Q3 2024 Hub Group Inc Earnings Call
To the hub group's third quarter 2024 earnings conference call.
Speaker Change: So yeager hubs, President and Chief Executive Officer, and Vice Chairman and Kevin Best Chief Financial Officer are joining the call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: A brief question and answer session will follow the prepared remarks.
Speaker Change: In order for everyone to have an opportunity to participate please limit your inquiries to one primary and one follow up question.
Speaker Change: Statements made on this call and in other reference documents on our website that are not historical facts are forward looking statements.
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These forward looking statements are not guarantees of future performance and involve risks uncertainties and other factors that might cause the actual performance of hub group to differ materially from those expressed or implied by this discussion and therefore should be viewed with caution.
Speaker Change: Further information on the risks that may affect hub groups business is included in our filings with the SEC, which are on our website.
Speaker Change: In addition on today's call non-GAAP financial measures will be used reconciliations between GAAP and non-GAAP financial measures are included in our earnings release and quarterly earnings presentation.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to turn the call over to your host Phil Yeager you may now begin.
Phil Yeager: Good afternoon, and thank you for joining hub group's third quarter earnings call. Joining me today is Kevin hub group's Chief Financial Officer.
Phil Yeager: I wanted to start by welcoming the <unk> team to the hub group family and thanking all of our team members across North America for their hard work and commitment to supporting our customers and one another.
Phil Yeager: The broader North American transportation market is showing signs of recovery with a pulled forward peak season capacity.
Phil Yeager: A resilient consumer and inventory replenishment.
Phil Yeager: Outside factors such as the recent port strike and weather events did not create significant were prolonged tightness. However, we are anticipating a more constructive framework for the market due to continued strength in demand along with small carrier capacity exits and minimal growth in capital expenditures in the industry.
Phil Yeager: These factors will over time, we do an improved pricing and demand environment, although the timing and velocity of that recovery remains unclear.
We're pleased with how we have operated through challenging market conditions.
Phil Yeager: We're a more resilient results trough to trough and generating strong cash flow, which we are utilizing to invest in our core continued to bring value to our customers and shareholders via strategic transactions and return capital to shareholders through dividends and share repurchases.
Phil Yeager: We are executing on all three of these capital allocation initiatives this quarter and I will highlight two particular items that stand out to me as examples.
Phil Yeager: Versus our new joint venture with the ASO.
Phil Yeager: He also has the largest intermodal marketing company in Mexico and is growing significantly given the great reputation and service as well as near shoring trends.
Phil Yeager: Just like us, they're a family business with a great track record of long term success. We have similar cultures and are focused on building the premier service products for intra and cross border, Mexico logistics utilizing our combined density skilled trades fleets network of facilities financial resources and customer relationships.
Phil Yeager: Second is that we are executing on our previously announced capital allocation plan, returning $91 million to shareholders year to date through share repurchases and dividends, while maintaining our strong capital structure and a robust acquisition pipeline.
Intermodal marketing company in Mexico, and is growing significantly given the great reputation and service as well as near shoring trends.
Just like us, they're a family business with a great track record of long term success. We have similar cultures and are focused on building the premier service product for intra and cross border, Mexico logistics utilizing our combined density scale drayage fleets network of facilities financial resources and customer relationships.
Phil Yeager: We are in a great position as an organization to drive significant growth in revenue and earnings ahead as we execute on our strategy and are supported by a market recovery.
Phil Yeager: Prior to reviewing our segment results I wanted to discuss our adjustments in the quarter.
Phil Yeager: Kevin will give further details regarding the transaction and restructuring related fees, but I will highlight the network alignment initiatives.
Second is that we are executing on our previously announced capital allocation plan, returning $91 million to shareholders year to date through share repurchases and dividends, while maintaining our strong capital structure and a robust acquisition pipeline.
Phil Yeager: In the third quarter, we commenced the consolidation and integration of our final mile Cross dock consolidation and fulfillment networks.
Phil Yeager: Focus of this strategy is to create a single high service and efficient hub group network of facilities that can better service, our customers and position us to compete and win in the market.
We are in a great position as an organization to drive significant growth in revenue and earnings ahead as we execute on our strategy and are supported by a market recovery.
Phil Yeager: This action comprised of integrating $2 6 million square feet of multipurpose space transferring product in hiring labor, while completing systems implementation.
Prior to reviewing our segment results I wanted to discuss our adjustments in the quarter.
Kevin will give further details regarding the transaction and restructuring related fees, but I will highlight the network alignment initiatives.
Phil Yeager: These network alignment costs, which were $8 4 million in the third quarter will conclude in the fourth quarter and our declining week to week.
In the third quarter, we commenced the consolidation and integration of our final mile Cross dock consolidation and fulfillment networks.
Phil Yeager: We estimate these expenses will be three five to $4 5 million in the fourth quarter for the transition, which will position us with a fully integrated and highly utilized hub group network in 2025.
The focus of the strategy is to create a single high service and efficient hub group network of facilities that can better service, our customers and position us to compete and win in the market.
Phil Yeager: Despite the unusual costs. We feel this is the right strategy for our logistics business in order to better serve our clients improved client retention rates and position us for success, while expanding operating margins in our logistics segment by an estimated 100 basis points based on this year's full year guided logistics revenue.
This action comprised of integrating $2 6 million square feet of multipurpose space transferring product in hiring labor, while completing systems implementations.
These network alignment costs, which were $8 4 million in the third quarter will conclude in the fourth quarter and our declining week to week.
Phil Yeager: I will now discuss our segment operational results for the quarter.
Phil Yeager: Ics earnings increased year over year, despite a decline in revenue due to improved intermodal and dedicated volumes as well as continued cost management efforts.
Phil Yeager: Intermodal volumes increased 12% year over year in the quarter as we continued to convert volume from over the road due to our excellent service product and a pulled forward West Coast peak.
Phil Yeager: Revenue per load was down 16% year over year, which was impacted by mix fuel and price on a year over year basis.
Phil Yeager: We continued our momentum in the local east with volumes up 39% local west increased 6% as we onboard a peak volumes later in the quarter and Transcon was up 1%.
Phil Yeager: Along with these strong results prior to any outflow volume, we continued our growth in Mexico with 58% year over year volume growth.
Phil Yeager: We're excited about the momentum we're carrying into bid season as we are utilizing our strong rail service enhanced driver productivity increasing percentage of in store Strache improved network balance and better container utilization to drive incremental conversion from over the road.
Yeah.
Phil Yeager: Dedicated performed well in the quarter posting revenue growth on a year over year basis, as we improved our operations and increase revenue per tractor per day by 12% we.
Phil Yeager: We continue to enhance our earnings potential through improved asset and driver utilization and are pursuing growth with new and existing customers as we deliver excellent service.
Phil Yeager: And logistics revenue and adjusted earnings increased sequentially due to new business Onboarding and strong cost management within the logistics segment managed transportation continues to perform well supporting our customers with continuous improvements and bringing on new on boardings in the fourth quarter.
Phil Yeager: In final mile we had lower volumes in our legacy business due to a large customer consolidated facilities as well as temporarily inflated costs as we completed the integration of our support teams and facilities.
We have since reorganized the team reduced costs and completed several high value Onboarding, which is positioning us well for the end of year surge in demand.
Phil Yeager: In brokerage, we delivered flat volumes on a year over year basis, but continued to face headwinds in revenue per load due to a higher mix of <unk>, which grew 21% in the quarter and lower spot market activity.
Phil Yeager: We continued our yield management efforts and also supported our customers and recovering from the hurricanes impacting the southeast while maintaining our focus on productivity.
Phil Yeager: And CFS, we're focused on completing our network transition improving our service levels and minimizing costs. We have actions in place to address all of these items and we drove a 15 percentage point improvement in utilization quarter to quarter and are enhancing our productivity, which we believe will lead to longer term growth and improved client retention rates.
Phil Yeager: As I previously mentioned, we believe we are in a great position as an organization with a solid financial profile strong cost controls committed and passionate team best in class service scale across our services in an integrated portfolio of solutions. These factors are leading to wins across our service lines and we are carrying that momentum into the close of the year and into.
Phil Yeager: <unk> 2025 with that I will hand, it over to Kevin to discuss our financial performance.
Kevin Best: Thank you Phil before I start my prepared remarks, I'd like to discuss the $10 $4 million of adjustments in the quarter the network alignment initiatives.
Kevin Best: <unk> associated with the <unk> transaction and $1 1 million of other expenses.
Kevin Best: These adjustments are cash items and impacted both segments with $1 $5 million of expenses, and Ics and $8 $9 million in our logistics segment as the majority of the network alignment efforts, including warehouse transfer and incremental labor costs impacted the final mile and consolidation and fulfillment lines of business.
Yeah.
Phil before I start my prepared remarks, I'd like to discuss the $10 4 million of adjustments in the quarter for the network alignment initiatives expenses associated with the <unk> transaction and $1 1 million of other expenses.
Kevin Best: As well as our cross dock services.
Kevin Best: We anticipate that the network alignment initiative will improve service to our customers and operational efficiency and allow us to better compete for new business.
These adjustments are cash items and impacted both segments with $1 5 million of expenses, and Ics and $8 $9 million in our logistics segment as the majority of the network alignment efforts, including warehouse transfer and incremental labor costs impacted the final mile and consolidation and fulfillment lines of business.
Kevin Best: Transaction related expenses of $900000 in the quarter included due diligence legal and insurance fees for the auto joint venture, which closed on October 23rd.
Kevin Best: Banker fees and final professional fees of approximately $2 million.
Kevin Best: We will be reported in Q4 to align with the deal closure date. In addition, we expect three five to $4 $5 million of network alignment expenses to be included in our fourth quarter results.
As well as our cross dock services.
We anticipate that the network alignment initiative will improve service to our customers and operational efficiency and allow us to better compete for new business.
Kevin Best: As I walk through our financial results My comments will focus on our go forward operating performance on a non-GAAP or adjusted basis.
Transaction related expenses of $900000 in the quarter included due diligence legal and insurance fees for the Austin joint venture, which closed on October 23rd.
As a reminder, reconciliations between GAAP and non-GAAP financial measures are included in our earnings release or Investor presentation issued prior to this call.
Banker fees and final professional fees of approximately $2 million.
We will be reported in Q4 to align with the deal closure date. In addition, we expect three five to $4 $5 million of network alignment expenses to be included in our fourth quarter results.
Kevin Best: For the third quarter <unk> reported revenue of $987 million.
Kevin Best: Revenue declined three 7% compared to last year and was comparable to the second quarter revenue of $986 million.
As I walk through our financial results My comments will focus on our go forward operating performance on a non-GAAP or adjusted basis.
Kevin Best: Ics revenue was $560 million, which was down five 9% from prior year as the intermodal volume growth of 12% and stronger dedicated revenue was not enough to offset lower intermodal revenue per load accessorial and fuel revenue in the quarter.
As a reminder, reconciliations between GAAP and non-GAAP financial measures are included in our earnings release or Investor presentation issued prior to this call.
For the third quarter hub reported revenue of $987 million.
Kevin Best: Lower fuel revenue of approximately $15 million contributed to the decrease.
Kevin Best: Logistics revenue was $461 million.
Compared to $460 million in the prior year as the contribution of the final mile business offset lower revenue in our brokerage business.
Kevin Best: Moving down the P&L adjusted purchase transportation and warehousing costs were $732 million.
Kevin Best: A decrease of $40 5 million from the prior year due to lower assets Oreo cost lower third party expenses and lower rail costs.
Kevin Best: This results in a 120 basis point improvement on a percentage of revenue basis, when compared to Q3 of 2023.
Kevin Best: Adjusted salaries and benefits for $4 $1 million higher than the prior year due to the final mile acquisition as we continue to manage overall head count.
Kevin Best: Total legacy head count, which excludes acquisition employees drivers and warehouse employees declined by 5%.
Kevin Best: Depreciation and amortization decreased $3 7 million on.
Kevin Best: On both an adjusted and GAAP basis.
Kevin Best: <unk> include a change to our useful life estimates for transportation equipment, as our containers and trailers relapsed and well beyond the previous assumption.
Kevin Best: We also discovered that we were more conservative and industry practice.
Kevin Best: Insurance and claims decreased by $1 5 million.
Due to lower claim costs in the quarter.
Kevin Best: Adjusted G&A increased by $3 $3 million driven by operating costs associated with the final mile acquisition, which were partially offset by cost management efforts.
Gain on sale with $400000 in the quarter.
Kevin Best: As a result, our adjusted operating income margin was four 3% for the quarter, an increase of 10 basis points over the prior year and a 30 basis point sequential improvement over the second quarter.
Yeah.
Adjusted operating margin was two 7% a 40 basis point improvement over prior year, and a 30 basis point improvement over Q2, Oi percentage up to 4% as we benefited from strong intermodal volume growth dedicated revenue growth lower depreciation and amortization.
Kevin Best: Expenses and cost management efforts in the quarter.
Kevin Best: Logistics adjusted operating margin is 6%, a 40 basis point improvement from the Q2 Oi percentage of five 6% due to strong results from final mile and consolidation and fulfillment services.
Kevin Best: Offsetting a lower brokerage margin.
Kevin Best: Our brokerage business continues to contribute positive operating income in the quarter and year to date, despite being challenged by the overcapacity in the market.
Kevin Best: Interest expense and other income totaled $1 4 million.
Kevin Best: Interest income was lower in the quarter.
Kevin Best: Our tax rate was 23, 2% slightly higher than our Q2 rate of 22, 8% as anticipated.
Kevin Best: For the full year, we expect an average tax rate of approximately 23% down from the previous assumption as we have managed tax related expenses better than originally anticipated.
Kevin Best: Overall, however earned adjusted EPS of <unk> 52.
Kevin Best: Per diluted share for the third quarter.
Kevin Best: Yeah.
Kevin Best: Generating cash is an important goal of management, we are pleased with our adjusted cash EPS of <unk> 62 in the third quarter.
Kevin Best: Cash flows from operations for the first nine months of 2024 or $194 million.
Kevin Best: Free cash flow of $31 million in the third quarter was impacted by our annual insurance renewal fees tax payments and expenses related to the network alignment efforts and the <unk> transaction.
Kevin Best: We also purchased $35 million of stock in the quarter.
Kevin Best: In total we returned $43 million to our shareholders in the third quarter with $8 million in dividends and the $35 million of stock repurchases.
Kevin Best: And we ended the quarter with cash on hand of $186 million.
Kevin Best: Yeah.
Kevin Best: Third quarter capital expenditures totaled $12 million.
Kevin Best: And was down 13% for the second quarter.
Kevin Best: <unk> spends included replacement for tractors that have reached their end of life warehouse equipment purchases and technology projects.
Yeah.
In total we returned $43 million to our shareholders in the third quarter with $8 million in dividends and the $35 million of stock repurchases.
Kevin Best: At the end of the third quarter, our year to date Capex was $43 2 million.
We expect full year end spend to be between 45 and $65 million.
And we ended the quarter with cash on hand of $186 million.
Kevin Best: With Q4 spend closer to the lower Q2 and Q3 levels.
Yeah.
Third quarter capital expenditures totaled $12 million and was down 13% for the second quarter.
Kevin Best: Including expenditures related to the Austin, JV, which will be consolidated in our Q4 financial statements.
Capex spend included replacement for tractors that have reached their end of life warehouse equipment purchases and technology projects.
Net debt was $102 million and our leverage was <unk> three times below our stated net debt to EBITDA range of <unk> 75 to 125 times.
At the end of the third quarter, our year to date Capex was $43 2 million.
Kevin Best: The <unk> transaction is expected to slightly increase our leverage in Q4.
We expect full year end spend to be between 45 and $65 million.
Kevin Best: We continue to expect adjusted EBITDA less capex for the full year 2024 to be greater than the $257 million generated in 2023.
With Q4 spend closer to the lower Q2 and Q3 levels.
Including expenditures related to the Austin, JV, which will be consolidated in our Q4 financial statements.
Kevin Best: Demonstrating hub cash resiliency as we expect cash earnings growth in this challenging freight environment.
Net debt was $102 million and our leverage was <unk> three times below our stated net debt to EBITDA range of <unk> 75 to 125 times.
Kevin Best: Additionally, we remain confident in our ability to execute on our capital allocation plan, which includes paying quarterly dividends stock repurchases and strategic acquisitions.
The <unk> transaction is expected to slightly increase our leverage in Q4.
Kevin Best: Year to date, we've returned $91 million to shareholders through stock repurchases of 68 million and dividend payments of $23 million.
We continue to expect adjusted EBITDA less capex for the full year 2024 to be greater than the $257 million generated in 2023.
Kevin Best: Yeah.
Kevin Best: Hub group continues to perform well with intermodal volume growth of 12% in the third quarter, well above <unk> reported volumes as customers pull forward demand in preparation for the east coast Port strike.
Demonstrating hubs cash resiliency as we expect cash earnings growth in this challenging freight environment.
Additionally, we remain confident in our ability to execute on our capital allocation plan, which includes paying quarterly dividends stock repurchases and strategic acquisitions.
Kevin Best: We've also seen some tightening of capacity.
Kevin Best: We remain optimistic that these factors will lead to improve rates and demand in the future.
Year to date, we've returned $91 million to shareholders through stock repurchases of $68 million and dividend payments of $23 million.
Kevin Best: We expect full year adjusted EPS in the range of $1 85 to $1 95 per diluted share and revenue to be approximately $4 billion.
Kevin Best: In our Ics segment for the fourth quarter, we expect to intermodal volume growth in the low double digits.
Kevin Best: For dedicated we now expect revenue for the full year to be comparable to last year.
Kevin Best: For the total logistics segment, we expect revenue to grow low single digits in the fourth quarter as brokerage revenue and continues to be negatively impacted by price.
Kevin Best: When excluding brokerage we continue to expect low to mid double digit revenue growth in brokerage, we expect volume up low single digits in the fourth quarter and for pricing to remain challenged given overcapacity in the market.
Kevin Best: Further the expected network alignment initiative tailwind is expected to begin in earnest in 2025.
Kevin Best: As mentioned at the beginning of the year, we are facing some headwinds versus last year, including higher input costs, the normalization of incentive compensation, our annual tax rate being closer to 23% and minimal gain on sale.
Kevin Best: Yeah.
Kevin Best: As we exit the third quarter, we are pleased with our performance to date with volume growth and intermodal strong cost savings initiatives disciplined financial management free cash flow generation and a strong balance sheet.
Kevin Best: Over the past several years, we have made important strategic changes to our business, including our focus on yield management.
Kevin Best: Asset utilization and operating expense efficiency, which has significantly improved profitability and returns.
Kevin Best: We've also completed several acquisitions to build out our offering and drive more stability in our earnings.
While we compete in a cyclical marketplace. These actions have accelerated trough to trough results with operating margin growing from 2% in 2017 compared with a four 3% reported this quarter.
Kevin Best: Along with an improvement in free cash flow to over $150 million year to date versus the $60 million in 2017.
Kevin Best: These strategic changes have positioned hub group for success in both the short and long term time horizon as well as in soft and strong demand environment.
With that I'll turn it over to the operator to open the lines for any questions.
Kevin Best: Thank you.
Speaker Change: I would like to remind participants that this call is being recorded and a replay will be available on the hub group website for 30 days.
Speaker Change: So ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again.
Speaker Change: Our first.
Speaker Change: Question is from Bruce Chan of Stifel. Your question. Please.
Bruce Chan: Yes, thanks, and good afternoon, everyone.
Bruce Chan: So Kevin maybe you could just walk us through the pricing backdrop in intermodal during the quarter I know that you talked about fuel in essence soils being under some pressure, but any color on the underlying pricing backdrop would be helpful, where you're seeing pockets of pressure or is that more continued drag from spots or are you seeing any competitive pressure.
Bruce Chan: From other IFC providers.
Bruce Chan: Sure Yeah. This is Phil.
Phil Yeager: We're in the early part of bid season, and I think demand has been very strong through the third quarter and into the fourth quarter. It's great to see a peak season really take hold as we kickoff bids for 2025, I think it's great to come in with the peak season, and the strong service that we have.
Phil Yeager: It's still a competitive environment, but we're not seeing anything that's irrational.
Phil Yeager: Obviously competitive because everybody wants to get their assets moving but I think everybody wants to secure price upwards. So we're not anticipating as we go into peak season that prices will be down I think it is unknown how much they will be up.
Phil Yeager: We're very focused on retaining our network friendly business, and then being prescriptive with our customers around areas, where they can help us and enhancing asset productivity enhancing driver productivity. We are going to carry forward through Q1 and Q2 some of the pricing that we have obviously earlier from this year. So we'll reprice about 70.
Phil Yeager: 1% of our business in the first and second quarter, but we're feeling very good about our positioning the opportunities to convert volume and then obviously, we have the a off a tailwind with with our cross border and intra Mexico volumes. So overall feeling confident in our ability to have another successful bid season.
Speaker Change: Okay, Great Super helpful. And then just a quick follow up on the final mile side, you talked about some integration initiatives.
Speaker Change: Any thoughts there on.
Speaker Change: What's the timeline for those might be and what sorts of adjustments you'll be making.
Speaker Change: Yes, so we've really executed on those.
Speaker Change: We feel as though we're in a really good position. We were we lost a little bit of business from a customer consolidating some facilities into larger facilities. So they were smaller facilities we lost.
Speaker Change: But in tandem with that we're actually going through a rationalization of the organization and then bringing on some some highly margin accretive business. So those startups are now in line, we reorganized the business and you'll know we're in a really good position to capture upside as we go through the fourth quarter here, we're anticipating from all of our customers nice surge in seasonal demand.
Speaker Change: Then we're in a great position to service that and we have new Onboarding. So that will continue to take hold as we enter the first quarter. So excited about where the final mile business is that in the trajectory.
Speaker Change: Excellent. Thank you.
Speaker Change: Our next question comes from Daniel Enbrel.
Speaker Change: Of Stifel.
Speaker Change: I am sorry, Daniel <unk> Stephens.
Speaker Change: Hey afternoon, guys. This is <unk> on for Daniel I wanted to ask about the <unk> volume guidance and it seems to imply full year volume growth below your previous guide could you just talk a little bit about what's driving the change there.
Speaker Change: Yes, Hello, this is Kevin yes.
Kevin Best: Yes, you are correct.
Kevin Best: Fourth quarter volumes.
Kevin Best: We're guiding to is low double digits.
Kevin Best: With price down mid single digits.
Kevin Best: We did believe that it looked like there was some pull forward in third quarter.
Kevin Best: No.
Kevin Best: We're still.
Kevin Best: Hearing from our customers.
Kevin Best: October was strong we had 12% increase volume in October so we're feeling that that's really good.
Kevin Best: But with the.
The rest of the.
Quarter, we're a little.
Kevin Best: We think the pull forward has eaten into some of that original expectations of the volume.
Speaker Change: Paul digits.
With price down mid single digits.
Kevin Best: Yeah, and I think that original guide.
We did believe that it looked like there was some pull forward in third quarter.
Kevin Best: I think we have seen a little bit of pull forward a little bit of east coast diversion I think some upside might be in there potentially if we continue to see things trend in the right direction through November we do think peak is going to continue through at least the first few weeks, we don't know exactly how far beyond Thanksgiving it could potentially go.
And we're still hearing from our customers.
Speaker Change: October was strong we had 12% increase volume in October so we're feeling that that's really good.
But with the.
The rest of the.
Kevin Best: I think the other interesting part of this is international intermodal demand has been very strong we've seen some service disruptions there that could push more into trans loading and into domestic and potentially extend.
Speaker Change: Quarter, we're a little.
We think the pull forward hasn't eaten into some of that original expectations of the volume.
Yeah, and I think that.
<unk> guide.
Kevin Best: The overall peak.
Speaker Change: I think we have seen a little bit of pull forward a little bit of east coast aversion I think some upside might be in there potentially if we continue to see things trend in the right direction through November we do think peak is going to continue through at least the first few weeks, we don't know exactly how far beyond Thanksgiving it could potentially go.
Kevin Best: So.
Kevin Best: It's a variable out there I think I also add some incremental to what we just gave you on the low double digits I think that could push it into the teens, but we didn't include that in the guidance. So all in all though we're feeling good about our volume performance I think continuing to outperform in the local Houston convert volume there but.
Speaker Change: I think the other interesting part of this is international intermodal demand has been very strong we've seen some service disruptions there that could push more into trans loading and into domestic and potentially extend.
We have opportunities to continue to grow.
Okay, great. Thanks, Thanks for the color there maybe just a quick follow up I think on the last call. You mentioned you expected <unk> margins to step up from from <unk> levels is that still the case given just the step up in adjusted margins here in <unk>.
Speaker Change: The overall peak.
Speaker Change: So.
It's a variable out there I think I also add some incremental to what we just gave you on the low double digits I think that could push it into the teens, but we didn't include that in the guidance. So all in all though we're feeling good about our volume performance I think continuing to outperform in the local east and convert volume there but.
Kevin Best: Any color around expectations, there would be helpful. Thanks.
Kevin Best: Yes.
Speaker Change: You are correct that that was.
Speaker Change: The original thought again that step up and pull forward really help that step up here in third quarter and I think we're going to fall back a little bit when we look at fourth quarter.
We have opportunities to continue to grow.
Okay, great. Thanks, Thanks for the color there maybe just a quick follow up I think on the last call. You mentioned you expected <unk> margins to step up from from <unk> levels is that still the case given just the step up in adjusted margins here in <unk>.
Speaker Change: Again.
Speaker Change: Fourth quarter, we're going back to sort of some normal seasonality and when you see the second half of fourth quarter, you have a lot of things.
Fixed cost.
Speaker Change: Yes.
Any color around expectations, there would be helpful. Thanks.
Speaker Change: Hurt the overall margin for the quarter so.
Speaker Change: Yes.
Speaker Change: We actually saw some of that savings a little quicker and they came forward here in third quarter and that helped this quarter.
You are correct that that was.
The original thought again that stuff up and pull forward.
Speaker Change: So we will think its coming down a little bit.
Speaker Change: Looking forward, yes, I think if you look at the guide.
Speaker Change: The sequential decline Q3 to Q4, I think Ics with the anticipated slowdown in volumes near Thanksgiving or a little bit. After that is the driver of the decline were actually thinking logistics will have some upside quarter to quarter with final mile final mile having some seasonal uplift as well as the network aligned.
Speaker Change: <unk> initiatives that we've undertaken starting to show some progress, although we will really see that in full in 2025.
Speaker Change: Okay, great. Thanks for all the color there guys I'll pass it along.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one one touch tone telephone.
And our last question comes from Elliot Alper.
Speaker Change: Of Cowen.
Elliot Alper: Okay. Great. Thank you this is elliott on for Jason Seidl.
Speaker Change: You talked about the maybe the earnings contribution if youre, a new joint venture.
Speaker Change: Maybe how that fits into the guide assumed small, but just wanted to make sure and then maybe if you could talk about some of it over the medium longer term some of the cross selling opportunities.
Speaker Change: Joint venture well it could be in Mexico.
Phil Yeager: Yes sure. This is Phil so the transaction is going to be immediately accretive to earnings although slightly.
Phil Yeager: It's not.
Phil Yeager: A huge transaction, but one that we think it's very strategic.
Phil Yeager: Type just perfectly in with our intermodal business.
Phil Yeager: To me the biggest opportunity is cross selling and we have time this really well where bid season is really kicking off right. Now. So we're able to have very strategic discussions with our customers on opportunities for growth I think the other areas of synergy capture and opportunities on the drayage side on both sides of the border having that for each fleet. It is the strategic value of that.
Phil Yeager: We haven't had in the past in Mexico, and they are experts within that area. So if you take the local knowledge that the ASO team has and the great brand reputation and I think the resources and capital that we can bring to help scale the business and really take on that incremental demand as the business is already growing 30% year over year on its own.
Phil Yeager: And then along with the near shoring trends and strong macro we just think.
Phil Yeager: There's a lot of opportunity for growth and synergy capture so we're excited about all the opportunities we have ahead.
Speaker Change: And just sort of a reminder, Kevin so that transaction closed on October 23rd So we're seeing a little less than a full quarter and so we really expect to see that accretion.
Speaker Change: And 25.
Speaker Change: Okay, great. Thank you and then.
When the joint venture was announced you guys talked about.
The pivotal catalyst that the U S. MCA had with trade volumes I guess as you think about the potential regulatory environment evolving over the next couple of years I guess, how are you seeing some of your customers act or are they sitting on the sidelines right now and maybe you can see the floodgates open up certainly some clarity on that or any other commentary on that front would be helpful.
Speaker Change: Sure, Yes, and gain customer conversations everybody is still very committed to growing in that market. I think if you just look at the trends I mean, it continues to be the fastest growing trade partner of the United States I think it's been a beneficial agreement for both sides, but we do anticipate further investment.
Speaker Change: I think all the customer conversations that we've had but the trends are for more near shoring. The labor cost differential is significant.
Speaker Change: The ease of doing business is improving so our customers and their vendors are continuing to invest there which creates more opportunity for us and I would tell you just.
Speaker Change: The dialogue that we've been having with our customers thus far has been.
Speaker Change: Very encouraging and we're seeing a lot of opportunities for growth.
Speaker Change: Once again very good timing with bid season.
Speaker Change: Thank you guys.
Speaker Change: I would now like to turn the conference back to Phil Yeager for closing remarks.
Phil Yeager: Great well. Thank you very much for your time this evening and obviously if there is any follow up questions feel free to reach out to Kevin or I and thank you very much I'll give a great evening.
Speaker Change: Ladies and gentlemen, this concludes today's conference call with hub group. Thank you for joining you may now disconnect.
Speaker Change: Okay.