J.B. Hunt earnings up nearly 40%; revenue rises almost 15%

by Jeff Della Rosa ([email protected]) 322 views 

Lowell-based carrier J.B. Hunt Transport Services Inc. exceeded analyst expectations for earnings and revenue in the first quarter. Net income and revenue rose by double-digits amid weather-related disruptions and driver availability challenges.

After the markets closed Thursday (April 15), J.B. Hunt reported first-quarter earnings rose by 39.8% to $146.6 million, or $1.37 per share, from $104.8 million, or 98 cents per share, in the same period in 2020. Revenue increased by 14.7% to $2.61 billion, from $2.28 billion.

J.B. Hunt beat earnings expectations of $1.18 per share, based on a consensus of 22 analysts. It also beat revenue expectations of $2.49 billion.

All segments of the business contributed to the year-over-year increase in revenue, according to the company. The brokerage, or Integrated Capacity Solutions, and the truck segments grew revenue by 56% and 43%, respectively, as both secured capacity in the Marketplace for J.B. Hunt 360, the carrier’s technology platform, particularly following the weather-related disruptions over the period. Final Mile Services revenue increased by 31% as a result of new contract business added over the past year. Dedicated Contract Services revenue rose by 7% and can be attributed to a 6% improvement in fleet productivity and a larger fleet. Intermodal revenue increased by 2% amid a 5% rise in gross revenue per load that was partially offset by a 3% decline in volumes.

“All segments experienced weather-related volume disruptions in the quarter, but the impact was the most significant in (intermodal),” according to the company. “Current quarter total operating revenue, excluding fuel surcharges, increased approximately 17% vs. first quarter 2020.”

Total freight transactions in the Marketplace for J.B. Hunt 360 rose to $443 million in the first quarter, from $294 million in the same period in 2020. Brokerage revenue on the platform rose by 53% to $359 million, from the same period last year. Intermodal and truck segments completed nearly $32 million and $51 million, respectively, of their third-party dray, independent contractor and power-only capacity costs through the platform in the period.

Operating income rose 34% to $207.7 million, from $154.7 million. The income was negatively impacted by about $8 million in COVID-related expenses, which were down from $15 million in the same period in 2020.

The benefit from increased revenue was partially offset by higher purchased transportation expense, drive wages and recruiting costs, higher salary and wages for non-driver personnel, higher insurance premiums and continued investment in legacy IT systems upgrades and new systems development costs.

In the first-quarter earnings call, J.B. Hunt executives highlighted driver availability issues and the impacts of the extreme winter weather. They also noted the addition of new equipment in the intermodal and truck segments.

John Kuhlow, chief financial officer, said the impact from the winter storms in February had a $17 million impact on operating income. This largely comprised a loss of about 25,000 loads in the intermodal segment, he added.

CEO John Roberts said the company plans to increase its capital spending to $1.25 billion and add 12,000 intermodal containers in 2021. About 1,000 of the new containers will be temperature controlled. The company also will add 3,000 trailers to its fleet in 2021 and will support the 360box service that launched in 2019. It’s a trailer pool and drop-and-hook service for businesses and carriers. Using Carrier 360 by J.B. Hunt, carriers make offers to transport the trailers.

Roberts also revised margin targets for the intermodal, dedicated and truck segments. The intermodal margin targets were updated to 10%-12%, from 11%-13%. The dedicated margins were changed to 12%-14%, from 11%-13%. The truck margin targets were changed to 8%-10%, from 8%-12%. Roberts said the truck targets were changed as the company looks at the segment as a more asset-light business and plans to add more trailers, not trucks. The brokerage targets remained 4%-6%, while the Final Mile Services targets were kept at 4%-8%.

Shelley Simpson, chief commercial officer and executive vice president of people and human resources, said the capacity challenges that customers are facing are likely to continue through 2021 amid a “tight labor market, elevated costs to procure capacity and an overall lack of supply chain fluidity.” Simpson also noted increased costs related to higher driver wages and recruitment expenses.

The availability of drivers is “under unusual pressure currently,” Roberts said. The existing pressure is “more pronounced” and likely is expected to last longer compared to previous availability challenges.

Nick Hobbs, chief operating officer and president of contract services, said this has been the most challenging driver market in his 37-year career at J.B. Hunt. The decline in driving school applicants and graduates, the Drug and Alcohol Clearinghouse and pandemic impacts have resulted in

about 220,000 fewer drivers available to meet industry capacity needs, he added.

Roberts explained the steps taken to address the issue, including reducing the eligibility for new driver benefits to 30 days, from 90 days; expanding efforts to train and mentor new drivers; and reviewing driver wages and compensation.

“All in, we believe we are advantaged by our brand, our recruiting and hiring systems, a focus on retention and the vitally important increasing efforts in improving our inclusion and awareness for the vast diversity currently in place with our amazing driver and field management teams,” he added.

In a research brief, analysts Justin Long and Jack Atkins and associates George Sellers and Wade Schaller, all of Stephens Inc., said the carrier’s beat in expectations can be attributed to the revenue and operating margins of 7.9%. The revenue was a 4% beat, while the margins were a 0.9 percentage-point beat.

All five of the company’s segments beat expectations, and the most significant beat came from intermodal, they said. Operating margins improved 0.2 percentage points from the fourth quarter of 2020 despite the weather disruptions. The brokerage segment also remained profitable as gross margins improved by 1.6 percentage points from the fourth quarter.

“Overall, this was a strong quarter across the board as very favorable freight market fundamentals offset the negative impact of weather,” the analysts added. “And particularly with the recent intermodal pricing momentum, we continue to think Street numbers have an upward bias.” The analysts maintained their overweight (buy) rating for the stock and are reviewing estimates and 12-month target price of $180.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Thursday at $169.77, up 59 cents or 0.3%. The stock hit a record high of $173.04 on April 5. The stock first traded at more than $100 per share in December 2016. It’s been trading at over $100 per share since June 2019. It first traded over $150 per share on Jan. 7. The stock has closed consistently at more than $150 per share since March 5. It closed April 12 at $171.50. In the past 52 weeks, the stock has ranged between $95.30 and $173.04.

SEGMENT PERFORMANCE
* Intermodal
Operating income increased 5% to $107.5 million. Revenue rose 2% to $1.18 billion. Volumes declined by 3% in the first quarter, from the same period in 2020. The volumes were affected by the winter weather in

February, but network-related disruptions continued to impact service and volumes in March.

* Dedicated Contract Services
Operating income rose 2% to $74.3 million. Revenue increased 7% to $580 million. Productivity, or revenue per truck per week, increased 6% in the first quarter, from the same period in 2020. The rise can be attributed to higher use rates of assets, contracted indexed-based price escalators and less equipment idled. Also, a net additional 203 revenue-producing trucks were in the fleet by the end of the first quarter, compared to the same period in 2020. Customer retention rates are more than 98%.

* Integrated Capacity Solutions
Operating income was $7.3 million in the first quarter, compared to an operating loss of $18.9 million in the same period in 2020. Revenue increased 56% to $525 million. The growth could be attributed to a 58% increase in revenue per load which was impacted by higher spot and contract rates compared to the first quarter of 2020. Volumes fell 1% in the first quarter as a result of customer freight mix changes, while truckload volumes rose 10%. Contract volumes comprised 49% of the total load volume and 35% of the total revenue in the first quarter, compared to 67% and 54%, respectively, in the same period in 2020. Gross profit margins rose to 12.4% in the first quarter, from 9.6% in the same period in 2020. The carrier base rose 24%.

* Final Mile Services
Operating income was $8.5 million in the first quarter, compared to an operating loss of $3.3 million in the same period in 2020. Revenue rose 31% to $202 million. Stop count increased by 37% as a result of the addition of multiple customer contracts implemented over the past year. Productivity, or revenue per stop, declined 4% as a result of a shift in the mix of business between asset and asset-light operations.

* Truck
Operating income rose 472% to $10.2 million. Revenue increased by 43% to $150 million. The rise can be attributed to a 6% increase in loads, a 38% increase in revenue per load excluding the fuel surcharge and an 8% increase in the average length of haul. Load count growth and the length of haul increase could be attributed to the continued expansion of 360box. Revenue per loaded mile excluding the fuel surcharge increased 28% while contract rates were up 14% in the first quarter, from the same period in 2020. The segment had 8,571 trailers

and 1,716 tractors at the end of the first quarter, compared to 7,391 and 1,887, respectively, at the same time in 2020.

BROADER MARKET TRENDS
With truckload rates at historic highs, more carriers made their trucks available on the spot market last week, according to DAT Freight & Analytics. Meanwhile, West Coast port container import volumes rose by 69% to a record level in March, from the same month in 2020. The month is typically one of the slowest months for container imports, but with e-commerce retail sales rising and inventories low, higher freight volumes for truckload carriers in port markets are expected to continue. In Los Angeles, which has the U.S. largest port, capacity remains tight following the fourth consecutive week of spot rate increases.

Dry van spot rates increased 1.1% as of April 11, compared to April 4, according to DAT. The rates were up 10.4% in March, from February, and were 41.9% higher compared to March 2020.

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