Greenbrier: “Our Strategy Is Working”

Written by Andrew Corselli, Managing Editor
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“Greenbrier is successfully executing the dual priorities of protecting the safety and health of employees and preserving the economic well-being of our enterprise in this challenging environment,” said William A. Furman, GBX Chairman and CEO.

The Greenbrier Companies (GBX) reported financial results for its first fiscal quarter ended Nov. 30, 2019, and the highlights include orders for 4,500 diversified railcars valued at $450 million; railcar deliveries totaling 6,200 units; and the Board increasing the quarterly dividend 8% to $.27 per share, payable on Feb. 18, 2020, to shareholders as of Jan. 28, 2020.

Other Q1 highlights:

• Net earnings attributable to Greenbrier for the quarter were $7.7 million, or $.23 per diluted share, on revenue of $769.4 million. Quarterly results include $2.2 million, net of tax, ($.07 per share) of integration and acquisition-related expenses from the American Railcar Industries (ARI) acquisition.

• Adjusted net earnings attributable to Greenbrier for the quarter were $9.9 million, or $.30 per diluted share, excluding $.07 of ARI integration and acquisition-related expenses.

• Adjusted EBITDA for the quarter was $74.2 million, or 9.6% of revenue.

• Pre-tax ARI synergies of $2.8 million were achieved in the quarter. Annual synergy target of $15 million is affirmed.

• Orders subsequent to Q1 exceed 4,400 units driven by international sources, including a significant multi-year order in Brazil for new railcars. Additionally, an agreement to rebuild nearly 850 Brazilian railcars was finalized.

• New railcar backlog as of Nov. 30, 2019 was 28,500 units with an estimated value of $3.1 billion. Subsequent to the quarter, Greenbrier agreed in principle to remove 575 units in backlog in exchange for financial consideration.

“Greenbrier’s strategy of strengthening its core North American market, international diversification, talent development and growing the business at scale is working,” said William A. Furman, Chairman and CEO. “Employees performed well as we continued the integration of our largest-ever acquisition in North America. The synergies Greenbrier sought in acquiring the ARI manufacturing assets yielded $2.8 million in the first quarter, a good start toward achieving the fiscal 2020 synergy target of $15 million. Despite a weak North American freight railcar market, Greenbrier secured worldwide orders in the first quarter of 4,500 units valued at $450 million. Subsequent to quarter-end, Greenbrier received orders for nearly 4,400 railcars including a large multi-year order for our Greenbrier-Maxion JV in Brazil. Europe also recorded strong post-quarter orders. Included in post-quarter orders was a large award in North America from a customer in Saudi Arabia. These orders underline the traction Greenbrier is gaining internationally and the power of a developing globally integrated model. The December orders, along with Greenbrier’s backlog of 28,500 units at Nov. 30, worth more than $3 billion, provide good global visibility. Given overall progress through the first three months, we are on track to achieve our guidance for the year, although quarterly performance will not be linear.

“Greenbrier’s uneven performance in the first quarter of fiscal 2020 fell short of our expectations. Operating inefficiencies and component supply issues triggered lost production days and reduced production at one of our newly-acquired ARI facilities. Therefore, a higher proportion of quarterly railcar deliveries originated from our 50/50 joint venture at GIMSA in Mexico, which impacted net earnings. The operating inefficiencies and supplier issues are being addressed.

“Looking ahead, fiscal 2020 remains a year of execution and responsiveness to a rapidly changing demand environment. The ARI integration is complex, but progressing favorably. Likewise, we are continuing remedial actions at Greenbrier Rail Services including Repair, and expect these operations to improve through the year. Our focus remains on managing recent acquisitions, generating positive cash flow, and creating long-term shareholder value through efficient capital allocation.”

Fiscal 2020 Outlook

Based on current business trends and production schedules for fiscal 2020, Greenbrier believes:

• Deliveries will be between 26,000 and 28,000 units including Greenbrier-Maxion (Brazil), which will account for approximately 2,000 units.

• Revenue will be approximately $3.5 billion.

• Adjusted diluted EPS will be between $2.60 – 3.00 excluding approximately $20 – $25 million of pre-tax integration and acquisition-related expenses from the ARI acquisition.

Cowen Insight

“GBX maintained its FY20 guidance despite anemic conditions and a 1Q EPS/margin miss the company attributed to operating inefficiencies and component supply issues that triggered lost production days and led to higher deliveries from the 50/50 GIMSA joint venture,” according to Cowen and Company analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Adam Kramer. “1Q orders exceeded our estimate; and strong orders post 1Q were driven by international markets.”

“GBX maintained FY20 production guidance of 26K-28K railcars including 2K for Brazil’s Greenbrier-Maxion,” the analysts added. “This compares to our estimate of 27.6K units. The company projects $3.5 billion in revenue, compared to our and Street expectations of $3.5 billion and $3.4 billion, respectively. EPS is expected to be $2.60-$3, compared to our and consensus estimates of $2.80 and $2.81, respectively.”

“Fiscal 1Q20 EPS was $.30, below our and Street estimates of $.47 and $.43, respectively,” they said. “Fiscal 1Q20 adjusted EBITDA was $74.2 million, compared to our and consensus estimates of $80.1 million and $74.6 million, respectively. Revenue was $769.4 million, compared to our and Street expectations of $793.1 million and $748.2 million, respectively. The gross margin was 12%, compared to our estimate of 13.4% and consensus of 13.5%. The company attributed the lower margin to inefficiencies due to production delays and minimal syndication activity.”

“Fiscal 4Q19 orders and deliveries of 4,500 units and 6,200 units were above our estimates of 4,200 units and 5,900 units, respectively,” they said. “GBX noted that orders subsequent to Q1 exceed 4,400 units driven by international sources, including a significant multi-year order in Brazil for new railcars. Additionally, an agreement to rebuild nearly 850 Brazilian railcars was finalized.”

“The backlog was 28,500 units with an estimated value of $3.1 billion, reflecting a backlog ASP of $108.7K, compared to our estimate of $100.5K,” they concluded. “GBX indicated that subsequent to the quarter, the company agreed in principle to remove 575 units in backlog in exchange for financial consideration.”

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