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Hub Group reported double-digit declines in profits and revenue during the first quarter as it saw a drop in intermodal revenue and a decrease in its truck brokerage business.
The Oak Brook, Ill.-based intermodal and logistics service provider’s first-quarter net income dropped 44.6% to $13.2 million, or 40 cents diluted earnings per share, from $23.9 million, or 71 cents, in the same period a year earlier.
Revenue decreased by 10.1% to $839 million compared with $933 million for the first quarter of 2019.
Hub’s operating income dipped 44.5% to $19.8 million compared with $35.6 million a year earlier. Part of the decline came from $3.3 million of expenses for severance, consulting and donations, the company said.
The company has reduced its headcount by 4% since year-end 2019. It also donated $5 million worth of goods and equipment to food pantries and health care emergency responders to the coronavirus pandemic in March. That effort carried past the first quarter and into April.
The declines in freight volume — mostly due to the economic downturn caused by the COVID-19 pandemic — have created a tough rate environment, CEO Dave Yeager said in a conference call with industry analysts and investors.
Freight pricing in both intermodal and truckload transport will continue to be challenging, he said.
“The demand for truckload capacity is just not there and as a result, a lot of the over-the-road motor carriers are basically running just to kind of survive,” Yeager said.
Price pressure in the intermodal business started even before the economic effects of the pandemic.
“Since last year the pricing environment has been extraordinarily aggressive, as aggressive as any I’ve seen,” Yeager said. “There is a lack of demand and a lot of supply.”
The environment should improve as the economy rebounds from the business shutdowns caused by the pandemic, he said.
“Everybody is a little sick of hanging out at home. We will see more demand for imports and more domestic production. It’s not going to be normal by the end of the year but it will certainly head in that direction,” Yeager said.
Additionally, Yeager expects some small and poorly capitalized motor carriers to go out of business. That should tighten truckload capacity and improve pricing by next year, he said.
All four segments of Hub’s business experienced revenue declines in the first quarter.
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Hub’s intermodal revenue fell 7.6% to $495.3 million from $536 million as the segment’s volume dropped 7% from the same period a year earlier. The company attributed the fall to soft demand combined with increased truckload and intermodal competition. The segment suffered from lower prices, higher insurance and claims costs, and rail cost increases, Hub said.
The company’s truck brokerage handled 10% fewer loads compared with the prior year. Hub’s truck brokerage revenue declined 16.6% to $98 million from $117.6 million in the quarter.
Revenue for Hub’s logistics business fell 9.8% to $183.3 million from $203.3 million a year earlier.
Hub’s dedicated trucking revenue decreased 18.1% to $62.3 million from $76.1 million in the prior year. Much of the decline came from giving up some routes and that was partially offset by growth with new accounts.
“We’re bringing on new wins that are more profitable than some of the portfolio that we shed late last year and earlier this year,” said Phil Yeager, Hub’s chief operating officer.
Meanwhile, the company is working to position itself to survive the coronavirus pandemic-caused recession and resume growth when the economy improves, Dave Yeager said.
Hub is trimming its workforce, suspending the completion of a headquarters campus expansion and reducing discretionary operating expenses. It shored up liquidity by borrowing $100 million on its revolving credit line in late March.
Dave Yeager said Hub has $277 million of cash and cash equivalents and $219 million of unused and available borrowings under its revolving line of credit as of March 31.
Hub Group ranks No. 12 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 36 on the TT Top 50 list of largest logistics companies.
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