HTLD reported 2Q EPS of $0.21, in line with our est. and Cons. We are lowering our C12-13 EPS by $0.01 each to $0.76 and $0.84 and are now 2%-3% below Cons. the next 2 years. While we remain bullish on TL stocks into what we believe will be a multi-year pricing story, we expect HTLD to show low-end leverage to improving TL pricing gains and market share growth relative to its peers. Still, we see limited absolute downside from current levels.
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.
This 120-page report lays out our bullish long-term thesis on the domestic intermodal sector as well as the best ways to invest in secular intermodal growth opportunities. Within the report we provides a deep dive analysis on the intermodal market, including a detailed overview of the market, key players and market share stats. We also discuss the differences between the international and domestic intermodal markets, review each rail’s exposure to intermodal and discuss why intermodal is much more profitable for the rails today versus 20 years ago. We also provide a detailed analysis of the underlying secular demand drivers for domestic intermodal volumes and try to quantify how quickly the market can grow over the next five to ten years and what this could mean for earnings with a similar discussion on international intermodal drivers. We conclude with profiles on the three largest domestic intermodal providers, JBHT , HUBG and PACR (each rated Outperform).
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.
Into easier revenue comps, HTLD reported a modest upside 1Q report relative to our and Consensus expectations with positive net revenue growth for the first time in four quarters. While easy revenue comps should continue the next few quarters, we continue to expect HTLD’s pace of revenue, EBIT and EPS growth to lag many of its peers the next few years. HTLD also has the least relative leverage to improving TL pricing given its industry leading margins and faces EPS headwinds into increasingly difficult cost comparisons for depreciation and gains on sale. As a result, we expect HTLD’s valuation to gradually contract over the next few years from its past 10-year average of about 20x
CP hosted an Investor Day in Toronto ahead of its May 17 proxy vote vs. Pershing Square. CP also filed its proxy last week and improved its long-term OR target to 68.5%-70.5% by 2016 from its prior guidance of 70%-72% by 2014. Relative to its 70%-72% target from a year ago, CP expects higher vols, but seemingly similar pricing and productivity, offset partially by higher ongoing pension expense. Additionally, Reuters reported that the EU will fine 13 int’l freight forwarders – including EXPD, UPS and UTIW – related to an ongoing antitrust investigation of airfreight fuel surcharges and price fixing. Below, we show that similar fines of forwarders have averaged closer to $10M in the U.S., so we don’t see material risk from upcoming fines expected as early as today. Total U.S. rail headcount grew 3.1% y/y in Feb. vs. +3.9% and +3.4% the prior 2 months. CSX modestly cut its headcount from last month, while headcount ticked up for UNP and NSC. Meanwhile rail cost inflation (RCAF less-Fuel) will increase 2.5% y/y in 2Q, up from +1.4% in 1Q but below +4.4% in C11. We believe slower rail headcount growth and cost inflation should lead to improved incremental margins for the rails in C12.
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.