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J.B. Hunt Transport Services (JBHT - Analyst Report), the third-largest U.S. truckload carrier, reported second quarter 2011 earnings of 53 cents per share, which came in at par with the Zacks Consensus Estimate. Earnings per share rose 32.5% from 40 cents earned in the year-ago quarter.

Total revenue increased 22% year over year to $1.15 billion, but came in way below the Zacks Consensus Estimate of $1.23 billion. The year-over-year growth was aided by higher shipment in each of the segments. Operating income leaped 24% year over year to $113.4 million attributable to strong profits in three segments –– Intermodal, Dedicated Contract Services and Integrated Capacity Solutions.

Segment Results

Intermodal reported revenue of $676.0 million, up 28.6% year over year driven by an 18% increase in load count. Higher fuel surcharges and capacity constrains, particularly in the southeast truck market also aided revenue growth. Excluding fuel surcharges, pricing increased 4.4% year over year. The average tractor count increased to 2,896 from 2,523 in the year-ago quarter. Operating income climbed 28.6% year over year to $76.5 million.

Dedicated Contract Services revenues grew 15.6% year over year to $264.2 million driven by strong growth in truck count and an approximate 2% increase in productivity (revenue per truck per week). The average truck count increased 7.9% to 4,836. Operating income increased 22.7% from the year-earlier quarter to $27.4 million on cost control, increased truck count and higher productivity.

Truck revenues climbed 4.3% year over year to $130 million despite a 9.4% reduction in tractors. The tractor count decreased to 2,508 from 2,769 in the year-ago quarter. Overall, the rates continued to improve with a 4.7% year-over-year growth registered in the quarter. However, the average length of haul declined 1.7%. Operating income declined to $6.9 million from $7.2 million in the year-ago quarter.

Integrated Capacity Solutions revenues grew 27.4% year over year to $89 million attributable to an 11% increase in load volume and higher pricing in both contractual and transactional businesses as well as an increase in fuel surcharges. Operating income increased 20% to $2.6 million from $2.2 million in the year-ago quarter. On a year-over-year basis, the carrier base rose 13.7% and employee count grew 15.5%.

Liquidity

At the end of June 30, 2011, cash and cash equivalents of J.B. Hunt increased to $11.1 million from $7.8 million at year-end 2010. Total debt increased to $664 million from $617.0 million at the end of the year-ago quarter.

Capital expenditure was $211 million at the end of June 30, compared with $104 million at the end of the year-ago quarter.

Share Repurchase

J.B. Hunt repurchased 2 million shares at a total cost of $85 million during the six-month period ending June 30. The company has $164 million remaining in the share repurchase authorization.

Our Analysis

We believe J.B. Hunt continues to gain market share across all segments, particularly in Intermodal and Dedicated Contract Services, which comprised 80% of the total revenue gains for the company in the second quarter. Despite the economic upheavals, both segments have a strong foothold in their respective markets. Additionally, the company remains positive on Integrated Capacity Solutions given its continued growth despite depressed margin due to unfavorable market fundamentals.

However, the company faces intense competition from other truckload carriers such as YRC Worldwide Inc. (YRCW - Snapshot Report), Old Dominion Freight Line Inc. (ODFL - Snapshot Report) and Conway Inc. (CNW - Snapshot Report) due to its low barriers to entry. Additionally, rapidly rising fuel costs and tightening of capacity in the Truck market amid truck load conversion to rail intermodal may affect the company’s performance ahead.

Consequently, we are maintaining our long-term Neutral recommendation on J.B. Hunt with a Zacks Rank # 3 (Hold).

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