J.B. Hunt earnings, revenue to rise in first quarter

Lowell-based carrier J.B. Hunt Transport Services Inc. is expected to post earnings and revenue increases in the first quarter as it positions itself for intermodal volume growth amid a looming freight recession.

After the markets close April 18, the carrier is expected to report earnings of $1.91 per share in the first quarter, up from $1.37 per share in the same period in 2021, based on a consensus of 18 analysts. Over the same period, revenue is projected to increase by 24.7% to $3.27 billion, from $2.62 billion.

In a first-quarter earnings preview, analysts Justin Long and Jack Atkins, senior associate George Sellers and associate Cameron Hoglund, all of Little Rock-based Stephens Inc., were optimistic about the carrier’s outlook. They pointed to the recent shifts in intermodal partnerships between railroads and carriers and J.B. Hunt’s plans to increase intermodal capacity as part of a joint initiative with BNSF Railway Co.

On March 16, J.B. Hunt announced plans to expand its intermodal fleet by about 40%, or up to 150,000 containers over the next three to five years.

“Simply put, we believe (J.B. Hunt’s) opportunity to grow on BNSF has significantly improved,” the analysts said. They also noted J.B. Hunt’s strategic alliance with Google and recent enhancements to the carrier’s trucking and final mile segments. “(J.B. Hunt) is improving both its diversification and long-term growth potential.”

The analysts maintained an overweight, or buy, rating on the stock and increased the 12-month target price by $13 to $245. Shares were trading Monday (April 11) at $169.85, down $3.33, or 1.93%. They are trading at levels similar to what they were about six months ago. Shares have fallen significantly since March 31 when they closed at $200.79. In the past 52 weeks, the stock has ranged between $155.11 and $218.18.

In March, FreightWaves published multiple articles about an imminent freight recession. In them, FreightWaves CEO Craig Fuller noted the company’s data showed a declining freight market. The key data point was the decline in freight tender rejections. This suggests capacity is loosening.

“The last week of March is normally one of the best weeks of the year for carriers,” Fuller wrote,” but this year it has been one of the worst.”

On Monday, Goldman Sachs released an analysis of the stocks in each sector with the best and worst pricing power, according to a Seeking Alpha article. J.B. Hunt, with an 11% margin, was listed as the No. 1 industrials stock with low and variable gross margins, the article showed.

“Pricing power will become increasingly important in the face of continued inflation and cost pressures,” said David Kostin, chief U.S. equity strategist. “In order to assess the sustainability of margins, we will monitor the ability of firms to pass increased costs through to consumers.”

Following is an earnings preview by J.B. Hunt segment:

INTERMODAL
The carrier continued to take delivery of the 12,000 containers it announced last year that it would purchase. The Stephens analysts believe the carrier received about 4,000 of the containers in the first quarter, and the additional capacity should help intermodal volumes improve in the coming quarters.

The March announcement with BNSF to further expand the capacity “demonstrates the significant addressable market for growth and the improvement in these two parties collaborating together to capitalize on this opportunity,” the Stephens analysts said. “We also think this offensive approach is being stimulated by the capacity coming off BNSF’s network from (Schneider) and (Knight-Swift) moving their western intermodal business to (Union Pacific Corp.) Finally, from a pricing perspective, we believe bid season is off to a better-than-expected start. And along with a return of volume growth, we believe margin-driven upside could play out again in 2022.”

The analysts expect first-quarter volumes to be flat from the fourth quarter. The volumes are projected to rise by 8% in the first quarter, compared to the same period in 2021.

DEDICATED
The analysts expect start-up costs to remain a segment headwind. They also expected challenges related to the omicron variant of COVID-19 and higher fuel prices during the first quarter. As a result, margins were projected to be flat from the fourth quarter (10.2%) and below the long-term target of 12% to 14%.

However, dedicated demand remains strong, and first-quarter sales are expected to be greater than the seasonal norm, they said. Also, margins are expected to improve through the remainder of this year, and revenue is expected to rise by 22% in 2022, from 2021. Truck production remains a limiting factor to meet sales targets, but the analysts believe demand exceeds the carrier’s target for 1,000 to 1,200 truck sales annually.

BROKERAGE
Demand remained strong, and volume is expected to rise by 12.5% in the first quarter, from the same period in 2021. Gross margins are expected to be 12.5%, up 0.3 percentage points from the fourth quarter and up 0.4 percentage points from the five-year average.