Lowell-based carrier J.B. Hunt Transport Services Inc. beat revenue expectations but missed earnings projections in the third quarter as a result of congestion and repositioning in the intermodal segment, an analyst said. Shares have fallen more than 8%.
Before the markets opened Friday (Oct. 16), J.B. Hunt reported third-quarter earnings fell 17% to $125.49 million, or $1.18 per share, from $151.21 million, or $1.40 per share, in the same period in 2019. Revenue rose 4.6% to $2.47 billion, from $2.36 billion. The carrier missed earnings expectations of $1.27 per share, based on a consensus of 21 analysts. It beat revenue projections of $2.36 billion.
In an initial earnings take, analyst Jack Atkins and associates George Sellers and Wade Schaller, all of Little Rock-based Stephens Inc., said the difference in their projections from the reported results came from weaker than expected margins in the intermodal segment.
“We think this is likely from costs related to congestion and repositioning in the quarter, which was a well-known headwind but hard to quantify,” according to Atkins, Sellers and Schaller. “Given the recent run in the stock, we expect a sell-off on this headline. However, we would be buying this weakness as we see the margin headwinds in this quarter as transient and remain confident in our view that strength in the current freight market is setting the stage for a strong 2021 and 2022.”
Stephens maintained an overweight or buy rating and gave the stock a 12-month target price of $155.
As of late-morning Friday, shares of J.B. Hunt (NASDAQ: JBHT) were trading at $130.17, down $11.67, or by 8.2%. In the past 52 weeks, the stock has ranged between $144.35 and $75.29.
Through three quarters, the carrier’s earnings have fallen 12.9% to $352.02 million, or $3.30 per share, from $404.45 million, or $3.73 per share, in the same period in 2019. Over the same period, revenue has risen 2.6% to $6.89 billion, from $6.71 billion.
In the third quarter, J.B. Hunt attributed the revenue increase to a 25% increase in revenue per load in the brokerage segment, a 34% increase in the number of stops in Final Mile Services, a 9% increase in loads in the dedicated segment and a 14% increase in loads in the truck segment. Brokerage revenue attributed to the Marketplace for J.B. Hunt 360, the carrier’s technology platform, rose 41.9% to $291 million, from $205 million in the same period in 2019. Following also can be attributed to the platform: Nearly $41 million in third-party drayage cost in the intermodal segment and about $26 million in independent contractor costs in the truck segment.
Third-quarter income fell because of increased rail purchase transportation costs, lower gross margins in the brokerage segment, increases in driver wages and recruiting costs, increased third-party and company drayage costs, and continued investments in technology spending on new applications and legacy operating systems, according to J.B. Hunt.
In the third-quarter earnings call, J.B. Hunt executives explained it had to turn away business to meet existing customer demand. CEO John Roberts said labor shortages at railroad terminals have caused delays there. Roberts also said its corporate employees are slowly and carefully returning to the office amid the COVID-19 pandemic and noted the value of returning to work together.
“Initially, the adrenaline pushed us through, but over time we start to see why we work together in person,” he said. “The benefits of being together and collaborating, building on our culture, solving problems as a team and sharing time with each other show their value to us more now than ever.”
Following are results by segment:
Operating income fell 18.4% to $108.41 million, from $132.92 million. The income accounted for 62% of the carrier’s income. Through three quarters, operating income has fallen 11.9% to $317.65 million, from $360.59 million.
Revenue declined 1.6% to $1.21 billion, from $1.23 billion. The revenue accounted for 49% of the carrier’s revenue. Through three quarters, revenue fell 1.4% to $3.42 billion, from $3.47 billion.
The decline in income can be attributed to higher rail purchased transportation costs, including costs to reposition empty containers, lower overall revenue per load and higher drayage costs related to dislocations in rail capacity amid tight labor and truck capacity constraints.
Loads rose 2.3% to 529,709, from 517,409. Volumes were impacted by rail congestion and service issues related to “a large and sudden increase in demand and intermittent labor challenges in both the rail and truck networks,” according to J.B. Hunt. Revenue per load fell 4.5% to $2,287, from $2,396.
Darren Field, president of intermodal, noted capacity challenges and labor shortages at rail terminals and among drivers. The shortages at the terminals have contributed to slower unloading of equipment and terminal congestion, and the issues might have prevented the carrier from completing 20,000 additional loads in the quarter.
“I think we could have handled 20,000 more loads in the quarter, and that’s a soft, conservative estimate,” Field said. “We are turning down thousands of loads per week. We’re turning down eastern network growth opportunities because we have to struggle to find capacity to serve and honor these commitments we’ve made. We feel strongly that over the long-term that will absolutely benefit us.”
Field expects the third-quarter challenges with rail terminal congestion to continue into the fourth quarter but some easing to take place in the first quarter of 2021.
The number of trucks increased by four to 5,647. The number of trailers and containers increased to 97,439, from 96,689.
Operating income rose 5.2% to $80.43 million, from $76.42 million. The income accounted for 46% of the carrier’s income. Through three quarters, operating income has increased by 16.6% to $236.42 million, from $202.74 million.
Revenue rose 10.6% to $552.94 million, from $547.1 million. The revenue accounted for 22% of the carrier’s revenue. Through three quarters, revenue has risen 3.1% to $1.62 billion, from $1.57 billion.
The rise in income could be attributed to benefits from the increased productivity of assets, reduced driver turnover and fewer startup costs, and lower travel and entertainment expenses. This was partially offset by higher driver and account manager wages and benefits.
Loads increased 8.9% to 940,225, from 863,077. The number of trucks increased by 63 to 9,723. The numbers include company-owned, independent contractor and customer-owned. The number of trailers increased to 27,376, from 26,838.
Through September, the company has sold 890 trucks worth of new business, exceeding the expectation of selling 600-800 trucks worth of new business for the year, said Nick Hobbs, president of Dedicated Contract Services and Final Mile Services. Customer retention rate is more than 97%, and long-term operating margins are expected to be between 11% and 13%, he said.
The segment reported an operating loss of $18.3 million, compared to an operating loss of $5.63 million in the same period in 2019. Through three quarters, the segment has had an operating loss of $50.27 million, compared to an operating income of $755,000.
Third-quarter revenue rose 28% to a record of $431.14 million, from $336.72 million. The revenue accounted for 18% of the carrier’s revenue. Through three quarters, revenue has risen 10.1% to $1.07 billion, from $971.79 million.
Operating income fell as a result of lower gross profit margins. Gross profit margin fell to 7.6%, from 12.7%, amid competitive contract pricing and tight supply issues throughout the third quarter.
Loads increased 1.9% to 326,563, from 320,183. Revenue per load increased 25.4% to $1,320, from $1,052, because of customer freight mix changes and higher contract and spot rates compared to the same period in 2019. Contract volumes comprised 58% of total load volume and 38% of total revenue, from 68% and 52%, respectively, in the same period in 2019.
Employees declined to 1,037, from 1,193. The number of third-party carriers rose to 94,200, from 82,600. Trucks attributed to Marketplace for J.B. Hunt 360 increased to 777,000, from 667,000.
FINAL MILE SERVICES
Operating income increased 12.9% to $2.09 million, from $1.85 million. Through three quarters, the segment reported an operating loss of $6.45 million, compared to an operating loss of $13.73 million in the same period in 2019.
Third-quarter revenue rose 22.2% to a record of $182.09 million, from $148.98 million. Through three quarters, revenue increased 18.1% to $475.27 million, from $402.33 million.
Operating income rose as a result of increases in revenue attributed to the December acquisition of South Easton, Mass.-based furniture carrier RDI Last Mile Co. and the addition of multiple customer contracts throughout 2020.
The number of stops rose 34.4% to 1.6 million, from 1.19 million, largely as a result of the December acquisition and the addition of the multiple customer contracts in 2020. Productivity, or revenue per stop, declined 9% because of the difference in the “mix between the asset and asset-light nature of the additional contracts that were implemented,” according to J.B. Hunt.
The average number of trucks increased to 1,448, from 1,265. The numbers include company-owned, independent contractor and customer-owned.
Operating income fell 55.3% to $2.94 million, from $6.59 million. Through three months, operating income declined 63.9% to $8.2 million, from $22.72 million.
Revenue rose 15.8% to $109.11 million, from $94.18 million. Through three quarters, revenue has increased 9% to $322.33 million, from $295.66 million.
The decline in operating income could be attributed to an increase in purchased transportation expense, higher personnel cost and increased investment in technology in the transition and expansion of 360box, a trailer pool and drop-and-hook service. This was partially offset by increased load counts.
The carrier completed 98,505 loads in the third quarter, up from 86,647 loads in the same period in 2019. The number of trucks fell to 1,713, including 800 company-owned and 913 independent contractor, from 1,896, including 859 company-owned and 1,037 independent contractor. The segment had 8,245 trailers, up from 6,826 at the same time in 2019.