J.B. Hunt earnings rise 15% in third quarter, miss analyst expectations

Lowell-based carrier J.B. Hunt Transport Services Inc. missed earnings expectations but beat revenue expectations as earnings and revenue increased in the third quarter. Revenue per load was up in intermodal and there was also a rise in truck productivity in the dedicated segment.

J.B. Hunt on Tuesday (Oct. 15) reported net income for the quarter rose by 15.3% to $151.22 million, or $1.40 per share, from $131.11 million, or $1.19 per share, in the same period in 2018. The carrier missed earnings expectations of $1.45 per share, based on a consensus of 21 analysts. Through three quarters, earnings were up 0.9% to $404.45 million, or $3.73 per share, from $400.9 million, or $3.63 per share.

Revenue increased by 7% to $2.36 billion in the third quarter, from $2.21 billion in the same period in 2018. The carrier beat revenue expectations of $2.35 billion. Through three quarters, revenue has risen by 6.6% to $6.71 billion, from $6.3 billion.

The third-quarter results included after-tax charges of $31.1 million, or 28 cents per share, related to arbitration and other legal claims and a customer bankruptcy. The carrier’s income included $39 million in pre-tax charges as a result of increased rail purchase transportation expenses, insurance and claims costs and bad debt expense. Excluding the charges, operating income declined 1%, and this could be attributed to higher building rental for Final Mile Services network expansion, lower gross margins in the brokerage segment, increases in driver wages and recruitment costs, increased rail purchase transportation rates and increased spending on technology related to new applications and legacy operating systems.

In the third-quarter earnings call, John Roberts, president and CEO, explained that the carrier’s acquisition of Houston-based carrier Special Logistics Dedicated has exceeded expectations and noted the February acquisition of Cory 1^st Choice Home Delivery.

“Overall, through acquisition and organic growth we have expanded the Final Mile network by over 40% so far year to date,” Roberts said. “And we will be breaking out this channel in 2020.”

Throughout 2019, the company has focused on expanding its technology infrastructure, he said. Carriers with more than 600,000 trucks have signed on to the technology platform J.B. Hunt 360.

“Transactions executed through the Marketplace for J.B. Hunt 360 are currently on a $1 billion run rate,” Roberts said.

Through September, the company has invested more than $100 million in technology, said David Mee, chief financial officer.

The following are results by segment.

INTERMODAL
Operating income rose 10.5% to $132.92 million, from $120.32 million. Intermodal income accounted for 63% of the carrier’s overall income. Through three quarters, income has declined 2.2% to $360.6 million, from $368.55 million.

Revenue increased 1.6% to $1.24 billion, from $1.22 billion. Intermodal revenue accounted for 52% of the carrier’s overall revenue. Through three quarters, revenue has risen by 0.9% to $3.48 billion, from $3.45 billion.

In the third quarter, the segment had $27.3 million in pre-tax charges for arbitration and other legal claims and a customer bankruptcy. Excluding the charges, operating income fell nearly 10%, and this could be attributed to higher rail purchase transportation costs, higher box repositioning costs, lower box turns and increased driver pay and recruitment costs.

Revenue per load increased by 2%, and operating volumes were flat. Transcontinental loads rose 7%, and eastern network loads fell 11%. The rise in revenue per load could be attributed to changes in customer rates, freight mix and fuel surcharges. Terry Matthews, president of intermodal, expects volumes to rise and margins to improve in the fourth quarter. He also said he’s not heard from customers who have pulled forward freight ahead of tariffs.

The segment had 96,700 intermodal containers and trailers and 5,643 trucks at the end of the third quarter. The segment has 1,000 temperature-controlled intermodal containers, and the number is expected to rise in 2020, Matthews said.

DEDICATED CONTRACT SERVICES
Operating income increased 123.7% to $78.28 million, from $34.99 million. The segment’s income accounted for 37% of the carrier’s overall income. Through three quarters, income has increased by 41.1% to $189.01 million, from $134 million.

Revenue rose 28.2% to $696.09 million, from $542.88 million. The segment’s revenue accounted for 30% of the carrier’s overall revenue. Through three quarters, revenue has risen 26.1% to $1.98 billion, from $1.57 billion.

In the third quarter, the segment had $8.4 million in pre-tax charges to insurance and claims costs. Excluding the charges, operating income rose 80% as a result of increased trucks under contract, higher productivity and more predictable and consistent contract start-up costs. This was partially offset by increased costs to expand the Final Mile Services network, increased driver pay and $1.4 million in non-cash amortization expenses related to the February acquisition of Cory 1^st Choice Home Delivery.

Asset productivity, or revenue per truck per week, rose 9%. The rise in productivity could be attributed to the February acquisition, customer rate increases, improved integration of assets between customer accounts and “increased customer supply chain fluidity,” according to the company. As part of the growth in the segment, Final Mile Services reported a $53 million revenue increase largely as a result of the February acquisition.

Revenue producing trucks increased 13%, or by 1,277 trucks. Between the second and third quarters, the segment added 120 trucks. About 64% of the additions could be attributed to private fleet conversions, and 11% are a result of Final Mile Services compared to traditional dedicated services. The customer retention rate is more than 98%. The number of trucks the segment added in 2019 is expected to be similar to 2020, said Nick Hobbs, president of Dedicated Contract Services.

INTEGRATED CAPACITY SOLUTIONS
The carrier’s brokerage segment had an operating loss of $5.64 million, compared to an income of $10.22 million in the same quarter in 2018. Through three quarters, income has declined by 97.8% to $755,000, from $34.03 million.

Revenue declined 2.6% to $336.72 million, from $345.83 million. Through three quarters, revenue has fallen 1.8% to $971.8 million, from $989.23 million.

In the third quarter, the segment had $3 million in pre-tax charges related to a customer bankruptcy and insurance and claims costs. Excluding the charges, operating income fell $18.9 million from the same period in 2018, and this could be attributed to lower gross profit margin percentage, increased costs to expand the capacity and functions of the Marketplace for J.B. Hunt 360, increased employee wages and increased digital marketing costs. Gross profit margin fell to 12.7%, from 15.5% in the same period in 2018. This was a result of competitive pricing in the contract business and a soft spot market.

Load volume fell 4%, while revenue per load rose 2%, and this could be attributed to a decline in the mix of contract less-than-truckload business and competitive pricing for contract truckload business. Contract business represented 74% of total volume and 62% of revenue, compared to 72% and 49%, respectively, in the same period in 2018. The amount of revenue in the segment that can be attributed to Marketplace for J.B. Hunt 360 rose 35.8% to $205 million in the third quarter, from $151 million in the same period in 2018. About $34 million of third-party drayage costs in the carrier’s intermodal segment and about $16 million of independent contractor costs in the truck segment could be attributed to the platform in the third quarter.

The segment’s carrier base increased 20%, and the number of employees rose 5%. Spending related to technology in the segment increased 60% to nearly $14 million in the third quarter, from the same period in 2018, Mee said.

TRUCK
Operating income fell 28.4% to $6.6 million, from $9.22 million. Through three quarters, income has risen 4.1% to $22.73 million, from $21.83 million. Revenue decreased 10.9% to $94.18 million, from $105.69 million. Through three quarters, revenue has fallen 1.3% to $295.66 million, from $299.64 million.

In the third quarter, operating income was impacted as a result of a smaller percentage of spot market loads comprising the total number of loads, a larger number of empty miles per load and a decline in total loads. Revenue decreased as rates per loaded mile fell 5%, length of haul declined 2% and load count declined 3%.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Tuesday at $111.60, up $2.02, or 1.84%. In the past 52 weeks, the stock has ranged between $116.27 and $83.64.