Story Stocks^®

Intermodal and trucking transportation titan J.B. Hunt Transport (JBHT) may have registered its fifth straight earnings miss in Q4 on another quarter of falling yr/yr revenue growth. However, economic signals are still pointing to an eventual turnaround. Intermodal volumes maintained their upward momentum in the quarter, a leading indicator of a possibly more significant recovery down the road. Furthermore, JBHT's earnings miss was entirely the result of higher insurance and claims expenses, which slashed $0.38 per share off the company's bottom line.

• JBHT delivered EPS of $1.47 in Q4, a 23% drop yr/yr, falling short of analyst expectations. Inflation has its tentacles on nearly every aspect of the economy, including insurance. Carriers are hiking premiums as a result of increasing litigation settlements. Verdicts exceeding $1.0 mln have jumped drastically over the past decade, primarily affecting the larger trucking companies, which bear a disproportionate share of escalating claims costs.
  • This development is worth paying attention to as it can affect the GAAP earnings of many of JBHT's peers throughout the upcoming earnings season. Knight Swift Transport (KNX), XPO Inc (XPO), Old Dominion (ODFL), and Marten Transport (MRTN) are a few that come to mind.
• Revenue slipped yr/yr for the fourth consecutive quarter, dropping by 10% yr/yr to $3.3 bln. However, this figure was consistent with analyst forecasts. JBHT was blunt on the freight environment, commenting that compared to 2023, not much has changed. Still, CEO John Roberts III was upbeat about several opportunities across all divisions this year.
• One such opportunity is Intermodal, JBHT's largest segment, comprising roughly 50% of revenue. This business is enjoying positive volume momentum, increasing by 6% yr/yr in the quarter, partially constrained by last season's pricing, which tends to be a lagging indicator. JBHT sees a large amount of freight expected to be converted from over-the-road to intermodal. Regarding pricing, JBHT is beginning the 2024 bid season and should have better insight over the next several months.
• Dedicated Contract Services, which comprises around a quarter of JBHT's revenue, boasted stable margins in Q4. However, management warned that due to truck count losses and a lack of fleet growth, top and bottom-line performance will be hindered in 2024. Still, JBHT noted that its pipeline in this business remains strong and is working diligently to execute its robust pipeline.
• Regarding JBTH's lesser segments, Final Mile has been holding up well despite mild demand in its end markets. Conversely, Integrated Capacity Solutions and Truckload are facing the brunt of the market challenges. Nevertheless, the company is confident that scaling investments in technology can increase efficiency across both segments throughout the year.

While not much changed related to the freight environment in Q4, JBHT is optimistic that it can capitalize on numerous opportunities this year, particularly surrounding its Intermodal business. It is also encouraging that Final Mile and Dedicated Contract Services continue to demonstrate resilience to a challenging economic landscape. Lastly, JBHT's cautiously optimistic tone underpins what is developing across the U.S. economy, with several uplifting trends somewhat clouded by pockets of lingering weaknesses, potentially keeping volatility elevated this year.