01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
J.B.
Hunt Transport Services, Inc. reported total operating revenues of $7.19 billiona for fiscal 2017, up from $6.56 billion in 2016, driven by higher load volume and revenue per load in its JBI, DCS and ICS segments. Operating income fell to $623.8 million from $721.0 million, and the operating ratio rose to 91.3% from 89.0%, as rents and purchased transportation, driver wages, insurance and claims, and a $20.2 million advance deposit impairment on trailing equipment increased costs. Net earnings rose to $686.3 million, or $6.18 diluted earnings per share, but this was lifted by a $309.2 million provisional benefit from remeasuring deferred tax balances under the Tax Cuts and Jobs Act; the company's effective tax rate was (15.29)% in 2017.
By segment, JBI revenue was $4.08 billionb with operating income of $407 million, DCS revenue was $1.72 billion with operating income of $171 million, ICS revenue was $1.02 billion with operating income of $23 million, and JBT revenue was $378 million with operating income of $23 million. The company acquired Special Logistics Dedicated, LLC for $137.6 million in cash in the third quarter of 2017, funded largely by its revolving credit facility. Operating cash flow was $855 million, capital expenditures for equipment and property were $527 million, and the company declared a quarterly dividend increase from $0.23 to $0.24 per share.
The filing also discloses ongoing risks, including an arbitration with BNSF Railway under the Joint Service Agreement over the division of revenue beginning May 1, 2016, and class-action litigation by California-based drivers for which a $10 millionc reserve has been recorded. Total debt was $1.09 billion at year-end, and the company had $797.6 million of commitments to acquire revenue equipment and facilities during 2018 and 2019.
02—Key points
Key Highlights
- Total operating revenues rose 9.7% to $7.19 billion in 2017, with fuel surcharge revenues up 37.5% to $754 million.
- Operating ratio deteriorated to 91.3% from 89.0% in 2016, and operating income declined to $623.8 million from $721.0 million.
- Net earnings of $686.3 million, or $6.18 diluted EPS, included a $309.2 million provisional tax benefit from the Tax Cuts and Jobs Act.
- JBI was the largest segment at 57% of consolidated revenue, while DCS generated 24%, ICS 14% and JBT 5%.
- Insurance and claims expense rose 57.6% to $123.6 million, including an $18.6 million increase in reserves for claims not covered by insurance.
- A $20.2 million advance deposit for trailing equipment was written to zero after the manufacturer could not meet delivery.
- The company bought Special Logistics Dedicated, LLC for $137.6 million in cash, and the quarterly dividend was raised to $0.24 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.19B$6.56B | +9.7% |
| Operating Expenses | $6.57B$5.83B | +12.5% |
| Operating Income | $623.79M$721.02M | −13.5% |
| Interest Expense | $28.79M$25.29M | +13.8% |
| Net Income | $686.26M$432.09M | +58.8% |
| EPS (Basic) | $6.24$3.84 | +62.5% |
| EPS (Diluted) | $6.18$3.81 | +62.2% |
| Shares Outstanding (Basic) | 109.99M112.47M | −2.2% |
| Shares Outstanding (Diluted) | 111.05M113.36M | −2.0% |
05—Questions
Frequently Asked Questions
Why did net earnings rise sharply in 2017 while operating income fell?
Net earnings increased to $686.3 million from $432.1 million, but operating income declined to $623.8 million from $721.0 million. The difference reflects a $309.2 million provisional benefit from remeasuring deferred tax balances at the lower 21% federal rate under the Tax Cuts and Jobs Act, which produced an effective tax rate of (15.29)% for 2017.
What drove the decline in operating margins?
The operating ratio rose to 91.3% from 89.0%. Rents and purchased transportation rose 12.1%, salaries and benefits rose 9.5% on higher driver pay and a tighter driver supply, insurance and claims rose 57.6% on higher incident volume and severity, and general and administrative expenses rose 44.6%, including the $20.2 million advance deposit reserve.
What are the main legal and contractual risks disclosed?
The company is in arbitration with BNSF Railway, which it initiated in January 2017, over the division of revenue beginning May 1, 2016, and the outcome cannot be predicted. It also faces California class actions by current and former drivers, for which the Ninth Circuit vacated a judgment in its favor and a $10 million reserve has been recorded. The company filed a petition for certiorari with the Supreme Court in February 2018.
How is the company funding its capital needs and shareholder returns?
Operating cash flow was $855.2 million in 2017. The company used $526.9 million for additions to property and equipment, $136.9 million for the SLD acquisition, and $179.8 million to repurchase treasury stock. It had $521 million of authorized repurchase capacity remaining at year-end, $242 million drawn on its $500 million revolving credit facility, and $797.6 million of commitments for revenue equipment and facilities in 2018 and 2019.
06—Continue