Hub Group Powerpoint Final

Amir Bassly

International Consulting Group

Hub Group Company HistoryInternational Consulting Group

• Hub Group, Inc. was founded in 1971 by Philip C. Yeager in Hinsdale, Illinois.

• Yeager understood the difficulties that shippers had when dealing with railroads due to his ten years of experience working for Penn Central Railroad as a coordinator of intermodal transport.

• Yeager wanted to use his expertise by becoming what was called at the time a third-party agent.

• Hub specializes in alleviating shippers' difficulties in coordinating different transport services.

Hub Group Inc.• Hub Group Inc, is a Intermodal Marketing Company.

• Intermodal transportation involves arranging for the transportation of freight using different types of conveyances, typically by rail and truck or truck and ship.

• It is part of the Service industry, supporting Air Freight & Logistics within North America, Canada, and Mexico.

• Hub Group operates a subsidiary company, Hub Group Distribution Services, that offers clients an array of logistics services, coordinating transportation, warehousing, inventory management, set-up and assembly of products and displays, and other services, to businesses nationwide.


Hub Group Inc.International Consulting Group

•The company operates a network of over 30 transportation hubs, mostly covering the Midwest and the eastern United States, but extending also to the West and into Mexico.

•Hub also brokers highway transportation through a wide variety of carriers.

•The company uses a sophisticated computer network to plan and track shipments and coordinate billing.

•HLX coordinates international transport of goods for importers and exporters, planning and managing movement of goods from ship to their final inland destination.

•The company recorded revenues of $1,609.5 million during the fiscal year ended December 2006, an increase of 8.6% over 2005.

•The operating profit of the company was $77.2 million during fiscal year 2006, an increase of 61.2% over 2005.

•The net profit was $47.7 million in fiscal year 2006, an increase of 63.4% over 2005.

Hub Group Highlights

Largest Intermodal Marketing Company (IMC)

Leading Highway Services Provider

Significant Provider of International & Domestic Drayage

Major Provider of Supply Chain Technology Solutions

Flexible, Asset-Light Business Model

Cost Control & Operational Discipline Drive Results


SWOT AnalysisInternational Consulting Group

Strengths:

•Hub Group is the largest Intermodal Marketing Company in North America and a leading highway transportation service provider with a fleet count of 14,869.

•Hub Group is a significant partner with all the major U.S. railroads with strong relationships with them.

•Hub Group has no debt compared to FedEx with 2.02B debt, UPS with 11.02 B, and UTI with 382.80M in Debt

•Hub Group is a member of SmartWay, a government program aimed at reducing emissions, fuel consumption, and air pollutants in the transportation sector.

•Hub Group has updated technology systems which make it very efficient, which is important to clients.

SWOT Analysis


Weaknesses:

•Relative to competition it is a rather small intermodal transportation company.

•Hug Group only has 1,500 employees compared to competitors (EX: FedEx has 211,600 employees).

Opportunities:

•Intermodal marine shipping is on the rise.

•Profits related to rail shipping are increasing.

•Over the next 20 years, total tonnage carried by freight rails is expected to increase 88%.

•International shipments are growing at a 20%.

SWOT Analysis


Threats:

•The Energy Information Administration reported (March 24, 2008) that National average retail price of on-highway diesel fuel climbed 1.5 cents to $3.989 per gallon, setting a new record high for the fifth consecutive week .

•The trucking industry spent more than $112 billion fuel in 2007, and on pace to spend $135 billion in 2008 – a record high.

•Much of the U.S. economy is now services (consulting, software, tax, law, education, medicine/health care, etc.) that create almost no freight.

Internal Analysis


Resource Based Analysis


Tangible Resources:

• 150,000 containers (valuable and substitutable)

• logistics expertise (valuable, rare, costly to imitate, non-substitutable) creating a sustainable competitive advantage

• partner with major railroads (valuable, non-substitutable)

• 21 operating centers throughout the US and Canada with strategic locations (rare, valuable, costly to imitate) creating a sustainable competitive advantage

• technology system (valuable)

Resource Based Analysis (Cont.)


Intangible Resources: • Efficiency (valuable) • Consistency (valuable) • long-term customer relationships (valuable, rare) creating temporary

competitive advantage • large diverse consumer base (valuable, rare) creating temporary

competitive advantage • joint marketing relationship with TMM Logistics (valuable, rare, not costly

to imitate) creating a temporary competitive advantage • Employee knowledge (1,500 employees) creating sustainable competitive

advantage

Organizational Capabilities: • Offer comprehensive intermodal, truck brokerage, and logistic services

through a strategic network connected through our proprietary Network Management System which allows us to move freight in and out of every major city in the US, Canada and Mexico.

• Core Competency: Being the leader and the largest Intermodal Marketing Company (IMC).

Intermodal - Star (High Market Share, High Market Growth)2) Truck Brokerage - Cash Cow (high market share, low market growth)

Logisitics – Question Mark (Low market share, high market share)


BCG Matrix

Hub Group Revenue DiversificationHub Group Revenue Diversification


Hub Group has the most experience in the intermodal industry which represents 73% of their revenue.

Value Chain Analysis


• Inbound Logistics

– Incoming clients

– Clients goods that need moving/Clients current networks that need developing

• Operations/Outbound logistics

– Trucking subsidiary (Quality Services llc.)

• Includes truckload, LTL, refrigerated and specialty services

• Leader in current technology

• Trucker advantage: can easy find loads, receive alerts, track invoices, and match loads for continuous mileage runs

– Intermodal fleet

• Over 150,000 containers and trailers

Value Chain Analysis


Unyson logistics• Provides full complement of third party logistics services for north American companies with

focused expertise on driving cost savings, efficiency and visibility into your supply chain• Unison stands for working collaboratively, in unison, with each customer, to create the best,

customized solution for elevating supply chain performance. To attain new levels of performance, the Unyson team integrates three components into each solution

– Engineered solutions» Tactical modeling/analytics» Strategic network modeling

– Solution services» Business process design» Technology solutions development» Project management/implementation

– Strategic account management» Business process review» Key performance indicators

Comtrak logistics• Is a fast growing, wholly owned subsidiary of the Hub Group, offering nationwide drayage and

truckload services in at least 21 markets. • Comtrak and its customers are able to monitor shipments every step of the way by providing

creative, customized and reliable transportation solutions across north America

Service• 24x7x365 support for shipping goods.

Stock Forecast

• Hub Group goes public in 1996• Market Cap is $1.2 Billion Dollars• Looking at the following graph we see how Hub Group has continued to be the leader

in the industry.• Hub Group has 37.64 million shares outstanding.


External Industry Analysis


Industry Trends• Intermodal marine containers shipping up.

• Rail profits on the rise. Net profits from continuing operations for North American railroads rose 32% in 2006 to 6.5 billion following 46% improvement in 2005. Operating profit improvement of nearly 50% in 2006 from higher rates and volumes which allowed for fixed cost leverage and improved efficiencies despite higher costs for fuel, compensation and benefits.

• Profits for 2007 expected to rise about 8% driven by continuing pricing and volume growth

• In Sep 2007, a study examining infrastructure and capacity for the next 20 years by US Department of Transportation estimated that total tonnage carried by freight rails will increase 88% by 2035. 148 billion dollars will be necessary investment into the infrastructure

• While domestic shipping volumes have been increasing at no more than 5% annually, whereas international shipments, particularly in Asia have been growing at rates near 20%.


Product Life Cycle


Strategic Group MapInternational Consulting Group

UTI:

•Services include air and ocean freight forwarding, contract logistics, customs brokerage, distribution, inbound logistics, truckload brokerage, and other services.

Pacer International

•The company operates through two segments, Intermodal and Logistics

Expeditors

•The company's services include consolidating or forwarding air and ocean freight; distribution management; vendor consolidating; providing cargo insurance

Market Share

Diversification

Porter’s Five Forces ModelThreat of New Entrants is

High When: High Low

Economies of scale are X

Product differentiation is X

Capital requirements are X

Switching costs are X

Incumbent’s control of distribution channel is

X

Incumbent’s proprietary knowledge is

X


Intensity of Competitive Rivalry is High When:

High Low

Number of competitors is X

Industry growth is X

Product differentiation are X

•The threat of new entrants: moderate

•The industry is competitive because there are many different transportation/logistic service companies available for customers


USA Railway Network

Intermodal Outlook 2008 Hub Highway System


International Everything and Hub Group Synergies

• The acquisition of Hub Group Inc. by International Everything will produce two main identifiable synergies.

• By having logistics handled by Hub Group, efficiency of shipping their commodity industrial equipment as well as the physical telecommunications equipment will increase dramatically.

– Wyeth hired Hub Group to manage their logistics processes including but not limited to inventory controls, receiving schedules, and optimization & Consolidation of inbound shipments. Within 60 days, Hub Group established an electronic link for purchase order optimization and built a call center staffed 24x3x325. They effectively reduced inventory, deliveries and carriers while improving communication service and reporting capabilities. Wyeth nets over 10% savings.

• Through Hub Group’s post-acquisition investment in the intermodal transportation industry as it relates to the west coast ports, Hub Group will develop a competitive advantage compared to other firms.


Horizontal Acquisition

• Horizontal Acquisition means an increase between 7-9% on profits.


(in thousands) 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005

Historical Prices $ 232,324.00 $ 218,418.00 $ 189,023.00

7% Gross Profit Increase $ 304,529.00 $ 284,607.00 $ 265,988.00 $ 248,587.00

9% Gross Profit Increase $ 310,222.00 $ 289,927.00 $ 270,959.00 $ 253,233.00

The Future of Hub Group– Invest in developing western ports to facilitate International

Shipping.

• Ports along the west coast handle about 50% of all containerized cargo entering and leaving US seaports. (less of them means higher returns per location)LA, Long Beach, and Oakland accounted for 41% in 2005.

• West Coast ports are especially important because they handle all Asian imports which include 3 of the largest in the world.

• Develop relationships with marine container shipping companies in the hope of future hub group contracts for Domestic shipping for international companies.


Top US Ports in West Coast


Total Tanker Dry bulk Container Other

Calls 000 dwt Calls 000 dwt Calls 000 dwt Calls 000 dwt Calls 000 dwt

Los Angeles/Long Beach 5,426 243,752 905 65,819 797 38,674 2,955 124,281 769 14,978

San Francisco, CA1 3,676 165,601 819 52,233 637 23,346 1,936 82,958 284 7,064

Columbia River, WA1 2,219 77,896 279 13,907 1,279 46,457 263 10,027 398 7,505

Total, top 25 ports 51,797 2,071,810 14,601 922,118 10,160 459,488 14,038 501,634 12,998 188,571

Top 25 (percent) 72.40% 74.00% 75.70% 73.30% 74.00% 76.80% 73.60% 74.90% 66.80% 69.10%

Total, all ports 71,548 2,798,448 19,299 1,257,664 13,729 598,325 19,067 669,623 19,453 272,835

Possible International West Coast Ports include:

Port of Vancouver in Canada and Port of Punta Colonet in Mexico

Financial Information


From 2008 to 2012 revenues are expected to rise from $1,609,529,000 to $2,227,444,000.

From 2008 to 2012 net income is expected to rise from $71,488,200 to $178,195,520.

In Thousands

Stock Activity


This graph represents Hub Group Inc, last 6 months activity.

As the graph show, the company is currently in an upward trend and is reaching it peak price.

Currently one share of Hub Group Inc, cost $33.09, compared to $25.95 from December 2, 2007.

Dec Jan Feb Mar Apr May

Price in $

Company Ratios


Hub Industry

Each of these ratios represent Hub’s strengths within its industry.

These are seen in its 0 Debt and high P/E ratio (which means how much investors are willing to pay for $1 company earnings)

Analyst Opinions on Hub Group

• The MSN StockScouter says Hub Group Inc, a small-cap value company in the transportation sector, is expected to significantly outperform the market over the next six months with only average risk.

• Larry Schutts said ‘Altogether, brokers recommend the shares with three "strong buys", two "buys" and four "holds".’ This means they are expecting the stock value to increase.


Hub Group Recap

We recommend the acquisition of Hub Group based on the following facts:

• Strong projections for Hub Group sales in the near future.

• Beneficial synergies between Hub Group and IE Corporation in the area of logistics.

• The increasing profitability of Hub Group with IE’s investment into developing Hub Group’s position in the Logistics Industry.


Questions?


Hub Group Powerpoint Final

Business

total tonnage carried

west coast ports

high market share

international consulting group

hub group

north america

record high

transportation sector