Hunt's Move Makes Perfect Sense

by Arkansas Business staff  on Monday, Jun. 19, 1995 12:00 am  

Garrison Appears the Right Choice to Stabilize Trucking Firm

J.B. Hunt wrapped up his company's annual shareholders meeting in May by mapping out the course his Lowell-based trucking firm would take in the next year.

"The old man is getting old, but we've got a lot of work to do," he said.

The "old man" was also very tired that day, having returned the night before from a three-day conference in Atlanta on intermodal transportation. After the meeting, he and his wife, Johnelle, corporate secretary and de facto co-chair of the company, met with Wayne Garrison — a director, former company president and chief executive officer and once the Hunts' son-in-law.

All of a sudden, the 68-year-old J.B. Hunt decided it was time to step down as chairman of the trucking empire he had built.

"We were just visiting with Wayne Garrison, talking to him after the board meeting," says Johnelle Hunt, adding that her husband "was working real hard. He gives it 110 percent plus more and he doesn't know how to do it any other way.

"Wayne said, 'I'll come back and help out and do what I can,' and so forth," she recalled. "[J.B.] said, 'You got a deal,' and that's how it happened. He was just ready, I guess, at that minute. I don't think he even knew it before then."

Less than a week later, Hunt officially left the day-to-day operations of the firm he founded in 1961. Taking a cue from Don Tyson, his counterpart at nearby Tyson Foods Inc. who a month earlier officially stepped aside as chairman, Hunt took on the newly created designation of senior chairman of J.B. Hunt Transportation Services Inc.

A surprised board of directors reconvened by conference call in the days following the stockholders' meeting and passed the torch to Garrison, the company's largest individual shareholder other than J.B. Hunt.

Industry analysts say the timing was good for the company. Though Hunt is an innovative leader, the firm has had less than stellar results recently and is facing a difficult year ahead.

Hunt and his replacement are a study in contrasts.

The former is known as a gregarious good ol' boy who pulled himself up by the bootstraps — he left school after the seventh grade to help support his Depression-era family. He's the idea man, the visionary. He's an avid rancher — Hunt was out of town purchasing more cattle and could not be reached for this story — who raises prize-winning Santa Gertrudis cattle on his 400-acre spread in Goshen. He bought the ranch from Garrison.

Garrison is described as a no-nonsense, cigar-smoking, bottom-line manager. He breeds racehorses on his ranch in Lexington, Ky. One anecdote tells of him walking in on a meeting of midlevel J.B. Hunt managers shortly after taking the helm and breaking it up, telling the participants to get back to their desks because "your job is booking freight."

Analysts Favor Change

Company observers, while loathe to say anything critical about the affable Hunts, say the change in personalities is just what the firm needs.

"You hate to say anything ugly about the Hunts because they're such nice people, but he was a loose cannon," one analyst says. "He had an idea a minute, and it's very difficult to maintain a focus. Yes, he's a visionary, and yes, he's has some very good ideas about where the industry is going. But it's a tough business. You just can't get there overnight, and sometimes you can't get there at all if you keep taking detours."

Others in the industry concur.

"The more nuts-and-bolts, day-to-day management is something that's been needed out there," says David M. Guthrie, an analyst with Morgan Keegan & Co. in Memphis. "They don't really need to go into anything new for a while. They've got plenty on their plate. They need to develop what they've got. [Garrison] is a very intense, hands-on, day-to-day manager, and that's really what they need right now."

Wall Street apparently agrees. The day Hunt announced his retirement, the company's stock rose $1.19 a share to $19.19. Volume was more than eight times that of the previous day, with nearly 3.7 million shares changing hands.

The move marks a milestone in the firm's history. Hunt transformed J.B Hunt Transport from a meager five trucks and seven refrigerated trailers to the largest truckload dry van carrier in the United States, with more than 7,400 tractors, nearly 12,000 employees and revenues in excess of $1.2 billion.

Along the way the company has been one of the most innovative and cutting-edge freight haulers in the country, literally driving the trucking industry into the future.

It has led the industry in intermodal transportation (utilizing rail and road) and the use of computer technology. It was one of the first transportation companies to jump into the fast-growing Mexican market, and it foresaw the trend of companies farming out their transportation departments while refocusing on their core business. It also has expanded into other areas of the transportation industry, such as hazardous material hauling, parcel management and logistics management, to name a few.

But those investments, while generating ample revenues, have had an impact on earnings, which have been flat. First-quarter results were soft and the second quarter, which ends this month, is expected to be weak.

No Shareholder Pressure

Johnelle Hunt emphatically denies there was any pressure by shareholders for a change in management, and industry analysts say any speculation is just that.

Still, analysts note the company's performance was off.

"They've got good revenue growth, but they've had a hard time translating that into earnings growth," says Graeme Anne Lidgerwood, an analyst with CF First Boston in New York.

Because of that, industry analysts say it's time to get back to the bottom line.

"You can either focus on revenue growth or you can focus on earnings growth, and I think probably it's time they focused on earnings growth," says Ginanne Long, an analyst with Stephens Inc. in Little Rock.

It couldn't come at a better time because 1995 figures to be one of the most difficult in the trucking industry in years.

The current economic slowdown is already negatively impacting freight volumes and increasing competition as carriers fight for a piece of a smaller pie. J.B. Hunt Transport also was stung hard by the peso devaluation and the ensuing financial chaos in Mexico. Last winter's floods in California, which severely damaged the current harvest, have hurt the intermodal business.

"Last year was probably the best year in the history of trucking, but this year is going to be a tough one," Long says.

Even so, industry analysts say the company is positioned well for the future.

"Anytime you take a big company like that and you really turn radically into a different way of doing business, it's going to cut into your numbers," Guthrie says. "But sometimes you pay the penalty near-term to be in a better position long-term, and that's what they've done."

In particular, the company's move in intermodal transportation, which most see as the wave of the future, should pay off in the long run. Not only does it offer higher margins than road-only shipping, it has the added advantage of reducing reliance on driver personnel — a continual problem in an industry that commonly sees 80 percent annual turnover rates.

A Look Ahead

J.B. Hunt outlined future plans for the company at the stockholders' annual meeting.

"We've started 10 or 12 companies in the last five years that have lost money and cut into profits," Hunt said, highlighting some of those developments. "We're not going to start any more, and we're going to turn a profit from the others.

Company President Kirk Thompson highlighted a strategy of increasing intermodal loads while decreasing truck-only loads through a rate increase.

"The one advantage J.B. Hunt has longer term is they were the first to embrace intermodal, and their experience with that gives them a leg up over the long term," CF First Boston's Lidgerwood says.

Having converted 80 percent of its fleet to containers — about 23,000 — that can be moved directly from trailers and stacked onto rail cars, the company is poised to capitalize on the intermodal market. J.B Hunt Transportation has signed agreements with 12 railroads, giving it total coverage of the United States.

In addition, the Mexican market is expected to pick up more than it already has.

Thompson says other areas such as the company's flatbed operations and special commodities division should post revenue growth of about 25 percent each. Revenues from the dedicated logistics and dedicated contract services divisions should be up 100 percent each. Finally, the company's fledgling parcel management division should begin turning a profit this year.

At the same time, the company will reduce capital expenditures by $50 million, and Garrison's tight management is expected to squeeze more savings.

In the meantime, the man who put these wheels in motion is simply making the most of his time off.

"He's just the last person in the world anybody would have ever thought would retire, me included," Johnelle Hunt says. "But he looks great, he feels great and he is just thoroughly enjoying it."



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