I have often talked about J.B. Hunt Transport (JBHT) in these pages. It has been a favorite stock of mine for some time for a couple of reasons. It is a well-run company in the old but growing business of trucking. They are established enough to pay a dividend, albeit one of under one percent. Plus, e-commerce has produced a shipping boom. I have found over the years that due to its role in e-commerce, and the fact that the company operates solely in the U.S., has made them an indicator of the state of the broader economy, so their earnings release after the close yesterday was of particular interest to me at a time when the market seems to be acting illogically.
What it did, though, was just highlight why this market is so illogical.
At first glance, J.B. Hunt, as they have done so often in the past, reported an excellent quarter, beating expectations handily on both the top and bottom lines. Earnings per Share (EPS) came in at $1.14, around forty percent above the consensus estimate of just over $0.80 on revenue of $2,145.6 million versus expectations for $2,060.9 million.
Within the company, results were somewhat uneven, with disappointing numbers from the intermodal unit and a couple of other divisions offset by a big increase in loads for the core trucking business. That matters for investors in the stock because it still leaves room for improvement as the economy picks up again. In that respect it was a good beat, so it is hardly surprising that JBHT popped in after-market trading immediately following the release:
What JBHT’s Q2 earnings didn’t do, though, was shed any light on the broader market. If anything, they simply highlighted the problem.
The bottom-line beat, as good as it was, still represents a year on year decline in earnings at JBHT of 16.8%. The ability to outperform in tough conditions is one of the things that appeals to me about the individual stock, but that number should give all investors pause. If a perennial outperformer in an industry that conventional wisdom says will “benefit” from the changes wrought by the pandemic sees a 16.8% drop in earnings, what does that say about the state of the U.S. economy? More importantly, what does it say about the market that today that stock will open forty percent higher today than it did on the same day last year?
I don’t want to pour cold water on what was a great earnings release from J.B. Hunt. My long-term reasons for holding the stock, that they are an outperformer in a growth business and poised to benefit from the inevitable shift to autonomous electric vehicles, still apply or were even reinforced by these numbers. And yet, when I take a step back, the economy is in a mess and the market is soaring and those two things just don’t go together. Something has to give. It's simply a question of when.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.