Analysts predict slump in Q1 earnings for J.B. Hunt

Analysts said Lowell-based carrier J.B. Hunt Transport Services Inc. is expected to post first-quarter declines in earnings and revenue amid freight market challenges.

After the markets close on April 16, J.B. Hunt is expected to report first-quarter earnings of $1.58 per share down from $1.89 per share in the same period last year, based on a consensus of 18 analysts. Revenue is projected to fall by 2.3% to $3.16 billion. In the first quarter of 2023, net income was $197.76 million. Revenue was $3.22 billion.

In an earnings preview, analyst Justin Long and associates Brady Lierz and Collin Nieman, all of Little Rock-based Stephens Inc., attributed J.B. Hunt’s “slower-than-expected start” to the year to “competitive behavior during bid season and import strength not translating into a meaningful tailwind for its business.” The result is that J.B. Hunt’s intermodal volumes are expected to be flat in the first quarter compared to the same period last year. The company’s brokerage and trucking segments are likely to be impacted by “cyclical challenges” that “have weighed on profitability more than originally expected.”

Despite the headwinds, Long, Lierz and Nieman said, “We do not want to lose sight of what we view as a compelling multi-year setup for (J.B. Hunt) as it leverages its structural advantages while also benefitting from a freight cycle that will eventually start to positively inflect after an extended two-year downturn.” The analysts maintained an overweight (buy) rating for the stock and lowered its 12-month target price by $2 to $210.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Tuesday (April 9) at $194.45, down 43 cents or 0.22%. In the past 52 weeks, the stock has ranged between $164.39 and $219.51.

The following is an earnings preview by business segment:

INTERMODAL
Stephens analysts said the international intermodal market has outperformed the domestic market. International volumes rose by 11% in January, while domestic volumes increased by 3%. In February, international volumes rose by 26%, while domestic volumes increased by 8%. The analysts believe a lot of the international volumes have been moving intact and have not benefited intermodal marketing companies. They said they would not be surprised to see J.B. Hunt’s intermodal volumes be flat in the first quarter from the same period last year and down from the fourth quarter. They expect 1 percentage point of margin pressure in the first quarter from the fourth quarter of 2023.

Still, Long, Lierz and Nieman expect the improved relationship with BNSF to be “a major structural advantage for (J.B. Hunt) in the years ahead. And in addition, the recently enhanced long-term agreement with (Walmart), including the purchase of an estimated 15,000 containers, should be a tailwind, albeit not a ‘step function’ change given this was already a key customer for (J.B. Hunt) and the incoming containers will need to undergo a retrofit this year to make them compatible with a (J.B. Hunt) chassis. So to summarize, we see a meaningful opportunity to multi-year intermodal growth, but pricing challenges are likely to add pressure to (first half of 2024) results.”

DEDICATED
According to Stephens analysts, dedicated sales activity has remained “healthy and supportive” in early 2024. The segment has a target of 1,000 to 1,200 truck sales this year, and this should help to offset some of the fleet attrition. Pressure on margins and operating income is expected in the first quarter compared to the fourth quarter of 2023 as a result of “normal seasonality and higher startup costs,” analysts said. “But in our view, not much has changed in terms of the full-year outlook for the business.”

OTHER SEGMENTS
According to Long, Lierz and Nieman, the first quarter looks to be another challenging period for the brokerage segment. First-quarter volumes are expected to be down by double digits from the same period last year and the fourth quarter of 2023. Gross margins are projected to fall from the fourth quarter. They attributed most of the declines to “cyclical pressure, but in addition, we believe strategic theft remains a headwind – a theme likely felt for the industry as a whole. All-in, we think this is likely to drive a high-teens operating loss in the segment on a dollar basis.”

In the truck segment, cyclical pressure, including competitive pricing, is expected to contribute to break-even profits. In the final mile segment, first-quarter results are expected to improve from the same period last year because of “company-specific tailwinds and believe results are tracking relatively in line with expectations,” analysts said.