Tim Phillips; President, Chief Executive Officer, Director; Universal Logistics Holdings Inc
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 instruction)
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, belief, 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.
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 par that group to the universal family.
It is each associates 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 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 continues 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 sequential improvement in intermodals 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 under performance of the 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.
[Juwi 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 $1.1 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 23.
Contract logistics remains our most consistent and profitable segment. This was the 11 quarter of offering ratios below 90% and the sixth straight below 85%.
I’m also excited about our recent acquisition of Pars, 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 dredge and other service lines.
It will also bring our contract logistics segment segments 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 star for September 15.8 million. Class A production also remains stable with large backlog of expected bills 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 haul.
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 exits.
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, as the soil charges decrease 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 may have bottomed. Additionally, our intermodal segment operating ratios decreased to 101.5% in Q3 2024 compared to 110.6% in Q 2 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 client.
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 colour on our financials and expectations for upcoming quarter. Jude, thanks
Jude Beres
Tim. Good morning, everyone. Yesterday, universal logistics holdings reported consolidated net income of $26.5 million or $1 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, EBITA 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 compared 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 totally total operating revenues on this program of approximately $228 million and continue to expect it to be substantially complete by December 31, 2024 revenues generated on this program are reported in value added services and the associated cost 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 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 and 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 non-cash 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 one railroads and includes three of the largest rail ramps in North America. It also accounts for approximately 20% of all North American lift value.
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 we financed with availability on our revolver on our balance sheet we held cash and cash equivalents totalling $11.8 million and $11.7 million of marketable securities outstanding interest-bearing debt, net of $3.8 million of debt issuance costs totalled $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 totalled $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 mentioned earlier for the fourth quarter of 2024, we are expecting top line revenues between $450 million $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.
Finally, Wednesday, our board of directors declared Universal’s 10.5% per share regular quarterly dividend. This quarter’s dividend is payable to shareholders of record at the close of business on December 2, 2024, and is expected to be paid on January 2, 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. Should you have a question? (operator instruction)
Your first question comes from Bruce Chan at Stifel. Please go ahead
Bruce Chan
Hi. Hi, good morning, Jens. This is Andrew Cox. I’m for Bruce.
Jude Beres
Hi, good morning. How are you
Bruce Chan
Doing? Great. Hey, I, I guess we’ll just start here with the, with the new, terminal operations business with Parse. We 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 here you see here and, and what opportunity you have to expand margins beyond what you laid out. Just a moment ago. Thank you.
Tim Phillips
Yeah. Yeah, Andrew, this is Tim. Yeah, above and beyond what we mentioned, you know, there was a fair thorough, fair, thorough, thoughtful process on onboarding parts that and how it will affect our overall business. We, 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, 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 [dred] standpoint. We think that there’s going to be some opportunities that are going to come of that new partnership.
You know, we’re really excited about it because 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, you know, peel back the onion on acquisitions that we thought that it would be as we’ve mentioned immediately of creative, but also the, 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
Yeah, absolutely. And, and, and also, you know, the, it, the profile of its EBITA fits in well with our existing contract logistics business, right? So, we’re expecting, you know, double digit, EBITA margins in this business similar to what we have on our, on 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.
Bruce Chan
Great. Thank you. It seems like a good fit contract structure wise as well. So, we’ll, we’ll dive into the, the brokers closer closure here if we could, you know, is there any piping of that business to the agent organization? And I guess how should we think about the, the timeline for the wine down there? I mean, is this, is this, you know, completely done now, I just see the, the revenue that’s flowing into the, the other segment of the P&L so I just wanted to know how we think about that modelling going forward.
Jude Beres
Yeah, 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, say five loads and they only can cover three with our own capacity. And so, they’ll throw those other two loads out to be brokered. So that piece of our business that over low 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 is 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 a 102 and we were losing between two and $3 million a quarter. This year with really no end in sight, right? So, it’s one of those, you know, 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 9, 10, about ’13 million of losses related to our brokerage business that we just replaced with about $33 million of additional EBITA 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 are people involved. As Tim mentioned in his comments, you know, 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.
Bruce Chan
Got it. That makes a lot of sense and, and just a follow up on that. So, looking forward to the 2025 guidance, the margin expansion expected there is that mainly a result of, of that kind of trade off that you’ve made between brokerage and the two acquisitions.
Tim Phillips
Yeah, exactly.
Jude Beres
So yeah, we’re trading businesses that will operate, you know, on the 10% margin range with businesses that operated at 105.
Bruce Chan
Got it. Okay. And so in into a truckload and into the, the, the trucking business, a hall. Is there any impact from the hurricanes here? I assume there’s no seamless contracts in that business. Just kind of wondering. We’ve heard some other commentary from some other executives that they’re, 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
Yeah, no, no exposure from a seamless or emergency response standpoint, some, some effects of that hurricane on, you know, 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 would be delivered to an emergency response, like pumps and generators and whatnot. As far as its impact on the, on the heavy haul business there, there was zero impact on that, that business.
Bruce Chan
Okay. And then I will just end here with a, I guess a broader question, you know, with the sale of brokerage, excuse me, guys, sorry about that. How are you guys thinking about the, 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, you know, as you know, has Tim has continually mentioned in his in his comments over the past number of quarters that, you know, the real only headwind that we have left is just the turnaround of our intermodal business.
And if we can, you know, continue to see some better value, it may be a little bit better price that we kind of get that business back to you know, the financial targets that we hit and expected from a couple of years ago. So, no, I think we, we feel pretty good about the portfolio, and you can see that from where we’re investing, right? We’re still investing in that truckload business; all be on the special specialized side. And also, we made a very large investment in contract logistics, which I all figure that we believe is the real all-star of our portfolio.
So, no, I think for the time being we’re, we’re very happy with where we stand.
Bruce Chan
Absolutely. All right. Thank you so much, Jude.
Operator
Thank you.
Thank you, ladies and gentlemen, as a reminder, should you have any questions, please press star one.
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.
