Will Textainer Group Holdings Limited Continue to Be Weighted Down by Weak Demand?

By Matthew DiLalloFool.com

Textainer has been hit hard in 2015 by weak demand for shipping containers amid a slowing global economy. That weakness was on full display last quarter, after the company reported subpar results because of a combination of lower rental rates and weaker gains on container sales. Given that the global economy has continued to weaken, there's a good chance Textainer's third-quarter results, which are due on Tuesday morning, won't show much improvement.

First, let's reviewBefore we consider those results, let's take a step back for a refresher on the second quarter. Here are the numbers that mattered:

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Data source: Textainer.

While these numbers suggest weakness, it was really a tale of two quarters. That's clear by taking a deeper look at where the company makes its money.

Data source: Textainer.

Here we see strength in the company's core container leasing business, which was partially due to strong utilization, which averaged 97.3% for the quarter. Also driving strong lease rental income was a 7.1% year-over-year increase in the company's fleet. However, this performance couldn't quite offset weakness within the company's other income streams, primarily because of the weak sales of older containers, which drove total revenue and adjusted net income lower.

Here's the outlook for the third quarterIn the company's second-quarter press release, CEO Phillip Brewer provided investors with his outlook for the balance of the year:

This outlook suggests that the company's financial results were probably under even more pressure during the third quarter. One number in particular that's been under pressure is the company's utilization, which had been at very high levels. However, while utilization was north of 97% last quarter, it was down to 96.6% when the company reported its second-quarter results about a month into the third quarter. If that number fell any further during the quarter, it would have had an even bigger impact on lease rental income.

What its competitors sawWith two of its competitors having reported last week, investors already have a sneak peek into the market environment that probably shaped Textainer's quarter. CAI International noted in its earnings release this past Tuesday:

From what CAI International experienced, that traditional peak season that Brewer referenced in his outlook last quarter didn't materialize in the third quarter, either. Further, CAI International would go on to note: "Soft economic conditions in China this year have caused steel prices, and new container prices, to decline, placing pressure on per diem rates and secondary container prices. We expect the weakness in per diem rates and container prices to continue until overall demand for containers increases."

Again, we get a suggestion that not only could Textainer's third quarter be weak, but that weakness also appears poised to affect future quarters.

Meanwhile, TAL International went even deeper into what's causing the industry's issues when it reported this past Wednesday by noting:

Investor takeawayBecause of what its competitors CAI and TAL experienced, the expectations are pretty low for Textainer this quarter. The company will probably report lower utilization and weaker sales of used containers, both of which probably took a bite out of the company's results in the third quarter, as well as future quarters.

The article Will Textainer Group Holdings Limited Continue to Be Weighted Down by Weak Demand? originally appeared on Fool.com.

Matt DiLallo owns shares of Textainer Group. The Motley Fool owns shares of and recommends Textainer Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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