Greenbrier FY4Q20: ‘Solid Results’

Greenbrier’s fiscal fourth-quarter 2020 financial results (the company begins its fiscal year on Oct. 1 of the prior year) are based on a “strong liquidity position,” and a $2.4 billion railcar backlog of 24,600 as of Aug. 31, which includes fourth-quarter orders of 2,800 cars valued at approximately $250 million.

In a “very challenging market environment,” Greenbrier reported fourth-quarter revenue of $636.4 million, down 16.5% from the prior quarter’s $762.6 million, due to “fewer deliveries and lower activity levels in Wheels, Repair & Parts.”

“Looking forward, we see early signs that demand will improve later in calendar 2021,” Chairman and CEO William A. Furman said. “Greenbrier is well-positioned to benefit from improving conditions in our core markets.”

Among Greenbrier’s other fourth-quarter highlights:

• Liquidity of $919.6 million, including $833.7 million in cash and $85.9 million of available borrowing capacity. Combined with nearly $200 million of additional initiatives in progress, exceeded the $1 billion liquidity and cost savings target.
• Generated operating cash flow of $183.2 million in the quarter primarily driven by decreases in working capital and from syndication activity.
• Diversified new railcar backlog as of August 31, 2020 was 24,600 units with an estimated value of $2.4 billion, including orders for 2,800 railcars valued at approximately $250 million received during the quarter. Deliveries in the quarter were 5,100 units.
• Net loss attributable to Greenbrier for the quarter was $0.1 million, or $0.00 per diluted share, on revenue of $636.4 million. Net loss includes $1.9 million, net of tax, ($0.06 per share) of integration related expenses from the American Railcar Industries (ARI) acquisition and $3.6 million, net of tax and non-controlling interest, ($0.10 per share) of severance expenses.
• Adjusted net earnings attributable to Greenbrier for the quarter were $5.5 million, or $0.16 per diluted share, excluding $5.5 million, net of tax, ($0.16 per share) of integration and severance expenses.
• Adjusted EBITDA for the quarter was $55.7 million, or 8.7% of revenue.

“Greenbrier continued to perform well during this period of weaker demand,” Furman said. “Critically, our diverse $2.4 billion backlog remains supported by strong customer commitments and provides clear visibility for several years. Entering fiscal 2021, we remain focused on maintaining our strong liquidity position. Greenbrier ended the quarter with more than $830 million of cash, an increase of nearly $100 million from the end of the third quarter. Net debt decreased by nearly $360 million since Greenbrier’s fiscal second quarter. Our adjusted manufacturing footprint meets today’s demand levels without constraining our ability to increase capacity as markets improve, allowing Greenbrier to maintain our presence in every region we serve around the world.”

As part of a business update and a 2021 outlook, the company said:

“As we enter fiscal 2021, Greenbrier continues to execute on its COVID-19 response plan, and protecting our employees within the work environment remains our top priority. The strict protocols enacted and rapid response to clusters has allowed us to operate safely and efficiently throughout the world. Continued vigilance is required as community spread of COVID-19 is increasing in many areas where we operate. We are continuously working to maintain a low incident rate of COVID-19 among our employees by focusing on their health and enhancing the preventative and remedial actions of our rapid response teams across the company.

“We also remain focused on preserving the near-term and longer-term financial health of Greenbrier in light of the economic consequences of the pandemic and an industry downturn. Maintaining cash flow and liquidity are essential components of Greenbrier’s current operating strategy, and we have been very successful in this regard. We addressed our cost structure by reducing operating expenses and capital expenditures and are appropriately positioned for today’s market environment. We closed 13 rail production lines in fiscal 2020 and are continuously adjusting capacity to align with an evolving demand outlook. We also reduced our global workforce by over 6,500 employees, or by about 40%, including both staff and production employees. Looking forward, while we remain focused on managing our cost base, we will be nimble and adjust capacity to ensure Greenbrier’s ability to fully participate in an economic recovery. Coupled with a new railcar backlog valued at approximately $2.4 billion, we have preserved Greenbrier’s ability to operate in a very challenging market environment.”

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

Cowen Insight

Greenbrier’s fourth quarter 2020 showed “solid results, but expect volatility as investors try to gauge” the Calendar Year (CY) 2021 outlook, Cowen Transportation OEM Analyst and Vice President Equity Research Matt Elkott said. “Adjusted fiscal 4Q20 EPS was a miss to our and Street estimates, but lower gains on asset disposition were one of the culprits. Gross margin also missed, while revenue, deliveries and orders exceeded our projections. GBX [Greenbrier] noted early signs that demand will improve later in CY21 but did not provide guidance.”

Key takeaways from Cowen:

• “Adjusted fiscal 4Q20 EPS of $0.16 was below last year’s result of $1.31 and the $1.05 reported in this fiscal year’s third quarter. This represented a miss to our and consensus estimates of $0.24 and $0.30, respectively. However, net gain on asset disposition was well below our estimate and hurt the result by roughly $0.14/sh[are] relative to our model, while a lower tax rate helped the result by $0.05/sh[are] relative to our estimate. Adjusted for these variances, EPS would have been ~$0.25, compared to our $0.24 estimate and consensus of $0.30. The gross margin was 10.5%, below our 11.5% estimate and consensus of 12.0%.
• “Orders came in at 2,800 units, above our estimate of 2,500 units, above the 800 units received in the prior fiscal quarter, but below the same quarter last year of 4,900 units.
• “GBX ended fiscal 4Q20 with more than $830MM of cash, up ~$100MM from the end of fiscal 3Q20. Net debt decreased by ~$360MM since Greenbrier’s fiscal 3Q20.
• “We believe that the preemptive cost and capacity actions the company had been planning earlier this year to deal with a cyclical downturn have proven to be critically important in navigating the extraordinary macro challenges brought about by the pandemic.”