TAL International Group, Inc. (TAL)

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TAL International Group, Inc. (TAL)

Q1 2010 Earnings Call

May 5, 2010 9:00 am ET

Executives

Jeff Casucci - VP, Treasury and IR

Brian Sondey - President and CEO

John Burns - SVP and CFO

Analysts

Ben Hartford - Baird

Jon Langenfeld - Baird

Sameer Gokhale - Keefe, Bruyette & Woods

Derek Rabe - Morgan Keegan

Bob Napoli - Piper Jaffray

Presentation

Operator

Welcome to the TAL International Group first quarter earnings results conference call. As a reminder, all participants will be in a 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. Mr. Casucci, the floor is yours, sir.

Jeff Casucci

Good morning and thank you for joining us on today's call. We are here to discuss TAL's first quarter 2010 results, which we reported yesterday evening.

Joining me on this morning's call from TAL are Brian Sondey, President and Chief Executive Officer and John Burns, Senior Vice President and Chief Financial Officer.

Before I turn the call over to Brian and John, 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 condition, 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 that is 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 these risks and uncertainties, please see the Risk Factors listed in the company's Annual Report filed on Form 10-K with the SEC on March 1st.

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 first quarter 2010 Earnings Call. In the first quarter of 2010, our operational and financial recovery started to pick up steam.

World trade has continued to recover in 2010 with containerized trade volumes in the first quarter, up 15% or more, compared to last year's volumes and with export volumes to major China locations returning to first quarter 2008 levels.

At the same time, global container capacity remains constrained due to complete lack of buying in 2010 and container factory production constraints in 2010.

This combination of recovering trade volumes and restricted container capacity has caused a rapid evolution in our market from a large global surplus of containers throughout most of 2009 to a severe global shortage of containers in early 2010.

This container shortage has generated strong leasing demand and we are seeing all of our major operating metrics improve rapidly.

Our improving operating performance has had strong sequential improvements on our profitability and our adjusted pre-tax or cash income increased 35% from $0.39 per share in the fourth quarter of 2009 to $0.53 per share in the first quarter of 2010.

As I just mentioned, the improved trade growth and strong leasing demand we are seeing, are leading to significant improvements in all of our key operating metrics. Our core utilization, excluding idle factory units, increased 3.1% during the first quarter to reach 93.4% as of March 31st. Our utilization increased another 1.1% in April to reach 94.5% as of April 30th, and we expect further utilization improvements through the second quarter as well.

In fact, we think it is possible that we will reach an all-time high level for core utilization this year.

We've also started to see improvements in our leasing rates. Our average dry container leasing rates during the first quarter were actually down slightly from the average for the fourth quarter of 2009, due to pickup incentives provided to certain customers. But these pickup incentives and some of the other concessions provided last year have started to expire, and we are beginning to see the benefit of units picked up on leases reflecting improved market leasing rates.

Market lease rates have increased substantially over the last few months due to the combination of limited container availability and high new container prices. Our average dry container lease rates started to noticeably move up toward the end of the first quarter and we expect they will trend up for the rest of the year.

Our lease container disposal prices are improving as well. Used container prices were roughly 20% last year, due to the build-up of excess container inventories and a reduction in demand for used containers for domestic storage in one way shipments.

This area disposal prices have been moving up steadily due to shrinking container inventories, and we are also seeing improved demand for one way boxes especially in Asia due to the increased trade volumes.

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