Business Context and Reporting Period
Company: J.B. Hunt Transport Services, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: One of the largest surface transportation companies in North America, operating four segments: Intermodal (JBI), Dedicated Contract Services (DCS), Truck (JBT), and Integrated Capacity Solutions (ICS). The company is a large accelerated filer.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Operating Revenues | $769.8 million | $1,492.6 million |
| Operating Income | $47.1 million | $104.1 million |
| Net Earnings | $24.0 million | $54.8 million |
| Diluted EPS | $0.19 | $0.42 |
| Operating Cash Flow (6mo) | $150.6 million | |
| Total Debt | $648.2 million | |
| Cash and Equivalents | $3.6 million | |
| Working Capital Ratio | 1.10 |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 21% for the quarter and 20% for the six-month period compared to 2008. Excluding fuel surcharges, revenue declined 8% due to lower load volumes in DCS and JBT segments.
- Fuel Impact: Fuel surcharge revenues dropped significantly ($66.8M in Q2 2009 vs. $214.0M in Q2 2008) due to lower fuel prices. Conversely, fuel expenses decreased 60.2% for the quarter.
- Profitability: Operating income fell 50% for the quarter and 37% for the six-month period. Net earnings decreased 52.5% for the quarter.
- Segment Performance:
- JBI (Intermodal): Revenue down 14%; Operating income down 41%.
- DCS (Dedicated): Revenue down 28%; Operating income down 64%.
- JBT (Truck): Revenue down 44%; Segment reported an operating loss of $4.0M (vs. $3.4M profit in 2008) due to fleet reduction and weaker demand.
- ICS (Logistics): Revenue up 28%; Operating income up 83% due to volume growth.
- Asset Write-down: Recorded a $10.3 million pretax charge to write down the value of approximately 700 tractors designated as "held for sale."
Guidance, Outlook, and Risks
- Capital Expenditures: Net capital expenditures were $142 million for the first six months of 2009. The company expects to spend approximately $297 million for net capital expenditures during the full calendar year 2009.
- Debt Management: Total debt decreased to $648 million from $825 million a year prior. The company terminated a $75 million accounts receivable securitization facility in June 2009. It remains in compliance with all debt covenants.
- Dividends: Declared a quarterly dividend of $0.11 per share for the second quarter (paid May 2009) and a subsequent $0.11 dividend for the third quarter (payable August 2009).
- Risks:
- General economic conditions and credit tightening affecting customer demand.
- Dependence on third-party carriers and major customers.
- Volatility in fuel costs and the ability to pass these costs to customers via surcharges.
- Difficulty in attracting and retaining drivers.
Investor Verification Checklist
- Asset Dispositions: Verify the timeline and expected proceeds from the sale of the 700 tractors reclassified as "held for sale."
- JBT Segment Turnaround: Monitor the JBT segment's ability to return to profitability given the 44% revenue drop and current operating loss.
- Liquidity Position: Review cash flow sustainability given the low cash balance ($3.6M) relative to the $186.7M outstanding on the revolving credit line.
- Fuel Surcharges: Assess the lag time between fuel price changes and surcharge adjustments, which impacts operating margins during volatile fuel markets.
- Debt Covenants: Confirm continued compliance with financial ratios under the $350 million revolving credit facility and senior notes.