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Trinity Industries, GATX and Wabtec see opportunities amid headwinds

All 3 companies looking at pace of rail service improvements

GATX, Trinity Industries and Wabtec recently reported quarterly earnings. (Photo: Jim Allen/FreightWaves)

Rail equipment manufacturers and rail car lessors see 2023 as a year of opportunities despite lower North American rail volumes in the first quarter. Here’s what officials said about the rail car market during recent earnings calls. 

Trinity Industries upbeat on rail car leasing market

Trinity Industries is optimistic that pent-up demand to move volumes will help support rail car leasing in 2023, even though U.S. rail volumes are down year over year. That decline, though, is partly due to sluggish volumes for intermodal, which Trinity doesn’t have exposure to as a lessor.

“We still believe there’s pent-up demand for the rail traffic loads that want to go onto rail that have not been able to. We’re encouraged by the railroads improving their overall service metrics,” President and CEO Jean Savage said during Trinity’s first-quarter 2023 earnings call on Tuesday.

“We don’t think that [rail service improvement] will come to fruition overnight, but we think that will help in the long term. And when you look at overall the pricing for leasing, we’re not surprised. Again, when we look at the cost of a new car and what those rates will be, [they are] still a lot higher, [with] a lot of headroom from the existing lease freight prices.”


In prepared remarks during the call, Savage said she expects Trinity’s (NYSE: TRN) operating margins to be significantly higher amid a manufacturing backlog and a strong rail car lease environment. 

“Near-shoring activities, trucking labor headwinds and heightened interest in ESG continue to foster pent-up demand for rail transportation,” she said. “Even as railroad service continues to improve, the pent-up demand will continue to drive more rail volume despite uncertain macroeconomic conditions.”

Those tailwinds have contributed to pulling certain types of rail cars out of storage, including covered hoppers for agricultural markets and open hoppers for construction materials, metals and coal. Tank cars are also at their lowest level of storage since the Association of American Railroads began tracking this metric in 2016, Savage said. 

“While these issues, along with continued rail service and supply chain issues, continue to affect us through the first quarter, we see improvement across the board,” Savage said. “We are optimistic that we are through the worst. All that to say, we expect to see operating margin improve substantially through the year and expect high-single-digit margins in this segment.”


Trinity delivered 4,045 rail cars and received orders for 2,690 in the first quarter. Its backlog of 30,915 rail cars is valued at $3.7 billion.

Meanwhile, inquiry levels for new rail cars that would replace older ones have been consistent, particularly for covered hoppers, gondolas, auto racks and box cars. 

“The inquiry activity still remains consistent with our belief of replacement demand. And a lot of that is driven by certain car types,” Savage said. “And I will say that certain customers or some customers are delaying the decision to go ahead and place the order as they look at the macroeconomic uncertainty. But again, overall, the inquiries would support the replacement demand for us.”

Lease fleet utilization was 98.2% in the first quarter, compared with 96.5% year over year. This increase was supported by a tight existing rail car market, higher interest rates and an inflationary environment, Savage said.

First-quarter revenue was $641.7 million, compared with $472.7 million year over year on higher volumes and improved pricing for external deliveries in Trinity’s Rail Products Group. 

Net income from continuing operations was $7.5 million in the first quarter of 2023, compared with $7.3 million last year. Adjusted diluted earnings per share was 7 cents, compared with 3 cents a year ago.

GATX: Pent-up demand will support lease activity and renewal rates

Rail car manufacturer and lessor GATX also thinks pent-up demand will drive interest for new and leased rail cars, although the company was less bullish on demand coming from organic growth in North American rail traffic because of improved market conditions.

“Over the course of the last couple years, as there has been fleet attrition in general across the North American network, the recovery and rates have really been more one that’s been driven by the supply side than it has on the demand side,” President and CEO Bob Lyons said during GATX’s first-quarter 2023 earnings call on April 25. “So, as we’ve seen total fleet counts come down [and] utilization go up, that — along with interest rates and the price of new cars — has been the primary driver to the rate lift. What we haven’t seen is material carload growth, and that would certainly be welcome.


“We think about carload growth potentially coming from a couple areas. One, just from economic activity, and the other being the customers moving more product by rail and shifting from truck and hopefully service levels improve. We believe there is freight on the sidelines that can go from truck to rail. We hear that from our customers all the time, that they would move more by rail if service levels improved. So, we think there’s some pent-up demand there.”

GATX’s (NYSE: GATX) customers welcome recent rail service improvements but are still waiting for those improvements to sustain themselves over time, according to CFO Tom Ellman. 

Meanwhile, rising costs for new rail cars give “leeway and latitude” to look at lease rates for existing rail cars, Lyons said. Interest rates are also factoring into pricing lease rates.

“I think it speaks to what we have seen in terms of a very bifurcated market, where [for] the existing cars that are in place, customers are very keen to hold on to those, and so as we move rates up to reflect high utilization, some overall fleet attrition … rising interest rates, the new car costs, they’re holding on to those cars,” Lyons said. 

“Placing new cars under the supply agreement, particularly on the tank car side, is a bit more challenging, but fortunately we have a big commercial network and a big customer base and we’re able to do that, but that is a heavier lift than renewals.”

GATX’s net income was $77.4 million, or $2.16 per diluted share, in the first quarter of 2023, compared with $75.8 million, or $2.10 per diluted share, in the first quarter of 2022. 

Total revenues were $338.9 million, compared with $316.6 million year over year. Of that, lease revenues were $302 million in the first quarter of 2023, compared with $283.3 million in the first quarter of 2022.

Fleet utilization for GATX’s Rail North America segment was 99.3%, compared with 99.3% year over year and 99.5% sequentially. Its renewal success rate was 77.9% in the first quarter of 2023, compared with 80% year over year and 85.7% sequentially.

GATX has placed over 4,600 rail cars from its 2018 supply agreement with Trinity Industries, and it has placed all 7,650 rail cars from its 2018 supply agreement with The Greenbrier Cos. GATX has also placed nearly 1,500 rail cars from its 2022 supply agreement with Trinity.

Lyons said the secondary market for rail cars “remains robust,” with remarketing income of approximately $45 million generated for GATX’s North American segment in the first quarter of 2023. The company also identified “attractive investment opportunities” and acquired over 1,000 cars in the secondary market. These cars have long-term leases with attractive rates, he said. 

Wabtec: Technology can help make railroads safer

As the broader rail industry looks at how to improve safety following heightened interest in the subject in the wake of recent derailments, one way that Wabtec can help inform the discussion is to talk about the connection between automation and safety improvements, Wabtec officials said during the company’s first-quarter 2023 earnings call on April 26.  

“Some of it comes down to potential introduction of new products and technologies, such as products that allow the detection in anticipation of failure, whether that’s at the locomotive level, whether that’s at train level,” Wabtec President and CEO Rafael Santana said. 

“The other one is the integration of some of these systems. You’re well aware of our Trip Optimizer, which is a product that we have largely deployed not just in North America, but internationally as well. The combination of that with [positive train control, a safety technology] and some other elements really allow you to fundamentally operate a train largely with what we would call an autopilot.”

This integration not only helps railroads dispatch trains but also ultimately manage the network because the technology makes dispatching more efficient and responsive, Santana said. 

Wabtec (NYSE: WAB) is also working with customers on technologies that would further detect and anticipate any failure of systems or subsystems involved in operating a train. These technologies, which aim to be predictive, measure not only thermal patterns but also vibration patterns and other patterns, he said.

“We see an opportunity here to continue to drive innovation in the space. I think we have a set of solutions that can continue to help customers drive efficiency, productivity, emissions and rail safety,” Santana said.

Looking at the year ahead, Wabtec sees “underlying business momentum.” Despite lower North American carloads in the quarter, locomotive parkings are slightly lower than last year, Santana said. Whether locomotive parkings will continue to fall later in the year will depend on improvements for both velocity and dwell times.

“We continue to see significant opportunities in demand for modernizations and new locomotives as our customers invest in solutions that continue to drive reliability, productivity and fuel efficiency,” Santana said in prepared remarks.

Demand for rail cars is also strong, he said. 

“We believe we have an opportunity to continue building significant long-term momentum, with growth in modernizations in locomotive sales, in rail car belts and in digital solutions,” Santana said. “Internationally activity also continues to show positive signs, and we continue to grow our install base of locomotives around the world.”

Wabtec reported sales of $2.2 billion in the first quarter, up 14% year over year amid higher sales in its freight and transit segments.

Adjusted earnings per diluted share were $1.28 in the first quarter of 2023, up 13.3% year over year.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.