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J.B. Hunt's Earnings Beat Estimates Thanks To Better Brokerage, Truckload Businesses

FreightWaves

Arkansas-based motor carrier sees driver wages up 18 percent, but it aims to recoup those costs through new shipper contracts.

J.B. Hunt Transport Services Inc. (Nasdaq: JBHT) reported third-quarter earnings that were ahead of analysts estimates, despite last week's announcement of $39 million in one-time charges for the quarter.

One of the largest intermodal carriers in the U.S., J.B. Hunt saw income gains in its freight brokerage and truckload business offset higher costs in its dedicated fleet units.

The Arkansas-based company reported net income of $131.1 million for the third quarter, a 31 percent rise from a year earlier, with revenue up 21 percent from a year earlier to $2.04 billion.

Earnings per share were $1.19 versus $0.91 a year earlier. Excluding one-time items of $0.26 per share, earnings of $1.45 came in ahead of the consensus earnings forecast of $1.40 per share.

J.B. Hunt's intermodal business saw revenue grow 16 percent from a year ago to $1.2 billion. The gains came as J.B. Hunt was able to increase customer rates and saw a better freight mix for the quarter. Revenue per load was up 15 percent from a year earlier to $2,343.

But intermodal's operating income was up only 10 percent to $120.3 million as driver costs rose faster than rate increases and rail congestion resulted in higher expenses.

The intermodal segment also took a hit from a $18.3 million reserve to settle an ongoing arbitration case between J.B. Hunt and BNSF over their revenue sharing agreement. Company executives declined to say if the size of the award would increase from the amount already reserved.

The intermodal segment saw overall volume was flat at 1 percent with 519,974 loads carried during the quarter. Train derailments during the quarter and Hurricane Florence impacted about 4,000 loads during the quarter.

Terence Matthews, president of intermodal at J.B. Hunt, says volumes out of the west coast were "not quite as robust in August and the first half of September, but we've seen the west coast pick up in the last week of September."

He says the company is seeing "very normal" levels of volume during the peak shipping season. While the company declined to give guidance on the fourth quarter, Matthews said that shippers may look to fill warehouses even in December just ahead of the January 1 start of 25 percent tariffs on $200 billion of goods coming from China.

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"With additional tariffs in December, the implication is that December should be quite strong," Matthews said.

Dedicated fleet services saw revenue rise 24 percent to $543 million as its average fleet size rose 15 percent from a year earlier and revenue per truck per week rose 7.3 percent to $4,504.

But operating income was down 18 percent to $34.9 million. In addition to $8.4 million in one-time charges for insurance and claims expenses, higher costs for implementing new contracts and increases in driver wages and recruiting costs also drove down operating income.

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Nick Hobbs, the president of dedicated contract services at J.B. Hunt, says driver wages have increased 18 percent with the company aiming to incorporate those costs into its upcoming contract renewals.

"We've been able to attract drivers with those wage increases," Hobbs said.

Brokerage and non-asset based businesses saw revenue up 28 percent to $345.8 million. Volumes increased 41 percent, but revenue per load decreased due to a higher volume of contractual less-than-truckload volume during the quarter. Contractual volume was 72 percent of total loads, up from 65 percent a year earlier, as high spot rates prompted customers to shift loads to dedicated carriers.

Operating income was up 40 percent thanks to a strong improvement in gross margin, which increased to 15.5 percent in the quarter compared to 12.8 percent last year. The J.B.Hunt 360 freight booking platform accounted for $151 million in revenue, up from 10 percent from a year ago.

The Truckload segment saw revenue increase to $105.7 million, up 14 percent, thanks to a 19 percent increase in rates per loaded mile offset by a shorter length of haul for the segment. Operating income for the segment was up 61 percent to $9.2 million as the higher rate for loads offset increased driver wages and independent contractor costs.

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