Trinity 3Q20: ‘Mixed Results, But More Positive Signs Emerge’

Written by Marybeth Luczak, Executive Editor
“We continue to see a good pipeline of inquiries for available railcars—new and existing—from strategic buyers and owners of railcar assets, and we remain cautiously optimistic regarding the trajectory of demand heading into next year,” CEO and President Jean Savage said.

“We continue to see a good pipeline of inquiries for available railcars—new and existing—from strategic buyers and owners of railcar assets, and we remain cautiously optimistic regarding the trajectory of demand heading into next year,” CEO and President Jean Savage said.

Trinity Industries, Inc. has reported financial and operating results for third-quarter 2020 that reflect “solid execution against numerous headwinds, including competitive pricing, declining deliveries, and difficult decisions in rightsizing our operations,” CEO and President Jean Savage said.

Total company revenues of $459.4 million were down 44% from $813.6 million in third-quarter 2019, due to lower deliveries in the Rail Products Group and fewer railcars sold from the lease fleet, according to Trinity.  

Among the company’s financial and operational highlights:

  • The quarterly income from continuing operations per EPS of $0.21 and quarterly adjusted EPS of $0.17 excludes: restructuring activities totaling $0.03 per common diluted share, and additional income tax benefit of $0.07 per common diluted share related to carryback claims as permitted under recent tax legislation.
  • Both year-to-date cash flow from operations and free cash flow before leasing investment were $457 million, respectively.
  • Year-to-date investment of $310 million in leasing capital expenditures, net of railcar sales, predominantly for growth.
  • Total committed liquidity of $719 million as of Sept. 30, 2020.
  • Announced new $250 million share repurchase authorization approved subsequent to quarter-end.
  • Completed a new $155.5 million securitization under an existing indenture bearing interest at 1.96% annually to replace $153.1 million of secured railcar equipment notes bearing interest at 3.82%, which were redeemed.
Jean Savage, CEO and President, Trinity Industries

While railcar loadings rebounded during the third quarter from declines due to the pandemic, “market uncertainty continues to cloud demand for railcars as much of the economy remains under pressure,” Savage said. “We continue to see a good pipeline of inquiries for available railcars—new and existing—from strategic buyers and owners of railcar assets, and we remain cautiously optimistic regarding the trajectory of demand heading into next year. Average lease rates and the utilization of our lease fleet remained essentially flat from the second quarter, while lease rate renewal pricing continued to experience negative headwinds. Rail manufacturing received orders for 2,000 railcars during the third quarter, composed primarily of larger, complex transactions that leverage the strength of Trinity’s rail platform and our ability to tailor solutions for our customers.

“Our business leaders are taking additional actions to optimize our operating structure and our balance sheet. During the third quarter, Trinity transitioned its U.S. logistics business and outsourced these services to third-party providers, as well as completed the realignment of its organizational structure.”

More details can be found through Trinity Industry Investor Relations.

Cowen Insight

Cowen Transportation OEM Analyst and Vice President Equity Research Matt Elkott said Trinity’s third quarter showed “mixed results” but “more positive signs” emerged.

“While revenue, deliveries, and manufacturing margin missed our estimates, total operating income and EPS beat our and Street forecasts, in part due to continued cost management efforts,” said Cowen Transportation OEM Analyst and Vice President Equity Research Matt Elkott. “Orders exceeded our model assumption, lease rates stabilized, and fleet utilization ticked up very slightly from 2Q. TRN [Trinity] completed its share repurchase program and authorized a new one.”

Key takeaways from Cowen:

• “Revenue of $459.4MM was below our and consensus estimates of $472.9MM and $486.3MM, respectively. Operating income was $72.9MM, above our and Street projections of $62.4MM and $65.3MM, respectively. This occurred in part due to continued cost management efforts—SE&A expense declined 18% y/y and 10% sequentially. The company attributed this to lower employee-related costs resulting from cost optimization initiatives, including headcount reductions and adjustments to incentive-based compensation, and lower litigation related expenses. While this last item may be related to pandemic disruptions to the court system, the remaining litigation risk to the guardrail business appears minimal at this point, and once it is completely out of the way we would be unsurprised if the company divests that segment.

• “Deliveries were 2,605 units, compared to our estimate of 2,913 units. The manufacturing operating margin was 0.8%, below our estimate of 2.3%. Orders came in at 2,000 units, above our estimate of 1,500 units. The orders appear to reflect some of the inquiries by strategic investors that management mentioned on the 2Q earnings call. Conversations of similar nature appear to be ongoing still.

• “TRN noted that it completed its $350MM share repurchase authorization, its second such completion in the past two years, with the purchase of ~$90MM during the quarter. The company also noted that earlier this week, its Board approved a new $250MM share repurchase authorization that runs through the end of 2021. We see both the completion of the previous plan and the new authorization as encouraging signs of the company’s commitment not to sit on cash, even during the current unusual environment.”

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