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J.B. Hunt Transport Services Inc. (JBHT - Analyst Report), one of the largest U.S. truckload carriers, reported third quarter 2013 earnings of 75 cents per share, missing the Zacks Consensus Estimate of 78 cents. Earnings per share grew 15.4% from 65 cents earned in the year-ago quarter.

Total revenue increased 10.8% year over year to $1,436 million but fell short of the Zacks Consensus Estimate of $1,446 million.

Operating income for the quarter increased 13.3% year over year to $151 million primarily driven by load growth, higher intermodal box turns and freight mix. The company also registered lower interest expense thanks to lower interest rates.

Segment Results

Intermodal reported quarterly revenues of $890 million, up 12.1% year over year on an 11.6% increase in load count. Increase in freight price and fuel surcharges along with a better traffic mix also aided revenue growth. The average tractor count increased to 4,033 from 3,522 in the year-ago quarter. Operating income climbed 20.5% year over year to $118.0 million.

Dedicated Contract Services revenues grew 17% year over year to $318.9 million in the third quarter. The average truck count was 6,099 against 5,153 in the year-ago quarter. Operating income improved 14.3% year over year to $29.2 million buoyed by increase in sales from new accounts, which was partially offset by higher recruiting, relocation and employee retention costs mostly within the new fleet conversion.

Truck revenues dropped 17.0% year over year to $96.9 million. The average tractor count reduced to 1,989 from 2,406 in the year-ago quarter. Rates from shippers registered a year-over-year decline of 0.4%. The average length of haul decreased 6.1%. Operating income saw a sharp drop of 83.8% year over year to $0.6 million.

The decline was mainly due to lower asset utilization, higher wages per mile for drivers, higher independent contractor costs and higher maintenance cost per unit. These headwinds ultimately offset the positive impact of favorable changes in lowering the size of the trailer fleet, fewer empty miles and reduction in employee strength.

Integrated Capacity Solutions revenues grew 13.3% year over year to $137.4 million attributable to a 4.3% increase in load volume and higher pricing. Operating income decreased 48.3% year over year to $2.8 million due to a decline in gross profit margin and increased personnel expenses. On a year-over-year basis, the carrier base rose 8% and employee count grew 14.5%.

Liquidity

At the end of the third quarter, cash and cash equivalents increased to $5.9 million from $5.6 million at year-end 2012. Total debt was $687 million compared with $685.0 million at the end of 2012.

Capital expenditures for the first nine months of 2013 were $333.6 million against $279.0 million at the end of the comparable period of last year.

Share Repurchase

As of Sep 30, 2013, the company had approximately $388 million worth of shares remaining under its repurchase authorization.

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 expand its brand to unexplored territories. However, a competitive scenario, higher staff retention costs and a deteriorating truck business limit its upside potential.  

J.B. Hunt currently carries a Zacks Rank #3 (Buy). However, other stocks to consider within same sector are P.A.M Transportation Services Inc. , Covenant Transportation Group Inc. (CVTI - Snapshot Report) and Trinity Industries Inc. (TRN - Snapshot Report). All these carry a Zacks Rank #2 (Buy).

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