How to sustain business amid uncertain macroeconomic conditions was one of the prevailing themes woven through earnings calls this week for rail car manufacturers, lessors and rail equipment manufacturers.
But while high inflation and uncertainty about consumer sentiment are major concerns domestically, companies said they saw growth in their international footprints in the latest quarter.
“We thought long and hard as we were providing our guidance on deliveries and revenues, recognizing that there may be a bit of a take on what’s happening,” Lori Ticurius, Greenbrier’s president and CEO, said during Greenbrier’s earnings call on Wednesday to discuss what’s happening. The company’s fourth quarter financial results. “We and others in this space are very disciplined about how we think about production — not just ramping up production so we can put a big flash number out there and then see the need to restart production 12 or 18 months from now.”
Greenbrier is well aware of the cyclical nature of railcar production and purchase, so the goal is to determine the right pace for vehicle production, rather than “just trying to increase demand to get a bunch of deliveries for a certain period,” said Ticurios. This means that Greenbrier continues to evaluate its footprint. To ensure that it invests accordingly and in areas where the company can generate returns.
However, our expectations remain positive. “We expect North America and Europe to continue to see strong demand for railcar types that support new billings and lease renewals,” Ticurios said in prepared remarks. “We have an excellent near-term view for fiscal 2024 and are focused on maximizing the potential of our platform as we move toward our multi-year goals. We are confident in the long-term strategy we presented at the Investor Day because it focuses on things we can control and does not rely on an excessive demand scenario in optimism.
One way Greenbrier has sought to respond to customer needs amid current market conditions is to adapt its railcar production lines to accommodate large railcar refurbishment programs, Tikorios said, noting that although this work is not included in Greenbrier’s railcar number New rail deliveries, the service is actually accumulating profits. Refurbishment and conversion also benefit the environment by reusing or recycling components such as wheels, axles and brakes.
Greenbrier also decided to shift line space previously dedicated to the production of new rail cars toward an in-sourcing initiative to manufacture primary parts and subassemblies in-house. The first phase of this program was completed in the last quarter, according to Ticurios. Greenbrier expects to achieve its cost savings goals of $50 million to $55 million in fiscal 2025.
“Part of our DNA is solving our customers’ problems, and our customers don’t always need a new railcar,” said Greenbrier CFO Adrian Downes. “Sometimes they need a large number of refurbished and converted cars, and that’s where we step in and work with our long-term core customers and take care of them from that perspective rather than just trying to cram new cars down their throat.”
The bright spot for Greenbrier has been its presence outside the United States and Canada. International orders accounted for approximately 20% of railcar orders in Greenbrier’s fiscal fourth quarter. Greenbrier has also launched a leasing and syndication business in Europe, according to Brian Comstock, Greenbrier’s chief commercial and leasing officer.
Greenbrier secured new railcar orders of 15,300 units worth approximately $1.9 billion by the end of the fiscal fourth quarter, reflecting demand for most types of railcars except intermodal, Comstock said.
“The pipeline is still very strong despite some of the other statements about the recession. The recession is about intermodal,” Comstock said.
Greenbrier (NYSE: GBX) reported net income of $29.7 million, or 92 cents per diluted share, for its fiscal fourth quarter, compared with $34 million, or $1.02 per diluted share, in the same period last year. Greenbrier’s fiscal fourth quarter ended on August 31.
The railcar manufacturer and lessor saw a fleet utilization rate of 98% in the quarter for a fleet of 13,400 units, and received new railcar orders for 15,300 units valued at $1.9 billion. The railcar backlog reached 30,900 units with an estimated value of $3.8 billion.
GATX works to find the positives among the negatives
Meanwhile, macroeconomic and geopolitical uncertainty could be a constant source of concern for Bob Lyons, president and CEO of railcar leasing company and manufacturer GATX.
“What keeps me up at night are the larger macro factors that are outside of GATX’s control,” Lyons said. “We’ve seen a number of these things in the last couple of years, whether it’s the pandemic, the war in Ukraine, or some kind of unpredictable macro thing.” “It’s what keeps me up at night.”
“But I think what allows me to go back to sleep at night is that we’ve been through these things for 125 years, and we have a business on a really stable and strong basis right now where we can respond and accordingly, whatever macroeconomic challenges are thrown our way,” Lyons continued. .
Despite the macro concerns, GATX executives said during the company’s third-quarter 2023 earnings call earlier this week that North American fleet utilization remains high — at 99.3% at the end of the third quarter. Even if customers decide to return their cars, GATX can find another location for that railcar, according to Tom Elman, GATX’s chief financial officer.
“A non-renewal does not necessarily mean an unused car. Utilization has remained very high, which means any car that is not refurbished for any reason will be put back into service quickly,” Elman said during GATX’s third-quarter earnings call on Tuesday.
There are times, Lyons said, “particularly in this type of pricing environment, where some customers might say no. Given the diversity of our fleet and our commercial capabilities, we feel comfortable taking the car back and leasing it with the next customer. Obviously that will impact the renewal success rate. But In the end, any renewal success rate in the zip code we’re in today is really, really strong.
Moreover, periods of high inflation are not necessarily headwinds either, according to Elman. If a customer decides not to continue with the purchase of a railcar at this time due to rising interest rates, that customer may continue to lease instead.
“In new investing where you have the ability to decide whether to invest or not to invest, obviously higher interest rates make the investment threshold a little higher relative to the total investment and make it a little more challenging to invest in that type of environment,” Elman says. He said. “It’s important to note that this overall dynamic is beneficial because if it makes a new car more expensive, it makes the alternative of refurbishing an existing car more attractive and that’s the primary benefit you get.”
GATX (NYSE: GATX) net income was $52.5 million, or $1.44 per diluted share, for the third quarter of 2023, compared to $29.1 million, or 81 cents per diluted share, for the third quarter. From 2022.
GATX described the North American rail car leasing market as “strong,” with fleet utilization for GATX’s North American rail segment at 99.3% at the end of the third quarter, compared to 99.3% at the end of the second quarter and 99.6% in the third quarter. . Third quarter of 2022.
The sector achieved profits of $66.1 million, compared to $64.3 million in the same period last year.
GATX’s international rail segment saw a combined total of more than 1,400 newly built railcars for fleets in Europe and India, and the company said it was seeing higher renewal lease rates compared to expiration rates for the majority of car types.
GATX’s Rail International reported earnings of $28.2 million in the third quarter, compared to $14.5 million a year ago.
Wabtec focuses on business gains abroad
As Wabtec navigates a weak domestic market, the rail equipment manufacturer and technology provider is eyeing opportunities abroad, according to President and CEO Rafael Santana.
“North American truckloads remain low this quarter, resulting in locomotive stops being slightly higher than last quarter levels,” Santana said in prepared remarks during Wabtec’s third-quarter 2023 earnings call on Wednesday. “However, we continue to see significant opportunities around the world for demand for new locomotives, upgrades and digital solutions as our customers invest in solutions that continue to enhance reliability, productivity, safety and fuel efficiency.”
“Internationally, activity is strong across core markets, such as Latin America, Australia, South Africa and Kazakhstan, (where) significant investments in infrastructure expansion and development support a significant pipeline of international orders,” he later said.
In Wabtec’s domestic business, industry-wide North American railcar manufacturing continues to “show growth,” with about 45,000 cars to be delivered in 2023, Santana said.
In the third quarter, Wabtec’s (NYSE: WAB) sales rose 22.5% year over year to $2.5 billion, “driven by the strong performance” of Wabtec’s freight and transit segments, the company said.
Diluted earnings per share for the third quarter of 2023 using GAAP was $1.33, up 51.1% year over year. Adjusted earnings per diluted share were $1.70, up 39.3%.
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