Hub Group (HUBG)

Logistics solutions provider Hub Group (NASDAQ:HUBG) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 8.4% year on year to $915.2 million. The company’s full-year revenue guidance of $3.8 billion at the midpoint came in 5.6% below analysts’ estimates. Its GAAP profit of $0.44 per share was 3% above analysts’ consensus estimates.

Company Overview

Started with $10,000, Hub Group (NASDAQ:HUBG) is a provider of intermodal, truck brokerage, and logistics services, facilitating transportation solutions for businesses worldwide.

The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics 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.

Competitors in the logistics solutions industry include C.H. Robinson (NASDAQ:CHRW), GXO Logistics (NYSE:GXO), and Landstar System (NASDAQ:LSTR).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Hub Group’s sales grew at a sluggish 1.6% compounded annual growth rate over the last five years. This was below our standards and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hub Group’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 13.8% annually. Hub Group isn’t alone in its struggles as the Air Freight and Logistics industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Hub Group missed Wall Street’s estimates and reported a rather uninspiring 8.4% year-on-year revenue decline, generating $915.2 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Hub Group has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12.9% gross margin over the last five years. Said differently, Hub Group had to pay a chunky $87.13 to its suppliers for every $100 in revenue.

Hub Group was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.6% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Hub Group’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Hub Group generated an operating profit margin of 4.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Hub Group’s EPS grew at a weak 3.4% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into Hub Group’s earnings to better understand the drivers of its performance. A five-year view shows that Hub Group has repurchased its stock, shrinking its share count by 9.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Hub Group, its two-year annual EPS declines of 41.4% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, Hub Group reported EPS at $0.44, in line with the same quarter last year. This print beat analysts’ estimates by 3%. Over the next 12 months, Wall Street expects Hub Group’s full-year EPS of $1.70 to grow 29.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Hub Group has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.8%, subpar for an industrials business.

Taking a step back, we can see that Hub Group failed to improve its margin during that time. Its unexciting margin and trend likely have shareholders hoping for a change.

Hub Group’s free cash flow clocked in at $70.04 million in Q1, equivalent to a 7.7% margin. This result was good as its margin was 1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Hub Group hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.3%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Hub Group’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Hub Group reported $141.1 million of cash and $485.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $351.5 million of EBITDA over the last 12 months, we view Hub Group’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $7.06 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Hub Group blew past analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance missed significantly and its full-year EPS guidance fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 1.1% to $33.50 immediately following the results.

Updated: May 21, 2025 at 11:23 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Hub Group doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its low gross margins indicate some combination of competitive pressures and high production costs.

Hub Group’s P/E ratio based on the next 12 months is 15.5x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $38.73 on the company (compared to the current share price of $34).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.