Investors more positive after J.B. Hunt’s first-quarter earnings report; economist expects ‘atrocious’ second quarter for economy

Lowell-based carrier J.B. Hunt Transport Services Inc. reported earnings fell in the first quarter but weren’t as bad as some analysts had expected amid the COVID-19 pandemic. A trucking industry economist, however, said the second quarter will be much worse.

In a recent transportation/logistics report, senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird, highlighted a positive shift in investor sentiment since J.B. Hunt released first-quarter earnings that were no worse than expected and increased awareness of how transportation companies operate in recessions.

Hartford and Reed were warming to asset-based truckload carriers that serve the consumer/retail sector, such as J.B. Hunt. The company has lagged asset-based truckload carriers since early March, Hartford and Reed said, and domestic intermodal volumes are expected to be challenged with the average price for West Texas Intermediate crude oil at about $20 per barrel.

“Since 1980, freight transports’ relative performance from the start of U.S. recession has been generally favorable and led by asset-based truckload,” according to Hartford and Reed. “Since early March, the group’s performance has generally followed this playbook – but historical returns suggest further outperformance from current levels.”

The Baird analysts expect economic conditions in the industrial sector to continue to fall throughout April. The Purchasing Managers’ Index, an economic indicator for the manufacturing sector, is expected to be released May 1. The index for March fell to 49.1%, which indicates the manufacturing economy contracted. However, transportation companies have tended to outperform other industries in the next 12 months while the Purchasing Managers’ Index declines and after it reaches a low point, especially below 44%.

“While sentiment has begun to rise in the group, it’s early, and history suggests the group’s outperformance should be more durable given the positioning of the current U.S. economic cycle – i.e., facing recessionary-like conditions,” said Hartford and Reed. “We favor more classically ‘early-cycle’ modes, i.e. truckload, airfreight, at the moment, but we recognize other modes – domestic intermodal, brokerage, then (less-than-truckload) and rail – should follow.”

Baird was neutral on J.B. Hunt stock.

Bank of America, which also has a neutral rating on the carrier’s stock, reported the bank’s Truck Shipper Survey declined 14% to a record low reading in early April, according to a Seeking Alpha report.

Analyst Ken Hoexter said the drop suggested an accelerated decline in the outlook for demand as the surge moderated for consumable demand. In the survey, 44% of shippers expect rates to be flat, up from 38% in the previous survey; 44% of shippers expect rates to decline, up from 29%; and 12% of shippers expect rates to increase, down from 33%. Concerning capacity, 56% of shippers expect capacity to increase, up from 33% in the previous survey; 32% expect capacity to be flat, down from 40%; and 12% expect capacity to be lower, down from 26%.

Argus recently changed its rating on J.B. Hunt stock to buy, from hold and sees the company in a “financially strong position compared to peers,” according to a Seeking Alpha report.

“In our view, J.B. Hunt has successfully adapted to changes in customer demand for shipping and freight services,” according to Argus. “Over the last decade, it has reduced its traditional long-haul truck fleet by more than 60% and shifted its focus to intermodal, ‘truck-to-rail’ transport, and dedicated contract services, in which trucks are used by a single customer.”

Labor costs are expected to rise for the next two or three quarters and impact earnings growth, the company added. However, after the pandemic ends, companies should focus on strengthening their domestic supply chains. Argus has a 12-month target price of $115 for J.B. Hunt.

RECORD GDP DECLINE
Meanwhile, Bob Costello, chief economist for the American Trucking Associations (ATA), expects the U.S. GDP to fall more than 20% in the second quarter as a result of the coronavirus and the economic shutdown, according to Transport Topics.

“We will never have experienced — since they began making quarterly GDP numbers — the number that is about to hit us for the second quarter,” Costello told the ATA’s publication. “I’m not a doctor, I’m not a health expert, so what makes this difficult for people like me is what I can’t tell you: When is this going to end?”

But Costello doesn’t expect the economy to soon return to levels before mid-March when most of the economy shut down.

“The second quarter is going to be atrocious; the third quarter could be down a little bit,” he said.

If healthcare and government officials can slow the spread of COVID-19 and reopen the economy without large numbers of people becoming sick, a recovery might start in the fourth quarter.

“You’ll go from seeing the worst quarter in our lifetime to some of the best quarterly numbers, in the fourth quarter that we have seen in decades,” Costello said. “But here’s the thing about forecasting: It’s a lot of data science and a lot of art. But it’s a lot more art than it used to be. There are so many things we don’t know.”

More than 776,500 cases of COVID-19 have been reported in the United States, and 41,313 people have died from it, according to data from the Arkansas Department of Health. In Arkansas, 1,853 cases have been reported along with 41 deaths and 738 recoveries.

SHAREHOLDERS MEETING CHANGE
In light of the COVID-19 pandemic, Tontitown-based P.A.M. Transportation Services Inc. recently announced it has moved the location of its shareholders meeting to the company’s corporate office at 297 W. Henri De Tonti Boulevard in Tontitown.

The meeting is set for 10 a.m. April 29 and is only open to shareholders of record as of March 10. Those who plan to attend must notify the company at least 24 hours in advance by contacting Secretary Allen West at 479-361-9111.

Attendees might be required to undergo a health screening when they enter the building, and seating may be limited to comply with social, or physical, distancing guidelines.

Shareholders who vote by proxy do not need to attend the meeting. The company encourages shareholders to submit the completed proxy card by following the alternative voting procedures on the card.

The meeting was set to take place at 11 a.m. April 29 at 12225 Stephens Road in Warren, Mich., according to a March 27 filing with the U.S. Securities and Exchange Commission.

ECONOMIC REVIVAL GROUP
J.B. Hunt CEO John Roberts recently was named by President Donald Trump to the administration’s Great American Economic Revival initiative, which is convening bipartisan groups of industry leaders from across all sectors of the U.S. economy, according to the ATA. The groups are expected to work with the White House to chart the path forward for the economy in its recovery from the COVID-19 pandemic.

“We are very honored to be included in such a prestigious group of companies called on to assist the federal government in planning and executing the country’s planned economic recovery,” Roberts said. “It is entirely due to the hard work of the good people that make up J.B. Hunt that we were picked to work alongside other great brands like Walmart and Tyson [Foods] in this endeavor. We will lean in to the opportunity in every way we can to make a difference.”

ATA President and CEO Chris Spear also was among the transportation leaders chosen by Trump to be a part of the initiative. Other transportation leaders include Fred Smith, chairman and CEO of FedEx; David Abney, chairman and CEO of UPS; and Darren Hawkins, CEO of YRC Worldwide.

“I am honored to serve our president and the nation in this capacity, representing the trucking industry and joining our ATA member company CEOs, to bridge this crisis to a safe, speedy and full recovery,” Spear said. “Just as they have during the mitigation and response efforts, truckers will be at the forefront as we revive our economy’s engine and get our country moving again. No industry will be more vital, and we embrace the opportunity to play a leading role in this national effort.”

As part of a statewide recovery effort, Gov. Asa Hutchinson recently announced Steuart Walton of Bentonville will chair the new Arkansas Economic Recovery Task Force. It will have up to 27 members and be charged with making recommendations on how best to return the state’s economy to normal and do so in a manner that creates confidence among state residents. Walton is the grandson of Walmart founders Helen and Sam Walton and a member of the Walmart board of directors.