J.B. Hunt is huge winner under Trump tax plan

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In a further sign of the booming economy, J.B. Hunt’s revenues were up 16% to $1.99 billion as reported in their quarterly earnings release. With the massive, unforeseen tax break that is rippling through the US economy, the company’s earnings came in at over three times Q4 profits from 2016. But on deeper inspection the picture might not be as rosy as it seems as operating income fell 25% to $146 million.

This $309.2 million number is chiefly due to a $245.5 million in income tax reductions. This is compared to the $70 million that the company paid last year. This propelled the company to 2017 Q4 tax rate of -175.65% vs 37.6% in Q4 of 2016. This brought the annual tax rate for 2017 down to -15.29%.

According to the company’s earnings release, the company adjusted estimated future taxes by $309.2 million. The company said “Quarter results include a $309.2 million decrease in income taxes from our reasonable estimate of the change in future tax rates on deferred tax balances at December 31, 2017, as a result of the Tax Cuts and Jobs Act enacted in the quarter.”

This boost equates to Q4 EPS of $3.48 vs. $1.05 this quarter last year.

Annual revenue rose 10% to $7.2 billion and EPS rose 62%, but operating income dropped for the year as well down 13% to $624 million.

The news came as a welcome twist of fate for J.B. Hunt, as in December the company announced that investors should anticipate lower than expected earnings, around 85 to 90 million.

Earnings before taxes was down 26% to over $139.8 million for the quarter year over year.

After consideration of these specific charges, the benefit from increased revenues was partly offset with cost increases to attract and retain drivers and independent contractors, higher insurance and claims costs, inefficiencies from rail network congestion and maintenance schedules, higher salary and wage expenses and lower asset utilization due to the time trucks remain unseated.

In addition, fourth quarter 2017 net earnings included pre-announced pretax charges of $20.3 million for a reserve on a cash advance for the purchase of new trailing equipment from a manufacturer that will not meet delivery and $18.6 million for an increase in reserves for certain insurance and claims.

“After consideration of these specific charges, the benefit from increased revenues was partly offset with cost increases to attract and retain drivers and independent contractors, higher insurance and claims costs, inefficiencies from rail network congestion and maintenance schedules, higher salary and wage expenses and lower asset utilization due to the time trucks remain unseated”

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Segment Information:

Intermodal (JBI)

Revenue increased 10% to 1.1 billion, reflecting volume growth of 5% and a 5% increase in revenue per load which is the combination of freight mix, customer rate increases and fuel surcharges. Revenue per load excluding fuel surcharges increased approximately 2% compared to a year ago.

However, operating income decreased 25% from the prior year. Benefits from increased volume and revenue per load were offset by increased costs to attract and retain drivers, higher third-party dray costs, increased insurance and claims costs and inefficiencies in the rail networks due to congestion and track and yard maintenance.

Dedicated Contract Services (DCS).

Fourth quarter 2017 Segment Revenue came in at $477 million which was up 20% but fourth quarter 2017 Operating Income came in low again at $34.9 million; down 39%

DCS revenue increased 20% during the current quarter over the same period 2016 because of productivity gains (revenue per truck per week) and the addition of capacity and a customer retention rate above 98%.

Integrated Capacity Solutions (ICS)

Revenue per load increased 19% and volume increased 17% mostly due to increased spot market activity for a total revenue increase of 40% in the current quarter compared to the fourth quarter of 2016. Spot market demand played a big part in boosting ICS revenue.  Contractual volumes represent approximately 66% of the total load volume but only 46% of the total revenue in the current quarter compared to 75% and 62%, respectively, in fourth quarter 2016.

This led to operating income increased 86% over the same period in 2016. This increase in gross margin was partially offset with higher technology spending as JBHunt360 continues to be rolled out to more customers.

Truck (JBT)

JBT revenue for the current quarter increased 1% from the same period in 2016. Revenue excluding fuel surcharges was flat compared to a year ago. Revenue per load increased 13% primarily from a 12% increase in rates per loaded mile on an equivalent length of haul compared to fourth quarter 2016 but was offset with an 10% decreased in load count.

Operating income decreased 5% from fourth quarter 2016 levels. Favorable changes from higher revenue per load were offset by higher driver wages and independent contractor costs per mile, lower tractor utilization from an increase in unseated trucks and higher insurance and claims costs compared to fourth quarter 2016.

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