J.B. Hunt Posts Stellar 1Q

J.B. Hunt Transport Services (JBHT - Analyst Report), one of the largest U.S. truckload carriers, reported first quarter 2012 earnings of 57 cents per share, which surpassed the Zacks Consensus Estimate of 52 cents. Earnings per share soared 42.5% from 40 cents earned in the year-ago quarter on strong growth across most segments.

Total revenue increased 16.5% year over year to $1.17 billion, beating the Zacks Consensus Estimate of $1.15 billion. The year-over-year growth was aided by higher shipment in each of the segments alongside continued growth in fuel surcharges. Operating income leaped 29.8% year over year to $116.6 million attributable to strong profits in three segments –– Intermodal, Dedicated Contract Services and Integrated Capacity Solutions.

Segment Results

Intermodal reported revenue of $694.3 million, up 20% year over year, driven by a 16% increase in load count. The growth was aided by an increase in fuel surcharges and capacity constraints in the truck market. Pricing grew 3.0% year over year. The average tractor count increased to 3,255 from 2,736 in the year-ago quarter. Operating income climbed 27% year over year to $79.4 million

Dedicated Contract Services revenues grew 7% year over year to $255.9 million in the first quarter. The average truck count was 4,881 against 4,652 in the year-ago quarter. Operating income shot up 51% year over year to $28.1 million on effective cost control measures, increased asset utilization and productivity gains.

Truck revenues climbed 8.0% year over year to $128.2 million. The average tractor count grew to 2,615 from 2,550 in the year-ago quarter given the increased number of private contractors. Rates continued to improve and registered year-over-year growth of 2.6% in the quarter. The average length of haul declined 6.6%. Operating income decreased 16% year over year to $4.9 million.

Integrated Capacity Solutions revenues grew 30.0% year over year to $97.0 million attributable to a 14% increase in load volume and higher pricing, mostly on transactional businesses as well as an increase in fuel surcharges. Operating income shot up 58% year over year to $4.1 million. On a year-over-year basis, the carrier base rose 14.0% and employee count grew 14.5%.

Liquidity

At the end of the first quarter, cash and cash equivalents increased to $5.7 billion from $5.5 billion in year-end 2011. Total debt was $702 million compared with $749.0 million at the end of 2011.

First quarter capital expenditures were $84 million compared with $112 million at the end of the year-ago quarter.

Share Repurchase

At the end of the first quarter, the company has a total share repurchase authorization of $503 million.

Our Analysis

We believe J.B. Hunt continues to gain market share across all segments, particularly in Intermodal, Dedicated Contract Services and Integrated Capacity Solutions that delivered strong results. Further, effective cost control and continued freight rate gains also remain encouraging.

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. For the short term, the company holds a Zacks Rank # 2 Rank (Buy).