Greenbrier: Tekorius Taking the Throttle; 4Q21 ‘Strong, Balanced’

“Greenbrier’s strong performance in the second quarter is the result of ongoing operational initiatives and robust syndication activity,” – Lorie L. Tekorius, CEO and President.

Following a fiscal fourth quarter marked by a 1.5x book-to-bill and more than $80 million of operating cash flow, The Greenbrier Companies, Inc. appointed President and Chief Operating Officer Lorie Tekorius as the company’s next CEO and President, succeeding Co-founder, Chairman and CEO William A. Furman. “continuing the company’s executive succession and talent pipeline process.”

Tekorius, a 26-year Greenbrier veteran and 2018 Railway Age “Women in Rail” honoree, assumes Greenbrier’s throttle on March 1, 2022. On that date, Furman will assume the newly created role of Executive Chair until his retirement. As announced in July 2020, Furman will retire from all executive offices in September 2022. His current Board term continues until January 2024. “In the months leading to March 2022, Tekorius will continue to refine the strategic planning work she and Furman have pursued since she was named President,” Greenbrier said.

“As Chairman and CEO, along with our Board, we have prioritized succession planning and talent development,” Furman, 76, said. “Greenbrier’s management model requires a high degree of cooperation and coordination among senior leadership. Adhering to this approach, the company has prospered. Lorie’s dedication to Greenbrier is indisputable. I am confident that she is a leader who will take Greenbrier boldly into the future, and as CEO will drive our business forward. Lorie and I have worked together toward this goal for a long time. I know she is well-prepared for all that lies ahead. I am very proud that Lorie will be our next CEO.” 

Tekorius, 54, joined Greenbrier in 1995. “She has since risen through positions of increasing leadership and impact across the company, including strategic planning and key roles interfacing with the Commercial and Manufacturing units,” the company noted. Prior to her appointment as President in 2019, she served as COO, and earlier as Senior Vice President and Chief Financial Officer, “and in executing her various duties, has built trust and confidence throughout Greenbrier and the freight rail industry. 

Lead Director Admiral Thomas B. Fargo (USN Retired) said, “Working closely with Bill, the Board evaluated a range of options over several years for an eventual CEO transition. It became evident that Lorie is by far the best candidate to serve as Greenbrier’s next CEO. The race for talent across industries is very real. Our Board is pleased we have been able to advance to CEO an internal candidate with Lorie’s range and record of service. We are confident Greenbrier will be well-served by her knowledge, experience and leadership.” 

Tekorius has received numerous public recognitions for her leadership in the rail industry and within the communities where Greenbrier operates. In addition to her “Women in Rail award in recognition of her contributions to the industry, in 2017 she was one of 25 recognized as “Women of Influence” by the Portland Business Journal. In 2018, the newspaper named Tekorius CFO of the Year. Tekorius was a 2020 National Association of Manufacturers’ STEP Ahead Honoree, awarded to women in science, technology, engineering and production careers who exemplify leadership at their companies. 

Since 2019, Tekorius has served as an independent director on the Board of Directors of Alamo Group Inc., a manufacturer of equipment for infrastructure maintenance, agricultural and other applications. she is an active community member, serving as President of the Providence St. Vincent Medical Foundation Council of Trustees. She holds a BBA in accounting from Texas A&M University and is a Certified Public Accountant. 

“It has been a privilege to devote the bulk of my career to Greenbrier, growing and learning every day,” Tekorius said. “I am truly honored and humbled to follow Bill as only the second CEO in Greenbrier’s history. I am confident that working collaboratively with our senior management team, we will meet the high expectations of all our stakeholders.” 

Furman Legacy

Bill Furman began his career with FMC Corporation (FMC), a Fortune 500 multinational industrial company. At the age of 25, he became the first general manager of the FMC Finance division, a captive sales finance arm for FMC that he founded. Subsequently, Furman joined Trans Pacific Financial Corporation, a publicly traded financial services company in Portland, Ore. Until 1974, he was Corporate Vice President of Trans Pacific’s Leasing Group, responsible for all phases of its operations. In late 1974, Furman and Alan James acquired the Trans Pacific National division, a capital lease asset underwriter and entered the railcar and commercial jet aircraft remarketing and asset management business. This acquisition would eventually lead to the founding of Greenbrier in its present form in 1981. The original leasing company expanded into manufacturing with the acquisition of Gunderson in Portland in 1985 from FMC. 

“Bill Furman has guided Greenbrier to exceptional growth through broad expansion of its products and service offerings,” the company. “What was once two railcar production lines is now a multibillion-dollar global production operation, which includes 12 facilities on three continents, integrated with aftermarket, leasing and services businesses. Greenbrier has become one of the largest freight railcar builders measured by revenue and market share in the world. The company is a critical Jones Act marine barge supplier to domestic U.S. overseas shippers. Since Greenbrier became a publicly traded company in 1994, its market capitalization has grown by more than $1.4 billion.” 

4Q21 and FY21 Results 

Greenbrier’s FY4Q21 results include new railcar orders for 6,700 units valued at $665 million and deliveries of 4,500 units, resulting in a 1.5x book-to-bill, the third consecutive quarter with a book-to-bill over 1.0x. The diversified new railcar backlog as of Aug. 31, 2021 was 26,600 units with an estimated value of $2.8 billion. The company ended the quarter with liquidity of $835 million, including $647 million in cash and $188 million of available borrowing capacity, and operating cash flow exceeding $80 million. 

Net earnings for the quarter were $32 million, or $0.95 per diluted share, on revenue of nearly $600 million. Net earnings included $1.2 million ($0.03 per share) of loss on extinguishment of debt, net of tax. Adjusted net earnings were $33 million, or $0.98 per diluted share, and EBITDA for the quarter was $70 million. The company contributed nearly $70 million of assets into GBX Leasing, which is funded with a combination of equity and non-recourse debt and consolidated in Greenbrier’s financial statements. The Board declared a quarterly dividend of $0.27 per share, payable on Dec. 2, 2021 to shareholders of record as of Nov.11, 2021 representing Greenbrier’s 30th consecutive quarterly dividend. 

For Greenbrier’s full Fiscal Year 2021, the company reported diversified new railcar orders of 17,200 units valued at $1.8 billion, and deliveries of 13,000 units resulted in 1.3x book-to-bill. COVID-19 related expenses for the year totaled nearly $10 million (pre-tax). Net earnings were $32 million, or $0.96 per diluted share, on revenue of $1.7 billion. Net earnings included $5 million ($0.14 per share) of loss on extinguishment of debt, net of tax, associated with debt refinancing of nearly $1.5 billion, “effectively doubling the maturity profile of Greenbrier’s debt.” Adjusted net earnings were $37 million, or $1.10 per diluted share, excluding the loss on debt extinguishment. EBITDA was $145 million, or 8.3% of revenue.

GBX Leasing was formed in April 2021 “to create stable, tax-advantaged cash flows,” the company said. Nearly $200 million of railcars were contributed in fiscal 2021 that were levered 3:1, utilizing a $300 million non-recourse warehouse credit facility secured at formation. Subsequent to year end, Greenbrier acquired a portfolio of 3,600 railcars, accelerating its enhanced railcar leasing strategy. Under a provision of the CARES Act, Greenbrier invested in our lease fleets, which created net operating losses for tax purposes that were carried back to prior years with higher federal tax rates. This activity resulted in tax benefits that generated $1.09 per diluted share of earnings over the course of FY2021.”

“Greenbrier continued to build momentum during our fourth fiscal quarter as the recovery in the North American railcar market progresses,” Furman noted. “We achieved our fifth sequential quarterly increase in new orders during the quarter, with new orders totaling 6,700 units valued at $665 million. Greenbrier also completed a comprehensive $1.5 billion refinancing plan that extended maturities into 2026 and beyond. Combined with the $300 million GBX Leasing warehouse credit facility, Greenbrier completed $1.8 billion of financings in fiscal 2021. Our strong financial position and $2.8 billion backlog supports Greenbrier’s proven ability to adjust production capacity in response to growing demand. It also uniquely positions Greenbrier to participate meaningfully in the post-pandemic recovery. Momentum continues to build in our international markets with approximately 30% of our backlog for delivery in Europe and Brazil.

“Our strategic focus remains unchanged as we enter FY2022, particularly given challenges brought about by inflationary pressures, labor shortages and supply chain issues. The market recovery will not be linear, and for this reason, we are pleased to have recently increased the scale of our lease fleet through our GBX Leasing joint venture. Our lease fleet investment provides Greenbrier tax-advantaged cash flows and reduces our exposure to the inherent cyclicality of freight transportation equipment manufacturing. All factors considered, Greenbrier is extremely well-positioned to continue to grow and deliver value to our shareholders.” 

Business Update, Outlook 

Greenbrier said its strategy during its fourth fiscal quarter “produced strong operating performance while balancing economic and labor volatility. Since March 2020, Greenbrier has practiced disciplined management to meet the challenges created by the COVID-19 pandemic. Greenbrier’s near-term strategic focus continues to be maintaining a strong liquidity base and balance sheet; navigating the COVID-19 pandemic and economic crisis by safely operating our factories while generating cash, and preparing for economic recovery and forward momentum in our markets. Greenbrier is well-positioned to navigate the challenges of increasing production rates safely, while ensuring labor and supply chain continuity.” 

Based on current trends and production schedules, Greenbrier expects deliveries of 16,000-18,000 units, including approximately 1,500 units in Greenbrier-Maxion (Brazil); selling and administrative expenses of $200-$210 million; and capital expenditures consisting of $275 million in Leasing & Service, $55 million in Manufacturing and $10 million in Wheels, Repair & Parts. 

The Cowen Insight

“Revenue was a mild miss,” noted Cowen and Company transportation equipment analyst Matt Elkott. “Gross margin was a beat, aided in part by syndication activity in Manufacturing, and by lease modification fees. Operating income was just shy of consensus. EPS was a strong beat, aided by below-the-line items. FY22 production guidance is below our estimate; and SG&A expense guidance is higher than our and consensus estimates. The stock could see pressure today (Oct. 26).

“The new clarity on management transition should be well-received, but on the balance, the stock could come under pressure as a reaction to what we see as a noisy quarter, an EPS beat aided by non-core items, and guidance below our expectations. This affirms our near-term cautious view, but we remain constructive longer term as the company is well-positioned for a manufacturing recovery that is being pushed out somewhat by steel prices and supply chain issues.

“Adjusted EPS of $0.98 was above our and Street estimates of $0.70 and $0.74, respectively. The beat, relative to our estimates, was aided by below-the-operating-line items. Adjusted EBITDA was $70MM, compared to our and consensus estimates of $80MM and $69MM, respectively. Operating income was $43.1 MM, compared to our and consensus estimates of $53 MM and $43.7 MM, respectively. SG&A was higher than our estimate. Revenue was $599.2MM, below our and Street expectations of $616.1 MM and $610.4 MM, respectively. The gross margin was 16.4%, above our and consensus estimates of 14.8% and 14.6%, respectively. This was partly aided by syndication activity in Manufacturing, and lease modification fees.

“Deliveries of 4,500 units compared to our estimate of 4,700 units. Orders came in at 6,700 units, above our estimate of 5,500 units.

“GBX ended the quarter with liquidity of $835MM ($850MM at the end of fiscal 3Q21), including $647MM in cash ($628MM at the end of fiscal 3Q21) and $188MM of available borrowing capacity ($221MM at the end of fiscal 3Q21). The board declared a quarterly dividend of $0.27 per share, payable on Dec. 2, 2021.”