Hub Group, Inc. Q2 FY2024 earnings call

• Thanked team members across North America for their hard work. - Discussed challenges in the domestic grade market with competitive bid season, balanced demand, and excess capacity. - Noted stabilized inventory, incremental capacity attrition, and potential peak season in certain regions. - Highlighted intermodal's 8% volume growth, record service sales, and margin per load day focus plan driving cost reductions. - Mentioned dedicated's top-line momentum but earnings impact from spring investment. - Emphasized logistics' brokerage driving LTL growth, Final Mile integration, and managed transportation wins. - Focus on optimizing the consolidation network for service and cost improvements.

Intermodal: Volume grew 8% in Q2, with local East up 26%, Mexico up 60% YOY, and TransCon volumes growing. ITS revenue was $561 million, down 9% YOY due to lower rates, fuel, and softer market conditions. Dedicated: Saw top-line momentum with new sites, but earnings were impacted as investments were made in servicing customers through a spring surge. Logistics: Revenue was $459 million, up 1% YOY. Final Mile had strong growth, brokerage had a volume decline but saw margin expansion, and LTL had 18% volume growth in Q2. Managed Transportation: Winning new customers and full outsources, helping reduce costs for clients. Consolidation Network: Focus on optimizing the network to improve service and costs.

• ITS revenue expected in the range of $1.75 to $2.05 per share and revenue of $4 billion to $4.3 billion. Intermodal volume growth expected in the high single digits, price down mid-single digits for the full year. - Dedicated: Full-year revenue expected up low single digits as recent wins ramp up slower than originally anticipated. - Logistics: Expected mid-to-high single-digit revenue growth for the full year, with low to mid-double-digit growth excluding brokerage. - Brokerage: Expected volume up low single digits, pricing challenged due to market overcapacity. There's upside potential if restocking demand is higher, traditional intermodal peak season occurs, or truck conversions to intermodal happen.

• Competitive bid season, balanced demand, and excess capacity in the domestic grade market. - Rail pricing lag impacting margins. - Market conditions affecting profitability, especially in intermodal and brokerage lines of business.

Q: Can you just walk us through the monthly intermodal volumes and July volumes? And then I don't know if I missed it, just like -- maybe just the overall volume and yield trend for Intermodal in the quarter?

A: For April, volumes were up 12%, May was up 9%, June was up 2%, and July was up 14% YOY. Yield on a revenue per load basis was down 17% in the quarter, with mix-related impacts from local East volumes, backhaul freight, fuel, and accessorials.

Q: And so that trend of the volume slowing throughout the quarter, but then spiking in July. Is that -- is there like a per-day issue there? Is that the market getting better in July with transloading? Is it bids happening so you're winning share? The volume trends are sort of lumpy. Any color?

A: We are seeing wins come online. July started a bit slower due to a holiday, but the last two weeks saw improvement as wins ramp up. Hoping to see this continue into August, with year-over-year comparables and business days also playing a role.

Q: Can you just walk us through the monthly intermodal volumes and July volumes? And then I don't know if I missed it, just like -- maybe just the overall volume and yield trend for Intermodal in the quarter?

A: For April, volumes were up 12%, May was up 9%, June was up 2%, and July was up 14% YOY. Yield on a revenue per load basis was down 17% in the quarter, with mix-related impacts from local East volumes, backhaul freight, fuel, and accessorials.

Q: And so that trend of the volume slowing throughout the quarter, but then spiking in July. Is that -- is there like a per-day issue there? Is that the market getting better in July with transloading? Is it bids happening so you're winning share? The volume trends are sort of lumpy. Any color?

A: We are seeing wins come online. July started a bit slower due to a holiday, but the last two weeks saw improvement as wins ramp up. Hoping to see this continue into August, with year-over-year comparables and business days also playing a role.

Q: As we look to the peak season, how are you feeling about the potential for some of the surcharges that in the better year can drive a decent 4Q lift for your business? And when will you know what the state of play is on that as we get deeper into the calendar?

A: Conversations with customers are mixed. Import demand is strong, East Coast labor disruption possible, pointing to diversions to West Coast and transloading opportunities. Positive signs seen, but will know more around end of August after Labor Day, with September and October likely showing seasonality bumps.

Q: As you think about your strategy into next year, how do you balance container utilization versus pricing power on the existing business?

A: We've seen improvements in utilization (14% YOY, 7% sequential). Pricing is a larger lever for earnings power than volume. We are positioning to raise rates as velocity returns to the network, and will do so when market conditions allow for pricing power.