Toll expecting to transport profits higher this year

Mr Brian Kruger, the Managing Director of transport and logistics firm Toll Holdings (ASX: TOL) has told shareholder at the Annual General Meeting that “given the good progress we are making on productivity and cost reductions we currently expect underlying earnings before interest and tax (EBIT) for fiscal 2014 to be ahead of the prior year.”

Those cost reductions include a new facility for courier business Toll IPEC. With a couple of its major depots facing capacity constraints, the new facility will be able to handle 35,000 parcels an hour compared with 12,000 per hour at the current main site in Sydney. As a result of this new $170 million site, four existing depots will be consolidated into one.

Having recorded flat year on year revenue of $8.7 billion and a 4% rise in EBIT to $426 million, shareholders have been waiting anxiously for a pick-up in economic activity to which Toll is highly leveraged. Toll’s exposure to both the mining sector and the discretionary retail sector has meant significant pressures on major parts of its business. This is in contrast to fellow freight companies Asciano (ASX: AIO) and Aurizon (ASX: AZJ) who have continued to grow strongly on the back of their exposure to coal volumes. The Toll Global Forwarding division has also experienced another tough year, ultimately forcing the company to write-down the value of the division by $215 million.

Foolish takeaway

Despite challenges with growing revenues, it’s been a good 12 months for Toll’s share price with the stock significantly outperforming the wider S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). While the index is up nearly 18%, Toll shares have climbed 35%. With the company trading on a current price-to- earnings ratio of 14.4 times, this would not appear to be expensive given the current stage in the economic cycle and Toll’s leverage to the upside from future, more robust economic activity.

Toll’s dividend yield is currently 4.5% fully franked with scope to be transported higher as revenue and earnings growth return. Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

Motley Fool contributor Tim McArthur owns shares in Toll Holdings.

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