Q1 2023 Hub Group Inc Earnings Call
Okay.
Hello, and welcome to the hub group's first quarter 2023 earnings conference call.
Yeah, your hubs, President and CEO , Brian Alexander hubs, Chief operating officer, and Geoff Demartino, Our CFO are joining me on the call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation in order for everyone to have an opportunity to participate please limit your inquiries to one primary and one follow up question.
Any forward looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may happen in the future.
Statements that are forward looking can be identified by the use of words, such as believes expect anticipate and project and variations of these words.
Please review the cautionary statements in the release.
In addition, you should refer to the disclosures in the company's Form 10-K, and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward looking statements.
As a reminder, this conference is being recorded it is now my pleasure to turn the call over to your host Phil Yeager you may now begin.
Good afternoon, and thank you for joining hub group's first quarter earnings call.
With me today are Brian Alexander Hub group's Chief operating officer, and Geoff Demartino, our Chief Financial Officer.
I wanted to start by thanking all of our team members across <unk> for their tireless effort to support our customers and one another in this rapidly evolving environment.
The market has shifted from this time last year capacity is loose customers are more fluid rail services, improving inventories are elevated import volumes are down and the employment market has become more balanced.
The improvements that we've made to our company over the past several years through our diversification technology enhancements, yielding cost disciplines and intermodal operating improvements are supporting our ability to successfully compete in this environment and support our customers with World Class service.
And intermodal rail service has improved as have customer turn times.
However, given slower import demand and elevated inventories as well as the more aggressive pricing environment volumes have underperformed our expectations.
Our in sourcing of Drayage reduction in third party spend improved rail partnerships as well as our enhanced operational discipline and service levels have enabled us to perform well in bid season.
As bid awards are realized we anticipate improved volumes velocity and network balance, which will help offset lower pricing and accessorial fees.
We will maintain our focus on providing outstanding service and improving our cost structure to drive long term growth.
I am very pleased with the performance of our other service lines, which are generating strong results in a challenging environment.
In brokerage, we are maintaining order counts and taking share while enhancing margin percentage through our great sales team improved systems enhanced purchasing power and successful cross selling.
We are growing our dedicated business with improved returns through organic and new customer wins.
The acquisition of <unk> has been very successful and we are expanding our warehousing footprint to support demand from our cross selling and in sourcing synergy opportunities.
Lastly, we are driving organic and new customer led growth in our managed transportation and final mile businesses due to our industry, leading service level scale and continuous improvements.
We have an extremely strong pipeline of new on boardings across all of our offerings and we are bringing value by integrating these otherwise separate solutions to our customers, which provides increased savings and enhanced service.
We have an extremely strong balance sheet and are generating significant free cash flow, which will allow us to stay focused on executing our strategy of providing best in class service investing in our asset based solutions diversifying our service offerings and enhancing our technology platform.
We will execute on this strategy, while maintaining a strong focus on cost controls and efficiency enhancements, while returning capital to shareholders.
We believe this focus will help us navigate the currently challenging environment successfully and lead to long term growth.
With that I will hand, it over to Brian to discuss our business unit performance.
Thank you Phil and I also wanted to thank our experienced team for their efforts in leading and executing through a changing freight environment and delivering continued value to our customers.
I will now discuss our reportable segments, starting with our intermodal and transportation solutions.
In the first quarter Ics revenue declined 9% driven by softer intermodal volumes declined 12%.
Scott intermodal declined 6% local west declined 12% in the local east declined 17%.
Intermodal revenue per unit increased 3% in the quarter and we continue to grow our dedicated trucking operation, where the revenue increase 5% in the first quarter and a strong pipeline for the rest of the year.
After import volumes and elevated customer inventories generated softer volume and lower accessorial revenue, which led to a decline in Etfs operating income as a percent of revenue by 400 basis points year over year.
We continue to offset price pressure with several cost improvements that include but certainly are not limited to lower outside dray cost improved rail agreements and an increase an in source drayage from 58% in the first quarter last year to 74% this year.
These cost improvements have more runway through the second half of 2023.
In addition rail transit has continued to improve in the first quarter and are much more consistent leading to improved service in St Economics.
We are pleased with the wins, we have so far through bid season, and we expect them to start to materialize in the second half of the year.
We will continue to invest in our intermodal business, even in a down cycle to deliver a superior service product that helps bring cost savings and sustainability to our customers, which in turn we believe will continue to drive long term sustainable growth.
Now turning to our logistics segment.
As we continue to deepen our value to our customers with our integrated approach to supporting an end to end supply chain. We were successful in expanding our logistics operating income as a percent of revenue by 70 basis points in the first quarter and despite the challenging freight environment, our brokerage held volume close to flat and grew market share with several new.
Customers.
Our overall logistics segment experienced a revenue decline of 13% in the first quarter, but as illustrated in our yield improvements we have been successful in executing on lowering the cost of purchased transportation and integrating our service offerings.
We have successfully integrated our past two non asset acquisitions and continue to harvest cross selling synergies.
We continue to be very pleased with our brokerage team as our <unk> integration is provided non asset diversification volume leverage and continued cross selling upside, which will further position us for growth.
To support our growth we on boarded two new multi purpose logistics locations in the west in the first quarter and we expect to onboard at least two more in 2023 to take our warehouse logistics square footage to over $10 million by the end of this year.
Locations are strategic to our hub network of freight as they support inbound and outbound multimodal hub volume and service our customers supply chain needs.
We have a great logistics pipeline of new on boardings with launch dates in Q2 and Q3.
Our logistics deal size continues to grow and our close ratio remained strong.
With these enhancements we are in a great position to continue our trajectory of profitable growth.
With that I'll hand, it over to Jeff to discuss our financial performance.
Thank you Brian .
Despite softer freight market conditions, we generated revenue of $1 $2 billion for the quarter, which is the second highest first quarter revenue in the history of our company.
Our continued focus on cost containment and operating efficiency led to operating income margin of six 8% of revenue.
As detailed in our press release, we are updating our income statement presentation.
As well as disclosing revenue and profitability for Etfs and logistics segments.
Purchase transportation warehousing represents cost paid to third parties for carrier and storage capacity.
These cost declined as a percentage of revenue as compared to the prior year, reflecting our focus on cost containment.
Salaries and benefits reflect the cost of our office and non office employee base.
These costs rose from the prior year as we significantly expanded our company driver count and added and warehousing operations through the acquisition of tag logistics.
This increase was offset by lower Opex and play cost and lower incentive compensation expense.
Our depreciation and claims costs, both increased from the prior year due to investments in fixed assets and the expansion of our company Drayage operation.
G&A cost increased as we operated our drayage terminal and warehousing network and invested in software.
Our diluted earnings per share for the quarter was $1 88.
Our performance softened as the quarter progressed, particularly within intermodal as lower volumes, a rapid decline in accessorial revenue and lower pricing impacted profitability.
We generated $124 million of EBITDA in the quarter and ended with $343 million of cash on hand.
We are updating our guidance for 2023.
Demand conditions began to decline in the second half of 2022.
Due to macroeconomic factors and rising retailer inventory levels.
We expect these conditions to persist for at least the first half of 2023.
Dissipating a slight improvement in demand later in the year.
For 2023, we expect to generate littered EPS of between $6 $7 per share.
Expect revenue will range from four six to $4 8 billion.
For intermodal, we're forecasting mid single digit volume declines for the year.
We expect to face softer pricing less accessorial revenue and the lack of surcharges this year.
Which will be partially offset by lower purchase transportation costs and improved operating efficiency.
We expect Q2, EPS will be the lowest of the year and will decline from Q1 levels at a similar sequential rate as we experienced in Q1.
We've also revised our capital expenditure expectations for 2023 to $140 million to $150 million.
From our initial estimate of $170 million to $190 million as we reduced our planned container adds for the year.
Based on this guidance, we would expect to generate EBITDA less capital expenditures of over $300 million in 2023.
This free cash flow profile combined with our zero net debt balance position.
Positions us with the financial flexibility to invest in our business through capital expenditures and acquisitions.
As well as returning capital to our shareholders.
With that I'll turn it over to the operator to open the line for any questions.
As a reminder to ask a question you will need to press star one one on your telephone.
Our first question comes from the line.
Of Jon Chapell of Evercore. Your question please Sean.
Thank you good afternoon.
Got it let me just start with the trends from basically January through where we are today, especially on the intermodal volumes overall kind of the cadence through March and as you have it right now.
Sure intermodal volume on a year over year basis January down eight February downturn.
March down 18 in April also down 18 today.
And I think John I think we've.
Haven't seen necessarily the.
Typical seasonality you would see with March being a stronger month in Q1, which is a big part of the revision to the guidance and seen where April is coming in with <unk>.
Pricing resetting at a lower level as well as that <unk> rolling off.
Yes that makes sense, we feel good about the.
Logistics part of our business performing well.
I was just coming off such a high level from last year and Thats, a big part of the business.
Okay.
Aligns with what we've been hearing otherwise.
Kind of bigger picture question, Phil and maybe for Jeff as well last quarter, you talked about the acquisition pipeline, hoping to do more than one per years, you've kind of done in the past this environment kind of give you some pause.
The bank environment give you some pause or does it create more opportunities and how do you think about kind of the timing and the size of acquisitions. This year amid this much weaker backdrop versus you have this massive cash flow generation, the stock's really cheap by anyone's metrics in the buyback program you have outstanding right now.
I think our free cash flow profile and our current balance sheet situation.
Or does the opportunity to pursue both.
We do have a good pipeline of opportunities.
We actually think the current state of the financing market plays well to our strength.
Given our ability to fund an acquisition off of our balance sheet, we don't rely on capital markets.
Obviously, we're pursuing companies that are performing well and as you as you would expect that the companies that are willing to talk right. Now are those that are performing and so.
And we've mentioned this in the past I think we talked about this on our last call.
If we if we don't feel like we're in a position to execute on an acquisition, we will more aggressively pursue the return of capital.
We are not at that point right now, but we do have the ability to pursue both.
I would just add John I think we've built through the acquisitions, we've done in the past and more resilient model unchanged that free cash profile as we've said before we're going to continue to focus on non asset businesses that help us build scale or bring differentiation in our service offering as well as new technologies. So we do as Jeff mentioned.
We do have a strong pipeline.
We are hopeful that we'll be able to close on a transaction this year, but if not and if things don't come along as we are hoping we'll certainly be ready to enact the buyback.
Got it thanks, Thanks Jess.
Thank you.
Our next question.
Comes from the line of Elliot Alper of Cowen <unk> Company. Please go ahead Elliot.
Great. Thank you for the question.
You talked about a $7 floor on your previous guidance last quarter.
Kind of how it would take a material change in consumer spending and volumes to change that.
I guess is that what happened this quarter or are you seeing other factors at play.
No, it's really driven by demand.
We think we're in that and that lull periods until we know that will correct. That's certainly a question of.
Well not yet.
Yes.
Along with that I think supply conditions remain pretty Louis we expect those will tighten as well to.
To get to the upper end of our current guidance, we expect both those conditions would need to be satisfied.
If conditions were to stay the same for the full year, that's what gets us to the lower end of our.
I think.
When we initially issued guidance, we were coming into the year with sequential improvement from December to January we were anticipating that trend would continue and we would see that.
March would be much stronger in the quarter I think as we went through the quarter. We saw were re pricing in a more aggressive environment, we're seeing accessorial fees roll off and we're not getting the bid compliance that we're hoping for on the awarded business and so with that trend continuing into April we wanted to make sure. We adjusted the guidance I think as we look ahead.
Ed we do feel as though our bid compliance will improve our new bid awards are certainly having a higher compliance level than our older ones and as we reset all of those will be in a good position I think we have performed very well in bid season. We are focused on really maximizing that margin per load day, increasing the velocity in the network.
And so if we see a trend.
Inventory starting to come down import volumes, increasing that floor in the spot market really come together.
That will lead to those bid awards materializing and so Thats why we do believe we're going to see some sequential improvement from Q2 to Q3 and Q3 to Q4.
Yes.
That's really helpful. Thank you.
So I guess, maybe on the commentary on kind of a mid single digit volume decline for intermodal volumes for the year off of that.
118% in April I guess, how should we think about that progressing through the year and kind of.
What gives you confidence on that kind of back half turnaround.
Yes, so I think part of it is comparable from last year, but I think the other piece is that compliance level that were seeing on New awards were also seen really strong performance.
In our other service lines, which helped to feed our intermodal business. We had some nice wins that are going to be coming on so part of it is comps, but part of it is also we have a good pipeline of on boardings, we just need to see those really materialize. Yes. Elliot. This is Brian I'll add to that as well I think we're finding new ways to win with our customers, where we certainly participate in bids.
And wind transaction, we were able to couple together some of our other logistics non asset offerings that help us win that volume become more sticky with it and be less price sensitive. So customers are looking for trans load or consolidation solutions, we're able to supply those for them as well given them access to our logistics square footage throughout our <unk>.
Network. So we see that also helping to drive in the back half.
Great I appreciate it thank you.
Okay.
Thank you.
Our next question comes from the line of Brian <unk> of Jpmorgan. Your question. Please Brian .
Hey, good afternoon. Thanks for taking the question just wanted to talk more about competition.
Get to you to elaborate on that a little bit where you're seeing the most pressure obviously volumes are down quite a bit and across the board, but also on the in the local east as this.
More IMC competition is it more trucks.
Can you elaborate a little bit more on that and what do you expect to see throughout the rest of the year.
And if you can throw in the spreads where they are right now in the different regions versus truck that'd be helpful. Thanks.
Sure. So it's certainly been a more competitive bid season I think in shorter haul segments, we're seeing that be with both truck and intermodal and then in longer haul segments more with intermodal as you know our growth has mostly been in the transcon portion of our network, which has a little bit more resiliency in that sort of environment, but it's also very dependent on import volumes, which had been.
Slower we are seeing wins continue to come online, we're seeing more customers respond positively to our increased service levels. The economics, we can bring and the capacity assurances I think as we see things tightened up over time, so it's certainly been more competitive.
Not anything that's surprising to me or any any.
Increased competition versus where you would anticipate it would be for us. We're staying focused on that margin per load day model that helps us generate the maximum returns, creating more balanced creating more fluidity in velocity.
I think from a spread perspective on contract business, it's really anywhere from mid teens to high teens on the longer haul business too a little bit under that maybe just low double digit.
In local market. So the spread is certainly tighter than what we would anticipate but I think if you see the spot market really start to bottom and some volumes really come online that will that will get wider again, yes, Brian . This is Brian as well here I'll just add to that too.
Drive the competitive price out there we've been very successful in taking cost out of our network I mentioned, our improvement in <unk> as well as our improved buying power and outsource trade as well as our rail service agreements, but also we're coming to the end of a rollout of technology in all of our terminals, we centralized our load planning and thats, helping us become more.
Inefficient on the street, so that all altogether helps us compete.
Okay and then just.
Follow up on the guidance it sounds like accessorial rolled off quicker than you expected is that.
One of the bigger needle movers I guess in terms of how the guidance has changed is that now all out of the updated numbers.
Oscar you're assuming in the guide in terms of either gain on sales or buybacks. Thank you.
<unk>.
Sure. The guide does not assume a buyback because I assume.
To your point asset soil revenue declined pretty rapidly in the quarter, we had been modeling that for the year just happened faster than we thought and so there is a minimal level of that going forward.
Gain on sale.
About $4 million in the quarter.
Minimal going forward as well and we didn't build in a very significant peak season or surcharge related revenue.
As stated with that as well.
Sorry, just to clarify Jeff as the <unk>.
<unk> just came out faster than you thought and there really was no net change or were there more of that coming out and just altogether on a net basis.
Hi.
We got to the point, we thought we'd be at by the end of the year in the first quarter.
Okay.
Yes, thanks for clarifying.
Thank you.
Our next question.
It comes from the line of Bascom majors Susquehanna.
Please go ahead <unk>.
Looking past 2017, you Fortunately <unk> done a lot more raising of guidance then.
<unk>.
I was hoping that you could walk through.
The lower end of the range today with and walk us through some of the levers beyond that $4 6 billion in revenue how do you get conviction that the first cut is the last cut in.
What are the assumptions that get you to six box and how are you comfortable there. Thank you.
We tend to be pretty conservative our guidance. So it was a big deal for us to come in with a reduction, but we didn't want to be.
Provide a balanced view of what we're seeing.
The condition again softened throughout the first quarter and have not really firmed up since then.
Conditions were to stay the same and volume were to be basically flat sequentially. The rest of the year.
That's what gets us to that to the lower end of our range.
Higher end of the range would come with.
A stronger improvement in volume sequentially.
Sequentially after the year so.
At the midpoint, we're down mid single digits on volume.
To get to the higher end of the range would be closer to flat for the full year, which obviously would imply a sequential improvement in the back half.
If the condition exists that drive that type of volume, we would expect to see surcharge revenue coming into play in late Q3, or Q4 that would also get to the higher end of the range as well.
I'll just call out <unk> as well this is Brian the resilience of our brokerage operations amongst the headwinds in the market. So even with those market headwinds <unk> been able to hold their volume close to flat and continue to add new customer logos and gain market share and as the as the demand increases thats really going to accelerate.
Their performance while they also are able to keep their cost contained so that team moves very fast. They move ahead of the market and they protect the service the market share in their overall yields and that helps bring a diversified offering.
Thank you both for that and just one more piece I believe you said you thought you could do about 250 million of free cash flow at the initial guide you've cut Capex, maybe theres some working capital release here any update on what free cash flow looks like at least within a range at the new income level.
Thank you.
Sure I had said in my prepared remarks, but on an EBITDA less capex basis with this guide we'd be north of about $300 million.
Q.
Thank you our next question.
Comes from the line of.
Scott Group of Wolfe Research. Please go ahead Scott.
Hey, Thanks afternoon, guys. So.
I was wondering if you could help maybe give us some a little bit more history of this disease.
<unk> margin fell from 11% to 7% but.
Where it was this margin.
Prior to the pandemic, what's been the historical peak to trough range.
Any sort of color history there.
It could be helpful.
Sure so in the press release.
In the appendix, we did put out in 2022 by quarter, So 2022 full year.
Operating income margin was.
With 10 five.
We didn't go back and recap all of the history, but the company as a whole back in the 2017 2018 timeframe was around that.
Two 5% to 4% range.
Back that intermodal is a much bigger.
Part of the overall puzzle.
So that would have certainly been a part of a big driver of that $2 five to four would have been in intermodal so kind of call. It the.
4% to 5%.
Range.
We've done a lot to improve the business we've taken a lot of cost out we have better yield management disciplines.
Certainly in sourcing our drayage is a big driver of value as well as offers a service benefit as well, but taking that up from.
Historically mid fifties up to.
In the mid seventies today and looking to go higher that's another driver as well along with the technology and operating efficiencies below the.
Below the transportation line.
Yes, it's kind of just highlight I think we're far better recruiter drivers now so we feel that we can sustain.
74% that we're at and get to that 80%, we actually have a backlog of candidates that are coming on and we've increased our driver count of 33% year over year.
So those are markets, where we're oversubscribed, we have a few that we need to make up the gap to get to 80% we're aggressively pursuing drivers in those markets.
Those economics will certainly help us quite a bit.
And are proving to be very helpful. In this sort of environment. I would also just highlight the improved rail agreement that we have that are certainly supporting our ability to go out and win as well.
Yes, just one piece to add to that as well as we've integrated our drivers that we've really found a lot of optimization and how we share drivers amongst our dedicated and our intermodal drayage within that Ats.
And maybe do you have what's in the guidance for Q2 and full year <unk> margin I'm, just wondering like last quarter or last few quarters, we talked about why there would be less sort of cyclicality in the margin going forward 400 basis points, a big drop in one quarter.
So I just want to understand.
Is there.
The variability of the rail contracts is that.
Still in play, but it just happens on a lag I just want to understand.
The cyclicality of these margins a little bit better.
Sure I think the cyclicality of the margins overall is is going to benefit from our logistics our logistics segment.
Where the margin did improve year over year, and we expect that will continue to ramp.
The reality, though is Ics in intermodal and particularly sensitive to rate.
The biggest single part of our business that does drive some variability in the business.
We expect.
In a cyclical market such as intermodal.
Periods of price strength in periods of price weakness last year was obviously a period of price strength. This year, we expected.
It's going to be one of the trough and the price weakness side.
So while there will be variability within intermodal, we do have the levers around rail flexibility with our rail contracts and the ability to in source more of the drayage and then the other key factor is just the growing part of our overall business coming from logistics.
Scott There is a lag on those rail agreements and I would also just highlight I think we're coming off of historic highs in gains on sale.
On accessorial fees on surcharges that have normalized more quickly quickly and drastically than I think we would have anticipated. So we said we feel a higher floor on earnings that we can now grow off of and I also believe that.
It's higher than our 2021 earnings per share, which I think is very strong and thats. The second best year, we've ever had in the company and I think lastly.
We feel we've built a more resilient model with that in sourcing drayage.
With continuing to improve those rail contracts and with the diversification that we've done which is leading to a really high free cash flow generating model in a difficult environment.
Yes, those are all good points do you mind, just sharing know what's in the guidance for Q2 and full year <unk> margin.
It'll be a step down from where we were in Q1.
Somewhere in the.
Probably another 100 150 basis points for the full year.
Alright. Thank you guys appreciate the time.
Yes.
Thank you.
Our next question comes from the line of Tom <unk> of UBS. Please go ahead Tom.
Yes, good afternoon.
I wanted to ask you a little bit about the competitive dynamic out there.
I think.
There is some sensor has been a sense, maybe that intermodal prices don't won't go down quite as much as.
Truckload contract rates.
So maybe broker rates down the most and then truck.
Asset base.
Pat in intermodal that is bad I wanted to get your thoughts and see if that's right I guess thats, excluding the impact of storage fees going away, but on that and do you think that there is.
Some kind of I guess stability or is it the pressure keeps building.
Might get a bit worse.
As you go through <unk>, so really just trying to competitive dynamic. Thanks.
Yeah sure so I think.
That you're you're.
Search and around rates by by group of brokers, having the lowest.
Full truckload carriers, having the net flows to intermodal outperforming is accurate.
In Q1, our year over year revenue per load was up 3%, which I think is a strong obviously, we are renewing those rates through this cycle at a at a lower rate.
So I agree with.
What you said there Brian you want to take yes.
I think on the brokerage side to what we saw in Q1 of last year was we were about 60% spot 40% contracted what we did is worked really hard to get those customers moved outta spun into contracts. So that we can retain them in a much more stable environment in our in our contracts that we have seen that help protect our volume as illustrated in our and our broker.
<unk> results and we think thats going to help us as the market starts to move up as well to drive more volume in that brokerage side.
Just to round it all kind of I don't anticipate.
Paint that we're going to see.
<unk> go much lower from what we're renewing right now.
That would.
To me the.
Surprising and we'd really be driven I think by a consumer driven recession.
Think we're through 43% of our bids with renewals that are effective we're repricing another 40% right now that will be effective in Q2, and theres just not that much left.
After that obviously in the third quarter and fourth quarter to reprice, even if there was additional downside I think we have seen a few customers pull bids forward.
That hasn't been a dramatic change, but you can tell that there is a thought out there from our customers that the market might shift a little bit here in the back half and they want to try to get the best rates during.
Q2 pricing so that would be our read on on a go forward just one last piece to that as well as we still are hearing from our customers that they that they have volume that's moving over the road that they want to convert to intermodal and that service stability that we've been seeing from the rails has really played out nicely in Q1, we've gained confidence.
And the stability of that and the consistency of it so we've trimmed our transits to those customers to better compete not just on price, but on overall service with over the road.
Okay.
Then I have one that's a little more granular I suppose.
Sure.
When you talk about the guidance of the kind of decline in <unk> similar to the decline <unk> versus <unk> or you're talking about a percent change or an absolute earnings per share change. It makes a little bit of a difference when you look at it.
Per se.
Percent right.
Okay great.
Great. Thank you for your time.
Yes.
Thank you.
Our next question.
It comes from the line of Justin long of Stephens Your question Justin.
Thanks, and good afternoon.
I guess, Phil It was helpful to get some color on the cadence of bid season, but would love to kind of hear how contract pricing is trending so far when you look at that kind of first 80%.
And maybe your level of visibility at this point.
Sure So certainly certainly lower on.
On a year over year basis.
I think for US there is a mix component, where we're really trying to target balance were focused on retention of incumbent kind of long haul and head haul business, while getting that backhaul balance and I think that.
So from a revenue per unit perspective.
Might be lower.
And that kind of mid single, but on a.
By retaining the head haul, we're really doing far better than that and I think you can see that in the revenue per unit being up 3% on a year over year basis. Despite renewing the majority of that business or is.
Of that 42% of the business during the quarter. So our view is still we're going to do better than truck that it will be in the kind of single digits.
On renewals.
The decline in.
We're really managing I think very well through bid season.
Really picking our spots and.
And try and get that velocity in balance back into the network.
Got it and if rates are down single digits I know mix is going to play a role as well in accessorial. If there is no way you can help us think about the trend of all in yields going forward and what's baked into the guidance on a year over year basis.
Sure we are assuming.
We'd be down could be flat to down low single.
Okay.
Okay and last thing I wanted to ask I wanted to try the question on segment margins, maybe a bit differently given the re segmentation. How are you thinking about targeted operating margins in both Ics.
And logistics is there a range you can give us in terms of where you think both of those businesses kind of trend through the cycle.
Sure.
On the <unk> side, I think last year demonstrates the power of our business and a strong pricing environment. This year is probably going to be the opposite.
And so in Q1, we were at seven 8%.
Think on a full year basis, we're down another 100 basis points I mean, that's.
That's kind of the range of strength and softness.
Maybe the midpoint is a good long term average.
On the logistics side, we keep doing better and better raising yields and operating more efficiently.
I'm not sure we're ready to come out with a with a long term number but where we are today. We think there is definitely upside and as that becomes a bigger part of the business. It will mix up the overall margin and part of that will be driven by how much acquisition revenue we drive into the logistics segment I think we haven't.
That would be as high so youre not being burdened with some of those costs that come through post acquisition, but just just to kind of tie it together I think when we came out.
Quite a while back with a 2025 operating margin target of four to five 5%.
Anticipate we will continue to outperform that.
In totality and the.
By on the high end.
And Youll.
Youll see as Jeff mentioned in a strong environment.
Really be the driver of that outperformance and it.
An environment like this which is part of the balance of the portfolio that we have logistics really be the driver of the outperformance.
Got it that's helpful. Thanks for the time.
Yes.
Thank you once again to ask a question. Please press star one on your telephone again Thats Star one one on your telephone to ask a question.
Our next question comes from the line of.
Ravi Shanker of Morgan Stanley .
<unk> Ravi.
Thank you good evening, everyone. Just a couple of follow ups here I think there's been a fair bit of discussion on this call a lot.
Slower EPS and kind of where that lies relative to your prior expectations, but if I can just follow up on that and ask you. If your view of normalized mid cycle EPS and that long term guidance. This change at all kind of given where the sort of almost a new floor is and.
And how kind of bad the cycle has been good it can be expectations kind of is that just the pendulum swings a lot more or do you think that you probably also have recalibrated what normalized EPS.
Well I think Phil Phil Phil address some of that on the prior question I think our prior long term guide was $4 to $5 five on operating income margin and we expect the nor.
Normalized kind of through the cycle operating income margin will.
We will be well north of that five five I think last year is a pretty good indication of the strength.
And then this year, obviously is going to.
Be the opposite so longer term, we're going to be in the middle of those two guideposts.
Got it that's helpful and maybe kind of as a follow up to the competition question I mean, obviously the truck market right now is maybe Louis bed feels like.
The rail intermodal market also kind of fundamentally changing competitively with the combination of <unk> syndrome, new offerings and such.
All the <unk> players in the space are kind of jockeying to kind of be positioned for that.
What does that mean for kind of hub group as a whole kind of kind of what are the opportunity is what are the risks for you guys kind of maybe looking out in that same three to five year period from these changes that have taken place over the last 12 months.
Yes. So we're really excited about the premium service that just got launched by our Western partner Union Pacific.
<unk> really going to help us I think take advantage of the near shoring opportunity both in the near term as well as longer term two to three days better than the next best service.
So we hope can be a catalyst for growth and certainly it is going to be a focus area for us. We're also anticipating with west coast Port labor challenges getting behind US we will see the import volumes getting back to a more normalized level that will be a good driver of growth and then with improved service.
Sustainable service, which our rail partners and us are making the investments to really maintain that in an up cycle, we really wanted to see.
Get back to growth in the shorter haul local east market and.
And we're certainly working very closely with our partner and it needs to make that happen.
Very good thank you.
Thank you.
Our next question.
It comes from the line of <unk>.
Okay landscape of Barclays.
Your question Brendan.
Hey, this is David <unk> on for Brandon.
If I could just ask on brokerage I think there was a competitor that had mentioned kind of <unk> or <unk> as kind of a trough levels in net revenue per load.
Something you disclose but I guess are those the trends you're seeing in the market.
Do you think something else trending in terms of what you would realize on a unit basis.
Sure Yeah. Thanks, David This is Bryan.
I think Q1 would probably be in that trough.
We've seen April perform.
Just about as bumped the same as March but we have good with as I mentioned before the market share that we've gained really over the last two quarters with our combination of our acquisition of chop tank and how we face that market.
We see our volumes holding quite strong and we've expanded our gross margin as a percent of revenue and so we feel very well positioned to see a good Q2, and even stronger back half of the year with our brokerage I'll mention too that our brokerage is integrated into our full logistics offering and so we have as we diversify.
Our service offerings with our customers and we bring.
More than just capacity to them on the transportation side, we're bringing them warehouse capabilities cross docking consolidation capabilities as well as the trans loading that we've seen that business be stickier and less price competitive and and we provide a stronger service offering only thing I'd add on that that still is that our customer.
<unk> is at record levels in brokerage and Thats The Testament to our sales team and the cross selling efforts that we have but we think that positions us very well as the spot market does begin to tighten up to be there for those customers to make sure that we're absorbing maybe the some of the tender rejection theyre going to see from asset based carriers.
Thanks, Thats very helpful.
Second I wanted to talk about our segment that anymore, but Aaron I wanted to talk about with dedicated I guess.
Dedicated is a place that you can lead into maybe that customers are looking for more capacity this year.
Yes, Yes, you are right, David we have seen customers look for more stable and consistent capacity and taking out a lot of that volatility that we've experienced the last two years and their supply chain. So our pipeline is very strong we have good line of sight to our Onboarding in Q2 and Q3. We've also taken a lot of cost out of that model as well and ran it more efficiently as we've.
Integrated it within our intermodal drayage operation. So we feel very good about our dedicated growth.
Okay.
Just as a cleanup Jeff I don't know if you have handy.
Non driver employees.
I don't know if youre not breaking it out by segment, but if you have it by segment I would definitely take that.
Our total office head count was just over 2100 at the end of the quarter.
Thanks much appreciate it.
Okay.
Thank you I would now like to turn the conference back to Phil Yeager for closing remarks.
Well. Thank you for joining our call. This evening hub group is continuing to position for long term success I am confident in our strategy and team and believe we will successfully navigate this more challenging environment and I think thats evidenced by hub being on track for our second best year in our company's 50 plus year history.
As always Brian Jeff and I are available for any questions. Thank you again and hope you have a great evening.
This concludes today's conference call. Thank you for participating you may now disconnect.
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