J.B. Hunt shares fall more than 10% as hiring costs outrun pricing

J.B. Hunt expects third-quarter earnings to fall 5% to 10% from the second quarter as recruiting and fuel costs rise, according to CNBC; FreightWaves reported that near-term cost pressures are outpacing pricing gains. Shares fell more than 10% Wednesday after the warning.

CFO Brad Delco said at a Morgan Stanley investor conference that recruiting, advertising, onboarding, training and sign-on bonuses would cost about $25 million more in the third quarter than in the second. He also flagged at least $10 million in additional pressure from fuel prices and said he expected freight volumes to improve sequentially.

That is the strain in the warning: J.B. Hunt is still preparing for growth. Management described strong demand across its businesses except final-mile delivery and said its pipeline of dedicated business was at an all-time high, according to FreightWaves. Executives characterized higher driver costs as a sign of a strong freight market, even as near-term cost increases outpaced pricing gains.

The company’s ability to recover those costs depends heavily on contract timing. Intermodal and dedicated services generate 96% of J.B. Hunt’s operating income, FreightWaves reported. Intermodal contract pricing typically trails truckload pricing by two quarters; dedicated contracts are mostly five-year agreements with annual cost-based price increases. Fuel surcharges also lag diesel prices by a week.

Management said it was prioritizing better prices over additional volume until margins recover. Its intermodal bidding season begins in October, but only roughly 10% of those contracts renew in the fourth quarter. The rest renew evenly through the first three quarters, and management said it would not pursue rate increases outside the renewal cycle.