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J.B. Hunt Transport Services Inc. (JBHT - Analyst Report), one of the largest truckload carriers in the U.S., reported second-quarter 2014 earnings of 79 cents per share, in line with the Zacks Consensus Estimate. The figure improved 8.2% from 73 cents earned in the year-ago quarter.

Total revenue increased 11.9% year over year to $1,547.9 million and was also ahead of the Zacks Consensus Estimate of $1,534 million. Operating revenue surged 13.3%, while fuel surcharge revenue improved 6.3%. The earnings results boosted the stock price, which closed 3.57% higher on Tuesday trade on Nasdaq.

Meanwhile, operating income for the quarter improved 8.0% year over year to $159.23 million.

Segment Results

Intermodal reported quarterly revenues of $930.67 million, up 8.9% year over year. Solid demand for truck-to-rail conversion in the Eastern and transcontinental market and marginal rise in revenue per load led to the improved show. The average tractor count increased to 4,447 from 3,881 in the year-ago quarter. Operating income moved up 2.5% year over year to $113.39 million.

Dedicated Contract Services revenues grew 14.9% year over year to $347.73 million in the second quarter on higher number of revenue-generating trucks and increased customer demand at mature contracts. The average truck count stood at 6,538 against 5,767 in the year-ago quarter. Operating income inched up 2.1% year over year to $30.3 million. Higher purchased transportation costs, higher driver recruiting costs, and insurance and worker’s compensation costs affected the operating performance of the segment.

Integrated Capacity Solutions revenues grew 31.1% year over year to $172.89 million, attributable to a 15% increase in load volume and 14% growth in revenue per load. Operating income surged 50.0% year over year to $6.22 million owing to higher revenues and improvement in gross revenue margins. On a year-over-year basis, the carrier base rose 9% and employee count grew 23%.

Truck revenues dropped a mere 0.9% year over year to $101.07 million due to a 8% decline in fleet size. The average tractor count reduced to 1,860 from 2,018 in the year-ago quarter. Rates from shippers registered a year-over-year improvement of 10% while the average length of haul decreased 5.9%.

The company reported an operating profit of $9.36 million as against $2.96 million in the second quarter of 2013. The improvement can be attributed to increased core rate, freight mix, lower personal costs, and profits from equipment sales. These tailwinds were offset by increased driver hiring costs, higher driver and independent contractor costs per mile, and increased per unit equipment costs.

Liquidity

At the end of the reported quarter, cash and cash equivalents increased to $5.87 million from $5.83 million at end-2013. Long-term debt stood at $874.03 million as against $458.42 million at the end of 2013.

Capital expenditure in the first half of 2014 was $353 million against $212 million at the end of first-half 2013.

Share Repurchase

During the second quarter, the company repurchased 990,000 shares for $75 million. As of Jun 30, 2014, the company had approximately $263 million worth of shares remaining under its repurchase authorization.

Our Analysis

We remain encouraged by the enhanced equipment velocity, accelerated fleet conversion and expansion of branches. The company’s Intermodal segment is expected to show solid growth on strong fundamentals and highway-to-rail conversion, while the Dedicated Contract Service segment holds strong growth opportunities stemming from the growing popularity of final mile services. However, a competitive scenario, higher staff costs and a deteriorating truck business limit its upside potential.

J.B. Hunt currently carries a Zacks Rank #3 (Hold). However, better-ranked stocks worth considering within the same sector are Old Dominion Freight Line Inc. (ODFL - Snapshot Report), The Greenbrier Companies, Inc. (GBX - Snapshot Report) and CSX Corp. (CSX - Analyst Report). ODFL and GBX sport a Zacks Rank #1 (Strong Buy), while CSX holds a Zacks Rank #2 (Buy).

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