J.B. Hunt earnings per share expected to rise 2 cents, revenue up 7%

Lowell-based carrier J.B. Hunt Transport Services on Monday (July 15) is expected to report earnings per share to rise 1.5% in the second quarter as analysts lowered expectations in the period for the intermodal segment of the transportation sector.

Earnings per share are expected to be to $1.39 in the second quarter, based on a consensus of 20 analysts. Revenue is expected to rise by 7.1% to $2.29 billion.

In an industry note, analysts Justin Long and Jack Atkins and senior associates Brian Colley and Scott Schoenhaus, all of Little Rock-based Stephens Inc., said the intermodal market in the second quarter of 2019 “faced an incrementally more challenging environment.” They attributed this to softer demand, flooding in the Midwest, the impact from the pull-forward in freight related to tariffs, and a large amount of truckload capacity and more competitive pricing.

J.B. Hunt’s intermodal segment accounted for 62% of the carrier’s income in the first quarter of 2019, and in the period, operating income for the business segment fell 10% to $103 million, from the same period in 2018.

Long, Atkins, Colley and Schoenhaus expect intermodal volumes in the second quarter to be below initial expectations and lessened pricing outlook and commentary. Rail service is improving, but the analysts don’t see a positive for intermodal stocks in the short term. They lowered the 12-month price target for J.B. Hunt’s stock to $107, from $116, but maintained a buy rating for the stock as existing risks in volume and pricing are already a part of the stock prices for the intermodal market.

In June, the volume of intermodal containers and trailers in the United States fell 7.2% to 1.08 million, from the same month in 2018, according to the Association of American Railroads. Combined U.S. carload and intermodal volume fell 6.3% to 2.1 million in June, from the same month in 2018.

“June marked the fifth straight monthly decline for total U.S. rail carloads and for U.S intermodal traffic,” said John Gray, senior vice president for the Association of American Railroads. “Manufacturing is responsible for much of the rail traffic base, but U.S. manufacturing output has been falling for several months. Housing too is in the doldrums, and trade is suffering because of tensions with trading partners overseas. Taken together, the demand for rail service just isn’t as strong as it was six months or a year ago. Obviously, railroads hope things turn around, both for their own sake and for the sake of the broader economy.”

Through the first half of 2019, intermodal volume fell 3.2% to 6.92 million containers and trailers, from the same period in 2018. Combined U.S. rail traffic fell 3.1% to 13.48 million carloads and intermodal units.

Along with the impacts related to tariffs and the pull-forward in freight, consumer demand has softened and the usual rise in spring wasn’t significant, according to Long, Atkins, Colley and Schoenhaus. The intermodal market has become more uncertain, but the analysts have heard that some de-stocking has started to take place and expectations for year-over-year intermodal growth is possible in the second half of 2019.

With regard to bid season, carriers saw high-single-digit increases in pricing initially, but as the season played out, low-single-digit increases look more likely for the remainder of the year. The latter has been what’s being negotiated in contracts recently, according to Long, Atkins, Colley and Schoenhaus.

“To be fair, the price increases later in the bid season are facing tougher (year-over-year) comps due to price increases that accelerated over the course of the 2018 bid season; however, we think investors will now shift their focus to when the pricing environment could stabilize,” said Long, Atkins, Colley and Schoenhaus. “And given our view that this remains unclear, it will likely be challenging for the stocks to get re-valued higher in the near term.”

Intermodal volume for J.B. Hunt is expected to fall 6.5% in the second quarter of 2019, from the same period in 2018. In the second half of 2019, the company is expected to see growth in intermodal volume.

In the carrier’s brokerage segment, revenue is expected to fall 5% in the second quarter, from the same period in 2018. Margins are expected to fall 80 basis points from the first quarter of 2019.

In the dedicated segment, margins are expected to rise from the first quarter, with a projected improvement of 250 basis points in operating ratio, which shows a company’s operating expenses as a percentage of revenue.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Thursday (July 11) at $87.76, up 13 cents or 0.15%. In the past 52 weeks, the stock has ranged between $129.98 and $83.64.