Industrials and Transporters Weekly Dow Theory still in violation:
Dow Theory remains in violation as the market has rallied upward but the Dow Jones Transportation Average has not moved along. These conditions signal a bearish divergence whereby a decline in the market is expected in the future. However, still many people suggest that it has to be either the Dow Jones Industrial Average or Dow Jones Transportation Average that has to move along with the S&P 500 Index. With DJIA moving in the same direction of the market, Dow Theory may not be in violation at all.
September Cass Freight Data: The data suggests that trucking demand is negative on a year-over-year basis and very modest on a SAAR basis. Shipments index contracted -3.8% YoY and the expenditures index increased 2.5% YoY.
Weekly Rail Traffic: 283,340 carloads were originated by U.S. Railroads, which were down 6.3% compared with the same week last year. Intermodal continues to be the growth factor with 3.8% growth week/week. Coal (-18.1%), iron and steel scrap (-17.9%) and waste and non-ferrous scrap (-11.5%) carloads showed the decline. Petroleum products (+46.1%), Farm Products excluding grain (+30%) and lumber products (+11.2%) carloads were on a rise.
September 2012 HACTL Data: YoY airfreight tonnage improved as seen by +6.3% growth in September after August grew by 2.5%. Export tonnage also improved 2.2% YoY.
Drivers' shortage: According to Trucking info, the drivers shortage is expected to reach 500,000 next year. The truck driver turnover has reached 106%. The main cause is said to be the unsatisfactory pay levels.
During the week
FedEx (FDX): The economic bellwether took everyone by surprise when FDX announced an estimated figure of $1.7 billion improvement in earnings, which is much higher than the maximum estimate of $1 billion from the sell-side. Most of the improvement is expected to come from its largest division, Express. $1.7 billion makes $3.4/share. Though the realization of $1.7 billion in 2016 is later than what the market had expected, it is anticipated that a major part of costs savings (75%) will be realized in 2015. Also, meaningful SG&A savings are expected to come in 2014.
BAE/EADS Merger: It took almost a month for both the companies to decide that a merger cannot take place. The deal could not progress due to the political deadlock, as the French and German governments did not want their share to shrink in EADS. BAE Systems, on the other hand, was not willing to sacrifice its special relations with the Pentagon that had helped it to win some very lucrative contracts. Now that the merger talks have failed to materialize, BAE is under increasing scrutiny on what happened and what the company's next steps will be. The potential sequestration in January and further on is expected to shake up the whole U.S. Aerospace Industry.
United Airlines (UAL) misses the mark: UAL said last Monday that PRASM declined in September on a MoM basis to 2.5% from 3.5%. Also, according to the Telegraph, the merger of United and Continental is turning out to be much more difficult than anticipated. CEO Jeff Smisek said, "If I had constructed two different cultures, I could not have done better."
AAMRQ: Difficulties faced in the American Airlines: The company's CEO admits that the company is facing some troubles in recovering to its previous quality standards after the incident of rows of seats coming loose on some planes. The merger talks with US Airways (LCC) are still in the air.
CMI Negative Pre-Announcement: Cummins, the engine maker, lowered its 2012 forecast in for the second time in less than 3 months. FY12 revenue was lowered from $18 billion to $17billion. The change in forecast has come after a lower than expected slowdown in the North American heavy duty market and international power generation market. The company also plans to cut 1,500 jobs. Trucking business remains a significant threat to the transportation industry.
JBHT Earnings Release: Misses Earnings estimates but tops Revenue estimates. Revenue of $1.3b was 11% higher YoY. EPS of 65 cents was higher 14% YoY. The trucking business remains a big concern. The intermodal business, from where the company made 61% of its revenue, remains the key to growth.
OSK-NAV merger talks in air: After Icahn's offer to buy Oshkosh for $3 billion, there is speculation that Oshkosh and Navistar might merge after Icahn managed to reach an agreement with NAV to gain seats on the company's board.
Upcoming Earnings Release in the next week
Tuesday Oct 16
- CSX Corp (CSX) EPS estimate $0.43
Wednesday Oct 17
- Safe Bulkers (SAFE) EPS estimate $0.30
- Stanley Black & Decker (SWK) EPS estimate $1.45
- Textron (TXT) EPS estimate $0.52
Thursday Oct 18
Friday Oct 19
- AMR Corp (AAMRQ) EPS estimate $0.22
- General Electric (GE) EPS estimate $0.37
- Ingersoll-Rand (IR) EPS estimate $0.99
- Kansas City Southern (KSU) EPS estimate $0.85
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.