GATX 1Q23: ‘Consistent With Expectations’

“Consistent with our expectations coming into the year, demand across our global railcar fleets remains robust,” said GATX President and CEO Robert C. Lyons.

Chicago-based GATX Corp. has reported first-quarter 2023 net income of $77.4 million, or $2.16 per diluted share, compared with first-quarter 2022’s $75.8 million, or $2.10 per diluted share.

The railcar lessor noted that first-quarter 2023 results included “a net negative impact from tax adjustments and other items of $1.3 million, or $0.04 per diluted share.” Additionally, the 2022 first-quarter results included a “net negative impact from tax adjustments and other items of $8.5 million, or $0.24 per diluted share.”

Rail North America

GATX’s Rail North America segment reported a profit of $95.2 million in first-quarter 2023, compared to $120.4 million in first-quarter 2022. “Lower segment profit was primarily the result of lower gains on asset dispositions, partially offset by higher lease revenue,” the company said. At March 31, 2023, Rail North America’s wholly owned fleet was composed of approximately 110,000 cars, including approximately 8,800 boxcars. Excluding the boxcar fleet, utilization was 99.3% at the end of the first quarter, compared to 99.5% at the end of the prior quarter and 99.3% at the end of first-quarter 2022.

During first-quarter 2023, 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 +34.3%. This compares to an LPI of +29.7% in the prior quarter and +9.3% in first-quarter 2022. The average lease renewal term for all cars included in the LPI during the first quarter was 37 months, compared to 34 months in the prior quarter and 30 months in first-quarter 2022. The 2023 first-quarter renewal success rate was 77.9%, compared to 85.7% in the prior quarter, and 80.0% in the first quarter of 2022. Rail North America’s investment volume during the first quarter was $296.5 million.

Rail International

Rail International’s segment profit was $23.5 million in first-quarter 2023, compared to $24.9 million in first-quarter 2022. “Compared to the prior year period, results were favorably impacted by more railcars on lease and negatively impacted by changes in foreign currency exchange rates,” said GATX said, which completed the sale of Rail Russia in first-quarter 2023.

At March 31, 2023, GATX Rail Europe’s (GRE’s) fleet consisted of approximately 28,500 cars. Utilization was 98.5%, compared to 99.3% at the end of the prior quarter and 99.0% at the end of first-quarter 2022.

Portfolio Management

Portfolio Management reported segment profit of $28.3 million in first-quarter 2023, compared to segment loss of $3.9 million in first-quarter 2022. The 2023 first-quarter segment profit included a “net negative impact from tax adjustments and other items of $1.6 million.” Additionally, the 2022 first-quarter segment profit included “a net negative impact from tax adjustments and other items of $15.3 million.” Excluding these impacts, “higher 2023 first-quarter segment profit was driven by a higher share of affiliates earnings from the Rolls-Royce and Partners Finance affiliates, due to improved performance across the existing engine leasing portfolio and higher remarketing income,” GATX said.

“Consistent with our expectations coming into the year, demand across our global railcar fleets remains robust,” said GATX President and CEO Robert C. Lyons. “At Rail North America, fleet utilization remained high at 99.3% at the end of the first quarter and the renewal success rate during the quarter was 77.9%. The renewal lease rate change of GATX’s Lease Price Index was +34.3%. We continue to capitalize on current market conditions by increasing renewal lease rates and lengthening lease terms, thereby locking in high-quality, long-term cash flow.

“During the first quarter, we continued to identify attractive investment opportunities in North America. In addition to successfully placing deliveries of new railcars under our existing and new supply agreements, we acquired over 1,000 railcars in the secondary market that are on long-term leases with attractive rates.

“Rail International performed well, with Rail Europe experiencing higher renewal lease rates versus expiring rates for most car types. Furthermore, we are making progress on our goal of growing and diversifying our fleets in Europe and India, adding a combined total of nearly 1,000 newly built cars in the first quarter. At Portfolio Management, results were driven by improved performance at our Rolls-Royce and Partners Finance affiliates as global air travel continues to recover.”

“Based on our solid start in the first quarter, our 2023 full-year earnings estimate remains unchanged at $6.50–$6.90 per diluted share, excluding the impact of tax adjustments and other items,” Lyons concluded.

More information can be found through GATX Investor Relations.

Cowen Insight: EPS Beat; Guidance Unchanged; Demand Remains Strong

“The EPS beat was driven by higher revenue and higher gains on asset disposition than we’d modeled,” reported Cowen and Company OEM Transportation Analyst Matt Elkott. “The 2023 EPS guidance is unchanged, with a midpoint of $6.70 (our estimate $6.85 and consensus $6.72). Utilization remained strong at 99.3%, just 20bps below 4Q22. The renewal success rate was 77.9% vs 85.7% in 4Q22 and 80% in 1Q22. LPI was 34.3%, above our estimate of 27.0%.”

Cowen’s Key Takeaways:

• “The high end of the unchanged guidance range of $6.50-$6.90 is just above our $6.85 estimate and above consensus of $6.72.”