Textainer Group Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Textainer Group Holdings Limited (TGH)

Q2 2012 Earnings Call

August 7, 2012 11:00 am ET

Executives

Hilliard C. Terry III – Executive Vice President and Chief Financial Officer

Philip K. Brewer – President and Chief Executive Officer

Robert D. Pedersen – Executive Vice President

Analysts

Gregory Lewis – Credit Suisse

Michael Webber – Wells Fargo Securities, LLC

Salvatore Vitale – Sterne, Agee & Leach, Inc.

Helane R. Becker – Dahlman Rose & Co. LLC

John R. Mims – FBR Capital Markets

Daniel Furtado – Jefferies & Co.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Textainer Group Holdings Limited Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference, Hilliard Terry, Executive Vice President and Chief Financial Officer. You may begin.

Hilliard C. Terry III

Thank you and welcome to our 2012 second quarter earnings conference call. Joining me on this morning’s call are Phil Brewer, TGH President and Chief Executive Officer; at the end of our prepared remarks, Robert Pedersen, TEM President and Chief Executive Officer will join us for the Q&A.

Before I turn the call over to Phil, I’d like to point out that this conference call contains forward-looking statements in accordance with U.S. Securities Laws. These statements involve risk and uncertainties are only predictions and may differ materially from actual future events or results.

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 [Technical Difficulty]

Operator

Ladies and gentlemen, please stand by, your conference call will resume momentarily. Again, ladies and gentlemen, please stand by, your conference call will resume momentarily. [Technical Difficulty]

Operator

And speakers you may resume.

Philip K. Brewer

Hello, this is Phil Brewer. sorry, I’m not sure where the line dropped. I apologize for that interruption. So at the risk of boring anyone who may have been listening to the earlier part of the call, I will start again. Welcome to Textainer’s second quarter earnings conference call. Building under the sets of the first quarter, we continued to deliver excellent results during the second quarter.

Total revenues of $120 million represent 14% increase over the same quarter in 2011. Adjusted net income of $44.7 million or $0.89 per diluted common share is an increase of 11% compared to the prior year quarter. Our annualized return on equity as of the quarter-end is 26% compared to an average of 23% since we went public in 2007. We believe this is especially impressive given both our low leverage and the low returns generated by most other asset classes over this time.

Textainer declared a $0.42 per share dividend, an increase of 5% from the previous quarter. This represents our tenth consecutive increase in dividends, and continues our record of constant or increasing dividends every quarter since going public.

Year-to-date we invested more than $760 million in new and used containers. Our fleet now exceeds 2.6 million TEU. Approximately 25% of our new container CapEx this year has been in reefers. We’ve ordered more than 17,000 TEU reefers already exceeding our total 2011 refer investments. We remain focused on growing our position in this very attractive market.

The portion of our fleet subject to determine finance leases increased from 78% to 80% over the last year. At the same time, we increased the own portion of our fleet from 57% to 60%. We expect both trends to continue not only providing increased stability and visibility to our earnings, but also improving bottom-line performance.

Since 2010, we’ve been surprised that the limited quantity of containers being sold by the shipping lines due in large part to the prevailing high level of utilization over that time. During the last three months, we have seen a significant increase in shipping line disposals via trading deals or sale lease back. These transactions are doubly attractive to Textainer. It provides the opportunity for training purposes and new lease outs, either now or in the future.

Resale quantities remain strong. After declining 15% to 20% from last summer to the beginning of the year, prices have remained steady since at levels that are extremely attractive. A very positive secured trend is that shipping lines are increasingly relying on leasing companies to revive containers. Since 2010, we think the company has purchased more than half of all new container production, and we believe they have purchased 65% or more this year. As a result, leasing companies had the opportunity to enjoy strong organic growth. Indeed, we believe the percentage of the leasing industries new container investment purchase by Textainer exceeds our market share in both dry-freight and reefer containers.

Utilization continues to improve. It was 97.6% at the beginning of the year and been about 98% continuously since last May and is currently at 98.3%. While we expect Utilization to decline slightly during the third quarter, we believe it is likely to remain high for some time.

The high-level utilization we see in the case of tight supply market currently and total container production this year is expected to be approximately $2.3 million TEU, a reduction of 15% from last year’s production. We intended the factories have limited new container orders after July, this reduction in new production combined with the increasing sales noted above are likely to support continued high utilization. I just returned from a two week trip to Asia, where I met with some of our customers. The lines I met all benefited from the reduction book of bunker prices and increases in freight rate that have occurred this year.

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