Greenbrier meets 2Q railcar order estimates, affirms guidance

Written by Stuart Chirls, Senior Editor
Greenbrier boxcars railcar manufacturing

Insulated boxcars being assembled at The Greenbrier Companies' manufacturing facility in Portland, Ore., July 2017. Railway Age photo by Stuart Chirls

The Greenbrier Companies reported new car orders and deliveries that met or were near estimates for the second quarter, along with gains in key financial indicators.

For the three months ending Feb. 28, the Portland, Ore.-based manufacturer booked orders for 3,400 railcars valued at more than $265 million. Deliveries totaled 4,900 units, 4,300 excluding Brazil, up from 4,000, while the backlog was 24,100 units with an estimated value of $2.3 billion, down from 26,500 at the beginning of the quarter.

Net earnings were $61.6 million, or $1.91 per diluted share, up from $26.3 million in 1Q18, on revenue of $629.3 million, up from $559.5 million. Earnings included a benefit of $29.2 million or 89 cents per diluted share related to federal tax changes passed by Congress in December. Adjusted pre-tax earnings was $79.1 million, or 12.6% of revenue. Gross margins rose to 16.7% from 16% the previous quarter.

For the railcar manufacturing segment, revenue was $511.8 million, up 13.4% from $451.5 million on higher delivery volume. Gross margins rose to 16.2% from 15.6% on due to product mix and higher syndication activity.

Revenue for wheels and parts climbed to $88.7 million from $78 million on higher wheel and component volume. Leasing and services revenue fell to $28.8 million from $30 million on lower syndications.

Greenbrier boosted its quarterly dividend 9% to 25 cents per share.

“The North American railcar market is improving but remains competitive,” said William A. Furman, Chairman and CEO. “Greenbrier’s performance reflects the creativity and flexibility of its people and the strength of our strategy in North America and around the world. Greenbrier’s international expansion now meaningfully contributes each quarter with new sources of revenue and diversification of backlog. Nearly half of year-to-date order activity was generated in markets outside of North America. We are replicating Greenbrier’s core business model as part of the railcar renewal cycles in Brazil and parts of Europe.”

The company reaffirmed its guidance for 2018:

  • Deliveries of 20,000-22,000 units including Greenbrier-Maxion (Brazil), which will account for up to 10% of deliveries;
  • Revenue of $2.4-2.6 billion;
  • Earnings per share of $5 including a second quarter benefit of 89 cents from tax changes and a lower tax rate.
In a note to investors, Cowen and Company analyst Matt Elkott said, “Results look impressive at first glance. GBX beat our and consensus estimates on revenue, operating income, EPS, and most importantly gross margin. Orders were in line with our estimate, deliveries just shy of our model. FCF (free cash flow) were negative but improved slightly versus 1Q, although we look for clarity on another slight AR increase. Order ASP was below our estimate, possibly due to international orders.
“GBX provided FY18 EPS guidance, excluding a 2Q tax benefit, of $4.11, compared to its prior guidance of $4.00. Given the new guidance reflects a lower tax rate, such guidance seems a bit light. We suspect this is partly attributable to the new tax rate going forward being higher than Street expectations and potentially some margin compression. We look for more tax rate and margin commentary. Our and consensus estimates are $4.10 and $4.17, respectively. The production and revenue guidance remained unchanged.

“GBX received orders for 3,400 units in the quarter, in line with our estimate and up 6% from 1Q. The order ASP was $77.9K, below our $84K estimate, possibly due to a higher mix of international orders than we had expected.

“Deliveries were 4,900 units, just below our estimate of 5,000 units, but up 11% from 1Q. Revenue of $629.3 million beat our and consensus estimates of $617.5 million and $612.8 million, respectively. The gross margin of 16.7% beat our and Street expectations of 15.7% and 16.5%, respectively. The manufacturing gross margin of 16.2% was above our estimate of 15.5%. This is very encouraging, but we look forward to hearing about the margin outlook, especially as the high-margin deliveries to Saudi Railway may be tapering off towards the end of the year, something that should be fairly well known to the Street.

“FCF were negative again but improved modestly from 1Q. AR increased slightly for the third consecutive quarter. We look to gain clarity on this and whether it is partly associated with slow collection on Saudi deliveries.

“EPS excluding a tax benefit was $1.02, above our and consensus estimates of $0.96 and $0.97, respectively.”

 

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