TAL International Group, Inc. (TAL)

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TAL International Group, Inc. (TAL)

Q4 2008 Earnings Call

February 26, 2009 9:00 am ET


Jeff Casucci - VP of Treasury and IR

Brian Sondey - President and CEO

Chand Khan - CFO


Richard Shane - Jefferies

Gregory Lewis - Credit Suisse

Mike Hallora - Robert W. Baird



Hello. This is the Chorus Call Operator. Welcome to the TAL International Group fourth quarter and year ended December 31, 2008 Results Conference Call. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). The conference is being recorded.

At this time, I would like to turn the conference over to Jeff Casucci, Vice President, Treasury and Investor Relations.

Jeff Casucci

Thank you. Good morning and thank you for joining us on today's call. We are here to discuss TAL's fourth quarter and full year 2008 results, which we reported yesterday evening.

Joining me on this morning's call from TAL are Brian Sondey, President and Chief Executive Officer and Chand Khan, Chief Financial Officer.

Before I turn the call over to Brian and Chand, I would like to point out that this conference call may contain forward-looking statements, as that term is defined under the Private Securities Litigation Reform Act of 1995, regarding expectations for future financial performance.

It is possible that the company's future financial performance may differ from expectations due to a variety of factors. Any forward-looking statements made on this call are based on certain assumptions and analysis made by the company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate.

Any such statements are not a guarantee of future performance, and actual results or developments may differ materially from those projected.

Finally, the company's views, estimates, plans, and outlook, as described within this call may change subsequent to this discussion. The company is under no obligation to modify or update any or all of the statements it has made herein, despite any subsequent changes the company may make in its views, estimates, plans, or outlook for the future.

These statements involve risks and uncertainties, are only predictions, and may differ materially from actual future events or results.

For a discussion of such risks and uncertainties, please see the risk factors listed in the company's Annual Report filed on Form 10-K with the Securities and Exchange Commission on March 10, 2008.

With these formalities out of the way, I would now like to turn the call over to Brian Sondey. Brian?

Brian Sondey

Thanks, Jeff. Welcome to TAL's fourth quarter 2008 Earnings Call. 2008 was a year that had two distinct phases. For the first three quarters of the year, TAL benefited from favorable market conditions and we delivered outstanding operational and financial results. While in the fourth quarter of 2008, market conditions changed significantly, as the financial crisis turned into a deep global recession.

Our financial results remained solid in the fourth quarter finishing off a great year, but market and operating trends are negative as we head into 2009.

As I mentioned, TAL delivered outstanding results for the full year of 2008, and our financial results in the fourth quarter were also strong. For the full year of 2008, leasing revenue increased 12% from 2007, due to our strong fleet growth.

Adjusted EBITDA, including principal payments on finance leases, increased 16% due to our revenue growth, strong disposal gains and increased trading margins. Adjusted pre-tax income increased 21% from 2007, while adjusted EPS increased 25% due to our profitability growth and the impact of our share repurchases. And our adjusted pre-tax, or cash return on equity increased six percentage points to reach 28% in 2008.

Our performance in the fourth quarter of 2008 was down from more exceptional performance in the third quarter of 2008, but it was still quite strong. Adjusted EPS was $0.50, up from $0.48 in the fourth quarter of 2007 and our annualized adjusted pre-tax, or cash return on equity was 26% for the quarter.

For the first three quarters of 2008, our performance was supported by continued growth in world containerized trade, high prices for new containers, limited direct purchases of containers by our shipping line customers and strong selling prices for used containers.

This environment allowed us to make large investments in new containers, while maintaining high utilization and it facilitated strong gains in the sale of our older containers.

In the fourth quarter of 2008, many of these positive environmental factors turned negative. Containerized trade volumes dropped significantly in November. Since November, many of our customers are reporting that their cargo volumes are down 15% or more from their prior year.

This sharp decrease in trade volumes has led to a large increase in container drop-offs and virtually no demand for container pick-ups. As a result, our core utilization has been falling 1.5 to two percentage points per month.

In addition, steel prices in China have decreased significantly. While virtually no new containers are currently being produced, we estimate that based on current steel prices, implied new container prices are in the range of 1,900 to $2,000 for a 20-foot dry container, down from over $2,500 for a 20-foot dry container during the summer.

Based on this current implied price for new containers, market leasing rates for new container leases would be slightly higher than the average lease rates on our portfolio.

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