FreightCar America eyes improving market conditions

With one quarter in 2021 under its belt, railcar manufacturer FreightCar America believes its new manufacturing footprint, coupled with positive market conditions, will make 2021 a good year for the company.

“The year 2021 is about building momentum in support of expansion and profitable growth as we move forward. We’re very pleased with how the new operation is performing … We believe that we are in a good position to start winning,” FreightCar America President and CEO Jim Meyer said during his company’s first-quarter earnings call Monday.

FreightCar America sees a number of tailwinds that could support the company, including declining storage numbers for railcars and higher rail traffic volumes.

However, steel prices are more than double the past year and are at all-time high levels, and so the company is looking to ways to mitigate costs, Meyer said.

“In addition to the tight and expensive steel supply, the competitive landscape continues to be intense with manufacturers anxious to fill their factories,” Meyer said. “The good news is that orders are increasing and demand recovery seems to be gaining momentum. However, during the near term, pricing intensity and steel cost will put pressure on margins until things begin to fall back into balance.”

With FreightCar America focusing all its attention on the Castaños facility in Mexico now that it has closed the Shoals facility in Alabama, the company expects its capital expenditures to be lower in 2021 than 2020, at between $2 million and $3 million.

The company plans to construct its own fabrication shop, which Meyer says will enable FreightCar America to make the large majority of its fabrications in-house starting within 12 months. It is also constructing an addition to its wheel and axle shop. The shops will be fully operational in early 2022.

FreightCar America is also in the early stages of planning to add more lines at the Castaños facility, although no timeline or details about costs have been announced.

FreightCar America booked 305 railcar orders in the first quarter of 2021, compared with 90 railcars in the fourth quarter of 2020 and 300 in the first quarter of 2020. Inquiry levels were also double from last year, “with a good diversity of railcar types, including conversions,” according to FreightCar America Chief Commercial Officer Matt Tonn.

Although FreightCar America is facing high steel costs, management said its manufacturing footprint enables the company to be more selective on orders. The Castaños facility also has the ability to change what car types it produces more quickly and efficiently, according to Tonn. This should bode well in a market that could soon be seeking to replace aging cars.

“We believe further activity in the railcar sector is ripe for a strong pickup. … Portions of the rail fleet are nearing end of life and increased scrapping of obsolete railcars is expected to continue due to comparatively high scrap steel prices,” Tonn said. “These factors, coupled with the improved dynamics of the end markets we serve — industrials, metals, chemicals and other commodities, are all positive signs of an overall improved railcar demand environment.”

FreightCar America raised its delivery outlook for 2021 to 1,600 to 1,750 railcars from 1,400 to 1,600 railcars.

The company sustained a net loss of $38.4 million, or $1.92 per diluted share, in the first quarter of 2021. This included $6.7 million of restructuring charges and $22.1 million in a noncash charge related to the change in fair market value of warrant liability.

In the first quarter of 2020, FreightCar America sustained a net loss of $16.9 million, or $1.29 per diluted share.

Revenue was $32.4 million in the first quarter, compared with $5.2 million year-over-year.

Adjusted earnings before interest, taxes, amortization and depreciation (EBITDA) was a loss of $1.3 million in the first quarter of 2021, compared with a loss of $12.9 million in the first quarter of 2020 and an EBITDA of $1.7 million in the fourth quarter of 2020.