Tal International Group, Inc. (NYSE: TAL) reported Q4 EPS of $0.97, $0.01 better than the analyst estimate of $0.96. Revenue for the quarter came in at $154 million versus the consensus estimate of $167.5 million.

Outlook

Mr. Sondey continued, “As we begin 2015, we see a mix of positive and negative market factors, and we expect our operating performance to continue to reflect a combination of high utilization and decreasing average lease rates.”

“The supply and demand balance for containers remains favorable. Utilization for the leasing industry is high overall, and depot inventories for leasing companies are low in key Asian export locations. We also expect container leasing to continue to take share from ownership as many customers remain cautious about purchasing large volumes of new containers and continue to be interested in concluding sale-leaseback transactions for older containers in their fleets. Market forecasters also expect trade volume to be solid in 2015. Alphaliners, for example, is projecting container throughput to increase 5.4% in 2015.”

“On the other hand, we expect that we will continue to face very low market lease rates. Steel prices in China have decreased roughly 15% over the last few months, which will likely lead to further decreases in new container prices. Long-term interest rates remain exceptionally low, and we continue to see aggressive competition for every leasing transaction. Used container sale prices are also likely to drift lower if new container prices decrease further.”

“In 2015, we will also start to face the expiration of high rate leases that were originated from 2010 through 2012, and we expect the decrease in our average portfolio lease rates to accelerate. The bulk of expirations for leases covering our 2010-2012 containers stretch through 2019, and we will continue to face lease rate and profitability pressure through this period if market lease rates remain low. It will also be more difficult to offset the profitability impact of decreasing lease rates by lowering our average borrowing costs since our average effective interest rate is now approaching the current market level.”

“The first quarter is typically our weakest quarter of the year since it represents the slow season for our dry container product line. In addition, the first quarter has the fewest number of days, which reduces our per diem revenue, and we typically incur extra expenses in the first quarter from share grants. As a result of these factors, we expect our Adjusted pre-tax income to decrease from the fourth quarter of 2014 to the first quarter of 2015. After the first quarter, we expect improving seasonality and ongoing fleet growth will offset much of the pressure caused by decreasing average lease rates. For the full year, we expect our Adjusted pre-tax income in 2015 will decrease from our 2014 level, but we also expect our profitability will remain strong and expect to continue to generate attractive returns that are at the upper end of our industry.”

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