Hub Group lowers third quarter earnings forecast

Intermodal, highway and logistics services provider Hub Group Inc. said this week that it is lowering its expected earnings per share for the third quarter to be between $0.48-$0.51, down from previous Wall Street expectations ranging from $0.52-$0.57. And it also lowered full-year 2013 earnings to $1.85-$1.95 from $2.02.

The Downers Grove, Ill.-based company cited various factors negatively impacting earnings, including:
-a challenging intermodal pricing environment that resulted in price increases that were lower than anticipated;
-unfavorable intermodal traffic mix, including soft demand for freight shipping from the West Coast, less new business than expected in truck brokerage due to intense competition from asset-based carriers; and
-unfavorable business mix in truck brokerage due to a decline in demand for high value-added services.

Hub’s third quarter earnings call is schedule for Thursday, October 17.

Stifel Nicolaus analyst John Larkin wrote in a research note that a challenging intermodal price environment and traffic mix impacted Hub’s intermodal franchise and likely impaired margins.

“Softness in pricing and demand should have been evident, given the slowing price environment for truckers and negative intermodal volume on Union Pacific’s network exhibited in 3Q13,” he wrote. “However, management was adamant that 2H13 volumes would be up in the mid- to high-single digits; although that may still be the case, softer freight demand from the West Coast and lower than expected price increases most likely led to margin compression.”

The analyst added that Hub’s truck brokerage results were impacted by increased competition from asset-based carriers and an unfavorable mix, and he also stated that Hub represents the fifth freight transportation company to announced lowered earnings expectations for the third quarter.

Given the spate of companies doing so, he brought up the point that even with some positive economic points throughout the quarter, there have been anecdotal reports of lackluster freight growth, raising the question of whether the second half of 2013 will resemble the second half of 2012.  

While Hub noted that there is currently a challenging intermodal pricing environment, Hub Vice Chairman and COO Mark Yeager said at the FTR Transportation Conference that intermodal is doing a great job in competing with the truckload market, as well as in taking share.

“Intermodal is on a roll, and domestic intermodal has continued to grow well,” Yeager said. “I think we are seeing a pretty normalized intermodal environment out there that means we are seeing a normal uptick in activity. The West Coast has been solid but nothing [booming] like we saw in the late 90’s and early 00’s. A lot of the strength in intermodal has to do with stability and shipper confidence and consistent and reliable service that offers an opportunity to substantially reduce supply chain costs. As long as intermodal service remains reliable, we are likely to see it continue to take share.”