Universal Logistics Holdings, Inc. (NASDAQ:ULH) Q1 2024 Earnings Call Transcript April 26, 2024
Universal Logistics Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to Universal Logistics Holdings First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. 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 the words such as 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 now begin.
Tim Phillips: Thank you and good morning everyone. Thank you for joining Universal’s 2024 first quarter earnings call. There’s a lot to unpack in this quarter, but let me start off by thanking our nearly 10,000 team members who work tirelessly, day in and day out to make Universal the best in class transportation and logistics provider we are today. We couldn’t do it without your hard work and dedication. I also want to thank our customers for continuously recognizing our efforts and the value we bring to their supply chains. The long-term partnerships we have built with some of the most recognizable brands in the manufacturing space are what we truly differentiate Universal business model in the space. Now for the quarter. Our performance in the first quarter varied greatly, dependent on the individual business segment.
Our contract logistics segment delivered outsized results, while our intermodal and company managed brokerage segments continue to fall behind our performance expectations. Trucking was steady as she goes, delivering mid-single digit margins as our specialized heavy haul business buoyed their results. Q1 was certainly a challenging environment for our transactional transportation business, but overall, I’m extremely pleased with our results. The first quarter 2024, Universal reported 491.9 million of revenue, $1.99 of earnings per share and an operational margin of 15.3%. This was the best earnings per share and operating margin for any quarter in Universal’s history. In the contract logistics segment, revenues increased 48.4% to $313.5 million.
This was largely due to our recent program award that ramps up in Q1 and will be completed by the end of 2024. At the end of Q1 2024, Universal managed 71 value added programs, compared to 65 at the end of Q1 2023. We believe we will continue to see strength in the contract logistics segment for a number of reasons. First, Q2 is typically our strongest quarter for contract logistics. There are fewer shutdowns or interruptions to the OEM’s production. Secondly, the auto industry is doing well. The SAR remains over 15 million and Class 8 production has remained consistent. As the OEMs are under pressure, some are altering or even re-evaluating their EV transition plans while addressing labor cost pressures. The wage inflation we are seeing in the auto sector could lead our customers to seek more outsourcing opportunities utilizing universal’s lower cost but high service solutions.
We are already beginning to see this. We have several new contract logistics programs launching in the back half of 2024 and the beginning of 2025. Trucking segment revenues decreased 12.6% to $69.7 million. This was due to a 7.1% decrease in loads hauled, while revenue per load, excluding fuel surcharges, also decreased 6.2%. We expect to see a significant uptick later in the year in our specialized truckload business, which has a full book of business for the rest of the year. Flatbed volumes, while still negative year-over-year, are showing some signs of blood [ph] with the ISM now in expansive territory, we await better volumes as the year progresses. In the intermodal segment, revenues decreased 30.9% to $76.7 million in the first quarter of 2024.
Compared to Q1 2023 our intermodal segment experienced a 14.1% decrease in volume while line haul rates decreased less than 1%. Additionally, accessorial charges decreased $17.5 million and fuel surcharge revenue decreased $6.4 million. We are excited to see some of the signs of life on import volumes, although our retail customers continue their strained outlook for the year. Any volume increases are welcome and should help us on the return to profitability in both the West Coast port and Inland rail locations. Company managed brokerage segment revenues decreased 8.7% to $31 million. This was due to a 12.2% decrease in revenue per load, which was partially offset by an 8% increase in revenue per load. Excess capacity continues to be the biggest constraint on price.
We took some share back in the quarter, but the brokerage market is super competitive and we do not expect that to change in the near-term. Similar to our industry peers, our transactional transportation business have been experiencing ongoing volume and rate pressures. Pricing remains extremely competitive and shippers are taking advantage of the current market conditions. On the positive side, we are hearing some optimistic sentiments from our customers regarding the back half of the year. Although we haven’t seen the start of the turnaround, we believe we are at the bottom of the cycle. It’s hard to imagine [indiscernible] and truckload rates going lower than they already are. Universal’s transportation foundations remain strong. Our legacy Truckload agent business is a compelling solution for both customers and for capacity providers.
With the current pressures facing capacity providers, including insurance, compliance and recruiting, to name a few, we offer support to the entrepreneurial minded capacity provider. In recent years, we have also built a nationwide drache [ph] network with a big emphasis on major freight markets. Our network provides shippers a unique one stop shop that few drache [ph] providers can match. While we have strong foundations, we are not dependent on an upswing in volumes to return the business segment back in the black. We are actively implementing new operational plans for our transportation segments, specifically the intermodal and brokerage segments. We have brought in new leadership and talent with a vast wealth of experience. We are evaluating our processes to identify any possible efficiencies and to control the costs we are able to manage.
We remain hyper focused on optimizing the utilization of our assets and we continue to build out our drache [ph] network with acquisition of two additional properties servicing the Port of Savannah this year. We are bullish on the future of intermodal and our investments show it. As you’ve seen in recent filings, we have become more agile in Mexico. Global supply chains are changing and we see many opportunities with the nearshoring trend. We’ve been in Mexico for a long time and the opportunities that we see are very exciting. Our Mexican franchise continues to grow and we are actively expanding both the trucking capacity and value added footprint with new business wins as well as planning for the future and planning for the future opportunities.
Nearshoring is real and we are well positioned to be key player in the Mexican market in the years to come. M&A is always a part of our strategy. We continuously evaluate acquisition opportunities, but remain disciplined. An opportunity cannot be a distraction. It must be a complement and better our core competencies. Any addition to the portfolio must make us stronger and more competitive in the marketplace. We have seen an uptick in deals coming to the market and are excited that the M&A market is beginning to unthaw even though interest rates remain elevated. As we look forward to our contract logistics segment, our sales pipeline remains full with opportunities. Value added and dedicated opportunities alone totaled nearly $1 billion. The robust pipeline allows us to be selective about which programs we choose to take on and make sure they fit our core competencies and desired margin profile.
Additionally, we are continuously seeking cross-selling opportunities with our current customers to find more ways to drive value with our diverse service offerings. The auto OEMs are not only customers we service in the contract logistics segment. Aerospace, defense, agriculture, heavy truck, consumer manufacturing, e-commerce make up our book and we continue to see new and exciting opportunities with them. As I had mentioned, Universal was not immune from the challenges in the transportation market. However, our strategy of cycle complementary service offerings allows us to weather any storm and even in this challenging environment, we continue to publish record results. We have consistently found ways to outperform throughout this cycle, led by our diversified portfolio of businesses and our unique contract logistics franchise.
I am confident that through the efforts today, we will be in a stronger position to take advantage of the freight rebound during the next up cycle. I’m very proud of our execution and results for the first quarter of 2024. Our strategy of offering diverse services while investing in our higher margin businesses has been validated by our record EPS and margins, despite the freight market weakness. Once again, I would like to extend a thank you to each member of the Team Universal for their contributions to a great quarter. I remain optimistic for the future and bullish on the remainder of 2024. I will now turn the call over to Jude to provide more color on our financials and expectations for the coming quarter. Jude?
Jude Beres: Thanks Tim. Good morning everyone. Yesterday, Universal Logistics Holdings reported consolidated net income of $52.5 million, or $1.99 per share, on total operating revenues of $491.9 million in the first quarter of 2024. This compares to the net income of $24.9 million, or $0.95 per share, on total operating revenues of $437.4 million during the same period last year. Consolidated income from operations was $75.1 million for the quarter, compared to $38.2 million one year earlier. EBITDA increased $40.2 million to $96.9 million, which compares to $56.7 million during the same period last year. Our operating margin and EBITDA margin for the first quarter of 2024 are 15.3% and 19.7% of total operating revenues. These metrics compared to 8.7% and 13% respectively, in the first quarter of 2023.
Looking at our segment performance for the first quarter of 2024, in our contract logistics segment, which includes our value add and dedicated transportation businesses, income from operations increased $53.7 million to $81.5 million on $313.5 million of total operating revenues. This compares to operating income of $27.8 million on $211.3 million of total operating revenue in the first quarter of 2023. Operating margins for the quarter were 26% of total operating revenues compared to 13% one year earlier. As previously disclosed, in the first quarter of 2024, we launched a significant new contract logistics development program, which is expected to be substantially complete by January 1 of 2025. For the full year 2024, we expect to recognize total operating revenues on the program of approximately $228 million, of which $95.3 million, or approximately 42%, was recognized in the first quarter of the year.
Revenues generated for this program are reported as value added services revenue 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 to be approximately 65% to 75% complete by the end of the second quarter, generating additional revenues in the range of $53 million to $75 million during the period. Then we expect the program revenues to step down to the range of $25 million to $45 million in each of the third and fourth quarters of 2024. Our guidance that I will discuss momentarily reflects the expected impact of this program during the second quarter. On to our intermodal segment, operating revenues decreased $34.3 million to $76.7 million compared to $111 million in the same period last year, and income from operations decreased $14.9 million to an operating loss of $8 million.
This compares to operating income of $6.8 million in the first quarter of 2023. Operating ratios for the quarter were $110.5 versus $93.9 last year. In our trucking segment, operating revenues for the quarter decreased $10.1 million to $69.7 million compared to $79.7 million in the same quarter last year and income from operations decreased $100,000 to $3.7 million. This compares to operating income of $3.8 million in the first quarter of 2023. Operating margins for the quarter were 5.3% versus 4.8% last year. In our company managed brokerage segment, operating revenues for the quarter decreased $3 million to $31 million compared to $34 million in the same quarter last year, and income from operations decreased $2.1 million to an operating loss of $2.5 million.
This compares to an operating loss of $400,000 in the first quarter of 2023. Our company managed brokerage segment reported an operating ratio of 108 versus 101.1 last year. On to our balance sheet, we held cash and cash equivalents totaling $11.1 million and $11.8 million of marketable securities. Outstanding interest bearing debt net of $4.3 million of debt issuance costs totaled $414.1 million. Excluding lease liabilities related to ASC 842, our net interest bearing debt to reported TTM EBITDA was 1.57 times. Capital expenditures for the quarter were $68.6 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 $26 million and $28 million. For 2024, based on the current operating environment and expected cadence of the new contract logistics program mentioned earlier, for the second quarter of 2024, we are expecting top line revenues between $450 million to $475 million and operating margins in the 9% to 11% range.
Finally, Wednesday, our Board of Directors declared Universal’s 10.5 cents per share regular quarterly dividend. This quarter’s dividend is payable to shareholders of record at the close of business on June 3, 2024, and is expected to be paid July 1, 2024. With that, Jewel, we’re ready to take some questions.
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