Hub Group reports higher profits in Q4 2015

Meanwhile, the intermodal transportation management provider and truck brokerage says it has closed its Hub Group Trucking terminal serving the Los Angeles, Calif. market.    Hub Group posted a profit of $22.4 million for the fourth quarter ended Dec. 31, 2015 compared with $16.4 million in the fourth quarter of 2014.
   The intermodal marketing and trucking company saw revenues decrease 3 percent to $890 million compared to fourth quarter 2014 revenue of $915 million. The company said the revenue decline related primarily to lower fuel revenues.
   Meanwhile, Hub also said that it has closed its Hub Group Trucking’s Los Angeles terminal.
   Dave Yeager, Hub’s chairman and chief executive officer, said the terminal, which has used employee drivers since September 2014, was not cost competitive and the company was not able to stem its losses.
   The company will now outsource to other companies the movement of containers between rail ramps and customer locations.
   In the fourth quarter, the Hub segment’s revenues fell 4 percent to $669 million compared to fourth quarter 2014. Fourth quarter intermodal revenues decreased 4 percent year-over-year to $446 million, while truck brokerage revenues increased 6 percent to $89 million for the quarter. Fourth quarter Unyson Logistics revenues decreased 10 percent to $134 million. Revenues for Hub’s Mode segment dipped 1 percent to $242 million compared to the same 2014 period.  
   Profit for the year ended December 31, 2015 was $71 million versus $51.6 million in 2014. Revenue for the full year was $3.53 billion compared to $3.57 billion in 2014.
   Hub Group, Inc. also announced today its board of directors has authorized the purchase of up to $100 million of its Class A common stock. This authorization expires in December 2016.
   In September 2014, Hub converted the employees at its Los Angeles terminal from independent owner operators to employees. But in doing so, Yeager said Hub found the change too expensive, and not just because of the compensation to employees.
   “A lot of the reason is because of the model,” said Yeager. “We were converting them to employees and then leasing their tractors, paying their fuel. So they became employees, using the tractors they had previously. We maintained them. So these were higher priced vehicles and the economics—we were a very high cost model in what is a low price market.”
   “We attempted to fix it and just came to the conclusion that we could not and that is when we announced on Jan. 29 that in fact we were closing the terminal,” he added. “We announced that to all employees and have basically shut it down.”
   He said the company has no employees to shut other terminals. “Los Angeles is the one market where we were losing an appreciable amount of money.”
   Yeager did not reveal how much money the terminal was losing, but said “it was big enough to get my attention.”
   In making the decision to outsource all of its drayage in LA, Yeager said the company is returning to the practice it had earlier in its history. And the company is still a buyer of drayage from many companies.
   “Outsourcing drayage is not something that is foreign to us,” he said. In the most recent peak season, the company outsourced 80 percent of its drayage business and only 20 percent was handled by Hub Group Trucking, according to Yaeger.
   “It is very functional,” he said. “We know who the various carriers are, and they understand the service requirements of our clients.” Yaeger estimated Hub uses as many as 10 or 12 other trucking companies in Los Angeles alone. He said whether they chose to use employee or independent owner operators is their decision.
   Hub also announced Geoff DeMartino has joined the organization as vice president of corporate development effective Feb. 1. He will be responsible for identifying and integrating acquisition opportunities and will report directly to Yeager.
   Since 2013 DeMartino has served as senior vice president, global corporate development at Thermon Group Holdings. Earlirn in his career he has worked as Bear, Stearns & Co. and Moelis & Co.