Hub Group, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Thanks and Context: Phil Yeager thanked team members for their diligence, noting the second quarter was challenged by tariff-driven shipping pattern adjustments, but contractual services performed well.
• Strategic Execution: The company executed its strategy by acquiring Marten Transport's refrigerated intermodal fleet to enhance scale and capacity, and is pursuing a $50 million cost reduction program, having already completed the majority of the initial $40 million goal.
• Segment Performance Details: In ITS, intermodal volume grew 2% despite end-of-quarter import decline, but revenue per load was down. In Logistics, brokerage operations declined, but Final Mile division is seeing significant growth with new business onboarding.
• Financial Performance: Reported revenue for the second quarter was $906 million, down 8% year-over-year and 1% sequentially. Adjusted operating income decreased 7% year-over-year, but adjusted operating margin was 4.1%, a 10-basis-point increase from the prior year. Cash flow from operations for the first half of 2025 was $132 million, and the balance sheet remained strong.

Segment Performance

• ITS (Intermodal Transportation Services): Revenue was $528 million, a 6% decline from the prior year. Intermodal volume increased 2% year-over-year despite end-of-quarter import activity decline. Revenue per load dropped 9% due to lower fuel and accessorial revenue and shorter length of haul. Operating income increased 6% year-over-year. ITS revenue contributed approximately 58.3% of the total $906 million second-quarter revenue.
• Logistics: Revenue was $404 million, a 12% decline from the prior year. Driven by brokerage operations with load count down 5% and revenue per load down 9%, but Final Mile division is onboarding $150 million of net new annualized revenue in Q3 and Q4. Logistics revenue contributed approximately 44.4% of the total $906 million second-quarter revenue.

Guidance

• Full-year EPS is expected to be in the range of $1.80 to $2.05, and revenue is expected to be between $3.6 billion to $3.8 billion. Peak season surcharges were not significantly built into the guidance. For ITS, pricing is expected to be relatively flat for the remainder of the year. For Logistics, muted demand is expected to be partially offset by new business awards, especially in Final Mile. The cost savings target has been raised to $50 million as additional opportunities for savings and efficiency gains are identified.

Risks

• Union Pacific and Norfolk Southern Merger: Uncertainties regarding the impact of the proposed merger on the intermodal industry, including potential delays or changes in rail partnerships that could affect Hub Group's growth.
• Subseasonal Truckload Market: Continued subseasonal demand in the truckload market could impact business volumes and margins.
• New Business Onboarding Delays: Potential delays in onboarding new business, especially in the Final Mile division, could affect the timing and magnitude of revenue and margin contributions.

Question and Answer

• Q: How big of a deal is intermodal share gains? A: Phillip D. Yeager stated that about 30% of Hub Group's business is moving transcontinentally, and there are significant opportunities to convert over-the-road traffic to intermodal due to improved fluidity, faster transits, and better asset utilization.
• Q: Timing of peak season surcharges? A: Kevin W. Beth and Phillip D. Yeager discussed that peak season surcharges started later than the prior year, are larger in dollar terms, but were not significantly built into the midpoint of the guidance.
• Q: Run rate of new business onboarding in Logistics? A: Phillip D. Yeager mentioned the Final Mile division is onboarding $150 million of net new annualized revenue in Q3 and Q4, with the goal to have most of this completed before Black Friday.
• Q: Impact of Union Pacific and Norfolk Southern merger on Hub Group? A: Phillip D. Yeager stated the merger presents an opportunity for growth, with catalysts like improved fluidity, faster transits, and better freight economics creating an opportunity for intermodal conversion.