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J.B. Hunt Transport Services (JBHT - Analyst Report), one of the largest U.S. truckload carriers, reported first quarter 2013 earnings of 61 cents per share, missing the Zacks Consensus Estimate of 64 cents. Earnings per share rose 7% from 57 cents earned in the year-ago quarter on strong growth across most segments.

Total revenue increased 10.8% year over year to $1.29 billion, beating the Zacks Consensus Estimate of $1.28 billion. Significant volume growth in Intermodal and Integrated Capacity Solutions aided the growth in segmental revenues.

Operating income for the quarter increased 7.2% year over year to $125 million primarily driven by strong profits in Intermodal and Integrated Capacity Solutions operating income on higher load count and cost benefits. The company also registered lower interest expense given lower debt levels. However, these positives were partially offset by higher employee, equipment, claims and contract implementation costs as well as lower asset utilization.

Segment Results

Intermodal reported quarterly revenues of $796 million, up 15% year over year driven by a 13% increase in load count. Higher volume, freight pricing and fuel surcharges along with a better freight mix aided revenue growth in this segment. The average tractor count increased to 3,712 from 3,255 in the year-ago quarter. Operating income climbed 22% year over year to $96.8 million.

Dedicated Contract Services revenues grew 9% year over year to $279.0 million in the first quarter. The average truck count was 5,495 against 4,862 in the year-ago quarter. However, operating income plunged 22% year over year to $21.9 million due to higher equipment and maintenance costs, lower gains on equipment sales as well as rise in bad debt expense and contract implementation costs.

Truck revenues dropped 21.0% year over year to $102 million. The average tractor count reduced to 2,011 from 2,561 in the year-ago quarter. However, rates continued to improve and registered a year-over-year growth of 0.5% in the quarter. The average length of haul declined 9.8%. Operating income saw a sharp drop of 78% year over year to $1.1 million. The decline was mainly due to increases in independent carrier costs, compensation, maintenance and equipment costs and lower gains on equipment sales.

Integrated Capacity Solutions revenues grew 26.0% year over year to $122 million attributable to a 47% increase in load volume and higher pricing, mostly on transactional businesses. Operating income increased 27% year over year to $5.2 million. On a year-over-year basis, the carrier base rose 9% and employee count grew 16%.

Liquidity

At the end of the first quarter, cash and cash equivalents increased to $5.7 million from $5.6 million in year-end 2012. Total debt was $593 million compared with $685.0 million at the end of 2012.

First quarter capital expenditures were $115 million compared with $84 million at the end of the year-ago quarter.

Share Repurchase

As of Mar 31, 2013, the company had approximately $453 million worth of shares remaining under its repurchase authorization. Management did not buyback shares in the first quarter of the current year.

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 upside potential of 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 #2 (Buy).

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