Hub Group, Inc. Reports Third Quarter 2017 Results

10/26/17

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

Source: Hub Group, Inc.

Press Releases

Hub Group, Inc. Reports Third Quarter 2017 Results