More Revenue Per Mile Boosts J.B. Hunt Earnings Despite Fewer Trucks Running In Fleet

A revenue increase boosted earnings for J.B. Hunt Transport Services JBHT, driving up the stock this morning more than 3 percent in premarket trading. The truckload carrier reported second-quarter net earnings of $151.7 million, or $1.37 per share, versus second-quarter 2017 net earnings of $97.9 million, or 88 cents per share.

Analysts expected earnings of $1.28 per share. After the early-morning boost to the stock price, J.B. Hunt stock had declined t $124.77 a share in mid-morning trading, off a little more than 3 percent.

The carrier saw revenue increase 24 percent to $2.14 billion and its tax rate decline to 26 percent from 37.4 percent a year ago. The Integrated Capacity Solutions (ICS) saw income climb to $14.93 million on a 56.1 percent jump in revenue to $347.3 million. Truck was up 34.5 percent to $7.48 million on revenue of $101.24 million, a 7 percent increase, while Dedicated Contract Services (DCS) posted a 20.3 percent increase in income to $58.45 million on revenue of $529.98 million. Finally, Intermodal revenue jumped 22.1 percent to $134 million on revenue of $1.16 billion.

Total operating revenue was $187 billion in in the second quarter, up 20.8 percent over 2017 Q2, with an operating margin rate improving 50 bps to 10 percent. Operating income for the quarter was $214.8 million versus $163.6 million a year ago, buoyed by rate increases, volume growth and increases in revenue producing truck counts. These were "partially offset by increases in rail, over the road and outsourced dray purchased transportation costs, start-up costs associated with new DCS contracts, higher driver wages and recruiting costs, increased office and support personnel costs, increased technology costs for structural upgrades, and further development of J.B. Hunt 360, increased losses on the sale of equipment and increased equipment maintenance and facility costs," the company said in its earnings tatement.

On the equipment side, the fleet actually downsized slightly, with 1976 tractors in operation – down 96 year-over-year, and 6,928 trailers in operation, down 676.

J.B. Hunt took advantage of the tight capacity market, with revenue per load and load growth showing increased in all segments. Intermodal posted a 12 percent growth in revenue per load and 4 percent more loads. Within DCS, the numbers were 17 percent and 10 percent, respectively, while ICS posted a 13 percent increase in revenue per mild and a 38 percent increase in volume. Truck posted a 14 percent increase in rates per loaded mile, the company said.

Within its segments, Intermodal benefited from rate changes, fuel surcharges and freight mix, although transcontinental loads decreased 2 percent from 2017 Q2, the company said, due to network congestion and freight mix changes away from higher-cost drayage movements. Eastern network volumes increased 13 percent and overall revenue in the segment in was up 16 percent.  

J.B. Hunt stock price for the past year, as displayed on FreightWaves' SONAR data platform.

DCS revenue was up 29 percent overall in the current quarter as revenue per truck increased 10 percent (7 percent excluding fuel surcharge) due to rate increases, improved integration of assets and increased customer supply chain fluidity. Final Mile Services (FMS), reported under the DCS group, increased $39 million ($25.8 million attributed to July 2017 acquisition) versus 2017 Q2. A total of 1,284 trucks were added to the fleet over last year – 148 more since the first quarter of this year. Of these trucks, 55 percent represent private fleet conversions and 39 percent represent FMS versus traditional dedicated capacity fleets.

ICS revenue was up 56 percent and revenue per load increased 13 percent, again primarily due to rate increases – both contract and spot. Spot volumes jumped 63 percent and contractual volumes improved 28 percent from a year ago and make up approximately 68 percent of total load volume and 45 percent of total revenue. Both of those are down slightly from 73 percent and 58 percent in 2017 Q2. Of total ICS revenue, $137 million came from J.B. Hunt 360. Operating income increased $15.1 million over the same period 2017 primarily from a higher gross profit margin, improved operating leverage in branches open more than two years and lower insurance and claims costs partially offset by higher personnel costs and higher technology development costs as the company continues to expand J.B. Hunt 360.

J.B. Hunt Truck benefited from higher revenue per load and lower equipment ownership costs as revenue increased 7 percent. Increased driver wage cost, higher independent contractor cost per mile, increased driver recruitment costs and an average of 180 unseated trucks offset some of the gains made. Operating income increased 35 percent in the quarter. With fewer trucks running – 1,976 versus 2,072 a year ago – Truck saw a decreased in load count, but revenue per load climbed 14 percent.

The company ended the second quarter with $15.2 million in cash and cash equivalents on hand and debt totaling approximately $1 billion. That was up slightly from 2017 Q2's $943 million but down from $1.09 billion at the end of the fourth quarter.

(Chart: Morgan Stanley)

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