Q4 2020 Universal Logistics Holdings Inc Earnings Call
Hello, and welcome to the Universal Logistics Holdings fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. During the course of this call management may make forward looking statements based on their best view of the business as seen.
Todays statements that are forward looking relate to universal business objectives or expectations and can be identified by the use of the words such as belief expect anticipate and project such statements are subject to risks and uncertainties and actual results could differ materially from those expectations as a reminder.
This conference is being recorded it is now my pleasure to introduce your host Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Beres, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips you may begin.
Thank you and good morning, and thank you for joining Universal Logistics Holdings fourth quarter earnings call.
As I reflect on 2020, I'm continuously impressed by our team's ability to adapt and execute at such a high level in a year that presented so many challenges.
The robust start to the year was quickly abandoned by much of our automotive and import work, which came to a standard steel as the COVID-19 pandemic gripped the nation.
The second quarter was truly a challenging one and as we implemented the necessary cost savings measures and safety protocols to protect our people and our business during uncertain times.
The end result is a stronger universal well positioned to support our customers when the business came racing back in the second half of the year.
Covid still presents many challenges today and I expect it will be with us in the foreseeable future at the same time I'm confident in our team's ability to navigate these challenges and to continue to provide best in class service to our customers.
I'm extremely pleased to be surrounded with the strong men and women that make up the universal team on field.
Sales with admiration and respect for the hard work and resilience of our associates that was displayed over the last half of the year.
Universal is truly a people driven company.
Thank you for your continued efforts.
Now for the quarter, Inc.
Yesterday's, earning release Universal reported fourth quarter earnings of <unk> 60 per share on our operating revenue of $386 million, beating.
Beating estimates on both the top and bottom line fourth quarter earnings also represented Universal Beth fourth quarter earnings on record. The results reflect a continued focus on operational excellence. We continue to work on improving execution at all levels and are excited about the progress we've made.
Hey.
The sequential increase in topline rebel can be attributed to solid growth on.
On the dedicated value added and brokerage service lines, while our intermodal and truckload service line saw a slight reduction we are pleased to report that operating margin was similar sequentially to Q3, which countered the normal Q4 drop well, beating fourth quarter too.
Operating income by 52%.
Backlog demand kept auto production humming, even through the traditional holiday slowdown the higher than normal production volumes led to increasing revenues in our contract logistics business.
Which includes our dedicated transportation and value added services.
We are also successful in securing additional business wins locking in $10 million on incremental revenue on an annualized basis, we expect the new award to be in full run rate by Q2 of 2021.
It was a mixed bag in our trucking group, which includes agent base and company manage trucking our biggest inhibitor to growth in the quarter was securing the necessary drivers to move the freight in an extremely competitive market.
We did experienced climbing rates for both agents and company terminals that supported dry van however, lower volumes continue to be a drag on operating performance during the quarter, our flatbed business supporting metals and industrial goods with also laggard on a year over year basis, but we saw a modest modest uptick in low sequentially.
But have yet to see a full recover recovery our customers and shipping these products.
Despite the setbacks in recent performance I maintain a very optimistic view on.
On wrapping up the year low inventories and tight capacity should provide a positive backdrop for strong pricing and increased freight volumes as we move into 'twenty. The first half of 2021.
Our company brokerage operation was able to regain their footing in the quarter and returned to profitability.
Thanks to increased rates and a slight loosening of capacity.
Our company managed brokerage operation was able to make some gross margin headwinds through disciplined customer pricing and calculated capacity procurement.
Gross margins for the quarter finished in the high single digits, leading to an operating ratio that was 720 basis points better than third quarter of 2020.
We successfully repriced about 61% of our contracted business day in quarter four we expect this to be tailwind into 2021.
For intermodal drayage import volumes were exceptionally high in the fourth quarter, however, congestion and slower than anticipated rate of trucks returning to work, we provide an anchor to momentum for the intermodal growth. This also means we also have a ton of opportunity to improve operating performance in this group we are.
Doubling down on our recruiting efforts reviewing compensation packages at all of our major markets and have renewed initiatives to entice drivers back to work.
As we look forward, we are bullish on the momentum momentum coming out of 2020 and believe we will see solid volume all of our service lines.
Based on what we're hearing from our customers our intermodal drayage operations should remain strong through the Chinese new year's.
We remain very bullish on our drayage franchise and the re engineered network that melded the acquisition companies into one focused unit with real upside for scale and growth growth, which will allow us to continue to expand our national footprint.
Any increase in rates and volume will drive operating leverage in this business and further drive profitability.
With truckload sentiments from manufacturing are improving and we are cautiously optimistic for flatbed prospects. We will continue to overhaul our company run facilities, focusing on local and regional price in strategic markets.
Allow us to share resources and facilities, while allowing for the asset optimization.
With our company managed brokerage we believe we have some pricing wind at our back half and are pleased with our customers contract negotiations, we will place additional focus on carrier services and our relationship with third party carriers to form additional partnerships to move our customers freight from 2021.
We remain extremely optimistic on auto in class eight truck production with light trucks, and Suvs continuing to sell well and class eight predicting a significant production increase we do expect a little chop in the first part of the year associated with the lack of semiconductors in the automotive space.
We've continued to layer business wins into our existing dedicated operations that has allowed us to improve optimization of our dedicated assets and increased margin profile. We're extremely pleased with the turnaround in the group over the past year. We also continued customer diversification to expand into new vertical which should allow.
Now, which it also alleviates some of the peaks and valleys that we traditionally experience in the automotive space.
We have high expectations for our dedicated transportation group and expect this to be a growth engine far into the future.
As we discussed on previous calls we are launching several major contract logistics awards in the first quarter.
The customers, we service with our value added and dedicated transportation expertise at some of the most complicated and demanding supply chains in the world.
Every confidence in our team's ability to execute these launches and to continue to provide world class service to uniquely complex customers.
As I've stated before Universal Ultimate success depends on the health and the safety of our 10000, plus associates delivering essential goods and services to the frontline.
With safety as our backdrop to everything we do I believe we are extremely well positioned to capitalize on a solid rate and auto manufacturing environment in 2021.
I would now like to turn the call over to Jude Jude. Thanks, Tim Good morning, everyone. Universal Logistics Holdings reported consolidated net income of $16 2 million or <unk> 60 per share on total operating revenues of $386 million in the fourth quarter 2020.
This compares to net income of $8 7 million or <unk> 32 per share on total operating revenues of $375 9 million in the fourth quarter of 2019 consolidated income from operations was $23 5 million for the quarter compared to operating income of $15 5 million one year earlier EBIT.
<unk> increased to $6 4 million to $44 2 million, which compares to $37 7 million one year earlier, our operating margin and EBITDA margin for the fourth quarter of 2020 are six 1% and 11, 4% of total operating revenues these metrics compare to four 1%.
<unk> and 10% respectively in the fourth quarter of 2019.
As mentioned in our release Universal also expanded its segment reporting to offer our investors further insight into the operating performance of our business beginning this quarter Universal will report four segments instead of the two segments as previously reported.
The new segment reporting structure disaggregate, both intermodal and company managed brokerage from our legacy transportation segment.
Both of these segments are now reported discretely.
The four reportable segments, our company managed brokerage intermodal trucking and contract logistics, which still includes the results of our value add heavy duty truck and dedicated transportation business. We updated the name of this segment to better reflect the nature of the service offering.
Now looking at our segment performance for the fourth quarter of 2020, and our contract logistics segment income from operations increased $4 8 million to $12 million on $133 2 million of total operating revenues. This compares to operating income of $7 2 million on $120 million of total operating.
In the fourth quarter of 2019, if you recall the fourth quarter of 2019 included a UAW labor strike early in the quarter, which disrupted normal operations operating.
Operating margins for the quarter were 9% versus 6% on a robust auto production.
In our intermodal segment operating revenues declined five 7% to $105 9 million compared to $112 million on the same period last year, while income from operations also decreased $5 7 million to $7 8 million. This compares to operating income of $13 4 million in the fourth quarter of 2019.
<unk> operating.
For the quarter were seven 3% versus 12% last year.
The primary factors for the decline in operating income was 17, 2% decrease in our average revenue per load and a 15% decrease in our average truck count.
We were able to increase our truck productivity by 17, 4%, which mitigated the decline in number of intermodal loads hauled. Additionally, operating margin was squeezed by approximately a 100 basis points due to $12 6 million of pass through demurrage charges included in both intermodal topline.
Revenue and operating expenses, excluding demurrage the intermodal segment's operating ratio was 91 seven for the fourth quarter of 2020.
In our trucking segment, which includes both our agent base and the company managed to trucking operations operating revenues for the quarter declined 10, 1% to $80 9 million compared to $90 million in the same quarter last year, while income from operations increased to $3 5 million compared to an operating loss.
<unk> of $2 9 million in the fourth quarter of 2019 as mentioned in the release the trucking segment experienced litigation charges of $2 9 million in the fourth quarter of 2019.
Truck count was down 13, 3% year over year, while revenue per load was up three 3% operating margins for the quarter were four 3% versus an operating loss of three 2% last year and.
And our company managed brokerage segment operating revenues for the quarter rose, 23% to $65 8 million compared to $53 $5 million on the same quarter last year, while income from operations decreased 403000 to 227000 compared to 630000 in the fourth quarter of 2019.
Operating margins for the quarter were three tenths of 1% versus one 2% last year company managed to brokerage loads were down nine 2% compared to the fourth quarter of 2019. However revenue per load was up 31% gross margin for the quarter was eight 7% versus nine 2%.
At the same period last year on.
On our balance sheet, we held cash and cash equivalents totaling $8 8 million and $6 $5 million on marketable securities outstanding interest bearing debt net of $1 $6 million of debt issuance cost totaled $460 1 million at the end of the period.
Excluding lease liabilities related to ASC 842, our net interest bearing debt to EBITDA was three times Universal 12 month target total leverage ratio is between two and two five times EBITDA.
Capital expenditures for the quarter totaled $17 9 million and were $90 7 million for the year on.
Our forecasted capital expenditures for the full year 2021 are expected to be in the $65 million to $75 million range before any additional business wins on our contract logistics segment or strategic real estate purchases.
Our interest expense for 2021 is expected to come in between 14 and $16 million.
If the business environment remained stable for the first quarter of 2021, we're expecting top line revenues between 380 and $400 million and operating margins in the 7% to 8% range.
And finally, our board of directors declared Universal's 10, five cents per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on March one 2021 and is expected to be paid on April five 2021.
With that we're ready to take some questions.
At this time I would like to remind everyone that if you would like to ask a question you May Press Star and then number one on your telephone keypad to withdraw the question press the pound key.
Pause for just a moment to compile the Q&A roster.
And again, ladies and gentlemen that star one for any questions.
The first question will come from Chris Wetherbee with Citi. Please go ahead.
Hey, Thanks, Good morning, guys good morning.
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I guess that maybe you wanted to start on the new business wins I think you outlined a couple of new business wins can you go into a little bit more detail. There and then maybe some broader comments about the pipeline and sort of where that stands today and how you might think about executing on that and it's 2021 progresses.
Yes. This is this is Tim Chris the new business wins that we see going into 2021.
If you remember over the last couple of calls we've had a significant amount of wins in the last half of 2020.
Business wins should equate somewhere between $160 million to $170 million annual business.
For 2021.
In the quarter four I did reference some additional business that we had won that will launch and run full rate.
Sometime in the second quarter. The one thing that I didn't elaborate on in the prepared remarks was that once we once we've entered into some of this new business.
Either through scope changes or some additional dedicated transportation lanes, we're seeing a fair amount of opportunity from our customers on adding in new lanes or at least getting the ability to quote on it. So we think there's also some runway on that that we'll see some additional dedicated business.
It comes out of some of these projects with new lanes now if I reflect back on the pipeline.
As a whole and in specific for some of those larger wins the pipeline remains relatively full now I wouldn't say that we have $170 million were closed on on tomorrow to talk about on our next quarterly call, but we're cautiously optimistic on on the pipeline and where it leaves us in.
I think the biggest thing I've taken from the pipeline on looking at it with the sales team. It seems like our operational execution has definitely driven some.
The closing ability on these projects as they come to.
Bear so extremely excited about that on the transportation side of things, there's a fair amount of.
Opportunity that you'd probably have not only heard here, but you've probably heard on other calls it just a matter of us making.
Making sure we have the drivers in the seats to be able to move and to bid that type of work so as a whole the pipeline remains robust.
Things that might be consideration to hitting the.
The optimization of that is going to be making sure. We can either put people in seats, we're making sure. We can just bring people into the logistics play on the supply chain place. So people are on one of our number one concern for 2021.
Got it Okay and then my next question was going to be about sort of the margin opportunities in 2021, and I think that goes kind of goes hand in hand, with what you just mentioned around.
Getting capacity getting drivers. So can you talk a little bit about sort of your confidence level on the on the margin guidance you know sort of what gets you to the higher end versus the lower end and how do we think about you know.
What was wage inflation or driver acquisition of capacity acquisition costs included in that.
Chris I'll start, yes, I think we feel really confident about the margin guidance.
Both for the full year and for the quarter.
Scale and operating leverage do amazing things and trucking businesses as you're very well aware so.
Any additional incremental capacity that we can bring in particularly to the intermodal space is really going to drive those margins to the higher end. So I think in the trucking businesses as we've showed a lot of that right.
Inflation has already happened, but we're we haven't seen that rate inflation happens in our drayage business. So with the rates still some profit year over year and the robust outlook, we think that could be a real big driver of profitability. In addition to the initiatives that Tim mentioned I'm trying to get more drivers in the seats. So I'd say, we feel very confident.
About the forecast, we feel very confident about our ability to hit these margin targets.
But people in drivers obviously are going to be the biggest.
The biggest headwinds for us to get there yeah.
This is Tim I Echo everything Judy said and as we look at the intermodal space and the franchise. There we're really optimistic on that remember we went through consolidation of six acquisitions in the most reasonable on only a year old.
We've added the customer base, we've added the driver base, we knew we had to give some pay increases so.
The lagger on that one of course was the right to the customer, but we're optimistic.
And we're seeing it start to come back because because things are so tight and remember.
From your prior question on we're talking about a runway of $160 million plus in wins that are going into full execution on the value added side. All of that is going to continue to do is set up for a makeup of a high a higher margin business to be more percentage of our overall revenue so on.
I think Judy said I'm very.
Are you optimistic on the margin goals.
Okay. Okay. No that's helpful and then maybe.
One more on the intermodal side.
Yes, a couple of parts to this so first I just want make sure I understand that your marriage, obviously quite elevated but it sounds like that's largely a pass through to you for you guys. So I just want to make sure I understand that dynamic and how that might play in 2021, and whether that impacts the margin outlook at all and then number two when can probably goes hand in hand.
What's the update in terms of just how congested things are from an intermodal perspective can we have the ability to start to unlock that as maybe the first half progression you need Chinese new year sort of deceleration of blank sailings that kind of gets you to that point just kind of curious about the intermodal story.
I'll just quickly talk about the demurrage. So yes. It was pass through basically dollar per dollar.
In Q4, and that's directly related to the inability to get containers out of the port in a timely basis.
In 2019 for example, we only had about $600000 in Q4 related to these types of charges. So Q4 of 2020 was definitely a unique phenomenon.
The team is going back to the customers and either trying to get some margin on that business or.
Trying to get them to pay it directly themselves because obviously the delta in the operating ratio with that in versus not is pretty substantial.
And to answer your question on the congestion, yes, the fourth quarter saw congestion and some of the major market and just would you did allude to.
Congestion in L. A was it was a major driver of that the supply chain and the efficiencies there theres a lot of things and complexities that go into it and it just didn't hear it correctly. So we're still seeing.
Some of that same congestion on the west coast, specifically L. A long beach, but we feel that as we step into Chinese new year next week that hopefully.
Even if some of the factories do produce which is unusual through Chinese new year, we think it'll help alleviate some of the backlog there because remember the backlog and the efficiencies of your major Port systems also feed your inland ports like Chicago, So having some fluency, they're having irregularity to price, it's moving inland only.
Ports us.
Internally and we did see a little bit of congestion at times in some of the inland locations from an intermodal standpoint, the one thing we're really happy about it. So it's like a balloon. So if the customer made a decision with the steamship line to push break into another port or area of the country, we're very well positioned.
Not only now but into the future and taking advantage of that displacement or replacement of volume into a different port city. So.
Optimistic, yes, it'll be a little bit of a short term headwind, but I think as the year progresses, I think I'm expecting more fluency to it.
Okay. Okay. That's really helpful color guys I appreciate it thank you.
Thanks, Chris Thanks, Chris.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star one again the star one for any questions over the phone line. We do have a response from Bruce Chan with Stifel. Please go ahead.
Jeff Good morning, and congrats on a very nice print just a few here from my side left.
I guess, Tim it sounds from your comments like the outlook is going to be very good for the balance of the year.
But if I kind of put on my glass half empty you had.
Are there any big sources of risk that are complicated in your forecast and then maybe it's a good opportunity to remind us how your model responds and.
Maybe call it more normal cyclical softening where facilities aren't completely shut down.
Yes, I think from it.
Is there are always potential per.
Hurdles as you go through your plan for 2021, yes, there is and I would say the near term if we look at getting out of congestion on intermodal I don't I don't expect there to be a lawful lot of roadblocks. There is on the there is a little bit of noise right on the automotive space that we're feeling around the semi conductor.
So those plants and locations that you see listed over the last week, we are a player in some of those plants on locations in various degrees. So the length in time that that that last that there is this a shortage of those types of components that could throw a little bit of a wrinkle into our first half.
Jeff.
2021, but I just think there's so much pent up demand for the product that it would net disruption would just push it into the latter half of the year, we would see production pick up and volume increase and we would make up potentially what might have been.
Lost in the first half of the year.
Other thing that I'd mentioned earlier and this doesn't it doesn't play for any individual one of our units, but all of them is making sure we keep a keen eye on.
The people because I think that if youre looking at something that could be disrupted is as we launch new business on the trucking side and we definitely have a couple key launches in the first quarter on our contract logistics side that we make sure we keep cadence with the need for.
That human asset.
And we've done a pretty darn good job of that in getting in front of it and even more sourcing labor even far before we would in a normal scenario because we know the market tight, but I'm going to sit here and say, yes, I'm optimistic that we've got is we've got a game plan put together and that we force.
These are these launches and these new wins on the transportation side going off without it without a major hitch.
Okay now that's great color on maybe just a follow up on on some of those.
Comments, particularly around auto and class eight production how much visibility do you get from your customers and maybe what's your best sense of.
What kind of inning, we're in as far as that recovery cycle.
On slide <unk> talking about class eight.
Yeah, maybe on class eight as well as auto on the passenger side as well.
So I would just say, yes, we actually because we are connected to.
Two the auto on a fund by Vin based on its four.
On the J E T to the plants I mean, they give us their production schedules. So we know for every plant that we serve is what units are going to be built every week. So we have dialed in.
Visibility to any automotive production on the class eight side I think we're just seeing the same things that everyone else is looking at the SAR for 2021, and it is going to be up 30% from where it was last year. So of course class eight can be a little bit temperamental is you know.
It could be worse than 30% or it could be better than 30%, but that's just what the Saar is saying and we follow almost identical on that business to what the star status as far as our revenue if the stars up 30% our revenues up 30% it's that simple.
Okay Fair enough and then just a final question here on the brokerage side nice recovery there from from third quarter.
And I hope you'd you'd talk passionately in the past about aggressive and potentially non compensatory pricing from some of the competitors.
What's your sense on how that competitive environment is right now.
Some of those on disciplined competitors found religion is it temporary or permanent.
Well I don't know I don't know if they'd found religion, there their ideology may be a little bit different we still look at the brokerage space in the market as a whole it's a large transportation spend in the marketplace, one person being able to put their arms around all of it and hold it hostage.
That happens I think the way we've looked at it from a from a from a how we approach not only the customer because this is forward facing to the customer we took a deep dive in the fourth quarter and like I said, we went through about 61% of our overall business was rebid in the first quarter I'm, sorry fourth quarter not on.
All of the results are back in yet from that because theres still playing some of it but it's been positive in what we are seeing now I don't know how the competitors treating it but I do know on a couple of bids. We've saw some volumes that have come back book at a larger amount on a larger volume of mine.
And we would expect it so which tells me that theres some people out there, making some decisions in a more concerning fashion than maybe they had in the past so from.
On a competitive landscape, yes, theres going to be those out there that want to do it.
<unk> gained volume were more in it from a strategic standpoint.
On one of our main focuses for 2021.
On the other facing side is the capacity side is making sure we shore up how we do business with or with our other business units, which is the carriers and making sure. We're in front of that and have a good feel.
For the supply so we can match it with the demand.
All right terrific. That's helpful. Thank you.
Thanks Bruce.
And once again, if you would like to ask a question. Please press star one again Thats star one for any questions over the phone line well pause for just a moment.
Okay.
Okay and at this time I'm showing no further responses.
Well excellent I appreciate everyone dialing into the fourth quarter call and we truly look forward to next quarter and sitting in front of moving again, Thank you and have a great day.
Ladies and gentlemen, thank you for participating on today's conference call you may all disconnect.
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