Hub Group Misses Analyst Expectations on Weak Q2 Market
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Hub Group profit in the second quarter of 2024 fell due to the ongoing weakness in the North American freight market, but a final-mile acquisition in December 2023 offered a bright spot.
The carrier posted Q2 net income of $29 million and diluted earnings per share of 47 cents, compared with $47 million or 72 cents in the same period a year earlier.
Hub Group’s revenue in Q2 totaled $986 million, down 5.2% from $1.04 billion in the same period of 2023, with freight market softness hurting revenue per load at the company’s intermodal and brokerage unit, although this was offset partly by the addition of Forward Air’s final-mile operations.
Oak Brook, Ill.-based Hub Group fell short of analyst expectations for the quarter. Consensus analyst expectations pegged revenue at $1.1 billion, according to Zacks Equity Research.
The company’s Intermodal and Transportation Solutions division, which includes its brokerage operations, saw an 8.7% decrease in revenue to $561 million in Q2 from $614.6 million in the year-ago period.
Still, Q2 saw 8% intermodal volume growth year over year, including 26% on the East Coast, the company said in a presentation, without providing more detail.
Hub Group’s intermodal operations comprise about 50,000 containers, including 900 refrigerated containers, and about 900 tractors.
The company ranks No. 14 on the Transport Topics Top 100 list of the largest for-hire carriers in North America, No. 2 among intermodal/drayage players and No. 18 on the TT Top 100 logistics list.
Yeager
“I am pleased with the team’s performance in the second quarter with Intermodal volume growth of 8% and the strong contribution from Final Mile, resulting in $1 billion of revenue,” CEO Phillip Yeager said in a statement accompanying the results. “Although market conditions remain challenging, Hub Group benefited from our disciplined market approach, recent diversification efforts and strong balance sheet.
“The domestic freight market has continued to be challenged, with a highly competitive bid season, balanced demand and an excess supply of capacity,” the company’s top executive added during the company’s quarterly earnings call. “We’ve seen some signs of market tightness but nothing that would denote a sustainable trend at this time.
“We’ve seen a more stabilized inventory environment as well as incremental capacity attrition. [We] anticipate some peak season on the West Coast due to solid import demand and potential East Coast labor disruptions, which along with our recent wins should support strong volume performance through the remainder of the year.”
As a result of the freight market’s failure to exit the downturn, Hub Group trimmed its full-year revenue estimate to $4 to $4.3 billion from $4.3 to $4.7 billion in April when announcing the company’s first-quarter earnings.
Beth
“The macro environment remains challenging,” Chief Financial Officer Kevin Beth said during the call. “We expect the competitive pricing environment to continue through the rest of 2024, impacting our intermodal and brokerage lines of businesses.
“We believe that the market inflection point has shifted further out from our Q1 assumptions, impacting top-line expectations and reducing the high end of our [guidance] range.”
However, Beth told analysts: “There continues to be upside potential in our guidance if restocking demand is higher than anticipated, there is a more traditional intermodal peak season, and the market allows for surcharge revenue in the second half of the year.”
Meanwhile, the company’s logistics division reported $459 million in revenue in Q2, up 1% from $453.5 million a year earlier, with what it said was strong final-mile revenue growth more than offsetting a decrease in brokerage revenue.
Hub Group bought the final-mile unit of Forward Air for about $262 million in cash in December. The unit has 45 locations and more than 640 employees, providing residential final-mile delivery and installation of big and bulky goods, particularly appliances.
When the deal was announced, Hub Group said the acquisition would drive a continued diversification into non-asset-based logistics services. In the 12 months through the end of the third quarter of 2023, the unit generated $289 million in revenue.
“We’ve been really pleased with the integration of our final-mile acquisition, and it has complemented our previous position in final mile,” Chief Operating Officer Brian Alexander said during the earnings call. “As far as a cost perspective, when we’ve put the two models together, we’ve been able to leverage a best-of approach to each of the overlapping geographies and been able to find efficiencies to drive up our yield there.”
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