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Hub Group Inc  (NASDAQ:HUBG)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to Hub Group's Fourth Quarter 2018 Earnings Conference Call. Dave Yeager, Hub's CEO; Don Maltby, Hub's President and Chief Operating Officer; and Terri Pizzuto, Hub's CFO are joining me on this call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

Any forward-looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may have happen in the future. Statements that are forward-looking can be identified by use of words, believe, expect, anticipate, and project and variations of these words. Please review the cautionary statements in the release.

In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to 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.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Good afternoon and thank you for participating in Hub Group's fourth quarter earnings call. We had another very strong quarter and a record year in 2018, as we continue to increase revenue, while reducing expenses in our network.

We put a significant amount of effort into improving service and profitability, in all of our business lines resulting in a 72% increase in operating income for the year. This focused, coupled with the strategic investments we're making in our Elevate Technology, provides a platform for continued profitable growth. Intermodal had a seller quarter, as volume was up 5%. Peak season intermodal, exceeded our expectations, as pricing and volume were strong through year-end. The intermodal team had a solid operating plan that was extremely well-executed.

We're bullish on our intermodal plan for 2019. We believe prices will increase in the mid- to high-single digits, while volumes will continue to grow, as Hub continues to provide best-in-class solutions to our customers. Another highlight for the fourth quarter was our closing the acquisition of CaseStack on December 3. CaseStack is non-asset based, focusing on the growing warehouse consolidation market and LTL brokerage markets. CaseStack's strong retail and consumer products focus is very complementary to Hub, where those segments represent 70% of our business.

We're pleased with the synergies we captured and have a robust pipeline of future opportunities. CaseStack has a very talented workforce, a solid management team and we welcome them to the Hub Group family.

With that I'll turn the call over to Don, to talk about the performance of our other business lines.

Donald G. Maltby -- President and Chief Operating Officer

Thank you Dave. As Dave mentioned, we are pleased with our 2018 performance and feel confident in our ability to deliver strong results in 2019. Now let's talk about the business. We had a challenging quarter in truck brokerage, as our spot business declined due to higher contractual rates, which locked-in more committed capacity in the market, at lower amount of volume offered as spot.

In addition as I mentioned on our last call, we are transforming this business to better position our services to reflect three distinct lines; transactional, truckload and LTL; contract and special services. We have made great progress in restructuring our operations, bringing in new leadership, rolling-out our new technology into pricing and operations and adjusting our compensation models to drive more aggressive sales and procurement efforts.

And our strategic accounts value these services and we are bringing process, technology and resources to better position this business for sustainable future growth. Logistics. We continue to gain momentum, as we replaced logistics contracts, lost early in 2018 and focused our efforts on improving yield. During the back-half of '18, we onboarded two new accounts, while also implementing contract price increases with many of our clients.

As I mentioned in our previous calls in 2018, we focused our efforts on implementing our Oracle TMS, standardized solutions to drive efficiencies and scale and we'll continue on that same path in 2019. We have a very strong pipeline that will set us up well in the back half of the year. Also with the addition of CaseStack, we can now offer a full end-to-end solution that will further enhance our position with our customers and in the marketplace.

Dedicated. Revenue increased 40%, as we continued to assimilate the new accounts on-boarded earlier this year, while also taking a measured approach with new on-boardings. Our focus this past quarter and into earlier part of 2019, is on operational discipline, yield improvement and cost control. We believe we've made great strides, during the quarter and are now starting to see the results of those actions.

Our sales pipeline remains robust and we are focused on ensuring strong returns throughout 2019 and in the future for this business. I will now turn it over to Terri to review the numbers.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks Don and hello everyone. I would like to highlight three points for the quarter. First, we closed on the purchase of CaseStack on December 3, further diversifying our multimodal solution. Second, gross margin as a percentage of sales at 13.6% is the highest we've seen all year and the highest fourth quarter since 2007. Third, operating income was an impressive 4.7%.

Now let's take a more in-depth look at our performance in the fourth quarter. All the numbers that I'll be talking about exclude Mode, since we sold it, at the end of August. Hub Group's fourth quarter revenue increased 12% to $1 billion, due to growth in Intermodal, Logistics and Dedicated, partially offset by a decline in truck brokerage revenue.

Hub Group's diluted earnings per share was $1.46, which includes earnings per share of $1.01 from continuing operations and $0.45 of earnings per share, from the additional gain on sale of Mode. This is compared to an adjusted 2017 diluted earnings per share of $0.74 from continuing operations that uses a 25% effective tax rate. That's a solid 36% increase. Each quarter, we'll report amortization expense related to acquisitions and compensation expense associated with restricted stock awarded to CaseStack management in connection with the purchase.

Amortization expense in the fourth quarter of 2018 was $1.9 million compared to amortization in the fourth quarter of 2017 of $1.1 million. Compensation expense associated with restricted stock, issued to CaseStack management was $200,000 in the fourth quarter of 2018. Adjusted fourth quarter earnings per share from continuing operations for these items is $1.05 compared to an adjusted 2017 earnings per share of $0.77 or 36% increase.

Taking a closer look at a few of our key metrics. Hub's gross margin increased $32 million or 30% due to growth in Intermodal, Dedicated and Logistics, partially offset by a decline in truck brokerage. The logistics and truck brokerage service lines, include CaseStack for the month of December. Gross margin as a percentage of sales was 13.6% or 190 basis points higher than last year. Intermodal gross margin, as a percentage of sales was 190 basis points higher than last year.

Prices increased year-over-year and sequentially, from the third quarter to the fourth quarter. Fourth quarter's utilization was up 0.8 of a day, at 16.9 days, which negatively impacted our results. About 0.6 of a day was due to slower rail service. Truck brokerage gross margin, as a percentage of sales was down 30 basis points because of less spot business than last year. About 28% of our loads were spot in 2017 compared to 17% this year.

We partially offset the lower spot business, with more value-added services and the CaseStack truck brokerage business. Logistics gross margin, as a percentage of sales was up 290 basis points, due to price increases positive changes in customer mix, purchasing more cost effectively and the addition of CaseStack.

Dedicated gross margin as a percentage of sales increased 390 basis points because of lower insurance costs, new business and reduced use of third-party carriers, temporary drivers and rental trucks. Operating margin was 4.7% or a solid 80 basis points higher than last year. Adjusted operating income, excluding CaseStack and Dedicated amortization of $1.9 million and $200,000 of compensation expense related to restricted stock awarded in connection with the CaseStack purchase is 4.9%.

Our EBITDA was $73 million for the quarter and $208 million for the year. Cash flow from operating activities for the year was $211 million and net capital expenditures were $189 million.

Now I'll discuss what we expect for 2019. We believe that our 2019 diluted earnings per share will range from $3.10 to $3.30. By service-line, we expect 10% to 15% revenue growth in Intermodal, 15% to 20% growth in truck brokerage revenue 20% to 30% growth in logistics revenue and low single-digit growth in Dedicated revenue. We expect gross margin as a percentage of sales for the full year will range from 12.8% to 13.4%.

We expect gross margin growth of between 20% and 25%, with gross margin increasing in all of our service lines. We believe that our quarterly costs and expenses will be between $98 million and $100 million. We estimate the depreciation will range from $82 million to $92 million. We project that amortization expense related to the CaseStack and Hub Group's dedicated acquisitions, will be approximately $13.5 million and that compensation expense related to restricted stock, issued to CaseStack management, in connection with the purchase, will be approximately $2.4 million.

We project that operating margin adjusted for amortization expense and compensation expense for restricted stock will range from 3.8% to 4.3%. We projects that our effective tax rate will be between 25% and 26%. We expect to spend $90 million and $100 million on capital expenditures in 2019, primarily for tractors, containers, and trailers, as well as technology investments. We plan to continue to fund purchases, with cash and debt. That wraps up our financial performance.

Dave over to you for closing remarks.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thank you Terri. Needless to say 2018 was a great year for Hub Group. We achieved all-time record earnings and continued to achieve high-marks on our customer service. Hub divested a non-strategic asset in Mode, while expanding our service offerings with the acquisition of the CaseStack, a strategically aligned non-asset based logistics company. As we look toward 2019, Hub is very well-positioned in all of our business lines and we look forward to executing upon the opportunity.

And with that we'll open up the line for any questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session.

(Operator Instructions) And our first question comes from Scott Group from Wolfe Research. You're line is open.

Scott Group -- Wolfe Research -- Analyst

Hi. Thanks, afternoon guys.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Hi, Scott.

So Terri I just want to confirm the guidance for $3.10 to $3.30 is that with or without the amortization?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

That includes the amortization -- that's on a GAAP basis.

Scott Group -- Wolfe Research -- Analyst

Okay. And just so we can sort of calibrate our models. So when you report -- are you going to be talking about GAAP or adjusted excluding the amortization? And then can you just share -- how much was the total deal-related amortization in 2018?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

The deal-related amortization in 2018 was about, including the restricted stock of $200,000 was about $900,000. Yes. And then from -- but the '17 acquisition dedicated on an annual basis that's about $4.4 million. So annually the amortization associated with CaseStack will be about $9.1 million in 2019 and compensation expense associated with restricted stock will be about $2.4 million. And we're going to -- to answer your question about how we're going to report, we have to report GAAP because that's real, but we're also going to give you what the adjusted number is and so that you've got both.

Scott Group -- Wolfe Research -- Analyst

Okay. That's helpful. So Dave I wanted to ask, Intermodal pricing, I think you said, mid to high single digits? I guess what --.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

That's correct.

Scott Group -- Wolfe Research -- Analyst

Big picture like how long can we be in an environment where Intermodal pricing is going up more than truckload pricing? And is it realistic to think we can grow volume in an environment where Intermodal price -- can we grow Intermodal volume, if Intermodal pricing is going up more than truckload pricing?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yeah. To answer your question, I think, for way too long Intermodal pricing has had a two deep of a discount versus truck. That's in problematic. It's primarily been on intra-Intermodal competition which has driven a lot of that.

I think at this point, we're looking at the market saying that the variance between ruck and Intermodal is too great. There's a lot of room to increase price yet still bring very solid value to our customers. From what we've seen in the bit so far, it's only about 15% of our business but what I forecast the mid- to high single digits is certainly in play right now. As far as length of time, that we may expect to see that. We certainly believe that -- it's at least through 2019. And again because we don't take -- we're not taking 20%, 15% increases at a time. It's much more incremental. And so I do think that the overall tail that we got to follow up on that could very well extend through 2020.

Donald G. Maltby -- President and Chief Operating Officer

You know, and you look at pricing -- to '16 and '17 where prices going down, as much as they did. There is -- to this point to the Dave's point that the gap between truck and Intermodal is still sizable, when some cases up 40% on transcon business. So, we think there's a runway there to grow it and we're going to do it.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

And at the same time Scott to answer the second part of your question, we do believe that we're going to be able to grow volume, as well as grow and increase the overall price and get our return on invested capital to a reasonable level.

Scott Group -- Wolfe Research -- Analyst

So is it -- is the pricing a lot better in the West than the East because I'm guessing the gap is a lot wider there?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

The gap is lot wider there but there's still a lot of room in the East as well.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

And we saw growth in the East in January.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yes.

Donald G. Maltby -- President and Chief Operating Officer

Yes. That's where the truck will tightened up first in that local East market and there's still a gap between Intermodal and Truck.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

But I do think, we haven't fully the -- ELDs will have been an impact on some of those local lease because you can no longer do a Chicago to Harrisburg in a day, at least (inaudible) legally and now that everybody is required ELDs. It's changed some of the overall economics for that mid-haul trucking operations. So I'm not convinced that there's still not a lot of room to pricing within the East, as well as gain share.

Scott Group -- Wolfe Research -- Analyst

Okay. I'm going to ask one more and then get back in queue. So your rail partners, you are right in sort of the heart of 2019 precision rail-roading. What impact are you seeing at this point? And have you assumed any sort of negative cost or gross margin impact from the changes that the rails are making?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

I think thus far, we've seen some marginal, additional cost but we do believe that we can recover those relatively easily. We have seen some areas that we've been that where lanes have been shut-down that we have lost volume.

Although again, we don't believe it's been really a tremendous problem thus far. As I look at the precision railroading, we've really focuses on long trains and dense corridors. And if we look our business. 95-plus percent of it is in dense corridors. And so we feel quite good. Obviously precision railroading is there to take-out costs but it's also there to longer-term, enhance service.

We're not at that point yet although we are seeing improvements in service within both the UP and the Norfolk Southern. I would suggest to you that it's still early but we are seeing an accelerated amount of changes with precision railroading at this point in time.

There's no question, the pace of change has increased with both carriers. And so thus far as I said, really nothing that has been overly negative and we really don't foresee it. But again the pace of change is increasing. But I do -- I've to say that -- both of our partners, are really communicating extremely well with us on changes that are being made, giving us an advance notice.

Scott Group -- Wolfe Research -- Analyst

Okay. Thank you for the time guys.

Operator

And the next question comes from Kevin Sterling from Seaport Global. Your line is open.

Kevin Sterling -- Seaport Global -- Analyst

Good morning everyone -- I mean good afternoon.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Hi, Kevin.

Donald G. Maltby -- President and Chief Operating Officer

Hi, Kevin.

Kevin Sterling -- Seaport Global -- Analyst

Oh, gosh days are running together here. So, Dave let me piggyback on Scott's question about rail service and Terri this may be you as well. I think, you said your box turns were up 16.9 days that's up 0.8 days obviously that's a negative drag. As rail service improves throughout 2019 and that metric your utilization improves how should we think about the impact to say gross margin and then the financial impact?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah -- one day of utilization is now worth about $10 million to us. And so, as the rail service gets better, we expect to improve our utilization. What we've got baked in our numbers Kevin is the first half of the year, utilization will be worse than 2018 and the second half of the year it will be better. And so we've got kind of flat utilization in our numbers that we discussed for guidance in the plan.

Kevin Sterling -- Seaport Global -- Analyst

Great OK. And let me just follow up on the pricing discussion here Dave because as Scott talked about with truckload pricing and for the spot pricing being negative and while truckload contract pricing is positive. But as we think about Intermodal pricing and you're talking mid-to-high single digits and we've heard that from other IMCs.

How much would rail service play into that two to help, keep the pricing discussion at a higher level? If rail service improves, I would imagine that would help make obviously Intermodal that more competitive or attractive to truckload? And I guess, for the first time in few years, we can actually get some decent rail service. And I would imagine that might help the pricing discussion or maybe I'm missing a boat there.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Kevin I think, you're right on target. And certainly we've been able to increase pricing in 2018, of course that was an unusual market. We do think we're again poised for 2019, but the better the rail service gets and the more competitive we are versus truck, certainly that will allow us to convert more and more business over from -- shift from over to road.

So you're right on target and to reiterate, we are seeing the rails begin to improve their service. We're seeing some meaningful improvements. So we're very encouraged and as Terri had said, as the year gets on, we do believe that we'll be adjusting some of the expectations of our clients to shorter transit the one we're currently are.

Kevin Sterling -- Seaport Global -- Analyst

Got you. Are you losing any business back to the highway or is it you haven't seen that?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Kevin we really haven't not seen that. There's no question that the spot market that there's a lot more capacity but less demand. We think, so much, also because in 2018, a lot of people just playing the spot market put under contract because spot market pricing went up so rapidly. But no we're not seeing conversion back to truck at this point.

Kevin Sterling -- Seaport Global -- Analyst

Okay. Well, that's all I had. Thank you for your time this evening. Congrats on a very, very nice quarter and a very good year.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thanks, Kevin.

Donald G. Maltby -- President and Chief Operating Officer

Thank you.

Operator

And the next question comes from Benjamin Hartford from Baird. Please go ahead, your line is open.

Benjamin J. Hartford -- Robert W. Baird -- Analyst

Hi. Good evening, guys. Dave just kind of interested in your thoughts right lane right now. A lot of talk about inbound freight into the West Coast being strong, but a lot of uncertainty on the outside of weather new year, and I interested and what you guys are hearing and planning for in terms of the seasonal built in March and then maybe just a cadence through the balance of the year?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yes, I think, it is -- there's no question that some of our clients, many of our clients did pull-forward some of your inventory and anticipation of the tariffs. At the same point in time, I don't think, we've seen a little rise in inventory levels but it's still nothing that is deeply concerning. And we do think, that a lot of that business which was pulled-forward may still very well be on the West Coast.

So there's still a search that could occur with that. So our January was up 4%, in overall volume in Intermodal. So it was candidly, it was stronger than what we had originally budgeted. Part of that could be in type of pulled forward. But we do believe that winter new year, always had, we always have it -- it always has an impact but we really do believe that the first quarter and through the rest of the year that we'll have in the low to mid-single-digit volume growth.

Benjamin J. Hartford -- Robert W. Baird -- Analyst

Okay. That's great. Terri, if I could come back to your comment on the EBIT margin the 3.8% to 4.3% that's excluding amortization and restricted stock. I wanted to clarify that I guess in that context, when you guys have talked about 4% margins as a way point, you've had a healthy pricing environment this year, it seems like you're on that path. When you talked about 5% margins, as kind of a longer-term target. One is that including or excluding these charges? And two what's the pathway now forward to get to the 5%?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. It would be including the amortization because we're going to report that, as well as the GAAP numbers. And we think, we can get really get close to the 4%, not 4% -- this year. So we have another mid-to high single-digit pricing year, if they can't (ph) may corporate, if our competitors continue to have an orderly good season. We think, we'll be just that much closer to the 5% next year.

Donald G. Maltby -- President and Chief Operating Officer

Plus -- in the organization that we're going to gain through leveraging the network.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yes and the synergies that we'll get from CaseStack in terms of the procurement spend, as well as the cross-selling synergies that we've got.

Benjamin J. Hartford -- Robert W. Baird -- Analyst

Okay. May be related to that, Don you had mentioned the Oracle system specifically on logistics side. But -- maybe can you give us an update on that rollout more broadly? And what the cadence of -- maybe expenses coming out and saving starting to ramp-off in 2019 and longer-term?

Donald G. Maltby -- President and Chief Operating Officer

I'll let Terri talked about the numbers but as far as, where we are at now obviously we invested a lot of time in energy and getting our logistic solutions up and running. We'll have -- that completed in second quarter of this year and then we'll start transitioning some accounts that are in our old legacy system into Oracle.

While at the same time, over the past few years we've been working on the overall business. Fleet is now being worked on and rolled-out. And while, all the fleet on our Oracle system by the end of third quarter. And then we'll start working on -- we're working now our ERP system which will be up and end in the second quarter. So a lot of progress we've made, a lot of investment we've made, we're starting to see the effects of that in our business obviously on the logistics side first and now we're seeing it on fleet. Dave anything you want to add to that?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

No, no. I think, that's part of target (ph). And obviously some of the benefits of the new Oracle system is optimizing how we expect our drivers, improve visibility, makes our drivers jobs easier. So there's a lot of really positive aspects from this rollout that we've been working on from over the last 1.5 years.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

And the total spend for this year is around $65 million. That includes capital, as well as expense. And one of the other initiatives that we're working on is Oracle Pay for our drivers, which will enhance efficiency in the back office and improve the accuracy of the driver pay. And the drivers will have a lot better visibility to their pay details, make them happier improved retention.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

And -- the availability of our network right. So as we get further and further involved without getting into all the details, it's about how we can use the leverage of our assets, across all our business lines to make us more efficient.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah and to improve our profitability like Dave said, we (inaudible) the benefits for elevate suite that improves loaded miles, customer on-time performance, loads the driver per day, well, always been safe which internally leads to enhance profitability.

Benjamin J. Hartford -- Robert W. Baird -- Analyst

Okay. Great. And if I can get one quick follow-up. Terri you remember, again what's going to be upper threshold in terms of the leverage ratio that you guys are comfortable going to?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

We're comfortable going out to 3 times EBITDA but right now we're only at 0.8 times to 1 times so -- we're pretty.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

There's a fair amount of room.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. There you go.

Benjamin J. Hartford -- Robert W. Baird -- Analyst

It looks good. Thanks for the time.

Donald G. Maltby -- President and Chief Operating Officer

Thanks, Ben.

Operator

And our next question comes from Justin Long from Stephens.

Justin Long -- Stephens, Inc -- Analyst

Thanks and congrats on the quarter. So I wanted to circle back to PSR. Are you seeing any impact to your rail costs, as a result of PSR implementation? And maybe could you just comment on your level of visibility to rail costs this year. And if those rail costs increases look similar to what you saw last year?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yes. As far as the rail costs your second question we have clear visibility. We feel very comfortable, we'll be able to cover those with price increases and then some. So we have very clear visibility to us and feel very good about that and being able to go forward. As far as any impact on rail costs or costs in general for business that we're handling when in fact some aspects of PSR are implemented we've seen some minor costs as an example on some of the interchange lines.

And sort to see, wheeling freight we've had to cross-sell it by a rubber tire at the interchange points. There are some expenses associated with with that but it hasn't been too burdensome as of yet. UP did just announced their closing of the Las Vegas ramp. That will be some business probably lost because really no other way to get there. But in such a small market again I think -- that's again with as the UP and Norfolk Southern, now looking at the lanes and implementing PSR. I think they're saying that they're just on density. So thus far, no we've not had or minimal amount of rail cost increases they've all been very very manageable.

Justin Long -- Stephens, Inc -- Analyst

Okay that's helpful. And then maybe secondly this is probably one for Terri. I know you don't give specific quarterly guidance but can you help us think about the quarterly cadence of EPS, even if from high level, as we layer in CaseStack and think about seasonality? Just curious what you're baking into that 2019 guidance? And then also wanted to ask you about the incentive comp impact that you're expecting this year?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Sure yeah. Our comps are quite get tougher, as we progress throughout the year. And so we expect significantly more growth in earnings per share in the first half of the year, as opposed to the back half of the year. And if we were want to flag it, we guess maybe 40% to 50% growth in earnings per share in the first half of the year between 8% and 12% in the back half of the year.

Justin Long -- Stephens, Inc -- Analyst

Okay that's helpful. And incentive comps what's the year-over-year impact you're expecting?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

We're expecting it to be down about $10 million in total.

Justin Long -- Stephens, Inc -- Analyst

Okay. And lastly I wanted to ask about free cash flow. If I think, about the reduction in CapEx and the improvement in cash earnings it seems like it should be a really good year for free cash flow. But did you have an expectation on what that free cash flow number looks like? And maybe you'll get -- to get any color on working capital changes you anticipate this year?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. Our working capital should improve because with the divestiture of more broader our DSO up and our days payable up as well. So that should only helping working capital. And you're right, it should be a good year for cash flow generation. And I could tell you that in terms of EBITDA, we mentioned in my prepared remarks that it was $208 million for full-year this year. We would expect that EBITDA will be between $255 million and $270 million this year.

Justin Long -- Stephens, Inc -- Analyst

Okay. Very helpful. I appreciate the time.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thanks, Justin.

Donald G. Maltby -- President and Chief Operating Officer

Thanks, Justin.

Operator

And the next question comes from Todd Fowler with KeyBanc. Your line is open.

Todd C. Fowler -- KeyBanc Capital Markets -- Analyst

Great. Good afternoon. Dave I just wanted to circle back on the Intermodal pricing conversation. It seems like maybe there's is a little bit of misconception. I mean if Intermodal is still 20% to 25% below truck. If Intermodal pricing on a percentage basis goes up high single digits and truck was up mid-single. You really not closing the gap. I mean, so is that kind of the message on Intermodal pricings, it's don't be so focused on high single digits versus mid-single digits or something different for truck? Is that -- there still that gap in that value that somebody is getting with Intermodal and that's really where the pricing opportunity is going forward?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Todd you're right on target there and expressed that I think more eloquently than I did. But no, that is the fact that the gap is such that we're going to see, in-truck prices continue to increase. We may be higher by 200 basis points, 300 basis points, 400 basis points in pricing than over the road but it's still has a very large delta between the two costs. So that's right on target.

Todd C. Fowler -- KeyBanc Capital Markets -- Analyst

Well no that's helpful. And I think -- it's just been one of the things that people are trying to get their arms around as we move into 2019 because that's a different paradigm than what we've seen historically. But it seems to make sense when you think about just the gap between the two. So that's helpful. And then Terri, just following up on Justin's question about the guidance.

You gave us a lot of metrics, so we can back into a lot of things. But I guess just conceptually thinking about doing -- let's call it roughly $1 here in the fourth quarter. It sounds like there's still expectation, or even you got tough comps, you see some growth in the back half of the year. Is there something that makes it that -- you wouldn't seeing something may be stronger than what you guided to just given the run rate where you're coming off as in the fourth quarter was that 4Q was unusually strong because of some other pull forward, if you could quantify some of that that would be helpful. Are there other things that we need to be thinking about from a conservatism standpoint into '19?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. Well, pricing is a big lever for us and we've got a lot of pricing in the fourth quarter. And we hope next year in the fourth quarter, we'll get as much for some of our search capacity solution. So it's tight next year, as it is this year -- was this past I'm sorry, there is a lot more opportunity to have that growth be higher in the last half of the year. But, we don't want to assume that into our guidance. And then the other big factor is our competitors having an orderly wind season, so that continues like it is. That could be upside as well.

Todd C. Fowler -- KeyBanc Capital Markets -- Analyst

Okay and then I'll pass it along, but maybe just again Terri for clarification. I know that we did talk about this. It sounds like that the expectation is the analyst community should be modeling to a GAAP number, I mean that's what you would expect from your estimates. Even though, you'll be talking about a GAAP versus non-GAAP. And -- I'm asking just because I think it would be helpful, that everybody's doing something consistent. I don't, obviously we can model what we want to but it sounds like your going to reporting GAAP you're also going to be breaking out these costs and so from a consistency standpoint I'm just curious what your view is?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, because we got a report GAAP and because you're right everybody was kind of all over the board. We said -- we're going to report GAAP numbers because that's we have to do but we'll also give you the adjusted numbers which include the amortization and the compensation expense to get you more to a cash flow number.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Right, so you can have -- get a clear line of sight, because we know that some of our competitors do in fact, focus more on non-GAAP and so we wanted to just give you all the numbers so that you can see exactly how we're performing.

Todd C. Fowler -- KeyBanc Capital Markets -- Analyst

Yeah. That's helpful. And the EBITDA guidance is helpful -- as well, because that adjusts for a lot of that. So, OK. Thanks so much for the time everybody. Nice year (inaudible).

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thanks, Todd.

Donald G. Maltby -- President and Chief Operating Officer

Thanks, Todd.

Operator

And the next question comes from Brian Ossenbeck with JPMorgan. Your line is open.

Brian P. Ossenbeck -- JP Morgan Securities -- Analyst

Hi, good evening. Thanks for taking the questions. So Terri just to follow-up, that you're talking about the competition in the orderly wind season. We've seen some changes in your competitors over east to west, gear so, once got arbitration with a revenue sharing agreements the other one is put some new chassis, in place and improved margins and you even got a smaller one, it's little bit more competitive out east or West. So what's the expectation -- given all those changes. Do you still think it will be more of an orderly good season? Or do you expect the math little bit more competition or friction on the freight?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

We expected to be more orderly and --.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

And for (inaudible) thus far, it has been an orderly bid season. So we've seen nothing within the market, within the pricing environment that would lead us to believe anything other than that.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. That's what we've saw priced in the fourth quarter, it's running right now and we have that high single-digit pricing on that.

Donald G. Maltby -- President and Chief Operating Officer

And Brian, -- redo as an organization is try to sense what's going on in the market. Obviously as we do our bids and usually in December we're all sitting here and OK what are the competitors doing in today's point. It's orderly.

Brian P. Ossenbeck -- JP Morgan Securities -- Analyst

Okay. Thank you. On the drayage market I think, that's management pretty well continuing third-party exposure last year when the driver pull pretty tight. There is going to be PSR disruptions, as you mentioned some of the ramps-close, you've got maybe call a little bit further but is that an overall potential tailwind for this year, as the truck market starts to loosen up? Do you expect to see benefit on the dray side or was that's been (inaudible)?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Well, we're of course very focused on productivity enhancements with our drivers on reducing empty miles. And so we made some headway on that. I think, there's a lot more headroom there for us to continue to become more productive. If we look at it for -- we do still about 50% third-party driving. And they have -- they did last year go up in the high-single digits, from a price perspective. I think, that again we're working with them, we understand they have increased costs. We don't expect them to be going up as substantially as they did last year. And so, that will be somewhat of a tailwind for us.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yes we've got modeled in low to mid-single digits increases for the third-party dray cost.

Brian P. Ossenbeck -- JP Morgan Securities -- Analyst

Okay got it. And just one last housekeeping on CaseStack, those line been a couple of months since you closed the deal but is that still kind of I think, last you spoke was like $0. 40 to $0.45 accretion ex the items. Is that still where you expected to be in 2019?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Things haven't changed from we what we got, when we announced the deal.

Brian P. Ossenbeck -- JP Morgan Securities -- Analyst

Okay. Thanks for the time.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Okay, thank you.

Donald G. Maltby -- President and Chief Operating Officer

Thank you.

Operator

And the next question comes from Bascome Majors with Susquehanna. Your line is open.

Bascome Majors -- Susquehanna -- Analyst

Yeah. Thanks for taking my questions here. Going back to the beginning of last year, I think, the initial outlook for the year ended up coming in about 25% higher by the time that you're in. I mean, clearly last year was an exceptional year but what degree of upside kind of downside risk that you see the gap kind of $3.20-ish range that you're guiding now? And is that rail pricing, kind of what are the levers to get us lever below that if something moves from the way you budget your asset the day? Thanks.

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

So, we could have upside for rail service. Rail service impacts our volume, our utilization, our loaded miles, our customer service and our accessorials. So as Dave mentioned earlier, PSR could certainly help us to improve the reliability and consistency of the rail service. So we've assumed kind of flat utilization. If it's better than we think, than that is certainly upside. Downside risk would be for our truck brokerage margin and revenue growth, since we have headwinds related to customer mix and spot business that we intend to replace with committed business. And downside risk would also be an economic downturn. We don't anticipate that but we never know. And upside could be pricing being higher than we're projecting right now.

Bascome Majors -- Susquehanna -- Analyst

Okay. Can you talk a little bit more about the cadence, and you're seeing pretty construct on the first half of the year. Is there any way you could kind of help us quarter-to-quarter, just given the difference in magnitude between the first half and the second half, as far as earnings growth?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yes well, we are anticipating that we've got strong, tough comps gets tougher, because pricing got higher right as the year went along in 2018. And so as we're repricing the business that we priced in the first half of 2018 that's actually going to be at higher prices than perhaps we'll get later in the year as we reprise the business, later that with higher -- if that tough.

Bascome Majors -- Susquehanna -- Analyst

All right. Thank you.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thanks, Bascome.

Operator

And the next question comes from Diane Huang from Morgan Stanley. Your line is open.

Diane Huang -- Morgan Stanley -- Analyst

Hi, I think you touched on this briefly earlier but can you just expand on if you have seen any impact or spillover from your Western peers ongoing arbitration process?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

You're questioning if we're picking up additional business because of the arbitration issue with our competitor?

Diane Huang -- Morgan Stanley -- Analyst

Yes. And whether you kind of expect the dynamics to impact your pricing or volumes going forward?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yeah. I don't think, that we've seen any amount of business that has come over to us as a result of the arbitration. That was obviously that was something that was very public, and as much as actually taking place for well over a year probably 18 months. So we're really haven't seen any fall-out from it nor have we seen any direct benefits from it as well. You know, I think it just continues to reinforce just one of many items that I think that all of us that are in the Intermodal industry that we need to continue to focus, get an adequate ROIC in order to reinvest in our fiscal plan. So that we can offer our clients, so the proper services they expect.

Diane Huang -- Morgan Stanley -- Analyst

Okay. Great, thank you.

Operator

And the next question comes from Jason Seidl from Cowen and Company.

Adam Graf -- Cowen and Company -- Analyst

Hi guys. This is Adam Graf (ph), on for Jason. Just a quick one from me. I just maybe wanted to ask a little bit from a higher-level perspective about the integration of CaseStack. How was that been so far. I know, it's been about two months so far. So how was that being and maybe has the process of acquiring CaseStack changed your acquisition strategy or your approach to looking at potential acquisition targets in the future? Thanks.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Okay. I would say number one the integration is going extremely well. When we went into this we really were looking for headcount synergies things such as that. This was a value-added product that we felt as though has scale within their market and a unique niche that is something that we could capitalize on and help them to grow and prosper. And that's really what we've been focused on. We have found some cost synergies and as much as able to reduce some of their line hauls and back type of thing. But and again, I think, the most exciting thing which really it can take a little longer than just a couple of months is the sales synergies.

I think that we obviously have, relationships with significantly sized CPG customers that do in fact shift LTL at times into some of the very large retailers. So there's a lot of upside opportunity from a sales synergy perspective. So all-in-all, I would say that we feel very, very positive about it. As far as, how does it impact our future acquisitions? I would say to you that this one was the due diligence. It puts us into a different market which is exciting for us and while it's a different market, it's aligned to what our core is. So I think, that continuing to focus, if we look for acquisition opportunities such as this, is really what our playbook will be made of.

Donald G. Maltby -- President and Chief Operating Officer

If you think about it allows us to offer a full end-to-end solution and allows us to enter into a market that we couldn't do before.

Adam Graf -- Cowen and Company -- Analyst

Thanks.

Operator

And our next question comes from Tom Wadewitz from UBS. Your line is open.

Tom Wadewitz -- UBS -- Analyst

Yeah. Good afternoon. You -- really, began much on the brokerage side I'll offer one up on that. If Intermodal is performing so well taken all the attention can you I guess give a little more perspective on I don't know, if turnaround is a fair characterization but the improvement effort at brokerage kind of how long you think that takes to implement and maybe some more perspective on what specifically you're doing with some of the incentive changes?

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yes I mean, it's a business that we've been very proud of and -- we're very proud of on the results we've had over the years. And we had a three-legacy sores, if you think about it going to market but we really didn't act like a broker, right we acted like a carrier manager logistics manager. We did spot business and then we did special services which we're are very good at.

So we really took a look at ourselves internally and say what market share, we grow and it really is the contracted business. The ability to go-to-market by itself. And to do that we needed to reengineer the whole process. We needed to put process to it we need to put technology to it we need to put leadership to it.

And I would consider the fair would be underconstruction. We believe -- we made great strides especially in the last quarter. I think you'll start to see positive results and return on volume probably in the second half of the year and continue on our path, if market gets tight we have a transactional option that we can provide our customers. And of course the special services that we're very strong on. So when we look at every engineering this. We look at the ability to grow with our existing customer base that we're underpenetrated on top of the 100 customers that were underpenetrated on the brokerage business.

Tom Wadewitz -- UBS -- Analyst

So what's the target mix in the future. Do you try to go to more kind of conventional 50%-50%, spot contracts split or?

Donald G. Maltby -- President and Chief Operating Officer

60%-40'ish (ph) roughly. Yeah, 70%-30%. I see as being in that game still. It's just a matter of turning the volume up in the transactional side of the business, in the contraction side of the business. It's buying and selling, is what we are trying to do better.

Tom Wadewitz -- UBS -- Analyst

But so you're going to stay skewed toward contract at 70% and just executed more effectively I guess?

Donald G. Maltby -- President and Chief Operating Officer

It could be 65%, it depending on how we grow that business but we see upside in that right. So even though it's 65%, 70% now, there's an ability to really explode.

Tom Wadewitz -- UBS -- Analyst

Right OK. And then maybe a quick one on M&A side. You -- it sounds like things going well with CaseStack. I understand that you kind of opportunity on the sales cycle that takes some time. But what do you think about your capacity to do another deal in 2019, your level of interest? Or is that something you say, you've got enough on your plate that you look a little further out in terms of other deals?

Donald G. Maltby -- President and Chief Operating Officer

I would say that we certainly are looking, we're opportunistic. Our major goal for 2019, you're right on target, Tom is to make sure that we fully integrate and effectively integrate further integration with Dedicated and then also with CaseStack. So those certainly are job one, but at the same point we're not going to four goal something that would be strategically important to us. So we'll continue to be in the market. Geoff De Martino and his people will continue to be looking and will be opportunistic if something arises.

Tom Wadewitz -- UBS -- Analyst

Okay. Yeah. Great, that make sense. Thank you for the time and strong next results in the quarter.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thank you.

Operator

The next question comes from Matt Brooklier from Buckingham Research. Your line is open.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Yeah. Thanks and god evening. So couple of CaseStack incremental questions for you. Did you talk to how much revenue contribution we're going to get from CaseStack in 2019? And then also, I think, we talked to the continuing EPS accretion from CaseStack what's the GAAP number if you will?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

We don't break out GAAP, it's definitely for CaseStack. I can tell you that for 2019 we're projecting about $220 million to $230 million of logistics revenue associated with CaseStack. And for the truck brokerage we are estimating between $60 million and $65 million of revenue from CaseStack related to the LTL brokerage.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay, that's helpful, you guys have touched on it but you did talk to potential for sales synergies, potentially I think, for may be some cost synergies from CaseStack. I don't know, if you want to put a number to it but maybe walk through maybe some of the bigger buckets in both those categories and how those could play out over 2019, if you think you could add upside?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

We've got about $10 million of revenue baked in for cross-sell synergies in that guidance that I just mentioned and we've got some procurement side of the house savings and those are not as significant as the cross-selling.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

And some of the areas that for instance being able to substitute Intermodal for some of the truckloads they had into the some of the warehouses. I think, the whole thing is that -- it's going to be 100% on time. So it's going to be very focused, the on-time performance is critical. And so that kind of limits the amount of conversion we can do but at the same point in time there's still enough to make it very attractive and to add to the bottom-line.

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Okay. That's great. Appreciate the time.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thanks, Matt.

Operator

And our next question comes from Rick Paterson from Loop Capital. Your line is open.

Rick Paterson -- Loop Capital -- Analyst

Hi, thank you. My question is how do you think the rail roads handled the cultivate (ph), last week and specifically with regard to the Chicago terminals, other back rail, we're still looking through -- backlogs? Thanks.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Yes. I think the handled as well as could be expected. I mean, it certainly wasn't just the railroads. They certainly did have some slowdowns from the polar vortex but in -- handled, if we look at it the -- we probably have on the Wednesday and Thursday maybe 10% to 20% of our drivers out on the road. So the terminals can get congested with that. I thought the actions they've took made a lot of sense.

So that we didn't get gridlocked. And -- but I mean, the polar vortex, seasonally so much you can do. And we don't want to risk our people, our drivers our personnel during that kind of a period of time and that kind of deadly cold and nor with the railroads. So I thought, some of the ramp lockouts they had not lockout just not allowing the freights to coming in, they're going to Chicago, made a lot of sense and I thought they communicated to us very effectively.

Rick Paterson -- Loop Capital -- Analyst

All right. Thank you.

Operator

(Operator Instructions) And your next question comes from Scott Group from Wolfe research. Your line is open.

Scott Group -- Wolfe Research -- Analyst

Hey, guys. Thanks for the follow-up. So Terri, if I just took the 40% to 50% growth in the first half and like 10% in the back half like -- you get closer like 350-plus (ph) of earnings. So were you speaking to sort of adjusted numbers the amortization when you gave that 40% to 80% and 8% to 12%?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

No I was speaking to consolidate, and GAAP.

Scott Group -- Wolfe Research -- Analyst

Okay all right, maybe I don't know, maybe I'm doing the math wrong. But I think it gets to north of $3.10 to $3.30 guidance?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

I don't know -- if you have our continuing of numbers right, because we sell, since I'm just talking continuing which is old Hub segment, new Hub. And so I have for Q1 of 2018, our earnings per share was $0.33 in Q2 of 2018, our earnings per share is $0.51 and then we have $0.77 we reported in Q3 and $1. 01 that we reported in Q4.

Scott Group -- Wolfe Research -- Analyst

That's helpful and I think probably for everybody. And then the last just quick thing can you bridge us to the -- I think we did $90 million of OpEx in Q4 and bridge us to the $98-plus million for forward guide?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. Most of that change relates to the addition of CaseStack. We only had one month of CaseStack in the fourth quarter. And we'll have a full quarter and each of this in 2019. CaseStack's cost expenses are about $14 million to $15 million in a quarter so that's the biggest jump.

Scott Group -- Wolfe Research -- Analyst

And CaseStack revenue is in brokerage correct?

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Well part of it is in brokerage and part it's in logistics. So $50 million to $60 million is in brokerage fair estimate and $220 million to $230 million is in logistics.

Scott Group -- Wolfe Research -- Analyst

Okay. Perfect. Thank you guys appreciate it.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Thank you.

Donald G. Maltby -- President and Chief Operating Officer

Thanks, Scott.

Operator

And we have no further questions. I'll turn the call back over to David Yeager for final remarks.

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Great. Well thank you again for joining us for the earnings call. As always Terri, Don and I would be available if you do have any further questions or need any clarification. Thanks again for joining us. Have a good evening.

Operator

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect.

Duration: 60 minutes

Call participants:

David P. Yeager -- Chairman of the Board of Directors and Chief Executive Officer

Donald G. Maltby -- President and Chief Operating Officer

Terri Pizzuto -- Executive Vice President, Chief Financial Officer and Treasurer

Scott Group -- Wolfe Research -- Analyst

Kevin Sterling -- Seaport Global -- Analyst

Benjamin J. Hartford -- Robert W. Baird -- Analyst

Justin Long -- Stephens, Inc -- Analyst

Todd C. Fowler -- KeyBanc Capital Markets -- Analyst

Brian P. Ossenbeck -- JP Morgan Securities -- Analyst

Bascome Majors -- Susquehanna -- Analyst

Diane Huang -- Morgan Stanley -- Analyst

Adam Graf -- Cowen and Company -- Analyst

Tom Wadewitz -- UBS -- Analyst

Matthew Brooklier -- The Buckingham Research Group -- Analyst

Rick Paterson -- Loop Capital -- Analyst

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