Universal Logistics Holdings, Inc. — Q1 2017 Form 10-Q
Business and period. Universal is an asset-light transportation and logistics provider operating in the United States, Mexico, Canada, and Colombia. This unaudited report covers the 13 weeks ended April 1, 2017; comparisons are with the 13 weeks ended April 2, 2016. Amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q1 2017 | Prior-year quarter | Change |
|---|---|---|---|
| Operating revenue | $284.4 | $260.4 | +9.2% |
| Operating income | $9.2 | $13.9 | -34.2% |
| Operating margin | 3.2% | 5.3% | -2.1 percentage points |
| Net income | $4.3 | $7.5 | -42.2% |
| Net margin | 1.5% | 2.9% | -1.4 percentage points |
| Diluted EPS | $0.15 | $0.26 | -$0.11 |
| Operating cash flow | $25.8 | $38.4 | -$12.6 |
| Capital expenditures | $17.7 | $36.1 | -$18.4 |
Revenue growth reflected customer vehicle-program launches, higher fuel surcharges, and a modest upswing in steel, metals, and energy markets. Transportation-segment revenue rose 13.2% to $178.4 million, while logistics revenue rose 3.1% to $105.7 million. Logistics operating income fell 51.0% to $4.2 million; transportation operating income increased 7.9% to $6.4 million.
At April 1, 2017, cash and cash equivalents were $3.4 million, marketable securities were $14.6 million, and current assets were $212.5 million against current liabilities of $163.0 million. Working capital was $49.4 million, compared with $62.9 million at year-end 2016. Total debt, net of issuance costs, was $256.3 million ($35.0 million current); gross borrowings were approximately $257.8 million. The company reported $22.9 million available under its ABL facility and $12.4 million under the Westport facility; its securities-backed margin line had $7.1 million of availability and no balance outstanding. It reported compliance with facility covenants.
Operating cash flow was supported by working-capital movements, particularly higher accounts payable and lower prepaid income taxes, partly offset by higher receivables. Investing activities used $17.5 million, primarily for capital expenditures. Financing activities used $7.1 million; the company paid $2.0 million in dividends. Cash increased by $1.6 million during the quarter.
Material changes and management commentary
- Profitability declined despite higher revenue. Management attributed the operating-income decrease mainly to lower operating margins and higher launch costs at several major value-added operations.
- Direct personnel and benefits rose 17.1% to $75.5 million, reaching 26.6% of revenue versus 24.8%, amid extended implementation and higher-than-expected customer production schedules. Other operating expenses increased 17.4%, partly due to travel and meals, maintenance, fuel, and utilities.
- Insurance and claims expense increased 40.5% to $5.9 million, primarily from higher cargo and service claims. Depreciation and amortization increased 21.2% to $10.3 million, mainly reflecting prior-year capital spending.
- Brokerage revenue rose 16.7%, with loads up 11.3% and average revenue per load excluding fuel surcharges up 6.7%. Value-added revenue increased 12.8%, driven by customer vehicle-program ramps; heavy-truck-related value-added revenue declined $2.6 million.
Outlook, risks, contingencies, and unusual items
- Management expected operating cash flow, working capital, and available borrowings to be sufficient for operating needs and mandatory debt repayments for at least the next 12 months, assuming the current level of profitability continues. This is not a quantified earnings forecast.
- For the remainder of 2017, excluding acquisitions, the company expected capital expenditures of 4%–5% of operating revenue. It anticipated annual dividends of $0.28 per share, subject to quarterly board approval; a $0.07-per-share dividend was declared after quarter-end.
- Seasonality includes stronger value-added demand in the automotive spring selling season and potential third-quarter and holiday-period plant shutdowns. Winter weather and reduced post-holiday shipping activity can also affect productivity and demand.
- Approximately 31% of employees in the United States, Canada, and Colombia, and 96% in Mexico, were covered by collective bargaining agreements; 17% of covered contracts were due to expire in 2017.
- Ordinary-course claims and litigation were not expected by management to materially affect the company, based on its assessment and, in some cases, outside counsel. No off-balance-sheet arrangements were reported. The company identified $72.1 million of operating lease obligations at year-end 2016 and expected the new lease standard to result in material right-of-use assets and lease liabilities.
- Available-for-sale securities had $2.7 million fair value in a cumulative unrealized-loss position, including $0.6 million of losses; management considered the declines temporary but warned further declines could result in impairment charges. The filing reported no material change in market risk and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether customer program launches and higher production schedules improve logistics margins, given launch costs and the sharp decline in logistics operating income.
- Whether elevated labor, insurance-claim, and other operating costs persist, and how they affect consolidated margins.
- Debt levels, variable-rate exposure, facility availability, covenant compliance, and cash generation relative to planned capital spending and dividends.
- Upcoming collective bargaining agreement expirations and the potential operating or cost impact of negotiations.
- Potential effects of lease-accounting adoption and any deterioration in the marketable-securities portfolio.