Founded in 1961, JB Hunt Transport Services Inc. (JBHT, Financial) provides surface transportation, delivery and logistics services to a diverse group of customers across North America.
Truck stocks have gotten crushed since the end of March mainly due to declining freight rates, but JB Hunt seems well-positioned to grow in the long run in my view because of the strength of its relationships with key clients and the diversified business.
About the company
The company operates through five distinct but closely related segments: Intermodal, Dedicated Contract Services, Integrated Capacity Solutions, Final Mile Services and Truckload. The Intermodal segment offers freight solutions, the Dedicated Contract Services segment designs, develops and executes supply chain solutions, the Integrated Capacity Solutions segment provides freight brokerage and transportation logistics as well as an online multimodal marketplace, the Final Mile Services segment offers delivery services and the Truckload segment provides dry-van freight services.
Recent earnings
In the first quarter of 2022, JB Hunt reported that its revenue jumped 33.3% year-over-year to $3.49 billion. Strong performances in the Dedicated Contract Services, Truckload and Final Mile Services were the catalysts that helped the company easily beat Wall Street estimates for both revenue and earnings.
The Dedicated Contract Services segment was aided by fleet productivity improvements and a rise in average revenue-producing trucks. The segmental revenue rose 28% year-over-year in the latest quarter. The Truckload segment benefited from the rise in load count and revenue per load and the segment saw impressive revenue growth of over 77%.
The Final Mile Services unit, which operates doorstep delivery of goods to end customers, is seeing higher revenue on the back of multiple customer contracts implemented over the past year. Carefully planned acquisitions to gain market share in this sector are helping the company today, the latest being the acquisition of Zenith Freight Lines completed in February.
Strategies facilitating growth
In March, JB Hunt announced a deal with Warren Buffett (Trades, Portfolio)'s BNSF Railway, which operates under the Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) umbrella. This brings an opportunity for improvement for Intermodal revenue, a segment that is currently underperforming.
The company also entered into a long-term partnership with Alphabet's (GOOG, Financial)(GOOGL, Financial) Waymo to execute fully autonomous trucking operations, bringing hope given that the industry is facing an increasing scarcity of drivers.
Shareholder distributions are also driving long-term returns. JB Hunt has strived to reward its shareholders through both dividends and share repurchases. The company announced a 33% hike in the quarterly dividend in January to 40 cents. In addition to this, the company had previously raised its dividend twice last year as well. JB Hunt repurchased $150 million worth of shares in 2021, and in the first quarter of this year, share repurchases came to $75 million.
While the S&P Transportation Select Industry Index has declined almost 10% in the last 12 months, JB Hunt stock has remained unchanged during this period, and the attractive shareholder distributions may have had a massive role to play in this outperformance of the benchmark.
Challenges persist
In addition to the decline in freight rates in the U.S. since the end of last year, the supply chain disruptions fueled by the pandemic have been a major concern for many companies in the transportation sector, and JB Hunt is not an exception. The Final Mile and Intermodal segments have been subjected to disruptions due to insisting that the prices of everything except the labor of workers has risen. Understandably, with the prices of everything else increasing, workers also wish to be paid more in order to survive, so they are pushing back against wage stagnation.
Since there is hope that the aforementioned challenges will eventually come to an end, the bigger concern is the rising fuel costs. Oil prices have soared due to both macroeconomic reasons and geopolitical tensions, and the International Energy Agency expects Brent crude to average $105.22 per barrel in 2022, in contrast to an average price of just $70.68 last year. JB Hunt is operating in the transportation industry with no easy escape from this challenging situation, and operating expenses are only bound to escalate this year. Operating expenses increased 30.9% in the last quarter and 25.5% in 2021 due mainly to fuel costs. This trend is likely to continue through the end of this year, which is something investors need to factor in.
Takeaway
JB Hunt, along with other industry peers, has been getting hammered over the last few months due to declining freight rates. Despite the many challenges it faces today, though, I believe JB Hunt seems well-positioned to grow in the long-run because of the competitive advantages resulting from the strength of its business relationships. JB Hunt’s scale makes it difficult for a competitor to take market share, as it has more than 6,000 tractors and a fleet of more than 100,000 containers.
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