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Hub Group, Inc. Reports Record Third Quarter 2018 Results

October 25, 2018 4:02 PM

Highlights of the quarter

OAK BROOK, Ill., Oct. 25, 2018 (GLOBE NEWSWIRE) -- Hub Group, Inc. (NASDAQ: HUBG) announced third quarter 2018 net income of $114.6 million, or diluted earnings per share of $3.41 versus third quarter 2017 net income of $15.3 million, or $0.46 per diluted share. Income from continuing operations for the current quarter was $25.8 million, or $0.77 per diluted share versus third quarter 2017 income from continuing operations of $11.6 million, or $0.35 per diluted share.

On August 31, 2018, Hub Group, Inc. closed on the sale of Mode Transportation, LLC. Mode’s temperature protected services division (“Temstar”) was not included in the sale and was retained by Hub and is reported in the intermodal line of business. The comparative results of Mode have been reported as “discontinued operations” in the Consolidated Financial Statements.

Results of Continuing Operations

Revenue for the current quarter was $933.2 million compared with $824.8 million for the third quarter 2017 as a result of our success in providing integrated supply chain solutions. Operating income for the current quarter increased to $34.7 million versus $15.7 million for the third quarter 2017. Operating income increased 121%.

Third quarter intermodal revenue increased 20% to $576.5 million due to a 3% increase in load volume, price increases and higher fuel revenue. Transcon volume was up 7%, local west was up 6%, and local east was down 2%. Intermodal gross margin increased compared to the third quarter of 2017 primarily due to higher pricing, improved mix and accessorial recovery, better network balance and increased volume. These gains were partially offset by higher rail and drayage costs and one day worse utilization than 2017. We ended the third quarter of 2018 with approximately 36,800 containers and 1,100 tractors assigned to the dray fleet.

Truck brokerage revenue increased 8% to $122.1 million in the third quarter of 2018 compared to the same quarter of last year. Truck brokerage handled 1% fewer loads while fuel, price and mix combined were up 9%. Contractual volume represented 78% of total load volume compared to 82% in the third quarter of 2017. Truck brokerage gross margin increased compared to the third quarter of 2017 primarily because of growth with strategic customers and increased spot activity.

Third quarter logistics revenue decreased 11% to $156.0 million due primarily to lost customers partially offset by growth with existing customers. Logistics gross margin decreased compared to the third quarter of 2017 due to lost customers, changes in customer mix, and increased purchased transportation costs.

Dedicated revenue increased 36% to $78.6 million compared to the same quarter in the prior year. Dedicated gross margin decreased compared to the third quarter of 2017 due to higher usage of outside carriers, startup costs associated with new contracts and higher driver wages. We ended the third quarter of 2018 with approximately 1,500 tractors and 5,100 trailers in Dedicated.

Costs and expenses increased $9.7 million to $80.3 million in the third quarter of 2018 compared to $70.6 million in the third quarter of 2017 due primarily to a $7.5 million increase in incentive compensation, $1.6 million increase in salaries due to higher headcount and employee raises, $1.4 million of higher commissions, and $1.0 million of higher professional fees partially offset by a $1.4 million increase in gain on sale of assets. Professional fees include $0.5 million for due diligence associated with potential acquisitions.

Operating income was $34.7 million compared to $15.7 million in the third quarter 2017.

Discontinued Operations

Income from discontinued operations, net of income taxes, for the third quarter 2018 was $88.8 million or diluted earnings per share of $2.64, versus third quarter 2017 net income of $3.7 million or $0.11 per diluted share. Third quarter 2018 includes a gain on sale of Mode Transportation, LLC, net of transaction costs and income tax, of $86.3 million or diluted earnings per share of $2.57. We recorded one time incentive payments of approximately $0.6 million or approximately $0.02 per diluted share in the third quarter of 2018.

Cash Flow and Capitalization

Our capital expenditures for the third quarter 2018 totaled $69.6 million, primarily for tractors, containers, trailers and technology investments. At September 30, 2018, we had cash and cash equivalents of $267.5 million.

At September 30, 2018, we had total debt outstanding of $311.8 million on various debt instruments compared to $302.5 million at December 31, 2017.

2018 Fourth Quarter Outlook

We expect that our fourth quarter 2018 diluted earnings per share will range from $0.85 to $0.95. We estimate that our 2018 fourth quarter capital expenditures will range from $60 million to $80 million. We project our effective tax rate for the fourth quarter will range from 22.0% to 22.4%.

CONFERENCE CALL

Hub will hold a conference call at 5:00 p.m. Eastern Time on Thursday, October 25th 2018 to discuss its third quarter 2018 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=ULNKzderGUmOTD. 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 25 2018, the company will make available on its website an Investor Presentation, which includes updated business information and third quarter 2018 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 and prices, the integration of any acquisitions and expenses relating thereto, the future performance of Hub’s Intermodal, Truck Brokerage, Dedicated and Unyson Logistics business lines, driver shortages, the amount and timing of strategic investments or divestitures by Hub, the failure to integrate critical information technology systems, retail customers encountering adverse economic conditions 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, 2017. 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,
2018 2017
% of % of
AmountRevenue AmountRevenue
Revenue $933,224 100.0% $824,809 100.0%
Transportation costs 818,240 87.7% 738,482 89.5%
Gross margin 114,984 12.3% 86,327 10.5%
Costs and expenses:
Salaries and benefits 57,123 6.1% 45,978 5.6%
General and administrative 19,327 2.1% 20,637 2.5%
Depreciation and amortization 3,800 0.4% 3,966 0.5%
Total costs and expenses 80,250 8.6% 70,581 8.6%
Operating income 34,734 3.7% 15,746 1.9%
Other income (expense):
Interest expense (2,411)-0.2% (2,345)-0.2%
Interest and dividend income 340 0.0% 42 0.0%
Other, net 251 0.0% 355 0.0%
Total other expense (1,820)-0.2% (1,948)-0.2%
Income from continuing operations before income taxes 32,914 3.5% 13,798 1.7%
Provision for income taxes 7,150 0.7% 2,210 0.3%
Income from continuing operations 25,764 2.8% 11,588 1.4%
Income from discontinued operations, net of income taxes 88,846 3,746
Net income $114,610 $15,334
Earnings per share from continuing operations
Basic $0.77 $0.35
Diluted $0.77 $0.35
Earnings per share from discontinued operations
Basic $2.66 $0.11
Diluted $2.64 $0.11
Earnings per share net income
Basic $3.43 $0.46
Diluted $3.41 $0.46
Basic weighted average number of shares outstanding 33,399 33,227
Diluted weighted average number of shares outstanding 33,605 33,335

HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
(unaudited)
Nine Months Ended September 30,
2018 2017
% of % of
AmountRevenue AmountRevenue
Revenue $2,665,300 100.0% $2,213,824 100.0%
Transportation costs 2,358,286 88.5% 1,982,800 89.6%
Gross margin 307,014 11.5% 231,024 10.4%
Costs and expenses:
Salaries and benefits 163,496 6.1% 127,643 5.7%
General and administrative 55,557 2.1% 57,681 2.6%
Depreciation and amortization 11,286 0.4% 8,331 0.4%
Total costs and expenses 230,339 8.6% 193,655 8.7%
Operating income 76,675 2.9% 37,369 1.7%
Other income (expense):
Interest expense (6,702)-0.3% (4,474)-0.2%
Interest and dividend income 365 0.0% 332 0.0%
Other, net 20 0.0% 533 0.0%
Total other expense (6,317)-0.3% (3,609)-0.2%
Income from continuing operations before income taxes 70,358 2.6% 33,760 1.5%
Provision for income taxes 16,371 0.6% 10,060 0.4%
Income from continuing operations 53,987 2.0% 23,700 1.1%
Income from discontinued operations, net of income taxes 98,842 11,510
Net income $152,829 $35,210
Earnings per share from continuing operations
Basic $1.62 $0.71
Diluted $1.61 $0.71
Earnings per share from discontinued operations
Basic $2.96 $0.35
Diluted $2.95 $0.35
Earnings per share net income
Basic $4.58 $1.06
Diluted $4.56 $1.06
Basic weighted average number of shares outstanding 33,387 33,217
Diluted weighted average number of shares outstanding 33,548 33,323

HUB GROUP, INC.
FINANCIAL INFORMATION BY BUSINESS LINE
(in thousands)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
Intermodal $576,478 $478,531 $1,597,254 $1,362,564
Truck brokerage 122,062 112,653 357,016 323,128
Logistics 156,041 175,679 498,139 470,186
Dedicated 78,643 57,946 212,891 57,946
Total Revenue $933,224 $824,809 $2,665,300 $2,213,824

HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30, December 31,
2018 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $267,507 $28,557
Accounts receivable trade, net 457,694 424,679
Accounts receivable other 4,575 5,704
Prepaid taxes 171 12,088
Prepaid expenses and other current assets 25,001 25,414
Current assets held for sale - 159,616
TOTAL CURRENT ASSETS 754,948 656,058
Restricted investments 22,168 20,143
Property and equipment, net 662,755 561,214
Other intangibles, net 61,116 64,747
Goodwill, net 318,662 319,272
Other assets 3,552 5,491
Non-current assets held for sale - 44,016
TOTAL ASSETS $1,823,201 $1,670,941
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade $247,332 $242,316
Accounts payable other 13,959 13,903
Accrued payroll 46,443 26,674
Accrued other 84,559 53,507
Current portion of capital lease 2,820 2,777
Current portion of long term debt 95,946 77,267
Current liabilities held for sale - 103,099
TOTAL CURRENT LIABILITIES 491,059 519,543
Long term debt 207,596 214,808
Non-current liabilities 36,634 33,599
Long term capital lease 5,472 7,696
Deferred taxes 154,485 121,095
Non-current liabilities held for sale - 4,328
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000,000 shares authorized;
no shares issued or outstanding in 2018 and 2017 - -
Common stock
Class A: $.01 par value; 97,337,700 shares authorized and
41,224,792 shares issued in 2018 and 2017; 33,612,071 shares
outstanding in 2018 and 33,447,070 shares outstanding in 2017 412 412
Class B: $.01 par value; 662,300 shares authorized;
662,296 shares issued and outstanding in 2018 and 2017 7 7
Additional paid-in capital 175,442 173,011
Purchase price in excess of predecessor basis, net of tax
benefit of $10,306 (15,458) (15,458)
Retained earnings 1,023,545 870,715
Accumulated other comprehensive loss (168) (193)
Treasury stock; at cost, 7,612,721 shares in 2018
and 7,777,722 shares in 2017 (255,825) (258,622)
TOTAL STOCKHOLDERS' EQUITY 927,955 769,872
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,823,201 $1,670,941

HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
2018 2017
Cash flows from operating activities:
Net income $152,829 $35,210
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 59,184 43,531
Deferred taxes 33,989 19,983
Compensation expense related to share-based compensation plans 9,490 7,402
Contingent consideration adjustment (4,703) -
(Gain) loss on sale of assets (1,458) 360
(Gain) on disposition of discontinued operations (113,601) -
Changes in operating assets and liabilities:
Restricted investments (2,454) (3,189)
Accounts receivable, net (44,138) (37,448)
Prepaid taxes 11,918 (11,839)
Prepaid expenses and other current assets 438 (3,059)
Other assets 1,572 (3,505)
Accounts payable 8,070 51,459
Accrued expenses 30,951 (13,179)
Non-current liabilities 4,358 1,419
Net cash provided by operating activities 146,445 87,145
Cash flows from investing activities:
Proceeds from sale of equipment 4,035 3,052
Purchases of property and equipment (138,847) (39,936)
Acquisitions, net of cash acquired - (165,933)
Proceeds from the disposition of discontinued operations 222,322 -
Net cash provided by (used in) investing activities 87,510 (202,817)
Cash flows from financing activities:
Proceeds from issuance of debt 118,809 73,606
Repayments of long term debt (107,341) (59,921)
Stock tendered for payments of withholding taxes (4,262) (3,410)
Capital lease payments (2,181) (2,101)
Payment of debt issuance costs - (1,397)
Net cash provided by financing activities 5,025 6,777
Effect of exchange rate changes on cash and cash equivalents (30) 49
Net increase (decrease) in cash and cash equivalents 238,950 (108,846)
Cash and cash equivalents beginning of period 28,557 127,404
Cash and cash equivalents end of period $267,507 $18,558 

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

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Source: Hub Group, Inc.

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