GATX 3Q21: ‘Demand Strong, Lease Rates Rise’

Written by Marybeth Luczak, Executive Editor
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“We continue to see improvement across our global railcar leasing markets,” GATX Corp. President and CEO Brian A. Kenney said during a third-quarter 2021 earnings report on Oct. 21; he noted fleet utilization increased to 99.2% at quarter end for North America, and remained high at 98.1% for GATX Rail Europe.

For the Chicago-based railcar lessor, net income from continuing operations for the three months ended Sept. 30, 2021, came in at $40.1 million, or $1.11 per diluted share—down 16.8% from the prior-year period’s $48.2 million, or $1.36 per diluted share.

Net income from continuing operations for the first nine months of 2021 was $82.1 million, or $2.28 per diluted share, a 38% decline compared with $132.4 million, or $3.74 per diluted share, in the prior-year period.

According to GATX, 2021 year-to-date results include “a net negative impact of $39.7 million, or $1.10 per diluted share, related to an enacted tax rate increase in the United Kingdom and a net negative impact of $3.4 million, or $0.09 per diluted share, attributed to debt extinguishment costs associated with an early redemption.” Additionally, the 2020 third-quarter and year-to-date results include “a net negative impact of $12.3 million, or $0.35 per diluted share, related to the elimination of a previously announced tax rate reduction in the United Kingdom,” the company noted.

Net income from discontinued operations in the third quarter and year-to-date periods of 2021 was zero, compared with a net loss of $0.3 million, or $(0.01) per diluted share, in the prior-year period, and net income of $1.1 million, or $0.03 per diluted share, for the first nine months of 2020.

GATX Corp. President and CEO Brian A. Kenney

“In North America, GATX’s fleet utilization increased to 99.2% at quarter end and our renewal success rate was 84%,” President and CEO Brian A. Kenney said. “Absolute lease rates across the majority of our fleet increased for the fifth quarter in a row, while the third-quarter renewal lease rate change of GATX’s Lease Price Index was in line with our expectations at negative 8.1%.

“Rail International continues to perform well, as demand for railcars in Europe and India remains robust. GATX Rail Europe’s fleet utilization remained high at 98.1% and renewal lease rates for most car types increased versus the expiring rates. GATX Rail Europe and GATX Rail India continued to grow and diversify their fleets during the quarter. However, the pace of fleet growth in 2021 has been negatively impacted by COVID-19-related new car delivery delays in both regions. In Portfolio Management, the Rolls-Royce and Partners Finance affiliates performed as expected in a challenging operating environment for international air travel.

“Based on year-to-date performance and our outlook for the remainder of the year, we continue to expect our 2021 full-year earnings to be in the range of $4.30 to $4.50 per diluted share. This guidance excludes any impact from Tax Adjustments and Other Items.”

RAIL NORTH AMERICA

Rail North America reported profit of $66.5 million in the three months ended Sept. 30, 2021, up 18.54% compared with $56.1 million in prior-year period. Year to date, Rail North America reported profit of $209.8 million, rising 17.8% vs.$178.1 million in the same period of 2020. “Higher third-quarter and year-to-date segment profit was predominantly driven by higher gains on asset dispositions and lower maintenance expense, partially offset by lower revenue,” GATX said.

At Sept. 30, 2021, Rail North America’s wholly owned fleet comprised about 114,200 cars, including more than 12,800 boxcars. Fleet utilization came in at 99.2% at the end of the third quarter, compared with 98.5% at the end of the prior quarter and 98.2% at the end of the third-quarter 2020. During third-quarter 2021, the renewal lease rate change of the GATX Lease Price Index (LPI) was –8.1%. This compares with –6.7% in the prior quarter and –29.4% in third-quarter 2020. The average lease renewal term for all cars included in the LPI during third-quarter 2021 was 32 months, compared with 29 months in the prior quarter and 29 months in third-quarter 2020. Rail North America’s investment volume during the third quarter was $178.9 million.

RAIL INTERNATIONAL

Rail International’s profit was $27.0 million in third-quarter 2021, up 12.5% from $24.0 million in the prior-year period. Segment profit of $76.1 million year-to-date 2021 grew 31.43% from $57.9 million for the same period of 2020. “The increase in third-quarter and year-to-date segment profit was predominately driven by more railcars on lease,” GATX reported.

At Sept. 30, 2021, GATX Rail Europe’s (GRE) fleet included more than 26,800 cars. Utilization was 98.1% vs. 98.4% at the end of the prior quarter, and 98.2% at the end of third-quarter 2020.

More details can be found through GATX Investor Relations Website.

Cowen Insight

Cowen and Company Freight Transportation Equipment Analyst Matt Elkott had this to say about the GATX 3Q21 report: an ‘EPS beat; guidance maintained; demand strong; lease rates rise.”

“GATX reported solid results including an EPS beat, partly aided by higher sales, which we view as part of recurring operations for GATX,” reported Cowen and Company Freight Transportation Equipment Analyst Matt Elkott. “The guidance midpoint of $4.40 was unchanged, after having been raised from $4.15 three months ago.”

Cowen’s Key Takeaways:

• “LPI and renewal terms were worse than our estimates, but one quarter is not a meaningful gauge. Fleet utilization increased from an already-high 98.4% to 99.2%.

• “EPS from continuing operations was $1.11, beating our and consensus estimates of $1.00 and $1.07. Revenue was $313.5 million, compared to our and Street estimates of $300.1 million and $315.7 million, respectively.

• “Absolute lease rates continued to improve for the fifth consecutive quarter with improving demand and high steel prices.”

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