GATX Meeting Takeaways From TD Cowen

Tom Ellman, CFO, GATX (left); and Shari Hellerman, Head of Investor Relations, GATX (right).

We spent a day in two Ohio cities with GATX CFO Tom Ellman and Head of Investor Relations Shari Hellerman. Takeaways include: continued strength in North America railcar leasing; growth in India, where GATX constitutes substantially all the private-sector railcar leasing landscape; Europe growth; and a commitment to investing in long-lived, service-intensive assets, an investment grade, and returning excess cash.

TD Cowen takeaways from GATX Meeting:

• GATX, widely regarded as one of North America’s best-run railcar lessors, described continued strength in that market that is likely to persist for the foreseeable future. We believe this should drive solid lease revenue growth for the company over the next few years, as only 30-40% of its fleet has been repriced since the rate recovery began in earnest (a lower percentage since rates decisively exceeded long-term averages about a year ago). As such, even if rates moderate somewhat in the next several quarters, average renewal rates should remain well above expiring rates this year and likely beyond

• From our day with management on Thursday and recent channel checks, including at Rail Equipment Finance Conference (REF) March 4-6, we believe absolute lease rates in the industry have in general been largely flat to down slightly in 1Q24 compared to 4Q23, following three years of Q/Q improvement.

• GATX has what is likely North America’s most diverse railcar fleet (160 car types, no significant exposure to any single commodity/freight end market of the ~600 served, and no significant exposure to any single customer of the more than 840 served) and possibly the highest utilization (~99.3% for a fleet of ~110K railcars). The vast majority of its leases are full-service leases, and its percent of in-house maintenance may be the highest among peers at 80-90%. This typically translates to maintenance time that is shorter and more predictable for shippers, incentivizing them to hold on to GATX cars longer when they’re reducing their fleets and consider them first when they’re adding.