J.B. Hunt Transport Services, Inc. — Q1 2020 Form 10-Q
Period: Three months ended March 31, 2020; filed May 1, 2020. J.B. Hunt provides intermodal, dedicated, logistics, final-mile and truckload transportation services. Results are unaudited and compare with Q1 2019.
Financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total operating revenue | $2.281 billion | $2.090 billion | +9.1% |
| Revenue excluding fuel surcharge | $2.046 billion | $1.855 billion | +10% |
| Operating income | $154.7 million | $167.8 million | -7.8% |
| Operating margin | 6.8% | 8.0% | Down 1.2 percentage points |
| Net earnings | $104.8 million | $119.6 million | -12.3% |
| Diluted EPS | $0.98 | $1.09 | Down $0.11 |
| Net cash from operations | $249.2 million | $250.7 million | Down $1.6 million |
Net margin was 4.6%, compared with 5.7%. Operating expenses rose 10.6%, faster than revenue; rents and purchased transportation increased 13.6%, and salaries, wages and benefits increased 11.2%. Lower fuel expense and interest costs partly offset cost pressures. The effective tax rate rose to 26.5% from 22.7%, including the effect of a favorable state tax audit settlement in Q1 2019.
Segment performance
Revenue increased across all five segments, but operating performance diverged. Intermodal (JBI) revenue rose 6% to $1.15 billion while operating income slipped 1% to $102.2 million. Dedicated Contract Services (DCS) revenue rose 10% to $542 million and operating income increased 46% to $72.9 million. Integrated Capacity Solutions (ICS) revenue rose 12% to $335 million, but recorded an $18.9 million operating loss versus $7.0 million income a year earlier. Final Mile Services (FMS) revenue increased 39% to $154 million, primarily due to 2019 acquisitions, but posted a $3.3 million loss. Truckload (JBT) revenue rose 3% to $105 million while operating income fell 75% to $1.8 million. The company separated FMS from DCS in its reporting structure and recast the comparable segment figures.
Cash, debt and liquidity
- Cash was $48.5 million at March 31, 2020, versus $35.0 million at year-end. Current assets were $1.398 billion and current liabilities $909.4 million; the working-capital ratio was 1.54.
- Long-term debt was $1.303 billion, versus $1.296 billion at December 31, 2019. Debt-to-equity was 0.57; debt was 36% of total capital.
- The $750 million revolving credit facility had no borrowings outstanding. The company reported covenant compliance and said cash, operating cash generation and available credit should fund foreseeable needs.
- Investing cash outflow was $128.7 million, compared with $310.7 million in Q1 2019; financing cash outflow was $107.0 million, versus $104.7 million of inflow. Q1 2020 included $75.2 million of share repurchases.
- Net capital expenditures were approximately $129 million in Q1. The company expected $450–$475 million of net capital expenditures for the remainder of 2020 after deferring or canceling some planned spending. It reported $903.2 million of equipment and facility purchase commitments and $2.558 billion of total listed obligations and commitments.
Outlook, risks and unusual items
The filing provides no earnings or revenue guidance. Management said COVID-19 had begun disrupting freight volumes and network balance in March and could continue to affect demand, customer operations, collection risk, suppliers, staffing and equipment procurement. It reprioritized capital spending, curtailed discretionary costs and monitored working capital, while stating it believed liquidity was sufficient and expected to preserve its investment-grade rating. The company noted that a large share of costs, including purchased transportation and driver pay, varies with volume.
- Q1 included $12.3 million of one-time COVID-19 bonuses to employee drivers and other key field personnel, allocated across segments.
- JBI recorded an $8.2 million charge for an adjusted revenue-sharing calculation under its BNSF agreement following arbitration. Court proceedings concerning enforcement and confirmation of the arbitration award were ongoing.
- Q1 also included $3.4 million of additional stock compensation expense related to accelerated vesting for executive retirements. The expected 2020 annual effective tax rate was 24.5%.
- Key risks include pandemic-related freight declines, customer credit deterioration, exposure to major customers and third-party carriers, driver availability, fuel and insurance costs, regulation, litigation, and technology disruption. Management cautioned that Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether pandemic-related volume, customer demand, bad debts and network imbalance materially changed after March 31.
- Whether ICS and FMS improved profitability, and whether DCS growth and JBI margins proved sustainable.
- Actual 2020 net capital spending compared with the stated $450–$475 million remainder-of-year expectation and the $903.2 million commitment schedule.
- Developments in the BNSF arbitration litigation and any resulting payments or adjustments.
- Debt, liquidity, credit-facility availability and compliance with covenants as operating conditions evolved.