Thursday, October 31, 2013

For Greenbrier, record fourth-quarter earnings

Written by  William C. Vantuono, Editor-in-Chief
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The Greenbrier Companies, Inc. financial results for its fourth quarter and fiscal year ended Aug. 31, 2013 included record net quarterly earnings, and a railcar backlog of 14,400 units worth $1.52 billion.

Net earnings for the quarter were a record $22.5 million, or $0.69 per diluted share, excluding restructuring charges of $1.8 million, on revenue of $484.2 million. “Economic” EPS was $0.79, which excludes the impact of out-of-the-money shares underlying the company’s 3.5% convertible bonds. Net earnings attributable to Greenbrier, including restructuring charges, for the quarter were $20.7 million, or $0.64 per diluted share. Adjusted EBITDA for the quarter was $49.5 million or 10.2% of revenue, a record.

Greenbrier’s new railcar backlog as of Aug. 31, 2013 was 14,400 units with an estimated value of $1.52 billion (average unit sale price of $106,000), compared to 14,200 units with an estimated value of $1.57 billion (average unit sales price of $111,000) on May 31, 2013. New railcar deliveries totaled 3,500 units for the quarter; orders for 3,400 new railcars were received during the quarter. Subsequent to the quarter’s end, Greenbrier received orders for another 1,700 units valued at approximately $140 million. The company entered into several new long-term railcar maintenance agreements, including a multiyear transaction with CIT Rail.

In FY 2013, net earnings, excluding goodwill impairment and restructuring charges, were $62.5 million, or $2.00 per diluted share, on revenue of $1.76 billion—a record. Goodwill impairment and restructuring charges of $73.6 million net of tax, or $2.41 per diluted share, related to the Wheels, Repair & Parts segment, led to a net loss attributable to Greenbrier of $11.0 million, or $0.41 per share. Adjusted EBITDA was $157.2 million or 9.0% of revenue, just under the 2012 record of $158.3 million. Greenbrier delivered 11,600 new railcars in FY 2013; orders for the year totaled 14,800 units valued at $1.41 billion across a broad range of railcar types. An initial order for Greenbrier’s new plastic pellet car was received along with orders for nearly 3,000 units of automotive-related products, including Multi-Max™ and Auto-Max®. Cash from operating activities was $105 million, and Greenbrier’s proprietary automotive-related product, the Multi-Max, was successfully launched.

Greenbrier said that it “substantially met a $100 million minimum capital efficiency goal originally scheduled to be met by February 2014; management continues to focus on capital liberation. Overall gross margins in the fourth quarter improved by 100 basis points, halfway to our fourth-quarter 2014 minimum goal of an improvement of at least 200 basis points. We closed or sold four underperforming or non-core facilities in our Wheels, Repair & Parts segment; three additional facilities will be closed or sold by the end of calendar year 2013.”

Greenbrier believes its “diverse product mix and integrated business model places the company in a superior position during the current railcar cycle as overall transportation dynamics continue to improve. Based on current business trends and industry forecasts, in 2014, we believe our deliveries will exceed 15,000 units, revenue will exceed $2 billion, and EPS, excluding restructuring charges, will be in the range of $2.45 to $2.70. Similar to previous years, financial results in the second half of 2014 are expected to be stronger than the first half. Also, while gross margins are expected to increase overall, management does not believe its track will be linear.” Beginning next quarter, Greenbrier will disclose its segment operating income.

“Our business performed well in 2013, notwithstanding weak markets for certain products such as doublestack intermodal cars and marine barges, as well as other events, such as a low grain harvest due to drought,” said Greenbrier President and CEO William A. Furman. “We hit our stride in Manufacturing, improved our Leasing model, and took initial steps to address difficult conditions in our Wheels, Repair & Parts unit in order to achieve a record fourth quarter. In addition, we made meaningful progress on our previously announced strategic initiatives to enhance margins and liberate capital, which will grow return on invested capital and enhance shareholder value.

“In Manufacturing, where we are improving margins, we continue to ramp tank car production for this high margin product and are approaching our goal of producing 16 units a day to meet strong demand. While we continue to benefit from participation in the energy markets, we remain focused on product diversification. This is reflected by the broad range of railcar types in our backlog. More than half of our new railcar orders during the year were for non-energy uses, and in the fourth quarter, 22% of orders were for automotive-related products, including Multi-Max, our proprietary railcar featuring adjustable decks.

“Our Leasing & Services business continues to deliver enhanced performance within our integrated business model. Through refinements to our leasing model, we are steadily increasing transaction volumes through lease syndication and asset management. We are also reducing the permanent capital invested in this business, and increasing fee income. In the fourth quarter, we realized proceeds of nearly $35 million from the sale of assets from our lease fleet, while retaining management of these assets. In the first quarter of 2014, we will continue this trend through the sale of additional lease fleet assets that we will continue to manage. Going forward, we will make further refinements to this business.

“Improvements in operational efficiencies and margins in our Wheels, Repair & Parts segment represent a clear opportunity in 2014. We closed or sold four locations in 2013 and plan to close several more. The remaining underperforming facilities are implementing operational improvements, and we have negotiated more balanced commercial terms with select business partners. While fourth quarter results for this segment do not yet reflect these efforts, we expect to demonstrate better results in 2014. Overall, we are on-track to liberate $25 million of capital from this segment.

“The decisive actions we took to strengthen our operational performance and business strategy in 2012 and 2013 position us for growth in 2014. We have substantially met our capital efficiency goal of liberating at least $100 million of capital by February 2014, with more to come, and we are on track to improve gross margins to at least 13.5% by the fourth quarter of 2014.”

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