For GATX, 1Q24 Demand ‘Solid,’ 2024 Guidance ‘Unchanged’ (UPDATED, TD Cowen Insight)
Written by Marybeth Luczak, Executive Editor
“As the year is progressing in line with our original expectations, our 2024 full-year earnings estimate remains unchanged at $7.30-$7.70 per diluted share, excluding the impact of Tax Adjustments and Other Items,” GATX President and CEO Robert C. Lyons said April 23. (GATX Photograph)
“We continue to experience solid demand globally for most railcar types in our fleets,” GATX President and CEO Robert C. Lyons said during a first-quarter 2024 financial report. “At Rail North America, fleet utilization remained high at 99.4% at the end of the first quarter and the renewal success rate during the quarter was very strong at 83.4%.”
“The renewal lease rate change of GATX’s Lease Price Index was positive 33%, with an average renewal term of 64 months,” Lyons said April 23. “In the first quarter, we generated remarketing income of $33 million, reflecting continued depth and strength in the secondary market.”
For the Chicago-based railcar lessor, net income for the three-months ended March 31, 2024, came in at $74.3 million, or $2.03 per diluted share, compared with net income of $77.4 million, or $2.16 per diluted share, in the prior-year period. The first-quarter 2024 results included a net positive impact of $0.6 million, or $0.02 per diluted share, from Tax Adjustments and Other Items, according to GATX, which also noted that first-quarter 2023 results included a net negative impact of $1.3 million, or $0.04 per diluted share, from Tax Adjustments and Other Items.
RAIL NORTH AMERICA
Profit at GATX’s Rail North America segment was $90.3 million in first-quarter 2024, vs. $95.2 million in the prior-year period. The lower profit was “primarily driven by lower gains on asset dispositions and higher interest expense, partially offset by higher lease revenue,” the lessor said.
As of March 31, Rail North America’s wholly owned fleet totaled approximately 111,400 cars, including 9,670 boxcars. The following fleet statistics and performance discussion exclude the boxcar fleet. Fleet utilization came in at 99.4% at the end of the first quarter, compared with 99.3% at the end of the prior quarter and 99.3% at the end of first-quarter 2023. During first-quarter 2024, the GATX Lease Price Index (LPI)—a weighted-average lease renewal rate for a group of railcars representative of Rail North America’s fleet—was positive 33.0%. This compares to an LPI of positive 33.5% in the prior quarter and positive 28.3% in first-quarter 2023. The average lease renewal term for all cars included in the LPI during the first quarter was 64 months, vs. 65 months in the prior quarter and 55 months in first-quarter 2023. The first-quarter 2024 renewal success rate was 83.4%, compared with 87.1% in the prior quarter and 77.9% in first-quarter 2023. Rail North America’s investment volume during first-quarter 2024 was $321.7 million.
RAIL INTERNATIONAL
Profit at GATX’s Rail International segment was $28.8 million in first-quarter 2024, compared with $23.5 million in the prior-year period. The company reported that higher profit was “predominately driven by more railcars on lease.”
As of March 31, GATX Rail Europe’s (GRE) fleet comprised more than 29,300 railcars. Fleet utilization was 95.3%, vs. 95.9% at the end of the prior quarter and 98.5% at the end of first-quarter 2023.
As of March 31, 2024, Rail India’s fleet consisted of 9,500-plus railcars. Fleet utilization was 100%—the same as the end of the prior quarter and first-quarter 2023.
“Rail International performed as expected and took delivery of over 1,000 new railcars during the quarter,” Robert Lyons said. “Both Rail Europe and Rail India continued to experience higher renewal lease rates compared to expiring rates for most railcar types.”
ENGINE LEASING
GATX reported that as of Dec. 31, 2023, it had sold all marine assets, including the Specialized Gas Vessels; it no longer has any marine operations. As a result, the name of this business segment has changed from Portfolio Management to Engine Leasing “to reflect the prospective operations of this business segment,” the company said.
Engine Leasing reported a profit of $25.7 million in first-quarter 2024, compared with a profit of $28.3 million in first-quarter 2023. The first-quarter 2024 profit included a net positive impact of $0.6 million from Tax Adjustments and Other Items, according to GATX, which also noted that the first-quarter 2023 profit included a net negative impact of $1.6 million from Tax Adjustments and Other Items. The lower first-quarter 2024 profit, it said, “was driven by lower earnings at the Rolls-Royce and Partners Finance (RRPF) affiliates, partially offset by increased earnings from GATX Engine Leasing.” Lower first-quarter 2024 earnings at RRPF “was driven by lower remarketing income,” according to GATX.
“In Engine Leasing, the RRPF affiliates and our wholly owned engine portfolio continue to experience robust demand for aircraft spare engines, driven by continued strength in global air passenger traffic,” Robert Lyons reported. “We anticipate adding new aircraft spare engines to our wholly owned portfolio at a similar level as 2023, with investments likely to occur through the balance of the year.”
2024 OUTLOOK
“First-quarter investment volume was $379 million and 2024 investment prospects remain favorable,” Lyons concluded. “As the year is progressing in line with our original expectations, our 2024 full-year earnings estimate remains unchanged at $7.30-$7.70 per diluted share, excluding the impact of Tax Adjustments and Other Items.”
More financial report details can be found on GATX’s Investor Relations website.
TD Cowen: ‘Solid, Clean Print; Fine-Tuning Estimates, Target’
“We’re fine-tuning our 2024 and 2025 EPS estimates to $7.60 and $7.98, from $7.55 and $7.95, respectively,” TD Cowen OEM Transportation Analyst Matt Elkott reported. “Our PT goes from $136 to $137 based on our new 2024 EPS estimate and the same 18x multiple. Absolute lease rates seem unlikely to dip materially below the consistently strong levels of the last several quarters.”
TD Cowen Takeaways:
- “Q24 EPS of $2.01 beat our estimate of $1.72 and consensus of $1.76 while revenue of $380MM beat our estimate of $375MM and consensus of $376MM as well.
- “The renewal success rate was 83.4% in 1Q24 vs 87.1% in 4Q23 and 77.9% in 1Q23. LPI was 33% in 1Q24 vs 33.5% in 4Q23 and 28.3% in 1Q23 while the average renewal term for all cars was 64 months in 1Q24 vs 65 months in 4Q23 and 55 months in 1Q23.
- “First-quarter investment volume was $379 million, and management noted that 2024 investment prospects remain favorable and that the year is progressing in line with their original expectations; as such, guidance is unchanged.”
