Trinity: ‘Strong 4Q21 Highlights Improving Market Conditions’

Written by Marybeth Luczak, Executive Editor
Trinity Industries President and CEO Jean Savage

Trinity Industries President and CEO Jean Savage

For Trinity Industries’ Rail Products Group, “margins were positive, and railcar orders and deliveries were strong” in fourth-quarter 2021, President and CEO Jean Savage reported during a Feb. 17 earnings announcement. “The labor and supply chain challenges that have affected performance continued in the fourth quarter, but the company is seeing improvement as market conditions start to normalize.”

The Railcar Leasing and Management Services Group at Trinity continues to see “lease rate improvement and strong utilization,” Savage said. “We once again saw the Future Lease Rate Differential sequentially improve this quarter to a positive 2.2% showing strong momentum for replacement rates.”

Trinity reported total company revenues of $472 million for the three months ending Dec. 31, 2021, up 31.28% from the prior-year period’s $357.7 million. It attributed this to “higher external deliveries in the Rail Products Group.” For full-year 2021, revenues were $1.516 billion, down 13.36% from 2020’s $1.749.7, due to “lower deliveries in the Rail Products Group,” according to Trinity.

Rail Products Group revenues came in at $402.1 million in fourth-quarter 2021, rising 28.34% from $313.4 million in 2020. The company said this reflects a “higher volume of deliveries and competitive pricing.” In the three months ended Dec. 31, 2021, the Group delivered 2,805 railcars; received orders for 5,360 railcars, valued at $597.7 million; and had a backlog value of $1.5168 billion. This compares with fourth-quarter 2020’s 2,235 railcars delivered; 1,170 railcars ordered, valued at $116.7 million; and a backlog value of $1.0145 billion. Trinity attributed the higher orders in fourth-quarter 2021 to “improving market fundamentals.” They were were “driven by freight car orders supporting the agriculture, chemicals and construction markets,” according to the company.”

For the Railcar Leasing and Management Services Group, revenues were $181.2 million, down 4.28% from fourth-quarter 2020’s $189.3 million. Fleet utilization came in at 95.7% in fourth-quarter 2021 vs. 94.5% in the prior-year period.

Among Trinity’s other financial and operational highlights:

For fourth-quarter 2021:
• Income from continuing operations per common diluted share (EPS) of $0.16 and quarterly adjusted EPS of $0.08.
• Repurchases of approximately 13.9 million shares at a cost of $402 million.

For full-year 2021:
• Reported EPS of $0.38 and adjusted EPS of $0.34.
• Full-year cash flow from continuing operations and total free cash flow after investments and dividends (Free Cash Flow) were $616 million and $539 million, respectively.
• Repurchases of approximately 28.5 million shares at a cost of $807 million.

2022 Outlook

Trinity offered the following guidance for this year:
• Industry deliveries of 40,000 to 50,000 railcars.
• Net investment in the lease fleet of $450 million to $550 million.
• Manufacturing capital expenditures of $35 million to $45 million
• EPS of $0.85 to $1.05.

Management Insight

“Trinity’s strong fourth quarter highlights improving market conditions and reinforces the company’s commitment to optimize its portfolio and return substantial capital to its shareholders,” Jean Savage said. “The company completed the divestiture of its highway products business and immediately returned the $375 million in proceeds through share buybacks. Additionally, Trinity once again raised its quarterly dividend. For the full year, Trinity returned $895 million to shareholders through dividends and share repurchases.”

“Market activity is improving, and this trend should continue into 2022,” Savage continued. “We expect replacement level demand for railcars, and we continue to utilize our sustainable railcar conversion program to optimize our lease fleet and meet changing demand.

“I am proud of the way our company has navigated the challenges of 2021, and I am optimistic about the year ahead. The company is on target to reach the goals we have laid out, and Trinity’s integrated platform gives us great positioning to take advantage of the current market.”

More details can be found on Trinity Industries Investor Relations site.

Cowen Insight: ‘Light Results But Not as Bad as They May Seem—We Sift Through the Noise’

Cowen and Company Freight Transportation Equipment Analyst Matt Elkott 

“The 2022 guidance midpoint is $0.95, but it excludes the divested highway business,” Cowen and Company Freight Transportation Equipment Analyst Matt Elkott reported. “Consensus is $1.21, but it’s unclear how many of the five consensus estimates still include highway. If half of them do, and assuming the same earnings from highway as in 2021, the relevant consensus would be closer to $1.07, compared to the guidance midpoint of $0.95 ($0.85-$1.05 range).”

Key Cowen Takeaways:

• “With our clarification above, guidance is not as bad as it may seem but still a little light, especially given the market improvement in leasing and manufacturing industry dynamics as well as some decidedly positive metrics in TRN’s [Trinity’s] earnings release.
• “The full-year adjusted 2021 EPS that represents a proper comparison to consensus is $0.62, which includes an adjusted $0.28 from the now divested highway business.
• “TRN received orders of 5,360 units in 4Q21, above our estimate of 3,900 units. Deliveries were 2,805 units, below our estimate of 3,100 units, partly due to supply chain and labor disruptions.
• “Manufacturing margin was 3.3%, up from -0.9% and above our estimate of 0.5%.
• “The lease renewal rate of 79% was the highest since 2014. FLRD [Future Lease Rate Differential] improved to 2.2%.
• “However, despite increases in fleet size and utilization, lease revenue decreased Q/Q. This could have something to do partly with the timing of the increases but also other factors.”

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