J.B. Hunt 3Q19: PSR Helped—A Little

Written by William C. Vantuono, Editor-in-Chief
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J.B. Hunt Transport’s (JBHT) third-quarter 2019 financials fell below expectations as, among other factors, “intermodal rail service appears to have improved, but not to the railroads’ goals associated with Precision Scheduled Railroading (PSR),” according to Cowen and Company analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Adam Kramer.

JBHT’s 3Q19 $1.239 billion intermodal revenue and 89.3% intermodal operating ratio missed Cowen’s expectations of $1.243 billion and 88.2% and Wall Street consensus estimates of $1.240 billion and 89.0%, respectively. Cowen’s outlook “has not changed significantly since the second-quarter call. We have lowered our assumptions slightly but are still modeling for low single-digit intermodal volume and rate growth in 2020. Intermodal rail service appears to have improved, but not to the railroads’ goals associated with PSR. In light of weakness in most rail commodities, we believe the railroads will place special focus on improving intermodal service metrics further in order to attract business away from the highways.”

ICS lost money, with an OR of 101.7%, compared to Cowen’s and consensus estimates of 98.0% and 99.3%, respectively. “This was caused by what appears to be market-share driven aggressive pricing as well as continued aggressive technology investment by JBHT,” the Cowen trio said. “This segment is likely to remain challenged in the near-to-intermediate future … but JBHT’s investment in technology should begin to yield long-term results, especially if the freight market begins to improve. We are modeling for moderating operating losses through 2020 as the company continues to invest heavily in what is shaping up to be a technology war in the brokerage space. Investors should not fear this war, as the company appears well-prepared for it, with management noting that transactions executed through its JB Hunt 360 Platform are on a $1 billion run rate.”

As for JBHT’s truckload service, 3Q19 revenue of $94.2 million and 93% OR missed Cowen’s estimates of $101.8 million and 91.0%, and consensus estimates of $101.7 million and 92.7%, respectively. “While truckload volumes were soft in the quarter, JBHT is achieving positive contract rates,” The analysts noted. “Spot rates, however, remain well below last year. We expect truckload conditions to improve modestly and gradually, with the improvement likely becoming more pronounced in 2H20 as capacity rationalization takes full effect. This is barring an overall economic slowdown or a recession.”

Overall, JBHT posted 3Q19 EPS of $1.40, below Cowen and consensus estimates of $1.47 and $1.45, respectively. Operating income was $212.1 million, also missing Cowen and consensus expectations of $220.5 million and $220 million, respectively. Revenue grew 7% year over year to $2.36 billion, largely in line with Cowen and consensus forecasts of $2.33 billion and $2.35 billion, respectively. The OR deteriorated approximately 70 basis points year over year to 91.0%, 50 basis points worse than Cowen’s estimate and 40 basis points worse than consensus expectations.

*J.B. Hunt describes its Integrated Capacity Solutions (ICS) segment as “providing non-asset, asset-light, traditional freight brokerage and transportation logistics solutions to customers, using asset-based carriers’ resources (railroads among them) to provide physical pickup, line-haul, and delivery service.”

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