J.B. Hunt's Long-Term Intermodal Growth Plan Weighs on Q1 Result

The multimodal provider reported first-quarter earnings per share of $1.22 Tuesday after the market closed, 31 cents light of the consensus estimate and 67 cents lower year over year (y/y). A higher tax rate presented a 7-cent headwind while higher interest expense was a 1-cent headwind.

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

Intermodal revenue declined 9% y/y to $1.4 billion as revenue per load fell by a similar amount, with load counts flat with the prior year. Transcontinental loads were 5% higher y/y, largely due to a weaker comparison to the same period last year, while depressed truckload rates weighed on intermodal demand in the East, pushing volumes 7% lower.

Total intermodal traffic on the U.S. Class I railroads was 9% higher y/y in the quarter, according to the Association of American Railroads. J.B. Hunt's intermodal loads were down 2% y/y in January, up 3% in February and off 1% in March. The company noted price competition from both TL carriers and other intermodal providers. It pointed to a "disciplined approach" to pricing as an explanation for the loss in share.

Management reiterated a "long-term view" that the intermodal space will take share over time and said it's comfortable growing its fleet ahead of demand. J.B. Hunt currently has 20% excess container capacity and is roughly 30,000 units shy of a goal to grow its fleet to 150,000 units.

"When we're there to support our customer to grow the demand, it certainly bears fruit for our shareholders over the long term as those customers just gain more and more confidence in our ability to serve their needs, said Darren Field, president of intermodal services, on a Tuesday evening call with analysts.

The unit has repriced roughly 40% of its contracts for the current bid season, meaning pressure on rates will likely linger without a material change in market dynamics. Volumes were down 9% from the fourth quarter, which was worse than the normal seasonal trend. However, loads in the fourth quarter were ahead of normal seasonality. Yields fell 5% from the fourth quarter to the first.

"The problem is the negative dynamics that impacted 1Q results won't change that quickly given JBHT's longer pricing cycle and limited intermodal spot market opportunities" Deutsche Bank DB analyst Amit Mehrotra said in a Tuesday note to clients.

The intermodal segment reported a 92.7% operating ratio, which was 370 basis points worse y/y.

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

Dedicated revenue dipped 2% y/y to $860 million as average trucks in service declined 1% and revenue per truck per week was off by a lesser amount. The unit saw some erosion in total truck needs from current customers as well as some customer bankruptcies, including its 10th-largest customer.

J.B. Hunt did sell dedicated service on 690 trucks in the quarter, "a lot stronger" than expected, after placing a total of 1,150 dedicated units last year. An 89.1% OR was just 80 bps worse y/y.

Table: J.B. Hunt's key performance indicators – Dedicated and Brokerage

The brokerage unit reported a $17.5 million operating loss as loads fell 22% y/y and revenue per load was down 5%. The unit lost $15 million in the fourth quarter. Higher insurance expenses and integration costs from the acquisition of BNSF Logistics' brokerage business presented headwinds.

The final-mile segment saw operating income more than double to $15.1 million as revenue per stop increased 10% y/y. The result included a $3.1 million claims benefit.

The truckload segment was barely profitable as loads slid 5% y/y and yields declined 9%.

Shares of JBHT were down 6% in after-hours trading on Tuesday.

Table: J.B. Hunt's key performance indicators – Final-mile and Truckload

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