Why did net earnings decline in 1997 despite higher revenue?

Operating expenses grew faster than revenue, with salaries, wages and employee benefits rising to 34.4% of operating revenues from 32.6%, driven mainly by the new driver compensation package effective February 1997. Purchased transportation also rose to 30.6% of revenues from 27.2%, reflecting payments to railroads and third-party carriers. Net earnings fell to $11.4 million from $22.1 million.

What was the effect of the driver pay program on driver turnover?

The company reports that average van driver turnover fell to 45% in 1997 from 86% in 1996. Management says the new compensation package, which raised average pay by 33% for van over-the-road drivers, attracted and retained more experienced drivers, and that closing two company-owned driver schools, lower hiring expense and reduced accident costs partly offset the higher pay.

How is the company's business mix changing?

Following a strategy adopted in early 1996, the company sold its small parcel and hazardous commodities operations in 1996 and its flatbed operations in July 1997. It now concentrates on dry-van truckload (including intermodal) and logistics (including dedicated contract) services and plans to report those two segments separately beginning in 1998.

How is the company financing its operations and equipment purchases?

At December 31, 1997, the company had $132.5 million of commercial paper outstanding under a program authorized up to $240 million, and about $121 million of uncommitted lines of credit with none outstanding. Long-term debt, excluding current maturities, was $322.8 million. The company had committed to purchase about $115 million of revenue and service equipment, net of approximately $24 million in expected proceeds, and expects 1998 spending to be funded from operations and existing borrowing facilities.

Is the company paying dividends and buying back stock?

The Board declared a quarterly dividend of $.05 per share on January 21, 1998, and the company paid $.20 per share in both 1997 and 1996. The company repurchased 1.468 million shares in 1997 at prices from $13.50 to $17.00 per share, and the Board says it expects to continue quarterly dividends, though future payments depend on financial condition and other factors.

JBHT 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 10, 1998. Cited figures are marked; the original filing is the authoritative source.

J.B.

Hunt Transport Services, Inc. (Nasdaq: JBHT), a diversified transportation services and logistics company headquartered in Lowell, Arkansas, reported 1997 operating revenues of $1,554.3 million^a, up from $1,486.7 million in 1996, while net earnings fell to $11.4 million, or $.31 per share, from $22.1 million, or $.58 per share. The filing attributes the earnings decline to the new over-the-road driver compensation package, which raised average van driver pay by 33% effective February 1997, and to higher purchased transportation costs tied to growth in intermodal and logistics business. The operating ratio rose to 97.2% from 95.9%, while operating income dropped to $42.9 million from $60.4 million.

Management says the new pay program reduced van driver turnover to 45% in 1997 from 86% in 1996, and that lower collision frequency and reduced accident costs partly offset the higher wage expense. The company is refocusing on two service lines, dry-van truckload (including intermodal) and logistics (including dedicated contract), after selling its small parcel, hazardous commodities and flatbed operations. Logistics and dedicated contract services generated $405 million^b of revenue in 1997, and intermodal operations generated $576 million.

Net cash from operating activities was $160.7 million^c in 1997, and the company repurchased 1.468 million shares during the year, reducing shares outstanding to 35,653,708 as of February 27, 1998. Total assets were $1,021.9 million and total debt was $340 million at year-end, with stockholders' equity of $338.0 million.

The company is in compliance with its financial covenants, and management expects to fund 1998 revenue equipment spending from operating cash flow and existing borrowing facilities. The Year 2000 remediation project is estimated at $820,000^d and is to be completed by the end of 1998, with about $325,000 expensed through December 31, 1997.

02—Key points

Key Highlights

Operating revenues rose to $1,554.3 million in 1997 from $1,486.7 million in 1996, while net earnings declined to $11.4 million ($.31 per share) from $22.1 million ($.58 per share).
Operating ratio worsened to 97.2% in 1997 from 95.9% in 1996, with operating income of $42.9 million compared with $60.4 million the prior year.
Average over-the-road van driver wages increased 33% under a new compensation package effective February 1997; van driver turnover fell to 45% from 86%.
Intermodal operations generated $576 million and logistics and dedicated contract services generated $405 million of 1997 revenue.
Net cash provided by operating activities was $160.7 million in 1997, and net cash used in investing activities was $89.5 million.
The company repurchased 1.468 million shares in 1997 and paid cash dividends of $.20 per share; total debt was $340 million at year-end 1997.
The company sold its parcel, hazardous commodities and flatbed operations, completing a strategy to focus on dry-van truckload (including intermodal) and logistics (including dedicated contract) services.

03—Questions

Frequently Asked Questions

Why did net earnings decline in 1997 despite higher revenue?
Operating expenses grew faster than revenue, with salaries, wages and employee benefits rising to 34.4% of operating revenues from 32.6%, driven mainly by the new driver compensation package effective February 1997. Purchased transportation also rose to 30.6% of revenues from 27.2%, reflecting payments to railroads and third-party carriers. Net earnings fell to $11.4 million from $22.1 million.
What was the effect of the driver pay program on driver turnover?
The company reports that average van driver turnover fell to 45% in 1997 from 86% in 1996. Management says the new compensation package, which raised average pay by 33% for van over-the-road drivers, attracted and retained more experienced drivers, and that closing two company-owned driver schools, lower hiring expense and reduced accident costs partly offset the higher pay.
How is the company's business mix changing?
Following a strategy adopted in early 1996, the company sold its small parcel and hazardous commodities operations in 1996 and its flatbed operations in July 1997. It now concentrates on dry-van truckload (including intermodal) and logistics (including dedicated contract) services and plans to report those two segments separately beginning in 1998.
How is the company financing its operations and equipment purchases?
At December 31, 1997, the company had $132.5 million of commercial paper outstanding under a program authorized up to $240 million, and about $121 million of uncommitted lines of credit with none outstanding. Long-term debt, excluding current maturities, was $322.8 million. The company had committed to purchase about $115 million of revenue and service equipment, net of approximately $24 million in expected proceeds, and expects 1998 spending to be funded from operations and existing borrowing facilities.
Is the company paying dividends and buying back stock?
The Board declared a quarterly dividend of $.05 per share on January 21, 1998, and the company paid $.20 per share in both 1997 and 1996. The company repurchased 1.468 million shares in 1997 at prices from $13.50 to $17.00 per share, and the Board says it expects to continue quarterly dividends, though future payments depend on financial condition and other factors.

04—Continue

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