J.B. Hunt Transport Services, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing; fourth-quarter results are also summarized below. The company provides intermodal, dedicated contract, logistics brokerage, and truck transportation services across North America.
Financial performance
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Operating revenue | $6.188 billion | $6.165 billion | +0.4% |
| Operating income | $716 million | $632 million | +13.3% |
| Net earnings | $427 million | $375 million | +14.0% |
| Diluted EPS | $3.66 | $3.16 | +15.8% |
| Operating margin | 11.6% | 10.2% | +1.4 percentage points |
| Net margin | 6.9% | 6.1% | +0.8 percentage points |
Fuel surcharge revenue fell 38.0% to $671 million as fuel prices declined. Excluding fuel surcharges, revenue increased 8.5%. Lower fuel costs helped reduce fuel expense, while driver compensation and equipment depreciation increased. The company’s operating ratio improved to 88.4% from 89.8%.
Fourth quarter: Revenue was $1.621 billion versus $1.610 billion in Q4 2014; operating income was $193 million versus $183 million; net earnings were $117 million versus $110 million; diluted EPS was $1.01 versus $0.93.
Cash flow, debt and liquidity
- Operating cash flow was $873 million, up from $647 million. Investing activities used $577 million; financing activities used $297 million.
- Capital expenditures for property and equipment were $725 million; equipment-sale proceeds were $169 million.
- Total debt was approximately $1.005 billion, compared with $934 million in 2014. Debt-to-equity was 0.77; debt was 44% of total capital.
- Cash was $5.6 million and the current ratio was 1.61. The $500 million revolving facility had $150 million outstanding at year-end; covenants were met.
- Stockholders’ equity was $1.300 billion and total assets were $3.637 billion. The company paid $0.84 per share in dividends during 2015 and repurchased about 3.3 million shares for $262 million.
Segment performance and changes
| Segment | 2015 revenue | 2015 operating income | Notable year-over-year change |
|---|---|---|---|
| Intermodal (JBI) | $3.665 billion | $477 million | Revenue −0.6%; operating income increased from $461 million. Loads rose, but lower fuel surcharges and freight mix reduced reported revenue. |
| Dedicated Contract Services (DCS) | $1.451 billion | $163 million | Revenue +4.1%; operating income increased from $117 million. |
| Integrated Capacity Solutions (ICS) | $699 million | $36 million | Revenue −2.6%; operating income increased from $30 million as gross margin improved to 15.3% from 13.0%. |
| Truck (JBT) | $386 million | $40 million | Revenue was flat; operating income increased from $24 million. |
Overall revenue was nearly unchanged, but profitability improved. Management attributed the gains to rate increases, higher volumes or utilization in several segments, reduced reliance on outside carriers, and lower fuel and claims costs. Salaries, wages and benefits rose 8.1%; depreciation and amortization rose 15.3%. General and administrative expense increased 43.3%, primarily due to company-wide streamlining and technology redevelopment efforts.
Outlook, risks and contingencies
- Management gave no specific revenue or earnings forecast. It expected a 2016 effective tax rate of 38.0%–38.1% and stated that liquid assets, operating cash flow and financing arrangements should meet foreseeable operating and capital needs.
- The company was committed to approximately $463 million of equipment and facility purchases in 2016–2017, predominantly in 2016.
- Principal risks include economic and freight-market weakness, pricing competition, driver and carrier availability, reliance on railroads (particularly BNSF and Norfolk Southern), fuel-price volatility and surcharge timing, customer concentration, adverse weather, claims costs, regulatory changes, and technology or cybersecurity disruption. The top 10 customers generated approximately 29% of 2015 revenue.
- Self-insured estimated claims accruals were approximately $95 million. California driver class actions remained on appeal after a favorable trial-court judgment; the company could not reasonably estimate any potential loss. Other ordinary-course litigation was not expected to materially affect financial condition, results or liquidity.
- Uncertain tax-position liabilities, including interest and penalties, totaled approximately $36 million; settlement timing was not reasonably estimable. The company reported compliance with debt covenants.
- The FMCSA’s electronic logging device rule was published in December 2015; approximately 96% of legacy equipment had been replaced, and management did not anticipate a negative operating impact. Fuel-price derivatives were not in place.
Most important facts for investors to verify
- Whether reported earnings and margin improvement persist after separating fuel-surcharge effects from underlying pricing, volume and costs.
- Execution and returns on the substantial equipment investment commitments, and the effect of rising depreciation and driver costs.
- Rail service and capacity, qualified-driver availability, and customer retention, given the company’s concentration and operating dependencies.
- Changes in claims accruals, the California litigation appeal, and uncertain tax-position liabilities.
- Debt maturities, interest-rate exposure and available revolver capacity; the company estimated a one-percentage-point rate increase would reduce annual pretax earnings by $7.5 million.