Hub Group (HUBG 47.25) is a leading asset-light freight transportation management company offering comprehensive intermodal, truck brokerage and logistics services. Today, it is also going to be known for tempering its first quarter and full-year earnings expectations due primarily to challenges facing its intermodal business line.
Like many other trucking-related stocks, shares of HUBG got a boost on Monday following the merger agreement between Swift Transportation (SWFT) and Knight Transportation (KNX). That boost might not be built to last, however, considering HUBG is forecasting first quarter and FY17 earnings to be well below analysts' average estimates.
Specifically, Hub Group expects first quarter non-GAAP earnings per share to be between $0.33 and $0.35 and full-year 2017 earnings per share to be between $1.60 and $1.80. The midpoint of those respective guidance ranges is at least 20% below what analysts had been expecting.
The earnings travails for Hub Group relate to a soft pricing environment that stems primarily from excess trucking capacity and extraordinarily aggressive intermodal pricing. Hub Group said that, when it released its 2016 year-end results, it thought intermodal pricing would start to rise in 2017, yet it has seen even greater downward pressure on intermodal pricing with about 27% of its bid season complete.
On a brighter note, the company's truck brokerage and Unyson Logistics business segments are outperforming last year, with truck brokerage revenue anticipated to be up 30-32% year-over-year and Unyson revenue up between 20% and 22% year-over-year in the first quarter.
Hub Group has been working to diversify its product offerings, yet the intermodal business remains its core operation, accounting for 65% of fiscal 2016 total revenue of $2.7 billion. The logistics and truck brokerage lines accounted for 20% and 14%, respectively, of total revenue.
It is Hub Group's belief that the intermodal pricing environment is an aberration due to improve as truck capacity gets reined in and pricing becomes more rational. Moreover, as it works to diversify its operations, Hub Group expects the cyclical nature of intermodal prices to have less of an impact on earnings.
For now, though, the impact is meaningful and it is seen in the earnings guidance, as well as the stock price. Shares of HUBG are trading 9% lower in pre-market action.
The company will report its first quarter results after the close on April 26.