Despite concerns about economic activity, railroad volume, shipping container volume and the health of the trucking industry, goods are still getting shipped around the country and more and more of that shipping is being handled by intermodal carriers. That puts J.B. Hunt (Nasdaq:JBHT) in the driver's seat, and the company is certainly delivering strong results.

TUTORIAL: Economic Indicators To Know

Good Second Quarter Results, With a Catch
In many respects J.B. Hunt had a great quarter. Operating revenue was up nearly 22% and, even excluding fuel surcharges, leaves 14% revenue growth. The company's intermodal business was the leader; growing 29% this quarter and making up nearly 60% of operating revenue. The company's dedicated contract services business also did well, with growth of 15%. Trucking was the laggard, coming in with just 4% revenue growth this period.

Where J.B. Hunt did not impress so much was on profitability. Operating income did grow 24% (and operating margins did expand by about 20 basis points), but expectations were higher. Although J.B. Hunt saw lower wage and benefits costs, and shaved off costs in some small line-items, higher purchased transportation costs took some of the wind out of the sales. Purchased transportation is basically what it sounds like - the fees that J.B. Hunt pays to truckers, railroads and the like to carry cargo for them.

Intermodal Still the Story
Intermodal transportation is clearly the story driving J.B. Hunt these days. More and more cargo is getting carried this way, and the company saw an 18% increase in loads this quarter, with load growth in its eastern market of 32%. This is also a partnership business; Berkshire Hathaway's (NYSE:BRK.A) Burlington Northern accounts for about 60% of J.B. Hunt's intermodal volume, with Norfolk Southern (NYSE:NSC) accounting for a sizable part of the remainder. This is both a good news and bad news situation - these are large and reliable partners, but the reality that there are substantially fewer rail operators than intermodal providers does tilt the market.

What About the Rest of the Sector?
There has been anecdotal evidence that sluggish economic performance is leading retailers to trim back or delay orders, and manufacturers are likewise holding off on supplies and components. That could prove to be risky if consumer demand picks up going into the Christmas shopping season. Since it takes a while to arrange and fulfill seaborne cargo, that could present some upside to air freight carriers like UPS (NYSE:UPS), FedEx (NYSE:FDX) and Atlas Air (Nasdaq:AAWW) if retailers have to scramble to get product on the shelves.

Elsewhere, it is still a challenging market. Demand for containers has been strong for companies like SeaCube (NYSE:BOX), but some of that may be due not so much to robust freight volume as slower trips (which cuts fuel costs but ties up more containers). Likewise, some truckers like Arkansas Best (Nasdaq:ABFS) and Old Dominion (Nasdaq:ODFL) are seeing decent volumes, but national truckload carriers like Swift (Nasdaq:SWFT) are seeing more challenging environments.

The Bottom Line
Margin issues notwithstanding, J.B. Hunt is doing a good job of exploiting this growing interest and demand for intermodal transportation. Given that intermodal actually gets more attractive with higher fuel prices, this could be a name to watch for ongoing earnings momentum. At the same time, it is not a terribly cheap stock, so value investors may want to bide their time and wait for a cheaper fare. (For additional reading, see The Value Investors Handbook.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center