Hub Group, Inc. Q4 FY2024 earnings call

• Focused on controlling costs and executing efficiency enhancements across the organization. - Maintained adjusted operating margin improvement in Q4. - Executed strong peak season for customers, leading to intermodal volume and earnings growth. - Completed warehouse network alignment for improved service and costs. - Invested in joint venture with AASO. - Returned nearly $100 million to shareholders through share repurchases and dividends. - Optimistic about 2025 trends with capacity exiting, resilient consumer, and balanced inventories.

Intermodal: Fourth quarter intermodal volumes increased 14% year-over-year, with local leads up 25%, local leads up 11%, TransCon down 2%, and significant growth in Mexico. Revenue per load declined 9% year-over-year due to headwinds related to mixed fuel and pricing, but was up 4% sequentially. Focus on enhancing cost structure and efficiency, with 3% year-over-year decrease in cost per day and 6% improvement in container utilization. Dedicated: Closed the year with year-over-year earnings growth, increased revenue per truck per day by 13%, and has a strong pipeline of opportunities. Logistics: Delivered a 20 basis point improvement in year-over-year operating margins due to excellent performance in Final Mile and e-commerce, offset by headwinds in brokerage. Brokerage: Load count declined by 6% with revenue per load down 12%, but LTL growth helped offset. Managed Solutions: Completed warehouse network alignment, improving utilization and service levels, with a strong pipeline of organic and new customer wins.

• Full-year EPS expected in range of $1.90 to $2.40, revenue between $4 billion to $4.3 billion. - Effective tax rate approximately 25%. - Capital expenditures expected in range of $50 million and $70 million, no container purchases in 2025. - ICS expects high single-digit intermodal volume growth and low single-digit price increase, with pricing ramping throughout the year. - Logistics excluding brokerage expects low to mid-single-digit revenue growth. - Brokerage expects mid-single-digit volume growth with potential upside.

• Excess capacity and balanced demand challenges. - Tariff impacts and consumer squeeze affecting earnings. - Weather challenges, compensation increases, higher taxes, interest, and insurance costs as potential headwinds.

Q: Afternoon, guys. Maybe just a little bit of help in terms of shaping the year. I think you said Q1 down a little bit from Q4. I don't know if that was an operating income or an earnings comment. But, yeah, just maybe just starting with a little bit of help shaping the year.

A: While we don't give quarterly guidance, while expecting intermodal volume to be comparable to Q4 and increases in logistics segment operating income due to network alignment initiative, these tailwinds are offset by lower intermodal fees and surcharges and a seasonal decrease in final mile business, as well as headwinds related to compensation due to merit and incentive expense increases, higher taxes, interest, and insurance costs. Also, AASU is included in intermodal volume number but only 51% to EPS. On an EPS basis, expecting far better than normal seasonality EPS step down. And Phil added anticipating a ramp from Q1 to Q2, Q3 being highest earnings quarter and slight decline in fourth quarter Q: Can you just talk about how intermodal margins sort of ramp throughout the year and your views around pricing? I think there's maybe some concern or view that truckload rates are gonna be going up more than intermodal rates and intermodal gonna lag on the way up is maybe people focus more on volume growth. But how do you think about that and what you're seeing in so far early in bids?

A: It's a little early in bids. We're in a good position. Did a good job supporting customers during peak. Customers are pulling forward bids to lock in lower rates. Not anticipating lower rates, remaining competitive. Focus on winning network friendly business, taking rates up in operationally challenging lanes. In our guide, anticipating low single-digit price increase in intermodal, ramping throughout the year. Early in bids, we're in a strong position Q: Digging into logistics, can you walk us forward from the comments you made last quarter about seeing a point of margin expansion in that segment from some of the restructuring activities you took in Q3 and Q4. You know, what's your conviction in that today? You know, what is the pace in that? And how, if any, does the seasonality of that business change after what you've done?

A: We do expect to achieve the hundred basis point improvement called out in Q3, the Q3 run rate. Seeing a little change in revenue mix. Expect to reach and possibly slightly overachieve cost savings. Spent $13 million on consolidation but annual benefit about $18 million, less than one-year payoff period. Anticipate strong sequential margin improvement from Q4 to Q1 in logistics Q: On the capital deployment front, I mean, you've recently done an acquisition. You told us a little bit about what you expect there. How is the M&A pipeline looking at will that be a use of capital that could move the needle again either later this year into 2026? Do you feel pretty good about the portfolio today?

A: Feel like we have the right leg to the stool with right service offerings. Continuing to build scale, differentiation, and broaden customer base for cross-selling. Have a good pipeline, expecting an active year for M&A. Selective around what to move forward on, mostly focused on non-asset logistics segments and opportunistic in asset-based offerings. Feel portfolio is strong and M&A has been valuable through the cycle Q: Maybe just a question on the intermodal volume side. You know, one of your competitors had talked about the possibility of some demand pull forward. Obviously, you saw a strong number in Q4. And I think I heard you say that you were expecting flat sequential volumes. So I guess, would it be fair to say that you haven't seen any of that pull forward?

A: We have continued to see pretty strong demand off the West Coast. October volumes up 13%, November up 13%, December up 16%, January up 18%. Some pull forward to ensure supply chain fluidity, but customers not making huge changes yet, monitoring closely Q: You obviously have a lot of exposure via, you know, Mexico, via Intercontinental. Anything changing as far as, you know, customer demand or customer needs or positioning?

A: Cross-border business (Mexico and Canada) is about 6% of intermodal volume and 3% of total company revenue. Watching it closely. Customers may pull forward some demand, potentially divert manufacturing capacity. Cross-border intermodal in Mexico is underpenetrated, with significant opportunity for conversion. Most customers have diversified supply chain, built into guidance light estimate on peak season surcharges assuming pull forward Q: Maybe you wanna follow-up on the intermodal pricing discussion from earlier. I think the guide and you mentioned assumes that pricing builds through the year. I guess if pricing is being realized to cover your elevated cost, is it fair to say it's gonna be easier to get priced maybe in the west or where things were congested this year and it'll be harder to get priced in the east or where maybe the networks weren't so congested. And are you seeing any pockets of companies that got a little thrown out of balance in the fourth quarter?

A: In backhaul lanes, still competitive and valuable to network. On headhaul lanes, continuing to have pricing up opportunities given tightness this year. Focused on addressing operational inefficiency and taking price where needed. Performing well across the board, local lease volumes starting the year performing well, West Coast demand strong, TransCon lane opportunities in Northeast. Directed in bid strategy, focusing on controlling costs and winning network friendly Q: I think logistics margins at 4.6 were a bit lighter than you expected after Q3. I guess, Kevin, can you talk about what maybe went worse during the quarter within that segment? And then Phil, you mentioned you expect these margins to improve in 1Q. Just given the tightening brokerage margin backdrop that others have talked about, what are the sequential good guys that help offset that in the first quarter?

A: Broker was the main reason for lighter margins in Q4, also some softness in managed trans business. Final mile performed better than expectations. Warehouse alignment initiatives will be a tailwind. Anticipate rebound in demand in January, with more of a pickup than expected, warehouse alignment behind us as a tailwind, and rebound in managed trans and consolidation volume Q: Can you guys maybe talk about the assumptions for the high and low end of the guidance for the year? And then maybe just to follow-up on the Q1 commentary, I mean, do you expect earnings could grow in the first quarter? I understand there was some challenging weather. Curious how that impacted you guys, but also some stronger remote volumes.

A: High end assumes truckload change, capacity tightens, spot business and profitable truckloads, intermodal pricing ramp. Low end assumes tariffs, consumer squeeze. On Q1, weather had some day impacts but not material, normal for Q1. Unclear on Q1 earnings growth, March a big swing factor, more to talk about as March approaches Q: Maybe on the dedicated side, believe you spoke to flat expectations this year. I mean, give a little more color on what you're expecting to see maybe tractor count and pricing?

A: Pleased with dedicated business results, 13% increase in revenue per tractor per day. Seeing strong organic growth in spring surge demand from existing customer base, significant hiring needs. New business pipeline strong, growing new sites with existing and new customers. No big headwind for start-up comp in Q1, some onboarding in Q2. Pricing locked into long-term contractual frameworks, likely up this year Q: So I think we can kinda back into this a little bit, but, you know, when Kevin gave his guide details, low single-digit pricing increases, one half flat. Second half gonna be up. Volume, you've already, you know, said January is up 18% and really kind of accelerated over the last four months. Do we kinda take that pricing commentary and flip it on its head? Is intermodal volume in the first quarter or the first half still expected to be double digits? And then, you know, whether it's a slowing rate change or more difficult comp, expect that to kinda go to the lower or high sing or I'm sorry, mid-single digits for the back half of the year?

A: High single-digit volume for full year, anticipating Q1, Q2 is higher, then lower comp in back half. Q1 specifically has much lower comp on volume side Q: As far as the bid season's concerned, I know it's still early only the first week February know, you guys have noted 70% of the book is to be repriced in the first half. Twenty-five. Someone mentioned it earlier too. Some of the fears that by the time the truckload market appropriately tightens, especially in the contract market, maybe we're into the middle part of this year and you kinda missed this season. So is there any way to say that 70% of the book in the first half is kind of split between 1Q and 2Q? Is it very much people may waited, so there's still a Can't. Then you can get some inflection in price so you've got not kind of stuck with this lower market for another year until the next season?

A: Majority of bids will be in Q1, effective dates typically later in quarter near end of March. Q2 bids mostly implemented near May, June. Lag effect. Constantly assessing focus business for network benefit and returns, having dialogue with customers. If truckload market ramps, will have discussions with customers to assign trade-offs beneficial for both parties Q: Thanks for taking the question. Maybe for my first one, just wanna touch on the brokerage volume guidance. I think up mid-single digits. Can you just parse out a little bit more what you're seeing there in terms of anything in bid season that's sort of giving you a lot of sight to that and kind of what that mix might look like. I know LTL volumes in particular have been strong, but also sounds like maybe you're walking away from some unprofitable business. So how do those kind of layer in into next year?

A: Volumes improved in LTL this year, anticipating continuation. Seeing nice wins with strategic customers. Focus on staying relevant in routing guide via bid. Spot market and project opportunities present, being first call. Brokerage guidance mid-single digits, conservative, with upside if truckload tightness continues. LTL volumes resilient, walking away from unprofitable business helps Q: For squeezing me in here. If we think back to when the intermodal rates started falling, my recollection, and maybe it's just my perception, was you guys tried holding the line on price maybe a little more aggressively than some. And as a result, got a hit in volume, which yeah, it seems like you guys have kind of corrected and done really well in volume in the period since then. So with the pricing cycle starting to turn, does that influence your decision on pricing strategy moving forward? Are you thinking as pricing comes up of trying to lean in and drive volume and utilization, or you're thinking more of trying to protect and build the margins that, you know, Phil had kinda talked about to you know, towards the beginning of the call?

A: In up cycle, better to have volume and raise rates as incumbent providing good service levels. Focus on protecting network efficiency, driving business, not adding incremental cost. In lanes not productive or headhaul lanes, looking for yield expansion and finding opportunities Q: And then as a follow-up to that, I mean, you talked a little bit about it sounded like some tailwinds in the backhaul environment. As the network maybe becomes more balanced and you, you know, you have your it's repositioning costs are less of a factor. I mean, is that a potential further tailwind to margins if you can just balance up the network and get better utilization on the backhaul?

A: Absolutely. Constant focus on network-friendly business to create efficiency in energy, driver productivity, load miles, and utilization. Targeting network efficiency across the board, especially in western rail network to support outbound with inbound