J.B. Hunt Transport Services, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Figures are unaudited; dollar amounts are in millions except per-share data.
Business context
J.B. Hunt operates five transportation and logistics segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT). Results are compared with Q2 and the first six months of 2020, periods affected by the COVID-19 pandemic. The company notes seasonal freight strength typically from August through early November.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $2,908.4 | $2,145.6 | $5,526.5 | $4,426.4 |
| Revenue excluding fuel surcharge | $2,607.0 | $1,986.1 | $4,995.0 | $4,031.8 |
| Operating income | $241.5 | $175.2 | $449.2 | $329.9 |
| Net earnings | $172.2 | $121.7 | $318.8 | $226.5 |
| Diluted EPS | $1.61 | $1.14 | $2.98 | $2.12 |
| Operating margin | 8.3% | 8.2% | 8.1% | 7.5% |
| Net margin | 5.9% | 5.7% | 5.8% | 5.1% |
- Q2 revenue increased 35.6% and net earnings increased 41.5% year over year. Six-month revenue increased 24.9% and net earnings increased 40.7%.
- Q2 fuel surcharge revenue was $301.4 million, versus $159.4 million; first-half fuel surcharge revenue was $531.5 million, versus $394.6 million.
- First-half operating cash flow was $668.7 million, compared with $640.0 million. Investing cash outflow was $260.8 million and financing cash outflow was $150.3 million. Cash at June 30 was $570.9 million.
- At June 30, current assets were $2,209.3 million and current liabilities $1,228.4 million; the reported working capital ratio was 1.80. Long-term debt was $1,303.5 million, versus $1,305.4 million at year-end 2020. Debt-to-equity was 0.47.
- The $750 million revolving credit facility had no borrowings outstanding and expires in September 2023. The company reported compliance with debt covenants.
Segment performance and changes
- JBI: Q2 revenue rose 21% and operating income 26%; load volume increased 6% and revenue per load 15%. Rail network restrictions, equipment imbalances, chassis and labor shortages, and customer detention of equipment constrained capacity.
- DCS: Q2 revenue rose 17%, but operating income declined 5% to $79.0 million as driver pay, recruiting, medical, and new-contract implementation costs increased.
- ICS: Q2 revenue doubled to $608 million and the segment returned to operating income of $3.1 million from a $13.1 million loss. Gross margin narrowed to 10.5% from 11.8% amid tighter capacity and supply conditions.
- FMS: Q2 revenue rose 52%; operating income was $10.7 million versus a $5.2 million loss. Higher volumes and a $3.2 million net claims-settlement benefit contributed to the improvement.
- JBT: Q2 revenue rose 70% and operating income increased to $14.2 million from $3.5 million, reflecting higher rates and load counts, partly offset by purchased transportation and personnel costs.
- Across the company, higher freight demand and rates supported results, while purchased transportation, fuel, driver wages, recruiting, and incentive compensation costs increased. Q2 rents and purchased transportation rose 48.7% year over year; fuel and fuel taxes rose 68.1%.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management expects a 2021 effective tax rate of 23.5%–24.5%.
- Management expects 2021 net capital expenditures of $1.1–$1.2 billion and reported approximately $2.0 billion of equipment and facility commitments during 2021–2023. Actual spending may change with customer needs and manufacturer production constraints.
- Management said cash, operating cash generation, and available credit should meet operating and capital needs for the foreseeable future. It expects to maintain its investment-grade rating.
- COVID-19 impacts and uncertainty remain, including potential effects from the Delta variant. Other cited risks include driver and carrier availability, fuel prices, rail service and network constraints, customer concentration, weather, competition, insurance and claims, regulation, and technology or cyber disruption.
- The company is appealing a court decision concerning enforcement of certain rights under its BNSF arbitration award. State use-tax audits and assessments are also being appealed; an adverse outcome could require a material settlement. The filing reports $77.6 million of uncertain-tax-position liabilities, including interest and penalties, whose settlement timing cannot be reasonably estimated.
- Other claims and litigation are described as arising in the ordinary course; management does not expect them, based on current information, to materially adversely affect financial condition, results, or liquidity.
- Q2 included the $3.2 million FMS claims-settlement benefit. Prior-year comparisons include COVID-related operational effects and, in the first half of 2020, a one-time $12.3 million employee bonus and accelerated executive equity compensation expense.
Important facts for investors to verify
- Whether strong freight demand and pricing persist, and whether rail-network capacity and equipment availability improve.
- Whether higher driver, carrier, fuel, and equipment costs continue to pressure margins, particularly in DCS and ICS.
- Execution and funding of the planned $1.1–$1.2 billion 2021 capital expenditure program and the larger multi-year commitments.
- Resolution and potential financial exposure from the BNSF appeal and state use-tax assessments.
- Cash conversion, working-capital movements, debt maturities—including $350 million of notes due in 2022—and continued covenant compliance.