This month’s Macro examines March and April data. As shown on Slide 8, freight vols on avg. declined 2% y/y in March and are tracking up less than 1% y/y based on preliminary April data after growing close to 3% the 1st two months of the year. Moreover, our proprietary Seasonal Freight Index (Slide 7) has dipped back below 50 the past 2 months after accelerating sharply late last year and early this year.
HUBG reported 1Q EPS of $0.42, in line with our est. and Cons. Total Rev., EBIT and EPS grew 4%, 10% and 13% y/y vs. +5%, +12% and +6% last qtr. Gross rev. was well below our expectations and gross yields were modestly worse, but Mode beat our expectation by $0.01 and a low tax rate added another penny to offset the $0.02 miss vs. our model at the core Hub business.
HUBG reported 4Q EPS of $0.51 vs. Cons. $0.50 and our $0.49 est. Rev., EBIT and EPS grew 5%, 12% and 6% y/y vs. +7%, +9% and +7% last qtr. Gross rev. was below our expectations, but core Hub gross yields inflected positive y/y for the 1st time in 6 qtrs. and were much better. Mode also beat our expectations and normalizing for a high tax rate, 4Q would have been $0.01 better
After most TLs missed in 3Q, we expect more in-line reports and slight beats in 4Q as spot TL rates relatively improved and fuel should be a small sequential benefit after spiking during 3Q. Based on improved spot rates, we expected reported yields net of fuel to re-accelerate slightly, although utilization likely remained negative y/y.
HUBG reported a penny above Cons. and $0.03 above our low-end expectation after the market. Relative to our lower-end expectations, total Gross Rev. and Mode EBIT were much better, but core Hub gross yields and operating income were again worse. While we believe HUBG can sustain around 10% growth in intermodal vols in the near and medium term, we believe rising rail costs will continue to pressure gross yields and net rev. over time. Based on our unchanged estimates, we see fair value in the low $30 range.
While we believe HUBG can sustain around 10% growth in intermodal vols in the near and medium term, we believe rising rail costs will continue to pressure gross yields and net rev. over time and yield pressure could become more pronounced in the near term into weaker intermodal pricing. Applying a current ~15x multiple to our reduced C13 EPS of $2.00 implies fair value for HUBG around $30.
This weekly report presents the most recent views we are hearing from industry insiders and summarizes the research of Wolfe Trahan. Included are (1) key takeaways, selected shipper comments; (2) notices of upcoming industry events; (3) key takeaways from some of our notes from the past week; (4) recent stock performance for our transport universe; (5) updated comparison tables for the airfreight & logistics group, railroads, and trucking; and (6) fuel trends for West Texas Crude Oil, On-highway diesel, Rail diesel, and Jet fuel.
While HUB’s EPS grew 14% y/y, it missed Cons. by 4% and lowered its full-year C12 EPS guidance 7% below prior Cons. at the midpoint. Relative to our lower-end expectations, Brokerage and Mode were weaker in 2Q, while Intermodal gross rev. was better. While brokerage continues to disappoint, intermodal vols remain solid and HUBG’s reduced guidance range seems very realistic in a stable economy. While we expect near-term pressure on the stock following last night’s guidance cut, valuation at 16.2x forward P/E on our reduced estimates seemingly reflects low expectations and downside seems limited given strong near- and long-term secular intermodal tailwinds.