J.B. Hunt sees profits but misses expectations

Setting the bar high for the industry to follow is nothing new for J.B. Hunt Transport Services. However; the Lowell-based transport company fell short of that bar in the first quarter of this year, its first misstep in 12 quarters.

J.B. Hunt posted net income of $73.3 million during the first quarter, up from $67.7 million during the 2012 quarter. Bottom line profits rose 8.29% from a year ago.

However, the per share earnings of 61 cents, missed the consensus estimate of 64 cents as predicted by industry analysts. Earnings were dinged because of higher than anticipated operating costs in two of the company’s four segments.

Total revenue for the quarter was $1.29 billion, ahead of the $1.165 billion posted in the 2012 period and this number did line up with Wall Street predictions.

The company contributed its revenue growth to several factors such as a 13% load boost in its Intermodal segment, expansion in its Integrated Capacity Solutions segment as well as a 9% increase in operating revenue from its Dedicated Contract Services division.

Operating income for the quarter totaled $125 million versus $117 million a year ago. Improvements in freight mix and high load volume were offset by investments in equipment, higher claims costs and reduced profitability in the company’s truckload segment.

INTERMODAL
Segment revenue rose 15% to $796 million, in the quarter and was bolstered by steady demand which resulted in 13% more loads over the prior year. The load growth was related to tighter trucking capacity led to double-digit increases in the company’s Eastern network and transcontinental business.

Operating income rose 22% to $96.8 million from a year ago. 

Industrywide during the first quarter of this year intermodal traffic rose 5.3% from the same period a year ago and March was a record high, according to Transport Topics.

DEDICATED CONTRACT SERVICES

DCS revenue increased 9% during the quarter to total $279 million. The division was able to increase productivity as 633 new revenue producing trucks were added to this fleet over the same period in 2012.

Adding all that equipment dented the segment’s operating income which decreased by 22% from a year ago. Operating income totaled $21.9 million in the first quarter.
The segment also incurred less profits on equipment sales and took a hit from increased bad debt expenses.

While new customer accounts increased in the quarter, the company also spent about $1.7 million in implementation costs associated with hiring personnel, relocation, equipment repositioning and other infrastructure costs. These exceptionally large private fleet conversions will take approximately 6 to 8 months to fully implement. Additional implementation costs expected to be expensed in the coming periods are estimated to be $2.5 million, the company noted in its release.

INTEGRATED CAPACITY SOLUTIONS

ICS revenue totaled $122 million, up 26% compared to the first quarter 2012. Volumes grew faster than revenue due to a change in freight mix driven by customer demand.

Operating income increased 27% to $5.2 million in the year-over-year period. The gain is a result of improved overhead cost controls and load increases. 

The company also mentioned a competitive brokerage environment and tighter supply of carriers which led to a slight dip in gross profit margins for the segment.

ICS’s carrier base increased 9% and the segment employee count increased 16% compared to first quarter 2012, the company said.

TRUCK LOAD

The truck segment revenue totaled $102 million in the quarter, down 21% compared to the same quarter 2012. This relates to a 21% reduction in fleet size and lower utilization per truck.

Rate per loaded mile, excluding fuel surcharges, increased 3.8% over the same period last year but on a 9.8% shorter length of haul.

Rates from consistent shippers improved 0.5% year-over-year. At the end of the quarter, the segment’s tractor count was 2,011 compared to 2,561 in first quarter 2012.

Operating income of $1.1 million for the quarter decreased 78% compared to the same period of 2012.

FINANCIAL GLANCE
J.B.Hunt reports net capital expenditures of $115 million, up from $84 million a year ago as it invests in its fleet and expansion of services to its growing customer base.

The company had cash of $5.7 million on hand at the end of the quarter, with solid balance sheet performance according to analysts.

In late February, J.B. Hunt was upgraded to outperform from market perform by Avondale Partners on improving intermodal volumes and pricing. The firm raised its price target on Hunt's shares to 80 from 60.

Some analysts, like Michael Baudendistel at Stifel Nicolaus, said prior to Thursday’s report that shares were overvalued.

“Our fair value estimate does not provide any upside relative to the share’s most recent trading price. Therefore we are hard pressed to justify a ‘Buy’ rating on the company’s common shares”

“Aside from valuation, we are favorably disposed towards the company as its intermodal franchise is the clear industry leader and its dedicated franchise is among the industry leaders. We view the truck and ICS businesses as complimentary to the other two. Should the company’s common shares trade down to $50, we would be inclined to revisit our rating,” Baudendistal notes.”

Shares of J.B. Hunt rallied to a new 52-week high – $76.36 – set in after hour trading on the Wednesday (April 10). That rally was in anticipation of another stellar quarter report. But, following the earnings release after hours today (April 11) shares slid nearly 3% in the $72 range within a few minutes of the public release.

Investors have been along for quite a joy ride as J.B. Hunt’s share price rose 25% since the start of the year. Shares closed Thursday’s regular session at $74.22, down 65 cents.