Greenbrier 4Q22: ‘Strong End’ to Fiscal Year

“Our outlook for Greenbrier's business is broadly optimistic for fiscal 2023 despite uncertain macroeconomic conditions," said President and CEO Lorie Tekorius."

Greenbrier on Oct. 27 reported fourth-quarter 2022 results, which marked a “strong end” to its fiscal year and “demonstrates the value of its diverse business activities,” said President and CEO Lorie Tekorius.

“Despite challenges throughout the year, including ongoing supply chain disruptions, increasing input costs and the war in Ukraine, our operations are building momentum,” Tekorius added.

Greenbrier’s fiscal fourth-quarter 2022 financial results (the company begins its fiscal year on Oct. 1 of the prior year) are based on “a strong source of liquidity,” and new railcar orders for 4,800 units valued at $620 million and deliveries of 5,800 units. As of Aug. 31, Greenbrier’s backlog was 29,500 units with an estimated value of $3.5 billion.

“Greenbrier achieved a book-to-bill rate of 1.2x for fiscal 2022 on orders for 24,600 units during the fiscal year,” said Tekorius. “Greenbrier also continued to execute our leasing strategy, increasing the number of railcars in the lease fleet in 2022 by nearly 40% to 12,200 units. Importantly, our expanded leasing platform is protected from interest rate risk since our leasing debt is non-recourse and at fixed interest rates. Our lease platform offers a strong source of liquidity, as demonstrated by robust syndication activity in 2022,” Tekorius added.

Among Greenbrier’s other fourth-quarter highlights:

• Railcar refurbishment backlog of 2,300 units valued at $170 million.
• Ended the quarter with liquidity of $690 million, including $543 million in cash and $147 million of available borrowing capacity.
• Operating cash flow of nearly $180 million.
• Net earnings attributable to Greenbrier for the quarter were $20 million, or $0.60 per diluted share, on revenue of $950 million.
• EBITDA for the quarter was $89 million, or 9.3% of revenue.
• Finalized $150 million non-recourse term loan at Greenbrier leasing subsidiary with $75 million drawn immediately and $75 million expected to be drawn in fiscal 2023. Terms are like the leasing term loan refinanced in August 2021.
• Board declared a quarterly dividend of $0.27 per share, payable on November 29, 2022, to shareholders of record as of November 8, 2022, representing Greenbrier’s 34th consecutive quarterly dividend.

Greenbrier’s Fiscal Year 2022 highlights include:

• Diversified new railcar orders of 24,600 units valued at $2.9 billion and deliveries of nearly 20,000 units.
• Regular lease fleet optimization and monetization generated $155 million of proceeds and $35 million of gains.
• Net earnings attributable to Greenbrier were $47 million, or $1.40 per diluted share, on revenue of nearly $3.0 billion.
• In February, GBX Leasing completed issuance of $323 million of asset-backed notes with a blended interest rate of 2.9% and a weighted average life of six years.
• Fixed the interest rate on most long-term floating rate debt to mitigate risk in current rising rate environment. No significant debt maturities until 2026.
• EBITDA was $231 million, or 7.8% of revenue.

As part of a business update and a 2023 outlook, Tekorius said:

“Our outlook for Greenbrier’s business is broadly optimistic for fiscal 2023 despite uncertain macroeconomic conditions. Our backlog of nearly 30,000 units, valued at $3.5 billion, coupled with our strong liquidity position, provides visibility and an opportunity to drive higher performance, building on the momentum in our business. We expect railcar utilization levels to remain high as scrapping continues to outpace new deliveries contributing to a strong North American leasing market for originations and lease renewals.”

Greenbrier’s strategy during the fourth quarter “produced strong operating performance amid ongoing economic volatility,” the company said. Based on current trends and production schedules, Greenbrier expects the following performance in fiscal 2023:

• Deliveries of 22,000 – 24,000 units including approximately 1,000 units in Greenbrier-Maxion (Brazil).
• Revenue at $3.2 – $3.6 billion.
• Capital expenditures at approximately $240 million in Leasing & Management Services, $80 million in Manufacturing and $10 million in Maintenance Services.
• Proceeds of equipment sales are expected to be approximately $100 million.
• Build and capitalize into the lease fleet approximately 2,000 units. These units are not included in the delivery guidance.

More details can be found through Greenbrier’s Financial page.

Cowen Insight

Greenbrier reported a “strong all-around beat to our and consensus estimates despite headwinds to EPS below the line relative to our model,” said Cowen Transportation OEM Analyst and Vice President Equity Research Matt Elkott. “The gross margin was strong and exceeded expectations. FY23 delivery guidance is above our projections, while revenue guidance is largely in line with our estimate and above consensus.

Key takeaways from Cowen:

• The transportation OEM industry is highly cyclical; the timing of the cyclicality may be difficult to predict; and down cycles could weigh on the top and bottom lines of companies in the sector.
• The industry is highly dependent on the North American and global economies. Economic downturns could pose a threat to the companies’ earnings power.
• Fluctuations in the price of steel and other materials used in the manufacture of equipment could be unfavorable at times.
• Currency fluctuations could negatively impact production costs and demand for finished products.
• Potentially unfavorable shifts in freight among transportation modes, such as between rail and trucking, could impact demand for certain types of transportation equipment.
• Among other risk factors are relatively high capital expenditure requirements, a relatively high fixed cost structure, regulatory risk and litigation risk.

According to Elkott, Greenbrier’s shares are rated “Outperform.” Risks to Cowen’s rating and price target include:

“Worse-than-expected economic downturns could pressure demand for industrial manufacturing. Lower demand for freight rail transportation could negatively affect Greenbrier’s railcar backlog. The freight and industrial manufacturing sectors are highly cyclical, and the markets in which Greenbrier operates are no exception. In a rising demand environment, Greenbrier may not be able to ramp up its manufacturing capacity quickly enough to fully capitalize on the increased demand, while in a contraction the company may not be able to ramp down quickly enough to avoid material earnings declines. Manufacturing tends to also be choppy, with backlog changes and order levels being difficult to predict. This could lead to earnings volatility, which could manifest in the stock performance. Unfavorable government regulations and currency fluctuations could also negatively affect Greenbrier’s earnings.”