Hub Group's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.17.14 | About: Hub Group, (HUBG)

Hub Group, Inc. (NASDAQ:HUBG)

Q1 2014 Results Earnings Conference Call

April 17, 2014, 05:00 PM ET

Executives

David Yeager - Chairman and CEO

Mark Yeager - Vice Chairman, President and COO

Terri Pizzuto - EVP and CFO

Analysts

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Michael R. Weinz - JPMorgan Chase & Co.

Kelly Dougherty - Macquarie Capital

Todd C. Fowler - KeyBanc Capital Markets

Scott Group - Wolfe Trahan & Co.

Matthew S. Brooklier - Longbow Research

Matthew Young - Morningstar

John Barnes - RBC Capital Markets

Justin Long – Stephens

Operator

Hello, and welcome to the Hub Group Inc.'s First Quarter 2014 Earnings Conference Call. I am joined on the call by Dave Yeager, Hub's CEO; Mark Yeager, our President and Chief Operating Officer; and Terri Pizzuto, our CFO.

At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. In order for everyone to have opportunity to participate, please limit your inquiries to one primary and one follow-up question. Any forward-looking statements made during the course of this call represent our best, good faith judgment as to what may happen in the future.

Statements that are forward-looking can be identified by the use of words such as believe, expect, anticipate and project. Actual results could differ materially from those projected in these forward-looking statements.

As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Dave Yeager. You may now begin.

Dave Yeager

Thank you, Jasmine. Good afternoon and welcome to Hub Group's first quarter earnings call. The first quarter was particularly difficult as a result of the severe weather. I personally can't recall a winter where all of the major cities east to Mississippi were continuously under siege by snow and ice storms. This led to network disruptions, service failures and ultimately to incurring extra costs as we attempted to mitigate problems for our customers.

Overall, we're very pleased with the way our organization rose to the challenges. Given the obstacles created by the weather we believe that the quarter produced a pretty decent end result. During the quarter we continue to work diligently on our margin initiatives. The progress we made in the first quarter is helping to set the stage for future growth.

And with that I'll turn the call over to Mark to take you through the operating results.

Mark Yeager

Thanks Dave, and hello, everyone. Like the rest of the sector we found ourselves in a challenging operating environment this quarter. Adverse weather conditions throughout the country made it difficult to maintain fluidity and resulted in major system disruptions. There is no doubt that the results we are reporting today are skewed by those conditions.

For us though, the key focus remains supporting our customers. Being there for our customers is what this company is all about. And we are proud of the way our teams stepped up to the challenge.

Starting with intermodal, consolidated big box intermodal volume was up 3%. We saw volume growth of 2% in the Hub segment with local West volume up 7% in the quarter. Local East and transcon volumes were both down 1%.

Mode segment intermodal volume growth was 9% with 9% growth in local West, 6% growth in local East and a 2% decline in transcon. Using a conservative calculation methodology we would estimate that adverse weather conditions throughout the quarter reduced overall volume by approximately 2%.

Despite the challenges, fleet utilization came in at 13.8 days in the quarter, 4/10 of a day worst than the first quarter of 2013, but 2/10 of a day better than Q4 and still well within acceptable limits. Rail service bottomed out in week seven, but has improved since then. While not yet at acceptable levels, additional train starts in the west and milder weather in the east are making a difference.

Despite these challenges, Hub on-time performance for its customers came in well above 90% for the quarter and has shown steady improvement since week seven.

Clearly there's been capacity tightness in both the over-the-road and intermodal sectors. This tightness has raised our cost and compressed margins. On the positive side, it also sets the stage for much needed price increases this year.

We are continuing with our strategy of maintaining price discipline ahead of volume growth. While it is still too early in the bid season to comment on the outcome, so far we are comfortable with the results.

Let me give you an update on our margin enhancement initiatives. Our new operating disciplines have reduced the proportion of low contribution business in our network. We continue beta testing with new load planning and dispatch system and will begin rolling it out by the end of the second quarter.

We installed 500 satellite tracking devices in our containers during the quarter. And, if all goes well, we plan to install the devices on the remainder of our fleet over the next 1.5 years.

We modified our reporting structure to further separate pricing and sales and realigned our sales commission structure to promote the development of profitable business. We have refined our cost allocation methodology to more clearly identify non-compensatory business and revamped our capacity prioritization processes in order to focus our assets on our strategic customers.

We continue to grow our own fleet and have placed an order for 4,000 new steel containers. The new containers are scheduled to start arriving in June and the deliveries will continue throughout the peak season. This represents a net add of 2,000 boxes with an expected fleet size of just under 28,000 boxes at year end.

As you remember from our last call, we re-branded our drayage division contract to Hub Group Trucking. Hub Group Trucking continued to grow with volume up 8% for the quarter. Hub Group Trucking moved 70% of Hub drayage during the quarter compared to 65% in Q1 of 2013.

We also did 4% more moves for Mode this quarter. We continue to grow our driver base adding 47 drivers this quarter, bringing our total to 2,838 drivers at the end of March.

We opened our new Salt Lake City terminal in March bringing our total terminal count to 29. We placed an order of 300 new trucks to support our company driver growth and to replace some older sleeper trucks with new efficient day cabs.

The new trucks are being equipped with a complete set of safety features, including the most advanced ABS systems, disk brakes and electronic collision avoiding systems. We expect the truck deliveries to commence in July and all new trucks should be in service by year end.

In truck brokerage, consolidated volume decreased by 6% with a 5% decrease at Hub and a 7% decrease at Mode. We saw declines in durables and retail partially offset by a modest increase in consumer products.

We were able to counteract some of the margin compression on our contractual business with more high value business, but it was not enough to fully offset increased costs in our contractual business.

Logistics continues to be a bright spot with a 64% revenue increase at unison and a 12% revenue increase at Mode. Within these segments consolidated LTL grew to $81 million, a 59% increase over last year. We continue to see a strong pipeline of potential logistics engagements.

Mode transportation produced solid top line growth of 11% in the quarter. Mode continues to grow its network, adding two new IBOs and five new sales agents during the first quarter.

All the hard work has paid off in the form of service awards from several of North America's most sophisticated shippers. This quarter we received recognition from Lowe's with their Intermodal Carrier of the Year and Double Platinum Service award for the fourth straight year; Walmart with the Intermodal Carrier of the Year Award for the second straight year; and most recently, Kimberly-Clark with the 2013 Carrier of the Year award. While the criteria differ from one customer to another, outstanding service is the common threat.

With that happy news, I will pass the call to Terri.

Terri Pizzuto

Thanks Mark, and hello, everyone. As usual, I'd like to highlight three points. First, the severe winter weather hurt Hub's financial performance by about $0.06 a share. Second, Mode delivered a solid 31% increase in operating income. And third, logistics revenue continued towards increasing 64% this quarter. Here are the key numbers for the first quarter.

Hub Group's revenue increased 10% to $848 million. Hub Group's diluted earnings were $0.33 compared to $0.42 last year. The $0.33 includes approximately $3.5 million or $0.06 a share-related to the weather and $2.1 million or $0.03 a share-related to our strategy project.

Now discuss details for the quarter starting with the financial performance of the Hub segment. The Hub segment generated revenue of $653 million, which is a 10% increase over last year. Let's take a closer look at Hub's business lines.

Intermodal revenue increased 2%. This change includes a 2% increase in loads. Price was up, but with offset by the impact of lower fuel. Our two largest customer segments grew this quarter, both from retail customers were up 8% and loads from consumer products customers increased 2%, mostly because of growth in the customers business and conversion trade.

Truck brokerage revenue increased 3%. Price and mix combined were up 8%, but were partially offset by a 5% decline in volume. Logistics revenue increased 64%. This increase is due primarily to grow some new customers that we on-boarded last year.

Hub's gross margin decreased by $683,000. Intermodal gross margin was down due to higher transportation cost partially offset by modest increases in volume and price. The weather-related impact in intermodal of $2.2 million includes a couple of percentage points of lost volume, sub optimization of the network, lower box turn, increased equipment and accessorial cost, higher fuel and accidents.

Truck brokerage gross margin was down because of lower volume and higher transportation cost. Logistics help to offset some of these declines with new customer growth. Hub's gross margin as a percentage of sales was 9.9% or about 110 basis points lower than the first quarter of 2013.

Intermodal gross margin as the percentage of sales was down 50 basis points because of a change in the mix of business from the first quarter of 2013 and the weather-related cost. Logistics' gross margin as a percentage of sales was down about 300 basis points due to the fee structure of our new business and weather-related cost.

Because of capacity constraints with weather, logistics was negatively impacted by $1.3 million since we had to go deeper into our routing guides or pay higher prices on the spot market to cover customer loads. Truck brokerage gross margin as a percentage of sales was down 130 basis points due to higher transportation cost which we could not -- barely pass along to our customers. This was partially offset by favorable mix including more value added services.

Hub's cost and expenses increased to $48.6 million in 2014 compared to $43.9 million in 2013. Salaries and benefits were up $2.6 million due to wage increases, higher headcounts and severance. General and administrative expense increased about $2 million due primarily to our strategy project.

Finally, operating margin for the Hub segment was 2.4%, which was 120 basis points lower than last year's 3.6%.

Now, I'll talk about results for our Mode segment. Mode had a solid quarter, with revenue of $209 million, which is up 11% over last year. The revenue breaks down as $100 million in intermodal, which was up 16%; $79 million in truck brokerage, which was up 6%; and $30 million in logistics, which was up 12%.

Mode's gross margin increased $2.1 million year-over-year due to growth in all three service lines with the largest growth coming from truck brokerage. Gross margin as a percentage of sales was 11.6% compared to 11.8% last year.

Mode's total costs and expenses increased $1 million compared to last year due primarily to an increase in agent commission, related to an increasing gross margin. Operating margin for Mode was 2.2% compared to 1.9% last year.

Turning to headcount for Hub Group. We had 1,467 employees excluding drivers at the end of March. That's up seven people compared to the end of September. Now, talk about what we expect for 2014. We project that our 2014 diluted earnings per share will be between $2 and $2.10. We think we'll have about $37 million weighted average diluted shares outstanding.

Our goal for 2014 is to improve gross margin as the percentage of sales from the 11% that we had in 2013. Headwinds include the difficult first quarter and the mix impact from growth in logistics, since it's our business with the lowest gross margin as the percentage of sale.

Improved truck pricing could be a tailwind for intermodal pricing. Gross margin as a percentage of sales in the last half of the year should improve sequentially and year-over-year because the majority of customer price increases take effect in the second half of the year.

For the full year 2014 we expect a slight increase in the Hub segment gross margin as a percentage of sales and a slight decrease in the Mode segment gross margin as a percentage of sales compared to 2013. Our costs and expenses will probably range between $68 million and $72 million a quarter.

Turning now to our balance sheet and how we used our cash. We ended the quarter with $75 million in cash, and $53 million in debt, including $20 million of capitalized leases. We spent $33 million on capital expenditures this quarter, including $25 million for tractors which we financed with debt; $5 million carry over for our corporate headquarters and the remainder for technology investments.

Estimated capital expenditures for 2014 are between $135 million and $150 million. Approximately $60 million is for tractors and $56 million is for containers.

To wrap it up for the finance section with the winter behind us and a spring in our step, we're looking forward to continuing to build on our strengths.

I'll turn it back to Dave for closing remarks.

Dave Yeager

Thank you, Terri. In conclusion, we believe that our service levels will soon be back to the level that our customers demand and then come to expect. And a result of more consistent service levels our operating cost should also soon be normalized. And as we move into the second quarter, we are more optimistic about the pricing environment that we've been in many years.

And with that Terri, Mark and I are happy to take any questions you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question comes from the line of Ben Hartford from Baird. Please proceed.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Hi. Good afternoon, guys. I just want to continue down that path, Dave, about the pricing environments. And that does sound like truck load rate growth has accelerated into this weather distorted, but thus feels though depending on this shift so to speak. I mean, I'm just interested in your perspective when you look, when you hear what the customers are saying.

The feel as though this can be a multi-years in terms of right growth we're accelerating and it being 'healthy' or does it feel as that you can get the rates that you need here in 2014. And there's still risk that we can take a step back or rate growth could slow in 2015. I'm just interested in your point of view conceptually in terms of what the rate growth should look like here over the next few years given what we've seen here in the first two months of the year.

Mark Yeager

Hi Ben, this is Mark. Yeah, I think we're certainly encouraged by what we're seeing the market, what we're hearing from the truck load marketplace and their confidence in the ability to get better price this year than they have the last few years particularly. It's way too early for us to tell.

Certainly if this is the beginning of any type of a multi-year trend, we are hopeful that it's going to be a year trend to being with, right. We'll take whatever we can, but certainly we feel like the stage is set, the shipping community has seen what some equipment tightness looks like. We believe that over the long term it's very likely the truck prices will continue to rise because quite frankly, their costs are going up and some of the things that will drive their cost up most dramatically have yet to occur, but are in the offing.

So we think that given what's happened to the underlying cost structure within the truck community. It's likely that we'll see certainly an ongoing push for rate increases in the out years. It's still a highly fragmented business. It's probably going to remain a highly fragmented business for the foreseeable future. So the ability for them to get real traction in terms of pricing is probably going to have its ups and downs throughout the course of the next few years.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

All right. Just to clear, Terri, I think you did reaffirm that you believe that gross margins will expand here in '14 even with some of the weather-related expenses in the first quarter, is that right?

Terri Pizzuto

That's right.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Okay. And how should we think about the pace of that? I know it's early looking into '15 and pricing is going to be variable, but in terms of what you guys have internally specifically with regard to the system installation, but then also some of the changes to compensation and what not, should we -- all things equal, can we expect the pace of gross margin improvement to build through the year and accelerate in 2015 relative to 2014? Can you provide any sort of perspective on that?

Terri Pizzuto

Yeah. That's what we would expect, Ben. In the second half of 2014, will be higher than the second half of 2014, because that's when the customer price increases go in. We did have -- and then if you look sequentially from Q1 to Q2 in 2014, we have the weather which we think costs us about 40 basis points of gross margin. So for that alone, the gross margin as a percentage of sales to should go up in the second quarter and then maybe a touch on top of that.

And then as far as 2015 goes, you're right, we have our savings that we should have from one system which Mark mentioned which we're rolling out near the end of this second quarter. We hope to have it completely rolled out by peak. If we have it rolled out by peak, we'll probably have $300,000 to $500,000 of savings this year, but next year, we're predicting about $5 million to $6 million of savings.

And the main benefit there is filling up empty miles of loaded miles and then in terms of the satellite tracking that won't be completely rolled out until the end of next year. However, we think we'll get about $1.5 million to $2 million of benefit next year for that. And then if we get some pricing on top of that, it should be -- we should be setup pretty well for next year.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Okay. That's helpful. And then one more, then I'll get back in the queue. Your Western partner Union Pacific said that domestic volumes were up 8% in the first quarter. You had said that weather reduced volumes by 2%, so the load growth intermodal was lagging Union Pacific and obviously, you have had some yield initiatives here this year.

How should we think about the cadence of the volume growth as we look into 2015? Is this a one-year situation where you do have some culling got the business and you would expect volume growth to be more comparable to what markets rate market rates are in 2015 and beyond or do you think this could be a dynamic that does linger into 2013 while we have the offset of gross margins that expand in looking into 2015?

Dave Yeager

Hi, Ben, this is Dave. I would tell you that I think that regarding the first quarter and awful lot of that was we were pretty much relied on our fleet, rail boxes were extraordinarily tight to come by and so I think that had a fair amount to do with -- we could have handled -- hypothetically, if we picked up every load that was offered another 16,000 loads, but the equipment just was not available.

What I would suggest to you with is that we do believe that we'll continue to grow somewhat ahead of intermodal growth overall, but we're going to be very focused on making sure that we're pricing our business properly and we're getting the right business that's going to bring a reasonable margin to the network.

And so it may be a little slower than the normal 300 to 400 basis points over intermodal growth we project, but nevertheless, we're going to stay very focused on our pricing and on our optimization this year as well as next.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Okay, that's helpful. Thank you.

Operator

And your next question comes from the line of Michael Weinz from JPMorgan. Please Proceed.

Michael R. Weinz - JPMorgan Chase & Co.

Hey good afternoon. Thanks for taking the time for question. I guess to start, since we were talking about bid season, I was wondering if you could provide some color on how some of these negotiations or discussions are going in terms of demand? Because of the issues that you're seeing the major rail competitor in the West, are you seeing additional interest in maybe customer diversification amongst the various intermodal providers?

Mark Yeager

Hi, Michael, this is Mark. I think definitely that some of the issues that we've seen in the West from a service perspective have caused a number of shippers to think more about a diversified rail strategy.

We've had a number of years of very solid rail service without significant disruption; really all the way back to 2007 and 2004 being the last major disruption that we saw. So, a lot of folks have never seen a service disruption within a shipper community. I think that this has caused folks to reconsider whether they are well-served to have all their eggs in one basket.

As Dave alluded to we saw a lot of opportunities this quarter that unfortunately we couldn't fulfill because we didn't have all the boxes in the right places. But as we enter into bid season, I think that there is a renewed interest in the shipper community to make sure they have a diversified portfolio.

Michael R. Weinz - JPMorgan Chase & Co.

Right, okay. So, that sounds like it's a positive development with potential for additional volume growth.

Mark Yeager

Absolutely.

Michael R. Weinz - JPMorgan Chase & Co.

Okay. And then on the expense side, Terri, when I look at the total expenses in the quarter, it looks like it was around $68 million. I believe that included the cost on the special projects, so I would have thought that looking forward for the rest of the year that first quarter might've been a higher bar. So, I'm wondering how we should think about what's happening on the cost side going forward if those costs are not expected to continue?

Terri Pizzuto

You're right. We do expect the G&A line to come down, but we'll have some increases that will more than offset the decline. Agency fees and commissions are always the lowest in the first quarter. Those will increase just based on seasonality anywhere between $1 million and $1.5 million a quarter.

And then salaries and benefits are expected to grow to support growth especially in Logistics and Hub Group Trucking and that could be another $1 million to $2 million a quarter. We'll also have depreciation in the second half of the year when we start to depreciate one system and that could be about $300,000 a quarter.

Michael R. Weinz - JPMorgan Chase & Co.

Okay. And when you say per quarter that's each quarter or it's going to be increased each quarter through the year?

Terri Pizzuto

Each quarter. $300,000 each quarter.

Michael R. Weinz - JPMorgan Chase & Co.

Okay. And if I can ask one more on the brokerage side, with respect to the spot and contract split, how does that look? I believe in the past, you talked about it being 80% on contract, how does it compare on the revenue side versus the expense side?

Terri Pizzuto

The Hub segment is 80% contractual in truck brokerage. From Mode segment, that's a much more spot that's probably 80% spot and 20% contractual.

Michael R. Weinz - JPMorgan Chase & Co.

Okay. And is that true on the revenue side and the cost side or is it -- do you know what I'm trying to ask?

Terri Pizzuto

We try it, The Hub segment tries to merry-up the revenue with the costs, so yes, I would say to the Hub segment. On the Mode segment, probably not as much.

Michael R. Weinz - JPMorgan Chase & Co.

It's probably more spot?

Terri Pizzuto

Right.

Mark Yeager

It is definitely more spot.

Michael R. Weinz - JPMorgan Chase & Co.

Okay, understood. Thank you very much for the color. I appreciate it.

Operator

And your next question comes from the line of Kelly Dougherty from Macquarie. Please proceed.

Kelly Dougherty - Macquarie Capital

Hi, thanks for taking the question. The CapEx number is obviously much higher than you're guiding to in January, just hoping you'd give us some color on the move up there? Are you looking out at the tight equipment environment you want to be more reliant on your own assets? Is this you kind of investing for the next few years?

I guess I'm just wondering how maybe we think about the CapEx spend longer-term. I don't know if there's a dollar amount or a percent of revenue maybe we can think about or I don't want to assume that this elevated level is the new normal going forward.

Terri Pizzuto

You're right, Kelly, it's not the new normal. We would say we would expect somewhere between $50 million and $75 million on a normalized basis. This year, you're right; the guidance is up it back at first quarter. We didn't -- we weren't sure how many containers we were going to buy and we decided to buy 4,000 containers so that's the $56 million that we have part of our guidance.

And then the other piece is the tractor, so we're getting the 300 tractors that we plan to get better day cabs that are fuel-efficient that help us to haul different class of freight, that's heavier. And the driver's safer it's more fuel-efficient it's more cost-effective. So, we think that's a good investment as well.

And in certain markets it's more beneficial for us to have employee driver drivers rather than owner-operators and so that's another reason that we're investing in the tractors although we're still very interested in owner-operator growth.

Kelly Dougherty - Macquarie Capital

When you talk about the ability to haul a heavier freight is that new business that you're going after or that was business that you had kind of relied on for third-parties to haul in the past and therefore maybe we should think about improving from a margin perspective, how do we think about that?

Dave Yeager

With the lighter cap, this is Dave, we're able to obviously handle customers that have denser products and it's becoming more so just of a competitive necessity. For the most part if you look at the vast majority of drayage firms, most of their tractors if they're owner-operated oriented or with better sleepers and so as a result they weigh thousands of pounds more and so it does offer us a competitive advantage when, in fact, we're competing for the denser shippers, those with dense product.

So yes, it does open up -- gives us the ability to increase the price to somewhat offset -- some of that additional weighting that the shipper can put in there.

Kelly Dougherty - Macquarie Capital

Okay, great. That's helpful. Thanks. And just switching gears, you're confident about the pricing environment, it's certainly sounds good to hear you say that. How does that relate to your expectations for the rail cost increases? Do you get the sense from the discussion with the rail partners that they're looking to raise their own intermodal rates in tandem or do you think you'll actually be able to raise your prices this year higher than your expected costs will increase?

Dave Yeager

That's a really good question. I would say we have a pretty good idea as far as what our overall cost increases will be with the rails. As well as -- and a very important component for Hub now is what our wage increase will be for our truck drivers as that's a major components of our cost as well.

But I think that from what we've seen thus far, we're at pace with cost increases and I think that as it progresses, there may be room to expand margins. Again -- and part of that is just the pricing environment, part of it is some of the initiatives -- the margin enhancement initiatives that we've had ongoing here for the last year.

Kelly Dougherty - Macquarie Capital

Great. Thank you, guys very much.

Operator

And your next question comes from the line of Todd Fowler with KeyBanc Capital. Please proceed.

Todd C. Fowler - KeyBanc Capital Markets

Great. Thanks good afternoon. So, I guess maybe just to follow-up to that last point, David, are the comments about the gross margin improvement sequentially and then also into the back half up to the year, on a year-over-year basis, is that really reflecting more of the internal initiatives that you have to in place right now and starting to harvest some of those benefits versus getting benefit from pricing in intermodal market?

Dave Yeager

Todd, I'd say it's a combination of both. It certainly is the initiatives, but we also feel as though -- and again, with our increased focus on margin with a pricing perspective as well, I think that it's a combination of both pricing as well as the initiatives we have ongoing that in fact, we'll be -- will allow us to continue to expand the margin.

Todd C. Fowler - KeyBanc Capital Markets

Okay. And then thinking about the business and understanding how you're approaching volume growth right now, it does seem like the fleet is going to be up high single-digits as you get into the back half of the year.

And I think Mark made some comments about wanting to get price improvement before you go after volume. Is there a level of gross margin that you're looking for or operating margin that you're looking for before you to become more aggressive on the volume front or how are you thinking about the balance between achieving margin and price with volume growth?

Dave Yeager

At this point in time, candidly, we're looking at both. We feel as though both are achievable in today's pricing environment and the constrained capacity environment that we're living in. We think that partially it was weather. We do think that in addition it's something that is going to lead on and continue through spring and summer.

So, no, I would suggest that we think that we can continue to get price as well as the same point in time to expand our volume albeit maybe not as quickly as we could if we were more price aggressive.

Todd C. Fowler - KeyBanc Capital Markets

Okay. And then the last one I had the $5 million to $6 million of savings, Terri that you talked about into 2015 from the network side, can you give us a sense of your comfort level? And I guess what I'm asking is in kind of a strange way how easy is it or how confident are you in being able to realize those savings?

I mean to me it seems like that there would be a bit of risk if you try and balance the network and you don't get some of the intended outcomes from pricing initiatives or something like that that you may not be able to fully realize that. So, I guess I wanted to get a sense of your confidence in putting that number out there at this point.

Terri Pizzuto

Yeah, we're pretty confident in the number, Todd. And it's more about filling up empty miles with loaded miles, more than getting price. So -- because the dispatchers and the driver managers and the load planners are going to be able to see the loads and planned using better decision-making tools, we're pretty confident that we can get there. We know we have a lot of room for improvement in terms of filling up the empty miles way more than that $5 million to $6 million. So, that's why we're confident.

Dave Yeager

Right, but you're also certainly correct that it would be very easy to give away those efficiencies in price. So, it's incumbent on us to be more disciplined from a price perspective and make sure that we have a well-structured comprehensive increased plan that we act upon and stick to.

Todd C. Fowler - KeyBanc Capital Markets

So, it's great that you already have in the network it's just utilizing the network and the assets better to realize some of the cost reduction or the savings from that?

Dave Yeager

Right. Absolutely. That's by far the biggest driver. It will also help us identify where there are holes in the network where we need to bring freight in that plugs up those holes that creates kind of triangulation opportunities that make you really efficient. So, it should also steer us in our sales and marketing efforts more effectively.

Terri Pizzuto

Yeah and the other benefit would be improved driver retention since the driver will be more productive.

Todd C. Fowler - KeyBanc Capital Markets

And should we be focused on container terms or gross margins or will we be talking about empty miles or what sort of metric should we be focused on to get a sense of how that's progressing?

Terri Pizzuto

We'll tell you what is next year when we see it.

Dave Yeager

Right. We'll be able to see get in empty miles, but that's not a statistic that we make public.

Terri Pizzuto

Right. So, we'll tell you how we're doing.

Dave Yeager

Right.

Todd C. Fowler - KeyBanc Capital Markets

That's kind of where I was going with that. Okay. Thanks a lot, guys. I appreciate it. Thanks.

Operator

And your next question comes from the line of Scott Group with Wolfe Research. Please proceed.

Scott Group - Wolfe Trahan & Co.

Hey, thanks afternoon everyone.

Dave Yeager

Hey Scott.

Scott Group - Wolfe Trahan & Co.

So, I know you don't typically give us this, but just given all the noise with the weather and then maybe some of your internal initiatives, can you walk us through monthly volume trends and what you're seeing so far in April? Just to give us a sense of what maybe a normalized rate is recently?

Mark Yeager

Sure. If you take us through the quarter, I'd love to say that we saw a real acceleration through the quarter. Clearly, January was a very challenging month. But we did not see a consistent trend of accelerated volumes through the quarter. It was back-and-forth from week-to-week.

What we did see, though, on the positive side is that once the weather cleared, we did see solid upticks in terms of volume and demand and as -- while we're early in April, early in the quarter, the signs in April our encouraging from a volume perspective. So, that's really the first inkling we've seen of a reacceleration in volume.

But keep in mind, a lot of -- there was a lot of demand out there throughout the quarter including in March, but we had 17 markets affected by weather events throughout March which was really unusual to David's opening comments about the impact of weather. So, we felt weather impact us throughout the quarter, but once the weather broke, we have seen better volume performance in April.

Scott Group - Wolfe Trahan & Co.

Okay. And just to that point, the rails our service metrics are still really struggling and they're all still talking about big issues in Chicago. Are you comfortable that you're not going to have cost issues related to the lingering impacts of weather in the second quarter or should we expect some of that and more of what you're talking about as more third and fourth quarter from an earnings growth perspective?

Dave Yeager

I'd suggest there's some linear costs that are still associated with the winter this month. As Mark said, 17 weather events in March is not -- seems like winter is not quit quite yet. But -- so there is some lingering effects, but it certainly it's lessening now. It should get better. And it certainly doesn't have the impact it does today that even it had at the beginning of the month.

Scott Group - Wolfe Trahan & Co.

Okay. Maybe just on the gross margin side now, you guys were talking about margin improvement, you're still talking about margin improvement, but I guess we don't know if you're now thinking less margin improvement or not.

Maybe did -- does the first quarter pressure just make it so there's less margin improvement this year or are you actually maybe saying you're more confident or you now see even better margin improvement in the back half of the year than you would have thought a quarter ago?

Terri Pizzuto

We are more confident about the pricing environment, but we've not built that into our forecast because we are -- we haven't seen a lot of the bid results yet. And so until we see a lot of good results, we're not going to build that into our forecast.

Dave Yeager

Certainly we've seen nothing that would lead us to be less confident about margin improvement. Sure, it was a challenge and we encourage some additional costs this first quarter, but nothing we think that it drives margin down throughout the remainder of the year.

Scott Group - Wolfe Trahan & Co.

Okay. And last thing bigger picture, so you've got some of these internal initiatives which sound pretty like some big numbers and it sounds like you're talking about a better pricing environment than we've seen in five, six years. Can we get back to -- you think in a couple years, can we get back to 12% 13% gross margin like we did see from you guys?

Terri Pizzuto

Depends on the pricing environment and then you've got the mix impact from the growth in Logistics. And Logistics is about 20% of Hub segment revenue now and that's certainly our lowest -- our business at the lowest gross margin as a percentage of sales. So, as that grows and we think it's going to continue to grow double-digits that will certainly be a headwind. But it depends upon the pricing environment and how much price we get.

Scott Group - Wolfe Trahan & Co.

How many years of pricing like this do you think you need to get back to that range?

Dave Yeager

Well, it will be a guess, but probably at least three.

Scott Group - Wolfe Trahan & Co.

Yeah. Okay. All right, guys. Thank you.

Dave Yeager

Thanks Scott.

Operator

And your next question comes from the line of Matt Brooklier from Longbow Research. Please proceed.

Matthew S. Brooklier - Longbow Research

Hey, thanks. Good afternoon. So, in fourth quarter with respect to intermodal containers, we were in a holding pattern with in terms of how many containers you guys thought you were going to add. Now, it sounds like we're doing 4,000, but the net is 2,000 end of the year some containers coming out of the fleet, but a pretty decent number in terms of fleet growth.

My question is, going from holding patterns to adding a pretty decent amount of container equipment, what were the drivers behind that decision? Was it A, we're feeling better about the overall macro; B, we started to see some opportunity in the market with rail competitor service level issues; or C, some of the internal initiatives you guys are doing or is it a combination of all three of those?

Dave Yeager

It really is a combination of all three. I think that certainly when we stated that in the fourth quarter, we were waiting to see how the market was going to shape up. We weren't sure exactly if it was going to be more robust or if it was going to be relatively flattish.

It's our belief that in fact to Mark's earlier point that we think that a lot of clients are looking to make sure that they have enough diversification of carriers, that, in fact, the Union Pacific and Norfolk Southern are able to deliver the service that they require and we do see ongoing conversion coming back from Iowa. We did see some conversion to truck on a temporary basis. We believe that will be coming back plus additional volumes.

Matthew S. Brooklier - Longbow Research

Okay. How does Mode position you in the marketplace? I know they have a more diverse supply of rail line haul, maybe just if you could talk to if having Mode now gives you a better position in the market potentially I guess takes market share if some of your competitors are having service levels or is the majority of relative potential share take are we going to see that at Hub?

Dave Yeager

Well, we certainly have been encouraged by modes, volume growth and intermodal really the last couple of years. Last year they had a tremendous year and they are off to a good start this quarter.

I think what this has shown is that their model where they are out finding the best capacity option for their customers can be very effective. It's certainly effective when capacity is tight and they showed that by growing 9% on the quarter at a time when it was very difficult to source boxes.

So, they are very nimble. They react to the market well and I think their customers often turn to them to help them out of a jam, to help them solve problems and they're very effective at that. They've got a lot of large customers, but they also have a lot of customers that are more transactional in nature and they're very effective there.

So, but we're hopeful that they're going to continue to grow faster than the market. We've got five or six large Mode agents that have really embraced intermodal and have brought it to their customer base very effectively and are continuing to grow and honestly are showing no signs of slowing down.

At the same time, we feel like Hub can grow within the markets as well. And we've demonstrated that historically. Last year was not the case, but we think we can get back to growing it certainly at industry levels.

So, they are different models. They tend to experience different dynamics, but nonetheless, we think that they both have a value good proposition for the customer and can be effective and compete in the intermodal marketplace. So, we think Mode's growth will continue and we think Hub's growth will reignite a little bit.

Matthew S. Brooklier - Longbow Research

Okay. That's helpful. And then a just my final question CapEx, stepping up now that you have your container purchases figured out. For 2014, it's a relatively big CapEx number and I'm just curious, to hear what are your thoughts on potential acquisitions moving forward? Does a higher rate of internal investment sway your opinion on potentially doing a deal in the future versus maybe a three to six months ago?

Dave Yeager

No, we continue to be very focused on outside acquisitions. And as we've said in the past we're also willing to lever up the balance sheet if that if in fact the right acquisition comes along. So, no I think the additional CapEx we're -- which is unusual for us taking out some of it in asset base to that because candidly the cost of it is so inexpensive with the tracking. But no, that's not going to faze us at all as far as the potential for outside acquisitions.

Matthew S. Brooklier - Longbow Research

Okay. And one more. Is there a particular number in mind in terms of potential leverage you could take on the balance sheet? And in terms of doing the deal and still feeling comfortable?

Terri Pizzuto

The max we'd probably do is to times EBITDA.

Matthew S. Brooklier - Longbow Research

Okay. Appreciate the time, guys.

Operator

And your next question comes from the line of Matt Young with Morningstar. Please proceed.

Matthew Young - Morningstar

Good afternoon. Thanks for taking my question. Just a question here on the brokerage front, are you still seeing significant cost of hiring increases now heading into the second quarter as some of the weather disruption has dissipated. I think it's along those lines would you expect to be in a better position to pass along a lot of the carrier rate increases to customers as time moves on here?

Mark Yeager

Certainly as time moves on we improve our position to pass those increases on and to be more selective in the opportunities that we handle. It's gotten a little bit easier in some markets, but I think it's really still remained pretty tight. And we're coming up on some pretty significant produce surges. So, it's likely that we're going to see a tight capacity market certainly all the way through May and maybe well into the summer.

Matthew Young - Morningstar

Would you think -- that makes sense and I understand that, but at the same time, I would think that the supply disruption is good for brokers when you have route service failures and so forth that increases your value proposition and strengthens your pricing power. Do you get the sense that happening in that business?

Mark Yeager

We've always thought that the tight capacity market is the best world for a broker to operate in because your value proposition is the strongest. The worst is equilibrium and that the unfortunate world we lived in for the last couple years. What we're having to do is shift our processes and our organization to a new market dynamic.

And so that is a transition that we're in the process of making. But we feel like we will be able to get there, we're putting a lot of work into carrier development and a lot of work into market analysis to make sure that we're only entertaining those opportunities where we can bring real value and make an acceptable return.

Matthew Young - Morningstar

Okay. Thank you.

Operator

And your next question comes from the line of Taylor (indiscernible) with Raymond James. Please proceed.

Unidentified Analyst

Hey, good evening. And Mark, just a quick question. Can you help us conceptualize how the rail contracts work? I mean do they typically cover a few years with kind of a predetermined escalator or is that kind of negotiated annually? And I guess my question is how good is your line of sight on rail costs, both this year and maybe next?

Mark Yeager

Sure. We have two types of rail pricing one is for rail furnished capacity and that's done on a customer lane specific basis typically on an annual basis. For our fleet, we have talked about the fact those are multiyear deals. They are tied to the market. This year in particular we have to good visibility having already had dialogues with our rail partners. We have good visibility into the increased hurdle that we're facing on our fleet boxes.

Unidentified Analyst

Okay good. And then just a point of clarification, but on the $2 to $2.10 guidance does that really just assume that pricing tracks along rail cost increases?

Terri Pizzuto

It assumes that we cover our rail cost increase with price increases.

Unidentified Analyst

Okay. Thanks. And then I am kind of curious, Mark you made some interesting comments about the inflation on the drayage side, but have you seen tightness in that third-party capacity there if you have any trouble ceding tractors?

Mark Yeager

Absolutely. We were not terribly pleased with the driver additions that we ended up with this quarter. It's definitely a challenging environment to recruit drivers. And driver additions are the sum of two things the first one keeping the drivers that you have and the second one adding new drivers.

We were pretty good with the first component of that. We didn't see an increase in attrition, but unfortunately we weren't able to bring on as many new drivers of this quarter as we were targeting or as we have historically.

So, obviously, there's a lot of reasons why people wouldn't want to enter the driving profession and maybe getting out of the driving profession. But at the same time, it is a matter of concern and we would like to be growing our driver count faster than we are.

Unidentified Analyst

So, in terms of kind of the magnitude of inflation, any thoughts there?

Mark Yeager

It's hard to say and it varies by market. Some markets are going to -- you're going to see increases more aggressive than in other markets I think. At the end of the day, for the trucking industry and drayage as a part of the trucking industry, you're likely to see driver wages continue to escalate.

Unidentified Analyst

Okay. And then how much is drayage as a percentage of your PT? I get in on average just understand a lot of the length of haul differences but just in general?

Mark Yeager

Generally, it's about 30% of the cost of an intermodal move.

Unidentified Analyst

Okay, perfect. And then on the 14-day turn cycle on the boxes, how much of that is on the rail versus on the street?

Mark Yeager

We figure about five days on the rail. So, everything else is street time.

Unidentified Analyst

Okay, perfect. Thank you.

Operator

And your next question is a follow-up question from Ben Hartford with Baird. Please proceed.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Terri, in terms of the cadence of overall or Hub gross profit margin in the percentage I assume normal years -- whatever normal is, normal years the first quarter is the highest percentage and then as capacity tightness through the year and the revenue base grows, that percentage falls but you got the first quarter here, where it was pressured for the reasons that we know and then you've got these internal initiatives as you move through the year, do we set up a situation where that gross profit margin expands through the year? And we have a run rate ending the year that looks a lot like what 2015 can look like; can you provide some more perspective there?

Terri Pizzuto

You're saying for 2014?

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Yeah, 2014, looking at gross profit margin and wondering if you in this year it expands through the year because you have a low base and because you have these initiatives you have a better pricing environment than you had in the past. Do you have that dynamic where it actually expands through the year where typically it falls as we go through the year?

Terri Pizzuto

Yeah, for that Hub segment, it would expand through sequentially, we think. And for the Mode segment, we think it will probably stay about where it's at. And so when you combine them, it could be up a touch overall from the 11% that we had last year.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Okay. And then the CapEx for 2014 is obviously higher. For 2015, what should we be thinking about as a placeholder?

Terri Pizzuto

$50 million to $75 million.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

$50 million to $75 million? And then, Mark, can you give us an update on the agent recruiting environment given the disruptions and the regulatory changes and some of these changes feel structural. Has that provided for a better agent recruiting environment for Mode that you have realized at the beginning of 2014? And how do you see that playing out as you move through the next year or two?

Mark Yeager

Sure. You know, agent recruiting is challenging, right? There's no question. But we've been pretty pleased with the traction that we've got. We brought in, as we mentioned, two new IBOs, five new sales agents during the quarter. We're working. The pipeline looks pretty good from an agent recruiting perspective.

The agent has to be comfortable that they're working for an organization that's going to bring them value. And I think that we saw our agents use more contract, use more Hub boxes, but at the same time, have the ability to choose the route that's in their customers' best interest and to use the carriers on the over-the-road side that they have a relationship with.

So we kind of think we've got a good model, best of both worlds. That's pretty appealing to a lot of the folks that are in this agent community. We have stepped our efforts up and have more resources working on agent recruitment. And we think that that's paying off nicely. It takes a while for typically for an agent to come on and really move the needle. So most of the growth you're seeing at Mode is not agents, it's the existing pool of agents that we've got through our growing relationships.

But nonetheless, based on the pipeline we're seeing and what we saw last year in terms of bringing agents onboard, we feel like we've got a good product and it's attractive to agents and we should continue to be able to add to that agent count.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

All right, good. And then last one. Terri, it looks like we still have $400,000 of strategy related expenses in the second quarter plus you have weather in April, but the 3Q number should be free and clean, right?

Terri Pizzuto

Right. Actually we're done from a financial standpoint with our strategy projects, so we shouldn't have any of that linger in to the second quarter.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Okay. Did you say it was Q1 in the first quarter?

Terri Pizzuto

I did.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

And it was originally earmarked 25 so the difference there was just lower than planned?

Terri Pizzuto

Right.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated

Yeah, okay. Okay, good. I appreciate the time.

Terri Pizzuto

Sure.

Operator

And your next question comes from the line of John Barnes with RBC Capital Markets. Please proceed.

John Barnes - RBC Capital Markets

Hi. Good afternoon, guys. A couple of quick things. And I apologize if I missed this. I got dropped off your call after few minutes. I'm traveling, so I apologize. Number one; with Burlington Northern service difficulties did you experience any kind of market share pickup during the quarter? And if you did, how sticky do you think that may be?

Dave Yeager

John, this is Dave. I think that we didn't in all candor as we were working diligently to fill the capacity needs of our existing client base and our existing commitment. So we really couldn't necessarily take advantage of that. We do think that the UP will have service superiority in certain corridors for the near future, and certainly that does create some opportunities for us, such as in the northern corridor.

John Barnes - RBC Capital Markets

Okay.

Dave Yeager

We really were just working very, very closely just to make sure we lived up to our existing commitments.

John Barnes - RBC Capital Markets

Okay. And then most of the rails so far kindly indicated a need for additional horsepower. It seems like that's been kind of the increase in CapEx. Are you sure this quarter is behind additional locomotives and that kind of thing, or have you experienced any shortage of horsepower that maybe causing delays beyond the winter weather, taken on too much traffic and not enough horsepower for it. These are like you're getting adequate power devoted to the intermodal loads?

Mark Yeager

John, this is Mark. Yeah, we knew always -- you always think that we could use more train starts. There's no question about that. But I think what we have seen is there are some key corridors where service is not as good as it has been historically, and a lot of that is due to a lack of train capacity. We have seen particularly in the West where our western partner has begun more train starts. And we're pleased to see that because it is something that has impacted services in the first quarter.

In the East the vast majority of the service issues were associated with the weather. But I think we did see some train capacity issues in the West. And where we've seen them add these new train starts, we'll defiantly see service begin to improve.

John Barnes - RBC Capital Markets

Okay. All right. And then lastly, Mark, can you just remind us kind of what's the goal for the amount of drayage you'd like to do, your internal drayage? And have you had to rethink either that goal or how quickly you can achieve that goal given the shortage of I think in your word you were a little disappointed in the driver recruitment effort during the quarter. So if you had to rethink those goals at all?

Mark Yeager

I think we haven't had to rethink the goals, we had to rethink the timing though. To your question, right, there's no question. That's a -- it's a good point. Right now we're at 70% on the quarter, we finished the quarter at 71%. We want to get up to 75% at the end of this year.

Honestly, we had hoped by 2014, couple of years ago that we would already be at the 85% level, and clearly we're not there yet. That remains our long-term goal. We think it's probably something that will require two to three years' more work to get to honestly, and even that's going to be a Herculean effort.

But we are investing. Obviously, we're bringing more company drivers in, doing a lot of things to keep our owner, operators happy. We think the new system is going to make them more productive, give them the opportunity to make more money. And that will help us with the attrition side, the retention side of the equation.

So we are still focused on it. We still really want to continue to grow our driver base. We still are growing our diver base, just not as fast as we like to.

John Barnes - RBC Capital Markets

All right. And in that shortfall versus you goal, the shortfall versus that 85%, is it solely the lack of available drivers or are your drivers still getting pulled in the direction of handling some external non-Hub Group type of loads or is it just the driver shortage?

Mark Yeager

We do have been doing some Mode work, right, where it works for the network. We also have been doing some local pickup and delivery work, but it's really that's Hub business and it's business where it improves the efficiency of the driers day. So we use it to supplement their day to help reduce empty miles.

So it isn't -- we wouldn't say pulling them in another direction. It's helping them become more efficient and hopefully helping the driver having more profitable day working for Hub than he would for a conventional drayage company. So that certainly takes away though from our ability to close the gap between 70% and 85%.

Dave Yeager

And John, just to follow-up a little bit too certainly part of the issue is just identifying and being able to secure qualified drivers.

John Barnes - RBC Capital Markets

Right.

Dave Yeager

It's an age-old problem within the trucking industry and despite the fact that our drivers for the most part get home every night, it remains an issue.

John Barnes - RBC Capital Markets

Fairly well, okay. And guys, thanks so much for you time. I appreciate it.

Operator

And your next question is a follow-up question from Todd Fowler with KeyBanc Capital. Please proceed.

Todd Fowler - KeyBanc Capital Markets

Thanks. I just wanted to ask a follow-up on unison. The revenue growth there has been very strong. And I guess the stroke of that all about kind of the objective of that business to help pull along some of the opportunity within the brokerage or within intermodal. I guess I was hoping you could speak to maybe a little bit about how you view that business strategically with the other businesses and how we should think about that within the exiting portfolio going forward?

Mark Yeager

Well, it's clearly a more important part of our portfolio. It's been growing rapidly now. I think it's at 23% over the compound annual growth rate over the last five years. It's a terrific value-add for our customers. It really puts us in a different type of position with our customers, much less transactional, much more strategic.

I think we've shown that it's a good product and it can service a variety of customers. A lot of folks have needs. And there's a real trend in North America to outsource certain transportation management functions, and we think that this is right in unison sweet spot.

So we've been very encouraged. The growth prospects look significant. And it's a kind of customer relationship that we love to develop throughout our business. So it's not that we're going to continue to invest in and continue to grow.

Todd Fowler - KeyBanc Capital Markets

But Mark, is it something that you see drive additional over-the-road opportunities or intermodal opportunities, and maybe we just don't see it in the reported numbers, or is it more that's a value on a standalone basis from a customer relationship standpoints or something like that.

Mark Yeager

Well, there's definitely a standalone basis value to it, there's no question. It also does bring a lot of business to intermodal and to highway. One of our key value prepositions with logistics is modal optimization to help the customer use the best mode for their supply chain and we think we're in a unique position to offer that.

So clearly, our preference, if the choice is going to be intermodal, would be to use a Hub product. That's a choice we leave upto our customers, but nonetheless, it does result in a fair amount of volume for Hub intermodal and for Hub brokerage. And we think as we go to more constrained capacity environment the value that Hub brokerage, Hub highway will bring to units and its customers will be greatly enhanced.

Todd Fowler - KeyBanc Capital Markets

Got it. Okay. Thanks a lot.

Mark Yeager

Sure.

Operator

And you next question is another follow-up question from Matt Brooklier with Longbow Research. Please proceed.

Matthew Brooklier - Longbow Research

Hey, thanks. So just an additional question on Hub truck brokerage, you guys are I think 80% contractual and 70% transactional or more spot business. Given the markets tightened up does that mix, does that change or do you think it will change in all? Do you think there's the potential to maybe move away from some of your contractual business and do more on the spot side?

Mark Yeager

We did a little bit more spot business this quarter when we're helping our customers dig out of a storms, no question about that. At our heart though, we are more of a contractually oriented business. It's more what we're set up for.

The key to that thought is to be selective about the opportunities that you take onboard where you've got good regional coverage that the customer can't really otherwise effectively access on their own. So I think you'll still see us as a predominantly contractually oriented brokerage company, but one that's smart about the business that it brings on.

Matthew Brooklier - Longbow Research

Okay. And roughly, very roughly what percentage of your contracts are up for -- I guess up for repricing this year?

Mark Yeager

Pretty much all.

Matthew Brooklier - Longbow Research

All of them. Okay.

Mark Yeager

That'd be the case in logistics but it would be the case in truck brokerage certainly and for the most part in intermodal as well.

Matthew Brooklier - Longbow Research

Okay. And does it fall in kind of the typical bid season here where you're doing a lot more of repricing in the first half of the year versus the second half of the year?

Terri Pizzuto

Yes, it does. About a third of our business is done being repriced, another third of them profits and another third is yet to come.

Matthew Brooklier - Longbow Research

Got you. Okay, helpful. Thank you.

Operator

And your next question comes from the line of Justin Long of Stephens. Please proceed.

Justin Long - Stephens

My questions. I wanted to follow-up on the topic of intermodal volumes, you mentioned an improvement in April, but do you have any sense for how much of this is from delayed volumes due to weather versus underlying demand getting better? And maybe along those same lines, I'd be curious what your expectation for overall industry intermodal volume growth is this year?

Mark Yeager

Yeah, Justin, it is hard for us to separate out obviously just how much of it is delayed volumes. We don't think -- typically delayed volumes occur within a matter of days, right, after -- not many people have enough slack in their supply chain to push things out weeks into a different month, different period. There is undoubtedly some of that right, but we've definitely seen what we think is solid demand in April compared to previous Aprils or compared to March as well.

So we don't think the lion's share is delayed volume, but that has yet to be seen. We think the domestic intermodal industry is going to do quite well this year. It should be another year of strong demand.

The key there is rail service. And we have always said that that as long as rail service holds in there, the economic advantage of intermodal is we should point of growth that exceeds the truck market and GDP. That variable has been tested a little bit this year and so I think it is dependent on the rails getting back on their feet over the course of the next quarter and offering the kind of service that they've offered for the last five years or so.

Justin Long - Stephens

Okay. Great. That's helpful. And as my follow-up, Terri, you talked about the year-over-year change in gross margin percentage for each of your businesses within the Hub segment, but could you provide the sequential change as well? Do you have that?

Terri Pizzuto

I do, sure. In intermodal it was down about 10 basis points; in logistics it was down 130 basis points, and in over-the-road truck brokerage it was down about 70 basis points.

Justin Long - Stephens

Okay.

Terri Pizzuto

So from '13 to Q1.

Justin Long - Stephens

Perfect. That's helpful. I know it's been a long call so I leave it to that. Thanks for the time.

Operator

And there are no remaining questions in queue at this time. I would now like to turn the call over to Mr. Dave Yeager.

Dave Yeager

Great. Well, again, thank you for participating on the call. As always, if there is any follow-up questions, Mark and Terri and I are always available. So again, thank you and have a good evening.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. You all have a great day.

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