Brian Sondey, the chief executive officer of Triton International Ltd. (NYSE: TRTN), said the world's largest container leasing company had solid financial performance in the third quarter despite facing weak leasing demand since last fall and slow leasing activity throughout what is traditionally the peak quarter.
Triton said it had adjusted net income of $85 million in the third quarter of 2019, compared with $94.8 million in the same 2018 period. Total leasing revenues were also lower, $336.7 million in the third quarter of 2019 compared with $350.1 million.
Sondey noted that "global economic conditions have softened this year, and the ongoing trade dispute between the United States and China continues to create uncertainty and impact shipping activity."
"Fortunately, the supply of containers remains generally well balanced due to reduced production of new containers, and while our utilization continued to gradually trend down during the third quarter, it remains strong at 96.1% as of October 18, 2019," he said. Utilization averaged 96.7% in the third quarter of 2019, down from 98.7% in the third quarter of 2018.
Sondey said the company's investment in new containers has been limited this year. The company's leasing fleet on Sept. 30 consisted of 6,059,450 TEUs of equipment, down from 6,129,744 TEUs a year earlier. The company's fleet includes dry, refrigerated and tank containers, as well as special containers used for heavy and oversized cargo such as marble slabs, building products and machinery and container chassis.
"As of October 18, 2019, we have purchased $247.7 million of containers for delivery in 2019," said Sondey.
Instead of buying more containers, he said Triton has found other uses for its money.
"Our regular dividend currently provides almost a 6% annual yield, and we also continue to actively repurchase shares of our common stock. We repurchased 1.6 million common shares during the third quarter and have purchased over 8.7 million shares since last August, leading to a 10.8% reduction in our diluted share count. In addition, we believe the repurchase of the third-party investor interests earlier this year was an attractive investment in our existing container fleet."
Sondey said shipping lines and forecasters have reduced their expectations for containerized trade growth and "most are currently projecting growth will be just slightly positive in 2019."
He also noted that the container shipping industry is heading into what is normally its slow season.
"As a result, we expect our key operating metrics will continue to gradually decrease over the next several quarters. However, the short ordering cycle for containers and multiple drivers for container leasing demand typically limit the duration of soft market conditions, and we continue to benefit from numerous advantages and strong, stable cash flow."
Triton expects its adjusted net income per share "will decrease from the third quarter to the fourth quarter, though we also expect our financial performance will remain solid."
Sondey noted container shipping companies have been restrained in the number of new ships they have on order and that production of new containers by manufacturers, who are located in China, has decreased.
Because of the requirement that ships reduce sulfur emissions, some are using their capital to invest in scrubbers.
With carriers facing other demands for their capital and an uncertain outlook, "it is tempting to rely on things like leasing, and we continue to see leasing as being a big share of how customers are adding containers."
Sondey said the container leasing industry is not facing the same sort of challenges that were present when the industry saw a downturn in 2015 and 2016. At that time, the industry faced a wave of expirations of high-rate leases that were renewed at lower rates.
"We are much less exposed to margin compression from lease expirations now," said Sondey.
Sondey said Triton reduced costs through its 2016 merger with TAL International.
Drewry Shipping Consultants ranked Triton as the leading container lessors at the end of 2018, with 28% share of the world container fleet owned by lessors.
"We are definite believers in the benefits of consolidation," said Sondey. Asked about the possibility of further consolidation, he said the company would be open to other merger and acquisition opportunities. He said despite its large market share, Triton did not face any pushback from its merger with TAL by regulators. He noted there are many medium and smaller competitors and that the biggest competition of the leasing industry are liner companies themselves, which choose to own and buy many of their containers.
However, lessors are making gains. A presentation by one of Triton's competitors, Sea Cube Container Leasing estimated that in 2018, lessors owned 53% of dry containers, compared to 42% in 2009 and 54% of reefer containers in 2018 compared to 28% in 2009.
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