1、Equity Research 5 February 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Inv
2、estors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 20.North America Transportation Thoughts on 4Q18 Earnings In this note we provide our quick thoughts from earnings thus far,as
3、 well as review results from UPS,Canadian National,CHRW,Knight-Swift and Heartland.Fourth quarter transport results have been mostly favorable from a fundamental perspective,but uncertainty around trade and softer spot freight rates keeps investor caution high.Further,while we had thought a slower g
4、lobal trade environment would dampen the outlook from UPS(see UPS:Lower 2019 Cash Outlook published 28 Jan 19),the company delivered a robust fourth quarter International result and outlook for the European focused business in 2019.We think this leaves plenty of debate surrounding recent FedEx comme
5、ntary about substantial slowing in Europe,leaving many to wonder if poor execution on the recent TNT acquisition could be more to blame than a deteriorating economy.In this note we provide some quick analysis on a few key trends across transports in early 2019.What European slowdown?Please see more
6、details beginning on page three,but we had been concerned by an earlier profit warning from FedEx about slowing conditions in Europe and the negative impact that could have on UPS International results.While clearly softer global trade and macro economic data suggest 2019 could be a bit more sluggis
7、h,we are left pondering whether FedEx challenges in the acquired TNT European business were larger than previously thought(please see FDX:Deep Dive on TNT published 10 Jan 19).US demand outlook remains quite robust,railroads indicating a third year of solid volume expansion;pricing also favorable in
8、 early 2019.Despite a softer international macro outlook,US-related transport demand remains solid,with most railroad management teams indicating expectations for a third year of healthy volume expansion in North America,the best outcome in over a decade.Further,industry indexes that are often refer
9、enced in long-term contracts as price inflators are reflective of higher inflation in 2019,which should support robust yield outcomes.Is the freight(trucking)cycle over?This has been a large question for transport investors as small and mid cap trucking related equities have significantly de-rated o
10、ver the past year.Spot freight rates have recently declined,as made evident as well with counter-cyclical margin outcomes trending higher for broker C.H.Robinson.Further,it appears contract rates may have also peaked late last year,making the outlook challenging to model given generally robust manag
11、ement guidance in 2019.Nonetheless,we found Knights performance in improving profitability in the acquired Swift business impressive in late 2018,suggesting 2019 could be another year of company-specific earnings opportunities despite lingering cyclic concerns.Please continue to page3 for further th
12、oughts on end markets and company earnings INDUSTRY UPDATE North America Transportation POSITIVE Unchanged For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.North America Transportation Brandon R.Oglenski+1 212 526 8903 BCI,US Matthew Preston+
13、1 212 526 5752 BCI,US David Zazula,CFA+1 212 526 5108 BCI,US Matthew Wisniewski,CPA+1 212 526 5143 BCI,US Barclays|North America Transportation 5 February 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target E
14、PS FY1(E)EPS FY2(E)Old New 04-Feb-19 Old New%Chg Old New%Chg Old New%Chg North America Transportation Pos Pos C.H.Robinson Worldwide Inc.(CHRW)EW EW 88.62 95.00 95.00-4.85 4.95 2 N/A 5.15-Canadian National Railway(CNI)EW EW 82.92 86.00 86.00-6.05 6.20 2 N/A 6.85-Canadian National Railway(CNR CT/CNR.
15、TO)EW EW 108.89 115.00 115.00-6.05 6.20 2 N/A 6.85-Heartland Express,Inc.(HTLD)UW UW 20.51 21.00 21.00-0.95 0.98 3 N/A 1.10-Knight-Swift Transportation Holdings(KNX)OW OW 32.25 52.00 52.00-2.75 2.75-N/A 3.00-United Parcel Service Inc.(UPS)EW EW 106.58 112.00 112.00-7.35 7.45 1 N/A 7.85-Source:Barcla
16、ys Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Un
17、derweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|North America Transportation 5 February 2019 3 Thoughts from 4Q18 Earnings In this note we provide our quick thoughts from earnings thus far,as well as review results from UPS,Canadian National,CHRW,Knight-Swi
18、ft and Heartland.UPS international results remain strong despite slower global demand outcomes(Pages 4-5,Figures 1-3)Historical rail volume and pricing growth,and industry 2019 guidance(Pages 6-7,Figures 4-6)Domestic trucking rates have slowed as market normalizes,but expectations remain for positiv
19、e outcomes in 2019(Page 8,Figures 7-8)Thoughts on UPS,CNR.TO,CHRW,KNX and HTLD earnings(Page 9-13,Figures 9-13)Barclays|North America Transportation 5 February 2019 4 UPS International Segment Remains Strong despite Slower Global Demand Outcomes Despite softer commentary on international demand tren
20、ds,specifically Europe,from several transports including FedEx and XPO Logistics,UPS International business remains strong.Guidance for International operating earnings to grow low double digits in 2019 suggests the company continues to benefit from favorable demand and pricing outcomes despite clea
21、rly slower signs of global demand(Figures 1-3).FIGURE 1 Even as European Demand Appears to Be Slowing,UPS International Business Continues to Support Strong Earnings Outcomes Source:Haver;FRED;Company reports;Barclays Research FIGURE 2 International Margin Expansion of 60bps Exceeded Expectations Gi
22、ven Deteriorating European Macro Data,a Key Geographic Region for the Business Source:Haver;FRED;Company reports;Barclays Research -30%-20%-10%0%10%20%30%-15%-10%-5%0%5%10%15%1Q004Q003Q012Q021Q034Q033Q042Q051Q064Q063Q072Q081Q094Q093Q102Q111Q124Q123Q132Q141Q154Q153Q162Q171Q184Q18Relationship Between
23、UPS Intl Revenue and EU Macro DataRelationship Between UPS Intl Revenue and EU Macro Data(EU IP qrtly avg.;GDP qrtly not sa)EU IPEU GDPUPS Intl Rev(rhs)Rsq:IP=41%GDP=29Not a strong relationship,but UPS intl revenue growth tends to directionally move with broad growth of EU market.Despite slower EU d
24、ata in the most recent period,UPS fourth quarter international growth remained favorable 4Q:IP=-0.5%UPS=2.9%-15%-10%-5%0%5%10%15%20%1Q004Q003Q012Q021Q034Q033Q042Q051Q064Q063Q072Q081Q094Q093Q102Q111Q124Q123Q132Q141Q154Q153Q162Q171Q184Q18Relationship Between UPS Intl Margins and EU Macro DataRelations
25、hip Between UPS Intl Margins and EU Macro Data(EU IP mo;GDP qrtly not sa;margins ex hedge gains beg.1Q09)UPS Intl margin(annual ch.)EU IPEU GDPAgain,although it is a weak relationship,a favorable EU operating environment historically has supported margin expansion.4Q:IP=-0.5%UPS=0.6%.however,margins
26、 in the fourth quarter outperformed expecations,expanding 60bpsBarclays|North America Transportation 5 February 2019 5 FIGURE 3 International Export Growth Has Slowed as IATA Airfreight Data Weakens;Fourth Quarter Revenue and ADV Still Positive Note:/1 IATA Total and Europe international airfreight
27、includes October in 4Q,Asia includes October and November Source:IATA;Haver;Company reports;Barclays Research -30%-20%-10%0%10%20%30%40%1Q033Q031Q043Q041Q053Q051Q063Q061Q073Q071Q083Q081Q093Q091Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q153Q151Q163Q161Q173Q171Q183Q18Relationship of UPS International Ex
28、port Demand and EU Intl AirfreightRelationship of UPS International Export Demand and EU Intl Airfreight(IATA EU intl FTKs mo;UPS qrtly)IATA EU Intl AirfreightUPS Intl Export RevUPS Intl Export ADVRsq:Rev=43%ADV=55%UPS Intl export revenue and avg.daily volume have a mild relationship with EU interna
29、tional airfreight demand.Revenue and volume growth within the intl export business have been slowing as IATA data weakens.IATA 4Q/1EU:1.3%Asia:0.1%Total:3.0%UPS 4QRev=2.1%ADV=2.4%Barclays|North America Transportation 5 February 2019 6 Rail Momentum and Management Guidance Not Pointing to Immediate S
30、lowdown North American rail volume finished up 3.7%for the year,with all three major segments finishing in the black,which is not particularly common in the last quarter century(Figure 4).On the pricing front,we expect some acceleration in early 2019,as industry benchmarks highlight expected higher
31、inflation(as measured by RCAF);historically,the RCAF index has been referenced in many multi-year contracts as a price inflator and generally has a positive relationship with realized yields(Figure 5).Most railroad management teams communicated elevated 2019 guidance,with Union Pacific noting specif
32、ically the company expects to reach previously guided targets faster than anticipated(Figure 6).FIGURE 4 North America Rail Volume Shows Solid Growth With All Major Segments in Positive Territory Source:AAR,Haver,Barclays Research FIGURE 5 Railroad Pricing Likely Stout in Early 2019,Given Higher Cos
33、t Inflation Source:AAR;Company reports;Barclays Research estimates -20%-15%-10%-5%0%5%10%15%20%90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19ENorth America Rail VolumeNorth America Rail Volume(annual ch.;1990-2018;19E)/1TotalCoalCAGR 89-99Total=1.8%Coal=1.2
34、%CAGR 99-09Total=(0.6)%Coal=(0.3)%CAGR 09-18Total=2.4%Coal=(4.1)%-2%0%2%4%6%8%10%4Q082Q094Q092Q104Q102Q114Q112Q124Q122Q134Q132Q144Q142Q154Q152Q164Q162Q174Q172Q184Q18RCAF ExRCAF Ex-Fuel and Barclays Core Rail PriceFuel and Barclays Core Rail Price(annual ch.)/1RCAF Ex-FuelBarclays Core Rail PriceRCAF
35、 Ex-Fuel peaked in 2018 but still healthy for 2019Barclays|North America Transportation 5 February 2019 7 FIGURE 6 2019 Rail Guidance Points to a Robust Fundamental Environment Source:Company filings and websites;Barclays Research Note:/1 Bolded items communicated during 4Q2018 Earnings conference c
36、alls 2019 NA Rail Significant Guidance ItemsGuide/1NotesVolumeRevenueOREPSNotesHigh Single DigitsNot DisclosedUNPNorth American Class I RailsCNCPCSXKSUNSC60Low Double DigitsCapex$3.9bn,tax rate 26-27%No material land sales,tax rate 25.5-26.0%Double DigitsExpect to ImproveNot DisclosedMid Single Digi
37、tsPos.Across All Bus.LinesLow Single Digits60 by 2019Not DisclosedOther revenue declining run rate and accelrating productivity,capex$1.6-1.7bn$640-660mm capex in 2019,20%of revnue beyond;provided segment volume Low-mid Teens to 202160-61 by 20215-7%3-4%Prior:5-7%RTMNot Disclosed65 by 2020Not Disclo
38、sedLow Single DigitsDouble DigitsCapital spending 16-18%of revenue;Guidance forthcoming at Feb Analyst DayCapex$3.6bn(no locomotives);tax rate 24%;depr.3%,other exp.5-10%Not Disclosed61 in 2019,60 in 2020Barclays|North America Transportation 5 February 2019 8 Trucking Rates Have Slowed,but Managemen
39、t Expectations Remain Positive in 2019 Domestic trucking spot rates have slowed in the second half of 2018;however,earnings for most of our covered freight companies remain strong as committed pricing continues to be favorable.Outlook commentary for contract rates varies some,but current expectation
40、s are largely for mid-single digit growth in 2019(Figures 7-8).FIGURE 7 Spot Rate Growth Has Slowed;However,Contract Rates Still Up Largely High Single Digits Source:DAT;CASS;TLR;ATA;Bloomberg;Barclays Research FIGURE 8 With Industry Commentary for Roughly Mid-Single Digit Committed Pricing Increase
41、s Note:/1 Knight,Werner and J.B.Hunt average loaded revenue per mile,ex.fuel surcharge;MSD=mid-single digits;HSD=high single digits Source:Company reports;Barclays Research -25%-15%-5%5%15%25%35%45%Mar-14May-14Jul-14Sep-14Nov-14Jan-15Mar-15May-15Jul-15Sep-15Nov-15Jan-16Mar-16May-16Jul-16Sep-16Nov-16
42、Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Monthly Truckload RatesMonthly Truckload Rates(ex fuel surcharge;ann ch.)TLR Dry-Van ex-FuelATA TL Rev/Mi.CASS TL Linehaul IndexDAT ContractDAT SpotDomestic Trucking and Intermodal Pricing Expectations/1Barclays Est.Rate G
43、rowth201720182019ENotes:Knight-Swift Trans.4.3%17.0%6.0%Rate growth mid-single digitsWerner2.4%11.5%4.6%Rate growth mid-single digitsJ.B.Hunt(Intermodal)-1.4%12.1%3.6%Early bids for intermodal in HSDJ.B.Hunt(Dedicated)0.0%6.1%2.0%Early truckload indications for MSDC.H.RobinsonNANANALow single-digits
44、 to flatBarclays|North America Transportation 5 February 2019 9 Company Specific Thoughts United Parcel Service 4Q18 Review Where we stand:Fourth quarter results were the tale of two outcomes,with robust demand in the Domestic US business providing solid top line expansion,but similar to prior peak
45、seasons,also carried lower margins.On the other hand,solid pricing gains more than offset softer macro conditions in Europe and Asia driving higher than expected International segment results.While we are encouraged by management guidance for margin improvement and double digit operating profit grow
46、th in all segments in 2019,we are concerned that slower global trade outcomes could result in slower than expected UPS outcomes.Nonetheless,if management can deliver some margin improvement and efficiency with recently completed capital projects in the US business,the narrative on UPS shares could t
47、urn more positive given a relatively low valuation at present.Strong International results offset domestic margin weakness.Adjusted EPS of$1.94 above our and consensus estimates of$1.86 and$1.92,respectively.Relative to our model,Domestic segment revenue was slightly ahead,but margins were 70bps low
48、er;International revenue and margins exceed expectations.Combined EBIT was 3c ahead,while higher other income and lower tax rate added another 6c.We take estimates slightly higher as increased International outlook offsets$325mm pension headwind below the line.Please see some key model assumptions f
49、or our full year 2019E and 2020E estimates below:Revenue:$75.6bn in 19E(5.2%yoy)&$78.7bn in 20E(4.1%yoy)U.S.Domestic EBIT:$4.3bn(11.8%vs.guide of 10-13%)&$4.6bn(6.3%)Intl Package EBIT:$2.9bn(10.9%vs.guide of 10-12%)&$3.0bn(3.7%)Supply Chain EBIT:$1.0bn(14%vs.guide of low-mid teens)&$1.1bn(5.8%)EPS:$
50、7.45(guide of$7.45$7.75)&$7.85(5.3%)Canadian National Railway 4Q18 Review Where we stand:Canadian National continues to be among the best-run North American railroad,as further evidenced by solid volume expansion to close out 2018,despite lingering capacity challenges the carrier faced earlier this