GATX 3Q23: ‘Consistent With Initial Outlook’

“Consistent with our initial outlook, the railcar leasing environment in North America remains robust,” GATX President and CEO Robert C. Lyons said during a report on third-quarter 2023 financials, which included Rail North America fleet utilization of 99.3% and a renewal success rate of 83.6%.

“The renewal lease rate change of GATX’s Lease Price Index was positive 33.4% for the quarter, with an average renewal term of 65 months, as we continue to lengthen lease terms on many car types, thereby locking in attractive long-term cash flow,” continued Lyons.

In 3Q23, Chicago-based GATX reported net income of $52.5 million, or $1.44 per diluted share, compared to net income of $29.1 million, or $0.81 per diluted share, in 3Q22. The 3Q23 results “include a net negative impact of $10.8 million, or $0.31 per diluted share, from Tax Adjustments and Other Items,” GATX noted.

Net income for the first nine months of 2023 was $193.2 million, or $5.30 per diluted share, compared to $107.5 million, or $2.99 per diluted share, in the prior year period. The 2023 year-to-date results “include a net negative impact of $1.1 million, or $0.03 per diluted share, from Tax Adjustments and Other Items,” GATX noted. “The 2022 year-to-date results include a net negative impact of $55.2 million, or $1.54 per diluted share, from Tax Adjustments and Other Items.”

“Rail International produced solid operating results and added a combined total of over 1,400 newly built railcars to its fleets in Europe and India,” said Lyons. “In addition, Rail Europe continued to experience higher renewal lease rates compared to expiring rates for the majority of car types in its fleet. In Portfolio Management, results were driven by strong performance at the Rolls-Royce and Partners Finance affiliates, as demand for international air passenger travel continues to strengthen.

“We continued to execute our strategy of pursuing attractively priced growth opportunities across our global businesses. Investment volume was over $360 million in the quarter and over $1.2 billion year to date.

“Based on year-to-date performance and our outlook for the remainder of the year, we expect our 2023 full-year earnings to modestly exceed the high end of our previously announced guidance range of $6.50–$6.90 per diluted share. This guidance excludes any impact from Tax Adjustments and Other Items.”

Rail North America

GATX’s Rail North America segment reported a profit of $66.1 million in 3Q23, compared to $64.3 million in 3Q22. Year-to-date 2023, Rail North America reported segment profit of $240.6 million, compared to $237.8 million for the same period of 2022. Higher 2023 third-quarter and year-to-date results were due to “higher lease revenue and higher gains on asset dispositions, partially offset by higher interest and maintenance expenses,” according to GATX.

At Sept. 30, 2023, Rail North America’s wholly owned fleet was composed of approximately 109,700 railcars, including more than 9,000 boxcars. The following fleet statistics and performance discussion exclude the boxcar fleet. Fleet utilization was 99.3% at the end of 3Q23, compared to 99.3% at the end of the prior quarter and 99.6% at the end of 3Q22.

During 3Q23, the renewal lease rate change of the GATX Lease Price Index (LPI) was positive 33.4%. This compares to positive 33.1% in the prior quarter and positive 18.8% in 3Q22. The average lease renewal term for all railcars included in the LPI during the third quarter was 65 months, compared to 61 months in the prior quarter and 52 months in 3Q22. The 3Q23 renewal success rate was 83.6%, compared to 85.3% in the prior quarter and 87.2% in 3Q22. Rail North America’s investment volume during the third quarter was $197.0 million.

Rail International

GATX’s Rail International segment reported a profit of $28.2 million in 3Q23, compared to $14.5 million in 3Q22. Year-to-date 2023, Rail International reported segment profit of $79.0 million, compared to $67.7 million for the same period of 2022. “The third-quarter and year-to-date 2022 segment results include a net negative impact of $10.8 million from Tax Adjustments and Other Items,” according to GATX.

3Q23 results were “driven by higher lease revenue, predominately due to more cars on lease,” according to GATX. “2023 year-to-date results were favorably impacted by more railcars on lease and negatively impacted by changes in foreign currency exchange rates.”

At Sept. 30, 2023, GATX Rail Europe’s (GRE) fleet consisted of more than 29,100 cars. Utilization was 96.0%, compared to 96.9% at the end of the prior quarter and 99.4% at the end of 3Q22.

Portfolio Management

GATX’s Portfolio Management reported segment profit of $20.2 million in 3Q23, compared to $11.2 million in 3Q22. Year-to-date 2023, Portfolio Management reported segment profit of $75.1 million, compared to a segment loss of $8.4 million for the same period of 2022.

2023 and 2022 year-to-date results include net negative impacts of $1.4 million and $46.8 million, respectively, from Tax Adjustments and Other Items.

“Excluding these impacts, higher 3Q23 and year-to-date results were driven by increased earnings from the Rolls-Royce and Partners Finance (RRPF) affiliates and GATX Engine Leasing, the Company’s wholly owned engine portfolio,” GATX said. “Higher affiliate earnings from RRPF was due to improved performance across the existing engine leasing portfolio and higher remarketing income.”

TD COWEN INSIGHT

“EPS was a slight miss, but guidance commentary was just slightly better as management now expects to modestly exceed the high end of the $6.50-$6.90 range vs meet or exceed it previously (our estimate $7.00 and consensus $6.98),” reported OEM Transportation Analyst Matt Elkott. “Utilization remained strong, but the renewal success rate decreased. Other Revenue had an outsized contribution, but asset sales were lower than our estimate.”

TD Cowen’s Key Takeaways:

• “The renewal success rate was 83.6% in 3Q23 vs 85.3% in 2Q23 and 87.2% in 3Q22. LPI was 33.4% in 3Q23 vs 33.1% in 2Q23 and 18.8% in 3Q22.
• “GATX noted that, consistent with its initial outlook, the railcar leasing environment in NA remains robust.
• “Our FY23 revenue estimate reflects 6% y/y growth compared to consensus of 8% y/y. Our FY23 EPS estimate reflects 15.5% y/y growth compared to consensus of 15% y/y.”