economic update & transportation market outlook...transportation & logistics equity research...

Transportation & Logistics Equity Research


Economic Update & Transportation Market OutlookWhat Lies Ahead For The U.S. Economy & The Domestic Transportation Industry

Presentation to Daseke Shipper ConferenceJohn G. Larkin, CFA | Managing Director | 214.706.9455 | [email protected]

John Engstrom | Associate Analyst | 214.706.9456 | [email protected]

Roxanna Islam | Associate Analyst | 214.706.9485 | [email protected]

Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

All relevant disclosures and certifications can be found on pages 26 – 32 of this report.

August 4, 2017

mailto:[email protected]




It feels like we can’t get anywhere in Washington D.C.

2


• The United States Continues to Chug Along at a 1.5% to 2% GDP Growth Rate, But Could Be Positioned to Accelerate

• Freight Markets Cycle Through Excess Capacity but Flatbed Relatively Healthy

• Era of Trucking Industry Consolidation is Underway

• Daseke and Their Unique Strategy

• Conclusions

Discussion Agenda

3


4

PopulationConsumers drive freight, and population growth drives the consumer; U.S. population still rising, but growth is slowing

Source: The World Bank; U.S. Census

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

50

100

150

200

250

300

350

400

450

500

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2017

E20

20E

2023

E20

26E

2029

E20

32E

2035

E20

38E

2041

E20

44E

2047

E20

50E

2053

E20

56E

2059

E

Y/Y

Chan

ge In

Pop

ulat

ion

Grow

th

Abso

lute

Pop

ulat

ion

Leve

l (m

illio

ns)

Population (millions) Y/Y Population Growth


5

ProductivityY/y productivity growth has declined in recent years

Source: U.S. Bureau of Labor Statistics

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0.0

0.5

1.0

1.5

2.0

2.5

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4.5

1947

1950

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2013

2016

Y/Y

Chan

ge I

n Pr

oduc

tivity

Inde

xed

Prod

uctiv

ity (

1947

= 1

)

Productivity Index Y/Y Productivity Growth


Forecast

6Chart displays seasonally adjusted annual data; pink shaded regions denote recessionSource: Bureau of Economic Analysis, Federal Reserve

Gross Domestic ProductThe Fed’s currently published GDP estimates imply a continuation of current growth rates that we see as unlikely

(6%)

(4%)

(2%)

0%

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4%

6%

8

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20

4Q96

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4Q00

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E

4Q18

E

4Q19

E

Y/Y

% C

hang

e

U.S.

GDP

(200

9 ch

aine

d $U

.S.,

Tn; S

AAR

)

Avg 4.5%

Avg 2.7%

Avg 1.8%

Avg 1.9%


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%M

ay-9

6

May

-97

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-98

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-99

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-00

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May

-17

Seas

onal

ly A

djus

ted

Une

mpl

oym

ent R

ate

U6 (seasonally adjusted) U3 (seasonally adjusted)

June '174.4%Dec. '07

3.8%

Oct. '097.1%

7

June ‘17 U3 (seasonally adj): 4.4%June ‘17 U6 (seasonally adj): 8.6%

UnemploymentBoth U6 and U3 unemployment¹ have come down, and U6 is now catching up to the rate of improvement seen in U3

¹ U6 Unemployment includes unemployed, discouraged workers, marginally attached, plus total employed part time for economic recessions Source: U.S. Bureau of Labor Statistics; recessions shown in light blue


56%

58%

60%

62%

64%

66%

68%

PeakApr. 2000: 67.3%

Most RecentJune 2017: 62.8%

11.2 M Jobs Required to Keep Rate Constant

8

The Decline In Labor Force Participation Rate Is Partly Due To Retiring Baby Boomers, And Partly Due To Expanded Entitlement Programs

ParticipationThe decline in unemployment is largely due to a falling labor force participation rate

Source: U.S. Bureau of Labor Statistics


-50%

-40%

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2009

2011

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2015

U.S.

Veh

icle

Sal

es (m

illio

ns)

Trucks

Cars

Y/Y Change

Economic Indicators

Auto Sales: Year-over-year Auto Sector growth has been tapering since 2012, even though fleet age remains higher than historical norm (~11.5 Yrs vs. 8-9 Yr Hist Avg.)

YTD Sales figures are through June 2017;Source: Ward’s Automotive Group 9

YTD

20

17






• Conclusions

Discussion Agenda

10


11Source: American Trucking Associations, Stifel estimates; data through May 2017Large Truckload - carriers who earn over $30mm in annual revenue

80

85

90

95

100

105

110

115M

ay-

05

Nov

-05

Ma

y-06

Nov

-06

Ma

y-07

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-07

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y-08

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-08

Ma

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Ma

y-17

La

rge

TL

Lo

ad

s/F

lee

t S

ize

Ind

ex

(Ja

n 2

00

5=

10

0)

Large TL Fleet Size Index Large TL Loads Index

Large Fleet Supply / DemandLarge TL supply/demand has rationalized as large fleets have removed capacity


12Source: American Trucking Associations, Stifel estimates; data through May 2017Small Truckload - carriers who earn less than $30mm in annual revenue

50

60

70

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90

100

110M

ay-

05

Nov

-05

Ma

y-06

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y-07

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-07

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y-08

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-10

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y-11

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-13

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y-14

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-14

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y-15

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-15

Ma

y-16

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-16

Ma

y-17

Sm

all

TL

Lo

ad

s/F

lee

t S

ize

In

de

x(J

an

20

05

=1

00

)

Small TL Fleet Size Index Small TL Loads Index

Small Fleet Supply / DemandBut Small TL supply/demand continues toward oversupply


13Source: DAT Truckload Trends

Flatbed TL DynamicsFlatbed Load-to-Truck has increased in 2017 as supply/demand has improved

Flatbed Load-to-Truck(November 2012 through Present)

1

5

9

13

17

21

25

29

33

37

41

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49

53

57

11/0

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04/0

3/17

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5/17

07/1

6/17

DAT

Flat

bed

Load

to T

ruck


Flatbed TL DynamicsFlatbed Rates have increased with supply/demand improvements

Source: Truckstop.com 14

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

04/1

3/09

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07/1

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3/12

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07/1

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01/1

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01/1

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07/1

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10/1

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01/1

3/17

04/1

3/17

07/1

3/17

Truc

ksto

p.co

m F

latb

ed R

ates

Flatbed Rates(March 2009 through Present)






• Conclusions

Discussion Agenda

15


History of Trucking Industry Consolidation

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• Prior to deregulation in 1980, carriers expanded by acquiring geographic authority

• Subsequent to deregulation, carriers grew by establishing low cost positions and taking market share from less efficient, lower service carriers, often forcing the weaker carriers out of business

• Now, we are 37 years after deregulation, and organic growth has been more challenging primarily due to the challenges associated with recruiting and retaining compliant drivers

• Instead, carriers are growing via M&A in order to create cost efficiencies and marketing synergies


Small Carriers Versus Large Carriers (Large Carriers Usually Win)

17

Large carriers benefit from:

• Purchasing economies of scale

• Network density and efficiencies

• Higher quality technology

• Newer, more fuel efficient fleet

• Wider variety of trailing equipment

• Ability to serve multi-regional and national customers


Consolidation Generates Benefits

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• Sharing of best ideas

• Cross selling opportunities

• Sharing of loads and empties to drive improved productivity

• Attraction and retention of better talent

• Common IT can eliminate duplicate overhead

• Lower cost of capital; removal of organic growth constraints


Examples in the Truckload Industry

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• Swift/Knight merger • Creates largest carrier• Drives Swift's margins in the direction of Knight's

• Heartland acquires Interstate Distributor Co.• Provides freight density on top of the infrastructure created by the Gordon

deal• Drives Interstate's margins in the direction of Heartland's

• Schneider acquires Watkins & Shepherd and Lodeso• Provides middle mile services for e-commerce customers• Offers a one stop shop/integrated logistics solution for key customers


Examples in the Truckload Industry (cont’d)

20

• Transforce acquires Transport America and XPO Truckload• Provides growth into US market• Creates NAFTA synergies

• CRST acquires Gardiner Trucking• Establishes west coast beachhead• Adds short haul/regional distribution capability to CRST's suite of niche

services

• Daseke acquires 12 flatbed/open deck/unsided/drop deck/specialized carriers• Creates only national footprint in the space• Enables maintenance of regional heritage while creating national service

capability






• Conclusions

Discussion Agenda

21


Daseke: Building Something SpecialA unique approach to solving logistics challenges for customers moving flatbed, open deck, unsided, or specialized freight

• Approaching a national footprint; also building Canadian network

• 2/3 of power is company owned

• A robust acquisition pipeline suggests the best is yet to come

• Soft integration offers the best of both worlds

• Scale, diversity of equipment, and relevant expertise is second to none

Source: Daseke 22


Company OverviewDSKE competes in asset and non-asset segments across a very diversified customer base

Source: Company data, presentations 23

Revenue by SegmentThe company’s “Asset Right” strategy

provides a differentiated offering

Truckload 94%Asset Based,

66%

Non-Asset

Based, 34%

Customer SegmentationDaseke’s customer base is very well

diversified

Metals, 23%

Heavy Equipment & Energy,

22%Building Materials,

17%

Other, 21%

Aircraft parts, 9%

Lumber, 8%

Data is Year End 2016






• Conclusions

Discussion Agenda

24


Conclusions

• Economic growth hindered by obstructionist behavior in Washington

• Weakening dollar should boost exports

• Infrastructure program would strengthen demand for flatbed freight

• Energy self-sufficiency program would also be positive for the flatbed sector

• Automated manufacturing will be additive, as well

• All in all, the future is bright and we expect Daseke to lead the way

(DSKE, Buy, $12.40, 8/02/17 closing price)

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Important Disclosures & Certifications

I, John G. Larkin, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, John G. Larkin, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.

For a price chart with our ratings and target price changes for DSKE go tohttp://stifel2.bluematrix.com/sellside/Disclosures.action?ticker=DSKE

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http://www.stifel.com/

http://stifel2.bluematrix.com/sellside/Disclosures.action?ticker=DSKE


Important Disclosures & Certifications (continued)

Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from Daseke, Inc. in the next 3 months.

Stifel or an affiliate is a market maker or liquidity provider in the securities of Daseke, Inc..

Stifel acted as financial advisor to Hennessy Capital Acquisition Corp II in connection with the merger with Daseke, Inc. The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel’s overall revenue, which includes investment banking revenue.

Our investment rating system is three tiered, defined as follows:

BUY – We expect a total return of greater than 10% over the next 12 months with total return equal to the percentage price change plus dividend yield.

HOLD – We expect a total return between -5% and 10% over the next 12 months with total return equal to the percentage price change plus dividend yield.

SELL – We expect a total return below -5% over the next 12 months with total return equal to the percentage price change plus dividend yield.

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Important Disclosures & Certifications(continued)

Occasionally, we use the ancillary rating of SUSPENDED (SU) to indicate a long-term suspension in rating and/or target price, and/or coverage due to applicable regulations or Stifel policies. SUSPENDED indicates the analyst is unable to determine a “reasonable basis” for rating/target price or estimates due to lack of publicly available information or the inability to quantify the publicly available information provided by the company and it is unknown when the outlook will be clarified. SUSPENDED may also be used when an analyst has left the firm.

Of the securities we rate, 49% are rated Buy, 41% are rated Hold, 2% are rated Sell and 8% are rated Suspended.

Within the last 12 months, Stifel or an affiliate has provided investment banking services for 20%, 7%, 0% and 14% of the companies whose shares are rated Buy, Hold, Sell and Suspended, respectively.

Additional Disclosures

Please visit the Research Page at www.stifel.com for the current research disclosures and respective target price methodology applicable to the companies mentioned in this publication that are within Stifel's coverage universe. For a discussion of risks to target price please see our stand-alone company reports and notes for all stocks.

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Important Disclosures & Certifications(continued)UK and European Economic Area (EEA): This report is distributed in the EEA by SNEL, which is authorized and regulated in the United Kingdom by the FCA. In these instances, SNEL accepts responsibility for the content. Research produced by SNEL is not intended for use by and should not be made available to non-professional clients. The complete preceding 12-month recommendations history related to recommendation(s) in this research report is available at https://stifel2.bluematrix.com/sellside/MAR.action

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economic update & transportation market outlook...transportation & logistics equity research...

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