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

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

Source:Hub Group, Inc.