J.B. Hunt Transport Services, Inc. Announces Earnings Expectations

    LOWELL, Ark.--Sept. 18, 2001--J.B. Hunt Transport Services, Inc. announced today that third quarter results are expected to fall short of analysts' consensus estimates for earnings.
    Current expectations are to report earnings per share of about 5 cents which is below the currently published consensus estimate of 26 cents per diluted share.
    The combination of lower freight demand and higher costs will keep the Company from reaching analysts' earnings expectations. While load volumes in July and August are about as expected, they do reflect an economy apparently near or in recession and are insufficient to offset higher costs. Similarly, while current truck rates are up 3.1% vs. the same period a year ago, they are not adequate to cover unusually steep increases in the basic cost of providing transportation service. The Company is offering budgeting advice to its customers to expect 10% higher rates for 2002.
    In addition to the fundamental increases around fuel, insurance and truck ownership, the Company is incurring significant costs that are outside the historical "norm" in the area of fleet disposition and replenishment and a substantial increase in costs related to the start-up of new projects for the Dedicated Contract Services (DCS) segment.
    Utilization of the Company's assets, in all three business units, is lackluster reflecting a sluggish economy and lower freight demand. This is a continuation of the freight slowdown the transportation industry has witnessed since early 2000. The combination of lower load volumes and soaring costs in the industry has thinned the ranks of providers but the balance of supply and demand remains tilted toward excess capacity. The precarious financial condition of the industry, unavailability of credit, a halt in new truck additions by carriers, and the continuing escalation of basic costs point to further capacity withdrawals and ultimate reversal of the supply/demand equation. However, we can not predict the timing nor the degree of that correction.
    Cost pressures have been intense in the transportation industry over the last several months. Used truck prices have cratered with no apparent recovery in sight causing the ownership cost of equipment to increase substantially. Soaring and volatile fuel prices have eaten away transportation margins for the better part of two years. Recent spikes in the price of diesel fuel and the resulting lag in obtaining relief from customers through fuel surcharges will have a substantial effect on earnings for the current quarter. Insurance companies began pulling away from the transportation industry earlier in the year and have followed up with extremely large price increases forcing most carriers to re-evaluate both the level of self insurance and in some cases, the upper limit of coverages. Even after increasing the self-retained risk of our insurance against claims, the Company has witnessed a significant increase in cost concurrent with renewal of its insurance coverage.
    In addition to the industry-wide cost pressures outlined above, the Company has experienced extraordinary costs in the current quarter specifically in two areas. First, costs associated with greater than normal activity in replacing both tractors, trailers and containers are being incurred for fix-up and transportation costs related to the retirement and replacement of its fleet. Likewise, a relatively inordinate amount of new project start-ups are underway in the DCS business unit and the attendant estimated start-up costs will negatively impact earnings for the third quarter. These costs are included in the pricing of contracts and reimbursed by the customer over the term of the agreements but the costs are incurred currently.
    As indicated, the Company is encouraged with an increase in growth of new accounts in DCS that will benefit future periods. Similarly, the Company is particularly pleased and expects to report continued improvement of operating results in the Truck segment relative to 2000. Intermodal profitability is expected to approach the levels of recent quarters but below management expectations primarily due to the weak economy and the costs associated with the retirement and replacement of containers.