Greenbrier 3Q: ‘Steady Recovery in Our Markets’

Greenbrier Chairman and CEO Bill Furman

The Greenbrier Companies, Inc. reported financial results for its third fiscal quarter ended May 31, 2021, that were “the best quarterly performance to date” for the company’s current fiscal year.

Third Quarter Highlights 

• New railcar orders for 3,800 units valued at $400 million and deliveries of 3,300 units resulted in a 1.2x book-to-bill. This is the second consecutive quarter that book-to-bill exceeded 1.0x. Orders included intermodal units, tank cars, boxcars and covered hoppers. 
• Diversified new railcar backlog as of May 31, 2021 was 24,800 units with an estimated value of $2.6 billion. 
• Liquidity of approximately $850 million, including $628 million in cash and $221 million of available borrowing capacity. Liquidity and $149 million of initiatives in progress total nearly $1 billion. 
• COVID-19 related expenses for the quarter were $1.9 million (pre-tax) and $8.3 million (pre-tax) for the nine months ended May 31, 2021. 
• Net earnings attributable to Greenbrier for the quarter were $19.7 million, or $0.59 per diluted share, on revenue of $450 million. Net earnings included $3.6 million ($0.10 per share), of loss on extinguishment of debt, net of tax. 
• Adjusted net earnings attributable to Greenbrier for the quarter were $23.3 million or $0.69 per diluted share and adjusted EBITDA for the quarter was $53 million. 
• GBX Leasing was formed in the quarter to create stable, tax-advantaged cash flows with initial railcar funding of nearly $100 million, under a $300 million non-recourse warehouse credit facility. GBX Leasing is consolidated in Greenbrier’s financial statements.
• Debt maturities were extended in the quarter with the issuance of $374 million of senior convertible notes due in 2028 and retirement of $257 million of 2024 senior convertible notes. 
• Repurchased $20 million of common stock in connection with the convertible note issuance. $100 million remains authorized under the share repurchase plan. 
• The Board declared a quarterly dividend of $0.27 per share, payable on August 18, 2021 to shareholders of record as of July 28, 2021 representing Greenbrier’s 29th consecutive quarterly dividend. 

“Greenbrier’s financial results for the third fiscal quarter reflect the steady recovery in our markets that we forecasted would occur in the second half of our fiscal year,” said Chairman and CEO Bill Furman. “Our COVID strategy launched in March 2020 has been very successful. We are executing well on plans to maintain a liquidity base and strong balance sheet as well as safely operate each of our facilities. All of this has been necessary to prepare for the now emerging recovery.

“As positive momentum continues, we are seizing opportunities to resume the pursuit of scale we began during the two years prior to the pandemic. In the third fiscal quarter, this included the formation of GBX Leasing and completion of a strategic debt refinancing that extended maturities on convertible notes by four years. We are benefiting from the economic recovery in railcar manufacturing and leasing as expected. This is playing out through sequential monthly increases in manufacturing revenues and a meaningful increase in new order activity in our core North American markets. The ability to ramp production capacity is integral to protecting Greenbrier’s leadership position in the market.

“New orders will not increase linearly, but we expect commercial activity to remain strong as our $2.6 billion backlog provides a baseload of orders to support the expanded operation of production lines and our leasing business.” 

Business Update and Outlook 

“Greenbrier’s adherence to its core COVID strategy during the third fiscal quarter produced the best quarterly performance to date in fiscal 2021,” the company said. “Since March 2020, Greenbrier has practiced disciplined management to meet the realities of this once-in-100-years pandemic. Operating and commercial momentum is building. 

“In our domestic and international markets, Greenbrier’s core COVID strategy was and continues to be: 

• “Maintain a strong liquidity base and balance sheet.
• “Navigate the COVID-19 pandemic and the related economic crisis by safely operating our factories while generating cash flow.
• “Prepare for emerging economic recovery and forward momentum in our markets. Greenbrier is currently operating in this phase. 

“Greenbrier is well-positioned to navigate the immediate challenges of increasing production rates safely amidst the emerging COVID variants, while ensuring labor and supply chain continuity. Looking ahead, Greenbrier expects the fourth quarter to be the strongest performance of the year. A full quarter of increased production rates and business activity creates positive momentum into fiscal 2022.”

THE COWEN INSIGHT

“Greenbrier’s adjusted EPS was a significant beat, but included several unexpected favorable items relative to our estimates,” said Cowen and Company Transportation OEM Analyst Matt Elkott. “Adjusted EBITDA was 9% higher than our estimate and 57% above consensus. While manufacturing gross margin benefited from warranty resolutions, and leasing margin reflected higher syndication, the gain on equipment disposition was lower than our estimate.

“Adjusted EPS of $0.69 was significantly above our and consensus estimates of $0.02 and $0.13, respectively. But still, the adjusted result benefited from several items, including favorable warranty resolutions, higher syndication activity and a favorable impact from net earnings attributable to noncorroding interest, relative to our estimates.

“Adjusted EBITDA was $52.9MM, above our and consensus estimates of $48.4MM and $33.6MM, respectively. Normalizing for above-the-line items, adjusted EBITDA would have been closer to our estimate of $48.4MM, still well above consensus.

“Deliveries of 2,800 units were short of our estimate of 3,200 units, but production should ramp up materially in the company’s fourth fiscal quarter and beyond.

“Orders came in at 3,800 units, below our estimate of 4,700 units (see Car Conundrum: Amid Rising Demand, Look Who’s ‘Steeling’ the Show).

“Greenbrier expects the fourth quarter to be the strongest performance of the year. Our current fiscal 4Q EPS estimate is $0.59.

“GBX ended the quarter with liquidity of $850MM ($708MM at the end of fiscal 2Q21), including $628MM in cash ($593MM at the end of fiscal 2Q21) and $221MM of available borrowing capacity ($115MM at the end of fiscal 2Q21). The company has $149MM of additional initiatives in progress. The board declared a quarterly dividend of $0.27 per share, payable on August 18, 2021.”