Seeking Alpha
Profile| Send Message| ()  

JB Hunt Transportation (JBHT), one of the leading trucks and logistics companies in the U.S., kicked off the earnings season for the truckers on a good note by topping revenue estimates, something that the market had least expected. However, earnings remained short of estimates. The stock jumped almost 5% in the aftermarket trading (is now up 7.5%), showing that the market was surprised to see an 11% jump in revenue on a YoY basis, given the tough market conditions that have rocked the transportation sector.

The following shows a summary of the overall press release.

 

Actual

Estimate

Surprise

YoY Change

  

JBHT

  

Revenues

1.3b

1.28b

1.6%

11.0%

EPS

0.65

0.66

-1.5%

14.0%

Op. ratio

89.70%

89.20%

0.5%

-0.2%

EBIT

133.1m

136.9m

-2.8%

12.1%

Tax rate

38.25%

38.50%

-0.6%

-0.2%

  

JBT

  

TL capacity (trucks)

2406

2346

2.6%

-6.3%

TL utilization (MM miles)

49.89

50.1

-0.4%

-11.6%

TL pricing ($ per load)

1.07

1.81

-40.9%

-6.1%

TL Base Revenue ($)

116.7

90.7

28.7%

-8.2%

  

Intermodal

  

Capacity (average containers)

56,088

57,262

-2.1%

11.3%

Utilization (miles)

368,709

360,751

2.2%

14.9%

Pricing ($ per load)

2.15

1.739

23.6%

0.0%

Revenue

793.76

627.3

26.5%

14.8%

  

Dedicated

  

Capacity

5.153

5.171

-0.3%

4.8%

*Pricing/Utilization

4,146

3,509

18.2%

-1.6%

Base Revenue

272.6

233.2

16.9%

1.4%

*This is revenue per tractor per week.

Looking at the table, one can easily observe that the trucking segment has been a nightmare for the company. However, the good news for investors is that other segments have performed so well that they have offset the impact of the trucking segment.

Before discussing the details of the earnings release, it is necessary to understand the different segments of JBHT.

JBT- JB Truck - A traditional over-the-road truckload service provider.

JBI - Intermodal - A nationwide domestic container business that works in conjunction with railroads.

DCS - Dedicated - It is similar to the trucking segment, apart from the fact that routes are scheduled rather than irregular, and it includes intercity business.

ICS - Integrated Capacity Solution - Non-asset based brokerage business.

 

 

 

JBI

DCS

JBT

ICS

 

3Q2012

2Q2012

3Q20122Q2012

3Q2012

2Q2012

3Q2012

2Q2012

Revenue Growth

15%

13%

5%

1%

-8%

-3%

30%

23%

Op.Income Growth

25%

22%

-14%

21%

-41%

27%

43%

-25%

JBT:

JBHT is not to be blamed for the terrible results that its truck segment has produced. The market has hardly offered enough demand for the truck segment to grow. Not only JBT, but all companies related directly or indirectly to the trucking industry, and truckloads, have been disappointed by this year's performance. Navistar (NAV), Paccar International (PCAR) and Cummins (CMI), have all cut their guidance for the year. Truck demand is derived through truck freight. Cass freight index, which was down 1.1% for the month of September, has been a frightening indicator of where the economy is headed in the near future. The trucking industry, as we stated in our earlier thesis on JBHT, moves in an early cycle. This means that goods start to be transported before the economy starts to move. Conversely, the goods transportation becomes sluggish before the economy starts to slow down. A rapid decline in the freight tonnage and trucking revenues do not give a positive outlook for the market.

To add to the woes, a shortage of drivers has constantly been a source of distress for the company. In recent news, truck drivers' turnover for the year was said to be 105%. This, combined with the added safety regulations in which drivers have to take longer rest hours, has increased operating costs for the business.

JBI:

The intermodal segment has been the savior of the company. The company's intermodal network is perhaps one of the best in the world of trucking. The numbers show that this segment is growing by leaps and bounds. Steady load growth, improved container utilization and drayage efficiencies have been one of the key drivers of the growth in this segment.

DCS:

Operating income has declined because of implementation costs incurred in starting new customer accounts. The costs include hiring costs of recruiting new drivers, setting up telecommunications and operational system infrastructure. Also, repositioning of equipment led to a rise in costs.

ICS:

The revenues increased by 30%, mostly due to an increase in load volumes. The gross margins were down, showing the weak TL market and, therefore, declining TL spot rates.

Conclusion:

With a current P/E of 22x and a future P/E of 18x, the stock is trading at the high end of the transportation valuations. Intermodal remains the key driver of company growth. JBT and ICS are expected to show soft growth in future. The company has been paying dividends consistently for the last two decades. The current dividend yield is 1.1%. We are bullish on the stock because of the growth its Intermodal segment offers (it drives more than 60% of its revenues from this segment).

The industry has always debated whether rail stocks are a better investment or truck stocks. It can be seen that given the tough macro environment, truck stocks are getting hurt, whereas rail stocks, such as those of Kansas City Southern (KSU), Norfolk Southern Corp (NSC), Union Pacific Corp (UNP) and Canadian Pacific Railways (CP), are still trading near their 52 week highs. Also, the intermodal is promising some real secular growth in the near future. Therefore, truckers with big intermodal segments, like JBHT are likely to grow in future.

Source: J.B. Hunt: Time To Buy Truckers With High Intermodal Exposure