Can High Operating Costs Hit J.B. Hunt's (JBHT) Q2 Earnings?

J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is expected to report second-quarter 2019 results on Jul 15, after the market closes.

Last quarter, the company witnessed a negative earnings surprise of 12.8%. Quarterly revenues also lagged estimates. However, both the top and the bottom-line improved year over year on a strong segmental performance.

The company is likely to suffer a similar fate in the second quarter as well with the Zacks Consensus Estimate for earnings being revised 2.1% downward in the last 60 days.

Factors Likely at Play

Driver shortages have been hampering the company’s operations for quite some time now. To counter this challenge, it has increased driver wages, which in turn, has been weighing on its bottom line due to rise in the operating expenses. High capital expenditures and acquisition-related costs are further limiting bottom-line growth. The escalation in operating expenses is likely to affect the company’s earnings in the soon-to-be-reported quarter.

Moreover, akin to the last two quarters, operating income (on a reported basis) might decline in the second quarter due to costs associated with rail purchase transportation.

Additionally, higher operating expenses might cause deterioration in operating ratio (operating expenses as a percentage of revenues) in the quarter. Notably, this key metric increased in the last two reported quarters. Lower the value of this metric, the better.

However, J.B. Hunt’s second-quarter results are expected to benefit from impressive segmental performance. For instance, the Zacks Consensus Estimate for second-quarter revenues at the Dedicated segment stands at $655 million, higher than $530 million reported in the year-ago period. The same for the trucking segment is pegged at $107 million, indicating an improvement from $101 million reported in the second-quarter of 2018. The company’s acquisition of Cory 1st Choice Home Delivery should also boost results in the upcoming quarterly release.

Earnings Whispers

Our proven model does not conclusively show that J.B. Hunt is likely to beat estimates this earnings season. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Earnings ESP: J.B. Hunt has an Earnings ESP of -2.78%. This is because the Most Accurate Estimate is pegged at $1.33 per share, lower than the Zacks Consensus Estimate of $1.37. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: J.B. Hunt has a Zacks Rank #4 (Sell). We caution against all Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Alaska Air Group, Inc. (NYSE:ALK) , Canadian Pacific Railway Limited (NYSE:CP) and Canadian National Railway Company (NYSE:CNI) as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

Alaska Air Group has an Earnings ESP of +0.41% and a Zacks Rank #2. The company will report second-quarter 2019 results on Jul 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Canadian Pacific has an Earnings ESP of +0.42% and a Zacks Rank of 2. This company is scheduled to announce second-quarter 2019 financial numbers on Jul 16.

Canadian National has an Earnings ESP of +1.12% and a Zacks Rank #3. The company will post second-quarter 2019 earnings numbers on Jul 23.

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