TD Notes INDUSTRY UPDATE
Q1/24 CANADIAN CARGO TRANSPORTATION (ROAD & AIR) PREVIEW
THE TD COWEN INSIGHT
We don't believe the differences in our Q1 estimates vs consensus are significant enough to generate opportunities to get ahead of earnings surprises. Our MTL EBITDA forecast is slightly above consensus. AND is below consensus and CJT in line. We have updated our forecasts to reflect updated industry rate, volume, economic and currency assumptions, the net impact of which is immaterial with the exception of AND for which our refined healthcare related rate assumptions bias our target higher ($54.00 vs $52.00).
Cargojet: We forecast 4.7% revenue growth y/y to $243 million (consensus: $232 million). Domestic network revenue growth is forecast at 8.6% y/y based on e-commerce demand and contractual pricing. We estimate 9.3% ACMI revenue growth based on DHL-contracted aircraft. Our charter forecast could prove conservative given the spreading impact from Red Sea disruptions. We forecast adjusted EBITDA of $76.3 million (consensus: $76.2 million), flat y/y, based on 90 bps of margin compression driven by fuel costs. We believe there is
a risk of another leg lower in air cargo rates (impacting a small proportion of CJT volume), which remain above 2019 on certain lanes, We assume that volume has turned the corner and will continue to grow y/y through 2025.
Mullen Group: We forecast 2.5% y/y revenue growth to $510 million (consensus: $500 million). We believe that the growth in LTL from the B&R acquisition will be offset by pricing and volume headwinds. S&I is forecast to increase 8.0% y/y primarily driven by the B&R acquisition. We estimate that EBITDA will increase 4.3% y/y to $80.3 million (consensus: $77.8 million), driven by 30 bps of margin expansion. We believe that pricing, efficiency, and the company's focus on niche markets will drive 370 of Specialized margin expansion. LTL volume and pricing headwinds are expected to drive a 100 bps decline in segment EBITDA margin. We have not incorporated the ContainerWorld acquisition (Q2/24 expected close) in our forecast.