J.B. Hunt 4Q earnings rise 228%, full year earnings per share up 62%, reflects tax reform impact

J.B. Hunt Transport Services said tax reform led fourth-quarter earnings to rise 227.8% as the company’s effective tax rate was -175.65%, compared to 37.63% in the same period in 2016. The earnings results beat analysts’ expectations and led shares to a 52-week high.

The Lowell-based carrier expects a $309.2 million benefit in the quarter based on the tax rate change on deferred tax balances as of Dec. 31. The annual effective tax rate was -15.29% in 2017, compared to 37.90% in 2016.

J.B. Hunt reported full-year and fourth-quarter earnings Thursday (Jan. 18), and for 2017, net income increased 58.8% to $686.263 million, or $6.18 per share, from $432.090 million, or $3.81 per share, in 2016. The carrier beat analyst expectations by $2.57 as a consensus of 16 analysts expected earnings of $3.61 per share.

Revenue increased 9.7% to $7.190 billion. The carrier also beat analysts’ revenue estimate by $600,000 as a consensus of 20 analysts expected revenue to rise 8.7% to $7.13 billion.

In the fourth quarter, earnings rose to $385.308 million, or $3.48 per share, from $117.556 million, or $1.05 per share, in the same period in 2016. J.B. Hunt beat analyst expectations by $2.55 as a consensus of 18 analysts expected earnings per share of 93 cents.

The carrier reported earnings before the markets opened, and shares of J.B. Hunt (NASDAQ: JBHT) hit a 52-week high of $122.18 on Thursday. The stock has traded as low as $83.25 in the past 52 weeks.

The carrier’s fourth-quarter earnings included a previously announced $20.3 million in pretax charges for a reserve on a cash advance to purchase new trailer equipment from a manufacturer that won’t meet delivery, and $18.6 million for an increase in reserves for insurance and claims. The carrier noted that fourth-quarter 2016 earnings included a $15.2 million pretax benefit for a change in the company’s paid time off policy.

In the fourth quarter of 2017, revenue increased 15.6% to $1.99 billion as the number of loads increased 5% in the intermodal segment, new customers were added and asset use improved in the dedicated contract services segment, a 17% rise in load growth and a 19% jump in revenue per load in the brokerage segment and customer rates rose in the trucking segment. A decline in the number of loads offset the rise in customer rates in the trucking segment. In the quarter, analysts expected revenue to rise 11.9% to $1.93 billion.

In the segment results, the carrier included the previously announced charges of $38.9 million and the $15.2 million pretax benefit from the fourth quarter of 2016. The benefit from increased revenue was partly offset by cost increases to recruit and retain drivers, rising insurance and claims costs, inefficiencies from railroad congestion and maintenance schedules, higher salaries and trucks that went unused.

In 2017, the amount the company spent on capital projects increased 5.4% to $511 million.

INTERMODAL
In 2017, revenue increased 7.6% to $4.084 billion, or 57% of the company’s revenue. Operating income fell 9.4% to $407.376 million, or 65% of the company’s operating income.

In the fourth quarter, revenue increased 10% to $1.098 billion, or 55% of the company’s revenue. Eastern network loads increased 7% and transcontinental loads rose 4%, from the same period in 2016. Revenue per load rose 5%, representing the combination of freight mix, customer rate increases and fuel surcharges.

Operating income declined 24.9% to $93.371 million, or 64% of the carrier’s operating income. Income fell as costs increased to attract and retain drivers. Also, the segment had higher third-party drayage costs, increased insurance and claims costs and railroad inefficiencies related to congestion and track and yard maintenance. Of the preannounced charges, $28.7 million was attributed to the segment. The carrier also attributed $5.7 million to the segment from the change in the paid time off policy.

At the end of 2017, the carrier had 89,000 intermodal containers and trailers and 5,500 trucks in the drayage fleet. Drayage refers to the truck drivers who haul freight to and from intermodal facilities, where the freight is unloaded from a train and onto a big rig.

DEDICATED CONTRACT SERVICES
In 2017, revenue increased 12.1% to $1.719 billion, or 24% of the company’s revenue. Operating income fell 16.6% to $171.113 million, or 27% of the company’s operating income.

In the fourth quarter, revenue rose 19.7% to $476.660 million, or 24% of the company’s revenue. Productivity, or revenue per truck per week, increased 4% as the segment improved asset integration between customer accounts and customer rates increased. This was partially offset by lower productivity for new contracts. In the past year, the segment added 1,326 trucks, up 331 units since the third quarter of 2017. About 53% of the new trucks related to private fleet conversions, compared to traditional dedicated capacity fleets. The conversions were primarily new contracts, and customer retention rates were more than 98%.

Operating income decreased 37.6% to $34.918 million, or 24% of the carrier’s operating income. Productivity and revenue increases were offset by increased driver pay, which includes the timing between wage increases and when the rise was recovered in customer contracts; increased driver recruitment costs, which includes the length of time to fill open positions; increased insurance and claims costs; higher equipment costs and a $1.9 million rise in asset payments. The segment reported $7.6 million of the previously announced charges and a $7.3 million benefit from the change in the paid time off policy.

BROKERAGE
In 2017, revenue increased 20.3% to $1.025 billion, or 14% of the company’s revenue. Operating income decreased 37.1% to $22.797 million, or 4% of the company’s operating income.

In the fourth quarter, revenue increased 39.6% to $323.241 million, or 16% of the company’s revenue. Compared to contract volumes, spot market volumes increased in the quarter, and accounted for a larger share of revenue for the segment. Contract volumes represented 66% of total loads but only 46% of total revenue. In the same period in 2016, contract volumes represented 75% of volume and 62% of revenue.

Operating income rose 85.7% to $11.277 million, or 8% of the carrier’s operating income. Gross profit margin increased to 14.1%, from 12.9% in the same period in 2016. The rise reflected the increase in spot market volume, more than offsetting the margin compression in the contract volumes. The increase also was offset by increased technology expenses as the J.B. Hunt 360 transportation management system continues to be developed and offered to more customers. The segment accounted for $1.8 million in the previously announced charges and had a $1 million benefit related to the paid time off policy.

The number of branches in the segment increased by two to 44, its carrier base rose 11% and the number of employees increased 16%.

TRUCKING
In 2017, revenue declined 2.4% to $378.361 million, or 5% of the company’s revenue. Operating income fell 24.3% to $22.597 million, or 4% of the company’s operating income.

In the fourth quarter, revenue rose 1.2% to $97.466 million, or 5% of the company’s revenue. Revenue per load rose 13% as a result of a 12% increase in rates per loaded mile. This was offset by a 10% decline in load volume.

Operating income decreased 5.5% to $6.380 million, or 4% of the carrier’s operating income. Higher revenue per load was offset by increased driver pay and independent contractor costs per mile, lower tractor use and higher insurance and claims costs. The carrier attributed $700,000 of the previously announced charges to the trucking segment, and it had a $1.2 million benefit from the change in the paid time off policy.

The number of trucks in the segment declined 4.5% or by 96 units, to 2,032 units.