J.B. Hunt (NASDAQ:JBHT) reported third-quarter revenue of $3.68 billion last week, up 20% from a year earlier. Diluted earnings came to $1.82 a share, up 3%.
But operating income rose just 2%, so almost none of the new revenue turned into profit. The biggest hit landed in the contract trucking business, where operating income fell 22%. That leaves two questions: can the company’s prices catch up with its costs, and does the stock already assume they will?
J.B. Hunt moves freight for large shippers by putting containers on trains, running dedicated truck fleets for single customers, and arranging loads with outside carriers. It is a healthy business with growing volume, but the share price asks for more profit than the latest quarter delivered.
Contract Trucking Took the Hit
Dedicated is the segment built on long contracts, and it keeps about 96% of its customers. Even so, its operating income fell while its revenue grew, which makes the squeeze hard to blame on lost customers. The company pointed to higher driver pay, group medical claims, insurance premiums and the cost of bringing on new customers.
Price increases written into those contracts helped only a little. Revenue per truck per week, before fuel surcharges, rose 3%, and costs grew faster than that.
Intermodal, the rail-based business, carried the quarter. Its operating income rose 18%, and it now supplies 60% of the company’s total operating income. Shippers in the Eastern network kept moving freight off highways and onto rail, while loads in the Transcontinental network barely grew.
Brokerage also helped, swinging to an operating profit from a small loss a year earlier. If you’re interested in logistics stocks, we recently compiled a report on 10 Best Logistics Stocks to Buy Right Now.
Profit Has Lagged Before
A quarter earlier, the pattern ran the other way. Operating income rose 32% in the second quarter, faster than revenue. The third quarter flipped that, with sales far ahead of profit.
Against a long record of steady growth, that looks like a pause. Over the past five years, revenue grew about 4.5% a year. Operating margin over the past 12 months was 7.25%. J.B. Hunt compounds slowly, so one quarter of thin margins doesn’t break the pattern. For investors looking for steady long-term compounders, our list of 10 Best Fundamentally Strong Stocks to Buy for Long Term is worth a look.
Costs Are the Case Against a Quick Fix
Costs are the best argument that the pause could last. Rents and purchased transportation, which covers the cost of outside carriers and rented capacity, took 47.8% of revenue, up from 43.6% a year earlier. Fuel surcharges, which only pass fuel costs on to shippers, also pushed up the top line. Without them, revenue grew 13%.
CEO Shelley Simpson told investors the company remains confident in its strategy and is building the capabilities to serve customers and strengthen its position over the long run. Debt is down to about $1.12 billion from $1.60 billion a year earlier, and the company still bought back about $174 million of its own stock in the quarter.
What the Price Is Betting On
The stock trades at 31.26 times estimated 2026 adjusted earnings. That is well above the sector median of 19.08 and above J.B. Hunt’s own five-year average of 25.76. Analysts expect earnings per share to grow 18.36% in 2026.
That premium over the sector is wide, and the growth forecast alone doesn’t explain it. For you as a shareholder, that means owning a stock whose price already counts on profit catching up with sales. If you want to compare cheaper growth stocks, check out 10 Undervalued Growth Stocks to Buy Now.
So J.B. Hunt’s profit has not yet caught up with its sales, and the stock already assumes it will. The number to watch in its next quarterly report is operating income as a share of revenue. It was 6.7% this time against 7.9% a year earlier, and Dedicated needs to stop losing ground.
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This article is originally published at Insider Monkey.
