Hub Group pulls earnings outlook, builds cash position

double stacked containers on intermodal well car

Hub Group, Inc. (NASDAQ: HUBG), the nation’s largest intermodal marketing company, announced that it was pulling its 2020 earnings outlook and taking a $100 million draw on its revolver.

In an 8-k filing with the U.S. Securities and Exchange Commission on March 31, the Oak Brook, Illinois-based company announced that it was withdrawing its $3.39 to $3.60 earnings per share guidance for 2020 given the “uncertain economic backdrop” due to the COVID-19 outbreak.

“Many of our consumer products and retail customers are seeing surges in demand, while others have closed down completely. This change in mix, as well as a slowdown in import volumes, will have an impact on our business over the near term,” said Hub Group Chairman and CEO Dave Yeager.

Intermodal markets have been under stress for more than a year now as truck capacity added during and after the 2018 peak has resulted in lower truckload (TL) rates. The combination of an abundance of low-priced truck capacity and relatively inexpensive diesel fuel has resulted in a sustained period of depressed intermodal volumes.

While coronavirus-related consumer buying has driven volumes significantly higher and absorbed a great deal of excess truck capacity in recent weeks, intermodal traffic on the rails is still lower, down 8.1% year-to-date according to the Association of American Railroads. Further, it appears that the recent consumer buying spree, which shocked supply chains around the globe, may be tapering off as most households have stocked up on the items they need.

Outbound Tender Volume Index (USA) – SONAR: OTVI.USA

Even with the intermodal demand headwinds, Hub Group’s cost reduction initiatives are still on track.

“We remain committed to driving efficiency in our business and reducing our cost structure, including the previously announced $40 million of annualized savings based on initiatives we expect to implement in 2020,” said Yeager.

In 2019, Hub Group announced that it had identified several profit improvement initiatives, which are expected to yield more than $60 million in annualized operating improvement. Less than half of the total amount was realized in 2019 with the expectation to achieve the remaining $40 million in annual savings during 2020. The plan includes a reduction in non-driver staff, reducing purchased transportation costs, utilization improvements and technology investments.

In the filing, the company announced that it borrowed $100 million under its revolving credit facility on March 24. There was no outstanding balance on the revolving facility prior and the company has $218.5 million of borrowing capacity remaining on the revolver. The company will keep the funds on the balance sheet for general corporate purposes.

Hub Group also announced that it has suspended construction of a new office building on its Oak Brook campus. Hub Group’s initial 2020 guidance cited $35 million of its planned $115 million to $120 million capital expenditures (capex) for the completion of the building.

As of March 27, Hub Group had approximately $265 million in cash and equivalents on hand. Prior to the $100 million borrowing, Hub Group reported total debt of $282 million at the end of 2019. In that year, the company generated $269 million in earnings before interest, taxes, depreciation and amortization (EBITDA).

Shares of HUBG are down 1% in early trading.