01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
J.B.
Hunt Transport Services, Inc. reported operating revenues of $6.56 billiona for 2016, up 5.9% from $6.19 billion in 2015, driven primarily by higher load volume partially offset by lower revenue per load in the JBI, ICS, and JBT segments. Operating income rose to $721 million from $716 million, and net earnings increased to $432 million from $427 million, with diluted earnings per share of $3.81 versus $3.66. The operating ratio was 89.0% compared with 88.4% in 2015, as rents and purchased transportation costs rose 8.7% on higher rail purchased transportation rates and load volume.
Fuel surcharge revenues fell 18.4% to $548 millionb, and fuel and fuel taxes expense declined 9.5%. Segment results were mixed. JBI, the largest segment at $3.80 billion of revenue (58% of the total), saw operating income fall to $450 million from $477 million, while DCS grew operating income to $205 million from $163 million on revenue of $1.53 billion.
ICS revenue rose 21.7% to $852 millionc on 57.0% higher volume but with a 22.5% lower revenue per load, and its operating income was flat at $36 million. JBT operating income declined to $30 million from $40 million. Cash from operations was $854 million, capital expenditures were $638 million in additions to property and equipment, and the company repurchased $249.8 million of stock and paid $98.99 million in dividends.
The board raised the quarterly dividend from $0.22 to $0.23d per share in January 2017. The filing highlights a pending arbitration with BNSF Railway under the Joint Service Agreement, initiated in January 2017 over the division of revenue collected from May 1, 2016; the company said it cannot predict the outcome and has recorded no gain or loss contingency.
Separately, the company is a defendant in California driver class actions for which it cannot reasonably estimate a possible loss. Total debt was $986 million at year-end, and the company committed approximately $967 million, net of proceeds from sales or trade-ins, for equipment and facilities in 2017 and 2018.
02—Key points
Key Highlights
- Operating revenues rose 5.9% to $6.56 billion in 2016, primarily from higher load volume, while the operating ratio widened to 89.0% from 88.4%.
- Net earnings increased to $432.1 million from $427.2 million, and diluted EPS rose to $3.81 from $3.66.
- JBI segment operating income declined to $450 million from $477 million despite revenue growth of 3.6% to $3.80 billion, reflecting higher rail purchased transportation costs and equipment ownership costs.
- DCS operating income increased to $205 million from $163 million on revenue of $1.53 billion, with productivity up 1.2% per truck per week.
- ICS revenue grew 21.7% to $852 million on 57.0% higher volume, though revenue per load fell 22.5% and gross profit margin declined to 14.3%.
- Operating cash flow was $854 million, with $967 million of committed equipment and facility spending over 2017 and 2018.
- The company initiated arbitration with BNSF Railway in January 2017 over the division of revenue, and the outcome cannot currently be predicted; the quarterly dividend was raised to $0.23 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $6.56B$6.19B | +5.9% |
| Operating Expenses | $5.83B$5.47B | +6.6% |
| Operating Income | $721.02M$715.69M | +0.7% |
| Interest Expense | $25.29M$25.58M | −1.1% |
| Net Income | $432.09M$427.24M | +1.1% |
| EPS (Basic) | $3.84$3.69 | +4.1% |
| EPS (Diluted) | $3.81$3.66 | +4.1% |
| Shares Outstanding (Basic) | 112.47M115.68M | −2.8% |
| Shares Outstanding (Diluted) | 113.36M116.73M | −2.9% |
05—Questions
Frequently Asked Questions
How did J.B. Hunt's profitability change in 2016?
Operating income increased slightly to $721 million from $716 million, and net earnings rose to $432 million from $427 million. However, the operating ratio worsened to 89.0% from 88.4%, as operating expenses grew 6.6% against revenue growth of 5.9%.
Which business segment drives the company's results?
JBI (intermodal) is the largest segment, generating $3.80 billion, or 58% of 2016 consolidated revenue, but its operating income fell to $450 million from $477 million. DCS was the strongest improver, with operating income rising to $205 million from $163 million.
What is the status of the BNSF dispute?
In January 2017, J.B. Hunt exercised its right to arbitrate the division of revenue collected from May 1, 2016, under its Joint Service Agreement with BNSF, and BNSF requested the same. The company says it cannot reasonably predict the outcome, no gain or loss contingency has been recorded, and normal business between the parties is expected to continue.
How is the company funding its growth and returning capital to shareholders?
The company generated $854 million from operations in 2016 and spent $638 million on property and equipment additions, partly offset by $153 million of equipment sale proceeds. It repurchased $249.8 million of stock and paid $98.99 million in dividends, while total debt was $986 million at year-end. The company is committed to about $967 million of equipment and facility purchases in 2017 and 2018.
What are the main risks flagged in the filing?
Key risks include dependence on railroads, particularly BNSF and Norfolk Southern; fuel price volatility, although the company has fuel surcharge programs and holds no fuel derivatives; difficulty attracting and retaining drivers; insurance and claims costs; and concentration of revenue, with the top 10 customers representing approximately 29% of 2016 revenue. The company also faces pending California driver wage class actions, for which it cannot estimate a possible loss.
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