Q3 2024 Universal Logistics Holdings Inc Earnings Call
Okay.
Speaker Change: Hello, and welcome to Universal Logistics Holdings' third quarter 2024 earnings conference call.
At this time all participants are in a listen only mode.
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Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: In the course of this call management May make forward looking statements based on our best view of the business I see today.
Speaker Change: Statements that are forward looking relate to universal's objectives or expectations and can be identified by the use of words, such as beliefs belief expect anticipate 10 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.
Speaker Change: It is now my pleasure to introduce your host Mr. Tim Phillips, Chief Executive Officer, Mr. Jude Bearish, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank.
Speaker Change: Thank you Mr. Phillips you may begin.
Tim Phillips: Thank you Joanna and good morning, everyone and thank you for joining universal as 2024 third quarter earnings call.
As evidenced by our result, Universal's diverse service offerings continue to set us apart from the competition in the transportation and logistics industry.
Tim Phillips: Our comprehensive offering of logistics solution has once again enabled us to achieve exceptional results even during this extended downturn in the transportation sector.
Tim Phillips: Before diving into the details of our performance I wanted to take a moment to express my gratitude to the entire universal team.
Tim Phillips: The dedication and hard work of our over 10000 employees and contractors are the driving force behind these achievements.
Tim Phillips: I would also like to welcome the over 'twenty 100 employees from the recent acquisition is a perfect group to the Universal family.
Tim Phillips: It is each associates commitment that allows us to consistently deliver outstanding service to our customers and maintain our position as the leading transportation and logistics provider.
Tim Phillips: Now, let's discuss the quarter.
Tim Phillips: Universal once again delivered solid results in the third quarter 2024.
Tim Phillips: We grew top line revenues by one 3%.
Tim Phillips: <unk> delivered a double digit operating margin.
And increased our earnings per share by 14, 7% compared to the same period last year.
Tim Phillips: This was accomplished while going through one of the most prolonged freight recessions I have ever experienced.
While I'm pleased with Universal's overall result, individuals' segment performance continued to vary.
Tim Phillips: Our contract logistics business continues to deliver outstanding results consistently achieving double digit operating margins.
Contract logistics has been the cornerstone of our success.
Tim Phillips: Our trucking segment has also achieved solid results. Despite the overall weakness in the truckload market. The strong demand for our specialized heavy haul wind business has propelled trucking to its highest operating margin in over two years.
Tim Phillips: And we continue to see strong demand for this offering.
Tim Phillips: Weighing down our results has been the underperformance of our intermodal segment. This business continues to perform below our expectations. However, we remain laser focused removing costs and improving efficiencies in our operations.
Tim Phillips: And these efforts are paying off in the third quarter, we saw sequential improvement in intermodal as the operating ratio and narrowed our losses to just over $1 1 million during the period.
Tim Phillips: We still have work some work to do but I'm encouraged by the impact of our results. So far during the quarter. We also made a difficult decision to close the company manage brokerage business.
Tim Phillips: <unk> underperformance of this segment along with a deeply depressed freight environment made the decision necessary.
We remain dedicated to making prudent business decisions and executing our strategy to ensure universal's long term success.
Tim Phillips: Jude will add color on the financial impact of the closure that it had on the quarter later on the call.
For the third quarter 2020 for Universal reported $44 million $426 8 million of revenue.
At $1.01 of earnings per share and an operating margin of 10%.
Tim Phillips: In our contract logistics segments revenues increased 17, 8% to $245 2 million.
Tim Phillips: This was largely due to our specialty development project in stent in Tennessee.
Tim Phillips: At the end of Q3 2020 for Universal managed 70 value added program down three from Q3 of 'twenty three.
Contract logistics remains our most consistent and profitable segment. This was the 11th quarter of operating ratio is below 90% and the sixth straight below 85%.
Tim Phillips: Im also excited about our recent acquisition of parts at.
Tim Phillips: Our market leading provider of rail terminal management services, the acquisition will allow us to enter new industries expand our service offerings and our contract logistics segment and provide cross selling opportunities for drayage and other service line.
Tim Phillips: It will also bring our contract logistics segment.
Tim Phillips: Segment's annual revenue run rate to over one 1 billion.
Tim Phillips: We expect continued outperformance for the segment in the near future. Despite elevated inventory levels. The outlook for the automotive industry is positive with the Saar for September $15 8 million.
Class eight production also remains stable with large backlog of expected build for the full year 2024 and 'twenty five.
Overall, our trucking segment is performing relatively well given the depressed transportation backdrop.
Trucking segment revenues decreased 10, 3% to 87 million. This was due to a 16, 1% decrease in load call.
Tim Phillips: We were able to partially offset this decrease with a nine 3% increase in revenue per load excluding fuel surcharge.
Tim Phillips: Trucking segment results were buoyed by the strong results from our specialized heavy haul wind business.
Tim Phillips: We expect this can continue throughout Q4 2024, as we have a full schedule of wind projects.
Tim Phillips: Our specialized heavy haul wind business has a long runway that should see growth for years to come providing solid solid trucking segment performance insulated from fluctuations in the broader truckload market.
Tim Phillips: Outside of specialized spray the truckload market remains soft flatbed volumes were down 12, 9%.
Tim Phillips: There's still too much capacity in the market and we expect truckload weakness to persist until we see some more capacity exit.
Tim Phillips: The intermodal segment is slowly beginning to improve in the intermodal segment revenues decreased 11, 8% year over year to 77 6 million.
Compared to Q3 2023, our intermodal segment experienced a 13, 2% decrease in volume while rates increased one 8%.
Additionally, accessorial charges decreased $1 million and fuel surcharges revenues decreased $2 8 million. However.
Tim Phillips: However, compared to sequentially to Q2, the picture is much better.
Tim Phillips: Revenue was nearly flat with both volumes and rates stable, indicating that the segment made may have bottomed.
Tim Phillips: Additionally, our intermodal segment operating ratios decreased to 101, 5% in Q3 2024 compared to 110, 6% in Q2 2023.
Tim Phillips: I'm, sorry, Q2, 2024 evidence that our cost cutting measures are paying off.
Tim Phillips: We continue to streamline the business with a focus on truck productivity and taking out cost where possible.
Tim Phillips: Our focus is also on capturing volume in order to position ourselves for a strong turnaround when capacity does finally come out of the market and the rate environment improves.
Tim Phillips: Looking ahead, we are excited by our strong sales pipeline filled with opportunities specifically contract logistics and dedicated opportunities account for over $700 million.
Tim Phillips: This robust pipeline allows us to be selective focusing on the visit that align with our core competencies and desired margin goals.
Tim Phillips: By maintaining this strategic approach, we can ensure long term success, while delivering exceptional value to our clients.
Tim Phillips: I am incredibly proud of our performance in the third quarter of 2024.
Tim Phillips: I want to take this opportunity to thank all our employees.
Tim Phillips: Their hard work and commitment are the backbone of our success.
Tim Phillips: I also want to thank our customers for their continued trust and universal.
Tim Phillips: I'm optimistic about the rest of 2024 and confident in our future.
Judy: I will now turn over to Jude to provide some color on our financials and expectations for upcoming quarter. Judy. Thanks, Tim Good morning, everyone yesterday, Universal Logistics Holdings reported consolidated net income of $26 5 million or $1 one per share on total operating revenues of 426.
Judy: $8 million in the third quarter 2024. This compares to net income of $23 million or <unk> 88 per share on total operating revenues of $421 3 million. During the same period last year consolidated income from operations was $42 6 million for the quarter compared to 36.
Judy: 8 million one year earlier.
Judy: EBITDA increased.
Judy: $16 2 million to $72 9 million, which compares to $56 7 million. During the same period last year, our operating margin and EBITDA margin for the third quarter of 2024, or 10% and 17, 1% of total operating revenues these metrics compare to eight 7%.
Judy: <unk> and 13, 5%, respectively in the third quarter of 2023.
Judy: Looking at our segment performance for the third quarter of 2024, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased $10 5 million to $45 6 million on $245 2 million of total operating revenues. This compares to operating income of <unk>.
Judy: $35 1 million on $208 1 million of total operating revenue in the third quarter of 2023.
Operating margins for the quarter were 18, 6% of total operating revenues compared to 16, 9% one year earlier.
Judy: We continue to make excellent progress on our specialty development contract logistics program.
Judy: During the third quarter of 2024, we recognized an additional $36 8 million of operating revenues related to this program. This brings our year to date operating revenues related to this program to $176 6 million.
Judy: As a reminder, during the full year 2024, we expect to recognize totally total operating revenues on this program of approximately 228 million and.
Judy: And continue to expect it to be substantially complete by December 31, 2024.
Judy: Revenues generated on this program are reported and value added services and the associated costs in operating supplies and expense.
Judy: The result of this program are included in our contract logistics segment.
Judy: Based on its current cadence we anticipate this program will generate additional revenues of approximately $50 million during the fourth quarter of 2024.
Judy: Our guidance that I will discuss momentarily reflects the impact of this program during the fourth quarter.
Judy: Onto our intermodal segment operating revenues decreased $10 3 million to $77 6 million compared to 88 million in the same period last year and income from operations increased $3 3 million to an operating loss of $1 1 million. This compares to an operating loss of $4 5 million in the third quarter.
Judy: 2023 operating ratios for the quarter were 101, 5% versus $105 one last year.
Judy: In our trucking segment operating revenues for the quarter decreased $10 million to $87 million.
Judy: Compared to $97 1 million in the same quarter last year.
Judy: And income from operations increased 600000 to seven 1 million. This compares to $6 6 million in the third quarter of 2023 operating margins for the quarter were eight 2% versus six 8% last year.
Judy: As previously disclosed in an 8-K filing on August 23rd Universal ceased operations of its company managed brokerage business.
Judy: During the third quarter of 2020 for this business unit incurred pre tax losses of approximately $8 6 million, including $2 8 million of noncash impairment charges.
Judy: These losses adversely impacted the Companys operating margin by 200 basis points net income by $6 4 million or <unk> 24 per basic and diluted share. We expect no further negative financial impact from this operation going forward.
Judy: During the quarter, we also made two strategic business acquisitions.
Judy: On September 13th 2020 for Universal acquired the assets of East, Texas heavy haul the truckload agency that formerly managed our specialized wind business. This acquisition will convert an agency to a company managed operation and is expected to accrete approximately $3 million of additional EBITDA to <unk>.
Judy: Walking segment.
Judy: Next on September 32024, we acquired <unk>, a rail terminal operator, whose operations extend across all class. One railroads that includes three of the largest rail ramp in North America. It also accounts for approximately 20% of all North American lift.
Judy: We anticipate this acquisition to add approximately $230 million of topline and nearly $30 million of additional EBITDA annually to our contract logistics segment.
Judy: Both of these acquisitions will be immediately accretive and were financed with availability on our revolver.
Judy: On our balance sheet, we held cash and cash equivalents totaling $11 8 million and $11 7 million of marketable securities.
Judy: Outstanding interest bearing debt net of $3 $8 million of debt issuance cost totaled $557 5 million at the end of the period.
Judy: Excluding lease liabilities related to ASC 842, our net interest bearing debt to reported TTM EBITDA was one eight times.
Judy: Capital expenditures for the quarter totaled $65 million for the full year, we are expecting capital expenditures to be in the $315 million to $330 million range and interest expense to come in between 34% and $36 million.
Judy: Based on the current operating environment and the expected cadence of the new contract Logistics program mentioned earlier for the fourth quarter of 2024, we are expecting topline revenues between 450 and $475 million and operating margins in the 9% to 11% range.
Judy: Given the number of moving pieces in our business throughout the year, including the recent acquisitions closing of our company managed brokerage and the roll off of our specialty development project. We also wanted to offer some longer term guidance on how we see the business performing in 2025.
Looking ahead, our expectations for the full year of 2025 are operating revenues between one 8% to $1 9 billion and operating margins between 10 and 12%.
For the full year of 2025, we are also expecting capital expenditures to be in the $140 million to $160 million range before any purchases of strategic real estate and interest expense to come in between 45 and $50 million.
Judy: Finally, Wednesday, our board of directors declared Universal's 10, and a half cent per share regular quarterly dividend.
Judy: This quarter's dividend is payable to shareholders of record at the close of business on December <unk> 2024, and is expected to be paid on January 2025.
Judy: With that Joanna we're ready to take some questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
Speaker Change: You'll hear it Pops that you had has been raised.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any case.
Speaker Change: Your first question comes from Bruce Chen at Stifel. Please go ahead.
Bruce Chen: Hi, Good morning, James and J&J Pops onto Bruce.
Bruce Chen: Hi, good morning, everybody.
Bruce Chen: Doing great.
Speaker Change: Just start here with the new terminal.
Terminal operations business with <unk>.
Speaker Change: Ready to get an idea of.
Margin profile going forward and what the synergy opportunity you may see between the rest of the business. I know you guys noted some things in the release, but just kind of wanted to understand long term, what kind of synergy opportunity as you see here and what opportunity you have to to expand margins beyond what you laid out just.
Speaker Change: Just a moment ago. Thank you.
Speaker Change: Yes, Andrew this is Tim.
Yes.
Speaker Change: Beyond what we mentioned.
Speaker Change: There was a third thorough.
Speaker Change: Thorough thoughtful prop.
Speaker Change: Process Onboarding parts that can how it will affect our overall business.
Speaker Change: We truly believe there are synergies there that allow us to have additional touch points in the supply chain.
Speaker Change: I think that the involvement of new Blue chip.
Speaker Change: New blue chip customers and their exposure to some of our other services.
Along with what we already do on the intermodal front from an intermodal drayage standpoint, we think that theres going to be some opportunities that are going to come of that new partnership. We're really excited about it because no overlap to our current business and Theres, a really good cultural fit of the <unk> group in the universe.
Speaker Change: So group I think that was one of the other determining factors as you listen to people.
Speaker Change: Peel back the onion on acquisitions that we thought that it would be as we had mentioned immediately accretive but also the synergies there on the human side of it we felt that it was a really good fit that we could push it right into the universal family without a hiccup so extremely.
Speaker Change: Extremely excited about that.
Speaker Change: Yes, absolutely and in also.
Speaker Change: The profile of its EBITDA fits in well with our existing contract logistics business right. So we're expecting double digit.
Speaker Change: EBITDA margins in this business similar to what we have on our on a number of our programs within contract logistics and as Tim pointed out.
Speaker Change: The cross selling opportunity, particularly within our drayage business is something that we're really excited about in addition to any other type of services that we can offer the rail now that theyre going to have a very large partner with a pretty big balance sheet to help them in any way they can to off load all of those difficult things that universal is really really.
Speaker Change: Good at.
Speaker Change: Yes.
Speaker Change: Great and then it seems like a good fit contract structure wise as well so we'll dive into.
Speaker Change: The brokerage closer closer here.
Speaker Change: It could is there any tightening of that business to the agent organization and I guess, how should we think about the <unk>.
Speaker Change: Timelines of the wind down there.
It is completely done now I just see them.
Speaker Change: Revenue that's flown into the other segments.
Speaker Change: The P&L. So just wanted to know how do we think about that modeling going forward.
Speaker Change: Yes, absolutely. So remember universal has two aspects to our brokerage business and our legacy agent based truckload business. The brokerage that is handled in that space is really that overflow of brokerage model right, where they have an arrangement with our customer there are tendered say five loads and they only can cover.
Speaker Change: Three with our own capacity and so they'll throw those other two loads out to be brokers. So that piece of our business that overflow piece will continue to exist within our legacy truckload business. This specific business was.
At Universal acquired in 2009, it was a stand alone company managed operation located in Nashville, and really what it was as an aggregator very similar to some of the other large brokers that you see out there except for we really didn't have a lot of other services that we could.
Speaker Change: <unk> offer our customers. So they really predominantly became a price player and if you really look at our results over the past couple of years in 2023 that business lost about $2 $3 million operated at a 102, and we were losing between two and $3 million of course.
<unk>.
Speaker Change: This year with really no end in sight right. So it's one of those.
Speaker Change: Difficult decisions as Tim mentioned in his comments. So if you think about what we did is that we shut down that operation in August we don't expect any further impact on the business related to it we took our medicine, which was about $8 $9 million worth of expenses. So this year. If you look at the result.
Speaker Change: We have about what nine kind of about $13 million of losses related to our brokerage business that we've just replaced with about $33 million of additional EBITDA with the two acquisitions that we made so you think about it we're going to have about a $50 million swing in our EBITDA year over year the impact of <unk>.
Speaker Change: <unk> down that business and it actually being able to buy businesses that we have something to offer our customers other than price. So although these are very difficult decisions that we have to make because of that there is people involved as Tim mentioned in his comments, we have to look at the business and how it's performing.
Speaker Change: And they all have to stand on their own. So we really look at the combination of closing down our brokerage, which was a non core business and adding on these other two acquisitions in the quarter, which are a part of our core business is just to continue of our strategy to grow those are sticky industrial type businesses, where universal can offer their customers something other.
Speaker Change: Price.
Got it that makes a lot of sense and just a follow up on that so looking forward to the new 25 guidance the margin expansion.
Speaker Change: Mainly a result of that kind of tradeoff that you've made between brokerage and the two acquisitions.
Speaker Change: Yeah, exactly so yes, we're trading businesses that will operate under 10% margin range with businesses that operated at 105.
Speaker Change: Got it okay.
Speaker Change: And so in Q truckloads and instead.
Speaker Change: Chunky business Andy Hall.
Speaker Change: Is there any impact from the hurricanes here.
Speaker Change: There's new CMO contracts in that business, just kind of wondering we've heard some other commentary from some.
Speaker Change: Some other executives that they're seeing some benefit here in the fourth quarter with recovery efforts just wanted to know do you have any exposure there.
Speaker Change: Yes, no no exposure from a fever or emergency response standpoint.
Speaker Change: Some effects of that hurricane on some of our normal band business and things of that nature, We did see maybe a little bit of pickup when doing some of those things from the industrial standpoint that will be delivered to an emergency response like pumps and generators and whatnot as far as its impact on the on the heavy haul.
Speaker Change: Business, there was zero impact on that business.
Speaker Change: Okay, and then I will just end here with I guess, a broader question with the sale of brokerage excuse me guys.
Speaker Change: Alright.
Speaker Change: Are you guys thinking about the structure of the portfolio now is there any changes to how you envision the strategic positioning and service offerings moving forward or do you have any new areas of focus. Thank you.
Speaker Change: No I mean, I think we really like the businesses that we're in and I think as.
Speaker Change: Tim has continually mentioned in his.
Speaker Change: In his comments over the past number of quarters that the real only headwind that we have left is just the turnaround of our intermodal business and if we can continue to see some better volumes that may be a little bit better price then it will kind of getting that business back to.
The financial targets that we hit and expected from a couple of years ago. So no I think we feel pretty good about the portfolio and you can see that from where were investing right. We're still investing in that truckload business, albeit on a special specialized side and.
Speaker Change: And also we made a very large investment in contract logistics, which I think is that we believe is the real all star of our portfolio. So no I think for the time being we're very happy with where we stand.
Speaker Change: Absolutely alright, thank you so much.
Thank you.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Speaker Change: Okay.
Speaker Change: We have no further questions I will turn the call back over to Tim Phillips for closing comments.
Tim Phillips: Thank you Joanna.
Tim Phillips: I am extremely excited about what is in front of US we continue to evaluate strategic additions that bolster our precision logistics solutions that we offer our customers.
Tim Phillips: From Port to plant Universal is able to provide engineered supply chain solutions with a customer centric approach.
Tim Phillips: With that I. Thank you for joining the call today and look forward to talking to you next quarter. Thank you.
Tim Phillips: Okay.
Speaker Change: Ladies and gentlemen. This concludes your conference for today, we thank you for participating and we ask that you. Please disconnect your lines.
Speaker Change: Okay.