GBX “gains momentum” in 3Q2019

Written by Andrew Corselli, Managing Editor
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William A. Furman, GBX Chairman and CEO

The Greenbrier Companies (GBX) on July 2 reported 3Q2019 earnings of $15.2 million, or $.46 per diluted share, on a record quarterly revenue of $856.2 million.

On the heels of an “underwhelming” second quarter, GBX’s results for the third quarter ended May 31, 2019 include a $10 million ($.30 per share) non-cash goodwill impairment charge in the railcar repair operation and $4.3 million, net of tax, ($.13 per share), of American Railcar Industries (ARI) acquisition costs.

GBX added that its adjusted net earnings were $29.6 million ($.89 per diluted share) excluding the goodwill impairment and ARI acquisition costs; adjusted EBITDA for the quarter was $84.4 million, or 9.9% of revenue; the new railcar backlog as of May 31, 2019 was 26,100 units with an estimated value of $2.74 billion; the board declared a quarterly dividend of $.25 per share, payable on August 8, 2019 to shareholders as of July 18, 2019; and the acquisition of the manufacturing assets of ARI remains subject to regulatory review and approval.

Looking ahead to 4Q2019, GBX said, based on current trends, it believes that “deliveries will be between 7,000 and 8,000 units; revenue will be nearly $1 billion; and diluted EPS will fall between $1.30 and $1.40 excluding any ARI acquisition costs or operational benefits.”

“Greenbrier gained the momentum we expected during the quarter, led by improved operating efficiencies in our core North American manufacturing business,” said William A. Furman, GBX Chairman and CEO. “Greenbrier’s current and expected performance is consistent with our prior comments that revenue and margin would be back-half weighted this fiscal year. These gains were muted in our overall financial results due to continued weakness in Greenbrier’s railcar repair business and certain international operations, along with costs associated with the ARI acquisition.”

“Despite certain legacy headwinds and the management attention required on a major acquisition in the quarter, we are pleased with our improved core operating performance,” Furman added. “We anticipate further strong momentum in the fourth quarter. Realignment of our railcar repair network is expected to be completed by the end of the year, which will help earnings performance in the Wheels, Repair & Parts segment. In Brazil, the long-delayed rail concession renewal process negatively affected the operations of our joint venture, resulting in a loss this quarter. Greenbrier’s Brazil operations are being [downsized] for the current demand environment before order activity ramps up as expected in 2020 and over the coming years. Meanwhile, pricing and manufacturing performance in Europe responded more slowly than expected, but is now kicking in. Headwinds from Europe and Brazil are expected to turn to tailwinds in Q4 and beyond, along with other international performance contributions.”

“The Company is performing well in a choppy global freight railcar market,” Furman continued. “Greenbrier received orders for approximately 6,500 new railcars valued at $730 million in the quarter. These orders span a range of railcar types from a diverse set of customers. Greenbrier’s backlog of 26,100 units valued at $2.7 billion provides strong visibility and cash flow into fiscal 2020. Greenbrier’s four-part strategy remains unchanged: reinforcing our core North American markets, executing on our international strategy, developing a robust talent pipeline, and growing the business on a larger scale. The strategy and Greenbrier’s integrated business model work in parallel to support our success over time, especially with the acquisition of ARI, which will allow a larger, more diversified product and geographic mix in North America.”

Matt Elkott, Vice President Equity Research, Cowen and Company, said GBX orders for 6,500 new railcars in the quarter, valued at $730 million, were “well above our estimate of 3,900 units. This quarterly result was the third-highest in the past four years. Order ASP (Average Selling Price), while down sequentially, was the fourth highest in four years. Deliveries were 6,500 units, compared to our estimate of 6,400 units. The gross margin was 12.4%, up from 8.2% sequentially. Management sounded positive about core operations, but noted transitory challenges in railcar repair and European and Brazilian operations, all of which should begin to improve. We believe the stock will experience volatility and is likely to come under pressure, as this is the second guidance reduction this year, and the stock had a ~12% run since June 24.”

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