Rail car manufacturer Greenbrier will cease production of rail cars at its Gunderson facility in Portland, Oregon, after the company wraps up a current production commitment.
Greenbrier (NYSE: GBX) is also undertaking a strategic evaluation of its marine business, which also operates in Portland. The marine business produces oceangoing barges.
The closure will result in a noncash charge of $24 million related to the impairment of long-lived assets, Greenbrier said Friday when it announced its fiscal 2023 first-quarter results.
Greenbrier’s flagship Gunderson facility has been in operation for more than 100 years. The announcement confirms local reports last November about the termination of rail car production at the facility. Greenbrier had also previously halted production at Gunderson at the start of the COVID-19 pandemic in April 2020.
“This is not a decision we’ve taken lightly, given our history of manufacturing rail cars in Portland. However, it’s an action that reflects our commitment to optimize the efficiency of our manufacturing footprint and deliver stronger margin,” Greenbrier President Lorie Tekorius said in prepared remarks to investors during an earnings call to discuss quarterly results.
The company is “engaged in a range of discussions” to determine the overall use of the Portland facility, she said.
Some of the factors that contributed to Greenbrier’s decision regarding Portland entailed shifting supply chain flows — including more freight moving to East Coast ports — and Greenbrier’s ability to compete for business.
“We need to be able to be competitive in the broader market, costwise for our customers. There has been kind of this transition to the middle part of the country and south, which is also very good from a logistics and transportation perspective to get our equipment to the customers that want to use it,” Tekorius said.
The decision to close the facility in Portland also doesn’t reflect a trend to shut down all of Greenbrier’s U.S. operations, including the facilities that Greenbrier acquired through its 2019 acquisition of American Railcar Industries.
“This was Portland specific. We are not intending to relocate all of our manufacturing to Mexico. There’s definitely a lot of benefits and value of having a U.S. manufacturing footprint. The facilities that we acquired … continue to perform well,” Tekorius said.
Prior to announcing its plans for the Portland facility, Greenbrier earlier in the week said it acquired a minority interest in GBX Leasing from the Longwood Group, which means that the leasing arm will now be a wholly owned subsidiary of Greenbrier. The action will help Greenbrier grow its leasing business and it provides an opportunity to access a broader view of the rail car equipment market instead of being solely an OEM builder, Tekorius said Friday.
Greenbrier expects new rail car production in the coming quarters to appear more like a plateau versus a roller coaster because there is still pent-up demand from shippers to use rail even though economic indicators might show some softening, according to Tekorius.
While it’s hard to determine the pace of demand among the different car types, producing a diverse range of cars benefits Greenbrier’s lease fleet as well as the company’s operating lessor customers and syndication partners, Tekorius said.
Looking ahead, although U.S. economic activity is expected to slow in 2023 with an estimated annual GDP growth rate of 0.2%, the economy appears to be normalizing after years of unprecedented demand spurred on by lockdowns and government stimulus efforts, Tekorisus said. Greenbrier expects elevated inflation and interest rates over the year, and consumer spending could determine the depth and timing of a slowdown.
Greenbrier believes the North American rail freight segment will be resilient through a mild recession, and it is optimistic that rail service will continue to improve, especially amid continued hiring efforts.
“Despite the short-term operating challenges, momentum is good entering calendar 2023. With strong rail car order activity and elevated lease rates, we’re confident in Greenbrier’s long-term strategy and our team’s execution,” Tekorius said.
Targets for the year and fiscal 1st-quarter financial results
Greenbrier plans to grow its long-term lease fleet by approximately 2,000 units this fiscal year, and it will focus on rail car types that will further diversify the fleet, said Brian Comstock, Greenbrier’s chief commercial and leasing officer. The company saw a fleet utilization rate of 98% in its fiscal first quarter, and its lease fleet grew to 14,100 units by the quarter’s end on Nov. 30, he said.
Greenbrier is planning to bring the fabrication in-house, which will provide long-term benefits and overall margin improvement despite some potential short-term costs, executives said.
“We’re optimizing our internal fabrication capacity, which will improve profitability by having more control over vital supply chains and address supply chain inefficiencies,” Tekorius said, noting that higher costs for outsourced components, as well as material shortages and delays and rail congestion in Mexico, impacted Greenbrier’s aggregate gross margin for the quarter.
Greenbrier produced 6,800 units in its first fiscal quarter, a 10% increase sequentially, with 2,300 of these units anticipated for the long-term lease fleet.
The company also secured new rail car orders of 5,600 units worth $700 million. This is a 17% increase from the fourth quarter, Comstock said, and the orders will extend production into calendar year 2024.
Meanwhile, Greenbrier’s global backlog was 28,300 units valued at $3.4 billion.
“We continue to see healthy rail car inquiries and orders for a variety of rail car types despite a slowing economy,” Comstock said.
Greenbrier sustained a net loss of $17 million, or 51 cents per diluted share, in the fiscal first quarter of 2023. Those results included an $18 million charge associated with noncash asset impairment.
Adjusted net earnings were $1.6 million, or 5 cents per adjusted diluted share, compared with adjusted net earnings of $10.8 million, or 32 cents per adjusted diluted share, in the fiscal first quarter of 2022.
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