News / JB Hunt second quarter results: "some positives in a weak environment"

© Piotr Trojanowski

JB Hunt enjoyed a boost to revenues in its second quarter owing to increased truck capacity – but saw profits fall as intermodal volumes declined 8% and integrated capacity solutions volumes fell 7%. 

Total operating revenue for the second quarter rose 6% to $2.26bn, year-on-year. The growth was driven primarily by a 19% increase in revenue-producing trucks, and an 8% increase in truck productivity in Dedicated Contract Services (DCS), said the company. 

Net earnings fell to $133.6m from $151.7m a year earlier. 

As today’s article on Premium noted: “Given the circumstances, its Q2/1H results were rather solid, and certainly not as bad as many feared they might be.”

JB Hunt said that while it had seen customer rate increases, and increases in revenue–producing truck counts, this had been partially offset by increases in insurance and claims costs (particularly a $20m pre-tax charge in settlement of a DCS Final Mile claim), as well as increases in “rail purchased transportation costs, start-up costs associated with expansion and integration of DCS Final Mile network, higher driver wages and recruiting costs, increased technology costs for modernisation and further development of J.B. Hunt 360°, and increased facility costs all compared to the same period 2018”. 

Chief financial officer David Mee said in an earnings call: “Overall, we felt like there was some positives in an otherwise weak freight environment.  

“We saw our cost inflation becoming more normalised. And the bid season pricing is performing largely as we expected. Though, the range of pricing from beginning to end is wider than what we had originally anticipated.  

“We expect asset-based pricing in trucking and intermodal to be positive. Although the year-over-year increases are ending the season in the low single-digits. In private fleet outsourcing interest has not subsided, because dedicated pipeline remains very, very strong.” 

However, he said he was “disappointed” with intermodal loads, although he added that he saw “visible signs that the seasonality of freight flows has not completely disappeared as our loads per workday improved throughout the quarter”. 

He also pointed to “hiccups” and “bugs” in the new technology, which resulted in a $4.8m increase in spend to develop the platform further, and pressure on gross margins. 

Lastly, he said, “the mix fleet of company trucks and independent contractors yielded the expected result in a sluggish rate environment. While revenues were down from prior year, in spite of higher customer rates per mile, the flexibility of the total fleet size and the planned efforts to control overheads allow truck to improve its margins, both sequentially and year-over-year.” 

Most customer rate increases “happen automatically”, added Nick Hobbs, president of DCS, but the company said it doesn’t expect rates to accelerate much “visibly” in the second half. 

Terry Matthews, president of intermodal, said that deals were taking a little longer than usual. “Seems like everybody’s trying to figure out what’s going on with the economy. But we’re still on our target plan for this year, feel very good about that and the demand is still very high for pure dedicated business.” 

However, JB Hunt executives stressed that shippers remains unsure how much inventory to order or stock due to the continuing uncertainty over tariffs. 

Mr Mee said: “From what I’ve heard from our customers, it’s a little mixed. Some customers say some of the inventory has bled off. Other customers say they still have a month or two where they’re going to try to lead off inventory. So, it’s a mixed message from my perspective.” 

Chief commercial officer Shelley Simpson added: “I would say from a demand perspective, our customers are optimistic. They did recognise the level of inventory that they brought in incremental to avoid really what was happening around tariffs. But they are studying to work through that inventory and feel better about the back half of the year.” 

Mr Mee said that while the second quarter was below expectations, it was at least “directionally correct”. 

Chief executive John Roberts appeared to be optimistic on the second half. 

“The volume increases we should see in the second half of the year, are from a group of customers, not from one individual customer or two customers.  

“It was not a price play, and I think you will see that play out in the next few quarters when you start looking at the revenue per loads. It’s more of a service play … and the differentiation that we’ve been able to work with our customers on through difficult times last year. I think we separate ourselves from that. 

“If you look at the third quarter, we believe there’s a month or two in there that will hit positive comparisons versus the third quarter last year. And we should hit positive comparisons in the fourth quarter, in general.”  

Intermodal (JBI)  

Second quarter 2019 segment revenue: $1.15bn ; down 1%

Second quarter 2019 operating income: $124.4m; down 7%

Dedicated Contract Services (DCS)  

Second quarter 2019 segment revenue: $680m; up 28%

Second quarter 2019 operating income: $60.5m; up 3%

Integrated Capacity Solutions (ICS)  

Second quarter 2019 segment revenue: $334m; down 4%

Second quarter 2019 operating loss: $(0.6)m; down 104%

Truck (JBT)  

Second quarter 2019 segment revenue: $99.6m; down 2%

Second quarter 2019 operating income: $8.9m; up 19%

A full analysis of the results are on Premium today here, you can see JD Hunt’s full results here, and can read the earnings call transcript on Seeking Alpha, here.