J.B. Hunt Gets A Flat, Logistic Companies Come Into Focus

Key Points

• J.B. Hunt Transport Services posted a miss on the top and bottom lines for Q4 2022. 
• The miss was driven by weakness in the Integrated Capacity Solutions segments. 
• Other truckers may still outperform their consensus estimates because of strength in core segments. 

J.B. Hunt’s NASDAQ: JBHT Q4 results confirm a trend that has recently developed within the trucking and logistics industry. The analysts began warming up to the truckers but their interest was centered on logistic companies like GXO Logistics NYSE: GXO and truckers like Knight-Swift Transportation NYSE: KNX versus the larger, more integrated operations.

J.B. Hunt even got a little bit of love, but it appears to have been misplaced. The company missed the top and bottom lines due to weakness in the Integrated Capacity Solutions that more than offset strengths in other areas.

What this means is that there is still demand for trucking and freight services at all levels but not so much that those in need have to hunt to find it. The takeaway is that rotation within the sector may pick up momentum, and J.B. Hunt may move lower while other truckers move higher.

J.B. Hunt, Growth Slows Margins Shrink

J.B. Hunt had an OK quarter and produced both revenue growth and solid earnings, but there are numerous issues with the numbers that will weigh on share prices in the near term. The first is revenue; the $3.65 billion in net revenue is up 4% versus last year but down sequentially and it missed the Marketbeat.com analyst's consensus estimate by 370 basis points. 

Worse, on an x-fuel surcharge basis, the company’s revenue fell by 3%, and the fuel surcharges could begin to shrink over the next quarter or so.

On a segment basis, all segments saw top-line growth except Integrated Capacity Solutions, which declined by 33%. The company’s best-performing sector was the Dedicated Contract Services which reflects an increase in demand for guaranteed services that may have sapped strength from the ICS segment. 

The good news for truckers like Knight-Swift and logistics companies like GXO Logistics and XPO Logistics NYSE: XPO is the 11% increase in Intermodal, the 24% increase in Dedicated Contract Services, the 6% increase in JBT (truckload) and the 15% increase in final mile services.

These gains were aided by a 14% increase in active trucks in the DCS segment, a 6% increase in load volume for the JBT segment and acquisitions coupled with customer growth in the Final Mile segment. 

The earnings, however, are where the truly bad news lay. The company’s GAAP EPS came in at $1.92 or down 16% versus last year and 22% worse than consensus. The company doesn’t provide guidance but, the decline in margin and weakness in ICS suggests Q1 2023 and perhaps the 1st half of the year could be weaker than the current consensus. 

Knight-Swift Reports Next Week 

Knight-Swift is the trucker with the firmest sentiment, and it reports on January 25th. The current consensus is for sequential and YOY declines in revenue and earnings that may be underestimating the business.

The results from JBHT certainly suggest that truckload, LTL, logistics and intermodal segments at Knight-Swift could have grown over the past 12 months. However, the latest shout-out from analysts comes from Credit Suisse and may foreshadow problems for this market. Credit Suisse still rates KNX stock at Outperform with a price target in-line with the consensus estimate, but they removed it from the Top of the Crop list. 

Turning to the charts, shares of KNX and GXO have been lagging behind the transportation industry since the pandemic bottom. That has the 2 in position to rebound in 2023, assuming they exhibit the expected strength in earnings. All 3 stocks are rated a Moderate Buy but GXO has the most upside expectation for gains at 20% compared to about 12% for JBHT and 8% for KNX. JBHT is down about 2.0% in premarket action.