Hub Group, Inc. Reports Third Quarter 2017 Results


Highlights of the quarter

  • Hub’s first quarter with revenue over $1.0 billion
  • Hub closed on the purchase of Estenson Logistics, LLC
  • Improved pricing environment in all business lines

OAK BROOK, Ill., Oct. 26, 2017 (GLOBE NEWSWIRE) -- Hub Group, Inc. (NASDAQ:HUBG) announced third quarter 2017 net income of $15.3 million, or diluted earnings per share of $0.46 versus third quarter 2016 net income of $17.9 million, or $0.54 per diluted share. Earnings for the third quarter of 2017 were negatively affected by approximately $0.02 per share related to costs and inefficiencies in the rail and dray network in areas directly affected by the hurricanes and consulting costs for a network optimization study.  The effective income tax rate decreased to 22.5% from the normalized rate of 38% due to an after tax benefit of $3.1 million, or $0.09 per diluted share from the claiming of a domestic production tax deduction for the 2013, 2016, and 2017 tax years.

Revenue for the current quarter was $1,054.4 million, compared with $932.8 million for the third quarter 2016. The Hub segment revenue increased 15% and the Mode segment revenue increased 3%.  Operating income for the current quarter decreased to $21.7 million vs. $29.9 million for the third quarter 2016. The Hub and Mode segments’ operating income both declined 27%.

Hub Group acquired Estenson Logistics, LLC and rebranded it Hub Group Dedicated on July 1, 2017.  Hub Group Dedicated is included in the Hub segment’s results.   

Segment Information:

Hub 
• Third quarter 2017 Segment Revenue: $820.8 million, up 15%
• Third quarter 2017 Segment Operating Income:$15.8 million, down 27%
  

The Hub segment’s revenue increased 15% to $820.8 million compared to the third quarter of 2016 as a result of our success in providing multi-modal solutions to our customers.

Third quarter intermodal revenue increased 2% to $474.0 million reflecting an increase in fuel revenue and freight rates.  Volume was flat and customer mix was slightly unfavorable.  Intermodal gross margin decreased from the prior year primarily because of rail transportation cost increases and equipment cost increases resulting partially from slower rail transits.

Truck brokerage revenue increased 17% to $113.2 million this quarter compared to the same quarter of last year.  Truck brokerage handled 3% more loads while fuel, price and mix combined were up 14%.  Truck brokerage gross margin increased primarily because of growth with strategic customers.

Third quarter Unyson Logistics revenue increased 14% to $175.7 million due primarily to growth with new customers on-boarded this year.  Unyson Logistics gross margin declined primarily due to start up costs related to new business on-boarded this quarter, tight truckload capacity resulting in higher purchased transportation costs, and unfavorable customer mix. 

Hub Group Dedicated revenue was $58 million this quarter. 

Costs and expenses increased $13.5 million to $70.2 million in the third quarter of 2017 compared to $56.7 million in the third quarter of 2016.  Salaries and benefits increased $7.0 million due entirely to costs related to the employees of Hub Group Dedicated partially offset by a decrease in bonus expense. General and administrative costs are $4.6 million higher because of the general and administrative expenses of Hub Group Dedicated, consulting costs for a network optimization study, and an increase in IT costs including costs for our transportation management system.  Depreciation and amortization increased primarily as a result of acquiring the assets of Hub Group Dedicated.

Operating income was $15.8 million compared to $21.8 million last year. 

Mode 
• Third quarter 2017 Segment Revenue: $258.7 million, up 3%
• Third quarter 2017 Segment Operating Income:$5.8 million, down 27%
  

The Mode segment’s revenue increased 3% to $258.7 million compared to third quarter 2016.   Revenue consisted of $123.2 million in intermodal which was down 2%, $87.2 million in truck brokerage which was up 10% and $48.3 million in logistics which was up 5%. 

Gross margin decreased $2.4 million compared to the third quarter of 2016 due primarily to a decrease in intermodal margin and truck brokerage gross margin, partially offset by an increase in logistics gross margin. 

Operating income was $5.8 million compared to $8.0 million last year.

Cash Flow and Capitalization:

Our capital expenditures for the quarter totaled $9.6 million, primarily for technology investments and transportation equipment such as trailers and tractors. At September 30, 2017, we had cash and cash equivalents of $18.6 million.  Hub used $165 million of cash and increased debt during the quarter for our purchase of Hub Group Dedicated.

At September 30, 2017, we had total debt outstanding of $298.3 million on various debt instruments compared to $174.0 million at December 31, 2016.

2017 Outlook

We expect that our fourth quarter 2017 diluted earnings per share will range from $0.53 to $0.58 which includes a projected tax benefit of $0.05 cents per share related to claiming a deduction for domestic production activities for tax years 2014 and 2015.  We estimate that our 2017 capital expenditures in the fourth quarter will range from $40 million to $45 million.

“We are pleased with our first $1 billion dollar quarter.  As capacity continues to tighten and demand accelerates, we are increasingly confident that contractual rates will strengthen over the upcoming quarters.  Our intent is continued focus on improving margins by operating more efficiently, providing excellent customer service and increasing prices,” said Dave Yeager, Hub’s CEO.

CONFERENCE CALL

Hub will hold a conference call at 5:00 p.m. Eastern Time on Thursday, October 26, 2017, to discuss its third quarter 2017 results. 

Hosting the conference call will be Dave Yeager, Chief Executive Officer.  Also participating on the call will be Don Maltby, Chief Operating Officer, and Terri Pizzuto, Chief Financial Officer.

This call is being webcast and can be accessed through the Investors link on Hub Group’s Web site at www.hubgroup.com.  The webcast is listen-only.  Those interested in participating in the question and answer session should follow the telephone dial-in instructions below.

To participate in the conference call by telephone, please register at http://www.yourconferencecenter.com/r.aspx?p=1&a=UWJVHCVhcqueEj. Registrants will be issued a passcode and PIN to use when dialing into the live call which will provide quickest access to the conference.  You may register at any time, including up to and after the call start time.  On the day of the call, dial (888) 206-4064 approximately ten minutes prior to the scheduled call time; enter the participant passcode and PIN received during registration.   The call will be limited to 60 minutes, including questions and answers.

An audio replay will be available through the Investors link on the Company's Web site at www.hubgroup.com. This replay will be available for 30 days.

On October 27, 2017, the company will make available on its website an Investor Presentation, which includes updated business information and third quarter results, among other things. The presentation can be accessed by going to www.hubgroup.com, selecting the “Investors” tab, and then selecting the “Presentations” tab. The presentation will be available on the company’s website until the next regular update.

CERTAIN FORWARD-LOOKING STATEMENTS: Statements in this press release that are not historical, including statements about Hub Group's or management's earnings guidance, intentions, beliefs, expectations, representations, projections, plans or predictions of the future, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain and subject to risks, and should be viewed with caution. Forward-looking statements may contain words such as “expects”, “expected”, “believe”, “projected”, “estimate”, or similar words, and are based on management's experience and perception of historical trends, current conditions, and anticipated future developments, as well as other factors believed to be appropriate. We believe these statements and the assumptions and estimates contained in this release are reasonable based on information that is currently available to us. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Factors that could cause actual results to differ materially include intermodal costs, intermodal prices (including the timing of any changes), the timing and integration of any acquisitions and expenses relating thereto, the future performance of Hub’s Intermodal, Truck Brokerage, Dedicated and Unyson Logistics business lines, the future performance of Mode, the amount and timing of strategic investments by Hub, shipping volumes, anticipated intermodal, truck brokerage, and logistics margins, customers encountering adverse economic conditions, the amount and timing of operating expenses and the factors listed from time to time in Hub Group's SEC reports including, but not limited to, the annual report on Form 10-K for the year ended December 31, 2016.  Hub Group assumes no liability to update any such forward-looking statements.

  
 HUB GROUP, INC.
 CONSOLIDATED STATEMENTS OF EARNINGS
 (in thousands, except per share amounts)
 (unaudited)
             
        Three Months Ended September 30,
        2017
 2016
         % of  % of
        AmountRevenue AmountRevenue
 Revenue   $1,054,360    100.0% $932,814    100.0%
             
 Transportation costs    937,836 88.9%  821,360 88.1%
    Gross margin    116,524 11.1%  111,454 11.9%
             
 Costs and expenses:        
  Salaries and benefits    49,126 4.7%  42,610 4.6%
  Agent fees and commissions   19,072 1.8%  19,072 2.0%
  General and administrative    22,403 2.1%  17,641 1.9%
  Depreciation and amortization   4,254 0.4%  2,276 0.2%
     Total costs and expenses   94,855 9.0%  81,599 8.7%
             
 Operating income    21,669 2.1%  29,855 3.2%
             
 Other income (expense):        
  Interest expense    (2,345)-0.2%  (888)-0.1%
  Interest and dividend income   58 0.0%  104 0.0%
  Other, net    404 0.0%  27 0.0%
   Total other expense    (1,883)-0.2%  (757)-0.1%
             
 Income before provision for income taxes   19,786 1.9%  29,098 3.1%
             
 Provision for income taxes    4,452 0.4%  11,174 1.2%
             
 Net income   $15,334 1.5% $17,924 1.9%
             
             
             
 Basic earnings per common share  $0.46   $0.54  
             
 Diluted earnings per common share  $0.46   $0.54  
             
 Basic weighted average number of shares outstanding   33,227    33,212  
 Diluted weighted average number of shares outstanding   33,335    33,366  
             


  
 HUB GROUP, INC.
 CONSOLIDATED STATEMENTS OF EARNINGS
 (in thousands, except per share amounts)
 (unaudited)
             
        Nine Months Ended September 30,
        2017
 2016
         % of  % of
        AmountRevenue AmountRevenue
 Revenue   $2,872,321    100.0% $2,594,230    100.0%
             
 Transportation costs    2,552,895 88.9%  2,259,899 87.1%
  Gross margin    319,426 11.1%  334,331 12.9%
             
 Costs and expenses:        
  Salaries and benefits    137,343 4.8%  130,075 5.0%
  Agent fees and commissions   54,103 1.9%  54,334 2.1%
  General and administrative    63,341 2.2%  50,368 1.9%
  Depreciation and amortization   9,215 0.3%  6,559 0.3%
   Total costs and expenses   264,002 9.2%  241,336 9.3%
             
 Operating income    55,424 1.9%  92,995 3.6%
             
 Other income (expense):        
  Interest expense    (4,474)-0.1%  (2,655)-0.1%
  Interest and dividend income   388 0.0%  286 0.0%
  Other, net    597 0.0%  1,178 0.1%
   Total other expense    (3,489)-0.1%  (1,191)0.0%
             
 Income before provision for income taxes   51,935 1.8%  91,804 3.6%
             
 Provision for income taxes    16,725 0.6%  35,243 1.4%
             
 Net income   $35,210 1.2% $56,561 2.2%
             
             
             
 Basic earnings per common share  $1.06   $1.66  
                 
 Diluted earnings per common share  $1.06   $1.66  
             
 Basic weighted average number of shares outstanding   33,217    34,098  
 Diluted weighted average number of shares outstanding   33,323    34,172  
             

 

  
HUB GROUP, INC. 
FINANCIAL INFORMATION BY SEGMENT 
(in thousands) 
(unaudited) 
               
       Three Months 
       Ended September 30, 2017 
       Hub Mode Inter-Segment Elims Hub Group Total 
Revenue   $    820,802 $   258,696 $(25,138) $1,054,360 
               
Transportation costs    734,747  228,227  (25,138)  937,836 
 Gross margin    86,055  30,469  -   116,524 
                 
Costs and expenses:           
   Salaries and benefits    45,727  3,399  -   49,126 
 Agent fees and commissions   15  19,057  -   19,072 
 General and administrative    20,520  1,883  -   22,403 
 Depreciation and amortization   3,962  292  -   4,254 
  Total costs and expenses   70,224  24,631  -   94,855 
               
Operating income   $15,831 $5,838 $-  $21,669 
               

 

 
HUB GROUP, INC.
FINANCIAL INFORMATION BY SEGMENT
(in thousands)
(unaudited)
               
       Three Months 
       Ended September 30, 2016 
       Hub Mode Inter-Segment Elims Hub Group Total 
Revenue   $    716,699 $   251,611 $(35,496) $932,814 
               
Transportation costs    638,154  218,702  (35,496)  821,360 
   Gross margin    78,545  32,909  -   111,454 
               
Costs and expenses:           
 Salaries and benefits    38,775  3,835  -   42,610 
 Agent fees and commissions   20  19,052  -   19,072 
 General and administrative    15,969  1,672  -   17,641 
 Depreciation and amortization   1,959  317  -   2,276 
    Total costs and expenses   56,723  24,876  -   81,599 
               
Operating income   $21,822 $8,033 $-  $29,855 
               

 

  
HUB GROUP, INC. 
FINANCIAL INFORMATION BY SEGMENT 
(in thousands) 
(unaudited) 
               
       Nine Months 
       Ended September 30, 2017 
       Hub Mode Inter-Segment Elims Hub Group Total 
Revenue   $  2,203,142 $   743,621 $(74,442) $2,872,321 
               
Transportation costs    1,972,725  654,612  (74,442)  2,552,895 
 Gross margin    230,417  89,009  -   319,426 
               
Costs and expenses:           
   Salaries and benefits    126,891  10,452  -   137,343 
 Agent fees and commissions   46  54,057  -   54,103 
 General and administrative    57,330  6,011  -   63,341 
 Depreciation and amortization   8,319  896  -   9,215 
    Total costs and expenses   192,586  71,416  -   264,002 
               
Operating income   $37,831 $17,593 $-  $55,424 
               

 

  
HUB GROUP, INC. 
FINANCIAL INFORMATION BY SEGMENT 
(in thousands) 
(unaudited) 
               
       Nine Months 
       Ended September 30, 2016 
       Hub Mode Inter-Segment Elims Hub Group Total 
Revenue   $  1,980,450 $   692,366 $(78,586) $2,594,230 
                 
Transportation costs    1,739,676  598,809  (78,586)  2,259,899 
   Gross margin    240,774  93,557  -   334,331 
               
Costs and expenses:           
 Salaries and benefits    118,658  11,417  -   130,075 
 Agent fees and commissions   47  54,287  -   54,334 
 General and administrative    44,917  5,451  -   50,368 
 Depreciation and amortization   5,603  956  -   6,559 
  Total costs and expenses   169,225  72,111  -   241,336 
               
Operating income   $71,549 $21,446 $-  $92,995 
               

 

  
HUB GROUP, INC. 
CONSOLIDATED BALANCE SHEETS 
(in thousands, except share data) 
(unaudited) 
            
        September 30, December 31, 
        2017
 2016
 
            
ASSETS        
 CURRENT ASSETS:      
  Cash and cash equivalents $18,558  $127,404  
  Accounts receivable trade, net  532,538   473,608  
  Accounts receivable other  10,017   4,331  
  Prepaid taxes   12,134   294  
  Prepaid expenses and other current assets 21,216   16,653  
    TOTAL CURRENT ASSETS  594,463   622,290  
            
 Restricted investments  24,066   20,877  
 Property and equipment, net  547,881   438,594  
 Other intangibles, net   75,772   11,844  
 Goodwill, net   348,506   262,376  
 Other assets   9,175   4,278  
     TOTAL ASSETS $1,599,863  $1,360,259  
            
            
LIABILITIES AND STOCKHOLDERS' EQUITY    
 CURRENT LIABILITIES:      
  Accounts payable trade $313,511  $266,555  
  Accounts payable other  30,115   21,070  
  Accrued payroll   25,245   36,223  
  Accrued other   53,609   46,013  
  Current portion of capital lease  2,754   2,697  
  Current portion of long term debt  73,052   45,163  
    TOTAL CURRENT LIABILITIES 498,286   417,721  
            
 Long term debt   214,032   115,529  
 Non-current liabilities   29,181   23,595  
 Long term capital lease  8,418   10,576  
 Deferred taxes   182,464   164,659  
            
 STOCKHOLDERS' EQUITY:     
  Preferred stock, $.01 par value; 2,000,000 shares authorized;    
   no shares issued or outstanding in 2017 and 2016 -   -  
  Common stock      
   Class A: $.01 par value; 97,337,700 shares authorized and    
    41,224,792 shares issued in 2017 and 2016; 33,451,445 shares    
    outstanding in 2017 and 33,192,982 shares outstanding in 2016    412   412  
   Class B:  $.01 par value; 662,300 shares authorized;    
    662,296 shares issued and outstanding in 2017 and 2016 7   7  
  Additional paid-in capital  170,355   173,565  
  Purchase price in excess of predecessor basis, net of tax    
    benefit of $10,306   (15,458)  (15,458) 
  Retained earnings   770,773   735,563  
  Accumulated other comprehensive loss (172)  (273) 
  Treasury stock; at cost, 7,773,347 shares in 2017    
   and 8,031,810 shares in 2016  (258,435)  (265,637) 
   TOTAL STOCKHOLDERS' EQUITY 667,482   628,179  
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,599,863  $1,360,259  
            

 

 
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
          
         Nine Months Ended September 30,
         2017
 2016
            
            
Cash flows from operating activities:     
 Net income   $35,210  $56,561 
 Adjustments to reconcile net income    
    to net cash provided by operating activities:    
     Depreciation and amortization   43,531   32,665 
   Deferred taxes    19,983   13,269 
   Compensation expense related to share-based compensation plans  7,402   6,318 
   Loss (gain) on sale of assets   360   (382)
   Excess tax benefits from share-based compensation  -   (524)
 Changes in operating assets and liabilities:    
   Restricted investments   (3,189)  545 
   Accounts receivable, net   (37,448)  (62,324)
   Prepaid taxes    (11,839)  (1,609)
   Prepaid expenses and other current assets  (3,059)  1,244 
   Other assets    (3,505)  961 
   Accounts payable   51,459   37,080 
   Accrued expenses   (13,179)  (6,968)
   Non-current liabilities   1,419   2,181 
         Net cash provided by operating activities  87,145   79,017 
            
Cash flows from investing activities:     
 Proceeds from sale of equipment   3,052   1,573 
 Purchases of property and equipment  (39,936)  (59,883)
 Cash used in acquisition   (165,933)  - 
    Net cash used in investing activities  (202,817)  (58,310)
            
Cash flows from financing activities:     
 Proceeds from issuance of debt   73,606   36,100 
 Repayments of long term debt   (59,921)  (25,074)
 Stock tendered for payments of withholding taxes  (3,410)  (2,484)
 Purchase of treasury stock   -   (100,000)
 Capital lease payments   (2,101)  (1,965)
 Excess tax benefits from share-based compensation  -   212 
 Payment of debt issuance costs   (1,397)  - 
    Net cash provided by (used in) financing activities  6,777   (93,211)
            
            
 Effect of exchange rate changes on cash and cash equivalents  49   (50)
            
Net decrease in cash and cash equivalents  (108,846)  (72,554)
Cash and cash equivalents beginning of period  127,404   207,749 
Cash and cash equivalents end of period $18,558  $135,195 
            

            

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