J.B. Hunt Transport Services, Inc. Reports Earnings for the Third Quarter 2020

Rhea-AI Summary

J.B. Hunt Transport Services reported third quarter 2020 net earnings of $125.5 million, or $1.18 per diluted share, compared to $118.4 million or $1.10 per share in Q3 2019. Total operating revenue reached $2.47 billion, up from $2.36 billion in the prior year, driven by a 25% increase in revenue per load in Integrated Capacity Solutions. Operating income totaled $175.5 million, reflecting an increase from $167.9 million in Q3 2019. However, despite revenue growth, challenges remain with rising costs, particularly in rail transportation and driver wages.

Positive

• Net earnings increased to $125.5 million, up 6% year-over-year.
• Total operating revenue grew to $2.47 billion, a 4.6% increase from Q3 2019.
• Integrated Capacity Solutions revenue rose by 28%, significantly contributing to growth.
• Operating income increased to $175.5 million, showing improved profitability compared to the prior year.

Negative

• Operating income decreased by 17% year-over-year when excluding previous arbitration charges.
• Operating income in Integrated Capacity Solutions experienced a loss of $18.3 million, worsening from $(5.6) million a year ago.
• Increased operational costs due to rail transportation and driver wage increases affected overall profitability.

LOWELL, Ark.--(BUSINESS WIRE)--J.B. Hunt Transport Services, Inc., (NASDAQ: JBHT) announced third quarter 2020 net earnings of $125.5 million, or diluted earnings per share of $1.18 vs. third quarter 2019 net earnings of $118.4 million, or $1.10 cents per diluted share. Included in the third quarter 2019 results were pre-tax charges of $44.2 million or $0.30 per share related to arbitration, including legal and interest charges.

Total operating revenue for the current quarter was $2.47 billion, compared with $2.36 billion for the third quarter 2019. Revenue performance was primarily driven by a 25% increase in revenue per load in Integrated Capacity Solutions (ICS), a 34% increase in the number of stops in Final Mile Services (FMS), a 9% increase in loads in Dedicated (DCS), and a 14% increase in loads in Truck (JBT), partially offset by a 5% decrease in revenue per load in Intermodal (JBI) and 32% decline in fuel surcharge revenue. Current quarter total operating revenue, excluding fuel surcharges, increased 9% vs. the comparable quarter 2019.

The amount of ICS operating revenue executed through Marketplace for J.B. Hunt 360°^® increased to $291 million from $205 million in third quarter 2019. JBI executed approximately $41 million of third-party dray cost, and JBT executed approximately $26 million of its independent contractor costs through the platform during this quarter.

Operating income for the current quarter totaled $175.5 million vs. $167.9 million for the third quarter 2019. Operating income in third quarter 2019 included $44.2 million in pre-tax charges related to the final award in the arbitration with BNSF Railway Company (BNSF). Excluding these charges, operating income decreased 17% from third quarter 2019 primarily from increased rail purchase transportation costs, lower gross margins in ICS, increases in driver wages and recruiting costs, increased third-party and company dray costs, and continued investments in technology spend on new applications and legacy operating systems.

Interest expense in the current quarter decreased primarily from lower interest rates compared to third quarter 2019. The effective income tax rate for the current quarter is 23.3% compared to 23.9% for third quarter 2019. We expect our 2020 annual tax rate to fall between 24.0% and 24.5%.

Segment Information:

Intermodal (JBI)

• Third Quarter 2020 Segment Revenue: $1.21 billion; down 2%
• Third Quarter 2020 Operating Income: $108.4 million; up 22%

Overall intermodal volumes increased 2% vs. the same period in 2019. Eastern network loads grew 3%, while Transcon loads grew 2% compared to the third quarter 2019. Volumes in the quarter were heavily constrained by rail congestion and service issues stemming from a large and sudden increase in demand and intermittent labor challenges in both the rail and truck networks. Revenue declined by 2%, reflecting a 5% decline in revenue per load, partially offset by the 2% load growth; which is the combination of mix, customer rates, and fuel surcharges. Excluding fuel, revenue per load was flat year over year.

Operating income increased by 22% year over year, however the prior comparable period included $44.2 million in charges related to the final award in the BNSF arbitration. Excluding those charges, operating income was down 18% year over year. The decline in operating income is attributable to higher rail purchased transportation costs, including costs to reposition empty containers, lower overall revenue per load, and higher dray costs stemming from dislocations in rail capacity and a tight labor and truck capacity environment. The current period ended with approximately 97,400 units of trailing capacity and 5,647 power units in the dray fleet.

Dedicated Contract Services (DCS)

• Third Quarter 2020 Segment Revenue: $553 million; up 1%
• Third Quarter 2020 Operating Income: $80.4 million; up 5%

DCS revenue increased 1% during the current quarter over the same period in 2019. Productivity, defined as revenue per truck per week, was flat vs. 2019. Productivity excluding fuel surcharge revenue increased 2% vs. 2019. A net additional 63 revenue producing trucks were in the fleet by the end of the quarter compared to the prior year. Customer retention rates remain above 97%.

Operating income increased 5% over the prior year quarter. Benefits from increased productivity of assets, reduced driver turnover, fewer start-up costs, and lower travel and entertainment expenses, were partially offset by higher driver and account manager wages and benefits.

Integrated Capacity Solutions (ICS)

• Third Quarter 2020 Segment Revenue: $431 million; up 28%
• Third Quarter 2020 Operating Loss: $(18.3) million; compared to $(5.6) million in 3Q’19

ICS revenue increased 28% in the current quarter vs. the third quarter 2019. Volumes increased 2% and revenue per load increased 25% due to customer freight mix changes and higher contractual and spot rates compared to the third quarter 2019. Contractual volumes represented approximately 58% of the total load volume and 38% of the total revenue in the current quarter compared to 68% and 52%, respectively, in third quarter 2019. Of the total reported ICS revenue, approximately $291 million was executed through the Marketplace for J.B. Hunt 360 compared to $205 million in third quarter 2019.

Operating income decreased by $12.7 million from the third quarter 2019 primarily from lower gross profit margins. Gross profit margins decreased to 7.6% in the current period vs. 12.7% in the same period last year primarily from a competitive contractual pricing environment and tight supply dynamics that occurred throughout the quarter. ICS carrier base increased 14% vs. third quarter 2019.

Final Miles Services (FMS)

• Third Quarter 2020 Segment Revenue: $182 million; up 22% ■ Third Quarter 2020 Operating Income: $2.1 million; up 13%

FMS revenue increased 22% compared to the same period 2019. Stop count within FMS increased 34% during the current quarter vs. a year ago, primarily from the December 2019 acquisition and the addition of multiple customer contracts implemented throughout 2020. Productivity, defined as revenue per stop, decreased approximately 9% compared to the prior year period primarily from the shift in mix between the asset and asset-light nature of the additional contracts that were implemented.

Operating income increased 13% over the prior year quarter driven primarily by increases in revenue from both the December 2019 acquisition and the addition of multiple customer contracts throughout 2020. Continued reductions in travel and entertainment compared to a year ago also benefited the current quarter that were partially offset by increased investment in service quality performance controls.

Truck (JBT)

• Third Quarter 2020 Segment Revenue: $109 million; up 16%
• Third Quarter 2020 Operating Income: $2.9 million; down 55%

JBT revenue increased 16% from the same period in 2019. Revenue excluding fuel surcharge revenue increased 19%, primarily from a 14% increase in load count and a 5% increase in revenue per load excluding fuel surcharge revenue compared to a year ago. Revenue per loaded mile excluding fuel surcharge revenue increased approximately 4% year-over-year while comparable contractual customer rates were down approximately 1% compared to the same period 2019. At the end of the period, JBT operated 1,713 tractors and 8,245 trailers compared to 1,896 and 6,826 one year ago, respectively.

Operating income decreased 55% compared to the same quarter 2019. Benefits from increased load counts were offset by increases in purchased transportation expense. In addition, higher personnel cost and increased investment in technology, both from the continued transition and expansion of 360box, contributed to the operating income decrease.

Cash Flow and Capitalization:
At September 30, 2020, we had a total of $1.30 billion outstanding on various debt instruments which is comparable to total debt levels at September 30, 2019 and December 31, 2019.

Our net capital expenditures for the nine months ended September 30, 2020, approximated $449 million compared to $587 million for the same period 2019. At September 30, 2020, we had cash and cash equivalents of approximately $319 million.

We had no purchases of our stock during the third quarter 2020. At September 30, 2020, we had approximately $520 million remaining under our share repurchase authorization. Actual shares outstanding at September 30, 2020, approximated 105.7 million.

Conference Call Information:
The Company will hold a conference call today at 9:00–10:00 am CT to discuss the quarterly earnings. To participate in the call, dial 1-833-397-0851 (domestic) or 516-575-8759 (international) 15 minutes prior to the start of the call and provide the following conference ID: 3368517. A replay of the call will be posted on our website here later today.

This press release may contain forward-looking statements, which are based on information currently available. Actual results may differ materially from those currently anticipated due to a number of factors, including, but not limited to, those discussed in Item 1A of our Annual Report filed on Form 10-K for the year ended December 31, 2019 and Quarterly Report filed on Form 10-Q for the period ended June 30, 2020. We assume no obligation to update any forward-looking statement to the extent we become aware that it will not be achieved for any reason. This press release and additional information will be available to interested parties on our website, www.jbhunt.com.

Condensed Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
		Three Months Ended September 30
		2020					2019
				% Of					% Of
		Amount		Revenue			Amount		Revenue
Operating revenues, excluding fuel surcharge revenues	$	2,296,053				$	2,102,494
Fuel surcharge revenues		176,470					261,166
Total operating revenues		2,472,523		100.0%			2,363,660		100.0%
Operating expenses
Rents and purchased transportation		1,297,333		52.5%			1,196,377		50.6%
Salaries, wages and employee benefits		594,162		24.0%			554,872		23.5%
Depreciation and amortization		132,392		5.4%			126,803		5.3%
Fuel and fuel taxes		87,350		3.5%			114,764		4.8%
Operating supplies and expenses		86,103		3.5%			87,044		3.7%
General and administrative expenses, net of asset dispositions		41,894		1.6%			49,077		2.1%
Insurance and claims		35,412		1.4%			43,956		1.9%
Operating taxes and licenses		13,696		0.6%			14,266		0.6%
Communication and utilities		8,678		0.4%			8,639		0.4%
Total operating expenses		2,297,020		92.9%			2,195,798		92.9%
Operating income		175,503		7.1%			167,862		7.1%
Net interest expense		11,895		0.5%			12,357		0.5%
Earnings before income taxes		163,608		6.6%			155,505		6.6%
Income taxes		38,112		1.5%			37,095		1.6%
Net earnings	$	125,496		5.1%		$	118,410		5.0%
Average diluted shares outstanding		106,798					107,692
Diluted earnings per share	$	1.18				$	1.10

J.B. HUNT TRANSPORT SERVICES, INC.
Condensed Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
		Nine Months Ended September 30
		2020					2019
				% Of					% Of
		Amount		Revenue			Amount		Revenue
Operating revenues, excluding fuel surcharge revenues	$	6,327,876				$	5,954,102
Fuel surcharge revenues		571,045					760,832
Total operating revenues		6,898,921		100.0%			6,714,934		100.0%
Operating expenses
Rents and purchased transportation		3,467,782		50.3%			3,282,682		48.9%
Salaries, wages and employee benefits		1,722,548		25.0%			1,606,344		23.9%
Depreciation and amortization		392,786		5.7%			370,728		5.5%
Fuel and fuel taxes		263,932		3.8%			344,926		5.1%
Operating supplies and expenses		250,835		3.6%			249,480		3.7%
General and administrative expenses, net of asset dispositions		131,654		1.9%			140,654		2.2%
Insurance and claims		98,672		1.4%			124,963		1.8%
Operating taxes and licenses		40,575		0.6%			40,991		0.6%
Communication and utilities		24,710		0.4%			25,416		0.4%
Total operating expenses		6,393,494		92.7%			6,186,184		92.1%
Operating income		505,427		7.3%			528,750		7.9%
Net interest expense		36,749		0.5%			40,153		0.6%
Earnings before income taxes		468,678		6.8%			488,597		7.3%
Income taxes		116,650		1.7%			116,953		1.8%
Net earnings	$	352,028		5.1%		$	371,644		5.5%
Average diluted shares outstanding		106,776					108,569
Diluted earnings per share	$	3.30				$	3.42

Financial Information By Segment
(in thousands)
(unaudited)
			Three Months Ended September 30
			2020						2019
						% Of						% Of
			Amount			Total			Amount			Total
Revenue
Intermodal		$	1,211,183			49%		$	1,239,671			52%
Dedicated			552,948			22%			547,101			23%
Integrated Capacity Solutions			431,144			18%			336,721			14%
Final Mile Services			182,091			7%			148,987			7%
Truck			109,113			5%			94,182			4%
Subtotal			2,486,479			101%			2,366,662			100%
Intersegment eliminations			(13,956	)		(1%)			(3,002	)		(0%)
Consolidated revenue		$	2,472,523			100%		$	2,363,660			100%
Operating income
Intermodal		$	108,412			62%		$	88,708			53%
Dedicated			80,431			46%			76,425			46%
Integrated Capacity Solutions			(18,304	)		(11%)			(5,639	)		(4%)
Final Mile Services			2,090			1%			1,855			1%
Truck			2,948			2%			6,597			4%
Other (1)			(74	)		(0%)			(84	)		(0%)
Operating income		$	175,503			100%		$	167,862			100%
			Nine Months Ended September 30
			2020						2019
						% Of						% Of
			Amount			Total			Amount			Total
Revenue
Intermodal		$	3,426,008			50%		$	3,477,493			52%
Dedicated			1,627,852			24%			1,575,535			23%
Integrated Capacity Solutions			1,070,905			15%			971,799			15%
Final Mile Services			475,270			7%			402,336			6%
Truck			322,336			4%			295,661			4%
Subtotal			6,922,371			100%			6,722,824			100%
Intersegment eliminations			(23,450	)		(0%)			(7,890	)		(0%)
Consolidated revenue		$	6,898,921			100%		$	6,714,934			100%
Operating income
Intermodal		$	317,652			63%		$	316,382			60%
Dedicated			236,423			47%			202,747			38%
Integrated Capacity Solutions			(50,274	)		(10%)			755			0%
Final Mile Services			(6,459	)		(1%)			(13,733	)		(2%)
Truck			8,207			1%			22,725			4%
Other (1)			(122	)		(0%)			(126	)		(0%)
Operating income		$	505,427			100%		$	528,750			100%
(1) Includes corporate support activity

Operating Statistics by Segment
(unaudited)
		Three Months Ended September 30
		2020			2019
Intermodal
Loads		529,709			517,409
Average length of haul		1,695			1,697
Revenue per load	$	2,287		$	2,396
Average tractors during the period *		5,546			5,642
Tractors (end of period) *		5,647			5,643
Trailing equipment (end of period)		97,439			96,689
Average effective trailing equipment usage		94,846			89,175
Dedicated
Loads		940,225			863,077
Average length of haul		157			168
Revenue per truck per week**	$	4,372		$	4,384
Average trucks during the period***		9,697			9,572
Trucks (end of period) ***		9,723			9,660
Trailing equipment (end of period)		27,376			26,838
Integrated Capacity Solutions
Loads		326,563			320,183
Revenue per load	$	1,320		$	1,052
Gross profit margin		7.6%			12.7%
Employee count (end of period)		1,037			1,193
Approximate number of third-party carriers (end of period)		94,200			82,600
Marketplace for J.B. Hunt 360°:
Approximate carrier tractor count (end of period)		777,000			667,000
Revenue (millions)	$	291.2		$	205.4
Final Mile Services
Stops		1,604,694			1,199,801
Average trucks during the period***		1,448			1,265
Truck
Loads		98,505			86,647
Loaded miles (000)		40,599			35,411
Nonpaid empty mile percentage		19.2%			18.9%
Revenue per tractor per week**	$	3,849		$	3,829
Average tractors during the period *		1,783			1,910
Tractors (end of period)
Company-owned		800			859
Independent contractor		913			1,037
Total tractors		1,713			1,896
Trailers (end of period)		8,245			6,826
* Includes company-owned and independent contractor tractors
** Using weighted workdays
*** Includes company-owned, independent contractor, and customer-owned trucks

Operating Statistics by Segment
(unaudited)
			Nine Months Ended September 30
			2020			2019
Intermodal
Loads			1,494,485			1,458,271
Average length of haul			1,683			1,670
Revenue per load		$	2,292		$	2,385
Average tractors during the period *			5,484			5,651
Tractors (end of period) *			5,647			5,643
Trailing equipment (end of period)			97,439			96,689
Average effective trailing equipment usage			88,262			84,924
Dedicated
Loads			2,726,455			2,478,661
Average length of haul			160			169
Revenue per truck per week**		$	4,316		$	4,343
Average trucks during the period***			9,713			9,387
Trucks (end of period) ***			9,723			9,660
Trailing equipment (end of period)			27,376			26,838
Integrated Capacity Solutions
Loads			896,709			915,932
Revenue per load		$	1,194		$	1,061
Gross profit margin			9.4%			14.1%
Employee count (end of period)			1,037			1,193
Approximate number of third-party carriers (end of period)			94,200			82,600
Marketplace for J.B. Hunt 360°:
Approximate carrier tractor count (end of period)			777,000			667,000
Revenue (millions)		$	755.1		$	614.3
Final Mile Services
Stops			3,922,318			3,132,900
Average trucks during the period***			1,362			1,240
Truck
Loads			299,297			259,568
Loaded miles (000)			125,718			109,122
Nonpaid empty mile percentage			18.9%			18.9%
Revenue per tractor per week**		$	3,844		$	3,885
Average tractors during the period*			1,859			1,986
Tractors (end of period)
Company-owned			800			859
Independent contractor			913			1,037
Total tractors			1,713			1,896
Trailers (end of period)			8,245			6,826
* Includes company-owned and independent contractor tractors
** Using weighted workdays
*** Includes company-owned, independent contractor, and customer-owned trucks

J.B. HUNT TRANSPORT SERVICES, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
			September 30, 2020				December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents		$	318,549			$	35,000
Accounts Receivable, net			1,121,825				1,011,829
Prepaid expenses and other			288,224				434,470
Total current assets			1,728,598				1,481,299
Property and equipment			5,842,114				5,640,806
Less accumulated depreciation			2,159,710				2,019,940
Net property and equipment			3,682,404				3,620,866
Other assets, net			368,060				368,689
		$	5,779,062			$	5,470,854
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable		$	603,523			$	602,601
Claims accruals			273,088				279,590
Accrued payroll			145,110				68,220
Other accrued expenses			73,702				85,355
Total current liabilities			1,095,423				1,035,766
Long-term debt			1,303,353				1,295,740
Other long-term liabilities			181,561				173,241
Deferred income taxes			711,301				699,078
Stockholders' equity			2,487,424				2,267,029
		$	5,779,062			$	5,470,854

Supplemental Data
(unaudited)
			September 30, 2020				December 31, 2019
Actual shares outstanding at end of period (000)			105,679				106,213
Book value per actual share outstanding at end of period		$	23.54			$	21.34
			Nine Months Ended September 30
			2020				2019
Net cash provided by operating activities (000)		$	910,994			$	937,595
Net capital expenditures (000)		$	448,721			$	586,607