Thursday, January 23, 2014

GATX 4Q13 earnings beat Street

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Chicago-based GATX Corp. on Thursday, Jan. 23, 2014 reported fourth-quarter 2013 earnings of $53.3 million, or $1.14 per diluted share, compared with net income of $29.7 million, or 62 cents per diluted share, in the fourth quarter of 2012. That handily beat Wall Street consensus analyst estimates of 93 cents.

Revenue of $356.6 million was up 7.5% from the comparable quarter in 2012, also surpassing estimates.

"The variance in gross profit relative to our model was driven by a positive $13 million in North American Rail, which we think resulted from railcar sales, increasingly strong embedded pricing, and good expense controls," Steve Barger, analyst at KeyBanc Capital Markets, Inc., told investors in a note Thursday.

Said GATX President and CEO Brian A. Kenney, "During 2013, we capitalized on the exceptionally strong demand for tank cars in North America by locking in historically high lease rates for very long terms. This strategy caused a positive 34.5% renewal rate change in GATX's Lease Price Index ("LPI") for full-year 2013, while the average renewal term for cars in the LPI was 62 months. We achieved these results despite the challenging freight car market, as weakness in demand persisted for certain freight car types such as coal."

Kenney added, "Fleet utilization was approximately 98% throughout the year, and our renewal success rate was just over 80%. We grew the North American fleet with railcar investment of over $500 million through select opportunities to purchase railcars in addition to investments made under our existing supply agreement. We also optimized our fleet by selling targeted car types, and in the process generated more than $50 million in asset remarketing income. As we expected entering 2013, compliance-related maintenance activity increased in North America, driving maintenance expense higher by 13% from 2012. "

The CEO also noted GATX Rail Europe "performed well in 2013's weaker European railcar leasing market by scrapping older, less efficient tank cars and replacing them with newly built cars, which resulted in reduced maintenance expense as well as increased utilization of 96.8% at year end. GRE's 2013 investment volume exceeded $160 million."

GATX offered fiscal year 2014 guidance of $3.85-to-$4.05 a share, which Barger said "assumes higher segment profit in the North American Rail segment, a slight increase in GRE's segment profit, higher shipping volume at ASC to offset lower remarketing income at Portfolio Management, and higher maintenance expense."

The company's North American Rail group "continued to experience a strong leasing environment as evidenced by the Lease Price Index, which came in at 37.1% (vs. 34.3% in 3Q13 and 32.3% in 4Q12). This is the best LPI performance ever, besting the prior high of 36.0% in 2Q13," KeyBanc's Barger said, adding, "In our view, this data point . . . supports the notion that the railcar leasing market remains attractive. "