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J.B. Hunt reports 8.0% growth in full year operating income 17 January 2020

Full Year 2019 revenue up 6.4% to US$9.17 billion

J.B. Hunt Transport Services, Inc. has announced Q4, 2019 net earnings of US$144.7 million vs. Q4, 2018 net earnings of US$88.7 million, where Q4, 2018 net earnings included pretax charges of US$134.0 million for contingent liabilities related to the arbitration with BNSF Railway Company.

Total operating revenue for the current quarter was US$2.45 billion, compared with US$2.32 billion for Q4, 2018. A 2.0% increase in load volume in Intermodal (JBI), partially offset with a lower revenue per load, contributed to a less than 1.0% increase in segment revenue. Dedicated Contract Services (DCS) segment revenue increased by 20.0%, primarily from the February 2019 acquisition and the addition of new customer accounts. Integrated Capacity Solutions (ICS) segment revenue increased by 9.0% primarily from a 3.0% increase in load growth and a favourable change in customer freight mix. Truck (JBT) segment revenue decreased 20.0% primarily from lower loaded miles and lower rates per loaded mile. Current quarter total operating revenue, excluding fuel surcharges, increased approximately 7.0% vs. the comparable quarter 2018.

Total freight transactions in the Marketplace for J.B. Hunt 360° increased to US$289.0 million compared to US$174.0 million in the prior year quarter. ICS revenue on the platform increased to US$225.0 million with an approximate 60.0% increase in average monthly active carrier users vs. the year ago period. JBI and JBT executed approximately US$47.0 million and US$17.0 million, respectively, of their third-party dray and independent contractor costs through the platform during the quarter.

Operating income for the current quarter totalled US$205.1 million vs. US$122.7 million for Q4, 2018. Operating income in Q4, 2018 included US$134.0 million in charges for contingent liabilities related to the arbitration with BNSF Railway Company. Excluding these charges, operating income decreased 20.0% from Q4, 2018. The benefit from increased revenues was offset with cost increases in rail purchase transportation rates; higher building rental expense in the Final Mile Services network; lower gross margins in ICS; increased technology spend on new applications, primarily in ICS, and legacy system upgrades affecting all segments; increased driver wages; increased driver and independent contractor recruiting costs and higher salary and wage expenses for non-driving personnel.

Intermodal (JBI) Q4, 2019 revenue was unchanged at US$1.27 billion, as operating income reached US$131.1 million, up 304%. JBI total volumes increased 2.0% over the same period in 2018. Eastern network loads decreased by 8.0% and transcontinental loads grew by 8.0% compared to Q4, 2018. Revenue increased less than 1.0%, reflecting the 2.0% increase in volume offset by a 1.0% decrease in revenue per load, the combination of freight mix, customer rate increases, and fuel surcharges. Revenue per load excluding fuel surcharges was flat compared to a year ago. Operating income increased 304.0% from the prior year. In Q4, 2018, JBI recorded US$134.0 million in charges for contingent liabilities related to the arbitration. Excluding these charges, operating income decreased by US$35.3 million or approximately 21.0% from the comparable quarter 2018. Benefits from increased volumes were offset by higher rail purchase transportation rates, increased box repositioning costs due to a lack of balance in the intermodal network, increased costs to recover from rail service interruptions including a derailment in Southern California and increased costs to attract and retain drivers. The current period ended with approximately 96,700 units of trailing capacity and approximately 5,560 power units in the dray fleet.

Dedicated Contract Services (DCS) Q4, 2019 revenue reached US$717.0 million, up 20.0% as operating income increased to US$79.6 million, up 34.0%. Productivity (revenue per truck per week) increased approximately 9.0% vs. 2018. Productivity excluding fuel surcharge revenue increased approximately 11.0% from a year ago primarily from the February 2019 acquisition, customer rate increases, improved integration of assets between customer accounts, and increased customer supply chain fluidity. Included in the DCS revenue growth, Final Mile Services (FMS) recorded an increase in revenue of US$59.0 million (primarily from the February 2019 acquisition) compared to Q4, 2018. A net additional 972 revenue producing trucks, 153 net additions sequentially from Q3, 2019, were in the fleet by the end of the quarter. Approximately 58.0% of these additions represent private fleet conversions and 15.0% represent FMS versus traditional dedicated capacity fleets. Customer retention rates remain above 98.0%. Operating income increased by 34.0% from a year ago. The benefits from additional trucks under contract, higher productivity and more predictable and consistent start-up costs were partially offset by increased costs expanding the FMS network, increased driver wages and increased driver recruiting costs and an incremental US$1.0 million in noncash amortisation expense attributable to the February 2019 acquisition compared to the same period a year ago.

Integrated Capacity Solutions (ICS) Q4, 2019 revenue reached US$377.0 million, up 9.0%, as an operating loss of US$(11.8 million) was recorded, compared to US$16.1 million operating income in 2018. Volume increased 3.0% and revenue per load increased 5.5%, mostly due to customer mix changes, compared to the prior year. Contractual volumes represent approximately 73.0% of the total load volume and 65.0% of the total revenue in the current quarter compared to 71.0% and 53.0%, respectively, in Q4, 2018. Of the total reported ICS revenue, approximately US$225.0 million was executed through the Marketplace for J.B. Hunt 360 compared to US$174.0 million in Q4, 2018. Operating income decreased US$28.0 million compared to the same period in 2018 primarily from a lower gross profit margin, a 150.0% increase in expenditures to expand capacity and functionality of the Marketplace for J.B. Hunt 360, higher personnel costs, and increased digital marketing and advertising costs. Gross profit margin decreased to 10.6% in the current period from 16.9% last year primarily from a competitive pricing environment in the contractual business and a softer overall spot market. ICS carrier base increased 15.0% and the employee count increased 6.0% from a year ago.

Truck (JBT) Q4, 2019 revenue fell to US$94.0 million, down 20.0% as operating income declined to US$6.3 million, down 57.0%. Revenue excluding fuel surcharges also decreased approximately 21.0% primarily from an 11.0% decrease in rates per loaded mile and a 9.0% decrease in load count compared to a year ago. Comparable contractual customer rates were flat compared to the same period 2018. At the end of the period, JBT operated 1,831 tractors compared to 2,112 a year ago. Operating income decreased 57.0% from Q4, 2018. A decrease in spot market loads moved, an increase in empty miles and an overall lower load count compared to Q4, 2018 all contributed to lower operating income.

For the full-year 2019 period, operating revenues climbed 6.4% to US$9,165.3 million, as operating income increased 8.0% to US$733.8 million. Net earnings increased 5.6% to reach US$516.3 million.