For Trinity, ‘Challenging Operating Environment’ Impacts 1Q21

“When looking at the potential for new railcar demand, we expect industry deliveries to be below replacement levels this year, but believe that current inquiries support improving railcar deliveries at or just above replacement levels in 2022,” Trinity Industries President and CEO Jean Savage said.

While “encouraged by the improving trends for our business and the economy as a whole,” market uncertainty due to the pandemic remains a headwind, Trinity Industries President and CEO Jean Savage reported during a April 22 earnings announcement, noting “[w]e are focused on what is more within our control in optimizing our cost structure and balance sheet.”

For first-quarter 2021, total company revenues came in at $398.8 million, down 35.18% from first-quarter 2020’s $615.2 million. Trinity attributed this to “lower deliveries in the Rail Products Group, and the change in presentation of railcar sales, which totaled $44 million in Q1 2020.” Company operating profit was $60.2 million, down 17.53% from $73.0 million in first-quarter 2020, due to “lower volumes in the Rail Products Group and fewer railcar sales in the Leasing Group.”

For the Rail Products Group, revenues were $261.0 million, a decline of 48.76% from $509.4 million in the prior-year period. The company said this was a result of “lower deliveries, pricing pressures, a shift in the mix of railcars sold, and reduced railcar modification services.” In the first three months of 2021, the Group delivered 1,895 railcars; received orders for 1,410 railcars, valued at $171.1 million; and had a backlog value of $989.9 million. This compares with first-quarter 2020’s 3,705 railcars delivered; 1,970 railcars ordered, valued of $227.5 million; and a backlog value of $1.5578 billion. Trinity attributed the lower car-order value in 2021 to “lower number of units, competitive pricing and differences in product mix.”

“Our Rail Products segment completed further rightsizing of our production footprint to align with lower delivery volumes, and made good progress on our strategic initiatives to lower our breakeven point and overall cost structure,” Savage said. “While the margin for the first quarter was negative, the business segment is turning the corner, and margins trended positively through the quarter. We expect to build momentum on our cost initiatives through the remainder of the year resulting in year-over-year margin improvement for the segment.”

For the Leasing and Management Services Group, revenues were $183.5 million, down 4.43% from $192.0 million in 2020, which was attributed to “lower lease rates and lower fleet utilization, partially offset by growth in the lease fleet.” Fleet utilization came in at 94.5% in first-quarter 2021, and there was a Future Lease Rate Differential of (14.8)% at quarter-end, the company said.

Among Trinity’s other financial and operational highlights for first-quarter 2021:
• Income from continuing operations per common diluted share (EPS) of $0.03 and quarterly adjusted EPS of $0.07.
• Cash flow from operations and total free cash flow after dividends and investments were $70 million and $90 million, respectively. The company noted an “investment of $91 million in leasing capital expenditures, net of lease portfolio sales.”
• Net additions of 4,155 railcars to the wholly owned and partially owned lease fleet compared with prior-year period.
• Repurchases of about 1.3 million shares at a cost of $37 million.
• Committed liquidity of $772 million as of March 31, 2021.

Management Insight

“Trinity’s first-quarter results reflect the dynamics of aggressive execution on our strategic initiatives in the midst of a challenging operating environment and a competitive market for railcar demand,” Savage said. “Operationally, our businesses performed well against our expectations, especially considering the winter storms that interrupted operations for nearly two weeks of the quarter.”

She noted that the company is “also seeing positive developments in the market with railcar inquiries returning to a more normal level of activity during the first quarter. As a result, Trinity’s fleet utilization and pricing are firming within our lease portfolio, and we expect lease rates to experience modest improvement through the year as existing railcars are absorbed across the industry. When looking at the potential for new railcar demand, we expect industry deliveries to be below replacement levels this year, but believe that current inquiries support improving railcar deliveries at or just above replacement levels in 2022.”

“Financially, Trinity is making disciplined investments while returning meaningful capital to shareholders as part of our overall capital allocation framework,” Savage said. “In the first quarter, we made progress on our balance sheet initiatives by completing a small lease portfolio sale and extending our Leasing warehouse credit facility. The cash flows from Trinity’s rail platform continue to prove the resiliency of the business model through the cycle with approximately $70 million in operating cash flow generated during the quarter. We continue to expect strong operating cash flows in the range of $625 million to $675 million for the 2021 year.”

More details can be found through Trinity Industries’ Investor Relations.