After establishing Mullen Group as an undervalued stock and covering its flagship less-than-truckload segment in part 1, it’s time to shed light on the company’s second-largest segment by size – logistics and warehousing – which represented approximately 30 per cent of revenue as of September 2024 and stands as a key player in the trillion-dollar North American logistics market.
Mullen Group’s Logistics & Warehousing segment’s 11 business units (L&W segment), operated by approximately 1,682 employees and 561 owner-operators and sub-contractors, offer a diverse set of transportation and logistics services across North America. Through a diverse network of 62 strategically located freight terminals and transload facilities, the business units in the L&W segment provide the safe and reliable movement of freight through multimode transportation services. Service offerings include specialized transportation, warehousing (2.2 million square feet), e-commerce fulfillment centres, transload, intermodal and full truckload, each of which is playing a key role in positioning the division to grow market share. We see this in the division’s superior financial performance, as highlighted by:
- Revenue growth of 56 per cent from C$362 million in 2020 to C$564.9 million in 2023, followed by 5.2 per cent growth through the first three quarters of 2024.
- Operating income before depreciation and amortization (OIBDA) growth of 56.4 per cent from C$71.6 million in 2020 to C$112 million in 2023 (19.8 per cent margin), followed by a solid showing of C$86.7 million during the first three quarters of 2024.
- Capital expenditures as a percentage of revenue as low as 1.5 per cent and no higher than 3.4 per cent since 2020.
The L&W segment’s growth trajectory is supported by a series of differentiating factors that make the division a premier logistics and warehousing service provider in its industry. Among them are:
- A well-structured customer base backed by strong brands, with the division’s top 10 customers in 2023 being well-known businesses, accounting for only 27.2 per cent of revenue for the year with no one business surpassing 10 per cent of Mullen Group’s total consolidated revenue.
- Advanced operations and customer service technology platforms, including a fully integrated transportation management system, customized inventory management and warehouse systems, and Mullen’s proprietary Haulistic commercial freight platform and Moveitonline marketplace for shippers and carriers.
- A strategic real estate portfolio which includes transload facilities.
- The execution of numerous strategic and precision-based acquisitions.
When we add Mullen’s dedicated and loyal management team to the mix, not to mention its multi-generational track record of value- and culture-accretive acquisitions, it isn’t hard to see why the company believes its L&W segment is a sustainable business with a competitive advantage in the North American market, or why Mullen Group stock represents high-quality exposure to leverage the up to 6.3 per cent compound annual growth rate the North American logistics market will enjoy through 2032, driven primarily by e-commerce and new technology, according to a report by Transportation and Logistics International.
Mullen Group’s history of robust net income and free cash flow generation, averaging more than C$100 million annually over the past five and ten years, respectively, equips it to pick up complementary logistics and warehousing companies when strategic and accretive opportunities arise. Outlined below are some of the standout brands under the L&W segment:
- Mullen Trucking was part of Mullen Group’s founding operations and has over 75 years’ experience. Mullen Trucking provides services such as heavy haul, dedicated fleet and van, logistics, cross-border mixed load and truckload services throughout Canada and the continental United States, transporting a wide variety of freight, commodities and equipment for the consumer-driven, energy and mining sectors.
- Winnipeg-based Kleysen Group was founded in 1935 and acquired by Mullen Group in 2006. Kleysen Group is a diversified transportation and logistics company active across Canada that differentiates itself through industry expertise, significant rail capabilities and substantial storage-handling capacity, allowing it to offer some of the most cost-efficient solutions in the industry. Outlined below are the various divisions of the Kleysen Group:
- Its bulk division provides end-dump containers, side dumps and pneumatic tanks for storing, handling and transporting cement, gravel, aggregate, fly ash, grains and fertilizers.
- Its industrial products division distributes and markets road salt throughout Western Canada and the tailings portion of a potash plant in Saskatchewan.
- Its intermodal division moves goods domestically and into the United States.
- Its distribution services division tracks goods from origin to destination and maintains a strong presence in Western Canada’s energy and construction markets.
- Bandstra Transportation Systems was founded in 1955 in Smithers, British Columbia, and acquired by Mullen in 2021. Bandstra serves the transportation and logistics needs of communities in the Greater Vancouver Area, as well as Northern British Columbia, spanning truckload, general freight, less-than-truckload, container drayage and transload, and specialized hauling services. The company’s nearly 400 employees are dedicated to “performing as an extension of their customers’ operations,” as stated on its official website, earning it a long-standing reputation for high standards of service.
- ContainerWorld was founded in 1993 and is the most recently acquired company in Mullen Group’s L&W segment, being acquired on May 1, 2024. ContainerWorld offers integrated supply chain solutions to the alcoholic beverage and hospitality industries. Through a network of customs and sufferance bonded warehouses, the company provides inventory management, freight forwarding, warehousing and distribution services to international and domestic customers in British Columbia.
- Payne Transportation was founded in Winnipeg in 2000 and acquired by Mullen in 2005. Payne Transportation’s service offerings include truckload and mixed-shipment general freight to all Canadian provinces and territories, in addition to 49 U.S. states including Alaska, with a focus on the agriculture, construction, mining, and oil and natural gas industries. Payne offers a robust suite of specialized commodity services, as well as wire and cable services, in addition to more traditional transportation logistics solutions.
Mullen Group’s logistics and warehousing division is further fortified by six other business units:
Mullen Group’s L&W segment has distinguished itself as a major North American player and a large driver behind the company’s profitability thanks to the disciplined nature of its acquisitions and the cost control initiatives by its existing business units. Each business unit’s dedication to providing excellent customer service and their people-centric culture have positioned the segment for further growth through strategic acquisitions and greater efficiencies, supported by an increasingly asset-light and technology-centric business model.
However, with Mullen Group’s less-than-truckload segment and L&W segment accounting for 67 per cent of total revenue between them, the full story of the company’s value-creation capabilities remains to be told.
Watch out for part 3: Specialized & Industrial Services and U.S. & International Logistics over the coming weeks for a look into Mullen’s third- and fourth-largest but no less essential segments and how they’re poised to benefit shareholders over the long term.
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(Top photo of a Mullen Trucking CNG truck: Mullen Trucking)