J.B. Hunt Sees Stable Ride In Third Quarter

Lowell-based J.B. Hunt Transport Services posted strong returns in the recent quarter ending Sept. 30, but once again narrowly missed Wall Street expectations behind higher than expected operating costs.

J.B. Hunt’s net income rose 14% to $89.47 million in the third quarter. On a per-share basis that equates to 75 cents, compared to 65 cents per share earned a year ago, falling short of the 78-cent average consensus from two dozen analysts that regularly follow the company.

Total revenue rose to $1.435 billion, up 10.8% and inline with expectations for the third quarter period.

Operating income rose to $151 million in the quarter, up from $133 million a year ago. This improvement stemmed from load growth and higher intermodal box returns, while freight mix was partially offset by increases in driver recruiting costs, higher rates paid to third party carriers for dray, brokerage and truckload services, rising driver mileage pay and equipment costs, the company noted in the release.

J.B. Hunt shares were trading higher in the morning session following this morning’s release (Oct. 15). The stock price rose to $73.92, up 1.05%.

Ken Hoexter, analyst with Bank of America, last week upgraded J.B. Hunt Transport shares to a buy position and reiterated his target price of $81. J.B. Hunt shares have been somewhat sluggish in recent months amid concerns of rising costs, but Hoexter said this has given would-be investors a decent entry point given the firm’s bright long-term prospects. Hoexter was not deterred by the near-term weakness in the company’s dedicated contract and trucking divisions as he believes these to be a temporary overhang on the stock.

Likewise, Stephens Inc. analysts see ample long-term potential for the J.B. Hunt shares with a target price of $84 and an overweight or buy recommendation on the stock.

INTERMODAL
The intermodal – truck to rail – division of J.B. Hunt continues to be the catalyst for strong earnings again this quarter. Hunt’s intermodal segment posted revenue of $890 million in the third quarter, up 12% from a year ago.
 Operating income totaled $118 million, rising 21%, year-over-year.

Overall volumes and revenue each increased 11.6 % over the same period in 2012 in an environment of moderating fuel prices and less seasonally volatile freight demand, the company noted.

Eastern network growth was 14% and transcontinental growth was 10.2% over the third quarter 2012. The period ended with 64,000 units of trailing capacity and 4,050 power units available to the dray fleet, according to Hunt.

DEDICATED CONTRACT SERVICES
Hunt’s DCS division posted $319 million in revenue for the quarter, up 17% from a year ago.

Productivity (revenue per truck per week) decreased by approximately 3% compared to 2012 due to the higher percentage of customer provided equipment and customer paid fuel primarily with respect to new large private fleet conversions.

These conversions are complete, but dinged the company expenses some $2.5 million in the quarter. A portion of this increased cost is expected to be ongoing until the fleets for these new accounts are operating in the manner in which they were designed with the customer.

New accounts provided a net additional 972 revenue producing trucks by the end of the quarter compared to prior year.

Operating income increased by 14% from a year ago, primarily due to the increase in revenue from new accounts and partially offset by higher recruiting, relocation and personnel retention costs mostly within the new fleet conversions; higher purchased transportation costs and toll expenses, also mostly within the new fleet conversions; increased bad debt expense and increased equipment costs.

INTEGRATED CAPACITY SOLUTIONS
Hunt’s non-asset based brokerage division posted segment revenue of $137 million in the quarter, up 13% form a year ago.

The ICS segment benefited from a 4% increases in load volume and higher revenue per load. But operating income fell 48% over the same period 2012, primarily due to declining gross profit margins and increased personnel cost.

Gross profit margin decreased to 10.4% in the quarter related to higher rates paid to qualified third party carriers. Personnel costs increased from the comparable period a year ago as we continue to on-board and train staff in order to expand our branch network over the next two years. Total branches at the end of the quarter grew to 22. ICS’s carrier base increased 8% and the employee count increased 14.5% compared to the third quarter 2012.

TRUCK LOSSES
Hunt’s truckload division posted revenue of $96.8 million in the quarter, down 17% from a year ago as the firm moves more freight to intermodal.

Third quarter operating income tumbled 84% to $648,000 as the segment reduced its fleet size by 18% and also ran 6% shorter routes which hindered revenue.

Hunt reports rates from consistent shippers decreased 1.7% from a year ago. At the end of the quarter the segment had 1,951 tractors, down from 2,381 a year ago.

LOOK AHEAD
Analysts with Baird Equity Research predict a modest but more “normal” 2013 peak season, particularly compared to the weak peak season last year seen across the industry.

But analysts said a compressed retail sales environment in 2013 given six fewer selling days between Thanksgiving and Christmas is likely contributing to relative optimism concerning fourth quarter volumes among TruckLoad carriers.

Intermodal outlook regarding the duration of peak season is mixed, though most firms anticipate a positive but muted peak demand environment, according to Baird.

Executives with J.B. Hunt gave no future guidance in this earnings report.