J.B. Hunt Transport Services, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Financial statements are unaudited. 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).
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total operating revenue | $2,618.1 million | $2,280.8 million | +14.8% |
| Operating income | $207.7 million | $154.7 million | +34.2% |
| Operating margin | 7.9% | 6.8% | +1.1 percentage points |
| Net earnings | $146.6 million | $104.8 million | +39.9% |
| Diluted earnings per share | $1.37 | $0.98 | +39.8% |
| Net cash provided by operating activities | $364.7 million | $249.2 million | +$115.5 million |
| Net cash used in investing activities | $85.9 million | $128.7 million | Lower outflow |
| Net cash used in financing activities | $39.1 million | $107.0 million | Lower outflow |
Revenue excluding fuel surcharge increased 17%. Net margin was 5.6%, versus 4.6% a year earlier. The effective tax rate was 25.1%, compared with 26.5%. Dividends declared were $0.28 per share, up from $0.27.
Liquidity and debt
- Cash and cash equivalents were $553.0 million at March 31, 2021, up from $313.3 million at year-end 2020. Working capital ratio was 1.83, versus 1.70 at year-end.
- Long-term debt was $1.301 billion, slightly below $1.305 billion at year-end. Total debt to equity was 0.48; debt represented 32% of total capital.
- No borrowings were outstanding on the $750 million revolving credit facility, which expires in September 2023. The company reported compliance with debt covenants.
- Capital expenditures, net of equipment-sale proceeds, were approximately $86 million. The filing reports $1.7 billion in equipment and facility commitments, primarily due within three years.
Material changes and segment performance
All five segments reported higher revenue. ICS and JBT had the largest revenue growth; ICS, FMS, and JBT moved from operating losses or low income to operating profits. Higher earnings also reflect comparison with Q1 2020, which included a one-time employee COVID-19 bonus and other unusual costs.
| Segment | Revenue, Q1 2021 | Operating income (loss), Q1 2021 | Notable comparison |
|---|---|---|---|
| JBI | $1.177 billion | $107.5 million | Revenue +2%; loads −3%; operating income +5%. |
| DCS | $580 million | $74.3 million | Revenue +7%; productivity per truck per week +6%; operating income +2%. |
| ICS | $525 million | $7.3 million | Revenue +56%; operating income improved from a $18.9 million loss. Higher spot and contractual rates supported results. |
| FMS | $202 million | $8.5 million | Revenue +31%; operating income improved from a $3.3 million loss. |
| JBT | $150 million | $10.2 million | Revenue +43%; operating income increased from $1.8 million. |
Consolidated operating expenses rose 13.4%, slower than revenue growth. Rents and purchased transportation increased 19%, reflecting higher third-party carrier costs and greater use of outside carriers. Driver pay, recruiting, and employee compensation also increased. Severe weather disrupted all segments, particularly JBI; intermodal volumes also faced rail congestion and service challenges.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing does not provide earnings or revenue guidance. Management expects 2021 net capital expenditures of $1.2 billion to $1.3 billion, primarily for intermodal containers and trailers supporting the 360box program. The expected annual effective tax rate is 24%–25%.
- Management commentary: Management said cash, operating cash generation, and available credit should fund foreseeable operating and capital requirements, and expressed the expectation of maintaining the company’s investment-grade rating. Capital spending had been paused or cancelled during the pandemic and was increased in light of current conditions and the longer-term outlook.
- Operating risks: COVID-19 uncertainty, severe weather, rail congestion and service delays, driver and carrier availability, fuel prices, insurance and claims, competition, customer concentration, and technology or operational disruptions could affect results. The business is seasonal, with typically higher full-load freight volumes from August through early November.
- Legal and tax matters: J.B. Hunt is appealing a court decision concerning enforcement of certain rights under its BNSF arbitration award. It recorded an $8.2 million pretax charge in Q1 2020 related to the award calculation. State use-tax audits could result in material settlements if appeals fail. Gross unrecognized tax benefits, including interest and penalties, totaled $74.6 million; settlement timing could not be reasonably estimated.
- Other items: The prior-year quarter included a $12.3 million COVID-related employee bonus and $3.4 million of additional stock compensation related to accelerated executive award vesting. On April 22, 2021, after quarter-end, the company announced an increase in its quarterly dividend from $0.28 to $0.30 per share.
Important facts for investors to verify
- Whether ICS profitability and higher rates are sustainable, given the larger spot-market contribution and the lower share of contractual business than in Q1 2020.
- Whether JBI can recover from weather-related volume losses and ongoing rail congestion and service issues.
- Execution, timing, and funding of the $1.2 billion–$1.3 billion 2021 net capital expenditure plan and the broader $1.7 billion equipment and facility commitments.
- Potential outcomes and financial effects of the BNSF appeal, state use-tax audits, and other tax uncertainties.
- Cash-flow sustainability: Q1 operating cash flow benefited from earnings and the timing of working-capital movements.