Universal Logistics Holdings (NASDAQ: NASDAQ:ULH) demonstrated its ability to navigate a challenging freight environment in its Third Quarter 2024 Earnings Call. CEO Tim Phillips reported a slight revenue increase and a significant rise in earnings per share, despite a broader freight recession.
The company's Contract Logistics segment saw a notable revenue jump, while its Trucking segment experienced a decline. Strategic acquisitions and a forecast of increased revenue and operating margins for the upcoming quarters suggest a positive outlook for Universal Logistics.
Key Takeaways
- Universal Logistics Holdings reported a 1.3% increase in revenue to $426.8 million.
- Earnings per share rose by 14.7% to $1.01.
- The Contract Logistics segment's revenue grew by 17.8% to $245.2 million.
- The Trucking segment's revenue declined by 10.3% to $87 million.
- Intermodal segment losses narrowed to just over $1.1 million.
- The company closed its underperforming brokerage business, impacting net income by $6.4 million.
- Two acquisitions, East Texas Heavy Haul and Parsec, are expected to boost future revenue and EBITDA.
- Fourth quarter revenue is projected between $450 million and $475 million, with operating margins of 9% to 11%.
- For 2025, revenue is anticipated to be between $1.8 billion and $1.9 billion, with operating margins of 10% to 12%.
- A quarterly dividend of $0.105 per share was declared, payable on January 2, 2025.
Company Outlook
- Revenue projections for fourth quarter 2024 stand between $450 million and $475 million.
- Operating margins are expected to be between 9% and 11% for Q4 2024.
- In 2025, Universal Logistics anticipates revenues of $1.8 billion to $1.9 billion and operating margins of 10% to 12%.
Bearish Highlights
- The Trucking segment faced a revenue decline of 10.3%, bringing in $87 million.
- The company-managed brokerage operations were ceased due to pre-tax losses of $8.6 million.
Bullish Highlights
- The Contract Logistics segment experienced a revenue increase of 17.8%.
- The company's specialized heavy-haul wind business helped mitigate losses in the Trucking segment.
- Strategic acquisitions are expected to contribute significantly to future revenue and EBITDA.
Misses
- The Intermodal segment continued to struggle, although losses were reduced to just over $1.1 million.
- Brokerage business closure had a negative impact on net income, reducing it by $6.4 million.
Q&A Highlights
- Executives discussed strategies to enhance industrial businesses by offering value beyond pricing.
- Margin expansion guidance for 2025 is attributed to the trade-off between lower-margin brokerage operations and beneficial acquisitions.
- Recent hurricanes had no significant impact on the heavy-haul business, with only a minor uptick in industrial deliveries related to emergency response.
- Investments in Truckload and Contract Logistics are seen as key growth areas.
- Despite challenges, there is optimism about achieving previous financial targets in the Intermodal business.
- The focus remains on strategic additions to improve precision logistics solutions.
Universal Logistics Holdings continues to adapt to market conditions, focusing on strategic growth and operational efficiency. With the acquisitions of East Texas Heavy Haul and Parsec, the company is poised to enhance its service offerings and financial performance. Despite some segment struggles, the overall outlook for Universal Logistics remains positive as it moves into the fourth quarter of 2024 and beyond.
InvestingPro Insights
Universal Logistics Holdings' (NASDAQ: ULH) recent earnings call paints a picture of resilience in a challenging freight market, and InvestingPro data provides additional context to the company's financial health and market performance.
According to InvestingPro, Universal Logistics is currently trading at a low earnings multiple, with a P/E ratio of 8.15. This valuation suggests that the stock may be undervalued relative to its earnings, which aligns with the company's reported increase in earnings per share.
An InvestingPro Tip highlights that ULH has maintained dividend payments for 14 consecutive years, demonstrating a commitment to shareholder returns. This is particularly noteworthy given the company's recent declaration of a $0.105 per share quarterly dividend. The current dividend yield stands at 1.09%, as reported by InvestingPro.
Despite the challenges in the freight industry, ULH has shown strong performance over the past year. InvestingPro data reveals a remarkable 1-year price total return of 71.52%, significantly outperforming the broader market. This robust return supports the company's positive outlook and strategic moves, including the acquisitions mentioned in the earnings call.
It's worth noting that while the stock has seen impressive gains over the past year, InvestingPro data indicates that it has taken a hit in the short term, with a 1-week price total return of -11.51%. This recent dip could present an opportunity for investors who believe in the company's long-term strategy and growth prospects.
For readers interested in a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into Universal Logistics Holdings' financial position and market potential. There are 8 more InvestingPro Tips available for ULH, which could be valuable for investors looking to make informed decisions based on a broader range of financial indicators.
Full transcript - Universal Logistics Holdings Inc (ULH) Q3 2024:
Operator: Hello and welcome to Universal Logistics Holdings' Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] 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 words such as beliefs -- believe, expect, anticipate, and project. Such statements are subject to risks and uncertainties, and actual results could differ materially from those expectations. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tim Phillips, Chief Executive Officer; Mr. Jude Beres, Chief Financial Officer; and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin.
Tim Phillips: Thank you, Joanna and good morning everyone, and thank you for joining Universal's 2024 third quarter earnings call. As evidenced by our results, Universal's diverse service offerings continue to set us apart from the competition in the transportation and logistics industry. Our comprehensive offering of logistics solution has once again enabled us to achieve exceptional results even during this extended downturn in the transportation sector. Before diving into the details of our performance, I want to take a moment to express my gratitude to the entire Universal team. The dedication and hard work of our over 10,000 employees and contractors are the driving force behind these achievements. I would also like to welcome the over 2,100 employees from the recent acquisition of the Parsec Group to the Universal family. It is each associate's commitment that allows us to consistently deliver outstanding service to our customers and maintain our position as a leading transportation and logistics provider. Now, let's discuss the quarter. Universal once again delivered solid results in the third quarter of 2024. We grew top line revenues by 1.3%, delivered a double-digit operating margin and increased our earnings per share by 14.7% compared to the same period last year. This was accomplished while going through one of the most prolonged freight recessions I have ever experienced. While I'm pleased with Universal's overall results, individual segment performance continue to vary. Our Contract Logistics business continues to deliver outstanding results, consistently achieving double-digit operating margins. Contract Logistics has been the cornerstone of our success. Our Trucking segment has also achieved solid results despite the overall weakness in the truckload market, the strong demand for our specialized heavy-haul wind business has propelled trucking to its highest operating margin in over two years and we continue to see strong demand for this offering. Weighing down our results has been the underperformance of our intermodal segment. This business continues to perform below our expectations. However, we remain laser-focused, removing costs and improving efficiencies in our operations and these efforts are paying off. In the third quarter, we saw a sequential improvement in intermodal's operating ratio and narrowed our losses to just over $1.1 million during the period. We still have work -- some work to do, but I'm encouraged by the impact of our results so far. During the quarter, we also made a difficult decision to close the company-managed brokerage business, continued underperformance of this segment along with the deeply depressed freight environment made the decision necessary. We remain dedicated to making prudent business decisions and executing our strategy to ensure Universal's long-term success. Jude will add color on the financial impact of the closure that it had on the quarter later on the call. For the third quarter 2024, Universal reported $426.8 million of revenue and $1.01 of earnings per share and an operating margin of 10%. In our Contract Logistics segment, revenues increased 17.8% to $245.2 million. This was largely due to our specialty development project in Stanton, Tennessee. At the end of Q3 2024, Universal managed 70 value-added programs, down three from Q3 of 2023. Contract Logistics remains our most consistent and profitable segment. This was the 11th quarter of operating ratios below 90% and the sixth straight below 85%. And I'm also excited about our recent acquisition of Parsec, a market-leading provider of real terminal management services. The acquisition will allow us to enter new industries, expand our service offerings in our Contract Logistics segment and provide cross-selling opportunities for drayage and other service lines. It will also bring our Contract Logistics segment segment's annual revenue run rate to over $1.1 billion. We expect continued outperformance for the segment in the near future, despite elevated inventory levels, the outlook for the automotive industry is positive with the SAAR for September at 15.8 million. Class A production also remained stable with a large backlog of expected builds for the full year 2024 and 2025. Overall, our Trucking segment is performing relatively well given the depressed transportation backdrop. Trucking segment revenues decreased 10.3% to $87 million. This was due to a 16.1% decrease in loads hauled. We were able to partially offset this decrease with a 9.3% increase in revenue per load, excluding fuel surcharge. Trucking segment results were buoyed by the strong results from our specialized heavy-haul wind business. We expect this to continue throughout Q4 2024 as we have a full schedule of wind projects. Our specialized heavy-haul wind business has a long runway that should see growth for years to come, providing solid trucking segment performance insulated from fluctuations in the broader truckload market. Outside of specialized freight, the truckload market remains soft. Flatbed volumes were down 12.9%. There's still too much capacity in the market and we expect truckload weakness to persist until we see some more capacity exit. The intermodal segment is slowly beginning to improve. In the intermodal segment, revenues decreased 11.8% year-over-year to $77.6 million compared to Q3 2023. Our intermodal segment experienced a 13.2% decrease in volume, while rates increased 1.8%. Additionally, assessorial charges decreased $1 million and fuel surcharges revenues decreased $2.8 million. However, compared to sequentially to Q2, the picture is much better. Revenue was nearly flat with both volumes and rates stable, indicating that the segment may have bottomed. Additionally, our intermodal segment's operating ratios decreased to 101.5% in Q3 2024 compared to 110.6% in Q2 2023 -- I'm sorry, Q2 2024, evidence that our cost-cutting measures are paying off. We continue to streamline the business with a focus on truck productivity and taking out costs where possible. Our focus is also on capturing volume in order to position ourselves for a strong turnaround when capacity does finally come out of the market and the rate environment improves. Looking ahead, we are excited by our strong sales pipeline filled with opportunities. Specifically, Contract Logistics and dedicated opportunities account for over $700 million. This robust pipeline allows us to be selective, focusing on the bids that align with our core competencies and desired margin goals. By maintaining this strategic approach, we can ensure long-term success while delivering exceptional value to our clients. I'm incredibly proud of our performance in the third quarter of 2024. I want to take this opportunity to thank all our employees. Their hard work and commitment are the backbone of our success. I also want to thank our customers for the continued trust in Universal. I'm optimistic about the rest of 2024 and confident in our future. I will now turn over to Jude to provide some color on our financial and expectations for upcoming quarters. Jude?
Jude Beres: Thanks Tim. Good morning everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $26.5 million or $1.01 per share on total operating revenues of $426.8 million in the third quarter of 2024. This compares to net income of $23 million or $0.88 per share on total operating revenues of $421.3 million during the same period last year. Consolidated income from operations was $42.6 million for the quarter compared to $36.8 million one year earlier. EBITDA increased $16.2 million to $72.9 million, which compares to $56.7 million during the same period last year. Our operating margin and EBITDA margin for the third quarter of 2024 are 10% and 17.1% of total operating revenues. These metrics compare to 8.7% and 13.5%, respectively, in the third quarter of 2023. Looking at our segment performance for the third quarter of 2024 in our Contract Logistics segment, which includes our value-add and dedicated transportation businesses, income from operations increased $10.5 million to $45.6 million on $245.2 million of total operating revenues. This compares to operating income of $35.1 million on $208.1 million of total operating revenue in the third quarter of 2023. Operating margins for the quarter were 18.6% of total operating revenues compared to 16.9% one year earlier. We continue to make excellent progress on our specialty development Contract Logistics program. During the third quarter of 2024, we recognized an additional $36.8 million of operating revenues related to this program. This brings our year-to-date operating revenues related to this program to $176.6 million. As a reminder, during the full year 2024, we expect to recognize total operating revenues on this program of approximately $228 million and continue to expect it to be substantially complete by December 31st, 2024. Revenues generated in this program are reported in value-added services and the associated costs in operating supplies and expense. The results of this program are included in our Contract Logistics segment. Based on its current cadence, we anticipate this program will generate additional revenues of approximately $50 million during the fourth quarter of 2024. Our guidance that I will discuss momentarily reflects the impact of this program during the fourth quarter. On to our Intermodal segment, operating revenues decreased $10.3 million to $77.6 million compared to $88 million in the same period last year, and income from operations increased $3.3 million to an operating loss of $1.1 million. This compares to an operating loss of $4.5 million in the third quarter of 2023. Operating ratios for the quarter were 101.5% versus 105.1% last year. In our Trucking segment, operating revenues for the quarter decreased $10 million to $87 million compared to $97.1 million in the same quarter last year. Income from operations increased $600,000 to $7.1 million. This compares to $6.6 million in the third quarter of 2023. Operating margins for the quarter were 8.2% versus 6.8% last year. As previously disclosed in an 8-K filing on August 23rd, Universal ceased operations of its company-managed brokerage business. During the third quarter of 2024, this business unit incurred pre-tax losses of approximately $8.6 million, including $2.8 million of noncash impairment charges. These losses adversely impacted the company's operating margin by 200 basis points, net income by $6.4 million or $0.24 per basic and diluted share. We expect no further negative financial impact from this operation going forward. During the quarter, we also made two strategic business acquisitions. On September 13th, 2024, Universal acquired the assets of East Texas Heavy Haul, the truckload agency that formerly managed our Specialized Wind business. This acquisition will convert an agency to a company-managed operation and is expected to accrete approximately $3 million of additional EBITDA to our Trucking segment. Next, on September 30th, 2024, we acquired Parsec, a rail terminal operator whose operations extend across all Class 1 railroads and includes three of the largest rail ramps in North America. It also accounts for approximately 20% of all North American lift volume. We anticipate this acquisition to add approximately $230 million of top line and nearly $30 million of additional EBITDA annually to our Contract Logistics segment. Both of these acquisitions will be immediately accretive and were financed with availability on our revolver. On our balance sheet, we held cash and cash equivalents totaling $11.8 million and $11.7 million of marketable securities. Outstanding interest-bearing debt net of $3.8 million of debt issuance costs totaled $557.5 million at the end of the period. Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported TTM EBITDA was 1.8 times. Capital expenditures for the quarter totaled $65 million. For the full year, we are expecting capital expenditures to be in the $315 million to $330 million range and interest expense to come in between $34 million and $36 million. Based on the current operating environment and the expected cadence of the new contract logistics program I mentioned earlier, for the fourth quarter of 2024, we are expecting top line revenues between $450 million and $475 million and operating margins in the 9% to 11% range. Given the number of moving pieces in our business throughout the year, including the recent acquisitions, closing of our company-managed brokerage, and the roll-off of our specialty development project, we also wanted to offer some longer-term guidance on how we see the business performing in 2025. Looking ahead, our expectations for the full year of 2025 are operating revenues between $1.8 billion to $1.9 billion, and operating margins between 10% and 12%. For the full year of 2025, we are also expecting capital expenditures to be in the $140 million to $160 million range before any purchases of strategic real estate and interest expense to come in between $45 million and $50 million. Finally, on Wednesday, our Board of Directors declared Universal's $0.105 per share regular quarterly dividend. This quarter's dividend is payable to shareholders of record at the close of business on December 2nd, 2024, and is expected to be paid on January 2nd, 2025. With that, Joanna, we're ready to take some questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Bruce Chan at Stifel. Please go ahead.
Andrew Cox: Hi, good morning gents. This is Andrew Cox on for Bruce.
Tim Phillips: Hey good morning. How are you?
Andrew Cox: Yes, great. I guess to just start here with the new Terminal Operations business to Parsec. I kind of wanted to get an idea of margin profile going forward and what the synergy opportunity you may see between the rest of the business? I know you guys noted some things in the release, but just kind of wanted to understand long-term, what kind of synergy opportunity you see here? And what opportunity you have to expand margins beyond what you laid out just a moment ago? Thank you.
Tim Phillips: Yes, Andrew, this is Tim. Yes, above and beyond what we mentioned, there was a thorough, thoughtful process of onboarding Parsec and how it will affect our overall business. We truly believe there's synergies there that allow us to have additional touch points in the supply chain. I think that the involvement of new blue chip customers and their exposure to some of our other services along with what we already do on the intermodal front from an intermodal drayage standpoint, we think that there's going to be some opportunities that are going to come of that new partnership. We're really excited about it because it's no overlap to our current business, and there's a really good cultural fit of the Parsec Group and the Universal Group. I think that was one of the other determining factors as you listen to people peel back the onion on acquisitions, we thought that it would be, as we've mentioned, immediately accretive, but also the synergies there on the human side of it, we felt that it was a really good fit that we could push it right into the Universal family without a hiccup. So, extremely excited about that.
Jude Beres: Yes, absolutely. And also, the profile of its EBITDA fits in well with our existing Contract Logistics business, right? So, we're expecting double-digit EBITDA margins in this business similar to what we have in a number of our programs within Contract Logistics. And as Tim pointed out, the cross-selling opportunity, particularly within our drayage business, is something that we're really excited about in addition to any other type of services that we can offer the rail, now that they're going to have a very large partner with a pretty big balance sheet to help them in any way they can to offload all of those difficult things that Universal is really, really good at.
Andrew Cox: Great. It seems a good contract structure-wise as well. So, we'll dive into the brokerage closure here, if we could. Is there any piping of that business to the organization? And I guess, how should we think about the timeline for the wind down there? I mean is this completely done now or just see the revenue that's flowing into the other segments of the P&L? So, I just wanted to know how we think about that modeling going forward?
Jude Beres: Yes, absolutely. So, remember, Universal has two aspects to our brokerage business. In our legacy agent-based truckload business, the brokerage that is handled in that space is really that overflow brokerage model, right, where they have an arrangement with a customer. They're tendered to, say, five loads and they only can cover three with their own capacity. And so they'll throw those other two loads out to be brokered. So that piece of our business, that overflow piece will continue to exist within our legacy truckload business. This specific business was a business that Universal acquired in 2009, it was a stand-alone company-managed operation located in Nashville. And really what it was as an aggregator, very similar to some of the other large brokers that you see out there except for we really didn't have a lot of other services that we could offer our customers so they really predominantly became a price player. And if you really look at our results over the past couple of years, in 2023, that business lost about $2.3 million, operated at $102 million, and we were losing between $2 million and $3 million a quarter this year with really no end in sight, right? So, it's one of those difficult decisions, as Tim mentioned in his comments. So, if you think about what we did is that we shut down that operation in August, we don't expect any further impact on the business related to it. We took our medicine, which was about $8.9 million worth of expenses. So this year, if you look at the results, we have about, what -- about $13 million of losses related to our brokerage business, that we've just replaced with about $33 million of additional EBITDA with the two acquisitions that we made. So, you think about it, we're going to have about a $50 million swing in our EBITDA year-over-year, the impact of shutting down that business and actually being able to buy businesses that we have something to offer our customers other than price. So, although these are very difficult decisions that we have to make because that there is people involved, as Tim mentioned in his comments, we have to look at the business and how it's performing, and they all have to stand on their own. So, we really look at the combination of closing down our brokerage, which was a non-core business and adding on these other two acquisitions in the quarter, which are a part of our core business is just to continue of our strategy to grow those sticky industrial-type businesses where Universal can offer their customers something other than price.
Andrew Cox: Got it. That makes a lot of sense. And just a follow-up on that. So, looking forward to the 2025 guidance, the margin expansion is expected there. Is that mainly a result of the kind of trade-off that you've made between brokerage and the two acquisitions?
Jude Beres: Yes. Exactly. So, yes, we're trading businesses that will operate in the 10% margin range with businesses that operated at $105 million.
Andrew Cox: Got it. Okay. And so into truckload and into the checking business at heavy-haul, is there any impact from the hurricanes here? I assume there's no FEMA contracts in that business. Just kind of wondering -- we've heard some other commentary from some other executives that they're seeing some benefit here in the fourth quarter with recovery efforts. Just wanted to know if you have any exposure there?
Tim Phillips: Yes, no exposure from a FEMA or emergency response standpoint, some effects of that hurricane on some of our normal van business and things of that nature. We did see maybe a little bit of pickup when doing some of those things from an industrial standpoint that will be delivered to an emergency response like pumps and generators and whatnot. As far as its impact on the heavy-haul business, there was zero impact on that business.
Andrew Cox: Okay. And then I will just end here with, I guess, a broader question. With the sale of brokerage, excuse me, guys -- sorry about that. How are you guys thinking about the structure of the portfolio? Now is there any changes to how you envision the strategic positioning and service offerings moving forward? Do you have any new areas of focus? Thank you.
Jude Beres: No, I mean I think we really like the businesses that we're in. And I think as Tim has continually mentioned in his comments over the past number of quarters that the real only headwind that we have left is just the turnaround of our Intermodal business. And if we can continue to see some better volumes and maybe a little bit better price, then we'll kind of get that business back to the financial targets that we hit and expected from a couple of years ago. So, no, I think we feel pretty good about the portfolio. And you can see from where we're investing, right? We're still investing in that Truckload business, albeit on the specialized side and also, we made a very large investment in Contract Logistics, which I all think that we believe is the real all-star of our portfolio. So, no, I think for the time being, we're very happy with where we stand.
Andrew Cox: Absolutely. All right. thank you so much gents.
Jude Beres: Thank you.
Operator: Thank you. [Operator Instructions] We have no further questions. I will turn the call back over to Tim Phillips for closing comments.
Tim Phillips: Thank you, Joanna. I'm extremely excited about what is in front of us. We continue to evaluate strategic additions that bolster our precision logistics solutions that we offer our customers. From port to plant, Universal is able to provide engineered supply chain solutions with a customer-centric approach. With that, I thank you for joining the call today and look forward to talking to you next quarter. Thank you.
Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.
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