Hub Group makes its numbers, sees a stronger year in 2020

Intermodal carrier Hub Group (NASDAQ: HUBG) posted fourth-quarter 2019 earnings in line with the consensus forecast of $0.82-$0.85  per share, on a revenue decline of 11.5%.

The company posted $0.85 per share in basic earnings and $0.84 per share in diluted earnings. 

For the company as a whole, total revenue dropped to $900.68 million from $1.018 billion in the fourth quarter of 2018. Operating income was down to $27.95 million from $33.67 million, a drop of 19.5%. 

Full-year basic earnings of $6.04 per share, including discontinued operations, were a record, company officials said on their earnings call with analysts. 

The drop in revenue and earnings did not prevent the company from actually increasing its gross margin as a percent of revenue to 14% from 13.6% “due to our success in providing multimodal solutions to our customers and lower purchased transportation costs,” the company said in a prepared statement.

And although gross margin as a percentage of revenue may have improved, gross margin as a whole did not. Gross margin declined to $125.86 million from $138.58 million in the fourth quarter of 2018. Hub defines gross margin as revenue less transportation costs.

“Intermodal gross margin decreased compared to the fourth quarter of 2018 primarily due to the decline in volume, higher insurance and claims costs, a less robust peak shipping season and rail cost increases, partially offset by the benefits from operational improvements, better purchasing and pricing,” the company said. 

Not surprisingly, it was a tough operating quarter, the company continued. Its intermodal revenue dropped 9% from the fourth quarter of 2018, down to $548 million, but the revenue drop was actually less than the decline in volume of 11%. “Volume was down compared to the prior year due to a soft demand environment and increased truckload and intermodal competition,” the company said.

Hub’s truck brokerage, logistics and dedicated divisions all showed lower revenue for the quarter, with truck brokerage in particular plummeting to $99.5 million from $140.27 million.

The outlook for this year is positive. After posting diluted earnings of $3.20 per share for the full year, Hub Group expects earnings next year of $3.39 to $3.60 per share. “We estimate low- to mid-single digit percentage revenue growth for the full year,” the company said in its forecast.

Terri Pizzuto, Hub’s executive vice president, CFO and treasurer, said on the company’s earnings call with analysts that the higher end of that range would be reached if the 2020 peak season was stronger than the disappointing peak of 2019 or if the market tightens sooner than the second half of 2020. Ending up in the downside of that range, she said, would be “if the truck market doesn’t tighten as everybody thinks it will.”

Chairman and CEO Dave Yeager said on the call that Hub expects intermodal pricing to be flat to down in the first half of 2020 with a second-half single-digit recovery in prices. 

He added that a “key area of focus” this year will be profitability improvements in Hub’s drayage and dedicated divisions.

One thing that Hub did during the year was put a lot more cash on its balance sheet. At the end of the year, it had $168.7 million compared to $61.4 million a year earlier.

Hub Group’s stock has performed well over the past year even as its revenue and bottom line struggled. Its 52-week performance is up 22.71%, with six-month gains coming in at 12.79%. 

In the earnings release, Yeager recapped earlier statements about cost-cutting plans at the company, including a $60 million annualized savings plan it said it had accomplished by the third quarter. Another $40 million in savings is planned in 2020, he added.  “Our actions to date resulted in a 12% reduction in non-driver headcount during 2019, decreases in purchased transportation costs, investments in efficiency enhancing technologies and profitability improvements at Dedicated,” Yeager said. 

Yeager also said that rail service in North America is “as good as I’ve ever seen it.” The service has improved enough, he said, that “it makes us more truck-like.” Railroads can take on “a lot more volume” without impacting service, Yeager added.