J.B. Hunt first quarter income rises almost 9%, revenue up 6.1% (Updated)

Editor’s note: This story is updated with additions and changes throughout.
––––––––––––––
Lowell-based J.B. Hunt Transport Services posted first quarter net income of $100.098 million, up 8.8% compared to the first quarter of 2015 and better than what market watchers expected.

The per share earnings of 88 cents were above the consensus estimate of 85 cents, and total revenue in the quarter of $1.528 billion was just above the estimate of $1.52 billion.

Operating income for all the company’s segments rose to $167.89 million, up 8.16% over the $155.22 million reported in the same period last year. Revenue was up in all four categories for the quarter, while operating revenue was down in the company’s intermodal division.

In the earnings report posted early Monday, (April 18) company officials said higher volume, lower maintenance costs, and better pricing helped boost revenue, while higher driver wages and recruiting costs, technology investments and higher rail costs squeezed margins.

CEO John Roberts III also noted in the release that annual contract pricing is underway and “customer freight demand is expected to be closely aligned with the current choppy and unpredictable nature of the overall United States economy.”

The solid first quarter results were no surprise to KeyBanc analysts who in late March raised the company’s target price to $92 per share from $86 noting, “we continue to expect improving rail service to support share reversion and increased asset utilization, with potentially tighter truck capacity indirectly supporting improved volume and price intermediately.”

Shares of J.B. Hunt Transport (NASDAQ: JBHT) rose about 1.67% on the solid first quarter financial results with shares trading at $86.86, up $1.43 cents in the morning session. The trend continued with the share price up 2% in late afternoon trading. During the past 52 weeks the share price has ranged from a $92.44 high to a $63.58 low. Shares were active following the earnings release, surpassing the average daily volume in the first two hours of trading.

TARGET PRICE EXPECTATIONS
KeyBanc said the company’s strengths can be seen in multiple areas, such as revenue growth, a solid financial position with reasonable debt levels, good operational cash flow and notable return on equity. The main catalyst for the higher overall stock growth is closely linked to more confidence in the company’s intermodal division, which made up 59% of the company’s first quarter revenue and 61% of its operating income.

“For JBHT, we are incrementally more confident in 8% to10% intermodal volume guidance following our checks (we model 8%), as well as a 1% to 3% increase in revenue per load (we model 3%). We remain positively biased given our expectations for organic earnings growth,” Keybanc added.

Credit Suisse also raised its price target for J.B. Hunt noting that the company “has numerous avenues for secular growth during 2016 and beyond despite lingering investor skepticism surrounding Hunt’s ability to meet its 8% to 10% intermodal load growth target for 2016.” The analysts believe Hunt will stay “on course to hit its guidance range this year.”

For the full year, Wall Street expects J.B. Hunt Transport to post $4.01 earnings per share, compared to $3.66 per year in 2015. Overall revenue is expected to grow to $6.64 billion, up 7.2% from last year’s $6.19 billion revenue. Hunt management said it will update its full year guidance following the second quarter earnings report in early July.

Positive first quarter results follow a strong financial performance in 2015. Full year 2015 net income for Lowell-based J.B. Hunt reached $427.235 million, up 14% compared to 2014. Total revenue in 2015 was $6.187 billion, just ahead of the $6.165 billion in 2014.

J.B. Hunt Transport will hold its annual shareholders meeting at 10 a.m., Thursday (April 21) at the company’s Lowell headquarters. At that meeting shareholders will vote to elect a slate of 10 directors and consider one  shareholder proposal seeking amendment of the company’s equal employment opportunity.

SECTOR SNAPSHOT
• Intermodal (rail and truck)
Intermodal growth for the company included a 12% increase in loads which helped bump up segment revenues by 6% to $895 million in the quarter. Operating income fell 1% to $103 million as rail purchased transportation costs, equipment ownership costs, driver recruiting and driver retention costs outpaced the added load volume and higher load rates set by the company last year.

Hunt said the Eastern rail network had load growth of 13% and transcontinental loads grew 11% from the year-ago period thanks in part to the West Coast ports returning to normal load velocity compared to a year ago. Hunt said it ended the first quarter with approximately 79,800 units of trailing capacity and 5,160 power units assigned to the dray fleet.

• Dedicated Contract Services
The Dedicated Contract Services segment posted segment revenue of $358 million, up 4% from a year ago. Operating income in the division was $44.8 million, up 25%, with the increase partially attributed to higher revenue and less use of third-party carriers.

The company said lower fuel surcharges related to cheaper year-over-year diesel prices dinged the segment’s productivity by 2% in the quarter. That said, internal efforts to increase efficiencies via fewer unseated trucks, better supply chain fluidity and improved integration of assets between customer accounts worked to improve segment productivity by 3%, excluding fuel surcharges.

This segment had added 345 revenue producing trucks in the quarter, compared to 18 net reductions in the fourth quarter of 2015. Approximately 70% of these additions represent private fleet conversions versus traditional dedicated capacity fleets that were implemented in the current and prior periods. Customer retention rates remain above 98%, the company noted in the release.

• Integrated Capacity Solutions
Hunt’s freight brokerage division, Integrated Capacity Solutions, had first quarter segment revenue of $183 million, up 12% compared to the first quarter of 2015. Volumes increased 45% while revenue per load decreased 23% primarily due to lower fuel prices and freight mix changes driven by customer demand. The company said spot volumes increased 51% and contractual business load counts increased 42% from a year ago. Contractual business represents approximately 73% of total load volume and 64% of total revenue in the period compared to 74% and 65%, respectively, in first quarter 2015.

Operating income was $10.8 million, up 63%. Operating income grew primarily through the gross profit margin moving from 13.7% in the first quarter of 2015 to 17.3% in the first quarter of 2016. The company said its personnel costs rose in the first quarter as the total branch count grew to 35 compared to 30 at the end of the comparable period last year. ICS’s carrier base increased over 17% and employee count increased 11% compared to first quarter 2015.

• Truckload
The company’s Trucking division posted revenue of $96 million, up 5%. Revenue excluding fuel surcharge increased 12% primarily from a 12% increase in fleet count. In the quarter, Hunt Trucking operated 2,270 tractors compared to 2,020 in 2015.

Rates per loaded mile excluding fuel surcharges were down 1.7% primarily from customer driven freight mix changes, including a 4% increase in length of haul and an increase in spot market loads accepted as the network is reconfigured. Hunt said its core customer rate increases were up 2.3% compared to the same period in 2015.

Operating income during the quarter was $9.2 million, up 8%,  which the company attributed to benefits from the larger fleet and improved fuel economy compared to first quarter 2015.