ARI reports second quarter results

American Railcar Industries, Inc. (ARI) reported in the second quarter 2016, decreased revenues in the manufacturing segment were partially offset by increased revenues in the railcar leasing and railcar services segments. Total consolidated revenues were $150.5 million for the second quarter of 2016, a decrease of 22% when compared to $192.0 million for the same period in 2015.

Manufacturing revenues were $97.5 million for the second quarter of 2016, a decrease of 32% compared to the same period in 2015. This decrease was primarily driven by fewer railcar shipments for direct sale with a higher mix of hopper railcars sold, which generally have lower average selling prices than tank railcars due to less material and labor content, and more competitive pricing on both hopper and tank railcars. Given the decrease in tank railcar demand and a shift in production to a larger mix of specialty railcars, both hopper and tank railcar shipments have decreased. During the second quarter of 2016, ARI shipped 932 direct sale railcars and 85 railcars built for the Company’s lease fleet compared to 1,378 direct sale railcars and 1,019 railcars built for the lease fleet during the same period in 2015. Railcars built for the lease fleet represented 8% of ARI’s railcar shipments during the second quarter of 2016 compared to 43% for the same period in 2015. Because revenues and earnings related to leased railcars are recognized over the life of the lease, ARI’s quarterly results may vary depending on the mix of lease versus direct sale railcars that the Company ships during a given period.

Manufacturing revenues for the second quarter of 2016 exclude $9.3 million of estimated revenues related to railcars built for the Company’s lease fleet compared to $123.7 million for the same period in 2015. Estimated revenues related to railcars built for the Company’s lease fleet decreased due to a lower quantity of railcars shipped for lease. Such revenues are based on an estimated fair market value of the leased railcars as if they had been sold to a third party, and are not recognized in consolidated revenues as railcar sales. Rather lease revenues are recognized in accordance with the terms of the contract over the life of the lease.

Railcar leasing revenues were $33.2 million for the second quarter of 2016, an increase of 18% over the $28.2 million for the comparable period in 2015. The primary reason for the increase in revenue was an increase in the number of railcars on lease. ARI had 10,641 railcars in its lease fleet as of June 30, 2016 compared to 9,399 railcars as of June 30, 2015.

Railcar services revenues were $19.7 million for the second quarter of 2016, an increase of 2% compared to $19.3 million for the same period in 2015. The primary reasons for the increase in revenue were an increase in demand and the additional capacity resulting from the Company’s expansion projects that continue to ramp up in 2016.

Jeff Hollister, President and CEO of ARI, commented, “We remain disciplined in executing our business strategy by maintaining our focus on efficiently manufacturing quality hopper and tank railcars, while supporting the growth of our railcar leasing and railcar services segments. We believe our Company is prepared to face the headwinds the industry is experiencing following record high demand for railcars over the last couple of years. Our experienced management team and employees are accustomed to the cyclical nature of the industry, and we remain close to our customers, adapting our business to meet their ever-evolving needs. Here at ARI, we continue to evaluate and act on opportunities to reduce costs and further enhance our business strategy, such as strategically adding railcars to our lease fleet and supporting capital projects that are expected to further increase the capabilities of our repair network, both of which are made possible by the strength of our balance sheet, strong earnings from operations, positive cash flow and availability under our revolving credit facility.”

Consolidated earnings from operations were $36.0 million for the second quarter of 2016, a decrease of 35% from the $55.3 million for the same period in 2015. Consolidated operating margins decreased to 23.9% for the second quarter of 2016 compared to 28.8% for the same period in 2015. These decreases were primarily driven by lower earnings from operations in the Company’s manufacturing segment partially offset by the growth of the Company’s lease fleet.

Manufacturing earnings from operations were $14.4 million for the second quarter of 2016 compared to $34.7 million for the same period in 2015. This decrease was due primarily to fewer direct sale shipments, as discussed above, more competitive pricing on both hopper and tank railcars and higher costs associated with the lower production rates at our tank railcar facility. Estimated profit on railcars built for the Company’s lease fleet was $1.1 million and $35.2 million for the second quarter of 2016 and 2015, respectively, and is excluded from manufacturing earnings from operations. Profit on railcars built for the Company’s lease fleet is based on an estimated fair market value of revenues as if the railcars had been sold to a third party, less the cost to manufacture.

Railcar leasing earnings from operations were $22.9 million for the second quarter of 2016 compared to $19.1 million for the same period in 2015. This increase was due to the growth in the number of railcars in the Company’s lease fleet.

Railcar services earnings from operations were $3.1 million for the second quarter of 2016 compared to $3.9 million for the same period in 2015. This decrease was primarily due to costs associated with the ramp up of operations at our recently completed expansion projects as well as higher depreciation expenses and additional administrative support expenses to foster growth of this segment.

Selling, general and administrative expenses were $7.3 million for the second quarter of 2016 compared to $5.3 million for the same period in 2015. This $2.0 million increase was due primarily to lower consulting expense in the second quarter of 2015 as well as higher depreciation related to the Company’s new enterprise resource planning system in 2016.

Net earnings for the second quarter of 2016 were $19.9 million, or $1.02 per share compared to $33.0 million, or $1.54 per share, in the same period in 2015. This decrease was driven primarily by decreased consolidated earnings from operations, as discussed above.

EBITDA, adjusted to exclude share-based compensation expense (Adjusted EBITDA), was $50.4 million for the second quarter of 2016 compared to $68.5 million for the comparable quarter of 2015. The decrease resulted primarily from decreased earnings from operations as discussed above. A reconciliation of the Company’s net earnings to EBITDA and Adjusted EBITDA (both non-GAAP financial measures) is set forth in the supplemental disclosure attached to this press release.

Year-to-Date Results:

Consolidated revenues for the first six months of 2016 were $326.7 million compared to $455.8 million for the comparable period in 2015. The Company shipped 2,062 direct sale railcars and 285 railcars built for the Company’s lease fleet during the first six months of 2016 compared to 3,395 direct sale railcars and 1,670 railcars built for the lease fleet during the same period in 2015. Railcars built for the lease fleet represented 12% of ARI’s railcar shipments in the first six months of 2016 compared to 33% for the same period in 2015.

Consolidated earnings from operations for the first six months of 2016 were $76.7 million, a decrease of 33% from $115.3 million for the comparable period in 2015. Consolidated earnings from operations for the first six months of 2016 and 2015 excluded $4.5 million and $60.9 million, respectively, of profit on railcars built for the lease fleet that is eliminated in consolidation. Operating margins were 23.5% for the first six months of 2016 compared to 25.3% for the same period of 2015. These decreases were primarily due to fewer direct sale shipments, as discussed above, more competitive pricing on both hopper and tank railcars and higher costs associated with the lower production rates at our tank railcar facility, partially offset by increased earnings due to the growth in the lease fleet.

Net earnings for the first six months of 2016 were $42.7 million, or $2.18 per share compared to $67.9 million, or $3.18 per share, for the comparable period in 2015, due to decreased earnings from operations and a reduction of $1.0 million from earnings from joint ventures as demand is tied to the industry’s new railcar demand.

Adjusted EBITDA was $104.9 million for the first six months of 2016, a decrease of $35.5 million from $140.5 million for the comparable period in 2015. The decrease resulted primarily from decreased consolidated earnings from operations, in addition to a reduction of earnings from joint ventures for the first six months of 2016 compared to the same period in 2015.