Universal Logistics Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Thirteen weeks ended April 1, 2023; comparable period ended April 2, 2022. Amounts are in millions except per-share data. Universal provides transportation and logistics services, including truckload, brokerage, intermodal, dedicated and value-added services, principally in the U.S., Mexico, Canada and Colombia.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Operating revenue | $437.4 | $523.9; down 16.5% |
| Operating income / margin | $38.2 / 8.7% | $57.8 / 11.0% |
| Net income | $24.9 | $42.0; down 40.8% |
| Diluted EPS | $0.95 | $1.56 |
| Net interest expense | $5.0 | $2.4 |
| Operating cash flow | $64.5 | $41.1 |
| Capital expenditures | $31.3 | $6.0 |
| Cash and cash equivalents at period end | $76.8 | $47.2 at December 31, 2022 |
| Debt at period end | $381.9 outstanding borrowings per MD&A | $382.9 at December 31, 2022 |
Cash used in investing activities was $29.7 million, primarily reflecting capital expenditures, partly offset by equipment-sale proceeds. Cash used in financing was $3.7 million, including $16.9 million of debt repayments, $15.9 million of equipment borrowings and $2.8 million of dividends paid. The balance sheet reports debt of $377.7 million net of unamortized issuance costs, including $67.5 million current and $310.2 million long term. Marketable securities were $10.0 million.
Material changes and segment results
- Contract logistics: Revenue rose 4.8% to $211.3 million and operating income increased 18.3% to $27.8 million; segment operating margin was 13.1%, versus 11.6%. The company managed 65 value-added programs, compared with 63.
- Intermodal: Revenue fell 29.6% to $111.0 million and operating income declined to $6.8 million from $23.0 million. Loads fell 20.7%, average revenue per load excluding fuel surcharges declined 18.7%, and segment margin decreased to 6.1% from 14.6%.
- Trucking: Revenue decreased 18.2% to $79.7 million and operating income fell to $3.8 million from $7.4 million. Loads declined 11.8%, average revenue per load excluding fuel surcharges fell 8.8%, and margin was 4.8% versus 7.6%.
- Company-managed brokerage: Revenue fell 47.9% to $34.0 million. Loads declined 18.9%, average revenue per load fell 22.1%, and the segment reported an operating loss of $0.4 million versus income of $3.9 million.
Overall revenue weakness reflected lower transactional transportation activity and pricing, particularly in brokerage and intermodal. Purchased transportation and equipment rent declined 32.8%, but personnel, operating supplies, occupancy, general and administrative, and depreciation costs increased. Operating margin contracted to 8.7% from 11.0%; net margin was 5.7% versus 8.0%.
Outlook, risks and unusual items
- Management expects 2023 capital expenditures, excluding acquisitions and strategic real estate, of 7%–8% of operating revenue for the remainder of the year, above the customary 4%–5%, due to equipment needs and support for logistics operations. It expects a return to normalized spending as equipment supply constraints ease.
- Management expects cash, operating cash flow and available credit to meet operating needs, capital commitments and mandatory debt repayments for at least the next 12 months, assuming current profitability continues. It notes that prolonged inflation or lower-than-expected operating cash flow could require additional financing.
- The company reported $400 million available under its revolving facility and $10 million under the UACL revolver; it was in compliance with facility covenants at April 1, 2023. Variable-rate borrowing exposes the company to higher interest costs. An interest-rate swap fixes a portion of variable-rate debt through April 2027.
- Q1 operating results included a $1.2 million pre-tax auto-liability settlement above policy limits, which reduced brokerage segment margin by approximately 350 basis points. Management says claims exceeding coverage or reserves could materially affect results.
- Management identifies inflation in interest, equipment, maintenance and labor costs; changes in customer demand; seasonal slowdowns and weather; and labor contract renewals as risks. Approximately 28% of employees covered by collective bargaining agreements were under contracts expiring in 2023.
- Related-party costs were $27.2 million, up from $23.2 million, including $20.3 million for insurance. The company leases 30 facilities from related parties and purchased $3.1 million of used tractors from an affiliate during the quarter.
- The Board declared a regular dividend of $0.105 per share payable in July 2023; it did not declare a special dividend in Q1. No specific revenue or earnings guidance was provided.
Important facts for investors to verify
- Whether intermodal and brokerage volume and rate declines persist, and whether contract logistics growth can offset them.
- Progress and returns on the elevated capital expenditure program, including equipment availability and financing needs.
- Debt balances, variable-rate exposure, covenant headroom and the effect of interest costs on earnings and cash flow.
- Developments in the auto-liability claim, self-insured claims reserves and other litigation or insurance exposures.
- Related-party insurance and facility arrangements, associated costs, and the terms and oversight of affiliate transactions.
- Renewals of collective bargaining agreements expiring in 2023 and potential effects on labor costs or operations.