J.B. Hunt Transport Services, Inc. — FY 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. J.B. Hunt provides intermodal, dedicated contract, truckload and logistics services across North America. The filing also reports fourth-quarter 2010 results.
Financial performance and liquidity
- Revenue: $3.793 billion, up 18.4% from $3.203 billion in 2009. Excluding fuel surcharges, revenue increased 14%. Fuel surcharge revenue rose to $516.3 million from $326.3 million.
- Profit and margins: Operating income was $347.6 million, up 40.2%; operating margin was 9.2%, versus 7.7%. Net earnings were $199.6 million, up 46.3%, and diluted EPS was $1.56 versus $1.05. Net margin was 5.3%, versus 4.3%.
- Cash flow and investment: Operating cash flow was $428.1 million, compared with $356.9 million. Capital expenditures were $262.4 million; net investing cash outflow was $226.0 million. Financing cash outflow was $202.3 million, including $250.9 million of share repurchases and $59.9 million of dividends. Cash was $7.7 million at year-end.
- Debt and liquidity: Total debt was $654.2 million, versus $565.0 million; debt-to-equity rose to 1.14 from 0.88. The working-capital ratio declined to 0.91 from 1.46, largely because $200 million of notes due March 2011 was classified as current. The company expected to refinance all or part of those notes. It had $5 million drawn on a $350 million revolving facility and reported covenant compliance.
- Capital returns and commitments: The 2010 dividend was $0.48 per share; the company announced an increase to $0.13 quarterly in February 2011. It repurchased approximately 7.2 million shares during 2010. Revenue-equipment and facilities commitments for 2011 were approximately $405.8 million, net of expected disposals.
Material changes versus 2009
- Higher load volumes, improved pricing and utilization, and continued cost controls drove recovery. Consolidated operating ratio improved to 90.8% from 92.3%.
- JBI revenue rose 21.4% to $2.141 billion, with operating income increasing to $237 million from $183 million. DCS revenue rose 19.8% to $907 million and operating income to $83 million from $63 million.
- JBT revenue rose 7.3% to $479 million; the segment moved from an $11 million operating loss to $19 million of operating income following rate improvement and fleet/network reductions.
- ICS revenue increased 12.3% to $291 million, but operating income fell to $9 million from $13 million, reflecting higher transportation and fuel costs and new branch expenses.
- Fuel expense rose 25.7% amid a 23% increase in fuel cost per gallon. Purchased transportation expense increased 22.4%. A 2009 $10.3 million asset write-down also contributed to the year-over-year improvement in general and administrative expense.
- Fourth-quarter 2010 revenue was $1.020 billion, operating income $97.3 million, net earnings $57.9 million and diluted EPS $0.46; fourth-quarter 2009 figures were $877.0 million, $72.9 million, $41.7 million and $0.32, respectively.
Outlook, risks and unusual items
- Management expected the 2011 effective tax rate to be approximately 38.5% and stated that cash, operating cash generation and revolving credit were expected to fund foreseeable operating and capital needs. It anticipated refinancing all or part of the $200 million note due in March 2011.
- Key exposures include economic and freight-market weakness, pricing competition, fuel volatility and surcharge timing, driver and carrier availability, dependence on railroads and third-party carriers, customer concentration, safety and environmental regulation, weather, insurance claims, and equipment costs and residual values. The top 10 customers generated approximately 34% of 2010 revenue.
- California driver class-action claims involving wages and meal/rest periods were stayed pending another case; the company could not estimate a potential loss range. Management considered other ordinary-course claims unlikely to materially affect financial condition, results or liquidity.
- Claims accruals were approximately $33 million, up from $19 million; 2010 personal-injury and property-damage liabilities remain with the company for the life of claims under revised policy terms. Unrecognized tax benefits were $17.3 million; timing of settlement for related tax liabilities was not estimable.
- The company reported no assets held for sale at year-end and no fuel or interest-rate derivatives. The 2010 results included a $4 million gain on asset sales; 2009 included $10.3 million of pretax asset write-downs. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the March 2011 $200 million note was refinanced, and on what terms, alongside the company’s substantial 2011 equipment spending.
- Whether operating cash flow and margins remain resilient as fuel prices, driver costs and purchased transportation costs change.
- Whether JBI and DCS growth continues, and whether ICS can recover its reduced operating income and gross profit margin.
- Developments in the California driver litigation, claims accruals and uncertain tax positions.
- The sustainability of share repurchases and dividend increases given leverage, liquidity and capital commitments.