Higher revenues for its rail manufacturing segment boosted rail equipment manufacturer Greenbrier’s (NYSE: GBX) quarterly profits, the company reported on October 25.
Greenbrier’s fiscal fourth-quarter adjusted net profit was $43.3 million, or $1.31/diluted share, compared with fiscal third-quarter 2019 adjusted net earnings of $29.6 million, or 89 cents/diluted share.
The fourth-quarter net earnings exclude an expense of $8.2 million, or 25 cents/share, associated with the costs of acquiring American Railcar Industries (ARI) in July.
Revenue in the fourth quarter hit a record $914.2 million, compared with $856.2 million in the third quarter of 2019, amid record railcar deliveries of 7,300 units.
Of Greenbrier’s revenue, revenue from its manufacturing segment offset losses from the leasing and services segment and the wheels, repair and parts segment.
Meanwhile, expenses in the fourth quarter were $60.6 million, compared with $54.4 million in the third quarter of 2019.
Greenbrier said its new railcar backlog totals 30,300 units with an estimated value of $3.3 billion. The backlog reflects the transfer of 10,600 units from ARI and the removal of 3,500 small cube covered hoppers for frac sand service.
“Greenbrier ended its fiscal 2019 with positive momentum. We enter fiscal 2020 supported by solid railcar order activity and improvements in operational areas that caused headwinds in 2019,” said Greenbrier Chief Executive Officer William A. Furman.
Greenbrier’s 2020 guidance
Furman provided preliminary guidance for 2020, citing approximately $15 million in synergies for the year stemming from its acquisition of ARI.
It expects deliveries for the year to total 26,000-28,000 units, which include approximately 2,000 units related to its operations in Brazil. It also anticipates annual revenue of approximately $3.5 billion, and diluted earnings per share (EPS) of $2.60-$3.00, excluding approximately $20 million to $25 million in expenses related to the ARI acquisition.
“Recent progress and opportunities in Europe and other international markets are positive. We are optimistic about long-term success in these markets. In North America, we completed the largest acquisition in Greenbrier’s history in late July. We have been actively welcoming new colleagues and integrating the new manufacturing operations,” Furman said. “… The ARI acquisition adds talent in manufacturing, engineering and other fields. With this long-contemplated transaction now complete, Greenbrier is one of the largest freight railcar builders and railcar service providers in the world.”
Revenue for 2019 totaled $3 billion, or $2.14/diluted EPS. Yearly net profit was $71.1 million.
Although the U.S. economy appears “sound,” the uncertainties over global economic health and U.S. trade relations are putting pressure on the market for rail equipment and manufacturing,” Furman said during his company’s fourth-quarter earnings call today.
“Even though the effects of PSR [precision scheduled railroading] and trade have been manifest in loadings in the rail network and improved velocity, much can be changed if the trade uncertainties are removed,” Furman said. “Year-over-year industry loadings have declined, and the projections for orders and deliveries are below trailing years. However, they’re still strong.”
Greenbrier leaders said the market for rail equipment in 2020 seems to be more for replacement railcars, although there is strong demand for tank cars and railcars that can hold plastic pellets, according to Lorie Tekorius, chief operating officer. The company estimates that about 70% of the company’s expected deliveries in 2020 are in backlog.
To trim costs, Greenbrier has been focusing on switching from fixed costs to variable costs, such as “stabilizing” its production lines to reduce indirect labor costs, Tekorius said.
“We believe we know how to pull the [cost] levers if we need to,” she said.
