Hub Group's Q3 2025 Earnings Call: Contradictions Emerge on Intermodal Pricing, Marten Acquisition, and Strategic Focus

Date of Call: October 30, 2025

Financials Results

• Revenue: $934M, down 5% YOY, up 3% sequentially
• EPS: Adjusted EPS $0.49, down from $0.52 in Q3 2024 (adjusted cash EPS $0.60)
• Operating Margin: Adjusted operating income margin 4.4%, up 10 bps YOY; ITS/ICS margin 2.9% (+20 bps YOY); Logistics margin 6.1% (+10 bps YOY)

Guidance:

• Full-year revenue expected $3.6B–$3.7B and EPS $1.80–$1.90
• Effective tax rate ~24.5%; capital expenditures expected < $50M
• Company expects sequentially lower adjusted EPS in Q4 at the midpoint and tempered peak-season assumptions
• Targeting $50M of run-rate cost savings by year-end; upside if peak season extends

Business Commentary:

* Intermodal Business Performance: - Hub Group's Intermodal revenue improved slightly, with steady volume and a 2% rise in revenue per load. - The improvements were due to strong performance in Intermodal, driven by value propositions with rail partners and improved mix. - The delay in the West Coast peak season was noted but expected to improve over time, benefiting from regulatory requirements and capacity balance.

• Dedicated Segment Challenges and Growth Initiatives:
• Dedicated revenue and profitability were impacted by lost sites, though some growth was seen in core customer volumes and equipment reduction.
• Hub Group is reallocating assets and focusing on new business and geographic density to support future growth.

• The acquisition of Marten Transport's Intermodal division added scale and higher-margin opportunities.

• Logistics Segment Revenue and Margin Improvement:

• The Logistics segment reported a 13% decline in revenue year-over-year, but improved operating margins by 10 basis points.
• Margin improvement was driven by cost containment initiatives and growth in Final Mile and Managed Transportation, offsetting softness in brokerage.

• Significant onboarding in Final Mile totaling $150 million in annual revenue is expected to support future growth.

• Financial Performance and Capital Allocation:

• Hub Group reported revenue of $934 million in Q3, down 5% year-over-year but up 3% sequentially.
• The company returned $36 million to shareholders through dividends and stock repurchases, maintaining a strong balance sheet.
• Capital expenditures focused on technology investments and final-mile acquisitions, supporting strategic priorities and business growth.

Sentiment Analysis:

Overall Tone: Neutral

• Management reported mixed results: Q3 revenue $934M (down 5% YOY) and adjusted EPS $0.49 (vs $0.52 prior year), while highlighting intermodal momentum, acquisitions (Marten, SITH), and a $50M cost-savings target. Guidance was tempered for Q4 due to muted peak and shifted Final Mile start dates, but management noted customer engagement around the rail merger and service improvements as upside for 2026.

Q&A:

• Question from Scott Group (Wolfe Research): Do you think as you approach 2026 bid season there is an opportunity to take share ahead of the merger closing and what are you hearing from customers?
  Response: Management sees the merger-related capacity shifts as an opportunity; customers are highly engaged and Hub believes its service/product positions it to win in the upcoming bid season.

• Question from Scott Group (Wolfe Research): Can you give an update on volume trends throughout Q3 and what you're seeing so far in Q4?
  Response: July flat, August down 5%, September up 6%, October month-to-date up 3% with recent weeks strong and momentum expected into November before typical post-Thanksgiving seasonality.

• Question from Scott Group (Wolfe Research): You're generating strong free cash flow and are below leverage targets — why not return more cash to shareholders?
  Response: Capital is being allocated to core investments, acquisitions (~$50M this quarter), dividends/repurchases and IT/tractor replacements; management prefers balanced allocation and M&A optionality.

• Question from Bascome Majors (Susquehanna Financial Group): If you grow share via rail alignment, when would that show up in volumes, gross profit and the bottom line?
  Response: Most RFPs are awarded and effective in H1 (~48% effective 1Q, ~38% 2Q); financial benefits would begin to materialize through 2026 and be more visible in the second half as implementations take hold.

• Question from J. Bruce Chan (Stifel): You said September/October were strong but you tempered guidance; how do these reconcile relative to peak and Q4 expectations?
  Response: Management expects peak to conclude around/after Thanksgiving causing sequential ITS margin pressure in Q4; logistics and Final Mile onboardings help stabilize results, but they conservatively modeled typical seasonality and muted surcharges versus prior year.

• Question from Jonathan Chappell (Evercore ISI): Given bid timing and the merger likely closing later, do you expect favorable demand/pricing in early 2026 or is most benefit pushed to later?
  Response: Early customer engagement provides upside in '26, but materially larger pricing/structural benefits likely occur as merger integration progresses; still expecting upside opportunity in 2026.

• Question from Brian Ossenbeck (JPMorgan): Can you provide more detail on the Louisville integrated service and whether it's an example of watershed opportunities from the potential merger?
  Response: The Louisville lane reduced inefficient dray via Chicago, improving service and cost for customers, converting prior flows and winning new business — management cites ~2.5M load opportunity in such watershed lanes.

• Question from Elliot Alper (TD Cowen): Can you discuss Final Mile ramp timing, why some start dates shifted, and whether housing is the key driver for 2026 growth?
  Response: Some onboardings were delayed to avoid customer disruption; most ramped in October as expected; housing recovery would be a major tailwind and current onboardings should drive strong growth into 2026.

• Question from Michael Triano (UBS): Intermodal revenue per load was up in 3Q; any early thoughts on 2026 intermodal pricing as bid season starts?
  Response: Bidding remains competitive with headhaul strength and backhaul pressure; management is targeted with rail partners, customers are engaged around potential capacity tightening, and there is cautious optimism about pricing opportunities.

Contradiction Point 1

Intermodal Pricing Trends

It involves differing perspectives on intermodal pricing trends for 2026, which are crucial for understanding the company's financial outlook and strategic positioning.

What are your thoughts on intermodal pricing trends for 2026 and plans to increase intermodal volume? - Michael Triano(UBS Investment Bank)

2025Q3: The pricing environment remains competitive, but there's engagement from customers due to the merger process and capacity concerns. Organic shifts and regulations are driving interest in conversion. - Kevin Beth(CFO)

What negative factors caused the guidance midpoint to be lowered? - Jonathan B. Chappell(Evercore ISI Institutional Equities)

2025Q2: There's some noise in the back half of the year from what we call surcharges. It's a $25 per container charge that we see running into the fall. We think that will be transitory. - Kevin Beth(CFO)

Contradiction Point 2

Final Mile and Marten Acquisition Impact

It highlights differing expectations regarding the impact of the Marten acquisition and new business wins in Final Mile, affecting the company's growth prospects.

How has the Marten acquisition impacted Q4? - Richard Harnan(Deutsche Bank)

2025Q3: Marten is expected to be slightly accretive in the fourth quarter. However, costs may increase without the right balancing of volume, and there may be some late-year margin degradation. - Kevin Beth(CFO)

What are the run rate and potential profit impact from the new business awards in Final Mile and the Marten acquisition? - Bascome Majors(Susquehanna Financial Group)

2025Q2: The Marten acquisition is expected to be a mid-single-digit accretion to 2026 earnings. Early results suggest strong customer satisfaction and improved Net Promoter Scores, driving growth. - Phillip D. Yeager(CEO and Kevin W. Beth(CFO))

Contradiction Point 3

Intermodal Volume Trends and Expectations

It involves differing expectations for intermodal volume growth, which directly impacts operational planning and financial forecasts.

Can you share volume trends in Q3 and Q4 to date? - Scott Group (Wolfe Research, LLC)

2025Q3: Volumes were flat in July, down 5% in August, up 6% in September, and October month-to-date is up 3%. The last few weeks in October have been strong. - Phillip Yeager(CEO)

What percentage of Intermodal is related to West Coast ports, and what are the monthly trends? - Scott Group (Wolfe Research, LLC)

2025Q1: January was up 18%, February was up 1%, March was up 7%, and April was up 6%. As of now, May hasn't shown any slowdown. - Phillip Yeager(CEO)

Contradiction Point 4

Pricing Expectations

It involves differing expectations for pricing trends, which are crucial for revenue projections and competitive strategy.

What are the technology and AI initiatives, and how do they differentiate the company? - Ravi Shanker (Morgan Stanley)

2025Q3: The pricing environment remains competitive, but there's engagement from customers due to the merger process and capacity concerns. - Kevin Beth(CFO)

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2025Q1: Pricing is expected to be flat for the remainder of the year, with opportunity for peak season surcharges if there's a bounce in demand. - Kevin Beth(CFO)

Contradiction Point 5

Strategic Focus and M&A Activity

It highlights differing priorities and strategic focus areas, particularly regarding the commitment to mergers and acquisitions (M&A) as a growth strategy.

Given the cash flow, why aren't you using it more for stock buybacks or increased investments? - Scott Group(Wolfe Research, LLC)

2025Q3: The company invests in core business, acquisitions, and capital allocation to shareholders. M&A transactions have already been significant, and dividends are being paid. - Kevin Beth(CFO)

Can you explain your strategic focus? - Scott Group(Wolfe Research, LLC)

2024Q4: Our strategic focus is on the continued growth of our core businesses. We're committed to enhancing shareholder value through strategic investments in technology and digital capabilities. - David P. Yeager(CEO)