Passing on Mullen Group and the Industry…

Mullen Group is a leading logistics company providing a host of trucking and logistics services in Canada. In addition, the company provides specialized services related to the energy, mining, forestry and construction industries in western Canada.

Mullen Group conducts its business through the operations of 34 business units. The company’s new operating segments are Less-Than-Truckload, Logistics & Warehousing and Specialized & Industrial. Earlier the company had two reporting segments – Trucking/ Logistics (~70% of revenue) and Oilfield Services (~30%). The LTL segment has eight business units, 11 service centres, more than 75 terminals, and over 5000 points of service. Mullen’s corporate office in addition to its subsidiary MT Investments owns a network of real estate holdings that are leased to its business units. It runs an extensive terminal network for the pickup, handling and delivery of a wide range of freight. Mullen Group’s operations are supported by a fully integrated transport management system, customized inventory management, and warehouse systems along with its proprietary Moveitonline and Haulistic technology platforms.

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Investment Data

Revenue Growth & Market Exposure

Mullen Group provides a wide range of service offerings including less-than-truckload, truckload, warehousing, logistics, transload, oversized and specialized hauling transportation. It owns a network of independently operated businesses. Transportation service accounts for nearly 75% of total revenues and logistics service accounts for more than 10%. Mullen’s businesses are diversified and have an adaptive and variable cost structure.

Mullen Group caters to customers in the US and Canada. It also serves Canada’s natural resources and infrastructure sectors. The company continues to invest in advanced technologies targeted towards shortening delivery times and providing customers more visibility for their shipments in transit. The company is known for its temperature-controlled delivery services, leading-edge technology, and extensive terminal network. As one of Canada’s premier logistics and warehousing companies in North America, Mullen Group operates nine business units and integrated technology platforms. It provides specialized services to the oil and gas industry, environmental, construction, pipeline, utility, telecom, and civil industries.

Q2 revenues declined by 19% YoY, with declines in each of Mullen’s operating segments. Canada’s oil and natural gas industry has also remained slow. The company witnessed a slowdown in demand for its services, though its services were deemed to be essential by the government. Mullen was forced to downsize its operation and employee headcount in the wake of the disruption caused by the pandemic in the first quarter of FY 2020. E-commerce shipments increased during the second quarter. As such its LTL and warehousing business performed relatively better. Mullen has reinstated its objective to grow through strategic acquisitions, supported by its strong cash position and balance sheet.

Dividends

Mullen Group has a dividend yield of 3.8% and a payout ratio of 67%. The company had temporarily suspended its dividend plan in the first quarter of FY 2020. It has now reinstated a dividend of $0.03 per share on a monthly basis. Its dividend CAGR stood at 2.3% in the last decade. Revenues and EPS grew by more than 7% and 9% CAGR, respectively in the last three years. Mullen Group has distributed over $1.2 billion in cash dividends since going public in 1993. It repurchased more than 5 million common shares during the last quarter.

The company ended the quarter with $112 million of cash equivalents and $150 million of unused credit facility. Mullen Group has been deploying capital to facilitate internal growth as well as acquisitions. The company has acquired four businesses in the LTL segment and two in oilfield services in the last three years.

Mullen’s revenues are diversified between oilfield services and trucking which have both taken a beating recently owing to the slowdown in Canadian oil and gas industry and pandemic-induced lockdowns. Most of Mullen Group’s contracts are based on fixed prices and do not include post-service obligations, which makes its earnings quite predictable and safe. Moreover, its top ten customers are well-known companies further adding to the visibility and security of cash flows. Additionally, Mullen’s specialty business units are focused on providing advanced technology solutions and leading edge service capabilities.

Competition

Mullen Group operates in a highly competitive industry. The company’s competitors include both small local and regional businesses as well as large international companies. It competes with other logistics and brokerage companies. The company is also highly susceptible to macroeconomic and geopolitical risks. However, large capital, specialized equipment and skilled labour requirements, and safety and information systems act as strong entry barriers.

Bottom Line

The coronavirus situation has impacted the overall supply chain and economic activities. The trucking industry is a significant contributor to the Canadian economy and is growing as a dominant mode of commercial transport and Mullen Group is well-positioned to gain from an evolving supply chain. Over the long term, the company should benefit from its strong brands in warehousing and transload business and technology investments in the changing supply chain scenario.