ARI 3Q revenue slips, but backlog grows

American Railcar Industries, Inc. (ARI) reported a drop in third-quarter revenue 2014 relative to the comparable period in 2013. St. Charles, Mo.-based ARI announced its results late Wednesday, Oct. 29, 2014, following the closing bell on Wall Street.

Total consolidated revenue for the quarter was $162.8 million, “a decrease of 18% when compared to $198.9 million for the same period in 2013,” ARI said. “This decrease was primarily driven by decreased manufacturing revenues due to a higher mix of railcars shipped for the company’s lease fleet relative to direct sale shipments. 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.”

Despite the decline, ARI President and CEO Jeff Hollister was upbeat, saying in a statement, “In the third quarter of 2014, we experienced another quarter of increasing backlog, which included orders for both hopper and tank railcars. As of September 30, 2014, our new railcar backlog reached its highest point since December 2007 at 11,418 railcars.

“We continue to be strategic in our selection of orders for railcars that will be added to our lease fleet versus direct sale,” Hollister said. Our ability to sustain high production volumes at our tank railcar facility, effectively ramp up production at our hopper railcar facility, and improve efficiencies at other facilities contributed to our strong results. We believe our production processes to be very efficient at producing high quality railcars, which has yielded increasing consolidated operating margins throughout 2014.”

In a note to clients late Wednesday, KeyBanc Capital Markets Inc. analyst Steve Barger noted that the company “delivered a total of 2,151 railcars, including 1,034 direct sale cars and 1,117 railcars built for the lease fleet (vs. our expectation of 1,200 direct sale cars and 1,150 cars for the lease fleet).” Barger added, “At quarter end, ARII’s backlog stands at 11,418 railcars, which we estimate provides about five quarters of production visibility at current rates. “

Echoing ARI’s comments on earnings, Barger cautioned, “We remind investors that quarterly results can be difficult to model because of variability in direct sale vs. lease mix, as revenue and earnings related to leased railcars are recognized over the life of the lease.”