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J.B. Hunt Transport Services (JBHT - Analyst Report), one of the largest U.S. truckload carriers, reported second quarter 2013 earnings of 73 cents per share, narrowly missing the Zacks Consensus Estimate of 74 cents. The results grew 9% from 67 cents earned in the year-ago quarter.

Total revenue increased 10 % year over year to $1.38 billion but missed the Zacks Consensus Estimate of $1.40 billion.

Operating income for the quarter increased 7% year over year to $147 million primarily on volume growth. The company also registered lesser interest expense thanks to lower debt levels.

Segment Results

Intermodal reported quarterly revenues of $855 million, up 12% year over year driven by a 12% increase in load count. Freight pricing and fuel surcharges along with a better traffic mix aided revenue growth. The average tractor count increased to 3,881 from 3,379 in the year-ago quarter. Operating income climbed 19% year over year to $110.7 million.

Dedicated Contract Services revenues grew 13% year over year to $303 million in the second quarter. The average truck count was 5,767 against 4,900 in the year-ago quarter. However, operating income plunged 11% year over year to $29.7 million due to higher equipment, insurance and claims costs, lower gains on equipment sales as well as rise in technology expense and contract implementation costs.

Truck revenues dropped 20% year over year to $101 million. The average tractor count reduced to 2,034 from 2,461 in the year-ago quarter. Rates from shippers registered a year-over-year decline of 0.6%. The average length of haul decreased 10.3%.

Operating income saw a sharp drop of 67% year over year to $3.0 million. The decline was mainly due to lower asset utilization, higher wages per mile for drivers, higher independent contractor costs and higher empty miles. These headwinds ultimately offset the positive impact of favorable changes in freight mix and lowered insurance and claims costs in this segment.

Integrated Capacity Solutions revenues grew 20.0% year over year to $132 million attributable to a 29% increase in load count and higher pricing. Operating income increased 113% year over year to $4.2 million thanks to higher revenues and an improved gross profit margin. On a year-over-year basis, the carrier base rose 10% and employee count grew 8%.

Liquidity

At the end of the second quarter, cash and cash equivalents increased to $5.9 million from $5.6 million at year-end 2012. Total debt was $674 million compared with $685.0 million at the end of 2012.

Second quarter capital expenditures were $212 million compared with $171 million at the end of the year-ago quarter.

Share Repurchase

As of Mar 31, 2013, the company had approximately $388 million worth of shares remaining under its repurchase authorization. Management repurchased 900,000 shares worth $65 million in the reported quarter.

Our Analysis

Looking ahead, we expect the company to reap benefits from its unique intermodal network and secular growth of the dedicated business segment. J.B. Hunt enjoys a leading market position, and operates with high-class systems and advance technologies.

We also appreciate the company’s efforts to take its brand to unexplored territories. With these positives well reflected in the stock price, we see limited upside potential for the company at the current levels.

J.B. Hunt  competes with the likes of Con-way Inc. (CNW - Snapshot Report), Old Dominion Freight Line Inc. (ODFL - Snapshot Report) and YRC Worldwide Inc. (YRCW - Snapshot Report). Presently, the company a Zacks Rank #3 (Hold).

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