Q4 2024 Hub Group Inc Earnings Call
Okay.
Speaker Change: Hello, and welcome to the hub group fourth quarter 'twenty to 'twenty four earnings conference call.
Phil Yeager: Phil Yeager hubs, President Chief Executive Officer, and Vice Chairman and Kevin Burke, Chief Financial Officer are joining the call.
Speaker Change: At this time all participants are in a listen only mode. 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 the other reference documents on our website that are not historical facts are forward looking statements.
Speaker Change: 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 should 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 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: Phil Yeager you may now begin.
Speaker Change: Good afternoon, and welcome to hub group's fourth quarter earnings call. Joining me today is Kevin <unk>, our Chief Financial Officer.
Speaker Change: Last year was one that remained challenging with excess capacity and balance sheet.
Speaker Change: Despite these challenges I'm proud of our execution and how we closed the year with significant momentum.
Speaker Change: We focused on controlling what we can through effectively managing cost and executing efficiency across our organization, while utilizing our value proposition of service and savings to deliver for our customers and shareholders.
Speaker Change: We maintained our focus on performance delivering a year over year improvement in adjusted operating margins in the fourth quarter executed a strong peak season for our customers leading to intermodal volume and earnings growth completed our warehouse network alignment driving improved servicing costs, while investing for the future through our joint venture with out there.
Speaker Change: Along with those actions, we returned nearly $100 million to shareholders through share repurchases and dividends.
Speaker Change: As we look ahead to 2025, we are optimistic about the trends in the broader industry with capacity continuing to exit in the consumer remaining resilient, while inventories have become more balanced these trends and the actions we've taken to improve our cost structure, maintaining excellent service levels and improved growth across all of our offerings. We believe will lead to improved revenue and earnings in 2002.
Speaker Change: 95.
Speaker Change: I will now discuss our segment performance for the quarter, beginning with Ics, where we delivered a 50 basis point improvement in year over year operating margin due to our focus on network beneficial growth peak season, surcharges and sourcing our drayage network, enhancing drybulk and container productivity and providing excellent service.
Speaker Change: In intermodal, we had a strong peak season shipping demand driven by seasonal inventory build and diversions from the east coast ports to ensure supply chain fluidity.
Speaker Change: We in our rail partners delivered record service levels. Despite the large influx of demand and that's enabled us to capture surcharges, while creating the opportunity for conversion from over the road as we enter 2025.
Speaker Change: Intermodal volumes increased 14% year over year in the fourth quarter with local east up 25% local west up 11% transcon down, 2% and significant growth in Mexico, given our organic effort and investment in the asset.
Speaker Change: Revenue per load declined 9% year over year due to headwinds related to net fuel and pricing, but was up 4% sequentially due to peak surcharges and an extended average length of haul.
Speaker Change: We anticipate year over year revenue per load will improve as we move through bid season and have more balanced network growth.
Speaker Change: We are focused on enhancing our cost structure and efficiency decreasing our cost per day, a 3% year over year through better driver productivity and improving container utilization, 6% through our focus on network balance.
Speaker Change: Empty repositioning costs increased by 3% in the quarter to support peak demand, but we were able to more than offset that with surcharges.
Speaker Change: I am pleased with the momentum in our intermodal business, our service scale and improved cost structure are putting us in a great position for further growth this year.
Speaker Change: In dedicated we closed the year delivering year over year earnings growth and meeting the surging demand of our customers. We increased revenue per truck per day by 13%, while improving our cost structure and third capability. We have a strong pipeline of opportunities and are focused on driving growth in 2025.
Speaker Change: In logistics, we delivered a 20 basis point improvement in year over year operating margin due to excellent performance in our final mile and E. Commerce businesses. This was offset by headwinds in our brokerage due to less spot market demand and seasonal slowness in our managed transportation and consolidation services.
Speaker Change: And brokerage slow count declined by 6% with revenue per load down 12%, partially due to mix.
Speaker Change: We delivered growth in LCR, which helped to offset a loose spot market for full truckload services.
Speaker Change: Focus on ensuring we handled the correct volume, reducing our negative margin shipments, 9% on a year over year basis.
Speaker Change: To begin the year, we have seen improvements in demand due to weather events and increased emphasis from our customers on shipment security and small carrier exits we.
Speaker Change: We are utilizing our scale service and multimodal expertise to compete and win a bid while positioning us to support our customers as projects and spot opportunities become available.
Speaker Change: And our managed solutions, we successfully supported our customers through the close of the year. We also completed our warehouse network alignment, which has improved our utilization and service levels.
Speaker Change: We have a strong pipeline of organic and new customer wins, we are onboarding in the first and second quarters across our services, which will support further growth and drive incremental volume to our other service lines.
We are excited about the opportunities we have in 2025 and believe we are well positioned given our continued strategic investment exceptional service levels, a strong balance sheet and productivity.
Speaker Change: With that I'll hand, it over to Kevin to discuss our financial performance.
Kevin: Thank you Bill as I walk through our financial results My comments will focus on our go quarter result on an adjusted basis.
Kevin: As a reminder, reconciliations between GAAP and non-GAAP financial measures are included in our earnings release issued prior to the call.
Kevin: For the full year hub generated revenue of $4 billion.
Kevin: A 6% decrease over prior year for.
Kevin: For the fourth quarter of recorded revenue of 1 billion a decline of 1% over last year's quarterly revenue.
Kevin: Ics revenue was $570 million, which was down 1% from prior year as the intermodal volume growth of 14% and third party revenue of $5 million.
Partially offset lower intermodal revenue per load and slightly lower dedicated revenue in the quarter.
Kevin: Additionally, lower fuel revenue of approximately $22 million.
Kevin: Negatively impacted the top line.
Kevin: Full year Ics revenue was $2 2 billion.
Kevin: Logistics revenue was $429 million compared to $438 million in the prior year as the contribution of the final mile business, but not enough to offset lower revenue in our brokerage PFS and managed transportation businesses and lower fuel revenue, our client and $2 million in the quarter.
Kevin: Full year logistics revenue increased to $1 8 billion.
Kevin: Moving down the P&L for the quarter purchase transportation and warehousing costs were $719 million.
Kevin: A decrease of $24 million from the prior year due to strong cost control as well as lower rail and warehouse expenses.
Kevin: This resulted in a 150 basis point improvement on a percentage of revenue basis, when compared to Q4 of 2023.
Kevin: Salaries and benefits of $148 million or $13 million higher than the prior year due to the final mile any after transaction, which was offset by lower head count across the rest of the organization.
Kevin: Depreciation and amortization and insurance and claims expense both decreased $4 million.
Kevin: Which was slightly offset by higher G&A expenses from recent transaction.
Kevin: As a result, our adjusted operating income margin was three 9% for the quarter, an increase of 40 basis points over the prior year for the full year, our adjusted operating margin was 4%.
Kevin: ICF quarterly adjusted operating margin was three 1% up 50 basis point improvement over prior year, and a 40 basis point improvement over Q3 aligns incentives of three 7%.
Ics adjusted operating margin was three 6% for the full year.
Kevin: Fourth quarter logistics, the operating margin was four 6% a 20 basis point improvement over last year.
Kevin: <unk> adjusted operating margin was five 3% for the full year.
Kevin: Interest and other income was a $2 million expense and our tax rate was 18% below our Q3 rate of 23% for the full year, our tax rate was 22%.
Kevin: Overall earned adjusted EPS of <unk> 48 in the fourth quarter and adjusted EPS of $1 91 for the full year.
Kevin: We are pleased with our adjusted cash EPS of <unk> 59 in the fourth quarter and $2 34 times for the full year the spread between ETF and cash EPS of <unk> 43 for the full year at 26% increase over the 34 scrapped in 2023.
Kevin: In total we returned nearly $100 million to our shareholders in dividends and stock repurchases in 2024, and we ended the year with cash of $127 million.
Kevin: Our full year Capex was $51 million in line with our estimate of $45 million to $65 million.
Kevin: EBITDA less capex was $298 million for the full year, an increase of 16% over the $257 million generated in 2023.
Kevin: Administrating hubs cast 3 billion fee, even with lower revenue for the year.
Kevin: Net debt was 167 million.
Our leverage was <unk> five time post transaction below our stated net debt to EBITDA range of <unk> 75 to one five times.
Kevin: Turning to our quantified five guidance, we expect EPS in the range of $1 90 to $2 40.
Kevin: Revenue to be between $4 billion to four.
Kevin: $4 3 billion for the full year.
Kevin: Project, an effective tax rate of approximately 25%.
Kevin: We also expect capital expenditures in the range of 50% and $70 million as we integrate <unk> into our financials and continue to focus on replacement for tractors that have reached their end of life and technology projects.
Kevin: We do not plan to purchase containers in 2025.
Kevin: For our Ics segment, we expect high single digit intermodal volume growth and low single digit price increase for the full year pricing in the first half of the year is expected to be comparable to Q4 rate with increases materializing in the second half of the year as we reprice contract as part of the annual bid cycle, we <unk>.
Kevin: Dedicated revenue can be comparable to client funding for as new customer wins are partially offset by lost customers late in 2024.
Kevin: For logistics, excluding our brokerage business, we expect low to mid single digit revenue growth due to new business wins and organic growth.
Kevin: Our brokerage we expect mid single digit volume growth with potential upside if we see continued momentum in the truckload environment.
Kevin: Other factors to consider in our client quantified guidance is the forecasted margin improvement in our logistics segment from our network alignment efforts.
Kevin: Normalized <unk> of incentive compensation expense and a higher tax rate.
Kevin: We expect the earnings to step down slightly from Q4 for Q1 due to lower peak season demand followed by an increase in profitability as the year progresses.
Kevin: As we exit 2024, we are pleased with the progress. The team has made with Q4 operating income growth in both segments.
Kevin: So the 17%.
Kevin: Or 50 basis points, and logistics were 3% or 20 basis points of growth.
Kevin: <unk> and a 9% increase in consolidated operating income or 40 basis points of growth on a percent to revenue basis.
Kevin: We also reported Q4 intermodal volume growth of 14% the completion of the network alignment initiatives execution of the after joint venture disciplined financial management and a strong balance sheet.
Kevin: Over the past several years, we have made in foreign strategic changes to our business, including our focus on yield management asset utilization and operating expense efficiency, which has significantly improved profitability and return.
Kevin: We've also completed several acquisitions to build out our offering and drive more stability in our earnings power.
Kevin: While we compete in a cyclical marketplace.
Kevin: These actions have accelerated trough to trough resolved with the operating margin growing from 2% in 2017, compared with a 4% reported for full year.
Kevin: Adjusted EBITDA less capex improvement of 16% over last year. Despite a lighter top line showcases the impact of our portfolio changes in recent years.
Kevin: These strategic changes have positioned Javier perfect that and also short and long term horizons as well as in Sop and strong demand environment.
Kevin: With that I'll turn it over to the operator to open the lines for any questions.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone. Thank you.
Speaker Change: Also 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: Our first question.
Scott: Comes from the line of Scott Group of Wolfe Research. Your question. Please Scott.
Scott: Hey, Thanks afternoon guys.
Scott: Maybe just a little bit of help in terms of shaping the year. I think you said Q1 down a little bit from Q4, I don't know if that was an operating income or an earnings comment.
Scott: But maybe just starting with a little bit of help shaping the year.
Scott: Yes sure Scott Thanks for the question Kevin.
Scott: Don't give quarterly guidance I think I can help you out there, while we're expecting intermodal volume to be comparable to Q4 and increases in our logistics segment operating income is due to the network alignment initiative <unk> are offset by lower intermodal peak season, surcharges and a seasonal decrease in our final mile business.
Scott: As well as headwinds related to compensation due to merit and incentive expense increases higher taxes interest and insurance costs.
Also I'd like to point out that the Asa is included in our intermodal volume number.
Scott: Recall that we only get 51% of that our EPS. So on an EPS basis, while we do expect we expect to be far better than the normal seasonality EPS step down it has occurred each of the last two years.
Scott: Yes, Scott This is bill I'd just highlight as we think about the full year, we're anticipating a ramp from Q1 to Q2 Q3, being our highest earnings quarter and a slight decline in the fourth quarter.
Speaker Change: Okay. It sounds like you are ready for that Q1 question.
Scott: The.
Speaker Change: Can you just talk about how intermodal margins sort of ramp throughout the year and your views around pricing I think there is maybe some concern or view that.
Speaker Change: Truckload rates are going to be going up more than intermodal rates in intermodal is going to lag on the way up as maybe people focus more on volume growth, but how do you think about.
Speaker Change: And what Youre seeing and so far early in bids.
Speaker Change: Yes, Scott So I'd say, it's a little early and bids, but I think we're in a really good position. So we get a really good job supporting our customers. During peak. It was good to have a solid peak season as well one other trend. We're seeing right now is that customers are pulling forward bid, but trying to lock in some some lower rates, which is typically a good indication.
<unk>.
Speaker Change: Turning to pricing environment. So we're definitely not anticipating that we're going to see lower rates and we're certainly not seeing any irrational behavior out there, but it certainly is remaining competitive as well.
Speaker Change: Our focus continues to be on winning business that is going to be network friendly taking rates up and operationally challenging lanes as well as head haul lane.
Speaker Change: And we also know the price was the largest driver of our earnings power. So we're very focused on gearing up for that.
In our guide we've answered that if you look at the midpoint, we've anticipated kind of a low single digit price increase in intermodal.
Speaker Change: Should ramp throughout the year, so that's really embedded in that guidance that I.
Speaker Change: I would just add Scott I think on the OE side.
Speaker Change: The guidance is very similar pattern that you saw here in 2024.
Because of the bid season timing you are expecting that same type of reaction in ROI as well.
And then just last thing real quick if I can any views on.
Speaker Change: Rail purchase costs this year.
Speaker Change: Sure, Yes, thanks Scott.
Speaker Change: We're anticipating <unk> to be down low single digits, we have pretty good visibility to that and then we're focused on cost across the board, though we are really focused on any sourcing more creation sourcing maintenance repair getting more productivity out of our drivers reducing empty repositioning costs all are opportunities for us and everybody it's very folk.
Speaker Change: <unk> on them right now across the organization. So we anticipate some cost tailwind.
Speaker Change: Thank you guys appreciate the time.
Speaker Change: Thank you.
Speaker Change: Thank you our next.
Speaker Change: Question comes from the line of Bascom majors of Susquehanna Financial Group. Please go ahead <unk>.
Speaker Change: Okay.
Speaker Change: Into logistics.
Speaker Change: Can you walk us forward from the comments you made last quarter about seeing a point of margin expansion.
Speaker Change: In that segment from some of the restructuring activities you took in <unk> and <unk>.
Speaker Change: What's your conviction in that today, what is the pacing of that and how if any does the seasonality of that business change after what you've done. Thank you.
Vasily: Yes, that's a great question Vasily Thank you yes.
Speaker Change: Yes.
Speaker Change: We do expect to achieve that 100 basis point improvement that we called out in third quarter and Thats based on the Q3 run rate.
Speaker Change: We are seeing a little change in the mix of revenue in the logistics segment for the 100 basis points.
Speaker Change: It's still a good a good number that we're aiming for but we definitely feel that we are expected to reach and probably slightly over achieved the cost savings.
Speaker Change: <unk> cost that we spent to $18 million excuse me and we've more than effect to make up for that $80 million that we spent there will be a little ramp up at <unk>.
Speaker Change: The year progresses and.
We also believe that there's a good chance if theres momentum in brokerage that we will be able to see even further improvement in the logistics a lot yes, the bathroom that themselves once again feel really good about.
Speaker Change: <unk> improvement I think what Kevin was referring to was we spent about $13 million of the consolidation, but the annual benefit we gave was about $18 million and.
Speaker Change: So a less than one year payoff period. So we feel very good about achieving that and we do anticipate seeing strong sequential margin improvement to start the year from Q4 to Q1.
Speaker Change: Adjusted.
Speaker Change: Thank you for that.
Speaker Change: <unk>.
Speaker Change: On the capital deployment front.
Speaker Change: Recently done an acquisition you told us a little bit about.
Speaker Change: What you expect there how is the M&A pipeline looking it will that be a use of capital that could move the needle again, either later this year into 2026 or you feel pretty good about the portfolio today.
Speaker Change: Yes, the bathroom this until I feel like we have the right legs of the stool, we have the right service offerings, it's about continuing to build scale differentiation broadening our customer base. So that we can cross sell into those clients and we have a really good pipeline.
Speaker Change: I think we're going to see an active year for M&A and we will certainly be looking at opportunities. We're always selective around what we move forward on but we've got a very good pipeline in <unk>, mostly be focused on the non asset logistics segments, and then opportunistic in our more asset based offerings, but yes, we're very much still focused on that.
Speaker Change: And feel as though it's something that has proven to be very valuable through this cycle and been a big part of our trough to trough earnings improvement that we've been able to drive.
Speaker Change: Thank you Bob.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Bruce Chan of Stifel. Please go ahead Bruce.
Bruce Chan: Hey, good afternoon, everyone. Thanks for the questions here.
Bruce Chan: Maybe just a question on the intermodal volume side.
Bruce Chan: One of your competitors had talked about the possibility of some demand pull forward. Obviously you saw a strong number in Q4.
Bruce Chan: And I think I heard you say that you were expecting flat sequential volumes. So I guess would it be fair to say that you haven't seen any of that pull forward.
Bruce Chan: Sure. Yes. So we have continued to see pretty strong demand off the west coast just to give you a kind of month by month October volumes were up 13% November was up 13 December was up 16, but January on a year over year basis were up 18%. So our volumes continue to be.
Bruce Chan: Quite strong, but I think you will see some pull forward just to ensure fluidity of the supply chain.
Bruce Chan: None of our customers at this point or making any huge changes in mix. There just monitoring the situation closely with just like we are.
Speaker Change: Okay, Yeah, and then I guess I just have to ask a follow up on that.
Bruce Chan: Obviously have a lot of exposure.
Speaker Change: Mexico via Intercontinental.
Speaker Change: Anything changing as far as customer demand or customer needs our positioning.
Speaker Change: Sure. Yes. So we are watching it closely I would say our if you think about our cross border business, Mexico, and Canada is about 6% of the total intermodal volume.
Speaker Change: It's around 3% of total company revenue. So we are certainly exposed.
Speaker Change: Exposed to it but.
Speaker Change: We're not overly concerned about the situation I think we are going to see our customers.
Speaker Change: We pull forward some demand potentially divert some manufacturing capacity to the states temporarily.
Speaker Change: And.
Speaker Change: In order to just ensure that they continue to meet the demand of their customers.
Speaker Change: We also think that within Mexico Cross border intermodal is very underpenetrated. So we have a significant opportunity for conversion given the fluidity, we can provide at the border and the cost savings so feel very good regardless about share gain opportunities.
Speaker Change: More of the U S Asia lanes I would tell you most of our customers have already diversified their supply chain. So could have a pull forward there, but we also built into the guidance that we've established here a pretty wide estimate on peak season surcharges and that was intentional.
Speaker Change: Assuming that some of that pull forward could occur but at this point, we're continuing to see strong demand it will be interesting to see what happens really after the lunar new year, and what demand looks like coming out of that but we.
Speaker Change: We feel very well positioned at this point, a big conversations are going well.
Speaker Change: Okay, Great. That's really helpful. Thank you. Thank.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Daniel <unk> of Stephens. Your question. Please Daniel.
Daniel: Hey, good evening guys. Thanks for taking my questions.
Maybe I want to follow up on the intermodal pricing discussion from earlier I think the guide and you mentioned assumes that pricing builds through the year I guess, if pricing is being realized to cover your elevated costs is it fair to say, it's going to be easier to get price, maybe in the west or where things were congested. This year it will be harder to get price in the east or where maybe the networks.
Daniel: Parents, so congested and then are you seeing any pockets of competition as others look to maybe fix their network balance that got a little thrown out of balance in the fourth quarter.
Daniel: Sure Yes.
Daniel: Yes, I would say we are.
Speaker Change: And those backhaul lanes. It is it is still competitive.
Speaker Change: Those are valuable to our network. So we're certainly trying to be in front of our customers for tax added and continue to gain share versus truck. So we're definitely on the front foot. There I would tell you on head haul lane, yes, there continues to be pricing opportunities given the tightness that we had this year. We're also very focused on if we're seeing operational inefficiency.
Speaker Change: And if thats embedded in that business and it's not going to allow us to turn our equipment our drivers as quickly as we need to to have a fluid.
Speaker Change: We will be taking pricing up there, we're not seeing anything irrational or overly aggressive at this point I would tell you we're performing pretty well across the board are locally volumes to start the year continued to perform well youll see those growth rates start to normalize throughout the year, just as we overlap some of the Cigna.
Speaker Change: <unk> growth there are west coast demand as we mentioned continues to be very strong.
Speaker Change: And we did very well during the fourth quarter on South West coast to southeastern back.
Speaker Change: We think there are some opportunities on transcon <unk> go into the northeast, but we've done very well in a very directed and our bid strategy.
We're just trying to focus on continuing to control costs and winning network friendly.
Speaker Change: Got it and then I'll ask a follow up on the logistics side I think we'll just take margins at four six were a bit lighter than you expected. After the <unk> I guess, Kevin can you talk about what maybe went worse during the quarter within that segment and then Phil you mentioned do you expect these margins to improve in <unk>, just given the tightening brokerage margin backdrop that others have talked about.
Speaker Change: What are the sequential good guys that help offset that in the first quarter.
Speaker Change: Sure I'll start with.
Speaker Change: Yes.
Speaker Change: <unk> forecast.
Speaker Change: Logistics to take a little step back then.
Speaker Change: And really.
Speaker Change: Brokerage whether it was the main reason for that.
Speaker Change: But theres also some softness in our managed trans business.
Speaker Change: Final mile actually performed better than our expectations and as you know with the CFS changes that we're making in the initiatives.
Speaker Change: That was a little bit.
Speaker Change: An unknown and while the team did a great job of getting through that we expect that going forward, we're positioned well to to work.
Speaker Change: The increases in margin there.
Speaker Change: <unk> better in Rfps.
Speaker Change: Yes, Q1 sequential improvement in logistics that as Kevin mentioned, the warehouse alignment, having that behind us will be a tailwind of recognizing that benefit, but we're also anticipating a rebound in demand and we've seen that kind of since the turn of the calendar and managed trans and in our consolidation volumes both of those had.
Speaker Change: A lighter end of the year kind of the last two weeks there than we had anticipated with customers just kind of shutting down a little bit earlier than we thought but then we saw in January as we turned the calendar more of a pickup which was good to see.
Speaker Change: Great I appreciate the color best of luck guys.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you. Our next question comes from Elliot Alper of TD Cowen Your question. Please Elliot.
Speaker Change: Great. Thank you, yes Elliott on for Jason Seidl can.
Speaker Change: Can you guys, maybe talk about the assumptions for the high and low end of guidance for the year.
Speaker Change: And then maybe just to follow up on the Q1 commentary I mean do you expect earnings could grow in the first quarter I understand there was some.
Speaker Change: Challenging weather curious how that impacted you guys, but also some strong intermodal volumes.
Speaker Change: Sure so as far as the high end and.
Speaker Change: The low end I think the high end certainly is.
Speaker Change: We see a truckload change capacity tightens and we start to see more spot business and more profitable truckload is certainly one of the.
Speaker Change: Big changes between the low end and the top end. Additionally.
Speaker Change: That comes through we could see additional pricing on the intermodal has the bids come around and.
Speaker Change: The other big thing is I think Phil mentioned it already on the surcharges.
Baked in about half of what we saw this year.
Speaker Change: The guidance so that is certainly a positive as well I think on the low end is the tariffs is certainly a possibility just the overall consumer if they get squeezed with higher prices and inflation.
Speaker Change: <unk>.
Keep us into that low end.
Speaker Change: And on your question on the short term there.
Speaker Change: I think with the weather, we did see a couple of day impacts, but not anything material that we'd call out I think that's just kind of normal for Q1, youre going to have some weather challenges whether it shows up in one month or another.
Speaker Change: So not anything really built in there in.
Speaker Change: Q1.
Speaker Change: We'd have to see a ramp in demand to see a growth quarter to quarter, but.
Speaker Change: We're still pushing very hard to maximize the earnings I think were.
Speaker Change: March is always a big swing factor in Q1, and so we'll have more to talk about as we enter that timeframe, but still a little unclear at this point on how we come out of lunar new year.
Speaker Change: Okay, Great and then maybe on the dedicated side you spoke to flat expectations as Jeremy.
Speaker Change: Give a little more color on what youre expecting to see maybe tractor count and pricing.
Speaker Change: Sure, Yes, I've been really pleased with the results in our dedicated business that team has done a fantastic job improving asset efficiency I think you heard the 13% increase in revenue per tractor predict so really really happy with that we're seeing some really nice organic growth and spring surge demand from our existing customer.
Speaker Change: So we're.
Speaker Change: Having some pretty significant hiring needs to support that spring surge. So if that comes to fruition that could be.
Speaker Change: Nice upside for us.
Speaker Change: I think the demand backdrop.
Speaker Change: New business pipeline, we are doing a really good job continuing to grow new sites with existing customers as well as getting some new customers online.
Speaker Change: We wont have any big headwinds for startup costs, we don't think of the first quarter that could start to show up in the second quarter as some onboarding to come online but.
Speaker Change: Pricing is pretty well locked into contractual frameworks that are long term in nature, so likely seen pricing up this year.
Speaker Change: And.
Speaker Change: I think we feel we feel very good about our positioning in dedicated right now.
Speaker Change: Alright, Thank you guys. Thank.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jonathan Chapelle of Evercore ISI. Please go ahead John.
Jonathan Chapelle: Thank you good afternoon guys.
Speaker Change: Phil I think you can kind of back into that's a little bit but.
Speaker Change: And Kevin gave US guide details low single digit pricing increases one half flat.
Speaker Change: Second half going to be up volume you've already said January is up 18% and really kind of accelerated over the last four months. So do we kind of take that pricing commentary and flip it on a tad is intermodal volume in the first quarter or the first half still expected to be double digits, and then whether it's slowing rate of change or more difficult comp.
Speaker Change: Do you expect that to kind of go to the low or high <unk> or I'm, sorry, mid single digits for the back half of the year.
Yes, you got it yes.
Speaker Change: High single digit volume for the full year, we're anticipating Q1 Q2 is higher and then we'd see overlapping comps.
Speaker Change: More difficult Comparables.
Speaker Change: Thats, what we built into the guidance.
Speaker Change: Q1, specifically is a much lower comp on the volume side. So.
Speaker Change: You got that right.
Speaker Change: Okay.
Speaker Change: As far as the bid season is concerned I know, it's still early only the first week in February you guys have noted 70% of the book is to be repriced in the first half of 'twenty five.
Speaker Change: Alright.
Speaker Change: Someone mentioned it earlier to some of the fears that by the time, the truckload market appropriately tightened, especially in the contract market maybe were into the middle part of this year and you kind of missed the season. So is there any way to say that 70% of the book in the first half is kind of split between <unk> and <unk> is it very much April may weighted so there's still a chance.
Speaker Change: That you can get them or inflection in <unk>.
Speaker Change: So you're not kind of stuck with this lower market for another year until the next season.
Speaker Change: Yes, I think Theres a couple of things there yes.
Speaker Change: There is.
Speaker Change: The majority of the bids will be Q1.
Speaker Change: And that's typical for us.
Effective dates are typically later in the quarter typically near the end in March.
Speaker Change: And then you see the Q2 bids mostly be implemented near near the May June timeframe, so a little bit of a lag effect on that so I do think that we will get that opportunity I think the other piece just to highlight those.
Speaker Change: Regardless is a good framework, we're constantly assessing our book of business and whether it is network beneficial or is generating the right returns and we're constantly having dialogue with our customers around that and given them transparency to what is what is working for us and we want to hear what's working for them. So.
Speaker Change: And we will constantly be assembly in that book and if we see a ramp in the truckload market and there is inbound freight coming to us at higher yields we will certainly have discussions with our customers.
Speaker Change: And really work with them to.
Speaker Change: Find valuable trade offs and income too.
Speaker Change: Conclusion, thats beneficial for both parties.
Speaker Change: Okay, Alright, that's very helpful. Phil. Thank you thanks, Kevin.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line, Brian <unk> of Jpmorgan. Your question. Please Brian.
Speaker Change: Okay.
Speaker Change: Hey, good afternoon, thanks for taking the question.
Speaker Change: So you mentioned.
Speaker Change: Peak season was pretty strong it seems like it's.
Speaker Change: Maybe a little bit of pull forward, but going still into the first part of this year are you seeing a pickup of trans loading.
Speaker Change: International is obviously really strong for a while then.
Speaker Change: Wanted to see any of those things start to tip over more meaningful into into domestic and to give you more shots on translating.
Speaker Change: Yes.
Speaker Change: Yes, Brian this is bill.
Speaker Change: We are seeing that.
Speaker Change: I would tell you.
Speaker Change: Obviously international intermodal demand surged in.
Speaker Change: Q4, but we're seeing our west coast volumes continue to be very strong, which is obviously an indication that translating activity is continuing you'll likely see that.
Speaker Change: Ramp and I think people will be watching that very closely. So yes, we feel good a lot of trans loading activity right now and we hope to see it continue but our west coast volumes are very very strong.
Speaker Change: And when you think about capacity.
Speaker Change: The system, how many boxes do you have.
Speaker Change: Percent of the total now you said youre not going to buy anymore for this year, but what does it look like in terms of excess capacity.
Speaker Change: With boxes with people and I guess with with Drayage.
Speaker Change: Yes.
Speaker Change: With boxes, we still have capacity to take on 30% incremental growth. We have that's through utilization and turn time improvements, but also just what we have to act and we feel very good about that so we feel that we actually have a few years, where we're likely not going to be purchasing any any containers. So.
Speaker Change: That's obviously a positive on the greatest time, we're very focused on returning to that 80% in source drayage number in the fourth quarter were around 73%, but we've had a really good start to the year on driver hiring so.
Speaker Change: So we have some more opportunities to any source there and continue to take control of that.
Speaker Change: And then I think from a just overall managerial and office head count we're in a very good position.
Speaker Change: We have been methodical in our approach there and feel that we positioned the company too.
Speaker Change: Be able to move.
Speaker Change: <unk> quickly as the market rebounds, then also run very efficiently. It does just to add a couple things Brian one.
Speaker Change: On the stack container I think we're very excited we had over 25% decrease on what we source stacks versus last year.
And then.
Speaker Change: Give a little color on inefficiencies.
Speaker Change: The board, we measure each of our lines of businesses, how many loans they're handling.
Speaker Change: Per employee and we have seen increases in each of those so we think that the tack that we then providing our team has been paying off and we continue to see that efficiency.
Speaker Change: In terms of the percent of the fleet as tack because it go around.
Speaker Change: And a 12% or maybe a little bit lower at this point.
Speaker Change: I know, it's higher than that is closer to 20.
Speaker Change: So yes, we have.
Speaker Change: A lot of stack, we brought that down quite a bit during Q4 to support the peak demand, but at some restocking.
Speaker Change: That goes towards offsetting some of the surcharge revenue.
Great.
Speaker Change: Alright, okay. Thanks very much.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Mike Triano UBS. Your question. Please Mike.
Speaker Change: Hi, Good afternoon. This is Mike <unk> on for Tom.
Speaker Change: I think you mentioned in the prepared remarks opportunities for truckload conversion. So I'm just wondering with the recent tightening in the truck market and expectations for improving demand our customers starting to inquire more about converting truck volume to intermodal.
Speaker Change: Yes, absolutely we are having really constructive discussions with our customers as we entered bids and conversions across the board beneficial obviously for them to lock in that capacity, but I think we really proved our service product during peak and thats, giving a whole lot of confidence to our clients.
Speaker Change: The resiliency of the service practice, while I think when you look at some of the demand in flux that our rail partners dealt with as well as some of the weather events and their resiliency and ability to then rebound quickly and get back to fluid service, that's building that confidence with our customers and so yes. There is a price differential theres capacity locked in but Theres also the strong service product.
Speaker Change: Find it.
Speaker Change: Got it.
Speaker Change: And then just a follow up question on inventory levels. I think you mentioned in the prepared remarks that they are kind of back into balance, but we've had it's been a.
Speaker Change: Pretty strong import activity unit sales I think <unk> been up kind of like low to mid single digits. So I'm just wondering from from any customers. If you are hearing that there is some inventory builds taking place and just how widespread it might be.
Speaker Change: No we're not seeing that at this time I think most of our customers are watching the tariff situation that might be the impetus to pull forward, but I don't think anybody is building up in anticipation of some strong consumer bump I think mostly they've been trying to right size inventories to get back into balance.
Speaker Change: Nothing to report on that quite yet.
Speaker Change: Okay. Thanks very much.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Ravi Shanker of Morgan Stanley. Please go ahead Robby.
Christina McGarvey: Hey, Greg This is Christina mcgarvey on for Ravi Thanks for taking my question.
Christina McGarvey: For my first one just want to touch on the brokerage volume guidance.
Christina McGarvey: Up mid single digits can you just parse out a little bit more what youre seeing there in terms of.
Christina McGarvey: Anything in bid season, and that sort of giving you line of sight that and kind of what that mix might look like I know the RTL volumes.
Christina McGarvey: In particular have been strong, but it also sounds like maybe youre walking away from some unprofitable business.
Christina McGarvey: Those kind of layering into next year.
Christina McGarvey: Yes, it's a good question, yes, so volumes, we had a lot of improvement in our LCL volumes. This year, we did a really nice job. So we are anticipating that that continues which is part of why I was highlighting on a revenue per load basis, we'd have a little bit of a headwind. There. Obviously, it's just a mix headwind we are seeing some nice wins come online with some of our strategic come.
Christina McGarvey: <unk>, we need to make sure in brokerage so we stay relevant in the routing guide via the bid so as we see the spot market and project opportunities present themselves, we're really that first call and so.
Christina McGarvey: That's been a big focus for US early in the bid season, but we are getting a lot of wins given our specializations as while it highlighted <unk> refrigerated partial truckload, although empower only are all areas, where we've excelled and I think thats been more resilient than our dry van truckload business, but we're continuing to see opportunities to win.
Christina McGarvey: And I would also just highlight that if there is an inflection and a tightness in the soft market our guidance on brokerages in my view quite conservative that basically to say from.
Christina McGarvey: From Q4 sequentially through the entire year, we see that pattern remain so theres some strong upside to logistics segment typically see that.
Speaker Change: Got it that's really helpful.
Christina McGarvey: My follow up.
Christina McGarvey: On volume, but circling back to the dedicated conversations give us down cycle does seem like cengage return has been a bit.
Christina McGarvey: It is more of an issue maybe some is based on.
Clearly it sounds cycled, but I'm curious your thoughts on this.
Cycle doesn't flat does that provide additional operating leverage as well thats not typically there how easy it is for you.
Christina McGarvey: For you guys to add back a couple of trucks to an existing contracting and can you do that at more of a market rate when that happens.
Christina McGarvey: Sure Yes.
Christina McGarvey: So those contracts are mostly sad.
Christina McGarvey: Just on a driver wage trade and we move those contractually over time.
Christina McGarvey: Part of that and we try to make sure that it's adjusting with with inflation.
Christina McGarvey: So those are long term contracts.
Christina McGarvey: As they come up for renewable we're able to if the market has moved upward obviously take advantage of that and sometimes customers. When they are up for renewal in a down cycle like this we will try to Texas.
Christina McGarvey: Spot market. So we've done a good job with retention I think we've really positioned ourselves well with our customers and the service that we're providing our ability to bring on incremental capacity is certainly there.
Christina McGarvey: So we feel actually really good about the positioning in an up cycle, we think people will push back into dedicated.
Christina McGarvey: Allow us to bring on more and more capacity to support them and drive some revenue growth along with if we keep servicing them, while bringing new markets and opportunities to us. So I've been really pleased with the performance of that team.
Christina McGarvey: Thank you I appreciate it.
Christina McGarvey: Thank you.
Speaker Change: Thank you once again to ask a question. Please press star one on your telephone again Thats Star one to ask a question.
Speaker Change: Our next question comes from the line of.
David Zuma: David Zuma.
Speaker Change: Barclays.
Speaker Change: Your question please David.
Speaker Change: Okay.
Speaker Change: Thanks for squeezing me in here.
Speaker Change: If we think back to when the intermodal rates started falling my recollection and maybe it's just my perception was you guys tried holding the line on price.
Speaker Change: Maybe a little more aggressively than some and as a result.
Speaker Change: Got a hit in volume.
Speaker Change: Which it.
Speaker Change: It seems like you guys have corrected have done really well with volumes in the period. Since then so with the pricing cycle starting to turn does that influence your decision on pricing strategy. Moving forward are you thinking as pricing comes up of trying to lean in and drive volume and utilization.
Speaker Change: What are you thinking about how to protect the margins that <unk> kind of talked about towards the beginning of the call.
Speaker Change: Yes.
Speaker Change: Great question I think.
Speaker Change: Yes, we feel as though.
Speaker Change: In an up cycle and it's far better to have the volume and has the ability to start to raise rates as an incumbent that's providing good service levels, which is why we made that pivot and as as I mentioned.
Speaker Change: Right now we are very focused on protecting that network efficiency driving business don't add incremental cost into the network that could take away driver productivity or increase empty repositioning expenses, but in the lanes that aren't very productive or in head haul lanes. We are certainly looking for yield expansion and are finding.
Speaker Change: <unk>.
Speaker Change: And then as a follow up to that.
Speaker Change: You talked a little bit about it sounded like some tailwind and the backhaul environment.
Speaker Change: The network, maybe it becomes more balanced.
Speaker Change: Youre repossession.
Speaker Change: Repossession costs are less of a factor I mean does that have potential further tailwind to margins. If you can just balance out the network and get better utilization on the backhaul.
Speaker Change: Absolutely, it's a constant focus for us I would tell you when we shifted our bid strategy. We had found that that is where we lost a lot of market share and it wound up damaging our networks. So we want to continue to drive that network friendly business into the network. It creates efficiency not only in our empty repositioning costs, but also with our.
Speaker Change: Driver productivity and loaded miles and utilization there. So yes. It is extremely important to us and will continue to be a factor and will be targeting.
Speaker Change: Really that across the board to drive that network efficiency, whether it's in shorter haul local east market, but the biggest factor is really in the western portion of our rail network, where with southern California surge in with that continuing right now we need to make sure we have the inbound to support the outbound demand.
Awesome. Thanks, so much.
Speaker Change: Keith.
Speaker Change: Thank you I would now like to turn the conference back to Phil Yeager for closing remarks, Sir.
Phil Yeager: Great well. Thank you so much everyone for your time this afternoon and.
As always Kevin and I are available to answer any questions, but we really appreciate your time and hope you have a great evening. Thank you.
Speaker Change: Ladies and gentlemen, this concludes today's conference call with hub group.
Phil Yeager: Thank you for joining you may now disconnect.
Phil Yeager: Okay.
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