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.
TNTE reported adj. 1Q EPS of €0.03 (ex. gain related to UPS break-up fee and Brazil which is now in discontinued ops), above our €0.02 expectation but still down from €0.06 a year ago. Rev. and EBIT fell 5% and 35% y/y, much worse than 4Q. Europe was in line with our low expectations, Asia-Pacific worse, and the Americas much better, both with and without Brazil.
TNTE reported adj. 4Q EPS of €0.04, well below our and Cons. expectations. Normalizing for a small currency benefit, Rev. and EBIT fell 2% and 19% y/y, worse than -2% and -12% last qtr. Europe and the Americas were in line with our low expectations, but Asia and particularly Other Networks badly missed. TNTE posted weak 4Q results and preliminary C13 guidance, and we expect market share pressures will continue to pressure rev. and EBIT going forward. The stock appears expensive at 25x our forward EPS estimates but potential for buyers to emerge for parts or all of its business likely limits material downside.
UPS/TNTE Deal Falls Apart. TNTE and UPS announced that EU regulators are preparing to block their proposed merger, and UPS accordingly plans to pull out of the deal and pay TNTE a €200M break-up fee. TNTE’s stock plummeted 41% on Monday vs. UPS up 2%, FDX up 1%, PNL (30% ownership of TNTE) down 36% and DPW up less than 1%.
December is historically one of the biggest months of transport stock outperformance, particularly for truckers. Truck outperformance in Dec. has been even more pronounced in recent years, perhaps as retailers need to re-build low inventory levels following the onset of holiday shopping. SWFT’s CEO Jerry Moyes will sell 4.83M shares of stock (9% of his stake and 3% of total shares) through a private placement. Jerry will use the proceeds to meet upcoming tax obligations, but he’s required to repurchase all 4.8M shares back at the same selling price within the next 4 years. Jerry and his family still retain 56% voting power at SWFT.
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.
EU regulators have “serious competition concerns” and require “substantial remedies” to approve the UPS buyout of TNTE. The EU is using a very narrow definition of the European small package market, focusing on the large overnight express integrators but excluding local and regional providers we estimate make up 50% of the market. We don’t agree with this view from the EU, but our conviction the UPS/TNTE deal will close has obviously diminished.
TNTE reported adj. 3Q EPS of €0.04, similar with a year ago but well below our and Cons. expectations and much worse than 2Q results. Despite the EU regulatory delays and risk of large required remedies, we believe UPS remains committed to the TNTE deal and we expect the deal to close in early 2013. This implies 16% upside over the next 3-5 months (40%-60% annualized) to reach the €9.50 buyout price and we reiterate our OP rating.
FDX announced it would offer voluntary buyouts to U.S. Express and Services (support) employees as another step in its broader U.S. restructuring. After speaking with mgmt., we sense total headcount reductions could ultimately be similar with FDX’s past restructuring in F04 and we continue to estimate around $1.00 of annual EPS savings from its pending restructuring, with the bulk of cost savings unlikely until late F13. RRTS announced the acquisition of Expedited Freight, a regional asset-based LTL carrier for $10M. We estimate RRTS paid about 4x forward EBITDA (before earn-outs) for Expedited and we expect about $0.03 of annual EPS accretion. This marks RRTS’s 2nd acquisition in the past 2 weeks and 9th since its IPO 2 years ago. Last week, WAB and CGI also announced small acquisitions which we discuss below.