The leaders of J.B. Hunt Transportation said Jan. 18 they are hearing from customers that the inventory correction at the heart of the current freight downturn will have come to an end by the middle of this year, setting the stage for a new leg of growth.
Speaking to analysts on a conference call discussing Arkansas-based J.B. Hunt’s fourth-quarter earnings, President Shelley Simpson said today’s freight recession is largely being driven by those inventory issues, which have their roots in the supply-chain problems from early in the COVID pandemic as well as consumers’ changing spending patterns as the economy emerged in earnest from lockdowns and other restrictions. More broadly, she said, customers aren’t reporting widespread problems with demand. Instead, they are confident that their freight needs will return to more normal levels this spring.
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“We're not sure at what point that is in Q2,” Simpson said. “But we do feel like the back half of the year, we have confidence from what our customers are giving us and the data points that they have, what they're going to be doing from an ordering perspective.”
Simpson and her fellow executives were careful to note that they were merely passing along what the No. 5 on FleetOwner 500 list of for-hire carriers is hearing from clients. Forecasting a notable upturn in their business during the second half of 2023 was not something they are (yet) prepared to do. But the customer optimism they reflected echoes the sentiment expressed earlier this week by Bank of America analyst Ken Hoexter. In upgrading the shares of several trucking companies, Hoexter said he sees demand beginning to grow again and is looking for truckload rates to bottom during the upcoming bid season.
Investors in J.B. Hunt were equally upbeat Jan. 18, pushing shares of the company (Ticker: JBHT) up nearly 5% to nearly $185 on a day when the broader market was down about 1%. Over the past six months, the stock has climbed about 10%, growing the company’s market capitalization past $19 billion.
That stock price move came despite J.B. Hunt’s Q4 showing a drop in net income to $201 million from $242 million in late 2021 while operating revenues excluding fuel surcharges slipped 3% to a little more than $3 billion. Higher operating costs, including a jump in insurance claims, pushed down the company’s operating margin to 7.7% from 9.2% a year prior.
Fleet plans to spend up to $2 billion on equipment, expansion
Other items discussed on the J.B. Hunt team’s call included:
The company will spend between $1.5 billion and $2 billion on equipment and expansion. CFO John Kuhlow said that figure includes “elevated levels of replacement demand” for trucks that have been run longer than normal in recent years as manufacturers have struggled to meet demand.
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Full-time drivers and maintenance and office staff who had been employed by the company since the beginning of 2022 were paid $8.8 million in bonuses recently. That’s down slightly from nearly $10 million a year earlier.
COO Nick Hobbs said he and his team working on final-mile transportation are still focused on pricing “and remain willing to put business at risk to achieve the appropriate levels of profitability, which could ultimately influence our top-line performance in the segment.”
Deliveries of bigger-ticket items such appliances, furniture, and exercise equipment have tailed off, he added, but off-price retailers picking up discounted inventory from the Walmarts and Targets of the world are picking up some of that slack.
