J.B. Hunt faces earnings decline in Q4 2023 amid lingering freight recession fallout

Lowell-based carrier J.B. Hunt Transport Services Inc. is expected to post declines in earnings and revenue in the fourth quarter and for 2023 as the fallout of the freight recession continues to affect financial results.

After the markets close Jan. 18, J.B. Hunt is projected to report earnings declined to $1.77 per share in the fourth quarter from $1.92 per share in the same period last year, based on a consensus of 21 analysts. Revenue is expected to fall by 10.2% to $3.28 billion from $3.65 billion.

For 2023, earnings are expected to fall to $7.27 per share from $9.21 per share in 2022. Revenue is expected to fall by 13.6% to $12.81 billion from $14.81 billion.

In an earnings preview, analysts Justin Long and Jack Atkins, and associates Brady Lierz, Grant Smith and Collin Nieman, all of Little Rock-based Stephens Inc., said the intermodal market is past the trough but faces pricing pressures following a weak 2023 bid season. The pricing pressures, low levels of dedicated fleet growth and challenges in the brokerage segment are all lingering headwinds for J.B. Hunt in early 2024.

“As a result, our estimates remain below (Wall) Street, and we would not be surprised to see muted stock performance in the near term,” the Stephens analysts said. “However, if Street estimates reset to a more reasonable level, and there are signs of a positive inflection in intermodal pricing, we see potential for much better set-up later in 2024 as investors look ahead to a multi-year trajectory of elevated growth.”

The Stephens analysts maintained a 12-month target price of $210 and an overweight (buy) rating.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Wednesday (Jan. 10) at $192.97, up $1.55 or 0.81%. In the past 52 weeks, the stock has ranged between $163.66 and $209.21.

Following is a preview by J.B. Hunt business segment:

INTERMODAL
The segment “experienced a peak season” because of “market share gains from both truckload and other (intermodal companies), and successfully flexed up its capacity to handle this surge,” the Stephens analysts said. They projected that intermodal volumes rose by about 5% in the fourth quarter from the same period in 2022. They expect similar volume growth in 2024.

“Importantly, we think this strength is being driven by service and an enhanced relationship with BNSF, not below-market pricing,” the analyst said. “And in 2024, we expect to see more evidence of the (J.B. Hunt)/BNSF partnership gaining momentum, particularly as it pertains to network planning and unique service offerings, (i.e. Quantum).”

However, the pricing pressures resulting from the weak bid season are expected to affect financial results for the next two quarters. The pricing from the 2024 bid season likely will not be reflected in the results until the second half of 2024. J.B. Hunt’s intermodal margins are expected to remain below the 10% to 12% target in the first half of 2024.

DEDICATED
The Stephens analysts expect the segment’s operating income to rise by 17% in 2023 from 2022. The increase can be attributed to fleet growth in 2022 and moderating start-up costs.

However, a fleet decline over the past year could affect revenue in the short term, the analysts said. Also, costs related to insurance and depreciation are expected to affect income in 2024. For the year, operating income is projected to rise by 6% from 2023.

“That said, we believe the dedicated pipeline is still fairly healthy, and there is potential for upside to our estimates if large contract wins materialize, and/or the freight cycle improves meaningfully and the existing dedicated fleet size expands,” the analysts said.

BROKERAGE|
Truckload did not experience a peak season like intermodal, according to the analysts. Brokerage volumes, margins and profits are expected to remain weak.

“This quarter will be noisy with the layering in of the acquisition of BNSF Logistics’ brokerage business, which we think has the potential to fall slightly shy of management’s guidance for ($100 million) of incremental revenue,” the analysts said. The brokerage segment is expected to report an operating loss of $17 million in the fourth quarter after accounting for between $4 million and $5 million in acquisition and integration-related expenses in the period.

“As a result, we expect (J.B. Hunt) to continue focusing on its efforts to ‘right-size’ this business and the integration of the recent acquisition which should positively inflect to an accretive impact in 2024,” the analysts said.