J.B. Hunt Transport Services, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Figures are unaudited; financial amounts are in millions unless stated otherwise. J.B. Hunt operates five transportation and logistics segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT).
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total operating revenue | $3,144.8 | $2,472.5 | $8,671.3 | $6,898.9 |
| Revenue excluding fuel surcharges | $2,813.9 | $2,296.1 | $7,809.0 | $6,327.9 |
| Operating income | $273.8 | $175.5 | $723.0 | $505.4 |
| Net earnings | $199.8 | $125.5 | $518.6 | $352.0 |
| Diluted EPS | $1.88 | $1.18 | $4.86 | $3.30 |
| Operating margin | 8.7% | 7.1% | 8.3% | 7.3% |
Q3 revenue excluding fuel surcharges grew 23%; total revenue increased 27.2%. For the first nine months, revenue excluding fuel surcharges rose 23% and total revenue rose 25.7%. Higher earnings reflected strong pricing and revenue growth, while operating expenses grew more slowly than revenue. Fuel surcharge revenue was $330.9 million in Q3 and $862.4 million year to date.
Cash flow and investment: Nine-month operating cash flow was $969.8 million versus $911.0 million. Investing cash outflow was $511.2 million, including $572.7 million of equipment additions and $61.6 million in equipment sale proceeds. Financing cash outflow was $242.4 million, including $136.9 million of share repurchases and $92.9 million of dividends.
Balance sheet and liquidity
At September 30, 2021, cash was $529.6 million; total debt was $1,299.6 million, including $354.7 million classified as current. The working-capital ratio was 1.38, debt-to-equity was 0.44, and debt was 31% of total capital. The company had no borrowings on its $750 million revolving credit facility, which expires in September 2023, and reported compliance with debt covenants. The $350 million of senior notes due August 2022 is included in current debt; management said it intends to repay the notes at maturity using the revolver or other long-term financing.
Segment and period changes
- JBI: Q3 revenue increased 17% and operating income increased 52%. Revenue per load rose 24%, but load volume fell 6%; rail network restrictions and equipment detention constrained capacity.
- DCS: Q3 revenue rose 20%, while operating income declined 3%, as driver, compensation, and new-contract implementation costs offset revenue growth.
- ICS: Q3 revenue rose 55%; the segment returned to operating income of $14.7 million from an $18.3 million loss. Higher rates and gross margin supported the improvement; gross margin was 12.0% versus 7.6%.
- FMS: Q3 revenue rose 13%, but operating income fell 39% to $1.3 million amid implementation, carrier, labor, and customer supply constraints.
- JBT: Q3 revenue rose 87% and operating income increased to $14.7 million from $2.9 million, supported by higher volume, rates, and expansion of 360box.
Year to date, ICS and FMS moved from operating losses to profits, while JBI and JBT increased operating income. DCS operating income declined. Across the company, purchased transportation, wages and recruiting, and fuel costs rose; the company cited higher fuel prices, driver scarcity, and constrained transportation capacity. Prior-year comparisons also included one-time COVID-19 bonuses and, for some segments, other unusual items.
Outlook, risks, and contingencies
- Management expected 2021 net capital expenditures of $950 million to $1.05 billion, increased from prior plans, principally for intermodal containers, 360box trailers, and DCS tractors. Equipment and facility purchase commitments totaled approximately $2.37 billion, primarily due within three years.
- Management forecast a 2021 annual effective tax rate of 23.5% to 24.0%. No earnings or revenue guidance was provided in the filing.
- Management said cash, operating cash flow, and available credit should meet foreseeable operating and capital needs. It cited continuing uncertainty from COVID-19 and the Delta variant, labor availability, rail delays and capacity constraints, supply-chain disruption, fuel price volatility, competition, customer concentration, insurance and claims, and information-system risks.
- The BNSF arbitration dispute continued. The Eighth Circuit ruled in part for J.B. Hunt in August 2021; an amended judgment adopting the appellate holdings was entered October 21, 2021. The company also disclosed state use-tax audits under appeal that could require a material settlement if appeals fail. It reported $72.8 million in gross unrecognized tax benefits, including $8.0 million of accrued interest and penalties.
- During the first nine months, the company recorded a $3.2 million benefit from an FMS claims settlement. The filing also describes the prior-period BNSF-related charges and COVID-19 bonuses as relevant comparison items.
Important facts for investors to verify
- Whether intermodal rail service and equipment availability improve, and how that affects JBI volume and service performance.
- Whether pricing and ICS margins remain strong as freight capacity, customer mix, and spot-market conditions change.
- Execution of the raised 2021 capital spending plan and the company’s ability to meet substantial equipment commitments.
- Repayment or refinancing of the $350 million notes due in 2022, along with liquidity and covenant headroom.
- Potential outcomes and timing of the BNSF matter and state use-tax audits.
- Whether higher driver costs, fuel, insurance claims, and supply-chain constraints continue to pressure segment profitability.