J.B. Hunt Transport Services, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with the three months ended March 31, 2011. The company operates Intermodal (JBI), Dedicated Contract Services (DCS), Truck (JBT), and Integrated Capacity Solutions (ICS). Figures below are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Operating revenue | $1,165.9 | $1,000.8; up 16.5% |
| Revenue excluding fuel surcharges | $938.7 | $831.6; up 13% |
| Operating income / margin | $116.6 / 10.0% | $89.8 / 9.0% |
| Net earnings | $67.7 | $50.1; up 35.1% |
| Diluted EPS | $0.57 | $0.40 |
| Net interest expense | $7.0 | $8.4 |
| Operating cash flow | $146.3 | $136.6 |
| Net cash used in investing | $83.8 | $112.4 |
| Cash and cash equivalents | $5.7 at March 31, 2012 | $5.5 at December 31, 2011 |
| Total debt | $702.1 | $749.2 at December 31, 2011; $698.2 at March 31, 2011 |
| Working capital ratio | 0.99 | 1.17 at December 31, 2011 |
Operating cash flow exceeded net capital spending of approximately $84 million. Capital expenditures were $112 million in Q1 2011. Financing activities used $62.2 million, mainly for debt payments; dividends paid were $16.4 million. The company reported a $0.14 quarterly dividend, increased from $0.13, and declared another $0.14 dividend for payment in May 2012.
Segment revenue and operating income: JBI $694 million and $79.4 million; DCS $256 million and $28.1 million; JBT $128 million and $4.9 million; ICS $97 million and $4.1 million. Segment revenues include intersegment amounts before eliminations.
Material changes and management commentary
- Revenue growth came from all four segments. Fuel surcharge revenue rose to $227.2 million from $169.2 million, reflecting higher fuel prices; excluding surcharges, consolidated revenue rose 13%.
- JBI revenue increased 20%, with load volume up 16%, rate increases, and network growth. Operating income increased to $79.4 million.
- DCS revenue grew 7% and operating income rose to $28.1 million, supported by productivity, new accounts, and asset transfers. The prior-year comparison included a $1.6 million customer-bankruptcy charge.
- JBT revenue rose 8%, but operating income declined to $4.9 million from $5.8 million amid higher fuel, safety, driver and contractor costs, and fewer equipment-sale gains.
- ICS revenue increased 30% and operating income rose to $4.1 million. Gross profit margin declined to 14.3% from 14.7%, as carrier rates and fuel costs increased.
- Operating margin improved to 10.0% from 9.0%. Purchased transportation and rents rose 22.6%; salaries and benefits increased 7.8%, and fuel expense increased 10.6%. Lower general and administrative expense reflected reduced bad-debt expense and higher equipment-sale gains.
Liquidity, debt, outlook, and risks
- Debt comprised $52.7 million on the revolving facility, $200 million on a variable-rate term loan, and $449.4 million in senior notes. The $500 million revolving facility expires in August 2016; $52.7 million was drawn at 1.49%. The term loan was at 1.34% and requires a $50 million installment in March 2013. The company reported compliance with all debt covenants.
- Management said cash, operating cash generation, and the revolving facility should provide sufficient funds for operating and capital needs for the foreseeable future. Reported expected 2012 net capital expenditures are $370–$390 million; approximately $260 million remained committed for the rest of 2012 as of March 31.
- No specific earnings or revenue guidance was provided. Management noted typical seasonality, with higher full-load freight volumes from August through early November.
- Risks identified include economic conditions, fuel cost and availability, driver and carrier availability, competition and pricing, customer concentration, accidents, weather, insurance and claims, regulation, and environmental compliance. A one-percentage-point increase in applicable short-term variable rates would reduce annual pretax earnings by approximately $2.5 million.
- California driver class-action matters allege wage and meal/rest-period violations. Proceedings had been stayed pending a California Supreme Court decision in a separate case; the court issued its decision on April 12, 2012, and the company was evaluating it. The company could not estimate a possible loss or range. It said other ordinary-course claims were not expected to materially affect financial condition, results, or liquidity.
- At March 31, 2012, gross unrecognized tax benefits were $17.9 million, with $3.1 million of accrued interest and penalties. The company also noted $21.0 million of potential uncertain-tax-position liabilities in its obligations discussion and could not estimate settlement timing.
Important facts for investors to verify
- Whether Q1’s volume, rate, and margin gains—particularly in JBI and DCS—persist, and how higher purchased-transportation, labor, fuel, and claims costs affect margins.
- Execution of the $370–$390 million 2012 net capital-spending plan and the effect of investment on cash generation and debt.
- Debt maturities and repayments, including the $50 million term-loan installment in March 2013 and senior-note principal payments beginning in 2012.
- Developments and potential exposure in the California driver litigation and uncertain tax positions.
- The source filing’s stated balance-sheet current debt, total debt, and debt-obligations schedule use different presentations; confirm definitions and amounts when assessing liquidity and maturities.