Greenbrier Outlook: ‘Increasingly Optimistic’

“Greenbrier is well-positioned for an economic recovery,” Chairman and CEO William A. Furman said. “Our pipeline of new business inquiries in North America has expanded dramatically in the last 30 days.”

Greenbrier’s fiscal second-quarter 2021 financial results (the company begins its fiscal year on Sept. 1 of the prior year) are based on a $2.5 billion railcar backlog of 24,900 as of Feb. 28.

The backlog includes second-quarter orders of 3,800 units valued at more than $440 million. “Strong liquidity” will ready the company for an “upcoming recovery,” it reported April 6.

Greenbrier has also completed the formation GBX Leasing, a railcar leasing joint venture with The Longwood Group, which was announced Feb. 5. Greenbrier said it initially owns about 90% of GBX Leasing, with Longwood, a Chicago-based transportation equipment advisory and asset management firm, owning the balance.

In what Greenbrier expects will be “our most challenging quarter of the fiscal year,” the company reported second-quarter revenue of $295.6 million, down 26.65% from the prior quarter’s $403.0 million, due to “37% fewer deliveries, reflecting a weak demand environment and extreme winter weather.” Deliveries came in at 2,100 units, a 1.8x book-to-bill, the company reported.

“Our near-term outlook is becoming increasingly optimistic as rail fundamentals improve,” Chairman and CEO William A. Furman said. “Rail loadings are up year-to-date, driven by increased traffic in grain, intermodal and other categories. Railroad velocity has slowed by nearly 2 mph. Railcars in storage have decreased by more than 148,000 units from the 2020 peak storage level. Proposed environmental and other regulations in both North America and Europe should support secular demand for rail as a growing mode for freight transport. Fiscal stimulus and proposed infrastructure legislation are expected to further add to demand.”

Among Greenbrier’s other second-quarter highlights:

• Immediate liquidity of $708 million, which includes $593 million in cash and $115 million of available borrowing capacity. Greenbrier noted that “combined with nearly $100 million of liquidity initiatives in progress,” the total is more than $800 million.
• Operating cash flow included inventory accumulation of $48 million to “support manufacturing production increases beginning in fiscal third-quarter 2021, and a $44 million increase in leased railcars for syndication.”
• COVID-19 related expenses were $2.5 million (pre-tax); for first-half fiscal 2021, they were $6.4 million (pre-tax).
• Net loss attributable to Greenbrier for the quarter was $9 million, or $0.28 per diluted share, on revenue of $296 million. The loss includes $16 million in “anticipated federal income tax benefit resulting from loss carryback provisions,” according to Greenbrier.
• Adjusted EBITDA was negative $1 million.
• Subsequent to quarter-end, GBX Leasing completed an “initial funding of nearly $100 million from a new $300 million non-recourse railcar warehouse credit facility and intends to be levered by approximately 3-to-1 debt to equity,” the company reported. GBX Leasing will own and manage a portfolio of leased railcars primarily built by Greenbrier. The “special purpose subsidiary,” the company said, will “acquire approximately $200 million per annum of newly built and leased railcars from Greenbrier. The initial portfolio for GBX Leasing has been identified from leased railcars on Greenbrier’s balance sheet or in its backlog.”

“Greenbrier is well-positioned for an economic recovery,” Furman said. “Our pipeline of new business inquiries in North America has expanded dramatically in the last 30 days. Greenbrier’s ability to adjust production capacity to meet our market outlook enables us to rapidly ramp manufacturing as we earn new railcar orders. We have already restarted several production lines supported by firm orders to meet increased demand.”

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

“Greenbrier has practiced disciplined management to meet the realities of this historic time. Our core strategy since March 2020 has been and continues to be:
“1. Maintain a strong liquidity base and balance sheet.
“2. Navigate the COVID-19 pandemic and the related economic crisis by safely operating our factories while generating cash.
“3. Prepare for emerging economic recovery and forward momentum in our markets, which we expect to expand during the latter half of calendar 2021. Greenbrier is currently operating in this phase.”

Looking ahead, the company “expects the second half of fiscal 2021 to be stronger than the first half, reflecting increased production rates and stronger activity across the business. Greenbrier’s ability to achieve more than $700 million of total liquidity, with another $100 million of initiatives in process, allows us to weather unanticipated setbacks in the emerging economic recovery. Our $2.5 billion backlog provides a baseload of orders to support continuous production lines. These factors position us to deploy our balance sheet opportunistically, as we have done with GBX Leasing. The recently announced joint venture complements Greenbrier’s existing commercial platform and will create stable, tax-advantaged cash flows, reducing our exposure to the new railcar order and delivery cycle.”

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

Cowen Insight

Greenbrier’s fiscal second-quarter 2021 results “were a big miss to our and Street estimates,” Cowen and Company Transportation OEM Analyst and Vice President Equity Research Matt Elkott said. “We see this in part as a reflection of demand weakness in past periods and weather disruptions in the quarter. Orders and the order ASP came in 12% and 26% above our estimates, respectively. The ongoing improvement in freight and rail equipment fundamentals bodes well for GBX [Greenbrier] in the second fiscal half and next year.”

Key takeaways from Cowen:

• “Deliveries of 2,100 units were far short of our estimate of 3,100 units. This was a reflection of demand weakness over the last few quarters as well as winter weather disruptions in fiscal 2Q21. Revenue declined 53% y/y to $295.6 MM, well below our and consensus estimates of $436.7 MM and $386.6 MM, respectively. Adjusted EBITDA was a loss of $1.3 MM, compared to our and Street forecasts of gains of $35.9 MM and $23.6 MM, respectively.

• “Orders came in at 3,800 units, above our estimate of 3,400 units, above the 2,900 units received in the prior fiscal quarter, but below the same quarter last year of 8,500 units.
• “GBX ended the quarter with liquidity of $708 MM ($810 MM at the end of fiscal 1Q21), including $593 MM in cash ($725 MM at the end of fiscal 1Q21) and $115 MM of available borrowing capacity ($85 MM at the end of fiscal 1Q21). The company has $100 MM of additional initiatives in progress. The board declared a quarterly dividend of $0.27 per share, payable on May 12, 2021.”