Shares of transportation finance and logistics company CAI Intl (CAI 23.92, +2.94 +14.0%) trade higher at a healthy clip, to better than two year highs, after the company announced updated Q2 earnings expectations and an expansion to its revolving credit facility.
For those who may not be familiar, CAI is global transportation and logistics company specializing in intermodal leasing, rail leasing and operations, and global logistics services. As of the last quarterly update, CAI owned more than 933,000 twenty-foot equivalent unit containers (TEUs). On top of its owned TEU fleet, CAI also manages additional containers totaling about 155,000 units for a total container fleet of about 1.09 million. TEUs are those large shipping containers you see on a cargo ship or freight train, shipping goods and materials across the world.
Getting back to the guidance, CAI now estimates that its net income for Q2 will be between $10.7-11.3 million, or $0.55-0.58 per share. This represents an increase of more than 100% compared to its net income in Q1 of $5.3 million, primarily as a result of a combination of revenue from new investment, higher utilization, and increased rental rates on expiring contracts and gains on sale of equipment. This guidance is in line with comments made by CAI at its Q1 earnings conference call where management laid out expectations for earnings to grow throughout 2017.
Additionally, thus far year to date, CAI has invested about $370 million in new containers, of which $105 million is expected to be delivered in Q2 and $202 million in Q3. Virtually all of the equipment expected to be delivered in Q2 and Q3 are under committed leases with an average lease term in excess of eight years.
Utilization of CAI’s owned container fleet is currently 97.7%, up 1.2 percentage points sequentially. CAI expects utilization to be above 98% during Q3. Management also noted that based on the level of committed leases on new investment, high utilization and continued favorable container market conditions, CAI expects further improvement in operating results throughout 2017.
Also as mentioned, CAI reached agreement with the lenders of its Third Amended and Restated Revolving Credit Agreement to increase the total loan commitment from $775 million to $960 million. Other than the increase in the loan commitment, all other terms of the facility remain unchanged. This increase provides financing for both existing container commitments and additional investment.
In sum, while management continues to keep utilization rates at healthy levels, earnings power will follow. The container leasing industry remains strong, at least as indicated by CAI, as supply and demand seem to be working in the company’s favor.