Universal Logistics Q1 2023 Earnings Call Transcript

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April 28, 2023

Key Takeaways

  • Universal reported Q1 EPS of $0.95 on operating revenue of $437.4M, down from $1.56 EPS and $523.9M revenue in Q1 2022, marking its second-best Q1 on record despite YoY declines.
  • Contract Logistics grew to 65 active programs (up 3.2% YoY) with operating income rising to $27.8M on $211.3M revenue, driven by strong demand and a $600M+ pipeline in value-added outsourcing across autos, Class 8, agriculture, machinery, and aerospace.
  • The Intermodal Drayage segment saw import volumes fall nearly 30%, revenue per load ex-fuel drop 18.7%, and top-line revenue decline 29.6% YoY amid inventory destocking and soft retail demand.
  • In Trucking, load counts were down ~12% with an 8.8% decrease in revenue per load and an 18.2% drop in segment revenue, though the variable-cost agent model sustained margins and added 12 new agent representatives in Q1.
  • For Q2 2023, Universal expects revenue of $420–440M with operating margins of 8–10%, plans ~$160M in full-year capital expenditures, and declared a quarterly dividend of $0.105 per share.
AI Generated. May Contain Errors.
Earnings Conference Call
Universal Logistics Q1 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Hello, and welcome to Universal Logistics Holdings First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. Followed by 0. 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.

Operator

Statements that are forward looking relate to Universal's business objectives or expectations and can be identified by the use of words such as 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.

Operator

Jude Perez, Chief Financial Officer and Mr. Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you, Mr. Phillips. You may begin.

Speaker 1

Thank you, Kyle. Good morning, and welcome to Universal Logistics Holdings 2023 Q1 earnings call. I'd like to start off by recognizing the incredible efforts of Universal's over 10,000 associates who worked so hard to make our organization best in class provider of customized transportation and logistics solutions. Although a challenging comparison to 2022, the Q1 of 2023 was Universal's next best first quarter financial performance on record. Anchored by the results of our contract logistics segment, I'm pleased with our overall performance Significant price and volume pressure on our transportation services, our teams did an excellent job managing our controllable costs While delivering excellent customer service and capitalizing on continuous improvement initiatives across the organization, Each segment is focused on operational excellence, increasing the productivity of our assets and rationalizing headcount.

Speaker 1

The start of 2023 confirmed that we have built a solid foundation for sustainable success a variety of market conditions. The model has proven to be resilient and we continue to look for additional opportunities to scale. The pipeline has continued to blossom in our contract logistics space and I feel our talent, technology And customer centric business approach makes us a front runner in several of our large bid opportunities across many different verticals. Our transportation pipeline also remains full of opportunity, but the scale of business wins is influenced by the current market conditions and price reduction exercises by our customers. Market share will continue to be our drumbeat.

Speaker 1

As long as the margin profile is conducive to our overall business goals, we still remain optimistic on the autos and Class 8 truck space And having very positive have had very positive conversations on the order books for agriculture, heavy machinery And Aerospace, while the retail market and its overall inventory below remain concerning, We continue to rationalize our pricing to remain competitive, while earning a fair return in exchange for our services. Now for the quarter. In yesterday's release, Universal reported 2023 Q1 earnings of $0.95 per share on total operating revenue of $437,400,000 While we fell short of last year's record setting performance, The Q1 of 2023 was Universal's next best financial performance Q1 on record. Demand for our contract logistics segments held firm throughout the quarter and our diversification strategy is paying dividends in a depressed transportation environment. Now for some color on each of the service lines.

Speaker 1

In our Contract Logistics segment, the number of active programs grew to 65, which was a 3.2% increase over programs in Q1 of 2022. There continues to be strong demand for outsourced logistics services in a variety of spaces. We feel there is real opportunity to showcase our existing operations to potential customers, which offer a combination of experienced human assets, Efficient processes and our proprietary technology. Auto production sustained a relatively consistent work cadence during the quarter associated with a more normalized supply chain fluency. Although periodic 6 day production was reserved for plants with high demand vehicles, The SAAR was elevated over 2022 while tracking near 15,000,000 units as the demand for vehicles remains strong.

Speaker 1

We are very pleased with the performance at our auto sector platforms and expect continued consistency for the remainder of the year. 2023 Class A production picked up the year where 2022 left off. Estimates are for another year that looks very similar to 2022, with North American production forecasted to be in excess of 300,000 units. While production is still elevated, we have heard of some supplier issues that may challenge these projections levels of production over the next several quarters. We are extremely excited about 8 new programs that are launching or beginning to launch in Q2.

Speaker 1

The medium sized programs in a variety of verticals and are expected to add $17,000,000 in annual revenue at full run rate. Our launch teams continue to execute in a timely and effective manner, delivering seamless Transitional business continuity to our customers. As mentioned, we have encountered a number of new outsourcing opportunities, not only from our Sales efforts, but from effect of delivering of logistics solutions in the marketplace. Our value added service pipeline continues to grow, reaching the largest dollar value of potential projects ever approaching 600,000,000 We approach each opportunity with a collaborative and highly engineered solution. We are eager for our current and The dedicated transportation group Continued to experience opportunity and growth.

Speaker 1

Our high velocity model allows us to move large amounts of freight with an incredible accuracy rate for customers who demand high level of execution like the autos. Our success in these environments continues to be on display, which is a great lead into additional opportunity for existing customers and a great case study for new customers looking for the next level of execution and service. Revenue for the quarter was up 12.9% driven by increased volumes and solid pricing with our strategic partners. We continue to secure and allocate new equipment for our dedicated fleet both for replacement and growth. We are committed to keep the average age of our truck fleet around 3 years, which helps elevate our uptime to continue to deliver velocity service.

Speaker 1

Newer equipment also enhances the driver experience and the safety profile, which has proven positive with our recruiting and our retention efforts. We exited the quarter launching a new large automotive account in the Southeast, which requires 80 drivers over 2 shifts and 5 to 6 days a week. We expect the run rate on this account to be over $13,000,000 annually. As mentioned before, this launch accompanies several other smaller launches and new wins with a combined run rate of over $24,000,000 in revenue annually. We continue to see quality dedicated opportunities in the pipeline and feel extremely Strong on the talented bench of employees with industry experience to support our long term growth objectives to bring velocity to multiple service sectors.

Speaker 1

Our Intermodal Drage Group continues to experience both volume and pricing headwinds. Import volumes at North American ports were down nearly 30%, Influenced by continued inventory destocking and low consumer demand for products, the average revenue per load ex Fuel was down 18.7 percent to $5.67 per load as customers Continue to evaluate their pricing models and capitalize on very loose capacity. The lack of import volume had direct effect on the number of loads in the quarter, which fell 20.7% and contributed to a 29.6% decline in top line revenue over the same period of 2022. Receiving accessorial charges also remained a theme and were proportional to supply chain disruption in 2020 2, in particular, a reduction in important rail congestion resulting in a more fluid supply chain, which reduced per diem, Storage and demurrage billings over 25 percent or 10,200,000 Our Southern California operations continue to have strong influence on intermodal numbers driven by import volumes declining over 30% over Q1 2022. Reduced volumes, coupled with callbacks in pricing eroded top line revenue, which was down 56% over Q1 2022 due to our heavy retail focused customer base.

Speaker 1

We have had great success recruiting company drivers since moving to an employee driver model in California, but lower volumes have negatively impacted Our ability to optimize and ultimately scale our company truck operation, but I'm very happy with how quick we were able to find assets and recruit drivers, which puts us in a compliant position for our customers when volumes do normalize in the market. We've experienced several nice customer wins in recent months and our pipeline remains robust with opportunity. Our sales team has been extremely aggressive mining new customer opportunities and we continue to demonstrate our ability to create Value for our customers by supplying company owned, long term lease chassis, which now number over 3,500 units and storage solutions around the vast National Terminal Network. Volume headwinds were also the storyline in the Trucking segment. Overall load count was down 11.8%, coupled with an 8.8% decrease in revenue per load.

Speaker 1

Our open deck load count was down 10%, but steel and metal volumes were relatively flat year over year Pricing is still in positive territory. On the van side, load count was down 15% with retail and consumer goods off over 30%. Top line revenue of $79,700,000 was down 18.2% for the quarter, while Operating income of $3,800,000 was a decrease of $3,600,000 over the prior year period. Our agent based truckload model is well positioned to ride out a freight downturn with its variable cost structure, while Continuing to produce consistent margins. Interest in our agent model continues to grow.

Speaker 1

Our pipeline shows the results of our business development efforts. In fact, we added 12 new agent representatives in Q1 of 2023. I believe our agent model anchored by a team of experienced employees, Coupled with more competitive environment makes UACL quality decision to assist in carrier conversions and agents demanding additional support. Company managed brokerage saw top line revenue dropped 47.9% In the quarter, the $34,000,000 as inflation and consumer spending created competitive pricing and less tender opportunities. We continued our disciplined approach in regard to operating margin, which put additional strain on spot market opportunities.

Speaker 1

As our contractual freight remains over 80% of our top line revenue. As mentioned in our release, Earnings in this segment were negatively impacted by a $1,200,000 pre tax settlement for an auto liability claim in excess of policy limits, which equated to 3 50 basis point reduction. Operating revenue per load decreased 22.1 percent to $16.96 per load and the load count was down 18.9%. Gross margins were better than Q1 2022margins as we experienced a continued reduction in purchase transportation, while remaining disciplined on rates. There's been no shortage of bid opportunities, but pricing has been hyper competitive.

Speaker 1

We will remain disciplined on pricing and look for returns that fall within our expectations given the current environment. We continue to remain cautious on the economic environment entering Q2 of 2023. Inflation, Customer destocking and the general mood of the consumer continues to evolve. We believe transportation will remain under pressure with an abundance of available capacity and leading indicators like imports showing no near We look for optimization opportunities to take costs out of our intermodal brokerage segment, while adding density to our variable cost structure agent truckload segment. Extremely optimistic on the continued growth of our high margin contract logistics segment and are encouraged by the optimistic conversations we are having with autos, Class 8, agriculture, heavy equipment and aerospace customers.

Speaker 1

Finally, as I have mentioned in our earnings release, I'm impressed with the performance of the Universal team in this challenging environment. While it appears we continue to face inventory destocking, inflation and rising interest rates, I'm convinced that our of services continues to provide opportunity and stability in the current environment. We continue to focus on quality service for our customer and continued value for our shareholders. With that, I would now like to turn the call over to Jude for a detailed view of our financial performance.

Speaker 2

Great. Thanks, Tim. Good morning, everybody. Yesterday, Universal Logistics Holdings reported consolidated net income of $24,900,000 or $0.95 per share on total operating revenues of $437,400,000 in the Q1 of 2023. This compares to net income of $42,000,000 or $1.56 per share on total operating revenues of $523,900,000 during the same period last year.

Speaker 2

Consolidated income from operations was $38,200,000 for the quarter compared to $57,800,000 1 year earlier. EBITDA decreased $18,300,000 to $56,700,000 which compares to $75,000,000 during the same period last year. Our operating margin and EBITDA margin for the Q1 of 2023 are 8 point respectively in the Q1 of 2022. Additionally, during the Q1, we recorded a settlement charge in our company managed brokerage segment of $1,200,000 This charge impacted our EPS by $0.03 in the quarter. Looking at our segment performance for the Q1 of 2023, in our Contract Logistics segment, which includes our value add, dedicated And Dedicated Transportation Businesses, income from operations increased $4,300,000 to 27,800,000 on $211,300,000 of total operating revenues.

Speaker 2

This compares to operating income of $23,500,000 on $201,600,000 of total operating revenue in the Q1 of 2022. Operating margins for the quarter were 13.1% versus 11.6% last year. In our Intermodal segment, operating revenues decreased $46,600,000 to $111,000,000 compared to $157,600,000 in the same period last year and income from operations decreased $16,200,000 to $6,800,000 This compares to operating income of $23,000,000 in the Q1 of 2022. Operating margins for the quarter were 6.1% versus 14.6% last year. In our Trucking segment, operating revenues for the quarter decreased $17,800,000 to $79,700,000 compared to $97,500,000 in the same quarter last year.

Speaker 2

And income from operations decreased $3,600,000 to $3,800,000 This compares to operating income of $7,400,000 in the Q1 2022. Operating margins for the quarter were 4.8% versus 7.6% last year. In our company managed brokerage segment, operating revenues for the quarter decreased $31,200,000 to $34,000,000 compared to $65,200,000 in the same quarter last Here, while income from operations decreased $4,300,000 to an operating loss of $400,000 This compared to operating income of $3,900,000 in the Q1 of 2022. Operating margins for the quarter were a negative 1.1% versus 5.9% last year. Excluding the previously mentioned legal settlement in the quarter, Our company managed brokerage segments operating margin would have been 2.4%.

Speaker 2

On our balance sheet, we held cash and cash equivalents totaling $76,800,000 $10,000,000 of marketable securities, Outstanding interest bearing debt net of $4,200,000 of debt issuance costs totaled 377 point

Speaker 1

$7,000,000 at

Speaker 2

the end of the period. Excluding lease liabilities related to ASC 842, our net interest bearing debt To reported trailing 12 month EBITDA was 1.25 times. Capital expenditures for the quarter were $31,300,000 For the full year of 2023, we expect capital expenditures to be in the $160,000,000 range, excluding the acquisition of any strategic real estate. Interest expense for the year is expected to come in between $20,000,000 $25,000,000 Based on the current operating environment, for the Q2 of 2023, We are expecting top line revenues between $420,000,000 $440,000,000 and operating margins in the 8% to 10% range. We expect continued softness in both volumes and rates across our transactional transportation businesses, but a stable operating environment for our contract logistics business.

Speaker 2

Finally, 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 June 5, 2023 and is expected to be paid on July 3, 2023. With that, Kyle, we're ready to take some questions.

Operator

Okay. Thank you, Mr. Barres. We will now begin the question and answer session. Our first question comes from Chris Wetherbee with Citi.

Operator

Please go ahead.

Speaker 3

Hey, good morning, guys. This is Matt on for Chris. I appreciate the detail in the quarter. I wanted to just touch a little bit more intermodal here. Obviously, the space has Under some pretty serious pressure, which has been a theme this earnings season.

Speaker 3

We were just wondering if there's any additional color you might be able to provide as we The second quarter and into the back half of the year, this also sort of intertwines with your guide, the guide details that you guys just put out. And are customers giving you feedback as to when volumes could begin Dean, I mean, how exactly are you thinking about this situation? Where do you see where we're at, at this point in time working through the bloated inventories? I know during the last call, Tim mentioned some rebound after the Chinese New Year. Just to know if there's any update in general sort of drilling a little bit deeper into

Speaker 1

Everything we have seen from a Q1 look back is import volumes were down significantly just about everywhere except for maybe the Gulf, which So a slight bit of increase. As you know, we're situated around the country at all the major ports. We have significant density in Southern California, significant density in the Southeast and the Northeast. So what we're hearing Our customers, especially on the retail space, is a lot of wait and see. They think there will be some normal seasonality To what's going to be in the future, but they're not willing to say that the second half of the year is going to be a big rebound.

Speaker 1

Nobody to this point has committed to saying that the second half of the year as we see them walk into the back to school in the holiday season is going to see any kind of Large uptick. They expect that at least at this current state to be somewhat muted. Even some of our customers saying that If you have other customers saying that you're going to have a rebound at the second half of the year, then it's going to be real strong. You may want to really rationalize that because Some are just not believing it. So it's not just the retail space.

Speaker 1

We deal with some other retailers in chemical. We deal in raw materials. We deal in office furniture. Really, there hasn't been anybody that's come forward and said that we expect A real big increase on our imports, even going and talking to some of the ocean liners, which There's that information out there in the news. There's no real expected quick rebound.

Speaker 1

There's optimism On the second half of the year, turning more normal, but with a muted peak season. And I did We were hoping for a rebound after the Chinese New Year and to this point we really have not seen any rebound. I think as we exited the Q1 on the intermodal side, I would even say that maybe April is a slight bit Short of where we were in March. So, it's still pretty soft out there, Matt.

Speaker 3

Awesome. Great. Yes. No, really appreciate that incremental detail. And then just a quick follow-up.

Speaker 3

So you touched on a couple of different retail Industrial, are you noticing any specific sort of trends in general on that side of things? I don't know if there was just Any additional detail that you could provide on the areas of your business, retail versus industrial and sort of if there's any specific themes or trends that you're on that side of things?

Speaker 1

Yes, I would say definitely on the retail, at least what we service, There is no real indication of any quick rebound. Like I said, they're down, as we had said in the California conversation, Double digits. As it comes to more of the raw material or chemicals, chemicals that the customers we deal with seem to be flat to down. The raw materials on the customers we deal with are definitely down. So it's telling me that they're bringing in less than and probably going to be producing less.

Speaker 1

As far as any other color on consumer goods, It's just kind of a wait and see. Nobody's given us any real clear indication. The one thing that's a resounding theme, as I said, from the overall customer sentiment Is that volumes would increase, but vary slightly based on seasonality and nobody expects a huge Uptick or peak season at this particular point.

Speaker 3

Also really appreciate the detail. Thanks so much guys.

Speaker 1

Thanks,

Operator

Matt. Our next question comes from Bruce Shen with Stifel. Please go ahead.

Speaker 4

Hey, good morning team. Thanks for all the color so far. This is Andrew on for Bruce. I kind of wanted to dig into the Manufacturing inventories a little bit, we've looking just at the government data, the IS data, they seem to be carrying the most excess inventories. I just But we're not really hearing a lot of conversations about destocking on that side of the economy.

Speaker 4

So I wanted to get your sense of Conversations with customers regarding industrial inventories, do they kind of expect the destocking theme to help drive inflection like the consumer focused are at some point? We know it's Kind of getting pushed out here, but are they expecting similar theme?

Speaker 1

Well, from a what we deal with from an import standpoint point that leads into manufacturing, The companies we're dealing with, there's really has been no prediction of a climb out of the trough that they're in right now. Now we'll tell you this, From a manufacturing side or a agricultural heavy equipment in aerospace, We feel really good about that in our conversations with customers. Not only is that there seem to be a good demand for the product, there's also a Back order, it seems like the order books are still full. So we expect to be able to stretch our legs Hopefully, the remainder of the year, I mean, it's hard to predict 3rd Q4, but we're pretty bullish on That segment continuing to support active growth in our portfolio.

Speaker 4

That's helpful. I was kind of it kind of leads me into my next question about you discussed how aggressive the Sales team is being in sourcing new customer opportunities, especially in intermodal here. I was hoping to kind of lift the hood a little further there. Are you guys going after new end markets, Given the retail exposure there and the retail weakness or just kind of be helpful to understand where you're finding success and difficulties. Are you guys finding success in those verticals you just mentioned?

Speaker 1

Yes. In the intermodal marketplace, like I said, we do a lot in retail. We're going to do a lot of freight of all kinds too Because the way that the import structure works in the state. But yes, we're looking to diversify we're always looking to diversify our customer base. And it's a direct effort of the sales team and it's a good collaborative effort that we communicate, right?

Speaker 1

We're cross pollinating Customers across service lines that could be different verticals that we maybe not have experienced in the intermodal standpoint. At the end of the day, I see good and I have seen good bid volumes flowing through. Really what it's come down to Andrew is pricing, right? The customer is hyper focused on pricing and gaining back some of what they potentially Had lost over the last year, 18 months, 2 years, and we just had to be exceptionally competitive No matter what the vertical is that we're going after to try it because really what we're doing is attempting to take market share from somebody else. So it's been hyper But yes, we will continue our diversification not just on Intermodal, but we're looking for diversification On multiple operating segments.

Speaker 4

Great. That's helpful as well. If I can just squeeze in one more on the pricing front, you guys discussed been down 25%, kind of rolling off faster than you had expected. I just kind of wanted to get your how that Did compare to your expectations? I mean, how quickly are were you expecting accessorials to roll off or rather, how quick did you get to that Point, when were you expecting asset oriental to roll off to this point, sorry?

Speaker 1

Well, that's a Loaded questions to unpack because it's hard to forecast, but some of your accessorials run-in conjunction with just Your general load volume, right? We're billing certain accessorials that accompany a movement of a piece of intermodal freight. So number 1, the volumes are lighter. And number 2, just like on the base dray pricing, the customer is expecting some reductions And some of the accessorial basis. Now how did we get to the point last year where accessorials were so elevated was a direct result of the supply Chain and the supply chain congestion.

Speaker 1

So we offered our customers distinct solutions, whether it be storage solutions, Whether it be helping them manage what they had at the ports and rails. So there was a lot of flow of funds, but it was because of the congestion And the environment, so we expected some of that to peel off as fluency found itself. And For the most part, if you read anything in the news, fluency has found itself at most port operations. It doesn't mean they're fluent within the port in all cases, but The amount of imports coming into the country has definitely normalized. So we expected that there would be some fall off In some of those accessorials.

Speaker 1

And I think if you go back and I think Jude would agree with it, that's why we took a deep look, an honest look In the Q4, because we saw some of these leading indicators that saying, hey, wait a minute, you have to pay attention because This supply chain is starting to become a little more fluent and things are slowing down. So that's one of the reasons we guided the way we guided in the 4th quarter Because of what we saw. So that's a long extended answer, but that's what we're seeing.

Speaker 4

No, that's extremely helpful. I appreciate that. And I guess if I can I promise this will be the last one, but I just wanted to just kind of ask where the optimism is coming from that's driving where You're getting your optimism that's driving behind the expectation for autos to continue doing well? That's been really a bright spot of the economy so far. Just Any anecdotes from customers on especially the consumer auto front?

Speaker 4

We've seen the Class 8 data, but would like a little bit more Just a little bit more content on consumer pricing autos.

Speaker 1

Sure. You probably And many people on the call probably have listened to some of the autos and Class 8s because some of them were reported already. We're getting our realistic outlook from some of the numbers we're seeing from a production standpoint. And I do know inflation is there. I know that interest rates are rising, but there's still optimism within the auto and Class 8 group That there'll be continued sales throughout the year that should be at a good cadence.

Speaker 1

And we're seeing nothing different At this point, we're still bullish on Class 8 because we know there's a lot of pent up demand. If you remember last year And in 2021, it's very, very difficult to get a new vehicle, a new Class 8 truck. So those order books are still out there. Will some peel off? Sure, they will As the economy goes, but we're everything aligns itself that they're optimistic for the rest of the year.

Speaker 1

And the autos, they still feel that they're selling the vehicles That are out there and especially from what we deal with. We deal with plants that produce High demand vehicles, and that's where we centered ourselves around. So we're comfortably optimistic that we'll continue to see this cadence through the next several quarters.

Speaker 4

Well, good to hear. Thanks so much for the time and information this morning.

Speaker 1

Yes. Thanks, Andrew.

Operator

There are being no further questions. This concludes our question and answer session. I would like to turn the conference back over to Mr. Tim Phillips for any closing remarks.

Speaker 1

Thank you, Kyle, And thank you for spending time with us on this morning to cover our Q1 performance. As mentioned, I'm extremely pleased with our contract logistics roadmap moving forward this year. While the transactional transportation segments Maybe experiencing some headwinds, we will remain committed to productivity improvements and rationalizing our human assets in the various segments. We continue to look for opportunities to diversify our portfolio by cross pollinating our customer base among our various service segments. With that said, I look forward to continued conversation on our Q2 earnings call slated for July 28.

Speaker 1

Have a great day. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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