J.B. Hunt Transport Services, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports fourth-quarter results. J.B. Hunt is a North American transportation and logistics company operating five segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT).
Financial performance
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenue | $9.637 billion | $9.165 billion | +5.1% |
| Operating income | $713 million | $734 million | -2.8% |
| Net earnings | $506 million | $516 million | -2.0% |
| Diluted EPS | $4.74 | $4.77 | -0.6% |
| Operating margin | 7.4% | 8.0% | -0.6 percentage points |
| Net margin | 5.3% | 5.6% | -0.3 percentage points |
| Net cash from operating activities | $1.123 billion | $1.098 billion | +2.2% |
Revenue excluding fuel surcharges rose 9.3%; fuel surcharge revenue fell 27.4% to $757 million. Operating expenses increased 5.8%, faster than revenue. Lower fuel expense and insurance and claims costs helped offset higher purchased transportation, payroll, and depreciation costs. The effective tax rate was 24.0%, versus 24.2%.
Fourth quarter: Revenue was $2.738 billion, operating income $207.7 million, net earnings $154.0 million, and diluted EPS $1.44. Compared with fourth-quarter 2019, revenue increased about 11.7%, operating income about 1.3%, net earnings about 6.4%, and diluted EPS from $1.35.
Segment results
| Segment | 2020 revenue | 2020 operating income (loss) | Key comparison with 2019 |
|---|---|---|---|
| JBI | $4.675 billion | $428 million | Revenue -1%; operating income declined from $447 million. |
| DCS | $2.196 billion | $314 million | Revenue +3%; operating income increased from $278 million. |
| ICS | $1.658 billion | ($45 million) | Revenue +23%; operating loss widened from $11 million. Gross profit margin declined to 9.9% from 13.1%. |
| FMS | $689 million | ($1 million) | Revenue +22%; operating loss narrowed from $9 million. |
| JBT | $463 million | $17 million | Revenue +19%; operating income declined from $29 million. |
ICS growth reflected higher revenue per load and increased marketplace activity, but competitive pricing and constrained carrier supply compressed margins. DCS benefited from improved productivity and customer retention above 98%. FMS revenue included the effects of 2019 acquisitions and new contracts.
Balance sheet, liquidity, and capital
- Cash and cash equivalents were $313 million at year-end, up from $35 million; working capital ratio was 1.70, versus 1.43.
- Total debt was $1.305 billion, compared with $1.296 billion; debt-to-equity was 0.50. The company had no borrowings on its $750 million revolving credit facility, which expires in September 2023.
- Operating cash flow was $1.123 billion; investing cash outflow was $613 million; financing cash outflow was $232 million. Capital additions to property and equipment were $739 million.
- Committed revenue-equipment and facility purchases totaled approximately $1.123 billion for 2021–2022, including $774 million scheduled for 2021.
- Dividends declared were $1.08 per share for 2020. In January 2021, the quarterly dividend was raised from $0.27 to $0.28 per share. The company repurchased about 942,000 shares for $92.5 million during 2020; $503 million remained available under the repurchase authorization at year-end.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance is provided. Management said cash, operating cash generation, and available credit were expected to meet operating and capital needs for the foreseeable future. It stated that it intended to maintain quarterly dividends, subject to Board review and business conditions.
- COVID-19 affected operations and created uncertainty around freight demand, customer credit, employee availability, equipment supply, ports, and third-party carrier capacity. The company reported safety measures and a $12.3 million one-time bonus for drivers and other key field personnel.
- Key exposures include economic and freight-market cycles, competition and pricing, dependence on major customers (top 10 accounted for about 37% of 2020 revenue; one customer about 10%), reliance on railroads and third-party carriers, driver availability, fuel-price volatility, claims and insurance costs, regulation, environmental requirements, and cybersecurity or systems disruption.
- In the BNSF arbitration matter, the company recorded an $8.2 million pretax charge in first-quarter 2020. It appealed a court ruling concerning additional enforcement of contractual rights. Prior-year results included $44.2 million of BNSF-related charges; the filing also identifies a $20 million 2019 casualty-claim charge.
- Other contingencies include state use-tax assessments under appeal and $71.7 million of liabilities for uncertain tax positions, interest, and penalties whose settlement timing could not be reasonably estimated. The company said ordinary-course claims and litigation were not expected to have a material adverse effect, based on information available.
- Management and the independent auditor reported effective internal control over financial reporting. The audit opinion on the financial statements was unqualified; claims accruals were identified as a critical audit matter because of estimation uncertainty. The reported estimated claims accrual was approximately $257 million.
Important facts for investors to verify
- Whether ICS can improve its gross profit margin and reduce its operating loss as marketplace volume grows.
- How the $1.123 billion equipment commitment, planned capital spending, and acquisition activity affect cash generation and leverage.
- Developments in the BNSF appeal and the state use-tax assessments, including any potential financial exposure.
- Whether customer concentration, COVID-related disruption, driver and carrier availability, and claims costs change materially.
- Segment comparisons reflect the company’s 2020 five-segment reporting structure, applied retrospectively to prior periods.