J.B. Hunt Adopts Proactive Growth Strategy for Intermodal Despite Earnings Shortfall and Market Challenges

J.B. Hunt Transport Services is committed to expanding its intermodal capacity proactively, aiming to prevent the service disruptions witnessed industry-wide during the pandemic. This strategy involves accepting higher operational costs and the potential for earnings discrepancies, evidenced by its first-quarter earnings shortfall in 2024.

On Tuesday, after the market closed, the logistics giant reported a first-quarter earnings per share of $1.22, which fell short of the consensus estimate by 28 cents and was down 67 cents from the previous year. The company faced a 7-cent drag from a higher tax rate and a 1-cent setback from increased interest expenses.

During this period, J.B. Hunt’s intermodal revenue dipped 9% year-over-year to $1.4 billion, matching a similar drop in revenue per load, while load counts remained stable. Transcontinental loads increased by 5% year-over-year, benefiting from a weaker year-ago comparison. However, lower truckload rates in the East suppressed intermodal demand, resulting in a 7% volume decrease.

Despite these challenges, total U.S. Class I railroad intermodal traffic grew by 9% year-over-year, according to the Association of American Railroads. J.B. Hunt’s intermodal loads saw varied monthly performances, with a 2% drop in January, a 3% rise in February, and a 1% decrease in March, amid fierce price competition from truckload (TL) carriers and other intermodal firms.

The company maintains a long-term optimistic outlook for the intermodal sector, planning to increase its fleet size in anticipation of future demand. Currently, J.B. Hunt has an excess capacity of 20% in its container fleet and aims to expand to 150,000 units, nearing a shortfall of 30,000 units from this target.

Darren Field, President of Intermodal Services, emphasized on a recent analyst call that the company’s commitment to growing with customer demand will ultimately benefit shareholders as it builds client confidence in J.B. Hunt’s service capabilities.

However, with about 40% of its contracts renegotiated for the current bid season, rate pressures are expected to persist without significant changes in market conditions. The intermodal segment reported a 92.7% operating ratio, marking a downturn of 370 basis points year-over-year, with the company incurring $100 million in additional expenses to sustain needed capacity for potential market recovery.

Other segments like dedicated services and brokerage faced challenges too. Dedicated revenue slightly declined by 2% year-over-year to $860 million, and the brokerage unit reported a $17.5 million operating loss due to a 22% drop in loads and a 5% decrease in revenue per load.

Despite these setbacks, J.B. Hunt’s final-mile segment saw significant gains, with operating income more than doubling to $15.1 million, bolstered by a 10% increase in revenue per stop.

Overall, while J.B. Hunt navigates a challenging landscape with strategic investments in capacity and fleet expansion, the truckload segment barely turned a profit, reflecting ongoing market pressures and the complex dynamics of the logistics sector. Shares of JBHT saw a 6% decline in after-hours trading following the earnings report.