FDX will report F4Q EPS and our unchanged estimate of $2.02 is 3% above Cons. FDX’s F14 guidance should be the key driver of its stock, and our $7.05 est. is 4% below Cons. but slightly above our view of buy-side expectations at or below $7. Below, we provide a summary of our expectations for FDX and show how its stock has recently performed into and out of earnings. (pg. 2)
This weekly report presents the most recent views we are hearing from industry insiders and summarizes the research of Wolfe Research. 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.
Total rail vols increased 0.2% y/y, decelerated from +5.3% and +2.9% the prior 2 weeks. Rail vols posted their slowest growth in the past 7 weeks as vols for the Canadians turned negative and coal vols also inflected negative. Vols are now tracking up 2.0% QTD vs. +1.6% in 1Q and about 50bp above our expectations. Vols are currently tracking the most above our expectations for CP and CSX, but modestly below for CNI and KSU.
The USDA slightly reduced its production forecasts for the upcoming crop due to delayed corn plantings this spring. The USDA still expects a 21% y/y increase in total crop production, down only 70bp from its initial May forecast. The USDA also raised its expectations for high-margin grain exports which it expects to increase 19% y/y.
Total rail vols increased 5.3% y/y this week, accelerated from +2.9% and +2.5% the prior 2 weeks. Excluding CP who faced a very easy comp due a strike last year, total vols were up 2% y/y for the week vs. flat last week. Total rail vols incl. CP are now tracking up 2.2% QTD vs. +1.6% in 1Q and above our expectations of about 1.5%. Vols are currently tracking the most above our expectations for CP and CSX, but most below for KSU and CNI QTD.
Total rail vols increased 2.9% y/y in Week 21, accelerated from +2.5% and +2.3% the prior 2 weeks. Note that CP faced an extremely easy comp due to a 9-day strike last year, and excluding CP, total vols were flat y/y for the week. Total Rail vols are now tracking up 1.9% QTD so far in 2Q, accelerated modestly from +1.6% in 1Q and slightly above our expectations. Vols are tracking most above our expectations for CP and CSX and most below for KSU so far in 2Q.
Transports with Most and Least Momentum: CP, UNP and EXPD sounded relatively best, and NSC relatively worst on Day 1.
This month’s Macro examines March and April data. As shown on Slide 8, freight vols on avg. declined 2% y/y in March and are tracking up less than 1% y/y based on preliminary April data after growing close to 3% the 1st two months of the year. Moreover, our proprietary Seasonal Freight Index (Slide 7) has dipped back below 50 the past 2 months after accelerating sharply late last year and early this year.
We emailed out a 70-page report reiterating our bullish TL thesis. We recommend buying TL stocks into early signs of tighter capacity and our expectations for capacity to tighten further the next few months and lead to stronger TL pricing into 2014. We also published a 60-page report on the rails and our expectation for stronger coal vols ahead. Bound hard copies of both reports will be available at our Global Transport Conference on Wednesday, May 22 and Thursday, May 23. If you can’t attend our conference, email us for hard copies of either report.
Natural gas prices have more than doubled over the past year and are currently trading back above $4.00/MBtu. Our conversations with coal-fired utilities indicate Powder River Basin (PRB) and Illinois Basin coals are now back in the money, and even Northern App (NAPP) coal is in the money for some plants. However, Central App (CAPP) coal will structurally remain uneconomic until gas rises closer to $6 for most plants. Based on higher gas prices, many utilities are reporting higher coal capacity factors versus a year ago. Utility coal stockpiles are also starting to come down, and coal production is ramping back up, and this should create a favorable backdrop for domestic rail coal volumes ahead.