HUBG

Hub Group, Inc. (HUBG)

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Hub Group Inc. (HUBG)

Q4 2009 Earnings Call

January 28, 2010 05:00 pm ET

Executives

Dave Yeager - Chairman & Chief Executive Officer

Terri Pizzuto - Executive Vice President, Chief Financial Officer & Treasurer

Mark Yeager - Vice Chairman, President and Chief Operating Officer

Analysts

Ed Wolf - Wolf Research

Alex Brand - Stephens

Jon Langenfeld - Robert W. Baird

John Barnes - RBC Capital Markets

Todd Fowler - KeyBanc Capital Markets

Kevin Sterling - BB&T Capital Market

Matt Brooklier - Piper Jaffray

Mike Buttonfield - Stifel Nicolaus

Presentation

Operator

Good afternoon and welcome to the Hub Group fourth quarter conference call. We will begin with the discussion of the financial results led by Terri Pizzuto, Executive Vice President, Chief Financial Officer, and Treasurer, followed by an overall business discussion to be conducted by Dave Yeager, our Chairman and CEO.

The company will make its prepared presentation followed by a question-and-answer session. Mark Yeager, Vice Chairman, President and Chief Operating Officer, will join us for the question-and-answer session. At this time, all participants are in listen-only mode.

Comments made by Hub Group employees during this conference call may contain forward-looking statements. Actual results could differ materially from those projected in these forward-looking statements. Our SEC filings contain additional information about factors that could cause actual results to differ materially from those projected in these forward-looking statements, copies of these SEC filings maybe obtained by contacting the company or the SEC.

Now, I would like to introduce Terri Pizzuto, the Chief Financial Officer of Hub Group.

Terri Pizzuto

Thanks [Shemica] and thank you all for joining us. I want to begin by covering three things. First, we had volume growth of 6% in intermodal and a 11% truck brokerage for the quarter. Second, as we expected, the pricing environment took a toll on our margins and third, we had great cost control.

Here are the key numbers for the fourth quarter Hub’s diluted earnings per share was $0.26. Hub’s fourth quarter operating margin was 3.8%. That’s compared to 5.4% in 2008. At the end of December, we had $127 million in cash and no debt.

Now I’ll discuss details for the quarter starting with revenue. Intermodal revenue decreased 7%. This change includes a 6% decline for fuel, a 5% price decrease and a 2% decrease for mix offset partially by a 6% volume increase. The exciting news is that our customer direct 53 foot business, which is the biggest piece of our intermodal business, was up 11%.

Contributing to that growth was a 44% increase in loads with our retail customers. Wholesale and ISO, now only represent 8% of our total intermodal volume, wholesale, which is the business we do with other intermodal marketing companies is down 45%. ISO business, which is business that is mostly in 40 foot international containers, is 26% lower than last year.

Truck brokerage revenue decreased 4% due to a 10% decrease for price of mix and a 5% decrease for fuel partially offset by an 11% volume increase. Mix change because our length of haul went down by 6% or 45 miles. Truck brokerage gross margin as a percentage of sales was consistent with last year, but was down 230 basis points compared to last quarter.

We have now experienced the full impact of the bids in our margin. The big growing customer segments for truck brokerage are retail and consumer products. We had 15 new customers in the top 50 growing customers. Logistics revenue was 2% higher than last year since a couple of our new customers are now ramped up.

The pipeline and the logistics look promising. Gross margin as a percentage of sales was 11.4%. That’s down compared to last year at 12.5%. Total gross margin went down by $7.3 million. The majority of that decrease was from intermodal. As we’ve said before, pricing is a huge lever on our margin.

We’re battling that 5% price compression by focusing on reducing transportation costs. We saved money by better managing our drayage operations and equipment last year and will continue down that path in 2010. Total cost and expenses were $31 million in the fourth quarter of 2009 compared to $30.7 million in 2008.

In 2008 we had a $1.7 million credit for bonuses, whereas this year bonus expense is $0.5 million. Salaries were about $1.1 million lower than last year, since we have 70 fewer people. Travel, office expense and rent are also lower than last year. We had 1,028 employees, excluding drivers, at the end of December, which is about the same as the end of September. We think our quarterly costs and expenses will range between $34.5 million and$35.5 million in 2010.

Now, we’ll discuss 2010 full year earnings guidance. For 2010, we’re comfortable that our diluted earnings per share will be within the current analyst range of between $1 and $1.15, assuming there is no further deterioration in the economy. Our weighted average diluted shares for 2010 are estimated $37.8 million.

Turning now to the balance sheet and how we used our cash. During the quarter, we spent $1.7 million on capital expenditures. We think we’ll spend around $10 million on capital expenditures in 2010. Free cash flow was $4 million in the fourth quarter. That’s partly because, DSO was a few days higher than last year.

As I mentioned earlier, we ended the year with a $127 million in cash. We’d like to use that cash for acquisitions, so we are continuing our hunt for acquisitions that are consistent with our strategic plan. To wrap it up for the financial section, we’re well positioned to continue to control our costs and enhance operational efficiencies.

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