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WIKI ANALYSIS
J.B. Hunt Transport Services (JBHT: NASDAQ) is one of the top 10 freight shippers in North America, generating more than $3 billion in revenues each year. The company ships forest and paper products, building materials, general merchandise, food and beverage, chemicals, and automotive parts.[1]
J.B. Hunt's top 10 customers account for 40% of its revenue, so customer concentration risks exist for J.B. Hunt, and the loss of one major customer would have a significant impact on the firm's balance sheet. Company profits are also closely linked to the the health of the economy, because when consumer spending is down companies ship less goods and companies like J.B. Hunt have to lower their rates to attract business.
J.B. Hunt relies on third-parties, such as Burlington Northern Santa Fe (BNI) and Norfolk Souther (NSC), for its intermodal operations (when goods are shipped by a combination of rail and truck transport). Intermodal shipping uses fewer workers and less fuel, so its a cheaper option for most companies (but limited to places where there are existing train routes). This could help J.B. Hunt outperform competitors who are focused exclusively on trucking in a protracted recession, because when companies cut shipping costs to respond to lower demand they will first cut more expensive truckload shipping rather than more efficient intermodal operations.[2]
Business Overview
J.B. Hunt charges customers to transport goods across North America for them. The company's shipping rates include base rates plus a fuel surcharge. The fuel surcharge can temporarily boost or decrease revenue, and may not always be able to transferred to the customer.[4]
Business & Financial Metrics[5]
In 2009, J.B. Hunt generated a net income of $136.4 million on revenues of $3.20 billion. This represents a 32.0% decrease in net income and a 14.2% decrease in total revenue from 2008.
Business Segments[6]
- Intermodal JBI (55% of total revenue): Using 55,000 containers and 1,551 company-owned tractors, the Intermodal division works with customers to provide transportation using more than one transportation mode. J.B. Hunt teams with third-party transporters, such as railroad companies, to ship goods. J.B. Hunt will usually pick goods up from the customer and take them to a train station. The goods are then transported by the third-party to the destination station. J.B. Hunt will subsequently deliver these goods from that station to where the customer needs the goods.[7]
- Dedicated Contract Services DCS (24% of total revenue): This operating segment provides customers access to specific shipping needs. J.B. Hunt will give exclusive of its equipment and drivers for a specific shipper. Due to the nature of customized freight movement, DCS tries to establish long-term working contracts with customers. This operating segment has a major contract with Wal-Mart Stores (WMT).[8]
- Full-Load Freight JBT (14% of total revenue): JBT provides truckload services to shipping customers. J.B. Hunt uses 4,232 tractors in order to route goods directly from origin to destination without any intermediate handling.
- Integrated Capacity Solutions ICS (7% of total revenue): This operating segment provides comprehensive transportation services by utilizing a number of third-party transportation companies.[9]
Key Trends and Forces
Sensitivity to Economic Conditions
The trucking industry is closely tied to U.S. economic cycles and is particularly vulnerable to fluctuations in the manufacturing and retail sectors. This correlation between economic growth and trucking profits is due to basic supply and demand economics, since customers typically use a bidding system, which tends to keep prices fairly competitive; when shipping volume decreases in a weakening economy with supply held constant, then prices usually decrease.
Government Regulations
J.B. Hunt must follow regulations set forth by the US Department of Transportation and Homeland Security, along with the Environmental Protection Agency (EPA). The EPA requires a progressive decrease in diesel truck emissions through 2010 due to environmental concerns. These regulations could lead to higher fuel, trucks, and maintenance expenses.
Fuel Expenses
J.B. Hunt, along with its peers in the trucking industry, are relatively shielded from changes in fuel prices, because of a generally accepted fuel surcharge system, in which customers agree to pay established shipping rates plus or minus a change in diesel prices. However, if diesel prices continue to increase, it may be harder for the trucking industry to continue its practice of applying the expense to their customers.
Reliance on Third-Party Transporters
J.B. Hunt depends on third-party companies, like Burlington Northern Santa Fe (BNI) and Norfolk Souther (NSC), to help move goods in its intermodal segment. Disruptions in any of these firms could impact revenue and business relationships.
Competition
J.B. Hunt competes with a range of regional and national transportation and logistics companies. The trucking industry in highly fragmented as low barriers to entry exists (only need tractor and license). There are roughly 360,000 trucking companies (96% operate fewer than 28 tractors and 82% operate fewer than 6).[10] Transportation companies typically compete based on freight prices, service, reliability, transit times, and scope of operations.[11]
Transportation of Goods
J.B. Hunt competes directly with other truckload carriers such as YRC Worldwide (YRCW), Old Dominion Freight Line (ODFL), and Conway Inc (CNW). J.B. Hunt also competes indirectly with railroad and air freight. Overall, the trucking industry tends to see periodic price decreases by firms, which try to capture extra business. Moreover, many customers use a bidding system, which tend to keep prices fairly competitive. For instance, Wal-Mart Stores (WMT) needs freight shipped, so it asks several shipping firms to submit how much payment they are willing to accept. The lowest bid usually wins the contract.
J.B. Hunt uses relatively young tractors in order to minimize downtime and maximize utilization. The average lifetime of its tractor fleet is 2.2 years.[12] By doing so, the company can achieve higher reliability rates and attract more business. J.B. Hunt is also focusing capital funding into its intermodal segment, which is experiencing the highest growth.
References
- ↑ J.B. Hunt Form 10-K, FY 2006, "Marketing and Operations", Page 6
- ↑ J.B. Hunt Form 10-K, FY 2006, "Risk Factors", Page 7-9
- ↑ A J.B. Hunt Trailer
- ↑ J.B. Hunt Form 10-K, FY 2006, "Risk Factors", Page 7-9
- ↑ 5.0 5.1 JBHT 2009 10-K pg. 37
- ↑ JBHT 2009 10-K pg. 3
- ↑ J.B. Hunt Form 10-K, FY 2006, "Operating Segments", Page 4-6
- ↑ J.B. Hunt Form 10-K, FY 2006, "Operating Segments", Page 4-6
- ↑ J.B. Hunt (JBHT) Form 10-Q, 3Q FY 2007, "Business Segments", Page 11
- ↑ TruckInfo.Net
- ↑ Con-way (CNW) Form 10-K, Fiscal Year 2006, "Competition", Page 4
- ↑ J.B. Hunt (JBHT) Form 10-K, FY 2006, "Revenue Equipment", Page 7
