Business context and reporting period
J.B. Hunt Transport Services, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. The company operates five transportation and logistics segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Truckload (JBT), and Final Mile Services (FMS). Dollar figures below are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Total operating revenue | $3,838.3 | $3,144.8 | +22.1% |
| Revenue excluding fuel surcharges | $3,162.1 | $2,813.9 | +12.4% |
| Operating income | $362.2 | $273.8 | +32.3% |
| Operating margin | 9.4% | 8.7% | +0.7 percentage points |
| Net earnings | $269.4 | $199.8 | +34.8% |
| Diluted EPS | $2.57 | $1.88 | +36.7% |
For the first nine months of 2022, revenue was $11,164.4 million, up 28.8%; revenue excluding fuel surcharges rose 19.9%. Operating income was $1,049.6 million, up 45.2%, and net earnings were $768.0 million, up 48.1%. Diluted EPS was $7.28 versus $4.86.
Q3 growth was led by JBI and DCS. Segment revenue and operating income were: JBI $1,837 million and $217.0 million; DCS $894 million and $103.1 million; ICS $591 million and $13.5 million; JBT $274 million and $19.0 million; FMS $249 million and $9.6 million. ICS revenue and operating income declined year over year; the other segments increased operating income.
Cash flow, balance sheet and capital
- Nine-month cash from operations was $1,355.4 million, versus $969.8 million in 2021. Investing cash use was $1,136.1 million, including $1,087.9 million of property and equipment additions and $118.1 million for acquisitions. Financing cash use was $490.5 million.
- Cash was $84.3 million at September 30, 2022, down from $355.5 million at year-end 2021. Current assets were $2,152.4 million and current liabilities $1,500.7 million.
- Total debt was approximately $1,243.8 million, versus $1,301.2 million at year-end 2021; no debt was classified as current at quarter-end. The company had $300 million drawn on its revolving facility at an average rate of 4.10%.
- Net capital expenditures were approximately $1.02 billion for the first nine months. The company reported approximately $2.2 billion of net purchase commitments for 2022–2024, including about $738 million planned for full-year 2022.
- Share repurchases totaled $300.0 million and dividends paid totaled $125.2 million in the first nine months. A further $551 million remained under the combined repurchase authorizations at September 30.
Material changes and management commentary
Higher rates, fuel surcharges, and activity supported revenue growth, while fuel, labor, equipment, insurance, and claims costs increased. Fuel surcharge revenue rose to $676.2 million in Q3 from $330.9 million a year earlier; therefore, total revenue growth exceeded growth excluding fuel surcharges. Q3 operating expenses grew 21.1%, slower than revenue growth of 22.1%.
JBI reported 4% higher Q3 load volumes and 17% higher revenue per load excluding fuel surcharges, but cited rail velocity, customer behavior, supply-chain uncertainty, and detention as constraints. ICS faced weaker spot rates and lower volume. DCS productivity excluding fuel surcharges increased 6% in Q3. FMS revenue included $28 million from the Zenith acquisition.
The company acquired Zenith for cash consideration of $87.1 million, effective February 28, 2022, and Alterri for $31.0 million, effective September 14, 2022. Both were accounted for as business combinations. A $30 million reserve for potential excess insurance claims was recorded in Q2; management said reserves may be adjusted as claims are resolved.
Outlook, risks and contingencies
- Management expected its 2022 annual effective tax rate to be 23.5%–24.0%; the filing gives no specific earnings or revenue guidance.
- Management said cash, operating cash generation, and the revolving credit facility should provide sufficient funds for operating and capital requirements for the foreseeable future. It also warned that equipment delivery challenges could continue because of supply-chain constraints.
- A new credit facility, effective September 27, 2022, permits up to $1.0 billion in revolving borrowings through September 2027 and up to $500 million in committed term loans that could be borrowed during the following nine months. The company reported compliance with all debt covenants.
- Key risks include economic and freight-market conditions, fuel prices and surcharge recovery, rail service and network efficiency, driver and carrier availability, customer concentration, insurance and claims, equipment costs and availability, regulation, weather, technology disruption, and acquisition integration.
- State use-tax assessments were under appeal; a liability was recorded for estimated probable exposure. The company also disclosed ordinary-course litigation that it did not expect to materially adversely affect its financial condition, results, or liquidity.
Investor verification points
- Separate underlying revenue growth from fuel surcharge effects and track freight volumes, rates, and mix by segment.
- Monitor rail fluidity and intermodal service constraints, as well as ICS spot-rate trends and DCS/FMS contract implementation costs.
- Assess whether higher insurance and claims costs, including the $30 million reserve, lead to additional reserve adjustments or cash outlays.
- Compare planned capital spending and purchase commitments with operating cash flow, liquidity, and the cost of variable-rate borrowing.
- Review acquisition performance and integration, particularly Zenith’s contribution to FMS and Alterri’s contribution to Intermodal.