Winter storms dampen J.B. Hunt Transport earnings growth

Net profits of Lowell-based J.B. Hunt Transport Services declined in the first quarter to $68.664 million, down 6.38% from the same period last year. The logistics giant cited rail service disruptions, a series of winter storms in the Midwest and Northeast and more losses in its trucking segment for the slimmer bottom line.

Wall Street had forecast net earnings at $74.9 million or 63 cents per share. Hunt narrowly missed those projections posting 58 cents per share, weaker than the 61 cents per share recorded in the same period of 2013.

On a positive note, Hunt did improve its top line revenue from a year ago. Total operating revenue for the quarter ending March 31 was $1.41 billion, compared with $1.29 billion last year.

The company sited a 5% load increase in its intermodal segment and robust 29% growth in the brokerage revenues from its Integrated Capacity Solutions segment. The Dedicated Contract Services division also had a strong quarter with revenue rising 15% from the prior year period. Those results were offset by a 9% decrease in trucking revenue amid the ongoing fleet reduction linked to a lack of independent contractors.

“It was evident that the weather in the first quarter, particularly in January and February, played a significant role in both our growth and profitability,” John Roberts III, president and CEO of J.B. Hunt Transport, noted in the release.

He expects better performance for the remainder of this year but said even though the weather disruptions have subsided, there are still increased driver costs, rising insurance and equipment costs that are likely to persist. Roberts said those expenses will have to be recovered with higher bids and customer contract discussions in the marketplace.

“Feedback from our customers about their business expectations for the remainder of the year gives us encouragement that growth should return to our previously announced ranges,” Roberts said.

While the overall freight segment is improving, some analysts believe Hunt shares are trading near the top of their projected range, which prompted a recent downgrade to neutral from Bank of America. Stephens Inc. analyst Brad Delco sees the weather disruption issues as a short term blip, but notes that Hunt lost some potential pricing momentum in the process, which is going to take longer to recover. (Stephens Inc. conducts investment services for J.B. Hunt Transport and is compensated accordingly.)

Delco reduced his full year earnings projections for Hunt to $3.15 per share, down from $3.25 stated earlier. He said this new estimate could prove to be conservative if the truckload market continues to tighten up, which could spill over into higher rates for Hunt’s brokerage division.
 Longer term, Delco is bullish on Hunt as he believes the short term weather impact on Hunt’s stock pricing is an opportunity for investors to increase their stake in the company.

Shares of J.B.Hunt were trading higher on Monday (April 14) following the earnings report. Hunt shares (NASDAQ: JBHT) were active at $73.60, up $2.09 in the morning session. During the past 52 weeks shares have ranged from a low $67.97 to a high $79.89.

MIXED INTERMODAL
Segment Revenue: $835 million; up 5%
Operating Income: $93.2 million; down 4%

Hunt reports its Eastern network realized load growth of 9% and Transcontinental loads grew 2% compared to prior year dispute sluggish metrics in the Midwest.

“We began to realize more normalized customer demand and network balance in March and remain confident our original 2014 growth expectations are realistic. Overall revenue grew 5% reflecting the lower volume growth and a flat revenue per load, which is the combination of customer rates, fuel surcharges and freight mix. Revenue per load excluding fuel surcharge revenue increased 1.2% year over year,” the company noted in  its release.

Hunt said winter weather caused a shortage of about 13,000 loads and ultimately dinged the segment’s operating income by $9 million. Hunt ended the quarter with approximately 67,500 units of trailing capacity and 4,300 power units available to the dray fleet.

DEDICATED CONTRACT SERVICES
Segment Revenue: $322 million; up 15%
Operating Income: $15.6 million; down 29%

DCS revenue increased 15% during the quarter over the same period 2013. But revenue on a per truck per week basis was down approximately 5.7% versus 2013 due to the large number of Midwestern and Northeastern customer accounts affected by the winter weather and a significant increase in unseated trucks in the current period. Since last year the company added a net 1,014 of revenue producing trucks primarily from new accounts.

Operating income decreased by 29% from a year ago. Lower productivity, higher equipment and maintenance costs and increased safety costs from the severe weather affected operating income by approximately $8 million in the current quarter.

INTEGRATED CAPACITY SOLUTIONS
Segment Revenue: $163 million; up 33%
Operating Income: $6.1 million; up 18%


Revenue grew faster than volume due to a change in freight mix driven by customer demand. Contractual business was approximately 59% of total load volume, but only 50% of total revenue in the period compared to 69% and 63%, respectively, in first quarter 2013.

“We were encouraged by the response our ICS business showed in dealing with the tighter truck market created by the weather, rail service disruptions and a very real driver shortage,” Roberts said.

Hunt continues to invest in this segment adding 13% more employees and total branch count increased to 24 from 16 over the same period 2013. ICS’s carrier base also increased 7% compared to first quarter 2013.

TRUCKLOAD
Segment Revenue: $92 million; down 9%
Operating Income: $2.4 million; up 124%

This segment revenue decreased 9% from the same quarter 2013, primarily from a 9% reduction in fleet size and lower utilization per truck from the winter weather in January and February. At the end of the quarter, Hunt’s tractor count was 1,917 compared to 2,011 in 2013.

Operating income for the quarter increased by 124% compared to the same quarter of 2013. Benefits from lower personnel costs, a smaller trailer fleet and gains on equipment sales were offset by increased driver hiring costs and higher maintenance and equipment costs per unit.

“We were encouraged by the trucking segment’s improvements this quarter even as they dealt with a smaller independent contractor fleet that affected their revenue expectations," Roberts said.

The company said productivity in March recovered to March 2013 levels, however driver recruiting challenges will likely remain in future periods.

THE NUMBERS
Total Revenue
Q1 2014: $1.406 billion
Q1 2013: $1.291 billion
9%

Net Income
Q1 2014: $68.664 million
Q1 2013: $73.349 million
-6.38%

Earnings Per Share
Q1 2014: 58 cents
Q1 2013: 61 cents
-4.9%