Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Intermodal volume grew 8% year over year, highlighting strong performance in this segment.
- Final Mile business generated strong growth on both the top and bottom line, with several new customer implementations.
- Managed transportation team is onboarding nearly $60 million of new freight, enhancing purchasing power and optimization opportunities.
- Hub Group Inc (HUBG, Financial) has a strong financial position with $220 million in cash on hand and minimal net debt.
- The company is seeing significant growth in Mexico, with volumes up 60% year over year.
Negative Points
- Revenue declined 5% compared to last year, indicating challenges in the broader market.
- ITS revenue was down 9% from the prior year due to lower rates, lower fuel, and softer market conditions.
- Dedicated segment profitability was impacted by increased expenses to support strong demand from customers.
- Brokerage business faced challenges with the first volume decline in several quarters.
- The macro environment remains challenging, with competitive pricing expected to continue through the rest of 2024.
Q & A Highlights
Q: Can you walk us through the monthly intermodal volumes and July volumes? Also, what was the overall volume and yield trend for intermodal in the quarter?
A: For April, volumes were up 12%, May was up 9%, June was up 2%, and July was up 14% year-over-year. Yield on a revenue per load basis was down 17% in the quarter. The decline was due to a mix of factors including price impacts, a negative mix impact from local East volumes being up 26%, and a reduction in empty repositioning expenses by 25%.
Q: The trend of volume slowing throughout the quarter but spiking in July—what's driving that? Is it market improvement, new bids, or something else?
A: We are seeing wins come online, which contributed to the improvement in July. The holiday in early July slowed things down initially, but the last two weeks saw significant improvement. We expect this trend to continue into August.
Q: The low end of your guidance implies that Q3 and Q4 earnings could be lower than Q2. Can you explain why?
A: The market remains challenging with competitive pricing and excess capacity impacting intermodal and brokerage. While we expect strong volume growth, pricing is anticipated to remain low, with a pricing inflection moving into 2025. We decided to be conservative with our guidance.
Q: Final Mile is performing well. Can you break down the factors contributing to its profitability?
A: The integration of our Final Mile acquisition has been successful, driving top-line wins and cost efficiencies. We are leveraging a best-of approach to overlapping geographies and finding efficiencies to drive up yield. We still have more runway for cost efficiencies and pipeline growth, which will continue well into 2025.
Q: How are you feeling about potential surcharges for the peak season? When will you know more about this?
A: Customer discussions are mixed, but we are seeing positive signs such as strong import demand and potential East Coast labor disruptions. We expect to have a clearer picture by the end of August, with September and October likely seeing typical seasonal bumps.
Q: What conditions will drive your ability to price the intermodal portfolio more meaningfully next year?
A: Demand improvement and capacity attrition are key. We are seeing positive signs in the spot market and stable contract pricing. We need these trends to continue for a positive pricing inflection in 2025.
Q: How do you balance container utilization versus pricing power on the existing business?
A: We are improving utilization and focusing on margin per load day. Pricing is a larger lever for earnings power than volume. If market conditions allow, we will raise rates while maintaining high service levels to retain business.
Q: Can you provide some color on the investments in dedicated services that impacted profitability in Q2?
A: We ramped up hiring and used third-party capacity to meet high service demands, which increased costs. This was a mid-single 100 basis points impact on dedicated margins. We don't expect this to continue in the future.
Q: How do you see logistics revenue trends for the back half of the year?
A: We expect sequential revenue growth driven by new wins in managed transportation and Final Mile. Brokerage volume was down modestly in Q2 but saw a 100 basis point margin expansion. July volume was up 10% year-over-year, and we expect this trend to continue.
Q: How is the network running with the significant growth in local East volumes?
A: Service levels are strong, and we have reduced empty repositioning costs by 25% year-over-year. Driver productivity improved by 15%, and we are looking to add drivers in key markets to further improve efficiency and capacity utilization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
