Intermodal volumes fall by 7 percent, but a 10 percent increase in revenue per load helps the segment increase revenue by 2 percent.
J.B. Hunt Transport Services Inc.’s first-quarter profits increased slightly to $119.6 million year-over-year despite a 7 percent drop in intermodal volumes.
The Lowell, Ark.-based intermodal and trucking provider announced Monday its first-quarter diluted earnings per share rose to $1.09 from $1.07. The profit was below analysts’ expected earnings of $1.26 a share, according to The Wall Street Journal.
First-quarter revenue increased 7 percent to $2.09 billion.
J.B. Hunt’s intermodal segment’s operating income dropped by 10 percent to $103.32 million, even with a revenue growth of 2 percent to $1.09 billion, which represented more than half of the company’s revenue and reflected a 10 percent increase in revenue per load. Increased driver wages and recruiting costs and higher equipment ownership and maintenance costs cut into the segment’s profit, as did weather disruptions in the Midwest, the company said.
Transcontinental loads declined 8 percent and the Eastern network load volumes fell 7 percent year-over-year. Volumes were affected by expected lane closures and severe winter weather impacting Chicago, which combined represented about one-half of the volume decline, according to J.B. Hunt.
“When the service began to improve, we did not see a snapback of customer demand in March, which was our biggest surprise, and frankly, a miss to our expectations,” said financial chief David Mee during an earnings conference call Monday. “While it is way too early to make a trend call for either the second-quarter 2019 or for the rest of the year, we are still waiting for customer demand to accelerate.”
Terry Matthews, executive vice president of intermodal, said a late spring caused slower restocking of warehouses, which also contributed to the volume drop.
“Based on the comps, I think that the volume growth will show up sometime in the third and fourth quarter,” Matthews said during the call. “I think there is the sales-to-inventory ratio has crept up a little bit and I think they need to bleed off some inventory here early in the second quarter.”
Todd Tranausky, FTR’s vice president of rail and intermodal, said during a webinar last week that a weak first quarter will hurt full-year intermodal growth.
However, other segments of J.B. Hunt fared much better in the first quarter.
Dedicated Contract Services increased operating income by 24 percent to $50 million and revenue by 22 percent to $602 million. The segment made up 30 percent of the company’s operating income and 29 percent of its revenue.
The improved revenue was the result of increased productivity, which rose 6 percent, and additional trucks under new contracts, which was partially offset by higher facilities rent and costs to expand the Final Mile Services network, increased driver wages and higher recruiting costs. In February, J.B. Hunt finalized its acquisition of Cory 1st Home Delivery, which was integrated into J.B. Hunt’s Final Mile Division. Its Final Mile Services recorded a $26 million year-over-year revenue increase.
The company’s truck segment increased operating income 41 percent to $7 million and revenue 10 percent to $102 million. Rates per load excluding fuel surcharge climbed 8 percent, primarily from a 12 percent increase in rates per loaded mile and a 4 percent decrease in the length of haul. Volume was negatively affected by about 2,200 loads due to the weather in the Midwest.
Integrated Capacity Solutions (ICS) had a 22 percent drop in operating income to $7 million despite a 2 percent uptick in revenue to $301 million. Volumes grew 15 percent while revenue per load fell by about 12 percent due to customer mix changes and lower spot priced revenue per load.
About $186 million of the segment’s revenue came through the Marketplace for J.B. Hunt 360°.
ICS’ gross profits increased from 14.4 percent to 16.5 percent due to an adequate supply of carrier capacity.
“The increase in gross profit margin was partially offset by higher personnel costs and increased spending on technology to expand the capacity and functionality of the Marketplace for J.B. Hunt 360° compared to first quarter 2018,” the company said.