J.B. Hunt shares soar after quarterly earnings report beats estimates

Investors of J.B. Hunt Transport Services enjoyed a 5.5% gain in their share value Tuesday (Oct. 14) in active trading on the heels of the logistics giant reporting stellar third quarter results even with challenges within the industry.

The stock price rallied to $75.22, up $3.92 per share before noon Tuesday as the major market indices also logged big gains, led by lower oil prices helping transport stocks.

Lowell-based J.B. Hunt pocketed income of $102.41 million in the quarter ending Sept. 30. Profits rose 14% from $89.5 million posted in the prior year period. That equated to 87 cents per share, a 16% gain over the 75 cents returned a year ago and 3 cents better than Wall Street expected.
 
It wasn’t just bottom line profits that propelled Hunt higher. The diversified carrier also exceeded top line predictions posting revenue of $1.6 billion, compared to $1.44 billion a year ago. Analysts polled by Thomson Reuters expected revenue of $1.59 billion in the quarter.

Operating income for the quarter totaled $172 million versus $151 million for the third quarter 2013.

Hunt officials attributed results to higher rates and increased load volume in three of its four operating segments. The company also cited higher operating costs related to driver recruitment, higher pay for third party drivers, increases in mileage pay, rising equipment costs and escalating insurance and workers compensation expense.

Interest expense in the quarter increased from a year ago due to higher debt levels primarily from increased net capital expenditures.

The Street.com analysts see some important positives in J.B. Hunt which they believe will out weight perceived weaknesses in the sector, which is why they give the stock a “buy” rating.

“The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins,” Street.com analysts note.

PROFIT BY SEGMENT
• Intermodal
Intermodal — rail via truck — revenue totaled $963.56 million in the recent quarter, up 8% from a year ago. Operating income totaled $125 million, a 6% gain year-over-year. This important segment for Hunt is 60% of the company’s total revenue and 73% of its operating income.

Load growth in this segment rose 8% in the quarter amid a challenging environment for rail services and limited dray fleet capacity. Much of the growth was in the Eastern network, Revenue per load was flat.

Slow train speeds and the shortage in dray fleet capacity continues to reduce network efficiency and reduces margins in this segment.

• Dedicated Contract Services
Dedicated Contract Services saw its segment revenue rise 13% to $361 million in the quarter. Net operating income was $34.3 million, up 17% from a year ago. This segment comprises 12% of the company revenue and 20% of operating income. Productivity (revenue per truck per week) increased by approximately 4% compared to 2013 due to increased customer demand at accounts open longer than a year and rate increases implemented during the quarter. 

An additional 538 revenue producing trucks were in the fleet by the end of the quarter compared to the prior year primarily reflecting new contracts in this and prior periods.

• Integrated Capacity Solutions
The fast growing segment with Hunt’s portfolio is the Integrated Capacity Solutions, or brokerage division. This segment grew revenue by 35% to $185.13 million in the quarter, and operating income rose to $8.4 million, up 197% year-over-year. This segment accounted for 12% of the company revenue and 5% of the operating income in the recent quarter.

The revenue growth was attributed to a 24% increase in load volume and a 9% gain in revenue per load. Revenue grew faster than volumes primarily due to freight mix changes driven from customer demand. Contractual business was approximately 64% of total load volume but only 58% of total revenue in the current quarter compared to 64% of total volume and 61% of total revenue in third quarter 2013. The company said spot load demand is also strong.

Operating income gains relate to a 3% gain in gross margins thanks to customer rate increases in the contract business. Personnel costs also increased as the company builds out its branch network. Total branches at the end of the quarter grew to 28. ICS’s carrier base increased 11% and the employee count increased 18% compared to third quarter 2013.

• Trucking division
The laggard segment for Hunt continues to be its truckload division, now under new management. The truckload segment posted a 1% dip in revenue to $95.7 million in the quarter linked to a 6% reduction in fleet size. This segment comprises 6% of the company’s overall revenue and 2% of its operating income. The operating income for the segment totaled $4.33 million, up 569% year-over-year.

Rates per mile rose 10%, but the average length of haul was 3% shorter. The company said it’s working to create a more balanced network and it raised rates 6% on average in this segment. At the end of the quarter Hunt had 1,843 tractors, down from 1,951 a year ago.

Across each of the segments Hunt noted higher costs due to driver training, shortage of drivers, insurance rate increases and higher equipment charges.

BALANCE SHEET
Hunt had $837 million in outstanding debt at the end of the quarter. Debt rose from $687 million a year ago.

The company said its capital expenditures for the nine months of this year totaled $479 million compared to $334 million for the same period of 2013. Hunt also continues to hold a cash position of $5.9 million at the end of the period.

There were no share buybacks in the recent quarter as the company continues to focus on investing in its core businesses. There is approximately $263 million remaining under the company’s share repurchase authorization.