J.B. Hunt Sees Strong Freight Demand as Rising Costs Pressure Q3 Earnings

Key Points

• Strong freight demand drove double-digit volume growth in intermodal, truckload and Integrated Capacity Solutions, while driver shortages and constrained trucking capacity continue to support demand for intermodal services.
• J.B. Hunt expects third-quarter earnings to decline 5%–10% sequentially, pressured by approximately $25 million in higher driver-related costs, at least $10 million in fuel costs, and increased claims and medical expenses.
• The company sees a significant pricing opportunity, with truckload-to-intermodal price gaps well above historical levels, and plans to prioritize margin recovery over volume growth during the upcoming bid season.

J.B. Hunt Transport Services NASDAQ: JBHT said demand for its freight services has remained strong across most business lines, while higher driver-related expenses, fuel costs and claims costs are expected to pressure third-quarter earnings relative to the second quarter.

Chief Financial Officer and Executive Vice President Brad Delco said the company expects sequential earnings to decline 5% to 10% in the third quarter. He characterized the pressure as largely a timing issue as J.B. Hunt responds to stronger demand and capacity constraints ahead of what it expects to be a significant pricing opportunity.

“We have continued to see really strong demand for our services” during the quarter and across most businesses, Delco said. He noted that final-mile operations were an exception because of business-specific conditions.

Volume Growth and Capacity Pressures

Delco said J.B. Hunt recorded double-digit volume growth in its intermodal, J.B. Truckload and Integrated Capacity Solutions, or ICS, operations during the second quarter. Intermodal posted its first double-digit volume-growth quarter in more than a decade, he said.

While the company has gained share, Delco said broader freight-market volumes are not growing at the same pace. He attributed much of the current market environment to structural constraints in available driver capacity, which he said have not eased and may be worsening.

J.B. Hunt is responding by increasing recruiting, training, onboarding and driver incentives. Delco said driver-related expenses—including advertising, training, sign-on bonuses and related costs—are expected to rise by about $25 million in the third quarter compared with the second quarter.

The company also expects a sequential fuel-cost headwind of at least $10 million, as well as higher claims and group medical costs. Delco said rapid changes in diesel prices can create a short-term lag between fuel surcharge billing and the company’s fuel purchases, even though its surcharge programs are designed to recover fuel costs over time.

Intermodal Demand and Pricing Opportunity

Darren Field, J.B. Hunt’s executive vice president and president of intermodal, said demand for intermodal services is particularly strong, driven largely by conversion of highway freight to rail in the company’s eastern network. Transcontinental retail demand from Southern California is also healthy, he said, though not at record levels.

Field said customers are confronting scarce and expensive highway capacity, including difficulty finding team drivers. That environment has increased the appeal of intermodal transportation, which Field said is about 65% more fuel efficient than moving freight exclusively by road.

“The value proposition of intermodal clearly goes up the higher the fuel price is or the higher the alternative cost of the truck is,” Field said, while adding that elevated fuel prices could weigh on consumers and the broader economy.

Delco said the spread between truckload and intermodal pricing is unusually wide. In eastern markets, he said the normal gap is roughly 10% to 15%, while he estimated the current difference is above 30%. He said transcontinental pricing spreads are also above historical norms.

Field said the company is likely to emphasize price more than volume during the upcoming bid season as it works to restore margins to long-term target ranges. However, he said J.B. Hunt generally seeks to avoid broad out-of-cycle pricing actions, preferring to address unusual customer requests through mini-bids or other arrangements that account for incremental costs.

Dedicated, ICS and Capacity Plans

Delco said the company’s Dedicated Contract Services segment has a record pipeline and backlog, supported by companies considering the outsourcing of private fleets. J.B. Hunt operates more than 725 dedicated locations and has 12,600 trucks in the segment, he said. The average dedicated fleet location has 17 trucks.

Dedicated has produced double-digit GAAP margins for 11 consecutive years, according to Delco, though it faces the same driver and insurance-cost pressures affecting the rest of the industry. He said the company has equipped its entire fleet with outward- and inward-facing cameras and has posted three consecutive years of record-low DOT-preventable accidents per million miles.

In ICS, Delco said the company made money in the second quarter and has continued to improve after several challenging years. He said much of the current cost pressure is concentrated in intermodal and Dedicated because of the driver environment.

Field said J.B. Hunt still has roughly 10% to 15% of intermodal capacity available to unlock through better container utilization. The company is evaluating future container purchases, but he said the priority is balancing equipment turns with the availability and productivity of drayage drivers.

Autonomous Trucking

Delco said autonomous trucking technology is advancing and could become a long-term solution for certain freight applications, though the company is still evaluating the appropriate business model and use cases. J.B. Hunt is running multiple pilots with customers and technology vendors, he said.

Field said autonomous technology will likely disrupt the industry in some form, but he cautioned that the cost model and operational requirements remain uncertain. He said autonomous trucking could complement intermodal rather than necessarily compete with it, particularly given the efficiency of rail for long-distance freight movement.

About J.B. Hunt Transport Services (NASDAQ:JBHT)

J.B. Hunt Transport Services, Inc is a transportation and logistics company headquartered in Lowell, Arkansas. Through its operating segments, the company provides freight transportation, logistics and supply-chain services to customers across North America.

Its principal businesses include intermodal transportation, which combines rail and trucking; dedicated contract services, which provides customized transportation and fleet-management solutions; and integrated capacity solutions, which matches customer freight with available transportation capacity.

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