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JB Hunt Transport Services Inc (JBHT) Q2 2021 Earnings Call Transcript

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JB Hunt Transport Services Inc (NASDAQ:JBHT)
Q2 2021 Earnings Call
Jul 19, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to J.B. Hunt 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your first speaker today, Mr. Brad Delco. Thank you. Please go ahead, sir.

A. Brad DelcoVice President-Finance and Investor Relations

Good afternoon. Before I introduce the speakers, I would like to take some time to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt’s current plans and expectations and involve risk and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt’s Annual Report on Form 10-K and other reports and filings with the Securities and Exchange Commission.

Now, I would like to introduce the speakers on today’s call. This afternoon, I am joined by our CEO and President, John Roberts; our CFO, Executive Vice President of Finance, John Kuhlow; Shelley Simpson, Chief Commercial Officer and Executive Vice President of People and Human Resources; Nick Hobbs, our COO and President of Contract Services; Brad Hicks, President of Highway Services; and Darren Field, President of Intermodal.

At this time, I would like to turn the call to our CEO and President, Mr. John Roberts for some opening comments. John?

John N. RobertsPresident, Chief Executive Officer

Thanks, Brad. As we open our earnings call for the second quarter 2021, it makes sense to consider our comparison data with recognition for where we all were this time last year with the onset of the COVID virus. That said, we will continue our discussion on our views of our progress across the enterprise. A general term we believe fits our current position is momentum. We noted for you during our last call that we have meaningfully increased our equipment orders for containers in Intermodal and trailers for the J.B. Hunt 360box program. Through the quarter we gained confidence in these decisions and are working with our vendors to accommodate delivery of this equipment throughout the balance of the year with a keen focus on being able to meet the needs of our customers as we approach the traditional peak seasons. This is a fluid situation and we are deploying some new and creative ideas for ongoing equipment delivery. Shelley will add color for us on how we plan to work with our customers heading into the second half of 2021 and 2022. A high-level overview provides visibility for us to see that the Company increased revenues, operating income and earnings per share in total and in all segments compared to the unusual second quarter of 2020. Further review shows that Intermodal, Dedicated and Truckload all increased both revenue and operating income over Q1 of this year. ICS and Final Mile increased revenue but failed to increase operating income when looking sequentially and adjusting Final Mile Services for the gain we called out in our release. As our segment leaders will discuss for you, the segments are all performing well and present solid evidence that support both our strategy to this point and what I believe to be strong momentum as we move forward from here. Given the work we have completed with our customers, current demand trends, order flows and sales pipelines, coupled with the data revealing some of the lowest inventory levels we have seen give us confidence in this momentum continuing.

One last point I’d like to highlight is the progress the Company has made in increasing our transparency and focus on our overall sustainability efforts. Under the leadership of our Chief Sustainability Officer, Craig Harper, we have recently published our first sustainability report in accordance with the GRI, SASB and TCFD frameworks, which is easily accessed via our website. I think it’s also worth noting that over the last year our broader sustainability disclosure efforts have been recognized by SmartWay, CDP, formally the Carbon Disclosure Project, Sustainalytics and EcoVadis with meaningful improvements in our reporting across these platforms. Craig calls out 25 unique people internally and many more who have helped with this improvement. As noted, this is a journey and not just for a few but for our entire organization.

I will now turn the call over to our CFO, John Kuhlow for his comments. John?

John KuhlowChief Financial Officer, Executive Vice President

Thank you, John, and good afternoon everyone. I’d like to start with providing a couple of comments on our second quarter just from a consolidated perspective. As John noted, we are pleased with our revenue, operating income and EPS growth for the quarter with notable achievements in our Highway Services revenue as both ICS and JBT they were certainly over prior-year quarter, but more importantly, they are carrying the momentum from their first quarter results into the second. Current quarter was significantly impacted by labor shortages putting a strain on our ability to serve — to service demand and effectively use our assets. Cost pressures in the quarter were primarily related to higher purchase transportation costs, salaries and wages and other costs across our networks and operations. While we’re hopeful for an improvement, this still remains an area of concern.

We ended the quarter with approximately $570 million in cash. On our first quarter call, we communicated our increase in equipment orders and guided our capex to be approximately $1.25 billion for 2021. While all orders are still in place, we anticipate some of these to push to 2022 because of the congestion on the waterways and also at the ports. We are committed to obtaining capacity to serve our customers, but our view today is that net capital expenditures for 2021 will be closer to $1.15 billion because of these delays and other challenges to equipment needs.

We resumed stock buybacks on a more regular basis in the second quarter and have acquired approximately $80 million, rounding out close to $85 million year-to-date. We will continue to balance our cash spend on equipment, dividends and buybacks through the remainder of the year as opportunities unfold and trend closer to our targeted 1 times EBITDA leverage metric on a net basis when the environment begins to normalize.

As John noted, segment comparisons to prior year are difficult because of the pandemic. But I would like to point out an item for consideration on the year-over-year comparisons for salaries and wages. COVID costs in the second quarter decreased nearly $10 million from the prior-year quarter, which is primarily due to a reduction in PTO for employees needing to quarantine. However, as we called out in the release, this reduction was meaningfully offset by increases across all pay items for both drivers and non-driver employees. The impact of the reopening on salaries and wages is widespread and we see challenges in this area continuing because of the importance of attracting and retaining our people.

This concludes my remarks and I’ll now turn it over to Shelley.

Shelley SimpsonChief Commercial Officer, Executive Vice President, People and Human Resources

Thank you, John, and good afternoon. My commercial update will focus on general market conditions, our expectations and plan for our customers’ peak season capacity needs as well as an update on the progress we are making as an organization with our J.B. Hunt 360 multimodal digital freight platform.

As we discussed last quarter, we entered [Phonetic] 2021 with cautious optimism about the opportunities the market could present to us during the year. Now that the year is just halfway over, clearly the…

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