Stock Story -
Transportation and logistics solutions provider Universal Logistics (NASDAQ:ULH) fell short of the market’s revenue expectations in Q3 CY2024 as sales only rose 1.3% year on year to $426.8 million. Its GAAP profit of $1.01 per share was also 14.4% below analysts’ consensus estimates.
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Universal Logistics (ULH) Q3 CY2024 Highlights:
- Revenue: $426.8 million vs analyst estimates of $463.7 million (8% miss)
- EPS: $1.01 vs analyst expectations of $1.18 (14.4% miss)
- EBITDA: $72.92 million vs analyst estimates of $71.7 million (1.7% beat)
- Gross Margin (GAAP): 24%, up from 20.2% in the same quarter last year
- Operating Margin: 10%, up from 8.7% in the same quarter last year
- EBITDA Margin: 17.1%, up from 13.3% in the same quarter last year
- Market Capitalization: $1.12 billion
Company OverviewFounded in 1932, Universal Logistics (NASDAQ:ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Ground Transportation
The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Universal Logistics grew its sales at a sluggish 4% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Universal Logistics’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.4% annually. Universal Logistics isn’t alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
This quarter, Universal Logistics’s revenue grew 1.3% year on year to $426.8 million, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to decline 2.6% over the next 12 months. While this projection is better than its two-year trend it's hard to get excited about a company that is struggling with demand.
Operating Margin
Universal Logistics has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.1%, higher than the broader industrials sector.Analyzing the trend in its profitability, Universal Logistics’s annual operating margin rose by 6.7 percentage points over the last five years, showing its efficiency has meaningfully improved.
In Q3, Universal Logistics generated an operating profit margin of 10%, up 1.3 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
Earnings Per Share
Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.Universal Logistics’s EPS grew at an astounding 32.8% compounded annual growth rate over the last five years, higher than its 4% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Universal Logistics’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Universal Logistics’s operating margin expanded by 6.7 percentage points over the last five years. On top of that, its share count shrank by 6.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Universal Logistics, its two-year annual EPS declines of 6.5% mark a reversal from its (seemingly) healthy five-year trend. We hope Universal Logistics can return to earnings growth in the future.
In Q3, Universal Logistics reported EPS at $1.01, up from $0.88 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Universal Logistics’s full-year EPS of $4.98 to shrink by 1.6%.