Lowell-based J.B. Hunt Transport Services continues to run a fiscally sound business amid an unpredictable economy and tepid retail sales, according to industry watchers.
Following another strong quarter ending June 30, debt rating service S&P recently raised the trucking giant’s long-term credit ratings to BBB+ and gave a stable outlook based on Hunt’s aggressive truck-to-rail conversions.
S&P wasn’t the only firm taking note of J.B. Hunt’s solid balance sheet.
Stephens Inc. analyst Jack Waldo noted last month, “J.B. Hunt continues to be a bright spot in a relatively challenging transportation market. In a world where the majority of transport companies are struggling to match historical growth rates, JBHT continues to utilize its diversified service platform to gain market share and post consistent growth in an inconsistent world.”
Waldo also noted that the majority of the trucking giant’s annual bids were already nailed down, which was enough to boost his estimated earnings for 2012 and 2013 by 4.76% and 4.13%, respectively.
The rationale behind the S&P upgrade reflects growing earnings and strong free cash flow generation, as well as improved capital structure and cash flow adequacy measures.
“The ratings on J.B. Hunt reflect a solid financial profile with stable cash flow generation. The company is expected to generate operating funds of about $650 million - $700 million this year
and likely will continue to benefit from rising demand for intermodal and dedicated contract services, strong operating efficiency and improving pricing trends,” stated in the S&P note.
J.B. Hunt is one of the largest railroad intermodal service providers (based on fleet size) and sustained improvements in rail service and the relative fuel efficiency of intermodal transport have benefited this segment.
“Over next several quarters, we expect the domestic intermodal business to continue to grow, given certain advantages of rail relative to trucking, specifically its cost advantage, lower fuel consumption, and thus smaller environmental impact,” stated in the S&P note.
The intermodal segment uses agreements with all major North American rail carriers to provide intermodal freight solutions throughout the continent, particularly through key contracts with the Burlington Northern Santa Fe LLC and Norfolk Southern Corp. railroads. The line-haul freight movement in this segment uses rail carriers' "container on flatcar" services with over-the-road
trucking companies picking up and delivering at the origin and destination rail terminal locations. Customers receive one invoice for the transportation and have one point of contact.
The dedicated and logistics segments, while somewhat competitive and capital-intensive, tend to be somewhat more stable, due to longer-term contracts and higher barriers to entry. The Truck Load segment of the trucking industry is intensely competitive, commodity-based, cyclical, and fragmented (the top 10 TL companies account for less than 10% of industry revenues), according to S&P.
J.B.Hunt continues to focus on expanding its more profitable intermodal and dedicated businesses, shifting business away from its more capital intensive and competitive truck load segment.
Overall, the company continues to focus on cost controls, productivity improvements, sustainable profits and yield management which has allowed the trucking firm to reduce its debt. As of June 30, the company's total reported debt was $679 million, which is down slightly versus $749 million at fiscal year-end Dec. 31, 2011.
Strong cash flow and earnings give J.B. Hunt an adequate liquidity rating according to S&P.
“We expect the company's liquidity sources to exceed its uses by more than 1.2 times over the next 12 to 18 months assuming $850 million-$900 million of liquidity sources over the next 12 months, consisting of cash, operating funds, asset disposals and unused credit facility capacity,” according to the S&P note.
An August 2011 filing with the Securities and Exchange Commission showed the company secured a $250 million revolving credit facility, which matures August 2016 ($197 million was available as of Mar. 31.) The terms of the credit facility allow J.B. Hunt to request an increase up to $250 million and to request a one-year extension of the maturity date for a total amount of $500 million.
J.B. Hunt offsets a notable portion of gross capital expenditures through asset disposals. As of June 30, net capital expenditures were $171 million versus $211 million the previous year.
Analysts expect the full-year 2012 net capital expenditures to be about $350 million-$375 million area, which is comparable with 2011 levels due to additional fleet investment in tractors, containers and chassis.
The transport firms pays out about $60 million annually in shareholder dividends. The most recent dividend was declared Wednesday (July 25). Shareholders of record Aug. 3 will receive 14 cents per share of common stock owned. The dividend is payable Aug. 17. Shares of J.B. Hunt (NASDAQ: JBHT) closed Thursday at $54.42, up 81 cents. The share price has ranged from $61.18 to a $34.42 low in the past 52 weeks.
Wall Street analysts give J.B. Hunt shares a target price of $60.52 for the next 12 months.