GWR spiked 9% today after Bloomberg reported that GWR is exploring a partial or complete sale of the company. Bloomberg stated that GWR is in talks with possible acquirers including Brookfield Asset Management, as well as other infrastructure firms. GWR didn’t comment on the news, but we believe a sale to a financial buyer makes sense.
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Our WR Transport index fell 3.1% last week and underperformed the 2.2% drop in the S&P 500. It’s now been an ugly couple of weeks with the Dow Transports falling for 11 straight trading days, the longest losing streak since the ‘70s. Frankly, a lot of this recent pullback in the group feels fundamental to us, as we’re in a clear soft patch for freight including 6 straight weeks of negative y/y rail volumes, 2 straight months of negative LTL tonnage ex. YRCW (6 straight negative months including YRCW), 2 straight negative months of Cass shipments (broad-based freight index), and 2 straight months of negative global airfreight volumes (IATA). As a result, in the past 2 weeks, we’ve lowered our 1Q EPS estimates for every single rail, every LTL and JBHT, while UPS also talked down 1Q EPS at a conference last week. So there’s understandably lots of negativity recently that’s starting to get reflected in the stocks.
We spoke with a large, private TL carrier about recent pricing and fleet trends. This carrier has been securing 5% rate increases on average on recent contract renewals and now expects his pricing to increase 5% in C19, down from his prior expectation of 5%-10% in the fall. That said, the pricing situation is fluid as this carrier just completed a bid with a long-standing customer and was awarded no freight despite only seeking a modest rate increases. This carrier noted that this particular shipper has a history of using brokers as the market loosens and spot rates fall. From an earnings standpoint, this carrier benefited from strong pricing and falling fuel prices in 4Q. So far in 1Q, rate increases have moderated, fuel has swung to a modest drag and cold weather has been a drag as well. As a result, profitability through February is tracking a little light of expectations, although March is always the key to 1Q earnings. From a fleet standpoint, this carrier’s seated tractor count has increased slightly YTD after declining throughout C18. Our contact has seen a nice improvement in driver recruiting classes and a material reduction in driver turnover. If recent trends continue, our contact believes his seated tractor count could increase 5%-6% this year despite a flat truck count. Our contact plans to refresh one third of his fleet this year and is buying a mix of Kenworth (PCAR) and Freightliner trucks, all equipped with AMTs.
This week, we hosted meetings with JBHT. While mgmt. was constructive on pricing trends and Dedicated demand, we left our meetings more cautious on near-term intermodal volumes and full-year intermodal and ICS margins. As a result, we’re lowering our 1Q and C19 EPS estimates below Cons.
Welcome Back to Trackin’ Trucks… our monthly 40+ picture book tracking the key supply, demand and pricing trends that are important for the Trucking and Truck OEM stocks. Each month, we also update our global truck production forecasts and mark-to-market our Truck OEM models.
Last week, we lowered our 1Q Rail estimates across the board based on weaker than expected volumes to start the quarter, and today we’re following suit and lowering our 1Q LTL estimates based on weaker than expected tonnage through Feb. We’re cutting our estimates the most for ARCB, followed by SAIA and then ODFL and we’re now most below 1Q Cons. for ARCB.
After a rough 2018, we’ve seen much better stock performance for transports to start the year with our WR Transport index up 4.0% in Feb. and up 15% YTD. Despite muted rail and overall volume trends, transports have outperformed the S&P 500 (+3% last month and +12% YTD) to start the year but are lagging broader Industrials (+6% last month and +18% YTD) after relatively outperforming Industrials a year ago.
Our WR Transport index fell 1.6% last week and underperformed the S&P 500 which was up 0.4%. UPS and FDX were the two top performing freight transport stocks last week, but every other freight sub-sector underperformed last week.
Rail volumes are tracking below our expectations for all of the rails so far in 1Q, weather is worse y/y and fuel will likely be a small sequential headwind in the quarter. As a result, we’re lowering our 1Q EPS estimates for all of the rails today and our we’re now 3% below Cons. on avg. for the group in 1Q. We’re most below 1Q Cons. for CP, CNI and KSU, and see the least risk to Street estimates for CSX followed by NSC.
Yesterday after the close (2/27/19), FTAI reported 4Q adj. EBITDA of $63.1M, toward the high-end of its pre-report of $60M-$64M and vs. our estimate of $63.7M. Consolidated FAD (ex. gains) of $44.1M improved from $39.6M last quarter and was $3.5M better than we expected. Infrastructure EBITDA inflected positive, contributing $2.5M in the quarter.