TAL International Group, Inc. (LNET)

Q2 2012 Earnings Call

July 26, 2012 09:00 am ET


Jeff Casucci - Vice President, Treasury and Investor Relations

Brian Sondey - President and Chief Executive Officer

John Burn - Senior Vice President and Chief Financial Officer


Michael Webber - Wells Fargo

Helane Becker - Dahlman Rose

Sal Vitale - Stern Agee

Ken Hoexter - Bank of America

Jordan Hymowitz - Philadelphia Financial



Good morning and welcome to the TAL International Group Second Quarter 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Jeff Casucci, Vice President, Treasury and Investor Relations. Please go ahead, sir.

Jeff Casucci

Thank you. Good morning and thank you for joining us on today's call. We are here to discuss TAL's second quarter 2012 results, which were reported yesterday evening. Joining me on this morning's call from TAL are Brian Sondey, President and Chief Executive Officer and John Burn, Senior Vice President and Chief Financial Officer.

Before I turn the call over to Brian and John, I would like to point out that this conference call may contain forward-looking statements as that term is defined under the Private Securities Litigation Reform Act of 1995 regarding expectations for future financial performance.

It is possible that the company's future financial performance may differ from expectations due to a variety of factors. Any forward looking statements made on this call are based on certain assumptions and analysis made by the company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. Any such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected.

Finally, the company's views, estimates, plans and outlook as described within this call may change subsequent to this discussion. The company is under no obligation to modify or update any or all of the statements that is made herein despite any subsequent changes the company may make in its views, estimates, plans or outlook for the future. These statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results.

For a discussion of such risks and uncertainties, please see the risk factors listed in the company's annual report filed on Form 10-K with the SEC.

With these formalities out of the way, I would now like to now turn the call over to Brian Sondey. Brian?

Brian Sondey

Thanks Jeff. Welcome to TAL's second quarter 2012 earnings conference call. Tal continued to deliver outstanding operational and financial performance in the second quarter of 2012. We generated almost $52 million in adjusted pre-tax or cash income for the quarter.

Our existing fleet continued to perform exceptionally well. Utilization averaged almost 98% for the quarter and used container sale prices held steady during the quarter at historically high levels, and we continued to invest heavily in new and sale-leaseback containers ensuring that 2012 will be another year of strong growth for TAL.

Sales performance continues to be supported by attractive market fundamentals. Trade growth remained solidly despite global economic headwinds, a recession Europe and disappointing growth in the United States, and minimal trade growth in the main east west trade lands.

The growth in inter-Asia North-South and other regional trades continues to be strong. Overall growth in global containerized trade volumes is still expected to be 5% to 7% in 2012. The supply and demand balance for containers remained in our favor.

People inventories of used equipment remained unusually low and the production of new containers so far this year has been moderate. We estimate that the production of new containers in the first half of 2012 was down roughly 30%, compared to new production in the first half of last year.

Our shipping line customers continued to be very cautious about purchasing new containers directly and they remained interested in pursuing sale-leaseback transactions for their existing owned containers.

We estimate that leasing companies have purchased roughly two-thirds of new production so far this year, which is an even larger share than in 2010 or 2011, and we have completed several sizable sale-leaseback transactions with our customers this year.

This combination of moderate trade growth, tight container inventories and a market share shift from owned to leased containers remains the basic formula allowing us to achieve high utilization strong profitability and aggressive growth at a time when global economic conditions seem challenging.

As I mentioned, we will have another strong investment year in 2012. Through July 25 th, we have ordered about $750 million of new or sale-leaseback containers for delivery in 2010. Roughly 75% of containers are committed to leases with a number of the world's largest shipping lines.

Pick-ups for lease commitments have been slower than expected as renewed global instability has taken some of the momentum out of the traditional summer peak season. Because of this, we expect that our pace of investment in new containers to slow in the second half of the year. Though the risk potential for further sale-leaseback transactions, and due to our strong start this year, we will achieve asset growth over 15% in 2012, just based on our existing orders. The large number of new and sale-leaseback containers that remained committed to go on hire will support strong pick-up activity and growth in our leasing revenue in the third quarter.

As mentioned in the press release, we are increasing our dividend this quarter to $0.60 per share. This increase reflects our continued strong performance and expectations that market conditions will remain favorable. The increased dividend also reflects the strong growth of our long-term lease portfolio and the resulting increasing in our recurring leasing revenues.

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