About 11 years after Moody’s first placed a Baa1 rating on J.B. Hunt’s publicly traded debt, the ratings agency this week affirmed that rating.
It’s been a remarkable run of stability for the trucking and intermodal giant (NASDAQ: JBHT). The Baa1 rating – three notches above the dividing line between investment-grade and non-investment-grade debt – dates back to 2014.
Baa1 is equivalent to the BBB rating of S&P Global Ratings. S&P has had a BBB rating on J.B. Hunt since 2012, though last summer it changed the outlook on the company to “stable” from “positive.”
Moody’s already had a stable outlook on J.B. Hunt, and it retained that outlook in the affirmation of the Baa1 rating. A stable outlook at both ratings agencies means conditions are not likely to result in an upgrade or downgrade of the company anytime in the near future.
Moody’s undertook the review of J.B. Hunt’s debt because the Arkansas-based company is issuing $500 million in senior unsecured debt to replace an existing $500 million term loan that is due in September. Moody’s said that loan is not rated.
Unlike privately held companies with publicly traded debt, the reports of rating agencies on a publicly traded company like J.B. Hunt do not offer as many insights into a company’s fiscal situation. Earnings are released every quarter, and equity markets provide a verdict on their view of the company every day.
Ironically, J.B. Hunt, along with numerous other trucking companies, hit a 52-week low in equity trading Wednesday, reaching $151.60. It is down about 23.8% for the year and 6.8% in the past month.
“The affirmation of J.B. Hunt’s existing rating and maintenance of the stable outlook reflects the company’s favorable credit metrics, with leverage expected to remain around 1.0x and positive free cash flow, despite an ongoing slowdown in the freight sector,” Moody’s wrote in its rating report. “J.B. Hunt also benefits from its position as a leading surface transportation and logistics company with a strong national footprint and intermodal franchise arrangements with most of the major North American railroads.”
That ratio of debt to earnings before interest, taxes, depreciation and amortization is one of the key metrics that ratings agencies use in determining a company’s rating. The ratio, after some adjustments made by Moody’s, is expected to be 1X – or essentially equal – by the end of this year, Moody’s said.
That’s a strong ratio. By contrast, when S&P Global Ratings weighed in last September on the RXO acquisition of Coyote, it said the 3PL had a ratio of about 3X. The agency saw a possibility for it to move to 2X.
Another key metric for the ratings agencies is free cash flow, as debt payments can be more of a burden in a company generating limited cash.
Moody’s said it expects positive free cash flow at J.B. Hunt in 2025 “as the company has dialed back capital spending due to a higher than normal investment period in 2023 to replenish its fleet in anticipation of a growing economy.” J.B Hunt produced positive free cash flow of approximately $6 per share in 2024, according to calculations from CFRA, but it was slightly negative a year earlier.
Any hopes for a significantly better trucking market this year do not appear to have been a significant factor in the ratings affirmation; Moody’s doesn’t appear to have those expectations. “We expect volumes to increase modestly in 2025 due to reduced truck capacity in the industry and continued growth in the economy,” the agency said.
“J.B. Hunt, along with the transportation sector, has been challenged by soft freight volumes following significant capacity growth in the industry during the pandemic,” Moody’s said. “The company has also experienced pricing pressure in the transportation spot markets. Higher wages, higher carrier insurance and equipment costs are also negatively impacting margins.”
Ratings agencies also focus on liquidity, which Moody’s said was “solid” at J.B. Hunt. The company has a $1 billion revolving credit facility, and $720 million of that is available. Its cash stockpile at the end of last year was $47 million, Moody’s said.
Capital expenditures this year are expected to be about $800 million. That is right in the middle of the $700 million to $900 million that CFO John Kuhlow discussed on the company’s first-quarter earnings call as the likely spending in 2025.
Moody’s has debt maturities that come due in March 2026. It expects that J.B Hunt will refinance that debt later this year.
An email sent to J.B. Hunt about Moody’s action had not been responded to by publication time.
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