Since bottoming in mid- to late April, freight volumes have rebounded nicely off the bottom with rail volumes up 12%, intermodal volumes back above pre-COVID levels, TL spot rates up more than 60%, and LTL volumes likely up more than 10%. In addition, we expect y/y fuel tailwinds for most asset-based transports in 2Q along with strong cost performance with aggressive cost cuts, lower healthcare costs and lower road congestion for truckers. So we expect 19 beats vs. just 9 misses in 2Q, with the most potential upside for TLs, LTLs and Intermodal, and the most potential risk for the Rails and Truck OEMs.
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Rail volumes finished 2Q better than we expected and actual reported rail volumes will likely come in slightly better than the weekly AAR data. However, the rails still faced the largest y/y volume declines among all transport modes, and we forecast negative mix for pretty much all of the rails in 2Q, so we expect more misses than beats in 2Q. Our updated 2Q EPS estimates are well above Cons. for CP, slightly above for CNI, and most below Cons. for NSC, KSU and CSX.
Today, we share a few final thoughts after FDX’s report and discuss why we continue to prefer FDX over UPS. We also discuss what this could mean for the rails. We also discuss the YRCW news and implications for the other LTLs, and recap the latest freight data we’re seeing. Open the full report for more details…
This weekly report presents the most recent views we are hearing from industry insiders and summarizes the research of Wolfe Research.
Our Accounting & Tax Policy team published a report today (06/02/20) discussing the potential for corporate tax reform with the U.S. government’s budget deficit at a 75+ year high. We expect tax reform and the upcoming presidential election to garner increased attention in the months ahead, and our note today discusses potential winners and losers among the transports. We believe the U.S. rails face the most binary outcome with potential risk from higher tax rates if Biden wins and potential regulatory and labor benefits if Trump wins.
Pasted below, please find our Friday Freight note. We distribute this product via email each Friday mid-day, so clients have some freight reading material to make their weekends truly worthwhile! Your feedback is always appreciated if you have any suggestions.
Our WR Transport Index surged 8.5% last week, materially outperforming the 3.2% rise in the S&P 500 and modestly outperforming the 7.4% rise in the XLI. The asset-light Forwarders (+10%) and the TLs (+9%) performed best as the micro-cap truckers – CVTI and USX – finally participated in the group’s outperformance this year, while the non-asset Forwarders (+4%) relatively lagged.
This morning (5/4/20), WAB reported 1Q EPS of $0.97, in line with Cons. but below our estimate of $1.08. Same-store sales declined ~9% y/y (Freight down 12% and Transit down 5%), down from flat in 4Q and 630bp worse than our model. On the positive side, adjusted margins improved 110bp y/y and were 20bp better than our model with Freight margins lower y/y but Transit margins improving over 200bp y/y. The stock fell 3%.
Our WR Transport index increased 0.8% last week, outperforming the 0.2% decline in the S&P 500 but slightly underperforming the 1.1% rise in the XLI. The LTLs (+7%) and TLs (+5%) each materially outperformed after strong earnings reports, while the Integrators (-6%) badly underperformed after UPS’s earnings miss. So far YTD, our Transport Index is now down 13% YTD, just slightly underperforming the S&P 500 but materially outperforming the XLI which is down 24%. The LTLs (+4% YTD), TLs (-3%), and non-asset Forwarders (-9%) are each relatively outperforming so far this year, while the Integrators (-22%) and asset-light Forwarders (-16%) have underperformed.
Shipper volume expectations inflected negative for the first time in our survey since 2010, with volume expectations over the next three months even lower. In addition, the percentage of shippers citing higher year-over-year inventory levels spiked to the highest level in the history of our survey.
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