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    Hub Group Inc (HUBG)

    Q3 2024 Earnings Summary

    Reported on Feb 27, 2025 (After Market Close)
    Pre-Earnings Price$43.75Last close (Oct 30, 2024)
    Post-Earnings Price$39.38Open (Oct 31, 2024)
    Price Change
    $-4.37(-9.99%)

    What went well

    • The EASO joint venture in Mexico is expected to be immediately accretive to earnings, offering significant growth opportunities through cross-selling and synergies, capitalizing on near-shoring trends and strong macroeconomic factors. The business is already growing 30% year-over-year on its own.
    • Strong Intermodal demand and peak season have taken hold, with October volumes up 12%, and the company expects continued volume growth, opportunities to convert volume from over-the-road, and anticipates a successful bid season with potential price increases.
    • The company is executing on integration initiatives in the Final Mile business, reorganizing the team, reducing costs, bringing on highly margin-accretive new business, and expecting a surge in seasonal demand and new onboardings, positioning them well for the fourth quarter and into 2025.

    What went wrong

    • The company expects a sequential decline in ITS margins and volumes in Q4 2024 due to seasonality and higher fixed costs, reversing earlier expectations of an improvement. Margins are expected to come down in Q4, and there is an anticipated slowdown in volumes near Thanksgiving.
    • The company anticipates full-year volume growth in ITS below their previous guidance, due to a pull-forward of volumes into Q3, potentially leading to lower volumes in Q4 2024. They mention that the pull-forward has "eaten into some of that original expectations of the volume."
    • The company lost some business in their Final Mile segment because a customer consolidated facilities into larger ones, resulting in a loss of smaller facilities, which could negatively impact revenues in that segment.

    Q&A Summary

    1. ITS Volume Guidance
      Q: What's driving change in 4Q ITS volume guidance?
      A: HUBG guided to low-double-digit volume growth in ITS for 4Q, with prices down mid- to single-digits. They believe there was a pull-forward in volumes during 3Q, with a 12% increase in October. This pull-forward has impacted original volume expectations for the rest of the quarter, but they still feel good about their performance and opportunities to grow.

    2. ITS Margin Outlook
      Q: Will 4Q ITS margins step up from 3Q levels?
      A: Originally, HUBG expected 4Q ITS margins to step up from 3Q levels. However, due to the pull-forward of savings into 3Q and normal seasonality with higher fixed costs in the latter half of 4Q, they now anticipate a slight sequential decline in ITS margins from Q3 to Q4. They expect Logistics to have some upside quarter-over-quarter, with Final Mile benefiting from seasonal uplift.

    3. Intermodal Pricing Backdrop
      Q: Update on intermodal pricing environment?
      A: Entering bid season, HUBG reports strong demand through Q3 and into Q4. While the environment remains competitive, they are not seeing irrational pricing behaviors. They do not anticipate prices to decline as they go into bid season, though it's uncertain how much they might increase. The focus is on retaining network-friendly business and enhancing asset and driver productivity.

    4. EASO Joint Venture Earnings Contribution
      Q: How will the new joint venture contribute to earnings?
      A: The EASO transaction will be immediately accretive to earnings, though the impact is slight due to its size. The transaction closed on October 23, so they expect to see the full accretion in 2025. The joint venture is strategic, aligning perfectly with their Intermodal business and providing significant cross-selling opportunities in Mexico.

    5. Growth Opportunities in Mexico
      Q: What are the cross-selling opportunities in Mexico?
      A: HUBG sees significant cross-selling opportunities with the EASO joint venture as bid season begins. Gaining expertise in drayage on both sides of the border is strategically valuable. Combining EASO's local knowledge and reputation with HUBG's resources will help scale the business, which is already growing 30% year-over-year on its own. Near-shoring trends and strong macro conditions present additional growth potential.

    6. Customer Activity Amid Regulatory Environment
      Q: How are customers acting amid potential regulatory changes?
      A: Customers remain committed to growing in the Mexican market. Mexico continues to be the fastest-growing trade partner of the U.S., and HUBG anticipates further investment. Conversations indicate trends toward near-shoring, significant labor cost differentials, and improved ease of doing business, creating more opportunities for HUBG.

    7. Final Mile Integration Initiatives
      Q: What's the timeline for Final Mile integration adjustments?
      A: HUBG has executed integration initiatives in Final Mile and feels they are in a good position. Despite losing some business due to customer facility consolidations, they are bringing on highly margin-accretive business. Start-ups are now aligned, and they've reorganized the business to capture upside in Q4. They anticipate a surge in seasonal demand and have new onboardings that will continue into the first quarter.

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