WERN announced a special dividend of $1.50/shr (6%), marking its 5th straight year with a special div. This is also well above our expectations for a $40M one-time div. this year; after speaking with mgmt, we expect WERN to fund the higher dividend with about $90M of debt the company plans to pay down next year as free cash flow improves into lower net CapEx. With the potential increase in dividend tax rates next year, we expect more special div. announcements in 4Q. Within our coverage, HTLD seems most likely to announce a special div.
WERN reported in line with its pre-report range and $0.01 below Cons. Rev., EBIT and EPS declined 1%, 17% and 15% y/y, each significantly worse than +1%, +9% and +11% last qtr. Relative to our reduced expectations, rev. was even worse but margins were slightly better. We are maintaining our 4Q EPS of $0.35 (vs. Cons of $0.37), but lowering our C13-C14 EPS to $1.55 and $1.75 vs. Cons. of $1.63 and $1.84. While near-term trends remain weak and WERN will likely be challenged to grow EPS the next several qtrs., we expect y/y EPS declines will start moderating in 4Q and believe TL pricing and demand can quickly firm into some inventory restocking which mgmt still expects in Nov. We also expect about a $40M ($0.50/shr or 2%) special dividend in 4Q. Based on our lower EPS, we are lowering our year-end C13 target price to $28.
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 fue
WERN guided to 3Q EPS of $0.33-$0.36, 22% below our prior est. and Cons. at the midpoint and down 11%-18% y/y. This marks WERN’s 1st down y/y EPS qtr. since C09 and the midpoint of the range implies the largest sequential 2Q to 3Q decline in EPS for WERN in at least 19 years. WERN’s pre-report was worse than we expected and near-term TL fundamentals are challenging. But with transport stocks starting to outperform recently despite expected weak 3Q reports, we would buy TL stocks on weakness today as the group has significantly underperformed YTD, WERN’s pre-report should materially reset expectations lower across the group, and we still believe large carriers should gain share from smaller, struggling carriers the next 3-5 years.
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.
WERN reported in line with Cons. and $0.01 below our est. Rev., EBIT and EPS grew 1%, 9% and 11% y/y, each decelerated from 1Q and breaking WERN’s streak of 9 straight qtrs. We have reduced our C12-13 EPS estimates by 4% and 3% to $1.59 and $1.80 (now slightly below prior Cons.) to reflect weaker utilization. On the positive side, yield growth remains firm and we continue to see long-term market share potential for large TL carriers. While near-term TL sentiment remains weak given macro concerns, we remain bullish on the group and retain our Outperform rating on WERN.
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).