Valuation Update for the Logistics and Transport Industry
September 30, 2010
Transaction volume in the transportation and logistics industry slightly declined compared to
the prior month, but were above the level of activity reported in September 2009. According
to Capital IQ, there were 87 deals announced in the transportation and logistics sector in
September 2010 compared to 90 in the prior month and 63 in September 2009.
The U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported that
the U.S. Freight Transportation Services Index (TSI) fell 0.6 percent in August from its July level,
falling after two monthly increases. The Freight TSI measures the month-to-month changes in
freight shipments in ton-miles, which are then combined into one index. The index measures the
output of the for-hire freight transportation industry and consists of data from for-hire trucking,
rail, inland waterways,pipelines, and air freight. (Source: U.S. Department of Transportation,
October 14, 2010)
The American Trucking Association's advance seasonally adjusted (SA) For-Hire Truck Tonnage
Index fell 2.7 percent in August, which was the largest month-to-month decrease since March
2009. The latest drop lowered the SA index from 110 (2000=100) in July to 106.9 in August.
(Source: American Trucking Associations, September 28, 2010)
The International Air Transport Association (IATA) announced international scheduled traffic
statistics for August indicating year-on-year increases of a 6.4 percent for passenger and 19.6
percent for cargo. Capacity increases in passenger markets are accelerating. Since December
2009, air travel volumes have expanded by 4.3 percent while capacity has risen by 6 percent.
Passenger load factors remain high (81.6 percent), but when adjusted for seasonal fluctuation
this amounts to a drop of 1.5 percentage points compared to the February 2010 peak. Freight
capacity is matching demand trends, which are stabilizing. Since December 2009, the freight
volume expansion of 9.2 percent has been matched by capacity expansion. After a rapid
improvement throughout 2009, freight load factors have leveled off at 51.0 percent. (Source: The
International Air Transport Association, September 28, 2010)
The Baltic Dry Index (^BDI), an index tracking worldwide international shipping prices of various
dry bulk cargoes, increased in September, with the month’s average value rising 11.2 percent to
2,719, up from August’s average of 2,445. The Index finished September at 2,446, down 76.9 percent from the May 2008 peak of 11,793. (Source: Capital IQ, October 14, 2010)
- Southwest Airlines Co. (NYSE: LUV) signed a definitive agreement to acquire AirTran
Holdings Inc. (NYSE: AAI) from Comvest Investment Partners and other investors for US$1
billion in cash and stock. The deal implies a valuation of 0.6x revenue and 9.3x EBITDA based
on Air Tran’s LTM June 2010 results. Air Tran operates a scheduled airline service primarily in
short-haul markets in the eastern United States, with flights originating and terminating at its hub in Atlanta, Georgia. The deal further strengthens Southwest’s presence as a low-cost carrier and expands Southwest’s networks to include international destinations. (Source: Capital IQ, September 26, 2010)
- Enterprise Products Partners LP (NYSE: EPD) entered into a definitive agreement to
acquire Enterprise Transportation Company from EPCO, Inc. for US$20.6 million in stock.
Enterprise Products Partners, provider of tank truck services, will issue 520,000 shares to
EPCO as consideration. The transaction was approved by the audit, conflicts, and governance
committee and the board of directors, and it does not require any further approvals. The board
of directors of EPCO has approved the transaction. The transaction is expected to close by
October 15, 2010. (Source: Capital IQ, September 30, 2010)
- Japan Airlines International Co Ltd. announced it is selling its entire 72 percent stake in JAL Logistics to Hamakyorex Co Ltd. (TSE: 9037) by way of a stock transfer agreement. Hamakyorex together with its subsidiaries, provides logistic services in Japan. (Source: Capital IQ September 13, 2010)
- VT Group acquired Evergreen Unmanned Systems of Evergreen International Aviation, Inc. for an undisclosed amount. Evergreen Unmanned Systems, which provides unmanned aircraft system (UAS) services, personnel will join VT Group’s Technical Services Division and will continue to work either in the field with customers or at the McMinnville, Oregon campus. (Source: Capital IQ, September 26, 2010)
Earnings - Genesee & Wyoming Inc. (NYSE: GWR), an owner and operator of short line and regional freight railroads in the United States, Australia, Canada, and the Netherlands, reported traffic results for the month of September 2010 and the third quarter of 2010. The company’s traffic in September 2010 was 72,121 carloads, an increase of 8,514 carloads, or 13.4 percent compared with September 2009. Farm and food products traffic grew 3,565 carloads primarily due to increased grain shipments in company's Australia Region. Chemicals and plastics traffic grew 1,237 carloads primarily due to increased shipments in company's Illinois and Southern Regions. Coal, coke, and ores traffic grew 1,117 carloads primarily due to increased coal shipments in company's New York/Ohio/Pennsylvania Region. All remaining traffic increased by a net 2,595 carloads. The company’s traffic in the third quarter of 2010 was 217,390 carloads, an increase of 21,127 carloads, or 10.8 percent compared to the third quarter of 2009. The traffic increase in the third quarter of 2010 compared to the third quarter of 2009 was principally due to increases of 10,216 carloads of farm and food products traffic, 3,130 carloads of chemicals and plastics traffic, and 2,145 carloads of other commodity group traffic. All remaining traffic increased by a net 5,636 carloads. (Source: Capital IQ October 13, 2010)
- CSX Corp. (NYSE: CSX), provider of rail-based transportation services in North America, reported unaudited consolidated earnings results for third quarter and nine months ended September 24, 2010. For the quarter, the company reported net earnings of US$414 million or US$1.08 per diluted share on revenues of US$2.7 billion against net earnings of US$290 million or US$0.73 per diluted share on revenues of US$2.3 billion for same period a year ago. Operating income for the period was US$825 million against US$594 million for same period a year ago. Earnings from continuing operations before taxes for the period were US$702 million against US$460 million for same period a year ago. Earnings from continuing operations per diluted share for the period were US$1.08 against US$0.73 for same period a year ago. Revenue growth and continued operating leverage drove a 39 percent increase in operating income. For nine months, the company reported net earnings of US$1.1 billion or US$2.92 per diluted share on revenues of US$7.8 billion against net earnings of US$800 million or US$2.12 per diluted share on revenues of US$6.7 billion for same period a year ago. Operating income for the period was US$2.2 billion against US$1.7 billion for same period a year ago. Earnings from continuing operations before taxes for the period were US$1.8 billion against US$1.3 billion for same period a year ago. Earnings from continuing operations per diluted share for the period were US$2.92 against US$2.08 for same period a year ago. Net cash provided by operating activities for the period was US$2.3 billion against US$1.6 billion for same period a year ago. Property additions for the period were US$1.1 billion against US$1.0 billion for same period a year ago. The company announced plans to raise its 2010 capital investment to approximately US$1.8 billion, up from the previously announced US$1.7 billion. (Source: Capital IQ October 12, 2010)
- The decision to bring the Boeing 737-800 into the Southwest Airlines Co. (NYSE: LUV) fleet moved yet another step closer to reality as the Board of Directors for the Southwest Airlines Pilots' Association (SWAPA), representing more than 5,800 pilots, unanimously approved a tentative agreement reached with the company. The tentative agreement will now be presented to the full SWAPA membership for a ratification vote. (Source: PR Newswire October 14, 2010)
