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This weekly report presents the most recent views we are hearing from industry insiders and summarizes the research of Wolfe Trahan. Included are (1) key takeaways, selected shipper comments; (2) notices of upcoming industry events; (3) key takeaways from some of our notes from the past week; (4) recent stock performance for our transport universe; (5) updated comparison tables for the airfreight & logistics group, railroads, and trucking; and (6) fuel trends for West Texas Crude Oil, On-highway diesel, Rail diesel, and Jet fuel.
May PRASM was flat to up 1% for UAL on a system-wide basis, which fell below our estimate of 2%-3% growth. UAL had a tough comparison (May-11 PRASM grew ~15% y/y), and we think some were bracing for negative y/y PRASM from UAL this month, but the result still is likely to disappoint. We believe May closed weakly for UAL. On April 26 UAL disclosed advanced booked seat factor (the percentage of available seats sold over the next six weeks vs. last year at the same point in time) was up 280bp on a weighted average basis – that metric is usually a good indicator of next month’s load factor – but May loads came in 10bp lighter y/y. That would be more palatable to us if UAL was able to book solid yields, but the company’s May yields only increased ~1% y/y by our estimate. The now-infamous LUV fare sale late last month perhaps could have had some impact, but we think it is more than likely UAL’s new reservation system still continues to ascend the learning curve. To be clear, we do not expect UAL’s industry PRASM underperformance to reverse until Labor Day, but July could be an optimistic target. This has no impact on our investment thesis, which looks out more than just six weeks.
Another bag fee increase! Every week we scour airline websites in search of changes to bag fee policies, and this week we found another one. Despite falling fuel prices and increasing skepticism surrounding the EU economic outlook, UAL increased the fee to check a second bag on transatlantic routes from $70 to $100. UAL has essentially matched DAL on this fee after DAL raised its second checked bag fee in the region from $75 to $100 in January. The likely incremental EPS contribution should be modest (we estimate about $30M/year in new revenue), but it is the message the action sends that we find to be more important…
NAV reported an adj. loss of $1.99/shr in F2Q:12, vs our $0.66 and Cons $0.72, and mgmt lowered F12 EPS guidance to $0-$2 from $4.25-$5.25. The $1.99/shr loss excluded several items incl. a $104M warranty charge (~$1/shr), which was included last qtr. A $0.4B cut in Defense rev guidance to $1.1B from $1.5B was worse than our $1.3B as DoD orders were cancelled during the qtr. We now expect $1.0B Defense rev in F12 and F13.
Total Week 22 rail vols fell 1.5% y/y, worse than +0.2% and +1.0% the prior 2 weeks. Excluding CP which was on strike last week, total rail vols increased 1.5% y/y vs. +3.6% and +0.2% the previous 2 weeks. Also note that Memorial Day took place during Week 22 this year and a year ago, although there still tends to be volatility during holiday weeks. Overall rail vols are now tracking up 0.3% QTD (vs. +1.0% in 1Q) compared with our forecast of about +1% for the qtr.
UTIW reported F1Q (ending April) EPS of $0.12, a penny below our est. (including $0.02 of expected severance charges) into weak airfreight trends, FX headwinds and ongoing transformation costs. We expect these trends to continue the next 2 qtrs. and we also expect ocean yields to come under pressure near-term. Thus we are modestly lowering our F13 EPS to $0.85 vs. prior Cons. of $0.97 but leaving our F14 est. unchanged at $1.00 vs. Cons. of $1.15. We expect muted EPS growth this year and see continued risk to Cons., but we are getting closer to F14 when cost savings should become more apparent and drive accelerated EPS growth.
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