Hub Group, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Thanked thousands of team members across North America for their efforts driving a 40 basis point improvement in operating margins.
• Customers have different approaches to managing through tariffs, with majority waiting and seeing, others pulling forward inventory. Customers diversifying vendor base and supply chains, focusing on supply chain savings supporting over-the-road conversions in Intermodal and pipeline for consolidation and managed transportation solutions.
• Closely monitoring near and long term impacts of global trade turbulence on import volumes to West Coast, volumes remaining steady. Focusing on winning profitable growth across segments via great service, $40 million cost reduction program, strong balance sheet.
• ITS segment operating margin up 8% due to dedicated ops, Intermodal volumes, and EASO joint venture. Intermodal volumes up 8% with local region growth. Dedicated in competitive environment with strong renewals and new onboarding. Logistics margin up 70 basis points with brokerage impact, LTL performing well. Managed Solutions margin up across services, warehouse utilization improved.

Segment Performance

• ITS: Delivered an 8% increase in year-over-year operating margin due to improvements in dedicated operations, higher Intermodal volumes and the EASO joint venture. Margin improvement partially offset by slightly lower revenue due to declines in dedicated volume and lower Intermodal revenue per load.
• Intermodal: Volumes increased 8% year-over-year due to bid wins, pull forward of inventory, and benefit from the EASO transaction. Local East volumes increased 13%, Local West increased 5%, and Transcon shipments were down 1% year-over-year. Significant volume growth in Mexico through organic expansion and joint venture. Revenue decreased due to a 12% decline in revenue per load impacted by fuel mix and price.
• Dedicated: Operating in a competitive environment. Had losses of smaller sites to runway truckload but strong renewal rate and new wins onboarding. Improved revenue per truck per day by 9% year-over-year.
• Logistics: Operating margin percentage improved 70 basis points year-over-year due to improved efficiency in facilities and network alignment initiative, offset by lower margins in brokerage. Brokerage volume declined 9% year-over-year with a 10% decline in revenue per load. LTL offering performing well, reducing negative margin shipments by 210 basis points year-over-year.
• Managed Solutions: Delivered operating margin percentage improvement in all services, largest in CFS following operational efficiency enhancements and network alignment initiative completion. Warehouse utilization improved 1,100 basis points year-over-year

Guidance

• Full year EPS expected in range of $1.75 to $2.25 and revenue between $3.6 billion to $4 billion. Effective tax rate approximately 24%. Capital expenditures in range of $40 million to $50 million, no plan to purchase containers in 2025.
• ITS pricing relatively flat for remainder of year, upside if volume bounces back allowing peak season surcharges and pricing increases. Expect sequential operating results flat to down from first quarter due to expected second quarter slowdown, then back to normal seasonal pattern. Dedicated revenues less than 2024 as new customers not enough to offset lost customers and demand softness.
• Logistics excluding brokerage has some demand softness but warehouse business may see increase in storage revenue, final mile and managed transportation business has good pipeline. Brokerage volume flat to down from current results, pricing at current levels, potential upside if inventory restocking pronounced.

Risks

• Uncertainty in global trade with unclear near and long term impacts of customers' tariff management.
• Magnitude of near term impact to import volumes to West Coast uncertain.
• Intense market competition affecting pricing and business acquisition.

Question and Answer

• Q: Scott Group of Wolfe Research LLC asks about percentage of Intermodal tied to West Coast ports, monthly trends, and impact of import cliffs A: Phillip D. Yeager says January was up 18%, February 1%, March 7%, April 6%. About 25% of West Coast volumes port-related, 30% from China. Anticipating slowdown, varying by customer, but repositioning costs, insourcing drayage, storage revenue and warehouse utilization will improve
• Q: Bascome Majors of Susquehanna Financial Group asks about visibility on retail inventory transportation to stores A: Phillip D. Yeager says there's an air pocket of freight, replacement from other origin points, decisions likely made in late June or early July, with Q3 typically strongest shipping quarter
• Q: Jizong Chan of Stifel asks about headcount and EASO business trends A: Phillip D. Yeager says headcount down 7%, EASO joint venture has strong volume growth, cross-selling well, continuing to look at acquisition opportunities in Mexico
• Q: Uday Khanapurkar of TD Cowen asks about surcharges and Dedicated pricing A: Kevin Beth says base case has no surcharges incorporated, Dedicated is multi-year contracts with strong renewals and cost control supporting margins
• Q: Jonathan Chappell of Evercore ISI asks about Intermodal and Logistics margins A: Kevin Beth says depends on timing, second quarter up in air, third and fourth quarters expected to have directional normal seasonal increases
• Q: Brian Ossenbeck of J.P. Morgan asks about Intermodal network utilization and rail service A: Phillip D. Yeager says reduced empty repositioning costs 17%, rail service performing well, confident in managing surge with Intermodal network
• Q: Thomas Wadewitz of UBS asks about Intermodal volume and Logistics margins A: Phillip D. Yeager says volume growth year-over-year possible, Logistics margins depend on import falloff, second quarter up in air, third and fourth quarters expected to improve
• Q: Christopher Kuhn of The Benchmark Company asks about Logistics margins and inventory in containers A: Phillip D. Yeager says Logistics margins improved, haven't seen customers keeping inventory in containers yet
• Q: David Zazula of Barclays asks about CAPEX and Dedicated customer retention A: Kevin Beth says CAPEX reduced due to less fleet investment and Mexico equipment use, Phillip D. Yeager says Dedicated retention levels still good with 90% contract retention and good service levels