J.B. Hunt Transport Services, Inc. — Q2 2022 Form 10-Q
Business context and period: The filing covers the quarter and six months ended June 30, 2022, compared with the same 2021 periods. J.B. Hunt operates five transportation and logistics segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Truckload (JBT), and Final Mile Services (FMS). Amounts below are in millions unless noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $3,837.5 | $2,908.4 | $7,326.1 | $5,526.5 |
| Revenue excluding fuel surcharges | $3,159.8 | $2,607.0 | $6,202.0 | $4,995.0 |
| Operating income | $353.1 | $241.5 | $687.4 | $449.2 |
| Net earnings | $255.3 | $172.2 | $498.7 | $318.8 |
| Diluted earnings per share | $2.42 | $1.61 | $4.72 | $2.98 |
| Operating cash flow | Not separately provided | Not separately provided | $784.5 | $668.7 |
- Q2 total revenue increased 31.9%; revenue excluding fuel surcharges rose 21%. Six-month total revenue increased 32.6%; excluding surcharges, it rose 24%.
- Operating margin improved to 9.2% from 8.3% in Q2 and to 9.4% from 8.1% for the six-month period. Net margin was 6.7% versus 5.9% in Q2 and 6.8% versus 5.8% year to date.
- Q2 fuel surcharge revenue increased to $677.8 million from $301.4 million. Higher fuel prices contributed to fuel and fuel tax expense rising 109% in Q2 and 90% for the six-month period.
- Segment Q2 revenue and operating income: JBI $1,833 million and $202.5 million; DCS $863 million and $89.2 million; ICS $623 million and $23.6 million; JBT $269 million and $25.0 million; FMS $257 million and $12.8 million.
Balance sheet, cash flow, and capital
- At June 30, cash and equivalents were $123.8 million, down from $355.5 million at year-end 2021. Current assets were $2.282 billion and current liabilities $1.870 billion.
- Total debt was approximately $1.296 billion, including $350.0 million current and $946.0 million long-term. No borrowings were outstanding on the $750 million revolving credit facility, which expires September 2023. The company reported compliance with debt covenants.
- Six-month operating cash flow was $784.5 million; investing cash outflow was $685.0 million and financing cash outflow was $331.2 million. Net capital expenditures were approximately $598.1 million. Cash declined by $231.7 million during the period.
- Capital spending commitments were approximately $2.4 billion for 2022–2024, with about $1.0 billion planned for 2022. The company cited equipment procurement and supply-chain delivery constraints.
- Six-month share repurchases totaled $239.3 million and dividends paid were $83.7 million. At June 30, $112 million remained under the existing repurchase authorization; the board authorized a further $500 million on July 20, 2022.
Material changes and management commentary
- JBI revenue rose 42% in Q2, supported by 8% load growth and a 32% increase in revenue per load. Management said rail velocity, network fluidity, and customer equipment detention constrained additional volume growth.
- ICS Q2 operating income rose to $23.6 million from $3.1 million, with gross profit margin increasing to 16.2% from 10.5%. DCS and JBT also increased operating income. FMS six-month operating income declined to $12.7 million from $19.2 million, partly because the prior-year period included a $3.2 million claims settlement benefit.
- On February 28, 2022, the company acquired substantially all of Zenith Freight Lines’ assets for $86.9 million in cash. Zenith contributed $28 million of Q2 FMS revenue; the acquisition added approximately $42.7 million of intangible assets and $11.2 million of goodwill.
- Insurance and claims expense rose sharply. The company recorded a $30 million Q2 reserve for claims potentially exceeding aggregate insurance reimbursement limits, in addition to segment-level insurance-related expenses. It also received an $11.6 million workers’ compensation premium return benefit during Q2.
Outlook, risks, and contingencies
- The filing provides no specific revenue or earnings guidance. Management estimated a 2022 annual effective tax rate of 23.5%–24.5% and said it intended to repay the $350 million of senior notes due August 2022 using cash, the revolver, or other long-term financing.
- Management believes cash, operating cash flow, and the revolving facility will meet foreseeable operating and capital needs. It noted that a large portion of costs is variable and tied to load volumes.
- Key risks include economic and freight-market changes, competition and rate fluctuations, fuel prices, rail service and network disruption, driver and carrier availability, customer concentration, insurance and claims costs, severe weather, regulation, technology disruption, and acquisition integration. The company also noted seasonal freight strength typically from August through early November.
- The company is appealing state use-tax audit assessments and has recorded its estimated probable exposure; the amount is not specified here. It reported $84.8 million of gross unrecognized tax benefits, including $8.1 million of accrued interest and penalties. Other ordinary-course claims and litigation were not expected by management to materially affect financial condition, results, or liquidity.
- The company reported no material change to internal controls and concluded disclosure controls were effective as of June 30, 2022. It cautioned that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether JBI can improve rail and port network fluidity and sustain load growth and revenue per load.
- How the $30 million claims reserve compares with ultimate settlements and whether insurance reimbursement limits create further exposure.
- Execution of the planned capital program amid equipment supply constraints, and the expected returns from that investment.
- Repayment or refinancing of the $350 million notes due August 2022 and the effect of any replacement financing costs.
- Zenith’s contribution to FMS growth and profitability, including purchase-accounting estimates and integration results.
- Cash generation and liquidity after capital expenditures, dividends, and repurchases; confirm subsequent-period cash, debt, and repurchase activity.