J.B. Hunt earnings per share to rise 21% in first quarter as expectations decline

Expectations continue to fall for Lowell-based carrier J.B. Hunt Transport Services and other transportation companies as they look to report first-quarter financial results amid high fears related to several factors that might impact results, analysts said.

In an earnings preview, analysts Brad Delco and Justin Long and senior associates Scott Schoenhaus and Brian Colley, all of Little Rock-based Stephens Inc., said the factors include the pre-stocking of inventory ahead of the tariff threat hurting first-quarter demand, impact of weather on service and freight demand, decline in spot market rates and increased capacity. Dry van spot rates decreased 13.4% while spot market capacity rose 36.1% in March, from the same month in 2018, according to DAT Solutions.

“That said, we believe the market is very much aware of the transient factors weighing on volumes and margins and believe more recent freight data points are encouraging,” Delco, Long, Schoenhaus and Colley said.

J.B. Hunt on April 15 is expected to report earnings per share to rise 21.5% to $1.30 per share in the first quarter, from the same period in 2018, based on a consensus of 20 analysts. Revenue is projected to increase by 13.7% to $2.22 billion. The Stephens analysts give J.B. Hunt stock a buy rating and a 12-month target price of $118.

“We believe investors currently have a lower expectation than published Street estimates, which we believe is largely reflected by (J.B. Hunt’s) current discounted valuation multiple,” according to Delco, Long, Schoenhaus and Colley.

In J.B. Hunt’s intermodal segment, volumes have been under pressure by the weather, rail service and overall weaker demand as a result of the freight pull forward caused by the tariff threat, the analysts said. As a result, they lowered expectations for volume, which is projected to fall by 3%. Pricing is expected to rise in the mid-to-upper single digits, and this should help to absorb rail cost increases and service delays. The uncertainty surrounding the company’s arbitration with Fort Worth, Texas-based BNSF Railway Co. led the analysts to err on the conservative side, and they expect an operating ratio of about 90% for the first quarter, about 230 basis points worse than in the fourth quarter and the worst sequential change in operating ratio since the first quarter of 2008. Operating ratio is operating expenses as a percentage of revenue.

J.B. Hunt’s Dedicated Contract Segment is expected to see its average fleet size increase by 300 trucks in the quarter as it works to fulfill recent contracts. The segment’s startup costs have been moderating, and this should improve margins for most of 2019. Operating ratio is expected to improve 20 basis points to 89.8% in the first quarter, from the previous quarter.

Revenue has moderated in the Integrated Capacity Solutions, or brokerage, segment from the same time in 2018 as a result of lower volumes and rates, but revenue is expected to rise 5%, according to Delco, Long, Schoenhaus and Colley. Gross margins are expected to be flat at 16.9% from the fourth quarter, and this might be conservative with lower capacity costs in the first quarter and the segment having more contract business compared to transactional.

The trucking segment is expected to be impacted by weather, demand and capacity issues. Empty miles, or the miles a truck travels without hauling a load, such as traveling to retrieve a load, are expected to be 16.5%, and operating ratio is projected to be 94%.

Delco, Long, Schoenhaus and Colley believe the risk in J.B. Hunt shares has been reduced based on the levels in which they are trading as a result of increased fears of intermodal volume growth, the uncertainty of the BNSF arbitration and macro-economic unknowns.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Thursday (April 4) at $104.28, up 74 cents or 0.71%. In the past 52 weeks, the stock has ranged between $131.74 and $88.38.