Our WR Transport Index fell 1.1% last week and underperformed the 0.9% rise in the S&P 500. The Rails were flattish and relatively outperformed other transports, while each of the other transport sub-sectors fell 1%-2%. Our Transport Index is still up 25% YTD, slightly outperforming the 24.5% rise in the S&P 500. The LTLs (+49%) are by far the best performers this year, followed by the Rails (+29%), while the Integrators (+9%) and TLs (+20%) are relative laggards.
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The STB released October headcount data for the rails (U.S. operations only) today. Total headcount declined 10% y/y in October vs. -8% and -6% the prior 2 months. This is the largest y/y decline in over 3 years. Total headcount also fell 1.7% m/m in October, the 11th straight sequential monthly reduction.
We spoke with a large food & beverage shipper about TL capacity and pricing trends. This shipper was expecting to see at least some TL capacity tightness in 4Q, but so far tender acceptance rates have remained in the mid-90s. In addition, spot rates remain around 15% cheaper than contract rates with very competitive pricing from both digital and traditional brokers. Given continued loose TL capacity, this shipper has pulled forward its 2020 bid and now expects a 3%-5% reduction in TL contract rates next year after a 1% increase this year. That said, our contact doesn't want to be too aggressive with his bid and risk pushing too much freight into the spot market next year if things tighten up. As a result, this shipper is exploring using freight futures from FreightWaves and Leaf Logistics to hedge some spot exposure for the first time, but he's hesitant given such limited liquidity in the market.
This morning (11/13/19), digital truck broker Convoy announced it raised $400M of Series D funding that values the business at $2.75B. This is up materially from its $1B+ valuation at the time of its Series C funding just a year ago. This got us thinking… what could this mean for JBHT?
After the close (11/12/19), KSU announced a new 3-year, $2.0B share buyback (13%) program and an 11% dividend increase (1.0% dividend yield). As part of its new capital allocation policy, KSU plans to deploy 40%-50% of its available cash for CapEx & strategic investments, and the remaining 50%-60% on buybacks & dividends. The company also plans to target balance sheet leverage in the low-2x range (up to 2.4x depending on the company’s view of the cycle).
FDX updated its economic forecasts on the company’s website this morning. As shown in today’s chart, the company left its U.S. GDP forecasts unchanged for C19-20, lowered its C20 Global GDP forecast by 10bp, and lowered its U.S. Industrial Production forecasts for C19-20 by 10bp each.
Our WR Transport Index rose 3.2% last week, nicely outperforming the S&P 500 (+0.9%) for the fourth time in the last five weeks. The Integrators (+4%) and LTLs (+4%) performed best last week, while the TLs (+2%) relatively lagged the group. Transports have been rallying in concert with the early cycle trade and rotation into value on trade progress, easing Fed conditions and hopefully a bottom of ISM. And following the group’s strong performance over the past month, our WR Transport Index is now up 27% YTD, outperforming the 23% rise in the S&P 500. The LTLs (+51%) are by far the best performers this year, followed by the Rails (+29%), while the Integrators (+11%) and TLs (+22%) are relative laggards.
We spoke with a large Canadian crude oil producer about its expectations for crude-by-rail. Starting in December, operators will be allowed to produce crude above their curtailment levels so long as the added production is moved via rail. This curtailment relief can be applied for on a monthly basis and will help address the lack of adequate pipeline capacity. As a result, this producer expects to increase crude-by-rail shipments by roughly 20K barrels per day (bpd) by year-end to 100K bpd. This represents an incremental 12K annualized crude carloads split between both CNI and CP. Given current capacity levels and supply of tank cars, our contact estimates that crude-by-rail volumes could increase another 20K bpd in 2020. Crude-by-rail volumes above this level would require additional tank car leases.
This morning (11/5), EXPD reported 3Q EPS of $0.92, $0.01 above Cons. and our estimate, and flat with a year ago. Despite negative air and ocean volumes, consolidated net revenue increased 2% y/y but missed our +4% expectation. Net operating margins were flattish y/y and 100bp better than our expectations. So overall operating income grew 2% y/y and was 180bp better than our model. Any beat in this challenging global freight environment is positive and EXPD rallied 4%.
Yesterday after the close (11/4/19), UBER (covered by our colleague Dan Galves) reported 3Q:19 results and for the first time, separated Uber Freight revenue and EBITDA from the Other Bets line. Uber Freight adjusted net revenue increased 78% y/y, decelerated from 142% last quarter. Revenue still increased 31% sequentially, in line with last quarter. As shown in Exhibit 1, this growth is in huge contrast to all the public brokers where gross revenue declined in the quarter.
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