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Triton International Limited  (NYSE:TRTN)
Q1 2019 Earnings Call
April 30, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Triton International Limited First Quarter 2019 Earnings Release Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to John Burns, Senior Vice President and CFO. Please go ahead.

John C. Burns -- Chief Financial Officer

Good morning and thank you for joining us on today's call. We are here to discuss Triton's first quarter 2019 results, which were reported this morning.

Joining me on this morning's call from Triton is Brian Sondey, our CEO; and John John O'Callaghan, our Head of Global Marketing and Operations. Before I turn the call over to Brian. I would like to note that our prepared remarks will follow along a presentation that can be found on our website under Presentations.

I'd also like to point out that the company will be making statements in this conference call that are forward-looking statements as the term is defined on the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made on this call are based on certain assumptions and analysis made by the company and are not a guarantee of future performance. Actual results may vary materially from those expressed or implied in the forward-looking statements. The company's views, estimates plans and outlook as described in this call may change subsequent to this discussion. The company is under no obligation to modify or update any of these statements that are made despite any subsequent changes. These statements involve risks and uncertainties and are only predictions. A discussion of such risks and uncertainties is included in our earnings release and presentation as well as our SEC filings. In addition, certain non-GAAP financial measures will be discussed on this call. A reconciliation of these non-GAAP measures to the equivalent GAAP financial measure is included in our earnings release. With these formalities out of the way, I'll now turn the call over to Brian.

Brian M. Sondey -- Chairman & Chief Executive Officer

Thanks, John. And welcome to Triton International's First Quarter 2019 Earnings Conference Call. I'll start with slide three of the presentation. Triton achieved excellent performance in the first quarter of 2019. Triton generated $92.8 million of adjusted net income in the first quarter or $1.19 per share, an increase of 20% from the first quarter of 2018. We also achieved an annualized return on equity of 17.2%. Our strong financial results were driven by continued outstanding operating performance. Our utilization remains high and used container sale prices remain strong leading to sizable disposal gains.

Our customers and market forecasters continue to expect moderately positive trade growth this year. We have not yet seen container pickups accelerate. We've taken a number of actions this year to drive shareholder value. We improved our capital structure by issuing perpetual preferred stock with an attractive mix of risk protection and cost. We repurchased the majority of outside partnership interests and a portfolio of our containers. We repurchased 2.6 million shares of our common stock in the first quarter and have purchased 5.1 million shares since last August. We have also implemented a new $200 million share repurchase program to replace the plan announced last August. And we declared a dividend of $0.52 per share this quarter.

I will now hand the call over to John O'Callaghan, our Global Head of Marketing and Operations.

John O'Callaghan -- EVP, Global Head of Field Marketing and Operations

Thank you, Brian. Turning to slide four. As Brian mentioned, Triton's operating performance remained solid in the first quarter of 2019 with high utilization averaging 97.6%. We also achieved sizable gains on disposals as used container sale prices remained high. New container pickup activity was slow in the first quarter. The first quarter typically represents the slow season for dry containers. And US, China trade dispute continued to create some uncertainty. There was a limited amount of new container transactions in the first quarter. We participated selectively in some transactions and walked away from others.

Investment returns in the first quarter often get competed down toward our walk away level. Some shipping lines usually don't have urgent requirements until later in the year. We are hopeful we'll see larger opportunities and better investment return as we get deeper into the year and into the peak season. To date in 2019, we've invested approximately $220 million in our fleet including $150 million of new containers. And we also repurchased $70 million of third-party partnership interest and a portfolio of our existing containers.

We're now heading into the time of year when business activity should start to pick up. Steel prices have turned into the upper $500 and new container prices strengthened to just below $1,900. Overall, we are optimistic that market conditions will be solid this year. Our inventory is under control. Our customers are expecting trade growth to remain moderately positive. We expect our customers will continue to rely heavily on leasing. And we continue to have significant market advantages that usually allows to win the largest share of the deals we target.

Slide five shows Triton's key operating metrics. The first quarter was seasonally slow. The change in our utilization over six months from the end of the peak season last year at September 30 through the slow season to March 30 was about 120 basis points or 4.6 basis points a week over those 26 weeks. That's a very reasonable change over the slow season. And utilization remains high at 97.3%.

The chart on the lower left of the slide shows our quarterly pickups and drop-offs of containers you can see the pickups remained low in the first quarter but dropped decreased from the fourth quarter level and moderate for this time of the year. We expect drop-offs to remain well-controlled and container pickups should accelerate as we get deeper into the second quarter.

Slide six looks at the key measures of container supply and demand. On the upper-left chart, we see current expectations for trade growth. Market forecasts such as Clarksons and Alphaliner are projecting trade growth to be just under 4% this year, generally matching our customers' expectations for moderate growth. Container supply remains well controlled. Back fleet inventory increased about 935,000 TEU due to low absorption volumes in the first quarter as well as the build up of inventory ahead of the anticipated peak demand. This inventory is less than 2.5% of the total global container fleet and is usual for this time of the year, as companies build up inventory for that anticipated seasonal requirements. We've seen a small increase in our depot fleet offers in Asia, but it remains under control and represents about 1.5% of our total fleet. We have very few leasing containers in inventory outside of Asia.

I'll now hand you over to John Burns, our CFO.

John C. Burns -- Chief Financial Officer

Thank you, John. Turning to page seven. On this page, we presented our consolidated financial results. Adjusted net income from the first quarter is $92.8 million or $1.19 per share, up 20% from the prior year, supported by continued strong operating performance of our lease portfolio. These strong results represent a return on equity of 17.2%.

Turning to page eight, our outstanding results for the quarter were driven by several factors, including solid growth in our revenue-earning assets, which were up 6.6% from the prior year; and leasing revenues, which were up 8.2%. The increase in assets and revenue was driven by the strong investment year we had in 2018 when we invested $1.5 billion in new and used containers. Utilization remained high, averaging 97.6% for the quarter, down slightly from 98.6% in the prior year quarter. The decrease in utilization contributed to the $5.8 million increase in direct operating costs, reflecting higher storage and repair expenses.

Our container disposal results remain quite positive, generating a combined gain on sale and trading margins $12.1 million in the first quarter, in line with the prior year quarter. Two non-cash items contributed to the improvement in our first quarter results over the prior year. The first is the run-off of the purchase accounting adjustments related to our merger in 2016 which provided $9.1 million net benefit in the first quarter, up from $3.8 million in the prior year quarter. Going forward, we expect this benefit to increase gradually over the next few years. Secondly, our adjusted GAAP tax rate declined to 7.8% in the first quarter from 11.5% in the prior year quarter. We expect our tax rate to remain in the current range for the rest of 2019. During the first quarter, we had several small, unusual items that benefited our net results by roughly $3 million or $0.04 per share.

The last item driving our strong year-over-year earnings increase is our share buyback program. Through these buybacks we reduced the average outstanding shares for the quarter by 2.9% compared to the prior years' first quarter. Because a large portion of the buybacks occurred late in the quarter, the impact on the second quarter will be over 80% reduction in average outstanding shares.

I'd now like to take a minute to address the taxability of our regular dividend. Historically, our dividends have been treated as a return of capital for tax purposes for you our shareholders. But due to an unusual transaction in the fourth quarter of 2018, roughly 70% of our 2018 dividends were treated as a taxable dividend. For 2019, we currently expect our dividends to be treated as return of capital, but this is subject to change and shareholders should consult a tax advisor to determine their specific tax treatment.

Turning to page nine. This page highlights our strong and stable cash flows that enable us to grow the fleet and maintain a strong balance sheet while paying a substantial dividend. The graph on the top left shows our annual cash flows before CapEx. The chart shows strong growth in cash flows as we've grown our fleet over an extended period. The graph on the lower left looks at our leverage based on net debt-to-revenue earning asset after excluding the impacts of purchase accounting adjustments. This graph highlights our financial stability over an extended period, covering several cycles. And throughout this period, we've been able to maintain our leverage in a steady range. We were able to maintain stable leverage profile because our strong cash flows and our ability because of the short order cycle for containers to adjust CapEx quickly as market supply and-demand conditions change.

The graph on the right demonstrates the value we have created for shareholders over the last 13 years. These strong cash flows have enabled us to grow the tangible book value of the company from $10 per share to $35 per share today. If you combine the growth in our tangible book value with the cumulative dividends we've paid, we have generated $50 of value for our shareholders, representing a compounded growth rate of 15% excluding the value of reinvested dividends.

Turning to page 10. On this page we review our calculation of adjusted tangible net book value of $34.80 per share, which we showed on the prior page and show at the bottom of this page and then why we believe this is the appropriate measure for book value of our business rather than the GAAP net book value of $28.30. As you can see from the reconciliation at the bottom of the page, the key adjustments we make to GAAP net book value per share is first to start with shareholders' equity before the purchase accounting adjustments. Then add the deferred tax liability to equity.

As part of our merger, we were required to mark down the value of the former TAL container fleet based on the historically low container prices at that time. However, we did not adjust our container values for our lending agreement. And if container prices then were in the range they are today, there would have been a very limited markdown at that time. In addition to eliminating the purchase accounting adjustments, our adjusted book value calculation considers our deferred tax liability as equity. We believe this is appropriate, because we have not paid meaningful cash taxes in the past and we do not expect to in the future, due to the tax depreciation provided by our ongoing investments in containers.

I'll now return you to Brian for some additional comments.

Brian M. Sondey -- Chairman & Chief Executive Officer

Thanks, John. I'll continue the presentation with slide 11. Triton has taken a number of actions this year to improve our capital structure and create shareholder value. We issued $86 million of perpetual preferred stock in March. The preferred stock carries an 8.5% dividend that is fixed for life. Importantly, the preferred stock has no maturity date, put option, acceleration risk or conversion features. Overall, we think the perpetual preferred stock provides an attractive combination of equity-like risk protection and moderate cost. We expect to consider further issueances if the market remains favorable.

We've also been actively repurchasing our common stock. Since last August, we've repurchased $5.1 million shares or 6.3% of the original shares outstanding. And we believe our shares currently represent a compelling investment for Triton. In considering the share repurchases, we look at a variety of ways of measuring value. One measure we used is a fleet runoff analysis, which combines the net present value of the cash flows from our existing lease portfolio plus the expected value of our existing containers at the end of the existing leases. Our analysis shows that this expected runoff value is greater than our current market value under the vast majority of our modeled scenarios. It's important to note that this runoff analysis is calculated before assigning any value to our market leading franchise and origination capability. And so we consider this runoff analysis a highly conservative benchmark of value. We view the 70 million repurchase of outside partnership interests in TCI similarly to the way that we analyze the share repurchases. With the partnership purchases providing another way for us to increase our investment in our existing high-quality leasing container portfolio.

We've also strengthened our balance sheet to reduce financial risk. And the ratio of net debt-to-revenue earning assets decreased to 73% at the end of the first quarter.

I'll now wrap up the presentation with a few summary comments on slide 12. Triton achieved excellent results in the first quarter of 2019. Our adjusted earnings per share increased 20% from the first quarter of last year. And we achieved an annualized return on equity over 17%. Container pickup activity was slow in the first quarter, but our customers continue to expect moderately positive trade growth this year. And we expect container pickups to accelerate as we get deeper into the second quarter.

We expect our adjusted earnings per share will decreased slightly from the first to the second quarter. Average utilization will likely be down slightly due to the quiet activity year-to-date. We do not expect the one-time items benefiting the first quarter to reoccur. And we also transferred a large number of containers on hire with one of our customers from short-term to long-term lease. This will reduce near-term lease revenue on the containers but lock in attractive lifetime values. After the second quarter, we expect our adjusted earnings per share will increase sequentially through the second half of the year.

Overall, we remain optimistic that we'll achieve another outstanding year. We have significant financial momentum. Our customers and market forecasters continue to expect trade growth that will remain moderately positive this year. We expect our customers will continue to rely heavily on leasing. We have significant advantages in our market. And our strong and stable cash flow gives us many levers to create shareholder value, including organic growth, high dividends, and share repurchases.

We'll now open up the call for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions). Our first questions comes from Scott Valentin with Compass Point. Please go ahead.

Scott Valentin -- Compass Point Research & Trading, LLC -- Analyst

Good morning, everyone. Thanks for taking my question. Just with regard to that TCI purchase, just wondering how maybe you compare the economics of that to buying just containers from the manufacturers?

Brian M. Sondey -- Chairman & Chief Executive Officer

Yes. We evaluate it in fairly similar ways. We look at the containers in that portfolio and we project the expected lifetime, remaining lifetime lease revenue and container sale value and use our cost capital, discount it. Right now in the first quarter, we felt that the attractiveness of the purchases of that portfolio plus the attractiveness of buying our stock, frankly, were more interesting than purchasing new containers. I think John mentioned that we often see in the first quarter that investment returns get competed down toward the low end of our acceptable range and that was certainly the case this quarter. We wouldn't say that there irrational competition out there or that the deals being structured are crazy. But when we look at, again, just the value of our existing business relative to the way it's valued in the market, that was definitely more interesting, both in the form of the share repurchases and the portfolio repurchase.

Scott Valentin -- Compass Point Research & Trading, LLC -- Analyst

Okay, thanks. That's helpful. And then just a second question. If you include the TCI investment plus $130 million with container purchases, you're at 220 million of CapEx, call it for 1Q. And I think, looking at last year's presentation, you had done $850 million year-to-date. I'm just wondering, does either CapEx reflect the cautious outlook for kind of container demand in global trade or is it more reflective of the economics you saw in the first quarter?

Brian M. Sondey -- Chairman & Chief Executive Officer

I think it was a combination. So maybe just on that comparison. The 850 million,this time last year was a very big number where we had a extraordinarily strong market in 2017 and to the first part of 2018. And we were taking full advantage of that and pushing CapEx hard because, just the investments were, we felt were very attractive. And as we've transitioned to 2019, we mentioned the market has been much more typical in terms of a slow first quarter and then we haven't yet really seen activity start to pick up building toward the peak months in June, July, August.

And so, we have seen there's been deals in the marketplace. We participated in some. We have not participated in others. And, yeah, our lower CapEx is, I think, as you point out, a combination of just less overall market activity and our decision to not feel we need to push CapEx because we've attracted other investment opportunities.

Scott Valentin -- Compass Point Research & Trading, LLC -- Analyst

All right. Thanks. Thanks very much.

Operator

The next question comes from Michael Brown with KBW. Please go ahead.

Michael Brown -- KBW -- Analyst

Hi, good morning and thank you for taking my questions.

Brian M. Sondey -- Chairman & Chief Executive Officer

Good morning.

Michael Brown -- KBW -- Analyst

So we're seeing kind of increasing reconstructed developments coming out of these trade-related conversations between US and China. So I was just wondering, have you really heard an improvement in the tone or the sentiment from your clients? Has that begun to improve? And if we do see a resolution, how would you expect your business to be impacted? I guess, I'm just trying to get a sense would it simply just be business as usual, but maybe less uncertainty going forward? Or do you expect or do you see kind of pent-up demand that would actually see kind of an increase in activity kind of soon after a resolution comes through?

John C. Burns -- Chief Financial Officer

Sure. So most of this, of course, is our speculation. We don't know exactly what's going to happen, of course, with the conversations between the US and China where exactly what's causing the current market out there. But in general, I would be positive for those conversations to reach resolution and to have the uncertainty over trade clear up. I think there's been a few negative impacts of all the trade uncertainty. One is, I think, that the tariffs have contributed to the, say, slower first quarter and these slower ramp toward the peak season, we've seen so far, both in the sense that cargo was pulled forward, I think from the end of 2018 and early '19 into the summer of '18 as shippers tried to get ahead of the tariffs being implemented, the initial round of tariffs.

And then, I think, to some extent, cargoes being delayed, maybe at the margin at least, as shippers wait to see if the tariffs go away. And so, just the resolution of the dispute and providing a clear path of what's going to happen with tariffs over the next quarters or few years, I think would just be -- would help release some cargo. I think that there is a sufficient -- it's being is being held back. That's what, I think, our customers, whenever we talk with them and I think we all mentioned it a few times, remain fairly optimistic on volumes for this year. We typically hear numbers of kind of plus 3% to plus 5% plus even some 6% from some of our customers on their expectations this year, that may be premised on some expectations as the trade complex get resolved. But overall, we've heard a very consistent story from our customers beginning late last year into this year of a fair bit of confidence on volumes.

I think just from the macro economy standpoint, not that we're experts on that, but it seems to be just beneficial for economic confidence around the world also, if those were to be resolved. And, yeah, so certainly we think it'd be a positive in the business for many reasons.

Michael Brown -- KBW -- Analyst

Okay, thank you for all the color there. And then just shifting to the buybacks, obviously, significant buyback activity in the quarter and now a large share purchase authorization from the Board, so, I mean, how do we kind of think about how you may utilize that going forward I think that's been helpful to the economics you shared as to how you think about it, but based on that it sounds like you may be kind of opportunistic as to kind of where the stock price is trading or is it fair to say that it could also be used generally kind of traditionally as kind of a level share repurchase quarter to quarter?

John C. Burns -- Chief Financial Officer

Yeah, I'd say we're mostly opportunistic, that as we walk through we see the investment in our existing fleet and existing business that we can make right now through the share repurchases as being very interesting. That we're buying the effectively slices of the company back at just attractive values and using the same metrics that we used to purchase new containers in the same types of valuation methodology. It's just it's a compelling investment. And so, I think, if let's say, for example, our view on relative value of the company compared to the stock price changed, that could impact our pace of our buying as well as we see just more attractive organic growth opportunities, we could certainly shifts cash back from buybacks to investing into the business.

Michael Brown -- KBW -- Analyst

Okay, great. Thank you for taking my questions.

John C. Burns -- Chief Financial Officer

Thank you.

Operator

The next question comes from Helane Becker with Cowen. Please go ahead.

Helane Becker -- Cowen -- Analyst

Thanks very much, operator. Hi guys. Thank you very much for the time.

Just two questions here. One, what are you seeing in terms of used prices relative to new container prices? And I think you said $1,900 for new, which is maybe a little stronger than I would have expected in an environment where things may be a little weaker in the quarter, that seems to be inconsistent. So, how am I getting that wrong or misunderstood?

John C. Burns -- Chief Financial Officer

And so, maybe I'll start with the new container prices. I think we talked last quarter that we saw container prices at that time, which were, say, in the low $1,700 for a 20-foot container as being really exceptionally low relative to steel prices. And steel prices are down a little bit from where they were in 2018 when container prices were $2,100, $2,200 but not much different. Maybe they were low $600 per ton in 2018 and maybe they felt to mid-500s in the first quarter. Now they're back up to almost 600. So there's very little difference in the steel component.

What we've seen is there has been already a lot of compression on the margin over steel prices. That margin was probably close to its 12-year low, where we saw in the first quarter of this year and has come back some as container prices have moved back up toward $1,900. But still it's at the very low end of its historical range. And so, I think we are seeing the impact of not a lot of buying of new containers in the pricing already. And our view is that if normal levels of container demand return later this year that we'll see the container price increase further in terms of used container prices, used container prices have held up very well from the third quarter last year in the peak season through today. We've seen a little bit of decrease in use container prices, but not a lot. And so, that has meant that the relationship between used container prices has actually increased compared to new container prices, that percentage. And we think, partially, just reflects the fact that utilization remains very high for containers. And so there's not a lot of containers available for sale. And then secondly, my guess is that other share the expectation that we have, which is that new container prices are likely to go back up when we get toward the peak season. And so, just, sellers haven't felt the need to discount.

Helane Becker -- Cowen -- Analyst

Got you. That's very helpful. Thanks, Brian.

And then my other question is with respect to capital allocation. So if you did ABF, what would your borrowing rate be at? And borrowing on the perpetual preferred was 8.5% which I think seems high to me relative to what your balance sheet would normally support, and I'm just kind of wondering how you think about that from a capital allocation perspective, because you said you'd do more of it, but it seems like an expensive way to raise capital.

Brian M. Sondey -- Chairman & Chief Executive Officer

Yeah, so good question. So I'd say the first thing we look at the perpetual preferred stock, it feels and off we lot like equities to us not like debt. So, obviously, there is a regular payment on the perpetual preferred stock, but just like there is on our common stock. And just given the various features of the preferred and the fact that it doesn't have financial covenants that we can suspend the dividend without any, say, acceleration of the principal, obviously, we wouldn't want to do that and it would be great but we're reluctant to. But there's no, say, debt-like consequence to the company of doing that. And so, when we look at issuing preferred, we very much think of it as we're substituting for our common.

And so I think for the last couple of years we've been telling the story about our company, a very strong and stable equity cash flow we showed in our charts and I think in general we think that maybe that value of that cash flow hasn't been reflected in our common share price that we might expect. And so, to some extent we're going out and finding another class of equity investors that focus on cash flow and dividends. And to some extent, I think the issuance that we've done has been trading out a portion of our common shareholders that we've repurchased for these new preferred shareholders that seem to focus on the dividend and the cash flow.

Helane Becker -- Cowen -- Analyst

Okay.

Brian M. Sondey -- Chairman & Chief Executive Officer

And so, if we look at our overall cost of capital, we think it's a better mix of capital substituting preferred for a portion of our common effectively.

Helane Becker -- Cowen -- Analyst

Right, right. And then you use part of those proceeds to buy back stock. So the way to think about that is what, you're taking -- I'm trying to reconcile that 8.5% dividend with the other choice (inaudible)?

Brian M. Sondey -- Chairman & Chief Executive Officer

Right. So we think of it really as mostly as a common stock substitute where, probably, we use some of the preferred issuance for deleveraging as well. But the 8.5% dividend, the preferred compares to right now a 6% unchanged dividend yield on our common and plus, of course, the common stock, it's all the upside of business, which we continue to believe there is quite a bit of. And so, I think you should just think about it as we're paying a little bit of a higher current dividend on the preferred, relative to our common, but not that much more. And then on top of that, concentrating the upside for the remaining common holders.

Helane Becker -- Cowen -- Analyst

Great, that's very helpful. Thank you. And then just one like from a smart question to maybe a less-smart question. When I do my first quarter to second quarter, am I using 1.19 or 1.15 to build my model?

John C. Burns -- Chief Financial Officer

Oh, you mean in terms of those $0.04 per share of unusual items?

Helane Becker -- Cowen -- Analyst

Yeah.

John C. Burns -- Chief Financial Officer

Yeah. So we would encourage you think of it as 1.15 as the base comparative number for the first quarter. They weren't -- we don't like to make lots of adjustments to our adjusted numbers. We'd like to keep them relatively simple and straightforward. So we didn't take those range of small items out of the adjusted numbers, but we did point them out, I think just for the purpose, you mentioned that, that we don't think they're going to reoccur for the second quarter.

Helane Becker -- Cowen -- Analyst

Perfect. That's very helpful. Thank you.

Operator

The next question comes from Michael Webber far from Wells Fargo Securities, please ahead.

Michael Webber -- Wells Fargo Securities -- Analyst

Hey, good morning guys, how are you?

Brian M. Sondey -- Chairman & Chief Executive Officer

Good morning, Mike.

Michael Webber -- Wells Fargo Securities -- Analyst

Great. I just wanted to follow up on unrelated question. I think it's the first question on kind of used container prices and new kind of moving in opposite directions. And, Brian, if I could take a stab at maybe summarizing your answer and you can tell me if this is justifiable or not. But basically you're saying that there's just not a lot of liquidity in the secondhand market and ergo people are having this kind of rough the price to kind of tease out a bid for used containers?

Brian M. Sondey -- Chairman & Chief Executive Officer

No, no, sorry. I probably didn't say it so clearly. What we're saying is that there has been some decrease in used container prices from, say, the third quarter of 2018 to this year just due to the, typically, prices are pressured in a slower season as well as just, there is a connection between what happens to new container prices and used. And so the drop in new container prices has had some negative impact on used container sale prices. But that said, the drop in used container prices has been very low, where prices are not heavily changed from where they were last summer. And our view that has happened for two reasons. The first is just, there's not that many used containers to sell. Utilization for, I mean, our utilization is still well over 97%. We think that's true for all the leasing companies. We don't hear of any shipping lines that are pushing out large volumes of containers. They need the containers and their fleets. And so they're just not that much in the sale inventory. And so that helps keep price high.

And when I said the prices were up, it wasn't on an absolute basis for used containers. The ratio between used container prices and new container prices has increased, as new container prices are down, they were down 20% in the first quarter. They have come back some. Now down, say, roughly 10% from where they were last year where used price were down.

Michael Webber -- Wells Fargo Securities -- Analyst

Yeah. Yeah, I think that make sense especially when we're looking at like a used index relative to kind of like a nominal move and kind of absolute new pricing. All right. I think I can follow up offline too, just it kind of caught my eye as well.

In terms of, maybe, kind of, in terms of, I guess, the current competitive dynamics, I mean, you guys, it seems like there's less to do right now certainly year-over-year and you kind of pulled back on new purchases to focus on better relative deal in terms of buybacks and TCI. Do you think -- if you think about where your share was of Q1 business, how far under have underweight would you kind of put that? And do you think that's something that may be -- do you think that's something that we'll see, we'll just see more of an even distribution in terms of this participating in new business in Q1 as people with addition of kind of other options and kind of exercise those because returns might not be there?

Brian M. Sondey -- Chairman & Chief Executive Officer

Yes, so, I think, first of all, we don't really think of our market share on a quarter-by-quarter basis.

Michael Webber -- Wells Fargo Securities -- Analyst

Yeah, I know.

Brian M. Sondey -- Chairman & Chief Executive Officer

If you look back over the last two years, we've invested something like $3.2 billion in our container fleet, added over a million TEU over that time frame and probably had a market share close to 40% or more of the deals that were out there. So we are, to some extent, in a good position where we can afford to be -- afford to be patient, because we've certainly built up our fleet and supported our customers way above our sort of overall share for the last couple of years.

And so we look at the first quarter and it was a combination of relatively limited demand because just the fourth quarter typically is seasonal and we also think for some of the maybe increased caution by our customers of loading up capacity ahead of the peak, because of the ongoing trade noise. And then there are certainly several competitors that maybe didn't participate as much in 2017 and '18 that want to get on the board and get some business going.

Michael Webber -- Wells Fargo Securities -- Analyst

Yeah.

Brian M. Sondey -- Chairman & Chief Executive Officer

And as I mentioned, we looked at the returns, they weren't -- you wouldn't say that they're crazy or irrational competitors, but they were just, to us, certainly down from where our investment returns were in 2017 and '18 and it's just a time of year where it's just --

Michael Webber -- Wells Fargo Securities -- Analyst

Yeah.

Brian M. Sondey -- Chairman & Chief Executive Officer

In our view, it doesn't make sense to feel you need to push into the market. And our real strength is when shipping lines requirements are larger, when they're more time sensitive, when the operating and capacity, we can, operating capabilities and capacity we bring to them are valuable. And so our sense is we just kind of kept our investment powder dry to some extent so far this year.

Michael Webber -- Wells Fargo Securities -- Analyst

Yes.

Brian M. Sondey -- Chairman & Chief Executive Officer

But then also, from the CapEx standpoint, but also had really great opportunities to invest into the existing business in our stock and our -- that portfolio purchase that we mentioned.

Michael Webber -- Wells Fargo Securities -- Analyst

Yeah, that makes sense. It's a small number anyway in terms of Q1 business. Maybe along those line, you kind of mentioned either one of your earlier answers, I guess, kind of in around macro dynamics and global container trade, despite, I guess, the pull forward in volumes we saw in Q4, that the operating results for most of your customers wouldn't necessarily reflect the fact that they've seen a significant bump in volumes and still seems pretty challenged. Is there -- can you even talk a bit about what you're seeing from a credit perspective, how has your mix changed and do you kind of look at, I guess, how has your view of credit risk in 2019 changed kind of over the last six to nine months of these companies? Are the lines proving to be more resilient than maybe we would have thought or they're kind of deeper pockets of concern as you start -- as you see some the profitability figures from maybe the Japanese or elsewhere? Japanese may be a bad example.

Brian M. Sondey -- Chairman & Chief Executive Officer

I think -- sure, sure. So, I mean, I think in general, I don't think our view of credit has changed that much. I think the industry, that the shipping lines themselves still suffer from continued excess vessel capacity. And just given the economics of the newer, bigger vessels, I think the general expectation is that that overhang of capacity is likely to last for some time. Just when I look at the freight rates in the market, it does seem the shipping lines have made some progress at pushing rates off of the lows of where they were in 2018 and, hopefully, that coupled with some moderate trade growth in 2019 will give a lift to their financial performance. And, at least, what we hear in the market is that their -- the rate negotiations for the lines this year have gone OK for them. But I wouldn't say we -- as would say, they're out of the woods. There's been some dramatic change in the dynamics of the shipping business. I think it's still -- there's a variety of factors that challenge it.

In terms of our credit opinion, one thing we probably talked a lot about in the last year or two is just the consolidation of our customer base and the fact that something like 75% or so of capacity is now made up by the top six or seven shipping lines and that each of those shipping lines is large enough that their capacity is basically needed to move the cargo around the world, and that, given that our view is just the likelihood of the kind of defaults that hit us which are the kind of sudden ramp down of a company's performance, the kind of Chapter 7-style liquidation is much less likely for the vast majority of capacity out there. And I think as we've seen for many, many years, these are big companies, they're resilient, many of them get support from either governments or bigger industrial partners, and again, they go off that same mix of factors that's been out there for a while is what we see today.

Michael Webber -- Wells Fargo Securities -- Analyst

Okay, I appreciate the time, guys. Thanks.

Brian M. Sondey -- Chairman & Chief Executive Officer

Yeah. Thanks, Mike.

Operator

The next question comes from Ken Hoexter of Bank of America Merrill Lynch. Please go ahead.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hey, great. Good morning. Brian or John, in the guide, I just want understand what's leading the decline in the second quarter and then your expectations for the rebound in the second half?

John C. Burns -- Chief Financial Officer

Yeah, so for the second quarter, it's a little unusual for us. Typically, we see the first quarter as our weakest quarter financially and then it builds from there. And I think a couple of things have happened. So one, just the first quarter was boosted by some one-time items that we described, those for $0.4 or so of EPS. Yeah, they made the first quarter a little bit better. And then, I think, the other thing that, it's not like highly unusual, but I'd say it's probably not average either is that we do expect a decrease in our average utilization from the first quarter to the second quarter. Just given the way that utilization decreased throughout the first quarter, pickups haven't yet really accelerated toward kind of peak season levels. We do think that's going to happen and we think there will be an inflection in our utilization during the quarter, where it will start to go up during the second quarter. But average utilization is likely to be lower second quarter compared to first quarter.

And then finally that we pointed it out in the press release and into my comments, that we had a large number of containers, one of our big customers, where we transferred them from a short-term lease with relatively high per diem rates to a long-term lease with lower kind of long-term base per diem rates, and that does have an effect on near-term lease revenue and profitability on those containers. But again, just the long-term structure, we think has a attractive lifetime value. And it was a transaction that made sense for both us and the customer.

So we don't think it's -- that's not -- we didn't mean to give any concerns that the second quarter is going to be a bad quarter. But it's just likely going to be down from the first quarter and then we think we'll see then the typical trajectory up from the second quarter to the third, to the fourth.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

So that's helpful, but maybe if we could just keep going on that. So, I mean, it seems like things are progressing well or -- and your outlook improves. But you talked about the buildup in Asia and China of assets, when do you or how do you figure out or get nervous that that's a buildup of assets versus just seasonality? Is there any other data point you look at or is it just the discussions with customers to get a feel that, hey, this is more than seasonality or, hey, no worries this is normal trajectory and we'll see the rebound?

Brian M. Sondey -- Chairman & Chief Executive Officer

Yeah, I think it's a mix of things that we look at. So certainly we always look, probably, first and foremost just the activity in the business, how to, pickups and drop-offs around the world with all of our customers compared to what we might expect for this time of year. And we then couple that with what we're hearing from our customers about their outlooks and what we're hearing about the economy just broadly to form a view on demand. And then in terms of looking at supply, we just look at how many containers are available in the factories and depots and that just gives us a general sense for what we think about overall supply and demand dynamics.

I'd say, this year, went to -- we feel pretty good about where supply is right now, that there's just over 2% of the world fleet of containers available in the factories, which is, it's probably maybe a little bit lower than average this time of year, heading into the peak season and I think reflecting some caution by the shipping lines because of the trade uncertainty and some caution by lease companies due to the slower, I guess, the slow pace of pickups in the first quarter.

We then look at our depot inventories and we probably -- we have a fleet of now 6 million TEU containers or a little more than that and we've got 100,000 in depot in Asia, which is our key export market, of course, and again, that feels very well controlled. And so, I think, what we've just tried to say is we've got -- feel OK about demand, just given what we're hearing from our customers and about expectations for trade growth. We feel good about supply and that makes us feel like it should be a reasonably successful year.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

One last one from me, if I may. Just, you kind of mentioned the term irrational competitors a few times through it and you said you don't feel like they're being irrational but using that term as many times as you did, I just want to get your feel there, is that something you feel is creeping in more and more as competitors maybe need to stay? You mentioned kind of they need to stay in the game or they had been out of the game and they need to come back in the game, is that something that gives you pause as we move deeper into this cycle?

Brian M. Sondey -- Chairman & Chief Executive Officer

It's funny, I think, it mainly is that we were on this time last year, we talked about increased competition and that we saw a lot of notes talking about irrational competitors. And so, maybe we're trying to clumsily get ahead of the fact that we -- people might say that if we just talk about competitors being more aggressive. And so, we do see there's more competitors that are active in the marketplace but it's down from a few years ago due to all the consolidations. And, again, we don't look at the activity of the competitors and say we can't understand what they're doing. We do. And a number of the deals that we walked away from, we probably could have justified. It was just that we saw other investments being more interesting and again just given how much we've invested in the fleet over the last couple of years, we didn't feel that we were compelled to participate in everything.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

All right, Great. Thanks, Brian. Appreciate the thoughts. Thanks, John.

John C. Burns -- Chief Financial Officer

Thanks, Ken.

Operator

(Operator Instructions). This concludes our question-and-answer session. I would like to turn the conference back over to Brian Sondey for any closing remarks.

Brian M. Sondey -- Chairman & Chief Executive Officer

Thank you. Just like to thank everyone for your continued interest and support of Triton and we look forward to talking with you soon. Thank you.

Operator

The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 48 minutes

Call participants:

John C. Burns -- Chief Financial Officer

Brian M. Sondey -- Chairman & Chief Executive Officer

John O'Callaghan -- EVP, Global Head of Field Marketing and Operations

Scott Valentin -- Compass Point Research & Trading, LLC -- Analyst

Michael Brown -- KBW -- Analyst

Helane Becker -- Cowen -- Analyst

Michael Webber -- Wells Fargo Securities -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

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