Thursday, July 31, 2014

Tanks, hoppers drive ARI record 2Q 2014 financials

Written by  William C. Vantuono, Editor-in-Chief
Based largely on an increase in demand for its tank cars and hopper cars, American Railcar Industries, Inc. (ARI) on July 30, 2014 reported record earnings and revenues for second-quarter 2014.

During the quarter, we received orders for 3,070 railcars, resulting in a backlog as of June 30, 2014 of approximately 9,530 railcars with an estimated value of $985.7 million,” said ARI President and Interim CEO Jeff Hollister. “Of the total backlog, approximately 2,700, or 28%, were railcars subject to lease with an estimated market value of $322.5 million. Additionally, we have accepted orders for an additional 3,450 railcars during the month of July, consisting of both hopper and tank cars.

ARI’s total consolidated revenues were $237.5 million for the second quarter of 2014, a new quarterly record and an increase of 49% when compared to $159.4 million for the same period in 2013. “This increase was primarily driven by increased manufacturing revenues due to a higher mix of direct sale shipments relative to railcars shipped for the company’s lease fleet,” ARI said.

ARI’s 2Q 2014 manufacturing revenues were $206.4 million, an increase of $74.2 million, or 64%, compared to the same period in 2013. During this period, ARI shipped approximately 1,670 direct sale railcars and approximately 470 railcars built for the company's lease fleet, compared to approximately 930 direct sale railcars and approximately 380 railcars built for the lease fleet during the same period in 2013. Railcars built for the lease fleet represented 22% of ARI's railcar shipments during the second quarter of 2014 compared to 29% for the same period in 2013.

ARI’s railcar leasing revenues were $13.9 million for the second quarter of 2014, an increase of 85% over the $7.5 million for the comparable period in 2013. The primary reasons for the increase in revenue were an increase in the number of railcars on lease and higher average lease rates. ARI had approximately 5,390 railcars in its lease fleet as of June 30, 2014, compared to approximately 3,500 railcars as of June 30, 2013.

Railcar services revenues for the second quarter of 2014 were $17.3 million. Revenue decreased from $19.6 million for the same period in 2013 due to certain repair projects being performed at the company's hopper car manufacturing facility during the second quarter of 2013 that did not continue into 2014. “Production of hopper cars has ramped up due to increased demand, thus repair projects are no longer being performed at this facility,” ARI said.

Consolidated earnings from operations were $51.9 million for the second quarter of 2014, a new quarterly record and an increase of 30% over the $39.9 million for the same period in 2013, “primarily due to a significant increase in direct sale railcar shipments compared to the same period in 2013,” ARI said. “Earnings continue to benefit from strong sales of tank cars and a strengthening hopper car market.”

Manufacturing earnings from operations were $44.6 million for the second quarter of 2014 compared to $32.8 million for the same period in 2013. Estimated profit on railcars built for the company’s lease fleet was $19.6 million and $10.1 million for the second quarter of 2014 and 2013, respectively

Railcar leasing earnings from operations were $7.4 million for the second quarter of 2014 compared to $3.6 million for the same period in 2013. Railcar services earnings from operations were $3.1 million for the second quarter of 2014 compared to $4.1 million for the same period in 2013.

ARI’s net earnings for the second quarter of 2014 were $32.2 million, or $1.51 per share, a new quarterly record, compared to $23.6 million, or $1.11 per share, in the same period in 2013.

For the first six months of 2014, ARI’s consolidated revenues were $419.6 million, compared to $354.5 million for the comparable period in 2013. Consolidated earnings from operations were $88.4 million, up by 24% from $71.1 million for the comparable period in 2013. Net earnings for the first six months of 2014 were $53.0 million, or $2.48 per share, compared to $41.6 million, or $1.95, for the comparable period in 2013.

“During the second quarter, we were able to efficiently ramp up production to meet increased demand for hopper cars and continued to have high deliveries of tank cars,” said Hollister. “ factors, coupled with a high mix of railcars manufactured for direct sale, generated new quarterly records for ARI, for both revenue and earnings. To further diversify our business, we remain committed to the growth of our lease fleet, and are evaluating opportunities within our repair network to increase capacity or expand to new locations to meet increasing demand for retrofits, tank certifications, and railcar maintenance. Our new Brookhaven, Miss., repair plant is complete and will be operational during the third quarter of 2014, thus expanding our capacity for repair projects. Additionally, we are planning to begin expansion work on two of our existing repair plants later this year.”

STB sets 2013 railroad cost of capital at 11.32% The Surface Transportation Board on July 31, 2014 issued its decision calculating the railroad industry’s after-tax cost of capital for 2013 as 11.32%, a slight increase over 2012’s 11.12%. The cost-of-capital figure represents STB’s estimate of the average rate of return needed to persuade investors to provide capital to the freight rail industry.

STB found that, for 2013, the cost of railroad long-term debt was 3.68%; the cost of common equity was 12.96%; the cost of preferred equity was 3.87%; and the capital structure mix of railroads was 17.69% long-term debt, 82.31% common equity, and 0.004% preferred equity. These figures are used in determining the cost-of-capital figure.

Calculated annually, the cost-of-capital figure “is an essential component of many of the agency’s core regulatory responsibilities,” STB said. “The Board uses the cost-of-capital figure in evaluating the adequacy of individual railroads’ revenues each year. It also uses the figure when determining the reasonableness of a challenged rail rate, considering a proposal to abandon a rail line, or valuing a particular railroad operation.”

STB’s full decision in Docket No. EP 558 (Sub-No. 17) may be viewed and downloaded at the Board’s website, www.stb.dot.gov, under “E-LIBRARY / Decisions & Notices / 07/31/2014.” http://www.stb.dot.gov/decisions/readingroom.nsf/WebDecisionID/43880?OpenDocument