J.B. Hunt profit declines 12%; revenue up 9% in first quarter

Lowell-based carrier J.B. Hunt Transport Services Inc. earnings fell 12.3%, and revenue rose 9.1% as the carrier narrowly missed earnings expectations but beat revenue projections for the first quarter of 2020.

In an earnings call, J.B. Hunt executives provided an update on the response to the COVID-19 (coronavirus) pandemic, including the nearly $15 million in costs it didn’t plan on as a result of the health crisis. They also discussed plans to delay some projects it had previously planned while remaining focused on its employees and holding to its customer commitments.

After the markets closed Tuesday (April 14), J.B. Hunt reported net income declined to $104.83 million in the first quarter, or 98 cents per diluted share, from $119.6 million, or $1.09 per diluted share, in the same period in 2019. Revenue rose to $2.28 billion, from $2.08 billion.

J.B. Hunt missed analyst expectations for earnings by three cents, based on a consensus of 19 analysts. The carrier beat revenue expectations by $80 million.

Total freight transactions in the Marketplace for J.B. Hunt 360, the carrier’s technology platform, rose 47.7% to $294 million in the first quarter of 2020, from $199 million in the same period in 2019.

First-quarter operating income included a $12.3 million charge for a one-time bonus to employee drivers and personnel at field operations and customer facilities support the drivers who kept freight moving in the wake of the COVID-19 pandemic, an $8.2 million pre-tax charge related to the adjusted calculation of revenue division owed to BNSF Railway Co. for 2019 in the final award and $3.4 million of additional stock compensation expense as a result of the acceleration of equity award vesting for executive retirements, according to a company news release.

The company’s rise in revenue was offset by cost increases in rail purchase transportation rates, lower gross margins in its brokerage segment and a rise in technology spend on new applications in the segment, legacy system upgrades and increases in driver and other employee pay.

In the earnings call, John Kuhlow, interim chief financial officer, explained the biggest risk going into the second quarter was its customers’ liquidity and ability to pay. The company’s spending will be geared toward essential and critical items in the crisis. An expansion of a large terminal in the southwest was delayed amid the crisis, Kuhlow said, adding that it will cancel or delay orders of trucks and trailers when necessary.

The $15 million in unplanned costs includes the one-time bonuses to employees. The carrier also will reduce its planned capital expenditures for 2020 from between $675 million and $700 million to between $575 million and $600 million, he said. Between $425 million and $450 million of the latter expenditures includes maintenance.

Also in the call, Brad Delco, vice president of finance and investor relations, said the biggest impact during the crisis has been on the carrier’s Final Mile Services segment, which had been a part of Dedicated Contract Services. Losses might accelerate into the second quarter, he said. Meanwhile, the carrier’s brokerage segment continues to make investments into people, technology and J.B. Hunt 360.

Shares of J.B. Hunt (NASDAQ: JBHT) closed Tuesday at $97.89, up $2.96, or 3.12%. In the past 52 weeks, the stock ranged between $122.29 and $75.29.

Following are results by business segment:

INTERMODAL
This segment’s operating income, which accounted for 66% of J.B. Hunt’s income, fell 1% to $102.27 million, from $103.31 million. Revenue in the segment, which accounted for half of the carrier’s overall revenue, rose 5.7% to $1.14 billion, from $1.08 billion.

A 7% increase in load volume that was partially offset by a 1% decline in revenue per load contributed to the rise in revenue. Eastern network loads increased 1%, while transcontinental loads rose 11%. Through February, truck and container use improved as volume increases contributed to efficiencies in rail and drayage. Disruptions related to COVID-19 started to take place in March and escalated through the end of the quarter.

Rail purchased transportation costs rose, and this included the previously disclosed $8.2 million charge related to the revenue owed to BNSF, “empty repositioning and network balancing expenditures as the network fluidity was challenged due to atypical freight patterns during the quarter,” higher labor costs related to the one-time bonus and increased costs for dray repositioning, the release shows. Nearly $34 million of third-party drayage costs were completed via the Marketplace.

In the earnings call, Darren Field, executive vice president of intermodal, expected a double-digit decline in intermodal volumes for the second quarter as a result of the health crisis. Field also said the bid season in intermodal is ongoing and was about one-third completed at the point the crisis started to impact the business. Some customers have asked for a delay in the start of their contracts, from May to June, he added. Others have asked for an indefinite delay. But, the bid season has mostly been as expected, he said.

The segment had 96,500 intermodal trailers and containers and 5,490 trucks at the end of the quarter.

DEDICATED CONTRACT SERVICES
This segment’s operating income, which accounted for 47% of J.B. Hunt’s income, increased 45.5% to $72.89 million, from $50.08 million. Revenue, which comprised 24% of the carrier’s revenue, increased 10.2% to $541.74 million, from $491.43 million.

The rise in revenue can be attributed to the addition of customer contracts and higher fleet use. Productivity, or revenue per truck per week, rose 2%, and the rise can be attributed to customer rate increases, improved integration of assets between customer accounts and a rise in customer supply chain fluidity that can be attributed to a mild winter. The segment added 430 trucks to the fleet by the end of the quarter. Customer retention rates are above 98%.

In the call, Nicholas Hobbs, executive vice president and president of dedicated contract services, said all the trucks in the segment are in use, and some have been redeployed in intermodal amid the health crisis. The carrier’s grocery business is “very robust” and serves about nine or 10 grocers, he said.

Regarding business expansion, Hobbs said it has been difficult to get meetings with potential customers during the crisis, and the addition of new trucks won’t be as strong as it was in the past two or three years. Also, he expects sales will be down similar to the previous recession, which was a decline of about 20%.

INTEGRATED CAPACITY SOLUTIONS
The carrier’s brokerage segment reported an operating loss of $18.89 million in the first quarter, compared to income of $6.96 million in the same period in 2019. Revenue increased 11.5% to $335.49 million, from $300.81 million.

Revenue increased as a result of a 2% rise in load growth and a favorable change in customer freight mix. Contract business comprised 74% of total load volume and 64% of total revenue in the quarter, compared to 68% and 51%, respectively, in the same period in 2019. The segment was negatively impacted by a lower gross profit margin, increase costs to expand capacity and functionality of the Marketplace for J.B. Hunt 360, higher labor costs and increased digital marketing and advertising costs. Gross profit margins fell to 9.6% in the first quarter, from 16.5% in the same period in 2019, as a result of competitive pricing in the contract business and a tightening of supply at various points in the quarter.

Brokerage segment revenue attributed to the Marketplace rose 26.3% to $235 million as volume rose 44% from the same period in 2019.

The carrier base of the segment rose 13%, and the employee count rose 2%.

FINAL MILE SERVICES
As J.B. Hunt management previously announced, Final Mile Services would be a new segment that had been reported as a part of Dedicated Contract Services. Final Mile Services reported an operating loss of $3.3 million, compared to income of $164,000. Revenue rose 39.1% to $153.62 million, from $110.47 million.

The revenue rose as a result of the February 2019 and December 2019 acquisitions. Productivity, or revenue per stop, fell 17% as a result of a shift in the mix of services to a more asset-light model that can be attributed to the acquisitions. The decline in income can be attributed to increased investments to expand the segment’s network, increased costs related to the temporary suspension of operations at several customer sites as a result of COVID-19, higher bad debt expense, and $1.2 million in incremental expenses related to the acquisitions.

TRUCK
Operating income fell 75.4% to $1.77 million, from $7.23 million. Revenue increased 3% to $104.92 million, from $101.85 million.

Revenue increased as a result of a 15% rise in load growth that was offset by lower rates and changes in customer mix. Revenue per loaded mile fell nearly 6%, while contract customer rates decreased 1%. Income was impacted by an increase in purchased transportation, lower rates, higher trailing costs, and increased technology spending.

About $25 million of independent contractor costs were completed through the Marketplace in the quarter.

The segment had 1,887 trucks and 7,391 trailers at the end of the first quarter, compared to 2,043 trucks and 6,785 trailers at the same time in 2019.

GOODS BEING DELIVERED
Commercial transportation activity in the United States is 76% of what it was before mid-March, while heavy-duty truck traffic is about 84% of what it was, according to new data.

Geotab, an internet of things (IoT) and connected transportation provider, released new data showing commercial transportation continues amid the pandemic but at lower levels than earlier this year. Transportation to warehouses and retail stores has fallen between 20% and 30% since March 15, while transportation to grocery stores declined 10%.

“While many communities across North America and the world are declaring a state of emergency and are mandating the closure of non-essential businesses, trucking and logistics companies are continuing to deliver the goods that we rely on every single day,” said Neil Cawse, CEO of Geotab. “We at Geotab send our sincere gratitude to all truck drivers, along with healthcare workers, grocery store employees and many more who are continuing to provide the services and goods that we need.”

The rate of fuel fill-ups for heavy-duty trucks remains similar to what it was before the health crisis and was at nearly 100% of normal volume, while the rate for all other commercial vehicles has declined sharply.

In March, North American freight volumes declined 9.2%, from the same month in 2019, according to the Cass Freight Index. Freight expenditures fell 8.2% in March, from the same month in 2019, according to the index. The indexes for shipments and expenditures fell to January levels. As of April 13, investors seem to be more optimistic about a flattening in the number of cases and the re-opening of business that will take place sooner rather than later.

Market volatility is expected to continue in the coming weeks, “as we believe front line issues will get worse and draw headlines before any good news really comes to the millions of people impacted by the current crisis,” according to Cass Information Systems Inc. As a result, domestic shipments and freight costs are not expected to rise in the second quarter, from the same period in 2019. Shipment volumes are expected to reach a bottom in April and start to rise later in the second quarter, according to Cass.

Truckload linehaul rates declined to 2009 levels, and intermodal shipping costs decreased 4.4% from March 2019, according to Cass.