A company that leases or rents items runs the risk of the lessee not fulfilling the entire contract. The unfulfillment of the contract can, at times, be detrimental to the leasing company. This is what happened to our Zacks Bear of the Day, Textainer Group Holdings , who had one major client file for bankruptcy during the quarter which in turn negatively impacted both their top and bottom lines.
This Zacks Rank #5 (Strong Sell) company is the worlds’ largest lessor of intermodal containers with a total fleet of more than 1.3 million containers, representing over 2,000,000 TEU. They lease containers to more than 400 shipping lines and other lessees, including each of the world's top 20 container lines. They are also the primary supplier of leased containers to the U.S. Military. Their goal is to be the most reliable lessor of containers in locations where their customers need them. They have provided an average of more than 100,000 TEU of new containers per year for the past 10 years, and have been one of the largest purchasers of new containers among container lessors over the same period. They are also one of the largest sellers of used containers, having sold an average of more than 53,000 containers per year for the last five years.
Recent Earnings Report
In early November, management posted Q3 16 results where they significantly missed the Zacks consensus earnings estimate (actual -$0.92 vs. estimate of -$0.12), and also missed the Zacks consensus revenue estimate as well. During the quarter, one of TGH’s customers filed for bankruptcy protection in South Korea; Hanjin Shipping had leased 114,000 containers from TGH, which accounted for 6.4% of TGH’s fleet. This drag caused year over year losses in the following areas; Lease rental income -14.2%, Total revenues -11.2%, Income from operations -187%, Adjusted net income -385.1%, Adjusted EBITDA -35.2%, and Average fleet utilization -1.0%.
Management’s Take
According to Philip Brewer, President and CEO, “Our third quarter results were negatively affected by several significant factors the biggest of which was the bankruptcy filing by Hanjin. We recorded $22.1 million of container impairments net of estimated insurance proceeds of $20.2 million, $17.1 million of bad debt provision net of estimated insurance proceeds of $2.6 million which combined with $4.8 million of revenue reduction, resulted in a $44.0 million (or $0.78 per dilute common share) negative financial impact for the quarter as a result of the bankruptcy of Hanjin. In addition to Hanjin, our results were hurt by ongoing impairments due to low used container prices which also prompted our decision to reduce residual values for certain equipment types.”
Price and Earnings Consensus Graph
As you can see in the graph below, the stock price for TGH has been declining since 2014, and future estimates are on the down swing as well.
Zacks Names "Single Best Pick to Double"
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Free: See Our Top Stock and 4 Runners Up >>
A company that leases or rents items runs the risk of the lessee not fulfilling the entire contract. The unfulfillment of the contract can, at times, be detrimental to the leasing company. This is what happened to our Zacks Bear of the Day, Textainer Group Holdings , who had one major client file for bankruptcy during the quarter which in turn negatively impacted both their top and bottom lines.
This Zacks Rank #5 (Strong Sell) company is the worlds’ largest lessor of intermodal containers with a total fleet of more than 1.3 million containers, representing over 2,000,000 TEU. They lease containers to more than 400 shipping lines and other lessees, including each of the world's top 20 container lines. They are also the primary supplier of leased containers to the U.S. Military. Their goal is to be the most reliable lessor of containers in locations where their customers need them. They have provided an average of more than 100,000 TEU of new containers per year for the past 10 years, and have been one of the largest purchasers of new containers among container lessors over the same period. They are also one of the largest sellers of used containers, having sold an average of more than 53,000 containers per year for the last five years.
Recent Earnings Report
In early November, management posted Q3 16 results where they significantly missed the Zacks consensus earnings estimate (actual -$0.92 vs. estimate of -$0.12), and also missed the Zacks consensus revenue estimate as well. During the quarter, one of TGH’s customers filed for bankruptcy protection in South Korea; Hanjin Shipping had leased 114,000 containers from TGH, which accounted for 6.4% of TGH’s fleet. This drag caused year over year losses in the following areas; Lease rental income -14.2%, Total revenues -11.2%, Income from operations -187%, Adjusted net income -385.1%, Adjusted EBITDA -35.2%, and Average fleet utilization -1.0%.
Management’s Take
According to Philip Brewer, President and CEO, “Our third quarter results were negatively affected by several significant factors the biggest of which was the bankruptcy filing by Hanjin. We recorded $22.1 million of container impairments net of estimated insurance proceeds of $20.2 million, $17.1 million of bad debt provision net of estimated insurance proceeds of $2.6 million which combined with $4.8 million of revenue reduction, resulted in a $44.0 million (or $0.78 per dilute common share) negative financial impact for the quarter as a result of the bankruptcy of Hanjin. In addition to Hanjin, our results were hurt by ongoing impairments due to low used container prices which also prompted our decision to reduce residual values for certain equipment types.”
Price and Earnings Consensus Graph
As you can see in the graph below, the stock price for TGH has been declining since 2014, and future estimates are on the down swing as well.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>