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J.B. Hunt reports 8.0% growth in Q1 operating income 18 April 2016

Dedicated revenue growth driven by new contracts and rate increases

J.B. Hunt Transport Services has reported Q1, 2016 net earnings of US$100.1 million, an increase of 8.9% from the Q1, 2015 figure of US$91.9 million. Total operating revenue for the current quarter was US$1.53 billion, an increase of 6.3% compared with US$1.44 billion for Q1, 2015. Current quarter total operating revenue, excluding fuel surcharges, increased 12.9% vs. Q1, 2015. Intermodal (JBI) load growth was 12.0% over Q1, 2015 levels. Dedicated Contract Services (DCS) segment revenue increased by 4.0% over prior year primarily from additional customer contracts from a year ago and rate increases from more mature customer contracts. Integrated Capacity Solutions (ICS) load growth was 45.0% over the same period in 2015. Truck (JBT) segment revenue increased 5.0% on a 12.0% increase in fleet size.

Operating income for the current quarter totalled US$168.0 million, 8.4% up on the US$155.0 million achieved in Q1, 2015. Benefits from volume growth, improved network operations, higher equipment utilisation, lower equipment maintenance costs and increased contract pricing established throughout 2015 across all business units was partially offset by increased rail purchased transportation costs, higher driver wages and recruiting costs, increased equipment ownership costs and increased costs from corporate wide technology upgrades.

The Intermodal (JBI) division saw Q1, 2016 segment revenue reach US$895.0 million, up 6.0% as Q1, 2016 operating income fell to US$103.1 million, down 1.0%. JBI load volumes grew 12.0% over the same period 2015. Eastern network realised load growth of 13.0% and Transcontinental loads grew 11.0% compared to prior year as the west coast port volumes returned to a more normal velocity and rail service significantly improved from a year ago. Overall revenue grew 6.0% reflecting the 12.0% volume growth and a 5.0% decrease in revenue per load, which is the combination of customer rate increases, fuel surcharges and freight mix. Revenue per load excluding fuel surcharge revenue increased 2.0% year over year. Operating income decreased 1.0% from prior year. Benefits from improved volume growth, customer rate increases, improved dray network efficiency and box utilisation from higher on-time rail service and lower tractor maintenance costs were not sufficient to offset increases in rail purchased transportation costs, equipment ownership costs, driver recruiting and driver retention costs. The current period ended with approximately 79,800 units of trailing capacity and 5,160 power units assigned to the dray fleet.

Dedicated Contract Services (DCS) reported Q1, 2016 segment revenue of US$358.0 million, up 4.0% as Q1, 2016 operating income climbed to US$44.8 million, up 25.0%. Productivity, defined as revenue per truck per week, was down approximately 2.0% vs. 2015 primarily from lower fuel surcharges. Productivity excluding fuel surcharges was up approximately 3.0% from improved overall operational efficiencies including better integration of assets between customer accounts, fewer unseated trucks, increased customer supply chain fluidity and load counts from a less severe winter and customer rate increases. A net additional 345 revenue producing trucks, 18 net reductions compared to Q4, 2015, were in the fleet by the end of the quarter compared to prior year. Approximately 70.0% of these additions represent private fleet conversions versus traditional dedicated capacity fleets that were implemented in the current and prior periods. Customer retention rates remain above 98.0%. Operating income increased 25.0% from a year ago. The increase is primarily due to increased revenue, improved asset utilisation and less reliance on third party carriers. These benefits were partially offset by higher driver wage and recruiting costs, increased salaries for front line managers, increased group insurance costs and higher equipment ownership costs.

Integrated Capacity Solutions (ICS) Q1, 2016 segment revenue reached US$183.0 million, up 12.0% as Q1, 2016 operating income increased to US$10.8 million; up 63.0%. Volumes increased 45.0% while revenue per load decreased 23.0% primarily due to lower fuel prices and freight mix changes driven by customer demand. Spot volumes increased 51.0% and contractual business load counts increased 42.0% from a year ago. Contractual business represents approximately 73.0% of total load volume and 64.0% of total revenue in the current period compared to 74.0% and 65.0%, respectively, in Q1, 2015. Operating income increased 63.0% over the same period in 2015 primarily from improved gross profit margin. Gross profit margin increased to 17.3% in the current quarter vs. 13.7% last year primarily due to rate increases on contractual business. Personnel costs increased as the total branch count grew to 35 compared to 30 at the end of the comparable period last year. ICS’s carrier base increased over 17.0% and employee count increased 11.0% compared to Q1, 2015.

At the Truck (JBT) division, Q1, 2016 segment revenue grew to US$96.0 million, up 5.0% as Q1, 2016 operating income reached US$9.2 million, up 8.0%. Revenue excluding fuel surcharge increased 12.0% primarily from a 12.0% increase in fleet count. Rates per loaded mile excluding fuel surcharges were down 1.7% primarily from customer driven freight mix changes, including a 4.0% increase in length of haul and an increase in spot market loads accepted as the network is reconfigured. Core customer rate increases were up 2.3% compared to the same period in 2015. At the end of the current quarter JBT operated 2,270 tractors compared to 2,020 in 2015. Operating income for the current quarter increased by 8.0% compared to the same quarter of 2015. Benefits from the larger fleet and improved fuel economy were partially offset by increased driver wages and hiring costs, higher independent contractor cost per mile and increased tractor maintenance costs compared to Q1, 2015.

Looking ahead, the Company’s management maintains its previously published full year 2016 expectations, as the annual customer bid season is still in progress and customer freight demand is expected to be closely aligned with the current choppy and unpredictable nature of the overall US economy. Management expects to update its full year 2016 expectations, if necessary, after the release of Q2, 2016 results.