JB Hunt’s management team isn’t ready to make a call on freight volume in 2024. (Photo: Jim Allen/FreightWaves)
Management from J.B. Hunt Transport Services cited cost pressures on multiple fronts several times on a Thursday evening call with investors. Insurance costs were the most prominent reason for the failure of key forecasts in the fourth quarter.
JB Hunt (NASDAQ: JBHT) reported headline earnings per share of $1.47 for the fourth quarter, which fell short of the consensus estimate of $1.75. However, the period included $53.4 million in additional pre-tax charges associated with higher premiums and the expectation of much higher payments per claim. Excluding the insurance headwind of 43 cents, EPS would have been $1.90.
The cost was largest during the fourth quarter of 2022. It recorded a $64 million charge associated with additional reserve adjustments for prior casualty claims, resulting in a loss of 46 cents for the period.
“Given that the majority of auto carriers in the industry only carry $1 million in coverage, just above the statutory minimum of $750,000 in coverage, it is the larger carriers that bear the brunt or disproportionate share of the costs,” the CEO said. Insurance and escalating claims. John Roberts. “Ultimately, these inflationary costs are passed on to customers and consumers.”
Roberts said the number of claims over $1 million jumped 867% from 2010 to 2018. J.B. Hunt’s premium reset in 2024 was 50% to 60% higher despite the company’s numerous safety and risk mitigation initiatives.
The company also had a $15 million increase in loss on equipment sales, representing a 12-cent headwind. The rise in interest expense was 3 cents lower as net interest expense increased 46% year-over-year (YoY) with the company’s debt load increasing 25% in comparison. The lower tax rate compared to last year was a tailwind of 14 cents. These items are included in the $1.90 figure.
The segment results below have also been adjusted to exclude additional allocated insurance expenses.
The inclusion or exclusion of these amounts is likely to be a topic of debate among the investment community. Non-recurring and non-recurring items are typically eliminated to produce an earnings figure that is more reflective of ongoing operations, which is then used as the basis for valuation. However, if the current environment proves to be the new standard for insurance premiums and claims costs, items may be included in the future.
Management said it believes the recent charges incurred to correct insurance reserves will likely not be as severe going forward.
Multimedia volumes compress higher
Intermedia volumes rose 6.5% year over year and 3% higher than in the third quarter, slightly outpacing the broader industry. Intermodal traffic on U.S. Class I railroads rose 6% year over year, according to the Association of American Railroads. On a monthly basis, JB Hunt sales volumes in October and November were up 6% year over year, with December up 8%.
Revenue per upload was down 13% year over year (up 2% sequentially) but cost per upload was down only 10% year over year (up 1% sequentially). Revenue per load decreased 10% year over year excluding fuel surcharges. The sector reported an operating ratio of 91%, which was 250 basis points worse year over year but 80 basis points better than Q3.
Management has not provided any guidance for the multimedia division in the new year as expectations from its customers remain cloudy. She pointed out that indicators indicate a continued shift in volumes to the west coast due to the conflict in the Red Sea, which has led to a reduction in the desire of marine tankers to sail the Suez Canal. The shift in West Coast mix increases longevity (revenue dollars) and raises margins.
Due mostly to the prior year’s comps – strength in the East with weakness in the West due to a labor dispute at the ports – J.B. Hunt’s intercontinental loads increased 13% year over year in the quarter while Eastern loads fell 2%.
Customized fixed hanging
Dedicated revenue was down 3% year over year as loads were down 9% and revenue per load was up 6%. Average trucks in service decreased 2%, and revenue per truck per week remained flat (up 3% excluding fuel surcharges). The unit has seen some fleet downsizing within accounts due to the weak demand environment as well as some customer attrition as JB Hunt remains “disciplined” on pricing.
The sector recorded an operating rate of 88%, which is 120 basis points better year-on-year. The maturity of previously integrated accounts has improved productivity.
The company signed contracts with customers representing 300 trucks in the quarter. It has sold dedicated service for a total of 1,150 trucks during 2023.
Brokerage wrote another loss
Integrated Capacity Solutions reported a 25% year-over-year decline in revenue to $364 million as loads fell 12% and revenue per load fell 15%. The decline included a $90 million revenue contribution from the acquisition of BNSF Logistics’ (NYSE: BRK.B) brokerage operations, which closed in September.
The unit lost $15 million this quarter compared to a profit of $12 million last year. The acquisition was likely worth between $5 million and $6 million during this period.
J.B. Hunt shares rose 4.2% in after-hours trading Thursday evening.
“Net net, we expect a stock reaction commensurate with the underlying earnings gain of 3.5%,” Amit Mehrotra, an analyst at Deutsche Bank (NYSE: DB), said shortly after the earnings report was published. “The stock is already highly valued, so we don’t think we’ll get much, if any, multiple expansion.”
