(JBHT) J.B. Hunt Transport Services Earnings Preview

J.B. Hunt Transport Services (JBHT), one of the largest U.S. truckload carriers, is slated to release its second quarter 2012 results on Monday, July 16. The current Zacks Consensus Estimate for second quarter earnings per share is pegged at 67 cents, representing an annualized growth estimate of 25.73%.

First-Quarter Flashback

J.B. Hunt’s first quarter earnings of 57 cents per share surpassed the Zacks Consensus Estimate of 52 cents and soared 42.5% from 40 cents earned in the year-ago quarter on strong growth across most segments.

Revenues were also ahead of Zacks Consensus Estimate of $1.15 billion and increased 16.5% year over year to $1.17 billion.

Agreement of Estimate Revisions

For the second quarter, out of 22 analysts, one made an upward revision and none moved downward over the last 7 days. Over the last 30 days, three analysts moved upward while none went in the opposite direction.

For fiscal 2012, one analyst out of 24 revised the stock upward while none moved south in last 7 days. Over the last 30 days, positive and negative revisions were made by two analysts each

For fiscal 2013, out of 24 analysts, one moved upward and none moved downward in the last 7 days. Over the last 30 days, two of the analysts made upward revisions and one moved downward.

Despite the tighter truckload market, we believe J.B. Hunt is poised to benefit from two of its largest segments, Intermodal and Dedicated Contract Services (DCS), which contributed more than 80% of the total revenue in first quarter 2012.

The Intermodal segment continues to penetrate new markets and gain market share in the east, benefiting from both longer-haul and short-haul shipments. Volume gains are expected in the eastern network through truck to rail conversions, and core pricing expansion. The company is focused on reducing the number of empty miles in its dray fleet which could improve efficiency. Going further, we believe the company’s expansion of service offerings in countries like Mexico and cross selling activities with the ICS segment and pricing gains on contract maturities will provide a significant basis for intermodal’s future growth.

The other segment, DCS is evolving into a highly specialized fleet with a greater focus on final mile (i.e., residential) delivery, and is expected to achieve double-digit revenue growth in the long term. We expect this segment to witness growth, given contract gains and pricing improvements. Additionally, increased truck count and cost control measures also remain accretive to future growth. The company continues to bring in new equipment and transfer assets from less profitable businesses, thereby boosting fleet productivity.

Further, J.B. Hunt is continuously investing in equipment such as tractors, trailers, containers, trucks etc. in order to gain market share and produce higher returns on invested capital. In 2011, the company’s capital expenditures almost doubled to $446 million due to intermodal upgrades and purchase of equipment. We expect the company to continue focusing on capital expenditure, in particular for intermodal upgrades, given the growing demand for intermodal services of rail carriers.

Magnitude of Estimate Revisions

Over the last 7 and 30 days, the magnitude of the second quarter estimate revisions grew by a cent to 67 cents.

For fiscal 2012, the Zacks Consensus Estimate remained static at $2.65 over the last 7 and 30 days.

Similarly, for fiscal 2013 no change was observed over the last 7 and 30 days and the earnings estimate remained unchanged at $3.07.

Earnings Surprises

With respect to earnings surprise, over the trailing four quarters, J.B. Hunt delivered a positive earnings surprise with average being 5.53%.

The upside potential of the stock for the second quarter is 4.48%. For fiscal 2012 and 2013, the Zacks Consensus Estimates’ upside potential is measured to be 1.13% and 1.63%, respectively.

Our Recommendation

We believe J.B. Hunt continues to gain market share across all segments, particularly in Intermodal, Dedicated Contract Services and Integrated Capacity Solutions that performed well in the first quarter. 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) and Conway Inc. (CNW) due to its low barrier 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.

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

Read the full analyst report on “YRCW”
Read the full analyst report on “JBHT”
Read the full analyst report on “CNW”
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