Greenbrier expects mid-2021 recovery

The second half of 2021 could be the time frame when the rail industry will “turn the corner” and see not only sustained higher volumes but also more opportunities for railcar lessors and manufacturers, executives with railcar manufacturer Greenbrier (NYSE: GBX) said Friday.

This turnaround will happen provided that the broader economy recovers successfully from the COVID-19 pandemic.

“Economic uncertainty persists across all our end markets, but there are pockets of recovery if longer-term trends are favorable,” said Greenbrier CEO Bill Furman during his company’s quarterly earnings call.

Should the economy and the rail industry’s performance improve, it would affect Greenbrier’s financial results for the fourth quarter of 2021 as well as the start of 2022, Furman said. Greenbrier’s fiscal year runs from October to September, and so its fourth quarter went from July through September.

Two policy developments globally could help spur railcar manufacturing, Furman said. One is that the European Commission is seeking to accelerate greenhouse gas reduction targets, which could bode well for freight rail because companies might need to seek lower-emitting freight transportation options. Japan is also considering revising its greenhouse gas reduction targets.

“Longer term, we will keep a close eye on what clean energy will mean to our customers to our industry and specifically to our business. Greenbrier remains in conclusion very healthy despite the market environment,” Furman said.

But with macroeconomic uncertainties still at play in the first two fiscal-year quarters for Greenbrier, such as the outcome of the U.S. presidential election, the company will be focusing on matching resources with market demand.

“Our management mode right now is simply to preserve our flexibility [and]…not cut too deeply into the bone. We’ve done a great job of sizing the company for the circumstances we’re in,” said Greenbrier Chief Financial Officer Adrian Downes. “We are focused on cash flow, liquidity and getting into that middle 2021 period. We have a lot of things that could cause the snapback for us to be a very quick and a very strong one.”

To cope with the downturn in 2020, Greenbrier closed 13 production lines and reduced its capacity by almost 40% or 6,500 employees. Its workforce totals just over 10,500 people today compared with more than 17,000 at the start of 2019.

Three employees in Mexico and one in Romania also died from the coronavirus, with three of the four having preexisting conditions. Greenbrier said it is continuing to execute its COVID-19 response plan, which has resulted in a low infection rate globally.

“Looking forward, we’re navigating a unique, challenging dynamic that brings considerable uncertainty. We have an industry downturn that’s been exacerbated by the pandemic, rising infection rates in all the communities and countries where we operate and a national election with broad ramifications,” said Chief Operating Officer Lorie Tekorius.

Tekorius continued, “These factors will likely have a negative sequential impact on our results in the first half of fiscal 2021. We are optimistic about a recovery beginning sometime in calendar 2021, which we expect to benefit our fiscal 2022. We’ve taken the necessary steps to ensure Greenbrier will exit the pandemic economy [as] a stronger and leaner organization, but that doesn’t mean it will be an easy next few quarters.”

Fourth-quarter financial results

Greenbrier’s railcar orders were roughly balanced between North American and European customers in the fourth quarter, with several hundred units for Brazil, Furman said. Its manufacturing backlog is at $2.4 billion for 24,600 units.

The company delivered 5,100 units in the quarter, including the syndication of 900 units. It received orders for 2,800 units valued at $250 million.

Meanwhile, Greenbrier’s wheels, repairs and parts operations were impacted by lower traffic volumes.

Greenbrier sustained a net loss of $0.1 million, or $0.00 per diluted share, in the fourth quarter. This includes a net loss of $1.9 million of integration-related expenses from its acquisition of American Railcar Industries and $3.6 million in severance expenses.