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Revenues down, profits up in Q2 at J.B. Hunt 17 July 2015

Increase in operating income driven by customer rate increases

J.B. Hunt Transport Services, Inc., announced Q2, 2015 net earnings of US$103.4 million, up 10.7% from the Q2, 2014 net earnings of US$93.4 million. Total operating revenue for the current quarter was US$1.54 billion, down 0.5% compared with US$1.55 billion for Q2, 2014.

Customer rate increases across all business units, load growth of 2.0% in Intermodal (JBI), a 6.0% increase in revenue producing trucks in Dedicated Contract Services (DCS) and load growth of 12.0% in Integrated Capacity Solutions (ICS) could not offset the decrease in fuel surcharge revenue, sluggish consumer freight demand and lower equipment utilisation in the Truck (JBT) business segment resulting in flat consolidated revenue compared to prior year. Current quarter total operating revenue, excluding fuel surcharges, increased 7.0% vs. the comparable quarter 2014.

Operating income for the current quarter totalled US$174.0 million vs. US$159.0 million for Q2, 2014, a rise of 9.4%. The increase in operating income was primarily from customer rate increases, less reliance on outsourced JBI drayage and DCS capacity coverage, load growth, freight mix changes and improved equipment fuel economy. The operating income increase was partially offset by an approximate US$14.1 million charge for corporate wide streamlining and technology redevelopment costs, the benefits of which are expected to be realised over the next two fiscal years, lower box turns from slower train velocities, higher driver recruiting and retention costs, higher workers’ compensation costs and increased toll costs compared to Q2, 2014.

In the Intermodal (JBI) unit, Q2, 2015 revenue fell to US$905.0 million, down 3.0%, as operating income reached US$118.6 million, up 5.0%. Overall volumes increased 2.0% over the same period in 2014. Eastern network realized load growth of 3.0% and Transcontinental loads grew 1.0% over Q2, 2014. The lingering effects of disruptive shipping patterns due to the west coast port issues, slow rail service recovery and a softer consumer driven freight demand all contributed to slower load volume growth. Revenue decreased 3.0% reflecting the 2.0% volume growth and an approximate 4.5% decrease in revenue per load, which is the combination of changes in customer rate, freight mix and fuel surcharges. Revenue per load excluding fuel surcharge increased approximately 4.0% over Q2, 2014. Benefits from rate increases, reduced reliance on outsourced dray carriers, lower insurance and cargo claim costs and lower fleet maintenance costs were partially offset by approximately US$6.4 million in corporate wide streamlining and technology redevelopment costs, increases in rail purchased transportation rates and slower rail service recovery that negatively impacted the network fluidity and decreased box turns. The current period ended with approximately 76,300 units of trailing capacity and 4,900 power units in the dray fleet.

In the Dedicated Contract Services (DCS), Q2 revenue reached US$367.0 million, up 5.0%, as operating income reached US$40.6 million, up 34.0%. Productivity (revenue per truck per week) decreased by approximately 1.0% vs. 2014 primarily from lower fuel surcharge revenue. Productivity excluding fuel surcharge increased 5.0% from a year ago primarily from customer rate increases and increased customer demand. A net additional 413 revenue producing trucks, approximately 58.0% representing private fleet conversions versus traditional dedicated capacity services, were in the fleet by the end of the quarter compared to prior year primarily from new contract implementations in the current and prior periods. Customer retention rates remain above 96.0% as value driven services continue to support necessary rate increases. Operating income increased by 34.0% from a year ago. Revenues from new accounts, higher productivity excluding fuel surcharge, less reliance on third party carrier capacity and lower equipment maintenance costs were partially offset with approximately US$2.6 million in corporate wide streamlining and technology redevelopment costs and higher driver wages and recruiting costs.

In the Integrated Capacity Solutions (ICS) unit, Q2, 2015 revenue was US$174.0 million, up 0.6%, as operating income fell to US$4.9 million, down 21.0%. Volumes increased 12.0% while revenue per load decreased 10.0%, primarily from lower fuel prices and less transactional customer demand versus Q2, 2014. Contractual volumes increased 32.0% to approximately 70.0% of total load volume and 62.0% of total revenue compared to 60.0% and 52.0%, respectively, in Q2, 2014. Gross profit margin increased to 15.2% in the current quarter vs. 12.7% last year. Improvements in gross profit margin were offset by approximately US$4.4 million in corporate wide streamlining and technology redevelopment costs and higher personnel costs as the total branch count increased to 31 from 26 compared to Q2, 2014. The carrier base increased 17.0% and the employee count increased 18.0% vs. Q2, 2014.

In the Truck (JBT) segment, Q2, 2015 revenue fell to US$98.0 million, down 3.5% as operating income reached US$9.7 million, up 3.0%. Revenue excluding fuel surcharges increased 2.0%, primarily from increased truck count and core rate increases of approximately 6.5% partially offset by less spot activity and lower utilisation per tractor. At the end of the period, JBT operated 2,073 tractors compared to 1,860 a year ago. Favourable changes in core rates, increased truck count, lower equipment maintenance costs and improved fuel economy were partially offset by increased driver and independent contractor costs per mile, increased driver hiring costs, approximately US$2.6 million of lower equipment gains and approximately US$700,000 in corporate wide streamlining and technology redevelopment costs compared to Q2, 2014.