J.B. Hunt shifts talent, investment toward laggard division

Lowell-based J.B. Hunt Transport Services has morphed into a widely diversified logistics provider in recent years with calculated expansions in its intermodal division and substantial investments last year in the dedicated contract services division.

But as 2013 winds to a close, the transport giant announced management shifts and a $130 million investment to its laggard truckload division in 2014.

TALENT SHIFT

Hunt said last week that Shelley Simpson, chief marketing officer and president of Integrated Capacity Solutions, has been placed into a strategic leadership role of its truckload division as she maintains her current responsibilities.

Greg Breeden also was recently hired as the senior vice president of the division’s marketing and network operation. Breeden returns to J.B. Hunt after leading Crete Carrier Corporation’s national sales, marketing and customer service team for over 20 years. His responsibilities will include establishing network pricing, lane density and geographical customer network development.

Steve Rogers, vice president of operations, has transferred from the dedicated contract services business unit to assist in establishing the operational discipline necessary to turn the truckload unit into a consistently profitable business, according the recent company release.

Chief operating officer Craig Harper will focus his efforts on operational service levels across all business units, overall driver recruiting and retention, further developing the safety culture as well as remain responsible for fuel purchasing.

Analysts generally approve of this shift in management.

“The company is increasingly becoming a provider of logistics solutions for its customers. Shelly Simpson is driving the effort and is providing strong leadership in sales and marketing plus the integrated capacity solutions unit,” said John Larkin, analyst with Stifel Nicolaus. (Stifel conducts investment banking services with J.B.Hunt and is compensated accordingly for those services.)

Larkin said it makes sense for Simpson to lead Hunt’s “long suffering truck unit as some ICS customers prefer JB Hunt to provide its own truckload services as a component of integrated solutions."

“While the truck unit, at its reduced size, will never be all things to all people, it can be a valuable arrow in Simpson’s quiver as she and her teams work to continuously optimize the supply chains of the company's customers,” Larkin, who is neutral on these shares shares, noted in a email.

Ben Hearnsberger with Stephens Inc. noted in an email, “We like Shelley Simpson, the new head of the TL division and think she will do a good job.”


FUNDING GROWTH
Aside from the added talent, Hunt said the $130 million it plans to spend in its truckload division next year will be used to support what it believes will be a 2-year turnaround in this laggard division. The expenditure will “support our strategic vision while expecting to reduce operating costs’ throughout 2014 with more operational discipline," the company said.

Overall, J.B. Hunt has planned a robust capital expenditure plan for 2014 nearing $700 million which is a 15% increase in the firm’s annual interest expense. The company has earmarked $304 million in replacement cost expenditures, with a $100 million going to the truckload division this year. Another $33 million will be channeled into the truckload division to support its growth objectives which include a 100 basis point uptick in the division’s operating margins in 2014, while maintaining flat truck count, flat revenue per truck and a 10% improvement in utilization, according to the company’s 2014 outlook.

As of September 30, J.B.Hunt reported assets worth $161 million in its truckload division, shrinking from $185 million as the end of 2012. The other three divisions within Hunt each grew assets by an average 13% during the same period.

Hunt said it will dole out $65 million in intermodal container replacements and ante up $212 million to support the division’s growth to some 6,500 containers. This division is expected to see a 10% to 14% load growth in 2014.

The dedicated contract services division will get $139 million in replacement capital expenditures and $103 million to support the growth this division which is expected to range between 10% and 12% from new contract and its growing Final Mile services.

The integrated brokerage division continues its growth with 2014 expectations of an 18% to 20% revenue bump driven by 11 new branches and the hiring of 150 to 180 new people and will benefit from the $48 million the firms spends on technology and facilities in 2014.

TRUCKING TURNAROUND
J.B. Hunt’s recent focus to turnaround its laggard truckload division is an about face for the firm that has de-emphasized its legacy operation for past several years.

In the most recent quarter at the end of September the firm’s truckload business continued its retreat as revenues dropped 17% year-over-year and operating income fell 84% from the year-ago period. The unit contributed just 7% of the company’s overall revenue in the third quarter and just a meager 1% of the company’s operating income. Comparable pricing dropped 1.7% year over year while utilization dropped about 0.5% when measured in terms of total miles per average number of trucks in the fleet, according to Stifel Nicolas.

The empty mile percentage stood at 14.2% in the third quarter and the size of the fleet shrunk 18% from the year-ago period.

“One has to wonder if the company would shut down or sell off its underperforming truck division at some point, especially as integrated capacity solutions grows its capabilities to provide a broader range of comprehensive truckload services to customers,” Stifel analysts noted following the dismal quarter results on Oct. 15.

Stephens Inc. noted Oct. 15 that J.B. Hunt’s truckload division was facing several issues negatively impacting its revenue. Brad Delco, analyst with Stephens, said the truckload segment was suffering from two primary issues – it’s volumes were being cannibalized by the company’s intermodal segment, as well as significant costs related to driver recruitment and retention issues a soft rate environment.

“Looking ahead, we do not expect the current pressures facing truckload to abate and we have tempered our expectations for the segment. Our new full year revenue estimate of $397.5 million is now 17.8% below fiscal 2012 for this segment,” Delco notes. Stephens Inc. gives J.B. Hunt an “overweight” or “buy” ranking at this time.

However, Delco downsized the truckload segment’s earnings before interest and taxes estimates to $5 million for this year, shaving $6 million from the firm’s predictions prior to the third quarter results.

Shares of J.B. Hunt Transport Services rose nearly 1% by noon on Monday, (Dec. 23). The shares were trading at $77.18, up 74 on light volume. The stock is up 4.87% during this fourth quarter. For the past 52 weeks shares have ranged from $58.12 to $78.65.