J.B. Hunt Transport Services, Inc. — 2011 Form 10-K
Business context and reporting period: The filing covers the fiscal year ended December 31, 2011; it also reports quarterly results, including fourth-quarter 2011. J.B. Hunt provides intermodal, dedicated contract, truckload and logistics services. Intermodal (JBI) generated about 59% of consolidated revenue.
Financial performance
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $4.527 billion | $3.793 billion |
| Operating income | $444.2 million | $347.6 million |
| Net earnings | $257.0 million | $199.6 million |
| Diluted EPS | $2.11 | $1.56 |
| Operating ratio | 90.2% | 90.8% |
| Operating cash flow | $635.7 million | $428.1 million |
| Capital expenditures | $502.3 million | $262.4 million |
Revenue increased 19.3%; excluding fuel surcharges, it rose 12%. Net earnings grew 28.7%, and operating margin improved to about 9.8% from 9.2%. Fuel surcharge revenue was $849 million, compared with $516 million in 2010. Higher load volumes, improved pricing and cost controls supported results; fuel and purchased-transportation costs also rose.
Fourth quarter: Revenue was $1.205 billion, operating income $122.3 million, net earnings $72.6 million and diluted EPS $0.61. Compared with Q4 2010, these increased approximately 18.1%, 25.7%, 25.4% and 32.6%, respectively.
Cash, debt and liquidity: Cash and equivalents were $5.5 million at year-end. Total debt was $749.2 million, up from $654.2 million; debt-to-equity was 1.32, versus 1.14. The working-capital ratio improved to 1.17 from 0.91. The company had $299.8 million in variable-rate debt and a $500 million revolving facility, with $99.8 million drawn. Management said available liquidity, operating cash flow and financing arrangements were sufficient for foreseeable operating and capital needs. Debt covenants were met.
Material changes and segment trends
- All four segments increased operating income. JBI revenue rose 24.8% and operating income to $301 million, benefiting from 16.1% load growth and higher rates.
- DCS revenue rose 13.7% and operating income to $103 million, supported by productivity, new contracts and lower claims costs.
- JBT revenue increased 5.1% and operating income reached $27 million; load volume and average tractor count declined, while rates improved.
- ICS revenue rose 22.3% and operating income to $13 million, while its gross-profit margin fell to 13.5% from 14.2%.
- Operating cash flow increased substantially, but equipment additions more than doubled. The company repurchased approximately 6.0 million shares for $246 million and paid $62.2 million in dividends.
Outlook, risks and unusual items
- No consolidated revenue or earnings guidance is provided. Management expected a 2012 effective tax rate of 38.0%–38.5% and intended to continue quarterly dividends, subject to Board approval. The quarterly dividend was raised to $0.14 beginning in February 2012.
- Approximately $307.6 million of 2012 equipment and facility commitments remained, primarily for containers and chassis. A $500 million revolving credit facility replaced the prior $350 million facility; a $200 million variable-rate term loan was issued in 2011.
- Management expected the amended federal hours-of-service rules to reduce productivity; some provisions take effect in 2012 and others in 2013. Other significant risks include fuel-price volatility and surcharge timing, driver and carrier availability, dependence on railroads, competition, customer concentration, claims and severe weather.
- The top 10 customers represented about 32% of revenue; no individual customer exceeded 10%. California driver class-action claims remain stayed, and the company could not estimate a possible loss range. Management did not expect other ordinary-course litigation to materially affect financial condition, results or liquidity.
- Net gains from equipment sales were $14 million in 2011 versus $4 million in 2010. The company reported a $42 million claims accrual. No fuel-price or interest-rate derivatives were outstanding at year-end; a one-percentage-point increase in applicable rates was estimated to reduce annual pretax earnings by $3 million.
Investor verification priorities
- Review the drivers of growth excluding fuel surcharges and whether load growth and pricing can continue.
- Track the effect of hours-of-service changes, fuel-cost pass-through timing, and access to qualified drivers, rail capacity and third-party carriers.
- Assess the return on the planned equipment spending and the resulting debt, liquidity and interest-rate exposure.
- Monitor ICS margin trends, customer concentration, claims accrual adequacy and the unresolved California driver litigation.
- Confirm subsequent dividend and repurchase activity and compare actual 2012 performance with management’s tax-rate outlook.