Our WR Transport index fell 0.5% last week, relatively outperforming the 1.2% drop in the S&P 500. It was a mixed week for transports with the TLs up 3% on average following CVTI’s large upside 1Q pre-report and the Rails down 2% on average after NSC and to a lesser extent KSU talked down 1Q expectations due to service-related cost headwinds. And this follows repeated comments from CNI talking down 1H EPS estimates due to service and weather challenges.
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Our WR Transport index fell 2.6% last week and underperformed the 2.0% drop in the S&P 500. Transports and the market overall underperformed following hawkish comments from new Fed Chair Powell and growing concerns about a trade war after President Trump announced new tariffs on steel (25%) and aluminum (10%) imports. The tariffs alone don’t seem that meaningful as U.S. imports of steel (~$30B annually) only represent 1%-2% of total U.S. imports as measured by value. And we produce much more steel domestically at ~$100B annually. But the big concern is potential retaliation from other countries and thus reduced U.S. export activity. Overall, a trade war seems bad for almost all transports as all of our companies are either directly or indirectly exposed to global trade activity. But there are companies and sub-sectors with more potential risk than others, so we’ll try and highlight some relative differences below.
Our WR Transport Index declined 5.8% in Feb. and underperformed the S&P 500 by ~200bp. It was the worst absolute performance for transport stocks in the past 25 months, and pretty much nothing worked with the Rails down 5% on avg., the LTLs down 7%, the TLs down 9% and the Integrators down 10%. The Forwarders (-3%) were the only sub-sector that relatively outperformed last month. And we only had 4 stocks with positive returns last month (AAWW, XPO, CHRW and WAB) vs. 9 stocks that suffered at least double-digit declines
Our WR Transport index increased 1.2% last week and outperformed the 0.6% rise in the S&P 500. Earnings season finally wrapped up last week. Overall, we had 14 beats relative to 6 misses and 5 in-line reports and the biggest beats came from KNX, EXPD and AAWW.
Our WR Transport index and the S&P 500 both rebounded more than 4% last week. The large-cap Rails (+6%) performed best following a bunch of positive updates and changes from CSX and UNP including changes in incentive comp metrics for both of them: click here for a quick recap. What probably went unnoticed is that CSX (BBB+ rated) issued $2B of new debt with rates at an average spread 120bp over Treasury yields. We think this is important because UNP (A rated) issued debt last year at a spread 100bp over Treasury yields. So for every billion dollars of debt, UNP is only saving around $1.8M of lower interest expense, or just $0.002/share annually. So what’s the point of being A rated? Hopefully this is something UNP will consider at it reviews its optimal capital structure.
Our WR Transport index fell more than 6% last week and underperformed the 5% decline in the S&P 500. And it could have been a lot worse if not for a late-day rally on Friday (02/09/18). Our Transport index is now down 5% YTD, underperforming the 2% drop in the S&P. The Integrators (-7%) and Rails (-6%) are underperforming the most, while the Forwarders (-2%) are relatively outperforming. And the only positive stocks right now are KNX, LSTR and CHRW.
Our WR Transport index rose 2.4% in the first week of the year, but slightly trailed the S&P 500 by 20bp. UPS and FDX both jumped 7% last week with UPS already surpassing its full-year 2017 gain. The integrators are rallying after President Trump tweeted that the USPS should be charging Amazon and other customers “much more.” Both carriers also seemed to survive peak without major service issues. While there weren’t service issues, we don’t really have any visibility to the cost side. Meaning, did UPS ramp up labor and other costs after its initial service issues around Cyber Monday? Looking back the last few years, UPS didn’t pre-report a 4Q miss last year, and it didn’t pre-report its 4Q:13 and 4Q:14 misses until the week of Jan. 20th. So we’re not in the clear just yet.
To our clients and loyal readers across the transportation universe: Happy holidays to everyone and thanks for all of your support this year. On behalf of my team, we wish you the best in the new year. We’re very excited for 2018 and always striving to improve, so please let us know if you have any feedback to make our weekend “Group Thoughts” product even better.
Our WR Transport index increased 1.7% last week and outperformed the S&P 500 which was up just 0.4%. Transports are now outperforming materially this year with our Transport index up 25% YTD vs. the S&P 500 which is up 18%. Tax reform continues to dominate our discussions with clients. These conversations seem to be getting more nuanced with each passing day, so let’s focus today on some of the most frequent questions we’re being asked by clients
With a strong finish to the month as tax momentum built, our WR Transport index strengthened 4.6% in Nov. and outperformed the S&P 500 by 180bp last month. U.S. Rails (+8%) with pricing power outperformed the most last month, followed by the Forwarders (+6%) with high book and cash tax rates, and the LTLs (+6%) with high-end U.S. exposure, while Integrators (+3%) with more international exposure relatively lagged among the transports. Our Transport Index is now up 23% YTD, outperforming the S&P by ~500bp.
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