UNIVERSAL LOGISTICS HOLDINGS, INC. Q4 FY2023 earnings call

• Universal's contract logistics segment has shown resiliency, with 71 active value-added programs and new program launches. Focus on cost reductions in transportation segment, customer-centric approach. - Financial results: 2023 Q4 earnings $0.81 per share on total operating revenues of $390.2 million; 2023 was the second best year ever for operating income and EPS. - Contract logistics segment has deep roots in customers' ecosystems, providing value and growth opportunities. Transportation segment focuses on cost reductions and riding out market pressures. - Sales pipeline is robust with cross-sell opportunities, and expansion in Mexico due to nearshoring.

In the contract logistics segment, income from operations increased $1.9 million to $32.1 million on $201.3 million of total operating revenues, with an operating margin of 15.9% of total operating revenues. The intermodal segment had operating revenues decrease $37.7 million to $85.4 million, and income from operations decreased $12.1 million to an operating loss of $944,000, with an operating ratio of 101.1%. The trucking segment had operating revenues decrease $13.8 million to $75.2 million, and income from operations decrease $3.3 million to $2.5 million, with an operating margin of 3.3%. The company-managed brokerage segment had operating revenues decrease $11.5 million to $28.1 million, and income from operations decrease $900,000 to operating income of $9,000, with an operating margin close to breakeven.

• Q1 2024 top line revenues expected between $400 million to $420 million and operating margins in the 8% to 10% range. - Full year 2024 capital expenditures expected in the $480 million to $500 million range, including $220 million for two large contract logistics projects, $70 million for strategic real estate purchases and facility upgrades, and $200 million for rolling stock. - Board declared $0.105 per share regular quarterly dividend, payable April 1, 2024.

• Red Sea drama affecting ships' arrivals and potential inventory levels. - Panama Canal water levels causing problems for shippers transiting. - Potential ILA disruptions and negotiations impacting freight routing. - UAW strike impact on automotive production and related operating revenue drops. - Competitive pricing and market conditions affecting intermodal and brokerage segments' performance.

Q: Hey, Tim, you talked about some of the drayage trends and the disruption coming with the Red Sea and Panama Canal issues. Just wondering if you've seen any change in volume trends so far this year as a result of those issues. And then maybe just to follow-up quickly, we've got some potential ILA disruptions and negotiations coming up as well. Any early conversations with customers about some of the relocation and diversion that may happen as a result?

A: Yeah. Thanks, Bruce. From a drayage perspective, when it relates to the Red Sea, no, we've had no real hiccups from a volume standpoint. What we've been told by our customers is that they understand if they're not going to change port routing, they're going to experience a longer sale time anywhere between probably 12 -- 10 to 12 days longer, and they're just setting themselves to absorb that as it goes so far. That's one area where we feel we're really well acclimated because if they do decide to push freight to the West Coast, we feel we have a good catch net there with all our terminals that operate up and down the West Coast to catch that potential volume that could be redirected. I would say that I have not heard a lot on the ILA potential this summer when the contract renewal for work disruption. But I would say the same thing holds true there. As our customers look at their supply chain, potentially pivot, then we're going to be there to catch the freight on the other coast or potentially the Gulf region if that would delay into the plan. We're definitely preparing ourselves, should freight shift as it kind of did when we had the ILWU disruption on the West Coast, the same thing could potentially happen here with East to West shift. So, we feel good about what we have in case to be able to service our customers.

Q: And then maybe just a big picture question here. We've had a couple of companies talking about some potential spin-offs to unlock shareholder value. When I look at your portfolio, there's certainly been some operational and valuation drag from some of the transactional segments on contract logistics. When you think about the portfolio, are there any thoughts or conversations happening here around potential spins or divestitures? Or is there maybe something about the integration of the businesses or the cross-selling opportunity that makes that unlikely?

A: No. I think we're positioned well. I mean, I hate to look at some of our underperforming segments right now based on just the economic environment. But I will tell you this, we continue to evaluate anything that doesn't give us the proper margin profile. We spoke over the last several quarters about where we think the long-term value is in the intermodal space, and we'll continue to optimize operations, consolidate, look for better, more efficient ways to do things. We think when we come out of this slower period, we're going to be ready to capitalize on and leverage additional freights as it funnels into the terminals that are already built. The brokerage environment becomes much more difficult. It's been a rough ride over the last part of 2023 and into '24, but we're going to position that sector, that segment of the business to be successful as possible. So, there's no plans at this current point to do anything differently. But to give them the tools and continue to explore cross-sell opportunities, introducing other customers from other various segments into those portfolios.

Q: You gave some color on the margin profile or the margin expectations in the first quarter. But you also talked about some of the leadership goals for the various businesses this year. Certainly, there are a lot of moving parts with contract logistics and the new starts and the weather impact on trucking and then the diversion impact on intermodal as you talked about. Any thoughts on where we might be headed for the year just in terms of the overall margin profile? And if you care to give any color on the individual businesses, I'm sure that would be helpful as well.

A: So for the full year, I mean, I would just say that it's kind of TBD based on the transportation environment either improving or staying the same. But I think we would feel comfortable with an annual guide of $1.8 billion to $1.9 billion with similar margin that we are expecting in Q1 in the 8% to 10% range. So, I mean that's kind of where the trajectory of where we think the business is going. I don't think it's stepping out too far of a limb to say that we could -- we're expecting that for the year.