J.B. Hunt revenue, earnings fall in second quarter

by Jeff Della Rosa ([email protected]) 557 views 

J.B. Hunt corporate offices

Lowell-based carrier J.B. Hunt Transport Services Inc.’s net income and revenue declined in the second quarter. Freight volume fell in the company’s intermodal and brokerage segments amid the COVID-19 pandemic but was partially offset by an increase in truckload volume.

After the markets closed Thursday (July 16), J.B. Hunt reported earnings fell 8.9% to $121.69 million, or $1.14 per share, in the second quarter from $133.63 million, or $1.23 per share, in the same period in 2019. The company beat expectations for earnings by 31 cents, based on a consensus of 20 analysts.

Revenue fell 5.1% to $2.14 billion, from $2.26 billion, and beat analyst expectations for revenue by $130 million. The revenue decline can be attributed to a 2% volume decrease in its intermodal segment, an 11% volume decline in its brokerage segment and 5% fewer stops in its final mile segment. This was partially offset by a 17% increase in loads in the truckload segment.

Through the first half the year, net income has declined 10.5% to $225.53 million, and revenue has risen 1.7% to $4.42 billion.

In the second quarter, operating income fell as a result of lower revenue and higher purchased transportation costs, continued investment in technology across all segments and employee and operating supplies costs related to COVID-19 were partially offset by lower driver turnover, decreased insurance and claims costs and lower travel and entertainment costs compared to the same period in 2019. Also, operating income declined because of $4.6 million in additional costs for uncollectable customer accounts.

Second-quarter revenue in the brokerage segment attributed to its technology platform J.B. Hunt 360 rose to $229 million, from $222 million in the same period in 2019. Also attributed to the platform in the second quarter were $24 million of third-party dray costs in the intermodal segment and $28 million of independent contractor expenses in the truckload segment.

In a second-quarter earnings call, CEO John Roberts noted the impact COVID has had on the company and its response to taking care of its employees and customers.

“We are encouraged with our results in both areas through the second quarter,” Roberts said. “More than 75% of our employee base has been unable to work from home due to the nature of our business and the ongoing needs of our customers. Safety practices and PPE supplies we deployed early and have continued to support and provide have proven substantially effective to date. We review both external and internal COVID-related data daily.

“Additional facility investments have been and are being made to all work areas in Lowell and across the country to help lower risk,” he added.

John Kuhlow, interim chief financial officer, said the company has had $25 million in COVID-related expenses so far this year. The company also suspended hiring unless there was a need but has not had layoffs or furloughs, he said. Capital expenditures are projected to be $600 million to $625 million for 2020, down from $700 million as previously planned.

J.B. Hunt executives also noted COVID has created uncertainty contributing to the difficulty in providing projections on freight volume.

In a recent report on J.B. Hunt, analysts Justin Long and Jack Atkins, senior associate Brian Colley and associate George Sellers, all of Little Rock-based Stephens Inc., said freight demand hit a low point in April and improved over the second quarter. In the second half of 2020, the analysts expect the intermodal volumes comparison to the same period in 2019 to be more challenging as opposed to the broader industry, which will be facing easier comparisons over the same period. While the carrier faces near-term challenges, the long-term view remains unchanged. And after an improvement in the truckload sector, the analysts increased its 12-month shares target to $132, from $117, and maintained an overweight (buy) rating for the stock.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Thursday at $132.55, up $2.21 or 1.7% after hitting a 52-week high of $133 for the day. In the past 52 weeks, the stock has ranged between $133 and $75.29.

Following are the second-quarter results by segment:

Operating income declined 14% to $107 million. Revenue fell 7% to $1.07 billion. Intermodal comprised 50% and 61%, respectively, of the carrier’s revenue and operating income.

Load volumes fell 2%, with transcontinental loads rising 3% and eastern network loads falling 7%. COVID-19 volume disruptions started in March and worsened in April but steadily improved over the remainder of the quarter. Revenue per load decreased 6% as a result of customer rate changes, fuel surcharges and freight mix. Lower volumes, higher rail purchased transportation costs and inefficiencies in the network related to less predictable demand patterns were partially offset by lower driver turnover costs and a decline in insurance and claims costs.

Darren Field, president of intermodal, said volumes were down in April and May but increased 5% in June. He expects the segment to be completed with bids in the third quarter, and rates have met expectations.

The segment ended the second quarter with 96,500 intermodal containers and trailers and 5,340 trucks.

Operating income rose 9% to $83.1 million, and revenue fell 1% to $533 million. The segment comprised 25% and 47%, respectively, of the carrier’s revenue and operating income.

The rise in income could be attributed to benefits from lower driver turnover, travel and entertainment and safety-related costs that were partially offset by higher bad debt costs for uncollectible customer accounts. Productivity, or revenue per truck per week, fell 3% in the second quarter, from the same period in 2019. The segment had 130 more revenue-producing trucks in the fleet by the end of the quarter than at the same time in 2019. Customer retention rates were more than 97%.

Nick Hobbs, president of Dedicated Contract Services and Final Mile Services, said the dedicated segment has added 430 trucks of new business so far this year and expects to add between 600 and 800 trucks for 2020.

The carrier’s brokerage segment had an operating loss of $13.1 million in the second quarter, compared to a $600,000 loss in the same period in 2019. Revenue fell 9% to $304 million.

Volumes fell 11%, but revenue per load rose nearly 2% as a result of customer freight mix. Contract volumes comprised 71% of total load volume and 63% of total revenue in the second quarter, compared to 68% and 55%, respectively, in the same period in 2019. Operating income fell as a result of lower gross profit margins, increased costs to expand capacity and functionality of J.B. Hunt 360 and higher employee expenses. Gross profit margins fell to 11.8% in the second quarter, from 13.4% in the same period last year because of competitive pricing, weaker spot market activity and tightening supply. The segment’s carrier base rose 12% in the second quarter, from the same period in 2019.

“While part of our strategy is to grow our penetration with small- and medium-sized shippers, I believe this segment of the market was disproportionately impacted by the COVID-19 pandemic, which also put pressure on some aspects of our business,” said Shelley Simpson, executive vice president, chief commercial officer and president of highway services. “I’m extremely encouraged by the trends we’re seeing in the Marketplace for J.B. Hunt 360 which strengthens the confidence in the rollout of our platform. The trends and data support our belief that customers and carriers are increasingly wanting to connect digitally. This enhances both visibility and transparency for both parties, and we believe market adoption is continuing to build momentum as evidence by our shipments per day in the platform continue to grow at double digits versus a year ago in what I would describe as a fairly challenging environment to grow volumes.”

The final mile segment reported a $5.2 million operating loss in the second quarter, compared to a $15.8 million loss in the same period in 2019. Revenue fell 2% to $140 million. Stop count declined 5% as a result of the temporary suspension of operations at several customer sites because of COVID. Productivity, or revenue per stop, rose 2% and can be attributed to a shift in the mix of services as customers within the segment’s network were affected by COVID differently. Losses in the quarter could be attributed to COVID, resulting in the suspension of operations at customer sites and higher costs to operating supplies.

However, Hobbs said the results were better than expected as customers reopened sooner than initially planned. The pool distribution service was the most impacted as it provides inventory replenishment for retailers, and it remained slow for most of the quarter. Furniture delivery volume fell about 30%, and appliance volume ended the quarter at normal volumes.

Hobbs said he expects Final Mile Services to return to profitability in the third quarter.

Operating income fell 61% to $3.5 million, and revenue rose 9% to $108.3 million. The rise could be attributed to a 17% increase in loads that was partially offset by a 4% decline in revenue per load. Revenue per loaded mile fell 7%, and contract customer rates declined 5%. The benefits from the increase in loads were offset by increases in purchased transportation cost, higher insurance and claims costs and increased investment in technology and the continued rollout of 360box. The segment ended the second quarter with 1,897 trucks and 7,985 trailers, up from 1,879 and 6,829, respectively, from the same period in 2019.