2014 income up almost 10% for J.B. Hunt, revenue hits $6.16 billion (Updated)

Rate increases across its business divisions was the primary reason Lowell-based J.B. Hunt Transport Services boosted its fiscal year revenue to $6.165 billion, a 10.4% increase over fiscal 2013. Net income for the year was $374.792 million, up 9.46% compared to the 2013 period.

The full-year per share earnings of $3.16 also beat the consensus estimate of $3.12.

For the fourth quarter, the company earned $118.078 million, just under the $118.96 million in the same period of 2013. The fourth quarter per share income of 93 cents also beat the consensus estimate of 89 cents.

“The increase primarily reflects higher revenue in all business segments and the current benefit of rapidly falling fuel prices during the quarter, net of lower fuel surcharge revenue primarily in DCS and JBT,” the company noted in its earnings report released Thursday (Jan. 22) before the markets opened. “These benefits were partially offset by increased costs paid to hire and retain drivers; higher workers’ compensation and accident costs; and higher costs of equipment ownership.”

The strong results came as no surprise to Stephens Inc. analyst Brad Delco, who noted that Hunt is benefiting from strong pricing abilities in its intermodal segment that are expected to continue into 2015. Delco recently raised his fourth quarter guidance for Hunt to 89 cents per share, noting that the guidance could prove to be conservative as intermodal metrics continue to improve. (Stephens Inc. does investment banking business with J.B.Hunt and is compensated accordingly.)

Trucking and rail are often viewed as a barometer for the economy and Union Pacific CEO Jack Koraleski said Thursday (Jan. 22) during their earnings call that demand for lumber, autos and machinery have been strong which are a good indication that consumers are spending more money. Koraleski remains bullish on the economy in 2015 for freight movers in general citing better pricing power and lower fuel costs adding more to the bottom line. Union Pacific net profits rose 22% in the fourth quarter behind record intermodal gains.

INTERMODAL IMPROVEMENTS
While some analysts expect intermodal traffic to tail off in the next few years Hunt continues to be a leader in this segment. In the fourth quarter, 59% of Hunt’s revenue was in the intermodal segment.

Hunt’s intermodal revenue rose 5% to $958 million in the quarter as load volume grew 6% over the period in 2013. The company reports its Eastern network loads increased 14% while transcontinental loads were up 1% over the year-ago period. Revenue per load was down 1% in the period thanks in part to lower fuel surcharges.

Improved pricing power helped to push operating income to $128.8 million, up 6% from a year ago. That gain was offset somewhat by reported higher driver recruiting costs and insurance claims.

While this segment still has room to run, the intermodal revenue growth rate of 7% for fiscal 2014 was roughly half of that reported in prior two years.

Hunt’s intermodal segment posted fiscal year revenue of $3.687 billion, better than the $3.456 billion in fiscal 2013. Full-year operating income in the segment was $460.377 million, up over the $447.030 million in 2013. Operating income in this segment was 73% of the total full-year income for J.B. Hunt.

DEDICATED SERVICES
The dedicated contract services segment (DCS) at J.B. Hunt posted a solid fourth quarter results with $363 million in in revenue, up 10% from the year-ago period. This diverse segment comprised 20% of the company’s total revenue in the quarter.

Hunt said it has raised rates among it DCS customers for the past nine months and still has added new customers. The segment added 473 revenue producing trucks in the fourth quarter to service its growing customer base. 

Operating income for the quarter jumped 25% to $37 million. The company cited better pricing power, improved asset utilization and less reliance on outsourced power units for the gains. Hunt also notes that the segment benefited from rapidly declining fuel expenses despite higher driver recruitment costs and rising costs of worker’s compensation and insurance claims. 

The dedicated services segment had $1.393 billion in revenue for the year, up more than 13% compared to 2013. Operating income in 2013 for the segment was $117.243 million, better than the $110.438 million in 2013. Load growth for fiscal 2014 rose 14.48% to 2.101 million loads.

The outlooks for this segment remains bright because of its diverse offerings from fleet conversions to its Final Mile program that is a short-distance service for the growing e-commerce economy.

INTEGRATED CAPACITY
Hunt’s non-asset based brokerage division — Integrated Capacity Solutions — is the fast growing segment in the carrier’s portfolio. ICS grew its fourth quarter to $197 million up 36% from a year ago. This segment comprised 5% of the company’s fourth quarter revenue.

In the quarter, ICS posted a 25% increase in load volume while it also increased rates by 9% over the prior-year period. Contractual business was approximately 66% of the total load volume, up slightly from a year ago. But, it was non-contract business that was responsible the majority of the revenue gains in the period.

ICS posted fourth quarter operating income of $9.1 million, up 158%. Hunt cited increased revenue and higher gross profit margin for the gains. Gross profit margin improved to 13.7% in the fourth quarter from 12.0%.

Full-year revenue from ICS was $718.076 million, much better than the $536.844 million in 2013. Operating income in the segment was $29.88 million, almost double the $15.693 million in 2013.

TRUCKLOAD IMPROVEMENT
J.B. Hunt’s truckload segment (JBT) reversed its negative trend in the fourth quarter behind the leadership of Shelley Simpson who took over this segment in early 2014. Truckload revenue grew 6% to $96 million in the quarter thanks to 9% rate increases and an expanding fleet.

At the end of the period, JBT operated 1,886 tractors, up 2% from a year ago. Operating income increased $9.1 million from fourth quarter 2013 levels. The revenue generated weekly per tractor rose to $4,086, up 7.4% from the prior quarter.

The company’s truck segment posted fiscal 2014 revenue of $385.603 million, below the $391.086 million in 2013. However, operating income for the segment was $24.223 million, a big jump over the $3.658 million in 2013. Company officials said rising rates and “rapidly declining fuel prices” helped boost income in the segment.

Like the other segments indicated, the costs of recruiting and retaining drivers rose year-over-year as did insurance rates and worker’s compensation costs.

John Larkin, transportation analyst with Stifel Nicolaus, said driver shortages are the biggest concerns for trucking CEO’s going into 2015. He projects the driver shortage to widen to 240,000 by 2020. He cites increased demand and retirements of veteran drivers along with declining interest from younger generations as the primary cause for the shortage. 

Larkin said tighter federal regulations don’t help and it’s getting increasingly “more difficult to recruit honest, safe and reliable truck drivers.” He said just 5% of applicants industrywide meet all the requirements to be a commercial driver.

FINANCIALS 
At year end, Hunt had total debt outstanding of $934 million on various debt instruments compared to $708 million a year ago. 

The company reported net capital expenditures for 2014 at approximately $660 million versus $443 million in 2013. The increase was primarily due to purchasing more intermodal equipment and additional and replacement tractors and trailers across all asset business units. 

Hunt has a cash position of $6 million at year end, despite repurchasing 615,000 shares of stock for $30.75 million. The company still has about $213 million remaining under its share repurchase authorization.

Traders rewarded the positive earnings report, with early morning moves seeing Hunt shares (NASDAQ: JBHT) up $1.34 in active trading. The shares were trading at $83.38, up 1.63% in the morning session on Thursday. During the past 52 weeks the share price has ranged from a high of $85.54 to a $69.33 low.

Stephens analysts raised their target price to $90 and expect fiscal 2015 earnings per share of $3.65 on revenue of $6.78 billion.