Lower revenue and operational inefficiencies caused by production delays dragged first-quarter profits lower for rail equipment manufacturer Greenbrier (NYSE: GBX).
Net earnings for the first quarter of 2020 totaled $.7.7 million, or $0.23/diluted share, compared with nearly $18 million, or $0.54/diluted share, in the first quarter of 2019. The net earnings include expenses associated with the acquisition of American Railcar Industries. Greenbrier’s first quarter runs through Nov. 30. Net earnings in the fourth quarter of 2019 were $35.5 million, or $1.06/diluted share.
First-quarter revenue of $769.4 million compared with $604.5 million in the first quarter of 2019 and $914.2 million in the fourth quarter. Greenbrier attributed the drop between the first quarter of 2020 and fourth quarter of 2019 to lower railcar deliveries. The fourth quarter was also a record quarter for revenues for the company.
Selling and administrative expenses were $54.4 million in the first quarter of 2020, compared with $50.4 million in the first quarter of 2019 and $60.6 million in the fourth quarter.
“Greenbrier’s uneven performance in the first quarter of fiscal 2020 fell short of our expectations,” said Greenbrier CEO William A. Furman. “Operating inefficiencies and component supply issues triggered lost production days and reduced production at one of our newly acquired ARI facilities. Therefore, a higher proportion of quarterly railcar deliveries originated from our 50/50 joint venture at GIMSA in Mexico, which impacted net earnings. The operating inefficiencies and supplier issues are being addressed.”
Greenbrier received orders for 4,500 diversified railcars worth $450 million in the first quarter amid international demand, including a multiyear order for new railcars in Brazil and demand in Europe and Saudi Arabia. The company’s backlog was 28,500 units worth an estimated $3.1 billion. New railcar deliveries in the first quarter totaled 6,200 units.
Looking ahead
For its fiscal 2020, Greenbrier expects deliveries of 26,000 to 28,000 units, which includes approximately 2,000 units that are part of the multiyear deal in Brazil. The company expects total revenue of approximately $3.5 billion and adjusted diluted earnings per share of $2.60 to $3. That earnings-per-share figure excludes approximately $20 million to $25 million of pretax integration and acquisition expenses from the ARI acquisition, the company said. These projections are in line with the company’s expectations from October, when Greenbrier released its fourth-quarter 2019 earnings.
“As we look forward, flexibility is one of our key differentiators, and managing through these types of uncertain environments is central to running a company in a cyclical industry,” Greenbrier Chief Operating Officer Lorie Tekorius told investors during the company’s first-quarter earnings call today. “Our extensive experience and long-term focus underscore the importance of maintaining a core, experienced workforce. We will not ramp up and down at the drop of a hat.”
Although renewal rates have slowed because fewer railcars are getting renewed right away, railcar orders haven’t dropped as much as anticipated in this current market environment, Tekorius said. Despite lower rail volumes and more railcars in storage, one side effect of precision scheduled railroading is that in some situations, it’s now the customer — instead of the railroad — who’s responsible for securing needed railcars, she said.
Greenbrier’s customers haven’t shied away from railcar purchases, and customers view the purchases as long-term investments that have lifespans of several decades, executives said. Still, Greenbrier is looking at its models internally to see how it contributes to the balancing of supply and demand in the marketplace, Furman said.
