TIght truck capacity, escalating fuel prices, a driver shortage and companies’ focus on lowering their carbon footprint are all factors that bode well for intermodal growth in 2021, according to Hub Group President and COO Phil Yeager. These factors also will support Hub Group’s investments in intermodal, he said.
Capital expenditures for 2021 are expected to range from $165 million to $175 million, consisting primarily of investments in areas such as containers, tractors and technology.
The company plans to add 3,000 containers in 2021, resulting in a net growth of approximately 2,750 after it has retired containers that have reached the end of their life. Hub Group also plans to add approximately 700 tractors to replace old units and support growth in its drayage and dedicated fleets, the company said.
“All the quantitative and qualitative factors point to growth in intermodal,” Phil Yeager said to investors during the company’s earnings call on Wednesday to discuss first-quarter 2021 financial results.
Company executives are supportive of efforts by its partners, such as Union Pacific (NYSE: UNP), to boost intermodal capacity in places such as Minneapolis and Southern California. Hub Group has a “constructive” contractual framework with Union Pacific, which helps to provide cost visibility and enables both parties to work collaboratively.
Executives also expect network congestion to continue to ease and capacity to continue to grow as the railroads improve their transit times and chassis become more available.
We anticipate heading into the peak season in a better position, Phil Yeager said.
Hub Group is also watching how AB5 in California plays out. AB5 is California’s law governing the use of independent contractors. An injunction that shielded the California trucking industry from the law was overturned in April.
The company is watching closely how events unfold, said Hub Group CEO David P. Yeager. Since the company uses a fair number of contractors, it is considering different plans, he said. However, although Hub Group has a large company driver fleet in California, it doesn’t support 100% of the company’s needs.
First-quarter 2021 financial results
A “strong freight market” and a 10% increase in revenue contributed to a 30% jump in first-quarter net profit for Hub Group.
Net income for the first quarter of 2021 was $17.2 million, or 51 cents per diluted share, compared with $13.2 million, or 40 cents per diluted share, for the first quarter of 2020.
“Strong freight market conditions, growth with our strategic customers, and our focus on providing a world-class customer experience resulted in 10% revenue growth in the quarter,” David P. Yeager said. “Hub Group is well positioned for 2021 and beyond due to demand in the marketplace for high service levels and cost-effective solutions.”
First-quarter operating income was $24 million, compared with $20 million a year ago.
First-quarter revenue rose 10% to $920 milion, compared with $840 million in the first quarter of 2020.
Hub Group’s revenue grew across all its business segments. Intermodal revenue rose 6% to $506 million amid a 2% increase in volume and 4% increase in revenue load.
Logistics revenue rose 8% to $217 million on growth in the company’s retail supplier solutions services and the addition of NonstopDelivery, offset partly by the loss of some customers.
Truck brokerage revenue rose 30% to $127 million despite a 6% decline in volume. Contractual freight represented 51% of total brokerage volume in the first quarter, down from 64% year-over-year.
Dedicated revenue grew 11% to $69 million on growth from existing and new customers and partially offset by the impact of business that the company exited in the first quarter, according to Hub Group.
Meanwhile, costs and expenses in the first quarter fell slightly to $85 million on lower professional fees, higher gains on the sale of equipment and a reduction in travel expense, partially offset by increased costs resulting from the NSD acquisition and an increase in salaries and benefits related to variable compensation, Hub Group said.
Capital expenditures were $10 million in the first quarter of 2021.
Looking ahead, Hub Group expects diluted earnings per share to be between $3.20 and $3.40 for 2021, with revenue growth in the midteens percentage range and gross margin as a percentage of revenue ranging between 12.5% and 13%. Hub Group also anticipates costs and expenses in 2021 to range from $365 million to $380 million.