UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
J.B. HUNT TRANSPORT SERVICES, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction | (I.R.S. Employer |
| of incorporation or | Identification No.) |
| organization) |
|
(Address of principal executive offices)
(Registrant's telephone number, including area code)
www.jbhunt.com
(Registrant's web site)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The number of shares of the registrant’s $0.01 par value common stock outstanding on March 31, 2021 was
J.B. HUNT TRANSPORT SERVICES, INC.
Form 10-Q
For The Quarterly Period Ended March 31, 2021
Table of Contents
| Page | ||
| Part I. Financial Information | ||
| Item 1. | Financial Statements | |
| Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2021 and 2020 | 3 | |
| Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 | 4 | |
| Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 | 5 | |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 | 6 | |
| Notes to Condensed Consolidated Financial Statements as of March 31, 2021 | 7 | |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 |
| Item 4. | Controls and Procedures | 19 |
| Part II. Other Information | ||
| Item 1. | Legal Proceedings | 19 |
| Item 1A. | Risk Factors | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Mine Safety Disclosures | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 20 |
| Signatures | 22 | |
| Part I. Financial Information |
| ITEM 1. FINANCIAL STATEMENTS |
| J.B. HUNT TRANSPORT SERVICES, INC. |
| Condensed Consolidated Statements of Earnings |
| (in thousands, except per share amounts) |
| (unaudited) |
| Three Months Ended March 31, |
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| 2021 |
2020 |
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| Operating revenues, excluding fuel surcharge revenues |
$ | $ | ||||||
| Fuel surcharge revenues |
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| Total operating revenues |
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| Operating expenses: |
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| Rents and purchased transportation |
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| Salaries, wages and employee benefits |
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| Depreciation and amortization |
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| Fuel and fuel taxes |
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| Operating supplies and expenses |
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| General and administrative expenses, net of asset dispositions |
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| Insurance and claims |
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| Operating taxes and licenses |
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| Communication and utilities |
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| Total operating expenses |
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| Operating income |
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| Net interest expense |
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| Earnings before income taxes |
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| Income taxes |
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| Net earnings |
$ | $ | ||||||
| Weighted average basic shares outstanding |
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| Basic earnings per share |
$ | $ | ||||||
| Weighted average diluted shares outstanding |
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| Diluted earnings per share |
$ | $ | ||||||
| Dividends declared per common share |
$ | $ | ||||||
| See Notes to Condensed Consolidated Financial Statements. |
| J.B. HUNT TRANSPORT SERVICES, INC. |
| Condensed Consolidated Balance Sheets |
| (in thousands) |
| March 31, 2021 |
December 31, 2020 |
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| (unaudited) |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | $ | ||||||
| Trade accounts receivable, net |
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| Prepaid expenses and other |
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| Total current assets |
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| Property and equipment, at cost |
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| Less accumulated depreciation |
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| Net property and equipment |
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| Goodwill and intangible assets, net |
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| Other assets |
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| Total assets |
$ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
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| Current liabilities: |
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| Trade accounts payable |
$ | $ | ||||||
| Claims accruals |
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| Accrued payroll and payroll taxes |
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| Other accrued expenses |
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| Total current liabilities |
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| Long-term debt |
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| Other long-term liabilities |
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| Deferred income taxes |
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| Stockholders' equity |
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| Total liabilities and stockholders' equity |
$ | $ | ||||||
| See Notes to Condensed Consolidated Financial Statements. |
| J.B. HUNT TRANSPORT SERVICES, INC. |
| Condensed Consolidated Statements of Stockholders' Equity |
| (in thousands, except per share amounts) |
| (unaudited) |
| Additional | ||||||||||||||||||||
| Common | Paid-in | Retained | Treasury | Stockholders’ | ||||||||||||||||
| Stock | Capital | Earnings | Stock | Equity | ||||||||||||||||
| Balances at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net earnings | ||||||||||||||||||||
| Cash dividend declared and paid ( per share) | ( | ) | ( | ) | ||||||||||||||||
| Purchase of treasury shares | ( | ) | ( | ) | ||||||||||||||||
| Share-based compensation | ||||||||||||||||||||
| Restricted share issuances, net of stock repurchased for payroll taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balances at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Comprehensive income: | ||||||||||||||||||||
| Net earnings | ||||||||||||||||||||
| Cash dividend declared and paid ( per share) | ( | ) | ( | ) | ||||||||||||||||
| Purchase of treasury shares | ( | ) | ( | ) | ||||||||||||||||
| Share-based compensation | ||||||||||||||||||||
| Restricted share issuances, net of stock repurchased for payroll taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| See Notes to Condensed Consolidated Financial Statements. |
| J.B. HUNT TRANSPORT SERVICES, INC. |
| Condensed Consolidated Statements of Cash Flows |
| (in thousands) |
| (unaudited) |
| Three Months Ended March 31, |
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| 2021 |
2020 |
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| Cash flows from operating activities: |
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| Net earnings |
$ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: |
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| Depreciation and amortization |
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| Noncash lease expense |
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| Share-based compensation |
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| Loss on sale of revenue equipment and other |
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| Deferred income taxes |
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| Changes in operating assets and liabilities: |
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| Trade accounts receivable |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Trade accounts payable |
( |
) | ||||||
| Income taxes payable or receivable |
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| Claims accruals |
( |
) | ||||||
| Accrued payroll and other accrued expenses |
( |
) | ||||||
| Net cash provided by operating activities |
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| Cash flows from investing activities: |
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| Additions to property and equipment |
( |
) | ( |
) | ||||
| Net proceeds from sale of equipment |
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| Change in other assets |
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Proceeds from revolving lines of credit and other |
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| Payments on revolving lines of credit and other |
( |
) | ||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||
| Stock repurchased for payroll taxes |
( |
) | ( |
) | ||||
| Dividends paid |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net change in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
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| Cash paid during the period for: |
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| Interest |
$ | $ | ||||||
| Income taxes |
$ | $ | ||||||
| Noncash investing activities |
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| Accruals for equipment received |
$ | $ | ||||||
| See Notes to Condensed Consolidated Financial Statements. |
J.B. HUNT TRANSPORT SERVICES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
Basis of Presentation
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. We believe such statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated. Pursuant to the requirements of the Securities and Exchange Commission (SEC) applicable to quarterly reports on Form 10-Q, the accompanying financial statements do not include all disclosures required by GAAP for annual financial statements. While we believe the disclosures presented are adequate to make the information not misleading, these unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the periods presented in this report are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2021, or any other interim period. Our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load freight transportation business.
Use of Estimates
The novel coronavirus (COVID-19) pandemic has created and may continue to create significant uncertainty in macro-economic conditions, which may cause a global economic recession, business slowdowns or shutdowns, depressed demand for our transportation and logistics businesses, and adversely impact our results of operations. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Our estimates may change, as new events occur and additional information is obtained, which are recognized or disclosed in our Consolidated Financial Statements as soon as they become known and may have a material impact on our financial statements.
Accounts Receivable and Allowance
Our trade accounts receivable includes accounts receivable reduced by an allowance for uncollectible accounts. Receivables are recorded at amounts billed to customers when loads are delivered or services are performed. The allowance for uncollectible accounts is calculated over the life of the underlying receivable and is based on historical experience; any known trends or uncertainties related to customer billing and account collectability; current economic conditions; and reasonable and supportable economic forecasts, each applied to segregated risk pools based on the business segment that generated the receivable. The adequacy of our allowance is reviewed quarterly. Balances are charged against the allowance when it is determined the receivable will not be recovered. The allowance for uncollectible accounts for our trade accounts receivable was $
2. Earnings Per Share
We compute basic earnings per share by dividing net earnings available to common stockholders by the actual weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if holders of unvested restricted and performance share units converted their holdings into common stock. The dilutive effect of restricted and performance share units was
3. Share-based Compensation
The following table summarizes the components of our share-based compensation program expense (in thousands):
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Restricted share units: | ||||||||
| Pretax compensation expense | $ | $ | ||||||
| Tax benefit | ||||||||
| Restricted share unit expense, net of tax | $ | $ | ||||||
| Performance share units: | ||||||||
| Pretax compensation expense | $ | $ | ||||||
| Tax benefit | ||||||||
| Performance share unit expense, net of tax | $ | $ | ||||||
As of March 31, 2021, we had $
4. Financing Arrangements
Outstanding borrowings, net of unamortized discount, unamortized debt issuance cost, and fair value swap, under our current financing arrangements consist of the following (in millions):
| March 31, 2021 | December 31, 2020 | |||||||
| Senior notes | $ | $ | ||||||
Senior Revolving Line of Credit
At March 31, 2021, we were authorized to borrow up to $
Senior Notes
Our senior notes consist of three separate issuances. The first is $
Our financing arrangements require us to maintain certain covenants and financial ratios. We were in compliance with all covenants and financial ratios at March 31, 2021.
5. Derivative Financial Instruments
We periodically utilize derivative instruments for hedging and non-trading purposes to manage exposure to changes in interest rates and to maintain an appropriate mix of fixed and variable-rate debt. At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.
We entered into a receive fixed-rate and pay variable-rate interest rate swap agreement simultaneously with the issuance of our $
6. Capital Stock
On April 20, 2017, our Board of Directors authorized the purchase of up to $
7. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our assets and liabilities measured at fair value are based on valuation techniques which consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2). The following are assets and liabilities measured at fair value on a recurring basis (in millions):
| Asset/(Liability) Balance | ||||||||||||
| March 31, 2021 | December 31, 2020 | Input Level | ||||||||||
| Trading investments | $ | $ | 1 | |||||||||
| Interest rate swap | $ | $ | 2 | |||||||||
| Senior notes, net of unamortized discount and debt issuance costs | $ | ( | ) | $ | ( | ) | 2 | |||||
The fair value of trading investments has been measured using the market approach (Level 1) and reflect quoted market prices. The fair values of interest rate swap and corresponding senior notes have been measured using the income approach (Level 2), which include relevant interest rate curve inputs. Trading investments and the interest rate swap are classified in other assets in our Condensed Consolidated Balance Sheets. The senior notes are classified in long-term debt in our Condensed Consolidated Balance Sheets.
Financial Instruments
The carrying amount of our remaining senior notes not measured at fair value on a recurring basis was $
The carrying amounts of all other instruments at March 31, 2021, approximate their fair value due to the short maturity of these instruments.
8. Income Taxes
Our effective income tax rate was
At March 31, 2021, we had a total of $
9. Legal Proceedings
In January 2017, we exercised our right to utilize the arbitration process to review the division of revenue collected beginning May 1, 2016, as well as to clarify other issues, under our Joint Service Agreement with BNSF Railway Company (BNSF). BNSF requested the same. In October 2019, the arbitrators issued a Final Award and we recorded pretax charges in the third quarter 2019 of $
We are also party to various state use tax audits, and have been assessed amounts owed for which we are vigorously appealing. If our appeals fail, we could be forced to settle these assessments for a material amount.
We are involved in certain other claims and pending litigation arising from the normal conduct of business. Based on present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.
10. Business Segments
We reported distinct business segments during the three months ended March 31, 2021 and 2020. These segments included Intermodal (JBI), Dedicated Contract Services® (DCS®), Integrated Capacity Solutions™ (ICS), Final Mile Services® (FMS), and Truckload (JBT). The operation of each of these businesses is described in Note 14, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2020. A summary of certain segment information is presented below (in millions):
| Assets (Excludes intercompany accounts) As of | ||||||||
| March 31, 2021 | December 31, 2020 | |||||||
| JBI | $ | $ | ||||||
| DCS | ||||||||
| ICS | ||||||||
| FMS | ||||||||
| JBT | ||||||||
| Other (includes corporate) | ||||||||
| Total | $ | $ | ||||||
| Operating Revenues For The Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| JBI | $ | $ | ||||||
| DCS | ||||||||
| ICS | ||||||||
| FMS | ||||||||
| JBT | ||||||||
| Subtotal | ||||||||
| Inter-segment eliminations | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Operating Income/(Loss) For The Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| JBI | $ | $ | ||||||
| DCS | ||||||||
| ICS | ( | ) | ||||||
| FMS | ( | ) | ||||||
| JBT | ||||||||
| Other (includes corporate) | ( | ) | ||||||
| Total | $ | $ | ||||||
| Depreciation and Amortization Expense For The Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| JBI | $ | $ | ||||||
| DCS | ||||||||
| ICS | ||||||||
| FMS | ||||||||
| JBT | ||||||||
| Other (includes corporate) | ||||||||
| Total | $ | $ | ||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should refer to the attached interim Condensed Consolidated Financial Statements and related notes and also to our Annual Report (Form 10-K) for the year ended December 31, 2020, as you read the following discussion. We may make statements in this report that reflect our current expectation regarding future results of operations, performance, and achievements. These are “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995, and are based on our belief or interpretation of information currently available. When we use words like “may,” “plan,” “contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,” “goals,” “strategy,” “future,” “predict,” “seek,” “estimate,” “likely,” “could,” “should,” “would,” and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. Forward-looking statements are inherently uncertain, subject to risks, and should be viewed with caution. You should realize there are many risks and uncertainties that could cause actual results to differ materially from those described. Some of the factors and events that are not within our control and could have a significant impact on future operating results are general economic and business conditions; potential business or operational disruptions resulting from the ongoing effects of the novel coronavirus (COVID-19) pandemic, including any future spikes or outbreaks of the virus, as well as government actions taken in response to the pandemic; competition and competitive rate fluctuations; excess capacity in the intermodal or trucking industries; a loss of one or more major customers; cost and availability of diesel fuel; interference with or termination of our relationships with certain railroads; rail service delays; disruptions to U.S. port-of-call activity; ability to attract and retain qualified drivers, delivery personnel, independent contractors, and third-party carriers; retention of key employees; insurance costs and availability; litigation and claims expense; determination that independent contractors are employees; new or different environmental or other laws and regulations; volatile financial credit markets or interest rates; terrorist attacks or actions; acts of war; adverse weather conditions; disruption or failure of information systems; inability to keep pace with technological advances affecting our information technology platforms; operational disruption or adverse effects of business acquisitions; increased costs for new revenue equipment; increased tariffs assessed on or disruptions in the procurement of imported revenue equipment; decreases in the value of used equipment; and the ability of revenue equipment manufacturers to perform in accordance with agreements for guaranteed equipment trade-in values. Additionally, our business is somewhat seasonal with slightly higher freight volumes typically experienced during August through early November in our full-load transportation business. You should also refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2020, for additional information on risk factors and other events that are not within our control. Our future financial and operating results may fluctuate as a result of these and other risk factors as described from time to time in our filings with the SEC.
GENERAL
We are one of the largest surface transportation, delivery, and logistics companies in North America. We operate five distinct, but complementary, business segments and provide a wide range of reliable transportation, brokerage, and delivery services to a diverse group of customers and consumers throughout the continental United States, Canada, and Mexico. Our service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers or independent contractors. We have arrangements with most of the major North American rail carriers to transport freight in containers or trailers, while we perform the majority of the pickup and delivery services. We also provide customized freight movement, revenue equipment, labor, systems, and delivery services that are tailored to meet individual customers’ requirements and typically involve long-term contracts. These arrangements are generally referred to as dedicated services and may include multiple pickups and drops, freight handling, specialized equipment, and freight network design. In addition, we provide or arrange for local and home delivery services, generally referred to as final-mile delivery services, to customers through a network of cross-dock and other delivery system locations throughout the continental United States. Utilizing thousands of reliable third-party carriers, we also provide comprehensive freight transportation brokerage and logistics services. In addition to dry-van, full-load operations, we also arrange for these unrelated outside carriers to provide flatbed, refrigerated, less-than-truckload (LTL), and other specialized equipment, drivers, and services. Also, we utilize a combination of company-owned and contracted power units to provide traditional over-the-road full truckload delivery services. Our customers, who include many Fortune 500 companies, have extremely diverse businesses. Many of them are served by J.B. Hunt 360°®, an online platform that offers shippers and carriers greater access, visibility, and transparency to the supply chain. We account for our business on a calendar year basis, with our full year ending on December 31 and our quarterly reporting periods ending on March 31, June 30, and September 30. The operation of each of our five business segments is described in Note 14, Segment Information, of our Annual Report (Form 10-K) for the year ended December 31, 2020.
Our operations continue to be impacted by the COVID-19 global pandemic. Due to the nature of our business and the large portion of our workforce consisting of drivers and other non-office personnel, fewer than 25% of our total employees have been able to work remotely; however, we remain committed to the safety of our workforce, suppliers, and customers while continuing to meet our customers’ needs. In the first quarter 2020, we began our COVID-19 response activities which have been expanded and will continue as necessary until the risks related to COVID-19 dissipate. Our COVID-19 safety response activities at our home office campus and all other field locations throughout North America include requiring remote working when possible, expanded health and safety policies, facility modifications, increased security coverage, and purchase and distribution of personal protective equipment and supplies. During the first quarter 2021, we committed to providing incremental paid time off for employees to eliminate any financial loss caused by their absence from work when receiving the COVID-19 vaccination. We also continue to work with local healthcare organizations to provide vaccination assistance under applicable area guidelines and procedures to all employees and their adult family members. We are reviewing and analyzing both external and internal COVID-related data on a daily basis in anticipation of the full return to work phase of our COVID-19 response. Thus far throughout the pandemic, we have been pleased with the continued performance of our employees, particularly our drivers, who have been consistently available to serve our customers.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that impact the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenues, expenses, and associated disclosures of contingent liabilities are affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recognized in the accounting period in which the facts that give rise to the revision become known.
Information regarding our Critical Accounting Policies and Estimates can be found in our Annual Report (Form 10-K). The critical accounting policies that we believe require us to make more significant judgments and estimates when we prepare our financial statements include those relating to self-insurance accruals, revenue equipment, revenue recognition and income taxes. We have discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors. In addition, Note 2, Summary of Significant Accounting Policies, to the financial statements in our Annual Report (Form 10-K) for the year ended December 31, 2020, contains a summary of our critical accounting policies. There have been no material changes to the methodology we apply for critical accounting estimates as previously disclosed in our Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
| Summary of Operating Segment Results For the Three Months Ended March 31, (in millions) |
||||||||||||||||
| Operating Revenues | Operating Income/(Loss) | |||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| JBI |
$ | 1,177 | $ | 1,150 | $ | 107.5 | $ | 102.2 | ||||||||
| DCS |
580 | 542 | 74.3 | 72.9 | ||||||||||||
| ICS |
525 | 335 | 7.3 | (18.9 | ) | |||||||||||
| FMS |
202 | 154 | 8.5 | (3.3 | ) | |||||||||||
| JBT |
150 | 105 | 10.2 | 1.8 | ||||||||||||
| Subtotal |
2,634 | 2,286 | 207.8 | 154.7 | ||||||||||||
| Inter-segment eliminations |
(16 | ) | (5 | ) | (0.1 | ) | - | |||||||||
| Total |
$ | 2,618 | $ | 2,281 | $ | 207.7 | $ | 154.7 | ||||||||
Total consolidated operating revenues increased to $2.62 billion for the first quarter 2021, a 15% increase from $2.28 billion in the first quarter 2020, and a 17% increase excluding fuel surcharge revenues. This increase in operating revenues was driven by increased revenues in ICS and JBT as both segments captured capacity in the Marketplace for J.B. Hunt 360 °®, increased revenues in FMS related to new contractual business obtained, higher fleet utilization in DCS, and higher revenue per load, partially offset by decreased load volumes in JBI. All operating segments experienced weather-related volume disruptions in the first quarter 2021, with the most significant impact within JBI.
JBI segment revenue increased 2% to $1.18 billion during the first quarter 2021, compared with $1.15 billion in 2020. Load volumes during the first quarter 2021 decreased 3% over the same period 2020. Transcontinental loads decreased 2% during the first quarter 2021, and eastern network load volume was down 3% compared to the first quarter 2020. Load volumes were heavily impacted by severe weather-related events during the first quarter 2021, in addition to existing challenges present as a result of rail congestion and service issues stemming from elevated demand levels and labor challenges across the supply chain. The overall decrease in load volume was offset by a 5% increase in revenue per load, which is determined by the combination of customer rates, fuel surcharges and freight mix. Revenue per load excluding fuel surcharge revenue increased 6% compared to the first quarter 2020. JBI segment operating income increased 5%, to $107.5 million in the first quarter 2021, from $102.2 million in 2020. Benefits from increased revenue were partially offset by severe weather-related disruptions in the current quarter that further deteriorated network fluidity and challenges already present, higher driver wages and recruiting costs, and higher salary and wages for non-driver personnel, when compared to the first quarter 2020. Furthermore, JBI operating income for the first quarter 2020 included an $8.2 million rail purchase transportation expense resulting from an adjusted calculation of the revenue divisions owed to BNSF Railway Company (BNSF) for 2019 related to the final award of our completed arbitration with BNSF issued in 2019 and JBI’s $4.0 million portion of the one-time COVID-19 related bonus paid to employee drivers and other key field personnel. The current period ended with approximately 99,000 units of trailing capacity and 5,740 power units assigned to the dray fleet.
DCS segment revenue increased 7% to $580 million in the first quarter 2021 from $542 million in 2020. Productivity, defined as revenue per truck per week, increased 6% when compared to 2020. Productivity excluding fuel surcharges increased 5%, primarily due to higher utilization of assets, contractual indexed rate increases, and less idle equipment during the current period. A net additional 203 revenue-producing trucks were in the fleet by the end of the first quarter 2021 compared to a year ago. DCS segment operating income increased 2% to $74.3 million in the first quarter 2021, from $72.9 million in 2020. The benefits of increased productivity were partially offset by higher driver wages and recruiting costs and higher salary and wages for non-driver personnel, when compared to the first quarter 2020. In addition, operating income for the prior period included DCS’s $6.5 million portion of the one-time COVID-19 bonus paid in first quarter 2020.
ICS segment revenue increased 56% to $525 million in the first quarter 2021, from $335 million in 2020. Overall volumes decreased 1% primarily due to changes in customer freight mix, while truckload volumes increased 10% compared to the first quarter 2020. Revenue per load increased 58%, primarily due to higher spot and contractual customer rates compared to first quarter 2020. Contractual business represented approximately 49% of total load volume and 35% of total revenue in the first quarter 2021, compared to 67% and 54%, respectively, in 2020. Approximately $359 million of first quarter 2021 ICS revenue was executed through the Marketplace for J.B. Hunt 360° compared to $235 million in the first quarter 2020. ICS segment operating income increased to $7.3 million in the first quarter of 2021 compared to an operating loss of $18.9 million in 2020. Gross profit margin increased to 12.4% in the first quarter 2021, compared to 9.6% in 2020, primarily due to higher rates in our contractual business and a higher mix of spot business during the current period. First quarter 2021, operating results were further impacted by increased incentive compensation and technology spending, compared to a year ago. ICS’s carrier base increased 24% compared to first quarter 2020.
FMS segment revenue increased 31% to $202 million in the first quarter 2021 from $154 million in 2020. Stop count for the first quarter 2021 increased 37%, while productivity, defined as revenue per stop, decreased 4% compared to 2020. The reduction in productivity was primarily due to a shift in the mix between asset and asset-light operations resulting from the characteristics of new customer contracts. FMS segment operating income increased to $8.5 million in the first quarter of 2021 compared to an operating loss of $3.3 million in 2020, primarily due to increased revenues, partially offset by higher costs related to service quality performance controls, higher salary and wages for non-driver personnel, and increased third-party truck purchased transportation costs. In addition, the operating loss for the prior period included FMS’s $1.3 million portion of the one-time COVID-19 bonus paid in first quarter 2020.
JBT segment revenue totaled $150 million for the first quarter 2021, an increase of 43% from $105 million in first quarter 2020. Revenue excluding fuel surcharge increased 46% primarily due to a 6% increase in load volume, a 38% increase in revenue per load excluding fuel surcharge revenue, and an 8% increase in average length of haul compared to first quarter 2020. The growth in load count and the length of haul during the first quarter 2021, were primarily driven by the continued expansion of J.B. Hunt 360box™ which leverages the J.B. Hunt 360 platform. Revenue per loaded mile excluding fuel surcharge in first quarter 2021 increased 28%, while comparable contractual customer rates increased 14% compared to first quarter 2020. At the end of the first quarter 2021, the JBT fleet consisted of 1,716 tractors and 8,571 trailers, compared to 1,887 tractors and 7,391 trailers in 2020. JBT segment operating income increased to $10.2 million in 2021, compared with $1.8 million during first quarter 2020. Benefits from the higher load volume and increased revenue per load were partially offset by higher purchased transportation expense and higher salary and wages for non-driver personnel. In addition, operating income for the prior period included JBT’s $0.5 million portion of the one-time COVID-19 bonus paid in first quarter 2020.
Consolidated Operating Expenses
The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.
| Three Months Ended March 31, | ||||||||||||
| Dollar Amounts as a Percentage of Total Operating Revenues |
Percentage Change of Dollar Amounts Between Quarters |
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| 2021 |
2020 |
2021 vs. 2020 |
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| Total operating revenues |
100.0 | % |
100.0 | % |
14.8 | % | ||||||
| Operating expenses: |
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| Rents and purchased transportation |
51.7 | 49.8 | 19.0 | |||||||||
| Salaries, wages and employee benefits |
23.7 | 25.2 | 8.0 | |||||||||
| Depreciation and amortization |
5.3 | 5.7 | 5.7 | |||||||||
| Fuel and fuel taxes |
4.3 | 4.4 | 11.8 | |||||||||
| Operating supplies and expenses |
3.1 | 3.8 | (4.6 | ) | ||||||||
| General and administrative expenses, net of asset dispositions |
1.7 | 1.9 | (0.6 | ) | ||||||||
| Insurance and claims |
1.5 | 1.4 | 17.5 | |||||||||
| Operating taxes and licenses |
0.5 | 0.6 | 3.8 | |||||||||
| Communication and utilities |
0.3 | 0.4 | 13.9 | |||||||||
| Total operating expenses |
92.1 | 93.2 | 13.4 | |||||||||
| Operating income |
7.9 | 6.8 | 34.2 | |||||||||
| Net interest expense |
0.4 | 0.5 | (0.1 | ) | ||||||||
| Earnings before income taxes |
7.5 | 6.3 | 37.1 | |||||||||
| Income taxes |
1.9 | 1.7 | 29.4 | |||||||||
| Net earnings |
5.6 | % |
4.6 | % |
39.9 | % | ||||||
Total operating expenses increased 13.4%, while operating revenues increased 14.8%, during the first quarter 2021, from the comparable period 2020. Operating income increased to $207.7 million during the first quarter 2021, from $154.7 million in 2020.
Rents and purchased transportation costs increased 19.0% in 2021 compared with 2020. This increase was primarily due to increased third-party truck purchased transportation rates in ICS and an increase in the use of third-party truck carriers by JBT and FMS during the current period.
Salaries, wages and employee benefit costs increased 8.0% in 2021 compared with 2020. This increase was primarily related to increases in driver pay and office personnel compensation due to a tighter supply of qualified drivers, an increase in the number of employees, and additional incentive compensation. This increase was partially offset by first quarter 2020 including a $12.3 million one-time COVID-19 related bonus paid to employee drivers and other key field personnel and $3.4 million of additional stock compensation expense related to the acceleration of equity award vesting for executive employee retirements.
Depreciation and amortization expense increased 5.7% in 2021, primarily due to the addition of tractors and specialized trailing equipment within JBI, increased capital investments in information technology, and increased trailing equipment within JBT. Fuel costs increased 11.8% in 2021, compared with 2020, primarily due to an increase in the price of fuel and an increase in road miles.
Operating supplies and expenses decreased 4.6% in 2021, compared with 2020, primarily due to reduced travel and entertainment expenses, partially offset by increased tire expenses and higher weather-related towing costs. General and administrative expenses for the current quarter were virtually flat compared with 2020, primarily due to increased technology spend on the J.B. Hunt 360° platform and legacy system upgrades, higher advertising costs, and increased driver hiring expenses, being offset by decreased professional fees, lower bad debt expenses, and decreased net loss from the sale or disposal of assets. Net loss from sale or disposal of assets was $1.1 million in 2021, compared to a net loss of $1.5 million in 2020. Insurance and claims expense increased 17.5% in 2021, compared with 2020, due to higher incident volume and higher insurance policy premium expenses, partially offset by a decrease in accident severity.
Net interest expense for the current quarter was virtually flat compared with 2020. Income tax expense increased 29.4% in first quarter 2021, compared with 2020, primarily due to increased taxable earnings, partially offset by a higher effective income tax rate in the prior period due to the impact of stock compensation accelerations for executive employee retirements. Our effective income tax rate was 25.1% for the first quarter 2021, compared to 26.5% in 2020. Our annual tax rate for 2021 is expected to be between 24.0% and 25.0%. In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, best estimate of nontaxable and nondeductible items of income and expense, and the ultimate outcome of tax audits.
Liquidity and Capital Resources
Cash Flow
Net cash provided by operating activities totaled $365 million during the first three months of 2021, compared with $249 million for the same period 2020. Operating cash flows increased due to the timing of general working capital activities and increased earnings. Net cash used in investing activities totaled $86 million in 2021, compared with $129 million in 2020. The decrease resulted from a decrease in equipment purchases, net of proceeds from the sale of equipment, during the current period. Net cash used in financing activities was $39 million in 2021, compared with $107 million in 2020. This decrease resulted primarily from a decrease in treasury stock purchases during the first quarter 2021.
Debt and Liquidity Data
| March 31, 2021 |
December 31, 2020 |
March 31, 2020 |
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| Working capital ratio |
1.83 | 1.70 | 1.54 | |||||||||
| Total debt (millions) |
$ | 1,301.4 | $ | 1,305.4 | $ | 1,302.8 | ||||||
| Total debt to equity |
0.48 | 0.50 | 0.57 | |||||||||
| Total debt as a percentage of total capital |
32 | % | 33 | % | 36 | % | ||||||
Liquidity
Our need for capital has typically resulted from the acquisition of containers and chassis, trucks, tractors, and trailers required to support our growth and the replacement of older equipment as well as periodic business acquisitions. We are frequently able to accelerate or postpone a portion of equipment replacements or other capital expenditures depending on market and overall economic conditions. In recent years, we have obtained capital through cash generated from operations, revolving lines of credit and long-term debt issuances. We have also periodically utilized operating leases to acquire revenue equipment.
We believe our liquid assets, cash generated from operations, and revolving line of credit will provide sufficient funds for our operating and capital requirements for the foreseeable future. Should COVID-19 related economic conditions warrant, we believe we have sufficient credit resources available to meet our near and long-term operating and capital needs. Throughout 2020 and the first quarter 2021, we paused or cancelled certain capital expenditures and other discretionary spending in response to the COVID-19 pandemic. As a result, at March 31, 2021, we had a cash balance of $553 million and we had no outstanding balance on our senior revolving line of credit, which authorizes us to borrow up to $750 million and is supported by a credit agreement with a group of banks that expires in September 2023. This senior credit facility allows us to request an increase in the total commitment by up to $250 million and to request a one-year extension of the maturity date.
Our financing arrangements require us to maintain certain covenants and financial ratios. At March 31, 2021, we were well above compliance with all covenants and financial ratios, and we fully intend and expect to emerge from the current COVID-19 related economic environment with our investment-grade rating intact.
We are continually evaluating the possible effects of current COVID-19 related economic conditions and reasonable and supportable economic forecasts on operational cash flows, including the risks of declines in the overall freight market and our customers' liquidity and ability to pay. We regularly monitor working capital and maintain frequent communication with our customers, suppliers, and service providers.
The following table summarizes our expected obligations and commitments as of March 31, 2021 (in millions):
| Total |
One Year Or Less |
One to Three Years |
Three to Five Years |
After Five Years |
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| Operating leases |
$ | 136.3 | $ | 47.1 | $ | 57.5 | $ | 17.0 | $ | 14.7 | ||||||||||
| Debt obligations |
1,300.0 | - | 350.0 | 250.0 | 700.0 | |||||||||||||||
| Interest payments on debt (1) |
170.0 | 42.2 | 75.8 | 52.0 | - | |||||||||||||||
| Commitments to acquire revenue equipment and facilities |
1,710.3 | 985.4 | 724.9 | - | - | |||||||||||||||
| Total |
$ | 3,316.6 | $ | 1,074.7 | $ | 1,208.2 | $ | 319.0 | $ | 714.7 | ||||||||||
(1) Interest payments on debt are based on the debt balance and applicable rate at March 31, 2021.
Our net capital expenditures were approximately $86 million during the first three months of 2021, compared with $129 million for the same period 2020. Our net capital expenditures include net additions to revenue equipment and non-revenue producing assets that are necessary to contribute to and support the future growth of our various business segments. Capital expenditures in 2021 were primarily for tractors, additional intermodal containers, and other trailing equipment. We are currently committed to spend approximately $1.7 billion during the years 2021 to 2023. In response to the COVID-19 pandemic, we previously paused or cancelled certain capital expenditures originally planned for 2020. Based on the current economic environment and our longer-term outlook, we have increased our anticipated net capital expenditures for 2021, which will primarily be driven by additional intermodal containers and trailers used in our 360box program. Accordingly, we now expect to spend in the range of $1.2 billion to $1.3 billion for net capital expenditures during 2021. Our ultimate capital expenditure levels could be affected by manufacturer production slowdowns resulting from the COVID-19 pandemic. The table above excludes $74.6 million of potential liabilities for uncertain tax positions, including interest and penalties, which are recorded on our Condensed Consolidated Balance Sheets. However, we are unable to reasonably estimate the ultimate timing of any settlements.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, other than our net purchase commitments of 1.7 billion, as of March 31, 2021.
Risk Factors
You should refer to Part I, Item 1A of our Annual Report (Form 10-K) for the year ended December 31, 2020, under the caption “Risk Factors” for specific details on the following factors and events that are not within our control and could affect our financial results.
Risks Related to Our Industry
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Our business is significantly impacted by economic conditions, customer business cycles, and seasonal factors. |
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Our business is significantly impacted by the effects of national or international health pandemics on general economic conditions and the operations of our customers and third-party suppliers and service providers. |
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Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results. |
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Our operations are subject to various environmental laws and regulations, including legislative and regulatory responses to climate change. Compliance with environmental requirements could result in significant expenditures and the violation of these regulations could result in substantial fines or penalties. |
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We depend on third parties in the operation of our business. |
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Rapid changes in fuel costs could impact our periodic financial results. |
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Insurance and claims expenses could significantly reduce our earnings. |
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We operate in a regulated industry, and increased direct and indirect costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business. |
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Difficulty in attracting and retaining drivers, delivery personnel and third-party carriers could affect our profitability and ability to grow. |
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We operate in a competitive and highly fragmented industry. Numerous factors could impair our ability to maintain our current profitability and to compete with other carriers and private fleets. |
Risks Related to Our Business
| ● |
We derive a significant portion of our revenue from a few major customers, the loss of one or more of which could have a material adverse effect on our business. |
| ● |
A determination that independent contractors are employees could expose us to various liabilities and additional costs. |
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We may be subject to litigation claims that could result in significant expenditures. |
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We rely significantly on our information technology systems, a disruption, failure, or security breach of which could have a material adverse effect on our business. |
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Acquisitions or business combinations may disrupt or have a material adverse effect on our operations or earnings. |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our outstanding debt at March 31, 2021 includes our senior revolving line of credit and senior notes issuances. Our senior notes have fixed interest rates ranging from 3.30% to 3.875%. Our senior revolving line of credit has variable interest rates, which are based on the Prime Rate, the Federal Funds Rate, or LIBOR, depending upon the specific type of borrowing, plus any applicable margins. We currently have an interest rate swap agreement which effectively converts our $350 million of 3.30% fixed rate senior notes due August 2022 to a variable rate, to allow us to maintain a desired mix of variable and fixed rate debt. The applicable interest rate under this agreement is based on LIBOR plus an established margin. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. Our earnings would be affected by changes in these short-term variable interest rates. At our current level of borrowing, a one percentage point increase in our applicable rate would reduce annual pretax earnings by $3.5 million.
Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations or cash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the three months ended March 31, 2021. Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash flows we would receive from our foreign investment. As of March 31, 2021, we had no foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
The price and availability of diesel fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, and other market factors. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. We cannot predict the extent to which high fuel price levels may occur in the future, or the extent to which fuel surcharges could be collected to offset such increases. As of March 31, 2021, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
We maintain controls and procedures designed to ensure that the information we are required to disclose in the reports we file with the SEC is recorded, processed, summarized, and reported, within the time periods specified in the SEC rules, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.
There were no changes in our internal control over financial reporting during the first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
We are involved in certain claims and pending litigation arising from the normal conduct of business. Based on present knowledge of the facts and, in certain cases, opinions of outside counsel, we believe the resolution of these claims and pending litigation will not have a material adverse effect on our financial condition, results of operations or liquidity.
ITEM 1A. RISK FACTORS
Information regarding risk factors appears in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report on Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities
The following table summarizes purchases of our common stock during the three months ended March 31, 2021:
|
Period |
Number of Common Shares Purchased |
Average Price Paid Per Common Share Purchased |
Total Number of Shares Purchased as Part of a Publicly Announced Plan (1) |
Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Plan (in millions) |
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| January 1 through January 31, 2021 |
- | $ | - | - | $ | 503 | ||||||||||
| February 1 through February 28, 2021 |
- | - | - | 503 | ||||||||||||
| March 1 through March 31, 2021 |
34,000 | 154.09 | 34,000 | 498 | ||||||||||||
| Total |
34,000 | $ | 154.09 | 34,000 | $ | 498 | ||||||||||
| (1) |
On April 20, 2017, our Board of Directors authorized the purchase of up to $500 million of our common stock. On January 22, 2020, our Board of Directors authorized an additional purchase of up to $500 million of our common stock. This stock repurchase program has no expiration date. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Index to Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the city of Lowell, Arkansas, on the 3rd day of May, 2021.
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J.B. HUNT TRANSPORT SERVICES, INC. |
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| (Registrant) | |||
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BY: |
/s/ John N. Roberts, III |
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John N. Roberts, III |
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| President and Chief Executive Officer | |||
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| BY: | /s/ John Kuhlow | ||
| John Kuhlow | |||
| Chief Financial Officer, | |||
| Executive Vice President | |||
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(Principal Financial and Accounting Officer) |
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