GATX 1Q22: ‘Conditions Continue to Strengthen’

North American railcar utilization higher than 99% and lease renewals of 80% helped drive a solid first-quarter 2022 for GATX. Net income and diluted EPS more than doubled, compared to the year-ago period.

GATX Corp. reported 2022 1Q22 net income of $75.8 million, or $2.10 per diluted share, compared to net income of $36.5 million, or $1.02 per diluted share, in 1Q21. The 2022 first-quarter results included a net negative impact of $11.5 million, or $0.32 per diluted share, attributed to a net impairment charge for aircraft spare engines in Russia at the Rolls-Royce and Partners Finance affiliates and a net positive impact of $3.0 million, or $0.08 per diluted share, related to an enacted tax rate reduction in Austria. 

GATX’s Rail North America segment reported a profit of $120.4 million in 1Q22, compared to $65.7 million in the prior-year period. “Higher segment profit was primarily a result of higher gains on asset dispositions,” the company said. At March 31, 2022, Rail North America’s wholly owned fleet was comprised of approximately 110,700 cars, including approximately 10,300 boxcars. Exclude the boxcar fleet, utilization was 99.3% at the end of the first quarter, compared to 99.2% at the end of the prior quarter and 97.8% at the end of 1Q21. 

During 1Q22, 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 +9.3%. This compares to an LPI of –0.7% in the prior quarter and –18.1% in 1Q21. The average lease renewal term for all cars included in the LPI during the first quarter was 30 months, compared to 37 months in the prior quarter and 30 months in the 1Q21. Rail North America’s investment volume during the first quarter was $280.4 million.

Rail International’s segment profit was $24.9 million in 1Q22, compared to $21.8 million in 1Q21. “Higher segment profit was predominately driven by more railcars on lease,” GATX noted. At March 31, 2021, GATX Rail Europe’s (GRE) fleet consisted of approximately 27,200 cars. Utilization was 99.0%, compared to 98.7% at the end of the prior quarter and 98.2% at the end of the 1Q21. 

“Conditions continue to strengthen across our global railcar leasing markets despite increased economic uncertainty due to the war in Ukraine,” said GATX President and CEO Brian A. Kenney, who retires and becomes Non-Executive Chairman on April 22, succeeded by Robert C. Lyons. “Rail North America’s fleet utilization remained high at 99.3%, and its renewal success rate was 80%. As the number of idle railcars in the industry continues to decline, the pace of lease rate increases from the prior quarter accelerated for most car types. As expected, the renewal lease rate change of GATX’s Lease Price Index turned positive in the quarter. The secondary railcar market remains very active as evidenced by our first-quarter remarketing income of $66.4 million, which represents the majority of our anticipated remarketing activity for 2022.

“Rail International continues to perform well as demand for railcars in Europe and India remains strong. Fleet utilization was at 99% or above, and renewal lease rates for most car types continued to increase vs. the expiring rates. First-quarter investment volume totaled $370.4 million, primarily focused on our global rail assets. Based on our solid start in the first quarter, we continue to expect our 2022 full-year earnings to be in the range of $5.50 to $5.80 per diluted share, excluding the impact of Tax Adjustments and Other Items.”

COWEN INSIGHT

“Secondary market strength caused a majority of GATX’s anticipated 2022 remarketing income to occur in 1Q,” noted Cowen and Company transportation equipment analyst Matt Elkott. “That was the main driver of the big earnings beat. Guidance is unchanged. The LPI beat, while the average lease term fell short. We would not be surprised if the shares came under pressure. The results were solid but affirm our near-term cautious view on the stock.

“Adjusted EPS of $2.34 is well above our and consensus estimates of $1.37 and $1.39, respectively. This beat was aided by the fact that most of the company’s anticipated remarking income for the year occurred in the first quarter. Relative to our model assumptions, remarketing income added $0.96 to adjusted earnings. Adjusting for this, EPS would have been $1.38, a penny above our estimate and a penny below consensus.

“While the strong secondary market sales likely mean that the company’s unchanged full-year guidance looks even more conservative than it did previously, it’s not dramatically more conservative, in our opinion. Yes, the 1Q22 result does give us even more confidence in our remarketing income assumption (above GATX’s original guidance), but the company’s fleet right now is nearly optimal in quality and utilization, so any additional large sales could mean that the company will have to tap into the secondary market or the manufacturers to replace in order to continue to satisfy customer demand, maintain good customer relations and maintain solid lease revenue levels.

“Revenue was $316.6MM, below our and consensus estimates of $323.8MM and $322.8MM, respectively. LPI was 9.3%, better than our estimate of 5.0% and 4Q21 of –0.7%. Average renewal term was 30 months, below our estimate of 38 and 4Q21 of 37 months. The leasing market continues to be strong.”