Lower demand and oversupply of truckload capacity in the market led to revenue declines across Hub Group’s intermodal and logistics segments during the third quarter, company officials said.
Oak Brook, Illinois-based Hub Group (NASDAQ: HUBG), a provider of intermodal transportation and logistics management solutions, reported third-quarter earnings after the market closed Thursday.
“As we discussed in our last call, we felt as though the third quarter would be our most challenging and that did come to fruition,” President and CEO Phil Yeager said during an earnings call with analysts. “Peak season has been muted and we do not anticipate a sharp inflection in demand in the fourth quarter. Demand was soft for July and August, leading to volume declines in intermodal.”
Hub Group reported third-quarter net income of $30 million, on earnings per share of 97 cents, a 63% year-over-year (y/y) decline compared to the same period in 2022. The company missed analysts’ estimate of $1.17 earnings per share for the quarter.
Revenue for the quarter came in at $1.02 billion versus the analysts’ estimate of $1.17 billion. Third-quarter revenue declined 24% y/y compared to 2022, when Hub Group reported revenue of $1.35 billion.
Hub Group’s full-year 2023 outlook is for adjusted earnings per share ranging from $5.30 to $5.40, with top-line revenue of $4.2 billion. Company officials also expect capital expenditures for containers, tractors, warehousing equipment and technology will range from $140 million to $150 million.
“Despite a very soft freight environment, we are seeing the benefits of our strategy to diversify and expand into less cyclical and non-asset-based services, with our logistics segment contributing nearly 70% of our operating income in the quarter,” Yeager said.
Hub Group saw a lot of “pricing” competition for customers from over-the-road truckload carriers, as well as other intermodal operators in the quarter.
“Pricing has been somewhat more aggressive than we would have anticipated,” Yeager said. “We didn’t necessarily move quickly enough on pricing in the first portion of bid season this time last year and wound up losing some [customers] to over-the-road. We now have an opportunity to garner some of that back, and given some of the spreads that we’re seeing, I think we have a significant opportunity to do so.”
Hub Group’s intermodal and transportation solutions’ third-quarter revenue was $595 million million, a 30% y/y decline. Intermodal volumes during the quarter declined 16% y/y compared to the same period in 2022.
Third-quarter logistics segment revenue was $460 million, as compared with $525 million in the prior year. The decline in revenue was driven by lower revenue per load in the company’s brokerage service line.
Yeager said the company anticipates some intermodal volume growth in 2024 due to higher diesel fuel costs and more truckload capacity exiting the market.
“As we look at the market, we’re seeing some form of peak season, which is great,” he said. “We’re starting to see capacity exits and a more balanced spot market. Inventories are coming more back in line. Fuel prices increasing is normally a good thing for conversion from over-the-road to intermodal. I think the only thing that remains unclear is the timing of recovery of demand.”
Hub GroupQ3/23Q3/22Y/Y % ChangeRevenue$1.02B$1.35B(24%)Intermodal and transportation solutions$595M$856M(30%)Logistics$460M$525M(12%)Adjusted earnings per share$0.97$2.61(62%)Hub Group’s Q3 earnings.
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