J.B. Hunt’s 4Q sees change in growth trajectory

J.B. Hunt has had a good year, but things may be not quite as good in 2023. Chief Analyst Thomas Cullen reports.

Fourth quarter and full year results from J.B. Hunt, the leading Arkansas intermodal, less-than-truck load, full-truck load and last mile provider, show that both its sales and its profits boomed in 2022. For the Full Year 2022, revenue was up 22% year-on-year at US $14.81 billion whilst operating income rose by 27% to $1.33bn, yet net earnings margins were up only marginally from 6.3% in 2021 to 6.5% in 2020.

The Fourth Quarter however, suggested that the company has changed trajectory. For this period revenue rose by 4% year-on-year to $3.65 billion but operating income fell by 13% to $281million.

The fall was seen at the core intermodal business. This saw volumes fall 1% year-on-year but revenue climbed through higher rates and fuel surcharges. However, personnel costs rose, as did items such as insurance resulting in a fall in profits. There was a similar picture at the ‘Truck Load’ business with revenue up 6% but operating income down 35% due to higher truck purchase and personnel costs. Dedicated Contract Carriage did well in terms of sales, with revenue jumping by 24%. Yet the profits from much of this new business was consumed by higher costs, again in great-part higher wage costs.

Interestingly, the ‘Integrated Capacity Solutions’ freight brokerage saw a dramatic downturn, with revenue falling by 33% year-on-year and the operation registering a loss of $2.9 million for the quarter. It appears that market mis-judgement around contracts were responsible for the fall in profits.

The exception to the downturn over the quarter was the ‘Final Mile Services’ business. This saw a 15% rise in revenue a result of both acquisitions and new contracts. Profits leapt by 70% as the new business improved the quality of its revenue.

Therefore, J.B. Hunt’s experience presents a picture of a transition from a high growth-higher cost market, to a moderate growth but still high-cost market. According to J B Hunts experience, demand may be weaker, but over the past quarter it has not been negative. Yet the cooler economic background had not yet fed into the labour market. This might well happen in the near-term, which could support profits in intermodal and road freight in the US, but it has not happened yet. The good news is that, at least  for the past quarter, the US road freight sector was not in recession.

Source: Ti Insight

Author: Thomas Cullen

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