Q4 2024 Universal Logistics Holdings Inc Earnings Call
Yeah.
Speaker Change: Hello, and welcome to Universal Logistics Holdings fourth quarter 2024 earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode should you need assistance. Please signal the conference specialist by pressing the Starkey followed by zero a brief question and answer session will follow the formal presentation during.
Speaker Change: During the course of this call management May make forward looking statements based on their best view of the business as seen today statements that are forward looking relate to universal's business objectives or expectations and can be identified by the use of the words, such as belief expect anticipate and project such statements.
Speaker Change: Is subject to risks and uncertainties and actual results could differ materially from those expectations.
Speaker Change: A reminder, this conference is being recorded and it is now my pleasure to introduce your host Mr. Tim Phillips, Chief Executive Officer, Mr. Perez, Chief Financial Officer, and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips you may begin.
Speaker Change: Thank you Ana good.
Speaker Change: Good morning, everyone and thank you for joining Universal's fourth quarter 2024 earnings call.
Speaker Change: Our results demonstrated how universal's diverse service offerings continue to set us apart in the transportation and logistics industry.
Speaker Change: Against the persistently weak freight back backdrop, our comprehensive logistics solutions at once again driven exceptional performance.
Speaker Change: Before delving into the details I wanted to take a moment to acknowledge the incredible efforts of the entire universal team.
Speaker Change: The dedication and hard work of our 10000 plus employees and contractors are the foundation of our success.
Speaker Change: It is the commitment of each team member that enables us to consistently deliver outstanding services to our customers and maintain our position as a leader in the transportation and logistics industry.
Speaker Change: Now, let's discuss the quarter Universal once again delivered solid results in the fourth quarter 2024.
Speaker Change: We grew top line revenues by 19% with eight 2% and operating margin.
Speaker Change: And our earnings per share of 77.
Speaker Change: For the full year 2020 for Universal reported $1 85 billion in revenue.
Speaker Change: 11% and operating margins and for $93 in earnings per share, making 2020 for the second best full financial performance in Universal's history.
Speaker Change: While I'm pleased with Universal's overall performance results continue to vary across reporting segments.
Speaker Change: Our contract logistics business continues to be a standout performer.
Speaker Change: Consistently achieving double digit operating margins and serving as the cornerstone of our success.
Speaker Change: Our trucking segment has also delivered strong results.
Speaker Change: Despite ongoing weakness in the truckload market demand for our specialized heavy haul wind business remains robust driving trucking to its highest operating margin in over two years.
Speaker Change: We expect this momentum to continue.
Speaker Change: However, our intermodal segment remains remains a challenge for.
Speaker Change: Falling below expectations.
Speaker Change: That said, we are highly focused on reducing costs and improving efficiencies and our efforts are yielding results. The fourth quarter was the second straight quarter of positive EBITDA contributions from the intermodal segment, indicating our cost control efforts have been effective.
Speaker Change: While there is still work to be done and I am encouraged by the progress we have made so far.
Speaker Change: And our contract logistics segment revenues increased 52, 7% to 307.4 million.
Speaker Change: This includes $51 3 million in revenues from our specialty development project, which was completed during the quarter.
Speaker Change: At the end of Q4 2020 for Universal managed 90 value added programs, including 20, New rail terminals from the fourth quarter acquisition of par stack up from 71 programs in Q4 of 2023.
Speaker Change: Contract logistics remains our most consistent and profitable segment. This was the 12th straight quarter of operating ratio is below 90%.
Speaker Change: I'm very pleased with the performance of our recent acquisition of <unk>.
Speaker Change: The market, leading provider of rail terminal management services.
Speaker Change: <unk> had its highest Q4 revenue in its history and its highest lip volume since COVID-19.
Speaker Change: The acquisition has allowed universal to build new customer relationships and we will continue to provide opportunities across the cross sell on our other services.
Speaker Change: We are extremely pleased with the early performance of this acquisition I believe there are further synergies to be recognized going forward.
Speaker Change: The <unk> acquisition was truly transformational for Universal and brings our contract logistics segment annual revenue run rate to over $1.1 billion.
Speaker Change: We remain cautiously optimistic on this segment for 2025, we did see a slight downturn in the automotive industry in the fourth quarter with plants operating fewer shifts unless weekend work. However, 2025 volumes are expected to be similar to 2024 with the Saar.
Speaker Change: It remained elevated at around $16 million.
Speaker Change: Class eight volumes are also expected to be similar to 2024 and 2025.
Speaker Change: Our trucking segment performed very well, despite the challenging transportation environment Rev.
Speaker Change: Revenues increased 11, 5% to $83 8 million, primarily due to a 35% increase in revenue per load excluding fuel surcharges.
Speaker Change: This was partially offset by 17% drop in loads hauled.
Speaker Change: A key driver of our performance has been the strength of our specialized heavy haul wind business, which continues to deliver outstanding results.
Speaker Change: We made large investments in heavy haul equipment in 2023, and 2024 and it is paying dividends.
Speaker Change: We also acquired the operations of our wind agent in the third quarter of 2020 for turning it into a company manage operation, which we expect to contribute an additional $3 million of EBITDA on an annualized basis and further improving operating margins as well.
Speaker Change: Looking ahead, our specialized heavy haul wind business has significant long term growth potential providing stability for our trucking segment and helping insulate it from broader inflation in the truckload market.
Speaker Change: Specialized revenue made up 32, 1% of the trucking segment revenue in 2024 compared to 18, 9% in the prior year.
Speaker Change: We expect our specialized business to continue to rise as a percentage of overall trucking segment as we continued to deepen our relationship with existing customers and broaden our customer base in the coming year.
Speaker Change: The intermodal segment had another challenging quarter capping a very difficult year in the intermodal segment revenues decreased 15, 9% year over year to $73 1 million.
Speaker Change: <unk> to Q4 2023, our intermodal segment experienced a 15, 3% decrease in volume while rates decreased two 2%.
Speaker Change: Additionally, fuel surcharge revenue decreased $3 9 million.
Speaker Change: Volumes at volume and rates have been relatively stable throughout 2024, leading us to believe this is the bottom for this segment.
Speaker Change: We are transforming this segment into a leaner more efficient operation position for strong turnaround once the rate and volume environment improves.
Speaker Change: We have brought in a new intermodal sales team to target volume shippers and key intermodal market with a focus on capturing more share in the markets that matter.
Speaker Change: Across the enterprise, we are excited about the strong sales pipeline filled with promising opportunities totaling over $800 million.
Speaker Change: This robust pipeline enabled us enables us to be strategic in our approach, allowing us to focus on opportunities that align with our core competencies and margin objectives.
Speaker Change: By maintaining this disciplined strategy, we are well positioned for long term success, while continuing to deliver exceptional value to our clients.
Speaker Change: I'm incredibly proud of our performance in both the fourth quarter and the full year 2024.
Speaker Change: I'd like to take this opportunity to express my gratitude to our employees.
Speaker Change: Their hard work dedication are crucial to our success I also want to thank our customers for continuing to put their trust in universal.
Speaker Change: As we look ahead I remain optimistic about the rest of 2025 and confident in our future.
Speaker Change: I will now turn the call over to you to provide color on our financials and expectations for upcoming quarter. Good. Thanks, Tim Good morning, everyone yesterday, Universal Logistics Holdings reported consolidated net income up $22 million or <unk> 77 per share on total operating revenues of 406.
Speaker Change: $5 1 million in the fourth quarter of 2024. This compares to net income of $21 4 million or <unk> 81 per share on total operating revenues of $390 9 million. During the same period last year consolidated income from operations was $38 3 million for the quarter compared to 34.
Speaker Change: 1 million one year earlier, EBITDA increased $18 7 million to $73 5 million, which compares to $54 8 million. During the same period last year, our operating margin and EBITDA margin for the fourth quarter of 2024, or eight 2% and 15, 8% of total operating revenue.
Speaker Change: <unk>.
Speaker Change: These metrics compare to eight 7% and 14% respectively in the fourth quarter of 2023.
Speaker Change: Looking at our segment performance for the fourth quarter of 2024, and our contract logistics segment, which includes our value add and dedicated transportation businesses income from operations increased 7 million to $39 1 million on $307 4 million of total operating revenues. This compares to operating income of 30.
Speaker Change: $2 1 million on $201 3 million of total operating revenue in the fourth quarter of 2023.
Speaker Change: Operating margins for the quarter were 12, 7% of total operating revenues compared to 15, 9% one year earlier.
Speaker Change: Included in the contract logistics operating result was $6 million of depreciation and amortization related to parse back which lowered the fourth quarter 2020 for operating margins in this segment by 200 basis points.
Speaker Change: During the fourth quarter of 2024, we completed our specialty development program and recognized an additional $51 3 million of operating revenue during the period for the full year 2024, we recognized total operating revenues on the program up 228 million revenues generated from this program were reported in.
Speaker Change: Value added services and the fuel stated cost in operating supplies and expense. The result of this program are included in our contract logistics segment.
Speaker Change: Onto our intermodal segment operating revenues decreased $13 8 million to $73 1 million compared to $86 9 million in the same period last year.
Speaker Change: And income from operations decreased $8 7 million to an operating loss of $9 7 million.
Speaker Change: This compares to an operating loss of $1 million in the fourth quarter of 2023 operating ratios for the quarter were 113, 2% versus 101, 1% last year.
Speaker Change: In our trucking segment operating revenues for the quarter increased $8 7 million to $83 8 million compared to $75 2 million in the same quarter last year and income from operations increased $3 3 million to $5 8 million.
Speaker Change: This compares to $2 5 million in the fourth quarter of 2023 operating margins for the quarter were six 9% versus three 3%, reflecting strong results in our specialized heavy haul wind business.
Speaker Change: On our balance sheet, we held cash and cash equivalents totaling $19 4 million and $11 6 million of marketable securities and interest bearing debt net of $3 6 million of debt issuance cost totaled $759 1 million at the end of the period.
Speaker Change: Excluding lease liabilities related to ASC 842, our net interest bearing debt to reported TTM EBITDA was $2 three one times.
Speaker Change: Capital expenditures for the quarter were $37 4 million for the full year 2024 capital expenditures were totaled $248 $3 million.
Speaker Change: For the full year 2025, we are expecting total operating revenues between one seven to $1 8 billion and operating margin in the 7% to 9% range for the full year of 2025. We are also expecting capital expenditures to be in the $125 million to $150 million range before any purchases.
Speaker Change: Of strategic real estate.
Speaker Change: And interest expense to come in between $48 $51 million.
Speaker Change: For the first quarter of 2025, we are expecting top line revenues between 390 and $410 million and operating margins in the six 5% to seven 5% range EBITDA margin for Q1 of 2025 will be in the $14 to 16, 5% range.
Speaker Change: With increases in depreciation and amortization expense related to our recent acquisitions as well as the associated interest costs on borrowings, we believe EBITDA will becoming more meaningful measure of Universal's operating performance in 2025 and in the years ahead.
Speaker Change: The tick down in our operating margin guidance includes four discrete items number one the roll off of the previously mentioned special continued development program that was completed in 2024.
Speaker Change: The additional depreciation and amortization expenses.
Speaker Change: Expense increases due to recent acquisitions.
Speaker Change: Softness in our automotive customers production expectations for the first quarter and continued headwinds in our intermodal segment, specifically in southern California.
Speaker Change: Our guide neither includes any potential negative impact of tariffs on either our Canadian or Mexican operations, nor positive impacts on our business related to changes on the regulatory policies specific to tort reform independent contractor classification rules at the federal level or changes in tax policy.
Speaker Change: Update our guide each quarter, reflecting any changes in policy that will impact our current or future results either negatively or positively fiber.
Speaker Change: Finally, Wednesday, our board of directors declared Universal's $10.05 per share regular quarterly dividend.
Speaker Change: This quarter's dividend is payable to shareholders of record at the close of business on March 3rd 2025, and is expected to be paid on April one 2025.
Adi: With that Adi, we are ready to take some questions.
Speaker Change: Yeah.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please.
Speaker Change: Please press star followed by the one on your telephone keypad.
Tom: Tom The Johanna has been raised and should you wish to cancel your request. Please press star followed by the <unk>.
Tom: Are you seeing your speaker phone lift the handset before pressing entities one moment. Please for your first question.
Tom: Okay.
Speaker Change: Your first question comes from the line of Bruce Chan from Stifel. Please go ahead.
Bruce Chan: Hey, good morning, guys. Thanks for the questions here.
Speaker Change: Maybe just starting from the top I know theres been a lot of news flow on the automotive OEM side.
Speaker Change: You guys, usually get some pretty good visibility into production. So thanks for the color there, but maybe if you could just address what your customers are saying as far as the different tariff scenarios on Canada, and Mexico, and I know, it's early and hard to say, but if we think about kind of a worst case scenario here with that maybe look like 2021.
Speaker Change: Ask scenario, where we see plant closures can you just help us maybe quantify the risks there.
Speaker Change: First I'll start.
Speaker Change: So first of all our Canadian business is only about $10 5 million of annual sales and our Mexican business is just south of 50, so universals.
Speaker Change: Foreign exposure to tariffs is not very big right. So around three to three 5% of our 2025 guide.
Speaker Change: That being said I mean, I think similar to what's happened in.
Speaker Change: During strikes or.
Speaker Change: When they were.
Speaker Change: When there were some challenges in the supply chains in Mexico, Theres, a lot of components that come from either overseas or from Mexico. So, although I don't think theres really been specific guidance given to us.
Speaker Change: Those items.
Speaker Change: I would expect that if there is any challenges at the border or any challenges on tariffs that relate to what specific components. It definitely could impact us, but I don't really think we have any insight into that as of right. Now yes. Bruce. This is Tim I would agree with that all of our conversations with our with our customers.
Speaker Change: Really shown with Judah just said Theres been no real guidance, but we feel comfortable in.
Speaker Change: And everything that we have positioned right now.
Speaker Change: If something should happen I mean, this is a long term play in Mexico, we continue to build that out it's going to be.
Speaker Change: Part of the global supply chain right near shoring and that's truly what's happened over the years is a global supply chain and the autos of the different brands do depend on our global network, but we think we're positioned both in Mexico. We think we're positioned also from an import standpoint on the drayage side of it to be able to capture.
Speaker Change: We will continue to vehicle supply chain network.
Speaker Change: Okay. That's really helpful. I know, it's not just you guys. So I appreciate that that perspective, but.
Speaker Change: But maybe just sticking with contract logistics here I know you typically see a little bit of seasonal degradation.
Speaker Change: And the margins for Q3 to Q4, but it looks like it was a little bit more pronounced this year. So maybe you could just help us parse out how much of that was the mix from <unk> and maybe what the right way to think about structural margin impact from <unk> on the segment would be like going forward.
Speaker Change: Yes for sure. So just a couple of things.
Speaker Change: One is that the.
Speaker Change: The par stack.
Company that we bought historically had between eight and 12% operating margins, but when you start factoring in the <unk>.
Speaker Change: Purchase accounting that's required for GAAP, it's going to layer in about $6 million to $8 million of other costs, specifically related to the amortization of intangibles and some amortization additional amortization on equipment purchases. So that margin that we bought at like eight to 12 for gap is going.
Speaker Change: Go down to one to two so that's one of the reasons that we are going to start talking a little bit more Bruce about EBITDA, because we believe EBITDA will be a much better reflection.
Speaker Change: Because we're not going to shy away from buying really great companies, just because theres a purchase accounting hit to our operating margin. So I would say <unk> is one piece of that and also what we started seeing in Q3, our Bruce was that especially in our dedicated transportation group, we really started seeing some plants operating from <unk>.
Speaker Change: To five and then going from three shifts to two so that had a larger impact on dedicated margin in the quarter. Just because you have all those fixed costs associated with tractors and trailers and if youre not getting that utilization out of the assets there could be a little bit of margin degradation. So.
Speaker Change: Although the autos have guided I think as Youre aware around 16 million Saar for 2025, which would be very similar to what happened in 2024. It just looks like that ramp up may be more a mid to late year story that really starting off gangbusters in Q1.
Speaker Change: Okay got it that's also really helpful color and then maybe just one more before I turn it over and hop back into queue.
Speaker Change: On the intermodal side, obviously, some continued challenges there.
Speaker Change: I know you are making some changes, but if you could just give us a little bit more insight into what the specific drivers of the kind of outsized degradation in the segment were and what the kind of path to progress through the path to improvement, especially in Socal looks like as you think about 2025.
Speaker Change: Sure well I wanted to highlight a couple of things because as you can imagine thats been all of our focal point is to make sure that we put the intermodal division on a path to profitability and success. So we looked at it from a top down approach and a top down approach would mean, some new leadership being brought into this segment.
Speaker Change: To help us better plan and accelerate where we think we need to be we also included in that leadership.
Speaker Change: A new sales executive as well as.
Speaker Change: A large increase in our sales force and we kind of rationalize that on where we wanted to attack the different customers in the United States. So we feel really good about where we are positioned going into 2025 from a touch point with our customers and being able to evaluate.
Speaker Change: The sell and close new deals in conjunction with that we thought we needed a new level of visibility for our customers as well as our employees. So we're we're instituting some new technology that will roll out over the year 2025 to better position our people to be successful to give our customers a clear look at where their freight is.
Speaker Change: In the intermodal supply chain.
Speaker Change: We're also excited about that theres been a lot of heavy lifting for all of these things to get a position. So we can have a full crack at it in 2025. The other thing that we've worked pretty hard on is the efficiencies right. So what are we done two in southern California in specific we really rationalized the head count we've.
Alidade potentially facilities, where it makes sense, we've rationalized our leases we've looked at should we be sub leasing and we also did some property rationalization, we are investing in the future and we want to make sure that when we make those commitments we have a solid foundation.
Speaker Change: To see that particular business growth in conjunction with that in southern California, and the rest of the intermodal unit, we will be looking for additional efficiencies from our centralization process of how we conduct our interfaces with our customers and our interface with our drivers. So we'll continue to report on.
Speaker Change: That and Youll see the results of that.
Speaker Change: In the coming quarters with our successes as we climb out of that.
Speaker Change: Although the southern California market has been a big challenge, we think we have some good position on our pipeline.
Speaker Change: We are really being aggressive on how we approach.
Speaker Change: Customers in the first quarter and beyond to make sure that we continue add.
Speaker Change: Additional volume into the network and I think that's the biggest thing we've rationalized cost with consolidated facilities with optimized our team to be ready for that uplift and now what we need to do is still the funnel full of freight in the baskets full we just have to be very competitive.
Speaker Change: I will tell you. This we have not on the intermodal side walk out of a very competitive capacity environment, there's still capacity in the hopper as some of its falling out, but it's very competitive from a ratings standpoint, so as we see that start to relieve itself and we start to grow some legs out of that you'll see.
Speaker Change: Exponentially, we will make some continued progress not only in southern California, but we will see that type of opportunity around the United States Bruce.
Bruce Chan: Okay, great and as the demand environment right now conducive to that or do you need to see any further upward inflection in the market in order to get that done.
Speaker Change: I would say that the market has been it's been somewhat flat, but I'm optimistic.
Speaker Change: And I'm optimistic for a couple of things right, where we're also seeing additional throughput on bids and opportunities on the truckload sector. We're seeing some additional opportunities on the intermodal network and I think those two going hand in hand, if truckload also picks up at any degree or raise it also take some of the capacity.
Speaker Change: Uh huh.
And sometimes that capacity shifts to.
Speaker Change: Truckload and opens up a more dynamic environment for intermodal.
Speaker Change: And not as much capacity being addressed that intermodal type of freight so I still think the rates are somewhat.
Speaker Change: Like I said in my prepared remarks that I think we've seen the bottom and now it's just a matter of how we climb out of it remember the first part of 2020, our February will encompass.
Speaker Change: The 29th was the Chinese new year, So we will see some softness.
Speaker Change: In the end of February and March will we know that's coming it's just how we climb out of it after that so I expect as we get into second quarter, we should see some additional opportunities come.
Speaker Change: Alright, great. Thanks, I'll hop back into queue appreciate it.
Bruce Chan: Thanks Bruce.
Speaker Change: Thank you once again should you have a question. Please press star followed by one on your telephone keypad.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Do you have any follow up question from Bruce Chan from Stifel. Please go ahead.
Speaker Change: Alright, great well second bite at the Apple, It's all right I've got.
Speaker Change: Plenty of questions here.
Speaker Change: Just on the trucking demand side nice little bump up in the fourth quarter any sense of whether that was project related a recovery related.
Speaker Change: Or is that more core demand that you think can stick around.
Speaker Change: Into the first quarter into the early part of 'twenty five.
Speaker Change: Yes, we probably both comment on this but the demand in the fourth quarter.
Speaker Change: Especially was driven by by the wind Division, we continue to see opportunities based on the fact of our execution.
Speaker Change: And also the fact that we've invested a lot in the equipment to make sure we stay current.
Speaker Change: Current and provides our customers with the newest equipment to move their their freight I see that being.
Speaker Change: Because we're putting a lot of effort into it we're putting a lot of effort into the specialized piece of the truckload and we're putting a lot of effort to make sure we stay connected with the customers.
Speaker Change: See that freight continue.
Speaker Change: <unk> seen a little bit better first quarter, so far in the wind environment. So we're we're happy with that we've still seen a drag on rates on your standard van and flatbed, but the promising point on the truckload other than the specialized as we've seen a real good increase in.
Speaker Change: In the bids coming in.
Speaker Change: That we've had the opportunity to review so the bid activity has picked up in the first four or five weeks of the year.
Speaker Change: Okay. So is there a risk to that win business from some of the regulatory and policy changes as far as what youre hearing from customers or does that seem okay. At this point.
Speaker Change: Right now Bruce it seems okay. Most of the <unk> that were executed by the president related specifically to projects on federal land and the projects that we are currently operating and normally operate or not on federal lands. So right now we really don't expect any impact.
Speaker Change: Yes, let me let me let.
Speaker Change: Let me just add to that from a customer standpoint, exactly what you said, it's a dynamic environment that has been private connotation to it and remember some of these projects that begin this year started two or three years ago upstream planning from a civil standpoint, so there's been a lot of time and effort extinguished to get it to the leg.
Speaker Change: With that now so we feel we have a somewhat clear.
Speaker Change: Trajectory on what's out there and we just need to be competitive and continue to service the customer to continue to get the award. The other thing I would say, we really put a push on to expand our customer base on the specialized side. So that will be one key initiative. This year is to <unk>.
Speaker Change: Spanned our expertise into other customers.
Speaker Change: To diversify the portfolio.
Speaker Change: Okay, Great and then just one final one here Jude on the operating expense side.
Speaker Change: Personnel costs picked up.
Speaker Change: A bit here I know you mentioned some head count rationalization in intermodal was that just tied to power sector was there something else going on.
Speaker Change: Then on the other expense line can you just remind us of what goes into that bucket.
Speaker Change: Yeah for sure so no youre absolutely right Bruce that was specifically related to <unk>. If you remember <unk> brought in about 2100.
Speaker Change: New employees of which.
Speaker Change: About 1300 ish, our union, so very similar to the.
Speaker Change: Two our contract logistics, our legacy contract logistics business and then in the and the other in the operating other operating expense line. One a couple of things, that's where we have our specialty development.
Speaker Change: Program that ran through that expense line throughout the course of the year. It's also that has like our general operating expenses related to <unk>.
Speaker Change: Transportation like fuel and license plates and permits and things along those lines, but 93% of the change in that number was specifically related to the specialty development program.
Speaker Change: Okay perfect. Thank you so much really appreciate all the time thanks.
Bruce Chan: Thanks, Bruce Thank you Akshay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: No further question at this time I will now hand, the call back to Mr. Tim Phillips for any closing remarks.
Tim Phillips: Thank you.
Tim Phillips: We have taken a strategic and thoughtful approach on who we want to be.
Tim Phillips: And what it will take to get there.
Tim Phillips: We have a deep focus on providing a customer centric approach in segments that allow us to truly integrate in our customers' supply chain.
Tim Phillips: We believe this offers our customers a high level of support and builds a level of stickiness, which will ultimately support our long term value to our shareholders and employees.
Tim Phillips: Thank you and I look forward to catching up on our Q1 earnings call in late April.
Tim Phillips: Thank you and this concludes today's call. Thank you for participating you may all disconnect.
Okay.
Tim Phillips: Okay.
Tim Phillips: Okay.