J.B. Hunt Transport Services, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise stated. The company operates five transportation and logistics segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Truckload (JBT), and Final Mile Services (FMS). Amounts below are in millions except per-share data.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue, excluding fuel surcharges | $3,042.2 | $2,388.0 | +27% |
| Total operating revenue | $3,488.6 | $2,618.1 | +33.2% |
| Operating income | $334.3 | $207.7 | +61% |
| Operating margin | 9.6% | 7.9% | +1.7 percentage points |
| Net earnings | $243.3 | $146.6 | +66% |
| Net margin | 7.0% | 5.6% | +1.4 percentage points |
| Diluted EPS | $2.29 | $1.37 | +67% |
| Operating cash flow | $291.8 | $364.7 | Down $72.9 |
Operating expenses rose 30.9%, slower than revenue growth. Fuel and fuel taxes increased 67.6%; rents and purchased transportation rose 35.9%; and salaries, wages and benefits rose 23.2%. The effective tax rate was 24.4%, compared with 25.1%.
Segment performance
| Segment | Revenue | Operating income (loss) | Notable comparison |
|---|---|---|---|
| JBI | $1,603 | $201.0 | Revenue +36%; income +87%. Load volume +7% and revenue per load +28%. |
| DCS | $741 | $77.1 | Revenue +28%; income +4%. Revenue-producing trucks increased by 2,221 year over year. |
| ICS | $675 | $25.0 | Revenue +29%; income rose from $7.3. Volume +12%; revenue per load +14%. |
| JBT | $264 | $31.5 | Revenue +77%; income rose from $10.2. Load volume +17%. |
| FMS | $218 | ($0.2) | Revenue +8%; shifted from $8.5 income. Supply constraints, costs of new contracts, and Zenith-related costs weighed on results. |
Cash, debt and liquidity
- Cash and cash equivalents were $144.5 at March 31, down from $355.5 at December 31, 2021. The quarterly net cash decrease was $211.0.
- Investing cash outflow was $376.1, including $309.3 of property and equipment additions and the $86.9 cash purchase of Zenith. Financing cash outflow was $126.7, including $75.0 of share repurchases and $41.9 of dividends.
- Net capital expenditures were approximately $289.1, versus $85.9 in Q1 2021. Management cited approximately $3.0 billion of committed spending for 2022–2024, with about $1.5 billion planned for 2022.
- Debt carrying amounts included $351.2 current and $945.6 long-term, approximately $1.297 billion combined. The $350 million 3.30% notes mature in August 2022; management intends to repay them at or before maturity using cash, the revolving facility, or other long-term financing.
- The $750 million revolving credit facility had no borrowings outstanding and expires in September 2023. The company reported compliance with debt covenants and financial ratios. Management said available liquidity and operating cash generation should support requirements for the foreseeable future.
- Operating lease minimum payments were $247.4. The company reported no off-balance-sheet arrangements other than $3.0 billion of net purchase commitments.
Material changes, outlook and risks
- Growth reflected higher rates and volumes across the segments, including capacity-constrained market conditions. Fuel surcharge revenue increased to $446.4 from $230.1; revenue excluding surcharges grew 27%.
- JBI experienced rail, customer and internal network fluidity issues, particularly early in the quarter; rail velocity remained a challenge. Driver availability and retention, higher driver pay, and purchased transportation costs affected several segments.
- The February 28 acquisition of Zenith Freight Lines for $86.9 cash added assets and operations to FMS. The preliminary allocation included $41.9 of finite-lived intangible assets and $12.4 of goodwill; approximately $0.9 of transaction costs was expensed.
- Q1 general and administrative expense benefited from $17.3 of net gains on equipment and other asset dispositions, compared with a $1.1 net loss in Q1 2021—an unusual contributor to earnings growth.
- Management estimated a 2022 annual effective tax rate of 24.0%–25.0%. It did not provide a full-year revenue or earnings forecast. The filing describes seasonal freight volumes as typically higher from August through early November in full-load operations.
- Risks highlighted include economic and freight-market weakness, fuel price volatility and the ability to recover costs through surcharges, rail and port disruption, tight labor and carrier availability, customer concentration and credit risk, insurance and claims, technology disruption, regulation, weather, and acquisition execution. State use-tax audit assessments are being appealed; a liability has been recorded for estimated probable exposure. Other ordinary-course claims and litigation were not expected by management to materially affect financial condition, results, or liquidity.
- A one-percentage-point increase in applicable short-term variable interest rates would reduce annual pretax earnings by approximately $3.5. Management stated that fuel price hedging instruments were not in place.
Important facts for investors to verify
- Whether rail service and network velocity improve, and how labor and equipment availability affect service, volume, and costs.
- Whether rate and volume growth—particularly excluding fuel surcharges—continues, and whether surcharge recovery keeps pace with fuel prices.
- Execution and returns on the planned capital spending, equipment delivery timing, and integration and performance of the Zenith acquisition.
- Funding and repayment plans for the August 2022 notes, ongoing liquidity after capital expenditures, dividends, and repurchases, and continued covenant compliance.
- The sustainability of earnings growth after considering equipment-disposition gains, FMS operating losses, tax assumptions, and outstanding tax and litigation contingencies.