Written by: William C. Vantuono, Editor-in-Chief The economy remains “tepid” and surface transportation companies “remain focused on controlling costs, limiting capex and searching hard for growth opportunities,” according to Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl, reporting on the firm’s 9th Annual Global Transport Conference in Boston. “There were some bright spots specifically surrounding recent sequential upticks in agricultural products and coal carloads.” “Commentary remains cautious” Following are some of Seidl’s key takeaways from the surface transportation companies that presented: Genesee & Wyoming: Australia has been a difficult region for GWR as the commodity complex has struggled the past two years, but management noted on a few occasions that new business opportunities are presenting themselves, specifically in the mining and agricultural markets. That's something the company has not seen in a while. GWR was one of the several companies that noted the sizable level of U.S. agricultural inventory that will likely need to move in the coming months. Management expects the company to benefit. Canadian Pacific: The company maintained its guidance for double-digit EPS growth in 2016, which we think would be a commendable achievement as second-half 2016 EPS would need to grow by 27% year over year. We would not have been surprised to see management lower expectations, but it did not. President and Chief Operating Officer Keith Creel indicated that a mid-50s operating ration would become the norm over time and suggested he was pleased with a 57% to 58% OR today, considering the soft freight market. CSX: Management now expects third-quarter 2016 EPS to be down from second-quarter 2016. We were already looking for $0.46 in 3Q vs. $0.47 in 2Q so we weren't terribly surprised. Consensus was also looking for a sequential contraction in EPS. Updated guidance also suggests volumes will likely be down in the high-single-digit range. That's down from the prior -6% to -8% as carloads are currently tracking -9.6% through September 3. Coal volumes likely won't be as bad as feared, and the company also raised its guidance for 2016 efficiency savings from “approaching $350 million” to now “exceed $350 million.” It also appears that CSX management believes Norfolk Southern has taken some intermodal market share in recent weeks at the expense of price. Union Pacific: The Hanjin bankruptcy will likely result in a $0.01 hit to EPS in 3Q16. UP was the only company that quantified the impact of what one industry participant called a “black swan event” for shippers. Management expressed optimism about the outlook for U.S. grain, something we heard from a few companies. CFO Rob Knight also opined on the STB’s reciprocal switching proposal, which is now in the comment period. He discussed a few of the reasons for the company’s opposition, which includes a disincentive to invest. The Greenbrier Companies: We expect the company to guide for fiscal year 2017 when it reports earnings in mid to late October. We remain confident in our FY17 EPS estimate of $3.50, which is slightly below the Street’s $3.60 estimate. We don't see a material change in market demand, but Greenbrier's long-term strategic initiatives remain intact. J.B. Hunt Transport: Management seems cautious on intermodal pricing heading into next year as the market remains softer than it would like. The ICS (intermodal cargo services) business saw some gross margin compression in June and July, which is not surprising given the pickup in the spot market during that time period due to temporary capacity constraints (Commercial Vehicle Safety Alliance International Roadcheck, holidays). However, management noted that the spot market has not picked up much. The dedicated and last-miles businesses remain growth engines for JBHT. Norfolk Southern: Management maintained its guidance for a sub-70% OR this year and also acknowledged that more coal is moving than it expected. The company also reminded investors of its commitment to structural OR improvement and noted that a good deal of the cost actions were already being taken prior to CP’s acquisition bid. American Railcar Industries: Management remains committed to growing its lease fleet. That's a good thing, as we think that is part of the reason why the company receives a premium valuation relative to the group, given that segment’s less volatile nature. President and CEO Jeff Hollister thinks consolidation in the manufacturing industry could make sense. Kansas City Southern: Management maintained sequential 3Q16 revenue growth guidance of mid-single-digits. On a y/y basis, revenue and carloads are both down 4% quarter to date. The company feels it has plenty of ample resources to handle more freight. For example, more than 100 locomotives are currently parked. Radiant Global Logistics: The company said that sellers’ valuation expectations may be normalizing a bit from where they were a few months ago. RLGT continues to look for small non-asset based targets as the company continues to focus on cross-selling its core freight forwarding capabilities with its Wheels intermodal/brokerage acquisition from 2015. Continue reading...
