Short-Term Market Softness Abounds

Short Term Market Softness AboundsAlong with railroad stocks, trucking enterprises are good benchmark indicators. When it comes to forming a stock market view, the Dow Jones Transportation Average is still very much an important index.

One of the major components of this index is J.B. Hunt Transport Services, Inc. (JBHT), which just reported revenues in line with estimates, but missed on earnings per share. But even with the earnings miss, the company still reported a solid fourth quarter, and while Wall Street expectations are important, so is real double-digit economic growth from a mature enterprise.

The company said its total operating revenues in the fourth quarter of 2013 grew to a record $1.47 billion, up from $1.34 billion comparatively.

Fourth-quarter earnings also achieved a record $92.0 million, or $0.77 per diluted share, compared to $84.0 million, or $0.70 per diluted share, for a gain of 10%.

Full-year 2013 operating revenues grew 10% to $5.6 billion, while total earnings per share grew 11% to $2.87 per diluted share.

J.B. Hunt’s been an outstanding wealth creator since its March low of 2009 (up four-fold on the stock market). For a $9.0-billion company, 10% top- and bottom-line growth is very respectable. If the company missed earnings consensus by two pennies, then it did. The stock’s been due for a sell-off; this was the catalyst.

Noteworthy in the company’s numbers was a 17% gain in intermodal shipments within eastern networks. Transcontinental loads grew 11% during the fourth quarter, and operating income grew 17% within this important segment (almost two-thirds of total sales).

Another component company of the Dow Jones Transportation Average, Alaska Air Group, Inc. (ALK) reported excellent fourth-quarter numbers.

The company’s sales were in line with consensus estimates, growing seven percent to $1.2 billion. The big news with Alaska Air was its earnings growth; net income grew 77% to a record $78.0 million (excluding special items), or $1.11 per diluted share.

This is another stock selling off on earnings results and deservedly so. (See “Earnings Finally Catching Up to Stocks This Reporting Season?”)

The numbers are mostly mediocre, so far, although large-cap companies are generally meeting either earnings or revenue metrics from Wall Street. This has been a continuing trend for the last several quarters, and it is representative of some volume expansion, pricing gains, and extreme cost control. It does seem like there’s plenty of cash available for new share buyback programs.

With the strong share price performance last year, a significant consolidation, even for the entire first half of this year, would not be unreasonable. I think equity investors should be prepared for little to no gains near-term with the exception of dividend payments.

This fourth-quarter earnings season is all about justifying current share price valuations. If a company beats consensus on revenues and earnings, then it should pop higher; but this is very much a market in which new buying is on the backburner. Valuations now have to be justified by current outlooks.

So far, most large-caps haven’t increased their guidance for 2014. This is the conservative play and not unusual. With financial reports coming in modest, more near-term softness is likely.