Difficult market conditions led by shippers with high inventory levels, along with excess market capacity, created declining revenue in Hub Group’s fourth-quarter intermodal and logistics segments.

“This led to challenging fundamentals in our more transactional service lines,” President and CEO Phil Yeager said during an earnings call with analysts after the market closed Thursday. “We have a solid pipeline of new onboarding that will support growth in 2024. Despite a challenging industry backdrop, we executed on our strategy and are positioned for continued long-term success.”

Oak Brook, Illinois-based Hub Group (Nasdaq: HUBG) is a provider of intermodal transportation and logistics management solutions.

The company reported fourth-quarter net income of $29 million on earnings per share of 46 cents, a 63% year-over-year (y/y) decline compared to the same period in 2022. The company missed analysts’ estimate of earnings per share of 52 cents for the quarter.

Revenue for the quarter came in at $985 million versus analysts’ estimate of $994 million. Fourth-quarter revenue declined 23% y/y compared to 2022, when Hub Group reported revenue of $1.28 billion.

Hub Group’s full-year 2023 revenue was $4.2 billion, down 21% compared to 2022. Company officials attributed the decline to changes in its customers’ rates and lower volumes in its intermodal and logistics segments led by slower imports into West Coast ports.

Hub Group’s 2024 outlook calls for adjusted earnings per share ranging from $2 to $2.50 and revenue of $4.6 billion to $5 billion. The projected effective tax rate for 2024 will be 24%. Capital expenditures for containers, tractors, warehousing equipment and technology will range from $55 million to $75 million.

Yeager said they expect the market to reach an “inflection” point before the end of 2024, led by increasing demand for capacity.

“I think many of our customers are thinking about how they want to [secure] capacity right now as well, and we think that there likely will be a [market] inflection at some point this year,” Yeager said. “I don’t think anybody’s calling for a change in the market, and that’s not really built into our guidance, but we’re certainly hopeful that we’re seeing the positive trends that will lead to that.”

Yeager said company officials have had positive conversations with shippers about where the market is going over the course of 2024.

“Our customers are looking for service, they’re looking for consistency, they’re obviously looking for cost savings, and they’re looking to ensure that they have available capacity when the market does come back,” Yeager said.

Fourth-quarter revenue for the company’s intermodal and transportation solutions (ITS) segment was $576 million, a 28% y/y decrease compared to the same year-ago period. Full-year 2023 ITS revenue came in at $2.5 billion, a 24% y/y decrease compared to 2022.

“ITS revenue declines were driven by softer intermodal volumes that declined 11.6%,” COO Brian Alexander said during the call. “Transcontinental intermodal volume was close to flat y/y, local East volume declined to 8% y/y and local West volume declined 17% y/y.”

The company’s logistics segment generated fourth-quarter revenue of $438 million, a 16% y/y decrease. Full-year 2023 revenue for the segment was $1.8 billion, a 14% y/y decline.

Company officials said they see increased opportunities for Hub Group’s final-mile business heading into 2024 through the acquisition of Forward Air Final Mile. Hub Group acquired the business from Forward Air for $262 million in December.

Alexander said the acquisition gives Hub Group 75 final-mile service locations across the country, spanning a total of 11 million square feet of warehouse space.

“We are now positioned as one of the top final-mile providers, with a diverse offering that now includes appliance deliveries and a larger network of locations,” Alexander said.

Hub Group recently announced a 2-for-1 stock split of its Class A common stock in the form of a one-time special stock dividend that was distributed to shareholders on Monday. The stock split was part of Hub Group’s previously announced growth-focused capital allocation plan, including $26 million of shares purchased during the fourth quarter.

Hub GroupQ4/23Q4/22Y/Y % ChangeRevenue$985M$1.3B(24%)Intermodal and transportation solutions$576M$804M(28%)Logistics$438M$507M(14%)Adjusted earnings per share$0.46$1.21(62%)Hub Group’s Q3 earnings.

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