GATX: ‘Steady’ Leasing Recovery to Continue in ’22

“In 2022, we anticipate the steady recovery in the North American railcar leasing market will continue,” GATX President and CEO Brian A. Kenney said during a Jan. 25 earnings announcement. “We expect market lease rates to increase above average expiring rates for railcars renewing during the year.”

At GATX, Rail North America’s 2021 “outperformance was driven by improving market conditions,” President and CEO Brian A. Kenney said during the company’s fourth-quarter and full-year 2021 earnings announcement on Jan. 25; in addition to achieving “higher fleet utilization and a higher renewal success rate, we have now experienced six consecutive quarters of sequential increases in absolute lease rates,” he reported.

For the Chicago-based railcar lessor, net income from continuing operations for the three-months ending Dec. 31, 2021, came in at $61.0 million (or $1.69 per diluted share), compared with $17.8 million (or $0.50 per diluted share) in the prior-year period. GATX noted that fourth-quarter 2021 results include “a net positive impact from Tax Adjustments and Other Items of $0.11 per diluted share.”

Net income from continuing operations for full-year 2021 was $143.1 million (or $3.98 per diluted share) vs. $150.2 million (or $4.24 per diluted share) in the 2020 period. The 2021 and 2020 full-year results, GATX said, “include net negative impacts from Tax Adjustments and Other Items of $1.08 per diluted share and $0.35 per diluted share, respectively.”

RAIL NORTH AMERICA

Rail North America reported a profit of $75.6 million in the three-months ending Dec. 31, 2021, up 52.73% from the prior-year period’s $49.5 million. GATX attributed the increase primarily to “higher gains on asset dispositions in the quarter.”

Full-year 2021 profit came in at $285.4 million, up 25.40% from the 2020 period’s $227.6 million, due primarily to “higher gains on asset dispositions and lower maintenance expense, partially offset by lower lease revenue,” according to GATX. Profit results, the company said, “include a net gain of $5.3 million from Tax Adjustments and Other Items.”

At Dec. 31, 2021, Rail North America’s wholly owned fleet comprised about 114,500 cars, including more than 12,900 boxcars. (The fleet statistics and performance notes that follow exclude the boxcar fleet.)

Fleet utilization was 99.2% at the end of the fourth quarter, compared with 99.2% at the end of the prior quarter and 98.1% at year-end 2020. During fourth-quarter 2021, the GATX Lease Price Index (LPI), a weighted-average lease renewal rate for a group of railcars representative of Rail North America’s fleet, was –0.7%. This compares with –8.1% in the prior quarter and –22.6% in fourth-quarter 2020. The average lease renewal term for railcars included in the LPI during fourth-quarter 2021 was 37 months, compared with 32 months in the prior quarter and 34 months in fourth-quarter 2020. The fourth-quarter 2021 renewal success rate was 89.2%, vs. 84.0% in the prior quarter and 77.0% in fourth-quarter 2020.

For full-year 2021, the renewal lease rate change of the LPI was –8.5% and the average renewal term was 32 months, vs. –23.5% and 31 months in 2020. The renewal success rate for 2021 was 82.7%, compared with 70.8% in 2020. Total investment volume reached $574.4 million in 2021.

“Lower fleet churn … combined with efficiency improvements across our network, helped drive lower maintenance costs,” Kenney said. “We also further optimized our fleet by selectively selling railcars into a robust secondary market, generating strong remarketing income.”

RAIL INTERNATIONAL

Rail International reported a profit of $28.9 million in fourth-quarter 2021, up 12.89% from fourth-quarter 2020’s $25.6 million. GATX said this “was predominately driven by more railcars on lease and foreign exchange impacts, partially offset by higher maintenance expense.”

Full-year 2021 profit of $105.0 million was up 25.75% from full-year 2020’s $83.5 million, due primarily to more railcars on lease, the company said.

At Dec. 31, 2021, GATX Rail Europe’s (GRE) fleet included approximately 27,100 cars. Utilization was 98.7% vs. 98.1% at the end of the prior quarter and 98.1% at year-end 2020.

Rail International “performed well, despite supply chain and COVID-related interruptions at railcar manufacturers that delayed new car deliveries,” Kenney said. “Demand for our railcars remained strong in Europe and India. Consequently, Rail International maintained high fleet utilization and continued to experience increases in renewal lease rates.”

2022 Outlook

“In 2022, we anticipate the steady recovery in the North American railcar leasing market will continue,” Kenney said. “We expect market lease rates to increase above average expiring rates for railcars renewing during the year. Combined with higher asset disposition gains, Rail North America is expected to produce higher segment profit in 2022. Rail International’s 2022 segment profit is also expected to increase as strong demand for new and existing railcars continues in Europe and India.

“We expect that continuing improvement in the North American railcar leasing market combined with the attractive investments made across our global businesses in recent years will continue to drive earnings growth at GATX. Based on this outlook, we currently expect 2022 earnings to be in the range of $5.50 to $5.80 per diluted share.”

More details can be found via the GATX Investor Relations Website.