JB Hunt (NASDAQ:JBHT) Crashes After Mixed Quarter

Rising Costs Cut Into J.B. Hunt Profits

J.B. Hunt (NASDAQ:JBHT) and the entire trucking industry is at a crossroads. Rising demand is driving revenue gains across the industry while a shortage of drivers impairs profitability. The shortage of drivers is not only leading to under capacity within the national fleet but also rising costs related to wages, incentives, and hiring. The good news is that, eventually, the driver/demand picture will come back into alignment.

The question is whether or not demand will hold up until it does and the indications are yes. Starting with the stay-at-home mentality and shift to eCommerce, adding in low inventory on merchant shelves, and ending with rising demand for shipping at all levels the data suggests a massive burst of economic growth is working its way through the system. And that’s good news for the truckers.

A Robust Quarter For J.B.Hunt

J.B. Hunt was not immune to the pandemic but has been able to rebound nicely. Negative growth in the 2nd quarter was replaced by a modest 5% YOY increase of revenue in the 3rd that accelerated to 11.8% in the 4th. The $2.74 billion in consolidated revenue also beat the consensus by 390 basis points. The bad news is that, while revenue strength carried through to the bottom line, earnings were impaired by higher costs.

On a segment basis, Integrated Capacity Solutions and Trucking increased by 56% and 50% respectively with strength seen in most other segments as well. The Final Mile segment grew by 30% while Dedicated Services rose only 3.0%. Dedicated Services was driven by a 9.0% increase in loads that was offset by higher freight costs and other 3rd party services. Intermodal is the only area of weakness with a decline of 1.0% but there is one other impact to revenue that investors should note. The company recorded a 34% decline in fuel surcharges that cut into both top and bottom-line results.

“Overall, we are pleased with the revenue growth this quarter with notable achievements in the Highway division as well as dedicated. Cost pressures in the fourth quarter were primarily related to higher costs across network and operations due to congestion and labor tightness from increased freight demand, higher driver costs to attract and retain drivers in a capacity-constrained environment, and we also incurred higher group medical costs in the quarter,” said CFO John Kulow during the conference call.

Moving down the report the company’s operating income increased by $2.5 million to $207.7 million which resulted in better than expected EPS. The GAAP eps of $1.44 beat by $0.13 and is up $0.09 from last year.

J.B. Hunt Delivers A Safe Dividend

J.B. Hunt is a high-quality dividend-grower with only one thing to hold against it. The stock tends to yield less than 1.0% but investors should expect an increase with the next declaration. The next dividend declaration should come any day and include a 10% or greater annual increase. Regarding the payout’s safety, J.B. Hunt is paying out less than 23% of its earnings and there is plenty of free cash flow. The balance sheet is a near-fortress so no worries there. I say a near-fortress because the debt is very low while cash and coverage is good but there is a small issue with leverage. The company is leveraged at 6.25X FCF, not high but high enough to take note of.

The Technical Outlook: J.B. Hunt Pulls Back From Resistance

Price action in shares of JBHT hit a top even before the Q4 release, the Q4 release only accelerated the move lower. Shares fell as much as 4.25% in the early premarket session and may fall lower if the short-term EMA doesn’t provide support. A move below the $142 level could bring price action down to the $130 or $120 levels. If support confirms at the EMA the stock may bounce back but a move to the side would be the more likely scenario.