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J.B. Hunt Encounters Margin Pressure in First Quarter

Written by on April 15, 2013

J.B. Hunt’s first-quarter consolidated revenue expanded 11% from the same period last year, reflecting healthy intermodal volume strength at JBI and continued, solid contract wins in the dedicated contract segment (DCS). DCS revenue before fuel surcharges increased 10%, primarily driven by fleet growth associated with new business (probably private-fleet conversions). Productivity (revenue per tractor) at DCS also improved (up 2%). Truckload (JBT) revenue before fuel surcharges fell 21%, mostly because of a 20% reduction in average fleet size and softer asset utilization.

Notably, intermodal loads grew 13.5%, with ongoing strength in the Eastern network (up 19%) thanks to favorable truckload conversion activity. Firstquarter load growth came in modestly ahead of the 12% posted in the fourth quarter, and was about in line with average growth for the full year 2012. That said, despite ongoing market share gains and decent truck conversion activity, we continue to expect volume growth to slow this year owing to the likelihood of only modest U.S. macroeconomic growth.

Hunt’s consolidated operating ratio deteriorated 30 basis points (to about 90.3%). In general, rising equipment and maintenance costs, contract implementation expenses (at DCS), and softer asset utilization in the truckload segment more than offset leverage from overall revenue growth and better intermodal network balance. The core intermodal business generated 70 basis points of adjusted OR gains. Analysts adjusted models to account for first-quarter results. However, the longer-term assumptions driving the fair value estimate largely remain intact.



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