Wall Street Transcript Interview with Fadi Chamoun, Managing Director and Jason Granger, Vice President of BMO Capital Markets: Railroad Fundamentals Have Significant Runway to Gain Share Over the Long Term

Wall Street Transcript

67 WALL STREET, New York - October 2, 2012 - The Wall Street Transcript has just published its Transportation and Logistics Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: FMCSA CSA Regulations - Regulatory Issues in the Trucking Industry - Trucking Pricing & Capacity Dynamics - Retail and Industrial Transportation Demand - Truckload, LTL, Parcel, Rail and Intermodal - Capacity Constraints Result in Pricing Power

Companies include: JB Hunt Transport Services Inc (JBHT), Con-Way, Inc. (CNW), CSX Corp. (CSX), Norfolk Southern Corp. (NSC), Canadian Pacific Railway Limit (CP), Union Pacific Corp. (UNP) and many others.

In the following excerpt from the Transportation and Logistics Report, two expert analysts discuss the outlook for the sector in both Canada and the United States for investors:

TWST: Please give us a brief overview of your coverage universe to get us started.

Mr. Granger: I cover 15 diversified industrial stocks, including seven trucking stocks in the transportation space. Of these seven trucking stocks, I cover four Canadian names, which include TransForce (TFI.TO), Mullen Group (MTL.TO), Contrans (CSS.TO) and Trimac (TMA.TO). In the U.S., I also cover J.B. Hunt (JBHT), Con-way (CNW) and Vitran (VTNC). We have a "market perform" rating on the sector and "outperform" ratings on two of the stocks.

Mr. Chamoun: On the transportation side, I cover the six major railroads. We have an "outperform" rating on the sector, and we have "outperform" ratings on four of the six railroads.

TWST: How would you describe your current sentiment and outlook for your respective spaces right now?

Mr. Granger: For the balance of this year, we have become more cautious in our outlook for the truckers, but looking out to 2013, we still have a reasonably positive view to the extent the economy continues to improve. Thus far in 2012, demand growth has been moderating in the U.S. and been generally flat in Canada.

In the U.S., we're expecting activity to moderate further with limited volume growth for the second half of this year, while prices move higher in the range of 1% to 3%. We're expecting the peak season to come in softer than initially expected, and we're lapping tougher prior-year comparisons. We also note that inventory levels have been moving higher - total business inventory/sales ratio has increased to its highest reading since early 2010 - suggesting that companies are going to be slower to restock.

At the same time, the ISM New Orders Index, which is a pretty good indicator of future manufacturing activity and freight demand three to six months out, has been below 50 for three months in a row - 47.1 in August. We also note that while the price of diesel declined in Q2/12 - down 11% since start of quarter - it has been rising thus far in Q3/12 - plus 12% since start of quarter. The lower cost of diesel was a tailwind for carriers' costs in Q2, due to the lag between fuel surcharges and the change in the price of fuel, but should be a headwind in Q3.

Despite these factors, capacity remains tight, which is why we expect modest price improvement. A significant amount of capacity, estimated between 15% and 20% in the U.S., exited the system during the recession and has been slow to come back.

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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