J.B. Hunt rolls to higher profits

Analysts predicted a strong second quarter for Lowell-based J.B. Hunt Transport Services Inc. and the trucking giant delivered with $80.5 million, or 67 cents per share of net earnings.

Profits rallied 22% higher than a year ago which was on target with the consensus from 28 analysts who follow the company.

Revenue in the quarter totaled $1.26 billion, slightly below what analysts had projected but up 9% from a year ago.

Missing the revenue mark is pause for concern as it indicates weaker pricing fundamentals that help drive overall operating income among J.B. Hunt's diverse business model.

The earning results were released after the market close, but shares of J.B. Hunt traded lower at $58.33 on Monday in regular hours. In the aftermarket hours following the release, shares tumbled nearly 4% to $56.

In the three months ending June 30, J.B. Hunt overcame a slowing economy, higher driver turnover rates and weaker manufacturing numbers to return solid numbers. But given weaker overall economic conditions since then, analysts like Jason Seidl of Dahlman Rose & Co. say the back half of the year will have more challenges.

Seidl said higher driver turnover rates are likely to work in favor of Hunt’s conversion to more intermodal volume.  But he said  freight volumes across rail are growing more sluggish as the economy could sputter in anticipation of the general elections in November. He doesn’t see any impetus for an upturn in pricing in the coming months in the intermodal arena.

(Dahlman Rose & Company has not provided investment banking services for J.B. Hunt in the past 12 months. It intends to seek investment banking services during the three months following publication of this report. As a result, investors should be aware that the firm might have a conflict of interest in the future that could affect the objectivity of this report. Seidl has not received compensation from J.B. Hunt, but Dahlman Rose does make a market in the securities of J.B. Hunt Transport Services.)

GROWTH BY SEGMENT
Intermodal
Hunt reported load growth of 13% in its intermodal division. The intermodal segment which uses truck-to-rail comprised 61% of the company’s quarterly revenue, or $762 million. Revenue per load was flat at $2,148 amid a weaker pricing climate.

Hunt said in the release its Eastern network growth was 21% and transcontinental growth was 8% over the second quarter 2011.

Operating income increased 22% over prior year to end the quarter at $93.4 million. Hunt reported steady demand and lower office personnel costs were offset by increases in outsourced drayage costs, rail purchase transportation costs, fleet maintenance costs and driver wages. The period ended with 56,000 units of trailing capacity and 3,440 power units available to the dray fleet.

Dedicated Contract Services (DCS)
Dedicated Contract Services (DCS) segment revenue increased by 1% to $267 million in the quarter. Productivity (revenue per truck per week) decreased slightly compared to 2011. New accounts provided a net additional 235 revenue producing trucks by the end of the quarter, with the majority of the increase coming late in the quarter, the release stated.

Operating income increased by 21% from a year ago to $33.2 million. The company said income was compromised by higher safety costs, more toll road charges along with increased maintenance costs compared to 2011.

Trucking (JBT)
Trucking revenue for the current quarter fell to $126 million, down 3% from a year ago. Rates per mile, excluding a fuel surcharge increased 3.2%. Rates from consistent shippers improved 2.5% compared to the same quarter a year ago. At the end of the period, JBT operated 2,396 tractors compared to 2,508 last year.

Operating income increased 27% to $8.8 million compared to 2011. Favorable changes in freight mix, strong seasonal spot pricing, steadily declining fuel costs and improvements in fuel efficiency were partially offset by increases in driver wages, independent contractor costs, lower utilization and higher empty miles compared to second quarter 2011.

Integrated Capacity Solutions (ICS)
ICS revenue totaled $109 million, up 23% in the second quarter versus a year ago. The growth is primarily due to a 16% increase in load volume.

This brokerage division posted an operating income was $2 million down 25% from the same period in 2011.

The company said it’s gross margin contracted because of a tighter supply of qualified transportation providers and an expansion of two more brokerage branches that opened in the quarter.

ICS’s carrier base increased 13% and the employee count increased 7% compared to the second quarter 2011.

BALANCE SHEET
At June 30, J.B. Hunt had a total of $679 million outstanding on various debt instruments compared to $664 million a year ago.

Net capital expenditures for the six months ended June 30,  approximated $171 million compared to $211 million for the same period 2011.

The company had cash and equivalents totaling $5.9 million to end the quarter.