Trinity ‘Encouraged’ by U.S. Rail Markets’ Continued Recovery

Discussing the Railcar Leasing and Management Services Group, Trinity Industries President and CEO Jean Savage said: “There are clear signs of a strengthening recovery as the renewal success rate for the quarter improved to 81%, a level not seen in recent history.”

Trinity Industries, Inc., is “very pleased to build on the momentum growing in our business as railcar demand and the overall U.S. economy continue to recover,” President and CEO Jean Savage said during a second-quarter 2021 earnings announcement on July 22.

Trinity reported total company revenues of $371.5 million in second-quarter 2021, down 27.04% from prior-year period’s $509.2 million. It attributed this to “lower deliveries in the Rail Products Group, and the change in presentation of railcar sales, which totaled $10 million in Q2 2020.” Company operating profit came in at $67.4 million compared with a $307.3 million loss in second-quarter 2020, which included a “$369.4 million non-cash impairment of long-lived assets charge,” according to Trinity.

For the Rail Products Group, revenues were $261.8 million in second-quarter 2021, a decline of 35.45% from $405.6 million in 2020. The company said this was a result of “lower deliveries and a shift in the mix of railcar products and services sold.” In the three months ended June 30, 2021, the Group delivered 1,765 railcars; received orders for 4,570 railcars, valued at $372.6 million; and had a backlog value of $1.18 billion. This compares with second-quarter 2020’s 2,985 railcars delivered; 840 railcars ordered, valued at $105.9 million; and a backlog value of $1.34 billion. Trinity attributed the order value in second-quarter 2021 to a “higher number of units, differences in product mix and competitive pricing.”

Trinity’s Rail Products Group “had improved results as orders increased significantly compared to a year ago,” Savage said. “Even better, our ongoing cost initiatives continue to lower our breakeven point for new car production and reduced the impact of higher steel costs over the quarter. We are ever diligent concerning inflation in our input costs, but are increasingly optimistic about the trends in profitability for the Rail Products Group exiting 2021 and into 2022.”

For the Railcar Leasing and Management Services Group, revenues were $185.1 million, up 1.31% from second-quarter 2020’s $182.7 million. Fleet utilization came in at 94.3% in second-quarter 2021 vs. 94.7% in the same period last year, “primarily driven by [a] decrease in energy-related markets,” the company said.

“Trinity’s lease revenue improved modestly and secondary market liquidity remains strong as demand continues to rise,” Savage reported. “There are clear signs of a strengthening recovery as the renewal success rate for the quarter improved to 81%, a level not seen in recent history. Utilization was slightly lower compared to a year ago as energy markets have lagged in the recovery. Most encouraging, though, was the continued improvement in the Future Lease Rate Differential compared to a year ago. Similarly, Trinity benefited in the second quarter from higher margins on railcars sold in the secondary market from our lease fleet as we continue to optimize for best potential returns.”

Among Trinity’s other financial and operational highlights for second-quarter 2021:
• Income from continuing operations per common diluted share (EPS) of $0.12 and adjusted EPS of $0.15.
• Year-to-date cash flow from operations and total free cash flow after dividends and investments were $335 million and $359 million, respectively. The company noted a “year-to-date investment of $163 million in leasing capital expenditures, net of lease portfolio sales.”
• Net additions of 4,550 railcars to the wholly owned and partially owned lease fleet compared with prior-year period.
• Repurchases of approximately 10.5 million shares at a cost of $291 million.
• Committed liquidity of $918 million as of June 30, 2021.

Management Insight

Trinity Industries’ “second-quarter results were enhanced by the great strides the company continues to make toward our return-focused initiatives, and we are proud to say we are on track to achieve the ambitious goals we detailed at our Investor Day last fall,” Savage said.

She noted that the company’s “businesses performed well against our expectations across both our leasing and manufacturing businesses.”

“Additionally, Trinity has made excellent progress against our goal to lower funding costs and optimize our balance sheet,” Savage said. “In the quarter, Trinity repurchased $291 million of our common stock, and since the onset of the pandemic, we have successfully issued and refinanced approximately $2.3 billion of debt, which includes our partially owned leasing subsidiary activities. As a result, we have lowered our borrowing costs by approximately 100 basis points. As we noted at our Investor Day, we believe there are many more opportunities to optimize our assets and liabilities. At quarter-end, Trinity still has an unencumbered railcar inventory totaling $1.1 billion. With improved liquidity in the secondary market for railcars, we have an increased ability to manage our fleet through buying and selling railcars.”

“In summary, we are encouraged by the continued recovery in the U.S. rail markets and the economy broadly,” Savage said.

More details can be found through Trinity Industries Investor Relations.