CAI International Beats Ests

CAI International, Inc. (CAP - Snapshot Report) posted first quarter diluted EPS of $0.22, down 29% year over year from the $0.31 earned in the prior-year quarter, but above the consensus and our estimate of $0.18, largely reflecting lower-than-expected interest expense on declining interest rates and 250 basis-point reduction in the effective tax rate. Net earnings decreased 25% to $4.0 million from $5.3 million a year ago.

As expected, revenues slumped 0.4% during the quarter due to a declining utilization rate that fell 10.2 points year over year and 6.4 points sequentially to 85.5%. There was a $0.3 million gain on equipment disposals compared to a $2.9 million gain in the year-ago quarter. Total operating revenue for first quarter 2008 was $17.6 million. The pretax margin declined to 31.6% from 43.5% in the year-ago quarter, while return on equity (ROE) was 13.7% versus 15.8% a year ago.

Container rental revenue rose $2.7 million, or 23%, to $14.1 million for the three months ended March 31, 2009 from $11.48 million for the three months ended March 31, 2008. This was due to an increase in the average number of TEUs [twenty-foot-equivalent units] on lease in the company’s owned fleet, partly offset by a decline in average utilization during the three months ended March 31, 2008 to 85.5% from 95.7% a year ago.

Management fee revenue for the three months ended March 31, 2009 was $2.5 million, which was down $0.4 million (or 14%) compared to the same period last year. This increase reflected higher fee income from the disposal of equipment in the managed fleet.

Most expense items increased year over year, with total operating expenses up 34% to $10.7 million. During the first quarter of 2009, marketing, general, and administrative expenses increased by $0.5 million, or 10%, to $5.5 million from $4.9 million from the year-ago quarter due to the addition of Consent’s overhead. Depreciation expense climbed 45%, or $1.4 million, to $4.4 million due to growth in the owned fleet, including assets owned by Consent. Storage handling and repair expenses increased by $0.8 million, or 96%, to $1.7 million, largely due to the company’s increased equipment base, as well as due to the Consent acquisition.

Our recommendation on CAI International is Hold. The current Zacks rank for CAP is 3, indicating no up or down bias in the share price over the near term. In afternoon trading, CAP shares are up over 4% from Friday’s closing price of $4.13.