Morningstar | J.B. Hunt Benefits Nicely From Tight Truckload-Market Capacity During the Second Quarter
Narrow-moat intermodal specialist J.B. Hunt's second-quarter revenue before fuel surcharges increased 21% year over year, slightly ahead of our anticipated run rate on the back of stronger-than-anticipated productivity (revenue per tractor) gains in the dedicated trucking unit and robust truck-brokerage volume growth. Intermodal- revenue was mostly in line as strong pricing conditions (aided by tight capacity in the trucking sector) more than offset slightly weaker-than-anticipated volume growth, which saw pressure from Class-I rail network congestion. For the firm’s flagship intermodal operations, we continue to expect the competing full-truckload industry to see unusually tight capacity throughout the rest of 2018 due to widespread adoption of electronic logging devices, which is lowering productivity for a large swath of the truckload carrier base. Tight capacity should remain a solid tailwind for intermodal truck-to-rail conversion activity in the eastern half of the United States, where conversion opportunities are most abundant.Consolidated second-quarter profitability largely met our expectations. Relative to the same period last year, total operating margin increased 60 basis points, to 10%. Intermodal margins rose 60 basis points, to 11.5%, thanks to leverage from pricing and volume growth, partly offset by higher rail purchased transportation and rising driver-related outlays. For-hire truckload margins increased 150 basis points, to 7.4% thanks to solid core pricing gains. Dedicated truckload margins remain healthy, but fell year over year because of ongoing investment in final mile delivery services. Truck brokerage (ICS) margins expanded to 4.3%, from roughly break even, in large part because of increased gross-profit margins.
Since our longer-term midcycle revenue growth and margin assumptions remain intact, we are maintaining our $95 per share fair value estimate. However, in our view the shares are trading in modestly overvalued territory.
J.B. Hunt Transport Services is a holding company. Through its subsidiaries, the company is a surface transportation, delivery, and logistics company. The company's service offerings include transportation of full-truckload containerized freight, which it directly transports utilizing its equipment and company drivers or independent contractors. The company also provides customized freight movement, revenue equipment, labor, systems, and delivery services. The company's local and home delivery services typically are provided through a network of cross-dock service centers throughout the continental United States. The company's segments include Intermodal, Dedicated Contract Services?, Integrated Capacity Solutions, and Truckload.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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