Press Release

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'sSEC 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
                Amount Revenue   Amount Revenue
  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
                Amount Revenue   Amount Revenue
  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  
                       
CONTACT: Maralee Volchko of Hub Group, Inc., +1-630-271-3745

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Source: Hub Group, Inc.