Hub Group turned in better-than-expected results in the third quarter, with revenue topping $1 billion for the first time and beating analysts’ profit projections, although net income was down compared with the same period a year ago.
Overall, the Oak Brook, Ill.-based intermodal and logistics firm earned $15.3 million, or 46 cents a share, on revenue of $1.05 billion in the three months ended Sept. 30. That compares with net income of $17.9 million, or 54 cents a share, on revenue of $932.8 million in the third quarter of 2016.
“We are pleased with our first $1 billion quarter,” CEO Dave Yeager said in a statement released Oct. 26. “As capacity continues to tighten and demand accelerates, we are increasingly confident that contractual rates will strengthen over the upcoming quarters.”
Results for the quarter include the operations of Estenson Logistics, a dedicated contract carrier acquired by Hub Group on July 1 that has been renamed Hub Group Dedicated.
Hub Group said profits in the third quarter were negatively affected by costs and inefficiencies associated with recent hurricanes and consulting costs for a network optimization study. The company also recorded a tax benefit of $3.1 million, or 9 cents a share, that reduced its tax rate to 22.5% in the quarter from a normal rate of 38%.
Intermodal revenue overall increased 2% to $474 million and mostly reflected an increase in freight rates and fuel surcharge revenue. Volume was flat and gross margins decreased because of higher rail transportation and equipment costs.
Slower rail service has hurt the competitive position of Hub’s intermodal business and Yeager said the company does not anticipate an improvement in the near term.
Hub Highway, the company’s truck brokerage unit, saw revenue increase 17% to $113.2 million and handled 3% more loads with higher gross margins.
Revenue for Unyson Logistics, a supply chain consulting business, increased 14% to $175.7 million due to growth with new customers. Gross margins were reduced, however, because of start-up costs associated with taking on new business.
Revenue for Hub Group Dedicated was $58 million in the most recent quarter and is up about 5.5% compared with the prior year.
Mode Transportation, a separate multimodal freight brokerage unit, reported gross revenue of $258.7 million in the quarter, a gain of 3%, with intermodal revenue falling 2%, truck brokerage rising 10% and logistics revenue gaining 5%. Overall gross margins fell by $2.4 million compared with the same period in 2016 and operating income was $5.8 million compared with $8 million a year ago.
In a conference call with stock analysts, Yeager said that the company is expecting a “very strong peak season” for truck and rail shipments in the fourth quarter, but little change in the company’s overall profit margins.
The company is seeking rate increases from shippers and Yeager said that he expects to match what trucking companies are getting as demand for freight hauling grows and capacity tightens over the next year.
Rate increases of 5% would be a “reasonable expectation,” Yeager said.
Hub Group ranks No. 8 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 28 on the Transport Topics Top 50 Logistics Companies list.