Wednesday, November 01, 2017

New railcar sales off at builder ARI

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Weaker demand and lower lease rates weighed on American Railcar Industries results in the fiscal third quarter, as a challenging market hit sales of new cars.

The builder, headquartered in St. Charles, Mo., said consolidated revenues of $120.7 million dropped 17% from the year-ago period. It cited decreased revenues in the manufacturing segment, partially offset by increased revenues in the railcar leasing and railcar services segments. Revenue from manufacturing fell 27% to $68.4 million, excluding $33.3 million of revenues related to cars built for the ARI’s lease fleet, up from $31.3 a year ago.

Leasing revenues were $33.4 million, up 2% from $32.8 million on a fleet that grew 2% to 12,749 from 10,961 railcars a year ago, partially offset by lower lease rates.

Revenue from services totaled $18.9 million, up narrowly from $18.6 million, on increased demand and additional capacity from its mobile repair operations, as well as work performed at its tank car manufacturing facility. This was partly offset by decreased demand for tank car qualifications and exterior paint and interior linings.

Net earnings in the quarter were $8.9 million, or 46 cents per share compared to $7.7 million, or 40 cents per share, in the same period in 2016. The increase was driven largely by the prior-period impact of a loss contingency related to the Federal Railroad Administration’s Revised Directive issued in 2016 for non-conforming welds on DOT-111 tank cars built by ARI. The company saw lower earnings from operations and joint ventures due to weaker demand.

"While we continue to adapt to the challenging and competitive conditions in today's railcar market, we remain committed to manufacturing quality hopper and tank railcars and to maintaining a disciplined approach to navigating the competitive environment that comes along with downturns in the railcar industry,” said Jeff Hollister, president and chief executive. He expected cash generated by ARI’s lease fleet and newly-transitioned in-house lease management would help the builder weather the cycles of the new car market.

The company delivered fewer railcar shipments for direct sale in the hopper and tank segments, with more cars going to the lease fleet, as well as more competitive pricing, from 3Q2016. ARI shipped 618 railcars for direct sale and 338 railcars for lease compared to 855 railcars for direct sale and 322 railcars for lease a year ago. Railcars built for the lease fleet represented 35% of shipments, up from 27%, but closer to ARI’s historical average than in the first half of 2017. Revenues related to railcars built for the lease fleet increased due to a slightly higher volume of railcars shipped for lease.

The FRA directive spurred more intercompany repair work for the lease fleet.

The backlog as of Sept. 30 was 2,683 cars with an estimated market value of $248 million. Of that, ARI expects 657 cars to go to its lease fleet.

 

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