Greenbrier Posts Strong 2Q

The Greenbrier Companies, Inc. reported financial results for its second fiscal quarter ended Feb.28, 2023. Among the results were a GAAP EPS of $0.97, a fleet utilization increase to 99%, and adjusted EPS of $0.99, excluding Gunderson exit-related costs.

Second-Quarter Highlights

• New railcar orders for 4,500 units valued at $580 million and deliveries of 7,600 units.
• New railcar backlog of 25,900 units with an estimated value of $3.1 billion as of Feb. 28, 2023; excludes railcar conversion backlog of 1,200 units valued at $100 million.
• Quarter end liquidity increased to $816 million, including $380 million in cash and $436 million of available borrowing capacity at quarter-end.
• Operating cash flow of nearly $160 million.
• Net earnings attributable to Greenbrier for the quarter was $33 million, or $0.97 per diluted share, on revenue of $1.1 billion. Results include $0.7 million ($0.02 per share), net of tax, of Gunderson exit-related costs.
• Adjusted net earnings attributable to Greenbrier of $34 million or $0.99 per diluted share.
• Adjusted EBITDA of $98 million, or 8.7% of revenue.
• Repurchased 575,000 shares of stock for $17 million; $75 million of share repurchase authorization remaining after March activity.
• Quarterly dividend of $0.27 per share, payable on May 16, 2023 to shareholders of record as of April 25, 2023, representing Greenbrier’s 36th consecutive quarterly dividend.

Business Update and Outlook

“Based on current trends and production schedules,” Greenbrier is updating guidance for its fiscal 2023:

• Deliveries of 23,000 to 25,000 units, including approximately 1,000 units in Greenbrier-Maxion (Brazil).
• Revenue of $3.4-$3.7 billion.
• Capital expenditures of $290 million in Leasing & Management Services, $80 million in Manufacturing and $15 million in Maintenance Services. Proceeds of equipment sales are expected to be approximately $70 million; build and capitalize into the lease fleet approximately 2,500 units. These units are not included in the delivery guidance.
• Consolidated gross margin percentage in the low double-digits is unchanged.

“Greenbrier’s strong performance in the second quarter is the result of ongoing operational initiatives and robust syndication activity,” said Lorie L. Tekorius, CEO and President. “Railcar orders remained stable throughout the quarter, comprised of a broad range of railcar types. Business improved across the company as revenue and margin increased sequentially in each operating segmen. We are excited to share our multi-year strategy to optimize our future performance as we will describe in detail at our Investor Day on April 12, 2023. While outcomes won’t be linear, we are already seeing progress in our manufacturing and services businesses and expect margin to improve on a steady or increasing revenue base in future periods.”

TD Cowen Insight

“We update our GBX model ahead of the company’s April 12 investor day,” notes TD Cowen Vice President, Surface Transportation Equity Research Matt Elkott. “We see a favorable near-term setup for the shares heading into the company’s first investor day.

“Our fiscal 3Q23 and fiscal 4Q23 estimates change to $0.60 and $0.89, from $0.97 and $1.17, respectively, to reflect an updated delivery cadence as fiscal 2Q deliveries were significantly higher than our original expectations and likely the Street’s. Our FY23 and CY23 EPS estimates of $2.53 and $3.60, respectively, remain intact. Our unchanged $47 price target is based on our CY23 EPS estimate and the same 13x multiple. We’re introducing our FY24 and CY24 EPS estimates of $3.68 and $3.60, respectively. We’re assuming largely flat production in FY24. We believe deliveries will be more predictable and have a more even cadence than the prior few years. We assume fewer line changeovers, better access to labor and components, and a somewhat higher mix of tank cars. All these factors should result in a less volatile manufacturing gross margin in the low double digits —our model reflects 10.0% for the full year, up from our 7.8% FY23 estimate. Our consolidated FY24 gross margin estimate is 12.6%, up from our FY23 estimate of 10.8%. The company continues to guide for a consolidated FY23 gross margin in the low double digits.

“The strong results were driven primarily by higher production (including timing of syndication activity), higher revenues in the maintenance services and leasing segments, improved operating efficiencies, which helped to drive a 50bps sequential manufacturing gross margin improvement, and higher gains on asset disposition (~$0.19/sh benefit relative to our model assumption).

“GBX ended the quarter with $816MM of liquidity ($477MM at the end of 1Q), including $380MM in cash ($263MM at the end of 1Q). The company repurchased 575K shares of stock for $17MM. $75MM of share repurchase authorization remains after the March activity. The board declared a quarterly dividend of $0.27 per share, payable on May 16, 2023 to shareholders of record as of April 25, 2023, representing GBX’s 36th consecutive quarterly dividend.

“We expect railcar industry builds to be higher than what consensus appears to imply in 2023, and GBX is well positioned to be a key participant, especially after the ARI acquisition. Valuation remains compelling. We rate GBX Outperform.”