GATX Ups 2022 Earnings Expectations on Global Rail Market ‘Strength’
Written by Marybeth Luczak, Executive Editor
“Demand for the majority of railcar types in our fleet remains robust, and absolute lease rates increased sequentially for the eighth consecutive quarter,” GATX President and CEO Robert C. Lyons said during a second-quarter 2022 financials report. (Photograph Courtesy of GATX)
“Despite ongoing macroeconomic uncertainty, the operating environment remains strong across our global railcar leasing markets,” GATX President and CEO Robert C. Lyons said during a report on second-quarter 2022 financials, which included Rail North America fleet utilization of 99.4% and a renewal success rate of 87.7%.
“Demand for the majority of railcar types in our fleet remains robust, and absolute lease rates increased sequentially for the eighth consecutive quarter,” continued Lyons, who took over leadership of the Chicago-based company on April 22, following Brian A. Kenney’s retirement. (Kenney will remain on the GATX Board as Non-Executive Chairman until Oct. 31, 2022.)
Lyons reported on July 21 that investment volume was nearly $685 million for the six-months ended June 30, 2022, and that GATX continues to “take delivery of new railcars to meet customer demand worldwide. Based on current strength in the global rail markets and a robust secondary market for railcars, we are increasing our 2022 full-year earnings expectations to be in the range of $5.60 to $6.00 per diluted share, excluding any impact from Tax Adjustments and Other Items.”
For the three-months ended June 30, 2022, GATX net income was $2.6 million (or $0.07 per diluted share) compared with $5.5 million (or $0.15 per diluted share) during the same period last year. Results for second-quarter 2022 “include net negative impacts of $35.9 million, or $1.00 per diluted share, from Tax Adjustments and Other Items,” GATX noted. “The most significant item was an impairment charge associated with the company’s planned sale of its five remaining marine vessels.”
Rail North America
GATX’s Rail North America segment reported a profit of $53.1 million in second-quarter 2022, down 31.57% from second-quarter 2021’s $77.6 million. The company attributed the decrease to “lower gains on asset dispositions, partially offset by lower maintenance expense.”
Year-to-date 2022, profit came in at $173.5 million, up 21.07% from the year-earlier period’s $143.3 million in the same period of 2021. The higher results in 2022, the company said, “were predominantly driven by higher gains on asset dispositions.”
At June 30, 2022, Rail North America’s wholly owned fleet comprised about 111,600 cars, including approximately 10,300 boxcars. (The fleet statistics and performance notes that follow exclude the boxcar fleet.)
Fleet utilization was 99.4% at the end of the second quarter, compared with 99.3% at the end of the prior quarter and 98.5% at the end of second-quarter 2021. During second-quarter 2022, the renewal lease rate change of the GATX Lease Price Index (LPI) was positive 18.3%. This compares to positive 9.3% in the prior quarter and negative 6.7% in second-quarter 2021. The average lease renewal term for all cars included in the LPI during second-quarter 2022 was 34 months, vs. 30 months in the prior quarter and 29 months in second-quarter 2021.
“In this environment, our commercial team remains focused on improving lease rates while beginning to increase lease terms on many car types,” Lyons said.
Rail North America’s investment volume during the three-months ended June 30, 2022 was $253.7 million.
Rail International
GATX’s Rail International segment profit was $28.3 million in second-quarter 2022, up 3.66% from second-quarter 2021’s $27.3 million. Year-to-date 2022, segment profit was $53.2 million, up 8.55% from the prior-year period’s $49.1 million. “Results in the comparative periods were favorably impacted by more railcars on lease and negatively impacted by changes in foreign currency exchange rates,” according to GATX.
At June 30, 2022, GATX Rail Europe’s (GRE) fleet included approximately 27,500 cars. Utilization was 99.9% vs. 99.0% at the end of the prior quarter and 98.4% at the end of second-quarter 2021.
“Rail International performed well as we continued to experience increases in renewal lease rates,” Lyons reported. “GATX Rail Europe and GATX Rail India expanded their fleets during the quarter while also achieving virtually full fleet utilization at quarter end.”
Portfolio Management
GATX’s Portfolio Management segment posted a loss of $15.7 million in second-quarter of 2022, compared with profit of $12.2 million in second-quarter 2021. Year-to-date 2022, the segment loss was $19.6 million vs. segment profit of $18.3 million for the same period last year.
“Second-quarter 2022 segment results include an impairment charge of $31.5 million associated with the planned divestiture of five specialized gas vessels,” GATX said. “These vessels represent the last assets of a legacy business activity that is not core to GATX operations. Additionally, year-to-date 2022 segment results include a net impairment charge associated with three aircraft spare engines in Russia that the Rolls-Royce and Partners Finance affiliates (RRPF) do not expect to recover, of which GATX’s share is $15.3 million. Excluding these impacts, second-quarter and year-to-date 2022 segment results increased relative to a year ago. Higher second-quarter 2022 segment results were primarily due to higher share of affiliates’ earnings from RRPF. Higher year-to-date 2022 segment results were driven by stronger marine operating results and higher share of affiliates’ earnings from RRPF.”
Lyons noted that in Portfolio Management, “the Rolls-Royce and Partners Finance affiliates performed as expected in the second quarter.”
More details can be found via the GATX Investor Relations website.
Cowen Insight: ‘Solid Results; We Don’t Expect Big Reaction Either Way; Story Still Intact’
“Guidance was raised to a midpoint largely in line with expectations,” Cowen and Company Transportation OEM Analyst Matt Elkott reported on July 21. “The LPI was well above our estimate, while average term was below us but should begin rising. Rates improved for the eighth consecutive quarter. Utilization ticked up a bit. Demand remains strong. EPS was 7% below consensus and 14% below us, but the normal choppiness of asset sales is one key culprit. FX was also a headwind.”
