J.B. Hunt Warns of Rising Costs as Shares Plunge 12%

J.B. Hunt flags third-quarter cost pressures as shares fall 12%

J.B. Hunt Transport Services warned that rising fuel and driver-related expenses are likely to weigh on near-term earnings, sending the company’s shares down about 12% in early Wednesday trading.

Executives said late Tuesday at a Morgan Stanley conference that earnings per share could decline 5% to 10% sequentially. At the midpoint, that would put quarterly EPS near $1.77, below the current analyst consensus of approximately $2.10.

The warning came as the company faces a combination of softer pricing, higher operating costs and expenses associated with preparing for peak-season freight. J.B. Hunt identified diesel fuel and driver-related costs as the largest immediate pressures.

The company expects roughly $25 million in incremental driver-related expenses, including recruiting and bonuses. It also cited at least a $10 million sequential fuel headwind. Diesel prices rose about 10% from July to August and increased sequentially in eight of the 11 weeks of the quarter. Fuel surcharges generally adjust with a one-week delay, leaving carriers to absorb the initial impact of rapid price increases.

Those costs came as J.B. Hunt increased hiring to meet expected peak-season demand. The company also reported elevated network imbalance and equipment-repositioning expenses. Higher volumes helped absorb some network and equipment costs, but not enough to offset lower yields and the added expenses.

Operating income decreased 13% in the quarter, according to the company. On a consolidated basis, operating income as a percentage of gross revenue declined year over year because professional-driver and non-driver wages, equipment costs and maintenance expenses represented a larger share of revenue. Lower rail and truck purchased-transportation costs provided a partial offset.

Total operating revenue was approximately $3.07 billion, down 3% from $3.16 billion in the comparable quarter. The decline reflected weaker revenue per load in the company’s Intermodal and Truckload operations, as well as lower activity in several other business lines.

Intermodal revenue per load fell 5%, while Truckload revenue per load declined 6%. Integrated Capacity Solutions load volume dropped 10%, Dedicated Contract Services volume decreased 6% and Final Mile Services handled 6% fewer stops.

In the company’s intermodal business, segment gross revenue declined 12%. Revenue excluding fuel surcharges fell 9%, reflecting a 6% reduction in load volume and a 3% decline in revenue per load. The average effective trailer count decreased by about 300 units, or 2%, and trailer turns were down 4% from the prior-year period as freight demand remained softer.

Truckload segment revenue was roughly flat. A 5% increase in volume was offset by a 5% decline in gross revenue, driven by customer-rate changes, fuel-surcharge revenue and the mix of freight. Revenue per load excluding fuel surcharges decreased 2% year over year.

The pressure is particularly important for J.B. Hunt because its intermodal and dedicated operations generate the vast majority of operating income. Those businesses typically do not reprice as quickly as the over-the-road truckload market.

Intermodal contract pricing generally lags truckload pricing by about two quarters. J.B. Hunt’s intermodal bid season begins in October, with about 10% of contracts scheduled to renew in the fourth quarter. The remaining contracts renew across the first three quarters of the following year.

Dedicated contracts are generally longer term, with many running for five years and including annual cost-based escalators. That structure can provide stability, but it also limits how quickly pricing can respond when market conditions change.

Management said intermodal rates currently offer a larger discount to truckload rates than is typical, creating an opportunity to improve pricing during the upcoming bid season. However, the company said it does not plan to pursue out-of-cycle rate increases, which can affect customer relationships when freight conditions later weaken.

For professional drivers, the results highlight how changes in freight demand can affect both revenue and operating costs. J.B. Hunt is adding driver-related spending to support customer demand, even as lower yields and slower trailer turns reduce the return on that capacity. The company described the cost inflation as more cyclical than structural and said the higher driver costs are associated with preparing for stronger demand.

J.B. Hunt also said demand remains strong across most of its businesses, with Final Mile Services the main exception. The company reported continued share gains in intermodal and truckload and said its dedicated-contract pipeline is at an all-time high. Still, management said it is prioritizing yield over volume until margins improve.

The immediate earnings warning reflects the timing gap between higher costs and contract repricing. Fuel costs can move quickly, while intermodal and dedicated rates often adjust more slowly. That leaves J.B. Hunt exposed to short-term margin pressure even when longer-term demand and capacity trends remain supportive.