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.
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.
CVTI reported 4Q EPS of $0.10, $0.02 above Cons. and $0.01 above our est. We are lowering our C13 EPS est. to $0.30 from $0.35 based on guidance for EPS to be flat y/y in 1H:13. Our C14 EPS estimate is unchanged at $0.50 and we’re now pretty in line with prior Cons. CVTI’s improving liquidity and balance sheet has been positive for its stock over the past year, but we expect free cash flow to moderate into ramping net CapEx and fewer tractor disposals in C13, and CVTI’s op. performance remains inconsistent.
After most TLs missed in 3Q, we expect more in-line reports and slight beats in 4Q as spot TL rates relatively improved and fuel should be a small sequential benefit after spiking during 3Q. Based on improved spot rates, we expected reported yields net of fuel to re-accelerate slightly, although utilization likely remained negative y/y.
CVTI reported 3Q EPS of $0.07, above Cons. of $0.05 and our low-end est. of -$0.03. We are raising our C12 and C13 EPS est. from -$0.06 to $0.15 and from $0.25 to $0.35. Improved profitability is encouraging, but CVTI’s op. performance has been inconsistent and we expect free cash flow to moderate into ramping net CapEx and fewer tractor disposals going forward. We prefer SWFT and CGI where we see more consistent operating performance and lower valuations.
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.
Earnings season kicks off with JBHT on Monday afternoon, and today we are updating our TL, LTL and Intermodal estimates. We expect in-line reports to modest beats for TLs as lower fuel seems likely to offset weaker than expected vols in the qtr. We also generally expect modest LTL beats, although expectations are tougher following strong 1Q beats. We are slightly below Cons. for Intermodal reports as we don’t expect large fuel tailwinds.
Congress reached a settlement on a new 2-year highway reauthorization bill. The bill mandates electronic recorders for truckers, and we believe this is a material long-term positive for large TL carriers relative to smaller carriers. Unlike our earlier expectations, the bill seemingly does not authorize a delay in Positive Train Control or implement any other regulatory changes for the rails. Also in the note we discuss grain update, rail headcount, CP, SWFT, & more LTL GRIs.
This week’s Audio Brief consists of 11 slides inspired by different conversations we had with industry insiders, shippers and freight company senior managers at our conference over the past 72 hours. Overall, the tone of demand is muted but relatively consistent. Everything we heard confirms our conviction that investors must be overweight transport stocks in 2012. The transports should continue to grow EPS and cash flow materially above the market as they have done the past two quarters driven by high-end domestic U.S. and U.S. import exposure, consistent domestic freight demand, bottoming Asia to U.S. demand, solid domestic pricing and relatively muted Consensus expectations and valuation. Downwardly cascading diesel prices throughout the quarter (see Slide 11) also should propel EPS for some modes of transports during 2Q.
At our recent 5th annual Global Transport Conference, we heard 47 companies, 7 shippers, and 26 industry contacts present their thoughts on the current state of the transportation industry. In this note, we highlight our top takeaways and discuss each in greater detail. Overall we think freight feels ok, but generally a little worse than we expected to hear. Domestic vols are generally “boring” but continue to grow modestly (best in SE and worst in MW), while international continues to feel muted.