J.B. Hunt 2Q earnings, revenue to fall, analysts say

Lowell-based carrier J.B. Hunt Transport Services Inc. is expected to post declines in second-quarter earnings and revenue amid weak freight demand and recovery timeline uncertainty, analysts said.

After the markets close Tuesday (July 18), J.B. Hunt is expected to report earnings fell to $1.93 per share in the second quarter from $2.42 per share in the same period last year, according to a consensus of 20 analysts. Revenue is projected to fall by 13.6% to $3.32 billion from $3.84 billion.

In an earnings preview, analysts Justin Long and Jack Atkins and associates Brady Lierz and Grant Smith, all of Little Rock-based Stephens Inc., said the freight cycle is in “an extended trough” and noted a “lack of clarity” on the timing of a recovery. The analysts expect J.B. Hunt to miss second-quarter earnings expectations because of continued pressure on intermodal volumes and pricing.

“While these near-term results are admittedly disappointing, we think it is important to not miss the forest for the trees,” the analysts said. “To start, we are likely in the late innings of the freight downturn with any signs of improvement capable of driving valuation multiple expansion very quickly. In addition, we think (J.B. Hunt) is in a much more favorable position into the next freight upturn given its enhanced relationship with BNSF and the rail industry’s increased focus on improving volume growth/service through the cycle.”

Stephens analysts maintained an overweight (buy) rating on J.B. Hunt stock and lowered the 12-month target price by $1 to $196. Shares of J.B. Hunt (NASDAQ: JBHT) closed Thursday (July 13) at $184.07, down 62 cents or 0.34%. In the past 52 weeks, the stock has ranged between $156.28 and $200.64.

Following is a preview of J.B. Hunt segments:

INTERMODAL
According to analysts, segment volumes were stable in April and May and improved slightly in June. Still, second-quarter volumes are down about 9% from the same period in 2022. Second-quarter volumes are up about 1% from the first quarter of 2023.

“Simply put, we believe the market is continuing to bounce along the cyclical trough and weigh on (J.B. Hunt’s) results,” the analysts said. “From a glass-half-full perspective, we think a large portion of the inventory de-stocking headwind played out in (the first half of 2023), and there was also a tentative labor agreement reached with the West Coast port employees on June 14 which can only help. And whenever intermodal volumes rebound, we believe the operating leverage for (J.B. Hunt) will be significant, especially if this rebound is related to imports on the West Coast.

“However, with this can getting kicked down the road, we think intermodal pricing pressure during bid season (down mid- to high-single digits) will weigh on margins more than expected in the quarters ahead vs. our prior expectation that a more meaningful sequential improvement in intermodal volumes could help soften this blow.”

Intermodal operating margins are expected to be 10% in the second quarter, down 1 percentage point from the previous quarter, analysts said.

DEDICATED
Segment truck count is not expected to change significantly from the previous period. Despite customers downsizing during the downturn, the segment is offsetting this with new contracts, analysts said. The fleet size this year is expected to be flat from the end of 2022.

Margins and operating income are projected to improve in the second quarter from the first quarter.

“Bottom line, we expect the resiliency of the dedicated business to persist,” the analysts said. “We believe the company remains on track to achieve its target of 1,000 to 1,200 new truck sales in 2023. On this point, we would highlight the company sold around 200 units in (the first quarter of 2023), and we expect this number to accelerate to 300+ units in (the second quarter of 2023.)”

BROKERAGE
The segment is expected to remain challenged amid the weak freight market, analysts said. Second-quarter volume is projected to fall 20% from the same period in 2022. Gross margins are expected to decrease by 0.4 percentage points to 13% from the first quarter of 2023.

Stephens analysts expect the segment to post an operating loss of $5 million in the second quarter, similar to the previous quarter.

OTHER SEGMENTS
According to the analysts, the Final Mile and Truck segments are expected to face near-term headwinds. However, they noted positives that include profitability initiatives in the previous and resiliency in the latter.