J.B. Hunt profit rose 41%, revenue up 35% in second quarter

Lowell-based carrier J.B. Hunt Transport Services Inc. exceeded analysts’ expectations in profit and revenue as freight demand surged in the second quarter.

After the markets closed Monday (July 19), J.B. Hunt reported second-quarter net income increased by 41.5% to $172.2 million, or $1.61 per share, from $121.7 million, or $1.14 per share, in the same period in 2020. Revenue rose 35.3% to $2.91 billion, from $2.15 billion. Earnings beat analyst expectations of $1.55 per share, based on a consensus of 21 analysts. Revenue exceeded expectations of $2.7 billion.

Income rose as a result of “customer rate and cost recovery efforts, higher volumes, further scaling into our technology investments, higher productivity of our assets and people across our (Dedicated Contract Services), (Final Mile Services) and (Integrated Capacity Solutions) segments, and a benefit of $3.2 million related to the net settlement of claims in (Final Mile Services),” according to the carrier’s earnings release. “These items were partially offset by increases in driver wage and recruiting costs, rail and truck purchase transportation expense, non-driver personnel salary, wages and incentive compensation, higher group medical expense, elevated implementation costs for new, long-term DCS contracts, and a lack of network fluidity from both rail and customer activity in (intermodal).”

Total freight transactions in the Marketplace for J.B. Hunt 360, the carrier’s technology platform, increased by 77.9% to $500 million in the second quarter, from $281 million in the same period in 2020.

Through the first half of the year, the carrier’s net income increased by 40.7% to $318.76 million, from $226.53 million in the same period in 2020. Revenue rose by 24.9% to $5.52 billion, from $4.42 billion.

In a second-quarter earnings call, company executives highlighted challenges related to a labor shortage and shipping equipment availability. In April, executives announced purchasing 12,000 new intermodal containers, and the company expects to receive them going into 2022. It plans to get between 3,000 and 4,000 of the containers in the third quarter.

“One of our biggest challenges this year, which got even worse during the second quarter, was the detention of our trailing equipment by customers across both our intermodal and truck segments,” said Shelley Simpson, chief commercial officer and executive vice president of people and human resources. “We are addressing these issues with our customers through direct conversations and accessorial charges, and in some instances, we are restricting capacity to certain customer locations.

“To be clear, we did not implement or augment new accessorial programs with the intent of increasing the cost to our customers,” she added. “Our intent was to provide the appropriate incentive to our customers to encourage the improvements needed to be able to turn our equipment efficiently.”

Simpson also noted the company recently hired its first vice president of inclusion.

In an earnings report, analysts Justin Long and Jack Atkins and associate George Sellers, all of Little Rock-based Stephens Inc., said all five of the company’s business segments met or exceeded their expectations. The most significant upside could be attributed to the benefits from the net settlement of claims and truckload. The company’s brokerage segment was profitable amid a sequential gross margin decline of 1.9 percentage points, which was higher than the five-year average of 1.1 percentage points.

“Overall, this looks like a solid quarter that is slightly better than expectations,” the analysts said. “Looking ahead, momentum in intermodal pricing, new dedicated contracts and the inflection in (Integrated Capacity Solutions) profitability all set the stage for momentum to build into (the second half of 2021) and 2022.”

The analysts maintained an overweight, or buy, rating and 12-month target price of $195.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Monday at $159.68, down $5.27, or 3.19%. In the past 52 weeks, the stock has ranged between $183.80 and $119.22.

Following are second-quarter results by business segment:

INTERMODAL
Revenue rose by 21% to $1.29 billion, and operating income rose by 26% to $134.6 million. Freight volume increased by 6%, and revenue per load increased by 15%.

DEDICATED
Revenue increased by 17% to $621 million, and operating income fell by 5% to $79 million. Fleet productivity improved by 11%, and average revenue-producing trucks rose by 5%.

BROKERAGE
Revenue rose by 100% to $607 million, and operating income was $3.1 million, compared to a $13.1 million loss in the same period in 2020.

FINAL MILE SERVICES
Revenue rose by 52% to $212 million, and operating income was $10.7 million, compared to a $5.2 million loss in the same period in 2020. Stops increased by 59%.

TRUCK
Revenue rose by 70% to $184 million, and operating income rose 308% to $14.2 million.

BROADER MARKET TRENDS
In a recent webinar, Zach Strickland, director of freight market intelligence at FreightWaves, said freight volumes started to rise in mid-June and continued to do so throughout the remainder of the month. The rise in demand was similar to the one at the end of March before Easter. The most recent increase led up to Independence Day before people went on vacation, he said.

“It actually has been a very extreme vacation year thus far this summer,” Strickland said. “A lot of people getting out of the office and trying to make sure they get everything done before they leave.”

Freight volumes moderated after Independence Day, but he expects demand to continue to remain strong. He also said outbound tender rejection rates, which reflect market capacity, have started to fall and were less than 22%. Higher rates reflect tighter capacity. However, he said the recent rate decline is more likely a result of carriers better adhering to contracts as contract rates increase as opposed to new capacity being added to the market.

“We’re still several months away from seeing what we would consider a market that is somewhat stable,” Strickland said. “Anything over a 20% tender rejection rate we consider chaos; 15% is considered extremely tight; 10%, marginal tightness; and that 5-10% starts to be in that manageable area of capacity.”

He noted fuel prices have risen about 30% since January, and this has contributed to a rise in spot rates. Fuel prices are not expected to fall anytime soon, he added. Meanwhile, contract rates are up about 15% since the start of the year.

Another metric he discussed was maritime rates, and the average spot rate to transport a 40-foot-long container from China to the United States has risen. Before Independence Day, the rate exceeded $10,000 to deliver a container from China to the East Coast. The rate was about $3,800 less to deliver a container to the West Coast. Before the pandemic, the rate to deliver a container from China to the West Coast was between $1,300 and $1,400, he said. Now, the cost spread between delivering a container from China to the East Coast or West Coast is three times that amount.

“That is insane,” he said. “It’s unfathomable how … extensively these rates have grown over the last year or so. We are starting to see a little bit of a sign of these coming back down, but considering we’re not into their traditional peak season… it’s certainly not time to start to relax just yet, especially since some of that freight demand fell off thanks to some of the disruptions across the ocean in China.”