01—Abstract
Summary
Summary of the 10-K filed February 22, 2019. Cited figures are marked; the original filing is the authoritative source.
J.B.
Hunt Transport Services, Inc. reported 2018 total operating revenues of $8.61 billiona, up 19.8% from $7.19 billion in 2017, driven by higher load volume and revenue per load across all four segments. Operating income rose to $681 million from $624 million, but the operating ratio worsened to 92.1% from 91.3%, as operating expenses grew 20.8%. Net earnings fell to $490 million ($4.43 diluted EPS) from $686 million ($6.18 diluted EPS), largely because 2017 included a $309.2 million tax benefit from the Tax Cuts and Jobs Act remeasurement of deferred taxes.
Rents and purchased transportation rose 21.5%, and the JBI segment absorbed $152.3 millionb of charges tied to the ongoing BNSF revenue-division arbitration. The BNSF arbitration is the most significant open item for investors. The company recorded $134 million in pretax contingent-liability charges in the fourth quarter of 2018, and on January 11, 2019, the panel's Second Interim Award ordered $89.4 million payable to BNSF.
Further awards on 2018 revenue division and other confidential issues remain pending, and management states it cannot reasonably predict the final outcome, which could be material if decided adversely. Separately, a $15 millionc class settlement for California driver wage claims is expected to receive final court approval in April 2019. Liquidity remained solid: operating cash flow was $1.09 billion, capital expenditures (additions to property and equipment) were $995.7 million, and total debt stood at $1.15 billion against stockholders' equity of $2.10 billion.
The company repurchased $150.3 milliond of stock in 2018, leaving $371 million under its authorization, and raised the quarterly dividend from $0.24 to $0.26 per share. The January 2019 acquisition of Cory 1st Choice Home Delivery for $100 million expands the DCS segment.
02—Key points
Key Highlights
- Total operating revenues rose 19.8% to $8.61 billion in 2018, with all four segments contributing growth: JBI $4.72 billion, DCS $2.16 billion, ICS $1.33 billion, and JBT $417 million.
- Operating ratio deteriorated to 92.1% from 91.3%, as operating expenses rose 20.8%, led by a 21.5% increase in rents and purchased transportation.
- Net earnings declined to $490 million ($4.43 diluted EPS) from $686 million ($6.18 diluted EPS), which included a $309.2 million tax benefit in 2017.
- The BNSF arbitration led to $134 million in pretax contingent-liability charges in Q4 2018; the January 2019 Second Interim Award ordered $89.4 million payable to BNSF, with further awards pending.
- Operating cash flow increased to $1.09 billion from $855 million, supported by higher pretax earnings and the lower federal tax rate.
- Capital spending on property and equipment reached $995.7 million, and the company returned capital through $150.3 million of share repurchases and $105 million of dividends.
- The quarterly dividend was increased to $0.26 per share from $0.24, and the company acquired Cory 1st Choice Home Delivery for $100 million in February 2019.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 22, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $8.61B$7.19B | +19.8% |
| Operating Expenses | $7.93B$6.57B | +20.8% |
| Operating Income | $681.02M$623.79M | +9.2% |
| Interest Expense | $40.43M$28.79M | +40.4% |
| Net Income | $489.58M$686.26M | −28.7% |
| EPS (Basic) | $4.48$6.24 | −28.2% |
| EPS (Diluted) | $4.43$6.18 | −28.3% |
| Shares Outstanding (Basic) | 109.38M109.99M | −0.6% |
| Shares Outstanding (Diluted) | 110.43M111.05M | −0.6% |
05—Questions
Frequently Asked Questions
Why did net earnings fall in 2018 despite higher revenue?
Net earnings were $490 million in 2018 versus $686 million in 2017. The 2017 result benefited from a $309.2 million reduction in income tax expense from remeasuring deferred tax balances under the Tax Cuts and Jobs Act. In 2018, operating income rose to $681 million from $624 million, but the operating ratio increased to 92.1% from 91.3% as operating expenses grew faster than revenue, including the $152.3 million of JBI rail purchased transportation charges tied to the BNSF arbitration.
What is the financial exposure from the BNSF arbitration?
The company recorded $134 million in pretax contingent-liability charges in the fourth quarter of 2018, covering BNSF claims for May 2016 through December 2018. The January 11, 2019 Second Interim Award ordered $89.4 million payable to BNSF. The filing states that the final outcome cannot be reasonably predicted, that further submissions and awards are pending on 2018 and later revenue divisions, and that an adverse decision could result in a liability material to financial condition or results of operations.
How strong is the company's balance sheet and liquidity?
At December 31, 2018, total assets were $5.09 billion, total debt was $1.15 billion, and stockholders' equity was $2.10 billion, giving a total debt to equity ratio of 0.55. Cash and cash equivalents were $7.6 million, and the company had $309 million drawn on a $750 million senior revolving line of credit expiring in September 2023. Operating cash flow was $1.09 billion, and the company stated it was in compliance with all financing covenants.
What are the company's capital allocation priorities?
In 2018, the company spent $995.7 million on property and equipment additions, paid $105 million in dividends, and purchased about 1.3 million shares for $150.3 million. It had $371 million remaining under its share repurchase authorization at year-end and committed approximately $381.6 million, net of sale or trade-in proceeds, for 2019 and 2020 equipment purchases. The quarterly dividend was raised to $0.26 per share from $0.24.
What growth drivers did the company report?
Growth was broad-based. JBI revenue rose 15% on a 2% increase in load volume and a 13% increase in revenue per load. DCS revenue rose 26%, with productivity up 7%, and the company added 1,388 net revenue-producing trucks. ICS revenue rose 30% on 24% higher volume, and its gross profit margin improved to 15.4% from 13.3%. JBT revenue rose 10%, driven by a 16% increase in rates per loaded mile. In January 2019, the company acquired Cory 1st Choice Home Delivery for $100 million, which will operate within DCS.
06—Continue