J.B. Hunt Transport Services

From sawdust to logistics giant

For years, the logistics industry has been facing a huge problem. About half of the trucks on German roads are driving empty! Often they drive fully loaded to their destination, unload their goods at the recipient and then drive home empty. Only rarely does the original recipient become the sender of the next load. No wonder our highways are getting more and more congested too - even though there would be a much more practical and, above all, more sustainable alternative: rail. But instead of investing in the crumbling rail network, they keep expanding the highways ...

Anyway, back to trucks. J.B. Hunt Transport Services, one of the largest logistics companies in North America, recently launched the innovative platform J.B. Hunt 360. This network of shippers and carriers could significantly increase the efficiency of the entire logistics industry. Reason enough to take a closer look at the company today.

The history and business model of J.B. Hunt Transport Services Inc.

The origins of today's transportation company go back to February 28, 1927, when Johnnie Bryan Hunt was born in Heber Springs (Arkansas). His early childhood was shaped by the aftermath of the Great Depression. So J.B., as he was usually called, often had to help out on his father's farm. He left school as early as seventh grade to work in his uncle's sawmill. That way he could help support his parents and his six siblings financially. J.B. quickly found another way to make some money - the 12-year-old swept sawdust off the floor and sold it to local poultry farmers, who in turn could use it as litter for their chicken coops. A little later, J.B. tried his hand at various jobs; at times he worked as a livestock auctioneer and a lumber salesman, and ran an unsuccessful stable business. One day he borrowed 10 dollars from a friend, hitchhiked to the state capital, Little Rock, and got himself a job as a truck driver with the Superior Forwarding Company.

There he earned about 40 dollars a week, but in return he was out on the road every day. For comparison: the average annual income back then was about $3180. For example, he even missed the birth of his first child. One day, while he was out on a route in eastern Arkansas with his truck, he watched some farmers burning their surplus rice hulls. He quickly remembered his former side job and realized that these rice husks would also make good bedding for stables. Without further ado, he developed a concept for grinding these hulls a bit finer and then packaging them. He also convinced a few investors, who eventually committed 85,000 dollars to him to build his packaging plant. Despite all his efforts, the young entrepreneur didn't manage to turn a profit in the first year. But J.B. was firmly convinced of his business, worked hard on his dream together with his wife Johnelle, and by the end of the 1960s his rice hull business actually was at the top of its industry.

In 1969, a longtime customer approached J.B. and complained about the poor service of one of his trucking companies. Since that very trucking company was thinking about shutting down at the time, he encouraged J.B. to buy the carrier's five trucks and seven trailers and take over its delivery contracts. At first J.B. ran his trucking business on the side, but the foundations of today's J.B. Hunt Transport Services Inc. had now been laid. In this line of business, too, he wasn't profitable at first, since strict regulations and high operating costs ate up his profit. But here as well, the entrepreneurial couple's perseverance ultimately paid off, and in the fall of 1983 the company went public. That same year, it sold its successful rice hull business to its largest customer, Eli Lilly and Company, for a total of 2.4 million US dollars. In 1989, J.B. Hunt became the first trucking company to enter into a joint venture with the Santa Fe Railway (a subsidiary of Berkshire Hathaway since 2010) in order to offer intermodal transportation services. Shortly afterwards, partnerships with the Canadian National Railway and other railroads followed. Today, J.B. Hunt Transport Services is one of the largest transportation companies in the USA and is perfectly positioned for the future.

What does the future hold for J.B. Hunt Transport Services Inc.?

First, I'd like to take a look at the figures from the most recently published quarter (Q3 2020). Revenue in this period came in at $2.47 billion, up 4.7% compared to the prior-year quarter. From that, the company realized a profit of $125.5 million, which corresponded to earnings of $1.18 per share. In Q3 2019, profit had been $118.4 million, or $1.10 per share. Considering that fiscal year 2020 was mixed for J.B. Hunt too and certainly not easy economically, the third-quarter results are very pleasing. While demand weakened among some industrial customers, the need for transportation services in the retail sector increased. Here, too, you can see once again how important and sensible diversification is.

In my eyes, J.B. Hunt Transport Services is very well positioned for the future. For several decades, the company has posted solid revenue and profit growth. The fact that the share price follows such numbers speaks for itself. In addition, J.B. Hunt is always working on expanding its existing business further and is really on a very good path here. With its technology platform J.B. Hunt 360, customers can easily register their shipments and trucking companies can conveniently accept orders. If a third party takes on a load here, there's no extra effort for J.B. Hunt, but it still gets a small slice of the pie. All in all, I'm very confident about the future of the transportation giant from Arkansas.

What about the dividend?

J.B. Hunt shareholders received their first dividend back in 1985. Back then, however, it was treated more as an afterthought - sometimes it was raised, sometimes it was cut, and from 2001 to 2003 it was suspended completely. Since 2004, though, the transportation company has maintained an exemplary dividend policy with annual increases. Looking at the last 10 years, the dividend growth rate is a solid 8.45 percent. At 0.7 percent, the current dividend yield is fairly low, but the extremely low payout ratio of 23.3 percent suggests there's still plenty of room for growth. In the medium to long term, I'd personally like to see a payout ratio of 40 to 50 percent.

Conclusion:
Company founder Johnnie Bryan Hunt managed to build one of the largest and most successful transportation companies in North America. From my point of view, there's nothing to suggest that J.B. Hunt Transport Services can't keep growing in the future and make long-term investors happy.