J.B. Hunt’s Profit Drops 52% in 2nd Quarter

This story appears in the July 20 print edition of Transport Topics.

J.B. Hunt Transport Services Inc. said its second-quarter profit fell 52%, hurt by mounting pressure on prices and weak demand, as the latest round of quarterly financial reports by public carriers began to roll in last week.

Hunt reported July 14 that net income was $24 million, compared with $50.6 million in the year-earlier period. Heartland Express reported net income rose 2% and Landstar System’s net income fell 40%.

Most trucking and rail companies are expected to show sharp year-to-year profit declines in the second quarter, because of volume and pricing deterioration.

Kirk Thompson, Hunt’s chief executive officer, said in a statement that there was evidence “of gradual improvement in demand” but that “pricing has been challenging . . . reflective of the sharp contractions in freight volumes this year.”

Hunt said a one-time charge to reduce the value of tractors cut profit by $10.3 million. Revenue fell 21% to $770 million, reflecting lower fuel surcharge collections; excluding surcharges, revenue declined 8%.

Analyst Jon Langenfeld, with Robert W. Baird, called Hunt’s results “disappointing” and “uncharacteristic.” In a July 15 investor note, he said that “pricing pressure worsened (as expected) with the earnings impact greater than expected in intermodal and truck.”

Hunt’s truckload business was hurt the most as the truck unit’s volume plummeted 31% and dedicated volume fell 15%. The company de-emphasized unprofitable one-way freight and reduced its fleet by 599 tractors and 3,738 trailers.

Intermodal loads Hunt handled rose 8%, indicating a market share gain, as total rail intermodal business declined nearly 20% in the quarter. Part of the increase was growth in shorter-haul shipments in the eastern United States.

Rates fell 3% at intermodal, the largest Hunt unit, and 9% for truckload. Revenue per truck per week dropped 17% in the dedicated business.

Brokerage volume rose nearly 30%, and the brokerage unit, Integrated Capacity Solutions, raised its profit margin to 6.2% from 4.3%.

“We would expect pricing to show some improvement with increased demand or as capacity continues to exit the market,” Thompson said, without saying when that improvement would happen.

Operating income slipped 41% for intermodal and dedicated dropped 64%, hurt by startup costs for new business. Brokerage operating income rose 85% and truckload swung to a $4 million loss from profit of $3.4 million.

The operating ratio worsened to 93.9 from 90.4.

Heartland fared better, improving its operating ratio to 81.4 from 87.3 despite a 29% revenue decline. Net income rose 2.2% to $17.6 million from the same period in 2008. Operating income climbed to $21.7 million from $20.9 million, helped by $4.2 million in gains on property disposals.

Heartland didn’t release details on revenue per load or other rate data but said that “excess capacity in our industry combined with the continued decline in available freight resulting in extreme pressure on freight rates.”

The company said that it was focusing on idling-hour reductions, fuel purchasing strategies and other cost-control measures to improve its results.

Landstar said its net income fell to $17.9 million from $29.8 million, reflecting a 30% decline in revenue to $491.2 million. About 30% of the $206 million drop in revenue was related to fuel surcharge collections.

Brokerage revenue fell faster at 36% — to $165.2 million — than did the decline in revenue through Landstar’s agents and “business capacity owners,” whose revenue fell 23%. Landstar loads fell 16%, with significant drops in automotive and government business.

In the rail sector, CSX’s profit declined 20% to $308 million, or 78 cents a share, revenue fell 25% to $2.19 billion and freight volume fell 21%.

CSX’s revenue per load fell 5%, the first decline in that pricing measurement in at least five years. Last year, CSX and other railroads succeeded in raising revenue as much as 20% despite lower freight volumes, in part because of fuel surcharge collections.

Domestic intermodal volume rose 2% in the quarter, but revenue fell 16% to $204 million.