Morningstar Approves of J.B. Hunt Transport Moves (Touchpoints by Andrew Jensen)

J.B. Hunt Transport Services Inc. posted a 15.6 percent decline in profit during the first quarter of 2008, but analyst Morningstar sees a silver lining for the Lowell-based company.

“We remain optimistic about J.B. Hunt’s long-term prospects,” analyst Anthony Dayrit wrote in a report issued April 14, a day after JBHT reported earnings of $30.7 million in the first quarter, down from $36.4 million in the year-ago period.

Despite the drop in revenue, caused by both decline in volume and reduced fuel surcharges, JBHT beat analyst earnings expectations of 22 cents per share, posting 24 cents per share income compared to 28 cents in 1Q 2008.

Shares in JBHT closed at $27.09 on April 15, up nearly 50 percent since hitting a 52-week low of $18.14 on March 6.

Morningstar noted that JBHT is effectively diversifying by continuing to build its intermodal segment while reducing its truck fleet. The company reported its fleet of 3,109 tractors is down almost 45 percent from 2002 levels and a reduction of 948 from 1Q 2008.

JBHT has dramatically lowered its debt load in the last year. Its earning release reported that it held $629 million in various debt instruments, down 27.2 percent year-over-year.

“We think this strategy should help J.B. Hunt reduce its dependence on a business with high operating leverage,” Dayrit wrote.

The Business Journal first reported on March 9 that JBHT has taken other cost-cutting measures such as suspending its 401(k) match, vacation carryover and annual pay increases.

Net capital expenditures for Hunt declined by $5 million to $55 million for the first quarter.

While Hunt’s trucking revenue was down 45 percent year-over-year in the first quarter, posting a segment loss of $5.8 million, intermodal revenue declined by just 10 percent to $391 million.

CEO Kirk Thompson noted that JBHT is reaping the rewards of its diversification strategy now years into its execution.

“Our two biggest segments, intermodal and [dedicated contract services], which make up 79 percent of our total revenues, continue to differentiate us from other generic transportation offerings,” Thompson said. “Despite a weak economy and lower demand, both intermodal and DCS have shown great resilience in profitability in the face of serious negative macroeconomic conditions.”

DCS segment income was down only 5 percent and its revenue was down 13 percent excluding the decline in fuel surcharges.

Hunt is also aggressively growing its brokerage segment, or integrated capacity solutions.

ICS posted an 111 percent increase in operating income and a 51 percent increase in revenue. The $4.1 million income represented 13.3 percent of Hunt’s profit in the first quarter despite ICS revenue representing just 7.7 percent of its total of $723 million.

“ICS enables us to bring the substantial resources of our company into markets that previously did not fit our network,” Thompson said.

While many companies in the transportation sector are laying off employees, Hunt reported growing its ICS workforce by 119 percent in the last year.

“The extension beyond traditional trucking should help the firm weather this near-term storm of weak demand better than most,” according to Morningstar’s Dayrit. “Although headwinds will persist in the near term, this trucker should emerge from the downturn better positioned than its peers.”