Railcar manufacturer Greenbrier (NYSE: GBX) is eyeing a potential market recovery in the second half of 2021, provided that the COVID-19 pandemic doesn’t become worse.
The Oregon-headquartered company shared its outlook as it announced that it sustained a net loss of $10 million, or 30 cents per diluted share, in its fiscal-year first quarter that ended on Nov. 30 (see below).
“Greenbrier’s operating footprint is well suited for the market recovery, expected in the second half of calendar 2021. Steps we have taken in the past several years have resulted in a strong industry leadership on three continents. And the data we study suggests that when a return to normalcy does arrive that the rail business will react very quickly and there should be a snapback effect,” Greenbrier CEO Bill Furman said during his company’s fiscal-year first-quarter earnings call on Wednesday.
“Overall we’re cautiously optimistic about the U.S. economy and the world during the next 12 months. The recently enacted federal stimulus package, mass vaccine distribution, steady consumer spending and the promise of a robust infrastructure package emerging from a new Congress and administration in Washington are all favorable developments,” Furman said.
He continued, “However, if the pandemic does not abate, and business shutdowns continue or increase, momentum could stall and delay the recovery. … All economies worldwide rely on rail transportation as an important vitally strategic and environmentally friendly industry. We expect an industry recovery in the rail to be a bellwether for the economy’s broader recovery.”
Greenbrier said it is able to withstand today’s weaker market conditions in part because the company’s scale has broadened since the Great Recession occurred over a decade ago.
“Our backlog today is more than five times larger than it was as of the end of 2010. Our stronger market position is reflected in our share of North American industry railcar orders in the first nine months of calendar year 2020 and in the diverse types of railcars we are building,” the company said.
Having a backlog enables Greenbrier’s factories to operate at base rates so that it’s easier for the company to scale up when market demand returns, according to Furman.
Regulatory changes in Europe favoring lower emission-emitting transportation modes will also inevitably benefit companies like Greenbrier, the company said.
“In Europe, broad macroeconomic reforms to address climate change are ushering in an era of modal shift for freight as the continent moves from polluting and congested road travel to clean and efficient rail service. This should generate significant market growth in the years to come,” Greenbrier said.
To guard against COVID-19, Greenbrier said it has been adhering to preventive and remedial actions as recommended by the U.S. Centers for Disease Control and Prevention. The company said it maintains a low incidence rate of COVID-19 among employees, and it is taking measures such as sending reports to board members on COVID incident rates. Greenbrier also acknowledged that five employees have died from COVID-19.
Despite the unfavorable market conditions, Greenbrier said its railcar order backlog of 23,900 units and the estimated value of $2.35 billion will help support the company through the start of the new calendar year.
“Although a challenging operating environment persists at least through the first half of fiscal 2021, our $2.35 billion backlog provides a baseload for our manufacturing operations and visibility into forward production requirements,” Furman said. Of that railcar order backlog, $260 million or 2,900 railcar orders occurred in the first quarter.
“We will continue to adjust our manufacturing footprint based on our outlook, while also ensuring we do not constrain our ability to scale capacity as demand increases. New order inquiries continue as rail traffic increases and velocity declines. This positions us well for the market improvements we expect later in calendar 2021,” Furman said.
First-quarter financial results
For the first quarter ending Nov. 30, Greenbrier sustained a net loss of $10 million, or 30 cents per diluted share, compared with $5.5 million, or 16 cents per diluted share, for the same period in 2019. The company attributed the loss to a lower gross margin as a result of fewer deliveries.
Quarterly revenue was $403 million, compared with $636 million in the prior year, while costs were down to $43.7 million compared with $46.3 million.
Revenue gains for Greenbrier’s leasing and repairs segments weren’t enough to offset losses in the company’s manufacturing segment. Manufacturing revenue was $308.7 million compared with $549.7 million on fewer railcar deliveries, which in turn was brought about by a weak demand environment, Greenbrier said.
Greenbrier delivered 3,100 railcars in the quarter, including 400 units in Brazil, according to Greenbrier COO Lorie Tekorius. Tekorius also said orders from international sources accounted for about 30% of order activity in the first quarter.
“Internationally, order activity continues to recover with both our European and Brazilian operations largely booked into fiscal 2022,” Tekorius said.
“The pandemic compelled us to take a series of additional steps to protect the enterprise and to ensure Greenbrier maintained the strongest possible financial position. We serve markets with cyclical demand that are also uniquely exposed to broader economic forces,” Furman said during his company’s quarterly earnings call on Wednesday. “This makes flexibility and adaptability an integral to Greenbrier’s survival — not only its survival but its long-term growth, recovery and well-being.”
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