HUBG

Hub Group, Inc. (HUBG)

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Industry: Transportation
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Hub Group Inc. (HUBG)

Q1 2008 Earnings Call

April 24 2008 5:00 pm ET

Executives

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

Dave Yeager - Vice Chairman and CEO

Mark Yeager - Chief Operating Officer

Analysts

Ed Wolfe

Alex Brand

Todd Fowler

Jon Langenfeld

Presentation

Operator

Good afternoon and welcome to the Hub Group first quarter conference call. We will begin with a 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 Vice Chairman and CEO. And Mark Yeager, Chief Operating Officer, will join us for the question-and-answer portion. The company will make its prepared presentation, followed by a question-and-answer session. At this time, all participants are in a 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 may be obtained by contacting the company or the SEC.

Now, I'd like to introduce Terri Pizzuto, the Chief Financial Officer of Hub Group. Please proceed.

Terri Pizzuto

Thanks, Denise, and thanks, everyone for joining us. I want to begin by covering three things. First, we had a record quarter on a difficult comp. Second, we're excited about our strong sales in truck brokerage and logistics. And, third, our business model is resilient, even in this economic downturn, since we have different types of services to sell and we have a flexible pool of equipment. Here, are the numbers. For the first quarter, Hub's diluted earnings per share increased 21% from 2007 to $0.35. Hub's first quarter operating margin was 4.9%. That's compared to 4.6% in the first quarter of 2007. At the end of March, we had $39 million in cash and no debt.

Now, I'll discuss details for the quarter, starting with revenues. Intermodal revenue increased 5%. This change includes a 3% volume decrease, offset by an 8% revenue increase related mostly to fuel. Dave will talk more about volume in a couple minutes.

Truck brokerage revenue increased 20% due to higher volumes, pricing and mix. When we looked at the 50 truck brokerage customers that grew the most in gross margin, we saw that 16 of them were new customers. A few of these new customers are intermodal customers, so we're gaining some traction with cross-selling. One of the fastest growing truck brokerage customers is an intermodal customer that switched some of their freight to truck brokerage due to tighter delivery windows.

Logistics revenue was 6% higher than last year, due mainly to new customers. As you know, because of a contract change for a large customer in mid-April of 2007, we now report net margin as revenue for that customer. Without this change, our logistics revenue would be up 27%. We lapped this change in reporting revenue last week.

Why are we successful in bringing on new logistics accounts? Our customers tell us it's because of our technology, insightful reporting, deep understanding of their needs, and our expertise with inbound freight. For example, our inbound web portal marries up the customer's purchase order, showing what they want to buy, with the product the supplier has ready to ship. We then figure out how to consolidate and ship the freight to maximize savings for the customer.

Hub's total gross margin grew by about $1 million. This margin expansion comes from the healthy results in truck brokerage, and logistics landing new customers. We're happy with this growth; especially since last year we had a one-time favorable vendor deal that added $2 million to gross margins.

Total costs and expenses were $36.5 million in the first quarter. That's compared to $38.4 million in 2007. Most of that expense decrease relates to lower consultant costs, lease expense and personal computers. We expect that quarterly costs and expenses will be in the range of between $36 million and $38 million for 2008.

We had 1,071 employees, excluding drivers, at the end of March. That's down 10 people compared to the end of the year. Most of the decrease was in intermodal, because we consolidated some operations.

The gross operating margin was 4.9%, compared to 4.6% last year. We continue to work on improving this important metric by growing revenue, purchasing transportation more cost effectively, and critically reviewing employee cost and overhead expenses. The effective income tax rate for the quarter was 39%.

Turning now to our balance sheet and how we used our cash. As I said earlier, we had $39 million in cash and no debt. We spent $850,000 on capital expenditures during the quarter. We didn't purchase any stock this quarter. That means we still have $75 million remaining under our current share buyback plan that doesn't expire until June of 2009. We're continuing to look for drayage and other acquisitions that are consistent with our strategic plans.

Now, I'll discuss 2008 full year earnings guidance. Each quarter-end, we compare our full year EPS forecast to the publicly available analyst range. For 2008, we're comfortable that our diluted earnings per share will be within the current analyst range of $1.58 to $1.70. The weighted average diluted shares for 2008 are estimated at about $37.6 million.

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