KeyBanc: 18 months of “theoretical production visibility”

The Railway Supply Institute American Railway Car Institute Committee published its railcar industry order, delivery and backlog statistics for 1Q17 on April 25. Orders in the quarter declined sequentially to 4,814 cars from 4,866 cars in 4Q16. The industry delivered 10,042 railcars in the quarter, following last quarter’s delivery figure of 14,914 railcars. The backlog now stands at 60,471 railcars, down 9.3% from the prior quarter’s level of 66,681 cars.

“Industry book-to-bill came in at 0.5x, slightly higher than last quarter’s figure of 0.3x,” notes KeyBanc Capital Markets Industrial Machinery Analyst Steve Barger. “In the quarter, respective book-to-bill for tank and non-tank activity was 0.7x and 0.4x, vs. 0.2x and 0.4x, respectively, in 4Q16.

Non-tank freight car orders totaled 3,225 railcars in the quarter, vs. 3,977 non-tank cars in 4Q16. Covered hoppers, which showed the largest concentration in orders, totaled 2,575 railcars or 53% of the total orders (below last quarter’s 54%), with medium-cube covered hoppers representing the majority of the orders at 1,237 cars, vs. 1,284 cars ordered in 4Q16. Orders for large-cube and small-cube covered hoppers were 841 and 497 cars, respectively, vs. 1,150 and 195, respectively in 4Q16. Industry orders for tank cars totaled 1,589 vs. 4Q16 orders for 889 tanks. Together, tank and covered hoppers accounted for over 86% of total orders in the quarter vs. 72% last quarter.

Deliveries came in at 10,042 in the quarter (2,389 tank cars and 7,653 freight cars). 1Q17 tank deliveries decreased ~38% sequentially. “We think current tank car deliveries imply the industry has ~4.7 quarters of tank backlog visibility,” Barger said.

The industry backlog stands at 60,471 railcars, down from 4Q16’s level of 66,681 railcars. “On current deliveries, we think the backlog implies just over six quarters of theoretical production visibility. The tank backlog decreased ~7% sequentially to 16,999 cars. The non-tank backlog decreased to 43,472 railcars, down from last quarter’s 48,337 railcars. We think industry backlog continues to trend toward a more ‘normalized’ concentration of car types consisting of 28% tank, 26% small-cube covered hopper, 18% medium-cube covered hopper, and 12% large-cube covered hopper.”

“Additionally, the industry data implies a net cancellation of 982 railcars primarily within tank cars,” Barger noted. “Specifically, the data implies a cancellation of 413 non-intermodal flat cars and 545 tank cars. We think railcar OEMs continue to have limited discussions with customers regarding deferrals of deliveries or order revisions, particularly for customers serving the energy patch.”