J.B. Hunt Transport quarterly income up 12.4%, revenue misses target

Net income at Lowell-based J.B. Hunt Transport Services rose 12.4% to $115.1 million for the third quarter of 2015 ending Sept. 30. Net income compared to $102.4 million earned in the year-ago period. But the logistics giant narrowly missed top line estimates posting total revenue of $1.586 billion. Revenue was shy of Wall Street’s $1.61 billion estimate and was an down fractionally from $1.6 billion reported a year ago.

On a per-share basis, J.B. Hunt posted net earnings of 99 cents, which was two cents better than Wall Street analysts expected and 13.7% better than the 87 cents earned a year ago, according to the company report issued Wednesday (Oct. 14).

Hunt management noted that despite higher load growth in multiple segments and customer rate increases were not enough to offset the decrease in fuel surcharge revenue and tepid customer demand resulting in a decrease in consolidated revenue compared to prior year. Without fuel surcharges the company said its quarterly revenue improved 8% over last year.

Operating income for the current quarter totaled $194 million versus $172 million for the third quarter in 2014. The increase in operating income from load growth, higher productivity and customer rate increases was partially offset by lower box turns from slower train speeds in some regions, increases in rail purchase transportation rates, increases in driver wages and recruiting costs and higher equipment ownership costs compared to third quarter 2014.

The company’s higher debt levels also meant increased interest expense from a year ago as the logistics company recently refinanced  $220 million in maturing notes with new borrowings of $350 million at 3.30%.

Hunt execs were pleased with a 3% load growth in its internal division, a 6% increased in revenue producing trucks in the dedicated contract services division and 9% increased in load volumes for the brokerage division. The company also increased its truck count in the truckload segment by 14% over a year ago.

YEAR-TO-DATE TALLY
For the full nine months of 2015, Hunt has posted total revenue of $4.566 billion, nearly flat with the $4.555 billion reported in same period last year. Year-to-date net income is $310.49 million, up 18% compared the 2014 period.

Logistics analysts has previously expected 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. But three large carriers have recently reduced their third quarter earnings guidance citing higher operating costs and other industry challenges.

The American Transportation Research Institute reported this week that motor carrier operating costs rose 1.6% to $1.703 per mile over last year, as higher costs for new equipment, driver wages and maintenance wiped out savings from lower fuel prices.

Freight volumes were mixed for the industry in the third quarter. Strong volumes in July, were met with lighter load demand in August, according to Bob Costello, economist for the American Trucking Association. Year-to-date through August, compared with the same period last year, tonnage was up 3.3%.

“After such a robust July, it is not too surprising that tonnage took a breather in August,” Costello, said.  “The dip after a strong gain goes with the up and down pattern we’ve seen this year.”

He said soft housing starts and falling factory output were the culprits of the weaker numbers mid quarter. He remains concerned about the high level of inventories throughout the supply chain. Costello said this could have a negative impact on truck freight volumes over the next few months.

Brad Delco, analyst with Stephens Inc., said there were no surprises in the J.B. Hunt earnings, He said the transport giant is poised to have solid year returns. Delco rates Hunt shares as a "buy" position saying the recent price dip made for an opportune time to purchase.

SEGMENT PERFORMANCE
Intermodal (JBI) – 60% of total revenue
3Q Revenue: $948.77 million, down 15%
3Q Operating income: $126.077 million, up 8.25%

J.B. Hunt said the eastern network loads were challenged with recovering rail service while west coast import volumes began to improve. Revenue decreased 2% reflecting the 3% volume growth and an approximate 4.4% decrease in revenue per load, which is the combination of changes in customer rate, freight mix and fuel surcharges.

The company ended the quarter with approximately 77,900 units of trailing capacity and 5,040 power units assigned to the dray fleet.

Dedicated Contract Services (DCS) – 23% of total revenue
3Q Revenue: $370.36 million, up 2.58%
3Q Operating Income: $45.123 million; up 31.5%

This segment reported a 4% decrease in revenue per truck compared to a year ago, related primarily to lower fuel surcharges. A year-over-year net addition of 413 revenue producing trucks, 195 net additions compared to second quarter 2015, were in the fleet by the end of the quarter. Approximately 56% of these additions represent private fleet conversions versus traditional dedicated capacity services and primarily reflect new contract implementations in this and prior periods. Customer retention rates remain above 96% as value driven services continue to support necessary rate increases.

Integrated Capacity Solutions (ICS) – 11% of total revenue
3Q Revenue: $172.89 million, down 6.6%
3Q Operating Income: $11.24 million; up 35%

This brokerage segment revenue was negatively impacted from lower revenue per load. The segment did see a 9% rise in load volume, but changes in customer demand and less “spot” transactional business helped to curb overall revenue. That said, Hunt’s contractual volumes rose 13% over a year ago.

This segment’s personnel costs also rose in the quarter as the total branch count grew to 33 compared to 28 at the end of third quarter last year. ICS’s carrier base increased 17% and the employee count increased 13% vs. third quarter 2014.

Truck (JBT) – 6% of total revenue
1Q Revenue: $97.521 million; up 1.84% 
1Q Operating Income: $11.244 million, 159%

This laggard segment continues to see improvement under the management of Shelley Simpson. The truckload segment operated 2,100 tractors compared to 1,843 a year ago, helping to boost operating income. The company also reported lower equipment maintenance costs, lower safety and insurance costs and improved fuel economy which it says was partially offset by increased driver hiring costs.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Tuesday at $72.72. During the past 52 weeks the share price has ranged from a $93.50 high to a $70.58 low.