All J.B. Hunt Segments Log Growth for Better-Than-Expected Q4

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J.B. Hunt Transport Services provided little guidance around the outlook for 2022 on a Tuesday evening call with analysts. Limited visibility into when supply chain congestion will ease and rail service will improve has management holding the cards close to the vest. However, J.B. Hunt will continue to invest in people and equipment to meet rising demand for all of its services.

The Lowell, Arkansas-based company posted fourth-quarter earnings per share of $2.28, easily outpacing the consensus estimate of $2.02 and the year-ago result of $1.44. Consolidated revenue increased 28% year-over-year to $3.5 billion, with each division recording growth. Rate increases more than offset cost inflation, leading to a 90.8% operating ratio, 160 basis points better year-over-year.

J.B. Hunt JBHT is in the process of reevaluating pay scales throughout the organization, which will be required to attract the talent needed to support the growth.

J.B. Hunt's key performance indicators – Consolidated

Intermodal segment can see growth even if congestion lingers

Several catalysts have management optimistic about intermodal growth potential. Tight truck capacity, driver hiring headwinds, high rates and fuel costs, and the need for shippers to meet carbon efficiency targets, are all supportive of road-to-rail freight conversion. 

During the fourth quarter, intermodal revenue increased 26% year-over-year to $1.57 billion. Revenue per load jumped 30% with total loads only declining 3%, which was better than the 9% decline in total intermodal traffic reported by the U.S. Class I railroads during the quarter. The growth in revenue per load, which benefited from accessorial charges aimed at improving equipment turns, outpaced the increase in cost per load by 500 bps. The result was an 87.6% OR, 350 bps better year-over-year.

Network congestion and gate restrictions constrained volumes. However, the year-over-year monthly volume declines improved to down just 1% by December. Management said there were several loads in the network that would have normally moved via rail if turn times had been better. Delays on the rails and customers holding onto equipment for extended durations resulted in an 8% year-over-year decline in average container turns.

However, J.B. Hunt has some capacity levers.

The company is in the process of taking delivery of 12,000 new intermodal containers, some of which remain stuck in transit. Half of the order was received in 2021, meaning another 6,000 units will be delivered this year. But 2022 deliveries could step higher as long as the market is there, according to management.

With J.B. Hunt's monthly box turns hovering around 1.65x, compared to 1.85x pre-pandemic, any relief in the supply chain would likely improve rail service and free up container capacity (likely enough to support more than 250,000 additional loads). Also, incremental bandwidth is likely available at BNSF BRK, which recently lost Knight-Swift Transportation KNX as a customer.

J.B. Hunt's key performance indicators – Intermodal

Dedicated books more trucks, margins sag

The dedicated segment reported a 25% year-over-year increase in revenue to $712 million. Average trucks in use increased 16% with revenue per truck per week climbing 7%. Rapid growth, startup costs within new accounts and labor inflation drove 340 bps of margin degradation compared to the year-ago quarter.

"Both the truck and trailer market as well as the driver market remain extremely tight and does give me some concern for our ability to execute on our growth plans to meet the demand of the business," Nick Hobbs, COO and president of contract services, said on the call.

The division booked new business requiring more than 2,500 trucks in 2021, which was a record. The goal had been to add 800 to 1,000 units annually, but with shippers seeking more permanent capacity solutions, the target has been raised to 1,000 to 1,200 trucks.

J.B. Hunt's key performance indicators – Dedicated

Brokerage and truckload capitalize on capacity constraints

Revenue per load jumped 27% year-over-year in J.B. Hunt's brokerage segment while volumes were largely flat (TL volumes were up 3%). Gross margin expanded 140 bps to 12.2% with operating income coming in at $21 million, nearly four times higher year-over-year.

The company's asset-light truckload division took advantage of a 30% year-over-year increase in trailer capacity, as well as incremental drop-trailer capacity at 360box, to grow loads by 15%. Revenue per loaded mile excluding fuel surcharges surged 32%, which more than offset elevated purchased transportation costs in the period. The division recorded a 90% OR, 400 bps better year-over-year.

Operating income in the final-mile segment fell 68% year-over-year (backing out a $5.7 million benefit from a reduction in a contingent liability). The number of stops performed declined 22% due to labor shortages at customer accounts as well as other supply chain headwinds. Implementation costs associated with new contracts were a drag as well.

The benefit from the liability reduction contributed approximately 4 cents in fourth-quarter EPS. However, the payment of more than $10 million in special bonuses was a one-time headwind in the period.

J.B. Hunt's key performance indicators – ICS, FMS and TL

Net capital expenditures were $877 million for full-year 2021, shy of guidance calling for roughly $1 billion in spend. Equipment delivery delays were the primary headwinds. Management said 2022 net capex will be approximately $1.5 billion ($700 million for tractors and $700 million for trailing equipment), assuming the manufacturers can meet production commitments. 

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes J.B. Hunt (No. 4).

Watch: Additional Supply Chain challenges – January 18, 2022

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This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.
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