule; back in market for strategic acquisitions, focus on non-asset logistics platform.**

• **Q: Capacity exit, normalized earnings.

A: Capacity exiting but not fast enough; normalized earnings mid-to-high single digits for ICS, mid-to-higher for Logistics.**