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J.B. Hunt Blames Weak Intermodal Freight Volumes, Weather And Tariff Concerns For First Quarter Earnings Shortfall




J.B. Hunt (NASDAQ: JBHT) blames its earnings and revenue shortfall on weak intermodal freight volumes, harsh winter weather and concerns about possible tariffs on Chinese imports in its first quarter earnings report on April 15.

The Lowell, Arkansas-based company reported earnings of $119.6 million, or $1.09 a share in the first quarter, compared with $118.1 million, or $1.07 a share in the same period a year ago. It's earnings per share fell 13 percent below analysts' expectations of $1.25 a share.

Growth in its intermodal division was down 7 percent, but its revenue per load, excluding fuel surcharges, increased approximately 11 percent.

Rail line closures and winter weather contributed to nearly half of the intermodal division's freight volume decline.

"The service disruptions from weather issues starting in late January and progressing through late February actually caused some freight to divert back to the highway in addition to loads being outright cancelled," said David Mee, chief financial officer of J.B. Hunt.

When rail line service began to improve, Mee said the company "did not see a snapback in customer demand in March, which was our biggest surprise and frankly our miss to our expectations."

"While it is way too early to make a trend call for even second quarter 2019 or for the rest of the year, we are still waiting for customer demand to accelerate," Mee said on a call with analysts and reporters after the earnings report on April 15.

Also hurting the J.B. Hunt's intermodal segment was that West Coast imports "failed to rebound much following post-Chinese New Year, and the extended cold had spring inventory sitting longer than usual in warehouses," Stifel said in its report about J.B. Hunt's first quarter earnings.

The intermodal segment may not see positive growth in the near future, said Terrance Matthews, president of J.B. Hunt's intermodal division.

"It's the comps and it's the recovered comp precision scheduled railroading (PSR) and it's going to take us to get through the good cycle to be able to recover from that and have it changed what we're thinking in the second half [of the year] in regards to positive growth," Matthews said.

The number of intermodal loads hauled in the first quarter of 2019 was 459,924, down from 495,764 in the same quarter of 2018. The average length of haul was 1,652 miles, down from 1,661, while the revenue per load was $2,366, up from $2,159 in the first quarter.

Matthews also attributed slower West Coast freight volumes to the threat of increased tariffs on $200 billion of Chinese imports that were supposed to take effect March 1, but were delayed by President Donald Trump.

The company reported that its operating revenue rose to $2.09 billion, which is up 7 percent from the same period a year ago, but fell 5 percent below analysts' estimates of $2.2 billion.

Net interest expense for the first quarter increased 43 percent from the same time period in 2018 due to "increased debt levels and higher effective interest rates" on the company's debt.

The company said higher wages and recruiting costs for drivers contributed to the lower numbers, but that wage incentives have eased up except in tight markets like California and Chicago, said Nick Hobbs, president of dedicated contract services of J.B. Hunt, on a call with reporters and analysts on April 15.

Higher equipment and maintenance costs are also up compared to the same period in 2018, Hobbs said.

Some transportation analysts are forecasting the country may be heading into a recession later this year or in early 2020, J.B. Hunt remains optimistic about the country's overall economic health, said John Roberts, the company's chief executive.

"I'm feeling OK about the rest of the year," Roberts said.

The Purchasing Manager Index recently hit 55, which is up from the previous month and is strong, Roberts said.

"That tells me that people are going to be buying things in the future; that with a late spring then hopefully we can get the tariff noise out of the way," he said. "Those three things should have like a reasonable year for 2019."

Image sourced from Pixabay

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