JB Hunt's Results Beat Forecasts As Transport Industry Continues To Enjoy Strong Results.

Earnings Highlights for JB Hunt

The company produced results above expectations with revenue coming in at 31% higher than the same quarter during last year. Revenue came in at $3.84 billion, compared to $2.9 billion the previous year.

Net income came in at $255 million, compared to $172 million during the same period in the previous year. Earnings were up 48% y-o-y.

Diluted earnings per share came in at $2.42, vs. $1.61 the previous year.

1325 new pieces of trailing equipment were onboarded, along with 110,000 new containers and 6620 new power units.

JB Hunt Transport Nasdaq: JBHT announced its second-quarter earnings on 21^st July. JB Hunt is a transportation and logistics company based in Lowell, Arkansas. The company remains one of the most prominent transportation companies with a 12% market share. Competitors such as CH Robinson Worldwide Inc. NASDAQ: CHRW  also continued to witness strong returns for the quarter, as they beat on both revenue and earnings.

JB Hunt transport continued to enjoy strong tailwinds as both volumes and revenue continued to increase for the quarter. Revenue load also increased by was also 32%. Dedicated contract services grew by 39% on the back of a 14% increase in fleet productivity.

Management reiterated that they will continue to lighten the capital-intensive nature of the business so that the company can get to a strong cash-flow position moving forward:

 “There are different characteristics of our business segments that should be complementary to the needs of our customers in all economic conditions. These include a flexible, much lighter asset position in our Highway Services offerings, compelling solutions for private fleet conversions, aiding in the nuances of managing advanced transportation networks, a more economical and carbon-friendly full-load service offering in intermodal and final mile delivery positions that addresses a secularly growing demand channel. We remain in a leadership position across our many businesses and from a position of strength financially and on the team's experience and ability to navigate through an ever-changing, constantly evolving global supply chain.”

Transportation Industry Outlook

The transportation industry will continue to do well as logistics companies continue to witness high demand and product flow. Originally analysts had estimated that the logistics market would grow at a rate of 3.4% through 2027, but now with excess demand, the growth rate is likely to increase. Furthermore, pricing pressure and a shortage of logistics infrastructure should translate into higher revenue.  

Margins and operating income

The company’s operating income increased by 50 percent during the quarter. The increase was a result of an increase in volume combined with customer rate and cost-recovery efforts. Some of the increase was offset by an increase in third-party and rail-related costs. Energy, labor, and insurance-related costs continued to be the biggest source of cost increases during the recent quarter. These costs should moderate over the next couple of quarters. Costs such as one-time insurance claims also added to the eventual costs.

Valuation

JB Hunt currently trades at a price-to-earnings of 21x, which is not expensive if you consider that revenue should remain robust for a few more quarters. Unless the economy takes a significant turn for the worse, demand for goods should remain strong for a little while longer, which would bring forward P/E closer to 16x, and in line with intrinsic value.

Balance Sheet and cash flow

Cash remains a bit low at $355 million, but the current ratio is around 2:1, which makes the balance sheet relatively safe. The company currently has a total debt of $1.3 billion, which is a bit higher than it might want but relatively strong levels of cash flow during the next couple of quarters will help the company reduce some of those debt levels.  JB Hunt currently has $124 million in cash flow on its balance sheet and management has reiterated its plans to bring down debt in the next couple of quarters. When combined with lower levels of capital-intensive operations, cash flow is likely to head higher, which could result in the stock also heading higher.

Outlook for the business

The transportation industry continues to enjoy tailwinds from the stimulus. But now with rising interest rates, savings from the pandemic depleting, and the backlog of logistics slowly starting to reduce, you are starting to see some softness creeping into the economy. This may affect the operations of the company, although goods flow should remain strong for the rest of the year. All-in-all JB Hunt is well positioned to take advantage of the current economic climate.