J.B. Hunt first quarter profits up 2.6%, revenue misses consensus estimate

J.B. Hunt Transport Services saw first-quarter earnings rise 2% as load volume and contracts increased across its business segments. But income was affected by low customer rates as a result of competitive pricing and rising costs, including increased driver pay and purchased transportation and branch expansion projects.

In the quarter that ended March 31, earnings for the Lowell-based company were $102.70 million, or 92 cents per share, up from $100.09 million, or 88 cents per share. Revenue rose 6% to $1.62 billion. The carrier beat the Wall Street earnings estimate of 84 cents per share but missed the revenue estimate of $1.64 billion.

Excluding a one-time tax credit for research and development, the earnings report was “a little disappointing relative to expectations,” said transportation analyst Brad Delco of Stephens Inc. (Delco and Stephens provide investment banking services for J.B. Hunt and are compensated accordingly.) Without the $13.6 million tax benefit, earnings per share would have been 80 cents, which was 2 cents below Delco’s expectations.

By segment, intermodal and Integrated Capacity Solutions, the carrier’s brokerage business, both missed earnings estimates by 2 cents per share, but Dedicated Contract Services, which is built on long-term contracts, beat estimates by 1 cent, Delco said.

“Net net, we believe results demonstrated underwhelming freight fundaments and a competitive (trucking) and (intermodal) pricing environment witnessed (year to date),” according to a research bulletin by Delco and analyst Justin Long.

Across all segments, operating income fell 11%, according to transportation analyst John Larkin of Stifel. (Larkin and Stifel offer investment banking services for J.B. Hunt and are compensated accordingly.) Also across all segments, operating margins declined.

SEGMENT NUMBERS
Intermodal revenue rose 4% to $937.11 million, from $895.20 million. The segment’s operating income fell 7% to 95.26 million, from $103.12 million. Intermodal accounted for 57% of revenue and 64% of operating income.

Intermodal load growth rose 2% as transcontinental loads rose 7% and its eastern network declined 6%. In the eastern network, competitive trucking prices from the 2016 bid season have carried over into 2017, pressuring intermodal rates.

“Operating margins declined 130 basis points to 10.2% the positive impact associated with modest volume gains was more than offset by weak pricing, higher purchased transportation expense due to price increases implemented by railroads, reduced network utilization and drayage efficiency in the East, higher equipment ownership posts, increased driver pay, higher driver recruiting costs, along with increased insurance and claims expense,” according to Larkin.

The number of intermodal containers increased 7% to 85,200 units, and the number of tractors rose 2% to 5,170.

For DCS, revenue increased 9% to $392.46 million, from $358.37 million. Operating income was flat at $44.75 million. Revenue per truck per week was up 6%. Productivity rose “from improved integration of assets between customer accounts and customer rate increases,” according to J.B. Hunt. This was offset by a “more impactful winter weather season compared to 2016.”

This segment was “the steadiest performer in the quarter,” according to Larkin. The number of trucks rose 3% to 7,438. “The increase in truck count mostly related to the new business which was derived primarily from private fleet conversions.”

In brokerage, revenue increased 14% to $209.41 million, from $183.16 million. Operating income declined 58% to $4.46 million, from $10.79 million. Load volume increased 36%, but revenue per load declined 16%, because of “freight mix changes driven by customer demand,” according to the company. “Spot volumes increased 22%, primarily in the fledgling flatbed and temperature controlled services, and contractual business load counts increased 42% from a year ago.”

The number of employees in brokerage rose 27%, and the number of company branches increased 20%, according to Larkin.

The trucking segment saw revenue fall 2% to $93.68 million, from $96.05 million. Operating income decreased 46% to $4.94 million, from $9.17 million. Revenue per load declined 7% while load volume rose 1%. The revenue per load fell because the length of haul fell 6% and rates per loaded mile declined 1%. Also, contract rates decreased 1.5%.

“Operating margin dropped from 9.6% to 5.3% (year-over-year) as operating income swooned 46% (year-over-year),” according to Larkin. “The big culprits weighing on margins in the quarter were lower rates paid by customers (year-over-year), higher maintenance cost on rolling stock (year-over-year) and higher insurance and claims costs (year-over-year).”

Shares of J.B. Hunt (NASDAQ: JBHT) closed Monday at $89.11, down 3 cents. In the past 52 weeks, the stock has traded between $102.38 and $75.71.