J.B. Hunt Tallies Another Record Year But Shares Slide

J.B. Hunt Transport continues to set the bar high in the logistics sector despite caution from Wall Street about conflicting signs in the overall economy.

The Lowell-based logistics giant posted another record quarter to end 2013 reporting net earnings of $92 million, or 77 cents per share. Bottom line profits improved 9% from 70 cents a share pocketed a year ago, but the company narrowly missed Wall Street’s consensus estimate by two-cents per share.

Total operating revenue for the fourth quarter was $1.47 billion, up 9.7% from the year-ago period and inline with analysts expectations.

Shares of J.B. Hunt tumbled lower on Thursday (Jan. 23), trading down about 1.5% at $78.13 in the morning session as it followed the bearish coat tails of the broader market descent.

Operating income for the quarter increased to $153.5 million versus $143.3 million for the fourth quarter 2012. The increase primarily reflects higher revenue on greater load volumes and improved network balance in firm’s intermodal unit. These improvements were partially offset by increased costs paid to hire and retain drivers; higher workers’ compensation and accident costs; increased costs to third party carriers, fewer gains on equipment sales and lower truck utilization.

For the full year, J.B. Hunt posted total revenue of $5.584 billion, rising 10.4% from a year ago. Net earnings of $2.87 cents per share, or $342.3 million, increased 10.8% and 10.3% respectively from the prior fiscal year.

Wall Street is split on its sentiment for J.B. Hunt in 2014. Stephens Inc. ranks the logistics leader as “overweight” or favorable to buy, given a target price of $87 per share in the next 12 months. That said, Stephens recently trimmed its 2014 fiscal guidance for J.B. Hunt from $3.55 per share to $3.25. Wall Street consensus is $3.39 per share.

J.B. Hunt’s estimate for fiscal 2014 includes revenue growth of 11%, as the firm expects operating income to rise between some 13% to 15%, which analysts believe is a little aggressive.

“We think J. B. Hunt still has significant leverage to the cycle and has one of the most defensible and diversified business models in the transportation space. We remain comfortable recommending shares for long-term investors given the opportunity for an improved intermodal pricing environment and firm’s leverage to improving supply-demand dynamics,” Stephens analyst Brad Delco noted on Jan. 8.

John Larkin, an analyst with Stifel, ranks J.B. Hunt shares as neutral, a hold position based on softening rates and the additional interest expense J.B. Hunt will see as it finances $700 million in capital expenditures for fleet replacement and growth strategies in place.

“We continue to believe that shares of J.B. Hunt are slightly over-valued … we think the Street estimate will come down and our 12-month fair value estimate of $66 implies over 10% downside risk over the coming year,” Larkin noted in November.

Q4 SEGMENT HIGHLIGHTS
Intermodal transport continues to be the bread and butter for J.B. Hunt comprising two-thirds of the companies total revenue and 79% of the firm’s operating income. J.B. Hunt posted a 13% increase in its intermodal loads during quarter ending Dec. 31, which helped to drive an 11% rise in segment revenue to $915 million. This unit posted operating income of $121.5 million in the quarter, rising 17% from a year ago.

The company said its Eastern network loads increased 17% and transcontinental loads increased 11% compared to the same quarter in 2012. Despite the increased number of loads the revenue per load slid 1.3% from a year ago, most of which was linked to customer rate increases and volatile fuel prices. J.B. Hunt had ended the year with approximately 66,000 units of trailing capacity and approximately 4,100 power units in the dray fleet.

Dedicated Contract Services (DCS) segment revenue increased by 17% to $330 million in the fourth quarter. The increase in revenue resulted from 1,154 net additional revenue producing trucks, mostly due to converting customers’ private fleets, the company said. Productivity (revenue per truck per week) was virtually flat compared with the fourth quarter 2012 due to the higher percentage of customer provided equipment and customer paid fuel in this segment’ book of business. DCS operating income totaled $29.5 million, up 0.5% compared to the same quarter 2012.

J.B. Hunt’s Integrated Capacity Solutions (ICS) segment revenue increased by 13% to $145 million in quarter. This move up is linked to a higher load count and an increase in revenue per load. Revenue grew faster than volume primarily due to a change in freight mix driven by customer demand. That said the segment posted a 24% decline in its operating income for the quarter pocketing $3.5 million. Gross profit margin decreased to 12% in the current period from 14.1% last year. This is partially linked to higher third party carrier rates seen during the quarter.
Meanwhile the firm said it continues to expand this brokerage division, adding nine more branches and 11% more employees in the past year.

J.B Hunt’s laggard Truck (JBT) segment posted a 19% decline in revenue in the quarter primarily from an 11% reduction in fleet size compared to a year ago. The unit posted $91 million in total revenue in the quarter. The segment reported a 2.7% decreased in rates and 4.6% shorter average length of haul, when compared to a year ago. It’s important to note that the 2012 rates were favorably impacted because of added demand created from Hurricane Sandy relief efforts. At the end of the period, the trucking segment tractor count was 1,857 compared to 2,093 in the fourth quarter 2012, primarily from a reduction in independent contractor capacity.
The trucking unit incurred an operating loss of $1 million in the quarter compared to operating income of $5.2 million in the same quarter of 2012.

The previously announced personnel and leadership changes are expected to address and improve tractor utilization, maintenance and customer service issues that have impacted the profitability of JBT.

“We expect to demonstrate operational improvements throughout 2014, but significant financial improvements will become more apparent in 2015,” the firm noted in the release.

BY THE NUMBERS (Year-over-Year)
Gross Revenue
2013: $5.584 billion
2012: $5.054 billion

Net Income
2013: $343.382 million
2012: $310.354 million

Earnings-per-share
2013: $2.87
2012: $2.59

Total Assets
2013: $2.819 billion
2012: $2.464 billion

Net Capital Expenditures
2013: $442.5 million
2012: $369.6 million

Current Liabilities
2013: $712 million
2012: $502 million

Long Term Debt
2013: $458.4 million
2012: $585.3 million