Universal Logistics Holdings, Inc. — Q2 2022 Form 10-Q
Business context and period: Universal provides transportation and customized logistics services in the U.S., Mexico, Canada and Colombia. This unaudited quarterly report covers the 13 weeks and 26 weeks ended July 2, 2022; comparisons are with periods ended July 3, 2021. Amounts below are in millions unless otherwise stated.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $527.2 | $422.8 | $1,051.0 | $838.0 |
| Operating income | $64.7 | $31.3 | $122.5 | $62.5 |
| Operating margin | 12.3% | 7.4% | 11.7% | 7.5% |
| Net income | $44.7 | $25.6 | $86.7 | $47.3 |
| Diluted EPS | $1.69 | $0.95 | $3.25 | $1.75 |
| Operating cash flow | — | $69.3 | $53.5 |
- Q2 revenue grew 24.7%; first-half revenue grew 25.4%. Net margin was 8.5% for Q2 and 8.2% for the first half, versus 6.1% and 5.6%, respectively, in the comparable periods.
- At July 2, cash was $14.7 and marketable securities were $8.2. Current assets were $482.6 and current liabilities $307.9 (current ratio approximately 1.57).
- Debt was reported as $415.3 net of issuance costs on the balance sheet; MD&A describes outstanding borrowings of $417.3. The $200 revolving facility had $49.5 available, and the company reported compliance with its covenants. A new $165.4 real estate facility matures in 2032. A $98.3 interest-rate swap fixes part of variable-rate exposure; its fair-value liability was $0.8.
- Capital expenditures were $37.5 in the first half. The cash-flow statement reports $32.1 net cash used in investing and $35.5 used in financing. Cash increased $0.8 over the period.
Material changes and operating trends
- Growth and improved operating results were led by contract logistics and intermodal. Contract logistics revenue rose 34.0% in Q2, with operating income up 84.5%; intermodal revenue rose about 47%, with operating income increasing to $21.4 from $6.2.
- Intermodal loads fell 13.9% in Q2, while revenue per load excluding fuel surcharges rose 42.1%; accessorial charges also increased. Trucking loads declined 30.0% and company-managed brokerage loads declined 26.8%, partly offset by higher revenue per load.
- Q2 separately identified fuel surcharges were $46.1 versus $23.0 a year earlier. For the first half, they were $80.7 versus $43.1.
- The company revised useful-life and salvage-value estimates for certain equipment, recording $9.7 of additional depreciation in Q2 and the first half. Management stated the effect was $7.2 after tax, or $0.27 per basic and diluted share.
- Q2 included a $3.0 favorable auto-liability claims credit. Q2 2021 included a $5.7 favorable legal-settlement gain; Q2 2022 instead had a $0.9 unrealized holding loss on marketable securities.
- First-half treasury-stock purchases totaled $14.3 and dividends paid were $8.4. The company accepted 164,189 shares in a Dutch-auction tender offer at $28 per share, for approximately $4.6 excluding costs. The regular quarterly dividend was $0.105 per share.
Outlook, risks and contingencies
- Management expects remaining-2022 capital expenditures of 8%–10% of operating revenue, excluding acquisitions and strategic real-estate purchases, compared with a customary 4%–5%; it expects a return to normalized levels as equipment supply constraints ease. No earnings or revenue guidance is provided.
- Management said cash, operating cash flow and credit availability should cover near-term working capital and planned capital expenditures over the next 12 months, but warned prolonged COVID-19 effects or weaker cash flow could require additional financing. The filing also identifies uncertainty around demand, seasonality, equipment availability, interest rates and economic conditions.
- On August 4, 2022, the company reached a settlement with the Teamsters requiring reinstatement of certain terminated drivers and approximately $2.8 in back pay; the company said the amount was accrued. It warns that uninsured or underestimated claims could adversely affect results.
- The filing highlights the risk that regulators or courts could classify independent contractors as employees, increasing tax, labor, benefits and other costs. It also reports collective-bargaining coverage among portions of its workforce.
- Related-party transactions include $47.0 of affiliate-provided services in the first half. The company agreed to buy an affiliate’s office complex for $8.3, with closing expected in Q3 2022.
Most important facts for investors to verify
- Reconcile the filing’s cash-flow narrative: MD&A appears to reverse investing and financing cash-use labels relative to the cash-flow statement.
- Confirm debt balances and definitions: the balance sheet shows $415.3 net of issuance costs, while MD&A cites $417.3 of borrowings.
- Assess how much of the earnings improvement reflects durable segment performance versus fuel surcharges, unusually high intermodal accessorial charges, the $3.0 claims credit and the $9.7 depreciation estimate change.
- Monitor declining shipment volumes in intermodal, trucking and brokerage, and the effects of higher costs, bad-debt provisions and interest rates.
- Review the Teamsters settlement, self-insured claims exposure, contractor-classification risk, related-party arrangements and remaining credit availability.