Intermodal transportation and delivery service company J.B.
Hunt Transport (JBHT 106.11, +6.19, +6.19%) pares today’s best levels
after investors put more stock into the company’s fourth quarter beat than the
ongoing litigation with rail giant BNSF Railway Company.
In the fourth quarter J.B. Hunt reported net earnings of $88.7 mln, or diluted earnings per share of $0.81. This result included pre-announced pretax charges of $134.0 mln for contingent liabilities related to the ongoing arbitration with BNSF Railway Company. As stated, this charge wasn’t unexpected as J.B. Hunt revealed the $134 mln, or $0.93 per share, pretax charge for contingent liabilities on December 13. So then, excluding the charge, J.B. Hunt’s Q4 earnings would have amounted to $1.74 per share.
For context, fourth quarter 2017 net earnings included $38.9 mln pre-tax charges for reserve increases on certain outstanding receivables and insurance claims as well as a $309.2 mln decrease in income taxes as a result of the Tax Cuts and Jobs Act enacted during that quarter.
J.B. Hunt beat market expectations for total operating revenue, which came in at $2.32 bln for Q4. The company saw a 16% increase in revenue per load in Intermodal (JBI), which contributed to a 15% increase in segment revenue. The Dedicated Contract Services (DCS) segment saw revenue grow by 25%, primarily from the addition of new customer accounts and improved asset utilization. Integrated Capacity Solutions (ICS) segment revenue grew by 7% primarily from a 14% increase in load growth. Truck (JBT) segment revenue was up 21% primarily from customer rate per mile increases. On the whole, current quarter total operating revenue, excluding fuel surcharges, increased 15% vs. the comparable quarter 2017.
Commenting on Intermodal on the conference call, management noted the company saw rail service interruptions and congestion which continued to hamper its ability to react to unplanned customer demand spikes. But overall, demand for the quarter was relatively consistent with a strong fourth quarter 2017, even though management was “a little disappointed” that demand did not accelerate throughout the quarter.
Operating income for the current quarter decreased to $122.7 mln vs. $145.8 mln a year ago. The benefit from increased revenues was partly offset with cost increases in rail purchase transportation, inclusive of the $134.0 mln contingent liability charge, increased driver wages, increased independent contractor rates per mile including outsourced intermodal dray, increased driver and independent contractor recruiting costs, and higher salary and wage expenses for non-driving personnel.
Management also commented on customer shipments ahead of the tariff rate increase in March; specifically, CFO David Mee stated, “With regards to the tariff, March 1, the potential tariff, I do think it could be similar to December. We're seeing some pre-shipping going on. You always see some pre-shipping before the Chinese New Year. So, you might have not only the normal Chinese New Year low, but you might have some activity or less activity because of the tariffs.”
In short, J.B. Hunt may be impacted by the hike in tariffs on Chinese goods to 25% from 10% on March 1 if ongoing trade talks between President Donald Trump and Chinese President Xi Jingping don’t bear any fruit.
After the stock broke through, though ultimately closed below, the 50-day simple moving average (99.99) yesterday shares of JBHT opened widely higher on Friday. The stock was up about 9.5% at one point this morning, but has softened those gains as the Friday session ages.
Shipping/transportation peers CHRW +2.98%, SNDR +1.54%, WERN +2.13%, HTLD +1.61%, LSTR +2.45%, and KNX +2.43% all trade higher in sympathy, albeit juxtaposed against a higher broader market.
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