Connecting The Dots: TFII flash read-through – Cass releases May transportation index report
NYSE: TFII | USD 77.04 | Outperform | Price Target USD 100.00
Sentiment: Neutral
Volumes up +4% m/m on a seasonally adjusted basis - neutral to sentiment. Volume in May came in higher m/m but down -3% y/ y on tough comps. Looking ahead, normal seasonality implies shipments up +2% y/y in June and roughly flat y/y in 2022; however, our view is that goods consumption and inventory re-stocking headwinds suggest risk to the downside. Overall, we expect trucking volumes to be pressured into the back half of the year, but highlight this is largely priced into TFII shares following recent market weakness, and is therefore neutral to sentiment in our view. We also highlight that May data is at odds with commentary from our Industrials Conference (which we note was held in May but was primarily Cdn focused) during which mgmt teams highlighted robust demand conditions.
Inferred rates down -10% m/m on a seasonally adjusted basis, largely due to mix - neutral to sentiment. Freight rates came in lower m/m largely due to mix with more LTL and less TL. We note that the demand outlook is flattening and that driver availability has improved, up +5% in the past two months, suggesting potential rate weakness looking ahead (and supported by a -15% drop in spot rates in early June). We have a neutral view however as a deceleration in rates is largely in line with our expectations for TFII, and mostly reflected in current valuation.
What happened? Cass Information Systems, which provides freight audit and payment services, yesterday released its May 2022 Transportation index. Key is that North American freight shipments were down -3% y/y and that North American inferred rates were up +31% y/y. North American May rates were down -10% m/m on a seasonally adjusted basis. See Exhibit 1.