JB Hunt Transport Services Inc (JBHT) Q1 2024 Earnings Call Transcript Highlights: Navigating …

• Revenue: Decreased by 9% on a consolidated GAAP basis compared to last year.

• Operating Income: Declined by 30%.

• Diluted Earnings Per Share (EPS): Decreased by 35%.

• Tax Rate: Increased to 28.7% from 24.7% in the prior year.

• Cost Pressures: Facing inflationary cost pressures alongside deflationary pricing pressure.

• Cost Initiatives: Identified additional areas of opportunity to address costs.

• Capital Expenditures: Expectation to spend between $800 million to $1 billion for 2024.

• Share Repurchases: Company will remain opportunistic with share repurchases.

• Intermodal Volumes: Flat year-over-year with specific monthly variances.

• Intermodal Capacity: Purchase of Walmart’s intermodal assets to increase available container capacity.

• Brokerage Environment: Integrated Capacity Solutions (ICS) segment gross revenue declined 26% year-over-year.

• Truckload Segment: Gross revenue down 13% year-over-year.

• J.B. Hunt 360 Box: Demand outperforming overall market, but facing rate pressure.

Release Date: April 16, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• JB Hunt Transport Services Inc (NASDAQ:JBHT) remains committed to long-term strategic decisions and financial discipline.

• The company has made disciplined investments in people, technology, and capacity, which are expected to enhance future performance.

• JBHT has a strong sales pipeline in the Dedicated segment, with approximately 690 new trucks sold in the quarter.

• The company has entered into a multiyear intermodal service agreement with Walmart, including the purchase of Walmart’s intermodal assets, which increases available container capacity.

• JBHT’s focus on safety has resulted in a meaningful reduction in on-road collisions and DOT preventable accidents per million miles.

Negative Points

• JBHT experienced a disappointing financial performance in the current challenging market environment, with declines in revenue, operating income, and diluted earnings per share.

• The company faces inflationary cost pressures and deflationary pricing pressure, impacting margins, particularly in Intermodal and Highway Services.

• There is an oversupply of capacity in the market, which is not exiting quickly enough, leading to competitive pressures across all segments.

• Intermodal volumes were weaker than expected, with flat year-over-year growth and a competitive bid season that was more intense than anticipated.

• Strategic cargo theft has increased, particularly affecting the Integrated Capacity Solutions (ICS) segment, prompting JBHT to adjust and enhance security measures.

Story continues

Q & A Highlights

Q: What percent of the book is and then what percent reprices in 2Q? A: (Darren P. Field – EVP & President of Intermodal) About 30% of the book reprices in each of the first three quarters and about 10% in the fourth quarter. Roughly 40% of the pricing cycle that began in October of ’23 is complete.

Q: Can you talk about your thoughts on do you get rid of capacity at this point to work with the industry to shrink that? A: (John Kuhlow – EVP, CFO, Controller & CAO) The company has a long-term view and believes in its strategic decisions around valuable resources. While they have good insight into productivity and utilization metrics, they are focused on growing into this capacity and holding on to commitments to their people for the long term.

Q: Thoughts on the volume trends, seeing a lot of international intermodal volume going [in line]? A: (Darren P. Field – EVP & President of Intermodal) Demand for Intermodal Service was weaker than expectations. Volumes were flat year-over-year, with some growth in certain lanes but a decline in the Eastern network due to competitive truckload pricing.

Q: On the intermodal pricing, are you also seeing nice competition from some of your INC peers? A: (Darren P. Field – EVP & President of Intermodal) Pricing in intermodal has been competitive, influenced by truckload capacity and other intermodal competitors. The current rate environment is seen as part of the cycle, and there is an expectation for pricing and volume to return to balance eventually.

Q: Can Dedicated hold relatively flat in 2024? A: (Nicholas Hobbs – President of Contract Services, EVP & COO) Dedicated had a strong sales quarter, and the pipeline remains strong. Despite some visibility into fleet losses, there is confidence in backfilling these losses over the year, potentially holding relatively flat.

Q: Can you give us a thought on the Walmart contract and how we should think about the pace of that? A: (Darren P. Field – EVP & President of Intermodal) The Walmart agreement is confidential, but it’s a unique opportunity to grow towards the target of 150,000 containers without adding additional capacity to the industry. The capacity will onboard over the course of a year, with some potentially in storage until demand grows.

Q: Can you give us some expectations around how you’re approaching the market the rest of the year? A: (Darren P. Field – EVP & President of Intermodal) The market has been more competitive than expected, but the company is exploring opportunities to offer shorter-term programs and work with rail providers to be more competitive. The focus is on one customer at a time, seeking opportunities for growth.

Q: Can you guys talk to maybe ICS profitability because I think sequentially it did worsen in the first quarter? A: (Bradley W. Hicks – EVP of People & President of Highway Services) The brokerage environment remains competitive, with gross margin recovery throughout the quarter. The focus is on growing with customers that create value and are stickier in the forward view.

Q: How can we had kind of like the green shoot period in 4Q and then another step back [to 1Q]? A: (Darren P. Field – EVP & President of Intermodal) The fourth quarter uptick in demand was a surprise, and the magnitude of the decline in the first quarter was also unexpected. The company is seeking clarity on these fluctuations from customers.

Q: Are we basically saying the trailer pool experiment is done and we’re going back to something more normal? A: (Bradley W. Hicks – EVP of People & President of Highway Services) The company has excess capacity and is making decisions on where to utilize trailers company-wide. The 360 Box strategy remains a focus, with volume growth in the network it supports.

This article first appeared on GuruFocus.