J.B. Hunt Transport Services said it will continue to play the long game with its approach to deploying capital across its businesses even as overall freight demand remains underwater. The company has invested heavily in intermodal capacity, which is presenting an overhang on financial results.

The company reported earnings per share of $1.32 for the second quarter on Tuesday, which was 49 cents lower year over year and roughly 20 cents below a range of consensus estimates. A higher tax rate was a 1-cent headwind, and an increase in interest expense (largely due to higher interest rates) was a 4-cent hurdle. The company’s debt balance increased just $30 million y/y in the quarter to $1.48 billion.

Volume declines were recorded across all of J.B. Hunt’s (NASDAQ: JBHT) segments, with higher expenses and yield pressures weighing on margins. But the company believes the market is nearing an inflection and kept its long-term margin targets intact.

Table: J.B. Hunt’s key performance indicators – Consolidated

Capacity overhang weighs on intermodal results

Intermodal revenue fell 6% y/y to $1.41 billion as loads declined 1% y/y and revenue per load was down 5% y/y (2% lower sequentially). The unit recorded a 92.9% operating ratio (operating expenses as a percentage of revenue), which was 250 basis points worse y/y and 20 bps worse than the first quarter, which is normally the toughest quarter of the year.

Lower yields and costs from carrying underutilized equipment were cited as the reasons for the decline in operating income.

J.B. Hunt has been building its intermodal fleet through the downturn, recently acquiring Walmart’s (NYSE: WMT) intermodal assets. J.B. Hunt embarked on an ambitious growth plan two years ago, announcing it would increase its container fleet by 40% to 150,000 units between 2025 to 2027. The capacity additions and soft demand environment resulted in approximately 19% of its fleet being idled in the second quarter.

Across the entire company, J.B. Hunt is carrying roughly $100 million in incremental expenses to maintain the capacity and resources needed for the next upturn.

Asked by analysts on a Tuesday evening call about the implied market share loss during the quarter – total intermodal traffic on the U.S. Class I railroads increased 8% y/y in the period – management said it was confident it was taking share on transcontinental lanes from the West Coast where its volumes were up 4% y/y in the period. However, it acknowledged weaker trends in the Eastern portion of the network (volumes were down 7% y/y) as depressed truckload rates are eating into intermodal demand while the company has maintained price discipline.

The intermodal unit saw some demand “momentum” as the quarter progressed.

Volumes were down 3% y/y in April, up 1% in May and down 1% in June. Management noted a typical seasonal volume lift at the end of June and said some of its customers have reported improvement in their underlying businesses while others have decided to pull forward shipments ahead of peak season to avoid ocean shipping capacity shortfalls caused by conflict in the Red Sea.

J.B. Hunt has repriced most of its intermodal contracts to current market rates, with the impact of those lower rates likely being felt into the first half of 2025.

Table: J.B. Hunt’s key performance indicators – Intermodal

Other segments at a glance

The dedicated business reported a 4% y/y decline in revenue to $851 million as average trucks in use fell less than 1% and revenue per truck per week was down 3%. A 9% decline in total loads was partially offset by a 5% increase in revenue per load. An 88.7% OR was 150 bps worse y/y.

The company has sold dedicated service on 1,015 trucks so far in 2024 compared to placing a total of 1,150 dedicated units the entirety of 2023. However, the unit’s fleet count is expected to remain largely unchanged y/y as recent sales will offset lower capacity from some customers and the departure of others. New account startups will present a margin headwind as they replace mature accounts that have left.

Table: J.B. Hunt’s key performance indicators – Dedicated

Brokerage revenue fell 21% y/y to $270 million as loads fell 25% y/y and revenue per load increased 5% y/y (up 3% sequentially). The unit booked a sixth consecutive operating loss in the quarter as trucking fundamentals remain weak, cost headwinds persisted and it faced challenges integrating the brokerage operations of BNSF Logistics (NYSE: BRK.B), which it said is “masking some of the underlying progress” in its legacy brokerage business.

A $13.3 million operating loss was triple that of the year-ago quarter but $4.3 million less sequentially.

Table: J.B. Hunt’s key performance indicators – Brokerage

Operating income in the final-mile segment improved 33% y/y as revenue increased 5% y/y and OR improved 180 bps to 91.6%. However, the quarter benefited from a $1.1 million net benefit from favorable claims settlements, which accounted for 50 bps of the y/y OR improvement.  

Revenue in the truckload segment fell 12% y/y as loads were down 9% and revenue per load was off 4%. The unit saw a 10-bp y/y improvement in OR to 97.9%.

Shares of JBHT were down 2.8% in after-hours trading on Tuesday.

Table: J.B. Hunt’s key performance indicators – FMS and Truckload

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