J.B. Hunt Transport Services, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; the filing also reports unaudited fourth-quarter results. The company provides intermodal transportation, dedicated contract services, freight brokerage/logistics, and truckload services across North America.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $5.055 billion | $4.527 billion | +11.7% |
| Operating income | $530.2 million | $444.2 million | +19.4% |
| Net earnings | $310.4 million | $257.0 million | +20.8% |
| Diluted EPS | $2.59 | $2.11 | +22.7% |
| Operating margin | 10.5% | 9.8% | +0.7 percentage points |
| Net margin | 6.1% | 5.7% | +0.4 percentage points |
| Operating cash flow | $548.0 million | $635.7 million | Down $87.6 million |
Fourth-quarter revenue was $1.338 billion, operating income $143.3 million, net earnings $84.0 million and diluted EPS $0.70, versus $1.205 billion, $122.3 million, $72.6 million and $0.61, respectively, in Q4 2011.
Fuel surcharge revenue was $996.8 million for FY2012, compared with $849.2 million in 2011. Excluding fuel surcharges, revenue increased 10.3%. Operating expenses rose 10.8%, slower than revenue, lowering the operating ratio to 89.5% from 90.2%. Higher purchased transportation costs, insurance and claims costs, and driver compensation partly offset operating leverage.
Segments and material changes
- Intermodal (JBI): Revenue rose 14.9% to $3.071 billion and operating income increased to $375 million; load volume grew 13.4%. JBI generated 61% of consolidated revenue.
- Dedicated Contract Services (DCS): Revenue rose 4.7% to $1.080 billion and operating income increased to $116 million, helped by new contracts and asset transfers to more profitable accounts.
- Integrated Capacity Solutions (ICS): Revenue grew 28.2% to $456 million; operating income was $16 million. Gross profit margin declined to 13.0% from 13.5%, reflecting higher third-party carrier rates.
- Truckload (JBT): Revenue fell 4.0% to $484 million and operating income declined to $23 million from $27 million. The company reduced its company-owned tractor fleet.
Cash, debt and liquidity
Cash from operations was $548.0 million; capital additions were $439.5 million, and net investing cash outflow was $369.6 million. Management attributed lower operating cash flow versus 2011 mainly to higher income-tax payments and payment timing. Year-end cash was $5.6 million; working-capital ratio was 1.10.
Total debt was $685.3 million, down from $749.2 million, and stockholders’ equity was $791.9 million. Debt-to-equity improved to 0.87 from 1.32. The company had a $500 million revolving facility with $85.8 million drawn at year-end, plus a $200 million variable-rate term loan and senior notes. It reported compliance with debt covenants and said available liquidity and operating cash flow should cover foreseeable needs. Approximately $283 million of 2013 equipment and facility commitments were outstanding; scheduled 2013 debt payments were $100 million.
Outlook, risks and notable items
- Management expected a 2013 effective tax rate of 38.0%–38.5%; the filing provides no specific revenue or earnings guidance.
- The company expected some productivity pressure from revised federal hours-of-service rules, with additional provisions effective July 1, 2013. Fuel-price volatility, delayed fuel surcharge recovery, driver availability and increased carrier rates remain operating risks.
- Top 10 customers contributed about 30% of 2012 revenue. JBI relies substantially on railroads, particularly BNSF and Norfolk Southern; ICS and JBT also depend on third-party carriers.
- Insurance and claims expense rose 19.8%, primarily due to greater accident severity and cargo claims. A large cargo-claim settlement also affected ICS.
- California driver class-action lawsuits alleging wage and meal/rest-period violations remain unresolved. The company’s motion to decertify the class was denied; it could not reasonably estimate any potential loss.
- The company paid a $0.15-per-share dividend in December 2012, pulling forward its usual first-quarter payment, and did not expect to pay a first-quarter 2013 dividend; it intended to resume quarterly payments in Q2, subject to Board approval.
- Operating cash flow declined despite earnings growth, partly reflecting tax-payment timing. The filing reports no fuel or interest-rate derivatives at year-end.
Key facts for investors to verify
- Whether intermodal volume and profitability can continue to offset weaker JBT results and pressure on ICS margins.
- How 2013 equipment spending, debt maturities and cash generation affect liquidity and leverage.
- The outcome and potential financial exposure of the California driver litigation, which is not estimable in the filing.
- Whether fuel surcharge timing, driver and carrier availability, claims costs, and new hours-of-service rules affect margins or service capacity.
- Whether the expected 2013 tax rate and planned dividend resumption are borne out.