EFTA01434677

Trucking U.S. Transportation Deutsche Bank Markets Research North America Canada United States Industrials Trucking Industry U.S. Transportation Date 22 February 2018 Recommendation Change Where we have conviction, and where we don't On the back of 40 results we have increased conviction in our positive stance on Knight Transportation (KNX), XPO Logistics (XPO) and CSX Corp (CSX). We remain comfortable with our sole-Sell ratings on Old Dominion (ODFL) and Canadian National (CNI), while our Buy on UPS was wrong and we are using this report to downgrade our rating to Hold and lower our price target to $115. Our company-specific thoughts are below, and see details within this note for our industry takeaways post results: ■ KNX - best earnings revision potential across our coverage universe: For KNX we see potential for EPS to approach $3.60 per share in 2019, which is 30% above current consensus. This is based on 15% operating margin on 2019e revenue ex. fuel, which is 200bps better than what KNX-SWFT achieved on a consolidated basis in 40'17- despite being in the early innings of integration and cyclical recovery. Our bullishness is supported by highly accommodative cyclical and non-cyclical factors, such as high-single-digit growth in U.S. truck tonnage and contract rates, double-digit improvements in yield, and plenty of low-hanging cost opportunity at Swift. See Figure 1 within this note for our walk to midteens operating margin. ■ XPO- we see potential for very strong 2019 free cash flow: Our long-held positive stance on XPO has been predicted on accelerating revenue and free cash flow growth. Indeed, organic growth accelerated to +10.4% in 40, and free cash flow has tripled in two years- from $211M in 2016 to expected $625M this year. In the context of this free cash trajectory, an exact tripling of equity value in a little over a year is highly explainable, if not conservative, as it implies little in the way of multiple expansion (i.e. equity value has increased almost exactly in-line with free cash flow). Our 2019 free cash forecast of $750M implies 20% yoy growth, with upside to 35% growth (to $835M) if current organic growth rates are sustainable- which we think is a realistic outcome given macro backdrop, e-commerce exposure, and the company's growth investments. From this EFTA01434677 standpoint we see a relatively quick trajectory to our $133 price target, which represents 40% add'l upside. See Figure 2 within this note for our 2019 FCF walk for XPO. ■ UPS - Downgrading to Hold (lowering PT to $115): Following 4Q capex guidance- which was worse than even the most bearish expectationsDeutsche Bank Securities Inc. Amit Mehrotra Research Analyst Seldon Clarke, CFA Research Analyst Kenya Watson Research Associate Chris Snyder, CFA Research Associate Key Changes Company UPS.N HTLD.OQ LSTR.OQ YRCW.OQ WERN.OQ GWR.N Target Price 135.00 to 115.00 22.00 to 20.00 95.00 to 105.00 21.00 to 13.00 42.00 to 43.00 88.00 to 84.00 Source: Deutsche Bank Top picks Knight-Swift (KNX.N),USD48.30 XPO Logistics (XPO.N),USD93.99 FedEx Corporation (FDX.N),USD243.30 Source: Deutsche Bank Sector valuation and risks We utilize P/E to value transportation stocks, with our target multiple assumptions heavily supported by our discount cash flow models and sum of the parts (where applicable). Risks to the group include U.S. recession, weak industrial production, pricing, and management execution. Rating EFTA01434678 Buy to Hold Buy Buy Buy Distributed on: 22/02/2018 21:06:10 GMT Deutsche Bank does and seeks to do business research reports. Thus, investors should be aware that the firm may have a conflict of interest that could objectivity of this report. Investors should consider this report as only a single factor in making their investment DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. 7T2se3r00t6kwoPa with companies covered in its affect the decision. EFTA01434679 22 February 2018 Trucking U.S. Transportation we have reduced confidence in UPS' ability to control burgeoning capex, with capital intensity expectations more than doubling as a % of sales in just the last 12mo- a significant feat for a business with $70B in annual sales. Some of this reflects fast-growing e-commerce volumes, though we feel much of it is catch-up from significant under-investment over the last decade-plus. As such we see a lack of positive catalysts to justify a Buy rating. UPS shares won't start working in our view until mgmt. can articulate a sound strategy to strike the right balance between price and volumes vis-à-vis Amazon, and talk more concretely about the long-term/ structural capital needs of the business as mgmt. "leans in" to higher 62C shipments. ■ ODFL and CNI: We remain comfortable with our relative Sell ratings on ODFL and CNI, with the former being more controversial than the latter (albeit less so post 4Q results). With respect to ODFL, consensus EPS estimates for next year went up by 10% on the back of 4Q results, but shares are down 5% since the release (S&P +1%)- indicative of the multiple compression that we feel was warranted on the back of moderating incremental margin assumptions. We note our Sell rating on ODFL reflects our relative value framework rather than any structural or secular concerns, which is indicative of mgmt's strong track record of generating high incremental returns (albeit low fcf conversion). ■ Rails- Cash return key driver of equity value: With a relatively benign volume and pricing environment for rails (puts and takes on mix offset by pricing power from industry structure and truckload tightening), the key driver for rail stocks, in our view, is FCF growth over-and-above book EPS growth (i.e. >100% incremental fcf conversion) and share buybacks. From this perspective CSX screens the most favorable to us (hence our top rail pick), with mgmt. recently pointing to repurchasing $5B of its own shares (10% of market cap) over the next 12 months. This, coupled with ambitious OR targets, translates to even higher EPS power in 2020 (our 2020 EPS estimate of $4.65 translates to 27% EPS CAGR vs. 2017 and even higher on a FCF basis given lower capex, which under any reasonable valuation scenario equates to much higher equity value). See details within this note for a more comprehensive discussion on our company and industry takeaways post results. Page 2 Deutsche Bank Securities Inc. EFTA01434680 22 February 2018 Trucking U.S. Transportation Company Specific Thoughts On the back of 40 results we have increased conviction in our positive stance on Knight Transportation (KNX), XPO Logistics (XPO) and CSX Corp (CSX). We remain comfortable with our sole-Sell ratings on Old Dominion (ODFL) and Canadian National (CNI), while our Buy on UPS was wrong and we are using this report to downgrade our rating to Hold. Our company-specific thoughts are below, and see details within this note for our industry takeaways post results: ■ KNX - best earnings revision potential across our coverage universe: For KNX we see potential for EPS to approach $3.60 per share in 2019, which is 30% above current consensus. This is based on 15% operating margin on 2019e revenue ex. fuel, which is 200bps better than what KNX-SWFT achieved on a consolidated basis in 40'17- despite being in the early innings of integration and cyclical recovery. Our bullishness supported by highly accommodative cyclical and non-cyclical factors, such as high-single- rates, double-digit cost opportunity at operating margin. Figure 1: Walk to 2017 2018 Revenue KNX SWFT Total Revenue, YoY Chg. Adjusted EBIT KNX SWFT Synergies Reduced Rental Expense Incremental D&A Consolidated EBIT Organic Incremental KNX SWFT Consolidated Operating margin KNX SWFT Consolidated Note: We are assuming a pro-forma OR of Source: Deutsche Bank, Company filings 489.4 ex-fuel digit growth in U.S. truck tonnage and contract improvements in yield, and plenty of low-hanging Swift. See Figure 1 below for our walk to mid-teens KNX 15% operating net of fuel Margin (ex-fuel) margin in 2019 90% for SWFT in 2017. is EFTA01434681 2019 1,025.7 1,102.6 1,157.7 3,606.3 3,876.8 4,070.6 4,631.9 4,979.3 5,228.3 7.5% 5.0% 128.8 360.6 151.8 455.3 50 125 (99) 683.6 168.4 523.1 75 250 (197) 819.5 30% 30% 35% 35% 55.9% 54.6% 14.5% 12.9% 10.6% 13.7% 15.7% Deutsche Bank Securities Inc. Page 3 EFTA01434682 22 February 2018 Trucking U.S. Transportation ■ XPO- we see potential for very strong 2019 free cash flow: Our longheld positive stance on XPO has been predicted on accelerating revenue and free cash flow growth. Indeed, organic growth accelerated to +10.4% in 4Q, and free cash flow has tripled in two years- from $211M in 2016 to expected $625M this year. In the context of this free cash trajectory, an exact tripling of equity value in a little over a year is highly explainable, if not conservative, as it implies little in the way of multiple expansion (i.e. equity value has increased almost exactly in-line with free cash flow). Our 2019 free cash forecast of $750M implies 20% yoy growth, with upside to 35% growth (to $835M) if current organic growth rates are sustainable- which we think is a realistic outcome given macro backdrop, e-commerce exposure, and the company's growth investments. From this standpoint we see a relatively quick trajectory to our $133 price target, which represents 40% add'l upside. Figure 2: XPO upside FCF walk for 2019 FCF, 2018E Incremental ebitda margin interest expense cash taxes capex FCF, 2019E Source: Deutsche Bank, Company filings $625M 234 16 (22) (20) $833M >As per company guidance >10% revenue growth/14% incremental margins >assuming some debt paydown >100% capex depreciation >DB estimate >vs. DB est. of $750M and +33% ■ UPS- Downgrading to Hold (lowering PT to $115): Following 4Q capex guidance- which was worse than even the most bearish expectationswe have reduced confidence in UPS' ability to control burgeoning capex, with capital intensity expectations more than doubling as a % of sales in just the last 12mo- a significant feat for a business with $70B in annual sales. Some of this reflects fast-growing e-commerce volumes, though we feel much of it is catch-up from significant under-investment over the last decade-plus. As such we see a lack of positive catalysts to justify a Buy rating. UPS shares won't start working in our view until mgmt. can articulate a sound strategy to strike the right balance between price and volumes vis-à-vis Amazon, and talk more concretely about the longterm/- EFTA01434683 structural capital needs of the business as mgmt. "leans in" to higher B2C shipments. ■ ODFL and CNI: We remain comfortable with our relative Sell ratings on ODFL and CNI, with the former being more controversial than the latter (albeit less so post 4Q results). With respect to ODFL, consensus EPS estimates for next year went up by 10% on the back of 4Q results, but shares are down 5% since the release (S&P +1%)- indicative of the multiple compression that we feel was warranted on the back of moderating incremental margin assumptions. We note our Sell rating on ODFL reflects our relative value framework rather than any structural or secular concerns, which is indicative of mgmt's strong track record of generating high incremental returns (albeit low fcf conversion). Page 4 Deutsche Bank Securities Inc. EFTA01434684 22 February 2018 Trucking U.S. Transportation Figure 3: ODFL NTM P/E relative to the S&P 0.8x 0.9x 1.0x 1.1x 1.2x 1.3x 1.4x 1.5x Relative P/E Source: Deutsche Bank Mean +/- 1 std dev ■ Rails - Cash return key driver of equity value: With a relatively benign volume and pricing environment for rails (puts and takes on mix offset by pricing power from industry structure and truckload tightening), the key driver for rail stocks, in our view, is FCF growth over-and-above book EPS growth (i.e. >100% incremental fcf conversion) and share buybacks. From this perspective CSX screens the most favorable to us (hence our top rail pick), with mgmt. recently pointing to repurchasing $56 of its own shares (10% of market cap) over the next 12 months. This, coupled with ambitious OR targets, translates to even higher EPS power in 2020 (our 2020 EPS estimate of $4.65 translates to 27% EPS CAGR vs. 2017 and even higher on a FCF basis given lower capex, which under any reasonable valuation scenario equates to much higher equity value). Figure 4: CSX yoy EPS growth vs. yoy FCF growth 100% 120% 140% 20% 40% 60% 80% (20%) 0% 2013 2014 2015 YoY change in book EPS Source: Deutsche Bank, Company filings 2016 2017 YoY change in FCF 2018E 71% 116% 33.6% EFTA01434685 27.0% Deutsche Bank Securities Inc. Page 5 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 EFTA01434686 22 February 2018 Trucking U.S. Transportation Industry Discussion U.S. Transportation fundamentals appear to us as firing on all cylinders. Truckload (TL) demand drivers are accelerating, as exhibited by accelerating U.S. truck tonnage, industrial production, and spot and contract rates. This is occurring in the context of sharply contracting supply, reflecting low ordering activity during the downturn as well as the ELD mandate. Less-than-truckload (LTL) fundamentals are also on equal firm ground, with tonnage, weight per shipment, and yield all inflecting positively. This backdrop also has positive implications for Rails, with tight trucking supply translating to higher growth in intermodal volumes and tailwinds on pricing. Below we present several charts which illustrate the current cyclical upcycle. The trick for stock selection will be balancing the cyclical exuberance of above mentioned fundamentals with the structural realities of returns over a cycle. Against this framework our "Top Picks" FedEx (FDX), Knight Transportation (KNX), and XPO Logistics (XPO) should continue to work, given our view of runway with respect to both earnings power and multiple expansion. Figure 5: Trucking demand remains strong with tonnage up 8.8% yoy in January 100 105 110 115 95 Truck Tonnage (SA) Source: Deutsche Bank, ATA 8.8% (5%) 0% 5% 10% 15% YoY Change Source:Deutsche Bank, Cass Information Systems Figure 6: Overall transportation shipments have gained momentum in recent months (Cass Freight Shipment Index) 10% 15% 20% EFTA01434687 (10%) (5%) 0% 5% YoY Chg. 2-Yr. Stacked The recent momentum in demand trends has occurred alongside a sharp reduction in supply, which is having a compounding effect on overall rates as well as yields as truckload companies are able to be more selective with freight. Page 6 Deutsche Bank Securities Inc. Truck Tonnage Index Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 YoY Change Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 EFTA01434688 22 February 2018 Trucking U.S. Transportation Figure 7: The average truck count for major carriers has been declining while spot rates have increased substantially 5,500 5,700 5,900 6,100 6,300 1.00 1.20 1.40 1.60 1.80 Figure 8: Revenue per loaded mile (ex-fuel) accelerated meaningfully in 4Q '17 for the major TL carriers 10% (4%) (2%) 0% 2% 4% 6% 8% Avg. Truck Count Dry Van Spot Rate Note: Avg. truck count includes Swift TL, KNX Asset-Based, WERN, and .JBHT Truck division Source: Deutsche Bank, Company Filings, Transcore Note: Data includes Swift TL, KNX Asset-Based, WERN TL, and 3BHT Truck division Source: Deutsche Bank, Company filings 6.0% 4.9% 3.8% 2.3% 1.2% 0.0% (1.5%) (2.7%) (0.9%) (1.1%) 0.5% 8.6% We are seeing a similar dynamic in the Less-than-truckload (LTL) industry as well with tonnage, weight per shipment, and yields all hitting inflection points in 2017. Figure 9: LTL tonnage growth has remained strong despite tougher comps EFTA01434689 (5%) (4%) (3%) (2%) (1%) 0% 1% 2% 3% 4% 5% 4.1% 3.7% 3.5% 2.8% 1.6% 0.4% (0.9%) (2.8%) (4.1%) (3.0%) (3.6%) (1.9%) Figure 10: LTL yield growth accelerated throughout 2017 (2%) (1%) 0% 1% 2% 3% 4% 5% 6% 4.8% 3.0% 3.2% 2.1% 1.3%1.1% 0.5% (0.6%) (1.1%) 0.3% (0.4%) 3.6% Note: Data includes ABF Freight, XPO NA LTL, FedEx Freight, ODFL, UPS Freight & YRCW Source: Deutsche Bank, Company Filings Note: Data includes ABF Freight, XPO NA LTL, FedEx Freight, ODFL, UPS Freight & YRCW Source: Deutsche Bank, Company Filings While there are some cyclical and regulatory factors at play impacting the supply side, the demand side is largely being driven by an improved macro. Deutsche Bank Securities Inc. EFTA01434690 Page 7 Avg. Truck Count Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Spot Rates Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 EFTA01434691 22 February 2018 Trucking U.S. Transportation Figure 11: U.S. GDP growth has picked up in recent quarters... (2%) 0% 2% 4% 6% US GDP Growth Rate by Quarter Source: Deutsche Bank, Federal Reserve Figure 12: ...Amidst an acceleration in U.S. Industrial Production 101 102 103 104 105 106 107 108 3.4% 3.7% (1%) 0% 1% 2% 3% 4% 5% Industrial Production Index Source: Deutsche Bank, FactSet YoY Change Rail volumes tell a moderately different story as weakness in certain commodities such as agricultural products, coal, and auto's are weighing on overall carload growth. However, demand for intermodal, which is more truck competitive, has been growing steadily and is expected to remain strong in 2018 amidst tight truck capacity. Figure 13: Carload traffic ex-intermodal has been somewhat constrained due to weakness in ag, coal, and auto's 10% 15% (20%) (15%) (10%) (5%) EFTA01434692 0% 5% Figure 14: While Intermodal traffic (more truck competitive) has been growing solidly 10% 15% (10%) (5%) 0% 5% Source: Deutsche Bank, AAR Source: Deutsche Bank, AAR We are also playing a bit of catch-up following a busy 4Q reporting season by putting our final touches on select models. See details below and updated models within this report. ■ GWR Est./PT revisions: We are lowering our estimates for GWR post 4Q results to $3.75 (from $4.20) in 2018 and $4.60 (from $4.84) in 2019. Our price target moves to $84, reflecting an unchanged 18.3x our 2019E EPS estimate. Although mgmt. gave a favorable outlook for all three markets (North America, UK/Europe, and Australia), we remain on the sidelines due to uncertainties largely around operational execution and our preference remains for CSX and CP within our rail coverage. Risks to the upside include accretive acquisitions, better than expected Page 8 Deutsche Bank Securities Inc. YoY Change Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17 Jan 18 YoY Change Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 EFTA01434693 Jul 17 Sep 17 Nov 17 Jan 18 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 YoY Change Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 -1.2% 4.0% 5.0% 2.3% 2.0% 2.6% 2.0% 0.9% 0.8% 1.4% 3.5% 2.1% 1.2% 3.1% 3.2% 2.6% Industrial Production EFTA01434694 EFTA01434695 22 February 2018 Trucking U.S. Transportation volume trends and cash generation, and significant international margin improvement. Risks to the downside include weaker volume trends, integration risk, and weaker cash generation/debt paydown. ■ HTLD Est./PT revisions: On the back of HTLD's 4Q results we have lowered our 10 '18 EPS estimate to 16c (from 28c), reflecting the elimination of unprofitable business segments from the IDC segment as HTLD realigns the business to be in line with the overall company. As such our reduced top-line estimates move our 2018 EPS down 14% to 77c (from 89c). Similarly, we are bringing our 2019 EPS estimate down to $1.00 (from $1.10), reflecting 7.5% revenue growth and an 86.5% OR, in line with HTLD's results before the IDC acquisition. Our price target is revised down to $20 (from $22) as we roll forward our unchanged 19.9x target P/E multiple. Downside risks include a breakdown in truckload fundamentals, higher than- expected cost inflation, and poor execution. Upside risks include a stronger-than-expected acceleration in pricing. ■ LSTR Est./PT revisions: Post LSTR's 4Q results we have raised our 2018 and 2019 estimates for LSTR by 8% and 10%, to reflect the increases in both volumes and revenue per load seen in this quarter's results, which we view as sustainable over both the near and medium-term. Commentary on the call was positive, with mgmt. citing that revenue per load growth was tracking in the mid-teens and volumes in the high single digits so far in the quarter. As such our 2018 estimate is increased to $5.29 (from $4.89) and 2019 is increased to $6.09 (from $5.52). Our price targets moves to $105, reflecting an unchanged 17.2x our 2019E estimate. Further, we note that LSTR stands to indirectly benefit if a meaningful infrastructure bill is passed via its flatbed business which accounts for -30% of gross revenue. However, we remain Hold-rated on shares on valuation. Upside risks include a meaningful infrastructure bill and a longer-than-expected TL cycle while downside risks include weaker-than-expected volume and pricing trends as well as valuation. ■ WERN Est./PT revisions: While WERN's 04 results came largely inline with expectations, the outlook has become increasingly positive since the company reported results. Trucking rates and volumes have outperformed expectations YTD after one of the strongest January's on record, causing WERN to increase its 2018 rate guidance at a recent conference to +6%-10% from previous expectations of a 4%-8% improvement. As a result we have moderately raised our 2018 EPS estimate to $1.99 (from $1.95) and our 2019 to $2.29 (from $2.23). We believe the backdrop remains supportive of continued strong truckload fundamentals with potential for an elongated upcycle behind GDP, tax reform and a possible infrastructure bill. Our price target goes to $43 (from $42) as we are applying our unchanged 18.6x multiple to our revised 2019 EPS estimate. We maintain our Hold rating based on valuation with shares trading above the historical average. Risks to the upside include stronger yield/volume growth while downside risks EFTA01434696 include higher than expected cost inflation and a U.S. recession. ■ YRCW Est./PT revisions: YRCW's 4Q results largely missed expectations despite an improving demand environment, reflecting poor execution and increased purchased transportation expense due to a shortage of revenue equipment. Despite these issues, management sounded confident about YRCW's outlook for the back half of 2018 as the company plans to bring on additional revenue equipment in H1 to better Deutsche Bank Securities Inc. Page 9 EFTA01434697 22 February 2018 Trucking U.S. Transportation capitalize on strong tonnage and yield trends, which appear to be gaining momentum. However, we continue to view YRCW as a "show me" story, with concerns around execution. On the back of these results, we have lowered our 1Q adjusted ebitda estimate to $39.5M, bringing our full-year 2018 ebitda estimate to $298M. Our estimate for 2019 comes down to $340M, reflecting mid-single digit revenue growth and 10% incremental margins. Our price target is revised down to $13 (from $21) reflecting an unchanged 10.7x P/E multiple on our 2019 estimate of $1.24. Risks to the upside include stronger yield/volume growth and improved profitability. Downside risks include continued margin pressure and a U.S. recession. Page 10 Deutsche Bank Securities Inc. EFTA01434698 22 February 2018 Trucking U.S. Transportation Financial Statements Figure 15: GWR Income Statement Genesee & Wyoming (GWR) Income Statement ($ millions) Pro-Forma Revenue North America YoY Change (%) Australia YoY Change (%) UK & Europe YoY Change (%) Total Revenue YoY Change (%) Operating Expenses North America Australia UK & Europe Total Opex % Of Revenue (OR) Operating Income North America Australia UK & Europe Total EBIT % Margin Interest Income and Interest Expense Interest income Interest expense Other income, net Total other income Pretax Income Effective income tax rate Taxes Minority interest Continuing Net Income Discontinued Operations Extraordinary Items Reported Net Income YoY Change (%) Continuing EPS Discontinued Operations Extraordinary Items Reported EPS YoY Change Average basic sharecount Average diluted shares outstanding Source: Deutsche Bank, Company Filings 105.5 EFTA01434699 (4.4) (73.9) 27.1 $2.34 ($0.10) ($1.64) $0.60 (23.6%) 42.4 45.0 214.8 0.0 56.6 271.3 $3.79 $0.00 $1.00 $4.79 53.8 56.7 236.3 0.2 23.8 260.3 $4.14 $0.00 $0.42 $4.56 55.3 57.0 212.7 0.0 12.3 225.0 $3.68 $0.00 $0.21 $3.89 61.6% 9.4% (11.3%) 56.4 57.8 874.9 (35.1%) 448.9 219.5 668.4 1,568.7 1,639.0 2012 2012 EFTA01434700 585.9 289.0 2013 2013 1,243.8 324.8 2014 2014 1,319.9 313.2 2015 2015 1,241.8 243.0 2016 2016 1,226.8 222.6 2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 2017 01 2018E Q2 2018E Q3 2018E Q4 2018E 1,274.3 307.5 325.2 327.0 86.9 331.6 84.7 335.9 82.4 2018 2018E 1,319.8 329.0 765.0 2019 2019E 1,398.1 -50.6% 112.3% 6.1% -5.9% -1.2% 3.9% 1.8% 3.6% 4.0% 4.9% 3.6% 5.9% 75.0 6.5% 12.4% -3.6% -22.4% -8.4% 38.2% 1.5% 13.1% 4.2% 9.1% 7.0% 9.7% 16.6 516.7 NM 2,000.4 542.2 1,991.5 79.3% 4.5% 22.0% (0.4%) 945.7 EFTA01434701 227.6 1,173.2 989.0 222.9 16.8 1,218.0 932.9 186.5 482.0 1,601.4 909.3 180.9 537.1 1,627.4 626.2 175.0 575.2 191.3 605.2 204.4 620.6 194.3 612.6 2,413.7 4.9% 15 5% 39.2% 29.3% 15.6% 10.5% 22.2% 2,208.0 10.9% 10.8% 12.0% 7.6% 7.2% 9.3% 6.4% 961.9 225.3 605.6 1,792.8 247.3 59.0 177.1 483.3 241.8 64.1 183.8 489.6 245.5 62.0 192.1 499.6 250.2 58.2 187.0 495.5 984.8 243.3 740.0 5.8% EFTA01434702 1,968.0 1,023.9 264.0 773.2 2,061.2 76.4% 74.8% 74.3% 80.1% 81.7% 81.2% 84.0% 80.9% 80.5% 80.9% 81.5% 137.0 69.5 206.5 298.2 97.2 395.4 330.9 90.3 0.2 421.0 308.9 56.5 34.6 399.0 317.4 41.7 5.1 364.2 312.4 82.2 20.6 415.2 77.9 16.0 (2.0) 91.9 85.2 22.9 7.5 115.6 86.2 22.6 12.3 121.1 85.7 24.2 7.3 117.1 335.0 85.7 25.0 445.7 374.2 80.3% EFTA01434703 96.8 36.1 507.1 23.6% 25.2% 25.7% 19.9% 18.3% 18.8% 16.0% 19.1% 19.5% 19.1% 18.5% 3.7 (62.8) 2.2 (57.0) 149.5 4.0 (67.9) 1.5 (62.4) 333.0 118.2 1.4 (51.5) 1.3 (48.8) 372.2 135.9 0.5 (65.1) 1.9 (62.6) 336.3 123.6 1.1 (75.6) 5.8 (68.7) 295.5 89.2 0.0 2.1 (107.3) 1.0 (104.2) 311.0 29.5% 35.5% 36.5% 36.8% 30.2% 38.5% 44.0 119.7 (9.0) 206.3 0.0 (21.5) 184.8 $3.54 $0.00 ($0.37) $3.17 19.7% EFTA01434704 (3.7%) 57.3 58.3 182.3 (0.0) 367.0 549.4 $2.92 ($0.00) $5.87 $8.79 (17.6%) 61.5 62.5 0.9 (26.7) (2.3) (28.1) 63.8 0.9 (26.6) (2.3) (27.9) 87.7 23.7 1.0 (26.4) (2.3) (27.7) 93.4 25.2 1.1 (26.3) (2.3) (27.5) 89.7 27.0% 27.0% 27.0% 27.0% 17.2 24.2 (2.5) 44.1 0.0 0.0 44.1 $0.70 $0.00 $0.00 $0.70 61.7 62.7 (2.5) EFTA01434705 61.5 0.0 0.0 61.5 $0.98 $0.00 $0.00 $0.98 61.7 62.7 (2.5) 65.7 0.0 0.0 65.7 $1.05 $0.00 $0.00 $1.05 61.5 62.5 (2.5) 62.9 0.0 0.0 62.9 $1.01 $0.00 $0.00 $1.01 61.3 62.3 3.9 (106.1) (9.0) (111.2) 334.5 27.0% 90.3 (10.0) 234.2 0.0 0.0 234.2 $3.75 $0.00 $0.00 $3.75 61.6 62.5 4.9 EFTA01434706 (105.2) 2.0 (98.3) 408.8 27.0% 110.4 (12.2) 286.2 0.0 0.0 286.2 -20.2% 103.6% 10.0% -10.0% -3.0% -11.6% 32.9% 22.9% 29.8% 29.5% 28.4% $4.60 $0.00 $0.00 $4.60 32.2% 22.4% 29.8% 31.3% 28.3% 22.9% 61.2 62.2 360.9 809.4 2,568.3 Deutsche Bank Securities Inc. Page 11 22.2% EFTA01434707 22 February 2018 Trucking U.S. Transportation Figure 16: HTLD Income Statement Heartland Express (HTLD) 2012 Income Statement ($ millions) REVENUE Total Revenue Yr/Yr Change OPERATING EXPENSES Salaries, wages and benefits Rent and purchased transportation Fuel Operations and maintenance Taxes and licenses Insurance and claims Communications and utilities Depreciation Other operating expenses Gain on sales of fixed assets Total Operating Expenses OPERATING EXPENSES AS A PERCENTAGE OF REVENUE Salaries, wages and benefits (2) Rent and purchased transportation Fuel (3) Operations and maintenance (3) Taxes and licenses Insurance and claims (4) Communications and utilities Depreciation Other operating expenses Gain on sales of fixed assets OPERATING RATIO Year-over-year improvement TOTAL OPERATING INCOME Year-over-year change OTHER INCOME AND EXPENSE Interest income Interest expense Other Income, net Pretax income Income taxes, total Effective tax rate NET INCOME (CONTINUING) Extraordinary items NET INCOME (REPORTED) EPS CONTINUING Extraordinary item EPS REPORTED Yr/Yr Change (continuing) EFTA01434708 Avg. shares outstanding (diluted) Source: Deutsche Bank, Company filings 2012 $545.7 3.2% 167.1 6.3 169.0 25.3 8.7 14.9 3.0 57.2 14.6 (15.1) $450.8 30.6% 1.1% 31.0% 4.6% 1.6% 2.7% 0.5% 10.5% 2.7% -2.8% 82.6% -277bp $94.9 -10.9% 0.7 0.0 $0.7 $95.6 34.0 35.6% 61.5 0.0 $61.5 $0.71 0.00 $0.71 -8.5% 86.2 2013 2013 $582.3 6.7% 178.7 12.8 172.3 EFTA01434709 22.3 10.5 14.9 3.6 68.6 17.6 (33.3) $468.1 30.7% 2.2% 29.6% 3.8% 1.8% 2.6% 0.6% 11.8% 3.0% -5.7% 80.4% 222bp $114.2 20.3% 0.5 (0.2) $0.3 $114.5 41.9 36.6% 72.6 (2.0) $70.6 $0.85 (0.02) $0.83 19.0% 85.4 2014 2014 $871.4 49.7% 278.1 51.9 219.3 39.1 20.4 17.9 6.5 108.6 31.3 (33.5) $739.5 EFTA01434710 31.9% 6.0% 25.2% 4.5% 2.3% 2.1% 0.7% 12.5% 3.6% -3.8% 84.9% -448bp $131.9 15.5% 0.2 (0.4) ($0.3) $131.6 46.8 35.5% 84.8 0.0 $84.8 $0.97 0.00 $0.97 13.6% 87.9 2015 2015 $736.3 (15.5%) 277.3 34.5 123.7 34.0 18.1 21.6 6.0 111.0 28.6 (35.0) $619.8 37.7% 4.7% 16.8% 4.6% 2.5% 2.9% 0.8% 15.1% EFTA01434711 3.9% -4.8% 84.2% 70bp $116.6 -11.6% 0.2 (0.0) $0.2 $116.8 43.7 37.4% 73.1 0.0 $73.1 $0.84 0.00 $0.84 -13.1% 87.1 2016 2016 $612.9 (16.8%) 232.0 23.5 91.5 26.2 15.6 24.4 4.5 105.6 13.4 (9.2) $527.4 37.8% 3.8% 14.9% 4.3% 2.5% 4.0% 0.7% 17.2% 2.2% -1.5% 86.0% -187bp $85.6 -26.6% 0.5 0.0 EFTA01434712 $0.5 $86.0 29.7 34.5% 56.4 0.0 $56.4 $0.68 0.00 $0.68 -19.4% 83.4 2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 2017 01 2018E Q2 2018E Q3 2018E Q4 2018E $607.3 (0.9%) 236.9 30.0 104.4 29.6 16.6 18.9 5.8 103.7 24.7 (26.7) $543.8 39.0% 4.9% 17.2% 4.9% 2.7% 3.1% 1.0% 17.1% 4.1% -4.4% 89.5% -350bp $63.5 -25.7% 1.1 0.0 $1.1 $64.7 22.1 34.2% 42.6 32.8 $75.3 EFTA01434713 $0.51 0.39 $0.90 -24.5% 83.3 $165.9 27.7% 68.0 7.5 25.5 7.6 4.1 5.0 1.3 30.0 6.0 (5.8) $149.3 41.0% 4.5% 20.0% 4.6% 2.5% 3.0% 0.8% 18.1% 3.6% -3.5% 90.0% -487bp 16.7 -14.0% 0.2 0.0 $0.2 16.9 3.8 22.5% $13.1 0.0 $13.1 $0.16 0.00 $0.16 -6.7% 83.1 $175.9 35.7% 72.1 7.9 23.5 EFTA01434714 8.1 5.3 5.3 1.8 30.5 6.3 (6.2) $154.6 41.0% 4.5% 18.2% 4.6% 3.0% 3.0% 1.0% 17.3% 3.6% -3.5% 87.9% -433bp 21.3 0.0% 0.2 0.0 $0.2 21.5 4.8 22.5% $16.7 0.0 $16.7 $0.20 0.00 $0.20 14.7% 82.9 $187.8 3.1% 75.1 7.9 33.6 8.6 5.6 6.2 1.9 31.0 2.9 (6.6) $166.3 40.0% 4.2% EFTA01434715 25.1% 4.6% 3.0% 3.3% 1.0% 16.5% 1.6% -3.5% 88.6% 430bp 21.5 65.1% 0.2 0.0 $0.2 21.7 4.9 22.5% $16.8 0.0 $16.8 $0.20 0.00 $0.20 114.1% 82.7 $176.0 6.2% 68.6 6.5 32.4 7.9 4.8 5.8 1.4 31.5 1.5 (6.2) $154.3 39.0% 3.7% 30.8% 4.5% 2.7% 3.3% 0.8% 17.9% 0.8% -3.5% 87.7% 637bp EFTA01434716 21.7 119.8% 0.3 0.0 $0.3 21.9 4.9 22.5% $17.0 0.0 $17.0 $0.21 0.00 $0.21 195.4% 82.5 2018 2018E $705.6 16.2% 283.9 29.8 115.0 32.3 19.8 22.3 6.4 123.0 16.8 (24.7) $624.4 40.2% 4.2% 16.3% 4.6% 2.8% 3.2% 0.9% 17.4% 2.4% -3.5% 88.5% 104bp $81.1 27.7% 0.9 0.0 $0.9 $82.0 18.5 22.5% EFTA01434717 $63.6 0.0 $63.6 $0.77 0.00 $0.77 50.3% 82.8 2019 2019E $758.7 7.5% 295.9 28.1 119.4 34.1 20.5 25.0 5.7 125.0 29.2 (26.6) $656.3 39.0% 3.7% 22.0% 4.5% 2.7% 3.3% 0.8% 16.5% 3.8% -3.5% 86.5% 200bp $102.38 26.2% 1.0 0.0 $1.0 $103.3 23.2 22.5% $80.1 0.0 $80.1 $1.00 0.00 $1.00 29.9% 80.3 EFTA01434718 Page 12 Deutsche Bank Securities Inc. EFTA01434719 22 February 2018 Trucking U.S. Transportation Figure 17: LSTR Income Statement Landstar Systems Inc. (LSTR) Quarterly Income Statement ($ In Millions) Revenue Truckload Van Unsided/platform Less-than-Truckload Total Truck Rail intermodal Ocean and air cargo Other Total Operating Revenue Investment Income Total Corporate Revenue yr/yr change Operating Expenses Purchased Transportation Commissions To Agents Other Operating Costs Insurance And Claims Selling, General And Administration Depreciation And Amortization Total Operating Expenses yr/yr change Operating Income yr/yr change Operating Margin yr/yr improvement (deterioration) Operating Ratio yr/yr improvement (deterioration) Interest Expense Other Expense Interest And Debt Expense Pretax Income %Margin Income Taxes Effective Tax Rate Continuing Net Income Extraordinary Items Net Income (reported) yr/yr change EPS (continuing) Extraordinary Items EPS (reported) yr/yr change Average Common Shares Outstanding Average Diluted Shares Outstanding EFTA01434720 Source: Deutsche Bank, Company Filings 1,463.7 1,047.3 72.0 2,582.9 73.9 77.9 36.0 2,770.8 1.6 2,772.4 2012 2012 2013 2013 1,464.6 932.2 71.8 2,468.5 73.8 85.7 36.8 2,664.8 1.5 2,666.3 5.4% (3 8%) 2,129.7 218.3 22.8 37.4 136.5 26.9 2,571.6 200.7 7.2% 2,046.9 211.4 21.6 50.4 131.7 27.7 2,489.7 (3.2%) 176.6 (12.0%) 6.6% -62 bps 2014 2014 1,814.2 1,094.0 EFTA01434721 80.4 2,988.6 81.2 75.0 40.0 3,184.8 1.4 3,186.2 19.5% 2,461.1 250.8 25.8 46.3 150.3 27.6 2,961.8 19.0% 224.4 27.1% 7.0% 42 bps 43 bps 2015 2015 1,894.2 1,109.4 80.7 3,084.3 105.3 86.7 44.8 3,321.1 1.4 3,322.5 2016 2016 1,900.4 963.6 74.5 2,938.6 103.7 78.5 46.8 3,167.6 1.5 3,169.1 4.3% (4.6%) 2,551.3 270.3 31.6 48.8 EFTA01434722 149.7 29.1 3,080.8 241.7 23 bps 23 bps 2,415.7 264.2 29.7 57.3 143.2 35.8 2,945.9 4.0% (4.4%) 223.3 7.7% (7.6%) 7.3% 7.0% -23 bps -24 bps 2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 2017 01 2018E Q2 2018E Q3 2018E Q4 2018E 2,163.8 1,134.7 89.0 3,387.5 96.4 110.9 51.5 3,646.4 1.5 3,647.9 586.1 304.0 23.6 913.8 24.2 21.9 13.5 973.4 0.4 973.8 599.3 346.0 26.4 971.7 22.9 24.0 13.5 1,032.1 EFTA01434723 0.4 1,032.5 615.1 335.6 24.7 975.4 26.3 30.4 13.5 1,045.6 0.4 1,046.0 15.1% 24.6% 18.5% 10.8% 2,805.1 297.4 28.7 62.5 170.6 40.6 3,404.9 243.0 -38 bps -38 bps 749.5 79.8 6.8 15.4 41.9 11.3 904.6 69.2 7.1% 40 bps 42 bps 794.7 84.6 8.3 16.7 46.4 11.3 962.0 70.5 6.8% -18 bps -14 bps 803.0 85.2 10.5 17.4 48.1 11.3 EFTA01434724 975.4 15.6% 24.1% 18.8% 10.4% 70.5 6.7% 33 bps 36 bps 686.0 334.6 25.1 1,045.7 30.3 41.4 13.5 1,130.9 0.4 1,131.2 2018 2018E 2,486.6 1,320.2 99.7 3,906.5 103.7 117.6 54.1 4,182.0 3.0 4,184.9 7.5% 14.7% 867.4 93.4 11.3 18.7 50.9 11.3 1,052.9 78.3 6.9% 27 bps 31 bps 3,214.6 343.1 36.8 68.1 187.3 45.0 3,894.9 7.2% 14.4% 290.0 8.8% 32.2% 15.6% 16.4% 11.8% 19.4% 6.7% EFTA01434725 6.9% 27 bps 24 bps 2019 2019E 2,689.2 1,427.8 107.9 4,224.9 112.2 124.7 56.8 4,518.6 2.5 4,521.2 8.0% 3,456.8 375.0 45.2 75.4 203.3 47.5 4,203.2 7.9% 317.9 9.6% 7.0% 10 bps 92.8% 93.4% 93.0% 92.8% 93.0% 93.4% 92.9% 93.2% 93.3% 93.1% 93.1% -62 bps 12 bps (3.1) 0.0 (3.1) 197.6 7.1% 71.1 126.6 3.2 129.8 (3.2) 0.0 (3.2) 173.4 6.5% 64.5 108.9 37.1 146.0 (13.9%) $2.70 93.0% EFTA01434726 $0.07 $2.77 46.7 46.9 $2.36 $0.80 $3.16 (12.7%) 46.0 46.2 (3.2) 0.0 (3.2) 221.2 6.9% 82.4 138.8 0.0 138.8 27.4% $3.07 $0.00 $3.07 30.4% 45.0 45.2 (2.9) 0.0 (2.9) 238.8 7.2% 91.1 147.7 0.0 147.7 (3.8) 0.0 (3.8) 219.5 6.9% 82.1 137.4 0.0 137.4 6.4% (7.0%) $3.37 $0.00 $3.37 43.7 43.8 $3.25 EFTA01434727 $0.00 $3.25 9.7% (3.5%) 42.1 42.2 (3.2) 0.0 (3.2) 239.8 6.6% 83.3 36.0% 37.2% 37.2% 38.1% 37.4% 156.6 19.5 176.1 (0.6) 0.0 (0.6) 68.6 7.0% 16.8 51.8 0.0 51.8 (0.6) 0.0 (0.6) 69.9 6.8% 17.1 52.8 0.0 52.8 (0.6) 0.0 (0.6) 69.9 6.7% 17.1 52.8 0.0 52.8 (0.6) 0.0 (0.6) 77.8 6.9% 19.1 24.5% 24.5% 24.5% 24.5% 58.7 0.0 34.7% EFTA01434728 58.7 (2.4) 0.0 (2.4) 287.7 6.9% 70.1 24.4% 217.5 0.0 217.5 14.0% 59.9% 40.7% 24.5% 29.8% $3.73 $0.46 $4.19 41.9 42.0 $1.24 $0.00 $1.24 41.7 41.8 $1.28 $0.00 $1.28 41.3 41.3 $1.29 $0.00 $1.29 40.8 40.9 $1.45 $0.00 $1.45 40.4 40.4 $5.29 $0.00 $5.29 41.0 41.1 (2.4) 0.0 (2.4) 315.5 7.0% 77.3 24.5% 238.2 0.0 38.9% EFTA01434729 238.2 9.5% $6.09 $0.00 56.09 14.6% 60.7% 43.0% 28.0% 35.0% 42.0% 15.1% 39.1 39.1 Deutsche Bank Securities Inc. Page 13 EFTA01434730 22 February 2018 Trucking U.S. Transportation Figure 18: WERN Income Statement Werner Enterprises (WERN) 2013 Income Statement ($ millions) Operating Revenue Truckload Transportation Services, net of fuel surcharge Werner Logistics Other, Corporate & Inter-segment eliminations Revenue, Net Of Fuel Fuel Surcharge revenue Total Revenue Y/Y Growth Operating Expenses Salaries, wages, benefits Fuel Net Fuel Cost Supplies & maintenance Taxes & licenses Insurance & claims Depreciation Rent & purch. transportation Communications & utilities Operating Equipment Disposal (Gains) Losses Other Total Operating Expenses Operating Expenses As A Percentage Of Net Revenue Salaries, wages, benefits Fuel Net Fuel Cost Supplies & maintenance Taxes & licenses Insurance & claims Depreciation Rent & purch. transportation Communications & utilities Operating Equipment Disposal (Gains) Losses Other Operating Ratio, Gross Of Fuel (2) YoY Improvement (deterioration) Operating Ratio, Net Of Fuel (2) YoY Improvement (deterioration) Operating Income Truckload Transporation Werner Logistics (VAS) Corporate & Other Operating Income Total Operating Income Y/Y Change Truckload Transportation Services OR (net of fuel) EFTA01434731 Werner Logistics OR Consolidated OR Interest expense Interest income Other (3) Total Other Income (Expense) PRETAX INCOME Income Taxes Tax Rate Net Income (continuing) Extraordinary items Net Income (total) EPS CONTINUING Extraordinary Item EPS REPORTED Y/Y growth (continuing) Average Shares Outstanding (basic) Average Shares Outstanding (diluted) Source: Deutsche Bank, Company Filings 2013 $1,303.2 361.4 9.9 1,674.6 354.6 $2,029.2 (0.4%) $545.4 371.8 17.2 179.2 86.7 71.2 173.0 456.9 13.5 (16.4) 8.2 $1,889.5 32.6% 22.2% 1.0% 10.7% 5.2% 4.3% 10.3% 27.3% 0.8% 93.1% (153bp) 91.7% EFTA01434732 (198bp) 119.6 14.7 5.5 $139.7 (18.5%) 8.3% 90.8% 95.9% (0.5) 2.3 0.2 $2.0 $141.7 54.9 38.8% 86.8 0.0 $86.8 $1.18 0.00 $1.18 (15.7%) 72.9 73.4 2014 2014 $1,352.4 390.6 46.5 1,789.5 349.8 $2,139.3 5.4% $584.0 346.1 (3.7) 188.4 85.5 80.4 177.0 498.8 14.2 (19.3) 24.1 $1,979.2 32.6% 19.3% 2015 2015 $1,416.1 EFTA01434733 393.2 71.8 1,881.1 212.4 $2,093.5 (2.1%) $636.0 204.6 (7.9) 190.1 89.6 80.8 193.2 480.6 15.1 (22.6) 22.3 $1,889.9 33.8% 10.9% -0.2% -0.4% 10.5% 4.8% 4.5% 9.9% 27.9% 0.8% 1.3% 92.5% 60bp 91.1% 60bp 153.0 7.5 (0.4) $160.1 14.6% 8.9% 88.7% 98.1% (0.9) 2.5 0.0 $1.7 $161.8 63.1 39.0% 98.6 0.0 $98.6 $1.36 EFTA01434734 0.00 $1.36 15.1% 71.9 72.5 10.1% 4.8% 4.3% 10.3% 25.6% 0.8% 1.2% 90.3% 224bp 89.2% 188bp 193.1 16.9 (6.3) $203.7 27.2% 10.8% 86.4% 95.7% (2.0) 2.9 (0.2) $0.7 $204.4 78.7 38.5% 125.7 (1.9) $123.7 $1.73 (0.03) $1.71 27.3% 72.0 72.6 2016 2016 $1,356.3 417.2 80.2 1,853.7 155.3 $2,009.0 (4.0%) 636.1 155.0 EFTA01434735 (0.3) 171.4 85.5 83.9 209.7 512.3 16.1 (10.3) 29.6 $1,889.4 34.3% 8.4% 0.0% 9.2% 4.6% 4.5% 11.3% 27.6% 0.9% 1.6% 94.0% (378bp) 93.5% (438bp) 101.2 20.7 (2.4) $119.6 (41.3%) 92.5% 95.0% (2.6) 4.2 (0.2) $1.4 $121.0 45.8 37.9% 75.2 4.0 $79.1 $1.04 0.05 $1.09 (40.0%) 72.1 72.4 2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018 EFTA01434736 2017 01 2018E Q2 2018E Q3 2018E Q4 2018E $1,403.9 417.6 89.6 1,911.1 205.6 $2,116.7 5.4% $681.5 198.7 (6.9) 164.3 86.8 79.9 217.6 509.6 16.1 (2.5) 20.8 $1,972.9 35.7% 10.4% $370.7 106.3 23.5 500.5 59.5 $560.0 11.7% $178.1 56.5 (3.0) 45.0 24.0 22.0 55.0 135.1 5.0 (1.0) 7.3 $524.1 35.6% 11.3% 9.0% 4.8% 4.4% $393.2 106.1 22.3 521.6 63.2 EFTA01434737 $584.8 12.6% $188.1 55.5 (7.7) 45.4 25.0 23.0 55.0 140.8 5.2 (1.0) 7.6 $536.8 36.1% 10.6% 8.7% 4.8% 4.4% $392.3 109.3 23.3 524.9 63.7 $588.6 11.3% $181.7 60.2 (3.5) 45.1 24.7 23.1 55.0 141.7 5.2 (1.0) 7.6 $540.0 34.6% 11.5% -0.4% -0.6% -1.5% -0.7% 8.6% 4.5% 4.2% 11.4% 26.7% 0.8% 1.1% 93.2% 84bp 92.5% EFTA01434738 107bp 138.1 8.7 (2.9) $143.8 20.3% 90.2% 97.9% (2.2) 3.3 (0.3) $0.8 $144.6 54.7 37.8% 90.0 113.0 $203.0 $1.24 1.56 $2.80 19.4% 71.8 72.6 11.0% 27.0% 1.0% 1.5% 93.6% 122bp 93.4% 84bp 33.4 3.0 (0.5) $35.8 38.0% 91.0% 97.2% (0.4) 0.9 0.0 $0.6 $36.4 9.3 25.5% 27.1 0.0 $27.1 $0.37 0.00 EFTA01434739 $0.37 69.3% 71.6 72.5 10.5% 27.0% 1.0% 1.5% 91.8% 110bp 92.3% (13bp) 45.6 2.9 (0.5) $48.0 30.0% 88.4% 97.3% (0.3) 1.1 0.0 $0.8 $48.8 12.4 25.5% 36.4 0.0 $36.4 $0.50 0.00 $0.50 57.0% 71.3 72.3 8.6% 4.7% 4.4% 10.5% 27.0% 1.0% 1.5% 91.7% 148bp 91.4% 111bp 47.1 2.0 (0.5) $48.6 35.6% EFTA01434740 88.0% 98.1% (0.2) 1.3 0.0 $1.1 $49.7 12.7 25.5% 37.0 0.0 $37.0 $0.51 0.00 $0.51 65.5% 71.1 72.2 $416.4 118.0 22.8 557.2 65.5 $622.7 9.7% $184.9 65.6 0.1 47.4 25.6 24.5 55.0 150.4 5.6 (1.0) 8.1 $566.1 33.2% 11.8% 0.0% 8.5% 4.6% 4.4% 9.9% 27.0% 1.0% 1.5% 90.9% 114bp 89.8% 132bp EFTA01434741 54.1 2.9 (0.5) $56.5 25.5% 87.0% 97.5% (0.1) 1.4 0.0 $1.3 $57.9 14.8 25.5% 43.1 0.0 $43.1 $0.60 0.00 $0.60 54.3% 70.8 72.0 2018 2018E $1,572.5 439.8 91.9 2,104.2 251.8 $2,356.1 11.3% $732.7 237.8 (14.1) 182.9 99.4 92.6 220.0 568.1 21.0 (4.0) 30.5 $2,167.0 34.8% 11.3% 2019 2019E $1,693.9 461.8 94.2 EFTA01434742 2,249.8 275.0 $2,524.8 7.2% $751.7 269.6 (5.4) 195.7 105.7 99.0 245.0 607.5 18.4 (9.0) 31.5 $2,309.8 33.4% 12.0% -0.7% 8.7% 4.7% 4.4% 10.5% 27.0% 1.0% -0.2% -1.0% -1.1% -1.2% -0.6% -0.1% -0.2% -0.2% -0.2% -0.2% 0.5% 1.5% 92.0% 123bp 91.7% 79bp 180.2 10.8 (2.0) $189.0 31.4% 88.5% 97.5% (0.9) 4.7 0.0 $3.8 $192.8 49.2 25.5% 143.7 0.0 $143.7 $1.99 0.00 -0.2% EFTA01434743 $1.99 60.4% 71.2 72.2 8.7% 4.7% 4.4% 10.9% 27.0% 0.8% -0.4% 1.4% 91.5% 49bp 90.7% 100bp 205.0 12.6 (2.5) $215.0 13.8% 87.9% 97.3% (0.9) 4.7 0.0 $3.8 $218.8 55.8 25.5% 163.0 0.0 $163.0 $2.29 0.00 $2.29 15.0% 70.2 71.3 Page 14 Deutsche Bank Securities Inc. EFTA01434744 22 February 2018 Trucking U.S. Transportation Figure 19: YRCW Income Statement YRC Worldwide (YRCW) Quarterly Income Statement ($ Millions) Revenue YRC Freight revenue YoY Change (%) Regional Transportation revenue YoY Change (%) Corporate and other Total Revenue YoY Change (%) Segment Operating Expenses YRC Freight opex YoY Change (%) Regional Transportation opex YoY Change (%) Corporate and other opex Total Operating Expenses YoY Change (%) Operating Income (ebit) YRC Freight ebit YoY Change (%) Regional Transportation ebit YoY Change (%) Corporate and other ebit Total Operating Income YoY Change (%) Other income (expense) Interest Expense Other, Net Total Other Income (Expense) Pretax Income Provision for Income Taxes Effective Tax Rate Continuing Net Income Nonrecurring Gains (losses) Income (Loss) from Discontinued Operations Net Income (Reported) Diluted EPS Continuing Nonrecurring Gains (losses) Income (Loss) from Discontinued Operations Diluted EPS (Reported) YoY Change in Continuing EPS (%) Average Diluted Shares Source: Deutsche Bank, Company Filings 7 3 9.3 28.6 EFTA01434745 2012 3,206.9 1,640.5 2012 2013 2013 3,136.8 0.1% (2 2%) 1,728.6 3.0 4,850.5 (0.4%) 3,252.5 (1.2%) 1,569.8 4,831.4 4,865.4 2014 2014 3,237.4 1,831.4 2015 2015 3,055.7 3.2% (5.6%) 1,776.9 5.6% 5.4% 5.9% (3.0%) (10.9) (21.1) 5,068.8 4,832.4 0.3% 4.2% (4.7%) 3,171.0 (2.5%) 1,648.1 10.9 4,830.0 0.4% (0.0%) (45.6) (48.5%) 70.7 16.1 (34.2) (25.0%) 80.5 (10.9) 35.4 3,252.8 1,761.3 3,007.1 2.6% (7.6%) EFTA01434746 1,691.3 3.3% 5.0% 6.9% (4.0%) 9.0 21.1 5,035.2 10.6 4,709.0 4.2% (6.5%) (15.4) 103.2% 13.8% (12.9%) (9.0) 48.6 (55.0%) (415.6%) 70.1 85.6 (21.1) 33.6 123.6 (0.2) 2016 2016 2,958.9 (3.2%) 1,739.3 (2.1%) (0.7) 4,698.2 (2.8%) 2,921.4 (2.8%) 1,656.9 (2.0%) 10.2 4,588.5 (2.6%) 37.5 (22.8%) 82.4 22.1% (3.7%) (10.6) (112.2%) 120.4% (5.1%) 267.9% (11.2%) (150.9) 6.2 (144.8) (128.7) 17.2 (111.5) (25.0) (3.9) (140.4) ($15.25) EFTA01434747 ($3.42) ($0.53) ($19.20) (163.9) 6.0 (157.9) (122.5) 41.2 (81.3) (2.3) 0.0 (83.6) ($8.71) ($0.25) $0.00 ($8.96) (150.0) 9.5 (140.5) (106.9) 20.8 (86.1) 0.4 (0.1) (85.8) ($3.01) $0.01 ($0.00) ($3.00) (107.6) 10.8 (96.8) 26.8 5.3 32.1 (31.2) 0.0 0.9 $1.00 ($0.97) $0.00 $0.03 (133.3%) 32.0 (103.4) 3.7 (99.7) 10.0 (1.3) 8.7 12.8 EFTA01434748 0.0 21.5 $0.27 $0.39 $0.00 $0.66 32.7 (10.2) 109.7 2017 2017 3,067.9 1,823.4 3/31/2018 6/30/2018 9/30/2018 12/31/2018 Q1 2018E Q2 2018E Q3 2018E Q4 2018E 736.4 810.5 500.1 822.0 489.5 782.0 466.4 2018 2018E 3,151.0 1,917.8 2019 2019E 3,310.5 3.7% 1.0% 2.7% 4.3% 2.7% 2.7% 5.1% 461.8 2,014.9 4.8% 4.5% 6.1% 5.6% 4.4% 5.2% 5.1% (0.3) 0.0 4,891.0 1,198.2 0.0 1,310.6 0.0 1,311.5 0.0 1,248.4 0.0 5,068.7 4.1% 2.4% 4.0% 4.8% 3.3% 3.6% 3,028.7 1,753.9 4,793.5 EFTA01434749 745.3 786.2 477.1 791.6 466.0 769.1 445.4 3,092.2 1,841.5 0.0 5,325.3 5.1% 3,236.0 3.7% 1.1% 3.1% 3.3% 0.9% 2.1% 4.7% 453.0 1,924.2 5.9% 5.6% 7.1% 5.5% 1.8% 5.0% 4.5% 10.9 3.5 1,201.8 3.5 1,266.8 3.5 1,261.1 3.5 1,218.0 14.0 4,947.7 15.0 5,175.2 4.5% 2.6% 4.5% 4.2% 1.4% 3.2% 4.6% 39.2 (15.7%) (10.9) 97.8 (8.8) 8.8 (31.5%) (3.5) (3.6) (102.8) (13.7) (116.5) (18.7) 8.1 13.4% 33.6% 19.4% -19.7% 13.3% 43.4% (10.6) (0.3) 0.0 (10.9) ($0.32) EFTA01434750 ($0.01) $0.00 ($0.33) (73.5%) (220.8%) 33.1 (25.6) 0.9 (24.7) (28.3) 6.9 (21.3) 0.0 0.0 (21.3) ($0.65) $0.00 $0.00 ($0.65) (7.6%) 32.7 24.3 4.5% 5.2% (8.6%) 69.5 23.0 (10.5%) (3.5) 43.8 (10.8%) 1088.0% (10.6%) (25.4) 0.9 (24.5) 19.3 (4.7) 14.6 0.0 0.0 14.6 $0.45 $0.00 $0.00 $0.45 32.7 30.4 12.9 42.8% (4400.9%) 23.5 21.0 50.4 (3.5) 30.4 58.8 EFTA01434751 74.5 50.0% 26.7% 76.3 90.7 7.8% 128.1% 9.7% 18.9% (3.5) (14.0) 121.1 (15.0) 150.2 21.8% 294.7% 23.8% 24.0% (25.2) 0.9 (24.3) 26.1 (6.4) 19.7 0.0 0.0 19.7 $0.60 $0.00 $0.00 $0.60 32.7 (25.0) 0.9 (24.1) 6.3 (1.5) 24.5% 24.5% 24.5% 24.5% 4.7 0.0 0.0 4.7 $0.15 $0.00 $0.00 $0.15 32.7 (101.2) 3.6 (97.6) 23.5 (5.7) 24.5% 17.7 0.0 0.0 17.7 $0.54 EFTA01434752 $0.00 $0.00 $0.54 32.7 (100.0) 3.6 (96.4) 53.8 (13.2) 24.5% 40.6 0.0 0.0 40.6 $1.24 $0.00 $0.00 $1.24 (17.5%) 393.5% (148.9%) (268.9%) 129.2% 32.7 Deutsche Bank Securities Inc. Page 15 EFTA01434753 22 February 2018 Trucking U.S. Transportation Appendix 1 Important Disclosures *Other information available upon request *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/- DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/- equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Amit Mehrotra, Seldon Clarke Equity Rating Key Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) we recommend that investors buy the stock. Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock. Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell Newly issued research recommendations and target prices supersede previously published research. 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EFTA01434765 David Folkerts-Landau Group Chief Economist and Global Head of Research Raj Hindocha Global Chief Operating Officer Research Anthony Klarman Global Head of Debt Research Michael Spencer Head of APAC Research Global Head of Economics Paul Reynolds Head of EMEA Equity Research Andreas Neubauer Head of Research - Germany International Production Locations Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: Deutsche Bank AG Mainzer Landstrasse 11-17 60329 Frankfurt am Main Germany Tel: (- Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: EFTA01434766 Dave Clark Head of APAC Equity Research Spyros Mesomeris Global Head of Quantitative and QIS Research Steve Pollard Head of Americas Research Global Head of Equity Research Pam Finelli Global Head of Equity Derivatives Research EFTA01434767