J.B. Hunt Transport profits rise, but revenue misses expectations (Updated)

Net profits at Lowell-based J.B. Hunt Transport Services rose 34% to $91.932 million for the first quarter of 2015 that ended March 31. The first quarter net income compared to $68.664 million earned in the year-ago period. 

On a per-share basis, J.B. Hunt posted net earnings of 78 cents, which exceeded Wall Street analysts expectation of 72 cents for the period and fueled shares higher in active trading Tuesday (April 14) at the opening bell. Shares (NASDAQ: JBHT) rose more than 4.6% higher pushing through the $90 threshold to close at $91.82, up $4.09% in an active day of trading. Over the past 12 months shares are up 27%.

In its release on Tuesday, the Lowell-based logistics giant cited strong gains in the number of loads hauled across its diversified transport system, but said lower revenue per load and a 5% jump in interest costs amid higher debt levels curbed revenue gains. The lower revenue narrowly missed Wall Street’s consensus estimate. Consolidated revenue increased 2.4% to $1.44 billion in the quarter, but fell short of the $1.54 billion analysts predicted.

Operating revenue and net profits were pushed higher by a 6% load growth in the Intermodal segment, and revenue hikes of 7% in the Dedicated Contract Services segment from rate increases. The Integrated Capacity Solutions segment posted a 17% load growth over a year ago, while Truckload segment revenue slid 1% on lower revenue per tractor rates.

J.B. Hunt reports operating income of $155 million for the quarter was up from $117 million in the same period last year. The company cites financial gains on the ability to raise customer rates in some divisions, savings realized from lower fuel costs and a more effective use of third-party carriers. However, the company said profits and revenue were hurt by driver wage hikes, higher levels of equipment depreciation as well as added toll expenses and increased storage costs across all of its segments.

Looking ahead, logistics analysts expect 2015 to be a good year for the transports amid tighter capacity restraints, decent demand from retail and manufacturing gains on the backs of lower fuel costs propelling consumer confidence. Analysts with Little Rock-based Stephens Inc. rate J.B. Hunt shares a “buy” citing that the diversified logistics platform gives Hunt ample opportunity to grew sales, particularly in the back half of this year. 

“As a result of a strong intermodal pricing data points that we expect to see play out in fiscal 2015, we are overweight on JBHT shares,” noted Brad Delco, analyst with Stephens Inc. (Stephens conducts investment banking services with J.B. Hunt and is compensated accordingly.) 

Delco said his team was "impressed by intermodal rates which we believe are running mid-single digits given mix impact and volumes given the West Coast ports lockout and toughening weather conditions in the quarter. Additionally, we were encouraged by results in the Truckload segment."

Stephens raised its target price to $100, as Hunt's shares rolled past the $90 target price set ahead of the solid earnings.

SEGMENT PERFORMANCE
• Intermodal (JBI) — 59% of total revenue
1Q Revenue: $844 million, up 1%
1Q Operating income: $104.3 million, up 12%

J.B. Hunt officials said overall load volumes rose 6% from the year-ago period with the Eastern network seeing a 12% gain in loads from the same time last year. Transcontinental loads rose just 2% as the carrier cited West Coast port issues limiting its eastbound intermodal traffic in the period. The carrier said revenue per load in this segment declined 5% which is the combination of lower fuel surcharges and freight mix. 

At the end of the quarter J.B. Hunt had approximately 74,200 units of trailing capacity and 4,900 power units available to the dray fleet.

• Dedicated Contract Services (DCS) — 24% of total revenue
1Q Revenue: $345 million; up 7%
1Q Operating Income: $35.8 million; up 130%

This segment was able to raise its customer rates and added 336 revenue producing trucks from the prior year to accommodate the new business.

• Integrated Capacity Solutions (ICS) — 11% of total revenue
1Q Revenue: $163 million; flat
1Q Operating Income: $6.6 million; up 8%

This brokerage segment saw a 17% rise in load volume, but revenue per load fell 14.5% from lower fuel surcharges and less transactional (spot) demand in the quarter. The segment’s contract business loads rose 49% from the year-ago period and accounted for about 74% of the total load volume for the segment in the quarter.

This segment has grown to 30 branches with its employee count rising 21% from a year ago.

• Truck (JBT) — 6% of total revenue
1Q Revenue: $91 million; down 1% 
1Q Operating Income: $8.5 million; up 248%

Increased truck count, improved freight lane networks and core customer rate increases of approximately 9% contributed to the improved revenue, excluding fuel surcharge. JBT operated 2,020 tractors at the end the first quarter compared to 1,917 in 2014.

Under the leadership of Shelley Simpson, this laggard segment increased its operating income by 248%, helped by increased rates per loaded mile, lower fuel expenses, less maintenance costs, lower insurance rates and claims expenses relative to a year ago.