Better car orders, wheels propel Greenbrier quarter

Written by Stuart Chirls, Senior Editor
Greenbrier trucks rail

Truck assemblies at Greenbrier's Portland, Ore. facility, July 2017. Railway Age photo by Stuart Chirls

Greenbrier Cos. saw stronger component sales and margins offset flat railcar revenues in the third quarter.

The Portland, Ore.-based company said revenues for the quarter ended May 31 improved on better parts volume, while pre-tax earnings gained on higher sale and operating margins.

Railcar manufacturing revenue slipped to $510.1 million from $511.8 million the previous quarter, mostly on product mix. Leasing revenue grew to $36.8 million from $28.8 million due to higher volume of externally sourced railcar syndications and interim rent.

Revenue from wheels and components was $94.5 million, up from $88.7 million on seasonally higher volumes.Greenbrier saw quarterly orders for 6,000 cars valued at more than $600 million. The backlog was 24,200 units with an estimated value of $2.3 billion. New railcar deliveries totaled 5,600 units for the quarter.

Overall quarterly earnings for Greenbrier were $33 million, or $1.01 per diluted share, on revenue of $641.4 million. Results included $9.5 million, net of tax, (29 cents per share) associated with a charge recorded by GBW, the 50/50 railcar repair joint venture with Watco Companies.

Adjusted net earnings were $42.4 million, or $1.30 per diluted share. Adjusted pre-tax earnings totaled $86.9 million.

The company said book-to-bill ratio of incoming orders to completed sales was 1.1, the highest since May 2017.

The company affirmed its previous full-year earnings estimate of $5 per share, excluding the GBW charge and a one-time benefit of 70 cents per share in the second quarter from federal tax changes.

“Greenbrier produced strong operating and financial results in the third fiscal quarter, highlighted by healthy gross margins, a strong balance sheet and the highest quarterly order activity this fiscal year,” said William A. Furman, chairman and chief executive. “Greenbrier’s strategy is to strengthen core North American markets while making demonstrable advancements in international railcar markets. This strategy is succeeding. With North American railcar loadings increasing and improving indicators for the U.S. and global economies, current industry fundamentals remain favorable for most of Greenbrier’s business segments.”

Furman said that GBW continues to underperform expectations. “We intend to eliminate this headwind to Greenbrier’s financial performance and will soon share plans to resolve GBW’s challenges.”

“We are encouraged by the 6,000 new railcar orders we received in the third quarter. Order activity continues to be broad-based and diversified, originating primarily in the improving North American market. Looking forward, we expect to see continued order strength in North America and internationally, but do not expect order activity to be linear. Backlog is a key indicator of future earnings and cash flow generation.”

He concluded by saying that “Greenbrier’s flexibility and creativity allow us to navigate the current market environment successfully. We remain confident in our long-term strategy and integrated business model. We are narrowing and reaffirming the guidance targets laid out earlier in the year.”

The company pegged car deliveries at 20,000-21,000 units including Greenbrier-Maxion (Brazil), which will account for up to 10% of deliveries.

It expects revenue of approximately $2.5 billion.

In a note to investors, Cowen and Company Equity Research Analyst Matt Elkott said: “Results look impressive at first glance. GBX beat our and consensus EPS estimates. While revenue was a bit below expectations, the gross margin was a beat. Orders of 6K units were well above our estimate of 3.5K units, and their ASP was 28% higher than our projection. The results give us increased confidence in our FY19 EPS estimate, which is 6% above consensus.

“Adjusted EPS was $1.30, above our and Street expectations of $1.12 and ~$1.16, respectively. Revenue came in at $641.4 MM, compared to our and consensus estimates of $662.4 MM and $662.2 MM, respectively. The gross margin was 16.9%, above our and street expectations of 16.2% and 16.3%, respectively.

“GBX received orders for 6,000 units in the quarter, well above our estimate of 3,500 units. The ASP of these orders was ~$100K, also well above our estimate of $78K. We believe this could be partly driven by a higher mix of tank cars.

“The backlog now stands at 24.2K units, up from 24.1K units at the end of the prior quarter and above our estimate of 22K units. Deliveries were 5.6K units, largely in line with our estimate. The company narrowed the range of the production guidance for the full fiscal year, effectively lowering the midpoint to 20.5K units, from 21K units. We are not too concerned about this given the growth in the backlog. Such growth gives us increased confidence in our FY19 EPS estimate of $4.15, which is above the consensus estimate of $3.93.”

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