Amid the reports and cacophony of (seemingly) one bad economic news story after another, it's important -- perhaps essential -- to take time out to notice the good economic news stories out there.
One such good news story: smart parking technology, currently being tested in San Francisco.
This fall, San Francisco will test 6,000 of its 24,000 metered parking spaces in the nation's first large trial of wireless sensor network that will communicate which spaces are free at any moment, The New York Times reported.
This post is part of our Big Company, Small Town series, featuring large companies and the small towns in which they are headquartered.
Johnnie Bryan Hunt, eponymous founder of J.B. Hunt (NASDAQ: JBHT), was, like so many Depression-era children, a jack-of-many-trades. He picked cotton, harvested grain, sold lumber, auctioned livestock, sold lawn sod, and drove a truck. He was a handy soul, inventing a rice hull press and designing a unique poultry truck.
It was the rice hulls that would be the start of J.B. Hunt. J.B. came up with the concept of using rice hulls for chicken bedding. He and a partner used the rice hull business as seed money to buy five trucks and seven trailers and in 1969 started J.B. Hunt Transport. Today the company operates 11,000 trucks and about 47,000 trailers and containers, though its founder died in 2006 -- in time to see his little transport business become the largest publicly-traded trucking company in the world.
It's fitting that J.B. Hunt, which made its start on the profit earned from chicken farmers, should be based in rural Arkansas -- the land of poultry. Lowell, Arkansas is a tiny town, made up of only about 5,000 residents, so J.B. Hunt is a big force. With 16,000 employees, the company could triple the town's size based on its payroll alone.
The second-largest delivery company reported today a net loss of $241 million, or 78 cents per share, compared with net income of $610 million, or $1.96 per share, a year earlier. Excluding an $891 million charge for its Kinko's unit, profit would have been $1.45 per share, missing the $1.47 estimate of analysts surveyed by Bloomberg News.
Wall Street, though, gave a thumbs down to FedEx's lackluster guidance which heightened concerns about the health of the overall economy. Shares of FedEx and its rival United Parcel Service Inc. (NYSE: UPS) slumped in early trading.
"Having spent a lot of time recently studying the North American transportation industry, my conclusion is that trucking is on the decline while the railroads are poised to increase market share," notes Tom Slee.
"Who would have thought it? Railways are having a good year. They were supposed to be hunkered down, riding out the recession. Instead, the old iron horse is thriving.
"Surging demand for commodities is more than offsetting a slump in building materials shipments. Even higher energy costs are proving a plus for the railroads. Each jump in oil prices gives them a bigger edge over their gas guzzling competitors: trucks.
"Most important, the rails are able to raise rates despite the economic downturn. Their surcharges are sticking. Yet the stocks are out of favour.
Bipartisan legislation aimed specifically at increasing government regulation of railroads threatens to hamstring 25 years of successful growth and investment by that industry. The Railroad Antitrust Enforcement Act of 2007 (H.R.1650) would effectively undo specific and narrow antitrust process exemptions that were provided for the railroads by the Staggers Rail Act of 1980. The Staggers act effectively halted what had previously been a massive and staggering decline by American railroads. Currently, the railroads are effectively and efficiently regulated by the Surface Transportation Board.
The American Association of Railroads reported in a press release, "Since Staggers, railroads and their customers have benefited enormously. Railroads have reinvested $420 billion back into their systems since 1980. The result has been improved service and safety, and nearly double their traffic volumes -- all while lowering average rates by more than 50 percent in inflation-adjusted terms. That means the average rail [shipping customer] can move twice as much freight today for the same price as in 1980." AAR further reports that a just-released Morgan Stanley survey found customer satisfaction with rail service is at a historical high.
It should also be noted that the devastating decline suffered by the railroads prior to passage of Staggers is arguably the lynch pin of this nation's inability to establish reliable, desirable, and profitable mass transit for commuters by rail. The rate of investment by our freight railroads since 1980 could be one facet in bringing effective local and nationwide passenger rail service back within our grasp. The passage of H.R.1650 may effectively destroy any further hope of developing high-speed, cross-continental passenger rail service and the further expansion of local commuter rail services.
In an age when surface transportation is becoming incredibly more expensive and our airlines are in perilous distress, do we really need to limit our options by passing legislation which could severely injure a system that works? You may wish to consider contacting your legislators in an effort to halt H.R.1650 dead in its tracks.
For nearly 30 years, the rails, long neglected in the United States, were considered passé. Then the globalization era dawned, with its exports and demand for commodities. Add a price of oil that's basically risen for 10 years and the results is: the rails are back. And with the above in mind, Burlington Northern (NYSE: BNI) is worth an evaluation.
With 32,000 miles of track in the western U.S. and two Canadian provinces, Burlington Northern accounts for about 45% of the west's traffic and about 23% of U.S. rail traffic.
Analysts see 2008 revenue growth of about 6-8%, down from double-digit growth a year earlier, but still healthy. Margins should remain solid, with modest pricing power. The Reuters F2008/F2009 EPS consensus estimates for BNI are $5.92/$6.81.
Even better: like the three other major U.S. railroads, BNI is in a relative sweet spot until the United States determines its energy policy for the 21st century. Or should one say 'if the United States determines its energy policy for the 21st century.' Investors will carefully note that the value Wall Street attaches to rail stocks pretty much mirrors the price of oil's ascent, due to the higher truck transportation costs implied by a higher price of oil.
Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. And with the above in mind, Fluor is worth a review.
Fluor Corporation (NYSE: FLR) is one of the world's largest engineering, procurement, construction and maintenance companies. The company oversees construction projects for a large range of industrial sectors worldwide, primarily in its core strengths: designing and building manufacturing facilities, refineries, pharmaceutical facilities, healthcare buildings, power plants, and telecommunications and transportation infrastructure.
Analysts see 20-25% revenue growth for F2008, after likely 15-18% revenue growth in F2007, driven by strong demand for oil and natural gas projects.
YRC Worldwide (Nasdaq: YRCW) is the largest U.S. operator of motor carriers that offer less-than-truckload freight services.
Just because a sector is down doesn't mean that there aren't opportunities within the business category. Trucking transport has been a sector under pressure, and with the above in mind, YRC Worldwide is worth a review.
Analysts expect road freight sector conditions to improve gradually in 2008, with a slight revenue increase for YRCW, on mild tonnage gains and some pricing power. Margins should also improve in 2008.
Longer term, analysts expect YRCW to improve operational performance via ongoing efforts to rightsize its fleet and eliminate operational overlaps. The Reuters F2008/F2009 EPS consensus estimates for YRCW are $1.64/$2.42.
To be sure, YRCW's stock carries considerable risk, but the argument here is that improved operations and a pull-back in average oil prices for 2008 to the 'low' $75-80-level will provide enough tailwind to improve bottom-line results. Those facts, combined with a p/e of 8 make the YRCW risk/return favorable.
The risks? A U.S. recession would (obviously) hurt YRCW's results. Analysts also have an eye on the company's pension costs.
The First Call mean rating for YRCW is: Hold. [13 firms.] Mean 2008 target: $18.00. [high: $25, low: $15.]
Stock Analysis: YRC Worldwide is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from YRCW's shares. Sell / Stop Loss if you were to purchase shares in this company: $8.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
Most transportation officials agree that the United States' transportation infrastructure - - highways, roads, bridges, mass transit systems - - is in need of a major upgrade in order to meet the nation's transportation needs of the 21st century.
The nation's public officials will begin to address the above concern in the years ahead, as public funds become available, but until they do, and due to crude oil's sustained high price, an opportunity has emerged for another transportation form: you guessed it, the railroads. And Norfolk Southern Corp. (NYSE: NSC) is a railroad worth a review.
Norfolk Southern provides rail transportation in the eastern U.S. and Canada, operating a 21,000-mile rail network. It's an elaborate intermodal and coal service network that also has a large freight business.
After learning that Warren Buffett, the value investor's equivalent of A-Rod, was putting his money into U.S. Railroad firm, Burlington Northern Santa Fe (NYSE: BNI), railroad stocks suddenly became trendy. Driven by increasing consumption for commodities and transportation services, railroads have been targets for value investors for a long time. Buffett's investment put the industry back on the investment map.
So, it wouldn't be surprising to see that hedge funds are playing the same hand. CSX Corp. (NYSE: CSX), a large integrated transportation company servicing everything from ports, trucks and rails, has been in the news lately as the target of an activist hedge fund based out of London, named the Children's Investment Fund.
The fund, started in 2003 by Chris Hohn, has been very active and successful in extracting shareholder value from a variety of situations. It forced the resignation of the Deutsche Borse CEO after he refused to abandon his plan to take over the London Stock Exchange.
It seems like the CIF hit a snag with CSX, though.
In response to the Fund's demands, CSX accepted none of them. In a great response sent by the CSX Board to TCI, management makes a strong case. You can read the letter here.
While driving on LA freeways, I sometimes wonder: how strong are these structures? Were they meant to handle the huge amounts of traffic?
I hope so. But I also realize that throughout the US the infrastructure is getting old and needs replacement.
Well, the private equity folks are seeing opportunity. For example, this week, The Carlyle Groupannounced its Carlyle Infrastructure Partners fund, which has about $1.15 billion under management.
The geographic focus will be on the US as well as Canada, and Carlyle will look to invest in projects for transportation and water.
Actually, this is kind of a new area for private equity and as a result, Carlyle has hired 14 professionals to manage the fund.
More importantly, the opportunity looks vast. After all, Carlyle projects that the US will need to spend $1 trillion on infrastructure over the next five years.
Detroit's Big Three, General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler have often been criticized for their bureaucracy, slow decision making, and, at times, outright inertia...even when conditions required bold, decisive action.
There's the joke about the five General Motors executives that go on a camping trip in the Great Midwest. Suddenly, they spot a bear 600 feet away and charging toward where they're seated at the camp site.
Each executive has a rifle and is ready to shoot the bear to defend the campers, and the senior executive says: "Allright, Executives, ready, aim, aim, aim, aim, aim, aim, aim, aim, aim..."
Over the past year, transportation stocks have lagged other shares. Since last October, for example, the Dow Jones Transportation Index has lost 5.1%, while the S&P 500 index has gained 13.25%.
But not all stocks in the transport group have tracked the index. Railroad shares, for example, have outperformed both the sector and the overall market, with the S&P Supercomposite Railroad Index (a sub-index of the S&P Composite 1,500 index) rising by 17.3% over the period. That compares to, say, the S&P Supercomposite Trucking Index, which has dropped by 6.6%
Among the reasons for the relative strength in railroad shares: interest from value investors like Warren Buffett, and the fact that rising oil prices don't hurt this segment as much as other, more fuel-dependent industries.
Still, some might argue that at this point, much of the news, whether good or bad, is probably factored into prices. If you combine that with the fact that the railroad sector is back to long-term resistance levels relative to its trucking company counterpart, that suggests it might be a good idea to sell the former and buy the latter.
Otherwise, given a worrisome economic outlook and the relative underperformance of the transportation sector generally, it could be time for those who've been riding the rails to jump off the train -- before it runs out of track.
Ryder System (NYSE: R) today announced it is dropping its forecast for third-quarter earnings per share from $1.20-$1.23 to $1.12-$1.14. The company also revealed that third-quarter results will be impacted by a $10 million sale of property, more than offset by a $12 million charge for restructuring, the benefits of which won't be realized until 2008. Its end-of-year projections are now for EPS of $4.10-$4.15, down from previous expectations of $4.30-$4.35, but still above 2006 figures.
Ryder blames general softening of demand beyond the housing sector for declining revenue in its Fleet Management Solutions segment, which accounts for about 60% of its revenue. The company has a fleet of more than 140,000 vehicles and employs almost 30,000 people.
One area to keep an eye on with Ryder is its Supply Chain Solutions sector, which accounts for 32% of revenue. This sector is closely tied to the automobile industry -- in fact, GM (NYSE: GM) accounted for 40% of Ryder's SCS revenue in 2006. Slack times at GM could show up on Ryder's bottom line.
As early as this weekend, Labor Day weekend, the Bush administration could open the U.S. roadways to Mexican trucks. The Teamsters Union and three public-interest groups: The Sierra Club, Public Citizen and Environmental Law Foundation, asked a federal court yesterday for an emergency injunction to prohibit Mexican trucks on the roads.
The union has fought for 13 years to stop Mexican trucks from entering into the U.S., a promise given by Bill Clinton under the North American Free Trade Agreement, or NAFTA. They argue that the introduction of these trucks would compromise highway safety and cost U.S. jobs.
Hector Marquez, head of the Mexican Economic Ministry's Trade and NAFTA Office, disagrees. "It's very unfortunate because certainly the governments of Mexico and the United States have put forth a tremendous effort to put in place all the requirements, all the mechanisms, all the personnel and the resources to make this work and to guarantee the security and safety," the Houston Chronicle reported today. The Transportation Department's Federal Motor Carrier Safety Administration dismissed the suit as "without merit."
Rolando Ortega, a delegate from the National Confederation of Mexican Carriers, doesn't believe Mexican truckers want to travel into the United States.
This post is part of our 
FedEx Corp.
Bipartisan legislation aimed specifically at increasing government regulation of railroads threatens to hamstring 25 years of successful growth and investment by that industry. 
After learning that Warren Buffett, the value investor's equivalent of A-Rod, was 
While driving on LA freeways, I sometimes wonder: how strong are these structures? Were they meant to handle the huge amounts of traffic?
and 
. He also operates 
Over the past year, transportation stocks have lagged other shares. Since last October, for example, the 
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