J.B. Hunt profit falls nearly 12%, revenue rises 6% in second quarter

J.B. Hunt Transport Services missed analyst expectations for profit in the second quarter as earnings fell 11.9% while meeting expectations for revenue, which rose 6% from the same period in 2018.

After the markets closed, the Lowell-based carrier reported Monday (July 15) second-quarter earnings were $133.63 million, or $1.23 per share, down from $151.65 million, or $1.37 per share, in the same period in 2018. J.B. Hunt missed analyst expectations by 12 cents, based on a consensus of 20 analysts. Revenue was $2.26 billion, up from $2.14 billion. The carrier met expectations for revenue.

In the first six months of 2019, earnings fell 6.1% to $253.23 million, or $2.32 per share, from $269.79 million, or $2.44 per share, in the same period in 2018. Over the same period, revenue increased by 6.5% to $4.35 billion, from $4.09 billion.

The carrier’s revenue growth was driven by a 19% rise in revenue producing trucks and an 8% increase in truck productivity in the carrier’s Dedicated Contract Services segment, and this was offset by an 8% decline in volume in intermodal and a 7% decline in volume in the brokerage segment and fewer trucks operating compared to the previous year.

Operating revenue through the carrier’s freight matching software Marketplace for J.B. Hunt 360 rose 62% to $222 million, from $137 million in the second quarter of 2018. The intermodal segment handled about $41 million of its third-party drayage costs and trucking handled about $5 million of its independent contractor costs through Marketplace in the second quarter.

Operating income fell as the benefits from customer rate increases and the rise in revenue producing trucks were partially offset by an increase in insurance and claims costs, including a $20 million pre-tax charge, which impacted earnings by 14 cents and was related to a claim in the Final Mile business within the Dedicated Contract Services segment. Also offsetting income were increased rail purchased transportation costs, startup costs related to expansion and integration in the Final Mile business, higher driver wages and recruiting costs and increased technology costs to develop J.B. Hunt 360 and rising facility costs, from the same period in 2018.

Interest expenses rose as a result of higher debt levels, and the effective income tax rate for the period was 25%, compared to 26% in the same period in 2018.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Monday (July 15) at $92.58, down 36 cents, or 0.39%. In the past 52 weeks, the stock has ranged between $129.98 and $83.64.

Following is a breakdown of results by segment.

INTERMODAL
Operating income fell 7% to $124.4 million as the benefits from customer rate increases were offset by the volume decline, higher rail purchased transportation costs, higher driver pay, retention and recruiting costs, increased technology costs and increased equipment and facilities costs.

Revenue declined 1% to $1.15 billion as volume fell 8%. Transcontinental loads fell 5%, and Eastern network volumes fell 11%. A softer freight market impacted the ability to offset rail improvements in the Eastern network; however, loads per workday trends improved throughout the quarter, especially in the transcontinental network. Revenue per load rose 7% as a result of a combination of customer rate changes, fuel surcharges and freight mix.

In an earnings call with analysts, Terry Matthews, president of intermodal, said he expects volumes to turn positive in the fourth quarter of 2019, compared to the same period in 2018.

The segment had 5,640 trucks and 96,700 containers and trailers at the end of the second quarter.

DEDICATED CONTRACT SERVICES
Operating income rose 3% to $60.5 million as benefits from increased productivity, more trucks under contract and a $4.3 million decrease in salary and wage growth were partially offset by a rise in insurance and claims costs as a result of the Final Mile claim, increased technology and facilities costs in the Final Mile network, increased driver pay and recruiting costs and an incremental $1.7 million in non-cash amortization expenses related to the February purchase of New Jersey-based carrier Cory 1^st Choice Home Delivery.

Revenue increased 28% to $680 million as productivity, or revenue per truck per week, increased 8%. Final Mile revenue rose $49 million as a result of the February purchase. The segment added 1,755 trucks from the same quarter in 2018 and 259 new trucks since the first quarter of 2019. About 44% of the additions were related to private fleet conversions, and 8% could be attributed to the Final Mile business. Customer retention rates were more than 98%.

INTEGRATED CAPACITY SOLUTIONS
In the carrier’s brokerage segment, operating loss was $570,000 as a result of lower gross profit margin, increased personnel costs, higher digital marketing costs and increased technology development costs. The carrier continues to invest into Marketplace to expand its capacity and functionality.

In the call, CFO David Mee said the segment is spending about $11 million per quarter to expand Marketplace and the related software platform. Mee said he was unsure how much more money will need to be spent to see maximum revenue from it. In 2017, the company announced a $500 million technology investment, including Marketplace for J.B. Hunt 360.

Gross profit margins fell to 13.4% in the second quarter, from 14.8% in the same period in 2018 as a result of weaker spot market activity and lower contract rates on committed business. The carrier base rose 26%, and the number of employees rose 15% from a year ago.

Revenue fell 4% to $334 million as volumes declined 7%. Revenue per load increased 4% as a result of customer freight mix. Higher contractual truckload volume was offset by a 33% decline in less-than-truckload shipments and decreased spot market activity compared to the second quarter of 2018. In the call, Shelley Simpson, executive vice president, chief commercial officer and president of Highway Services, noted as the carrier has moved its system from the mainframe to the cloud, its less-than-truckload business was impacted, and the carrier looks to bring back those customers by 2020.

Contract volumes represented about 68% of total load volume and 55% of total revenue compared to 68% and 45%, respectively, in the same period in 2018. Of the total revenue in the segment, $222 million could be attributed to the Marketplace, up from $137 million in the same period in 2018.

TRUCK
Operating income rose 19% to $8.9 million as benefits from lower equipment costs and decreased non-driver personnel expense were partially offset by higher driver and independent contractor costs per mile.

Revenue fell 2% to $99.6 million while load count was flat. Revenue per load excluding fuel surcharges rose 1% as a result of a 4% increase in rates per loaded mile and a 3% decline in the length of haul. At the end of the second quarter, the segment had 1,879 trucks, down from 1,976 from the same time in 2018.