Release Date: July 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Greenbrier Companies Inc (GBX, Financial) reported its highest earnings per share and EBITDA in over 4.5 years, reaching pre-pandemic levels.
- The company generated over $820 million in revenue during the third quarter, with a consolidated gross margin of 15.1{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}.
- Greenbrier secured new railcar orders of 6,300 units worth $830 million, with a strong backlog of 29,400 units valued at $3.7 billion.
- The company was honored by USA TODAY as one of America’s Climate Leaders for 2024 due to its successful carbon reduction efforts.
- Greenbrier’s lease fleet utilization remained stable at 99{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, and the company expects to invest approximately $265 million on a net basis in the fleet this year.
Negative Points
- Third quarter manufacturing gross margin of 10.9{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} showed only a modest increase from Q2, indicating room for improvement.
- Production rates were impacted by a few production line changeovers and ongoing border congestion, causing delays.
- The company faces challenges in maintaining stable production and meeting customer needs amid economic and geopolitical uncertainties.
- Greenbrier’s leasing segment experienced lower margins due to externally sourced railcars intended for syndication.
- The North American railcar market remains stable but is subject to economic and geopolitical uncertainties, which could impact future demand.
Q & A Highlights
Q: Your book-to-bill numbers seem to be holding and notably better than the overall industry. Can you speak to anything Greenbrier-specific that may be going on and how you expect these trends to move forward?
A: Brian Comstock, Executive Vice President & President, The Americas: The mix of production we have compared to the industry allows us to address diverse customer needs. Our lease origination capabilities also give us flexibility. We see the cadence of orders continuing into Q4, similar to the past three quarters.
Q: On the leasing side, is the lower leasing segment margin due to externally sourced railcars with an intent to syndicate going to become a common trend?
A: Justin Roberts, Vice President, Corporate Finance & Treasurer: This is opportunistic and hard to predict but may occur more often moving forward. It provides our syndication partners with additional assets that may have different qualities.
Q: How do you feel about North American order flow and demand supporting production rates into 2025?
A: Brian Comstock, Executive Vice President & President, The Americas: The cadence is strong and diverse, with demand for tank cars, covered hoppers, autos, and boxcars. We see potential tailwinds from intermodal as well.
Q: Can you walk us through the mid- and long-term cost-out initiatives in your manufacturing process and any expected savings?
A: Justin Roberts, Vice President, Corporate Finance & Treasurer: We have achieved $20 million in annual savings from capacity rationalization and are on track for $50 million in savings from insourcing initiatives by spring 2025. The main driver of changes will be production rates and product mix.
Q: Do you feel confident about a steady production cadence into the first half of next year?
A: Brian Comstock, Executive Vice President & President, The Americas: We have strong visibility on order cadence through the first two quarters into the third quarter, consistent with current levels.
Q: Can you discuss the impacts on third-quarter production and early read into next year’s production levels?
A: Lorie Tekorius, President, Chief Executive Officer, Director: We had a few changeovers in Q3, which are now complete. We expect steady demand and production levels similar to 2024, depending on second-half orders.
Q: How should we think about the level of leasing revenues and their development over the near term?
A: Justin Roberts, Vice President, Corporate Finance & Treasurer: We expect steady growth in recurring revenue, investing $50-$70 million per quarter in assets. Lease renewals will continue to be repriced to current market rates.
Q: How do you manage the mix and credit quality in your leasing portfolio?
A: Brian Comstock, Executive Vice President & President, The Americas: We focus on high-quality, high-credit assets and balance our portfolio internally and with syndication partners. This disciplined approach ensures stability and growth.
Q: What are your thoughts on production scalability and capacity for next year?
A: Lorie Tekorius, President, Chief Executive Officer, Director: We have significant capacity and aim for stable production aligned with customer needs. We expect production levels in 2025 to be similar to 2024, depending on order intake.
Q: Can you provide more details on the leasing revenue growth and its impact on overall financial performance?
A: Justin Roberts, Vice President, Corporate Finance & Treasurer: Leasing revenue has been steadily increasing, contributing to stable, higher-margin revenue streams. This growth helps mitigate market cyclicality and supports long-term financial stability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
