Truckload Fleets Post Gains in 2Q Despite Higher Costs

This story appears in the July 21 print edition of Transport Topics.

J.B. Hunt Transport Services Inc. and Marten Transport Ltd. each posted modestly higher net income and emphasized the prominence of rising driver costs and higher rates in the reports that kicked off the industry’s second-quarter earnings cycle.

Hunt’s July 15 report showed net income of $93.4 million, or 79 cents per share, up from $87.7 million, or 73 cents, as revenue rose 12% to $1.55 billion.

Higher driver recruiting and pay expenses were cited at Lowell, Arkansas-based Hunt’s truck, dedicated and intermodal units that accounted for 90% of revenue.

Marten said on the same date that second-quarter net income improved 3.4% to $7.93 million, or 24 cents, from $7.7 million, or 23 cents. Revenue climbed 4% to $168.4 million.

“We are well-positioned for the remainder of 2014 and beyond with our rate initiatives that will continue through this year’s third quarter,” CEO Randolph Marten said in a statement. “The operating environment is becoming more favorable with tightening capacity.”

Increasing driver costs and higher rates are expected to be a recurring theme throughout the quarterly reporting season, and beyond, several analysts said.

“The pricing story continues to be a positive one,” said Nate Brochmann, a William Blair & Co.

analyst. “Pricing has been fueled by tighter carrier capacity, due to driver shortages created by various government regulations. The dynamics remain in place for carriers to continue to push through additional rate hikes.”

Said Deutsche Bank analyst Robert Salmon, “We expect solid truckload rate increases in 2014-15 due to improved demand and limited capacity growth as drivers remain challenging.”

Robert W. Baird analyst Benjamin Hartford also said the initial earnings reports were a sign that driver-related costs will tamp down quarterly profits.

At Hunt, which ranks No. 3 on Transport Topics Top 100 list of for-hire carriers in the United States and Canada, profit at the largest unit, which is intermodal, rose 2% to $113.4 million, before interest and taxes. Shipments rose 9%, nearly all in the eastern United States.

“The slowdown in [intermodal] train velocity and the difficult driver-recruiting environment challenged our growth at JBI,” CEO John Roberts said.

Driver costs rose faster than rates at the dedicated unit, where profit before interest and taxes also rose 2% despite increased business levels. Revenue rose 15% to $348 million because of a 17% rise in shipments.

Profit on the same basis more than tripled at the truck unit and rose 50% in the brokerage business, powered by rate improvement of 14% in brokerage and 9.5% in the truck unit.

Higher driver and contractor costs also hurt Hunt’s truck unit, where revenue of $101 million was little changed. However, higher rates and a gain from an equipment sale boosted truck profit before interest and taxes to $9.4 million from $3 million.

Brokerage profit improvement was fueled by higher profit margins of 12.7% in the second quarter, up from 11.8%. Brokerage revenue rose 31% to $173 million.

Marten, No. 45 on the TT100 and based in Mondovi, Wisconsin, said June was particularly strong.

Quarterly truckload profit before interest and taxes rose 4.1% to $11.1 million as margins improved faster than a 1.8% rise in revenue that reached $129.1 million.

The logistics business raised revenue 14% to $39.3 million, but profit before interest and taxes fell 38% to $1.1 million. Logistics revenue was inflated by a 35% increase in truck-rail shipments that generated nearly all of the revenue increase.

In the rail sector, CSX Corp. on July 15 reported that second-quarter net income rose 1.5% to $529 million, or 53 cents, helped by revenue increases in intermodal, chemicals and agricultural products freight.

Expenses rose by $32 million, due to network congestion that delayed trains. CSX also said it was increasing 2014 capital spending, after the 8% rise in freight volume during the second quarter.

CSX revenue rose 7% to $3.24 billion from $3.05 billion for the Jacksonville, Florida-based railway. In the year-earlier period, net income was $521 million, or 51 cents.

Intermodal revenue rose 6% to $449 million, reflecting a 7% rise in truck-rail shipments, with faster growth for domestic freight. Chemicals revenue climbed 17% to $556 million, and agricultural products increased 15% to $285 million.