J.B. Hunt Stock Drops After Company Flags Q3 Profit Hit
Summary:
- J.B. Hunt shares sank over 10% Wednesday after signaling a third-quarter earnings decline.
- CFO Brad Delco told the Morgan Stanley Industrials conference earnings from Q2 to Q3 are set to fall 5% to 10%, citing hiring and fuel costs.
- He said people-related expenses will run roughly $25 million higher in Q3 than in Q2, and record diesel prices add at least a $10 million drag.
What happened
Investors hit the brakes on J.B. Hunt after management warned that profits will dip this quarter. At the Morgan Stanley Industrials conference, CFO Brad Delco said, "We kind of want to be transparent with investors and give an update that in light of these costs that are sort of hitting us, we are expecting our Q2 to Q3 earnings to actually drop 5% to 10%," which helped spark the selloff.
Why costs are up
According to Delco, people-related outlays such as hiring efforts, marketing for applicants, bringing new staff on board, employee instruction, and sign-on incentives will add roughly $25 million to third-quarter costs compared with the second quarter. He also cited "some of the most radical and abnormal swings" in fuel, saying the company has never experienced anything like it before, and diesel prices at record levels, together creating at least a $10 million headwind. Despite the pressure, he framed the outlays as "preparing for growth."
What it means for your portfolio
Delco expects volumes to improve sequentially, helping offset the added costs. "It really is more of a timing issue," he said.
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"I think you can look at a glass half-empty or a glass half-full. I'm really glad that we have visibility to these costs right now." He added the company is working to repair margins, though there is still a long way to go. Even after today's drop, the shares are up nearly 100% over the past year, so the market may already be pricing in a rebound as those growth investments start to pay off.
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