Transportation Q1 Earnings Preview From Goldman

Goldman Sachs published a Q1 earnings preview for transportation on April 12.

Analysts led by Tom Kim noted that 2015 started off with “lackluster demand” which led to negative Q1 EPS revisions along with potential headwinds from FX for exports.

Below are comments for the three areas covered in the research note.

Logistics
“West coast port congestion likely benefited airfreight volumes in 1Q, while e-commerce continues to deliver mid-single digit growth in ground shipments. Pricing and yields will be in focus, as UPS attempts to execute on its compensatory pricing initiatives, while fuel surcharges – which operate on a two-month lag – begin cycling lower, a yield headwind.”

Rails
“Rail volumes were soft in 1Q, +1.6 percent yoy against relatively easy comps as increased coal-to-gas switching weighed on coal shipments and West Coast port labor disputes negatively impacted intermodal. Comps are more challenging in 2Q, with recent weekly rail volumes indicating broader based declines.”

Trucking
“Freight demand was mixed in 1Q, as expenditures were +5.8 percent, keeping pace with 4Q trends, while shipments +0.6 percent slowed from +3.8 percent in 4Q. Pricing was also mixed, with contract rates +7.3 percent while ex-fuel spot rates were up only +2.9 percent yoy. Importantly, March data has yet to be released, however, early indications suggest mixed demand at best, adding to risk into the print, in our view. Visibility on an impending demand recovery, as well as 2015 general rate increase timing will be in focus, along with comments on capacity as the driver shortage continues.”

Note: All price targets have a 12-month time horizon; *denotes stocks on Americas Conviction List. Prices are as of April 10, 2015.

Source: FactSet, Goldman Sachs Global Investment Research

For potential earnings surprises, Kim anticipated that “best idea” and Buy-rated Old Dominion Freight Line ODFL would beat expectations with a 3 percent upside to consensus EPS. The company reports Q1 results on April 30 and the Street expected EPS of $0.71 on revenue of $709.80 million.

Kim felt that Norfolk Southern Corp. NSC was likely to miss consensus estimates on weak coal demand and fuel surcharges with a -6 percent downside risk to consensus EPS.  The company reports Q1 results on Apr 29, 2015 and the Street expected EPS of $1.15 on revenue of $2.603 billion. Estimize consensus was for EPS of $1.29 on revenue of $2.728 billion.

The firm’s Con-way Inc CNW EPS estimate of $0.37 was -3.9 percent below the current consensus estimate of $0.39, according to Kim. The company reports on April 29.

For Canadian National Railway (USA) CNI, the firm’s EPS estimate of $0.87 was 2.3 percent above the current consensus estimate of $0.85. The company reports on April 29.

Union Pacific Corporation UNP was named the firm’s “top idea” in rail while Ryder System, Inc. R among the “best ideas” in trucking.