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A hot wash of a not quite completed 2Q earnings season. 80% of the way through a less-than-great earnings season we recap what we learned at a 40,000 foot level.
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.
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Conference Call Hosted by Scott Group
Airfreight & Surface Transportation Analyst
Friday, July 27th, 11:00am ET
- Chip Nottingham, Former Chairman of the STB
- Lou Gitomer, Rail Attorney
- Robert Szabo, Rail Shipper Attorney and Executive Director of CURE
Topics to be addressed include:
The STB proposed changes to make STB rate cases simpler and less expensive for shippers to bring cases:
- What are the changes being contemplated?
- Will this lead to a material increase in cases filed against the Rails?
- What is the timing for when we should expect the changes to be implemented?
- Is there anything positive for the rails in this proposal?
The STB also is considering changes in reciprocal switching, a form of competitive access that requires railroads to transport cars of a competing railroad for a fee:
- What is reciprocal switching and how would it impact the rails?
- What is the timing for the STB to act before reciprocal switching could be enacted?
- Which rails would potentially face the greatest impact from such a change?
- Is there any potential positive for the rails in this proposal?
- What are the odds this proposal becomes a regulation?
Total Week 29 rail vols increased 2.1% y/y vs. +3.6% and +2.8% the past 2 weeks. Still, total vols are tracking up 3.1% the past 6 weeks, better than +1% in both 2Q and 1Q, aided by easy comps the prior few weeks against heavy flooding in the Midwest a year ago.
CVTI reported its 2nd straight qtr. of strong cash flow and its 1st profitable qtr. in the past 4. Including the 2Q beat, we are raising our C12 EPS estimate from $0.07 to $0.20 vs. prior Cons. of $0.34. We are also raising our C13 EPS $0.10 to $0.30 vs. prior Cons. $0.34. Improved profitability is encouraging, but CVTI’s op. performance has been inconsistent and we also expect cash flow to moderate in 2H into ramping CapEx. We continue to prefer the larger public TL carriers with more consistent operating performance, which have underperformed YTD.
LSTR reported 2Q EPS 3% above Cons. as decelerating and weaker than expected Rev. growth was more than offset by accelerating op. margin improvement and better than expected margins (similar to the transport trend in 2Q). We believe LSTR’s stock, down 16% since its 1Q modest beat on April 26th, has oversold into overall macro concerns and decelerating flatbed pricing. At about 16x forward P/E, we believe LSTR is now fairly valued.
PACR reported weaker than expected 2Q results and materially cutting full-year C12 guidance. EPS of $0.04 badly missed Cons. of $0.08 and fell from $0.12 a year ago, but improved from a $0.01 loss in 1Q. While PACR has disappointed the past 2 qtrs. with EPS misses and cash burn, we expect it to generate modest free cash flow in 2H:12 and it has enough liquidity to remain viable for at least the next few years. We also continue to see large potential EPS accretion as PACR gets through the loss of underlying rail contracts and intermodal growth accelerates, and as Logistics losses moderate. We also believe the chance of a strategic or financial buyer emerging has increased materially with the recent stock pullback
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