CAI International's CEO Discusses Second Quarter Results - Earnings Call Transcript

Call End 17:47

CAI International (CAP)

Q2 2012 Earnings Call

July 23, 2012, 05:00 pm ET

Executives

Victor Garcia – President, CEO

Tim Page – CFO

Analysts

Gregory Lewis – Credit Suisse

Helane Becker – Dahlman Rose

John Mims – FBR Capital Markets

Sal Vitale – Stern Agee

Daniel Furtado – Jefferies

Bob Napoli – William Blair

Presentation

Operator

Good day, ladies and gentlemen, and welcome to CAI International second quarter 2012 earnings conference call. (Operator Instructions) As a reminder this conference call may be recorded. I would now like to turn the conference over to Mr. Tim Page, Chief Financial Officer. Sir, you may begin.

Tim Page

Good afternoon and thank you for joining us today. Certain statements made during this conference call may be forward looking and are made pursuant to the Safe Harbor provisions of the section 21E of the Securities and Exchange Act of 1934 and involve risk and uncertainties that could cause actual results to differ materially from current expectations including but not limited to economic conditions, expected results, customer demand, increased competition and others.

We refer you to the document that CAI International has filed with Securities and Exchange Commission, including its annual report on Form 10-K, its quarterly reports filed on Form 10-Q and its reports on Form 8-K. These documents contain additional important factors that could cause actual results to differ from current expectations and from forward-looking statements contained in this conference call.

I will now turn the call over to our President and Chief Executive Officer, Victor Garcia.

Victor Garcia

Thanks, Tim. Good afternoon. We are very pleased with our second quarter and half year results and we continue to be optimistic about the outlook for container demand for the remainder of 2012 and for container demand in 2013 which we are viewing as a global economic recovery year.

With the results just reported we continue to bring great economic value to our shareholders as we place capital to work by taking full advantage of our market reputation and knowledge of the business.

Through the end of the second quarter we have invested over $350 million in equipment of which $310 million have been on containers.

Based on the investments we have made on the first half of this year we expect our overall investment in containers in 2012 to be above the amount invested last year, which was a record level of investment at that time.

This quarter we had earnings of $0.77 per fully diluted share, which represents a 40% increase from the fully diluted earnings per share during the same quarter in 2011.

Revenue over that same period increased 38%. If you look at our net income through the first half of this year and annualize the results, we are reporting a return of equity of over 25% since the beginning of the year. That return on capital is real value we are bringing to our shareholders.

Similarly in 2011, we also returned over 25% on our equity. The returns we have achieved are particularly noteworthy considering the low interest rate environment that has prevailed over the last three years and that they are supported by long-term, multiyear leases on most of our equipment.

We had significant achievements this quarter that supported the results we reported. During the quarter we were able to lease out 45,000 TEU of containers. These units are primarily on multiyear, long-term leases across many of the largest shipping lines.

During the quarter we also purchased two managed fleet portfolios that totaled 22,000 TEU for a purchase price of $27 million.

The purchase price for these portfolios were very attractive and they immediately provided earnings to our operations during the quarter.

According to Clarkson's research containerized trade growth this year is expected to grow approximately 6%. This level of trade growth is lower than the historical trend of 9% to 10% due to the economic weakness in Europe and slow economic growth in the United States.

However, there is ongoing trade growth coming from many of the developing regions. The containerized trade growth in conjunction with full utilization of the existing worldwide leased container fleet and limited new investment that shipping line is making for containers create demand for incremental leased containers.

Specifically we see demand from customers for equipment to be picked up in Europe for (ExBark) cargo, particularly in Germany. We also see demand for the pick-up of equipment in some of the Southern European countries.

There is ongoing demand for equipment to be picked up in Asia, particularly in China. We see demand from regional shipping lines focused on inter-Asian trade.

Customers are inquiring for equipment to be picked up in August and September. We hear from some of our customers that they expect continued good freight demand over those months and are planning for some additional pick up of containers.

We expect our shipping line customers' financial position to improve over the course of this year, as we expect that they will report improved results from their first quarter losses.

Many of the shipping lines have implemented freight rate increases that are being passed onto their customers while benefitting from growth and cargo volumes and lower fuel costs. As a result we expect the financial risk within our overall customer base to improve.

With the high overall level of utilization of equipment we see continued good pricing on secondary sale of containers. Demand for used containers remains strong and we have increased prices in some of our higher demand locations. In other words we expect good momentum in our container business in the second half of this year.

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