Hub Group posts record per-share earnings in quarter, raises full-year estimates

Trucking to record earnings in quarter (Photo:Shutterstock)

Hub Group, Inc. (NASDAQ:HUBG) April 30 reported record earnings per-share in the first quarter of 71 cents, more than doubling year-earlier levels and well above analysts’ estimates of 54 to 55 cents per share.

Oak Brook, Ill.-based Hub also raised full-year earnings estimates to a range of $3.25 and $3.40 a share. Analysts surveyed by Barchart, a financial markets service, had forecast $3.21 a share.

For the quarter, revenue rose 11 percent to $933 million, below estimates of $947 million of analysts polled on Yahoo Finance. Gross margins rose 40 percent year-over-year, with growth spread out across all four of its service lines, Hub said.

Operating income rose 115 percent to $35.6 million, while operating margins increased to 3.8 percent, a 180 basis point increase, the Oak Brook, Illinois-based multi-modal provider said. Earnings per-share before interest, taxes, depreciation and amortization (EBITDA) rose 83 percent to $64 million. Net income of $23.9 million was up nearly $8 million from the 2018 period.

The 2018 quarter included $5.1 million in net income, or 15 cents per share, generated by Hub’s sale of its former Mode Transportation, LLC unit, an agent-based operation which was sold in September 2018.

This was Hub’s first quarter to include the results from CaseStack, which Hub acquired in December 2018 in a $255 million all-cash deal to beef up its exposure to the less-than-truckload (LTL) consolidation and brokerage segments.

Revenue for Hub’s core intermodal segment rose 8 percent to $536 million as price increases more than offset a 1 percent decline in volume. Revenue for Hub’s transcontinental and western businesses each rose 1 percent, while eastern revenue dipped 1 percent. Gross margins rose due to a more favorable pricing environment, Hub said.

Hub executives said that rail volumes were hurt by the impact of a lingering winter in parts of the country, and by Midwest flooding that made it tough on Union Pacific Corp. (NYSE:UNP), Hub’s main western rail partner. Daily volumes in April were flat to slightly down, a continuation of the activity seen in March and a legacy of the inclement weather, Hub Chairman and CEO David P. Yeager said. “Here in Chicago, we haven’t had spring yet,” Yeager told analysts.

At the same time, Yeager noted that UP and Hub’s Hub’s eastern rail partner, Norfolk Southern Corp. (NYSE: NSC), have stepped up their operational games. In particular, Norfolk Southern’s on-time performance improved “dramatically” as the quarter progressed, to the point where in the past week its service levels were the best Hub has seen in two years, Yeager said. As a result, Hub has raised its expectations for rail service for the balance of the year, he added.

Logistics revenue rose 25 percent to $203 million, due in large part to the inclusion of CaseStack. Truck brokerage revenue fell 2 percent to $117 million as a 20 percent increase in loads brokered was offset by a 22 percent drop in price and mix due to the addition of CaseStack’s LTL bias. Higher fuel prices also weighed, Hub said. Contract business accounted for 85 percent of total truckload volume, up from 80 percent in the first quarter of 2018.

Dedicated revenue rose 26 percent to $76.1 million as new account growth and better pricing offset the impact of lost business, Hub said.

Analysts found little to quibble about in Hub’s results. F. Bascome Majors, analyst ay Susquehanna Financial Corp., called the numbers a “strong start to 2019, with what feels like plenty of cushion in full-year guidance unless intermodal pricing deteriorates from high-single-digit increases to flat-to-down over the next few months.” a scenario that Majors said is unlikely. Benjamin Hartford, analyst at Baird, lauded Hub’s strong execution in the face of light intermodal demand and the possibility of a deceleration in truckload contract pricing growth.