J.B. Hunt Q1 Earnings Preview: Anticipating Continued Cost Pressures (NASDAQ:JBHT)

Transportation sector bellwether, J.B. Hunt (NASDAQ:JBHT), is set to report its Q1 results after the market closes on Tuesday.

Heading into the release, shares have underperformed over the last six months, with losses of nearly 4% during this timeframe. The stock is also down about 7% YTD.

In my last coverage on JBHT, I maintained a neutral position on the stock due to the more challenged freight rate environment. By my assessment, I viewed the more difficult operating environment as an overwhelming offset to positive volume trends observed in key segments.

Shares have remained essentially flat since my coverage, while the broader S&P (SPY) has gained nearly 18% in the same timeframe. Presently, I still maintain a neutral posture on JBHT. While the company may benefit from a cyclical upturn in its Intermodal segment, I believe elevated insurance-related expense will remain a key headwind to earnings growth throughout fiscal 2024. Here’s what else to know about JBHT before it reports results on Tuesday.

JBHT Recent Results

JBHT’s Q4 results underscored the ongoing challenges within the transportation sector. While the freight bellwether topped expectations at the topline, JBHT reported a significant drop in profit. Diluted EPS came in at $1.47/share compared to $1.92/share in the same period last year, an over 23% decline and well behind consensus estimates of $1.74/share.

Alongside escalating employee and capital costs, J.B. Hunt incurred a charge of $0.38 per diluted share due to increased insurance and claims expenses. Furthermore, the company grappled with reduced volume in its Truckload and Integrated Capacity Solutions units, reflecting the broader challenges of subdued demand and low rates in the freight industry.

However, there were bright spots, notably in the Intermodal segment, which reported a 6% volume increase. This uptick likely stemmed from growing imports at key ports like Los Angeles and Long Beach, serving as pivotal hubs for Asian goods.

The improvement in Intermodal volume and the continuing strength in JBHT’s dedicated unit paired with continuing cost pressures, especially in insurance, showcased a more nuanced picture within the industry.

J.B. Hunt Outlook For Fiscal 2024

In his Q4 commentary, CEO John Roberts acknowledged the persistent challenges facing the sector, emphasizing that “the freight environment remains in a challenged state.” This sentiment echoed previous statements made in prior quarters, highlighting the enduring nature of the industry’s struggles.

Looking forward to fiscal 2024, cost-related challenges are poised to persist. Recent CPI data revealed that prices are surpassing expectations, not only across the board but also in critical areas affecting JBHT, such as insurance costs.

Accordingly, I expect insurance to remain a significant negative factor for JBHT in the upcoming reporting period. Throughout fiscal 2023, JBHT consistently fell short of earnings estimates. Similarly, the company’s performance against revenue estimates has been lackluster, although Q4 saw improvement due to improved volume in the Intermodal unit. I anticipate this mixed trend to persist into Q1.

JBHT Stock Key Metrics

Over a three-year span, JBHT has marginally outpaced a broader array of related peers, boasting a 3.5% increase in shares compared to a 2.6% return in the broader Dow Jones Transportation Average (DJT:IND).

Shares, however, have significantly lagged in more recent periods, with the stock down about 7% YTD.

Despite the underperformance and weaker than expected profitability through 2023, Seeking Alpha (“SA”) analysts and Wall Street, alike, are bullish on JBHT shares. In fact, current Wall Street estimates see approximately 11% upside in the shares.

One catalyst that may be driving the bullishness is the higher volume reported by JBHT’s Intermodal unit in Q4. UBS analyst Thomas Wadewitz recently noted that 2024 EPS could be 7% higher as a result of the Intermodal volume growth. Additionally, analysts also see the possibility of a cyclical upturn towards the back half of 2024 and into 2025. This was echoed by analysts at both UBS and Baird Equity Research.

I maintain a more neutral stance compared to the consensus. While a cyclical upturn could certainly bolster JBHT’s top line, I anticipate insurance-related expenses to pose a significant earnings obstacle throughout much of 2024.

Moreover, trading at approximately 25x forward earnings, JBHT commands a premium compared to both its sector peers and its own five-year averages. In a market environment that appears to have reached a near-term top, it’s challenging for me to envision substantial near-to-medium-term upside potential in JBHT at current trading levels and given prevailing cost dynamics.

Is JBHT Stock A Buy, Sell, Or Hold?

Considering JBHT’s recent performance and the broader industry challenges, I am maintaining a neutral view of the stock in advance of its Q1 earnings report.

The company’s Q4 results highlighted the ongoing struggles within the transportation sector, with a notable drop in profit despite exceeding revenue expectations. Rising costs, particularly in insurance and claims expenses, along with reduced volume in certain segments, reflect the broader challenges of subdued demand and low rates in the freight industry.

While there are bright spots, such as the Intermodal segment’s volume increase, I believe that ongoing cost pressures, especially in insurance, will present a significant hurdle for JBHT in the upcoming fiscal year.

Despite bullish sentiment from the broader SA Analyst community and Wall Street, I believe the recent underperformance of JBHT shares and the persisting cost-based challenges in the transportation sector warrant a cautious approach.

Although there’s potential for a cyclical upturn and increased EPS due to Intermodal volume growth, the stock currently trades at a premium compared to its peers and historical averages. Given the uncertain market environment and prevailing cost dynamics, I believe a “hold” on JBHT stock is most appropriate until clearer signs of sustained improvement emerge.