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Hub Group says it can sustain revenue growth amid unknowns

Hub Group is confident it can withstand any macroeconomic uncertainties that could come in the second half of 2022, executives said during the company’s first-quarter 2022 earnings call. 

“There’s been a great deal of discussion of late on spot rate declines and a looming recession,” Chairman and CEO Dave Yeager told investors during the Thursday call. “While no company is immune to an economic downturn, I strongly believe Hub Group is well positioned for growth through 2022 and into 2023 and beyond. Each of the business units has built-in defenses that will assist them if a slowdown should occur.”

The 3PL reported record revenue in the first quarter amid gains among its three business segments, particularly intermodal (see below).

Even though factors such as the lockdowns in China, labor challenges in Southern California and the peak season could influence demand for the remainder of the year, Hub Group’s customers are eager to lock in capacity so they can mitigate risk, executives said. Shortages that occurred during supply chain disruptions in the past two years have reinforced that view despite potentially higher incremental costs in trucking and rail due to higher fuel prices. 

Hub Group (NASDAQ: HUBG) has seen strong pricing at the start of the renewal season, and more volumes are heading to intermodal from truck as rail service improves and shippers take advantage of rail’s environmental advantage over trucks, according to President and COO Phil Yeager.

Hub Group also hopes to add more drivers to its fleet to improve turn times while the rails concurrently seek to improve rail service, Phil Yeager said. The rails have undergone an “across-the-board effort” to improve service by making capital investments, addressing terminal congestion and putting resources in the right places on their network, all of which should provide momentum for all stakeholders going forward, he said.

Q1 2022 financial results

Hub Group achieved record quarterly revenue of $1.3 billion in the first quarter of 2022, a 41% gain year-over-year amid strong freight demand.

Net income was $88 million, or $2.58 per diluted share, in the first quarter of 2022, compared with $17 million, or 51 cents per diluted share, in the first quarter of 2021. The first-quarter 2022 diluted earnings per share was also a quarterly record for Hub Group.

The company had revenue gains across all segments. Intermodal and transportation revenue grew 35% to $774 million, with intermodal volume rising 4% and revenue per load increasing by 35%. Hub Group had separated dedicated trucking operations into its own category but included it in the intermodal and transportation segment in reporting first-quarter 2022 results since Hub Group’s dedicated and drayage trucking operations share equipment and drivers.

Truck brokerage revenue rose 132% to $296 million on the acquisition of Choptank Transport and revenue growth from truckload and LTL. Logistics revenue grew 6% to $229 million on growth in Hub Group’s final-mile and consolidation services.

Costs and expenses were nearly $1 billion in the first quarter of 2022, compared with $84.7 million a year ago because of operating costs from Choptank and higher compensation expenses, Hub Group said. Gross margin was a record $215 million, or 16.6% of revenue, amid favorable pricing and yield management. In comparison, gross margin in the first quarter of 2021 was $108.7 million, or 11.8% of revenue.

Operating income margin was 8.9%, compared with 2.6% in the first quarter of 2021.

For the year, Hub Group expects 2022 diluted earnings per share to range from $9 to $10, while annual revenue is anticipated in the range of $5.3 billion to $5.5 billion. Gross margin as a percentage of revenue is projected to be between 15.6% and 16%, while capital expenditures are anticipated to be between $240 million and $265 million. 

“We continue to expect a strong 2022 and are increasing our financial guidance for the year, while also investing in our business to support our customers’ needs for capacity, service and innovative solutions,” Dave Yeager said in a release.

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The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Hub Group (No. 29).