J.B. Hunt Announces Creation of Separate Intermodal Segment
20 September 1999
J.B. Hunt Announces Creation of Separate Intermodal Segment; Lower Earnings Expectation for Third Quarter
LOWELL, Ark.--Sept. 17, 1999--J.B. Hunt Transport Services, Inc. , the transportation logistics company, announces the creation of a separate intermodal segment and lower earnings expectations for the third quarter. With an emphasis on improving profitability through operational efficiency in both the truck and intermodal businesses, to accomplish a smooth and rapid plan to convert cabover tractors to conventional tractors and to ease the operational impact of rail service failures on both businesses, the Company will operationally separate its van truckload business into two distinct units. Separating the truck business from the intermodal business should enable the Company to further improve the truck operating ratio to acceptable industry standards. Similarly, a segregated approach to intermodal operations will focus on the unique nuances of that segment.As previously announced, J.B. Hunt Transport is in the initial stages of converting all of its over-the-road tractors to Freightliner Century Class conventionals replacing the cabover units currently in the fleet. Management believes that separating the truck operations from intermodal operations will not only aid in the conversion process but will allow heightened focus and accountability for the two units. Rail service outages, delays and problems associated with recent railroad company mergers have taken their toll in the last two years resulting in reduced customer confidence and lower intermodal revenue growth than planned, as well as reduced profit from what is the Company's biggest contributor to overall earnings. While the truck business has seen steady improvement in the operating ratio in the past two years, there has been collateral damage to the truck efficiency caused by operational complications surrounding the rail service failures. Separating the two units operationally will help insulate the truck business from similar disruptions in the future. Additionally, a concentrated focus in the intermodal arena will allow the Company to more quickly and efficiently assess and seize opportunities that the post-mergers rail system and J.B. Hunt's competitive advantages present.
One of the benefits expected from the conversion to the Freightliner conventional tractor is significantly lower maintenance cost partially derived from a superior warranty program and a substantially lower average age of its fleet. Maintenance savings are projected to more than offset the additional costs of switching to the higher priced tractor. In addition, the added driver appeal of the conventional tractor vs. a cabover tractor, combined with the highest driver pay in the industry should have a positive impact on driver recruitment and retention, universally recognized as the industry's number one problem.
While the timing and quantification of the benefits of these significant changes are hard to predict, management's goal is to be substantially completed with the segregation of truck and intermodal by year-end and to report the two as separate segments beginning in the first quarter of 2000. Meanwhile, the Company reports that for the second year in a row, rail service outages and delays are preventing the Company from obtaining adequate box turns while producing higher dray expense and limiting intermodal load growth resulting in below plan operating income from intermodal operations. In addition, higher maintenance expense on the older cabover trucks and much higher fuel costs than a year ago will combine to reduce earnings to between 14 and 18 cents per share for the current quarter.
This announcement contains forward-looking or predictive statements which are based on information currently available. Actual results may differ materially from those currently anticipated by company management. A number of factors and events not within the company's control could have a material impact on future financial results and were discussed in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 1998. If rail service outages and delays continue, these may have significant adverse effects upon intermodal service profitability. In addition, driver availability and retention, shipper demand for intermodal service and the cost of operationally separating truck and intermodal business could vary from management's expectations.