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Despite an easier comp, EXPD’s airfreight vols declined 17% y/y in April vs. -9% in 1Q. Historically, EXPD’s model is not able to overcome double-digit declines in vols, and we are lowering our 2Q EPS estimate by 9% to $0.41 vs. Cons. of $0.44 and $0.44 a year ago. We are also lowering our full-year C12 estimate by 3% to $1.79 (flat y/y) vs. prior Cons. of $1.81, and our C13 estimate by 7% to $2.00 vs. prior Cons. of $2.10. We believe a 2Q miss is likely reflected in the stock and we see limited downside for EXPD at 20x forward P/E given our sense that int’l vols have bottomed. However, EXPD seems to be losing airfreight share and gross yields are likely to be worse than we previously expected. As a result, we see more upside for other transport names and don’t expect EXPD to materially outperform this year beyond a cyclical upturn in the market.
Pension Funding Relief Likely in 2012. A period of sustained lower interest rates and sub-par market returns has left many pension plans woefully underfunded. Lawmakers have taken notice of one unintended consequence of the Fed’s quantitative easing program and are strongly considering affording companies pension funding relief. To that end, we place 75%+ odds on pension funding relief being enacted into law this year. With a deadline looming for Congress to act on the Highway bill (a short-term extension expires on June 30th) and a student loan bill also circulating, there are two possible near-term legislative vehicles upon which pension funding relief could be passed into law. While we’ve been hearing cautious optimism that a deal may surface soon, it’s still too close a call, in our view. Even if either bill stalls, we strongly believe pension funding relief will be attached to another bill at some point this year since it’s scored as a ~$10 billion revenue raiser, faces little opposition from either party, and Congress has been very receptive to passing funding relief in the past. This report reviews the pension funding relief measure being considered and assesses companies most impacted.
According to published schedule data from OAG filings, AMR’s system-wide capacity (measured by seats, not ASMs) over the next three months (July-September) is down 2.2% y/y, an incremental 5bp higher than the schedule data from last week. The incremental capacity is mainly attributable to more seats on Latin routes. Though the changes are small on an all-in net basis, we found changes to over 50 markets in AMR’s schedule over the next few months.
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