J.B. Hunt misses analyst expectations, profit rises 1%, revenue up 7%

by Jeff Della Rosa (JDellaRosa@nwabj.com) 352 views 

J.B. Hunt Transport Services profits and revenue increased as a result of rising rates and new customer contracts but didn’t rise to expected levels after factoring in increased costs and the impacts of winter weather on freight volume.

The Lowell-based carrier reported after the markets closed Monday (April 15) net income rose 1.2% to $119.6 million, or $1.09 per share, in the first quarter of 2019, from $118.14 million, or $1.07 per share, in the same period in 2018. Revenue rose 7.3% to $2.09 billion. The company missed analyst expectations by 17 cents, based on a consensus of 20 analysts. It missed the consensus revenue estimate by $120 million.

Intermodal revenue per load rose 11%, and intermodal volume fell 7%. Dedicated Contract Services revenue increased 22% as a result of new contracts and customer rate increases. Integrated Capacity Solutions, or the company’s brokerage segment, loads rose 12%, and revenue per load declined 12%. Trucking revenue rose 10% as a result of rate increases and a larger fleet.

Revenue attributed to freight matching software Marketplace within the J.B. Hunt 360 technology platform rose 93.8% to $186 million in the first quarter, from the same period in 2018. The company’s intermodal segment started a third-party drayage in the first quarter. Drayage refers to trucks that haul freight to and from railroads.

Income rose as a result of increased customer rates and new customer contracts but was offset by increased rail purchased transportation costs, reduced intermodal network use, lower productivity in areas affected by winter weather, increased employee wages and benefits, increased Final Mile Services network facilities costs, increased spending on the J.B. Hunt 360 platform, upgrades to legacy systems and rising expenses on equipment and maintenance costs.

Net interest for the quarter increased by 43% as a result of increased debt and higher interest rates on the debt. The effective income tax rate fell to 22.7% as a result of a favorable settlement of a state income tax audit. The 2019 tax rate is expected to be 24%.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Monday at $105.50, down $1.18, or 1.11%. In the past 52 weeks, the stock has ranged between $131.74 and $88.38.

Following is a breakdown of results by segment.

INTERMODAL
Operating income, which accounted for 62% of company income, fell 10% to $103 million. Revenue rose 2% to $1.09 billion.

Customer rates rose, and about $12 million of third-party drayage was completed in the Marketplace for J.B. Hunt 360 but were more than offset by the increases in purchased transportation costs, low network use and drayage efficiency as a result of the weather in the upper Midwest and Chicago areas, increased driver pay and recruiting costs and higher equipment and maintenance costs.

Revenue per load rose 10%, and is based on a combination of customer rates, fuel surcharges and freight mix and the 7% decrease in volume. Volumes fell 7% as transcontinental loads declined 8% and the Eastern network load volume decreased 7%. Volumes were impacted by expected rail closures and winter weather impacting Chicago operations, and combined, they contributed to about half of the volume decline.

“The service disruptions from weather issues starting in late January and progressing through late February actually caused some freight to divert back to the highway, in addition to loads being outright canceled,” CFO David Mee said in a conference call. “When the service began to improve, we did not see a snapback in customer demand in March, which was our biggest surprise and frankly our miss to our expectations.”

Also in the call, Terry Matthews, president of intermodal, said he expects volumes to turn positive in the second half of 2019. In the past two or three weeks, he said rail service has been better than it was over the past two years, but it has not improved to expected levels for 2019.

The intermodal segment had 95,800 trailers and intermodal containers and 5,671 trucks at the end of the first quarter.

DEDICATED CONTRACT SERVICES
Operating income, which accounted for 30% of company income, rose 24% to $50 million. Revenue rose 22% to $602 million, or 29% of company revenue. Income increased as a result of rising productivity and new trucks operating under new contracts. This was partially offset by higher facilities rent and costs to expand the Final Mile Network, and rising driver pay and recruiting costs.

Productivity, or revenue per truck per week, increased 6%. Final Mile Services is included in the segment, and revenue rose $26 million in the first quarter, from the same period in 2018. The segment added 1,644 trucks — 440 trucks from the fourth quarter of 2018 — and 41% of the additions were private fleet conversions, and 9% could be attributed to Final Mile Services. Customer retention rates are more than 98%.

In February, J.B. Hunt completed the acquisition of Cory 1st Choice Home Delivery as part the company’s expansion into the final mile delivery of bulky items, especially furniture.

INTEGRATED CAPACITY SOLUTIONS
Operating income in the carrier’s brokerage segment fell 22% to $7 million, or 4% of company income. Revenue increased 2% to $301 million, or 14% of company revenue. Gross profit margin rose to 16.5%, from 14.4% as a result of an adequate supply of carrier capacity to accommodate customer demand. The rise was partially offset by higher wages and spending on technology to expand Marketplace for J.B. Hunt 360.

In the call, Shelley Simpson, chief marketing officer and president of highway services, said digital freight matching is in the “first inning,” and the company plans to grow the technology this year and in 2020. Volumes rose 15%, and revenue per load declined 12% as a result of customer mix changes and lower spot price revenue per load. Contract business accounts for 68% of total load volume and 51% of total revenue, up from 67% and 44%, respectively, in the first quarter of 2018.

The carrier base in the segment increased by 29%, and employee count rose 18%.

Truckload
Operating income rose 41% to $7 million. Revenue rose 10% to $102 million. Revenue per load, excluding fuel surcharge, increased 8% and equipment costs fell. This was partially offset by higher driver and independent contractor costs and increased recruiting costs for drivers and independent contractors.

Customer rates increased by 12%, and the number of loads rose by 4%. However, the weather in the Midwest reduced volumes by about 2,200 loads. The number of trucks increased by 6.1% to 2,043 trucks.

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